Broadcasting To Broadband Culture And Commerce In A Digital Media Ecosystem Final 25 May 2009
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Broadcasting To Broadband Culture And Commerce In A Digital Media Ecosystem Final 25 May 2009

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  • 1. Broadcasting to Broadband: Culture and Commerce in a Digital Media Ecosystem June 2009
  • 2. The Authors This paper is the work of Michael Hennessy, Senior Vice-President, Regulatory and Government Affairs, TELUS Communications Company. Additional input was provided by Craig McTaggart, Director, Broadband Policy, TELUS Communications Company and Ann Mainville-Neeson, Director, Broadcast Regulation, TELUS Communications Company.
  • 3. Content A. Introduction..........................................................................................................................1 B. Competition, choice and innovation have shifted to the edge of the network, making top-down regulation less effective in mandating policy outcomes ................................2 C. We need to think outside of the box to fully exploit IP at the Edge ................................3 D. Sound public policy starts by recognizing advanced wireless and wireline networks as critical infrastructure for the country’s overall well-being ..............................................5 E. Let’s harness the significant opportunities, both economic and cultural, that digital media presents ....................................................................................................................8 F. There is a pot of gold to fund the digital ecosystem......................................................10 G. Can the CRTC assure diversity of voices if it does not intervene and tax? And if it intervenes what happens to principles of openness that underlie the Internet? ........12 H. Freedom to access and innovate at the edge of the network is not absolute and openness does not void legitimate rights to exploit intellectual property...................15 I. It is time to consider the benefits of managed IP networks that run in tandem with the public Internet. ...................................................................................................................18 J. Conclusion .........................................................................................................................19 i  
  • 4. Canada, like many of its major trading partners, is examining the impact large scale investment in broadband might play in building a 21st century economy. At the same time, the Government of Canada recognizes it generally has a limited ability to spend the billions of dollars required to upgrade networks and as well stimulate investment in Information and Communication Technologies (ICTs), including application and software development to support digital media. As a result, the government must count on the private sector to invest, even in these difficult economic times. However, just last year the Government of Canada raised a windfall $4.3 billion of private money from wireless carriers in an auction of public airwaves to enable Advanced Wireless Services (AWS) networks. AWS networks, and other new 3G/4G networks planned or currently under construction, are expected to usher in a new generation of broadband wireless that will deliver multi-media Internet access and digital media services to Canadian consumers. Less than one year later, ironically even as the Canadian Radio-television Telecommunications Commission (CRTC) was considering calls to transfer billions of dollars of private money from carriers in order to subsidize the development of Canadian digital content, the opportunity to use the auction windfall to stimulate broadband expansion or digital content production was lost as the government chose to invest in efforts to prop-up old economy activities like the struggling auto sector rather than invest in the new economy. Luckily there are still a couple of auctions left to get it right and invest in the new economy. A. Introduction This paper was prepared for two panel discussions TELUS is sponsoring at the Banff World Television Festival and nextMEDIA. At both these conferences taking place in Banff this year we will be debating a number of issues surrounding the future of Canada’s digital media sector such as: • Does Canada have a digital media policy strategy and does it need one? • Will regulation or openness define the digital media ecosystem of the future? • How can we ensure the right incentives are in place to deliver next generation competitive infrastructure to support new media and the development of digital content? • What should drive policy: industrial strategy or cultural objectives? • Should the CRTC continue to take a hands-off approach to regulation of Internet content? • Should Internet and wireless service providers be required to give prominence to "Canadian broadcasting in new media" and collect taxes from their subscribers to fund its creation? • Can "net neutrality" regulations and incentives to invest in broadband infrastructure coexist? • What are reasonable Internet "traffic management" practices? • Is it time to bring together the various policy debates over broadcasting regulation, copyright reform, consumer protection, privacy, and broadband investment? 1  
  • 5.   Internet Protocol (IP) opportunities in the media space extend well beyond traditional broadcast boundaries. They include what’s “new” in new media, from broadband infrastructure to skills development to software and application-based intellectual property. All these elements as well as issues such as open access and intellectual property rights have to be addressed more holistically in policy-making, if Canada wants to stimulate, either directly (through funding mechanisms) or indirectly (by encouraging investment), a Canadian digital media sector that is a viable, self-sustainable and important element of our future economy. B. Competition, choice and innovation have shifted to the edge of the network, making top-down regulation less effective in mandating policy outcomes In the communications sphere, IP/new technology/new media/the Internet are the building blocks of a digital media ecosystem that will transform communications and restructure the way Canadians produce, consume, distribute and interact with content. What is unique about IP is that, unlike economic models of the past where control of distribution was dependent on large infrastructure providers and limited supply and heavily regulated as a consequence; in the digital space, increased competition, choice and user control has shifted to the “edge of the network” in a way that fundamentally alters both the rationale for, and the effectiveness of public policy objectives. While the shift to digital media is well underway, our public policy debate seems mired by concerns about traditional or linear media, particularly broadcasting. Worse still, rather than focusing on how to stimulate investment in potential growth sectors of the digital media ecosystem, including broadcasting, virtually all debate has degenerated into arguments over which elements in the broadcasting value chain should sustain which others. The bill for the distribution sector could climb over a billion dollars annually if all the proposals on the table were actually implemented. This debate over subsidies is unfortunate because the debate today hardly addresses the opportunities IP presents for creators, entrepreneurs, and particularly all Canadians, to more fully participate in the cultural process. Simply put, resorting to fees, taxes and subsidies as the first response to insulating broadcasters from change may be counterproductive if that change reflects real shifts in consumer demand. If this shift is as disruptive as some suggest, the CRTC may end up targeting the wrong part of the system at the expense of investment in those elements of the system that may be most effective in serving that change in demand. 2  
  • 6. The importance of “new media” and related investments in IP and innovation has been underemphasized by policy-makers, or virtually ignored, while too much attention today is focused on the so-called disruptive nature of the Internet and the potentially negative impact of new/digital media on the broadcasting system and related production sector. Even when policy thinking shifts to the digital side, it is stuck in the so-called net neutrality debate and too often characterized by unproductive discourse where loaded phrases like “two- tier” and “piracy” stimulate emotion more than constructive dialogue around innovation. We agree that openness will be critical to exploiting the power of IP but openness is not an absolute. The right to protect and exploit rights is equally critical to creating a viable and sustainable business model for rights holders. Luckily in Canada we already have in place a legal framework to address issues of discrimination that underlie concerns over net neutrality, which allows us to move to the next step of looking at business models for building content businesses. Unfortunately we are badly served by our legal framework when it comes to Copyright laws to protect and exploit the intellectual property rights viable business models depend upon. We submit that there are a number of responses to stimulating a positive climate for digital media (allocation of auction revenues to policy goals, managed digital networks to monetize rights) that can shift debate from contentious to cooperative. C. We need to think outside of the box to fully exploit IP at the Edge For those participating in the digital media value chain, whether in building broadband networks, investing in software and applications development or in content production and distribution, there is a pressing need for a more holistic policy geared towards an incentive-based environment to address the challenges and opportunities that broadband and digital media present. For those consuming, using and increasingly producing content, there is a need for a level of comfort that access to legal content and a free flow of information will anchor public policy. And for those involved in the creative process, whether relating to media or to software, there is a need to be assured that intellectual property rights will be respected in a more open environment, permitting fair exploitation and commercialization of intellectual property. 3  
  • 7.   We are not suggesting that this should result in more regulation, although some parties do. Rather we are suggesting there needs to be a way to connect a bewildering number and range of policy issues currently being considered by various branches of government in an unconnected fashion. These issues have direct bearing on the evolution of Canada’s digital media business environment: • In 2009, the CRTC has undertaken a variety of consultations on the regulation of new media and adjustments to traditional broadcast regulatory frameworks, including more fees, to deal with disruption across the media value chain. • The Standing Committee on Canadian Heritage is currently looking at the "Evolution of the Television Industry in Canada and its Impact on Local Communities” and whether additional fees and subsidies might quell the perceived “crisis in broadcasting." • The CRTC has also launched a proceeding under the Telecommunications Act to examine issues around traffic management online, net neutrality and even non-neutral priority lanes for Canadian content. • Industry Canada is looking at how to direct stimulus dollars to broadband expansion. And a Senate Committee is looking a broadband and wireless deployment. • Cabinet is confronted by appeals of CRTC decisions dealing with unbundling of next generation networks. • This summer, Industry Canada will consult on a revised Copyright Act that will bring Canada in line with its international obligations. • And finally, the related issue of piracy of intellectual property has led the Office of the US Trade representative to place Canada among the most wanted on the watch list of countries that are a haven for piracy. TELUS is not suggesting the government should dictate the course and direction of innovation in terms of picking winners and losers. For the most part it can’t and should not, because the current environment is so dynamic. However, we do think more certainty is required in terms of what the rules of engagement are in the digital world. Wrong policies can negatively impact innovation and investment that is occurring in the unregulated space. Right now debate at the policy level is almost mute while proceedings at the CRTC which impact our digital future have been hijacked by agendas for and against fees and taxes to fund the CRTC broadcast policy goals, almost to the exclusion of more innovative ideas of achieving objectives. Similarly, the recent CRTC proceedings on new media regulations and the unfinished business of copyright reform only increase uncertainty and confusion over the development of a digital media ecosystem. 4  
  • 8. It is hard to innovate, invest or plan without some certainty as to how regulators and policy-makers will affect these new businesses. And it’s equally hard for a body like the CRTC to impose regulation in uncharted territory without some policy direction from government. In the absence of such direction, important issues such as the future of broadcasting, broadband expansion, digital content, net neutrality, copyright and piracy are languishing in a public policy vacuum of endless debates that seemingly ignore or at best pays lip service to the transformational effects of broadband investment and the use of interactive digital media such networks support. We submit, as we did in 2008 in Banff, that the development of a holistic digital media ecosystem must be based on a broader industrial vision rather than simply focused, as it is today, on the impact of disruptive technology on the existing framework for broadcasting in Canada. As TELUS suggested a year ago in a paper tabled at the Banff World Television Festival, it is time to recognize that the objectives of the Broadcasting Act are only part of the puzzle that underlies the digital media ecosystem. The real issues of the day for 21st century Canadian content are equally about the protection of rights versus fair use and a recognition that support for next generation networks, software and applications are as important in the digital market as the production of the content in the media. D. Sound public policy starts by recognizing advanced wireless and wireline networks are critical infrastructure for the Country’s overall well-being Canadian trade and commerce, political linkage of our provinces and territories and mass culture has always been supported by our investment in, and exploitation of, infrastructure. As much as canals and railways supported Canada’s 19th century economic activity and our highways and telecommunications networks supported the growth of the 20th century, today Internet Protocol (IP)-based broadband networks and the services IP enables will be the critical infrastructure and tools that define the 21st century in terms of the economic, social and cultural growth of our nation. Broadband is more than merely a conduit for “new media”. Broadband is now critical infrastructure and a country’s economic well-being is increasingly tied to the quality and reach of its networks. While Canadians enjoy an unprecedented level of access to broadband, Canadian networks, both wireline and wireless, are said to be falling behind those of our major trading partners in terms of the speed and capacity that will be required to support the demands of content rich digital media. This is not as dire news as it seems. The downside of being early adopters is an older infrastructure. That’s changing: 5  
  • 9.   • Wireless carriers are constructing networks that should, by the end of 2010, make Canada a world leader in terms of speed, capacity, reach and competitive supply of broadband wireless networks. • Cable companies are currently rolling out DOCSIS 3 networks that will deliver speeds of up to 100Mps or more of shared capacity. • Carriers like TELUS are rebuilding copper networks with fibre to the node technologies (FTTN) that will deliver sufficient capacity for multiple HD channels and faster broadband all on the same line. • And rural focused carriers are using combinations of satellite and wireless technologies to drive access out into rural locations. There is no single infrastructure that will predominate, but most new broadband will by definition be capable of providing sufficient capacity and speed to support a quality video or interactive gaming experience. That is the good news. However, closing the advanced broadband gap will require billions of dollars in investment in these wireline and wireless networks, as well as digital television networks. This investment must be made in the middle of a global capital market crisis and recession and to the extent regulation dampens investment the benefits of broadband will be less extensive. Some investment is critical to carriers from the perspective of remaining competitive and will be made regardless of intervention or taxation, but the more incentives are reduced, the greater the emphasis that will be placed on the more economically attractive urban markets. And if investment in rural is not made by the private sector, Canada faces a larger digital divide than what it confronts today. Right now the Canadian government has only put $225 million on the table for broadband expansion. That investment will not go far nearly enough - hence the need for certainty and a more friendly climate for the private sector to invest. TELUS submits that new investment is a prerequisite to create a solid foundation for advances in new media and for the achievement of broad policy objectives. We also submit that the policy environment in which we operate is not focused on the importance of stimulating that investment to the fullest for the benefit of all Canadians and Canadian entrepreneurs creating new markets to serve them. Broadband upgrades and expansion are recognized as essential components of our national competitiveness agenda but how do we ensure that investment is stimulated in tough market conditions? TELUS considers that tax incentives, as opposed to direct stimulus, may be the most efficient way to incent or accelerate investment because these require less oversight and management. Measures like capital cost allowance increases and improved tax measures around spectrum are required to maximize spending through the recession. Shifts in regulatory policy that encourage the deployment of wireless broadband as a substitute for basic telephone 6  
  • 10. and Internet services in rural area are another way to extend networks. That said, even if more incentives are placed on promoting investment, some direct government support to extending broadband in remote areas of the country will still be required. In addition to tax incentives, regulators and policy-makers should look to remove measures that act as disincentives to invest. We submit that regulators and policy-makers have to consider and respond to two serious problems. First, the growing demands on the CRTC to tax infrastructure providers to subsidize broadcast content providers penalizes carriers, other digital content providers and communities outside of urban areas. Forced transfers of income from one sector to another only create more distortions in the markets. Network investment is not made without an expectation that it can be recovered. Therefore the higher the costs (operating expenses) imposed on carriers, then either the less the investment in marginal areas or the higher the charge to consumers for access. Further, when access costs increase, the laws of elasticity dictate that consumption of optional content services will decrease. Digital content is an elastic product. Second, the CRTC has to seriously address whether its policy of resale actually promotes investment and competition or whether it needs to turn its attention to the edge of the network to achieve its goals. In a monopoly environment resale was considered necessary to reduce price through arbitrage and provide more choice. In a competitive environment arbitrage reduces incentives to invest. The equation is simple, the incentive to invest decreases the more regulation sets rates below commercial norms to artificially induce access providers to use the same network. Further, as the incentive not to invest in even more innovative networks decreases, the easier it becomes to acquire someone else’s facilities below the cost to build. This creates two negatives. It results in less network capacity and in less incentive to respond to the competition by building even faster or more innovative networks. A better way to promote competition is simply to continue to let it operate at the edge of the network. You cannot add capacity, increase innovation or create more or faster networks by reselling networks someone else built. Particularly if the game is price arbitrage. However, in an IP-based environment we think that the way to promote competition is not through arbitrage but by allowing competition and innovation to flourish at the edge of the network. That actually reflects the reality of the market today. But whether one is examining IP-based enhanced telecommunications services or the abundance of digital content , it is clear that an unregulated Internet has already created more competition, diversity and choice than was ever contemplated possible under the old regulatory model for telecoms and broadcasting. 7  
  • 11.   E. Let’s harness the significant opportunities, both economic and cultural, that digital media presents The debates on the digital future have been mired in arguments over subsidies, increasingly broadening the scope of potential payors from broadcast distributors to ISPs, and whether new media has to be regulated like old media in order to meet the objectives of the Broadcasting Act. Unfortunately, that debate seems almost entirely focused on support for traditional broadcast players, protecting the broadcasting sector and a production community that is dependent on that model, with little to no thought as to whether this is the right strategy for building a digital economy. Even the proposed new media tax is aimed at broadcaster activities online, not at new digital content entrepreneurs in gaming or social networks. The price tag for this redistribution of income to broadcasters and TV content producers could be substantial. In addition to some $300 million already required from broadcast distributors for the Canadian Television Fund, smaller independent funds and support for community channels, the CRTC has heard proposals for: • As much as $352 million in transfers from distributors to over-the-air broadcasters in the form of fee for carriage; • An increase in the contribution by distributors to the recently created Local Program Improvement Fund to $180 million; • A 3% tax on Internet Service Providers (ISPs) to support new media broadcasting and a smaller tax on wireless carriers; • A voluntary 5% tax on ISPs proposed by songwriters to support access to unlimited downloads. It does not take much imagination to see fee proposals adding up to over a billion dollars in annual transfers from distributors and ISPs to support traditional media business models. But is that the best way to build a 21st century digital media economy? Once that money is spent on traditional media, how do we stimulate investment in online creation if that is also required? For a carrier like TELUS the frustration over a “tax and subsidize” policy is twofold. First, our investments in the past few years just to catch up with demand for new networks and to remain competitive exceed a billion dollars annually. In 2009 TELUS will invest close to $1 billion in next generation wireless and fibre to the node broadband. We are doing all this without the promise of any stimulus dollars. So our enthusiasm to have to support other sectors facing the need to adjust their business models at a time when we have to finance our own adjustments is understandably dampened. The second point is more general. Why it is assumed that the only way to create opportunity in the content space online is to maintain the model of dependency that prevails in the broadcast space? We accept that the production of high quality Canadian drama targeted to a Canadian 8  
  • 12. rather than North American market will likely always be uneconomic. We have argued in the past that this may be the result of a flawed policy that incents production of identifiably Canadian stories rather than a Canadian production sector that tells universal stories to global markets. Arguably, as we set out in our paper last year, the economics online are different for most content and will allow producers to better exploit markets from local to global without the presumption that this product has to be subsidized by someone else’s money. In essence, there is an opportunity to create more viable production models that do not begin with an assumption that the only way to tell and sell our stories is to subsidize their creation. IP creates access to a much larger market than broadcasting. That is why we submit industrial policy not regulatory policy should guide, to the extent guidance is required, the development of a digital content ecosystem and more important determine issues of subsidy. We note in this respect the new Canadian Media Fund is intended to focus more on hits in terms of funding than its predecessor. The issue then is whether IP and the Internet undermine objectives like diversity and choice or simply alter the process of achieving them. We think the latter is more accurate. Measures like these taxes and fees proposed above, if actually adopted, may only increase the costs of investment and costs to consumers in accelerating the new media opportunity. As well, such increased taxation can only cause a negative impact effect on broader-reaching economic and societal uses for advanced networks including e-commerce, e-trade and e-health. But rather than argue once again about whether or not fee for carriage or an Internet tax is good or bad, let us ask where the money should go if a pot existed irrespective of source. We believe that the current debates at the CRTC and the absence of government policy with respect to the digital economy undermine the evolving market for digital content. Before you tax you need to define the sector you are trying to stimulate and establish the system of rights and protections that enable a market to develop in that sector. One thing is clear: even if distributors pulled a billion dollars out of a hat there would still be more demand for support than that money could supply. And since demand for funding will always outstrip supply, the debate about where to target monies should precede its distribution. Right now traditional media is poised to grab the lion’s share of whatever subsidies the system provides, even though the Internet promises a level of diversity, choice and innovation that the regulated broadcast system could never deliver. 9  
  • 13.   That is unfortunate because investment must be made across the whole value chain from networks, to software, to applications and story telling and product marketing and development to exploit these opportunities. We would suggest: • The cost to complete the rollout of advanced networks to support ubiquitous digital media will be in the 10s of billions. And no matter how much the private sector can reasonably be expected to invest in broadband, fixed and wireless, there will remain coverage gaps that will cost more to fill than current government broadband stimulus. Redirecting broadband investment to subsidies increases the digital divide and ultimately demands a taxpayer solution to close the gap. • The broadcast bill in terms of fee for carriage, distant signals, local improvement funds etc. have focused on local news and high quality Canadian content. But what about interactive games, mobile applications and applications to build a better social network? Where will the funding come from, if required, to help stimulate more indigenous production of real new media as opposed to repurposed broadcasting online? • Proponents for levies on Internet access like those from the Songwriters Association of Canada (whether compulsory or voluntary) ignore the fact that that the SAC plan, for example, would only cover songwriters. What about the myriad of other rights holders and trades that could lay similar claims to the Internet goose? By the time everyone has taken a slice of that bird, the only thing left will be some pâté and a very expensive bill dropped in the laps of Canadian Internet users. F. There is a pot of gold to fund the digital ecosystem Canada, like many of its major trading partners, is examining the impact large scale investment in broadband might play in building a 21st century economy. At the same time, the Government of Canada recognizes it generally has a limited ability to spend the billions of dollars required to upgrade our networks and as well stimulate investment in Information and Communication Technologies (ICTs), including application and software development to support digital media. As a result, the government must count on the private sector to invest, even in these difficult economic times. However, just last year the Government of Canada raised a windfall $4.3 billion of private money from wireless carriers in an auction of public airwaves to enable Advanced Wireless Services (AWS) networks. AWS networks, and other new 3G/4G networks planned or currently under construction, are expected to usher in a new generation of broadband wireless that will deliver multi-media Internet access and digital media services to Canadian consumers. Less than one year later, ironically even as the Canadian Radio-television Telecommunications Commission (CRTC) was considering calls to transfer billions of dollars of private money from carriers in order to subsidize the development of Canadian digital content, the opportunity to use the auction windfall to stimulate broadband expansion or digital content production was lost as the government invested in efforts to prop-up old economy activities like the struggling auto sector rather than invest in the new economy. Luckily there are still a couple of auctions left to get it right and invest in the new economy. 10  
  • 14. As Canada grapples more than ever with questions related to supporting broadband expansion in rural and high-cost serving areas or the digital TV transition, there are upcoming spectrum auctions which will generate funds that could be reallocated to stimulating the digital economy. Government should take advantage of upcoming spectrum auctions at 700 MHz and at 2.5/2.6 GHz to return billions of dollars in revenue to the digital economy and support broadband expansion, the digital TV transition and the stimulation of Canadian new media opportunities. TELUS considers that there is a strong and compelling argument to be made that revenues from both the 700 MHz auction and the auction of spectrum at 2.5/2.6 GHz should be used to support the development of a digital media ecosystem rather than flow into general revenues. The spectrum in the 700 MHz band was used to support analog over the air broadcasting and will likely be shifted to mobile and fixed broadband. Similarly, the spectrum at 2.5 and 2.6GHz was originally licensed for wireless broadcasting and broadband. The use of that spectrum will also shift to mobile and fixed broadband. The auctions of this spectrum expected in 2011-2012 will likely net billions of dollars in revenues to the federal coffers. Much of that revenue will come from Canadian carriers already in the wireless or broadcast distribution sector. In essence, the transfer of spectrum and most of the costs and revenues associated with that transfer are monies and costs primarily shifting within Canada’s communications structure. Assuming that the proceeds of the auction were to go towards stimulating a shift to a 21st century ecosystem, what would some of the priorities be? • Perhaps not surprising we would submit that priority number 1 should be extending modern infrastructure, both fixed and mobile, into rural and remote areas. You can’t innovate at the edge if the network is not there. But equally important broadband networks are building blocks for all types of commercial and enhanced government services. • Helping to fund the costs of shifting from analog to over the air digital broadcasting so that broadcasters can continue to meet obligations under conditions of license could be another key priority. Although it may be time to consider whether conventional broadcasters must be forced to continue to invest in over-the-air delivery when their signals are delivered primarily by cable, satellite and increasingly by broadband. • On the content side all digital content production, not just so-called new media broadcasting should be the principal target. New media funds targeted to support broadcasters would exclude most of the creators involved in digital content online. It is hard to argue there is much “new” in simple porting or adapting broadcast content to the Net. • The final area to address is the software and application side. In the IP space the applications that enable content experiences are as critical as the story. The importance of research and applications development in creating new media cannot be understated. 11  
  • 15.   The important thing to recognize is that the only way to convince government to direct revenues from spectrum auctions to broadband and digital media is to begin to lobby now. Once the revenues are booked into general revenues they are gone forever. There is a legitimate case to be made to keep these revenues in the media realm but the only way to sell the case is to demonstrate that carriers, the ICT community, producers and broadcasters can all agree to work together. That is critical if collectively we are to be part of a successful digital media ecosystem. G. Can the CRTC assure diversity of voices if it does not intervene and tax? And if it intervenes what happens to principles of openness that underlie the Internet? Rather than focus in this paper on who is right or wrong when it comes to debates over income transfers from one sector to another, we suggest going behind the Broadcasting Act to understand what it was the Act was intended to achieve. TELUS submits that diversity, access and the opportunity for Canadians to create, express opinion or freely communicate are the real cornerstones of public policy. The CRTC has regulated and supervised the traditional Canadian broadcasting system on the assumption that reliance on market forces alone would not deliver a diversity of voices, especially a diversity of Canadian voices, to Canadians. The Internet however provides extraordinary diversity of voices from around the neighborhood to around the world. It has also changed the economics of production, enabling more content creators to be successful by finding their niche audience throughout cyberspace. From this perspective, disruption is a good thing. For mainstream media from newspapers to recording and TV, particularly the production of high quality drama, the challenge is more complex because of issues of scale; however, even here the Internet and to a lesser degree wireless open up new opportunities to exploit the rights around traditional content. As discussed below the right to exploit rights versus the absolute of openness some net neutrality proponents advocate is an issue ripe for debate. While many parties are concerned with ensuring they are adequately compensated for the exploitation of rights, few actually want the same type of detailed regulation that applies to linear broadcasting to be applied online. In fact, many broadcasters want the freedom to exploit online opportunities without CRTC intervention just like the new generation of online entrepreneurs is already doing. This in turn raises concerns for independent producers who fear being frozen out of the new media world by broadcasters. That however is a bilateral dispute that should not be offloaded to ISPs and distributors to resolve. 12  
  • 16. From a digital media perspective, the Internet is an open network with unprecedented characteristics. It permits direct and generally unmediated communications between individuals located anywhere on Earth in ways chosen by users, instead of by the operators of the networks over which the traffic travels. This is the big difference. Competition and innovation are increasingly enabled at the “edge of the network”. The CRTC has a conundrum to address. In the proceedings it has held on new media regulation it is considering whether to extend traditional broadcasting regulation online, including adopting measures to address whether some content online is broadcasting and whether it should be regulated. Irrespective of its intent to adopt a light-handed approach to any new regulation online, regulation by its very nature involves a degree of command and control that advocates of net neutrality and openness would argue is incompatible with the evolution of the Internet. In many cases what is or is not broadcasting online is an irrelevant debate given the diversity the Internet enables. Content regulation online is a problem for the CRTC because such regulation by intention is non-neutral. Non-neutral approaches are unmanageable in an open network environment. In addition, even as it contemplates regulation of “online broadcasting”, the CRTC under its telecom hat, is concerned about some form of net neutrality in the online environment. In a proceeding this summer to address traffic management, it is expected the net neutrality debate will be engaged. Ironically while net neutrality advocates continue to worry about carriers establishing a “two tier Internet” that gives preferences to managed media, the CRTC might have thrown the first grenade in this debate by proposing in its New Media proceeding that ISPs look at very non-neutral ways to give preference to Canadian content, including priority lanes online. This is problematic not only from the perspective of network neutrality but also from the perspective of the complexity and uncertainty created around trying to define different Internet streams and models of regulation based on the origin of the stream or content. Regulation is generally applied to respond to a failure in the marketplace. In the case of broadband, there is no market failure. In fact, quite the reverse is true. Because there are no issues of shelf space online, there are significant opportunities for linguistic, religious, political or other minority interest group to express their views. Given virtually unlimited access and a diversity of voices online, there is no justification for the importation of traditional broadcast regulatory tools onto platforms which are already hotbeds of innovation. It is unnecessary and counterproductive to overlay broadcast style regulation on open platforms. While it was stated at the New Media Hearing time and again that the Commission does not intend to regulate the Internet, a patchwork of regulatory measures was still discussed at considerable length. Measures such as taxes, subsidies and priority traffic are the very essence of the regulatory system for broadcasting. No more. No less. 13  
  • 17.   The pressure to regulate and tax online really boils down to concerns about the future of an independent program production sector that is highly dependent on subsidy programs and protections. Today, broadcasters are required to source the majority of programming from independent producers but that protection is being called into question. Moreover the independents and broadcasters have real issues over terms of trade ranging from license fees to control of rights online. The issues around the challenges faced by the independent production sector are significant and are critical issues that the Commission should address. However these problems cannot and should not be used to justify a shotgun approach to Internet regulation and taxation. All other parties to the development of a digital media ecosystem would be better served if the CRTC specifically addressed the issues around broadcaster/producer terms of trade on a bilateral basis. Even with respect to problems of local television programming, there are opportunities to exploit other media to satisfy concerns about diversity. Much has been made about the importance of local broadcasting in ensuring access to local news and to the expression of local ideas. Clearly that is a good thing and we suspect a very viable proposition in most markets. However we cannot assume that local TV is it the best or only way to ensure that citizens can connect to their communities and access a diversity of views and a range of local services. Having local news and public affairs available over TV is a good thing. And TV has an element of drama that is hard to beat. This does not change the fact that the local broadcaster transmitter model may, in smaller markets, have become simply an uneconomic way to carry 2 or 3 hours of local content a day. That does not mean that there is less community news and local information. • We should not overlook the importance of local radio. Radio remains a great way to deliver news from public affairs and opinion to community events. The mobility and adaptability of radio makes it a good use of spectrum. And Internet radio is opening up a whole new way for Canadians who can’t afford or don’t have the scale to broadcast to participate in the medium. • Community channels run by distributors are excellent vehicles for community participation in making news and delivering opinion. Today community channels are restricted from directly competing with local broadcasters but actually reach deeper into community and are often better positioned to reflect diversity in the community. It is time to consider removing restrictions that limit their role, at least in underserved markets. • Newspapers remain a better vehicle for in depth analysis of local affairs than TV, but face greater challenges as to their ongoing viability than broadcasters. Again the Internet presents unique opportunities to publish without the scale required of print. And online news and information is much more scaleable and fast becoming the news source of choice for a growing number of Canadians. 14  
  • 18. • Finally, the Internet provides more opportunities for local news and expression than we can imagine. That is why newspapers and broadcasters are going online. But the actual use of the Internet for local news and expression extends way beyond traditional media when it comes to local expression. Local expression online takes on many forms such as independent sites with news, bulletin boards for events, movie and restaurant listings and reviews, and interactive participation and immediate reaction to professional news stories. H. Freedom to access and innovate at the edge of the network is not absolute and openness does not void legitimate rights to exploit intellectual property Reducing barriers to investment will add more innovation and more consumer choice at the edge of the network than models that try to manage supply. Openness is the right point to start but there are devils in the details as discussed below. TELUS believes that Canadian Internet users should be able to access and use the legal Internet content and applications of their choice, and that ISPs should not interfere with that ability, subject to four exceptions: (i) to give effect to customer choice (ii) to comply with legal requirements (iii) to enforce the terms of applicable contracts with customers, and (iv) to perform reasonable and transparent network/traffic management. These exceptions are not unreasonable but can be contentious because they address grey areas. Who decides what is “legal” and “reasonable”? Advocates of net neutrality suggest those determinations should not be left to the discretion of ISPs. We agree. Moreover unlike the US, Canada already has the tools to move beyond that debate to the more central issue of rights management. The Internet is an open network, and in an open network consumers should be able to choose what content they want and when. However, the Internet is not a single network but a collection of closed, managed and open networks using Internet Protocol. Broadcasting has always been over managed networks. The broadcasting system is based on permission and control over the supply of services from regulation of entry to the exclusive exploitation of content rights. As all networks become IP-based, conflicts will arise between managed systems and open systems for content. On this point, we think the new media regulation debate is badly focused by trying to corral all content under the broadcast rubric, which is an unmanageable process, rather than address models for mass media content that permit rights holders to monetize intellectual property. However while openness should be an overall goal, net neutrality, no matter how it is defined, cannot be an absolute right. Freedom and permission to innovate and support for a free flow of information do not provide license to infringe upon intellectual property. Content providers rightly worry about the devaluation of their rights as a result of content piracy (the elephant in the 15  
  • 19.   room) and are looking for opportunity to control their products online through managed IP experiences. This concerns proponents of net neutrality who worry about a two tier Internet. While the openness and adaptability of the Internet provide undeniable benefits in terms of innovation and access to information, such openness is seen to have also enabled the wide-scale infringement of copyright in the form of unauthorized sharing of copies of creative works. Supporters of peer-to-peer (P2P) file sharing applications take great umbrage when such technologies are “throttled” and take pains to emphasize that these applications have non- infringing uses as well, but there is a general perception that the vast majority of files exchanged using these applications and technologies consist of unauthorized copies of copyright materials, such as music, movies, software and books. This undermining of the protection that copyright law is intended to provide in turn blunts the incentive to create and disseminate some types of works. Other types of work, of course, benefit from the Internet’s efficiency at distribution without compensation – the key is that creators and rights-holders ought to be able to reasonably control and monetize that distribution if they so choose. TELUS is a member of the Business Coalition for Balanced Copyright (BCBC), a coalition of telecommunications, broadcasting, retail, Internet, technology, research and security organizations interested in the ongoing development and modernization of Canada’s Copyright Act. Members of the Coalition strongly support a balanced approach to copyright reform and believe that the public interest and the rights of consumers and users of copyrighted works need to be considered and protected as the Act is being amended to accommodate technological changes. TELUS believes that copyright reforms should not prevent the legitimate access by consumers to copyright works, prevent innovative research, or impede the adoption of new technologies for fair commercial uses or to extend and promote educational opportunities. Any amendment to the Act that is aimed at addressing issues related to the Internet and the development and use of new technologies in Canada must not prejudice Canada’s domestic and international economic interests. The Coalition therefore advocates an approach to the next round of copyright amendments that balances the reasonable needs of the various stakeholders. These amendments should reflect the views expressed by the Supreme Court of Canada in the Théberge case, where it held that “it would be as inefficient to overcompensate artists and authors … as it would be self-defeating to under compensate them,” and of the Competition Policy Review Panel, which said that “the rights afforded by [intellectual property] frameworks should not be so all-encompassing as to impede further innovation by others and create barriers for new entrants. It is important for the federal government to get this balance right.” An approach to copyright reform that truly balances the reasonable needs of the various stakeholders is the only way to ensure a vibrant and innovative community for creators and users alike. 16  
  • 20. TELUS is sympathetic to the plight of creators and rights-holders whose work product is made available for free on the Internet without their permission, and supports the updating of the Copyright Act to attempt to address this problem, but is concerned that some proposals for reform would inappropriately transform ISPs into the enforcers of the rights of others without proper judicial oversight. The reality is that most major Canadian ISPs, such as TELUS, already cooperate with rights-holders to the maximum extent possible under existing laws, including those that protect the privacy of their customers. ISPs provide rights-holders with “notice-and-notice” service (presently for free), under which the ISP notifies customers whom rights-holders allege to have violated their copyright that a complaint has been made regarding their filesharing activities. However, we do not provide such customers’ identities to the complainants unless ordered to do so by a court of law. In the event of such an order, TELUS will comply and cooperate with the rights-holder’s attempts to enforce its copyright to the extent required in the order. We believe that this policy strikes the right balance between the rights of copyright holders and our customers. TELUS notes that the copyright reform bill introduced in June 2008 in the previous Parliament (Bill C-61) largely reflected the above principles and we would welcome the introduction of another bill that does as well. Canada’s ISPs are neither equipped for nor interested in making calls as to whether laws have been broken, and they are generally not willing to take action based only on allegations of wrongdoing. Proper judicial oversight protects the interests of all parties involved. A proposal that has received a great deal of attention around the world is for a “graduated response” or “three strikes” system of warnings relating to alleged infringing activity, possibly resulting in the termination of an associated Internet access account. Aside from some isolated – and mercurial – support for such policies in some countries, there appears to be a global consensus that disconnecting an entire household in retaliation for the allegedly infringing activities of one person (in practice, often a minor) is a disproportionate and misplaced sanction. In TELUS’ view, Bill C-61 rightly provided for remedies against individuals instead, remedies that would have been proportionate to the scale of infringement. Another proposal that has gained even less traction is for ISPs to actively monitor Internet use and filter out infringing material. This concept suffers from several technical (to say nothing of legal) problems, not the least of which, in TELUS’ case, is that we lack the technical ability to do so. We support the need to update current copyright protections; however, that is only the beginning. The idea of an open internet should not be used to prevent opportunities to find other business models using IP in a managed fashion that enable rights-holders to prevent infringement and monetize use. That is why more carriers and content providers are considering managed services online or using IP to enable use of professionally produced content. While this has raised the spectre of a “two-tier” Internet, it is important to differentiate as between the public Internet and various flavours of managed networks using Internet technologies. 17  
  • 21.   I. It is time to consider the benefits of managed IP networks that run in tandem with the public Internet. It is not an unreasonable proposition to suggest that rights holders of the most popular mass media products from music to TV and movies are entitled to explore business models that lend better protection to their content. In the US broadcasters are making premium TV content available online through Hulu. In Canada at the New Media hearings Rogers suggested an online VOD portal for all TV programming offered on its cable system. A year earlier TELUS had advocated a Network PVR model as a better way for rights holders to respond to the public Internet in a fashion that provides more ability to control quality and monetize rights. What is common to all these ideas is a business response to competition and disruption that is proactive, rather than an attempt to enforce rights. However the response of traditional players to corral their rights is viewed with suspicion by many net neutrality advocates. The primary issues from the perspective of the net neutrality advocates are that investments in the public Internet will be diminished if carriers and rights holders create private or managed IP networks using the same carrier infrastructure that supports the Internet. There is a corresponding concern that ISPs may provide these managed IP services with quality controls and enhancements that privilege such services relative to content delivered over the public Internet. The other principal concern is that carriers might grant themselves an undue preference relative to their own services or partner services. These suggestions miss the point that managed networks and the public Internet are and have been severable. In fact the provision of managed services is as much a cornerstone of the carriage business as “best efforts” is to the public Internet. As we have suggested earlier, the Internet is not a network but a network of networks, some open, some closed, some managed. TELUS for instance provides managed IPTV as a licensed broadcast distribution undertaking and high speed Internet access over the same facility. More cable plant is allocated to broadcasting than Internet. Wireless networks which began as walled gardens in the content space have shifted more towards openness on the Internet access side. Even the CRTC raised the idea of creating fast lanes that give preference to Canadian content online. While such models raise concern about the potential for discrimination online, all are in some respect models to allow rights holders an opportunity to exploit rights. What is common in all of these models is a search for more innovative ways to use IP to monetize and exploit rights rather than fight it. That is not unreasonable if the alternative is either not to respond to copyright infringement at all or to respond by pursuing legal action against consumers. The issue boils down to what is “bad” discrimination, not discrimination per se. 18  
  • 22. The availability of a number of alternatives to the Internet (e.g. VOD/SVOD) for digital media has not stifled innovation online or delayed the growth of the public Internet. Quite the opposite. Consumers have embraced the Internet so enthusiastically that no carrier in their right mind would undermine the business opportunity that the Internet provides. In fact the converse is true as evidenced by a rapid shift to openness in the wireless space as carriers are investing billions of dollars in spectrum and infrastructure to increase the ability of wireless networks to carry multi-media data. In any event, the potential for undue preference or unjust discrimination can already be addressed in the Canadian system under section 27(2) of the Telecommunications Act. The key fact that some parties (perhaps mainly those who rely on American sources or expertise) refuse to recognize is that unlike American communications law, Canada’s Telecommunications Act already prohibits “bad” discrimination (or, more precisely, specific instances of unjust discrimination, or the giving of an undue or unreasonable preference toward any person, including itself, or subjecting any person to an undue or unreasonable disadvantage). This time- honoured rule provides powerful, flexible, and legally and economically principled protection to all stakeholders (including users, content and application providers, and ISPs) against “bad” discrimination. The question of whether ISPs should be prevented from discriminating in favour of Internet content and applications according to their users’ preferences, or improving the ability of users to access and use the legal Internet content and applications of their choice is what is really at stake in the net neutrality debate. TELUS recognizes that sometimes there may be a fine line between “good” discrimination and “bad” discrimination, but in general urges parties to recognize that there is a difference and that it ought to be up to Internet users themselves to decide which is which. In Canada there is already a referee to handle disputes. J. Conclusion It is TELUS’ position that IP opportunities in the media space extend well beyond traditional broadcast boundaries to include the “new” in new media from broadband infrastructure to skills development and to software and application based intellectual property. All these elements, and broader policy issues (such as open access to content and intellectual property rights) have to be addressed more holistically if Canada wants to stimulate, either directly through funding mechanisms or indirectly by encouraging investment, a Canadian digital media sector that is a viable, self-sustainable and important element of our future economy. IP provides an opportunity to create more viable production models that do not begin with an assumption that the only way to tell and sell our stories is to subsidize their creation. IP creates access to a much larger market than broadcasting. That is why we submit industrial policy not regulatory policy should guide, to the extent guidance is required, the development of a digital content ecosystem and more important determine issues of subsidy. 19  
  • 23.   This debate about which elements of the system to tax is unfortunate because the debate today hardly addresses the opportunities IP presents for creators, entrepreneurs, and particularly all Canadians, to more fully participate in the cultural process. Simply put, resorting to fees, taxes and subsidies as the first response to insulating broadcasters from change may be counterproductive if that change reflects real shifts in consumer demand. If this shift is as disruptive as some suggest, the CRTC may end up targeting the wrong part of the system at the expense of investment in those elements of the system that may be most effective in serving that change in demand. Government should take advantage of upcoming spectrum auctions at 700 MHz and at 2.5/2.6 GHz to return billions of dollars in revenue to the digital economy and support broadband expansion, the digital TV transition and the stimulation of Canadian new media opportunities. This includes funding for skills and application /software development not just content. We support the need to update current copyright protections. However that is only the beginning. The idea of an open internet should not be used to prevent opportunities to find business models that enable rights-holders to prevent infringement and monetize use. That is why more carriers and content providers are considering managed services to enable use of professionally produced content. In Canada, the CRTC already has the tools to address the potential for undue preference or unjust discrimination. Unlike the United States, Canada already has a regulatory framework to deal with issues of undue preference or unjust discrimination under section 27(2) of the Telecommunications Act. This is a critical distinction because this principle has been enshrined in telecommunications and broadcast regulation for many years. And the CRTC has precedents to guide it when it comes to determining an undue preference or discrimination that is unjust. The pursuit of solutions or opportunities must balance a number of interests in the IP world without compromising the benefits that flow from letting innovation and consumer choice predominate. For those of us participating in the digital media value chain whether in building broadband networks, investing in software and applications development or in content production and distribution, there is a pressing need for a more holistic policy geared towards an incentive-based environment to address the challenges and opportunities that broadband and digital media present. For those of us consuming, using and increasingly producing content there is a need for a level of comfort that access to legal content and a free flow of information will anchor public policy. And for those involved in the creative process from media to software there is a need to be assured that intellectual property is respected in a more open environment and that rights to such are fairly exploited. 20