Evidence of meeting #7 for Industry, Science and Technology in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was e-commerce.
A recording is available from Parliament.
4:25 p.m.
Conservative
4:25 p.m.
Vice-President of Research and Innovation, Ryerson University
Sure. There are a number of layers to my answer. The first is that the $80 million was great, and I think it was invested in the right something, which goes to my earlier point that a lot of the impediments, particularly in SMEs, are not actually hardware/software; it's understanding what the opportunity is and how to put the systems in place.
I worked as a technology consultant before some people in this room were born, and very often, as I've said, the issues are not technological; they're understanding what the opportunity is. Our only regret at Ryerson was that it was restricted to the colleges and it didn't include the universities as well.
When we think about—
4:25 p.m.
Conservative
The Chair Conservative David Sweet
I need to interrupt you. Your time has expired.
I do want to let you know that when you made that comment, everybody was looking around and saying how can anybody be that young?
Now onto Mr. Regan for seven minutes.
4:25 p.m.
Liberal
Geoff Regan Liberal Halifax West, NS
And I certainly wouldn't qualify, Mr. Chair.
Professor Geist, let me start with you. How would you use the next spectrum auction to foster a more competitive environment?
4:25 p.m.
Canada Research Chair, Internet and E-commerce Law, University of Ottawa, As an Individual
It's a great question. I think in many ways it represents one of the best opportunities we have to change some of the competitive dynamics.
I guess I'd point to at least a couple of issues. First off, I think we need another set-aside, ensuring that either new entrants, or entrants that only have a very small percentage of the market, have a certain amount of that spectrum exclusively for their bidding. The reason is that the incumbents, the large players right now, have an incentive to keep those new players out of the marketplace. They're willing to overbid for the spectrum, not because it makes business sense to pay so much for the spectrum but because it makes business sense to keep some competitors out of the marketplace. A set-aside similar to what we had a couple of years ago makes a huge amount of sense.
Secondly, as alluded to for some of the questions from Mr. Lake, I think along with a set-aside we need to open up the competition to foreign investors as well. This strikes me as a perfect opportunity to try to do that, so it's a set-aside plus the ability for foreign bidders.
Thirdly, and I think this is important, there is going to be a significant digital dividend that comes out of spectrum previously used for analog television that's now being freed up; we're talking potentially about billions of dollars. The last time we had a spectrum auction, those billions of dollars went to the automotive sector. It was understandable: the sector needed it.
This represents a real opportunity to reinvest what is spent on that spectrum auction into these digital issues: ensuring we've got universal affordable broadband, helping to fund some of the culture and creativity we've talked about, and funding some of the digital literacy and digital skills that people have been talking about.
We all know that things are tight right now. That reinvestment not only provides a large amount of money to be able to do that, but it perhaps makes it more palatable for the companies that are making the bids to begin with; they know that much of what they're spending is in a sense being recycled back into the sector by way of some things that are currently underfunded.
4:25 p.m.
Liberal
Geoff Regan Liberal Halifax West, NS
How would you lower transaction fees?
I'm going to go to Professor Geist first and then Mr. Forzley on this one.
4:25 p.m.
Canada Research Chair, Internet and E-commerce Law, University of Ottawa, As an Individual
On the transaction fee side we've got payment experts here, but I think it's quite clear that other jurisdictions are saying it's necessary to step in through regulation. Even on the e-commerce side, in the United States we've heard about the concerns about using credit cards.
In the United States the risk was fairly low with respect to credit cards. They've got Regulation Z, which creates a $50 cap on potential liability, which meant that credit cards were a viable form of payment to use, from a consumer perspective.
In Canada we don't have a similar regulation; by and large, it's through contract. There have been steps taken in the United States to try to ensure that both fees come down and that consumers are adequately protected. We don't see that to the same extent here.
4:25 p.m.
Liberal
Geoff Regan Liberal Halifax West, NS
Mr. Forzley, you talked about the fact that in the U.S. there are more alternative payment providers, one of the reasons being that there are more merchants to support that system.
In view of that problem, how do you lower transaction fees in Canada?
4:30 p.m.
Managing Director, Market Drum, Ottawa Centre for Regional Innovation
There are many alternative service providers that are happy to transact in Canada, even though there are less merchants. Also, we should know that there are many merchants out of the U.S. or overseas that are looking to enter Canada but don't do so because of the issues of fees and shipping. They find that restrictive.
So it's the ability to have many alternatives competing for the market—not just alternative payments, but more than a few payment processors. For example, on the credit card side, there is Moneris, and it's thin after that, right? Even if we park alternatives for a second, on the credit card side alone there is not enough competition to drop those fees down, so that needs to open up.
On the regulation side, for the debit side there is Regulation E, and for the credit card, as Professor Geist mentioned, there's Regulation Z, and there's Durbin. There are other laws in the U.S. that regulate fraud and risk, etc., so we need that as well.
4:30 p.m.
Liberal
Geoff Regan Liberal Halifax West, NS
Professor St-Amant, what regulatory system do you foresee for protecting the payments system?
4:30 p.m.
Lecturer , Department of Legal Sciences, Université du Québec à Montréal, As an Individual
In terms of facilitating access, I think among the major issues you have is the issue that the infrastructure is so concentrated, and there is so much legal uncertainty that it is probably not very attractive for foreign acquirers, for instance, to come into this market. Those are issues that should be looked at.
In terms of looking at the interchange fee issue, maybe one can always dream that the retailers, the issuers, and the networks could sit down and come to an agreement--maybe. But I strongly suspect that if you want this to happen, you had better have a threat that if they can't agree, someone will agree for them.
4:30 p.m.
Liberal
Geoff Regan Liberal Halifax West, NS
Ms. Cukier, how would you unleash the talent of young people in the way you described?
October 17th, 2011 / 4:30 p.m.
Vice-President of Research and Innovation, Ryerson University
We did a book a few years ago called Innovation Nation: Canadian Leadership from Java to Jurassic Park, which looked at high-tech entrepreneurs. The strongest predictor of whether someone will be a serial entrepreneur is whether they come from a family of entrepreneurs, and that could be a real estate agent, a farmer, or a self-employed physician.
If you understand that, then you recognize that the structure of the Canadian economy is not actually working in our favour, because large employers account for the majority of jobs. So you have to think about what you can do in the educational system to create the kinds of sensibility, the risk-taking, and the aptitudes that are going to drive entrepreneurship. I mean that not just in the context of business, but also in the context of social entrepreneurship, and I actually think we need a strategy that looks at K to 12 as well as the universities and all the way through.
Some people have mentioned the digital media zone at Ryerson; any of you are welcome to come. It is a space that the president created for students. It's led by students and run by students: space, technology, and let them go. Over 18 months they've created 47 start-ups and 240 jobs and basically have turned experiential learning and approaches to innovation on their head. This is a generation that knows more about technology and its potential than we do--I speak for myself, not for everyone in the room.
Some of the programs already established at the provincial and federal levels give young people the opportunities and the experience they need to enhance their employability, but also give them the confidence they need to venture out on their own and create their own jobs. I think this is critically important.
I think there are huge opportunities there that we're not tapping into. Reverse mentoring is one, whereby young people teach older people how to use social media. It's low cost and it creates huge opportunities.
At Ryerson, that's part of what we think is very important.
4:30 p.m.
Conservative
The Chair Conservative David Sweet
Thank you very much, Madam Cukier.
That's the end of our first round of seven-minute questions. We're going to our second round, beginning with Mr. Braid for five minutes.
4:35 p.m.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
Thank you, Mr. Chair.
Thank you to all of the witnesses for being here. We've had a range of really excellent and informative presentations, so thank you.
Professor Geist, perhaps I could start with you. In your opening remarks, you mentioned the importance of creating a more competitive Internet. Could you elaborate a little on what you meant by that, on how we create a more competitive Internet?
4:35 p.m.
Canada Research Chair, Internet and E-commerce Law, University of Ottawa, As an Individual
I was heartened to hear that the manufacturers and consumers in public interest are ad idem on this. That speaks to the kind of competition we see for broadband services to the home, wired services, whether fibre or otherwise, as well as on the wireless side. Regardless of the ranking that you see, I think we all recognize that Canada is not a leader at this time. In fact, over the last decade or so, we have steadily declined in the pricing that Canadians pay. There is also the existence of caps, which has made it difficult, let's recognize, not just on the consumer side, but also for businesses that try to embrace the opportunities of e-commerce and find all these hidden fees on the consumer end. So they can't offer consumers the same competitive arrangements available in other countries, because of the existence of caps or high fees. It represents a significant impediment on both sides: businesses are unable to take advantage of the technology and consumers have to pay more.
It's the same situation in wireless, which recently has gotten better. But if you look at the last number of years, virtually every benchmark or metric identifies Canada on the data side as being a laggard in pricing. We've started to see some of the bigger players come in with their LTE or 4G, so we're starting to see higher speeds. But here in Ottawa, for example, where Rogers first launched its LTE, presumably for the benefit of people like you to see that this is actually happening in Canada, the reality is that it's unaffordable for individual consumers. It's largely a corporate offering, because the prices are so high. That's in stark contrast to what you find in many other jurisdictions, where the prospects of moving directly towards a wireless broadband service actually provides the kind of competition you're looking for. You're not just stuck with a choice between cable and DSL. They both look roughly the same, but there's now a third entrant that comes in on the wireless side. One of the ways we can help make that happen in a more competitive fashion is through the upcoming spectrum auction.
4:35 p.m.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
Professor Geist, you mentioned that because of policies put in place 10 or 15 or so years ago, Canada lost the opportunity for Google to be Canadian, for Facebook to be Canadian. You touched on this a little bit in your reference to cloud computing. What is Canada doing well now? What strengths can we leverage? Where can we continue to foster innovation and knowledge-based work and economies?
4:35 p.m.
Canada Research Chair, Internet and E-commerce Law, University of Ottawa, As an Individual
There's been much talk of late about some of the success stories among some smaller players, say, in the app market. Toronto has seen a number of significant players move into the app market. We've seen a large number of buyouts lately, where Canadian start-ups, as they move up the chain a little bit, get picked off by U.S. companies. I recognize that for the entrepreneurs involved this represents a significant win. It's the big payout that they've been working for. But from a Canadian perspective, it creates a problematic cycle. You need the larger players to become large—that's when you start seeing the ecosystem develop. We saw it years ago here in Ottawa when the Corels and the Newbridges of the world started creating all sorts of spin-off companies. We had second and third generations of new companies coming into the marketplace, which by and large fed off these previous successes.
In your riding, the success of RIM led to these kinds of second- and third-generation companies. If we have a marketplace where it's tough to get big and get big fast, and part of that is because of the legal framework, we're not going to see those second- and third-generation spinoffs from people who have done well and start building out. Instead, we have become a bit of a farm team to some of the larger players in the United States. It's great for some of those big players, but I think there are some negative longer-term consequences in what it means for our economy.
4:35 p.m.
NDP
Glenn Thibeault NDP Sudbury, ON
Thank you, Mr. Chair.
Mr. Geist, you talked about the digital lock and how it would have an effect on e-commerce. If I want to buy something online, it could be locked digitally...there's a lot of confusion out there with consumers. Maybe you could talk a little bit about that.
4:40 p.m.
Canada Research Chair, Internet and E-commerce Law, University of Ottawa, As an Individual
I'd be happy to.
The concern is there is nothing to stop any business from employing a digital lock. We've seen that in a number of businesses. Many businesses have given it up. You might think back to the music industry that started with digital locks. They thought they needed to lock it down. Consumers, by and large, rebelled and rejected it, and what the industry did was ultimately drop it.
So no one is saying that it isn't open for a business to choose to have a digital lock. Whether we're talking about consumer groups, education groups, the Retail Council of Canada, or many others, the concern they have is that the current proposal in Bill C-11 would effectively mean that the presence of a digital lock would trump many of the other rights that exist within the Copyright Act.
So consumers who purchase a DVD find themselves unable to transfer it from one device to another, and that creates a pretty significant lock.
Earlier this year, when RIM launched the PlayBook, I had the chance to mention this as well when I appeared before the committee studying Bill C-32. I talked out of concern that for people who have invested in a competitor platform—let's say the iPad—the real cost of the device isn't in the device; it's in all the content that, over time, gets accumulated. It's in the e-books, it's in the movies, and the television shows and all the rest of the content you buy.
If what we do is have policies that encourage the use of these digital locks—which, make no mistake, is precisely what Bill C-11 does—then the cost to a consumer transferring content from the iPad to the Canadian PlayBook is increased dramatically because the costs there aren't just in the device. It's now the cost of transferring all that content because the consumer is literally locked out.
4:40 p.m.
NDP
Glenn Thibeault NDP Sudbury, ON
Thanks for clarifying that.
Switching gears a little bit now, to Mr. Patacairk--did I pronounce your name correctly?
4:40 p.m.
Senior Director, Investment, Ottawa Centre for Regional Innovation
That's correct.
4:40 p.m.
NDP
Glenn Thibeault NDP Sudbury, ON
Perfect. Thank you.
Maybe you can describe some of the challenges that your members may have faced in adopting and adapting to e-commerce technology.
4:40 p.m.
Senior Director, Investment, Ottawa Centre for Regional Innovation
Most of our members who are in e-commerce to the point of what Samer was just describing find it's just a tough market to get into and actually succeed in. And I don't want to echo what everybody has said here for the past hour and a half, but for all these reasons combined, people tend to stay away from it. It's just way too risky to get into a business if you want to go on and excel.
The United States right now are breaking down the barriers. They're breaking down regulations to get ahead so their companies can compete. And as a foreign direct investment senior person in our organization travelling around the world, especially in the United States, I've seen more mergers and acquisitions than I can count these days than greenfield investments and just good investments happening in Canada.
What's ending up happening is that these companies are coming up, seeing the gap there, and taking advantage of it, and they're coming up and buying up our companies. It is a major issue that we're going to continue to have. And frankly, it's not just in this sector; it's all the way across the board. I can name a few recently, but there are a lot of companies up for sale right now. Our companies will shy away from the e-commerce business for all these reasons and try to get into something else.
There was a comment about what we can do. I think the federal government is starting to get a better handle on what needs to happen. There is a program right now that we take advantage of for STEM and all these great things that we do, as people who bring together academia, industry, etc.--for example, FedDev, or Ontario's SODP program. Depending on who you talk to, you call it one of the two programs, but there are great programs there for companies, including STEM—science, technology, engineering, and mathematics—which people can take advantage of.
It's guys like us, at a regional level and an economic development agency level, where the rubber hits the road with companies. We have the pulse of them, and we understand what's going on. A program like that is brilliant because it brings the federal government, from the top right down to the grassroots, to start working across the board in all the different areas.
So kudos to the federal government. We have miles to go. The United States is figuring out quickly how to capitalize on that, but if we don't get our act together on e-commerce and across technology, they're going to keep coming up here and gladly taking over our companies.
