Industry Committee on Oct. 5th, 2011

[The Chair, Conservative, David Sweet]

Good afternoon, ladies and gentlemen.

Hello everyone.

Welcome to the sixth meeting of the Standing Committee on Industry, Science and Technology. We'll be commencing our study on the e-commerce market in Canada.

Members, I'll just briefly introduce our witnesses.

We have Helen McDonald, who is the senior assistant deputy minister of spectrum, information technologies, and telecommunications. Janet DiFrancesco is the director general for the electronic commerce branch, and Chris Padfield is the senior director, digital economy planning and coordination. It sounds like we have all the right people here.

From the Competition Bureau we have Matthew Kellison, who is the acting assistant deputy commissioner of the civil matters branch, and Lisa Campbell, deputy commissioner of competition, fair business practices branch.

I take it there will be one person from each organization with opening remarks. Is that correct?

We'll start with Industry Canada first. Please commence, for ten minutes.

[Helen McDonald, Senior Assistant Deputy Minister, Spectrum, Information Technologies and Telecommunications, Department of Industry]

Thank you very much.

Your committee will be undertaking a study on e-commerce in Canada. I would like to take this opportunity to provide your members with Industry Canada's perspective on e-commerce and related issues.

First, I will briefly explain e-commerce and where Canada ranks in relation to other countries.

Second, I will give you an overview of the main activities underway at Industry Canada to stimulate e-commerce, that are a part of the digital economy strategy.

The OECD's internationally accepted definition of e-commerce states that

An e-commerce transaction is the sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders. The goods or services are ordered by those methods, but the payment and the ultimate delivery of the goods or services do not have to be conducted online. An e-commerce transaction can be between enterprises, households, individuals, governments, and other public or private organisations.

While this definition is useful for guiding international comparisons and data collection efforts, from a more practical perspective, payments, online banking, and bill payments are often considered key elements of electronic commerce.

In this definition, one thing is clear: the first prerequisite for e-commerce is that it must be online. More and more Canadians are online.

According to the CRTC's Communications Monitoring Report 2011, 96% of Canadian households currently have access to broadband services at a speed of at least 1.5 megabytes per second. It is estimated that that percentage will reach 98% by 2012.

A transmission speed of 1.5 megabytes per second encourages e-commerce by increasing the number of households able to buy and sell goods and services online.

In 2010, 70% of Canadian households subscribed to broadband Internet services. Statistics Canada's 2009 Canadian Internet use survey found that nearly 22 million Canadians, or 80% of people over 16 years of age, used the Internet for personal reasons--from home, the office, or some other setting.

Once online, Canadians used the Internet for a variety of activities, such as electronic banking and bill payment, searching for information, and communicating with Canadian municipal, provincial, and federal governments. They undertake education and training online, and also access information on weather, travel, health, and investments.

Canadians are also increasingly purchasing online. About 39% of Internet users indicated they engaged in e-commerce in 2009, and the total value of these online purchases was $15 billion. To give you a sense of the magnitude, total retail sales by Canadian firms were $415 billion in that year.

From the perspective of Canadian firms selling online, total online sales, both retail and commercial, were almost $63 billion in 2007--and this unfortunately is the last year in which data was collected. Of these sales, 59% were commercial, business-to-business transactions. The remaining 41%, or $25.5 billion, were retail sales, business-to-consumer transactions. And despite the relatively large value of online sales, only 8% of firms reported selling online in 2007.

The difficulty of encouraging more Canadian businesses to make the transition to e-commerce and the low overall take-up rate of digital technologies by Canadian businesses are closely linked. Investment per worker by Canadian businesses in information and communications technologies is 60% of investment per worker by American businesses.

Digital technologies play an important role by supporting innovation and productivity. Digital technologies greatly contribute to online transaction processing, electronic funds transfers, supply chain management, computerized data exchanges and automatic data collection.

Increasing the take-up rate of all digital technologies—not only those that support e-commerce—is critically important to ensure the vitality and competitiveness of the economy.

Last fall Minister Clement articulated the government's vision for a digital economy in his interim report. This is a quote:

By 2020, the Harper government sees a Canada that boasts a globally competitive digital economy, characterized by innovation, enhanced productivity, and enduring prosperity—a nation where businesses, communities and individuals have the skills they need to use digital technologies to their advantage and where a globally competitive ICT sector supplies more markets with more innovative products and more new services.

For greater adoption of digital technologies or for e-commerce to be successful, the legal framework governing it must be clear. Industry and consumers alike must understand what is expected of them and what the rules of engagement are. For consumers to engage in the online marketplace, they need to be confident that it is a safe place to shop, that consumer protections are in place, and that personal information is secure.

Minister Paradis confirmed in his speech this May to the 2011 Canadian Telecom Summit that the government is committed to ensuring there is a robust legal framework to increase confidence in and security of online transactions.

Canada's anti-spam law received royal assent in 2010 and is expected to come into force in early 2012. This law will protect Canadian businesses and consumers from the most damaging and deceptive forms of online threats and will deter spammers from operating in Canada. The anti-spam regulations were published last July, and the official consultation period ended on September 7. The department is currently analyzing the input received.

Bill C-11 the Copyright Modernization Act,An Act to amend the Copyright Act was tabled in Parliament last week. The phenomenal popularity of social media and new technologies, such as tablet computers, mobile devices and e-readers, has dramatically changed the way Canadians create and use copyrighted materials.

Copyright modernization allows creators and rights holders to have the tools they need to protect their work and ensure the growth of their companies, especially as Canadians consume and buy more copyrighted material online.

Furthermore, amendments will be made to the Personal Information Protection and Electronic Documents Act under Bill C-12, also tabled last week. One of the main amendments relates to the notification requirement for data breaches. It is an important tool for increasing the security of online markets.

A second prerequisite for e-commerce is access to high speed networks, that is an affordable connection. In order to participate in e-commerce, you have to be connected to the Internet. Therefore, it is clearly in the government's interest to ensure that consumers have enough choice in accessing different affordable Internet services.

In recent years, thanks to government measures to increase competition in the wireless market, Canadian consumers have seen new companies enter the market and have benefited from lower prices and a greater selection of packages.

Increasingly, wireless networks are offering high-speed Internet access and the benefits of a mobile economy. To help meet the increasing demand of Canadian businesses and consumers for access to mobile broadband, Minister Paradis has confirmed that the government will be auctioning off the 700 megahertz spectrum and the 2,500 megahertz spectrum.

The third prerequisite is to increase private sector adoption of digital technologies. Targeted efforts are needed to raise the awareness of businesses, particularly small and medium-sized businesses, of the benefits of adoption. Industry Canada's small-business internship program provides small and medium-sized enterprises with financial support to hire a post-secondary student intern to assist them in their adoption of e-commerce strategies.

The government has taken two additional steps to promote awareness and adoption. In the spring of 2011, the Business Development Bank of Canada announced an array of new efforts to support ICT adoption among small and medium-sized enterprises. The BDC helps firms with web strategies, sales, customer management, and choosing the technologies best suited to the firms' needs.

Budget 2011 also announced the creation of an $80-million pilot project over three years involving the NRC's industrial research assistance program and Canadian colleges, to promote the take-up of advanced digital technologies among small businesses. More details on the pilot will be available once it has been formally launched.

The growth of e-commerce also requires a workforce with the requisite digital skills. In budget 2011, Human Resources and Skills Development Canada will reallocate $60 million over three years to encourage an increase in the number of students enrolled in key disciplines linked to the digital economy.

Citizenship and Immigration Canada also plays a major role by attracting to Canada foreign workers who have the skills to ensure that digital economy and e-commerce thrive, and by encouraging them to stay in the country.

Granting councils have also played a big role over the years by creating research chairs and by financing centres of excellence to face the brand new issues and opportunities.

Promoting the acquisition of digital skills is a responsibility we share with the provinces and industry, which play a leading role. That is why Industry Canada continues to work closely with all of its partners.

Thank you very much for this opportunity to come before you today. I and my colleagues would be happy to take questions at your leisure.

[The Chair, Conservative, David Sweet]

Thank you very much, Ms. McDonald.

We'll go on to the Competition Bureau first before we go into rounds of questioning.

Madam Campbell, you have ten minutes, please.

[Lisa Campbell, Deputy Commissioner of Competition, Fair Business Practices Branch, Competition Bureau]

Good afternoon, Mr. Chairman and members of the committee. On behalf of the bureau, I am pleased to be here today to take part in this study.

As the chairman mentioned, I am deputy commissioner of the Competition Bureau's fair business practices branch, one of four deputy commissioners at the bureau charged with enforcing the Competition Act. I would like to give you an overview of the bureau's mandate and responsibilities, and outline how they relate to the topic you're studying today.

As colleagues of mine from the bureau appeared before the committee in June as part of your study of gas prices, I will be brief but would, of course, be pleased to answer any questions the committee may have afterwards.

The Competition Bureau is an independent law enforcement agency headed by the Commissioner of Competition that enforces the Competition Act and three labelling statutes. Our goal is to ensure that Canadian businesses and consumers prosper in a competitive and innovative marketplace. We deliver on our mandate by taking consistent, targeted enforcement action to ensure that we have the largest impact possible to promote competition, innovation, and productivity in the Canadian economy.

The Competition Act applies, with very limited exceptions, to all sectors of the Canadian economy, and sets out criminal and civil penalties for a variety of specific anti-competitive practices. These include engaging in misleading advertising and deceptive marketing activities; entering into agreements with competitors to fix prices, allocate markets, or restrict output; and abusing a dominant market position. We are also responsible for reviewing proposed mergers to determine whether they will likely cause substantial harm to competition.

As many of the members of this committee will recall, in 2009 Parliament passed the most significant amendments to the Competition Act in 25 years. Among other things, these amendments increased the penalties for deceptive marketing practices and empowered the courts to award restitution to consumers who purchased a product as a result of false or misleading representations. What's more, we now have the power to recommend a freeze on company assets to ensure that restitution for consumers is available in the future.

Consumers need accurate information to make informed choices, and our recent enforcement actions demonstrate our commitment to enforcing the act in this area. For example, in June we announced that Bell Canada had agreed to stop making what the bureau had concluded were misleading representations about the prices offered for its home phone, Internet, satellite TV, and wireless services. We found that the advertised prices were not in fact available, as additional mandatory fees were hidden from consumers in fine-print disclaimers. Bell was also required to pay an administrative monetary penalty of $10 million, the maximum amount allowed under the Competition Act.

In addition, we have recently sought refunds for consumers misled by false and misleading representations in two cases in particular—one in our case against Rogers regarding inaccurate claims of "fewer dropped calls'' than new wireless entrants; the other in our consent agreement with the maker of Nivea creams.

In addition to the 2009 amendments, in December 2010, Parliament passed Canada's first anti-spam law, as Ms. McDonald mentioned. Along with increased powers for the CRTC and the Office of the Privacy Commissioner, this new law will enable the bureau to more effectively address false or misleading representations and deceptive marketing practices in the electronic marketplace, ultimately promoting greater truth in online advertising for the benefit of consumers, legitimate businesses and the economy overall.

As a result of these changes, the bureau is now better placed to protect Canadian consumers and businesses from the harm caused by anti-competitive activity, particularly in the challenging e-commerce area where tools and technical powers must keep pace with rapidly changing technology.

To turn to the committee's study, the online world is increasingly complex as businesses and consumers take advantage of innovative technologies to work, shop, and socialize.

Whether in the traditional or online marketplace, the bureau's priority is to get high-impact results for Canadian consumers and businesses through consistent, targeted enforcement action. In so doing, we not only punish violators, but more importantly, send a message of deterrence to those considering harmful anti-competitive activity, thus increasing consumer confidence.

As online activity crosses national borders, we coordinate with our counterparts in other countries to amplify the reach of our enforcement action in the extremely challenging frontier of e-commerce. We participate in coordinated Internet sweeps to search for sites that may potentially be deceiving or defrauding consumers. These sweeps are designed to improve consumer confidence in e-commerce by demonstrating that a vigorous and effective global law enforcement presence exists online.

In addition, we co-chair the Fraud Prevention Forum, a group of over 100 private sector firms, consumer groups, government agencies, and law enforcement organizations, all of whom are concerned with fighting fraud aimed at consumers and businesses through awareness, education, and promoting reporting so as to facilitate enforcement.

To conclude, in the world of e-commerce, just as with traditional commerce, our role is to detect and take principled action against anti-competitive behaviour that violates any of the provisions of the Competition Act, with a view to cracking down and deterring would-be offenders.

The responsible enforcement of the act is the most effective way for the bureau to have a positive impact in the online economy for both consumers and businesses.

My colleague Matt Kellison and I look forward to your questions.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Madam Campbell.

Now we'll go on to our first round questions, a seven-minute round. We will go to the NDP; it will be Mr. Julian for seven minutes.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you very much.

I found your...

[The Chair, Conservative, David Sweet]

I'm sorry. Please forgive me. I hearkened back to a previous Parliament.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

And it was a good Parliament. I think there were good practices, Mr. Chair, and I think you should continue in the spirit of non-partisanship.

[The Chair, Conservative, David Sweet]

I do have your name here, Mr. Julian, for your appropriate timing.

We'll now go to Mr. McColeman for seven minutes. I apologize for that.

[Phil McColeman, Conservative, Brant, ON]

I find Mr. Julian's comment quite interesting, that it was a good Parliament—insinuating that this one may not be so good. I don't know; I don't know what he's thinking here.

First of all, thank you to our witnesses today. Thank you for coming and for sharing your views on this most important move forward in terms of making sure that businesses in Canada can thrive in a new digital economy.

Ms. McDonald, I come from a small-business background, having run a company throughout my life. Your mention of the small-business internship program intrigues me. Can you relate any current success stories you may have had under this program, and/or how it's been received in terms of the SMEs?

[Helen McDonald]

I'm sorry if I disappoint you by giving you a rather limited answer, as it's a program that's run by one of my colleagues.

My understanding is that it's essentially aimed at getting kids their first job. So it's an internship, but it's also focused on students with a background in the ICT field, so if you put them in periods of work with small firms they can help them improve their web strategies.

My understanding is that they are targeting 400 students and 400 SMEs per year, and it's been running for a number of years.

[Phil McColeman, Conservative, Brant, ON]

And how does the small-business community access it, or how do they become aware of it?

[Helen McDonald]

My understanding is that we have selected 17 organizations across the country that will pick the firms they will be dealing with and assisting, and that the government is picking up as much as 75% of the cost of the intern for a defined period of time.

[Phil McColeman, Conservative, Brant, ON]

It sounds like a good program, but there has to be more to offer. What are the other strategies the department is taking to orient business people, particularly people in small and medium-sized business? Are there other strategies you're employing so that they recognize the opportunity and have the desire to make the changes in their corporate structures? Often they have limited resources to take advantage of these things. How else are you reaching out to them?

[Helen McDonald]

I think you are putting your finger on one of the fundamental problems, which is the lack of awareness. Small businesses often don't have the time to do the research to figure out how they could best use technologies to become more productive or efficient and what technologies to use. They often lack the skill set inside their organization to actually implement these. You can't just put in the technology; you often have to change your business practices, how you work, or perhaps your organizational structure to take advantage of it.

Not within the department per se, but within the portfolio of Minister Paradis, there are two other significant measures that I mentioned.

BDC is trying to open new awareness-raising efforts to make sure that when its clientele of about 29,000 small firms is coming to it, they also make them aware of the need to think about these things and offer them advice, when they might benefit. They're trying to build up their portfolio of assistance both on the advice side and in the use of their existing loan programs to help in this area.

The second area is the NRC's IRAP program, which is a very well-regarded program. They have several hundred IT advisory specialists out across Canada who are in contact with a number of small businesses, and they want to use that capacity plus financial assistance to help small businesses rethink their offerings, if you like, in a much more fundamental way.

That program has not been announced. It was just in the budget, but it has not been formally launched or announced, so I can give very few details on its structure.

[Phil McColeman, Conservative, Brant, ON]

I'm curious to know whether, on an international basis, there are any best practices in other jurisdictions around the world for e-commerce. Are you aware of other countries or regions in the world?

[Helen McDonald]

We look at what other countries do. I think Canada is a little unusual in its industrial structure, in that we have an enormous number of small businesses, as distinct from larger businesses, which you wouldn't find in many other nations. So the nature of our problem is a little bit better.

There have been programs of set-asides used in other countries. I believe you can also find them in Canada in, for example, aboriginal business set-asides as a percentage of procurement. It's a kind of soft target for departments that is an approach also used in the U.S. It's not really targeting the ICT industry or adoption of ICTs; it's targeting government procurement as a way to help small businesses.

Other than that, many countries have programming similar to ours that tries to find promising firms that just need a little help to get their product to market or to commercialize a new technology. We're not really out of the pack in terms of what we're trying to do here.

[Phil McColeman, Conservative, Brant, ON]

Another question concerns accessing export markets. For many companies, moving towards this as quickly as possible would certainly help, I think. In your analysis and in your judgment going forward, do the percentages you've used regarding uptake represent as huge an opportunity as I would perceive in relation to accessing markets that normally wouldn't be accessible, if e-commerce is utilized?

[Helen McDonald]

Many people see that the Canadian marketplace is small and that therefore, to be successful, even as a small firm growing you need to look very early at what an export market opportunity would be, because you can leverage what you are doing. Canada has to sell to a broader marketplace. To achieve this goal is, I believe, what the Department of Foreign Affairs is doing in trying to encourage firms to think globally as they start up.

That being said, if people are looking at what the business case would be for an investment by BDC or by some other means, such as IRAP and so on, they're going to be looking at the market for the result. Are they going to be able to sell it? Are they going to be successful? I think they would be taking into account the export side of life. On the other hand, you just don't want to push them out too early before they've managed to stand on their feet.

[The Chair, Conservative, David Sweet]

Thank you, Ms. McDonald, we're just over time there. Thank you very much for your response.

Now, Mr. Julian, you actually have the opportunity to go ahead for seven minutes.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you very much, Mr. Chair, you are very kind.

I would like to thank the witnesses for their presentations.

First of all, I would like to talk about Industry Canada's programs. Before being elected to Parliament, I managed a social enterprise. I sold devices that helped deaf and hearing impaired people in a store. Then, we made the transition to e-commerce.

There are two things I found very interesting. First, there was no government help available at the time. Second, once that e-commerce was in place, we started selling our products throughout the United States, in Europe and in South America. We received orders from all over. It was extremely interesting to see to what extent people from Asia or even Africa were interested in Canadian technology. I found the experience to be very interesting. Furthermore, I found there was not much support from government programs.

You talked about three funding sources: the pilot project, the program for small businesses and the BDC. I would like to know how much funding is available. For example, small businesses receive the services of 400 interns per year. I presume we are talking about an overall budget of about $400,000 or $4 million. What is Industry Canada's budget for all of these programs?

[Helen McDonald]

I think Industry Canada's budget for the program that helps small businesses, the Small business Internship Program, is $3.5 million this year. For the six years the program will last, from 2009 to 2014, I think that total is $17.5 million.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Is that for the BDC?

[Helen McDonald]

No, it's for the Small Business Internship Program. I don't have the BDC's numbers in front of me. It's a program which awards grants, a bit like IRAP.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Fine.