Government of Canada Digital Economy Strategy Consultation. Submission of Bell Canada

Transcription

1 Government of Canada Digital Economy Strategy Consultation Submission of Bell Canada 9 July 2010

2 Table of Contents Page SUMMARY INTRODUCTION BUILDING A WORLD-CLASS DIGITAL INFRASTRUCTURE Regulatory Fees Wireless Spectrum Policies Commission Regulations: Forced Access to Next Generation Networks Foreign Ownership Restrictions Tax Policies BUILDING DIGITAL SKILLS FOR TOMORROW CAPACITY TO INNOVATE USING DIGITAL TECHNOLOGIES AND GROWING THE INFORMATION AND COMMUNICATIONS TECHNOLOGY INDUSTRY DIGITAL MEDIA: CREATING CANADA'S DIGITAL CONTENT ADVANTAGE MONITORING AND SETTING TARGETS FOR THE DIGITAL ECONOMY STRATEGY SUMMARY OF RECOMMENDATIONS... 27

3 SUMMARY E1. Bell welcomes the Government's commitment to develop a digital economy strategy and the launch of the consultation toward that goal. Bell has supported the need for a national information and communications technologies (ICT) strategy since the Telecom Policy Review (TPR) Panel consultation in In 2008, Bell reiterated its support for a national ICT strategy in the Competition Policy Review (CPR) Panel consultation. The current consultation and the forthcoming strategy are critical to implementing Canada's economic and competitiveness policy as set out in the Government's economic plan, Advantage Canada. As Canada's largest communications company, and a leader in the provision of services employing ICTs, we are committed to supporting the Government's strategy. E2. A key issue to be addressed by the Government's digital economy strategy is that Canada's productivity growth lags other countries, particularly the United States. Differences in national spending on ICT account for over half of the gap in productivity growth. To understand this gap, the digital economy strategy must consider two perspectives: digital, or ICT, infrastructure (supply) and ICT usage (demand). E3. Canada's digital infrastructure, and particularly communications networks and services, is clearly not an obstacle to ICT adoption and growth. It is world-class today and a key component to creating a successful digital economy strategy. There is an ongoing need for investment, however, so that Canada s digital infrastructure can continue to be world-class in the years to come and as technology evolves. The pace and extent of these investments by network providers depend, in large part, on Canada having an encouraging policy and regulatory environment. Absent this, investments will be at risk, particularly in rural areas where the potential for network providers to realize an acceptable return on investment is marginal. E4. While Canada does very well on digital infrastructure, ICT adoption by Canadian businesses, particularly small and medium sized enterprises (SMEs), is below levels found in other countries. Stimulating ICT usage among Canadian businesses, therefore, presents the most promising approach to improving Canada's productivity growth. E5. This submission provides the background and support for a number of recommendations which will facilitate ongoing digital infrastructure investments, as well as stimulate ICT adoption among Canadian businesses.

4 Government should undertake a review of all regulatory and government fees with the objective of eliminating them or reducing them significantly as a means to encouraging additional or accelerated investments by infrastructure providers. 2. The Government's digital economy strategy should adopt a policy of encouraging investments in next generation networks by allowing infrastructure owners to negotiate access to their networks by competitors on a commercial basis rather than regulating such arrangements. 3. Cabinet should closely monitor the upcoming 1 September 2010 Commission decision regarding forced access of next generation networks and if the Commission does not remove the forced access requirement, then Cabinet should vary the Commission's decision so that it promotes the network investments that Canada's digital economy requires. 4. Future wireless spectrum auctions should not employ spectrum set-asides and other distortional rules so that auction prices will not be artificially inflated. Government should deploy auction proceeds for the direct benefit of the digital economy. 5. The digital economy strategy should encourage full spectrum trading in secondary markets, provide for longer-term licences with higher expectations of renewal, permit greater predictability and longer-range planning on allocations and auctions, and eliminate the wireless condition of licence regarding research and development (R&D) expenditures. 6. If Government modifies foreign ownership limits, then they should be raised to 49% for telecommunications and broadcasting. Foreign ownership limits must apply symmetrically to all telecommunications and broadcasting operators. 7. Government should increase the capital cost allowance (CCA) rate to 50% for the classes of assets most closely associated with broadband networks as an incentive to accelerate ICT infrastructure investments. For capital investments in those areas identified by Industry Canada as "underserved" as part of the Broadband Canada initiative, a CCA rate of 100% should be introduced to encourage investment in rural areas. 8. The Government's digital economy strategy should ensure that the Canada Revenue Agency (CRA), in its administration of the scientific research and experimental development (SR&ED) program, appropriately recognizes the role that software and applications development play in the creation and adoption of ICTs and considers these projects eligible for SR&ED tax credits. 9. Canada's digital economy strategy should consider funding education and workplace initiatives in the following areas to increase the supply of skilled ICT workers: building ICT career awareness among Canadian youth; increasing the ICT components of primary and secondary school curricula; adding to the ICT infrastructure at primary and secondary schools; recruiting international students to technical university programs and providing incentives for graduates to remain in Canada; and broadening the accreditation of skilled internationally educated workers.

5 In its role as a lead ICT user, Government should consider implementing a purchasing program in which it identifies and implements innovative ICT solutions to improve Government operations and services. 11. Government should adapt its procurement policies so that they reduce "do-ityourself" ICT initiatives, increase use of "whole Government" ICT projects, and increase use of commercial ICT standards rather than Government specific standards. 12. Government should examine existing Government-mandated Canadian content funding mechanisms with a view to modernizing them and eliminating the associated investment drag on fee-payers, i.e., cable and satellite television companies. 13. Setting targets for the digital economy strategy is ill-advised given the rapid pace of change in the underlying technologies and consumer behaviours. Government should monitor the progress of relevant inputs, outputs and outcomes to its digital economy strategy and adapt its policies as necessary. E6. These recommendations for Government will create a policy and regulatory environment that encourages the private sector to invest further in next generation network infrastructure and Canadian businesses and Government to increase their adoption and use of ICTs. Implementing the recommendations will yield benefits in the ICT sector itself and across the entire economy, thereby increasing productivity, growth and prosperity in Canada.

6 1.0 INTRODUCTION 1. BCE (hereinafter, Bell) is pleased to provide this submission with respect to the Government of Canada's consultation on the digital economy strategy. As Canada's largest communications company and a leader in the provision of services employing information and communications technologies (ICT) we are committed to supporting the Government's strategy. With approximately 50,000 employees and 22 million customer connections, Bell delivers stateof-the-art communications services to business and residential customers across Canada. Bell's approximately $3 billion in annual capital investments are greater than any other Canadian company outside of the oil and gas industry. At approximately $1 billion annually, our spending on research and development (R&D) ranks Bell as one of the largest innovators in Canada. These sustained investments in capital and R&D have allowed Bell to transform itself from a traditional telephone company into a national ICT solutions provider. 2. Bell's influence on the digital economy goes beyond its direct investments and the services it provides to its customers. Bell is also a sophisticated and demanding customer and partner to a broad network of Canadian ICT providers. Whether it is equipment manufacturers, software developers or professional service providers, Bell supports an extensive Canadian digital ecosystem. This role as partner, customer, integrator and aggregator allows us to contribute to the success of smaller Canadian ICT companies, stimulate innovation and bring the best that Canada and the world has to offer to Canadians. It also provides us with an informed and unique perspective on which to base our inputs to the Government's consultation. 3. Bell welcomes the Government's commitment to develop a digital economy strategy and the launch of the consultation toward that goal. Bell has supported the need for a national ICT strategy since the Telecom Policy Review (TPR) Panel consultation in In 2008, Bell reiterated its support for a national ICT strategy in the Competition Policy Review (CPR) Panel consultation. The current consultation and the forthcoming strategy are critical to implementing Canada's economic and competitiveness policy as set out in the Government's economic plan, Advantage Canada. 4. To summarize the central issue under consideration in this consultation, research by the Expert Panel on Business Innovation (the Innovation Panel) 1, the Institute for Competitiveness & 1 Innovation and Business Strategy: Why Canada Falls Short, Report of the Expert Panel on Business Innovation, Council of Canadian Academies, June 2009.

7 - 2 - Prosperity 2 and others shows that: 1) Canada's productivity growth lags other countries, particularly the United States, and 2) ICT spending levels account for over half of the gap in productivity growth. Breaking ICT into supply and demand components, the evidence confirms that Canada's ICT infrastructure (i.e., ICT supply) is among the best in the world. The research is equally compelling that ICT adoption (i.e., ICT demand) by Canadian businesses, particularly small and medium sized enterprises (SMEs), is below levels found in other countries. Generally, ICT adoption at the household level is not considered to be a problem in Canada. 3 Therefore, it may be concluded that stimulating ICT usage among Canadian businesses is the most promising approach to improving Canada's productivity growth. 5. When considering possible actions to take to stimulate ICT usage, it is recommended that the Government adopt the approach put forward by the industry experts on the TPR Panel and the orientation adopted by the Government itself for the telecommunications industry. The TPR Panel advised: The Panel agrees that it is essential for Canada to develop a national ICT adoption strategy. Consistent with the approach taken to the other issues it was asked to address, the Panel believes this strategy should rely on market forces to the maximum extent possible. Government intervention should take place only when market forces alone are unlikely to achieve economic and social objectives. As in the case of telecommunications regulation and broadband connectivity, government interventions that are part of Canada's national ICT adoption strategy should be well targeted, proportionate to their objectives, effective in relation to cost, and technologically and competitively neutral Allowing market forces customer behaviour, competitive rivalry and technology evolution to dictate the pace and direction of the digital economy's development would also be consistent with the Governor in Council's Policy Direction to the CRTC (the Policy Direction). 5 The Policy Direction requires that the Commission, when exercising its powers under the Telecommunications Act (the Act), "rely on market forces to the maximum extent feasible", and "when relying on regulation, use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent Beyond the recovery, Institute for Competitiveness & Prosperity Report on Canada 2010, June Canada has high levels of wireline and wireless telephone availability, Internet adoption, broadband Internet access, computer adoption, and cable television adoption. There may, of course, be exceptions such as rural and remote communities, Canadians with disabilities and lower income households. Telecommunications Policy Review Panel Final Report 2006 (TPR Report), page 7-4. Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, P.C , 14 December 2006 (the Policy Direction) issued by the Governor in Council.

8 - 3 - necessary to meet the policy objectives". The Policy Direction is directly relevant to the Government's digital economy strategy because the services regulated under the Act represent about one-quarter of Canada's ICT sector The following sections provide comments on each of the discussion themes identified in the Consultation Paper on a Digital Economy Strategy for Canada: Improving Canada's Digital Advantage; Strategies for Sustainable Prosperity (the Consultation Paper) 7 as well as issues related to setting targets and monitoring the strategy's progress. It concludes with a summary of Bell's recommendations for the Government's digital economy strategy. 2.0 BUILDING A WORLD-CLASS DIGITAL INFRASTRUCTURE 8. Recently, there has been heightened interest in the international competitiveness of Canada's digital infrastructure. 8 Specifically, concerns have been raised about the performance of Canada's wireless and Internet networks and service prices relative to other countries. Different data sources suggest somewhat contradictory results. In an industry where change is so rapid on so many fronts, it is understandable that there would be data inconsistencies and concerns about data validity. Measurement of service prices and network and service capabilities are particularly challenging because these measures can shift quickly and dramatically, and it is notoriously difficult to obtain like-for-like international comparisons. Furthermore, it is common to refer to country rankings as a convenient way to summarize a country's performance, even though such rankings can be misleading. 9. For example, even for relatively robust international comparisons, there can be very little separating one country's rank from another. In the edition of the World Economic Forum's multi-factor Network Readiness Index, the difference between Iceland's 12th place rank This reflects the percentage of Canada's 2008 ICT revenues attributable to voice and data services provided over wireline, wireless and satellite communications networks. Source: Statistics Canada, Information and Communications Technologies Statistical Overview, ICT Services Industries, , available at Consultation Paper on a Digital Economy Strategy for Canada: Improving Canada's Digital Advantage; Strategies for Sustainable Prosperity (the Consultation Paper), Government of Canada, 10 May For example, The Standing Senate Committee on Transport and Communications examined the wireless sector, including issues such as access to high-speed Internet, the supply of bandwidth, the nation-building role of wireless, the pace of the adoption of innovations, the financial aspects associated with possible changes to the sector, and Canada's development of the sector in comparison to the performance in other countries.

9 - 4 - (with a score of 5.2) and Norway's 10th place rank (with a score of 5.22) was a mere Similarly, in a 2010 Connectivity Scorecard presented at the 2010 Canadian Telecom Summit conference by Leonard Waverman, Dean of the University of Calgary's Haskayne School of Business and Nokia Siemens Networks (the Waverman Report), the difference between the score of 9th placed Canada and 7th placed Australia was 0.02 (a score of 7.02 versus 7.04). 10 The need for caution when interpreting such rankings increases when one considers that the information relied upon could be up to three years out-of-date, may be based on subjective rather than objective measures, and is subject to a variety of methodological challenges While it is prudent to monitor such digital economy indicators, and Canada tends to score well on such rankings (e.g., 7th among the 25 innovation-driven countries in the Waverman Report, and 7th out of the 133 countries surveyed in the World Economic Forum's network readiness index), it would be inappropriate to raise cautionary flags when a country's rank changes from one year to the next. In an essay in The Globe & Mail, Leonard Waverman and Kalyan Dasgupta note that poorly implemented international comparisons can lead to poor public policy: "International comparisons almost always suffer from limited data and limited comparability, particularly comparisons of prices and speeds. This is why great humility and caution are required in drawing policy conclusions from such comparative data. Regulation curtails economic freedom, which is why a very high standard of evidence is required to justify regulation." 12 Indeed, public policy needs to be informed by a wide range of indicia, many of which are readily available from Government and non-government sources. 11. The evidence supports the view that Canada's digital infrastructure, and particularly communications networks and services, is a national strength and provides a solid base on which to build a successful digital economy. For example, even though Canada has the lowest The Global Information Technology Report , World Economic Forum, 25 March 2010, page xvii, Connectivity Scorecard 2010 How does Canada rate? Leonard Waverman, presentation to Telecom Summit 8 June For example, a report by The Berkman Centre for Internet & Society titled "Next Generation Connectivity: A review of broadband Internet transitions and policy from around the world" relies significantly on data from the OECD. A report by Mark H. Goldberg & Associates Inc. and Giganomics Inc. titled "Lagging or leading? The state of Canada's broadband infrastructure" (available at analyzed the OECD analyses and concluded that the underlying sampling methodology and input data used were flawed and did not represent the Canadian market. As a result, the rankings produced by the OECD, and hence The Berkman Centre, are inaccurate. Leonard Waverman and Kalyan Dasgupta, "Canada and broadband: When 'behind' is actually ahead," Globe & Mail, (Saturday print edition, published Friday), 5 March

10 - 5 - population density in the G8 and second lowest in the G20, 13 the Commission found that 94% of Canadian households have access to wireline broadband services. 14 3G Americas, an international wireless industry group, found that Canada is one of only two countries in the G20 to have three of the most advanced wireless networks available; those employing High-Speed Packet Access (HSPA+). 15 These networks provide more than 93% of Canadians across the country with wireless broadband at speeds up to 21 megabits per second (Mbps). Akamai, a global leader in the provision of Internet networking services to businesses, 16 found that Canada has among the highest actual (as opposed to advertised) download speeds in the world second in the G8 and 3 rd in the G Appendix 1, Canadian Wireline Broadband Market Facts, provides additional data which highlights Canada's strong wireline infrastructure relative to other countries. 12. In terms of wireless services, there is now a growing recognition that intense competition is driving prices lower. Bank of America Merrill Lynch found that Canada's service revenues as a percentage of GDP (a measure of affordability) is the 2nd lowest in both the G8 and the G20, 18 while Bell Canada and Rogers have lower priced data plans for Apple's ipad than the U.S. and some of the lowest announced to date globally. 19 Similarly, a recent analysis by Wall Communications Inc. for the Commission found that Canada's wireless and wireline broadband service prices compare favourably to other countries. 20 Appendix 2, Canadian Wireless Market Facts, provides additional data concerning Canada's wireless infrastructure and service prices relative to other countries. These facts are likely why the Standing Senate Committee on Transport and Communications, in a June 2010 report entitled Plan for a Digital Canada (the Population density is equal to the total population divided by the total land mass in square kilometres. Data from the CIA World Fact Book available at CRTC Communications Monitoring Report 2009, Figures and 5.3.7, available at 3G Americas, available at According to Akamai's website, its equipment delivers up to 15-20% of the traffic on the World Wide Web on any given day. It counts among its customers, companies like Audi, NBC, and Fujitsu, and organizations like the U.S. Department of Defense and NASDAQ. Akamai, 4 th Quarter, 2009 The State of the Internet Report, available at Unlike other international comparisons which use advertised speeds, Akamai uses its globally-deployed server network and the billions of requests for Web content that it services on a daily basis to determine download speeds. Mobile service revenue as a percentage of GDP is equal to total service revenue divided by total GDP. Service revenues include monthly service charges and usage fees, roaming, long-distance, and subscriptions to mobile data services. Bank of America Merrill Lynch, Global Wireless Matrix 1Q10. Bank of America Merrill Lynch, Canadian ipad pricing: Why it matters, Chart 3, 7 June Wall Communications Inc., Price Comparisons of Wireline, Wireless and Internet Services in Canada and with Foreign Jurisdictions: 2010 Update, 16 April 2010 (Wall Report), available at

11 - 6 - Senate Committee Report), stated that it was pleased with the increasing competitive intensity in Canada's wireless sector Examining such industry-wide developments led the Information and Communications Technology Council (ICTC), a non-profit sectoral council funded in part by the Government of Canada, to conclude that Canadian SMEs are "... well supported by providers of ICT goods and services" and that they "... have access to as wide a range of ICT products as in the United States". 22 Similarly, the Waverman Report concludes that an "important issue in Canada appears to be Firms' IT investment, not investment in networks". 23 In summary, ICT infrastructure is a national strength today and a key component to creating a successful digital economy strategy for Canada. 14. Bell Canada has been a significant contributor to this Canadian communications industry success story by aggressively investing in next generation broadband networks. In 2009, we launched a world-leading HSPA+ wireless network which reaches approximately 93% of Canadians. Bell's HSPA+ network provides the fastest and most reliable wireless service in the country with broadband speeds up to 21 Mbps. These wireless broadband capabilities enable Bell to offer rural customers innovative services like the Turbo Hub, which connects up to 15 Internet devices in the customer s premises with download speeds of up to 7.2 Mbps and upload speeds of up to 5.7 Mbps. 15. Another example of Bell s contribution is provided by our multi-year commitment totalling more than $400 million to deliver the most-watched winter Olympic Games in history. Fuelled by the most advanced broadband networks ever put in place for an Olympics, every image seen on TV, every story read around the world and every real-time score transmitted during the Games traversed a communications solution designed and delivered by Bell. The network handled one trillion packets of data, 90 million minutes of mobile voice traffic and 30 million megabytes of mobile data. An Olympic record-setting 24 billion bits per second of capacity connected Games broadcasters to the world. John Furlong, Chief Executive Officer of the The Senate Committee Report, page 47. Information and Communications Technology Council, Enhancing the Productivity of Small and Medium Enterprises through Greater Adoption of Information and Communication Technology by Roger L. Martin and James B. Milway. March 2007, pages 1 and 9. Waverman Report, page 15.

12 - 7 - Vancouver Organizing Committee concluded: Bell truly lived up to our expectations and to its reputation as Canada s communications leader Bell has also been building fibre-to-the-node broadband infrastructure to deliver service speeds of 25 Mbps and up. By 2012, Bell will be able to serve 5 million homes in Ontario and Québec on this network. Very recently, Bell began to further augment its wireline broadband capabilities by rolling-out fibre-to-the-home in all new developments in Ontario and Québec and to homes in Québec City. 25 Using Bell's fibre-to-the-home network, customers will realize broadband speeds of up to 100 Mbps. Within three years, 80% of the DSL enabled households in Bell's territory in Ontario and Québec will have access to next generation broadband through either fibre-to-the-node or fibre-to-the-home service. This broadband infrastructure will not only support the roll-out of more bandwidth-intensive digital media, it is allowing Bell to launch a new Internet Protocol television service (IPTV), initially in core urban areas in Toronto and Montréal. With the launch of Bell s IPTV service, consumers will get a truly differentiated and better television experience, as well as another competitive choice in those core city areas where cable companies have traditionally been dominant. 17. While Canada's ICT infrastructure continues to be a strength, there are no guarantees that this will continue into the future. Service providers in other countries continue to invest in their domestic networks, new technologies will emerge and impact Canada's relative performance, and consumer behaviour is susceptible to a wide variety of influences, both economic and social in nature. In Canada, massive recent investments in third-generation (3G) networks by wireless service providers like Bell will give way to the competitive need to build fourth-generation (4G) networks. There will be increasing competitive pressure on telecommunications network providers to deepen the roll-out of fibre optic cable through fibre-tothe-home investments. Likewise, cable companies must continue to upgrade their networks to the latest version of DOCSIS (Data Over Cable Service Interface Specification) to allow faster broadband speeds and greater functionality. The need for significant levels of ICT infrastructure investment is continual. 18. The pace and extent of infrastructure improvements depends, in large part, on Canada having a policy and regulatory environment that encourages such investments. At particular risk Bell Aliant is deploying fibre-to-the-home in Fredericton, Saint John and several other communities in New Brunswick, as well as in Sydney, Nova Scotia.

13 - 8 - are rural areas where the potential for network providers to realize an acceptable return on investment is marginal. There are several recommended actions for Government which will facilitate an appropriate investment environment and they are discussed below under the headings of: regulatory fees, wireless spectrum policies, Commission regulations regarding forced access to next generation networks, foreign ownership restrictions and tax policies. 2.1 Regulatory Fees 19. The communications services industry, comprised of broadcasting and telecommunications service providers, pays almost $1 billion annually in mandatory Government and regulatory fees (for a summary, see Appendix 3, Telecommunications and Broadcasting Regulatory Fees). 26 These fees deprive the industry of capital that could be invested in ICT infrastructure or innovation endeavours. Government should undertake a review of all such fees with the objective of eliminating them or reducing them significantly as a means to encouraging additional or accelerated investments by infrastructure providers. 20. With respect to wireless spectrum licence fees in particular, wireless service providers currently hold licences for less than 2% of licenced radio spectrum in Canada; yet pay more than 60% of annual licence fees collected by the Government for use of radio spectrum. The wireless industry will pay more than $130 million in annual spectrum licence fees in 2010 and has paid more than $2 billion in such fees since the launch of cellular services. No other class of spectrum user in Canada carries this kind of regulated financial burden simply to use the spectrum necessary to operate its networks. Furthermore, the fees in Canada are exceptionally high compared to those in many other countries (see Figure 1). For example, cost-based government spectrum fees in the U.S. amount to approximately $0.18 per subscriber whereas Canadian government fees amount to about $6.70 per subscriber These fees are for local contribution subsidies, telecommunications fees, broadcasting Part I and Part II licence fees, wireless spectrum licence fees and fees paid by broadcasting distribution undertakings (BDUs) for Canadian content and local market content development. These fees are largely hidden industry-specific fees which are necessarily passed on to Canadian telephone and television subscribers and are in addition to income and other corporate taxes. For Bell Canada, the amount paid each year for regulatory fees is equivalent to $5.37/month for each of Bell's 6.8M wireless customers or over 10% of their monthly wireless bill. Canadian Wireless Telecommunications Association (CWTA); for additional details on this issue, please see the submission filed by the CWTA as part of the Digital Economy Strategy Consultation.

14 - 9 - Figure 1 Comparison of Spectrum Licence Fees in G7 Countries ($/MHz POP) 28 Canada Italy Japan France 900 MHz Average UK 900 MHz France 1800 MHz UK 1800 MHz USA - CMRS Germany (avg) In spite of having the highest wireless spectrum licence fees in the G7, the Government is considering an increase in fees paid by spectrum licencees as a means to maximize its financial return on this public resource. In Gazette notice DGRB , Consultation on the Renewal of Cellular and Personal Communications Services (PCS) Spectrum Licences, Industry Canada states that the Canadian Public should earn a fair return for the privilege of access to spectrum. Industry Canada further states that "high mobility spectrum, such as cellular and PCS, is a very valuable resource and expectations suggest continuing growth and profitability in this sector." As a result, Industry Canada is undertaking a formal study to assess the current market value of cellular and PCS spectrum, and once the study is complete, the Department will conduct a separate consultation seeking comments on the proposed fee. 22. The digital economy strategy should seek to decrease Government spectrum licence fees as a way to stimulate ICT investment and innovation. 2.2 Wireless Spectrum Policies 23. Apart from the need to reduce spectrum licence fees, there are several other aspects of wireless spectrum policies which should be modified as part of the Government's digital 28 Ovum Consulting, Comparative analysis of spectrum fees, June 2010, page 2.

15 economy strategy. Chief among them is the need for Government to ensure that market forces are not compromised in spectrum auctions through distortional rules such as spectrum setasides. As demonstrated in the Advanced Wireless Services (AWS) spectrum auction in 2008, such rules enable gaming to occur that inflates the prices paid by auction participants. The past two auctions siphoned $5.7 billion out of the wireless industry The negative impact of the distorted AWS auction rules on the digital economy was profound. Wireless service providers could have used the capital that was overspent due to the auction's poor design to build their wireless networks and operations more quickly or to invest in other parts of their business. For example, several new wireless entrants delayed the construction and roll-out of their AWS networks due to capital constraints. For integrated carriers, excessive spectrum auction costs meant that capital investments in other areas of their business had to be scaled back, e.g., fibre-to-the-node or fibre-to-the-home network upgrades. Furthermore, rather than using the auction proceeds to directly improve Canada's digital economy in some way, the proceeds were deposited into the Government's consolidated revenue fund. Future spectrum auctions should seek to structure rules on a non-partisan basis and deploy the auction proceeds for the direct benefit of the digital economy. 25. Bell Canada endorses the recommendations of the Canadian Wireless Telecommunications Association (CWTA) with respect to encouraging full spectrum trading in secondary markets, providing for longer-term licences with higher expectations of renewal, permitting greater predictability and longer-range planning on allocations and auctions, and eliminating the condition of licence that requires all wireless service providers to spend 2% of their revenues on a narrow set of R&D activities. Implementing these recommendations will encourage incremental investments in ICT infrastructure. Additional details on these proposals are provided in the CWTA's submission in this consultation. 2.3 Commission Regulations: Forced Access to Next Generation Networks 26. The Commission is considering the imposition of regulations which would force incumbent telephone companies to provide access to their most advanced broadband networks to their competitors at highly subsidized rates that would be mandated by the Commission. This proposal relies on outdated historical precedents and ignores the fact that competitors have 29 The $5.7 billion is comprised of $1.48 billion from the 2001 personal communications services (PCS) spectrum auction and $4.25 billion from the 2008 AWS spectrum auction.

16 long been able to build next generation networks on the same terms and conditions as incumbents. Forcing a network operator to provide a potential competitive advantage to its competitors at regulated prices is clearly a deterrent to investment and should be avoided. In fact, as explained below, the Federal Cabinet has already rejected the Commission's attempt to impose such a deterrent. 27. In 2008, after Canada's incumbent telephone companies had begun investing billions to upgrade their broadband networks, the Commission mandated that they open up their next generation networks to competitors on regulated terms. By mandating wholesale access, the Commission undermined the business case of the incumbents' investments, and erected a new deterrent to future investments. Under such rules, the opportunity for incumbents to realize an acceptable return on their network investments would be significantly reduced so their investments would decline. Particularly harmed by this policy would be small and rural communities where the business case for network upgrades is marginal. As recently explained by George Cope, Bell's Chief Executive Officer, even relatively large communities are on the margin for such investments: For instance, I know that I will put London, Ontario, on the backburner if we get a [forced access] decision. It will just go slower. So London will wait longer for access to those services. We are not talking about pretty rural Canada, we are talking about London, Ontario, and those types of markets that we will look at Bell Canada appealed the Commission's 2008 decision to the Federal Cabinet. Recognizing the investment deterrent that mandatory access to next generation networks would create, the Federal Cabinet rejected the Commission's decision and requested it to reconsider and revise its decision by 1 September As a result of Cabinet s Order, the Commission held a public hearing on the issue in June Cabinet should closely review the Commission's 1 September 2010 decision, and if it does not remove the investment disincentive of requiring forced access, then Cabinet should again take action. Specifically, in this event, Cabinet should vary the Commission's decision so that it promotes the network investments that Canada's digital economy requires. By doing so, Transcript of proceedings before the Canadian Radio-television and Telecommunications Commission, Proceeding to consider the appropriateness of mandating certain wholesale high-speed access services, 31 May 2010, lines 406 and 407. Order in Council , 10 December 2009.

17 the Government will support the roll-out of networks with the latest available capabilities to rural Canada and bridge any gap that could exist with urban areas. 30. The Government's digital economy strategy should adopt a policy of encouraging investments in next generation networks by allowing infrastructure owners to negotiate access to their networks by competitors on a commercial, rather than regulated, basis. 2.4 Foreign Ownership Restrictions 31. The Government is currently reviewing its foreign ownership policies with respect to telecommunications companies. These policies have a direct impact on the digital economy as they can either encourage or discourage investments in ICT infrastructure. As will be discussed in full in Bell Canada's 30 July 2010 submission in the Government's foreign ownership consultation, there are no problems to be solved with respect to competition, service pricing and access to capital in the communications sector. However, if Government decides to modify the foreign ownership restrictions, then Bell recommends an increase to 49% of the foreign ownership limit applicable to all telecommunications and broadcasting carriers. 32. Regardless of the foreign ownership limit set by the Government, the rules must apply symmetrically to all carriers. Asymmetrical rules, such as setting more restrictive foreign ownership limits for large companies than for smaller companies, will introduce new regulatory distortions into the marketplace by artificially disadvantaging one class of service provider relative to other classes. Ultimately, such rules could incent service providers to modify their corporate structures solely to take advantage of more favourable regulatory treatment, a situation which could lead to perverse outcomes and unintended consequences. 33. For example, attempts by Government to provide smaller Canadian service providers with a competitive advantage over their larger counterparts could backfire where the smaller companies in question are owned by very large multinational enterprises. This situation exists in the wireless sector today where Globalive, which may appear to some to be a small Canadian start-up, is actually owned and controlled by Egypt-based Orascom Telecom Holdings S.A.E, one of the largest wireless service providers in the world. If the Government attempts to use regulations to manipulate market outcomes, Canadian companies could inadvertently be disadvantaged relative to foreign companies in terms of their access to foreign capital and their regulatory obligations.

18 Another unintended consequence could result from foreign competitors' targeting of urban areas to the exclusion of rural areas. This is likely as higher urban population densities provide better opportunities to maximize investment returns. It is doubtful, for example, that foreign-owned competitors will build wireless HSPA+ networks that reach 93% of the Canadian population, as Bell did in The focus on urban areas by foreign-owned competitors will require Canadian competitors to dedicate their scarce investment capital to fortify their urban capabilities. As a consequence, investments in rural areas will suffer. 35. The fact that the Government's review of foreign ownership restrictions applies only to telecommunications carriers and excludes broadcasters will also give rise to negative consequences. This narrow perspective ignores the fact that the evolution of wireline and wireless networks is making it increasingly practical to provide telecommunications and broadcasting services over a single network infrastructure. Indeed, converged operators who provide both telecommunications and broadcasting services supply a large majority of the telecommunications services in Canada. Regulations that ignore this technological evolution by treating telecommunications and broadcasting carriers differently in terms of foreign ownership restrictions could distort the evolution of digital services in Canada. They could cause service providers to structure their operations in such a way as to take advantage of the more relaxed regulations, even if it is operationally inefficient to do so. Such a development would hinder Canada's productivity growth. 36. Finally, as the number of foreign competitors increases, so too will the number of business and strategic decisions made outside of Canada. An indirect consequence is that this will reduce the number of Canadian head office jobs which will result in a reduction in spending on Canadian law firms, advertising agencies, investment banks and other professional service providers. It will also mean that corporate investment decisions will be made within a North American or global context rather than a Canadian context. Under such circumstances, potential returns on investments in Canadian communities will be judged relative to potential returns for similar-sized investments in communities in the U.S., Europe or Asia. Given Canada's exceptionally low population density, it is likely that non-canadian communities will prove to be more attractive destinations for investment dollars.

19 Tax Policies 37. In addition to continuing to reduce corporate income tax rates, 32 it is recommended that the Government continue to reduce taxes on new business investments. As observed by the Institute for Competitiveness & Prosperity: "lowering the cost of business investment means more investment". 33 Harmonizing the provincial sales tax in Ontario and British Columbia with the federal Goods and Services Tax is a significant positive step and provinces that have not already done so are encouraged to follow suit. Refer to Appendix 4 for a 30 March 2009 news release in which Bell attributes Ontario's tax harmonization with accelerating network investments in the province. 38. It is also recommended that the Government increase the capital cost allowance (CCA) to 50% for the classes of assets most closely associated with broadband networks as an incentive to speed up ICT infrastructure investments. For capital investments in those areas identified by Industry Canada as "underserved" as part of the Broadband Canada initiative, a CCA rate of 100% should be introduced to encourage investment in rural areas. These changes would provide a fiscally neutral incentive to speed up the pace of investment by advancing the timing of capital cost deductions allowable for tax purposes. 39. With respect to the Government's SR&ED tax credit program, there is a need to expand the range of software development activities considered eligible for the credit. The trend at the CRA, which administers the program, has been to consider a significant amount of software and applications development ineligible. This approach is at odds with the Government's objective of encouraging innovation because it incents companies engaged in software development to relocate their ICT development activity off-shore to countries with highly skilled but lower-cost labour markets, such as India. To remedy the situation, the digital economy strategy should ensure that the CRA, in its administration of the SR&ED program, appropriately recognizes the role that software and applications development play in the creation and adoption of ICTs and allows these types of projects to be recognized as eligible SR&ED expenditures In its 2010 budget, the federal Government confirmed its commitment to having the lowest corporate income taxes in the G7 by Beyond the recovery, Institute for Competitiveness & Prosperity Report on Canada 2010, June 2010, page 41.

20 BUILDING DIGITAL SKILLS FOR TOMORROW 40. Bell Canada has been actively involved in studying Canada's digital skills issues and mobilizing industry participants to address the related challenges through the Canadian Coalition for Tomorrow's ICT Skills (the CCICT) 34 and the Technology Advancement for Prosperity (TAP) 35 initiative. Whereas the goal of the CCICT is to secure the necessary supply of professional, high quality ICT talent, the purpose of TAP is to stimulate demand for ICT goods and services by educating business leaders on the positive impact of ICT adoption. These complementary initiatives reflect our belief that a plan to enhance Canada's digital skills would benefit from consideration of both supply and demand factors. 41. Perhaps the most significant digital skills challenge faced by policy makers and industry participants alike is a deficiency in the supply of skilled ICT workers. Without a sufficient supply of ICT workers, adoption of ICTs by Canadian businesses will not reach its full potential. To the extent that Canadian business ICT usage expands in the future, either as a result of natural market developments and/or government incentives, the skills challenge will be exacerbated. 42. There are several factors which may be depressing the supply of skilled ICT workers in Canada: 1) awareness and perception of ICT careers among students and job seekers is low; 2) ICTs are not adequately covered in primary and secondary school curricula; 3) primary and secondary schools have insufficient resources (teachers with ICT training and expertise, computer equipment, software) to expand ICTs in the curricula; 4) enrolment in technical university programs such as computer science and engineering has declined significantly in recent years and remains at sub-standard levels; and 5) global demand for employees with ICT skills is high and expected to increase, which adds to the pressure on supply in Canada. 43. The following general recommendations are informed by Bell's participation in, and the research of, the CCICT and TAP. Perhaps more than any other aspect of the digital economy strategy, addressing the digital skills supply issue will require a coordinated effort among various branches of Government. When developing Canada's digital economy strategy, Government should consider funding for initiatives which address the following support mechanisms

21 ICT career awareness among Canadian youth Improving the awareness and positive perception of ICT careers among students, parents and teachers will increase the supply of students applying to ICT relevant university programs. In turn, this will increase the supply of ICT workers. ICT components in primary and secondary school curricula ICTs have become an integral part of Canadian life but they have not yet become an integral part of school curricula. Introducing age-appropriate ICT theory and practice into the school curricula for all grades will not only familiarize students with the technologies underpinning many personal and household electronic devices (e.g., computer hardware and software, telephones, the Internet), but will improve levels of awareness and positive perception of ICT among Canadian youth. ICT infrastructure at primary and secondary schools It will be necessary to equip schools with the necessary ICT infrastructure to support the addition of ICT elements in school curricula. The infrastructure not only includes hardware, software and communications networks but also training for teachers to deliver the course material. Given the rapid pace of change in ICTs, infrastructure funding will require an ongoing commitment from Governments to ensure that students are provided with relevant instruction. Recruitment of international students to technical university programs Falling enrolment in university engineering, computer science and other relevant programs in Canada will add to the deficit of skilled ICT workers. Targeted recruitment of international students can fill vacant university seats but it must be accompanied by incentives for graduates to remain in Canada where the benefit of their education can be realized. Government programs in this area must coordinate the education and immigration elements into an integrated offering to lure qualified international students. Accreditation of skilled internationally educated workers Canada is already home to many internationally educated workers who can make positive contributions to Canada's digital economy. Broader recognition of international

22 education, training and experience can add to the supply of ICT workers in Canada. 44. These initiatives are consistent with calls on Government to develop a national digital literacy strategy. For example, as noted by the Media Awareness Network in its 7 July 2010 submission in this consultation, a digital literacy strategy would include programs for the K-12 and post-secondary education systems, as well as programs that offer job training and skills development, drive new business practices, and promote increased public awareness. 36 Bell supports the call for such programs as they will strengthen Canadians digital skills, and therefore, contribute to a strong digital economy. 4.0 CAPACITY TO INNOVATE USING DIGITAL TECHNOLOGIES AND GROWING THE INFORMATION AND COMMUNICATIONS TECHNOLOGY INDUSTRY 45. While ICTs are used in virtually every industrial sector, and therefore have a profound effect on the economy, the ICT sector itself is also a significant economic contributor. In 2008, the Canadian ICT sector generated over $155 billion in revenues, invested over $6 billion in R&D and $11 billion in capital expenditures, and employed over 570,000 Canadians. 37 Any initiatives which facilitate continued investment in digital infrastructure (section 2) and building digital skills (section 3) will also facilitate ICT usage and grow the ICT industry. Indeed, the initiatives are self-reinforcing. For example, by creating an investment-friendly tax environment, the Government will incent capital expenditures by network providers which will allow them to provide superior products for their business customers, which in turn stimulates spending on ICT services. This sequence of benefits will then generate higher demand for skilled ICT workers and stimulate productivity growth. 46. As concluded by the Innovation Panel, innovation performance is a key factor in Canada's lagging productivity growth: "The analysis demonstrates that the persistent weakness of productivity growth in Canada is rooted in subpar business innovation." 38 The Innovation Panel attributes a significant portion of Canada's subpar business innovation performance to Media Awareness Network, Digital Literacy in Canada: From Inclusion to Transformation, A Submission to the Digital Economy Strategy Consultation, 7 July 2010, page i. Statistics Canada, Canadian ICT Statistical Overview, figures are for Innovation and Business Strategy: Why Canada Falls Short, Council of Canadian Academies, April 2009, page 26.

23 lower levels of investment in ICTs by Canadian businesses relative to their international counterparts, particularly the U.S The ICT investment gap between Canada and the U.S. is likely attributable to a variety of factors, although some potential reasons can be removed from consideration. For example, as explained in section 2, communications networks in Canada offer world-class capabilities at reasonable prices. Similarly, an analysis by the ICTC found that: "Canadian SMEs have access to as wide a range of ICT products as in the United States". 40 Given the tightly linked economies and extent of trade between the two countries, this is not surprising. Furthermore, the Centre for the Study of Living Standards (CSLS) found that prices of ICTs in Canada are falling faster than in the U.S. 41 Therefore, ICT infrastructure, ICT availability and ICT prices are not causes of the ICT adoption gap between Canada and the U.S. In other words, the lower rate of ICT investment and innovation in Canada owes more to demand-side economic factors than supply-side factors. 48. Potential demand-side factors that may be contributing to Canada's ICT adoption gap relative to the U.S. include: Systemic economic differences which result in a lower need for ICTs in Canada, e.g., Canada's relatively large resources sector where ICTs are not required to the same extent as in other sectors, the smaller scale of Canadian markets which caps potential returns on ICT investments, smaller average firm size in Canada, a greater proportion of SMEs versus large enterprises in Canada, relatively fewer Canadian head offices where ICT purchase decisions are made, the relatively larger share of total information technology spending in Canada that is attributable to Government (23%) compared to the United States (14%) 42 ; This is also the central theme of a March 2007 report by the ICTC entitled: Enhancing the Productivity of Small and Medium Enterprises through Greater Adoption of Information and Communication Technology by Roger L. Martin and James B. Milway. Enhancing the Productivity of Small and Medium Enterprises through Greater Adoption of Information and Communication Technology, Roger L. Martin and James B. Milway, May 2007, page 9. The Canada U.S. ICT Investment Gap: An Update, Centre for the Study of Living Standards, Andrew Sharpe and Jean-François Arsenault, February 2008, page 9. Forrester Research Inc., June 2010.

24 Insufficient number of managers in Canada with the education and background necessary to recognize and realize the benefits of ICT adoption, e.g., an insufficient number of technical workers, insufficient ICT awareness and training among managers and workers, lower levels of university education among managers in Canada; and Less appealing financial conditions for ICT investment in Canada, e.g., tighter capital markets, higher marginal effective tax rate in Canada, fewer government investment incentives for ICTs, exchange rate differences. 49. More research is needed to better understand the nature of and contributing factors to Canada's ICT adoption gap relative to the U.S. One area worth further investigation is the definition of ICT investment. Most productivity growth analysis focuses on investments in computers, communications equipment and software, but excludes investments in ICT services such as consulting, network design and training, as well as hosting, outsourcing and "cloud computing" services. 43 ICT services are necessary to realize the productivity potential of investments in ICT machinery and equipment. The Innovation Panel highlighted this point: Investments complementary to ICT such as training, business process reorganization and managerial innovation all appear to be essential to realization of the full benefits of ICT investment (Brynjolfsson & Hitt, 2000). The importance of complementary investment is typical when general purpose technologies such as computers are introduced into the economy. The full productivity benefit is delayed until the effects of the complementary investments have had time to work their way thoroughly into business practices (David, 1990; Helpman, 1998) The impact of including ICT services in the analysis of the Canada/U.S. productivity gap is not well understood but if they are included, the gap may in fact be less than currently thought. For instance, Forrester Research estimates that spending on computers, communications equipment and software in the U.S. represents about 2.6% of nominal GDP in the U.S. but only about 2% in Canada. If spending on information technology services is added to the mix, however, the gap virtually disappears. 45 ICT services are an important contributor to Cloud computing is an emerging business model whereby computing resources (e.g., software, infrastructure, platforms) are offered by suppliers on a shared basis to users, over the Internet and on-demand. Businesses that use such services avoid capital expenditures by renting the services as needed on a utility (e.g., price per unit of resource consumed) or subscription (e.g., time-based) basis. Innovation and Business Strategy: Why Canada Falls Short, Report of the Expert Panel on Business Innovation, Council of Canadian Academies, June 2009, page 68. Forrester Research Inc., June 2010.

25 productivity growth and including them in future research will facilitate a better understanding of the gap between Canada and the U.S. 51. Specific to furthering Canada's innovation performance, Government must lever its role as one of the largest purchasers of ICT products and services in Canada to stimulate innovation among its Canadian suppliers. As a lead ICT user, Government should consider implementing a procurement program where it identifies and implements innovative ICT solutions to improve Government operations and services. Specifically, Government should identify ICT-intensive Government projects with the potential to broadly stimulate innovation and then structure requests for proposal (RFPs) associated with these projects so as to encourage the creation of innovative ICT solutions from Canadian companies. 52. Following this approach would allow Government to become a lead adopter of ICT solutions and take on a catalytic role in the innovation process as recommended by the Innovation Panel. 46 The potential benefits of such a program are significant. For example, to meet the Government's innovation specifications, ICT solution providers will be incented to develop leading edge business solutions which will require technology and process innovations. Moreover, the solution providers will need to enlist their suppliers and business partners to improve their capabilities to design and implement the solutions, which will multiply the innovation stimulus. Because Government services will be provided in a more efficient and effective manner, Government's operating costs will decline and service levels to the public will be enhanced. As a result of the enhanced service levels, Canadians will enjoy higher quality and more accessible Government services. Finally, it will be possible for the solutions created by the ICT suppliers in fulfillment of the Government projects to be adapted and/or replicated for Canadian businesses, other branches of Canadian Government or exported to international customers, thereby multiplying the positive economic benefits. 53. Government can also use its ICT procurement and usage policies and practices to grow the ICT industry. In particular, the following actions are recommended: Increase use of commercial ICT standards In some instances, the federal Government chooses to adopt service standards which are not consistent with private industry or even other branches of Government. By adopting industry 46 Innovation and Business Strategy: Why Canada Falls Short, Report of the Expert Panel on Business Innovation, Council of Canadian Academies, June 2009, pages

26 standards for ICT products and services, Government will speed the procurement process, enhance ease and cost of use of Government services by private industry and allow Government suppliers to realize operational efficiencies. Reduce "do-it-yourself" ICT initiatives Like all organizations, the Government has the option of implementing ICT projects using in-house resources or outside professionals. To facilitate ICT industry growth, Government could decrease (or at a minimum, not increase) the amount of inhouse ICT labour in favour of using private industry service providers. The benefits of such an approach would be to stimulate growth in the ICT industry, take advantage of the best available products and services that private industry has to offer and prevent Government services from migrating away from industry standards. Increase use of "whole Government" ICT projects To maximize the productivity benefits that ICT adoption offers, Government should seek to increase the scale and scope of "whole Government" ICT initiatives rather than department-specific projects. To the extent that Government can develop organization-wide standards and services, ICT suppliers will be better able to replicate solutions for multiple departments, system integration and interaction will become faster and more cost-effective and future ICT upgrades and changes will become easier. 5.0 DIGITAL MEDIA: CREATING CANADA'S DIGITAL CONTENT ADVANTAGE 54. The Government and the Commission have been actively engaged in monitoring the digital media environment for some time, and where necessary, adjusting their policies and regulations. For example, the Commission examines digital media issues extensively through its new media monitoring activities. 47 As part of this activity, it issued a report entitled: Perspectives on Canadian Broadcasting in New Media (Perspectives Report) 48 which provides a Recently, the 2009 public proceeding on new media, Broadcasting Notice of Public Hearing CRTC , Canadian Broadcasting in New Media, and the resulting Broadcasting Regulatory Policy CRTC , Review of broadcasting in new media. CRTC, Perspectives on Canadian Broadcasting in New Media a compilation of research and stakeholder views, May 2008 (revised June 2008).

27 compilation of research and stakeholder views. The following excerpts from the Perspectives Report explain why Canada is well positioned today to take advantage of the shift from traditional to digital media: A variety of Internet enabled new media broadcasting companies of varying size and scope now have more direct access to mass audiences. The business models for providing such content are evolving as the ability of content providers to offer broadcasting content to audiences no longer requires them to invest heavily in distribution infrastructure. Further, new media platforms are characterized by an opportunity for content providers to distribute directly to audiences or through a multitude of aggregators. 49 The new media broadcasting environment is developing in a borderless environment when compared to the traditional broadcasting system. Continuous access, minimal capacity concerns, and few scarcity issues provide an unprecedented environment for Canadian new media broadcasting to flourish. 50 The new media broadcasting environment has allowed Canadians, both as individuals and professional creators, to engage domestic and foreign audiences with new media broadcasting video offerings. Programs are offered in multiple ways, including as downloads, on demand, via real-time and time-shifted streams, as mobisodes and in other short forms. 51 Several methods to generate revenue are emerging. These include: advertising supported streaming content, with inventory sold directly by producers or aggregators or by employing third-party advertising networks in a revenue-sharing arrangement; subscription-driven streaming and downloaded content; purchased or freely distributed content that is downloaded permanently by the customers; and rented content with downloads that expire using digital rights management (DRM) technology. 52 Innovation is occuring [sic] around the monetization of a wide variety of traditional and non-traditional broadcasting content types, including Long-form programming, Short-form programming, and ancillary content including promotional content To summarize, the Commission concluded that new media: provide new ways for Canadian content providers to distribute directly to mass audiences, both domestic and foreign; Perspectives Report, paragraph 4. Perspectives Report, paragraph 5. Perspectives Report, paragraph 91. Perspectives Report, paragraph 128. Perspectives Report, paragraph 133.

28 offer continuous access to Canadians; have minimal capacity concerns and few scarcity issues; and provide a variety of methods for Canadian broadcasting undertakings to generate revenue. In short, Commission staff concluded that there exists an unprecedented environment for Canadian new media broadcasting to flourish. 56. The Commission has also recently completed an exhaustive investigation into the needs of persons with disabilities with respect to telecommunications and broadcasting services and adjusted the regulations in this area, in part to accommodate the growing influence of digital media. In Broadcasting and Telecom Regulatory Policy CRTC , Accessibility of telecommunications and broadcasting services, the Commission: Required telecommunications service providers to provide a new relay service Internet Protocol Relay Service; Requested that wireless service providers offer at least one type of wireless mobile handset to serve the needs of people who are blind and/or have moderate-to-severe mobility or cognitive disabilities, noting that it would consider imposing such a requirement in the future if necessary; Directed television broadcasters to improve and control the quality of closed captioning, including in digital formats; Expressed its intention to require additional television broadcasters to provide described video through conditions of licence imposed at their licence renewals; and, Expressed its intention to require television broadcasters to provide high-quality audio description through conditions of licence to be imposed at the time of their licence renewals. The initiatives being taken by the industry as a result of this Commission decision will facilitate the participation of persons with disabilities in Canada's digital economy. 57. The Government has also recently reviewed and restructured its key policy mechanisms for subsidizing the creation of Canadian content so that they will better accommodate digital

29 media. The Consultation Paper describes the renewed suite of funding programs implemented by the Government, which includes: The Canada Media Fund, The Canada Interactive Fund, The Canada Book Fund, The Canada Music Fund and The Canada Periodical Fund. 54 In aggregate, these programs represent a total federal investment of over $290 million annually. When funding from the private sector is considered, "over $450 million is invested in Canadian creative industries each year through direct funding programs" The Government and the Commission recognize that digital media are playing an increasingly important role in Canadians' lives. Just as Canadians face fewer barriers to consuming content from other countries via the Internet, Canadian producers face fewer barriers to distributing their media products directly to domestic and international audiences. In fact, it has never been easier and cheaper for producers to bypass cable and satellite television companies to distribute their content directly to viewers. Yet, cable and satellite companies continue to be a primary source for funding of Canadian content development through regulatory fees and levies. Such fees conflict with the need for cable and satellite companies, the fee-payers, to upgrade their ICT enabling networks to accommodate consumer demands and remain competitive. 59. In recognition of this changing environment, the Government's digital economy strategy should examine the funding mechanisms currently in place for Canadian content. Existing funding mechanisms are from a bygone era in which international barriers were sustainable through Government regulation and technology limitations. As these regulatory fees also serve as a drag on ICT infrastructure investment, their appropriateness is questionable. The Government should review its policies in this area with the intention of modernizing the funding mechanisms and eliminating the associated investment drag on the fee-payers, i.e., cable and satellite companies. 6.0 MONITORING AND SETTING TARGETS FOR THE DIGITAL ECONOMY STRATEGY 60. The Consultation Paper asks whether Government should set targets for the digital economy strategy. It is recommended that the Government exercise caution with respect to any targets that may be set as a result of the consultation process, especially those related to ICT infrastructure. The TPR Panel's observations on broadband deployment addressed this issue: The Consultation Paper, page 26. The Consultation Paper, page 26.

30 The challenge of achieving ubiquitous access to telecommunications networks is ongoing and evolves anew with each new generation of technology. In the 1990s, connecting all Canadian schools through dialup modem was an innovative and pioneering objective, but today this objective is no longer sufficient. Current broadband networks represent a quantum advance over traditional telephone networks. However, they are only the latest stage in the evolution of telecommunications networks. They will be surpassed as the capacity of networks continues to evolve in response to demand for new services and applications. The fivefold increase in broadband speed that took place between 2000 and 2005 is the beginning of the broadband story, not the end More recently, the Senate Committee Report found the pace of change in the sector to be so rapid that it had to reposition the focus of its investigation in light of these changes. While conducting its study, the committee saw the introduction seemingly weekly of a new smart phone, targeting the iphone or the BlackBerry or both. In 2008, 21% of cell phone handset sales in Canada were for smart phones, up from 12% in On April 3, 2010 Apple released in the United States the basic Wi-Fi version of its ipad, a tablet computer, and one of the most anticipated and hyped electronic devices in years. On April 30, 2010, Apple released the ipad with 3G wireless connectivity. By May 3, 2010 a million ipads had been sold in the United States. The ipad finally became available in Canada on May 28, Not only were there newer telecommunications devices and applications to change the landscape, but the structure of the wireless industry in Canada also changed.... When the committee began its study, the one statistic of the wireless sector that stood out was the proportion of the Canadian population covered by 3G networks; this coverage, based on end of 2007 data was 78%. From the perspective of most committee members, this meant that 22% of Canadians about seven and a half million Canadians could not take advantage of smart phones. This was a digital divide that called for some explanation. In August 2009, however, the CRTC released its Communications Monitoring Report 2009, which showed that 3G coverage had increased to 91% ICT technologies and markets change rapidly, and often in unpredictable directions, such that targets can quickly be rendered irrelevant, or worse, misdirected. This is why the Senate Committee Report recommended that "The Minister of Industry in the Digital Strategy TPR Report, page 8-6. Senate Committee Report, June 2010, page 9.

31 should not focus on any particular technology or speed for increased broadband coverage in Canada." 58 Indeed, given the rapid pace of change in the underlying technologies and consumer behaviours it would be ill-advised for Government to set targets for market developments over which it has little control. That is not to say, however, that the Government should not monitor the progress of the digital economy and adapt its policies accordingly. 63. To assist in identifying aspects of the digital economy strategy to monitor, the framework used by the Innovation Panel to consider the innovation performance of Canadian businesses may prove useful. The Innovation Panel identified inputs, outputs and outcomes as a useful framework because these elements are directly observable. 59 This framework could also serve as a model for the Government to track the progress of its digital economy strategy. For example, the following indicators could be relevant to the Government's digital economy strategy and most, if not all, are already available to the Government and/or to the general public: Inputs amount of investment tax credits awarded, amount of CCA claimed for ICT related investments, SR&ED tax credit claims, amount by which regulatory fees and levies have been reduced, total contract value of Government "innovation projects" awarded, amount of rural broadband subsidies granted, amount of education funding for ICT programs in primary, secondary and postsecondary institutions; Outputs ICT capital and ICT services investments by small, medium and large sized businesses, R&D spending by Canadian businesses, ICT revenues, number of ICT employees, percentage of Canadians' interactions with Government completed via online channels, percentage of households and businesses with broadband access, e-commerce revenues, number of university and college graduates with technical degrees and diplomas, awareness levels among students and educators of ICT related careers; and Outcomes national productivity growth, network readiness index ranking (e.g., by the World Economic Forum) Senate Committee Report, June 2010, page 17. Innovation and Business Strategy: Why Canada Falls Short, Report of the Expert Panel on Business Innovation, Council of Canadian Academies, June 2009, page 45.

32 The inputs, outputs and outcomes listed above are only examples but they demonstrate the type of metrics that may be appropriate for monitoring the Government's digital economy strategy. The indicia actually monitored by Government will depend on the strategy adopted and the available data. By tracking Canada's performance on these measures, Government will be able to determine whether its policies are having an impact, and if so, to what extent. If there is no or minimal impact then the strategy may need to be revised. If there is a significant impact in the desired direction, then Government may choose to continue to pursue the existing strategic course or relax its policy efforts in favour of allowing market forces to guide future developments. Assessing the impact's significance will be a situation-specific exercise and depend on the economic, industrial, political and social environment at the time of measurement. 7.0 SUMMARY OF RECOMMENDATIONS 65. The available evidence supports the conclusion that Canada's ICT infrastructure is a national strength today and a key component to creating a successful digital economy strategy. Given the ongoing need for investment, however, there are no guarantees that this situation will continue into the future. The pace and extent of these investments in infrastructure depends, in large part, on Canada having a policy and regulatory environment that encourages such investments and stimulates demand for ICT products and services. This submission has provided a number of recommended actions for Government which will facilitate such investment, innovation and ICT usage. 1. Government should undertake a review of all regulatory and government fees with the objective of eliminating them or reducing them significantly as a means to encouraging additional or accelerated investments by infrastructure providers. 2. The Government's digital economy strategy should adopt a policy of encouraging investments in next generation networks by allowing infrastructure owners to negotiate access to their networks by competitors on a commercial basis rather than regulating such arrangements. 3. Cabinet should closely monitor the upcoming 1 September 2010 Commission decision regarding forced access of next generation networks and if the Commission does not remove the forced access requirement, then Cabinet should vary the Commission's decision so that it promotes the network investments that Canada's digital economy requires. 4. Future wireless spectrum auctions should not employ spectrum set-asides and other distortional rules so that auction prices will not be artificially inflated.

33 Government should deploy auction proceeds for the direct benefit of the digital economy. 5. The digital economy strategy should encourage full spectrum trading in secondary markets, provide for longer-term licences with higher expectations of renewal, permit greater predictability and longer-range planning on allocations and auctions, and eliminate the wireless condition of licence regarding R&D expenditures. 6. If Government modifies the foreign ownership limits, then they should be raised to 49% for telecommunications and broadcasting. Foreign ownership limits must apply symmetrically to all telecommunications and broadcasting operators. 7. Government should increase the CCA rate to 50% for the classes of assets most closely associated with broadband networks as an incentive to accelerate ICT infrastructure investments. For capital investments in those areas identified by Industry Canada as "underserved" as part of the Broadband Canada initiative, a CCA rate of 100% should be introduced to encourage investment in rural areas. 8. The Government's digital economy strategy should ensure that the CRA, in its administration of SR&ED program, appropriately recognizes the role that software and applications development play in the creation and adoption of ICTs and considers these projects eligible for SR&ED tax credits. 9. Canada's digital economy strategy should consider funding education and workplace initiatives in the following areas to increase the supply of skilled ICT workers: building ICT career awareness among Canadian youth; increasing the ICT components of primary and secondary school curricula; adding to the ICT infrastructure at primary and secondary schools; recruiting international students to technical university programs and providing incentives for graduates to remain in Canada; and broadening the accreditation of skilled internationally educated workers. 10. In its role as a lead ICT user, Government should consider implementing a purchasing program in which it identifies and implements innovative ICT solutions to improve Government operations and services. 11. Government should adapt its procurement policies so that they reduce "do-ityourself" ICT initiatives, increase use of "whole Government" ICT projects, and increase use of commercial ICT standards rather than Government specific standards. 12. Government should examine existing Government-mandated Canadian content funding mechanisms with a view to modernizing them and eliminating the associated investment drag on fee-payers, i.e., cable and satellite television companies. 13. Setting targets for the digital economy strategy is ill-advised given the rapid pace of change in the underlying technologies and consumer behaviours. Government should monitor the progress of relevant inputs, outputs and outcomes to its digital economy strategy and adapt its policies as necessary.

34 These recommendations for Government will create a policy and regulatory environment that encourages the private sector to invest further in next generation network infrastructure and Canadian businesses and Government to increase their adoption and use of ICTs. Implementing the recommendations will yield benefits in the ICT sector itself and across the entire economy, thereby increasing productivity growth and prosperity in Canada. ***End of Document***

35 Appendix 1 Page 1 of 11 Canadian Wireline Broadband Market Facts July 9, 2010

36 Canadian Wireline Broadband Market Facts Appendix 1 Page 2 of 11 Canada s Wireline Broadband Networks 94% of Canadian households have access to wireline broadband services. 1 Figure 1: Broadband Availability (Percentage of Households) Figure 2: High-Speed Availability vs. High-Speed Subscriptions CRTC Communications Monitoring Report 2009, August 2009, Figures and 5.3.7, available at

37 Canadian Wireline Broadband Market Facts Appendix 1 Page 3 of 11 Canadian telecom companies have made significant capital investments in wireline technologies over $61 billion since Figure 3: Canadian Wireline Capex Canada has the lowest population density in the G8 and the second lowest in the G20. 3 Figure 4: Population Density in 2009 for the G8 2 3 IDC Canadian Telecommunications Capex Budgets , October 2009, Figure 19. Population density is equal to the total population divided by the total land mass in square kilometres. Data from the CIA World Fact Book available at

38 Canadian Wireline Broadband Market Facts Appendix 1 Page 4 of 11 Figure 5: Population Density in 2009 for the G20

39 Canadian Wireline Broadband Market Facts Appendix 1 Page 5 of 11 Actual Download Speeds Canada has among the highest actual download speeds in the world 2 nd in the G8 and 3 rd in the G20. 4 Figure 6: Average Download Speeds (Kbps) 4Q09 for Available G8 Figure 7: Average Download Speeds (Kbps) 4Q09 for Available G20 4 Akamai, 4 th Quarter, 2009 The State of the Internet Report, available at Unlike other international comparisons which use advertised speeds, Akamai uses its globally-deployed server network and the billions of requests for web content that it services on a daily basis to determine download speeds. Note that Akamai does not have data for Russia in the G8, and does not have data for Indonesia, Russia, South Africa and Turkey in the G20. Thus, we refer to the available G8 and the available G20.

40 Canadian Wireline Broadband Market Facts Appendix 1 Page 6 of 11 Canada has among the highest percentage of unique IP addresses greater than 2 Mbps in the world 3 rd in the G8 and 4 th in the G20. 5 Figure 8: % of Unique IP Addresses Greater than 2 Mbps 4Q09 for Available G8 Figure 9: % of Unique IP Addresses Greater than 2 Mbps 4Q09 for Available G20 5 Ibid.

41 Canadian Wireline Broadband Market Facts Appendix 1 Page 7 of 11 Canada has among the highest number of unique IP addresses greater than 2 Mbps per capita in the world 2 nd in the G8 and 3 rd in the G20. 6 Figure 10: Unique IP Addresses Greater than 2 Mbps per Capita 4Q09 for Available G8 Figure 11: Unique IP Addresses Greater than 2 Mbps per Capita 4Q09 for Available G20 6 Ibid.

42 Canadian Wireline Broadband Market Facts Appendix 1 Page 8 of 11 Canada has among the highest percentage of unique IP addresses greater than 5 Mbps in the world 2 nd in the G8 and 3 rd in the G20. 7 Figure 12: % of Unique IP Addresses Greater than 5 Mbps 4Q09 for Available G8 Figure 13: % of Unique IP Addresses Greater than 5 Mbps 4Q09 for Available G20 7 Ibid.

43 Canadian Wireline Broadband Market Facts Appendix 1 Page 9 of 11 Canada has among the highest number of unique IP addresses greater than 5 Mbps per capita in the world 2 nd in the G8 and 3 rd in the G20. 8 Figure 14: Unique IP Addresses Greater than 5 Mbps per Capita 4Q09 for Available G8 Figure 15: Unique IP Addresses Greater than 5 Mbps per Capita 4Q09 for Available G20 8 Ibid.

44 Canadian Wireline Broadband Market Facts Appendix 1 Page 10 of 11 Price of Canada s Wireline Broadband Services A recent report Commissioned by the Canadian Radio-Television and Telecommunications Commission (CRTC), finds that Canada s broadband prices compare favourably to other digital economies. 9 Figure 16: International Broadband Internet Prices Broadband Level 1 10 (PPP-adjusted CDN$ per Month) 9 10 Wall Communications Inc., Price Comparisons of Wireline, Wireless and Internet Services in Canada and with Foreign Jurisdictions: 2010 Update, 16 April 2010, (Wall Report) available at See Figure 10 of Wall Report. Level 1 service consists of transmission speeds less than or equal to 1.5 Mbps, average usage of 2 GB and a modem rental amortized over 24 months. The U.K. and France no longer offer this service and 2010 is the first year Japan was included.

45 Canadian Wireline Broadband Market Facts Appendix 1 Page 11 of 11 Figure 17: International Broadband Internet Prices Broadband Level 2 11 (PPP-adjusted CDN$ per Month) Figure 18: International Broadband Internet Prices Broadband Level 3 12 (PPP-adjusted CDN$ per Month) See Figure 11 of Wall Report. Level 2 service consists of transmission speeds between 1.5 and 9 Mbps with a target of 5 Mbps, average usage of 10 GB and a modem rental amortized over 24 months is the first year Japan was included. See Figure 12 of Wall Report. Level 3 service consists of transmission speeds greater than 10 Mbps with a target of 15 Mbps, average usage of 25 GB and a modem rental amortized over 24 months is the first year Japan was included.

46 Appendix 2 Page 1 of 13 Canadian Wireless Market Facts July 9, 2010

47 Canadian Wireless Market Facts Appendix 2 Page 2 of 13 Canada s Wireless Networks Canada is a world leader in wireless technology. Canada is a world leader with three providers operating state-of-the-art 3G HSPA+ networks. 1 Figure 1: HSPA+ Networks in the G20 Country No. of Providers Providers Canada 3 Bell Canada, Rogers, TELUS Turkey 3 AVEA, Turkcell, Vodafone Germany 2 Telefónica O2 Germany, T-Mobile Saudi Arabia 2 Etihad Etisalat, STC Al Jawal United States 2 BendBroadband, T-Mobile Australia 2 Telstra, Optus Indonesia 1 PT Telkomsel Italy 1 Telecom Italia/TIM Japan 1 eaccess/emobile South Africa 1 MTN Argentina 0 Brazil 0 China 0 France 0 India 0 Korea 0 Mexico 0 Russia 0 United Kingdom 0 1 3G Americas available at

48 Canadian Wireless Market Facts Appendix 2 Page 3 of 13 Figure 2: HSPA+ Networks in the G8 Country No. of Providers Providers Canada 3 Bell Canada, Rogers, TELUS Germany 2 Telefónica O2 Germany, T-Mobile United States 2 BendBroadband, T-Mobile Italy 1 Telecom Italia/TIM Japan 1 eaccess/emobile France 0 Russia 0 United Kingdom 0 In 2009, Canadian wireless carriers invested $US per subscriber in capital expenditures which is 2 nd in the G8 and 4 th in the G20. 2 Figure 3: Capital Expenditure per Subscriber in 2009 for the G8 2 Bank of America Merrill Lynch Global Wireless Matrix 1Q10, 13 April Note that this is not the complete G20 since the Global Wireless Matrix does not track Saudi Arabia.

49 Canadian Wireless Market Facts Appendix 2 Page 4 of 13 Figure 4: Capital Expenditure per Subscriber in 2009 for the G20 Canadian wireless service providers have invested over $16 billion in capital expenditures since 2001 or close to $22 billion if investments in auctioned spectrum are included. 3 Figure 5: Canadian Wireless Service Providers Capex IDC Canada, Canadian Telecommunications Capex Budgets, October 2009, Table 7. Wireless Capex totals exclude Inukshuk venture, exclude one-time spectrum auction fees and use mid-points of guidance ranges. The auction proceeds from the 2001 PCS Spectrum Auction was $1.5 billion and the proceeds from the 2008 AWS Spectrum Auction was $4.3 billion.

50 Canadian Wireless Market Facts Appendix 2 Page 5 of 13 Canada has the lowest population density in the G8 and the second lowest in the G20. 4 Figure 6: Population Density in 2009 for the G8 Figure 7: Population Density in 2009 for the G20 4 Population density is equal to the total population divided by the total land mass in square kilometres. Data from the CIA World Fact Book available at

51 Canadian Wireless Market Facts Appendix 2 Page 6 of 13 Price of Canada s Wireless Services Canadians pay among the lowest price per voice minute in the world 3 rd in the G8 and 8 th in the G20. 5 Figure 8: Voice Only Revenue per Minute (4Q 2009) for the G8 5 Revenue per Minute is equal to the voice-only average revenue per user per month divided by the average minutes of use per month per user. Average Minutes of use per month per user is the total minutes of use on the operator s network divided by the average subscriber base during the quarter. It usually excludes traffic related to Mobile Data but includes both incoming and outgoing minutes. Bank of America Merrill Lynch Global Wireless Matrix 1Q10, 13 April Note that this is not the complete G20 since the Global Wireless Matrix does not track Saudi Arabia.

52 Canadian Wireless Market Facts Appendix 2 Page 7 of 13 Figure 9: Voice Only Revenue per Minute (4Q 2009) for the G20 Bell Canada and Rogers have lower priced data plans for Apple s ipad than the US, and some of the lowest announced to date. 6 Figure 10: Entry Level ipad Plans by Carrier (US$ / Month) 6 Bank of America Merrill Lynch Canadian ipad pricing: Why it matters, 07 June 2010, Chart 3.

53 Canadian Wireless Market Facts Appendix 2 Page 8 of 13 Figure 11: High-Capacity ipad Plans Cost per GB (US$) Canada also has among the lowest mobile service revenues as a percentage of GDP 2 nd in both the G8 and the G20. 7 Figure 12: Mobile Service Revenue as a % of GDP (4Q 2009) for the G8 7 Mobile revenue as a percentage of GDP is equal to total service revenue divided by total GDP. Service revenues include monthly service charges and usage fees, roaming, long-distance, and subscriptions to mobile data services. Bank of America Merrill Lynch Global Wireless Matrix 1Q10, 13 April Note that this is not the complete G20 since the Global Wireless Matrix does not track Saudi Arabia.

54 Canadian Wireless Market Facts Appendix 2 Page 9 of 13 Figure 13: Mobile Service Revenue as a % of GDP (4Q 2009) for the G20 A recent report Commissioned by the Canadian Radio-Television and Telecommunications Commission (CRTC), finds that Canada s wireless prices compare favourably to other countries. 8 Figure 14: International Mobile Wireless Prices Wireless Level 1 9 (PPP-adjusted CDN$ per Month) 8 9 Wall Communications Inc., Price Comparisons of Wireline, Wireless and Internet Services in Canada and with Foreign Jurisdictions: 2010 Update, 16 April 2010, (Wall Report) available at See Figure 6 of Wall Report. Level 1 service consists of 150 minutes of use per month, no additional features, no SMS and no data service is the first year Japan was included.

55 Canadian Wireless Market Facts Appendix 2 Page 10 of 13 Figure 15: International Mobile Wireless Prices Wireless Level 2 10 (PPP-adjusted CDN$ per Month) Figure 16: International Mobile Wireless Prices Wireless Level 3 11 (PPP-adjusted CDN$ per Month) See Figure 7 of Wall Report. Level 2 service consists of 450 minutes of use per month, Voic and caller ID, 150 SMS and no data service is the first year Japan was included. See Figure 8 of Wall Report. Level 3 service consists of 1,200 minutes of use per month, Voic , caller ID and Other, 150 SMS and 1 GB data service is the first year Japan was included.

56 Canadian Wireless Market Facts Appendix 2 Page 11 of 13 In terms of affordability, the ITU indicates that Canadians spend approximately 0.51% of their monthly income on mobile services, which puts Canada 4 th in both the G8 and the G The mobile basket consists of 25 outgoing calls (on-net, off-net and to a fixed line, and for peak, off-peak and weekend periods) in predetermined ratios plus 30 SMS messages. Monthly income is the national average monthly gross national income per capita. Figure 17: Expenditure on Mobile Basket as a % of Monthly Gross National Income (2009) for the G8 12 International Telecommunication Union, Measuring the Information Society 2010, available at

57 Canadian Wireless Market Facts Appendix 2 Page 12 of 13 Figure 18: Expenditure on Mobile Basket as a % of Monthly Gross National Income (2009) for the G20 Canadians use more voice minutes on average than wireless subscribers in the rest of the world other than the U.S. and China. 13 Figure 19: Minutes of Use per Month (4Q 2009) for the G8 13 Bank of America Merrill Lynch Global Wireless Matrix 1Q10, 13 April Note that this is not the complete G20 since the Global Wireless Matrix does not track Saudi Arabia.

58 Canadian Wireless Market Facts Appendix 2 Page 13 of 13 Figure 20: Minutes of Use per Month (4Q 2009) for the G20 Penetration Canada s wireless penetration of 85% to 90% in urban centres is similar to the U.S. 14 Canada has 100 mobile subscribers for every 100 Canadians between the ages of 15 and CIBC Stress Testing Canadian Wireless: Why Data Growth Holds the Key to Long-Term Wireless Fundamentals, 14 June, In 4Q 2009 there were 23 million subscribers and in July 2009 there were an estimated 23 million people between the ages of 15 and 64. Bank of America Merrill Lynch Global Wireless Matrix 1Q10, 13 April 2010, and the CIA World Fact Book.