Emerging media and vertical integration

Remarks today before House of Commons Standing Committee on Canadian Heritage
Study of Emerging Digital Media: Opportunities and Challenges

Thank you Mr. Chair and Members for allowing TELUS to present on issues around
the future of digital media in Canada and the public policy challenges that massive
change, driven by the Internet, now poses in respect of the achievement of
cultural objectives.

The Internet is an open system that has irrevocably changed the world of
information and entertainment and what was once only available through the
broadcasting system, or video stores, is now easily accessible not only to
Canadians but to people all over the world. That could be a huge opportunity for
our cultural industries.

Companies like Apple, Google and Netflix are reinventing the world of
entertainment, using the Internet as their delivery vehicles, and they are not
alone. Companies like Sony and Panasonic are introducing TV sets that connect
directly to the Internet and in response, big US broadcasters are pushing
programming through Hulu, directly to consumers.

TELUS is responding in turn, by investing billions of dollars in world leading
wireless broadband and our new internet‐based Optik TV service to ensure
Canadians and Canadian businesses, including digital entrepreneurs, can take
advantage of the opportunities that access to global markets through broadband
presents.

This brings me to the issue of foreign ownership. Government is currently
considering removing restrictions, for carriers regulated under the
Telecommunications Act, but not for carriers regulated under the Broadcasting
Act. This distinction put forward by Government does not reflect digital realities
and in our view, a telecom only liberalization, will lead to legal advantages made
available for large foreign enterprises that will not be available for Canadian
enterprises. That cannot be considered fair.

Why? Well, today virtually all communications carriers carry or distribute video
over the same physical network used to deliver traditional telecommunications.
Digital networks just carry bits and are agnostic when it comes to traffic carried,
and in fact should be agnostic, to ensure principles like open access to the
Internet. All networks today carry voice, video and data traffic and you can’t
segregate that traffic. However it is still relatively easy to protect and separate the business of content production and exhibition from digital carriage, even if you
liberalize broadcast distribution.

We believe when it comes to broadcast distribution or carriage you can achieve
broadcasting objectives irrespective of ownership. Broadcast distributors have little or no discretion regarding the application of broadcast rules. Cultural
priorities and fees are set by the CRTC and distributors have to comply. That
would still be the same if foreigners ran the physical distribution networks.
On the other hand, broadcasters like CTV, Global or TVA, make decisions on what
programmes to produce, licence to independent producers and exhibit on their
channels. These activities are of obvious cultural significance and should remain
protected.

But for today, let me make the suggestion that foreign ownership should not be
your primary concern in terms of meeting the objectives of the Broadcasting Act.
To TELUS, the biggest threat to access, diversity and choice, arises from the
unprecedented vertical integration we see in the broadcasting industry, not
whether foreign or Canadian carriers actually distribute video under the same
rules. After the Bell/CTV deal is approved by the CRTC, early next year, the four
largest broadcast distributors, will also control virtually all the broadcasters in the country. That is a massive consolidation that has occurred in less than five years.

This vertical integration creates a huge risk for abuses of market power in terms
of access.We are therefore pleased that the CRTC is planning to have a proceeding next Spring to deal with issues related to vertical integration and we are equally
pleased that last week your Committee voted to make this a focus of an upcoming
study. Foreign ownership is clearly a concern, but the carriage and distribution of
content can be easily regulated to ensure that carriage priorities are met
irrespective of who owns the pipe.


A consolidation of control over that content, into the hands of only four large
players, should be of much greater concern, because if government cannot
ensure all content producers, independent distributors and, most important, all
Canadians, have open access to the system, then we all lose. In our view, if we
lose diversity and choice in the system, in order to create larger Canadian
enterprises, debate about the impact of foreign ownership, on the achievement
of the objectives of the Broadcasting Act becomes almost irrelevant.