ARCHIVED -  Transcript - Hull, QC - 1999/01/26

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 26, 1999 Le 26 janvier 1999

Volume 2

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

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 26, 1999 Le 26 janvier 1999

Volume 2

TABLE OF CONTENTS / TABLE DES MATIÈRES

PAGE

Presentation by / Présentation par:

Government of British Columbia 181

AT&T Canada Long Distance Service 195

Government of Saskatchewan 209

O.N. Tel 223

Télébec Ltée 234

Ontario Telephone Association 253

Tatlayoko Think Tank 269

Chisasibi Telecommunications Association 288

and Cree Nation of Chisasibi

Northern Telephone Limited 318

Utilities Consumers Group 328

Telus Corporation 338

ACA et al 354

ERRATUM

Volume 1 - January 25, 1999

Page 173, line 25 "inter-territorial fund,"

should read

"intra-territorial fund,"

Hull, Quebec / Hull (Québec)

--- Upon resuming on Tuesday, January 26, 1999

at 0900 / L'audience reprend le mardi

26 janvier 1999, à 0900

1. THE CHAIRPERSON: Order, please, ladies and gentlemen. Thank you. We will return to our proceeding now.
2. We have one party from yesterday who had requested to appear today, the Government of British Columbia. And other than that, we will proceed through the agenda as was laid out at the end of last week. Judging by the progress we made yesterday, I would expect we will probably finish sort of early to mid-afternoon today.
3. I just want to say that the fact that most of my colleagues on the panel here are dressed in black today, should not be taken as any sort of editorial comment on the issues before us.
4. Madam secretary, will you call the first party, please.
5. MS GROULX: Thank you, Mr. Chairman.
6. First party, Government of British Columbia.
7. THE CHAIRPERSON: Good morning, Ms Slaco.

   PRESENTATION / PRÉSENTATION

8. MS SLACO: Good morning. Thank you. On behalf of the Government of British Columbia, I appreciate the opportunity to address the members of the Commission on the matter of telecommunications services in high-cost areas.
9. At this point in the proceeding, no doubt you are well aware that maintaining, upgrading and extending telephone service is fundamental to rural residents and their ability to participate and contribute to economic and social activity.
10. For members of the Commission present at the regional hearing in Prince George last May, you may remember the impressive number of British Columbians that took the time and expense to apprise you of their views.
11. The Government of British Columbia has long been concerned that there would be adequate and affordable telecommunications in all B.C. and it is an issue that we have championed before the Commission and in our dealings with the regional telephone company for many years.
12. The province has worked with BC Tel, community groups and stakeholders to accelerate the rural upgrade program and extend services to unserved communities.
13. In addition, B.C., I believe, is the only province to have managed to secure a small component of the federal-provincial infrastructure works fund for aiding extension of telecommunications services to unserved communities.
14. We have also facilitated an arrangement between BC Tel and BC Hydro for special provisions where there is use of joint poles in remote areas. This arrangement in certain areas significantly reduces the cost to telephone subscribers in getting service.
15. And we have launched the provincial learning network, a telecommunications network that will link students and educators across the province and extend the infrastructure to approximately 2,000 sites.
16. So progress is being made in improving and extending services and facilities across the province that will enable all British Columbians to engage in the opportunities offered by the sophisticated and advanced telecommunications systems many of us take for granted. But this is not enough.
17. Today woe are here to provide you with our concluding comments on this proceeding. In reaching these conclusions, the province is guided by the following assumptions: That subscribers in rural areas should have comparable services with urban areas at reasonably comparable prices and within a reasonable time-frame and that funding should be specifically focused to meet specific needs.
18. Our comments are structured in two parts. What should be subsidized and how the subsidy should be sourced and administered.
19. First I should like to address the issue of what should be subsidized. While there has been considerable debate over the definition of the appropriate level and type of service that should be subsidized, the province endorses the general elements contained in the definition of "basic service", as proposed by ACA et al., but with certain reservations. The reservations relate to potential EAS implications, 911 service provision and Internet access transmission speeds, each of which are discussed in the text of our written submission.
20. Subject to these limited qualifications, the province supports the proposed definition to service the objective to be met for any funding mechanism that results from this proceeding.
21. This definition, then, would be the benchmark for determining what needs to be done to improve the quality and extend availability of services in high-cost areas.
22. The first priority in meeting the needs of service in high-cost areas must be the establishment of a means of extending service to communities presently without access to telecommunications services.
23. There are approximately 50 communities in B.C. without telephone service. And while BC Tel has the most generous service extension allowance in the country, many communities still find the required customer contribution charge for construction to be beyond their means.
24. Experience in B.C. has shown that where the customer contribution charge for construction exceeds $1,000 per household, the community rarely gets serviced.
25. TCI's propose that capital subsidy mechanism to fund service extension to unserved areas. Access to the fund would be available to all competitive service providers and a bidding process could be established where a service provider other than the incumbent is willing to provide service. The low cost bid would receive the subsidy.
26. The province finds merit in this model as a means for creating necessary incentives for investment in high-cost serving areas. However, we are not convinced that the capital subsidy mechanism alone is sufficient to address further needs that affect under-served areas in B.C.
27. With respect to establishing a mechanism for funding service extensions, a cost-sharing formula could be constructed that takes into consideration a reasonable contribution from the company, the subscriber and the subsidy fund.
28. The establishment of a capital subsidy fund to augment the cost recovered from the customer and the telecommunications provider in meeting initial costs of construction associated with service extension would provide a remedy for the issue of unserved communities.
29. The issue of getting service to unserved communities should be treated with a sense of urgency and the funding mechanism should set a schedule or expectation for undertaking extensions to a certain number of communities on an annual basis.
30. The second issue that needs to be considered in addressing the needs of high-cost areas relates to the inadequacies of services as presently provided in rural areas; that is, the improvements that are needed for those termed the "under-served".
31. We are pleased to see that BC Tel intends to have the conversion to individual line service and the digital switch replacement programs completed by the end of 1999.
32. No new funds are needed to address these programs. There may, however, be pockets of subscribers with specific problem needs that constitute a situation that would be appropriate for subsidized funding. This could be in situations such as that described by BC Tel where older, smaller digital switches are not capable of providing the level of service embodied by the proposed definition of basic service, or where unusual factors have inhibited the adequate provision of single-line service in a specific area.
33. A number of parties have advocated that toll-free access to the Internet should be included in the definition of basic telephone service and/or made an explicit element for subsidization. According to the information filed by the Stentor member companies, most of their subscribers have access to the Internet without paying toll charges.
34. BC Tel has indicated that 99.7 per cent of the company's residential subscribers have toll-free access to the Internet. No estimates are provided on the costs of extending toll-free Internet access to remaining subscribers.
35. As this is a limited problem in British Columbia, it may not be necessary to consider the matter as one for subsidization, but it might be useful to examine what would be required and at what cost to ensure that all subscribers in B.C. have the ability to access at least one Internet service provider without incurring long distance charges.
36. The other matter that relates to the provision of Internet service is the expectation of a guarantee of transmission speeds in the order of 28.8 kilobits.
37. While the province understands the frustration of many customers, rural and suburban, who are only able to achieve a 9.6 kilobit rate at best on their telephone line, it would appear that the network investment capital required to enable a guaranteed rate of 28.8 is prohibitive. Bell estimates an amount in excess of $1 billion in their serving territory alone to make the network capable.
38. It may not be prudent to adopt a minimum speed within the definition of basic service and thus make it a requirement eligible for subsidization.
39. In certain circumstances, technologies offered by service providers other than that provided by the telephone companies may be better to provide a more economical and enhanced data service.
40. With respect to the definition of a high-cost serving area, the province accepts BC Tel's proposed definition, that is a switching centre with a cost providing primary residential exchange service is 30 per cent higher than the cost of residential primary service and that those lines served by those switching centres comprise band E.
41. Similarly, we accept that for BC Tel, where desegregated data on residential loop links is already available, this may be reasonable to use for purposes of identifying high-cost areas.
42. BC Tel has argued that the cost of developing information on an EA basis, as proposed by the other companies may not be justifiable. A decision to use a consistent EA basis would need to ensure that the benefits outweigh the costs.
43. As for the mechanism that should be used to subsidize high-cost serving areas, a number of parties to this proceeding have proposed the establishment of a new national universal service fund. The Government of Saskatchewan has proposed the model, but many others use the term.

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44. The Saskatchewan model suggests that national benchmarks be developed to determine the basis for calculating the required subsidy. The amount of the subsidy entitlement would be the difference between the regional sensitive benchmarks and the national average cost of providing service to non-high-cost areas. The model, in effect, is like a form of equalization payments or transfer payments between regions.
45. The province of B.C. recognizes the diverse circumstances associated with providing telecommunication services in different regions of the country. In the North and other areas of low population density, it may be difficult for service providers to generate sufficient subsidy within their operating territories to offset the cost of providing service to very high-cost areas.
46. While we are aware of the legitimate concerns which have given rise to the view in support of the national fund, the province has several concerns about the implications of implementing such a fund.
47. The concept of a national universal service fund has a persuasive simplicity, but the differences and discrepancies amongst companies and customers that will contribute to and benefit from such a fund raise complex issues of equity. The Commission should be cautious about establishing any national mechanism that involves significant redistribution between regions.
48. The source of the subsidy: The Commission has already established the portable subsidy mechanism and it would be appropriate that this mechanism, in the short term, continue to be used to address the previously defined subsidy requirements for both low-cost and high-cost serving areas.
49. BC Tel has indicated in an interrogatory response in this proceeding that for 1998 the subsidization requirement in total for all bands exceeds the estimated contribution revenue for 1998 by $43 million. If the subsidy requirements continue to exceed the revenues generated from contribution, additional initiatives to meet service needs in high-cost areas would need additional funds.
50. The province, however, notes the Commission's intentions as expressed in the letter of December 21, 1998 to initiate early this year two proceedings, one to determine what changes, if any, should be made to the current contribution selection mechanism, and the other to review the frozen contribution policy.
51. If there is a surplus being generated under the existing contribution regime, it would be possible to redirect excess revenues to specific additional needs in high-cost areas. A regional funding process could be set up under the central funded administrator to direct subsidy funding to specific additional initiatives in high-cost areas on an intra-regional basis. This, we believe, would be an efficient means of administering new initiatives.
52. A number of parties proposed some form of general tax on telecommunication service provider revenues. A general tax could spread the source of funding across the broadest range of services, service providers, and subscribers, and thus would cause the least amount of distortion in telecommunications markets.
53. The province recognizes the benefits of such a proposal if there is to be an evolution to a revenue-based contribution mechanism. First, we need a clear picture of the status of the current contribution mechanism. We therefore await the forthcoming proceedings to examine the current state of contribution before advocating a new tax regime. Should those proceedings provide a convincing case for moving to a revenue-based contribution collection scheme, it would be sensible that such a mechanism serve both the portable subsidy needs associated with local competition where it may be still justified, and any further funding needs for high-cost areas.
54. To summarize our submission, the province recognizes the legitimate expectation of citizens in rural and remote areas of the country to be able to communicate with each other and the rest of the world in a comparable manner at reasonably comparable prices to their urban counterparts. As a result of this proceeding, the province favours adopting a standard of service that would serve as the benchmark for identifying needs between what exists and what should be provided. The first priority in meeting those needs should be the development of a means to enable service extensions to communities currently without telephone service.
55. The needs of the underserved relative to the proposed basic service standard should also be addressed where such needs are specifically identified beyond existing programs. As these needs vary considerably from region to region across the country, there may be significant benefits to addressing issues on a regional basis in order to target specific funding assistance to best meet regional priorities.
56. The funding mechanism designed and administered to meet regional needs could operate in conjunction with or as a subsidiary of the central fund administrator, and until the Commission completes its review of the contribution regime, the level of additional funds is not known.
57. In conclusion, the provinces work to ensure that the goal of universal, affordable service is realized as a matter of economic and social policy. The statutory objective to render reliable and affordable telecommunication services of high quality accessible to all Canadians can be met equitably with a concerted and cooperative effort from all parties.
58. We hope that this proceeding will serve our mutual goals. Thank you.
59. THE CHAIRPERSON: Thank you, Ms Slaco. I believe Commissioner Cardozo has a question.
60. COMMISSIONER CARDOZO: Thank you, Mr. Chairman.
61. Thanks Ms Slaco. I just had one question of clarification. I do not know if you have that here. With regards to the definition of basic service, you noted that you are in agreement with the definition provided by ACA et al except for their positions on EAS, 911 and Internet access, and I am wondering what your positions were on those three aspects of the definition.
62. MS SLACO: Well, I think in part it was -- on the EAS implications we were not exactly sure how the definition that was being requested in terms of having connection to specific institutions and entities would interfere with the existing guidelines for when and how EAS is adopted between communities of interest. And if it caused a significant alteration of that, we see that as a complicating factor that may not be easily resolved just by what has been proposed.
63. With respect to the 911, although we support the capability of being able to access 911, the provision of 911 on a province-wide basis also requires the support of the communities in terms of having the facilities available to set up the systems and the responses and the rest of it. So it is not essentially a telephone responsibility. The telecommunication service is needed to provide the transport between calls, but in fact you must have all of the other elements in place to allow it to occur.
64. COMMISSIONER CARDOZO: Thank you. And with regard to Internet access?
65. MS SLACO: I believe I addressed the Internet access issues actually.
66. COMMISSIONER CARDOZO: Is that because you feel BC Tel is providing Internet access already to 97 per cent --
67. MS SLACO: To the 99.7 per cent that have it already. But our main question on Internet access is the difficulties around trying to guarantee a specific transmission speed.
68. COMMISSIONER CARDOZO: Okay. Thanks.
69. THE CHAIRPERSON: Thank you, Ms Slaco.
70. Madam Secretary.
71. MS GROULX: Thank you, Mr. Chairman. Our next presenter will be AT&T Canada Long Distance Services.
72. THE CHAIRPERSON: Good morning, Mr. Wallace.

    PRESENTATION / PRÉSENTATION

73. MR. WALLACE: Good morning, Mr. Chairman, Madam Chairperson, members of the Commission panel. On behalf of AT&T Canada we welcome the opportunity to address the Commission on these important issues being considered in this high-cost serving area proceeding.

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74. As you know, Mr. Chairman, there were numerous issues raised in the Commission's public notice, and you will be pleased to note that AT&T Canada will be addressing one issue, the primary issue of whether high-cost serving areas should be subsidized and, if so, the appropriate funding mechanism.
75. In our view, Mr. Chairman, the record of this proceeding demonstrates that the issue of service to high-cost serving areas is not as significant as the Commission or other parties may have expected.
76. In this proceeding, many of the telephone companies have reported no underserved or unserved areas that will not soon be addressed. In addition, the majority of the unserved areas that have been identified by the telephone companies are requests for service from seasonal dwellings.
77. Thus, based on the record of this proceeding, the issue of unserved or underserved areas is manageable. It is therefore apparent in our submission that a new subsidy mechanism is not required to achieve the Commission's goal of accessibility and affordability of telephone service in Canada.
78. In fact, the record of this proceeding demonstrates that the existing contribution subsidy regime generates too much subsidy to fund high-cost serving areas. For example, BC Tel has indicated in this proceeding that of the toll contribution payments it receives, only 44 per cent of such amount is required to fund high-cost serving areas in its territory.
79. So, the Commission's high-cost serving area proceeding is important in that it points us not in the direction of a new subsidy mechanism, but the proceeding gives guidance to the Commission as to how the whole contribution regime should be overhauled in a manner that is forward looking, service and technology neutral and sustainable such that it will enable the Commission to ensure affordable telephone service in all areas of Canada, including high-cost areas.
80. In these comments, Mr. Chairman, I will address four key points.
81. One, an additional subsidy mechanism is not required.
82. Two, this proceeding gives guidance as to how the current contribution regime should be revised.
83. Three, when setting a new subsidy regime, first establish how much do you need. How much is truly required to ensure affordable telephone service in high-cost serving areas?
84. The fourth key point: Once the amount is set, establish a forward looking contribution recovery mechanism.
85. Mr. Chairman, I will address each of these four points in turn.
86. First, an additional subsidy mechanism is not required. As I mentioned in my introductory comments, an additional subsidy mechanism is not required. If there is an additional subsidy mechanism, it would be unduly complex, as if the current regime is not already complex enough.
87. A dual subsidy system that relied on different sources of funding would introduce unwanted complexities and dichotomies in an already overly complex regime.
88. One funding mechanism, the current contribution levy on long-distance minutes, would fund residential services that did not meet the definition of high-cost serving areas.
89. You have a second mechanism, based on either a surcharge on revenues or on working telephone numbers, to fund residential services that met the definition of high-cost serving areas.
90. In our view, Mr. Chairman, there is no sound public policy reason for distinguishing between the segments of the telecommunications industry and the associated service providers as to who funds which subsidy pot. If a broadly based mechanism such as a revenue tax is appropriate to support residential service in high-cost areas, then it is equally appropriate for raising any other subsidy that may be needed to ensure affordable residential service.
91. A dual system would be inequitable and unsustainable. It could result in double taxation of the long-distance segment of the industry and it would be far more complex and costly to administer.
92. The second point -- guidance for the overhaul of the current contribution regime: Several parties in this proceeding, Mr. Chairman, have suggested that whatever is required for high-cost serving areas, including new subsidy obligations, can be recovered from the existing regime based on long-distance minutes. Mr. Chairman, this does not work. In our view, the existing regime is already coming apart at the seams.
93. The current subsidy regime is not focused on high-cost serving areas or affordable telephone service. In fact, it is not focused on anything. It is based on the telephone companies' shortfall in their utility segments using 1997 financial results. So, it is affected by what the telephone companies charge for business local rates, how much they recover from various optional services, things that have nothing to do with affordable residential telephone service. As a result, we see a portable subsidy amount of $6 available to competitors in the rural areas of one telephone company and a portable subsidy in the amount of $40 for that same rural area in the area of another telephone company. These are differences that relate to factors entirely unrelated to the cost of providing residential service in those areas.
94. In addition, the current contribution regime has been overtaken by the rapid pace of change in telecommunications markets. Telecommunications networks are no longer easily separable into intraexchange and interexchange segments, nor are distinct networks necessarily employed for data and voice communications. The use of packet-switched technology and the growth of traffic over IP networks is creating a new converged network environment that is challenging existing technology and service preconceptions.
95. Viewed in the context of these technological and service developments, it is clear that the current contribution mechanism is at risk of becoming a regulatory anachronism. Unsuitable for a converged network environment where packets, not minutes, are the main output, the current per-minute mechanism is no longer efficient or sustainable. These technological changes make it increasingly difficult to characterize that portion of traffic within the telecommunications network that represents long-distance minutes.
96. The current contribution collection mechanism is also struggling to operate under an environment of total competition. In this new environment, focusing the contribution collection obligation exclusively on interexchange services is incompatible with basic equity and neutrality principles. As well, the per-minute charge mechanism is out of step with the new pricing trends in the marketplace and will impede continued service innovation and price competition. The current collection mechanism should be replaced with one that is consistent with current economic and market realities and that is sufficiently flexible to respond to ongoing change in the telecommunications industry.
97. Furthermore, Mr. Chairman, the current regime generates too much money. The contribution collection mechanism has been generating excessive and unwarranted gains in revenues due to flat rate long-distance plans. The introduction of flat rate calling has caused unprecedented growth in long-distance minutes. The combination of flat rate pricing, massive growth in minutes and frozen contribution rates is very harmful to long-distance competitors. It increases the amounts of money paid into the contribution subsidy pool over and above what is required to ensure the affordability of service in high-cost areas.
98. The third point, Mr. Chairman, starting with how much money is required to fund affordable service, in considering how much subsidy is required, we must start with what we are trying to accomplish. The objective is to ensure affordable telephone service in all areas. So, how much do you need to ensure affordable telephone service? I suggest you start with the difference between the cost of providing service in high-cost areas and a rate that is considered affordable in such areas. Let me examine that in a little more detail.

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99. The subsidy should be directed to those areas where the costs to provide service are significantly higher than average. So we are focusing on the high-cost areas and we submit that they should be defined as serving areas where the costs are at least 25 to 30 per cent higher than average; and, Mr. Chairman, this is consistent with the position of many of the Stentor companies in this proceeding.
100. The subsidy should be based on an affordability criterion. Based on the Commission's policies, all residence rates currently approved are at affordable levels. In our submission, there is no public policy rationale for allocating a higher level of subsidy to support rates below an affordable level. Retail rates for residential service in this country are in the range of $25 to $30 in many regions of the country; so let's accept, say, $27 as a benchmark for an affordable rate and not provide a subsidy to support rates below that affordable level.
101. As well, only residential local service, and not business rates or Internet access, should be subsidized, since the purpose of having a subsidy is to maintain affordable residential access to the network.
102. The resulting total amount of subsidy required under this approach would be less than the amount calculated for the current residential subsidy requirement and less than the current subsidy burden imposed on the telecommunications industry via long distance services.
103. The following comparisons are based on information filed in this proceeding for the group of telephone companies where local competition has been introduced.
104. At existing residential rates and telephone companies' estimates of costs, the total residential subsidy requirement is estimated at $933 million. Using an affordability criterion of $27.40, the rate for Aldergrove in the BC Tel area, the total falls to $587 million. When consideration is given to only those areas that the telephone companies consider high-cost serving areas, the subsidy required is $512 million. This amount is less than the $740 million currently generated from long distance services.
105. AT&T Canada submits that the appropriate magnitude of the subsidy necessary to support affordability does not require the excessive and still growing level of revenues being generated under the current contribution mechanism.
106. To recap, Mr. Chairman, on the amount of subsidy required, the amount should be based on the following factors:
107. - residential local service only;
108. - only where the cost of providing service is significantly higher than the average cost -- in the range of 25 to 30 per cent higher; and
109. - only for the cost in excess of an affordable retail rate for basic local service, i.e., higher than $27 per month.
110. The fourth and last main point, Mr. Chairman, is: a new contribution recovery mechanism, one that is forward looking, technology and service neutral.
111. As you know, AT&T Canada supports a broadly-based collection mechanism -- one that recovers a percentage of the revenues from telecommunications services. The percentage of revenue mechanism was proposed in a joint application filed by certain competitive carriers in September 1998. As indicated in that application, a per cent of revenue mechanism would provide a sustainable and stable source of funding for achieving the Commission's affordability objective.
112. A revenue-based collection mechanism would also minimize market distortions and stimulate service and technological innovation. Where a service provider's liability to pay contribution is determined solely on the basis of revenues, it is able to take full advantage of any technological or service-based innovation available to it to minimize its costs.
113. The per cent of revenue mechanism removes the need to make increasingly artificial distinctions between services, for example based on whether they are interexchange, intra-exchange, or whether they use PSTN access.
114. Expanding the base of contribution-paying services also carries with it a significant additional economic benefit by lowering the average amount of subsidy burden imposed on the economic activity of any particular service or service provider.
115. I note that several parties in this proceeding have advocated a collection mechanism based on the revenues of all telecommunications services.
116. In terms of timing, in our view, it would be better to delay bringing in a new system for high-cost serving areas if this will avoid the creation of a cumbersome and costly dual system. Given the problems that a dual system would cause, it would appear to be preferable to move as quickly as possible toward implementing a single collection mechanism based on a per cent of revenue.
117. The Commission has stated that it will initiate a proceeding to review the current contribution regime early this year. We anticipate that the proceeding will permit us to further elaborate on the advantages of implementing a per cent of revenue mechanism. The current proceeding on high-cost serving areas, therefore, can address the magnitude of the total subsidy required to support affordability objectives while permitting the other proceeding to resolve how best to recover this amount. AT&T Canada believes that the review of the contribution regime should be conducted as soon as possible so as to not unduly delay implementing the appropriate mechanism for high-cost serving areas.
118. In conclusion, Mr. Chairman, our four recommendations as to what the Commission should do in this proceeding are as follows:
119. 1. do not implement an additional subsidy mechanism for high-cost serving areas;
120. 2. overhaul the current contribution regime at the same time as you bring in a new system for high-cost serving areas;
121. 3. for the first time, establish specifically how much you need, the amount of subsidy required to ensure affordable residential service; and
122. 4. lastly, establish a forward looking, technology and service neutral contribution recovery mechanism which, in our view, should be a revenue-based collection mechanism.
123. Mr. Chairman, those are our comments today, and I would like to thank the Commissioners for the opportunity to address these issues today in oral comments and, as always, to thank Commission staff for their hard work and co-operation throughout.
124. Thank you, Mr. Chairman.
125. THE CHAIRPERSON: Thank you, Mr. Wallace. I guess you were well on your way to commenting on the next two proceedings.
126. MR. WALLACE: I just thought maybe we could save some time, Mr. Chairman.
127. THE CHAIRPERSON: Thanks again.
128. Madam Secretary.
129. MS GROULX: Thank you, Mr. Chairman.
130. Our next presenter will be Government of Saskatchewan.
131. THE CHAIRPERSON: Good morning, gentlemen.

     PRESENTATION / PRÉSENTATION

132. MR. HERSCHE: Good morning. I am Bob Hersche, Senior Advisor on Telecommunications with the Province of Saskatchewan. With me today from our Crown corporation, SaskTel, I have with me John Meldrum and Mike Cawood.
133. Before we begin, I would like to thank the Commission for giving the Government of Saskatchewan this opportunity to present our positions and concerns regarding the continuation of quality, affordable telecommunications service to rural and remote Canadians.
134. Saskatchewan believes that this proceeding will play a major role in determining how federal regulators can begin to meet three of the goals set out in section 7 of the Telecommunications Act. More specifically those objectives are:

     "7(a) strengthening the social and economic fabric of Canada and its regions; 7(b) ensuring access to affordable telecommunication to Canadians in both urban and rural areas in all regions of Canada; and... 7(h) responding to the economic and social requirements of users of telecommunications services."

135. A number of current trends that are continuing to make it difficult to achieve these objectives for rural and remote residents are:
136. - the pressures being brought to bear on the system of cross-subsidization for high-cost service areas by technology, competition and certain aspects of the current national regulatory regime;
137. - the increasing demands by some to have either individuals themselves or provincial/territorial governments to assume the financial responsibility for rebalancing rates in rural and remote areas to more accurately reflect costs;
138. - the continuing existence of, and the growing disparities of, economic opportunity caused by regional contribution rates in what has become a truly national marketplace, and the inability of the existing regional contribution mechanism to provide sustainable subsidies;
139. - national regulatory decisions which tend to exclude small businesses, libraries and schools from the subsidy system; and
140. - the increasing demands being placed on the rural and remote telecommunications infrastructure to provide what are deemed by the public to be necessary services, such as access to the Internet.
141. These are the very concerns that recently induced Saskatchewan to negotiate an extension of the moratorium from federal regulation to July of year 2000. Saskatchewan took the position that such an extension was necessary to permit the CRTC to devise and implement a national universal service mechanism that would satisfactorily address these concerns.

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142. Saskatchewan continues to believe that the drive to develop a national competitive market place, policy under the current regulatory rules, is damaging the ability of the existing fragile subsidy system to support even current service levels available in rural and remote areas.
143. Our concerns in this area were recognized in part by the Honourable John Manley, Minister of Industry Canada when, as part of the recent negotiations to bring SaskTel under industry regulation he wrote to Saskatchewan minister of communications, and I quote:

     "Balancing rural interests with the many other factors is often difficult. I believe that the CRTC can adequately balance all of the competing interests in this area, including rural interests, since we have given them the legislative tools to achieve this. While competition remains a cornerstone of our policy, the Telecommunications Act sets out a number of other objectives, including a requirement to render reliable and affordable telecommunications services of high quality, accessible to Canadians in both urban and rural areas."

144. We interpret the statement by the Government of Canada that despite increasing reliance on national and international market forces, the federal government remains committed to the concept that universal, affordable access to quality telecommunications is a public good.
145. Our interpretation was further supported as recently as June 12, 1998, when the federal-provincial-territorial ministers of the information highway stated in their communiqué that, and again I quote:

     "Access to the information highway in rural and remote areas at affordable prices and service levels reasonably comparable to those in rural areas is a fundamental goal of economic and social policy."

146. Because in our view we consider it to be essential to the achievement of this goal, Saskatchewan was pleased to see the recent amendments to the Telecommunications Act, especially 46 (5) allowing for the creation of a national universal fund.
147. Saskatchewan recognizes that this provision is presently used by the CRTC solely as an administrative mechanism to allow for the transfer of funds within particular regions. However, in making their amendment in 1998, federal legislators wish to give the CRTC the tools to ensure that the interests of rural and remote residents would be adequately met. As Industry Canada stated in reference to section 46(5):

     "With this kind of provision, the Commission has the power to establish a mechanism to ensure that access in this country remains a priority."

148. Those of you who recently heard the views of Saskatchewan residents on the high-cost service area question in the hearings in Prince Albert will know how concerned our residents are that the CRTC now moves quickly to develop and implement a new mechanism to ensure that universal and affordable access is secure for all Canadians, regardless of where they live.
149. That is why the Government of Saskatchewan has emphasized throughout this proceeding the urgent need to develop national policies that can adequately deliver both continued access to affordable service by rural and remote residents as well as the extension of services to unserved and under-served Canadians.
150. Our sense of urgency is driven by the fact that under the current rules, Canadians living in rural or remote areas are now being deprived and no doubt will continue to be deprived of the new economic opportunities and social and community development benefits that universal and affordable access to the information highway can and should provide.
151. We argue that the combination of fierce commercial competition and current subsidy mechanisms encourages companies to focus their energy, creativity and resources on services to urban businesses. The result is the development of national high-speed transmission backbones with few onramps for rural and remote residents. Companies such as PSInet, Natco and Metronet, have recently made announcements that attest to this fact.
152. Companies have already begun to re-direct their attention away from the maintenance and extension of basic services to Canadian homes. This is driven by the growing realization that revenue growth from basic services will continue to slow.
153. To quote from a recent Dominion bond rating service publication:

     "Future growth potential for companies will come primarily from enhanced services and data networks."

154. Those companies with major responsibilities to deliver rural or remote services are truly disadvantaged under the current regulatory regime. Carriers in high density regions have substantial cost advantages when compared to carriers that have very large rural districts to serve. Those companies that are not national in scope and that cannot use national averaging must work with regional contribution rates that can be some four times higher than in other areas of Canada.
155. The result is that companies serving large, high-cost areas begin, through the effective competition, to lose revenues from more urban centres and are left with fewer resources to serve more remote communities. In fact, AT&T Canada has recently described rural and remote areas of Saskatchewan as "barren ground for any profit-driven competitor".
156. The dream of using telecommunications to overcome the disadvantages of isolation to provide equal opportunities to our small communities is being lost. Those who are most disadvantaged by distance, who are already at risk of economic and social isolation will also face responsibility for ever higher contribution requirements as implicit subsidies are lost to regional carriers.
157. It is our belief that a minimalist approach to the increasing pressures being placed on rural and remote Canadians would be inappropriate at this time. As an example providing funding solely for the extension of infrastructure to meet the needs of residents in under-served and unserved areas addresses only a part of the problem. Ongoing operations, recovery of some costs, maintenance and the potential upgrading and inevitable replacement of the infrastructure are serious considerations that the CRTC must address in this process.
158. The availability of an infrastructure without the ability to ensure continued affordability and sustainability would simply not meet the long-term needs of under-served residents in our province or elsewhere in Canada.
159. Saskatchewan contends that under current market and regulatory conditions, the telecommunications infrastructure available to rural and remote Canadians will begin to deteriorate. It is already failing to keep pace with new technological developments. And we would contend that that infrastructure is becoming increasingly unaffordable both to provide and to access.
160. As a prelude to taking action, we should not have to debate questions such as how many people need to fall off the network before we recognize this is an urgent problem, or how many small businesses need to fail due to lack of affordable access to telecommunications, or how many generations of children do we disadvantage because they do not have affordable access to the Internet.
161. Saskatchewan submits that the goal to which we must constantly strive is that of ensuring that all rural and remote residents have affordable access to a basic set of high quality telecommunications service.
162. The bulk of evidence provided in this hearing has reenforced the need for changes to the national regulatory structure to ensure that this goal is attained.
163. The majority of parties participating in this proceeding have proposed the development of a national fund to support the requirements of both served and unserved rural and remote areas.
164. There are many compelling reasons why the Commission should now consider a national universal service fund. The service characteristics of rural and remote areas dictate the need for universal service support. Population density remains a key driver in the delivery of telecommunications, a driver which technological advances have yet to overcome.
165. In some areas, such as those served by QuebecTel or SaskTel, the cost challenges are created both by the need to provide service between dispersed communities and by the need to provide local loops to serve the dispersed customer base in local calling areas.
166. The financial evidence given to the Commission as part of this proceeding has demonstrated that in the absence of a national service mechanism, regions with low density populations will be unable to adhere to the principle of ensuring that rural and urban access and rates remain comparable.
167. Furthermore, given that telecommunications is now a national and an international marketplace, a series of regional contribution funds can no longer be expected to meet the needs of all Canadians for affordable and high quality telecommunications service.
168. New regulations and universal service mechanisms must be developed by the CRTC to balance the impact of national competition with the principle of universal service. There is an urgent need to develop a national approach that is not affected by changes in corporate ownership structures, operating territories, or national marketing plans.
169. Along with other parties, we have argued that the current regional contribution regime based on long distance minutes as a source of subsidies is not sustainable in the long term due to technological and market changes.
170. In essence, we are proposing that the current regulatory structure now be modified to, first, implement national funding to high-cost areas; second, recognize subsidy requirements for high-cost toll and Internet access; third, include small business services and critical institutions such as schools and libraries and high-cost service areas as being eligible for subsidy support; and, lastly, as a transitional measure, implement national contribution rates until such time as the contribution regime can be fully reformed by introducing a levy on telecommunications service providers on the basis of an equal proportion of gross revenues.
171. What is fundamentally important is that the Commission develops and implements a system that can provide support relating directly to the cost of providing service rather than depending on the size and structure of the carrier serving the territory.
172. Canada's current system of providing each high-cost service region to be responsible for its own universal service support is, in our view, the antithesis of any sustainable national universal service policy.
173. We would also submit that the current system would inevitably lead to an increase in both individual and regional disparities in Canada.
174. Saskatchewan believes that the kind of national universal service fund that has been proposed by many participants in this hearing is an effective way of transcending provincial and territorial boundaries, of balancing social and commercial interests and of fairly distributing the responsibilities of ensuring that all Canadians are connected.
175. In conclusion, I would like to reiterate the following points: First, there is a growing urgency and need for the CRTC to deal with the negative impact that the drive to achieve a national and competitive telecommunications market is having on rural or remote areas.
176. Second, there are strong public policy grounds which include those policy objectives of the Telecommunications Act that I cited in the beginning of this presentation supporting the need for action in this area.
177. Third, the evidence from this hearing suggests that there is a wide base of consumer and industry support for the development of a comprehensive universal service mechanism.
178. And, fourth, as a result of the recent amendment of the Telecommunications Act and the evidence produced for this proceeding, the CRTC now has both the mandate and the information required to address this issue adequately and expeditiously.
179. In summary, Saskatchewan believes that taken together, the objectives of the Telecommunications Act imply that universal and affordable access to quality telecommunications services is a national public good. Which, to quote the act is.

     "... necessary to enrich, and strengthen the social and economic fabric of Canada and its regions."

180. To put it another away, the Economic Council of Canada has described the national telecommunications system as an integral part of Canada's economic union. Perceived in this way, Saskatchewan respectfully submits that especially in this information age, universal to quality telecommunications services must be considered essential to Canadian sense of common economic citizenship and to the realization of equal opportunity that this implies.
181. Thank you for allowing us to present our views.
182. THE CHAIRPERSON: Thank you very much, Mr. Hersche. I guess I might say we look forward to a continuing and growing relationship.
183. MR. HERSCHE: I am sure that will be the case.
184. THE CHAIRPERSON: Thanks a lot.
185. Madam secretary.
186. MS GROULX: Thank you, Mr. Chairman. Our next presenters will be O.N. Tel.

     PRESENTATION / PRÉSENTATION

187. MS MARCELLA: Good morning, my name is Laurie Marcella. I am the Director of Business Development and Regulatory Matters of O.N. Tel, the telecommunications division of the Ontario Northland Transportation Commission.
188. The colleagues with me today are Jeff Summersby, Manager of Rates and Regulatory Matters for O.N. Tel, and O.N. Tel's counsel, Stephanie Traynor.
189. First I would like to thank the Commission for this opportunity to appear and to share O.N. Tel's perspective on the issue of service to high-cost serving areas or HCSAs.
190. O.N. Tel recognizes that the issue of HCSA funding is very complex and involves the examination of a significant number of interrelated issues.
191. We at O.N. Tel have been actively participating in this proceeding with keen interest. This is because we believe that the proper resolution of high-cost serving area funding issues must become one of the cornerstones of the Commission's regulatory environment if the competition fostered by the competition in various telecommunication market segments will continue to be user-friendly.
192. In addition, the resolution of high-cost serving area funding issues is central to our own ability to continue to fulfill our mandate to facilitate the economic development of Northern Ontario.
193. We have been impressed by the quality of contributions made by a number of parties to this proceeding. However, in reviewing the record of the proceeding, it has become apparent to us that a significant focus of the parties in this proceeding has been upon the resolution of high-cost serving area funding issues associated with the provision of basic local service to unserved and under-served areas.
194. There is no question that the resolution of high-cost serving areas in that context is of crucial importance to the economic and social welfare of the country. However, we wish to ensure that the need for the resolution of these issues as they relate to the provision of toll service along uneconomic toll routes is also addressed fully by the Commission when it renders its decision in this proceeding.
195. Due to O.N. Tel's rather unique circumstances, this is an issue that is of particular importance to us and our customers. Therefore, in the balance of this presentation I am going to explain that unique background briefly and then focus on the quantification and funding of the subsidy requirement associated with uneconomic toll routes. I will leave discussion of other matters to our written final argument.
196. O.N. Tel has a long history of focussing on the development and implementation of solutions to the challenges faced by northern residents. In fact, O.N. Tel's public mandate arose from the Ontario government's concerns that the residents of the north may not have access to the broad range of services available in the south of the province unless positive action is taken to safeguard the interests of northerners.
197. In providing telecommunications services throughout its vast territory, O.N. Tel strives to fulfill its public mandate by strongly supporting the principle of universal access to essential services including toll services at affordable rates.
198. O.N. Tel's dedication to its public mandate has, for example, in the case of the Moosonee and the Moose Factory exchanges, resulted in an O.N. Tel success story. The penetration rate to these First Nation communities, which are accessible only by rail and air is greater than 100 per cent. Not only are all residential subscribers served by individual line service, but they also all have access to local optional services such as custom calling features, call management services and voice mail.
199. Furthermore, O.N. Tel provides local access to the Internet. This high level of service to this high-cost serving area has been made possible through cross-subsidization from O.N. Tel's limited higher density routes.
200. O.N. Tel's focus in this proceeding continues to be a desire to ensure that the residents of the north remain well-served. In this respect, the Commission and O.N. Tel, each guided by its respective enabling legislation share the same public interest focus.
201. O.N. Tel is predominantly an inter-exchange carrier, providing service in Northern Ontario to 43 communities scattered in an area covering approximately 200,000 square kilometres between North Bay and Hudson's Bay.

     1000

202. This large territory is inhabited by a small population of approximately 150,000 people. O.N. Tel's serving territory is composed largely of rough terrain, and contains primarily small communities, with more than half of the communities having a NAS count of less than 500. In fact, not all of the communities served by O.N. Tel are accessible by road.
203. In addition, local and toll services in O.N. Tel's territory are, for the most part, not provided by one vertically integrated carrier. While O.N. Tel is the incumbent toll service provider within its serving territory, Northern Telephone Limited, Abitibi Consolidated, Cochrane Public Utilities Commission and Bell Canada are the incumbent monopoly local service providers throughout the bulk of the various exchanges in O.N. Tel's territory. The exceptions to this are the Marten River, Temagami and Moosonee and Moose Factory exchanges, where O.N. Tel provides both local and toll service.
204. The absence of vertical integration in the case of O.N. Tel raises a set of issues not usually present where the incumbent service provider is an integrated service provider of both local and interexchange services to all or substantially all of one customer base.
205. O.N Tel is presently providing all interexchange services on a monopoly basis. However, pursuant to Telecom Decision CRTC 98-14, that monopoly is scheduled to end not before July 1, 2000. In addition, despite that decision, O.N. Tel's monopoly in the interexchange data and private line markets is being aggressively challenged right now. However, due to a lack of vertical integration, upon the advent of interexchange competition in its territory, O.N. Tel will have fewer and fewer means of recovering costs associated with providing interexchange service along more remote, high-cost toll routes that are unlikely to attract competitive entry.
206. For instance, O.N. Tel cannot generate substantial amounts of interexchange contribution from the provision of local services, because it only provides local service to approximately 3,500 NAS within its toll territory. Therefore, O.N. Tel cannot implement revenue-neutral rate rebalancing to decrease the impact of erosion of toll revenues.
207. The de-averaging of long distance rates is also not feasible because it is contrary to the Commission's longstanding policy of price averaging. Moreover, such an approach would directly contravene ONTC's policy objective of providing residents of the North with the same kinds of economic opportunities that are available in the South.
208. As a result of these constraints, as O.N. Tel loses market share to competitors on its more economically attractive toll routes, it will be less able to fund the provision of high quality toll services on the high-cost routes that fail to attract competitive entry. This situation may result in O.N. Tel being unable to provide toll service along certain uneconomic toll routes. While withdrawal of service along unprofitable routes may be acceptable within the context of a free competitive market, such a course of action is, in O.N. Tel's view, contrary to subsection 7(b) of the Telecommunications Act, and furthermore, would simply not be tenable for O.N. Tel, given its public mandate.
209. As a result of these considerations, the subsidization of high-cost serving areas must include some form of subsidization of uneconomic toll routes.
210. O.N. Tel's vast, rugged territory stretching over 1,300 kilometres from North Bay to Hudson Bay is sparsely populated. Accordingly, O.N. Tel's customers often reside significant distances from necessary services, family and friends. They are often highly dependent upon telecommunications services in order to run their businesses, connect to their communities, and gain access to a whole range of services that are generally readily available in urban areas.
211. For example, quality long distance services are essential to the survival and health of remote and rural communities, and therefore the prices charged for these services have a major influence on the economic, social, educational, medical and governmental affairs of such communities. Isolated communities have a greater reliance on telecommunications than do urban communities to enhance the quality of life of their inhabitants. There are distance barriers to accessing health care and education in isolated communities, which can often be substantially overcome by quality telecommunications services. As well, rural and remote businesses rely on telecommunications to compete with urban businesses. In order to maintain or improve the valuable contribution rural and remote communities make to the overall Canadian economy, it is essential that these areas have high quality telecommunication services.
212. In essence, customers in remote areas consider toll service just as basic and essential as local service. However, the cost of provisioning toll services to O.N. Tel's remote northern communities is significant. Since many of the communities are small -- for example, Abitibi Canyon has a NAS count of 57 and Peawanuck has a NAS count of 126 -- the opportunity to recover the high costs associated with provisioning toll facilities to these remote areas is very limited.
213. Certain parties to this proceeding have suggested various ways of dealing with the issue of non-compensatory toll routes and those proposals are already on the public record and will not be repeated here in detail. However, O.N. Tel wishes to record its agreement with most of the parties who indicated that de-averaging switching and aggregation rates will not solve the dilemma of non-compensatory toll routes, and will actually magnify the problem. This is because the de-averaging of switching and aggregation rates would serve as an economic barrier to the provision of toll service in high-cost serving areas and is particularly ill-suited to O.N. Tel which has a public mandate to assist in the development of northeastern Ontario. In essence, such an approach would amount to the de-averaging of toll rates.
214. In order to avoid such an outcome, some method of subsidization of uneconomic toll routes from a high-cost serving area fund is necessary.
215. Many options for the creation, funding and administration of such a fund have been proposed in this proceeding. In O.N. Tel's view, the most important aspect of minimizing the degree of economic distortion created by such a fund is; first, to ensure that the burden of the funding of the requirement is spread as broadly; second, to maintain technological and service neutrality; and third, based upon the circumstances of certain service providers such as Northwestel and including O.N. Tel, reliance upon intra-territorial cross-subsidies does not appear to be a workable solution to meet the needs of rural and remote Canada.
216. Consequently, for the service providers and customers alike, the cost of receiving the benefits of competition is the requirement to support those regions in Canada where such benefits would not occur without regulatory intervention.
217. In light of these considerations, O.N. Tel believes that a national solution is required. Assuming that these principles are observed, O.N. Tel can support a broad range of funding mechanisms. The more difficult issue, from O.N. Tel's perspective, is the quantification of the subsidy requirement of a given toll carrier. O.N. Tel recognizes that the precise quantification of a subsidy requirement for the funding of non-compensatory toll routes can be a complex exercise. Therefore, O.N. Tel believes that the methodology employed for the purpose of quantifying the requirement must strike an appropriate balance between the resources required to undertake such an exercise and the level of accuracy of the resulting calculation.
218. O.N. Tel proposes to calculate the annual shortfall on its non-compensatory toll routes simply by determining the difference between the total toll-related costs, including contribution requirements, and the revenues generated from those routes at rates reasonably comparable to those prevailing in the rest of Canada. O.N. Tel is encouraged by the fact that this approach is similar to that described in earlier presentations, including those of Northwestel, the Government of the Northwest Territories, and the Yukon government.
219. On behalf of O.N. Tel, I would like to thank you for your attention.
220. THE CHAIRPERSON: Thank you, Ms Marcella.
221. Madame la Secrétaire.
222. M^me GROULX: Merci, Monsieur le Président.
223. La prochaine compagnie à faire la présentation sera Télébec.

     PRÉSENTATION / PRESENTATION

224. M. DuBERGER: Bonjour, Mesdames et Messieurs les Conseillers. Mon nom est Jacques DuBerger et je suis vice-président, Affaires juridiques et réglementation, et secrétaire de Télébec. Je suis accompagné de M. Michel Gilbert, directeur général, Affaires réglementaires.
225. Permettez-moi tout d'abord de remercier le Conseil de l'opportunité qu'il donne aux intervenants dans ce dossier d'exprimer de vive voix leurs vues relativement aux zones de desserte à coût élevé.
226. Télébec est particulièrement visée par cette procédure étant donné le territoire d'exploitation qu'elle dessert.
227. Qu'il suffise de rappeler que notre entreprise fournit le service téléphonique dans la plus grande portion du territoire géographique québécois, soit environ 750 000 kilomètres carrés. Sur cette immense superficie, Télébec compte un peu moins de 200 000 services d'accès au réseau répartis en 126 circonscriptions téléphoniques et un total de près de 300 municipalités.
228. La densité de population sur le territoire desservi par l'entreprise est de l'ordre d'un abonné aux quatre kilomètres carrés. En fait, on retrouve plus d'abonnés du service téléphonique dans un rayon de deux kilomètres du centre-ville de Montréal que l'on en retrouve sur l'ensemble du territoire desservi par Télébec.
229. Non seulement ce territoire est-il immense, il est éclaté, allant de la Baie James aux Îles-de-la-Madeleine, des rives du Lac Champlain à Schefferville.
230. Lorsque l'on examine les aspects socio-économiques qui caractérisent le territoire d'exploitation de Télébec, des réalités incontournables sautent également aux yeux. Ainsi, 60 pour cent de la clientèle de Télébec habite en zone rurale, selon la définition de Statistique Canada, proportion qui est davantage de l'ordre de 20 pour cent à 25 pour cent dans l'ensemble du pays, notamment au Québec. Seulement 13 villes dans le territoire de Télébec compte plus de 5 000 habitants.
231. Au niveau démographique, le territoire de Télébec compte davantage de jeunes et moins de personnes âgées que la moyenne canadienne. Il s'agit par ailleurs d'une population dont les revenus moyens sont inférieurs à ceux prévalant au Québec et au Canada et dont le niveau de chômage dépasse la moyenne provinciale et nationale.
232. La situation s'explique par différentes raisons, notamment l'importance relativement grande du secteur primaire dans le territoire de l'entreprise. Ainsi, au Canada, environ 6 pour cent des travailleurs oeuvrent dans le secteur primaire comparativement à environ 15 pour cent dans le cas du territoire de Télébec.
233. Comme vous pouvez le constater, la fourniture du service téléphonique au plus bas coût possible dans un tel environnement représente un défi considérable, défi que Télébec a accepté d'emblée puisque sa raison d,être est la prestation de services de télécommunications dans les régions périphériques, engagement qui vient d'être renouvelé dans le cadre de la mise à jour de la mission de l'entreprise et de sa Vision 2002.
234. Télébec a donc suivi évidemment avec le plus grand intérêt le déroulement de l'instance sur les zones de desserte à coût élevé et remercie le Conseil d'en avoir fait un dossier prioritaire dans le contexte plus large de la nouvelle réalité des télécommunications au Canada.
235. Pour Télébec, l'élaboration de toute mesure visant les zones de desserte à coût élevé procède, en priorité, des besoins de la clientèle.
236. Comme le Conseil a pu le constater dans le propos des parties intéressées ou celui des intervenants qui ont participé aux audiences, les Canadiens souhaitent avoir accès à des services de communications de qualité et abordables, et ce, quel que soit leur lieu de résidence. Je dirais que l'un des enjeux, sinon l'enjeu principal, de la présente instance est la santé économique des régions de notre pays et la capacité pour ceux qui y habitent et qui y travaillent d'avoir accès aux services et aux connaissances qui s'échangent désormais sur l'inforoute.
237. Je n'entends pas revenir sur toutes les études, rapports et décisions qui ont été publiés sur le sujet; je ne ferai qu'un commentaire: le présent dossier nous donne l'opportunité de permettre aux régions périphériques d'avoir accès aux services qui assureront la prospérité du pays dans le 21^e siècle. Télébec demande donc au Conseil de prioriser les intérêts de sa clientèle dans la décision à venir et, à ce titre, l'entreprise estime que la proposition qu'elle a mise de l'avant permet de rencontrer ces intérêts dans un contexte de simplicité et d'efficacité.
238. Nous allons parler maintenant du besoin relatif au fonds pour les ZDCE, qui a été évidemment un des éléments clés de cette instance.
239. Comme le Conseil a pu le constater, la majorité des mémoires et des diverses interventions dans le cadre de la présente instance reconnaissent que la prestation de service dans les zones de desserte à coût élevé nécessite des mesures de financement spéciales. Personne ne conteste que les revenus générés par le service de base fourni en région ne compense pas, et de loin, les coûts de cette fourniture, comparativement aux grands centres urbains.
240. Sans mesure de financement, l'érosion des sources d'interfinancement, le mouvement de rapprochement des tarifs et des coûts de prestation rendront avant longtemps le prix des services de base inabordables pour certains abonnés.
241. Le constat s'impose: les ZDCE ont besoin d'un mode de financement adapté à la réalité d'exploitation et de marché à laquelle elles doivent faire face.
242. Je vais demander maintenant à M. Gilbert de commenter les aspects plus techniques du présent dossier, avec votre permission.
243. M. GILBERT: Bonjour, Mesdames et Messieurs les Commissaires.
244. Dans l'instance découlant de l'Avis public Télécom CRTC 97-41, lors de la table ronde des 21 et 22 octobre 1997, Télébec avait déjà exprimé la nécessité d'un mode de financement visant les entreprises qui offraient le service dans les régions à coût élevé. Voici donc les principes que Télébec avait alors énoncés:
245. - Premièrement, les tarifs du service local de base devraient progressivement se rapprocher des coûts de prestation.
246. - Deuxièmement, dès que les tarifs dépasseraient un seuil d'abordabilité établi en fonction de critères à définir, une subvention serait versée aux entreprises fournissant le service local dans les régions visées.
247. - Troisièmement, la subvention devrait être financée par l'ensemble des fournisseurs de services de télécommunications, y compris les entreprises concurrentes.
248. - Quatrièmement, toutes les entreprises fournissant le service local de base dans les ZDCE auraient droit à cette subvention, y inclus les entreprises concurrentes.
249. - Cinquièmement, une instance visant à définir les modalités détaillées, y inclus l'emploi, comme base de calcul du coût marginal ou du coût moyen de fourniture du service local devrait être instituée.
250. Dans son mémoire du 1^er mai 1998 l'entreprise a précisé sa pensée, et permettez-moi maintenant de la résumer en ce qui a trait aux zones de desserte à coût élevé.
251. Télébec est d'avis que les critères d'établissement des ZDCE devraient être basés uniquement sur les coûts réels d'exploitation, et ce, en regard d'un seuil d'abordabilité des services de base et des services interurbains non économiques. Compte tenu de l'étendue du pays et de la diversité des territoires d'exploitation, plusieurs seuils d'abordabilité pourraient même être définis.
252. Les diverses parties à l'instance ont proposé différentes méthodes de détermination des ZDCE, notamment les critères de densité de population, de distance, l'utilisation des zones de dénombrement ou autres. Pour Télébec, si ces méthodes ont leur mérite, elles présentent un inconvénient majeur: elles ne reposent pas sur les coûts d'exploitation et font appel à des outils d'estimation qui ne prennent pas en considération toute la problématique des coûts.
253. Plusieurs facteurs affectent le coût de fourniture du service téléphonique au-delà de la densité de population; par exemple, la situation géographique, la proximité d'un grand centre, la congestion, l'âge du réseau sont autant d'éléments qui influent sur les coûts réels de fourniture du service. Ainsi, à Télébec, certaines petites circonscriptions ont une densité de population plus élevée que la moyenne des circonscriptions du territoire et pourtant présentent des coûts de prestation plus élevés que la moyenne. Si l'on ne recourait qu'à la densité de population comme critère d'établissement d'une ZDCE, ces circonscriptions pourraient être exclues du programme de financement, et ce, au désavantage de leur clientèle.
254. Télébec privilégie plutôt l'utilisation de la comptabilité de type Phase III pour l'établissement des coûts de desserte car cette méthode tient compte des coûts historiques encourus pour la fourniture du service. Cette méthode est présente dans toutes les entreprises sous juridiction et ne nécessiterait pas de frais de mise en place, contrairement aux études de densité de population ou autres outils.
255. Une méthode basée sur les coûts, notamment ceux de la Phase III, permet de tenir compte de particularités ou d'exceptions qui seraient tout simplement ignorées si la densité devenait le critère principal.
256. En ce qui a trait à la définition du seuil d'abordabilité, Télébec préconise que le Conseil définisse le ou les seuils d'abordabilité au-delà desquels un financement serait requis. Selon Télébec, le Conseil a toute compétence pour ce faire. Il pourrait entre autres s'inspirer des outils et conclusions de l'Enquête fédérale-provinciale sur la tarification des télécommunications et l'universalité du service téléphonique, mieux connu sous le nom aussi de rapport Mongeau, en 1986.
257. En ce qui a trait au calcul du financement, le montant sujet à financement correspondrait à l'écart entre le seuil d'abordabilité et le coût réel de fourniture du service. Ainsi, si le Conseil en arrivait à la conclusion que le seuil d'abordabilité pour une région donnée était de 35 $ par mois et que le coût de prestation de l'entreprise sujette à financement était de l'ordre de 50 $, le montant du financement requis serait alors de 15 $.
258. En vertu de la proposition de Télébec, les services de base de résidence et d'affaires seraient admissibles au financement. Dans le cas des services d'affaires, plutôt que de parler d'un seuil d'abordabilité, on devrait plutôt faire appel à la notion de compétitivité, le seuil tarifaire maximal devant alors être défini en comparaison avec la tarification de zones similaires plus urbanisées ou encore en fonction d'un tarif moyen régional, provincial ou national.
259. Pour ce qui est des services interurbains, la notion de seuil d'abordabilité ne pourrait être appliquée de la même façon. L'entreprise propose plutôt de recourir à une méthode de calcul basée sur les coûts réels des circuits interurbains utilisés pour desservir une région en regard des revenus afférents aux services interurbains fournis dans cette même région.

     1020

260. Pour ce qui est des services sujets à financement, Télébec considère que les services locaux de base, y compris la composition par tonalité, le service régional, les frais de distance et les frais de service applicables dans les ZDCE, devraient faire l'objet d'un financement. Cela s'appliquerait tant aux services de résidence que d'affaires.
261. Plusieurs intervenants ont exprimé le désir de voir les services d'accès à l'inforoute -- les services Internet -- inclus dans le panier des services sujets à financement. Télébec n'a pas d'objection à cet égard, d'autant plus qu'un tel accès deviendra sous peu la norme en matière de service de télécommunications au Canada. Télébec propose donc que l'accès à l'inforoute, jusqu'à une vitesse définie, par exemple 28 kilobits par seconde ou 56 kilobits par seconde, soit sujet à financement.
262. En matière d'obligations de service, Télébec ne préconise pas de modification aux obligations de service des entreprises tant et aussi longtemps que la concurrence locale ne sera pas autorisée sur le territoire des entreprises visées. Le calcul du financement devrait cependant tenir compte de toutes les obligations de service dévolues aux entreprises titulaires.
263. En ce qui a trait à l'éligibilité au financement, Télébec considère que toute entreprise fournissant des services définis comme étant sujets à financement devrait avoir droit à ce même financement, qu'il s'agisse d'une entreprise titulaire ou concurrente.
264. Pour ce qui est des sources de financement, Télébec estime qu'un principe de base doit précéder toute considération en cette matière: Toutes les entreprises qui oeuvrent dans l'industrie des télécommunications au Canada doivent contribuer au financement des ZDCE.
265. Toutes les entreprises, qu'elles fournissent des services locaux, interurbains, filaires ou sans fil, devraient participer à ce financement. Télébec préconise même que le Conseil considère inclure les fournisseurs de services Internet à ce nombre puisque ce service sera de plus en plus assimilé au service téléphonique à l'avenir.
266. Quant aux mécanismes de perception des fonds, ils peuvent être multiples mais Télébec préconise la simplicité, à la fois pour des questions de gestion et de transparence. Comme nombre d'intervenants du domaine des télécommunications énoncent que le paiement d'une contribution à la minute est de moins en moins applicable dans le cas des services interurbains et que les méthodes alternatives ne sont pas légion, sans doute un pourcentage des revenus bruts serait-il approprié puisqu'il pourrait être appliqué aussi facilement à toutes les entreprises.
267. Au-delà du principe de base annoncé plus haut, Télébec soumet que la méthode de perception devrait être étudiée dans le cadre de l'instance à venir annoncée par le Conseil et portant sur la redéfinition du mode de perception de la contribution.
268. Pour ce qui est de l'extension et de la mise à niveau du service, Télébec préconise une approche par laquelle l'extension du service et sa mise à niveau pourraient être sujets à financement, et ce, en fonction de critères précis, comme par exemple:
269. - un pourcentage minimal de variation des coûts de fourniture des services de télécommunication associés aux travaux d'amélioration d'une circonscription; ce pourcentage devrait être défini clairement;
270. - un impact minimal en valeur absolue devrait être établi et il devrait tenir compte de la taille de la compagnie de téléphone visée;
271. - les changements devraient être requis afin de maintenir la qualité de service au niveau prescrit par le Conseil, et ce, en regard de la fourniture des services sujets à financement;
272. - finalement, dès que les travaux seraient complétés, le montant de financement serait ajusté, et ce, tant pour la compagnie de téléphone titulaire que pour les entreprises concurrentes.
273. En ce qui touche le rapport avec le mécanisme de contribution actuel et le plafonnement des prix, Télébec estime que le mécanisme de contribution actuelle doit demeurer, à tout le moins en principe. Il est clair cependant que l'introduction d'un financement pour les ZDCE viendrait réduire le taux de contribution, situation favorisant l'implantation de la concurrence.
274. Une instance à venir examinera l'implantation d'un régime de plafonnement des prix dans le territoire de Télébec. L'entreprise avait indiqué dans son Plan de transition déposé dans le cadre de l'instance découlant de l'Avis public Télécom CRTC 97-16 que le régime de réglementation par plafonnement des prix ne devrait être implanté dans son territoire qu'à l'issue d'un rééquilibrage qui rapprocherait la tarification des coûts de desserte. Si le Conseil établit un mécanisme de financement des ZDCE comme le soumet Télébec, l'entreprise estime que le régime de plafonnement des prix ne devrait être implanté que lorsque la tarification de l'entreprise aura atteint le seuil d'abordabilité.
275. En ce qui a trait à la mise en oeuvre et révision du mécanisme, Télébec soumet qu'un délai maximal de 12 mois suivant la décision semblerait indiqué en vue de l'implantation dudit mécanisme. De plus, le mécanisme de gestion du financement devrait s'inspirer de celui mis au point pour gérer la subvention portable dans le cadre de la Décision Télécom CRTC 97-8.
276. Il va également de soi que le Conseil devrait revoir périodiquement le mécanisme de financement de même que les critères y afférents; à cet égard, Télébec préconise une révision après trois ans de fonctionnement avec la possibilité de revoir l'application de ce mécanisme après un an afin de s'assurer qu'il rencontre les objectifs poursuivis.
277. M. DuBERGER: En guise d'observations finales, je voudrais revenir sur les audiences qui ont été tenues au mois de juin dernier en ce qui nous concerne à Val d'Or.
278. Des audiences de juin dernier qui ont été tenues à Val d'Or et regroupant par vidéo-conférence plusieurs autres localités de la province, Télébec retient trois choses:
279. 1. La clientèle reconnaît la qualité du service offert par l'entreprise et, sous réserve de cas très isolés de fourniture du service en zone non desservie, la prestation de Télébec correspond aux attentes de ses abonnés.
280. 2. Le niveau de tarification est une préoccupation majeure de la clientèle de Télébec, surtout en regard des effets qui découlent de l'arrivée de la concurrence dans l'interurbain et de la disparition des sources traditionnelles d'interfinancement des services locaux.
281. 3. La clientèle réclame un accès aux services modernes comparable à ce qui prévaut dans les grands centres, et ce, sans pénalité de nature tarifaire ou encore technique.
282. En ce sens les préoccupations de l'entreprise rejoignent celles de sa clientèle, et la présente instance offre une occasion privilégiée pour paver la voie à des solutions susceptibles de répondre à la fois aux besoins de la clientèle et aux contraintes qui confrontent Télébec.
283. En conclusion, l'instance sur les zones de desserte à coût élevé aura duré plus d'une année. La présence de 104 intervenants et/ou parties intéressées, l'ampleur des audiences régionales tenues par le Conseil et l'intérêt soulevé par la présente audience témoignent éloquemment de l'importance de ce dossier, surtout pour les habitants des régions et territoires situés en périphérie ou encore à distance des grands centres du pays.
284. Les télécommunications canadiennes sont entrées depuis quelques années dans une ère où la prédominance des forces du marché devrait agir comme force régulatrice et assurer à tous un accès à des services élargis, et ce, à des tarifs abordables. Malheureusement, l'ensemble du pays ne correspond pas au modèle théorique de concurrence comme l'ont conçu les décideurs. Il revient donc au Conseil de définir des règles qui permettront d'assurer que la Politique canadienne des télécommunications trouve son application aussi bien à Montréal, Toronto ou Vancouver qu'à Val d'Or, Cap-aux-Meules ou Bécancour.
285. Mesdames et Messieurs les Conseillers, des entreprises comme Télébec, QuébecTel ou encore nombre d'indépendantes du Québec et de l'Ontario vivent au quotidien des problèmes de zones de desserte à coût élevé. Pour nous il ne s'agit pas d'un débat d'idées où l'on trouve une minorité de clients. À Télébec le présent dossier trouve écho partout sur les 750 000 kilomètres carrés de son territoire.
286. La clientèle de l'entreprise n'a pas les moyens de défrayer les 53 $ que coûte en moyenne la fourniture du service local. Dans des zones comme la Baie James, Télébec vend son service interurbain à perte. Pourtant, la clientèle a les mêmes besoins que les résidents des métropoles.
287. De surcroît, le passage de nos économies régionales dépendantes des ressources à l'ère de l'information est crucial pour leur futur. Les télécommunications permettent de rapprocher les régions et de mettre en valeur leur potentiel concurrentiel dans les domaines reliés à l'économie du savoir.
288. Pour atteindre cet objectif, il faut cependant que la clientèle des régions dispose des services qui correspondent, en prix et en qualité, à ce qui est offert ailleurs au pays. L'instauration d'un fonds national destiné à financer le service dans les zones de desserte à coût élevé est un pas dans la bonne direction.
289. Télébec demande donc au Conseil d'examiner avec soin sa proposition et d'en évaluer tout le mérite. L'entreprise estime que la démarche qu'elle propose a l'avantage d'être relativement facile à mettre en oeuvre et aussi de prendre en considération la problématique centrale de cette instance: les coûts réels de desserte.
290. Merci donc encore une fois d'avoir permis à Télébec de faire valoir son point de vue. Sachez également que ce remerciement vous est adressé non seulement au nom de l'entreprise mais aussi, sinon surtout, au nom de sa clientèle, qui est notre raison d'être à tous.
291. Merci.
292. LE PRÉSIDENT: Merci beaucoup, Monsieur DuBerger et Monsieur Gilbert.
293. We will take our mid-morning break at this point and reconvene at a quarter to eleven.

     --- Short recess at / Courte suspension à 1030

     --- Upon resuming at / Reprise à 1050

294. THE CHAIRPERSON: Order, please, ladies and gentlemen.
295. Thank you very much.
296. Madam Secretary, the next party, please.
297. MS GROULX: The next party is the Ontario Telephone Association.
298. THE CHAIRPERSON: Good morning, Mr. O'Brien.

     PRESENTATION / PRÉSENTATION

299. MR. O'BRIEN: Good morning, Mr. Chairman.
300. Mr. Chairman, Commissioners, as David was saying, my name is Glenn O'Brien. I am the Executive Director of the Ontario Telephone Association. With me today I have Steve Lynn, Sharon Chuter, Keith Harvey and Paul Downs.
301. Mr. Lynn is the President of the OTA and is General Manager of both Westport Telephone Company Ltd. and North Renfrew Telephone Company Ltd.
302. Mrs. Chuter is the Vice President of the OTA and is the General Manager of Tuckersmith Communications Co-operative Limited.
303. Mr. Harvey is a Director of the OTA and is an Executive Vice President of Amtelecom Group Inc.
304. Mr. Downs is a past President of the OTA and continues to serve on the OTA board. Mr. Downs is the President of Nexicom Telecommunications Inc., which is the former Durham Telephones Ltd. As well, Mr. Downs is the President and General Manager of Nexicom Telephones Inc., the former Otonabee Telephones Limited.
305. Mr. Chairman, Commissioners with Telecom Public Notice CRTC 97-42, the Commission initiated a proceeding to consider issues associated with service to high-cost serving areas. The Ontario Telephone Association, and its member companies, have appreciated the opportunity to participate in this proceeding and, in particular, now welcome the opportunity to appear before you today to provide final comments on the issues surrounding the funding of high-cost serving areas.
306. To begin, I would ask Mr. Lynn to provide some background on the Ontario Telephone Association and the nature of its member companies.
307. MR. LYNN: Good morning, Mr. Chairman, Commissioners.
308. The Ontario Telephone Association is a non-profit corporation representing 21 of the Ontario independent local exchange carriers. The association has its office in Ottawa, and has a staff of five people. The association acts as the members' liaison with the CRTC, Industry Canada and industry associates on matters of common interest and concern to its members. In addition, it manages the OTA Carrier Access Tariff Fund which, as you are aware, are moneys collected from toll carriers for long-distance access.
309. The 21 independent local exchange carriers that make up the OTA have various business structures, including 13 investor-owned companies, seven co-operative corporations and one public utility commission. The members vary in size from one serving approximately 600 network access lines to one serving over 19,000 access lines. A typical member, however would serve between 2,000 and 5,000 subscribers and would employ between 5 and 13 people.
310. OTA members are providers of local exchange service to both business and residence subscribers. OTA members offer a full range of local telecommunications services using digital switches, to provide optional local services, such as call display and call answer. In so doing, OTA members are meeting the expectations of customers for modern, world-class telecommunications service in the small communities they serve.
311. OTA members have served rural Ontario since the early years of the century. During those 90-odd years, they have been corner-stones of their small communities. The OTA members are high-technology companies keeping up with advancing technology and offering high-tech employment in their serving areas. The OTA members have invested over $100 million in Ontario and employ more than 250 people.
312. Mr. Chairman, Commissioners, the remainder of our comments will be provided under these broad headings: number one, the requirement for affordable, high quality service in rural areas; number two, the relative cost of providing service in rural areas; number three, the need for a system of support for rural rates; and, number four, how a system of support should be applied.
313. Mrs. Chuter will now address the requirement for affordable, high quality service in rural areas.
314. MRS. CHUTER: Good morning.
315. Section 7(b) of the Telecommunications Act sets out as a policy objective for Canadian telecommunications the requirement that reliable and affordable telecommunications services of high quality be accessible to Canadians in both urban and rural areas in all regions of Canada. Clearly, this policy objective is central to this proceeding and will help guide the Commission in its deliberations as it sets out to address the issues associated with high-cost serving areas.
316. When the OTA examines this policy objective, it notes that no distinction is made between rural areas that can be categorized as more or less remote. Rather, the objective requires that all urban and rural areas have access to reliable and affordable telecommunications services of high quality.
317. The requirement for affordable telecommunications services in rural areas is increasing as telecommunications becomes more important in the every day lives of all Canadians. For rural Canadians, in particular, affordable service of high quality levels the economic and social playing fields and enables regional economic development.
318. In describing the importance of telecommunications in rural Ontario, I would like to quote the Organization for the Promotion and Advancement of Small Telephone Companies, OPASTCO. OPASTCO, in its study, "Keeping america Connected", stated:

     "Telecommunications technology offers a wealth of opportunity for rural Americans, alleviating many of its economic, social and educational challenges. Rural communities often face geographic isolation, sparse population and high unemployment. Many have experienced an out migration of their young adults, particularly those who are better educated, to urban areas with greater job opportunities. Rural schools struggle with the lack of both funding and teachers, while rural hospitals often cannot afford expensive new equipment and have too few doctors to staff their facilities. Telecommunications provides the tools for rural areas to combat these challenges. It makes rural areas true competitors worldwide and heightens the quality of life in rural America by improving communities's economies, health care, and education. Telecommunications makes rural development happen."

319. Mr. Chairman, Commissioners, telecommunications is no less important in Canada's rural areas. Indeed, OTA would suggest that in all likelihood all participants to this proceeding accept the importance of telecommunications to rural Canadians. The difficulty is that serving rural areas is very costly.
320. Mr. Harvey will address what contributes to the high cost of serving rural areas.
321. MR. HARVEY: Mr. Chairman, Commissioners, good morning.
322. There is no question that the cost of providing telecommunications service in rural areas is much higher than the cost of providing service to urban areas. This is the case both with respect to the cost of local loops and for switching.
323. The factors which contribute to the higher cost of providing rural service include smaller and more geographically dispersed population; the higher proportion of residential versus business subscribers; higher unit costs for usage-sensitive equipment, since rural local exchange carriers cannot take advantage of economies of scale; and higher local loop related investment due to longer loops and the remoteness of the areas they serve.
324. Evidence of the higher cost to serve rural areas can be found on the record of this proceeding. At paragraph 37 of Stentor's initial submission dated May 1, 1998, Bell Canada indicates that enumeration areas with a population density of 35 persons per square kilometre or less cost about twice the company average to serve. As an example, one of Amtelecom Group's territories, Manitoulin Telephone, serves an area of over 1,700 square kilometres. With slightly under 2,800 residence subscribers and just over 800 business subscribers, we provide telecommunications services to about two subscribers per square kilometre.
325. OTA in attachment 1 to its May 1, 1998 submission, and in response to interrogatory OTA(AT&T) 19th of June 1998 No. 302, identifies what its residence and business rates would be if they were cost based; that is, if there was no system of support in place for local rates, such as the existing contribution from long-distance. The residence cost-based rates may be as high as $65.41. The business cost-based rates may be as high as $77.91.
326. Business subscribers and home office subscribers are demanding affordable, modern high-speed communications services to foster business growth in rural areas.
327. Mr. Chairman, Commissioners, all rural areas are high-cost serving areas and require a system of support. Mr. Downs will address the need for a system of support.
328. MR. DOWNS: Mr. Chairman, Commissioners, good morning.
329. Telecommunications technology can address many concerns of rural Canadians. However, rural communities will not be able to take advantage of beneficial telecommunications services if such services are not affordable.
330. To sustain affordable rates in rural areas, including those rural areas in Ontario served by OTA members, a system of support is needed so that subscribers are not required to bear the very high cost-based rates identified by Mr. Harvey. Without such a system of support, there would be reductions in telephone penetration, reductions in purchases of other telecommunications services, and further indirect negative effects on the economy of rural communities.
331. These conclusions are supported by a subscriber survey on communications services conducted by the Organization for the Promotion and Advancement of Small Telephone Companies, OPASTCO, an American association of independent local exchange carriers. Its survey is summarized in its publication entitled, "Keeping Rural America Connected: Cost and Rates in a Competitive Era". This publication was filed by the OTA in this proceeding in response to interrogatory OTA(Yukon) 19 June, No. 100.
332. In this survey, OPASTCO included questions about subscriber perceptions of what they would do if the price of their telephone service, local and long-distance, increased by $5, $10, $15, and $25. At page 5-2 of its study, OPASTCO summarized the key finding of the survey. That summary showed that the percentage of subscribers who would disconnect service at a $5 monthly increase would be 4.3 per cent. At a $10 increase, it would be 12.9 per cent; and at $15, it would be 27.1 per cent.
333. Mr. Chairman, Commissioners, at a $25 monthly increase, the survey showed that 44.7 per cent of subscribers say that they would disconnect service.
334. Charging cost-based rates in OTA territory would require local rate increases of $19 to $49 per month. OTA would submit that cost-based rates in the territories its members serve would not be perceived by Canadians to be affordable. Consequently, rates of this magnitude would be contrary to the policy objective of the Telecommunications Act that telecommunications services be affordable.
335. The inability to charge cost-based rates in rural areas of the country means that a system of support is required. The determination of the level of support required, ultimately, is a matter of judgment. Its measurement would appear to defy the application of a specific formula. Rather, Mr. Chairman and Commissioners, its measurement will have to be made by application of a principle. For its part, the Ontario Telephone Association supports the one principle that the Commission has articulated to date, that there be rate equity between urban and rural subscribers. You will recall that at paragraph 162 of Telecom Decision CRTC 97-9 the Commission has said that:

     "It is appropriate to maintain rural rates at levels which are not greater than the rates paid by urban customers".

336. This principle measures the level of support necessary for rural rates as being the difference between the costs of providing service in rural areas and the revenue that can be recovered by charging urban rates.
337. Having defined the level of support that is required, I would now ask Mr. O'Brien to address the system of support.
338. MR. O'BRIEN: When the Commission says that "it is appropriate to maintain rural rates at levels which are not greater than those paid by urban customers," what the Commission is saying is that there should be rate equity between urban and rural rates. OTA supports this principle of rate equity, and believes that it will be of assistance to the Commission in this proceeding since, as Mr. Downs has mentioned, this principle actually measures the level of overall support required for rural rates. As Mr. Downs described, that amount is the difference between the cost of providing rural service and the revenue that would be recovered by charging urban rates.
339. As OTA followed the development of the record of this proceeding, it became concerned that the focus was primarily on how support should be maintained for underserved and unserved areas. The OTA would like the Commission to note that territories with unserved and underserved areas are not the only high-cost serving areas in Canada. In our view, all rural areas are high cost, since cost-based rates in those areas would exceed urban rates and, consequently, would violate the principle of rate equity between urban and rural rates.
340. In the view of the OTA and its member companies, the real question for this proceeding is not what constitutes a high-cost serving area but, rather, how support for rural rates should be sustained.
341. To date, the support for rural local service rates has come, in large measure, from contribution from long-distance. Accordingly, any new or additional system of support will have to acknowledge, and either complement or replace, this existing system of support.
342. In developing its positions in this proceeding, OTA was mindful of the Commission's directives in P.N. 97-42. In the public notice, among other matters, the Commission advised parties that, while there is a link between the existing contribution regime and service to high-cost serving areas, it was not the Commission's intention to conduct an overall review of the existing contribution mechanism in this proceeding. As a result, OTA formulated its vision of support for high-cost serving areas assuming continued support being provided from contribution.
343. Using the existing support provided by contribution from long-distance as a starting point, and adopting the rate equity principle, the challenge of this proceeding is determining the point at which the existing system of support becomes too burdened by regions that are particularly costly to serve.
344. Mr. Chairman, Commissioners, the OTA considers this line in the sand to be a matter for your judgment. In making your determination, you will have to weigh the relative merits of relieving the contribution regime from part of the existing role it plays in supporting universal service and affordable rates and replacing some of that support with a new mechanism, such as a subscriber line charge.
345. From the OTA's perspective what is most important is that any threshold and resultant new system of support be applied uniformly and relate to the cost of providing service rather than the size or structure of the carrier serving the territory. OTA member basic local service rates should be supported through the same combination of existing and new support systems as Bell Canada basic local service rates in territory of like size, subscriber density, and terrain.
346. For the record, OTA's views on the source for, and administration and monitoring of, a national high-cost serving area fund are set out in interrogatory responses OTA(CRTC) 19 June 1604, 1701 and 1702.
347. Briefly, OTA would propose that the revenues for a national high-cost serving area fund come from a subscriber line charge. Such an approach, in our view, would be explicit, easily understood and not difficult to administer. The most appropriate method of collecting such a charge would be the addition of a subscriber line charge on each subscriber's bill.
348. Mr. Chairman, Commissioners, I mentioned earlier that in its submissions in this proceeding, OTA was guided by the Commission's directive that it did not intend to conduct an overall review of the existing contribution regime in this proceeding. That, in large measure, influenced the approach OTA took and the vision it developed.
349. OTA notes, however, that many parties consider the current contribution regime to be unsustainable. Indeed, the Commission has, following consideration of an application by AT&T and others, announced that it expects to initiate two proceedings in early 1999, one to determine what changes, if any, should be made to the current contribution collection mechanism, and another to review the frozen contribution rate policy.
350. OTA looks forward to participating in those proceedings. Nevertheless, after all is said and done, a decision on funding high-cost serving areas needs to be made on the record of this proceeding.
351. As OTA has mentioned, support for rural local rates has come from contribution revenues. If contribution cannot continue to sustain affordable rates in rural areas, then contribution needs to be supplemented or perhaps replaced. High-cost serving areas are not limited to those areas which are unserved or underserved. Applying the rate equity principle, all rural areas are high-cost serving areas, the funding of which needs to be addressed in the decision that will emanate from this proceeding.
352. Mr. Chairman, Commissioners, on behalf of the OTA panel, I would like to conclude by thanking you for the opportunity to appear before you today.
353. Thank you very much and those conclude our comments.
354. THE CHAIRPERSON: Thank you very much, Mr. O'Brien, Ms Chuter, gentlemen. I don't think we have any questions.
355. Madam Secretary.
356. MS GROULX: Mr. Chairman, the next presenters will be Tatlayoko Think Tank.
357. THE CHAIRPERSON: I might just note while the Kerrs are coming to the table that with the number of parties that we have remaining, depending on how we progress over the next few parties, we may want to go right through and complete our agenda without taking a lunch break, which might take us to 1:00 or sometime between 1:00 and 1:30 or thereabouts. I am wondering if any party in the room would have a problem with that, they might perhaps advise us when we are finished with the Tatlayoko Think Tank.
358. With that, Mr. Kerr, or Ms Kerr.

     PRESENTATION / PRÉSENTATION

359. MS KERR: Good morning. We are Dale and John Kerr and we are the Tatlayoko Think Tank. We are a husband-and-wife partnership. We have a small business as community development advocates and we, in these hearings, are representing individuals, groups, organizations, primarily from the Chilcotin region of B.C. but also throughout the Province of B.C.
360. We wear other hats other than community advocates. John has been a hay rancher, a school trustee, a group home leader for troubled kids, an alternate school operator, a manufacturer of kilns, and that is just the first six or so items.
361. I am a primary school teacher. I have been a school principal. I have been a board member for the University of Northern B.C. I have been involved in community activities forever, as a day care supervisor and as someone who is involved in getting knowledge television into an earlier community that I lived in.
362. At the moment, I am also the editor and publisher of a small community newspaper. So we hope that this gives you some flavour of who we are.

     1110

363. We are also sea kayakers and I will touch on that in a moment.
364. We want to thank the Commission, first off, for this opportunity to have the oral hearings. This gives us a chance to speak in our own voices. We have participated as registered parties throughout these hearings. With few exceptions to date they have been primarily paper hearings. And we have tried to curtail our comments and our presentations within the boundaries and the restrictions and the parameters of those paper hearings.
365. Sometimes when we have had to do this it is difficult for us to convey what it is that we truly feel and what the true situation is for the rural communities in which we live. This is a nice change.
366. We also thank the Commission for having had the oral hearings across Canada because this also gave people in rural communities a chance to speak in their own voices.
367. Yesterday, somebody asked us where we are getting the funding to participate. We find ourselves in a rather luxurious position in terms of people who live in rural communities. I actually have a paid salary, as a teacher. John, because he is not doing the hay ranching any more, has some time. Money and time are things which are rare commodities for people living in rural areas. Most are concerned with just barely surviving.
368. We feel it is our responsibility to be here today and so we are funding this out of my pocket.
369. MR. KERR: And off my back.
370. MS KERR: And off your back.
371. The importance of these hearings cannot be stressed too much. We feel that it is our chance to speak now and to balance out, perhaps, all of the other parties in this room with a few exceptions.
372. Yesterday we heard from the gentleman from Wawatay and we also heard from people living in the Yukon and Northwest Territories. We go home at night. We live with the problem of high-cost serving areas. A high-cost serving area is our home. We do not go home from the office to all the benefits of living in an urban area.
373. I said earlier that we are sea kayakers and we also collect northwest coast art.
374. We noticed when we were in Ottawa last and this that it was a good idea to visit the Museum of Civilization. Made us feel right at home. They have got a real nice display there and truly from our experience as sea kayakers, they capture the spirit of the West Coast.
375. We noticed this time on our visit Bill Reid's work, "The Spirit of Haida Gwaii". This is the plaster casting. If people have not seen it, I urge you to look at this very powerful work. In the Vancouver International Airport is the jade canoe version of this. And this work was commissioned for the Canadian Embassy in Washington where there is the black canoe version.
376. For those who have not seen it, it is this massive canoe in which there is this jumble of mythological creatures, each of the creatures has its own significance and story.
377. As you look at it, there is some humour in it as well, it shows the eagle clamping onto the bear's leg, there is the wolf clamping onto the eagle, there is confusion, there is anxiety. And I wanted to read what Bill Reid had to say about this work because it seems to me to have relevance here.
378. By the way, this is my art teacher background coming into play here with this particular hat. As I looked around the room yesterday, and as I thought of this work, I thought: This is us.
379. I thank the First Nations people, I hope, for allowing me to borrow from this. They are generous people and have given us lots in the past and I prevail upon their generosity once more.
380. Bill Reid says, when he speaks of this work:

     "Here we are at last, a long way from Haida Gwaii, not too sure where we are or where we are going. Still squabbling and vying for position in the boat, but somehow managing to appear to be heading in some direction. At least the paddles are together and the man in the middle seems to have some vision of what is to come."

381. I hope that out of these proceedings we can have our paddles together. I hope that you, the CRTC, can being the man in the middle with some vision to come. And I am sure that we will continue to squabble and vie for position, but I hope we have a sense of where we are going.
382. We are all in this together, folks. I would hope that we would be acting with each other, rather than against each other and that as a result of these hearings, we will find some solutions. All Canadians must have affordable access to modern telecommunications and everyone must share in the benefits.
383. If individuals in small communities cannot have healthy economies, then neither can regions, and nor can the nation have a healthy economy. The parts equal the whole.
384. We have presented, on May 1st, a submission, in which we detailed our interpretation of affordable access to telecommunication services of equivalent quality equal to those enjoyed by urban residents.
385. And we discussed -- and I hope in your mounds of paperwork that you have had a chance to look at our submission -- we discuss section 7 of the Telecommunications Act; the mandate of the CRTC which is to strengthen the prosperity of all Canadians; we reviewed the competition policy; we examined what the CRTC decisions to date have been to facilitate that; we discussed equal access to competitive server providers and our lack of equal access to long distance service providers. I will mention some more of that in a moment.
386. We discussed our concerns about the CRTC's decision to forebear from regulating in long distance service. We tried to define a high-cost service area, bearing in mind that it is our home. And we tried to define what to us means basic local service and briefed the CRTC on the inadequacies of the service as we see it to date. We have provided further discussion of these points in our response to interrogatories.
387. We want to thank the Government of Saskatchewan, and the Northwest Territories and the Yukon and Wawatay for their presentations because what they have done in these hearings has summarized many of the points which we made in our submissions in our interrogatories.
388. And today, rather than going into detail, we want to take advantage of the fact that these are oral hearings and urge you to read our written presentations, but to hear our voices on the oral aspects.
389. We thought we would give you a good news story. We have heard lots about what modern telecommunications can mean to rural communities. We now have somewhat affordable access to modern telecommunications. And I wanted to present you with some concrete examples of what this has meant to our community and the reason why we are here fighting for other communities who may not yet have this.
390. We entered into a community access program partnership. We got funding from Industry Canada and we were able to leverage that funding into an agreement with BC Tel, the Government of B.C., our local school district, our local First Nations, Sidel, Dell and Industry Canada. What we can do now is have dial-up access to the Internet without toll charges.
391. This partnership, if I go back to my Haida Gwaii metaphor, is not without its squabbles. However, we have managed to get some benefits out of it. We listened and read all the rhetoric that was contained in the IHAC reports about what the benefits might be.
392. Our community is also kind of representative of this Haida Gwaii metaphor. We are a squabbling bunch. We have got people there who are gaining their incomes from tourism, some from agriculture, some from forestry.
393. We had a recent land use planning process in the Chilcotin and Caribou area that was acrimonious to an unbelievable degree and we are still recovering from that process.
394. However, we are trying to diversify and expand upon our local economy which has been primarily resource-based.
395. Now that we have got Internet access that is affordable, we can have small businesses in our area engage in Internet banking. And this is a tremendous boost to them.
396. We have adventure tourism and ecotourism opportunities opening up. Just down the road from us there is a marvelous lodge being built at the moment. A young couple who has immigrated from Germany with their two children. They are putting $300,000 to $500,000 into our local economy. And the success of their adventure tourism business and lodge, which is geared to a European clientele, is going to be directly affected by their ability to advertise on the Internet.
397. We have some microbusinesses in our area. A microbusiness is even smaller than a small business. It is usually just one or two people and in our community, that is what is making the jobs.
398. My publishing business, Side Hill Publishing is in partnership with two other women and we are using the Internet to access information, to e-mail other contacts and we are hoping eventually to get this service on to our community web page.
399. We are able to offer training now. We are working in partnership on a proposal with our local university college and our local business centre to establish virtual learning centres. This is a step that we have dreamed about for the Internet.
400. We have women in our community who are taking university courses and are using our Internet service.
401. I teach in the school. We now have Internet. I cannot describe to you the excitement on a young kid's face. One child in particular comes to mind. She wanted to do some research on roses, why she chose roses, I don't know. In the Chilcotin in the middle of winter this seemed an unusual topic. This little kid comes from a First Nations background, she's in a foster home. She's been in abusive situations. I think she's looking for a bit of beauty in her life. And the look on her face when she came back from working with some grade 10 kids and was able to say, "I found some information, look at this," that our tiny school library which serves 65 kids could not have provided her with, was incredible. To me that said it all.
402. Our local First Nations group is using their Internet service now. They are using their e-mail to further their land claims process. They are starting small forestry businesses, they are involved in adult education and recently they are also taking on their own health care system.
403. These are really positive things that are happening in our community. We are putting aside squabbles, we are working together. We were hoping today to be able to have an actual Internet connection in here so that we could show you firsthand some of the things that our community is doing in terms of their community web page and the kinds of positive things that are coming out of this.
404. We have an action alert page. One of the connections was for the CRTC. We have been encouraging people to contact you to get the information on these hearings and to respond.
405. We are learning together, we are working together. IHAC said, in its 1997 report, that in remote and rural areas, the Internet is increasingly recognized as a key instrument for economic and social development.
406. I hope I have given you a flavour that that, in fact, can be so. If we had not had affordable Internet access, we would not have been able to participate in these hearings. When we have argued for such access, we have spoken about the disenfranchisement of rural communities. We fear for becoming second-class citizens.
407. We needed e-mail, we needed to be able to access the CRTC site in order to get the information in order to participate. It would have been very difficult a year ago, when we still had party-line service and were being threatened by BC Tel to cut off our telephone service because we were using a fax machine illegally. We could not have done it. Modern telecommunications means everything to rural communities.
408. I have used up approximately half my time telling you about the positive sides, our success story in terms of access -- affordable to telecommunication services. There is a dark side to this success story and this is the part that we really want you to be able to hear.
409. We heard yesterday in the gentleman's discussion from Microcell about how over $200 million is being subsidized for rural areas by Industry Canada.

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410. Our experience with this program is that it is a band-aid, short-term solution, and it runs off the backs of volunteers like us. It is costly in terms of time and energy and money, and it is not sustainable.
411. John and I are the Internet service providers now -- we did not think we would be wearing that hat -- for all of the Chilcotin area. We cover three telephone exchanges. The distance is over 150 miles. If John were not working and I was not bringing in a salary, there is not enough of a customer base in this area to provide us with anything more than the moneys to cover basic operating expenses of our dial-up access telephone lines. There is not a living to be made as an ISP in this area.
412. If we choose tomorrow to stop, if our health fails or other circumstances prevent us from offering this service, it ends. There is no one else in our communities who can take it over. They are busy doing the rest of their lives. They are putting food on their tables for their kids and roofs over their heads. They do not have the time, they do not have the money, to enable them to do it.
413. It is for this reason that we are here to look for long-term solutions in terms of what can be affordable, basic local service and affordable Internet access. This is not a solution, folks.
414. We heard from the province of B.C. this morning that 99.7 per cent have Internet access. Well, we have Internet access, maybe we are part of that, but there are still folks in our community who do not because they still do not have their telephones. This type of Internet access is not acceptable. It is not going to work. It cannot be sustained.
415. We heard the difficulties again from the province of B.C. that we cannot guarantee transmission speed. Transmission speed is essential. We have to have at least 56K. We need a T1 line in if we are supposed to be doing video conferencing and all these other marvellous things.
416. When I have got a kid in a classroom hooked up to the Internet and they are sitting there waiting for something to come in, and it is like watching paint dry on a wall, this is not acceptable.
417. When our customers, who are paying us out of their small incomes, $15, $20 a month for -- I think they pay $25 for 20 hours of Internet access -- and they are trying to upgrade their programs, download information that they need, and it is taking over their two-hour limit per day to do so, when they know that they could get such a service if they were living in an urban area and it would be downloaded like that, this is not acceptable.
418. There are some other dark sides here as well. We were speaking throughout these hearings of affordable costs and we listened this morning to people speaking about the importance of rates. The presentation immediately before us from OTA was quite interesting to me when they were saying what would happen if there was a $15, a $20, a $25 increase.
419. We were trying to raise the issue in our interrogatories with Stentor about the affordability of basic local service. We were kind of disappointed with the response that we got back. I am going to read a portion of this response because it is indicative to us of the kind of cavalier attitude that many of the telecom industries are displaying when we try to raise our concerns with them.
420. There is an apparent disregard and lack of understanding of people's real lives. While rural residents might be able to offset the higher costs of food by hunting or by growing gardens, thus requiring less cash income to meet their basic food or clothing needs, it is hard to imagine how the higher costs of telephone services can be offset by domestic production. When we had asked Stentor how they envisioned domestic production being able to help us offset costs, they basically said, well there is this domestic income. People go out and they hunt and they fish and, you know, when they report their incomes it is really not the true income because they are actually getting this counterbalance from all these other goods that they are able to produce. And they gave us some quotes from the Northwest Territories about how all of these different ways of generating food and clothing were offsetting lower incomes. And they said: Higher prices for telephone services in rural and remote areas could be alleviated by domestic production in the same way as higher prices for other goods and services are alleviated.
421. I cannot figure that one out. We have been thinking about this and we have not been able to devise any trap lines yet. My neighbour down the way who is a trapper, I asked him if he could set a trap line for digital switches and high band width facilities, and he did not think he could. My other neighbour who runs a micro business of greenhouse production of tomatoes, I asked her if she could irrigate copper wires for us to improve our transmission speed. What we have noticed in our area, as soon as the copper wires get wet all we get are shorts and no service at all. So somehow I do not think our domestic production is going to solve our problems here.
422. THE CHAIRPERSON: Ms Kerr, I notice you are looking at your watch. By my count you have gone over the 20 minutes. I wonder if you could summarize in a couple of minutes.
423. MS KERR: I will summarize two things. Again this morning, these are the final items which we have concerns over and are the dark side.
424. Things on paper look really good. We heard this morning from the province of B.C. about the IWP program, which is Infrastructure Works and was supposed to improve telecommunications in our area. It has not happened. People in our next valley over have been struggling for two years to get this program to actually come to fruition and to put the telephone lines in. It is not happening. The Rural Upgrade Program, which is supposed to be done by the year 2001; it is not adequate. People in areas where it has been done cannot get telephones. There are no telephones.
425. MR. KERR: The day after the RUP is done there are not any telephones.
426. MS KERR: The switches are not adequate to give us access to long distance service providers. We cannot access a long distance service provider. BC Tel tells us there are no plans to upgrade those switches; not now, not ever.
427. Finally, we believe that there are solutions. We know that in our area small businesses and people in their private lives are suffering because every call we make is a long distance call to our local business centre. When we talk about increasing the cost of local basic service, we are already paying high costs for local basic service. We cannot pay any higher.
428. We would suggest that serious consideration be given to consolidation of exchanges in our area, that something like natural calling areas be put into place so that at least we could get one-way access to businesses, and access to Internet service providers so that we do not have to continue doing our volunteer work.
429. In conclusion, we cannot stress to you enough the urgency of our situation and that in other areas. We cannot continue forever in this situation. Communities are falling further and further behind. We feel that there is a priority to serve unserved areas first and underserved areas second.
430. I want to refer finally to Bill Reid again. In 1984, he did a piece for Teleglobe Industries in Burnaby, B.C. It shows a series of mythical animals with lovely long tongues connecting to each other.
431. Alvin Toffler says: Telecommunications is part of the glue that must hold us together in a world that is quaking with change and fragmentation. To regulate, or deregulate, telecommunications for narrow economic reasons is to lose sight of its primary importance. Telecommunications is above all a social act. It is inherently cultural, political and psychological.
432. Thank you for your time.
433. THE CHAIRPERSON: Thank you very much, Ms Kerr and Mr. Kerr.
434. Madam Secretary.
435. MS GROULX: Thank you, Mr. Chairman. The next presenters will be Chisasibi Telecommunications Association and Cree Nation of Chisasibi.
436. THE CHAIRPERSON: Good morning, gentlemen. Please proceed when you are ready.

     PRESENTATION / PRÉSENTATION

437. MR. NEACAPPO: Thank you. Mr. Chairman and Commissioners, good morning.
438. My name is Jimmy Neacappo. I am a councillor for the Cree nation of Chisasibi, responsible for communications, and President of the James Bay Eeyou Corporation.
439. Sitting beside me are Ashley Iserhoff, Grand Chief of the Cree Youth Council and a councillor for Mistissini; Lloyd Cheechoo, representative for the James Bay Cree Communications Society and operator of our Cree Regional Radio Network; Raymond Menarick of the Chisasibi Telecommunications Association; Hyman Glustein, communications consultant from RTS Canada; and Bill Namagoose, Executive Director of the Grand Council of the Crees of Quebec and Cree Regional Authority.
440. I want to thank the Commission for allowing us this opportunity to present closing remarks. Much of what we have to say is based on our experience over the past year, working closely with this Commission and other native communities and organizations across Canada.
441. We are from communities where telecommunication service is as basic as the postal service. Thanks to the telephone, cable TV, e-mail and the Internet, we are no longer isolated from current events, nor are we captive consumers of any single communications carrier for news and information. Nonetheless, for every door that opens, another one is still locked. Today we still face a monopoly environment in long distance and local telephone services; and many of the telephone services that are available to others are not available to us. We are not asking for special status; all we are asking is that we be treated fairly.
442. We met with consumer groups and public interest bodies from across Canada and together drew up a statement of principles on consumer rights, the Consumer Charter for a Connected Canada, a document we feel endorses equitable service for all Canadians. We also have met with many Cree entities and public organizations. Many have endorsed this document and today we have asked their representatives to help us present our closing remarks.
443. Ashley Iserhoff will speak about the social concern of our community and the importance of a telephone service. Lloyd Cheechoo will discuss the cultural concerns of the communities. Raymond Menarick will address the issue of how the Télébec monopoly hurts our entrepreneurial capacity. Hyman Glustein will highlight the issues that will be presented in our written submission.
444. But first, Bill Namagoose, former chief of Waskaganish and spokesman for the Grand Council of the Crees will speak about the issues that brought us here today. Thank you.
445. MR. NAMAGOOSE: My name is Bill Namagoose. I am the Executive Director of the Grand Council of the Crees and the Cree Regional Authority. The Grand Council of the Crees is the political representative of the Cree nations of James Bay of Quebec.
446. We are concerned that Télébec has failed to serve our communities fairly and adequately, and Télébec is seeking substantial rate increases as well as a national subsidy to support this unsatisfactory service. We endorse the objectives of the Cree Nation of Chisasibi and the Chisasibi Telecommunications Association in its presentations to you.
447. Since the public hearings held in Val d'Or, our communities have considered the matters raised by Chisasibi. We fully support them and are pleased to speak today about these issues that are important to our communities.
448. We feel that the telephone services offered to the Cree communities and the service offered to Hydro-Québec work camps are unequal and need to be rebalanced before any subsidy should be accorded.
449. Second, we feel that Télébec has used its local area monopoly to privilege itself in the long distance market and used its overwhelming position to keep out competition for Cree telephone subscribers.
450. Third, we feel that the Télébec high-cost estimates camouflage a hidden expense that reflects on its revenues. By providing local access to the Hydro-Québec private telephone network with its private long distance capability, Télébec reduces revenues, making its need of a subsidy more plausible. In this case, we contend that the costs are management driven and from any perspective could turn into a revenue source and also reduce costs.
451. Fourth, we are deeply concerned that Télébec does not offer jobs for Cree technicians and service representatives. Also, for our numerous construction outfits, some of which have been trying to be Télébec suppliers for years, Télébec does not offer contracts to Cree construction crews.
452. There are four other issues I would like to briefly comment on. Those are subsidies, the Internet, intercommunity dialing and public rights.
453. Our position on the proposed subsidy is, if the CRTC chooses to establish one, it should only be used to keep rates affordable and should be managed by a committee of consumers, small communities, First Nations other public interest bodies, and regional telephone companies.
454. Regarding the Internet, we feel that any subsidy to telephone companies to provide Internet must not be used to crush competition. We ask the CRTC to consider an appropriate mechanism that would allow the public greater access while limiting potential abuses by telephone companies. I will cite the example of our headquarters located in Nemaska. To avoid slow Internet by long distance, we approached Télébec to install a dedicated line for Internet access. They offered a line to LINO in Val d'Or, which Télébec describes as a wholly-owned branch of their company. Val d'Or is approximately 700 kilometres from Nemaska. The cost of this dedicated line was first offered at $1,000 per month, which Télébec later decreased to $500 a month.
455. Meanwhile, in neighbouring Wemindji, about 450 kilometres from Nemaska, there is another Internet provider, CreeNet, who also offers Internet by telephone. According to CreeNet, a Cree owned company, the Télébec price to them for a 56K line to Nemaska from Wemindji, although considerably closer than Val d'Or, was about $1,600 per month, about three times more than Télébec. Why does Télébec offer lines for their own Internet service at discounted rates and to their competitors at higher prices? Are they not a public carrier? Is their aim to drive the competition out of business, or is it simply charging itself less, as sort of a loss leader, to bring in Internet business? If Télébec lines will be subsidized for Internet service and these savings are not passed on to consumers who choose an Internet competitor, what guarantees an open market? Simply, when Télébec offers a customer a discounted line to LINO or a full-price line to a competitor, who do you think will get the business? Who will benefit from that subsidy?
456. If the CRTC want to regulate fairly, we strongly suggest it starts by examining this type of predatory price policy.
457. Télébec is a new player in the Internet business. CreeNet was created long before Télébec expressed any interest in the Internet. Other communities, such as Chisasibi, invested substantially in Internet technology before Télébec wanted a grant. These proposed subsidies, if allocated only to telephone providers, would undermine fair competition. Subsidies should benefit the consumers.
458. Regarding telephone service, we are encouraged by the Chisasibi proposal to Télébec to negotiate toll-free dialing for all Cree communities, similar to the type of plan offered by Bell Canada elsewhere. This would allow all Cree communities toll-free access to each other. We understand that Télébec has not responded to this request. As Grand Chief Matthew Coon-Come stated in his letter to this Commission: "We therefore ask the CRTC to consider its role in obliging Télébec to respond with a reasonable proposal to our letter."
459. Finally I turn to the matter of rights of telephone customers. We are pleased to see that Chisasibi representatives, along with other organizations from across Canada, developed a statement of principles concerning the rights of the public when dealing with telephone companies. The Grand Council of Crees reviewed this document and approved it without reservation. We believe that all Canadians have a right to high quality telecommunication facilities at affordable rates and we encourage you to consider this as a positive recommendation and one that should apply to telephone policies.
460. Thank you.
461. MR. ISERHOFF: Good morning. My name is Ashley Iserhoff. I am a councillor of the Cree Nation of Mistissini. I am also the Grand Chief of the Cree Youth Council of James Bay.
462. I would like to talk to you about how Télébec services do not serve our needs. For example, I will first point out a critical social problem in northern communities; the issue of suicide. In northern and isolated communities, each year an important number of desperate people take their own lives. This is not news. It is not a situation unique to our villages. It is a virus that infects communities when people feel left out of the mainstream and ignored by those outside. It is an issue that destroys families and deforms society.
463. Now we know that the telephone system is not the answer to the suicide problem. However, it is a critical tool in getting help to people in an emergency. By everybody's definition of basic telephone service, emergency communication is a primary function. In light of this, Télébec publishes a list of emergency telephone numbers on the front page of its telephone book. One of them is an 800 number to a suicide hot line. In their phone book, it clearly indicates that the 800 number is for James Bay and for Lake Mistissini.
464. The problem is that our community speaks Cree and, as a second language, English. The 800 service number that is published provides help only in French. Imagine the desperation of a suicide call that turns into a language test. As I said, we do not expect the telephone company to provide a suicide line. We do, however, expect that an announced service is there to help people, not to make them feel more isolated and vulnerable. If Télébec were truly interested in providing this information on emergency services, it could easily just connect its 800 service to a line in Montreal where English services are available, or offer a line to one of the Cree health care providers for a Cree language service.
465. In an emergency, we all turn to the telephone. In major cities, we call 911. In smaller centres, we call the numbers provided on the front page of the phone book. In some communities, we dial zero. The telephone is a front-line instrument in an emergency. We pay for phone services and we expect it to work for us, fairly and respectfully. We do not expect to find ourselves deceived into believing that it can offer a solution when in fact if only adds to the problem.
466. Last June, representatives of Chisasibi talked about the emergency road services that Télébec provides on Hydro-Quebec's roads but not to the roads to Cree communities. Since that time, Télébec has done nothing to improve the situation. This lack of attention to Cree issues has moved the Mistissini Council to endorse the Chisasibi presentation. We ask the CRTC to carefully examine Télébec's request for a subsidy and, if you choose to give out funds to Télébec companies, that the distribution of these funds be based on the telecommunications services provided, not simply on the basis of a request for cash. The telephone services that should be subsidized should include individual lines; local calling areas that include access to hospitals, schools and local government; access to competing long distance services; and local access to emergency services.

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467. In addition, other basic services could be provided by alternative organizations but should be eligible for the proposed subsidies such as a copy of the local directory in the language of the community, Internet services from cable providers, alternative telephone services provided by wireless systems.
468. The Mistissini Council opposes telephone rate increases without significant improvements to the service. Furthermore, it endorses the Chisasibi proposal, along with many other organizations across Canada, for a statement of principles about consumer protection as stated in the Consumer Charter for a Connected Canada.
469. Finally, let me say a few words about the youth in our communities. We have a new generation of computer literate and educated youngsters growing into positions of leadership. Information technology and telecommunications play an important role in their lives. More than their parents, they use the telephone and communication services for work and for enjoyment. Their knowledge of its capabilities would be enhanced if there were jobs available in these fields as telephone technicians, as Internet designers and providers, as telecommunication engineers. None of these positions will ever open up if Télébec does not begin to train Cree employees, if the telephone company uses its HCSA grant to directly sell its own Internet and crushes the local competition, if Télébec refuses to recognize the technological talent of Cree youth.
470. As a major employer in the Abitibi region, we call on Télébec to react responsibly and offer a fair proportion of its jobs to Cree workers. We call on the Commission to insist that Télébec respects the employment equity principles in Canadian law.
471. Thank you.
472. MR. CHEECHOO: My name is Lloyd Cheechoo, representative of the James Bay Cree Communications Society, a coalition of our local communications association.
473. Since 1985, we have operated a regional broadcasting network licensed by the CRTC. All our member societies also operate their own radio service. Some operate television services. One is a publisher of The Nation magazine. All are Internet users.
474. Our mandate is cultural, to provide a means for the community to explore our identity, to express our language, and to reflect our traditions.
475. Our radio services offer locally and regionally produced programs that focus on our people and our communities. However, like other Canadian broadcasters, our members are highly dependent on telecommunications services and on the public telephone system. They have asked that JBCCS be present today to join in this presentation.
476. Télébec representatives have been saying that the Chisasibi representation is only for their community and other Cree communities do not feel the same way. As for the community broadcasters and communications societies in all Cree communities -- that is the local societies -- we are here to say that that is not the case. We support the Chisasibi position. We oppose the drastic rate hikes proposed by Télébec. We support the concept of a charter of rights as stated in the Consumer Charter for a Connected Canada. We feel that all our communities should be treated fairly; and since we are charged the same rates as Hydro-Québec work camps, we should receive the same services.
477. As this Commission was told in June when it held hearings in Val d'Or, Quebec, we find it difficult to understand why Télébec does not offer services that respect the language of its users. I will offer you an example -- the telephone book.
478. Every customer is provided with a free telephone book, not just by Télébec, but by every telephone company in Canada. After all, it makes sense, if you want to call someone, you should be able to find out their telephone number. But what if your language is different than that of the telephone book? Let's look at the telephone books in three communities: Whapmagoostui, Radisson, and any of the James Bay Cree communities.
479. Just north of the La Grande River in Whapmagoostui, previously known as Great Whale, telephone service is provided by Bell. It, too, I am sure, is a high-cost serving area. In Whapmagoostui, the telephone book is published in three languages, including Inuktitut, and it is part of their basic telephone service. In all the other James Bay Cree communities, our phone book has not one word in the Cree language, no greetings, no explanations, no recognition and no information. This, despite the fact that Télébec is the only telephone provider serving eight of the nine Cree communities in Quebec.
480. Our communities are resourceful and we are used to having to find our own ways to preserve our culture. We find innovative solutions. One of our member organizations, the publishers of The Nation magazine that is published bi-weekly, put together a Cree community directory, which includes all telephone listings, and distributed it to every home in our communities. I offer this as an example of the quality of service that Télébec should provide.
481. In Whapmagoostui, a local directory is available in the language of the community. In Radisson, there is a local directory that is available in the language of that community, which is French. In the James Bay Cree communities, we have to publish our own telephone book at our own expense. Our definition of basic service includes a telephone book. We suggest that part of the HCSA grant goes to The Nation magazine for publishing their own phone directory annually and deduct it from the HCSA grant that Télébec is requesting.
482. A second matter of cultural integrity versus automation stands before us. Simple recorded messages like: "We have a collect call, do you accept this long-distance charge?" could save needles expense if they were fully understood by the Cree. Here is an example for you that will explain why these messages are important. Elders in our communities, who do not speak French, receive a phone call, a wrong number, and the recording asks in the French language if they would accept the collect call, which is "oui ou non". They understand the message enough to know that it is a wrong number and reply by the Cree word "no" that is pronounced "M'wee", similar to "oui" which is "yes" in the French language. Then the call is put through and considered that the call is accepted and billed to that account.
483. How many times a day does that innocent error end up on someone's phone bill? Why can't Télébec do what Bell Canada does in urban centres like Montreal, use a recording in the language of that user? It is not simply a matter of politeness but it is a matter of cultural respect.
484. We recognize that over the years this Commission has played an important role in preserving Canadian cultural identity by assigning a role to private radio and television broadcasters to recognize Canadian talent and expression, and by obliging licensees to respect Canada's official languages. Without CRTC intervention, Canadian content would not have become a reality.
485. Cree culture and language also face similar obstacles, but we should not be penalized because we have shown initiative and taken preventive action when government and private business have failed to serve us.
486. We ask the CRTC to consider this: Télébec says all of its service territory is a high-cost area and should be subsidized at the same rate for all exchanges. Doesn't that mean that it should treat all of its customers fairly and offer not only the same services but the same respect?
487. Thank you for this opportunity to present our views.
488. MR. MENARICK: My name is Raymond Menarick and I am the representative of Chisasibi Telecommunications Association, operator of radio station CHFG FM and Ginwat-Cable Television which provides television and Internet service.
489. For the last year, we have studied documents from telephone companies and interested parties about high-cost serving areas. We have received overwhelming support from the Cree communities and from Cree organizations for our presentations. We have followed carefully the replies that Télébec and other parties to the hearing have made to our concerns.
490. The CRTC in its opening announcement of these hearings asked a number of questions which we have tried to answer. However, one question that deals with the issue of fairness still needs to be addressed: Should all HCSA regions be the same or should there be different categories, those who have certain services and those who don't? Télébec is asking for a subsidy for all of its HCSA areas and, from its answers, it says that it wants the same grant for areas with poorer services as it hopes to get for areas with better services. Télébec's reply to this question is that different categories are not appropriate.
491. To put it in simple words, Télébec wants the grant to do with as it sees fit. This argument reflects the arrogance and tone that we have encountered long before these hearings began. In our final written presentation, we are including a letter sent to Télélebec on November 23, 1998, concerning establishing a neighbourhood calling plan like the one operated by Bell Canada. We want to thank the Commission for its assistance in identifying this option and guiding us to the appropriate decision, 92-22.
492. We did not approach Télébec looking for a handout. Rather, we were proposing a way to do business. In our letter, we asked that Télébec advise us of the one-time costs for setting up such a toll-free network and the ongoing costs to subscribers. In our subsequent telephone inquiries to Télébec and in their letter of acknowledgement, faxed to our office only last Friday, after we sent Télébec a copy of the notice that we all intended to speak today, we were told to be patient, that a reply was forthcoming. Well, so far, no reply to our offer. We ask the Commission to assist us in extracting a fair and just answer.
493. Concerning the Télébec proposal for subsidies, as we have already told the Commission, we believe that any subsidy program should be used to provide all Canadians basic telecommunications services and to keep telephone rates affordable. We don't believe that adding bells and whistles to the phone service justifies charging exorbitant rates.
494. We don't believe that the telephone companies have an inherent right to public money to bolster their bottom line.
495. Furthermore, we don't believe that the telephone company is the only vehicle for providing telecommunications services.
496. In deciding which telecommunications services should be available to all Canadian consumers, we reviewed all the submissions before this Commission and we concluded that the most comprehensive list was the one provided by the Consumers' Association of Canada.
497. This list was contained in our reply 2201, November 12, 1998. One item on the list deserves a more detailed explanation -- toll-free access to the Internet.
498. We believe that it is the right of everyone to have access to the Internet. In Chisasibi, we faced this problem in the past, hoping that Télébec would deliver a solution.
499. About 16 months ago, we decided to proceed on our own and set up an independent Internet service. Once this became known, Télébec asked to meet with us. At that meeting, they said that, if we proceeded, they intended to compete with us head-on in the Internet business. They said that their local dial-up service would be available within a few months. In fact, this is still not available. Fortunately, we did not wait. One year ago, we began to use our own two-way cable TV system for Internet access and we signed an agreement with Cancom to provide two-way satellite service. Today, the entire Town of Chisasibi has access to high-speed Internet. We do not use any telephone lines in our system and connection is free to everyone who has cable TV. Currently, about 93 per cent of all homes have cable TV. There is no monthly charge for the use of the cable lines to our Internet. The only charge is the Internet subscription fee. This, by any definition, is toll-free access to the Internet -- no long-distance charges, no local telephone charges, no extra telephone lines.
500. Presently, the only Internet access offered by Télébec is slow-speed by long-distance. As we have heard today, Télébec seems to discount line charges for its own Internet company, LINO, in Val d'Or, but charges full rates to its CreeNet competition. If Télébec gets a grant to provide local access and once again uses its position to discount services for its own Internet service, we will be facing a serious case of unfair competition, and this unfairness subsidized by public funds.
501. Why should a grant allow Télébec to compete with our service after we invested over $60,000 to provide our own service? In the past, Télébec has benefited from CRTC decisions protecting its monopoly and preventing competition. It seems appropriate that as long as they have a monopoly, Télébec should not benefit from a new grant to expand its operations to compete with services that others provide. We are concerned that Télébec will follow pricing policies similar to its parent firm, Bell Canada, such as offering one-year free Internet if customers sign up for other services, or that Télébec will do in Chisasibi what it seems to have done in Nemaska, absorbing the line costs to strangle the competition.
502. In the case of Internet, a local telecommunications provider who provides toll-free access should be entitled to any grant for this service. If there is a grant for toll-free access to the Internet, it should be provided to one of the following: the first provider of the service with delivery capacity; the local provider of the service with delivery capacity; or only in markets where there is no competition.
503. Finally, the answer to the CRTC question of whether there should be categories of HCSA service, the answer is a definite yes. Those areas with better telecommunication services --
504. After local communication providers or the telephone companies improve standards, only then should the area be eligible for the full subsidy. And subsidies should be adjusted to balance services, such as free extended area service. All customers should -- to review --
505. Applications for HCSA grants should ensure that all telecommunications providers respond to community concerns and needs. Grants should not be corporate welfare.
506. Fairness is within the powers of this Commission. We have given Télébec every opportunity to respond to these issues.
507. Thank you.
508. MR. GLUSTEIN: My name is Hyman Glustein. I am a consultant to the Cree Nation of Chisasibi and the Chisasibi Telecommunications Association.
509. We will submit to the Commission on January 29 a final document covering the major elements that we have brought to this table over the past year. Some of these issues will include employment equity. To our questions about employment equity, particularly hiring and training, Télébec stated in their response to our questions:

     "The requested information is irrelevant, immaterial and unnecessary for a decision in this proceeding."

510. We feel that, since the CRTC annually obliges licensees to submit compliance information, it has a responsibility to review this information. If it is found that employment equity law is ignored, in our opinion, the CRTC must exercise its regulatory authority with a condition of licence. High-cost areas must not be above the law.

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511. Service areas.
512. To CRTC Question 100, Télébec stated that Radisson and Chisasibi pay identical residential and business rates. In response to CRTC Question 1201, Télébec described Radisson as an area of over 300,000 square kilometres, population 2,456; it stated that Chisasibi covers 800 square kilometres and has a population of 3,251.
513. The Radisson area of 300,000 square kilometres is more than twice the combined size of the three Canadian Maritime provinces. On the other hand, the Chisasibi area seems to cover the lands under the James Bay Northern Quebec Agreement but the telephone service is limited only to the physical village, about two square kilometres.
514. Then, in response to our Question 100, Télébec replied that the maximum distance of a local toll-free call in the Radisson exchange can reach is 158 miles. Regarding the usual 40-mile EAS rule that applies to local dialling, Télébec stated:

     "Note that in the case of the Radisson exchange, the distance criteria does not apply and that the EAS service was established when Télébec was under provincial jurisdiction."

515. Télébec argues that this incredibly large toll-free local dialling territory is some sort of ancestral right granted by the Quebec government. Is Télébec arguing that their ancestral right to subsidize Hydro-Québec deserves to be subsidized?
516. This provincial ruling gives Hydro-Québec workcamps a vast local calling area while nearby Cree communities are isolated into small local-dialling areas. It may be in the interest of the Quebec government to favour Hydro-Québec projects over fairness to its local citizenry, but it is not in the national interest to subsidize this service. It is an unfair practice and does not merit a right in perpetuity, especially when subsidies are brought into the picture.
517. On the question of accuracy in Télébec's cost estimates, in response to our Question 1 Télébec stated:

     "The estimated cost of providing local service in Chisasibi and Radisson are approximately $120 per month per network access service."

518. In its submission to the CRTC on the 1st of May 1998 Télébec stated, on page 5, that the estimate average cost for local service was $53.
519. Since the size of Radisson and Chisasibi are somewhat different -- using Télébec's figures Radisson serves an area 375 times larger and has 25 per cent fewer clients -- it is doubtful that they both have the same costs. Télébec should be required to submit the real costs for each HCSA exchange on the public record. These costs should be verified independently and any proposed subsidy should be based on these real costs.
520. On the question of Télébec service to Hydro-Québec private telephone network, in our written submission we will present research of CRTC decisions on private networks. It will show that Hydro-Québec is not a licensed carrier. We will also present letters from Hydro-Québec showing that Télébec has objected to revealing documents, agreements, contracts and letters pertaining to the private telephone network.
521. Furthermore, it appears that Télébec has made no effort to show this Commission that it has requested Hydro-Québec to apply for a licence to operate its publicly-accessible long distance service. We ask the Commission to review this matter.
522. Finally, I just want to turn to one matter that was brought up today in the Télébec submission on sources of financing for HCSA. Télébec stated:

     "Toutes les entreprises qui oeuvrent dans l'industrie des télécommunications au Canada doivent contribuer au financement des ZDCE."

523. I roughly translate this as any enterprise or all enterprises working in telecommunications in Canada should contribute to the HCSA Fund. The translation I think is pretty close.
524. We asked Télébec virtually the same question; the reply is November 13th, 1998, our Question 110. The question was: Should private telephone networks benefit from an HCSA subsidy and/or should they contribute to an HCSA subsidy? The reply that Télébec sent us -- and I will read it -- said:

     "Private telephone networks should not benefit from any HCSA subsidy and/or should not contribute to the fund."

525. This is typical of the responses we have been getting. Once set of responses says one thing and then another submission is made and it says virtually something else, something that doesn't coincide with the first bit of information.
526. We find this approach that Télébec has taken in the course of this hearing has made it very difficult for us to make a presentation to this Commission that's accurate and correct because, every time we base it on a piece of information, we are given some other piece of information that contradicts the first piece of information.
527. Our point is this: We were faced at the opening of this hearing with a number of very difficult questions about telephone hearings. We tried to phrase the answers to these questions within the experience that goes on in the James Bay area of Quebec. We were trying to develop an answer that actually showed what it is like to have telephone service in a high-cost service area.
528. At our first hearing we were asked some questions, quite truthfully, that we didn't know the answers to. I think Commissioner Wylie asked us a question of what services we didn't have in the area where we were as opposed to in other areas, and the answer was that we didn't know because we really weren't telephone experts.
529. The answer I guess we were looking at is, we don't have services that are provided within other HCSA areas. It is not a matter of we don't have services in Chisasibi or in Eastmain that are provided in Montreal; we don't have services that are provided within Télébec's area, that are provided to other exchanges within Télébec's area. In that area we find that it is unfair that a question of a subsidy should be granted to all exchanges equally when in fact some areas benefit more than other areas, and all we are asking, really, is, on the question of fairness, before a subsidy is granted, that telephone companies are obliged to submit the actual costs in each exchange and a list of the services provided in each exchange to show that they can be balanced properly so that there can be a fair allocation done, so that in the end the telephone users will benefit from the subsidy rather than the telephone company.
530. Thank you very much.
531. THE CHAIRPERSON: Thank you, Mr. Glustein, and thank you gentlemen. Notwithstanding all the problems that you have cited here, it sounds like in Chisasibi you have probably the best Internet access in the country. You should have been at our new Media Hearing a little before Christmas.
532. In any event, thank you very much.
533. Notwithstanding what I said a short while ago, I think we will take a lunch break in view of the hour. So we will take our lunch break now and reconvene at 1:30, at which time we will hear the last four presentations.

     --- Recess at / Suspension à 1222

     --- Upon resuming at / Reprise à 1330

534. THE CHAIRPERSON: Order, please. Thank you.
535. Madam Secretary.
536. MS GROULX: Thank you, Mr. Chairman.
537. The next presenters will be Northern Telephone Limited.

     PRESENTATION / PRÉSENTATION

538. MR. McCARTY: Thank you.
539. I am Dennis McCarty, Vice-President, Strategic Direction and Regulatory Affairs with Northern Telephone. Also with me today is Kirsten Emery. Kirsten is Northern Telephone's outside legal counsel with regard to the 97-42 proceeding.
540. Northern Telephone is pleased to submit the final oral argument for the Commission's consideration, and we certainly thank you for this opportunity.
541. As noted in Northern's May 1st, 1998 submission in this proceeding, Northern provides local telephone service in 32 exchanges in northeastern Ontario. Many of these communities within the 32 exchanges are located in rural and remote areas of the province and are frequently separated by considerable distances. In fact, Northern's serving territory spans roughly 83,000 square kilometres, beginning at Latchford in the south -- Latchford, for those who don't know, is about 300 miles north of Toronto -- and extending all the way to Abitibi Canyon in the north, and then running from the Quebec border in the east to a community called Calstock in the west.
542. Despite this very large serving area, Northern provides services to only 65,692 network access services which, when averaged over Northern Telephone's entire serving area, represents a total of 80 NAS per 100 square kilometre.
543. To put this into perspective, Northern has prepared a table which compares the NAS density in Northern's serving territory with the density which exists in other incumbent local telephone company operating territories in Canada. For example, in Bell Canada, they have 1,005 NAS per 100 square kilometres; Manitoba Telephone System is 103; Quebec Telephone is about 108; SaskTel is 92; and Thunder Bay is 4,663. As I mentioned, Northern's is 80 NAS per 100 square kilometres.
544. If I take out the four largest areas serviced in Northern, the actual NAS is about 26 NAS per 100 square kilometres, with just taking out four communities out of the 32 that we had talked about.
545. Over the past several years the Commission has gradually opened several Canadian telecommunications services markets to competition, beginning with the private line market in 1979, the cellular and enhanced services markets in 1984, the facilities-based long distance market in 1992, and the local switched telephone service market in 1997 along with the pay phone market in 1998.
546. Because competition produces numerous customer benefits, including lower prices, increased choice, and greater innovation, Northern believes the Commission has chosen wisely to place greater reliance on market forces as a means of promoting efficiency and competitiveness of Canadian carriers.
547. Insofar as competition in northeastern Ontario is concerned, Northern notes that competition in the long distance market has yet to occur, primarily for two reasons. First, O.N. Tel, the telecommunications division of the Ontario Northlands Transportation Commission, continues to exercise an exclusive mandate in the provision of long distance services in the region. However, pursuant to Telecom Decision 98-18, this exclusive mandate will be phased out at the earliest on July 1st, year 2000. Second, high carrier access tariff rates have discouraged market entry by competing providers of long distance services who are required to pay these rates in order to contribute to the shortfall in revenues from local telephone services which are currently priced below cost.
548. Over the past few years Northern has progressively reduced its CAT rate through cost reductions and rate rebalancing programs. On December the 11th, 1998, Northern took further steps to reduce its CAT rate by filing a rate rebalancing application with the Commission. Northern's application proposes that local residential telephone service rates be increased by an average of $6 a month in the spring of this year and by another $6 a month early next year.
549. The revenues generated from these increases will be used, in turn, to reduce the contribution component of Northern's CAT rate from $0.04 per minutes to approximately $0.015 per minute. Because these reductions to Northern's CAT are being proposed as a means of encouraging competitive entry in the long distance market, it is extremely important that this rate rebalancing initiative be carried out in advance of July the 1st, year 2000, which is the day that Northern,s customers will be afforded a choice of long distance service providers.
550. Northern believes that this rate rebalancing is necessary, particularly if customers in northeastern Ontario are to experience the long distance reductions which are already enjoyed by customers in other regions of Canada. Nonetheless, Northern notes that the contribution component of its CAT will still be higher than Bell Canada's prevailing rate of roughly $0.005 per minute. Northern notes that it will be necessary to increase residential telephone rates to $29.45 a month in order to achieve a contribution rate of $0.015 per minute. This is indicative of the high cost of providing local telephone service in Northern's serving territory.
551. Notwithstanding these high costs, Northern has undertaken a number of initiatives over the last few years to progressively modernize its communications infrastructure. For example, in 1998 Northern received approval from the Commission to convert eight of its remaining ten analogue switches to digital switching technology. Once this switching equipment modernization program is complete, 99 per cent of all access lines in Northern Telephone's serving territory will be digital.
552. In addition, in the application Northern filed with the Commission late last year, Northern proposed a Natural Calling Centre initiative which would expand local calling areas for most of Northern's customers. This initiative is also expected to create greater incentive for Internet service providers to provide services in areas that they might not otherwise choose to serve, thereby promoting customer choice in the selection of Internet service providers.
553. However, even after these service expansion and modernization initiatives are taken into account, there still will remain a small percentage of subscribers in Northern's serving territory, roughly 4,580 subscribers, or 8 per cent of our total NAS, who continue to receive either two- or four-party service.
554. During the regional hearings in this proceeding several of Northern's two- and four-party subscribers expressed their desire for single-line telephone service and noted various deficiencies with their existing party-line service. Northern is very sympathetic to these concerns and notes that it is currently in the process of modernizing switches that serve the vast majority of these customers. However, Northern is of the view that it will not be possible to convert these customers to individual-line service in the absence of some high-cost serving area subsidy.
555. Indeed, it would appear from preliminary costing analysis that the average cost of providing residential telephone service to the more rural and remote areas of Northern's territory is three times greater than the average cost of providing the same service in the remainder of Northern's serving territory. Northern has estimated on a preliminary basis that roughly $17 million would be required in capital costs alone to convert its remaining under-served areas to urban-grade ILS service.
556. In Northern's view, customers should not be disadvantaged in terms of the telephone service that they receive simply because they live in rural and remote areas of this country. Customers in all areas of the country should have high quality, urban-grade telephone service and a choice of service providers. More specifically, Northern believes that all customers within its current serving territory should have access to a quality and grade of telephone service which provides them with at least the following levels of service:
557. - single-line primary exchange service with touch-tone capability;
558. - access to expanded local calling areas; and
559. - access to modern digital technology capable of supporting the following services or features: access to toll service; local and/or toll free access to emergency services; access to operator and directory assistance; access to message relay service; line quality capable of local and interexchange facsimile transmission; toll blocking; call display service; access to 900 and 976 services; access to call management services; and a copy of the annual local directory.

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560. In its May 1, 1998 comments in this proceeding, Northern noted that the current contribution mechanism helps maintain existing levels of service. Northern also noted, however, that the mechanism does not generate sufficient revenues to fund non-urban service upgrade or extension initiatives.
561. Given that there are a number of subscribers within Northern's serving territory who still do not receive a quality and grade of service which is comparable to the quality and grade of service enjoyed by subscribers elsewhere in Canada, Northern believes that a principal focus of any high-cost service fund that is created as a result of this proceeding should be to ensure that initially subscribers in under-served and eventually those in unserved areas, have the opportunity to receive a quality and grade of service which is equivalent to urban-grade ILS.
562. As noted in its May 1st comments, Northern believes that this approach, the high-cost funding initiative is consistent with the telecommunications policy's objective enunciated in section 7 of the Telecommunications Act, including the objective enunciated in subsection 7(b) of the act, namely:

     "To render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada."

563. Insofar as its own efforts to secure high-cost funding are concerned, Northern notes that it is an active participant in the Temiskaming-Cochrane Telecommunications Infrastructure Committee, which is sponsored by Benoit Serré, a federal Member of Parliament for Temiskaming.
564. Among other things, the committee is examining ways in which funding for infrastructure initiatives in the Cochrane-Temiskaming districts may be raised from the federal economic development initiative in Northern Ontario, or FedNor, and the Northern Ontario Heritage Fund Corporation. It is our understanding that this committee has concluded that for independent telephone companies which serve the Cochrane-Temiskaming region, that there is no business case to carry out any further ILS upgrade programs. The committee also appears to have concluded that it would be unrealistic to charge subscribers for the extremely high cost of these programs.
565. The committee has, therefore, proposed that ILS programs be funded through some sort of subsidy mechanism and my understanding is that their report will be released this Friday stipulating that.
566. Although Northern's efforts to secure government funding through initiatives such as the Temiskaming-Cochrane Infrastructure Committee continues unabated, Northern notes that it has not succeeded to date in obtaining any funding from such sources.
567. At the same time, Northern notes that it would require an additional $4 to $5 per subscriber per month to carry out a $17 million urban grade ILS program. In Northern's view, a further such increase to local rates, on top of the $29.45 we have talked about could create affordability concerns for some of our customers.
568. For these reasons as well as those discussed above, Northern believes that the Commission should use the opportunity presented by this proceeding to establish a regionally-based, high-cost serving area funding mechanism which could be used by Northern and other service providers in similar circumstances to cover both the capital and ongoing costs associated with an individual line service upgrade program.
569. Given that customers located in rural and remote areas are frequently isolated from essential services such as medical and emergency services, Northern believes that the need for an ILS program in these areas is of even greater importance than in the most urban areas of the country.
570. This concludes Northern's oral comments and we thank you for providing us the opportunity to prepare it here today and we are more than pleased to answer any questions that you may have. Thank you.
571. THE CHAIRPERSON: Thank you very much, Mr. McCarty, Ms Embery.
572. Madam secretary?
573. MS GROULX: Thank you, Mr. Chairman. The next presenters will be Utilities Consumers Group.

     PRESENTATION / PRÉSENTATION

574. MR. RONDEAU: Good afternoon, Mr. Chair, Commission members, ladies and gentlemen of the telecommunications industry and interested parties.
575. We appreciate the opportunity to speak to you firsthand. And also, I appreciate the chance to visit our capital city for only the second time in my life, the first time being some 30 years ago. I am very impressed with the heritage buildings we have here and the stone structures that our forefathers built are just amazing.
576. The Utilities Consumers Group, UCG, is a Yukon advocacy group charged with protecting residential and small business customers from unjustifiably large increases in our utility bills, monitoring the quality of service and aiding individual consumers with issues or customer complaints as they arise.
577. UCG is a group of volunteers, registered as an association in December of 1993. We have filed five prior rate hearing submissions to the CRTC, filed a review on variance and written many letters to garner information.
578. You have heard, at the Whitehorse regional consultation, many concerns about the quality of telephone service and affordability in Northwestel's operating area. UCG is very concerned that basic telephone costs are being driven beyond the means of many low and set income consumers.
579. You have also heard that many of our citizens in the Yukon do not have access to telephones. This concerns us even more.
580. UCG believes that the CRTC takes pride in listening to the public, the people of Canada, us. Therefore, we call on you to protect consumers from the telecommunication corporations and ensure that all -- and I stress all Canadians -- are rendered reliable and affordable telecommunication services of high quality, as guaranteed by law under subsection 7(b) of the Telecommunications Act.
581. This subsection can be defined as "universal service". To us, this means that virtually everyone in Canada will be provided with quality telecommunications services at reasonable rates. It ensures that low income customers and customers in areas that are expensive to serve, like our Northern communities and less populated areas, receive the same access to services as other customers. This should not remain static, but change over time to include modern and advanced technology.
582. Telecommunications is even more of a necessity in the north as our communities are more isolated and universal or telephone service often means life-saving capabilities. It also means that northerners so far removed on decision-making processes on federal and other matters can now participate through our telecommunications technology.
583. Information can be accessed to ensure relevant recommendations which are based on sound research and build local knowledge in our local communities on issues that affect us who live there.
584. For these reasons, UCG would like to quote the submission statement to the CRTC on behalf of the MKO First Nation communities which states:

     "For many residents of southern Canada, the principles expressed in subsection 7(b) of the Telecommunications Act have already been achieved. Now it is the turn for Canadians in rural and remote areas of the country who have been waiting with varying degrees of patience for what the statute guarantees."

585. High-cost serving areas. To fulfill the policy objective previously mentioned, the Commission must ensure that services are maintained in high-cost areas and be extended to unserved and under-served areas.
586. The only way this can be accomplished is by establishing some type of high-cost subsidy. This is substantiated by you, yourself, which the Commission stated in a 1995 report, "Competition and Culture on Canada's Information Highway". You state:

     "It is unlikely that market forces by themselves will ensure that the benefit of information highway will roll evenly out to all regions of Canada. This suggests that the policy objective of universal access will not be realized without some support."

587. In the mounds of documents and evidence presented by telephone companies and interested parties, few have stated that such a program should not be implemented. One exception today that I heard, AT&T, although they suggest simply overhauling the existing contribution regime to include high-cost service areas.
588. We submit that such subsidy mechanism must have as its guiding principles affordability, number one, quality of service, choice, flexibility, not remaining static, and universality, the same for all Canadians, rural and urban.
589. By implementing such a mechanism, we believe all Canadians will benefit. We can truly become the most connected nation in the world. Northern businesses will be better equipped to compete and improved telecommunications will open up even greater markets to our southern brothers and sisters.
590. Education will be enhanced, strengthening our nation even more. Our communities will benefit from social development and health. So, I say the problems left to solve are simply how to finance such a program, the criteria to identify high-cost areas and how to monitor the quality of service.
591. How to finance this particular program. There seems to be two schools of thought presented in this public process. Subscribers directly funding the subsidy through toll contribution or subscriber line charges on the end-users. We argue that this will further compromise affordability. Low and set income earners need stable, affordable rates so they can budget.
592. The second one is the surcharge on revenues of all the telecommunications providers. The example bandied is 1 per cent levied per annum on gross revenues on all suppliers. We support this kind of subsidy, but caution that any levy should be kept to a minimum as we are sceptical that in the long term the ratepayer will pay for this.
593. We would like to suggest a third alternative to add to the telecom surcharge and that is that the federal government provide funding to extremely high-cost serving areas through their general revenues.
594. Two side points on this. If the existing contribution regimes work in some areas, there should be no reason we simply cannot expand on this. And secondly, private network intraconnection should also contribute to the fund to level the playing field and they should also be eligible to apply or benefit from any type of subsidy.
595. The criteria for identifying high-cost serving areas, we work on the premise that a mechanism must be implemented to ensure existing standard services, that is subsidize uneconomic toll rates as well as providing capital infrastructure dollars to improve service for unserved and under-served as well as their ongoing costs.
596. There seems to be three criteria presented, a national benchmark approach, a regional or geographic approach and enumeration density.
597. UCG supports the first two criteria as our vision is that all Canadians should have reasonable, reliable access to telephone systems at comparable rates.
598. However, we also realize that each serving area has a unique nature and characteristics calling for adaptation for each need. There is no uniform classification criteria. You have heard in the last two days Northern provincial communities and Northern Territory citizens crying out to you to do something for us.
599. We caution that the subsidy should not be a revenue shortfall subsidy, although we support Northwestel as our incumbent, providing jobs and enhancing our economy, and as the provider of last resort, we to do not wish to see a process which prohibits competitive entry or arbitrary accounting practices.
600. Northwestel must pay its share of the industry subsidy. We also caution the Commission to include one-line business in this subsidy as they are the life blood of our small, isolated communities.
601. UCG cannot support the enumeration density as we believe this definition for high-cost serving area would be discriminatory. An example, cottage country could be served before our established community.
602. How to monitor? Quality of service indicators provided by the telcos to the regulators and complaints made to the consumer groups or the regulator provide a basic monitoring service.
603. We argue that further control mechanisms will ensure accountability. I have two, I am sure there are many more. One, we believe any infrastructure funding for under-served or unserved areas remain out of the rate base.
604. Number two, a multi-year capital plan must be filed by any recipient of the fund to the regulator. Failure to uphold a contract means loss of the subsidy.
605. In conclusion, Mr. Chair and Commissioners, a consensus recognizes the need for a high-cost serving area subsidy. Whether it is a new regime or an overhaul of the present contribution regime does not matter. What we now need is the will of the CRTC to make sound recommendations to entitle reliable, affordable telecommunication for all Canadians.
606. We call on the Commission to pressure the federal government to supply funding for extremely high service areas and not just pay lip service to their own law of the land.
607. The political will must be there as well.

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608. Lastly but not least, we need the will of the telecommunications industry to make this happen. A partnership is needed. We know a high-cost serving area subsidy needed. We do not wish to see an interim or transition period. A specific time frame must be implemented now. This issue is critical to the viability of our northern provincial communities and our northern territory communities. All I can say is, let us get on with it.
609. Thank you very much.
610. THE CHAIRPERSON: Thank you for your presentation. I don't think you mentioned your name at the outset.
611. My name is Roger Rondeau. I am president of the consumers' group.
612. THE CHAIRPERSON: Thank you, Mr. Rondeau.
613. Madam Secretary.
614. MS GROULX: Thank you, Mr. Chairman. The next presenters will be Telus Communications.
615. THE CHAIRPERSON: Good afternoon Mr. Grieve.

     PRESENTATION / PRÉSENTATION

616. MR. GRIEVE: Good afternoon Mr. Chairman, members of the Commission panel, members of the Commission staff. My name is Willy Grieve. I am Vice-President, Regulatory Affairs, at Telus Corporation. With me today, seated to my left and closest to you, is Dr. Rick Emmerson of Indetec International. Dr. Emmerson is a recognized expert in costing and universal support mechanisms. He has been deeply involved in the development of universal service support mechanisms in the United States and elsewhere in the world. Dr. Emmerson assisted Telus with the costing and banding exercise undertaken for this proceeding and has filed evidence on the record dealing with the Telus banding proposal and the question of high-cost serving area costing for universal service subsidy programs.
617. Seated to my right is Mr. Joe McVea, Director of Regulatory Relations at Telus. Mr. McVea represented the company at the regional hearing in Grande Prairie.
618. This proceeding is about how to ensure that consumers living in high-cost serving areas can be assured that they will have quality telephone service which is affordable and accessible in a market opened to competition. We acknowledge that in order to make this happen in high-cost areas, some sort of subsidy mechanism is needed. In the monopoly days, affordable and accessible service was easy to achieve. Regulators set the affordable rates and the rates that paid the subsidy. In order to make sure consumers actually got service, regulators also ordered the monopoly telco to provide the service and, in doing so, they took the responsibility to ensure that the telco was paid and had an opportunity to earn a reasonable rate of return on its investment. That is the essence of the regulatory bargain as explained by the Supreme Court of Canada and the Commission.
619. When competition is introduced, the obligations under the regulatory bargain made in the past continue, and as long as the Commission continues to impose the obligation to serve, every time new service is provisioned and new investments are made, you are making the promise that the carrier with the obligation gets paid. That is the problem you recognized in the Local Competition Decision. Your stated reason for initiating this proceeding was your recognition that no carrier should have an obligation to serve in a competitive market. But without the obligation to serve, and with the need to keep rates in high-cost serving areas below cost and at affordable rates for consumers, something had to be done. Maintaining the telcos' obligation to serve and, by doing so, continually racking up more and more responsibilities on your part was no longer acceptable, but neither was unaffordable rates or unserved consumers.
620. So, even though you put the portable contribution mechanism in place to address the affordability and accessibility problem in the short term, you acknowledged that it was not and could not be a lasting solution. We agree. So we set about to find a solution that would solve the problem, not for another short term but for the long term.
621. To do so, we wanted to find a way to strike at the heart of the fundamental problems you identified -- the tension between the unsuitability of an obligation to serve in a competitive market and the need to fulfil your mandate of delivering affordable and accessible service.
622. We started by determining that in Alberta, the capital cost of the loop is the most important driver of cost in high-cost serving areas. So we disaggregated the costs by serving element and geographically and we attacked there. We asked ourselves what it would take to get people to voluntarily invest the huge amounts of money required to build loops in high-cost serving areas. The answer: Remove the uncertainty created by a 15- to 20-year recovery period in the face of competition and rapid technological change. Adopt the Telus capital cost mechanism in Alberta and you can eliminate the obligation to serve because you will have created the right incentives for carriers to invest voluntarily. And you will not have to rethink the mechanism every few years. It will do the job for as long as you need it and disappear when you do not need it any more.
623. Let us look at this another way. Where is there not a problem? We know that in a market opened to competition and with basic local residential rates at existing levels, there is a certain amount of expense and investment we would voluntarily undertake. But we would not voluntarily undertake investments or expenditures which would cost us more than the approved rate unless there was some other assured revenue such as a subsidy. This, in effect, amounts to the practical definition of a high-cost serving area; any area in which no one would voluntarily invest at prevailing rates and costs unless they had some sort of subsidy to assure them that they could recover their costs and have an opportunity to earn a reasonable return. Of course, you can influence the question of where the high-cost areas are under this definition. If you allow rates to rise, we will be willing to invest more and the number of high-cost areas will go down.
624. But even full rebalancing everywhere will not solve the problem of creating incentives to invest in all high-cost serving areas. This is an important point. Even at fully rebalanced monthly rates, and assuming current depreciation lives, the market would fail to ensure that service is provided, even if consumers were willing to pay the very high monthly rate. In other words, full rebalancing with current depreciation lives would not solve the accessibility problem in high-cost serving areas. For the same reason that fully rebalanced monthly rates will not do it in a market opened to competition, neither will portable monthly subsidies plus monthly rates.
625. We are not the only ones saying this. It is evident from examining the other proposals that there are at least two other parties in this proceeding who recognize the same problem. Actually, we believe there are five, but we will only address two at this point.
626. CCTA proposes that if it wins a bid to serve an unserved high-cost area, it be granted a monopoly over the provision of all services to customers in the area. Microcell's proposal is a bit different. If it wins the bid, it wants a limited time monopoly over receipt of the monthly subsidy. Of course, the length of the monopoly you grant will influence the amount of the bids. If they have a long enough monopoly to recover their capital, they will be happy to provide service. No surprise there: Give us a monopoly and we will invest.
627. But in neither case would customers have a choice of suppliers for any services once the bidding process is over. And, not surprisingly, Microcell and CCTA recognize their own need for cost recovery where they win the bid, but where the incumbents have already invested -- and done so under an obligation to serve -- they say there should be no assurance of recovery.
628. Neither of these outcomes is acceptable. They ignore the regulatory bargain and they fail to provide the full benefits of competition to consumers where they happen to win the bid. Our proposal deals with both these issues and many more.
629. So how did we do this? First, we looked at our own operating territory. We determined that at the current rate of $22 a month we would be willing to invest a certain amount of capital and incur a certain amount of monthly expense. Then we broke down our serving area into 4,000 enumeration areas and, with the help of Dr. Emmerson, costed all those areas and grouped them into nine bands to get some sort of reasonable consistency of loop costs across bands, and so we could determine where we were willing to voluntarily invest at $22 a month. Through this exercise, we confirmed that the biggest single driver of costs is the up front cost to put in the local loop -- the capital cost. All other costs, which we call non-loop costs, are fairly flat across the province.
630. So why nine bands? Because it takes about nine bands to balance the need to direct the subsidies where they are needed in a nondistortionary fashion while still remaining administratively practicable.
631. At nine bands we determined there is some room for us to also recover a portion of the capital cost of the loop through monthly rates and still keep rates affordable. We are willing to risk this portion of the capital cost. We call that the base capital cost and, when added to the non-loop costs, would allow us to charge rates ranging from $22, in the lowest cost band, to about $27 in the highest cost band. Of course, you could determine that the maximum affordable rate is higher than $27. In that case, the base capital cost would rise. Then the monthly rate in band 9 would rise correspondingly. That is your call. You tell us what the highest affordable rate is and that will determine the base capital cost. The only remaining issue then is how we recover the rest of the capital cost of the loop.
632. So in Alberta, what our proposal does is attack the remaining capital cost of the loop. If you target your subsidy there in the same way competitors would attack this issue in a competitive market, you have got the problem solved. That is, create the same conditions competitors would demand from customers in a competitive market and carriers will voluntarily invest without an obligation to serve.
633. So, what would competitors do in this situation in a market opened to competition? If someone in a high-cost serving area asked for service, the competitor would say: Okay, but only if you pay a portion of the capital cost up front or agree to a long-term monthly payment contract with me, like a monopoly, so you cannot leave my investment stranded. I am not going to take the risk that someone is going to come along with some new technology in this dynamic industry and have you take your monthly payments to them.
634. This is what CCTA and Microcell are saying to you when they ask for a monopoly. But we propose to deal with it in a different way. Instead of asking for a monopoly, or even asking the customer to pay the service provider up front, we are saying a subsidy fund would pay it up front. Why? Because in many high-cost areas the full up-front capital cost payment would be unaffordable for consumers and we would be back to where we started.
635. So here's what we have done. In high-cost serving areas, as you choose to define them, any loop that must be provisioned to a currently unserved customer would be put up for bid. LECs operating in the area would be given the opportunity to bid for the up-front subsidy they need. Low bidder wins the right to provision the loop. But since it is subsidized, it must be unbundled. In that way, the customer can easily change service providers and the new service provider would use the unbundled subsidized loop. In that way, the competitor gets the benefit of the subsidy because the price of the unbundled loop would have to recognize that the loop had been subsidized.
636. But what if no one bids? You do not have to worry about that because if we are the only LEC operating in an area, we will accept the obligation to bid so that the customer will not be without service. In order to simplify things, we will annually file a standard bid for all loops to be provisioned to unserved locations in a band. That bid will stand until another LEC enters the area and declares its intention to bid. At that point, our standard bid is off the table and we are in a full bidding situation.
637. So much for the future. But what about customers and locations that already have a loop connecting them? For old loops in high-cost areas, we propose to apply the same capital cost approach. The amount of capital cost subsidy for old loops would, of course, be calculated by taking into account how much has already been paid through monthly rates in a monopoly environment.
638. The result of these two approaches, one for the old loops and one for new, will be that all of our old loops and all new loops that received the capital subsidy would be unbundled and priced to reflect the fact of the subsidy. Competitors would then compete for the delivery of services to the customer based on their non-loop costs and prevailing rates. If a competitor is a more efficient operator and has lower non-loop costs than the other competitors, consumers will benefit from the lower rates that reflect the lower non-loop costs, but the carrier that provisioned the loop will have recovered the capital cost and will be responsible for maintaining the unbundled loop. As new loops are provisioned using lower loop cost technologies, the amount needed for the subsidy fund would begin to decrease. When old loops have to be replaced, they go up for bid again.
639. So how does that proposal address the interests of all the parties to this proceeding? For consumers in high-cost areas, they get high quality service and at least the level of service prescribed by the Commission as being acceptable, and they get it at an affordable monthly rate. They get to choose their service provider because the subsidized loop must be unbundled, and they get the benefit of any reductions in ongoing non-loop costs as competitors enter.
640. For new local entrants, they get to bid for construction of new loops to unserved customers in high-cost areas and get a portion of their capital up front. They get to recover the remainder of their loop cost through monthly rates or, if someone else takes the customer, through the unbundled loop rate since the other competitor would have to use the unbundled loop in order to compete for the service. We would not get a subsidy to provision a competing loop for the same customer service because a loop has already been subsidized. Unlike us, the competitors get to decide whether or not to bid, but even if they do not, or do not win, they still get the benefit of our capital cost subsidy through the unbundled loop rate and they get to provide the minimum standard of service plus whatever else they choose to offer through that use of the loop.
641. What about us, the incumbent? Continued regulation in the form of the obligation to serve would no longer be necessary because with the capital cost mechanism we would voluntarily provide service at affordable rates in any event in those areas. We could accept an obligation to bid in the high-cost areas because we would be given an assurance of the recovery of the portion of our capital investment in loops that we would not otherwise voluntarily invest. We would get to compete for new loop provisioning. And if we lose the bid, we would still get to try for the customer's business through leasing the unbundled loop from the competitor that did win the bid.
642. And what about you? Well, you achieve your objective of affordable and accessible service in high-cost areas; you get an assurance that there will always be someone there to serve because we are promising that, if we get the capital cost mechanism, we will always be there if no one else will bid. You get to stop racking up more and more 15- to 20-year commitments to us under the obligation to serve because we have said that we are willing to voluntarily invest the base capital cost and provide ongoing service for the monthly rate you determine is affordable. You get choices for consumers without having to worry about constant squabbling about how much the ongoing monthly subsidy should be. No more debates about whether someone who built under an obligation to serve has been given a fair opportunity to recover the high capital costs it takes to serve a high-cost serving area. And you get to do all this by targeting your subsidy in the most efficient manner possible to the locations that need subsidy and the cost element that drives the need for the subsidy. You also avoid the problem of inadvertently subsidizing the construction of inefficiently duplicative loops where you have already said loops are essential facilities or, in other words, where you have already said it would be wasteful to have more than one supplier of loops. Over all, you get to rely on market forces where possible and, by targeting the areas and cost element that would make service unaffordable and inaccessible in a high-cost area, you regulate efficiently and in the most effective way possible in the circumstances.
643. This leaves a couple of other questions I would like to address; national fund or regional funds, and what about the other areas of the country? For the same reasons given by Mr. MacDonald of MT&T yesterday, we would not support a national fund. However, like Stentor, we do acknowledge the possibility that the North may be a special case, although we have a bit of a different take on how to attack that question.
644. For the rest of the country, after examining the record, we have a proposal for how long you can deal with the different needs of different areas but still keep a national approach. You can think of this as a type of menu approach. Each of the items on the menu is discussed in our interrogatory responses.
645. Item one: Where the facts tell you that there is a problem with high loop capital costs, use the capital cost mechanism.
646. Item two: Where the facts tell you that the high-cost problem is non-loop costs, use a monthly subsidy.
647. Item three: Where the facts tell you that you have a problem with high-cost toll routes -- and there seems to be a great deal of skepticism about that on the record -- define the problem and attack it directly, either with capital subsidies or ongoing monthly subsidies, depending on the nature of the problem.
648. Item four: Where you have unserved areas, put them out to bid and let the bidders decide whether they need up-front capital subsidies or monthly subsidies, but make sure that the winning bidder does not have a guaranteed monopoly period and must unbundle the loop if you find it is an essential facility.
649. In Alberta, of course, the facts would tell you to use the capital cost mechanism, but not right away. Until monthly rates in our high-cost bands are raised to reflect the base capital cost plus non-loop costs, we would need monthly subsidies as well in those areas. And we would need an unserved area mechanism for Fort Fitzgerald, our only unserved area. Other territories would need other combinations of menu items. When you have the right set of menu items in a geographic area, you have the forward-looking obligation to serve problem solved because you will have put in place the conditions under which companies will voluntarily invest in a market opened to competition.
650. We are confident that when you examine the capital cost mechanism and the menu approach we are proposing, you will find that they fully and directly answer the dilemma you identified in the local competition decision -- the tension between a market opened to competition and the obligation to serve when you are trying to ensure affordable and accessible service.
651. THE CHAIRPERSON: Thank you very much, Mr. Grieve.
652. Madam Secretary.

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653. MS GROULX: Thank you, Mr. Chairman. The next presenters will be ACA et al.
654. THE CHAIRPERSON: Good afternoon, Ms Lawson, Ms Valée.

     PRESENTATION / PRÉSENTATION

655. MS LAWSON: Good afternoon, Mr. Chairman, members of the panel, Madam Chair.
656. My name is Philippa Lawson, and I am representing a large coalition of citizens groups from across the country.
657. With me today is Marie Vallée, who is with one of those groups, Action Réseau Consommateur, formerly known as FNAC.
658. I would like to begin by introducing all of the groups that I am representing today. At the national level, we have the Consumers' Association of Canada, the National Anti-Poverty Organization, and Rural Dignity of Canada.
659. At the provincial level, we have Action Réseau Consommateur, the Alberta Council on Aging; and then the B.C. coalition of groups whom I am also here on behalf of today made up of the B.C. Old Age Pensioners' Organization, the Council of Senior Citizens' Organizations of B.C., Seniors Citizens' Association of B.C., West End Seniors' Network, Federated Anti-Poverty Groups of B.C., End Legislated Poverty, B.C. Coalition for Information Access and the Tenants Rights Action Coalition.
660. Collectively, these groups represent a large and diverse body of Canadians, urban and rural, rich and poor, young and old -- I realize there is an emphasis on the old here -- from communities of all sizes and locations. All of these groups wish to thank you for the opportunity to address you in person on these important issues.
661. When you first initiated this proceeding, I didn't expect that such a broad coalition would emerge among consumer groups. We actually maintained separate retainers for rural groups, thinking that at some point during the process of building this case a split would emerge and we would have to find separate representation for the rural interest in particular. But, as it turned out, no such split occurred. Despite the often controversial issues raised in this proceeding, we found that support for the case we were developing extended well beyond our own coalition to groups and individuals all across the country.
662. That support led to the creation, by a number of diverse parties, not just my clients, of the Consumer Charter for a Connected Canada, which has been signed so far by 145 organizations from all across the country. This document has been filed with the Commission and therefore forms part of the record of this proceeding. It sets out in very basic terms the problem we face and the essential components of an effective solution. If you haven't already read it, it is just one page long and I recommend it to you, both for its content and for the widespread support that it has attracted.
663. Mr. Chairman, the reason you initiated this proceeding is because we have a problem. I would like to talk first about the problem and then about the solution to it.
664. What exactly is the problem? I am not going to repeat the litany of complaints about service availability, quality and price that you have heard from people across the country. The record of your regional consultations provides ample evidence of the sorry state of telecommunications in many rural and remote communities and the consequences that this has not just for those communities but also for our national economy and society.
665. There is no controversy among parties to this proceeding that the goals of universal availability, affordability and quality of service enshrined in the legislation are not yet met in this country. There is no controversy that market forces on their own cannot and will not deliver these goals in the foreseeable future. And there is no controversy that, therefore, government or regulatory intervention of some sort is needed.
666. There is controversy, however, on the extent and nature of the problem. In particular, there is disagreement over what constitutes acceptable service functionality, what constitutes acceptable service quality, and what constitutes affordable, just and reasonable rates in rural and remote areas.
667. I would like to look briefly at each of these issues.
668. First, service availability and functionality. The Consumer Charter states that, and I am quoting:

     "All Canadians should have access to a defined set of basic telecommunications services including, but not limited to, private telephone service, flat rates for local calling, and local access to the Internet at speeds that meet contemporary standards."

669. ACA et al have provided a detailed list of services and functionalities that should be made available to all Canadians if the government's intention that Canada be the most connected nation in the world by the year 2000 is to be realized.
670. This list has drawn support from numerous parties and not just consumer groups. It is not a wish list pulled from the sky by consumers. Rather, it is a reasoned appraisal of what is needed in order for Canadians to be able to participate fully in civic society. It is also based on unequivocal public policy directions from the federal government.
671. Clearly, the notion of what constitutes basic service is an evolving concept. That means that it will have to be continually revisited in order to ensure its currency in the same way that the funding mechanism should be periodically reviewed and adjusted as necessary.
672. Looking for a moment at what constitutes basic service now, there is considerable agreement among parties on most of the items listed by ACA et al. Most controversial are flat rate local service, toll-free access to the Internet and minimum transmission speed capability. Let's look at each of those three.
673. Flat rate local service is an important component of basic service in Canada for a number of reasons because of the role it plays in making telecommunications service affordable to those on strict budgets; and because by removing financial disincentives to local calling and encouraging people to make full use of local phone service it serves to strengthen the social and economic fabric of Canadian communities.
674. In addition, flat rate and local service allows for a relatively easy determination of whether a service provider's price meets a predetermined benchmark for regulatory purposes.
675. As long as the eligibility criteria for receipt of the subsidy includes a price component, as we submit they should given the affordability objective, metered rate service poses serious problems.
676. Toll-free access to the Internet is also critical, as the federal government realizes. But by "toll-free" we don't mean 1-800 numbers; we simply mean without the need to incur toll charges. If the Commission is to take a forward looking approach to the high-cost area problem, there can be no doubt that Internet access must be part of the solution. But this access must be of reasonably acceptable quality. Slow transmission speeds such as 2400 baud are no longer acceptable. They have long been surpassed by service providers and by the industry generally. Rural and remote Canadians needs to be able to access the Internet at speeds that meet contemporary standards. This is a critical part of the minister's vision for a connected Canada.
677. The second part of the problem has to do with affordability. A number of parties in this proceeding seem to take the position that affordability, or just and reasonable rates, is not an issue in this proceeding, that all we need to address in terms of high-cost areas are problems of service availability. ACA et al disagree. Whether we are talking about one-time construction costs or ongoing rates for local and long-distance service, affordability and fairness in pricing is an issue. Prices to rural and remote consumers must be just and reasonable. In this respect, we wholeheartedly support the Commission's determination in decision 97-9 on price caps that rural rates should not in general exceed urban rates. Geographic equity, a value on which this country is based, demands comparable rates for comparable service regardless of location.
678. The third part of the problem is the issue of service quality. Here again we call for geographic equity -- comparable service quality in rural and urban areas to the extent reasonable. You have heard a string of complaints about inferior service in rural and remote areas, everything from heavy static to not being able to get a line out during peak hours. These quality of service problems in high-cost areas must be addressed.
679. The three goals that I have been discussing -- availability, affordability and quality -- cover the key concerns of consumers. However, there is a fourth goal, which has also been raised as an issue in this proceeding, and that is choice.
680. Wherever economically sensible, consumers should have a choice of service providers. In many rural and remote areas such choice is lacking. For example, high toll contribution rates for some independent companies have deterred long-distance service providers from offering service in those territories. On the local side, there is disagreement over which areas, if any, are uneconomic for more than one carrier to serve.
681. My clients acknowledge that in some particularly high-cost locations competition may be uneconomic now and for some time to come. But whatever mechanism is adopted it should permit competition once economically feasible.
682. Mr. Chairman, two other aspects of the problem have been disputed in this proceeding. One is the likely duration of the problem. Some parties argue that this is a temporary problem, needing only temporary measures. We are not so confident. Surely, it will depend on a number of variable factors including how quickly technology designed for rural and remote areas develops and how fast the cost of deploying such technologies decline. Perhaps the problem will be solved in the short term but, at this point, we can only speculate. The problem of inferior service in high-cost serving areas could extend well into the future. We therefore need a solution that is designed for the longer term but that can and will be terminated when it is no longer needed.
683. Another aspect of the high-cost area problem that has been debated in this proceeding is its geographic scope. We have said from the beginning that this is a national problem requiring a national solution. Company-specific problems of inefficiency or unnecessarily low prices are separate matters that can be dealt with through the use of cost and price bench-marks. What we are left with are objectively high-cost serving areas scattered across the country, across provincial and corporate boundaries.
684. The problem is independent of corporate structure. It should therefore be resolved in a manner independent of corporate structure.
685. Some parties argue that inter-regional subsidization in respect of telecommunications is inappropriate. In response, we simply note that telecommunications is a national responsibility, that telecommunications policy is national in scope and that the telecommunications policy goals set out in the act clearly direct the Commission to regulate nationally with a view to the economic and social needs of specific regions.
686. Enough about the problem. Let's talk about the solution.
687. First, we would like to get one thing out of the way. It has been suggested that the Commission leave this problem to governments to sort out. In our respectful opinion, you don't have the luxury of that option. You have a responsibility to take regulatory action when the combination of market forces and direct government intervention are insufficient to achieve the goals of Canadian telecommunications policy. Even if you agree with Stentor that a better approach is direct government funding, your responsibility is to fill in the gaps left by market forces; and, as we have already established, there is a big gap that is not being filled by governments.
688. So, if we agree there is a problem, and we agree that you have to take action, the question becomes: What action to take?
689. There is, in fact, substantial agreement among parties in this proceeding on a number of characteristics of an effective high-cost area subsidy. Many parties agree that it should be national in scope; that high-cost service areas should be defined using objective criteria such as enumeration areas and household density; that the funds should be raised through an industry-wide tax on telecommunications revenues; that the subsidy should be portable among service providers, or at least designed in a competitively and technologically neutral manner; that the amount of subsidy payable should be determined using objective cost and price bench-marks; and that the subsidy should be paid to service providers but only where those service providers meet certain eligibility criteria.
690. We have discussed why the subsidy should be national in scope. Clearly, the existing company-specific mechanism doesn't do it. Companies that serve disproportionately high-cost areas have disproportionate needs; but we are all part of the same network and we will all benefit from extending the subsidy beyond corporate boundaries, with the proviso that objective cost and price bench-marks be applied so that we don't end up subsidizing inefficiency.
691. Why a revenue tax? Because this is the most efficient, effective, competitively neutral and fair approach. It recognizes that service providers -- not just subscribers -- benefit from the subsidy, and provides those service providers with flexibility as to how they recover the tax. It is so broadly based that its financial impact on any one company is small. It ensures that all services contribute equitably and interfere minimally with the operation of market forces. Finally, it is explicitly provided for in the Telecommunications Act.
692. Why use objective cost bench-marks rather than company reported costs? Because that is the only way to ensure that you are not subsidizing inefficiency and that the system treats all competitors according to the same standard.
693. A few words about eligibility criteria. This is how you ensure that the subsidy is used the way you want it to be used. Without clear and enforceable eligibility criteria, the subsidy will be wasted. It is essential that any company receiving a high-cost area subsidy meet certain requirements. In particular, they must provide the defined package of basic services at or below a certain price threshold. They must meet minimum quality of service standards. And they must provide service to all who request within the serving area. These are the key parameters of an effective high-cost serving area funding mechanism.
694. ACA et al have provided a more detailed proposal for the Commission's consideration. This is the market-based mechanism set out in the evidence of John Todd. I don't plan to get into the details of that mechanism now. I will leave that to written submissions. I will, however, just say that it is designed to encourage competitive entry where economic, and that it errs on the side of administrative ease and reliance on market forces as opposed to detailed cost accounting and central planning.
695. However, we recognize that the Todd proposal does not adequately address the problem of extremely high cost remote communities where competition is not yet economic. Here, additional measures will be needed to ensure that service improvements in these remote communities are fast tracked.
696. We are proposing that a portion of the high-cost area fund be allocated to designated very high-cost serving areas and administered directly by the Commission to selected service providers through a bidding process.
697. In conclusion, Mr. Chairman, we have a problem. It is not limited to remote areas but includes large rural tracts of this country as well. It is not limited to one or two telephone companies but, rather, it is nation wide, cutting across corporate boundaries. It is not limited to plain old telephone service as we used to know it but extends now to Internet access. It is not limited to service availability but, rather, includes problems related to affordability, equitable rates and inferior quality. It is not likely to be solved in the short term but could extend well into the future.
698. In the absence of direct government intervention, the solution is yours. It should involve a national subsidy mechanism with funds raised through a broad revenue tax, targeted to companies providing specific services at acceptable prices and quality standards in clearly defined high-cost serving areas.
699. Mr. Chairman, you have an opportunity to make a real difference to the lives of Canadians, especially those in rural and remote areas. We trust that you will seize that opportunity.
700. Thank you.
701. THE CHAIRPERSON: Thank you very much, Ms Lawson. We appreciate your participation here today in this proceeding.
702. Madam Secretary, I think those are all the parties that were registered to appear.
703. MS GROULX: Yes, that is correct, Mr. Chairman.
704. THE CHAIRPERSON: Just let me say in conclusion I just want to thank all the parties here today for the excellent submissions that we have heard over the last couple of days.
705. Just to remind parties in earlier notices that we provided for written comments from parties to be submitted by January 30, that final written argument is to be filed by Friday, the 29th January, and reply 15th of February.
706. I am also asked the question either by parties or reporters when we expect to have a decision out on a proceeding. I would say that our expectation is that we would have a decision out on this proceeding probably some time around the end of June. Any closer than that I risk being strung up by my colleagues I guess, certainly by the staff.
707. With that, maybe I will turn it over to counsel to make a few comments.
708. MS ASSHETON-SMITH: Just one point, Mr. Chairman.
709. I would like to remind intervenors who intend to apply for costs in respect of their participation in this proceeding that such applications should be filed along with their written reply argument on the 15th of February. We would ask that cost applicants address the criteria for cost awards in their applications and to propose appropriate respondents for costs at the same time.
710. Thank you.
711. THE CHAIRPERSON: Thank you, counsel.
712. I guess it is probably fair to say that if the members and the staff didn't know in detail the words of section 7(b) of the Telecommunications Act there is probably no hope for us.
713. With that, I will draw this phase of the proceeding to a conclusion. We will see you all in some other proceeding down the road.
714. I would like to thank all of the staff, the translators and the court reporters, and those who help with logistics for proceedings, and bid you all a fond farewell.

--- Whereupon the hearing concluded at / L'audience

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Date modified:

1999-01-26