Industry Committee on Oct. 24th, 2011

[Bernard Lord]

We have a very robust infrastructure in Canada, but we also have an amazing demand for more. Canadians are adopting technology as never before. I mentioned in my presentation that some of our networks are growing at 5% per week. That's the demand. One of our networks in Canada has the highest penetration of smart phones of any network in the world. Canadians are leading the way in tablet adoption.

So the appetite for technology, in mobile technology, in wireless technology, is certainly there. And Canadians, from what we can project over the next few years, will want more. So the pressure we will see on our networks will be because of the fact that we're going to run out of spectrum. We need more spectrum. If there's one thing we would like government officials to do, it would be to put out a multi-year plan to release spectrum for this industry and all the uses we want. Whether it's for business, culture, personal, payments, or whatever, we need the spectrum to satisfy the demand.

The other thing that's critical for all these networks to work, as my colleagues or fellow presenters are talking about, is cloud computing. What Canadians will want is cloud computing on the go, not just cloud computing from their desks or homes. To be able to satisfy that demand, not only do we need spectrum but we also need antenna sites. And that means making sure that we can set up antennas to build the networks to satisfy that demand.

[Glenn Thibeault, NDP, Sudbury, ON]

It sounds as though our capabilities are there. We need to tweak them a little bit.

But in relation to mobile payments then, are there guidelines for your member agencies to use and for the deployment of mobile payments? Are you working on that?

[Bernard Lord]

There are standards. There are different standards for different technologies. As mentioned today, when we talk about mobile payment, there's more than one technology. We see different partnerships being established between some of our members and other businesses in the community to enable Canadians to use the technologies, whether mobile wallets, mobile payments, or e-commerce. When you talk about the e-commerce you can do from your desktop at home, Canadians want to be able to do that on their mobile phones. The technology is there. But when you're talking about near-field communications, that's being put in place now.

I just want to come back to one comment you made. You said that some of us are still trying to figure out how to program the clock on our VCR. There's a whole generation out there trying to figure out what a VCR is. When we talk about the adoption rate, that's what we're seeing. We've done some studies. There's a big difference between those who are 15 to 35 and those who are 35 and older. Those who are 15 to 35 want to be able to do everything from this device. And those who are 35 and older, as with many other things in life, tend to be a little more cautious. They're used to using the card with the magnetic strip on it. They've used it for years, and it has worked well. They trust it. Young people are willing to embrace new technology. So there is not only a digital gap but also a bit of a generational gap. We've seen it in some of the research we've done.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Lord. I'll have to call that a gap at the moment right now.

We'll go on to Mr. McColeman, for seven minutes.

[Phil McColeman, Conservative, Brant, ON]

Thank you, Mr. Chair.

My thanks, as well, to the witnesses for being here.

I want to ask Mr. Paterson my first question. It really revolves around your comments about developing intelligence for economic advantage. I'd like you to describe that a bit more.

You mentioned a smarter commerce agenda for governments to achieve. Conceptually I'm thinking about it as something far beyond e-commerce. Maybe, as governments consider policy and regulation, it goes far beyond what we can conceive of right now as the future in terms of what we're doing. Instead of talking just about electronic payments and what the next practical things are, I'll ask where this takes us. Am I correct in thinking that this, conceptually, is much larger than the topic we've set out to study?

[Chris Paterson]

I think so. I think there are a few key points. The first is that IBM, with the Economist Intelligence Unit, has undertaken studies since 2000 that rank countries internationally on the state of e-readiness. The last study was completed in 2010 and a major finding is that all 70 countries surveyed in one way, shape, or form have reached a certain state of e-readiness for the most part.

There is a broad consensus that there is a need to invest significantly in the core connectivity infrastructure, that there's a need to encourage businesses and consumers to use it, and that there's a need to create a supportive policy environment. There's a gap, but it's narrowing, and it continues to narrow.

So the point is how one defines advantage where what was previously considered advantage has become somewhat commodified. Of course, I'm referring to everything I just mentioned.

The issue at hand is that, as a result, combined with just the sheer force of technology decreasing costs, anything and everything can be connected. There are 30 billion radio frequency ID tags in the world today connecting cars to manufacturers, rivers to conservation authorities, and so on. How do we deal with the amount of data that is being produced daily at a rate eight times more than the size of the holdings in the U.S. Library of Congress?

In regard to the comment about mobile payments, it's really important to note that mobility is not just about commerce in itself, but about the exchange of information between a product and a consumer, a consumer and other consumers to get ideas about what they should buy. Four in ten people use a mobile device when in a store to look at whether or not they should buy, and while they're doing that they're communicating over Facebook, or whatever medium, to make the decision.

So one in three business operators feels they're operating with blind spots; 83% of CEOs think their priority is analytics to get a better handle on the information that is swirling around their business, their product, their market, and their supply chain.

So it really comes down to the following. There's a significant amount of connectivity. There's a permissive environment. The issue at hand is how to gain advantage, and it is going to be gained by superior insights about product, process, and market, and gaining that insight becomes the basis of the intelligent enterprise.

[Phil McColeman, Conservative, Brant, ON]

Both to you and John, in practical terms in Canada we've tried to create a low tax environment for investments in research and development. Your companies make huge investments in those. Does that assist your companies?

As an offshoot to that comment, do your companies work with our post-secondary institutions and the innovators at that level to try to take those synergies into the commercialization of whatever is happening in their labs?

[Chris Paterson]

The answer to your first question about a low tax environment is that, of course, it does help. But I think John would agree that the comparative advantage of R and D is really defined by the above-the-line costs, the costs of acquiring, developing, and retaining very highly skilled people. Canada is doing well in that regard, but we could do better. We find ourselves in a constant state of competition in that regard.

So then how do we leverage the advantages that are present? Here you asked about university relationships. Without a doubt, IBM's research model—which we're proud to say is one of the largest in the world, for a reason—with respect to some of the issues we're talking about here today is changing. It's almost transforming itself from being in the lab to going outside the lab, from a laboratory to a co-laboratory, and it's basically focusing the research around the problem. In other words, what we are trying to solve? And it's going to where the world offers the brightest and the best to help solve that problem.

Again, the gap is narrowing incredibly. On any number of these subjects, we have R and D operations in Brazil, China, as well as here. We can compete, but the gap is narrowing and it's a challenge.

I'll leave it at that.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Paterson. That is all the time for that rotation.

Now on to Mr. Regan.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you, Mr. Chairman.

Mr. Weigelt, although I'm dying to ask what happens to the sales of Microsoft Office when people move to the cloud, I'm not going to, because I don't have time today.

You talked about legislative frameworks hindering the development of e-commerce and the need for policy frameworks that support scale. Mr. Lord gave us a list of policy requirements for the industry that support and encourage future investments, greater predictably, longer-term planning for spectrum access and allocation, and timely access to antenna sites.

Mr. Weigelt, and Mr. Lord, what are the legal barriers hindering development of e-commerce in Canada? What other issues are holding Canada back? What should government do about these things?

[John Weigelt]

It's a question that I encounter each and every day when I talk with entrepreneurs and innovators across Canada, that is, how can they harness some of the capabilities of technology? Unfortunately, there's a lot of confusion out there. Canadian businesses, 80% of which are small-to medium-size enterprises, are focused on innovation. Technology is one of the things they need to do to survive, but they don't really have core competency in that area. They want to have their basic services up and running, but that's not their primary business. They want it to be simple and they don't want to go through a legal quagmire. As soon as there's a question raised about compliance, about legislation, they'll typically throw in the towel and go with the tried and true.

There is privacy legislation in British Columbia, the Freedom of Information and Protection of Privacy Act, suggesting that government-held information should not leave Canada unless one has consent from the affected individuals. It's not an outright prohibition, but there have to be certain safeguards in place if you're handling government information. Surprisingly enough, a number of organizations in British Columbia and across Canada believe that this legislation applies to them. So that's the first challenge, just being clear and concise about what applies to regular private sector businesses. There are appropriate safeguards that you can apply.

Then you enter into what I call the Hollywood script scenarios. People will imagine all these nasty things that could happen. These scenarios are almost the equivalent of a Hollywood mystery novel, almost suggesting that people will fly in with helicopters and seize individuals. It's a matter of getting over the misperceptions about possible choices in where the data are hosted, looking at what's local, and determining what safeguards need to be in place to deal with the information. In many cases, when you work with enterprise-class service providers, security and privacy are well handled, but there's confusion in the marketplace that is causing people to pause.

In addition, there are individual organizations that, out of fear or uncertainty, would suggest that information must remain within the region. They fear not being able to capitalize on the economies of scale to drive their costs down and, ultimately, to be able to charge small business more for their services.

[Bernard Lord]

There are several examples. I'll focus on one, the anti-spam legislation. Depending on the regulations that are adopted, the anti-spam legislation could handcuff businesses and hamper mobile commerce in Canada. I think everyone would agree that we're all against anti-spam--

[Geoff Regan, Liberal, Halifax West, NS]

Against spam, you mean.

[Bernard Lord]

Yes, thank you. We are all against spam. But how we define it and how we regulate it could have unintended impacts.

Legislators can adopt things that sound good, but the consequences may be different. Some businesses communicate directly with consumers through text messages of 140 characters. You can put a lot of things in 140 characters, but you can't put it all.

That's just one of our areas of concern. We're not the only ones. There are a number of groups around the country that are concerned about the regulations that will be adopted to support the anti-spam legislation. We're hopeful that Industry Canada, through its consultations, will realize that it needs to take a hard look at how it proceeds with these regulations.

That's just one example.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you.

Perhaps, as I ask other questions of you, Mr. Cochrane and Mr. Paterson, you may also have answers on some of the legal barriers that you see.

First, Mr. Paterson, we saw in Canada a very quick adoption of debit cards, much quicker and much wider than in the U.S. It's interesting to ask, are we already behind in e-commerce adoption in terms of...? Are we going to be quicker than the U.S. in adopting things like M-wallet? These are interesting questions.

Also, one of the phrases you used was that e-commerce translated data into intelligence. I think that for a lot of consumers, that's exactly the worry that they have. For instance, I forget who mentioned it, but on your smart phone, along with information about your bank account or credit card accounts, you'll also have other information, such as your licence. Here I mentioned several accounts, as you're probably going to have more than one account, because I can't imagine the technology not being invented to provide for several different credit cards or bank accounts being on the same phone.

Obviously we're aware of, and have even seen this year, major companies being hacked into and the private information of Canadians being accessed and stolen. How can Canadians be assured and comfortable with this, so that we can see e-commerce moving forward? How can we see people being more comfortable about the security of these systems?

[Chris Paterson]

Well, first and foremost, as far as our company is concerned, half of our research that is spent is dedicated to the general area of software and these very questions.

Secondly, I think there probably are some differences at the table, but for the most part, I think there's an understanding that Canada's privacy regime— the federal government's—is progressive and is focused on the protection of the consumer. There's no expectation that companies would do anything other than adhere to that.

The current amendments before the House are focusing on such issues as breaches, etc., and--

[The Chair, Conservative, David Sweet]

I'm sorry to interrupt, but that's all the time we have for now. I can maybe give you some time afterwards, for you to try to finish that comment.

That's the end of the first round. We'll move from our seven-minute questions to our round of five-minute questions.

Mr. Richardson, please.

[Lee Richardson, Conservative, Calgary Centre, AB]

Thank you, Chairman.

Thank you to all for coming. This is fascinating. It moves so quickly.

I have a general question, I guess, in terms of how governments, like consumers, like businesses, including yours, adapt to change and the rapidly moving progress in this sector.

I think KPMG mentioned the notion of innovators versus followers. I think as consumers we look at, and this government is trying to propose, legislation or laws to govern the practices or taxation policies. Where do you jump in? Where do you take advantage of the current situation as opposed to waiting to see where it ends up? It doesn't appear as though it's ever going to end. Where do we come in, and how do we...?

I guess I'm just looking for some thoughts on this. Where do we draw the line? We're dealing with questions today that weren't even envisioned a couple of years ago in terms of regulating industry, protecting consumers, and also driving tax policies--things that I'm sure Mr. Regan was just about to get into, such as downloading music as opposed to taxing CDs.

Where do governments enter into this, and where do we draw the line? Do we set policy that says you guys are going to have to make future progress within these parameters, or do we wait until we see what you come up with and then act after the fact?

[Bernard Lord]

I'd be willing to volunteer an answer to that, because I think those are valuable questions. For policy-makers, those are the most difficult questions to answer.

The only advice I could give on this specifically is that as legislators, you cannot try to legislate this through a rear-view mirror. Because it's changing so quickly, you can't, as you're driving down this change highway, look in the rear-view mirror to see what you just went through and say, “Oh, let's regulate that”. The difficulty is that it's always hard to predict what will be happening next. And at the speed at which governments work generally, in terms of adopting laws and having debate in a free and democratic society, it takes time. That time can be a problem, and it can be an impediment to innovation.

So I think a general rule is to not create more hurdles than needed and to try to maintain that balance where we can make sure that we generate the environment for people to innovate and create wealth, while protecting consumers and Canadians' privacy. When you set up too many roadblocks to try to protect too many things, I think that's when we really risk falling behind.

Currently we're not falling behind. There are places where we're ahead, and places where we may be second. We're not a country that's falling behind by any means, but we have to make sure that we don't put up roadblocks to put ourselves in a situation where we are falling behind.

Demographics also play a major role in everything in terms of public policy. The fact that we have an aging demographic will show--and we'll see it for a while yet, not only in health care but also in other sectors--that we may be slower to adopt new technologies just because we're an older population. But when you look at our younger population, how quickly they adopt technology, you see that they're adopting it as fast or faster than anyone around world. When we look at Canada as a whole, we have to be careful that we don't lump everybody in. There are segments of the Canadian population that are adopting technology as fast or faster than anyone else in the world.

[Ken Cochrane]

I also think it's an excellent question, one that legislators don't just worry about but we all worry about, in terms of how many rules and how much of a framework we want in order to operate.

I look at it this way, that at the end of the day, in this space that we're talking about--e-business, e-commerce, the digital economy--you have some really fundamental things. Privacy is one. Security of information is another, as is identity, in terms of knowing who it is you're interacting with, having a sense of confidence that it is the person or the service you believe you're interacting with, that it's accurate. There are many things we can do to apply good practice to ensure that we have good identity in place--people are registered, we know who they are, we have the right devices to assure us they are who they say they are.

At the end of the day, what we have to do is to have enough collaboration among us all to have a set of rules we can all work with that will generate trust. I think it's the trust model that will allow electronic commerce. Forget the digital payments and mobile payments. In the whole movement of information with a high level of confidence, it's that trust model that's core--to me anyway. I think it's the core of what many of us have said.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Cochrane.

We'll have to end on trust, which is a good place to end.

We will now move on to Ms. LeBlanc.

You have five minutes.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

I thank you for your presentations; they are greatly appreciated.

A report on research and development was recently published by a group of experts. They recommend that the tax credit for what we commonly call SR&ED be reformed in order to apply exclusively to labour costs. I believe you have already discussed this issue, Mr. Paterson. Other guests might have something to add.

Should the government be doing more to create programs targeted at sustaining the integration of new information and communication technologies for SMEs? You mentioned that a high proportion of consumers are adopting these new technologies in their purchases, but that small and medium-sized businesses seem to be having difficulty in keeping the pace in order to benefit from this large market.

Might the government, within its assistance programs for small and medium businesses, be able to do something to urge theses businesses to adopt these new technologies?

[Chris Paterson]

Thank you for that good question. It is one that I think other jurisdictions have asked. I think the answer to your question is yes, and from a public policy perspective there seems to be a recognition that there is, for lack of a better way of putting it, a market failure of sorts. Businesses are not investing in and using technology as much as is deemed necessary for stimulating innovation and productivity.

My recollection is that the Information Technology Association of Canada undertook a study on this question a couple of years back. My recollection is that to the extent that other jurisdictions were using incentives, or some form of public support for this, it was done in a way that enabled flexibility. In other words, it basically gave the company the ability to define its strategy and to put in the technology, business processes, software, etc., that would help it accomplish its innovation objectives.

Whether it's a matter of vouchers, whether it's a matter of making support available through IRAP, whether it's available through the Business Development Bank of Canada, any of those means could be effective. I think the primary issue at hand is flexibility, a focus on a company's innovation outcomes and strategy, and making sure that the support is flexible enough to help the company achieve those outcomes, which may involve hardware, software, or services.

[John Weigelt]

I'd like to echo that point about having a broad opportunity to invest where it makes sense for innovation in your business.

But my sense is that there also has to be increased awareness in the broader community. Again, I express my disappointment that so many Canadian businesses were unaware of the consultation on the digital economy, something that is as important as this in projecting Canadian know-how and knowledge around the world.

One thing we all need to be aware of is the sustainability of activities that surround incentives. Perhaps an example helps in this regard. One could imagine that a research facility gets the world's largest MRI machine. All of a sudden there's a whole bunch of people intrigued about locating to that region to work on the MRI machine. Time will pass and that MRI machine will no longer be the world's number one. It might be number two, number three, number four, number five. What happens when that machine breaks? Where do your researchers go? How have you built up that support structure around it so that you can sustain that innovation in the region and be able to continue? Perhaps because the technology has changed so very, very rapidly, that technology has now become obsolete, and you've invested in a horse but you don't have a full stable. So you look to do those investments across the Canadian marketplace, look at bringing up that whole idea of centres of excellence or those communities.

We see them emerging throughout the Canadian economy, not only in Vancouver and Montreal with electronic content and the digital economy, but also in the Toronto and Hamilton regions, with e-health and the innovations that are happening there; or the pharmaceutical innovation that's happening in the Montreal region; or look at the carbon management that's happening in the prairie region. The University of Manitoba, the University of Saskatchewan, and the University of Regina are doing some fantastic work around carbon sequestering. How do we enable those communities with digital technology to allow them to project that know-how around the world?

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you very much. I—