Industry Committee on Oct. 17th, 2011

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

Thank you.

I'm going to give the rest of my time to Mr. Thibeault.

[Glenn Thibeault, NDP, Sudbury, ON]

Thank you.

We've been hearing a lot about innovation and we've been talking a lot about e-commerce. Part of that, I think, is the mobile payment industry. In more and more of it, we're starting to see new apps come out on the PlayBook, on the iPad, and for our phones. With that right now is some concern as to who is regulating the creation of these applications that are being purchased by everyday consumers.

So I'm on my iPad--or I'm on my PlayBook, as Mr. Braid would like to hear me say--and I'm scrolling through and see this new application that I could purchase through e-commerce, but now this application allows me to go to a store and just click, so I've purchased it and it has gone through to my credit card. Who's regulating this, who's creating the applications, and who's benefiting?

The concern here is that we've already heard that interchange rates for our small and medium-sized businesses are higher than those of other countries, and we're going to see businesses not want to get into this field because of the costs associated with them, but this is where consumers are going. My eight-year-old wants to buy stuff on the Internet. So what do we do? Where do we start?

I guess I'll start with Mr. St-Amant, and I know Ms. Cukier would like to comment as well--in a minute.

[A voice]

Less than a minute.

[Jacques St-Amant]

Actually, we may wish to go in that direction, because these types of payments can be efficient, but the day someone gets ripped off, the whole industry goes down. Right now, a lot of this is strictly regulated, if I can say that, by your agreement with the provider, as you know: it's that fine print with clauses that say, “I, the provider, am responsible for nothing at all”. You can find those clauses even in the bank's agreements. I could give you a few nice examples. That's not the way to go. That's not the way to make sure that people trust what's happening.

I'm looking at it from the consumer's standpoint. I'm sure that the retailers would tell you they have the same types of clauses in their agreements with the banks or with the different providers. We need to put some sort of minimal order in there.

[The Chair, Conservative, David Sweet]

We're going to have to end with that.

We're now on to Mr. Braid for five minutes, who is sharing the time with Mr. Carmichael.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you, Mr. Chair.

I have just one question, and then I'll pass this on to my colleague, Mr. Carmichael.

This is perhaps just an open question to the panel, to whoever may be prepared—and I don't mean to put anyone on the spot—on the Jenkins report. The Jenkins panel released their report just this afternoon at two o'clock. Are there any thoughts from those of you who've had the opportunity to digest any of it? What have you heard about the report that you like?

[Martin Lavoie]

We agree there's some cleaning that needs to be done with regard to all the programs. They want to put everything under a new structure that would oversee IRAP and others. We don't have anything against that.

There are some good recommendations with regard to BDC and venture capital. They're looking at new credits for BDC to support late-stage start-ups.

What we need to do is consult with our members with regard to the change for SR and ED. Making it only labour costs, just because it would make it simpler...I need to find out, in the manufacturing sector, how much of the R and D is more labour intensive and how much is less labour intensive. Some would be penalized with that.

They want to reduce refundability. CME is a business organization. We've been proposing the opposite. In the last years, we wanted to increase refundability of SR and ED.

What they're suggesting is that we use the money we're going to save with this for more direct support to businesses. So we would like to see what the government will choose to do or not do, because they're only recommendations.

[The Chair, Conservative, David Sweet]

Mr. Carmichael, go ahead.

[John Carmichael, Conservative, Don Valley West, ON]

We'll all come away from this meeting today with different takeaways, and some of them I find pretty exciting. One of them sounds like a new reality show--how we're going to fund those creative entrepreneurs.

I'd like to finish with Ms. Cukier. On your digital media zone, you talked about the success you've had. I wonder if you could talk briefly about the balance between the successes and the failures. You've put a lot of investment into it. I think you said you created 240 new jobs, which is great. It sounds like this is an opportunity that a lot of universities and educational institutions are going to be taking advantage of. So perhaps you could talk briefly about not only the creative side but also the entrepreneurial side. There seems to be a disconnect. How do we get them funded? How do we keep them?

There are companies that have put tremendous amounts of money into funding these new start-ups, and they have had their share of successes and failures. The bulk of them are failures, though. I don't think we've seen the success we need. I wonder if you have some closing thoughts on how we can change that.

[Prof. Wendy Cukier]

You will not find a successful entrepreneur who hasn't had at least one failure. One of the things about building an innovative culture is giving people the freedom to fail. And that's a difficult thing for a lot of universities. That's part of the reason many of them have been reluctant to go forward.

There's no question that the principal success of the digital media zone is in the model of experiential learning and life-changing experiences it's created for the students. It's too early to tell how many of those companies are going to survive. If they survive at the same rate as start-ups across the country, we've got something.

I can tell you about two. I don't know if you've seen the bionic arm. It's an arm that operates based on brain waves. It sounds likes science fiction. It costs 20% of what a surgically implanted artificial arm costs. These kids are 19 and 21 years old, and they're being chased by investors all over the world. Now they're working on a walking wheelchair. It's mind-blowing.

Another post-doc student developed a context-aware computing application, which he sold to the Paris Métro. It is being implemented by Metrolinx in Toronto and looks as though it's going into the Vancouver airport.

You only need a couple of these mega-successes to make the investment worthwhile. But my message is that you can't have success without failure. And we have to start creating an environment where people can take those chances.

[John Carmichael, Conservative, Don Valley West, ON]

Could I add just one piece to that?

[The Chair, Conservative, David Sweet]

We're over time. I'm sorry, Mr. Patacairk. But Mr. Regan may give you an opportunity.

Mr. Regan.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you. I thought we were finished, Mr. Chairman. I'm delighted to take the opportunity.

Professor Geist, what reason would there be for the government to prohibit the circumvention of digital locks? Who does it serve?

[Dr. Michael Geist]

I think it's relatively clear that the digital lock provision, which.... And I'll emphasize again that almost everything in Bill C-11 does a pretty good job of trying to strike a balance. The one exception to that is the digital lock provision, and if you take a look at any number of things, whether it's documents that have come out through things like the WikiLeaks cables and the like...the reality is that this is the result of significant pressure from the United States.

The disappointment is that so many groups--business groups like the retailers, education groups, consumer groups, the Business Coalition for Balanced Copyright, which includes the major telcos and the broadcasters--and it's really across the spectrum, have all said it's not that they don't want legal protection for digital locks, it's that they want the same kind of balance in language that you've tried to install in so many other places. It's complying with our international obligations, it provides legal protection for those who want it, but at the same time it doesn't eviscerate many of the kinds of rights that retailers depend upon so consumers buy the products, that consumers depend upon, and that our educators depend upon.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you.

I'm thinking of today's report on innovation and the role of universities and community colleges in technology adaptation, and we talked about that in terms of adapting e-commerce. What are the gaps in transferring information and why are they there, do you think?

[Prof. Wendy Cukier]

It's a good question. I think that historically when we've talked about...and I go back to the information highway. There's been a lot of focus on building physical infrastructure. I think historically we've paid inadequate attention to building the skills infrastructure that we need to take advantage of the technology and to enable all our citizens to actively participate. So I think in general the soft skills and that piece of it has tended to be ignored, except for STEM. I would say that STEM alone is necessary but insufficient to take us where we need to go.

What comes out of that, then, is a focus on the technology bits and inadequate attention to when it's appropriate to apply the technology. If you look at the productivity paradox you can see perfect examples of where some companies invest heavily and get a huge payoff and some invest heavily and lose a huge amount, and it evens out.

What we have to better understand and better teach people is how to increase their chances of success.

The final thing is around entrepreneurship. We are not as entrepreneurial as we need to be as a nation, and we need to figure out ways to use the school system in particular in partnerships with industry to advance that in our culture.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you.

I'm trying to recall who it was--perhaps it was Mr. Wilson or Mr. Lavoie--who first spoke today about the difficulties of attracting large cloud-based service companies to Canada. My question is, how do we do it?

[Mathew Wilson]

I think it was Mr. Geist in that case.

[Dr. Michael Geist]

I'm happy to talk to cloud issues. I think a couple of points need to be made.

For many cloud services, for these server farms, energy costs are by far the most significant costs they incur. We have a natural advantage. Any number of people have pointed to the potential we would have to locate server farms up in the north, where naturally it's fairly cold. You could have a carbon neutral system there where you're literally taking the heat that is being generated out of those server farms and repurposing it for use elsewhere. It's fairly cheap. We have fast fibre optic cables that could take that data and send it elsewhere, and it's all located in Canada. We haven't seen that developed in a way that it might be. Countries like Iceland are trying to put forward precisely the same kind of proposition.

I'd note as well that we face a big problem with respect to interchanges here, not the financial interchanges that Mr. Thibeault and others have been talking about, but the interchanges in terms of data itself. So the number of interchanges we have with the United States, where often the data might start in a Canadian server farm and go down to the U.S., is fairly limited; they're largely controlled by the usual suspects, so to speak. One of the things we have to think about is if we want to try to help foster the business case for more cloud services in Canada, we need to increase the number of interchanges we have.

And to that point, Mr. Wilson, in his opening remarks, referenced CANARIE, the research and education network; I serve on their board. We were renewed several years ago, but the renewal is coming up again next year, so it comes quickly. That hasn't been approved yet, and it's absolutely essential to ensure that CANARIE is approved, because, frankly, if it doesn't get approved, we're just going to have to build it again--our education networks and others are so dependent upon it.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Geist.

On behalf of the committee, I'd just like to say thank you very much for the great answers and information you have provided for us. Thank you for investing your time.

Yes, Mr. Braid, the questions were also profound and sophisticated, and I think that is why we extracted such good information.

Thank you very much.

[Glenn Thibeault, NDP, Sudbury, ON]

I have just a quick point of clarification or a point of order. On the front of this, it talks about percentage of households in Canada with home Internet access. It doesn't include the territories, so Yukon, Northwest Territories, and Nunavut are not included in this. Is there any way we can get that information?

[The Chair, Conservative, David Sweet]

I will communicate with the researchers and see if we can have that for you.

The meeting is adjourned.