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SECTION I: Overview

Minister’s Message

As Minister of Canadian Heritage, Status of Women and Official Languages, I am pleased to present the Canadian Radio-television and Telecommunications Commission’s (CRTC) Departmental Performance Report for the year 2006-2007. The report highlights the important achievements of this independent and public agency over the last fiscal year, and demonstrates how it continues to fulfill its mandate to regulate and supervise broadcasting and telecommunications in Canada in the public interest.

The CRTC faces considerable challenges in dealing with these rapidly evolving sectors of activity, particularly as a result of the constant technological developments and the convergence of the two industries. I am pleased to note that the CRTC’s work draws not only on these factors and on the laws that govern it, but also on the orders in council issued by the government last year, whether they originated from the Minister of Industry, in order to promote competition in the Canadian telecommunications market, or from the Minister of Canadian Heritage, in order to examine the future environment of the broadcasting system. The CRTC ensures that Canadians benefit from the advantages of competition and have access to a first-class broadcasting system and first-rate Canadian programming.

The Departmental Performance Report demonstrates the unique and important role that the CRTC plays in helping to shape and strengthen our identity as Canadians.

The Honourable Josée Verner, P.C., M.P.

Chairman’s Message

I am pleased to present the CRTC Departmental Performance Report for the year 2006-2007.

Although broadcasting and telecommunications have historically operated as two distinct industries, new technologies and new media have brought them closer together. This convergence poses many challenges for the Commission, not the least of which is how to ensure that the objectives of our governing legislation are met. The objectives set out in the Telecommunications Act are mostly economic in nature, whereas those outlined in the Broadcasting Act are mostly cultural and social. The Commission has adopted a regulatory approach that strives to be lighter and smarter. By necessity, this approach must be applied differently to the two industries.

Our goal in telecommunications is to remove regulatory obstacles in order to foster an efficient and competitive market, and to regulate only in cases where the market fails to fulfill the Telecommunication Act’s objectives. However, we cannot rely solely on market forces to realize the social and cultural objectives described in the Broadcasting Act. As a result, we must regulate to make certain that Canadian content is produced and broadcast, and that all Canadians are able to access the broadcasting system and can participate in it. It is of the utmost importance that our regulation be responsive to the evolution of the broadcasting industry.

During 2006-2007, the Commission began to review its regulatory frameworks to ensure they remain relevant given the technological changes that are reshaping the broadcasting and telecommunications industries. It is an activity that will remain one of our top priorities in the near future. We are committed to working collaboratively with Canadians as we continue to cast an objective eye on our existing policies and regulations.

We also created a Policy Development and Research sector within our organizational structure to ensure that our decisions, policies and regulations are adaptive to the evolving environment and responsive to Canadian needs. This new sector is tasked with the development of policy for the traditional broadcasting system, as well as new media and new technologies.

Broadcasting

Among its many activities, the Commission:

• reviewed its commercial radio policies and established a new approach to Canadian content development that takes into account the unique circumstances of small-market stations as well as emerging artists;
• prepared a report entitled The Future Environment Facing the Canadian Broadcasting System, which highlights the impact the evolution of audio-visual technologies is having on how Canadians communicate, express themselves and interact with various media;
• launched a review of certain aspects of its framework for over-the-air television services and held public hearings;
• launched a proceeding to review issues relating to the Broadcasting Act’s objective of ensuring that the broadcasting system provides Canadians with a diversity of voices; and
• developed an approach to establish emergency alert services that will enhance public safety by using the broadcasting system to inform Canadians of events that could endanger their lives.

Telecommunications

Among its many activities, the Commission:

• worked closely with the telecommunications industry to ensure the successful implementation of wireless number portability across the country;
• developed a statement of consumer rights relating to local home phone service for customers of traditional telephone companies;
• determined that it was in the public interest to allow public authorities to use the numbers and addresses in 9-1-1 databases to improve the effectiveness of telephone-based emergency public alerting systems;
• developed a framework to deregulate local telephone service; and
• initiated a proceeding to review the regulatory framework for wholesale services and to consider a revised definition of essential services.

In addition, the Commission has endeavoured to reduce the amount of time required to process certain applications. For example, in March 2006, the Commission announced an expedited process for licence amendment applications for the broadcasting sector. In the first year of implementation, we were successful in reducing the average processing time by 50 per cent over the previous year’s results. We have also undertaken a review of the process for certain types of applications that involve an oral public hearing. New measures will be introduced in early 2007-2008.

In December 2006, the Commission re-introduced service standards for telecommunications applications and indicated it would evaluate the results on an annual basis. In particular, the service standards for the processing of tariff applications will enable telephone companies to respond more quickly to consumer needs in an increasingly competitive market.

I invite you to review the report that follows to learn more about these activities and the many others that the Commission undertook during the year 2006-2007.

Konrad von Finckenstein, Q.C.

Management Representation Statement

I submit, for tabling in Parliament, the 2006-2007 Departmental Performance Report (DPR) for the Canadian Radio-television and Telecommunications Commission (CRTC).

This document has been prepared based on the reporting principles contained in the Guide for the preparation of Part III of the 2006-2007 Estimates: Reports on Plans and Priorities and Departmental Performance Reports:

• It adheres to the specific reporting requirements outlined in the Treasury Board Secretariat guidance;
• It is based on the department’s approved Strategic Outcome(s) and Program Activity Architecture that were approved by the Treasury Board;
• It presents consistent, comprehensive, balanced and reliable information;
• It provides a basis of accountability for the results achieved with the resources and authorities entrusted to it; and
• It reports finances based on approved numbers from the Estimates and the Public Accounts of Canada.

___________________________________
Robert A. Morin, Secretary General

Raison d’être

The CRTC was established to sustain and promote Canadian culture and achieve key social and economic objectives. The Commission does this by regulating and supervising Canadian broadcasting and telecommunications in the public interest. In doing this, the CRTC is governed by the Broadcasting Act of 1991 and the Telecommunications Act of 1993.

The Broadcasting Act seeks to ensure, among other things, that all Canadians have access to a wide variety of high quality Canadian programming.

The Telecommunications Act seeks to ensure, among other things, increased reliance on market forces for the provision of telecommunications services and that regulation, where required, is efficient and effective.

Since 1928, when the Government of Canada created the first Royal Commission on Broadcasting, the government has sought to develop policies to keep pace with changing technology.

The CRTC is an independent public authority, reporting to Parliament through the Minister of Canadian Heritage.

Our challenge is to serve the public interest by maintaining a balance among the cultural, social and economic goals of the legislation on broadcasting and telecommunications, taking into account the wants and needs of Canadians.

Like most organizations, the CRTC does not work in isolation. Environmental factors over which it has little or no control, such as the state of the economy, capital markets, societal change and emerging technology, influence the CRTC’s work, priorities and outcomes.

Four principles will govern the Commission’s management of the regulatory process in the coming years:

• transparency
• fairness
• predictability, and
• timeliness.

Transparency means that the Commission will be as open as possible in our dealings with all the stakeholders, as far as the law permits. Everyone should see exactly what we are doing, and why, so that they understand how we function and how they can interact with us.

Fairness means that every matter that comes before us shall be handled with well-established, even-handed procedures that will lead us to a well-considered outcome.

Predictability means that when we make decisions, we will follow a clear direction and will be consistent. And if we depart from our direction, we have to explain why, and specify whether this departure is an exception or a change in course.

Timeliness is a concept that means we should make our decisions as quickly as we can in a responsible manner.

Broadcasting Environment

Canada’s broadcasting system remains one of the most open and advanced broadcasting systems in the world, both technologically and in terms of variety of programming. Canadians enjoy a vast array of radio and television services that offer a wide range of programming choices from around the world, as well as from domestic sources. In addition, the broadcasting system has benefited from the contributions of private, public and community broadcasters, with each element playing a distinct and important role.

Several successes characterize our state-of-the-art broadcasting system:

• The Canadian broadcasting system gives Canadians access to hundreds of broadcasting services regardless of where they live in Canada.
• Canadian specialty television services have flourished, providing Canadians with ever-increasing choices of niche programming.
• The evolution to digital technology has begun, and the Canadian broadcasting system is poised to embark on a full transformation.
• Policies and regulations are in place to ensure that broadcasting services are available in both official languages throughout the country.
• The Canadian broadcasting industry is making important contributions to Canada, both culturally and economically. It has grown to become a multi-billion dollar industry, employing Canadians in diversified fields, from artists, writers and actors to technicians and engineers.

The above successes notwithstanding, the Commission fully recognizes that the broadcasting system faces substantial challenges. Among these is the challenge of technological evolution, which has all but erased established boundaries for television and for radio. As a result, broadcasters must now amend their business plans to continue to provide increased access to a wide variety of services from around the world, while also fostering a financially viable and culturally important Canadian broadcasting system. In this context, the Commission is working diligently to increase the number of Canadian programming services while also increasing the availability of foreign language services to better serve the diversity of the Canadian population.

New technologies have created new media. The emergence of new media, or the provision of audiovisual services delivered and accessed over the Internet or other non-traditional networks, has created a number of new challenges for the CRTC. The way we respond to these challenges will have long-term consequences for the Canadian cultural landscape. The Commission is therefore undertaking a new media project initiative to provide a solid basis for policy development in this new environment.

An important aspect of the Commission’s work consists of fulfilling the social and cultural objectives of the Broadcasting Act. To achieve this, the Commission must continue to regulate this sector, mainly to ensure the availability of quality Canadian programs and the accessibility of programming for all Canadians, regardless of their origin or condition. Nevertheless, this regulation should be smarter and more efficient in order not to create obstacles to the broadcasting sector’s economical development.

The Commission will continue to work collaboratively with the industry, to ensure that the business and cultural challenges ahead are successfully met.

The Commission has planned two major policy reviews. In the fall 2007, public hearings will begin on the issue of ownership consolidation and maintaining a diversity of voices in broadcasting. Later in the fiscal year, the Commission will conduct a review on the regulation of pay, specialty and video-on-demand services, and of the broadcasting distribution undertakings.

Telecommunication Environment

Telecommunications is an important component in the social and economic fabric of Canada. It is universally available with over 98% of Canadian households subscribing to landline and/or mobile phone service.

Traditionally there have been two separate and independent landline networks in Canada that accessed Canadian homes; the local telephone network and the cable distribution network. The major cable companies have evolved their networks to deliver not only advanced cable services but telecommunications services as well, such as Internet access service and more recently local telephone service.

In 2006, the Canadian telecommunications service industry continued to grow with mobile phone and Internet services driving the growth. The competitors' share of total telecommunications revenues, including landline and mobile phone service revenues, continued to increase and reached 38% in 2006.

Canada’s telecommunications environment can point to four competitive successes:

1. Canada has some of the lowest long distance services prices in the world.
2. Canada has a healthy and competitive mobile phone services market that experienced a 10 % increase in subscribers and a 15% increase in revenues in 2006.
3. Canada’s competitive high-speed Internet services market continues to grow as over 93% of Canadian households are able to subscribe to broadband service. Canadians continued to embrace technologies including broadband access to the Internet as the number of residential subscribers with high-speed Internet services increased by 16%. This positions Canada well to take advantage of the services, opportunities and benefits that the Internet has to offer.
4. The competitors of the incumbent telephone companies continued to gain market share primarily due to the dramatic growth in local competition. Competitors had strong growth in their number of local lines in the residential market, essentially from cable companies. In 2005, they started to provide local telephone service generally over a managed network and by the end of 2006, they captured almost 12% of local residential lines to become major competitors of the incumbent telephone companies in residential markets.

In December 2006, the Governor in Council issued a Policy Direction to the Commission that, among other things, directed the Commission to rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives. At that time the Commission estimated that 30% of telecommunications revenues were subject to economic regulation. With frameworks in place for deregulating the remaining major regulated retail services, the percent of telecommunications revenues subject to economic regulation is expected to decline significantly in the coming year.

Policy Development and Research (PDR)

In early 2007 the Commission completed a reorganization designed to allow the Commission to respond to the rapidly-evolving technological, cultural, socio-economic, and convergent landscape of the telecommunications and broadcasting industries. As part of this converged structure, the PDR sector is responsible for the development of regulatory policy for conventional and new distribution platforms, including new media, as well as mega-mergers.

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