ARCHIVED -  Transcript - Hull, QC - 1999/01/25

TRANSCRIPT OF PROCEEDINGS

FOR THE CANADIAN RADIO-TELEVISION AND

TELECOMMUNICATIONS COMMISSION

TRANSCRIPTION DES AUDIENCES DU

CONSEIL DE LA RADIODIFFUSION

ET DES TÉLÉCOMMUNICATIONS CANADIENNES

SUBJECT / SUJET:

PUBLIC HEARING ON

SERVICE TO HIGH-COST AREAS /

AUDIENCE PUBLIQUE SUR LE SERVICE DANS

LES ZONES DE DESSERTE À COÛT ÉLEVÉ

HELD AT: TENUE À:

Place du Portage Place du Portage

Conference Centre Centre de conférence

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Quebec)

January 25, 1999 Le 25 janvier 1999

Volume 1

Transcripts

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of

Contents.

However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

Transcription

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès-verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

Canadian Radio-television and

Telecommunications Commission

Conseil de la radiodiffusion et des

télécommunications canadiennes

Transcript / Transcription

Public Hearing / Audience publique

Service to High-Cost Areas /

Service dans les zones de desserte à coût élevé

BEFORE / DEVANT:

David Colville Chairperson / Président

Commission / Présidente du

Conseil

Andrée Wylie Commissioner / Conseillère

Broadcasting / Vice-

présidente, Radiodiffusion

Cindy Grauer Commissioner / Conseillère

Joan Pennefather Commissioner / Conseillère

ALSO PRESENT / AUSSI PRÉSENTS:

Gérant de l'audience

Carolyn Pinsky/ Legal Counsel /

Lori Assheton-Smith Conseillères juridiques

HELD AT: TENUE À:

Place du Portage Place du Portage

Conference Centre Centre de conférence

Outaouais Room Salle Outaouais

Hull, Quebec Hull (Quebec)

January 25, 1999 Le 25 janvier 1999

Volume 1

TABLE OF CONTENTS / TABLE DES MATIÈRES

PAGE

Presentation by / Présentation par:

Call-Net Enterprises 7

Government of Northwest Territories 21

Government of Yukon 36

Manitoba Keewatinowi Okimakanak 53

Microcell Telecommunications Inc. 66

Northern Ontario Infrastructure Working Group 83

Northwestel 94

Québec-Téléphone 107

Société d'administration des tarifs d'accès 121

des télécommunications, SATAT

BC Tel, Bell Canada, Island Telecom Inc., 132

Maritime Tel & Tel Limited, MTS Communications

Inc., NBTel and NewTel Communications Inc.

LIST OF EXHIBITS / LISTE DES PIÈCES

NUMBER /

NUMÉRO DESCRIPTION PAGE

NORTHWESTEL-1 One-page document entitled, 106

"Northwestel - Quick Facts"

Hull, Quebec / Hull (Québec)

--- Upon commencing on Monday, January 25, 1999

at 0900 / L'audience débute le lundi

25 janvier 1999, à 0900

1. THE CHAIRPERSON: Good morning, ladies and gentlemen. Welcome to this final phase of the public hearing on telephone service to high cost areas.
2. My name is David Colville and I will be chairing this hearing.
3. Allow me to introduce my colleagues: Commission Chairperson Françoise Bertrand; Vice-Chair, Broadcasting, Andrée Wylie; and Commissioners Andrew Cardozo; David McKendry; Cindy Grauer; and Joan Pennefather.
4. We welcome your participation in this public proceeding. As I said last spring at the opening of the regional consultations on service to high-cost areas, we look forward to hearing your opinions on this fundamental telecommunications issue.
5. Depuis que nous sommes passés d'un régime de monopole à un marché concurrentiel au Canada, les tarifs du service téléphonique local se sont rapprochés beaucoup plus du coût réel de fourniture de ce service. Les nouveaux fournisseurs de services et les nouvelles technologies pourraient permettre de réduire le coût de fourniture du service dans une certaine mesure, mais, dans les régions plus isolées et rurales du pays, il est à prévoir que ce coût restera probablement élevé.
6. Parallèlement, un des objectifs de la Loi sur les télécommunications consiste à permettre l'accès aux Canadiens dans toutes les régions -- rurales ou urbaines -- à des services de télécommunication fiables, abordables et de qualité. En dépit des difficultés que cela pose, nous estimons qu'il nous incombe de faire en sorte que tous les Canadiens, peu importe leur lieu de résidence, puissent bénéficier des nouveaux services liés à l'évolution rapide des technologies de l'information.
7. This policy is our goal. We must act in a manner that does not unduly inhibit the ability of telecommunications companies to be competitive with companies which may not be serving high-cost areas. Subscribers in high-cost serving areas, like subscribers in urban areas, must be able to reap the benefits of competition in terms of price, innovation, and services provided.
8. We also need to find ways of ensuring the greatest possible fairness in the competition for markets among telephone companies that are trying to improve their offerings while remaining competitive.
9. To find solutions to these problems, we launched a public examination of this issue in December 1997. As part of that process, we held eight public regional consultations in May and June of 1998. We wanted to hear from those people who would be most affected by any changes in service to high-cost areas.
10. We heard from Canadians in places like Whitehorse, Prince Albert, Rimouski, Deer Lake and Iqaluit. Canadians in even more remote towns -- Fort Nelson, Dawson City, Rankin Inlet, Inuvik and Watson Lake -- were able to attend these public consultation sessions and make their views known via video or teleconference link. At those consultations, we discussed this problem, and individuals, groups, companies, and governments from the different regions of Canada provided their views in writing on a number of issues, including: Should the telephone companies and their competitors be required to provide telephone service to high-cost areas? Should there be subsidies for high-cost serving areas; and, if so, what services should be eligible and how should the subsidies be financed? Are there more appropriate technologies for serving isolated high-cost serving areas, such as satellite or wireless technology?
11. Jusqu'à présent, nous avons reçu des commentaires non seulement des personnes qui ont participé à ces consultations régionales, mais aussi de la part de divers intervenants intéressés par ces questions.
12. Parmi ces commentaires, il nous a été notamment souligné l'importance d'adapter un mécanisme qui garantirait l'offre d'un service de qualité dans les régions rurales et isolées du pays.
13. On nous a également rappelé que les besoins des abonnés, tout comme les mécanismes proposés pour les satisfaire, sont variés. Le respect de cette diversité fera donc partie des questions importantes que le Conseil aura à déterminer.
14. Malgré la complexité de ce sujet, je peux toutefois vous assurer que nous tiendrons compte de tous les points de vue et de tous les commentaires reçus avant de rendre notre décision.
15. Over the next few days, we will hear oral final arguments by registered parties. Each party will speak for no more than 20 minutes, after which the panel may ask questions of clarification, if necessary.
16. This hearing will start at 9:00 -- and it did start at 9:00 -- and we will run until we finish today's agenda, with a break for lunch each day and the usual mid-morning and mid-afternoon break.
17. Commission staff assisting us at this hearing are our Hearing Manager, Steve Delaney; Legal Counsel, Carolyn Pinsky and Lori Asshton-Smith; and our Hearing Secretary, Denise Groulx.
18. Legal counsel will now address a number of administrative matters.
19. Counsel.
20. MS PINSKY: Thank you, Mr. Chairman, several housekeeping matters.
21. Firstly, translation services are available throughout the proceeding, and translation devices are available at the commissionaire in the front of the hall.
22. Transcripts, as well, are available. The entire proceedings are being recorded; and arrangements can be made with the court reporters seated at my left at the front.
23. The order of presentation has been circulated around the room, and there is one further adjustment. The Government of B.C. will not be appearing today and they will be appearing tomorrow instead.
24. Those are all the items.
25. THE CHAIRPERSON: Thank you, counsel.
26. It seems a long time since we have sat in a room with the tables set up like this. We haven't had a telecom hearing with this sort of layout for awhile. It is a bit of a throwback, I guess, for a couple of years now since we have had hearings like this.
27. I would note that notwithstanding what I said about parties speaking for 20 minutes, I guess at least one party is representing several organizations and have asked if they could over the 20 minutes since they are representing a few, and we have agreed to that. As counsel has mentioned, we will adjust the schedule to accommodate the Government of British Columbia; and, if there are other requests for adjustments, we will deal with them, depending on whether we can get the agreement of the parties to change.
28. I don't think there is anything particularly magical about the order that we have put together. However, we will try to get through the agenda for today.
29. So, Madam Secretary, the first party, please.
30. MS GROULX: The first presenters will be Call-Net Enterprises.
31. THE CHAIRPERSON: Good morning, Mr. Brazeau.

    PRESENTATION / PRÉSENTATION

32. MR. BRAZEAU: Good morning, Mr. Chairman.
33. Mr. Chairman, commissioners, my name is Jean Brazeau. I am Vice-President, Regulatory Affairs at Call-Net Enterprises. With me today are Jonathan Daniels, Director, Regulatory Affairs; and David Stinson, our outside telecommunications consultant.
34. Call-Net's wholly owned subsidiary, Sprint Canada, is one of Canada's largest providers of long-distance services, with more than 1.3 million customers. The majority of these are residential customers.
35. In addition, Sprint Canada is also one of Canada's largest providers of Internet service, with well over 100,000 customers. Finally, Call-Net, through its subsidiary, CNCI, plans imminently to extend to the local market the same value and great service currently enjoyed by its long-distance customers. In this regard, we plan to offer a competitive alternative to the broadest possible range of residential subscribers across the country.
36. Although I am the first intervener this morning to emphasize how important a proceeding this is, I suspect that I will not be the last. This proceeding is important, of course, because it relates to Parliament's objective of rendering affordable telecommunications services accessible to Canadians in both urban and rural areas in all regions of Canada.

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37. However, your deliberations are also important because they will have a crucial impact on the achievement of other, competing objectives set out in the Telecommunications Act. These equally important objectives include enhancing the efficiency and competitiveness of Canadian telecommunications, fostering increased reliance on market forces, and ensuring that regulation, when required, is both efficient and effective.
38. Call-Net will file a lengthy written final argument, which addresses this issues raised by the Commission, the evidentiary record, and the positions taken by various participants. The Commission has heard from many participants in this proceeding of the need for more funds to be directed to high-cost serving areas. Call-Net recognizes this need and thus views the Commission's proceeding to be a timely endeavor to address this area. We are of the view that the public interest can best be served by redirecting some of the existing subsidy funds towards customers in areas most in need of subsidies.
39. Therefore, in Call-Net's written argument, we will detail our support in general for the proposals filed by most of the former Stentor member companies to disaggregate their rate bands to separate out high-cost serving areas. As detailed by the former Stentor companies in their proposals, this realignment will generally satisfy the needs of most of the constituents you have heard from in this proceeding. Our support for most of the former Stentor companies' proposals was earned by the reasonableness of these proposals themselves.
40. A critical condition of Call-Net's support for any proposal before you is that it be implemented in a competitively equitable fashion. Let me explain what I mean by competitive equity. To the extent that the cost of serving high-cost serving areas are removed from an existing rate band and assigned to a new band, then the cost of serving the NAS remaining in the original rate band will be reduced. This threatens to have an adverse impact on competitive entry by reducing the subsidy available to serve these remaining NAS. In response to this problem, competitive equity requires that any such impact be mitigated by reducing loop rates within those bands by a corresponding amount, in order to reflect the lower cost base of the loops remaining in the original band.
41. I would like now to leave the subject of specific proposals and focus on the key principles which we submit should govern your deliberations in this proceeding. These key principles can be simply stated.
42. First, Parliament's objective is that basic telecommunications service be affordable in rural and remote regions, not that it necessarily be offered at a price equal to that in lower-cost areas.
43. Second, regulation should not, and indeed, need not, do all of the work to make services affordable.
44. Third, increased subsidies are not only unthinkable, but in fact the current level of subsidies is unsustainable; therefore, assuming you find it necessary to increase the level of explicit subsidies directed at high-cost serving areas, these funds must be generated by a reallocation of existing subsidy funds.
45. I will now turn to my first point, which is that the objective established by Parliament focuses on affordable service, and not necessarily on service at a low price.
46. The very focus of this proceeding, which is to try to solve the problems uniquely associated with high-cost serving areas, marks a welcome departure from the historical approach. The historical approach supported local rates which were well below cost regardless of the affordability of local service and regardless of the costs incurred in subsidizing these local rates. This is not surprising, perhaps, because this approach was not determined by the Commission or the Government, but rather by the telcos themselves, which found it to be in their economic self-interest to cross-subsidize in this fashion.
47. The Commission must remain vigilant that the focus on high-cost serving areas in this proceeding does not create unreasonable expectations or lead it astray from the bedrock concern over affordability articulated by Parliament. This concern is for the affordability of service, not the mandatory equalization or averaging out of the rates for telephone service across high-cost and low-cost areas.
48. As we will submit in our written final argument, as a general principle, the highest rate for local telephone service approved by the Commission provides the most reasonable affordability threshold for purposes of determining the requirement for subsidies in high-cost serving areas.
49. My second point relates to the role of regulation in ensuring that affordable access is available to all Canadians. Regulation should not, and does not have to do all of the work to ensure that rates are affordable.
50. It is axiomatic that the role of regulation should be restricted to where market forces cannot be relied upon. This principle is enshrined in the Act which speaks of regulation "where required" and mandates the Commission to foster increased reliance on market forces,
51. In spite of these objectives, it has somehow come to be expected that a regulatory solution is necessary in order to offer services at prices below cost. In Call-Net's view, this expectation ignores the reality that businesses everywhere voluntarily engage in implicit subsidization. I am not speaking of anti-competitive cross-subsidization, but rather of the type of price averaging that takes place as an every day occurrence in running a business. Sprint Canada, for example, loses money in certain regions of the country. In Alberta, for instance, Sprint Canada pays contributions and switching and aggregation fees to Telus for a daytime intra-provincial call that exceeds 10 and a half cents per minute. These are Sprint Canada's external costs that do not include the cost of transporting the call over Sprint Canada's network. For competitive reasons, Sprint Canada cannot charge even 10 cents a minute for most of this traffic originated by business customers.
52. Alberta is not the only case study. A similar story exists in Saskatchewan and other regions in Canada. Even in a market like Toronto, we lose money on customers who regularly call into the territories of independent telcos. Notwithstanding this, Sprint Canada has made a business decision that it needs to be present in serving areas of all provinces in order to be competitive. This is an example of market forces driving carriers to provide services at below cost, without receiving a mandatory subsidy on a customer-by-customer basis.
53. It is reasonable to expect businesses involved in competitive markets to engage in some level of cross-subsidization among their customers and services. Indeed, what are often referred to as implicit subsidies in the world of regulation are merely common place and common sense decisions to price average in the world of business. Accordingly, regulatory measures should not be automatically employed to ensure that carriers serving high-cost areas are made whole in respect of every individual customer.
54. For example, if it is difficult for a service provider to make money in its traditional serving area, the Commission should not relieve that service provider of the requirement to seek out new customers, perhaps outside of its traditional serving area, or to introduce new services, in order to make its business profitable. Regulation should not be required to do all of the work. I would note that, in order to remain viable and to sustain the provision of service in less profitable areas, entrants have no choice but to continually struggle to acquire new customers in low-cost areas and introduce new services.
55. This brings me to my third point. Assuming the necessity for some increase in explicit subsidy directed at high-cost serving areas, the funds used for that subsidy must be generated through a reallocation of existing subsidy funds.
56. The global trend in telecommunications regulation has, for many years now, been away from subsidies, and Canada has been no exception. The Act explicitly requires that regulation, where required, be efficient, as well as effective. The Act also specifies the objective of enhancing the efficiency and competitiveness of Canadian telecommunications.
57. The Commission itself has recognized the distortionary effects of the subsidy. For instance, in the Review of Regulatory Framework decision, the Commission acknowledged that the rates for local service had to move closer to their costs in order for the benefits of competition to be realized. This realization reflected the painful historical fact that since 1979, when the Commission took its first baby steps toward competition, competition has repeatedly been delayed while the Commission was forced to grapple with the unending complexities and distortions caused by subsidies. We respectfully submit that now, on the eve of the introduction of local competition, is not the time to embrace the necessities.

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58. The distortions and complexities generated by subsidy regimes are manifest in the urgent need to reform the existing contribution collection mechanism. This need for reform has been driven by dynamic technological change and market forces sweeping the telecommunications industry worldwide, which have rendered the current collection mechanism unsustainable. In this regard, we acknowledge the Commissions intention to commence a proceeding this year in order to deal with this pressing problem.
59. One of the very real problems with the existing form of subsidy, which is drawn exclusively from interexchange services, is that it is an explicit tax only for new competitors like Sprint Canada, which must cut a cheque for the amount of the subsidy every month. While the incumbents notionally pay into a central fund, their position in the residential market ensures that they will receive virtually all the subsidy collected. Therefore, for the incumbents, the subsidy is "phantom money".
60. Excess contribution collected ultimately represents excess revenues for the incumbent. If I return to the intraprovincial long distance call in Alberta for a moment, I mentioned that Sprint Canada cannot charge more than 10 cents for this call, even though its costs are above 10.5 cents.
61. I stated that Sprint Canada was not able to charge above 10 cents for "competitive" reasons. That competitive reason is that Telus has driven down the retail rate for that call to below 10 cents. It has done this even though notionally it must pay its utility arm a fee of 10.5 cents. But to Telus, contribution and switching and aggregation are not real costs. In contrast, for Sprint Canada these are real costs. This dichotomy has recently been recognized in the United States, where the FCC is under pressure to inquire into this problem, which arises as a result of the RBOCs' planned entry into the broader interexchange market.
62. At the same time as the contribution collection mechanism has been overtaken by dynamic change, so has the amount of contribution collected failed to keep in step with significant developments in terms of both costs and revenues.
63. To begin with, the existing level of subsidy was determined based on historical costing information relating to the incumbents' local service. Yet the entire cost structure underlying the incumbents' local service has undergone, and is continuing to undergo, massive change. Incumbents have taken billions of dollars in asset write downs, introduced new and advanced systems, rolled-out state of the art technology, automated whenever possible, re-engineered processes and systems and laid off thousands of workers since the implementation of the split rate base and the price cap regime.
64. Moreover, we have also seen the merging of Canada's second and third largest ILECs: B.C. Tel and Telus. Management of both companies believe that this merger will generate some $300 million in costs savings.
65. There is nothing wrong in a competitive market with taking these actions and witnessing these savings. The problem has been that the existing subsidy regime must recognize these savings, or we simply end up with competitors' shareholders subsidizing ILECs' shareholders. In our submission, recognition of the reality of the changing cost structure of the ILECs can come in two forms. First, as in the case in this proceeding, the Commission should try to redirect part of the existing subsidy to the people who need it most -- those in high-cost areas. Second, the amount of the total subsidy pool must be reduced. In this proceeding the Commission can target the first goal; in its upcoming proceeding on contribution, the Commission can target the second goal.
66. On the revenue side of the equation, the existing frozen contribution charges have failed entirely to keep up with what is happening in the marketplace for interexchange services. Fixed per minute contribution charges are being paid by service providers, like ourselves, which are experiencing explosive minute growth. At the same time, however, the trend towards flat-rated unlimited calling is either levelling or reducing revenues. The result is that there are insufficient revenues available to support existing subsidy levels, let alone to increase them.
67. If more funds are sought in order to support affordable service in high-cost areas, they will have to be generated either by redirecting existing subsidy funds, or by further rebalancing local rates in low cost serving areas.
68. Interexchange carriers cannot support any more taxes. As well, given the Commission's stated intention to re-examine the collection mechanism, it would be counterproductive in the extreme to impose any additional interim subsidy collection mechanism pending that review.
69. Before I conclude my remarks, I would like to briefly revisit the three principles we would ask you to bear in mind while deliberating on the issues in this proceeding:
70. First, Parliament's objective is affordable service, not service at unrealistically low rates.
71. Second, service providers serving in high cost serving areas should not be relieved of the normal requirement that businesses price average and innovate in order to be profitable.
72. Third, any increased subsidization of service in high cost serving areas must be generated from existing subsidy funds.
73. Subsidies do not come without a price. That price is the imposition of a heavier burden than otherwise would be necessary on customers using those services which pay for the subsidy. Therefore, I would like to conclude my remarks by respectfully suggesting a formulation of the core issue before you. The issue is not whether it is desirable to reduce the telecommunications costs of customers in rural and remote areas. It is. And the issue is not whether there will continue to be subsidies provided to customers in high cost serving areas. There will be. Rather, the issue is whether it is more appropriate that an additional portion of the costs of providing service to these customers be borne by other customers, such as toll users in urban areas. In our respectful submission, it is not.
74. I would like to thank you for your patience and attention. I wish you well in your deliberations.
75. THE CHAIRPERSON: Thank you, Mr. Brazeau. I don't think we have any questions. So, I want to thank you, Mr. Daniels and Mr. Stinson, for your participation here today. Thank you very much.
76. MR. BRAZEAU: Thank you.
77. THE CHAIRPERSON: Madam Secretary, the next party.
78. MS GROULX: Thank you, Mr. Chairman.
79. The next presenter will be the Government of the Northwest Territories.
80. THE CHAIRPERSON: Good morning.

    PRESENTATION / PRÉSENTATION

81. MR. DUNN: Good morning. My name is Peter Dunn and I am the Director of Systems and Communications for the Department of Public Works and Services. I am here today to present the views of the Government of the Northwest Territories on an issue that the government views as being of critical importance to the future of northern Canada.
82. At the outset, I have been asked to convey the regrets of my Minister, the Honourable Floyd Roland, that he was unable to be here to make this presentation on behalf of our government today. As you know, we are in the final countdown to the creation of two new territories as of April 1, an event that is dominating the schedules of all northern politicians.
83. Those who attended the Iqaluit regional hearing on June 25, or who had the chance to read the transcripts of this hearing, will know that the provision of affordable and reliable telecommunications services will play a critical role in the creation and ongoing existence of the new territories. Because of our remoteness, our challenging environmental conditions, and small population base spread across three time zones, telecommunications is considered an essential tool for northern residents, businesses and governments.
84. Unfortunately, the same factors that make telecommunications so important to northerners, also make the costs of these services far higher than anywhere else in Canada. Northwestel's expenses per NAS, for example, are more than twice as high as those of all Stentor companies but one.
85. Today, despite the existence of a number of support mechanisms, the northern telecommunications system is characterized by low penetration rates, poor quality of service and limited availability of services. While the introduction of competition in Northwestel's operating area promises to bring a number of benefits, it will also further erode existing support mechanisms.
86. In light of these circumstances, and the growing reliance of northern individuals and businesses upon telecommunications, the development of alternative support mechanisms is a matter of some urgency. This need, while greatest in northern Canada, applies also in other high cost serving areas of the country.
87. To address this need, the CRTC has initiated the current proceeding, and a variety of proposals have been brought forward byu interested parties. While these proposals differ from each other in many ways, there are four key issues that define the most important differences to have emerged. These four issues are:
88. The type of support mechanism to be employed.
89. The services to which any high cost serving area support mechanism is to apply.
90. The means by which the support mechanism is to be financed;
91. And the level of financing to be provided.
92. In my remarks today I will provide a brief overview of the GNWT's position on each of these issues and conclude by summarizing the key steps necessary for implementation of our recommendations. The government's written argument of January 29 will contain further details of our positions and proposals.

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93. The type of support mechanism to be employed. Three principal support mechanism types have been suggested in this proceeding. The first type, a variant of which was proposed by Northwestel is an incumbent telephone company support model.
94. In this type of model, the incumbent telephone company is provided with a subsidy amount sufficient to allow it to achieve a reasonable level of earnings in the high cost serving area it serves. The GNWT has rejected this model as having poor efficiency incentives and being inherently competitive.
95. The second type, a variant of which was proposed by TELUS, is a competitive bidding model. In this type of model, subsidies are provided to service providers to offer specified services in specified areas based upon a competitive bidding process.
96. While the GNWT considers that such a model has a number of desirable theoretical properties, it has concluded that in practice, competitive bidding could be unwieldy and furthermore might not provide for meaningful competitive choices at the customer level.
97. Also, the GNWT opposes the specific proposal put forward by TELUS on the grounds that it would only provide support for extensions of service to currently unserved customers.
98. The GNWT believes that the far larger issue that must be addressed in this proceeding is how to ensure the provision of affordable service to all Canadians on an ongoing basis.
99. The third type of model is a portable subsidy model whereby an administrative determination is made of the amount of subsidy to be provided for the provision of specified services to customers in high-cost service areas.
100. Whichever carrier is chosen by the customer to provide the service then receives the subsidy. This is the type of model the Commission has previously adopted with respect to local service subsidies in a competitive environment.
101. The principal advantages of this model are that it is competitively neutral, promotes potential competition, and has previously been found to be workable by the Commission.
102. It can also, with some added complexity, be adapted to provide for different subsidies in different areas based on their differing requirements.
103. In the GNWT's view, on balance, the portable subsidy model is the model best suited to the requirements of high-cost serving areas. The GNWT believes strongly in the benefits of competitive choice and believes that the adoption of this model will best facilitate the emergence of competition, while at the same time promoting the provision of high-quality, affordable telecommunications services to all Canadians.
104. Cream-skimming activities could undermine the effectiveness and the competitive neutrality of a portable subsidy model. To prevent this, the GNWT proposes that any service provider receiving a subsidy in a high-cost serving area be required to provide the subsidized service to any customer in that area who requests the service. If no competition exists, this obligation would remain with the incumbent telephone company.
105. The services to which any high-cost serving area support mechanism is to apply. A wide range of views has been put forward as to what services should be eligible for subsidization under a high-cost serving area support mechanism.
106. At one end, are those who, in their desire to limit explicit subsidies at all costs, suggest that any subsidies be limited to residential local service. At the other end of the spectrum are those who maintain that the affordability and availability objectives of the Telecommunications Act apply to all services and, thus, should apply to any high-cost serving area subsidy mechanisms.
107. The GNWT belongs to the latter group. Failure to ensure that northerners have affordable access to the same range of services available in the urban centres of southern Canada, would contravene the objectives of the Telecommunications Act. It would also be highly prejudicial to the development of northern Canada.
108. In the longer term, the existence of many communities could, in fact, be threatened if the absence of affordable telecommunications services was allowed to further widen the social and economic gap between north and south.
109. As a practical matter, however, the GNWT recognizes that unless competition is not to be permitted in high-cost service areas, it would be infeasible for a high-cost service area subsidy program to extend to all telecommunications services.
110. From a purely operational perspective, it would simply not be practicable to administer a subsidy program that covered a large number of services each of which would potentially be offered by multiple competitors.
111. In a competitive environment, the costing requirements and the other administrative arrangements would be just too burdensome. Because competition can itself further the achievement of affordability objectives, and because the increased reliance on market forces is also a Telecommunications Act objective, a balancing of objectives is required.
112. In the GNWT's view, an appropriate balance can best be found by permitting competition in the provision of all services while identifying those services where a subsidy is most critically required, then limiting any high-cost service area subsidy to apply to such services.
113. The GNWT's specific proposal, then, is that the services to which the high-cost serving area subsidy should apply are local residential service, single-line business service, uneconomic toll service and access to Internet service without the payment of toll charges.
114. In each case, the subsidy should be provided on a competitively neutral basis whereby it is made available to whichever service provider the end user selects to provide service.
115. Further, the GNWT proposes that existing explicit subsidies for residential local service outside of high-cost serving areas are unnecessary and should be eliminated.
116. The means by which the support mechanism is to be financed. Two key determinations must be made with regard to the financing of high-cost serving area subsidies. The first is the geographic basis upon which financing is to be undertaken. The second is deciding which services are to contribute to the subsidy.
117. With respect to the first point, two very different views were put forward in this proceeding. At one end is the view that funding should be collected on a nation-wide basis and then redistributed across high-cost serving areas in all areas of the country.
118. According to this view, total funds collected nationally would equal total funds disbursed nationally. However, there would be no requirement for total funds collected to equal total funds disbursed for any individual subnational geographic unit.
119. The second view, referred to as an intra-telco financing approach, was that there should be an equality of funds collected and funds disbursed within each individual telephone company operating territory.
120. The GNWT supports the first of these views as a matter of both principle and practicality. Telecommunications is an area of federal jurisdiction and responsibility and, as section 7 of the Telecommunications Act explicitly recognizes, performs a vital function in maintaining Canadian sovereignty and identity. All Canadians benefit from the extension of telecommunications services to all regions and thus the burden of supporting any subsidies required to high-cost serving areas should be shared on a nation-wide basis.
121. Furthermore, the alternative of an intra-telco financing approach suffers from a number of deficiencies. A critical deficiency is its failure to recognize that the costs of providing telecommunications services in certain telephone company territories are so high as to make it impossible to provide affordable services throughout these territories without external support.
122. Northwestel's territory, for example, simply does not contain any areas with low enough costs to provide necessarily levels of support to other areas within the territory.
123. Existing telephone company boundaries are not only arbitrary, but are increasingly irrelevant in a competitive environment where new entrants, mergers and acquisitions and new alliances are changing both the industry structure and the operating configurations of its players.
124. What, for example, is the operating territory of AT&T or Sprint? What is the operating territory of Bell Canada, now that it is establishing a new national network? And, in any event, why should these be relevant to the question of the appropriate geographic basis for subsidy financing.

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125. For these and for the other reasons indicated in our written argument, the GNWT strongly supports the adoption of a nationwide subsidy mechanism for high-cost serving areas.
126. Which services should contribute to the high-cost serving areas subsidy? One possibility would be to continue to rely on toll services to provide subsidy financing, but to move to a system of uniform nationwide toll contribution charges for this purpose. The GNWT's preferred approach, however, would be to finance all high-cost serving areas subsidies through a percentage levy applied to the telecommunications revenues of all Canadian telecommunications service providers regulated by the CRTC. This percentage levy would be established on a uniform nationwide basis.
127. The level of financing to be provided.
128. The GNWT is proposing that any area where the Phase II monthly cost of providing residential service exceeds $30 be classified as a high-cost serving area. Within the HCSA classification, a number of sub-classifications would then be established, with each being defined by a particular range of costs for providing residential local and other subsidized services.
129. For any high-cost serving area sub-classification, service providers would be entitled to receive the following monthly subsidy payments for local service provision:
130. - For each residential NAS served, the service provider would receive the difference between the marked-up average per-NAS Phase II cost of providing local residential service, for that high-cost serving area sub-classification, and $30.
131. - For each single-line business NAS served, the service provider would receive the difference between the marked-up average per-NAS Phase II cost of providing single-line business local service, for that HCSA sub-classification, and $60.
132. Subsidies related to toll service would be provided only in high-cost serving areas sub-classifications where it was uneconomic to offer service at rates comparable to those charged by Stentor members. Similarly, a subsidy for toll free Internet access would only be available where it would otherwise be uneconomic to provide. In both cases, subsidy amounts would be based on Phase II costing.
133. Implementation.
134. The GNWT recommends that a transition period be established for the implementation of its proposal. The transition period would serve two key purposes.
135. Firstly, it would provide time to finalize the assignment of areas to high-cost serving areas sub-classifications, to modify the mandate of the central funds administrator, and undertake all other operational requirements necessary for complete implementation of the new subsidy plan.
136. Secondly, it would provide time to phase out the existing toll contribution and local portable subsidy regime, and to replace them with the proposed uniform levy on telecommunications revenues and the proposed new portable subsidy regime for high-cost serving areas. To accomplish this, all companies would be required to engage in a rate-rebalancing exercise that would bring local rates in high-cost serving areas to the affordability threshold and to bring local rates in non-high-cost serving areas to levels not requiring further subsidies.
137. Offsetting reductions and contribution and/or toll rates would be required; and a uniform national levy on all telecommunications revenues would be established to generate a national high-cost serving areas support fund that, during the transition period, would be equal in size to the reduction in contribution revenues arising out of the rate-rebalancing exercise. Monies collected by the high-cost serving areas support fund during this period would be distributed to companies, such as Northwestel, whose overall costs per NAS are highest, and would be used by them to lower their toll contribution rates towards national average levels.
138. Finally, the transition period would be used to establish the terms and conditions of competitive entry for all areas and services where they have not been established to date.
139. In closing I would like to refer again to the Telecommunications Act, which affirms that telecommunications performs an essential role in maintaining Canada's identity and sovereignty and requires that high-quality, affordable telecommunications services must be accessible to, and respond to the needs of, all Canadians in all regions.
140. If this requirement is to be satisfied and if we are to avoid the creation of a two-tier system of telecommunications in this country, then new support mechanisms such as the GNWT is proposing are needed for high-cost areas. Without such mechanisms, the social and economic development of Northern Canada will be severely impeded. In the longer term, the very existence of many communities could in fact be threatened, as the absence of affordable telecommunications services makes it impossible for either northern or southern businesses to operate and compete from the Territories.
141. We thank you for the opportunity to make this presentation.
142. THE CHAIRPERSON: Thank you very much, Mr. Dunn. We appreciate your participation here today.
143. Madam Secretary.
144. MS GROULX: Thank you, Mr. Chairman.
145. The next presenter will be Government of Yukon.

     PRESENTATION / PRÉSENTATION

146. MR. HAYDEN: Good morning, Mr. Chairman and Commissioners. My name is Terry Hayden and I am here on behalf of the Government of Yukon. With me is Mr. Jim Pratt, our consultant on these proceedings. We appreciate the opportunity to speak on this very important matter. I would also like to thank those responsible for delivering snow and ice on the sidewalks to make us, northern people, feel more at home.
147. As outlined by my previous colleague, these proceedings are very important to the Government of Yukon as well. The Yukon has a very small population distributed extensively throughout a vast territory. A small change in this type of proceeding can have a vast and profound effect on the Yukon. It represents a significant milestone, if not the most significant milestone in telecom policy, and it is a key opportunity to set the stage for better economic and social future for the Yukon.
148. In our presentation today I am going to outline the principles and priorities of the Government of Yukon and what we believe has been established so far in the context of these proceedings. Jim will then outline our specific recommendations, and I will sum up with a brief summary in terms of the opportunities looking ahead.
149. There are a number of reasons that the Yukon government is participating extensively in these proceedings. First and foremost, one of the primary reasons is that many of our citizens do not have telephone service that meet their basic needs. We are concerned that opportunities available to other Canadians are not available to the Yukon people due to the lack of telecommunications infrastructure. We fear that the gaps will grow even greater between the Yukon and Canada in terms of telecommunications standards and the resultant benefits to our citizens.
150. So, looking forward, the Government of Yukon believes that the optimum solution is for a high-cost serving area subsidy that proceeds from a sound basis principle in the establishment of the fund and definition of the program, but then employs a pragmatic and flexible approach in the administration of that same program.
151. Parliament has said that all Canadians should have access to reliable and affordable telecom service. This is undisputable. But for us in the Yukon, and in light of our established principles, this means that we in the Yukon should have widespread availability in the use of telecom services that are of a type, cost and quality on par with those enjoyed by the majority of Canadians.
152. However, we all recognize that disparities exist currently in Canada. Yukon residents and businesses are currently disadvantaged relative to their southern counterparts. In most of our communities we have fewer choices, lower quality and higher cost of service. There are families 30 to 40 kilometres outside our capital city of Whitehorse that do not have basic telephone service. A quick trip in the car of 20 minutes and you are in an area that has no phones.
153. This is unfortunate, because access to modern telecom services plays an important role in meeting social integration needs. Telecommunications has a potential to negate distance disadvantages, allowing northern Canadians more easily to communicate with each other and the world. This allows us, in doing so, to contribute more fully to the information society that we hear so much about.
154. Access to services of high quality and capability is a critical prerequisite for the Yukon to utilize the capabilities of the global information network in education and social development, but also to contribute our share in the information economy. For example, many of our rural communities cannot use every day services such as electronic banking because of the limitations of our telecommunications infrastructure. Without access to simple things like cash machines and bank cards, which save time and money for both customers and merchants, it will not be available in our communities without an improvement.
155. Furthermore, as a result of our land claims process in the Yukon, there are new emerging requirements for multiple governments to be able to effectively work together towards a common goal of trying to ensure prosperity for our residents. We are seeing an increasing need to rely on telecommunications to achieve this goal, and there will be an even further need in the future to rely on communications technology.
156. Because of its high importance, the Government of Yukon has and continues to play an important role in the development of Yukon's telecommunications environment.
157. In addition to proceedings like this, we believe in a collaborative approach to development between governments and the private sector. We have established a number of priorities that need to be met.
158. The first priority for the government is to see that telecommunication services are delivered to unserved areas. In addition to the issues of just needing basic communications to be in touch for the social interaction needs, there is also a fundamental need to provide access for safety reasons.
159. The second priority of our government is in the upgrading and improvement of existing telecommunications infrastructure. Our citizens want to play and want to be able to play a bigger part of the information age. We want to ensure that our children have the same opportunities as Canadian children in other jurisdictions in the future.
160. Our third priority is to ensure a subsidy mechanism is there regarding long distance charges to Yukon subscribers that result in costs that are comparable to the costs paid by our southern counterparts. Telecommunications, as I said before, has the potential to negate the disadvantages of distance but only if they are affordable.
161. So this proceeding is an important opportunity to help meet the needs of the Yukon people and to undertake the priorities.

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162. A high-cost serving area subsidy is a critical requirement in the north to obtain parity of rights, services and quality. Our market simply will not support itself, particularly in the advent of competition.
163. Access to quality and formal telecom service is a national issue which we believe demands a national solution. Services to be subsidized should include all aspects of basic service, which includes Internet capability. Reliable and affordable access no longer means just being able to call grandma at a low rate on Sunday night; it also means being able to fax her and to e-mail her. Basic service also means being able to send and get information from around the world, whether it is for pure social enjoyment and social interaction or for economic reasons.
164. Right now, we have small businesses in the Yukon that are unable to get local or other contracts because they don't have the same type of telecommunications services available elsewhere.
165. It is also clear to us that a subsidy is required for uneconomic toll in basic line service. We need to keep telephone lines affordable; and, as I said before, to lower long-distance costs. Long-distance costs represent one of the most significant barriers to communication for us, and is the majority of our costs on our average resident's phone bill. This includes rates for small business which, as in other regions, are an important economic engine for us. They need affordable rates in order to prosper and compete on a level playing field. Low rates may not cover the cost of providing the service in our jurisdiction.
166. Subsidy funds should be made available for capital and operating expenses. The capital subsidy will help extend service to areas that need it the most. An operating subsidy will support the ongoing expenses. A holistic approach to funding both capital and operating must be undertaken. One form of funding without the other may not end in the desired benefits.
167. For example, subsidizing an infrastructure bill will do little, if nothing, if the result in operating costs are still too expensive to deliver the needed service. Conversely, simply providing an operating subsidy that doesn't take into account the need for a new infrastructure development will also not meet the needs.
168. At this point, I would like to turn it over to Jim who will present our recommendations that deal with the issues and the priorities that I have just outlined.
169. MR. PRATT: Terry has talked a little bit about the need for subsidies from the Government of Yukon's point of view, and I may be biased but I thought he made a pretty powerful case for the need.
170. My task here is to give you an overview or some highlights of the solution that we will propose in our written argument. I would like to do that in essentially three topics or three headings. The first is the establishment of the subsidy, how we see that coming together. The second would be the administration of the subsidy and our approach for doing that. Thirdly is dealing with the issue of monitoring.
171. In overview, our solution will be to establish a national program, a national subsidy program but have it administered cooperatively through the Commission and through a series of regional administrators. We believe that will allow a more effective and efficient targeting of the subsidy at the delivery stage.
172. The subsidy amount would be calculated based on the requirements, what is needed to equalize or make comparable the rates in high-cost service areas with those comparable rates in the rest of Canada. Similarly, we would look at comparable issues of quality and of access.
173. There would be funds collected nationally, based on a yearly forecast or estimate of what would be required to meet these identified subsidy needs. The Commission would define the scope and the qualifications for payment of subsidies and, as Terry said, in our view that scope would include not only local service and Internet capability but also single line business and uneconomic toll.
174. The criteria would include or will include, as you see our submission, the requirement for a competitive supply of subsidized service wherever that is possible; and, where a subsidy is paid to a provider in a high-cost serving area, there should be some form of protection or safety net against that provider walking away from that obligation. So, whether that is characterized as a carrier of last resort obligation or some more creative contractual or guarantee type solution, that would be something that could be determined by the particular circumstances.
175. That leads me to the second branch of what I wanted to describe on the mechanism, and that is the administration of the subsidy. We see the creation of five or six regional administrations that would look at communities of interest, with a degree of commonality within that community of interest. Those administrators would operate under the direction of the Commission. They would receive inputs regarding the requirements or the needs for subsidy, and that would be channelled to the Commission for the annual determination and forecast of what the subsidy requirement would be.
176. Those regional administrators would then be responsible for delivering on the subsidy. They would manage the interface then with the service providers and, as I said, if there is an issue of carrier of last resort, they may on a case-by-case basis determine whether it is more appropriate to use a contractual approach or to utilize the regulatory approach of designating a carrier of last resort.
177. We think it would also be helpful and very effective in achieving the policy aims of the act if each of these administrators had the benefit of an advisory council. That advisory council would be purely advisory, not a decision-making body at all, but would have input from governments, from the service providers, from citizens and from interest groups. In that way, there would be an opportunity for the real priorities in the particular regions to be input by the people that are most affected by those priorities.
178. We have established from the Yukon's point of view what we think the priorities should be for the application of this subsidy; but I think we are realistic enough to recognize that there may be circumstances where it may be more appropriate to proceed with an underserved area before an unserved area, just based on the impact or the timing, and that is something that this model will allow to take place.
179. The final point that I would like to highlight for you is the importance of monitoring. Our regional bodies would -- regional administrators would be responsible for assembling the information or tracking some of the key indicators that we think need to be tracked -- obviously, the penetration or teledensity. We also think that it is important to have some measure of the rate of innovation of new services. In the north, in particular, the experience has been that they may get service but it is not at the same rate or the same rate of innovation as the rest of the country and that is -- that can be a competitive disadvantage for businesses and a burden for individuals.
180. There would also be a responsibility for monitoring service quality. Under the rules and requirements that the Commission has, we think it would be appropriate to have those disaggregated to a degree so that the regional administrators can track the effectiveness of the subsidy program, see what kind of difference it is making, and be able to report back to the Commission so that the program can be tuned or monitored.
181. That is a pretty high level overview the way we see the subsidy mechanism, recognizing that from our perspective we think it is very important to look at how it is actually going to work as much as how much is going to be involved.
182. Terry.
183. MR. HAYDEN: We believe that a positive outcome from this hearing in line with our recommendations will do a number of things. First, it will provide a sound basis for development and maintenance of a telecommunications environment in the high-cost serving areas, particularly in our case the Yukon. It will help meet the current and future needs of our citizens. It also will enable citizens in high-cost areas like the Yukon to contribute fully to the information economy. We would like to stress that the fund is not a hand-out, it is a hand up. It is an opportunity to provide the telecommunications tools necessary to participate and prosper in what we all know is a modern changing world.
184. It will facilitate social development and well-being of communities in the high-cost serving areas. Access to services like doctors and libraries that most of us take granted in the rest Canada are not readily available in a lot of the communities. Remote access to these types of health and education facilities will help reduce the level of disparity and help promote healthy communities.
185. Our national regional model for administration of the subsidy stands the best chance of working or succeeding in both the policy and in practice. Many elements of improving the telecommunications infrastructure and the services are unique to each region. Because of this, we believe the high-cost service area program should be a national program administered in a regional context. This will provide a mechanism that ensures regional priorities are met and parity can be maintained in the long term so that all needs of all Canadians for basic access will continue to be met as we move forward.
186. Before I conclude, I would like to emphasize one more point. I would like to stress that the new mechanism should be put in place as soon as practically possible. In fact, it would be very helpful if, at all, we could consider interim measures to address immediate concerns. While the north is frozen in development, and not just from our January weather, the gap grows even wider in comparison to our southern counterparts. The rate of change seems almost exponential.
187. In summary, I would like to thank the Commission again for undertaking this worthwhile proceeding and providing us the opportunity to present our views.
188. The Government of Yukon looks forward to a positive outcome in the result of benefits.
189. Thank you.
190. THE CHAIRPERSON: Thank you, Mr. Hayden, Mr. Pratt. We brought in this cold weather last night just for your benefit. As you may know, it was somewhat mild here over the last few days.
191. Just one question comes to mind. Many people involved in telecommunications over the years in the regulatory world have argued that we should have a more competitive environment and, along with that to the extent possible get rid of subsidies in the system; and, to the extent that subsidies remain, that they should be explicit, transparent, and targeted.
192. I am wondering what your view is on this issue relative to your notion of five or six regional administrations, the extent to which you believe there is or will be problems or the need for explicit subsidies in some of the regions of the country outside of the north.
193. MR. PRATT: Thanks, Mr. Chairman. I would suggest that in terms of the requirements we are completely on board. To the extent that subsidies are required, they must be visible, they must be targeted.
194. The advantage that I see in the system we are proposing is that there is also an accountability that is injected into it, and that is where the monitoring back on a more disaggregated basis comes in, so that if, in a particular region, and Yukon is the object example, there are a number of priorities of underserved areas, we know where those communities are. We know where the needs are. By working together with the one or two providers who may be there prepared to offer the service with the direction and requirements that the Commission has established for the fund, we should be able to come up with a win-win type solution; and, with some creativity at the delivery level, we may even be able to better what the costs would be.

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195. So, rather than just saying, let's calculate the cost difference and we'll turn that over as the subsidy, we will say that becomes the starting point and let's see if we can, through our accountability measures and this targeted distribution system, come up with a better or more effective solution.
196. THE CHAIRPERSON: But in your answer, you're focusing largely on the problem in the Yukon, because that's your representation, but in your proposal you've talked about these five or six regional administrations.
197. Do you believe, as I said, there is or will be a problem in all of the regions of the South that would need to be resolved with the same sort of solution? You have worked in at least one of those.
198. MR. PRATT: In the one that comes closest to mind I would say that there wouldn't be nearly the degree of problem or the acuteness of the problem, and that is for two reasons. One is that the overall base in the North is so very shallow, so very few people, so very few opportunities to do any kind of averaging or cross-subsidy, that the water line is way down and all of those outlyers are very, very starkly in view.
199. I think I would have to caveat that by saying at the margins in the rest of the country there could very well be the proverbial chateau on the mountain top where the costs are extraordinarily high. I think in Alberta, as in other parts of the country, we could probably come up with those examples, but the relative impact is much greater in the North because the base is much lower.
200. THE CHAIRPERSON: Thank you very much. We appreciate your participation, gentlemen.
201. I think we will hear one more presentation and then take our midmorning break.
202. MS GROULX: Thank you, Mr. Chairman. The next presenter will be Manitoba Keewatinowi Okimakanak.
203. THE CHAIRPERSON: Good morning, Mr. Williams.

     PRESENTATION / PRÉSENTATION

204. MR. WILLIAMS: Good morning Mr. Chairman and members of the Commission.
205. I have problems with that name too.
206. As you know I am appearing on behalf of the Manitoba Keewatinowi Okimakanak, or MKO, a political body that represents the interests of almost 45,000 Cree and Dene people in northern Manitoba. As the Commission may be aware, almost 20,000 First Nations people in Manitoba live in the ultimate of high-cost areas; remote or special access communities that are only accessible by air or by winter road. Manitoba, in fact, accounts for almost one-third of all registered Indians in Canada who live in remote communities.
207. The Commission might also be aware that the tradition of the Cree and the Dene in Manitoba is primarily and dominantly an oral way. They tend to communicate through the spoken word, and often through stories. So when I was sitting back this weekend and thinking about how I would present to you on behalf of my clients, my first inclination was just to tell you stories; stories about the service in northern Manitoba, stories about Granville Lake where the school principal, due to the high cost of access, has to cut off usage to the Internet in certain months of the year; or stories about Lac Brochet and the times when it is impossible to get a telephone line into that community or out of that community for an entire day. Or I thought I might tell you about what recurs frequently in comments from MKO people about the seniors, the elders, the high-risk patients who cannot afford telephone service, but who are the people who need it the most.
208. I could sit here and share more of these stories with you, but I know you have been travelling across all of Canada and you have heard hundreds of such stories, and I know you have felt the anger and the frustration of many northerners, many people in remote communities, about both the quality and the level of service that they currently have, because in the North reliable and modern service is really an aspiration; it is not a reality.
209. I know you also understand how critical this hearing is and how critical that service is to the future of these communities and to their dreams for their children, for their dreams of economic and educational opportunity. I know you have heard that so I will not dwell on it.
210. But I thought that as well as hearing stories, perhaps you should hear about the importance of promises to First Nations people, especially promises which come from the federal government, because the federal government stands in a special relationship with First Nations. It is called a trust-like relationship, and it owes them a special obligation; an obligation to act with the utmost integrity, to show unimpeachable conduct, conduct beyond reproach.
211. So, when you understand that, I think you will understand that when First Nations receive commitments from the federal government they feel that they should be entitled to expect that those promises will become reality, because the honour of the Crown is at stake.
212. I know you are aware that many northerners, especially First Nations, have heard many fine words from the federal government about this issue. The Telecommunications Act, they have heard it there. They have heard it in the Throne Speech debates and in innumerable speeches, communiques and statements from federal ministers and from distinguished public servants. In fact, the First Nations have been snowed under by a blizzard of white papers and reports, all sending the same message, making the same commitment.
213. So, from the perspective of MKO, this hearing really is not about the question of whether these communities should be entitled to high quality service, and it is not about whether they require additional funds for that service. We all know that the need is there and the federal government has made a sacred promise to meet that need.
214. With all respect to the pass-the-buck sentiments of the Stentor consortium, we also know that this hearing is not really about whether the bulk of that money should come from the industry or from the government. We know the federal government has passed legislation enabling the creation of a special fund for the support of these communities, and we know that the federal government is looking to this regulator and to the industry for an industry solution to an industry problem.
215. In the respectful submission of MKO, the real issue in this proceeding is one of the industry and of regulatory will. Is there a real commitment to achieving a sustainable model for delivering service to these areas, or are we going to be satisfied with a form of regulatory triage, an approach that merely papers over the most glaring shortfalls in the current system?
216. We all know that there are certain parties in this proceeding who are advocating an approach of regulatory minimalism. They are implicitly telling this Commission: Do the very least you can get away with. Focus on a few of the symptoms, not the underlying problem. They are telling you that by focusing exclusively on a narrow definition of under-served communities you can define most of the problems away. Essentially they are telling you that you can close your eyes to the communities which have a few of the indicia of modern service, but where ongoing costs are too high to provide adequate and sustainable service in the future. They are telling you you can turn a blind eye to the many communities who cannot even rely on plain old telecommunications service, much less affordable access to the Internet.
217. I guess, quite simply, they are telling you that if a community does not meet this narrow definition of under-served, if, for example, it has single-line service and digital switches -- they are telling you if it has that, then it is not your problem.
218. The central message that my clients want me to convey to you today is that the high cost of service problem cannot be made to go away just by focusing exclusively on such a narrow definition of the problem. That won't achieve universal connectivity or a sustainable mechanism.
219. That very narrow approach certainly will not address the needs of the many people in remote communities in the MKO territory, where even though there might be digital switches and single-line service, the quality of service is poor and the concept of reliable and affordable access to the Internet is a concept of low-brow fiction.
220. The problem of high-cost service areas, in the view of MKO, cannot be resolved solely by capital upgrades only to those areas which fail some kind of narrow litmus test of service. That approach would ignore the ongoing maintenance and operating costs of these communities, especially the remote communities, and it would ignore the needs to recover the investment in plant that has recently been installed but not paid for. And it ignores the need for future upgrades to ensure reliable and affordable access to basic service, and also to the information highway.
221. That narrow approach will only address the most flagrant symptoms of the high-cost problem, not the underlying cause of it; the fact that there are many communities where the cost is too high for the market or the current regulatory model to provide an adequate level of service.
222. If such a very narrow approach was adopted, that would be a very bitter pill for the MKO communities to swallow, because it would suggest that the needs of a small, unserved cottage development out in cottage country should be given precedence over the needs of a poorly served First Nations community where the people have lived since time immemorial and where they rely on telecommunications for their business needs, and just to educate their children.
223. In the respectful view of MKO, the central issue before this Commission should not be what is the least we can get away with, but how can we level the playing field between the "haves" and "have nots". Or to put it another way, the way I think the MKO communities look at it, what standards of access, affordability and quality would we wish for our own children?
224. If you look carefully at the words of section 7(b) of the Telecommunications Act, or if you explore Minister Manley's vision of a connected Canada, I think the underlying message is about opportunity and the recognition that that opportunity cannot be achieved unless there is some sort of at least roughly level playing field. Minister Manley is saying that all Canadians should have a right to participate in the information society.
225. So, as this Commission ponders and struggles with the problem of creating an industry solution for an industry problem, MKO believes that the essential starting point is in an articulation of the entitlement of these high-cost communities; not just a shopping list of what basic services they should currently be entitled to, but an explanation and exploration of the underlying principles against which we can evaluate all kinds of mechanisms.
226. So, as a first step, MKO thinks that the Commission should recognize the entitlement of all Canadians to have those services necessary for full participation in the information society.
227. But the ability to access certain services is meaningless if the quality of service is poor. In Lac Brochet, single-line service or access to the Internet does not mean very much if you cannot get a line out of the community during the day or if you are continually disconnected from the Net. So, as a second step, MKO thinks that the Commission should acknowledge that accessibility to modern service is inextricably linked with the quality and reliability of that service.
228. But even the most reliable and high-quality service is of no value if you cannot afford it. In communities like Shamattawa, where less than 30 per cent of the homes have telephones, the prospect of high quality service is a very limited value. For schools like Granville Lake, high-speed access to the Internet is of only limited utility if they cannot afford a long distance connection to an Internet service provider.
229. So, as a third step, MKO would recommend that the Commission make a commitment to affordability by guaranteeing that rural rates will be comparable to urban rates for the same service.
230. Ultimately, the articulation of any vision obviously is not enough and in northern communities there is a feeling that they have been white papered and studied to distraction, but their essential complaint remains. A vision of universal connectivity means very little to a grade six student in Wasagamack if it is not realized until she graduates from high school.
231. So, as a final step, MKO would recommend that the Commission should acknowledge its obligation to create a sustainable framework for the timely achievement of this entitlement -- like the Government of Yukon I think just suggested before -- not the next decade, but in the next few years.
232. Just to sum up from MKO's perspective this hearing is not about just putting a few digital switches in a few remote communities. It is about bringing modern, reliable service to the communities that need it the most and who can afford it the least, and to create a sustainable mechanism for that infrastructure in the future.
233. I do not envy you your challenge, which is to establish a vision, process and time frame. But as you do so, I would ask you to keep in mind the unique challenges that remote communities face and recall that even Stentor, who is no fan of any additional industry funding or a national high cost of service program, has said that if the Commission decides to go that way, one of the areas that it should target are communities of unquestionably high cost, such as remote areas with no road access -- many of the communities represented by MKO.
234. My clients expect that there will be many nay sayers to the aspirations of these rural and remote communities. Arguing from a position of narrow self-interest, many industry players will tell you that this is a social policy issue, or that the problems are too intractable or too expensive for an industry solution.
235. Others may pay lip service to the idea, but really advocate a substandard level of service. In MKO's view, the final answer to these advocates of passing the buck, or of tokenism, are the words of section 7(b) of the Telecommunications Act. This Commission is not mandated to enshrine two-tier service in Canada. If the words of the statute are to have meaning, and if the honour of the Crown is to be upheld, then the Commission must commit itself to the timely provision of reasonably comparable service to all Canadians.
236. Those are the comments of my clients, sir.
237. THE CHAIRPERSON: Thank you, Mr. Williams.
238. You noted earlier in your comments about Stentor's -- I think to use your words, and I am paraphrasing here, I did not write them down -- narrow definitions, I guess of service area or service to be provided. It has been pointed out during this proceeding earlier, and in earlier proceedings, most notably the affordability proceeding, about the problems facing MKO in the area where your clients live.
239. I am wondering in terms of this narrowness -- and I do not mean to use that term in a prejudicial way -- what your view would be in terms of, to the extent that is a problem in Manitoba and elsewhere in Canada, whether that is a narrow problem but with a different definition of narrowness in the sense that -- I mean, is this a large problem across the country that needs solving, in your view, in terms of the areas that require that.
240. Let me just ask the question on that point.

     1030

241. MR. WILLIAMS: From my client's review of the proceedings there are clearly problems in the extreme north, the Yukon, the Northwest Territories and clearly problems have been identified in northwestern Ontario, Manitoba and British Columbia. I guess these are kind of the worst of the worst cases, the cases where the service is either non-existent or just not meeting an acceptable level of service. So, at the first level there certainly are pockets across Canada.
242. I guess the larger issue goes to the sustainability of the entire framework and ensuring that service is affordable into the future, especially with the pressure that has been put on implicit sources of subsidy. To that extent, my client's view is that it is a larger problem, but that the greatest problem is in particular the remote communities.
243. THE CHAIRPERSON: What do you mean then by "larger" then or what would they mean? I am just trying to get a sense of magnitude here.
244. MR. WILLIAMS: I guess if one examines the comments of the Government of Saskatchewan, for example, there is an issue in terms of even in places where an investment is made replenishing the -- paying for the capital investment maintaining those services. So, I think my client's view is that the worst level is, as I said, the remote communities, but it is of fairly substantial magnitude.
245. In Manitoba, MTS was kind enough to loan me I think a copyrighted map of their areas. There is a low population density. For example, the MKO communities cover almost three-quarters of the province and it's not just First Nations within those areas. So, in Manitoba, for example, I think there is -- I can't speak to the numbers of people, but the area that is vulnerable I think is substantial.
246. THE CHAIRPERSON: Thank you very much, Mr. Williams.
247. We will take our morning break at this point then and reconvene at ten to eleven.

     --- Short recess at / Courte suspension à 1035

     --- Upon resuming at / Reprise à 1050

248. THE CHAIRPERSON: Order please, ladies and gentlemen.
249. Madam Secretary.
250. MS GROULX: The next presenters will be Microcell Telecommunications Inc.
251. THE CHAIRPERSON: Good morning, Mr. Proctor.

     PRESENTATION / PRÉSENTATION

252. MR. PROCTOR: Thank you.
253. Commissioners, Monsieur et Madame les Présidents, it's rare I get to say that. We are pleased to have this opportunity to appear before you today to present oral final comments in the proceeding that was initiated by Telecom Public Notice 97-42.
254. I am Dean Proctor from Microcell Telecommunications, and with me today is Pamela Jones, also from Microcell, as well as Bernie Lefebvre from Wall Communications. Both Pam and Bernie have put in an enormous amount of hours working on this proceeding.
255. There is also something ironic, the last time I had a chance to -- not to participate, but be at one of the oral hearings for this, one of the regional hearings for this proceeding was up in Iqaluit where it was 20 above and I come down here to the south and it's 20 below, so very Canadian.
256. As the Commission is well aware, I hope, Microcell is committed to making PCS available to Canadians across the country and to seeing PCS become Canadians' preferred access technology. Indeed, in a little over two years, we have built out our advanced digital system to over 52 per cent of the Canadian population.
257. Being a wireless service provider and, to date, Canada's only prospective wireless CLEC, Microcell has followed this proceeding with interest. How the Commission and the industry will continue to meet the objectives of promoting competition along with the affordability and universality of tele-communications service in all parts of Canada is certainly complex.
258. During both the oral and written phases of this proceeding., individuals and members of the Canadian telecommunications industry have indicated to the Commission how they believe wireless networks, including Microcell's, will increasingly help address telecommunications needs in rural and remote areas of the country.
259. We believe that wireless technologies provide an immediate and viable means of extending and improving access in high cost serving areas. Just as an example, the scalabiity of switching technology is permitting increasingly smaller communities to be served with PCS systems. To ensure the greatest number of Canadians benefit from these advances, Microcell has in place an open network architecture and an open approach to market. This includes the involvement of infrastructure affiliates and resellers or retail service providers.
260. At the Iqaluit public meeting held in June of last year, the Commission heard Adamee Itorcheak, President of Nunanet Communications, speak of plans to bring PCS to the north. Adamee stated that:

     "Along with operating a successful Internet and information technology business, Nunanet is also hopeful to get involved in wireless as soon as possible. We have been working with Microcell Telecom of Montreal to plan how best to bring personal communication services, more commonly known as PCS, to the North.

     We are excited by the possibilities for PCS to offer an attractive local alternative with the added benefit of mobility."

261. Now, while Microcell is still in the process of working with Nunanet to make this a reality, we note that the threat of competition has worked its usual magic. Northwestel Mobility launched conventional cellular service in Iqaluit a week ago, some 14 years after receiving their initial cellular licence.
262. Another company working with Microcell is Westcomm Telecommunications, a national reseller of a variety of services, including PCS. At the Iqaluit hearing, Westcomm's Chief Operating Officer., Mr. Paul McGrath told the Commission:

     "We are especially excited about the opportunity, for example, of wireless local service as we believe this technology holds some real promise for remote communities."

263. Globalstar Canada, one of several "Low-Earth-Orbit" satellite service providers, also indicated that:

     "... a key element of its business plan is to fill unmet demand for telecommunications services in rural and remote areas with little or no land-based services. Globalstar believes that it can provide efficient, reliable and affordable telecommunications services in these areas."

264. In short, there is great potential for new wireless systems to serve less populous parts of Canada, and provide a source of competition. Microcell urges the Commission to build on the increased reliance on market forces established in the many regulatory framework-related decisions over the last few years. Developments in technology show time and again that there is no contradiction between promoting competition and the affordability and universality of telecommunications service in Canada.
265. In our May 1, 1998 submission, we propose three principles the Commission should respect in crafting an answer to the questions posed in Public Notice 97-42. The first of these is that:
266. Any action should be based on an accurate quantification of the problem;
267. Secondly, any new program should supplement existing subsidy programs only to the extent necessary; and
268. Finally, any new program should facilitate, not impede, the extension of the benefits of competition to residents of high cost serving areas.
269. These three principles provide guidance both for the analysis of the evidence presented by the parties to this proceeding, and in the design of any new program to subsidize telecommunications access in high cost serving areas. There are other important considerations as well, including administrative ease and the cost of implementing any new program relative to its benefits.
270. In the time available to us today, we would like to explain how Microcell believes these principles, together with those underlying the Commission's recent decisions, should be applied, with particular reference to the following issues;
271. One, defining high cost serving areas;
272. Two, determining which services should be eligible for subsidy in high cost serving areas;
273. Three, designing a subsidy program to support service upgrades and extensions in high cost serving areas; and
274. Four, funding any newly established high cost serving area subsidy program.
275. A wide variety of approaches to defining what is a high cost serving area has been proposed by the parties in this proceeding. In Microcell's view, however, most of the proposals fail because they are inconsistent with the principles, the three principles noted above, as well as those principles underlying the Commission's framework decisions.
276. The Stentor and the independent telephone companies have gone to considerable length to categorize and disaggregate costs of providing local service, local access service in their operating territories, based on a large number of criteria. As a result, there has been a multitude of high cost serving area definitions offered to the Commission that vary from company to company. There is absolutely no common or consistent approach that emerges from these.
277. A simpler and consistent approach can be based on the existing rate band framework and the establishment of an "affordability" rate level threshold.
278. The Commission concluded in Decision 96-10 -- which addressed local service pricing issues -- that the penetration rate of tele-communications access service in this country is the key indicator of overall affordability being met. And affordability is extremely difficult to measure on the basis of the costs of providing a single type of service -- wireline -- over a geographic area. Affordability in remote and rural areas, as in more densely-populated areas, is most effectively measured by results.
279. In Microcell's view, the challenge the Commission faces is to determine an appropriate "affordabiity" or local rate threshold which could be used to draw the line between high cost and non-high cost serving areas. Most of the definitions offered in this proceeding do not take this key consideration into account. We believe the preferred approach at this time would be to focus on continued rate rebalancing in order to limit the existing subsidies to those rate bands that are considered to be true high cost areas, that is those areas where affordability would come into question were residence local service rates raised to cost-based levels.
280. The second key point that a lot of the other definitions proposed doesn't take into account is a very fundamental finding from Decision 97-8, the local competition decision, that competition should be technology neutral. This requirement is also reflected in Microcell's third principle of competitive neutrality, which is threatened under a number of the proposals advanced by other parties.
281. For example, Stentor's proposal to re-write the existing rate band boundaries based on enumeration area data, along with a range of criteria designed to estimate ILEC costs at this increased level of disaggregation, would exacerbate technological bias in favour of wireline. While not all Stentor companies are planning to follow the enumeration area based proposal, the end result is that each of the Stentor companies has proposed to selectively dispense with the existing switching centre based rate band boundaries.
282. In Microcell's view, the current subsidy regime, where available, provides an adequate and effective mechanism to address the provision of local access service to residential customers in high cost serving areas, and this is in a competitive and a technology neutral manner. The existing rate band structure, which was given final approval in Decision 98-2 and on which the portable subsidy mechanism is based, will help ensure the continued affordability of local access service and help promote the widespread development of competitive local access alternatives. The existing framework strikes a reasonable balance between estimating the broad cost characteristics of local access service and having a subsidy program that is manageable.
283. There has been very limited experience with the existing portable subsidy regime since it was introduced last January, and it is clearly premature to suggest that the existing regime now requires wholesale revisions. In Microcell's view, the Stentor companies' proposal is little more than an attempt to "game" the existing portable contribution system, and to ensure that the lion's share, if not all, of any available subsidy continues to go to incumbent operators.
284. The second principle we proposed is that, if any new subsidy is introduced as a result of this proceeding, it should supplement existing subsidy programs only to the extent necessary, recognizing other existing programs. Consistent with this, and consistent with simple common sense, Microcell believes that the Commission should resist the call of certain parties to expand the range of services subsidized beyond that which is currently the focus of the portable subsidy regime.
285. In Microcell's view, only residence local access service in high cost serving areas should be eligible for an explicit subsidy. This is consistent with the decision the Commission reached in Decision 97-8. To expand eligibility for explicit subsidies and the associated funding requirements would be a regressive step, and is more likely to introduce serious market distortions than promote the development of competition.
286. Unfortunately, time does not permit a full discussion on this point, but we do wish to briefly address some service areas where parties have called for expanded subsidies.
287. The first is business local access service. This, in Microcell's view, should not be subsidized by the telecommunications system as a whole. Such a subsidy introduces new distortions that will further delay the development of local competition.
288. The second is Internet access service. Similarly, Internet access service should not be the beneficiary of a new, generalized subsidy scheme. We point out that over $200 million in federal funding programs are currently available to extend Internet access to the Canadian population. Moreover, the market for these services is developing rapidly, and there is no indication at this point in time that the action of the market itself will not result in Internet access service being available, at affordable prices, to all who want it.
289. We should not forget as well that the most important impediment to Internet access is often the cost of the computer rather than telecommunications service itself. Thus, to subsidize telecommunications service for those who have been able to acquire the network equipment or the computer equipment can actually have a regressive effect.
290. The third point relates to the high cost toll routes. Again, Microcell believes that the Commission should avoid introducing an explicit high cost serving area subsidy for this purpose. Based on the record, it appears that the incidence of such routes is limited in scope and applicable to only a limited number of companies. If a problem exists somewhere, it would be preferable to examine market-based approaches aimed at lowering access and contribution charges as is now being considered in the case of the independent telephone companies in the proceeding associated with Public Notice 97-41.
291. Fourth, Microcell notes that Northwestel has requested subsidization of its entire rate base. This proposal, if accepted, would simply foreclose the development of any competitive alternatives, whether local or system-wide, in the territory now served by that company -- and the Commission has clearly heard from many northerners that an alternative would be both welcome and is long overdue.
292. Microcell believes that any new subsidy mechanism should focus on the extension and upgrade of service in areas currently unserved or underserved. In the territory served by the Stentor companies, the existing portable contribution mechanism seems to provide adequate support for existing network access services. We note that a number of the Stentor companies themselves claim to have eliminated underserved and unserved areas within their territory, thereby significantly reducing the scope of any new subsidy mechanism.
293. In the territories of Northwestel and the independent telcos, where the Commission has not yet permitted local competition, even in some cases long distance competition, the need for and parameters shaping the design of any new subsidy mechanism are much less clear-cut. We will expand on this in greater detail in our final written argument.
294. To the extent that further subsidization is determined necessary, Microcell recommends that the Commission consider the Unserved and Underserved Area Fund model proposed in our May 1, 1998 submission, as developed further in response to various interrogatories, as will be expanded upon as well in our final argument.
295. To outline it briefly, our proposed UUA Fund would be established only in territories where underserved and/or unserved areas exist and are not being addressed under existing programs. Consistent with the existing portable subsidy regime implemented under Decision 97-8, both ILECs and CLECs would be eligible to receive funding to provide local access service in an unserved area or offer an upgraded service in an underserved area.
296. The UUA Fund would supplement the existing ongoing subsidy regime and would be based on a capital cost funding model. Subsidies from the UUA Fund could be applied to the initial construction cost of services provided in currently underserved or unserved areas.
297. Allocation of the UUA Fund would be based on an open process to consider alternative proposals to provide service in underserved or unserved areas. Moreover, the eligibility criteria could be established in a flexible manner to accommodate local circumstances and local desires. Approval of the service upgrade or extension proposals under the program would necessarily be guided by a variety of considerations such as customer demand, the proposed service's features and quality, the overall cost of proposed programs and the public interest.
298. Microcell's Fund approach provides a flexible framework to allow consideration of a variety of funding sources that may be unique to specific local circumstances. These could include funding for specific service upgrades and extensions that would come, in some measure, from the customers being served, as well as potential government funding under existing or new government programs from one or more levels of government.
299. In the alternative, while Microcell does certainly not support raising existing toll contribution rates, it is possible that the existing contribution regime could be used as a source of revenue for the UUA Fund, where required, and this at least for an interim period. This would avoid the complications of, for example, a new national funding mechanism.
300. In conclusion, we greatly appreciate the opportunity to appear before you today to highlight our perspectives and approach to the challenges faced by the industry and by you the Commission. Of course, the issues we have touched so briefly on, as I have stated before, are explored in greater detail in our final written comments.
301. The Commission has to keep faith with the principles established in your previous decisions -- principles like competitive equity, technology neutrality, and the importance of affordability. We have offered three sensible principles to be applied to the analysis of the extensive record established in this proceeding and the numerous proposals advanced by parties. We believe these principles can guide the Commission to a wise balance of competing interests and objectives.
302. Thank you.
303. THE CHAIRPERSON: Thank you, Mr. Proctor, Ms Jones and Mr. Lefebvre.
304. I don't think we have any questions.
305. Thank you very much.
306. I guess it will be noted we are allowing brief commercial messages in some of the presentations here today.
307. For those of you from the north who haven't been here before, I hope you appreciate it, we have provided a windowless room in order to simulate the shortened daylight hours for this time of year.
308. Madam Secretary.
309. MS GROULX: Thank you, Mr. Chairman.
310. The next presenter will be Northern Ontario Infrastructure Working Group.

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311. THE CHAIRPERSON: Good morning, gentlemen. Please proceed when you are ready.

     PRESENTATION / PRÉSENTATION

312. MR. ANGECONEB: Mr. Chairman, commissioners, ladies and gentlemen, I am pleased to have this opportunity to introduce myself to the Commission and to summarize in person our final submission which I will table today.
313. My name is Garnet Angeconeb. I would also like to introduce my colleague, Brian Pellerin, who is with the Northern Ontario Telecommunications Working Group.
314. This is the first time I have addressed the Commission during these high-cost service proceedings. But it is not the first time I have advocated for communication needs of our people, the Cree and Ojibway people of Nishnawbe Aske Nation, in Northern Ontario.
315. I have come back as executive director of the Wawatay Communications Society after a ten-year absence from the communications field. However, my last appearance before this Commission was in Thompson, Manitoba, in 1985, when I spoke on the issue of northern broadcast policy.
316. This time I am here to urge the Commission to take action to redress the communications barriers that continue to prevent Nishnawbe people in our region from fully participating as citizens of the information age.
317. The northern broadcasting policy was created to provide an equitable place for northern native communities in the Canadian broadcasting system.
318. Today, despite the development of the new information technologies and the arrival of the global village, very real barriers to full telecommunications access still exist in our communities.
319. As the Commissioners are aware, Wawatay convened the Northern Ontario Telecommunications Infrastructure Working Group, in 1996. The mandate of the group is to work together as stakeholders to improve telecommunications services in the First Nations of the Nishnawbe Aske Nation.
320. Nishnawbe Aske means "our people and land" in Ojibway. It describes some 50 communities and 25,000 people spread out over a region of Northern Ontario about the size of France.
321. I would like to thank the Commission for what has been a rich and meaningful consultation process for Wawatay and the working group. We are confident that these proceedings will result in a decision by the Commission which will lead to better telecommunications services to all high-cost service areas in Canada.
322. Although our experience in NAN is uniquely regional, these proceedings have shown there are service issues common to all rural and remote communities in northern Canada. Because of this, the arguments and solutions Wawatay has presented should be of use in the development of universal national solutions.
323. The Commissioners have heard a great deal already during these hearings about the kind of telecommunication problems experienced by First Nations I am representing. I will not reiterate these problems here today.
324. On a personal note, I would like to highlight an example of something that I experienced to illustrate the difference between urban and rural communications opportunities.
325. On our way down to these hearings on Friday, we were stranded in Toronto, thank goodness to the good old northern weather in Southern Ontario we had to overnight at the Toronto airport.
326. And I called home and in Sioux Lookout. And my son, who is living and studying in Southern Ontario was travelling on highway 400 from Barrie to Hamilton.
327. I wanted to get in touch with him because it is not every day that I see him, he is over 1,000 miles away. So somehow I got ahold of his friend's cellular phone number and immediately we were able to make contact and I was able to visit with him.
328. That example may seem like an ordinary example for people living in Southern Ontario, but for me that occurrence was very significant. And it always shocks me to discover that when I am in the south, how many communication services urban people have that are totally unfamiliar in the north. Like, I am just not familiar with that kind of service and I will tell you it was ironic that that incident happened and I was very glad to be able to visit my son.
329. As we conclude the final phase of these proceedings, I would like to emphasize, again, the key issues at stake for those who live in areas now designated as high-cost service areas. These issues are the definition of the entire NAN area as an unserved or under-served region which urgently requires better access to those telecommunications and information services now taken for granted in the south.
330. There are a number of NAN communities which do not even have basic telephone service. Yet, now, basic service in Canada must be defined as considerably more than this.
331. The need to provide comparable telecommunications services in remote and rural communities to allow full participation in economic, political and social growth.
332. Deregulated telecommunications environment clearly demonstrates the free market on its own is not going to meet the objectives of affordable, equitable telecommunications services in rural Canada.
333. The need for the CRTC to enforce measures to ensure that rural and remote areas not adequately served through market forces receive the telecommunication services they require and expect.
334. In response to these issues, I repeat here the principles Wawatay and the working group have set down as constituting universal telecommunication service in Canada.
335. One, all Canadians must have the ability to participate fully in society through universal, equitable access to telecommunications services.
336. Two, equitable, affordable access means being able to break down the barriers to economic and social growth which have persisted because of past inequalities and telecommunications infrastructures. Such economic instruments include community access to banking machines, debit and credit online, toll-free access to an Internet service provider and to government information services, et cetera.
337. Three, equitable, affordable access means having the same education opportunities that are found in urban centres available to rural and remote areas through advanced distance education and fully interactive information linkages, including video conferencing.
338. Four, residents of rural and remote communities should have access to the same level of broad band services as urban areas on an affordable basis.
339. And, five, to offset past inequalities and telecommunications infrastructure development in Canada where areas of the country who need new services the most have received them last. Canadian policy on telecommunications development will encourage all suppliers to offer services universally to all parts of the country rather than allowing urban and high density areas of the population to receive preferential treatment with more choices.
340. We believe that the Commission should accomplish the following in its decision arising from these proceedings:
341. One, reinforce the objective of the Telecommunications Act to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada, section 7(1)(b) of the Telecommunications Act.
342. Two, articulate a clear set of national standards which will define the framework for universal information and communication services in Canada.
343. Three, establish a list of basic minimum services or a universal service basket arising in these nation-wide standards.
344. Four, stipulate that telecommunication service providers have an obligation to provide services to unserved and under-served areas, specify the amount of the levy of gross revenues from all telecommunication service providers to establish a national universal service fund.
345. And, five, recommend the establishment of a neutral, independent universal service fund board to oversee and administer the funds collected from telecommunication service providers.
346. The universal service fund, or the USF board would oversee administrative funds collected from the telecommunications companies and would include as its members key stakeholders from the sectors located in high-cost service areas, including First Nations representation.
347. The USF board would establish rules and procedures to distribute the funds raised in accordance with priorities established by the Commission and would be allotted significant resources to conduct its business properly. The board should operate with full public scrutiny and in a transparent and open manner.
348. If limits on funding are established, priorities should be given by the USF board to the delivery of the most basic and essential services at affordable rates and acceptable service quality to all rather than the delivery of more enhanced services to some. Priority should be given to providing higher speed band width service to public service and later to individual consumers and businesses.
349. The universal service fund should subsidize not only service extensions and upgrades, but also the maintenance of affordable rates to consumers.
350. High-cost areas may require capital assistance, operating subsidies or a combination of both.
351. Phone rates should not go up dramatically in our communities and should stay comparable are with urban rates.
352. Before closing, I would like to take a moment to underline, once again, the importance of being connected to the lives of NAN communities. I sincerely invite Commissioners and staff to visit the north because you have to go there to truly understand the progress we will be able to make when the barriers to effective participation are removed.
353. Our First Nations have extensive plans to use telecommunications services to improve all aspects of community life, whether it be in the area of health care, government services or economic development.
354. We look forward to the time when it will be possible for community health care professionals to receive in-service training by interactive video from a medical specialist working out of London, Ontario.
355. Institutions like Wawatay and WAHSA, our distance education high school, are ready to greatly expand the scope and range of educational opportunities and methods available to communities after broad-band services are installed.
356. Organizations such as Keewaytinook Okimakanak or the Northern Chiefs Council are busy building communications networks and laying the groundwork for enhanced telecommunications in preparation for when we are fully connected.
357. We envision our elders giving testimony from their own homes in legal proceedings taking place as far as of away as Ottawa.
358. We see vast numbers of opportunities we will be able to access to reduce political isolation by use of the electronic meeting place.
359. I am pleased to table our submission with you today. I would like to show as well a short five-minute video produced by Wawatay which further highlights the need for better information services and connectivity in our region.
360. In conclusion, I would like to remind the Commission of the urgent need to address these high-cost service area issues.
361. I call on the CRTC, all governments and our telecommunications partners to forge quick and lasting solutions to telecommunications needs of under-served and unserved areas of our country.
362. We are seeking telecommunications service equality across the country, and we ask the Commission to provide the direction required to bring it as soon as possible.
363. On behalf of the Commission, I thank you and we have a video to show.

     Video presentation / présentation vidéo

364. THE CHAIRPERSON: Thank you very much for your presentation. I assume it is concluded.
365. Thank you and thank you for the video. Interesting format in the video. I guess you get the message across about interruptions in service. And thanks for the invitation to visit your communities.
366. I know that a number of us visited a number of remote communities during this hearing, including Iqaluit, as was referenced earlier, and it gave us a new insight into the problems of the telecommunications services. So, again, thank you for your presentation.
367. We will hear one more presentation this morning, and then we will take our lunch break and we will be reconvening at 1:30 this afternoon, after the lunch break.
368. MS GROULX: The next presenters will be Northwestel.

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369. THE CHAIRPERSON: Good morning, gentlemen. Please proceed when you are ready.

     PRESENTATION / PRÉSENTATION

370. MR. BORMAN: Mr. Chairman, Members of the Commission, my name is Peter Borman, and I am the President of Northwestel. With me are Ray Hamelin, Chief Financial Officer, and Phil Rogers, our legal counsel. I will be referring in my submission to certain calculations which are summarized in the facts sheet which is being distributed to you. This facts sheet, in a nutshell, explains a very complex telecommunications problem and challenge.
371. At Northwestel, we view this proceeding as being of greater importance to the North than to any other region in Canada. It represents an excellent opportunity to achieve the vision of connectedness and accessibility in the North. Let me add that the North also presents the greatest challenges north of 60. The disparities between prices and costs are the widest in Canada. They dwarf any such disparities that you have considered in other proceedings in the south.
372. I would begin by referring to the Northwestel facts sheet. As indicated, 79 of the 96 communities we serve have less than 500 access lines. These small communities are scattered across 40 per cent of the landmass of Canada. The vast majority of these villages have no year-round road access.
373. There are only two major centres in the North, Whitehorse and Yellowknife, and even these major centres as we call them are fairly small by southern standards. They have less than 20,000 lines each.
374. The cost of providing telecommunications services in these communities compared to the costs in the south can only be described as staggering. The evidence in this proceeding has established that the average monthly Phase II cost for residential access service in these small communities is $91 per month. These communities represent over 80 per cent of the locations we serve in the North.
375. We recognize that rate rebalancing is continuing and we support that, but it is clear that the gap between rates and costs in the North cannot be closed by rate rebalancing. Furthermore, the cost of providing long distance services and other services in these small communities are completely out of line with the costs in southern Canada. Let me provide a few examples for the record of this proceeding.
376. For our communities served by satellite routes, which are the majority, switching and aggregation costs per minute end are 12 cents on a Phase II basis. For communities served by low-volume terrestrial interexchange facilities, the switching and aggregation costs per minute end are 19 cents.
377. The Phase II studies we have filed in this proceeding show that the costs per minute between two Class 4 switches within Northwestel's territory are in excess of 23 cents. The estimate of the carrier access tariff, or the CAT as we call it, consists of contribution, switching and aggregation, plus start-up costs, and is almost 13 cents per minute end for the areas outside Whitehorse and Yellowknife.
378. How have these high costs of long distance service and local service been recovered? The answer is very simple: For as long as the company was operated as a monopoly, it was simple enough to recover the losses on uneconomic toll, local and other services by setting long distance rates extremely high. In effect, the company has been kept viable by funding from a small number of major long distance customers in the few larger communities such as Whitehorse and Yellowknife. These customers had been charged rates which are vastly in excess of the costs to provide long distance service to those major centres. This was necessary in order to provide funding for all the small towns and villages scattered across the North.
379. This source of funding from major long distance customers in the few large centres has been, until now, an implicit form of a high-cost service fund. This form of funding mechanism is no longer sustainable. Customers in Northern Canada are simply refusing to be trapped in a system which continues to impose high long distance rates on them. No one can blame them for that. Indeed, we at Northwestel hope that, through this proceeding, we can provide long distance service at rates that are comparable to those in southern Canada, and in every community across the North, not just Whitehorse and Yellowknife.
380. Given that we cannot continue to rely on high long distance rates to fund service throughout the North, the question is what funding model will replace the current one. And the related question we face is what funding model will lead to rates in the North which are comparable to rates in the south.
381. The Commission has already determined that in principle long distance competition is in the public interest for the North. We agree with that. In its decision a year ago the Commission considered a request to immediately introduce long distance competition, but after carefully considering the unique circumstances of Northwestel, the Commission decided to delay the introduction of long distance competition until July 2000. In reaching this conclusion the Commission noted the existence of uneconomic toll as an important issue to be dealt with.
382. The Commission also noted the very heavy dependency of Northwestel on large cross-subsidies from a few toll routes. It also noted its concern regarding any adverse impact on the company as a full service provider of last resort throughout the North. The Commission specifically referred to the significant erosion of Northwestel's toll revenues that is occurring. That erosion, in spite of substantial rate rebalancing, is now even worse.
383. The Commission also explicitly stated that a sustainable CAT is necessary to ensure workable toll competition. We agree completely. However, competitions tend to drive prices towards costs, and in the North costs of toll service are so high that rates comparable to the southern rates would not be achieved. As I mentioned earlier, switching and aggregation costs per minute end on satellite routes are 12 cents and, on low volume terrestrial routes, 19 cents. It would be impossible to implement a southern Canadian model of long distance competition and still achieve a sustainable CAT in the North.
384. Having considered these issues at length over the last 18 months we suggest that, in developing a solution to these challenges, the Commission should be guided by the following principles and objectives:
385. Firstly, we would urge you to develop a funding mechanism that provides no less support to the North than is generated by the current implicit mechanism. To maintain existing services which are and which will continue to be uneconomic, the current level of subsidy will have to be maintained. Furthermore, to expand the scope of such uneconomic services throughout the North and to match southern rates, increased funding will be required rather than less.
386. Secondly, we have suggested that the Commission adopt as an objective in this proceeding reasonably comparable telecom services at reasonably comparable rates relative to urban areas in the rest of Canada. In effect, we are suggesting that this should be one of the fundamental elements of a national access policy for Canada. Effective and equivalent access means access to local interexchange and other services at comparable rates in all regions of Canada.
387. In our view, this objective is consistent with policies that have been expressed many times by the Government of Canada and most recently, in June of last year, by the federal, provincial and territorial Ministers responsible for communications.
388. Thirdly, we also urge you to strive, as we have, to develop a solution which would deliver both choice and nationally comparable rates to every community across the North, not just Yellowknife and Whitehorse. A model which results in much higher local rates across the North with little or no long distance competition outside the major centres would be seen as a failure by the people of the North.
389. Lastly, we would also urge the Commission to adapt or develop a model that reflects the uniqueness of the North. The Commission has already rejected the proposal that a southern model should be presumed to be valid for the north. To quote the Commission in its decision last January, the question is what modifications may be required to reflect the uniqueness of Northwestel's operating environment. In this regard we would also suggest that you recognize the ongoing costs of administration and implementation of a model for a northern-based company.
390. I would note that also in Whitehorse and Yellowknife we are dealing with only 32,000 access lines spread over 94 communities. Thus, what is required is a mechanism which is proportionate to the size of the problem and the resources of a company like Northwestel. In particular, we would urge you to avoid any requirement to cost out all local and long distance services of all 96 communities and every interexchange route.
391. So what is the solution? Given the high level of costs in the North and the obviously limited resources there, it is clear that the North cannot be self-financing as a region and still meet the objective of reasonably comparable services at reasonably comparable rates relative to southern rates.
392. Therefore, the solution which we propose and which others have urged you to adopt is a national high-cost serving area fund. Such a fund should be established in order to address the following two requirements:
393. First, the fund would offset ongoing operating losses on local services, most long distance services and other services, since those losses will continue and grow. The national fund would help to support such services so they can be priced at reasonably comparable national rates.
394. Secondly, the national fund would provide capital to support construction projects that are necessary but uneconomic to finance. Specifically, these would include capital expenditures to extend service to unserved and under-served locations and to upgrade the interexchange network in the North to handle larger volumes of traffic.

     1150

395. As a result, under the model proposed by Northwestel, the national fund would permit all long-distance service providers to offer rates reasonably comparable to southern rates, even in the most remote communities north of 60. It would ensure that the residents of the north had the choice of competing long-distance carriers in all locations, not only Whitehorse and Yellowknife.
396. The Commission has stated its intent to introduce any safeguards or mechanisms required by high-cost serving areas effective January 1, 2000.
397. If there is a national fund as proposed by Northwestel, our company will plan to do the following things in the year 2000.
398. First, with a national fund in place early in the year, we would propose to reduce long-distance rates in the north to comparable southern levels, thereby providing immediate benefits across the board to all northerners and communities.
399. Mr. Vice Chairman, members of the Commission, people in the north have waited a long time for long-distance rates comparable to those in the south. We think northern Canadians should be given those rates sooner rather than later.
400. Secondly, in the year 2000, we would begin a multi-year capital expenditure program to extend services to uneconomic serving locations and to generally upgrade and modernize the capacity of Northwestel's interexchange network. To date, much of our network has been designed to handle relatively low volumes of voice traffic. With lower long-distance rates and increasing data traffic, it is essential that the network facilities be modernized to meet the demands of northerners for nationally comparable services.
401. During this proceeding, Northwestel has proposed two models for the Commission's consideration which would meet the objectives that I have described above. In the interests of time, I do not propose to go through the details of either of these models. They are dealt with in our interrogatory responses and our written argument extensively.
402. However, I would point out that both of them would allow the Commission to achieve the following benefits in the north: Northern residents and businesses will be able to choose their competitive long-distance provider and long-distance rates will be reasonably comparable to those available in the more urban areas of Canada. This will be true not only in the major towns in the north, but all the small remote communities.
403. All long-distance service providers, including Northwestel, would have the benefit of subsidized access to Northwestel's interexchange and local networks in order to extend their service to small remote communities.
404. The national funding model would support a comparable range of services across all communities in the north and ensure that the communities in the north do not fall further behind in terms of the services available.
405. Lastly, consistent with the Commission's concern expressed in its decision a year ago, the national funding model would ensure that there continues to be a locally based service provider to invest new capital and expand the range of services throughout the north.
406. In closing, Mr. Chairman, let me repeat that this proceeding is absolutely critical to the future of telecommunications services in the north. Those of us who live and work in the north have more at stake in the Commission's proceeding here today than, perhaps, any other proceeding the Commission has held. We have proposed solutions which we believe will allow the Commission to achieve the objectives set out in the Telecommunications Act and those of all levels of government.
407. Ours is a vision of comparable services at comparable rates for all communities across the north compared to national rates. We believe that this is a vision which is shared by government generally and by most telecommunication users in Canada.
408. I would like to thank you for your attention today, and I and my colleagues would be happy to respond to any questions that you might have regarding the proposals of our company.
409. THE CHAIRPERSON: Thank you, Mr. Borman. I don't think we have any questions, although counsel has advised -- I didn't notice whether you distributed your fact sheet throughout the room, but counsel has advised that we should give this fact sheet an exhibit number, and I guess what appears to be a belt and suspenders solution, attach it to your written final argument as well.
410. Counsel, have I captured that?
411. MS PINSKY: For the purpose of the record, Mr. Chairman, the document entitled "Northwestel - Quick Facts" will be assigned Northwestel Exhibit No. 1 to their oral final argument.

     EXHIBIT NORTHWESTEL NO. 1: One- page document entitled, "Northwestel - Quick Facts".

412. THE CHAIRPERSON: Thank you very much.
413. We will take our lunch break at this point, then. Some of us have a business meeting at lunch, so to give us a little cushion and ensure we are not late we will reconvene at 1:45, not 1:30 as I said earlier. So 1:45 we will reconvene this afternoon.

     --- Recess at / Suspension à 1155

     --- Upon resuming at / Reprise à 1345

414. THE CHAIRPERSON: Good afternoon, ladies and gentlemen. We will proceed with our hearing now.
415. Madame la Secrétaire, la prochaine partie, s'il vous plaît.
416. MS GROULX: Thank you, Mr. Chairman..
417. Les prochains à faire leur présentation seront Québec-Téléphone.
418. LE PRÉSIDENT: Bon après-midi, Madame Biron.

     PRÉSENTATION / PRESENTATION

419. M^me BIRON: Bonjour, Monsieur Colville, et merci.
420. Madame la Présidente, Messieurs et Mesdames les Commissaires, membres du Conseil, Québec-Téléphone est heureuse de présenter ses observations devant vous aujourd'hui dans le cadre de l'avis public CRTC 97-42 "Service dans les zones de desserte à coût élevé".
421. Je suis Dorothée Biron, des Affaires corporatives de QuébecTel, et je suis accompagnée cet après-midi de M. Claude Gendron, vice-président exécutif, Administration, Finance et Trésorier.
422. Notre intention aujourd'hui consiste à aborder les grands enjeux que sous-tend l'avis 97-42 et de vous faire part de certaines de nos inquiétudes mais non pas de revenir en arrière sur des questions pointues ou techniques qui ont été abordées tout au cours du long processus de demandes de renseignements qui s'est échelonné sur une période de plus d'un an. La première question nous est d'ailleurs parvenue du Conseil le 20 février dernier, et Québec-Téléphone a fourni une large contribution dans ce dossier de plus de 500 pages de documentation, et ce, au meilleur de son expertise et de ses connaissances.
423. Quand le Conseil a publié l'avis public 97-42 nous étions ravis. En effet, nous avons vu là une belle occasion pour que les abonnés de Québec-Téléphone trouvent enfin un soulagement eu égard aux pressions tarifaires à venir par rapport aux grandes centres canadiens. Les zones de desserte à coût élevé et produisant, somme toute, de faibles revenus, ça nous connaît, évidemment, c'est la caractéristique première de notre territoire.
424. Québec-Téléphone est une entreprise qui compte près de 300 000 lignes qui sont réparties sur un territoire de desserte de 254 000 kilomètres carrés. Pour vous donner une idée, certaines communications téléphoniques parcourent 1 220 kilomètres tout en demeurant sur notre territoire, soit 2,5 fois la distance Montréal-Toronto. Quatre-vingt-quatorze pour cent des 308 municipalités de notre territoire comptent moins de 4 000 habitants. Contrairement aux autres compagnies de plus grande taille, nous ne pouvons compter sur des capitales provinciales et de très grandes villes comme Québec, Montréal, Toronto, Edmonton et Vancouver. Nous croyons cependant que, malgré tout, nous avons pu tirer notre épingle du jeu et nous avons composé avec ces difficultés.
425. Notre ravissement de départ s'est progressivement atténué au fur et à mesure que l'instance progressait, et nous vous dirons pourquoi il en a été ainsi.
426. Initialement Québec-Téléphone dans ce dossier, comme plusieurs intervenants devant vous ce matin, nous avons posé la question de l'abordabilité et nous sommes revenus à l'article 7b) de la Loi:

     "permettre l'accès aux Canadiens dans toutes les régions -- rurales ou urbaines -- du Canada à des services de télécommunications sûrs, abordables et de qualité."

427. Et, d'autre part, ce que nous désignerons ici comme la "vision Manley", à savoir que tous les Canadiens et les Canadiennes aient accès à un service de ligne individuelle, au service de composition à clavier et au service de commutation numérique, ce qui leur permet d'avoir accès à un lien Internet à basse vitesse avant le 1^er janvier 2000. Malgré des conditions de desserte difficiles, nous avons toujours fourni à nos clients des services de qualité à la fine pointe de la technologie et nous comptons bien continuer à le faire.
428. En fait, cette instance est conçue pour l'abonné. Il faut nécessairement que les conclusions et les résultats de tous nos travaux dans ce dossier convergent vers le bénéfice de l'abonné.
429. Nous continuerons à être d'avis que l'atteinte d'une politique nationale ne peut passer que par une solution nationale. Le cas par cas ne devrait peut-être pas trouver sa place ici. Les tendances effectivement amorcées au cours des derniers mois nous laissent croire qu'il y aura plusieurs solutions, en fait autant de solutions qu'il y a de joueurs, autant de solutions qu'il y a de territoires géographiques, alors que l'on sait fort bien que les territoires de desserte sont désormais l'héritage de l'époque des monopoles.
430. Selon une question qui nous fut transmise par le Conseil, nous sommes portés à croire qu'une zone de desserte à coût élevé en Colombie-Britannique ne répondrait pas aux mêmes critères qu'une zone de desserte à coût élevé au Québec. N'est-ce pas surprenant? Est-ce à dire qu'un fournisseur de service local pan-canadien pourrait avoir à composer avec autant de règles qu'il y a de provinces, avec autant de règles qu'il y a d'entreprises monopolistiques? Est-ce cela qui est souhaitable? Nous attendons la décision.
431. Nous avons abordé ce dossier en tenant compte de l'abordabilité du service. Tout ce qui était au-delà du tarif abordable devrait être admissible à une subvention en deçà du coût national moyen. Cette approche, très sociale nous en convenons, pourrait avoir comme avantage d'encourager les milieux ruraux. Les plus riches paieraient pour les plus pauvres. Elle était très exigeante, cependant, envers le Conseil, nous en convenons, puisqu'elle vous demandait de fixer un tarif abordable au niveau canadien et d'en surveiller l'évolution subséquemment. Cette façon de faire avait pourtant le mérite de rejoindre parfaitement les objectifs de l'alinéa 7b) de la Loi sur les télécommunications et en même temps de satisfaire les éléments de la Vision Manley.
432. Il est certain que quelqu'un devra payer quelque part, et nous estimons que ce ne devrait pas être les milieux ruraux. C'est le principe du gros utilisateur payeur qui devrait assurer l'universalité du service. Il ne faudrait pas non plus que la solution retenue ne soit pas arrimée à des facteurs de productivité. Il faut absolument éviter de distribuer l'argent à mauvais escient, tel que ce fut le cas à certains endroits aux États-Unis; nous nous sommes permis de citer en annexe une application de cette politique que nous ne prônons pas.
433. La solution qui semble se dessiner pour le Québec, ce sont les zones de recensement ou "EA" selon la formule Bell. Précisons que telle approche s'appliquerait pour le Québec et l'Ontario seulement. D'autres techniques avec d'autres variables seraient utilisées partout ailleurs au Canada. Nous ne voyons pas comment et pourquoi les zones de recensement selon la formule Bell ne seraient utilisées qu'au Québec et en Ontario. Pourquoi une solution différente dans d'autres territoires?
434. Dans le cas de Québec Téléphone, la technique de zones de recensement préconisée par Bell et qu'on semble vouloir appliquer à toutes les compagnies de téléphone au Québec et en Ontario nous porte à réfléchir. Nous poursuivons nos travaux quant à l'emploi de cette méthode pour savoir combien de lignes de notre territoire vont se qualifier. Cette méthode nous inquiète parce qu'elle fut développée par Bell et pour Bell dans son ensemble et non pas pour les indépendantes du Québec ni de l'Ontario.
435. Bell a déclaré qu'environ 10 pour cent de ses lignes se classaient ZDCE avec son approche de zone de recensement. N'oublions pas que Bell compte environ 10 millions de lignes au total et, selon le rapport de DBRS publié en novembre 1998, 7,2 millions de ces lignes sont des lignes résidentielles, ce qui reviendrait à dire que 720,000 seraient qualifiées ZDCE.
436. À Québec-téléphone, nous n'en savons encore rien. Comment pouvons-nous adopter une approche pour laquelle nous ne connaissons pas les résultats? Nous croyons que ce n'est pas différent pour les autres indépendantes visées par cette solution.
437. Telus a déclaré que ce qui faisait essentiellement la différence entre une zone DCE et une autre zone, c'était le coût d'investissent par rapport à la longueur de la boucle locale. Or, il serait faux de prétendre que c'est le cas en région isolée. Il faut en plus considérer les frais d'entretien de ces lignes, qui sont nettement plus élevés au niveau des coûts de main-d'oeuvre et de transport par exemple.
438. M. Gendron va maintenant adresser la question de l'abordabilité.
439. M. GENDRON: Mesdames et messieurs du Conseil, en effet, je voudrais reprendre le thème de l'abordabilité du service en vous indiquant que je suis ici le porte-parole de nos clients sur le sujet.
440. Avec la restructuration tarifaire proposée par l'entreprise, le tarif local de base pour les résidents s'établirait à 23,50 $ par mois en moyenne. Environ une personne sur trois vivrait en situation de pauvreté dans la région du Bas-Saint-Laurent comparativement à une sur quatre dans l'ensemble du Québec selon le document de travail "Plan d'action 1999-2002" préparé par la Régie régionale de la santé et des services sociaux du Bas-Saint-Laurent. Le Devoir du jeudi 12 novembre 1998 déclarait que, selon une enquête, 127 000 ménages canadiens n'ont pas les moyens de s'offrir le service téléphonique.
441. N'oublions pas non plus que les rapports trimestriels de surveillance de l'abordabilité présentés par Stentor au cours de 1998 conformément à l'ordonnance Télécom CRTC 97-1214 font état que nos abonnés se situent au troisième rang au niveau canadien avec un taux de débranchement de 0,22 par 1 000 en raison d'abordabilité. Ce classement est dérivé des données présentées dans le rapport Stentor, et c'est dans l'est du Canada, c'est-à-dire le Québec, l'Ontario et le Nouveau-Brunswick, que les chiffres sont les plus élevés en termes de débranchements.
442. Nous demeurons perplexes face aux déclarations de certaines parties entendues lors des audiences récentes sur les nouveaux médias qui voulaient que les services Internet soient disponibles à l'ensemble de la population canadienne, alors que 127 000 ménages canadiens n'arrivent même pas à se payer la ligne téléphonique qui les brancherait éventuellement à l'autoroute de l'information.
443. Nous continuons de croire que la solution retenue devra nettement rejoindre les objectifs de l'alinéa 7b) de la Loi sur les télécommunications et s'inscrire comme une solution sociale commune de portée nationale qui pourrait fort bien s'éloigner des règles régissant un plan d'affaires traditionnel.
444. Les zones de desserte à coût élevé sont plus qu'une donnée, plus qu'une statistique, qu'un calcul mathématique. Ce sont aussi des régions où vivent des gens avec des capacités de payer qui sont souvent beaucoup plus limitées que celles des résidents des grands centres. Leurs besoins pour des moyens de télécommunications sûrs, de qualité et abordables sont peut-être même plus grands encore en raison de leur isolement.
445. Dans son mémoire du 1^er mai 1998 Québec-Téléphone préconisait la création d'un fonds national pour service universel où tous les intervenants seraient appelés à contribuer. Nous maintenons notre position à ce sujet et nous continuons de croire que ce fonds national pourrait être utilisé à différentes fins, comme le mentionne justement notre mémoire, c'est-à-dire les subventions ZDCE, les subventions ciblées, les droits de télécommunications, la contribution et autres si besoin est.
446. L'avis public Télécom CRTC 98-34 "Modifications proposées au Règlement sur les droits de télécommunications" publié le 20 novembre dernier comporte deux aspects très intéressants qui pourraient être intégrés dans les modalités applicables à ce fonds national. En effet, le Conseil a étendu la portée du règlement à toutes les entreprises canadiennes, qu'elles déposent des tarifs ou non. Dans notre proposition du 1^er mai nous avons indiqué que tous les acteurs devraient contribuer... et je cite:

     "Ressemblant au principe du 'Fonds de production' en radiodiffusion, il pourrait être constitué à partir d'un pourcentage des revenus prélevé chez toutes les entreprises qui possèdent ou utilisent des installations de transmission filaires ou sans fil pour des communications personnelles (résidentielles et Internet) et d'affaires (y incluant circuits privés, réseaux LAN, Internet, etc.) pour assurer l'offre d'un tarif en région comparable à celui des grands centres."

447. Le deuxième élément intéressant dans l'avis public Télécom 98-34 est l'apparition d'une franchise. En effet, lors des audiences sur les nouveaux médias de nombreux intervenants préconisaient de ne pas imposer de contribution au Fonds de production ou toute forme de fardeau financier de crainte de freiner le développement des services Internet au Canada. Nous convenons qu'il existe de très petits fournisseurs de services Internet qui ont besoin de toutes leurs ressources financières. Il faudrait donc fixer une franchise en tenant compte de ce facteur. S'il en existe de petits, il en existe aussi de plus importants qui pourraient fort bien faire leur part.
448. Quant à l'administration d'un tel fonds national, elle pourrait être confiée à une firme indépendante. En effet, nous avons appris dernièrement que la firme Progestic International avait été désignée pour gérer le fonds généré par les contributions interurbaines.
449. Le fonds national serait constitué à partir d'un pourcentage des revenus prélevé auprès des divers acteurs du milieu des télécommunications. Nous ne sommes pas sans connaître la récente réponse que le Conseil a servie à AT&T Canada Services interurbains, à la Call-Net et à l'ACCTel Entreprises au sujet d'un mécanisme de perception de la contribution basée sur les revenus. Si le Conseil a rejeté la demande à ce moment-ci, il s'attend, en contrepartie, à instruire au début de cette année une instance visant à examiner si des changements devraient être apportés au présent mécanisme de perception de la contribution. Nous comprenons donc que la création d'un fonds unique n'est pas définitivement exclue.
450. Nous devons reconnaître que la mise en oeuvre de mécanismes et d'outils visant l'atteinte des objectifs identifiés à l'alinéa 7b) de la Loi sur les télécommunications va demander la collaboration de tous les intervenants du monde des télécommunications et probablement même des gouvernements. Commençons toutefois par faire nos efforts au lieu de compter sur l'intervention des seuls pouvoirs publics. Nous estimons qu'une solution nationale unique s'impose plutôt que des solutions segmentées applicables à chaque territoire. La politique canadienne des télécommunications est une politique nationale qui englobe tout le Canada. Son application ne doit pas être fragmentée par territoire ou par zone. Nous estimons donc que la solution préconisée dans les zones de desserte à coût élevé devra être unique et de portée nationale.
451. Il nous apparaît impossible de parler de zone de desserte à coût élevé sans avoir à l'oeil les questions d'abordabilité. Nous estimons que de tels problèmes vont poindre bientôt, non pas globalement et de façon percutante au niveau national, mais plutôt de façon plus insidieuse, de façon plus effacée, en région rurale, en région éloignée des grands centres. Il est facile d'imaginer le scénario lorsque la plupart des entreprises de télécom auront fixé leurs tarifs à plus de 40 $ par mois selon l'approche Phase III (sic) plus 25 pour cent s'ils veulent couvrir leurs coûts. À ce moment, l'abordabilité des services sera vraiment en cause et les subventions devront être substantielles pour éviter le pire. Nous estimons qu'il serait alors trop tard et que les coûts de redressement pourraient être hors de portée.
452. Encore une fois, ne considérons pas les données américaines comme le baromètre des solutions canadiennes. Aux États-Unis la réglementation adopte des mesures visant maintenant à améliorer et à accroître le taux d'universalité des services. Au Canada, mettons en place plutôt des mécanismes qui empêcheront ce même taux de diminuer, et ce, le plus rapidement possible.
453. M^me BIRON: Une vison sociale nationale passe, nous croyons, par une solution unique nationale et cette solution ne peut échapper à une formule d'interfinancement. L'interfinancement permet de rencontrer des objectifs sociaux là où les seules notions d'économique, de rendement et de profit seraient impuissantes.
454. Ne ratons pas l'occasion de nous donne des outils simples, flexibles et efficaces.
455. Nous sommes maintenant à votre disposition pour répondre à vos questions et nous vous remercions de votre intérêt.
456. LE PRÉSIDENT: Merci, Madame Biron et Monsieur Gendron.
457. I would only offer one comment. I am sorry your enthusiasm was diminished through the process, but I would just caution you not assume that, just because staff poses a question in an interrogatory, that necessarily implies a certain course of action on the part of the Commission.
458. Other than that, thank you very much.
459. Madame la Secrétaire.
460. M^me GROULX: Merci, Monsieur le Président.
461. Le prochain à faire la présentation sera Société d'administration des tarifs d'accès des télécommunications, SATAT.

     PRÉSENTATION / PRESENTATION

462. M. BRAY: Monsieur le Président, Madame la Présidente, Membres du Conseil, je suis Stephen Bray, administrateur de la SATAT. Vous retrouverez à ma gauche mon collègue Hugo Letarte ainsi que, à ma droite, M. Luc Couture, président de la SATAT.
463. Pour la gouverne du Conseil, la SATAT désire souligner qu'elle représente, aux fins du présent avis public, 11 compagnies de téléphone indépendantes du Québec et que l'objectif de son plaidoyer oral n'est pas de proposer des mécanismes d'application mais plutôt d'attirer l'attention du Conseil sur des éléments vitaux à la survie de celles-ci. En ce qui a trait aux solutions concrètes, elles feront partie de notre mémoire qui sera déposé ce vendredi 29 janvier.
464. Ce matin nous avons entendu plusieurs intervenants traitant de territoires mal desservis, voire même non desservis. En ce qui concerne les membres de la SATAT, cette situation n'existe pas. Il s'agit plutôt de régions dont le coût actuel de la prestation du service local de base est supérieur aux régions urbaines et correspond à des régions ayant en moyenne des densité de population de moins de 35 personnes par kilomètre carré.
465. Nous comprenons que la situation des zones de desserte à coût élevé est d'une importance nationale et que les mécanismes qui seront mis en oeuvre par le Conseil suite au dénouement du présent avis public s'appliqueront probablement d'un océan à l'autre. Toutefois, on ne peut passer sous silence qu'il existe plusieurs entreprises de service local au Canada. Toutes n'ont pas la même taille, le même pouvoir de synergie et d'économie d'échelle ni non plus les mêmes ressources. Les mécanismes d'application des ZDCE devront donc, à la base, tenir compte des besoins de l'ensemble des compagnies de téléphone et non seulement des besoins des entreprises dominantes pour ensuite être transposés aux petites indépendantes.
466. Pour une compagnie comme Bell Canada, selon ses propres règles, l'enjeu des ZDCE affecte uniquement 10 pour cent de son marché du service local alors qu'il risque probablement d'affecter 100 pour cent du marché local des petites indépendantes. Il s'ensuit que toute imprécision inhérente au modèle qui sera développé aura donc des impacts beaucoup plus grands, voire même catastrophiques, sur l'avenir des petites indépendantes.
467. Pour ces raisons, il est donc essentiel que le Conseil ait un degré de connaissance élevé et une compréhension approfondie des petites indépendantes. Des informations non fondées, basées sur des hypothèses erronées, ne peuvent qu'engendrer une mauvaise perception de la problématique et ainsi entraîneR les différents intervenants sur une fausse piste.
468. À plusieurs reprises au cours de leur histoire les petites indépendantes ont été victimes d'affirmations gratuites et d'allégations projetant, par le fait même, une fausse perception à leur égard. Citons par exemple la remise en question de l'efficacité de ces dernières.
469. À ce sujet précisément, la SATAT informe le Conseil que, selon les études qu'elle a effectuées, les petites indépendantes sont loin d'être inefficaces puisqu'en isolant seulement les territoires ruraux similaires chez Bell elles ont un pourcentage de recouvrement des coûts du service local aussi sinon plus élevé que celui observé chez Bell Canada.
470. En effet, il appert qu'en moyenne, avec les tarifs locaux actuels, les petites indépendantes recouvrent environ 40 pour cent de leurs coûts de la prestation du service local résidentiel, ou 48 pour cent après application d'un processus de nivellement avec les tarifs de Bell Canada, alors que Bell pour des régions similaires recouvre uniquement 32 pour cent. Dans les deux cas les régions visées correspondent à des régions possédant une densité de population inférieure à 35 habitants par kilomètre carré.
471. Au niveau des territoires, il faut noter que les indépendantes desservent uniquement de petites agglomérations et des régions rurales. Cette situation révèle un fait indéniable: les petites indépendantes ne peuvent avoir accès à aucune forme d'interfinancement contrairement à Bell, par exemple, qui a la possibilité de diluer le lucratif marché urbain et le marché coûteux à desservir qu'est le rural. Pour les indépendantes, il leur est aussi très difficile de réaliser des économies d'échelle et de compresser leur structure. Elles doivent donc composer exclusivement avec les caractéristiques propres de leurs régions. Citons à ce chapitre, par exemple, la faible densité de population en milieu rural, qui implique nécessairement une perte de productivité, laquelle est dissociée de la qualité de la gestion de l'entreprise en place.
472. La taille des petites indépendantes est un autre facteur à prendre considération lorsque l'on veut tenter de comparer l'efficacité et les coûts de la prestation du service local de deux entreprises. Il existe un niveau minimal de ressources matérielles, humaines et financières qui est nécessaire au bon fonctionnement d'une compagnie de téléphone.
473. Selon la taille des indépendantes, le niveau de ressources est quasi insensible au nombre d'abonnés qu'elle dessert. À titre d'exemple et de façon générale, chacune des petites indépendantes possède un seul commutateur afin d'offrir le service téléphonique à ses abonnés. Malheureusement, le coût d'achat dudit commutateur n'est certainement pas fonction du nombre d'abonnés de l'entreprise. Ainsi, l'achat initial du commutateur, l'entretien et la modernisation sont tous des coûts quasi insensibles au nombre d'abonnés alors qu'à l'opposé les revenus en sont directement liés.
474. Ceci étant dit, revenons maintenant à la notion de ZDCE plus spécifiquement.
475. Mais, au juste, qu'est-ce qu'une zone de desserte à coût élevé? A priori, il s'agit d'une zone dont la taille géographique peut être variable, à l'intérieur de laquelle les coûts de prestation du service local sont élevés. Mais élevés par rapport à quoi? Par rapport aux coûts moyens de l'entreprise? Par rapport aux coûts moyens des entreprises desservant des milieux urbains? Par rapport à une notion quelconque de coûts standards? Par rapport aux coûts de remplacement? Ou tout simplement par rapport aux revenus d'opération générés?
476. Vous conviendrez que la réponse à cette question est fondamentale. Mais tout d'abord un aspect important doit être clarifié. Ce qui caractérise une ZDCE, et tel que suggéré dans son appellation, C'est le niveau élevé du coût de prestation de service. La SATAT est donc d'avis qu'il serait conséquemment inacceptable d'utiliser des critères de classification autres que des critères de coûts.
477. Sachant très bien que plusieurs facteurs ont une influence directe ou indirecte sur le niveau du coût de prestation du service local dans une zone donnée, tel que la densité de population, la topographie du territoire, la proportion d'abonnés affaires, et caetera, aucun de ces facteurs ne peut être valide dans la classification d'une ZDCE puisqu'il ne s'agit que d'estimations subjectives. Si, par exemple, la notion de densité de population devrait être retenue comme seul critère de classification pour certaines zones, alors la SATAT comprendrait qu'il ne s'agit pas de zones de desserte à coût élevé mais bien de zones de desserte à faible densité de population.
478. Le niveau du coût de la prestation du service local est influencé par tellement de facteurs différents que l'unique mesure de référence acceptable pour classer les zones selon le niveau de leurs coûts est une mesure qui considère la notion de coût elle-même.
479. Comparer les coûts d'une entreprise rurale avec les coûts moyens de desserte en milieu urbain ou avec des coûts standards ne fait aucun sens pour les petites indépendantes puisqu'il n'y a rien de standard dans la téléphonie rurale, vous en conviendrez tous avec moi.
480. La SATAT soumet qu'en sus de l'utilisation du niveau de coût de prestation du service il est impératif de faire la relation entre le coût de desserte du service local et les revenus s'y rattachant, et ce, afin de déterminer les ZDCE sur le territoire des petites indépendantes. En effet, la notion de manque à gagner du service local est essentielle pour les petites indépendantes puisque ce même manque à gagner pourrait mettre en péril les fondements de l'alinéa 7b) de la Loi, à savoir d'offrir à tous "... des services de télécommunications sûrs, abordables et de qualité".
481. Tant et aussi longtemps que les petites indépendantes seront soumises à l'obligation de service et qu'il n'y aura pas pleine compétition sur leur territoire, la réglementation en place devrait s'assurer de supporter adéquatement la téléphonie rurale.
482. À la lumière de ce qui précède, la SATAT soumet que, dans la mesure où la base de la réglementation doit être la même pour tous en ce qui concerne les ZDCE, des méthodes d'application simplifiées doivent être prévues pour les petites indépendantes. À ce sujet, la Loi sur les télécommunications n'empêche aucunement l'adoption de traitements adaptés aux besoins spécifiques des joueurs de l'industrie.
483. L'avènement d'un fonds en vertu des ZDCE qui entraînerait un déplacement des revenus de l'industrie afin de couvrir davantage certains coûts pour maintenir l'abordabilité est primordial puisque cette situation ne peut exister dans un environnement purement compétitif. Toutefois, on ne peut obliger les gens à vivre uniquement dans les grands centres urbains; il faut plutôt viser à y améliorer l'accès au travail, à l'information et aux loisirs.
484. Un choix social s'impose: soit le financement d'infrastructures dans le transport terrestre ou autre, soit le financement d'infrastructures durables dans les réseaux de télécommunications. Nous croyons fermement que la deuxième alternative serait beaucoup plus rentable et logique que la première.
485. Considérant que le niveau de la marge bénéficiaire au chapitre de la prestation du service local est principalement fonction de la densité de population et du volume d'utilisation dudit service, l'introduction de la compétition du service local en milieu rural sera certainement partielle, voire même inexistante dans certains territoires. Par surcroît, l'avènement de la compétition du service local en milieu rural, s'il y a lieu, visera principalement les abonnés offrant les meilleures perspectives de rentabilité, laissant ainsi pour compte les petites indépendantes, qui devront supporter les abonnés jugés non attrayants.
486. Une telle situation pourrait aussi engendrer une pression à la hausse sur le tarif du service local pour ces abonnés puisque les petites indépendantes devront répartir leurs coûts d'opération sur un plus petit nombre d'abonnés. Il est donc crucial que le mécanisme qui sera établi pour les ZDCE soit bien adapté à la réalité rurale ainsi qu'à la notion de titulaire. Au surplus, un mécanisme de transition devra être prévu afin que les petites indépendantes puissent récupérer leurs investissements passés sur une période raisonnable. Ce mécanisme devra également être prévisible, spécifique et suffisant, et ce, dans le but de tenir compte de la fragilité des indépendantes.
487. Pour la SATAT il semble donc essentiel que les petites indépendantes puissent utiliser, à leur choix et selon l'évolution de leur marché, soit des études de coûts de type Phase III ou des études de coûts de type Phase II auxquelles une provision serait ajoutée afin de tenir compte des investissements passés qui ont été faits en accord avec la réglementation antérieure. Cette provision permettrait certainement un niveau de neutralité technologique entre les entreprises service local titulaires et les entreprises service local concurrentes.
488. Quoique tout mécanisme éventuel de support en vertu des ZDCE puisse favoriser la venue de la compétition locale, plusieurs territoires demeureront quand même des monopoles dits naturels qui devraient impliquer obligatoirement la préservation de l'obligation de service.
489. Pour nous, il ne s'agit pas de simples caprices mais plutôt de s'assurer que le modèle à être défini pour les ZDCE soit aussi le reflet de la réalité propre des petites indépendantes. C'est de cette façon seulement que les petites indépendantes seront en mesure d'offrir un service local de qualité, abordable et non discriminatoire.
490. La SATAT remercie donc grandement le Conseil de la tribune qui lui a été accordée dans le présent avis public et espère que les propos qu'elle a tenus sauront être utiles.
491. Merci.
492. LE PRÉSIDENT: Pas de questions?
493. Merci, Monsieur Bray et messieurs.
494. Madam Secretary.

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495. MS GROULX: Thank you, Mr. Chairman. The next presenters will be appearing together: BC Tel, Bell Canada, Island Tel, Maritime Tel, MTS, NBTel, NewTel.

     PRESENTATION / PRÉSENTATION

496. THE CHAIRPERSON: Still together, Mr. Henry.
497. MR. HENRY: Thanks very much, Mr. Chairman. Yes, indeed we are.
498. Mr. Chairman, I am appearing today as part of a panel representing the telephone companies that have participated in a common submission originally filed by Stentor Resource Centre in this proceeding. Those companies are BC Tel, Bell Canada, Island Telecom, Maritime Tel and Tel, MTS Communications, NBTel and NewTel Communications. These companies have filed a common framework submission in this proceeding along with various company specific data and proposals. We propose today to make one continuous presentation and several of us will be speaking.
499. You will be relieved to know that we do not intend to take the full time that would be permitted for seven companies. However, we do anticipate taking about 45 minutes, and we appreciate that opportunity.
500. Let me introduce our panel here today, and all of the companies are represented at the table. I am Denis Henry, formerly General Counsel of SRCI and currently Vice President, Regulatory Law at Bell Canada. On my immediate left is Mark Connors, who is Manager, Regulatory Matters at NewTel Communications; and to his left is Jim Brookes of BC Tel. Jim is Vice President and General Manager of Enhanced Services and General Manager of Local Marketing at BC Tel. On my right is Don MacDonald of MT&T and Island Tel, and he is Manager of Regulatory Matters there.
501. In the back row, starting from the side closest to you, Mr. Roy Bruckshaw, who is Director, Regulatory Affairs at MTS. Next to him is Mr. Rick Stephen, Director, Regulatory Matters at NBTel. Next to him is Mr. Bob Farmer, formerly Vice President, Regulatory Matters at Stentor, and currently holds that title at Bell Canada. Beside Bob is Ms Sue Dawes who is formerly Director, Regulatory Matters at Stentor, and currently Director, Regulatory Matters at Bell Canada.
502. Mr. Chairman, the Commission has initiated this proceeding to consider issues associated with service to high-cost serving areas in light of the policy objectives of the Telecommunications Act. It is, perhaps, useful at the outset to remind ourselves of the context within which this proceeding takes place.
503. In recent years, the telecom industry has undergone unprecedented and radical transformation -- the scope and extent of which could not possibly have been anticipated even a few short years ago. Coincident with the rapid technological change that has characterized this industry, the Commission embarked on a fundamental transformation of the regulatory landscape of this industry. In so doing, the Commission chose a competitive model, relying primarily on market forces to achieve the objectives of the Telecommunications Act. The Commission and the industry can be proud of their achievements in implementing this model. I think it is fair to say that Canada continues to have a telecommunications system that is the envy of the world.
504. For example, not only do we have first-class, modern technology but we have a penetration rate for telephone service in Canada that is over 98 per cent, among the highest in the world and more than four percentage points higher than the penetration rate in the U.S. At the same time, in virtually all sectors of our business, and by that I mean local, long-distance, cellular telephone, Internet access, Canadian services not only compare favourably with those in the U.S. but they are priced substantially lower than in the U.S.
505. This has been achieved in a regulatory environment where the Commission has chosen a competitive model based on sound economic principles, such as the essential facilities doctrine which underlies the local competition decision, as well as the use of competitive safeguards rather than a structural approach such as was adopted in the U.S.
506. Given the state of telecom in Canada, including these impressive penetration rates and prices, we have positive proof that this competitive and economic approach is working to the benefit of Canadians. While market forces should never be considered an end in themselves, we should be very wary about deviating from them when they are proving to work in practice.
507. In keeping with this approach, the Commission has consistently recognized throughout its regulatory framework and competition decisions that any system of subsidies, including the current contribution regime, distorts economic incentives and market forces. In other words, they undermine the very objectives the Commission is seeking to achieve through market forces. Thus, the Commission has consistently held that industry-generated subsidies should therefore be minimized. In the Commission's landmark Regulatory Framework Decision 94-19, for example, the Commission noted that the objective of affordable telecommunications applied to long-distance services as well as local services, and expressed the view that maintaining contribution at higher levels than necessary would be inconsistent with the achievement of that objective. The Commission noted that improper pricing policies can result in the misallocation of resources, a reduction in the choice of supply in certain markets, and the suppression of demand in others, resulting in increased costs to information intensive enterprises and barriers to communications amongst Canadians. As the Commission stated in that decision, and I quote:

     "...if telecommunications is to meet its potential as an engine of economic growth and serve as a vehicle for economic, social and intellectual transactions, then the underlying structure should be as economically efficient as possible, recognizing of course that unrestrained adherence to economic efficiency arguments could have an effect on affordability."

508. Mr. Chairman, it is against this backdrop that our proposals in this proceeding have been developed. We have also been mindful of the Commission's direction that this proceeding would not involve a review of the existing contribution mechanism or regime. In keeping with this, we have jointly developed a proposal that, in our view, better directs subsidies to areas where they are needed and, at the same time, does not involve changes to the existing contribution mechanism. Our short-term proposal would operate for the remaining years of the existing price cap period, namely, to the end of the year 2001.
509. I should also point out that our proposal involves a common framework and is based on a common set of principles. But, at the same time, each company's proposal differs in certain details which reflects unique circumstances of that company, and we will talk a little more about that later.
510. We have also set out some broad parameters as to how we would see the contribution regime operate in the longer term after 2001. It is important to keep in mind the distinction between what I will call our short-term proposal versus what I will call our longer-term view.
511. Our proposals are also based on three fundamental principles which we believe should underpin the Commission's regulatory framework. First, market forces should be relied on to achieve public policy goals wherever possible.
512. Second, in cases where it is determined that markets forces are insufficient to achieve public policy goals relating to accessibility, then governments should accomplish such goals directly through spending and tax measures.
513. Third, should it be decided not to achieve such goals directly but, rather, through industry cross-subsidies, then any measures put in place must be, first, as economically efficient and effective as possible. They should create minimum distortion of market incentives. They should be competitively and technologically neutral; and they should be monitored periodically to determine whether they are still required.
514. There is broad support in this proceeding, Mr. Chairman, for the proposition that market forces should be relied on to achieve policy goals wherever possible. In the record and in the regional consultations, customers, governments, and businesses in remote and rural areas have expressed their optimism and confidence about the benefits of competition for their communities.
515. In rural and remote areas, regulation has kept prices for basic residential service at levels which are significantly below cost and, to date, the provision of service in these areas has not presented an attractive opportunity for competitors. Thus, for residential customers in rural and remote areas to realize the full benefits of competition, prices in those areas must be increased towards cost, or the costs of providing service must be lowered, or a portion of costs must be recovered from subsidies. These actions are not mutually exclusive. The conditions for competitive entry can be achieved through a combination of factors.
516. Mr. Chairman, in our submission, the Commission should not feel bound to restrict prices in high-cost serving areas to the levels charged in low-cost areas. We have been encouraged by the views of many customers, governments and businesses in remote and rural areas who have expressed their willingness in this proceeding to pay somewhat higher prices than customers in urban areas in recognition of the higher cost of serving remote areas and as a trade-off for the benefits of competition and increased choice.
517. We must also keep in mind the promise of new technologies, such as wireless, which can also be expected to contribute to lowering costs and, thus, the price levels necessary to attract competitors.
518. Of course, the prices necessary to result in entry can also be kept lower through the use of explicit subsidies to service providers. However, as I mentioned earlier, and as I believe the Commission has recognized throughout its decisions, a system of explicit subsidies involves considerable economic inefficiencies and costs. The existing subsidy mechanism in Canada is one which has resulted and still results in certain customers paying higher prices than would be the case if market forces were allowed to prevail.
519. It is generally recognized that subsidy systems distort economic incentives. When governments decide that market forces cannot be relied on to meet policy objectives, they may implement spending and tax measures aimed to alter economic incentives in a way which is considered to better achieve policy objectives.
520. Similarly, if governments determine that market forces are insufficient to achieve public policy goals relating to telephone accessibility, then government should act directly, rather than imposing an industry specific tax. In this way, governments can weigh the cost from the economic distortions caused by the additional taxes against the public benefits to be gained. At the same time, they can also balance the various other unrelated social and policy objectives of government that will need to compete for funding and governments can make choices accordingly.
521. It is for these reasons that, if it is felt that rates in certain areas cannot be allowed to increase to competitive levels and a subsidy is required, the most efficient way to collect the subsidies is from general taxation rather than from industry. That is why it is our firm view that government should play a key role in supporting community and private sector efforts to meet the challenges of providing service to those living in rural and remote Canada. Just as governments have funded other initiatives through direct investment, tax credits or other means, governments should deal with any need for subsidies to facilitate the provision of affordable, quality local service for those living in rural and remote regions?
522. There is a range of options available to government in this regard. We have described those in our evidence and our written argument in this proceeding, and others I might say in this proceeding have also provided examples and expressed support for direct government measures.
523. If, on the other hand, industry subsidies are to be continued, it should be remembered that, today, the industry and its customers already contribute about $900 million in subsidies towards recovering the cost of residential local service priced below cost. In our submission, there should be no extension of, or addition to, the existing subsidy mechanism; and, certainly, if there were to be such an extension, the industry should not be looked to for funding.
524. Moreover, for the reasons I have outlined, the general thrust of the Commission is to move Canada towards less, not more, reliance on industry-funded subsidies. We agree with that direction.
525. With those principles as a backdrop, let me now turn, Mr. Chairman, to a description of the framework that we have proposed for this proceeding. Our proposal for the short term for currently served territory is based on industry funding and essentially takes the existing industry-funded contribution pool and tailors its distribution to be better focused on higher cost areas than it is today. As you know, today, the contribution is spread amongst several bands within each incumbent company's territory. These bands are broadly reflective of cost differences.
526. The amount of the existing contribution is currently allocated across these bands in proportion to the residential subsidy requirement of each band -- that is, the amount by which costs, including a mark-up, exceed revenues. However, currently, these bands are still fairly broad, and there are still considerable cost differences between areas located within the same band.
527. Under our proposal, we have redefined the band structure by carving out those areas which are the highest cost in nature. These areas make up one or more new bands. We propose to continue to distribute the contribution pool across the expanded set of bands on the current basis -- that is, proportionate to the residential subsidy requirement. This respects the Commission's direction not to change the current contribution mechanism.
528. In keeping with the principles I have described, we also propose that no new subsidies should be introduced and that the maximum amount of industry-funded subsidies available for all purposes should be the amount of toll contribution resulting from the mechanism currently in place.
529. For the longer term, it is our proposal that any explicit subsidies should be made available only in high-cost areas and that, in other areas, the price/cost relationship should be such as to make competitive entry feasible without the need for explicit subsidies. Where explicit subsidies are made available, they should be just large enough to make service provision economic while at the same time providing incentives to move prices closer to costs, to achieve productivity improvements and to generate implicit subsidies by maximizing revenues from other services.
530. In our view, in the longer term, this could be achieved by establishing the amount of explicit subsidies required in high-cost areas with reference to a threshold. This threshold amount should be the sum of the highest price for basic residential service in effect in a given region, or perhaps nationally, and an amount of implicit subsidies generated from other products and services that could be achieved through reasonable marketing efforts.
531. The amount of explicit subsidy should be no greater than the difference between the cost to provide basic residential service in high-cost areas and this threshold amount that I have described. This amount should also be reduced on a year-over-year basis based on an appropriate productivity offset.
532. With such a mechanism, there would be strong incentives to choose optimal technology, to minimize costs and to maximize revenue generation.
533. That brings me, Mr. Chairman, to the approach the companies have used to actually identify the new high-cost bands they are proposing in this proceeding. Given the significant range of costs within the companies' existing bands, the identification of high-cost areas required analysis below the existing band level and, for some companies, below the existing exchange and switching centre levels.
534. The companies followed three basic principles for determining the criteria that are best suited to identifying high-cost areas within their territories.
535. First, the identification of high-cost areas should be cost-based. Second, the analysis of costs should be performed at a level of disaggregation which can be practically applied but which is granular enough to take into account significant cost differences within a company's territory. Finally, the selection process should be such that any carrier can easily determine which of its customers are located in areas where explicit subsidies are payable.
536. In applying these principles, it became clear that the criteria selected to identify high-cost areas must reflect the unique nature and characteristics of each company, such as its serving area, operating circumstances, data systems, data availability and the like. While the cost of providing basic local service in a given area is affected by a number of factors, such as density, loop length, area size, nature of the terrain, the relative impact of these factors on costs differs from company to company. Thus, we concluded that it would not be appropriate to adopt a common set of criteria across the companies for purposes of identifying high-cost areas. The criteria that each company has selected best enable it to isolate the high-cost portions of its territory based on its own assessment of the unique nature of that territory.
537. Thus, each of the companies undertook extensive analysis to identify the key factors which affect the cost of providing service within its own unique territory. We have described in detail on the record of this proceeding and in our written final argument the high cost classification criteria selected by each company and the banding classifications that are being proposed to segregate the high-cost portion of each company's serving area. We have also described the manner in which any local competitor can readily determine in which bands its customers are located.
538. Before we illustrate briefly the criteria proposed by various companies based on their unique circumstances, I would like to address the effects of our proposed banding reclassification on the roll-out of competition. Our proposals will improve the incentives for competitive entry in higher cost areas. At the same time, they should have no material impact on competitive entry in other areas. A competitor's decision to provide service in more densely populated areas is not driven by the existence of subsidies. Rather, competitors' strategies are driven by inherent network, marketing and operating imperatives. As a result, competitors can be expected to start by building in the dense portions of urban areas, and then building out, attracting customers in less dense areas as they do so. There is no reason to believe that these strategies would be materially impacted by the presence or absence of a subsidy, especially in more densely populated areas.
539. Some parties, such as Microcell, have objected to the companies' proposed banding reclassification on the basis that CLEC's, local competitors, have developed their business plans to incorporate any portable subsidy that may be available based on the current band structure.
540. Mr. Chairman, these objections are without merit.
541. It is clear that competitors should have anticipated the possible refinement of the current band structure, including the creation of new bands. For example, in the going-in rates proceeding in 1997, some of the telephone companies identified the requirement to further disaggregate the current banding structure. The companies did not have the requisite data at the time, but clearly stated that they intended to do so in the future. Bell Canada, for example, noted that it would be making just such a proposal in the high-cost serving area proceeding.
542. In the Commission's decision in the going-in rates proceeding, the Commission also appears to have anticipated that potential readjustments of the bands would be examined in this proceeding when it concluded that, in light of this, it would not be appropriate to freeze the assignment of network access service, or NAS, to bands at that time.
543. As a result, Mr. Chairman, the Commission should not heed complaints from competitors that their business plans have been made based on the current banding structure. It has been known, or should have been known, to all parties that the existing band structure could change as a result of this proceeding.
544. In any event, the changes proposed by the companies could not be expected to have a material impact on competitors' plans. It is clear that competitors will continue to target high density areas first, for operational, marketing and economic reasons regardless of any subsidy scheme.
545. Now, Mr. Chairman, I am going to turn to Mr. Connors for a brief description of the different criteria chosen by two different companies to define their high-cost areas and will attempt to illustrate how these criteria, on the one hand, respect the principles I have discussed while, at the same time, reflecting the different circumstances of each company.

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546. MR. CONNORS: Thank you, Denis.
547. Mr. Chairman, New/Tel Communications' serving territory is the entire province of Newfoundland and Labrador which has an area of about 384,000 square kilometres and a population of only 550,000. The population density for the company's serving territory is amongst the lowest of the larger telephone companies in Canada. The island portion of the province is linked to the national communications network by two submarine fibre networks across the Cabot Strait with a total distance of 310 kilometres of submarine cable. An in-depth understanding of telecommunications infrastructure is not necessary to see that it is a substantially more difficult and costly task to build and maintain such networks than similar networks on land.
548. If you also factor in the frequently harsh environment in certain areas of our serving territory and the nature of the distribution of our population into many small communities around the coast of Newfoundland and Labrador, it is easy to see why NewTel Communications has classified 85 per cent of its exchanges as high-cost serving areas. That is, 85 per cent of the exchanges have fewer than 1,280 NAS each. The remaining 15 per cent of exchanges comprise the majority of New/Tel Communications' customers.
549. Each telephone company's serving territory is unique and, therefore, the criteria for identifying the high-cost areas in each serving territory have to suit the characteristics of each company's territory.
550. New/Tel Communications currently has two bands, one band for the St. John's exchange and one band for all other exchanges. In this proceeding, New/Tel Communications has proposed to create two new high-cost bands. The criteria that we propose to use to create these new bands are small exchange size and lack of year round road access; that is, remoteness.
551. New/Tel Communications' existing band B encompasses an extremely wide range of communities and rural areas. For example, in the existing banding structure, the city of Corner Brook is treated the same as the community of Nain. Corner Brook is one of the larger communities in the province with a population of approximately 22,000. It is located on the TransCanada highway and serves as the service centre for the western region of the Island of Newfoundland. Nain, on the other hand, is a small isolated community of approximately 500 people located on the northern coast of Labrador. The only way to reach Nain is by boat or air.
552. In the going-in rates proceeding, New/Tel Communications proposed the existing two-band structure. However, we also submitted that further disaggregation of bands would be appropriate when more detailed cost characteristics became available. This cost information is now available.
553. Due to the distribution of our customers in many small communities widely dispersed throughout our serving territory, New/Tel Communications considers small exchange size to be a key criterion in determining if an exchange is a high-cost serving area. If a serving area contains a number of small widely dispersed pockets of customers, as is the case in many ares of our territory, economies of scale for the switching and loop facilities, and the transport network between communities, cannot be achieved. This results in a high cost per customer in these areas.
554. The other criteria New/Tel Communications proposes for identifying high-cost area is the lack of year-round road access. The extraordinarily high cost to provide telephone service in remote communities without year-round road access justifies New/Tel Communications' proposal to set up a separate high-cost band for these exchanges. Operating and maintenance costs to service these exchanges are much higher than average since these exchanges can only be serviced by boat or air.
555. The estimated cost of providing service to each of the proposed bands submitted in our cost study demonstrates that the two classification criteria New/Tel Communications proposes to use suit our territory. The prosed reclassification of our exchanges from the existing two band structure to the proposed four band structure better targets the subsidy to areas which require it; namely, the high-cost serving areas.
556. Let me now contrast the approach I have described for identifying high-cost areas within New/Tel Communications with the approach adopted by Bell Canada for identifying such areas in its territory.
557. In contrast to New/Tel Communications, Bell Canada's analysis did not stop at the exchange level because, in Bell's case, there are pockets of both high-cost and low-cost areas within the same exchange. As a result, Bell used existing Statistics Canada enumeration areas, or EAs, coupled with digitized maps already in use in Bell for other purposes. By choosing a low population density threshold of 35 persons per square kilometre, Bell could then isolate the high-cost enumeration areas which it proposes to remove from its existing bands and place into a new band, band E. There are a number of reasons why this population density threshold was chosen, and they are all explained in detail in our written material.
558. In addition, Bell currently serves remote areas with no road access. Bell's analysis, similar to that of New/Tel Communications, concluded that these areas have unique and particularly high-cost characteristics. This caused Bell to propose another new band, band F, which would contain these particular areas. I will not go into further detail here but simply point out that Bell's exercise of creating bands E and F resulted in about 10 per cent of residential NAS being in the high-cost areas and the cost of providing residence service to such areas is about twice the average for Bell Canada as a whole.
559. In summary, the examples I have discussed illustrate how it is necessary that each company select the criteria to identify high-cost serving areas that best reflect the unique character of its company and its territory.
560. I would now like to hand the discussion over to Mr. Brookes to cover the issue of eligibility criteria for subsidy as well as the matters of underserved and unserved territory.
561. MR. BROOKES: Thank you, Mark.
562. The eligibility criteria for the existing portable subsidy regime have been established by the Commission in previous decisions. Eligible Network Access Services, or NAS, are residential switched two-way local voice services. Under our proposal, this definition of eligibility need not and should not be changed.
563. Some parties in this proceeding have proposed that the definition of eligible services should be expanded. In our submission, this would be a step in the wrong direction. Most of the service elements included in the definition of eligible services proposed in this proceeding, for example, by ACA et al, are already provided by the companies. The deployment of these elements has been driven by market forces. In our view, the composition of local service offered by local exchange carriers should be left to market forces. Broadening the scope of industry funded subsidies to include subsidies such as business access, toll-free access to the Internet, guaranteed data transmission speeds, or long distance, even if this could be accomplished in a competitively neutral manner, would be counter-productive.
564. Apart from our objection, as a matter of principle, to the expansion of subsidies to some of these types of services, we have concerns with some of the specific services proposed by others to receive subsidies, and we have outlined these in our written final argument. I will highlight just a couple of these concerns here.
565. It has been suggested by certain parties that toll-free access to the Internet should be subsidized from a high-cost serving fund. This is neither necessary nor appropriate. First of all, toll-free access to the Internet is already being provided by the market without the need for specific subsidies. More than 95 per cent of customers in the companies' territories already have local access to an ISP and virtually all are expected to have it by the end of the price cap period. Moreover, requiring that toll-free Internet access be included in the definition of basic service would be neither technologically nor competitively neutral. It could actually discourage ISPs from establishing a point of presence in small or remote communities. Such a proposal would also present practical difficulties to administer. For example, as ISPs change locations, the local exchange carrier would either have to change its local calling area or change its provision of 1-800 access. Subsidizing toll-free access to the Internet is simply not necessary or practical.
566. Other parties have also argued that the companies should provide a minimum guaranteed data speed. While this proposal may have superficial appeal, it fails to take into account the significant expenditures that would be required and the unintended negative consequences of such a mandate. The companies' networks have been designed for voice transmission and are not engineered to assure any specific speed of data transmission. While many customers use their basic residence line for data transmission, and most can realize data speeds of at least 9600 bits per second, re-engineering the networks to assure minimum data speed would be a very costly exercise. For example, Bell Canada estimates a cost in the order of $1 billion to guarantee a data transmission speed of 28.8 kilobits per second in its territory, and expects the cost to guarantee 9600 bits per second would be somewhat less but still substantial.
567. Moreover, mandating minimum data speeds could present a barrier to the provision of service. For example, the least cost option for extending service to an unserved community could be to extend the existing facilities. This option would be precluded if the resulting long loops did not support the minimum data transmission speed. It could also preclude the use of certain wireless and satellite technologies which do not support the minimum data speed. In our respectful view, Mr. Chairman, the incremental customer benefits which could result from guaranteeing minimum data speeds do not justify the associated expenditures which would have to be recovered from customers. These amounts go far beyond the scope of what could be afforded by an industry-funded subsidy mechanism.
568. It has also been suggested by some parties that explicit subsidies should be available for businesses in remote and rural communities. Today, of course, explicit subsidies are only available for resident services. The Government of Saskatchewan has argued in this proceeding that small businesses in high-cost areas must be protected from major price increases and that, without such protection, the economies of entire communities could suffer.
569. Mr. Chairman, there is no evidence to suggest that this will happen. On the contrary, even in Northwestel's territory, that company has estimated average monthly business line costs of somewhat lower than the $63 estimated residential cost, which includes a markup. Business rates of this magnitude in high-cost areas simply cannot be regarded as an unacceptable cost for a commercial enterprise.
570. In summary on this point, Mr. Chairman, the current rules as to the eligibility of NAS to receive subsidies are appropriate without modification. Expansion of the list of eligible services would be a step backward and not in keeping with the Commission's thrust to a competitive model.
571. Let me now deal, Mr. Chairman, with the matters of underserved and unserved territory. In the record of this proceeding, the Commission has defined underserved areas as areas within the companies' switching centre boundaries where there are still multi-party service and/or known requests for single-line service that have not been met. Most of the companies have already eliminated party-line service in their territories. Currently, about one-half of 1 per cent of households are served by party-line service. These customers will have individual line service available to them by year end 2001. BC Tel will virtually eliminate its party-line service by the end of this year and Bell Canada's Service Improvement Program will make individual line service available to all of its customers by 2001. As a result, it is not necessary for additional industry-funded explicit subsidies to be made available to subsidize upgrades from party-line to individual-line service.
572. As to unserved territory, the Commission defined this as areas within the companies' operating territory where there are customers who have outstanding requests for service. These customers reside in areas where the costs of providing service are exceptionally high. For example, where it typically costs less than $1,000 to provide service to a customer in an urban area, it can cost $10,000 or $20,000 or $30,000 or more in rural and remote areas. Currently, roughly one-tenth of 1 per cent of households in Canada have outstanding requests for service, and in some provinces the majority of these requests pertain to seasonal dwellings. To serve this small proportion of the Canadian population would require up-front expenditures in excess of $200 million. For instance, for BC Tel there will be about 3,200 outstanding requests for service at year end 1999. The costs of connecting these customers to our network would total about $45 million or, on average, $14,000 per customers.
573. Let me also put this in context for another company. If a program to provide service in the unserved areas of Newfoundland and Labrador were to be initiated, it is estimated that this would require at least $32 million in capital expenditures. This would place an unacceptable burden on the company and its customers, especially in light of the very small number of customers, the vast majority of whose requests pertain to the seasonal dwellings.
574. Making investments that are not economically viable cannot be justified in the competitive environment that we have today. Moreover, there is a serious policy question as to whether the significant investments required to serve this small segment of the population are an appropriate use of society's resources. Again, it is more appropriate for government to address this in the context of other objectives competing for society's resources. That is one of the reasons why we believe that any subsidies used to fund service extensions should come from governments, as is already being done in some cases today. We, and various other parties in this proceeding, have provided examples in our material of government programs of this nature. For instance, as part of the Federal-Provincial Infrastructure Program, six communities in BC Tel's territory obtained government funding for service extension projects.
575. If, nevertheless, it were determined that provision of service to unserved areas should be paid for in part by industry-funded explicit subsidies, then, in the interests of competitive neutrality, the source of the subsidy should be the contribution fund already in place for each incumbent carriers' territory. For the reasons described earlier, it would be a move in the wrong direction to create an additional industry-funded subsidy pool.
576. Of course, taking money from the existing pool to fund extensions of service to unserved territory would reduce the funds which are currently available to support the ongoing provision of service, and these would have to be made up by a new source of cost recovery. This could be accomplished for the incumbent carriers subject to price cap regulation through adjustments to the price cap indices; that is, through exogenous factors.
577. It is also important that any process to subsidize the provision of service to unserved areas be competitively and technologically neutral. That concept underpins our suggestions for funding any new obligations, and equally underpins our suggestions for implementing them. We have suggested a possible option whereby various service extension projects would be put out to tender and the carrier making the most attractive bid would be awarded the contract to provide service. This approach could be utilized whether the projects were government funded or industry-funded. The proposed process is described in some detail in our interrogatory responses and I will not take the time now to explain it further here.
578. For BC Tel, we propose that this new process would replace the company's existing service extension tariffs. While the current BC Tel Service Extension Program has supported the connection of a considerable number of customers to the network, we believe that a more flexible approach is required to achieve further progress in this area and, as well, that the terms of service extension need to change to recognize the realities of the competitive market that we face.
579. I will now turn it over to Mr. MacDonald to discuss the proposals of various parties that the funding arrangements for high-cost areas should be replaced or supplemented with an industry-funded inter-territorial subsidy or national fund.
580. MR. MacDONALD: Thank you, Jim.
581. Mr. Chairman, before delving into more detail on the matter of a potential industry-generated national fund, I would like to reiterate what Mr. Henry said earlier; that is, if it is felt that rates in certain areas cannot be allowed to increase to compensatory levels and a subsidy is required, the most efficient way to collect the subsidies is from general taxation rather than from industry-funded subsidies. Such an approach would be consistent with the means chosen to achieve other social objectives such as universal health care.
582. However, if the Commission feels it is necessary to mandate an industry funded contribution regime, the companies are adamantly opposed to any system involving an inter-territorial or national fund, as suggested by some parties in this proceeding. It is our submission that this would be a mistake for a number of reasons. First, such a national subsidy would be a move in the wrong direction in that it would further distort economic incentives at a time when the Commission has been moving away from subsidies and towards the customer benefits and better efficiencies of market driven prices and competition. Imposing a new obligation on the industry -- in this case, a national fund created by diverting funds from existing subsidy pools or on its own -- would slow progress in reducing distortions in the telecommunications market, and could even increase them. As we noted earlier, meeting such public policy goals is more efficiently achieved through government measures.
583. Second, Mr. Chairman, it is worthy of note that even the most carefully designed national mechanism would create perverse decision-making incentives in regard to a company's ongoing operational activities because that company will be making spending decisions financed, in large part, by other operating territories. Moreover, to the degree that the operation of a national fund depends on relative revenues, as well as costs, incentives for generating new revenues would be dampened. A national fund would also break the logical link between the contribution payments and the usage of the facilities, the support of which is the objective of those payments. A regional system would avoid these difficulties.
584. Third, Mr. Chairman, it should also be clear that any type of national fund would result in winners and losers, with customers in one territory supporting customers in another territory. It is only human nature that issues of fairness arise whenever money is redistributed from one group to another.
585. Developing and implementing a national fund would be an extremely contentious and complex task given the current disparities between regions, including: the disparity of local service pricing across territories; the productivity improvement initiatives which have been or may be pursued; levels of implicit and explicit subsidies which may be available; the variation of regional taxation levels of all forms -- for instance the Northern Residence Deduction and variations in provincial sales tax levels -- and the relative economic capacity of consumers in each territory.
586. However, these factors only represent a portion of the factors that would have to be considered if a national fund were to be implemented, and many inequities would only become apparent in the course of developing such a fund.
587. To illustrate, I would like to point to an accomplishment that makes us at MT&T and Island Tel very proud. We boast a 100 per cent digital, single-party, toll-free Internet access network, with no unserved or underserved areas. This achievement, Mr. Chairman, has been self-funded through an extended period of higher residential and business rates for our customers in comparison to the remainder of the country. Any type of national fund would essentially be asking our subscribers to bear the increased cost so that others, who have not undertaken a similar strategy, might move to a similar level of service with lesser sacrifice. This simply would not be just and equitable to any telecommunications customer who has already borne these costs.
588. A national fund is, in essence, a transfer payment system from customers in one territory to those in another. We have all witnessed the many controversial issues that surround inter-territorial transfers, with more recent issues involving the funding of health care and the supporting of our east and west coast fisheries. However, despite much controversy, in the end our government representatives have achieved agreements through give and take at all levels and due consideration to a myriad of regional factors. It is our view that inter-territorial transfers of any type specifically relating to telecommunication services should follow the same give and take process, taking due consideration of all regional issues. As such, Mr. Chairman, the Commission should not venture into the creation of a national transfer system. Inter-territorial transfers should only occur as a result of discussions and negotiations between the provinces and the federal government.
589. Finally, it the companies' view that no party has proven the necessity for a national fund. In particular, no party has shown that its costs to service high-cost areas are at such an extreme level that they could not be sufficiently dealt with through intra-territorial implicit and explicit subsidies.
590. For all these reasons, Mr. Chairman, a national fund would be a mistake. If, however, implementation of some type of national fund were nevertheless to be considered, it would be imperative to attempt to minimize the difficulties I have just discussed by limiting the availability of the fund to areas of unquestionably high cost determined from an objective source. For example, eligibility for such a subsidy could be limited to only those remote areas with no road access, or to areas on the list of prescribed zones published Revenue Canada for the purpose of determining eligibility of Northern residents' deductions used in calculating federal income tax.

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591. While a national fund of the limited nature I have just outlined would mitigate some of the difficulties with a national fund, it would not come close to eliminating them. That is why, if industry funding is chosen rather than government funding, there is only one option available that would avoid adding further contention and complexity to an already difficult concept, and would not further contribute to the already prevalent regional disparities and that is the existing regionally based system.
592. I would now turn back to Mr. Henry for some concluding remarks.
593. MR. HENRY: Thank you, Don.
594. That brings us to the conclusion of our presentation here today, Mr. Chairman. The Commission's decision in this proceeding will be another milestone in defining the regulatory and competitive telecommunications landscape in this country. It is an extremely important decision for customers, for the industry and for the country as a whole.
595. We are confident that a decision which continues to recognize and implement competitive principles and limit the distortion of economic incentives only to the extent absolutely required will achieve all of the objectives of the Telecommunications Act and will ensure that Canadians continue to enjoy the benefits of a telecommunications system that is at the leading edge in the information age.
596. Thank you for your attention. We, of course, would be happy to answer any questions you may have.
597. THE CHAIRPERSON: Just a comment. Thank you, Mr. Henry and gentlemen.
598. One comment and a couple of questions at least. On page 21 of your presentation in the second paragraph you talked about the definition -- you referred on the second line:

     "... the Commission has defined underserved areas as areas ...."

     and you continued on. I just wanted to note that the Commission defined those areas for the purposes of asking that particular interrogatory, which didn't necessarily imply that definition for the entirety of this proceeding.

599. So, as the comment I made earlier, I didn't necessarily imply in asking that question that we had necessarily made that determination in terms of the broad aspect of this proceeding.
600. Having made that though, I note that the comment you made in this particular section about not providing a subsidy to companies if they were already providing the service and linking that back to the definition of high-cost areas.
601. During the price cap proceeding I posed the question about why the Stentor companies were proposing a single productivity offset for all of the companies. I don't want to get into that issue here, but I guess and I am wondering your view in terms of taking these different approaches to defining high-cost areas within each of the companies' territories how one might account for the different productivity levels of the companies. Let's say, for example, one company was more productive than another in serving a given territory. Is it possible that the Commission through a subsidy scheme here could be subsidizing one company and serving a given area, when another company that was more productive had it been serving that area may not need the subsidy? And I take the point that was made by I think it was Mr. Bray in representing SATAT in noting the relative productivity of some of the independent companies relative to what Bell in particular mentioned there.
602. Now, without getting into the facts of his particular numbers, I am just wondering your view in terms of the relative productivity of different companies and how we might rationalize that in coming to grips with this definition of high-cost areas?
603. MR. HENRY: I am going to ask Mr. Farmer to handle that question, Mr. Chairman. That's really why we brought him.
604. MR. FARMER: When he said "I'll take that," I thought he was going to answer the question.
605. It raises an interesting question. One of the issues that Mr. MacDonald raised when we were talking about the concept of a national fund, for instance, did speak to differences along companies operating in different territories and one of those issues would be, for instance, issues of productivity. So one can imagine if there was flows of monies from one territory to another that may become an issue for some companies who feel they have achieved certain productivity levels, but others have not and perhaps their customers are subsidizing other ones for just that reason.
606. If you move the debate to an inter-territorial fund, I think to some extent but not entirely, that issue tends to go away. I also think that that question is perhaps going to be answered in the longer term as well, if one looks at our longer-term solution, which I suspect we will be talking about more in the next couple of years to come. But what we have proposed there is when subsidy amounts are calculated and looked at and when we determine what kinds of subsidies should be in the system, in fact we do propose that incentives be built in to bring productivities, that cost be brought down, and I would expect that that element of our proposal would help alleviate some of those concerns.
607. THE CHAIRPERSON: Is this reason, along with the ones that were outlined by Mr. MacDonald, another reason why you have not proposed a national fund?
608. MR. FARMER: Whether it's on that list that he just read or also part of the same thought I am not sure, but it is certainly part of that same general concept, that there are differences, unquestionably, from territory to territory, and we may well, if we are talking about how one would go about developing and implementing a national fund, I suspect that we may well get into some fairly contentious debates as to how we would handle just those issues that you are talking about.
609. THE CHAIRPERSON: Now, Mr. MacDonald, would I take it from your comments about MT&T and Island Tel that those companies, those territories, would not warrant a subsidy in any event?
610. MR. MacDONALD: For a high-cost area, very high-cost areas, we don't believe that we would have, other than the very possibility if we were to develop residences on Sable Island as an example, but beyond that I suspect we would not have any, nor would Island Tel.
611. THE CHAIRPERSON: I am not sure I would want to be the real estate agent trying to push that.
612. Just a final question that I have at least. On page 27 I think it was, you were talking about this notion of the national fund and, in fact, why in your view at least there should not be a national fund. You have said, the second-full paragraph on page 27:

     "... it is the Companies' view that no party has proven the necessity for a national fund."

613. Is it your view that the territory served by Northwestel could be sustainable with an intracompany or intraterritorial fund?
614. MR. FARMER: Again, let me start answering on that and my colleagues may wish to add.
615. We are not indicating that there is no case, just that it hasn't been made on the record of this proceeding. That's our opinion.
616. It may well be that there would be situations where there are companies who simply do not have at the means of their own control the ability to raise the funds that would be necessary to provide services there. If that case is made, then, obviously, our proposal goes the next step and says, "Well then, where should one look to find those funds?" Don't look to the industry? Don't look to other companies to do it, but rather it is really a governmental issue at that point.
617. So, we haven't said that they cannot make the case, just that the case really has to be looked into I think rather more deeply before we would draw the conclusion that a case would have been made at that stage.
618. Let me -- again, I think the point is I think it is really important that every company do what they can first within their own territory. If we, after looking at it in some depth, determine well, in fact, they have or they have plans to do so and there is still a shortfall, then I think the next issue of the debate goes but, first of all, the first stage is let's look at the situation, make a determination there and then discuss what happens afterwards.
619. THE CHAIRPERSON: I guess if Northwestel or at least a good part of it had still been part of Bell Canada territory it would have qualified for an intraterritorial fund?
620. MR. FARMER: That's an interesting observation and, as you know, there continue to be some family ties to Northwestel and Bell Canada through B.C.
621. THE CHAIRPERSON: Is there a danger in adopting this approach that territories become fragmented to the advantage of the companies who may want to avoid that sort of subsidy?
622. MR. FARMER: I guess it depends on how much subsidies there are at play, if I can put it that way. I would hate to think that we would ever have the size of subsidies in our industry and I think if we were to grow them that may in fact be the case, but the size of subsidies in our industries where we would be taking organizational decisions based strictly on the presence or absence of subsidies. I think that would be a very unfortunate way to develop the industry going forward.
623. MR. HENRY: Mr. Chairman, perhaps I should add, I think as part of making that case as well, as you heard us say we believe that people in the north should be prepared to pay somewhat higher prices in recognition of the trade-offs and higher cost in the north or in the high-cost areas.
624. Therefore, in making that case one can't assume, in our view, that rates would be the same as in the south and, therefore, the amount required is based on that. I think some judgment call -- where you draw the line I am not sure, but that is something you would have to look at and I think that is part of what case would have to be made and part of the details that would have to be looked at.
625. THE CHAIRPERSON: Well, as I recall, when we were in Iqaluit at least a couple of parties commented on that issue and mentioned that they might indeed be prepared to pay somewhat more, although it is not clear that that somewhat more would necessarily recover the cost.
626. MR. HENRY: Indeed, and I think that is something that has to be looked at and explored, but we can't just do the calculations based on rates that are the same as the south in our view.
627. THE CHAIRPERSON: Thank you.
628. Those are all my questions.
629. Thank you very much, gentlemen. We appreciate your participation today and I believe those are all the parties to appear today, madam.
630. MS GROULX: That is correct, Mr. Chairman.
631. THE CHAIRPERSON: We will reconvene tomorrow at nine o'clock, at which time judging on the progress we made today I would expect we should be able to easily complete our work tomorrow.
632. We will see you tomorrow morning at nine o'clock.

--- Whereupon the hearing adjourned at 1520, to resume

on Tuesday, January 26, 1999, at 0900 / L'audience

est ajournée à 1520, pour reprendre le mardi

26 janvier 1999, à 0900

Date modified:

1999-01-25