ARCHIVED - Transcript - Yellowknife, NWT - 2000/06/15
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TRANSCRIPT OF PROCEEDINGS
FOR THE CANADIAN RADIO-TELEVISION AND
TRANSCRIPTION DES AUDIENCES DU
CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT / SUJET:
NORTHWESTEL INC. - IMPLEMENTATION OF
TOLL COMPETITION AND REVIEW OF
REGULATORY FRAMEWORK, QUALITY OF SERVICE
AND RELATED MATTERS / NOROUESTEL INC.
- MISE EN OEUVRE DE LA CONCURRENCE
DANS L'INTERURBAIN ET EXAMEN
DU CADRE DE RÉGLEMENTATION,
DE LA QUALITÉ DU SERVICE
ET D'AUTRES QUESTIONS
HELD AT: TENUE À:
Town Hall Room Salle Town Hall
Best Western Gold Rush Inn Best Western Gold Rush Inn
411 Main Street 411, rue Main
Whitehorse, Yukon Whitehorse (Yukon)
June 15, 2000 le 15 juin 2000
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
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.
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
Conseil de la radiodiffusion et des
Transcript / Transcription
Public Hearing / L'audience publique
Northwestel Inc. - Implementation of toll competition and review of regulatory framework, quality of service and related matters / Norouestel Inc. - Mise en oeuvre de la concurrence dans l'interurbain et examen du cadre de réglementation, de la qualité du service et d'autres questions
BEFORE / DEVANT:
David Colville Chairperson / Présidente
Jean-Marc Demers Commissioner / Conseiller
Andrée Wylie Commissioner / Conseillère
David McKendry Commissioner / Conseiller
Andrée Noël Commissioner / Conseillère
Cindy Grauer Commissioner / Conseillère
Ron Williams Commissioner / Conseiller
ALSO PRESENT / AUSSI PRÉSENTS:
Geoff Batstone Legal Counsel /
Annie Paré Conseillers juridiques
Steve Delaney Hearing Manager/
Gérant de l'audience
Marguerite Vogel Secretary / Secrétaire
HELD AT: TENUE À:
Town Hall Room Salle Town Hall
Best Western Gold Rush Inn Best Western Gold Rush Inn
411 Main Street 411, rue Main
Whitehorse, Yukon Whitehorse (Yukon)
June 15, 2000 le 15 juin 2000
TABLE OF CONTENTS / TABLE DES MATIÈRES
PREVIOUSLY AFFIRMED: RAY WELLS 168
PREVIOUSLY AFFIRMED: MARK WALKER 168
PREVIOUSLY AFFIRMED: CATHY HAMELIN 169
PREVIOUSLY AFFIRMED: MURIEL M. CHALIFOUX 169
Examination by Mr. Rondeau 169
Examination by Mr. Henry 180
Examination by Mr. Oliver 223
Examination by Mr. Macdonald 231
Examination by Mr. Pratt 262
Examination by Mr. Zubko 289
Examination by Mr. Lowe 318
Examination by Mr. Batstone 351
Examination by the Commission 396
Whitehorse, Yukon / Whitehorse (Yukon)
--- Upon resuming on Thursday, June 15, 2000
at 0905 / L'audience reprend le jeudi
15 juin 2000, à 0905
1150 THE CHAIRPERSON: Before we return to questioning of the first Northwestel panel by Mr. Rondeau -- and I'm sort of hesitating because I am trying to find Mr. Rondeau; I don't see him in the room -- are there any preliminary matters that anyone wishes to raise?
1151 This is just to kill time until he arrives, is it, Ms Lawson?
1152 I am just kidding.
1153 MS LAWSON: Thank you, Mr. Chairman. I do have a preliminary matter -- actually, a couple of preliminary matters.
1154 The first one has to do with some information claimed by the company as confidential yesterday during my cross-examination. I would like to make a request for disclosure at this time.
1155 Is that possible?
1156 THE CHAIRPERSON: Yes.
1157 MS LAWSON: The information I am talking about I requested at page 87 of yesterday's transcript, which is the proportion of Northwestel's expected market share loss that they estimate will occur outside equal access areas.
1158 So the proportionate market share loss under their proposal in the equal access areas versus the non-equal access areas.
1159 At line 622 Ms Hamelin said that that was filed in confidence.
1160 I would like to request disclosure of that. It is useful information for us as intervenors in order to judge the reasonableness of the company's estimates of market share loss.
1161 Given that it is just a company estimate, I am not quite sure what kind of harm would be done to the company by disclosure of that information. In any case, I think that the public interest in disclosure of it outweighs any harm that could be done to the company as a result of the disclosure.
1162 THE CHAIRPERSON: Thank you, Ms Lawson.
1163 Mr. Rogers...?
1164 MR. ROGERS: Mr. Chairman, as you know, we have gone through three rounds of interrogatory process in this proceeding. The process set out by the Commission, as set out in all other proceedings, provides that when a party is not satisfied with the level of disclosure provided in a response, they have an opportunity to challenge the non-disclosure by the company.
1165 The Commission has a process by which it rules whether or not sufficient disclosure has taken place.
1166 There was an opportunity to do that earlier and CAC/NAPO did not take up that opportunity. They have also finished their cross-examination of this panel and now raise the matter.
1167 In any case, I believe that their process is not within the process set up by the Commission to deal with these kinds of issues.
1168 More substantively, with respect to the issue of disclosure and whether or not it should take place -- and I still affirm the point I made originally. But if you are prepared to even look at the matter, I would strongly urge you to consider that the company is about six months away from the beginning of long distance competition, and the competitors which the company sees are literally on its doorstep, all of whom are much larger than this company. Those are the ones of course that we are most worried about.
1169 In that regard the company believes that any disclosure of market share loss below the total company level would prejudice the company's position in the impending long distance market.
1170 Therefore, while we are of course prepared to disclose that sort of information to the Commission -- and we do on a routine basis -- we do not believe it should be filed on the public record and available to the company's competitors to assist them in their marketing plans.
1171 On those grounds, which I am sure, Mr. Chairman, you have heard many times before from companies like this in this position, we urge you to maintain the confidentiality and also maintain the process which you set up originally in the Public Notice.
1172 THE CHAIRPERSON: Ms Lawson...?
1173 MS LAWSON: Thank you, Mr. Chairman.
1174 This is not actual information. What we are talking about here is the company judgment or best guess as to what competitors are going to do. I fail to see how that judgment about what competitors are going to do is going to provide valuable information to the competitors.
1175 The competitors know what they are going to do, and I don't see how Northwestel's judgment about that or guess as to what the competitors are going to do is so harmful if disclosed.
1176 THE CHAIRPERSON: Thank you both for your comments. We will take it under advisement and provide a ruling, probably later in the day. Staff will analyze your comments and the data we have, and the Panel will consider the request.
1177 Did you say you had another matter?
1178 MS LAWSON: Yes, Mr. Chairman, and that was just about the order of panels. I don't know if you were planning to address that this morning.
1179 It would be helpful for us to know the planned order. I would suggest, given how things are moving now, that we put the rate of return witness panels up after this panel is completed.
1180 THE CHAIRPERSON: Based on my comments at the outset yesterday it would have been my intention, when the questioning of this panel is finished, to bring forward the rate of return panel.
1181 Are there any other preliminary matters? Thank you.
1182 Then we will return to questioning by Mr. Rondeau.
PREVIOUSLY AFFIRMED: RAY WELLS
PREVIOUSLY AFFIRMED: MARK WALKER
PREVIOUSLY AFFIRMED: CATHY HAMELIN
PREVIOUSLY AFFIRMED: MURIEL M. CHALIFOUX
EXAMINATION / INTERROGATOIRE
1183 MR. RONDEAU: Good morning, ladies and gentlemen, Mr. Chair, Commissioners, Panel.
1184 Before I go on to the Internet competition, if you will indulge me, I would like to go back to one point on affordability that I missed yesterday.
1185 When we discussed affordability, you stated that there was no feasibility study done.
1186 Is this correct?
1187 MR. WELLS: That is correct.
1188 MR. RONDEAU: I would like you to turn to CRTC-1412, please, page 5.
1189 You go on to say in this paragraph in your IR that affordability is a matter of judgment, that there was considerable consultation that went on in 1996.
1190 I distinctly remember a prior president of Northwestel stating, when the first rounds of rebalancing took place, that $5.00 is nothing. It's a pack of cigarettes or a beer.
1191 It seemed to me that things haven't changed very much. If no feasibility was done on affordability, I would like to know if things have changed in the corporate offices. There may be 20 to 25 per cent of your households that will have problems accessing telephones.
1192 Can you comment on that?
1193 MR. WELLS: Do you have a question?
1194 MR. RONDEAU: I am asking if things have changed since the statement made by your prior president.
1195 MR. WELLS: I am not clear as to what things you are speaking of.
1196 MR. RONDEAU: Okay. Let me go on.
1197 Telecom 96-10, which relates to local service pricing options, states -- in the telecom decision on local pricing options 96-10, 15 November 1996, the Commission directed, and I quote:
"...the telephone companies to file an annual supplementary report containing the following items: an affordability analysis based on the socio- demographic statistics reported in the Statistics Canada HIFE microdata file and, HIFE-based telephone penetration rates at both the national and provincial levels, broken down by income levels."
1198 I would like to ask you if these reports have been filed with the CRTC.
--- Pause / Pause
1199 MS HAMELIN: As I understand it, the statistics that you were referring to there, there are no available statistics -- there has not been in the past -- from Stats Canada, for the north to be able to file that particular portion and we were, I guess, exempt from it until such time as Stats Canada started to gather the information. I understand that that will be happening very shortly and we will start to be able to file that report, and the Commission is aware of this.
1200 I have no seen any part here saying that Northwestel is exempt.
1201 MS HAMELIN: I'm not sure exactly how that came about but we could find out.
1202 THE CHAIRPERSON: Subject to check by staff, I believe the comment was correct that, in fact, Statistics Canada didn't have that data for the north. And I think, if I recall correctly, that was acknowledged in that affordability decision that came out from the Commission but, as I say, that's subject to check by the staff.
1203 MR. RONDEAU: Okay. Thank you. I would appreciate if that was checked.
1204 I will go on to the Internet competition.
1205 Yesterday, I asked a couple of preliminary questions on what Northwestel is charging Internet providers per line or per bundle.
1206 Could you give me those numbers, please.
1207 MR. WELLS: We have made copies of the applicable tariffs and -- do we have a copy that we can give Mr. Rondeau?
--- Pause / Pause
1208 MR. RONDEAU: It's very difficult to analyze this on my feet here. I guess maybe the way that I will go is: Is Sympatico being charged the same rate per bundle?
1209 MR. WELLS: I wanted to clarify -- in your question yesterday, Mr. Rondeau, you had asked, or made a point about Sympatico. Sympatico, in fact, is not a subsidiary of Northwestel; it's a service that we provide that we are licensed to provide. So I just wanted to make that point clear.
1210 We have filed a methodology with the Commission and have approval from the Commission for cost separation, and that conforms with the principles of cost causality that's associated with the Phase III costing. What that basically means is we ensure that any costs that are driven by a particular service are charged to that service. So, in fact, the Sympatico service would be charged the appropriate costs.
1211 MR. RONDEAU: Appropriate maybe but equal to other providers, Internet providers. Is it the same?
1212 MR. WELLS: As I stated, we have filed with the Commission the methodology that we use and it's an approved methodology for applying cost to services.
1213 MR. RONDEAU: I take that as a "no", then.
1214 MS CHALIFOUX: If I could just add to Ray's comment, then, to clarify, Phase III essentially tries to mimic, I guess you could call it, the costs that a business would incur. So costs that the Internet services category incurs, causes to be incurred, are assigned to that category, very similar to the costs that an alternate Internet provider also has to bear. So, the answer would be, yes, the same types of costs are being picked up, if you may, in that Internet services sub category.
1215 MR. RONDEAU: Is that included in the bundle cost?
1216 MS CHALIFOUX: I'm not sure what you mean by "bundle cost".
1217 MR. RONDEAU: Well, the way I understand it, when an Internet provider wishes to provide a service to an area, he purchases a bundle of lines rather than one. Is this correct?
1218 MS CHALIFOUX: I suspect the Internet provider would purchase the underlying facilities that he requires. With regards to our Sympatico service, again, we keep track of the facilities that our service consumes.
1219 MR. RONDEAU: So if an Internet provider had -- I don't know how the bundles operate, but if an Internet provider had five lines to serve and bundles come in 10, he would have to purchase 10?
1220 MS CHALIFOUX: I mean that's not how the tariff reads. I mean if an Internet provider requires five multi-line accesses, they pay for five multi-line accesses, just based on looking at the first tariff, Item 207.
1221 MR. RONDEAU: Okay. I think I have a better understanding.
1222 I will go to lines, now, the types of lines available for Internet providers. Are they the same as that provided for Sympatico?
1223 MR. RONDEAU: I'm not sure what you mean by "types of lines" but --
1224 MR. RONDEAU: That would be high-speed lines.
1225 MR. WELLS: Yes, we have a wholesale tariff that makes the high-speed access available for ISPs.
1226 MR. RONDEAU: Okay. Perhaps you would like to explain how an Internet provider can access ADSL.
1227 MR. WELLS: I'm not quite sure what you mean by your question. How do you mean "How do they access it"? How...
1228 MR. RONDEAU: How do they go about acquiring high-speed lines?
1229 MR. WELLS: Well, we have a tariff that's filed and based on that tariff, the ISP would approach the company and -- based on the rates in that tariff and their own requirements -- would apply for the service and we would provide that service.
1230 MR. RONDEAU: I gather are two types of tariffs. Maybe you can indulge me again. There's dry and wet copper tariffs. Is this correct?
1231 MR. WELLS: I'm not familiar with those terms.
1232 MR. RONDEAU: Is anyone on your panel familiar?
--- Pause / Pause
1233 MR. WELLS: Apparently, we have no tariff that differentiates between dry and wet copper.
1234 MR. RONDEAU: Okay. Mr. Wells, or panel, in your opinion, do you believe that competition in the Internet market has grown? This market in the Yukon.
1235 MR. WELLS: Yes. I have seen the Internet market has evolved quite a bit over the last few years and it's -- I should point out that, in fact, our Sympatico service, in our major centres, is somewhere in the 15 to 20 per cent market share range and we are by no means a dominant player in that marketplace, and I think the market, in the our larger centres, is quite healthy. We have got up to five or six providers of Internet service in our major centres, so I think it's a very dynamic and active marketplace.
1236 MR. RONDEAU: So we don't -- we don't want to go backwards in this area?
1237 MR. WELLS: No, not at all. As a matter of fact, the proposal that we have put forward as a part of our submission here would enable the roll-out of Internet access to every community in our operating territory, so I think that, in fact, quite opposite. I think we are proposing, here, to expand the reach of Internet, again, in line with what the Commission has requested to be available on the local dial-up basis to every community in our operating territory.
1238 MR. RONDEAU: Yes, I agree; we certainly don't want to go back with just -- or have just the cable networks and Northwestel serving our Internet market.
1239 One more question -- two more, actually.
1240 Is there a regulatory framework for local exchange access to the Internet?
1241 MR. WELLS: I don't understand your question.
1242 MR. RONDEAU: Is the access regulated?
1243 MR. WELLS: We have filed tariffs that provide wholesale access.
1244 MR. RONDEAU: Okay.
1245 MR. WELLS: I should add, these are approved. As a matter of fact, we have an ISP right now that has applied to take the service, the wholesale high-speed service, and we have a number of ISPs that take on the other tariff services that we have.
1246 MR. WELLS: Do you have the wholesale in these tariffs; the wholesale is included?
1247 MR. WELLS: Yes.
1248 MR. RONDEAU: Okay.
1249 So I gather you are looking at a partnership with an Internet provider, an ISP, then? Is that what you just stated.
1250 MR. WELLS: No.
1251 MR. RONDEAU: Would you be entertaining partnerships?
1252 MR. WELLS: If there are business opportunities and reasons to look at partnering with companies in our line of business we would entertain it at the time, but there is nothing specific right now.
1253 MR. RONDEAU: The reason I ask this is because it would seem to me that we have some very good local expertise in the technology field. If we are going to be expanding our telephone facilities, it would seem to me that it would be wise to be using these people to help you out. Would you agree with that?
1254 MR. WELLS: As I have stated, there may be cases where partnering and working with other companies would make sense.
1255 MR. RONDEAU: Thank you very much.
1256 THE CHAIRPERSON: Thank you, Mr. Rondeau.
1257 Can we have an exhibit number for Mr. Rondeau's exhibit from yesterday?
1258 MS VOGEL: Yes, Mr. Chairman. That document which was titled "Statistical Information" will be entered as UCG Exhibit 1.
1259 THE CHAIRPERSON: And perhaps just for ease of reference if we need to again we could give an exhibit number to the tariff for -- the Northwestel tariff, Item 207, Exchange Rates.
1260 MS VOGEL: Yes. That tariff will be Northwestel Exhibit No. 1 -- sorry, No. 2.
1261 THE CHAIRPERSON: Is it not No. 3?
1262 MS VOGEL: My apologies, Mr. Chair. I'm glad you can count. It is No. 3.
1263 THE CHAIRPERSON: Okay. The next party to cross-examine, then, Madam Secretary?
1264 MS VOGEL: The next party to cross-examine is the Council of Yukon First Nations. I would invite them to come forward please.
EXAMINATION / INTERROGATOIRE
1265 MR. HENRY: I brought my partner so I know what is going on.
1266 THE CHAIRPERSON: Perhaps you might introduce her.
1267 MR. HENRY: Joining me today is Jan Staples. She is a communication consultant from Vancouver and also a resident here in the Yukon.
1268 MR. HENRY: Good morning. My name is George Henry. I would like to thank the Commission for giving us the opportunity to address the panel today. I would also like to commend Northwestel for the balance in terms of gender equality as well as for the Commission.
1269 The Chair will know my position from previous hearings that First Nations also look forward to a time when there is a balance with aboriginal people. I look around the room today and it's very clear my wagon is circled. But perhaps one day there will be Commissioners of aboriginal and inuit decent as well as aboriginal people representing First Nation interests with telephone companies and others,
1270 I do also note with pride the presence of Commissioner Ron Williams from the NWT representing northern interests. So that must be commended.
1271 Thank you. I wanted to note that for the record.
1272 When I get started in terms of the questioning it's obvious that representing the Council of Yukon First Nations that we are looking at a very specific area.
1273 My first question is does Northwestel know the percentage of First Nation customers, both here in the Yukon and in the NWT and how that breaks down?
1274 MR. WELLS: No, we don't.
1275 MR. HENRY: How does Northwestel define large volume customers?
1276 MR. WELLS: We use spending patterns as a basis for that definition.
1277 MR. HENRY: And what might be examples of large volume customers that you have already identified?
1278 MR. WELLS: I think government would be a good example or large business customers, but a large business customer might generate a large volume of toll-calling, for example.
1279 MR. HENRY: So this might be hotels or resource companies?
1280 MR. WELLS: They would basically fit into that category.
1281 MR. HENRY: Then, in terms of governments, could you identify what would be the government?
1282 MR. WELLS: The governments of the territories are obviously large governments in our operating area: the Yukon Government, the Nunavut Government, the Government of the Northwest Territories.
1283 MR. HENRY: Is there a dollar figure or a threshold level that would be attached with that?
1284 MR. RONDEAU: Mr. Chairman, I'm not sure exactly where this is going but there is an issue here with respect to how much Mr. Wells is permitted to say about the consumption of services by individual customers. As you know, under the terms and service, anything with regard to the account of a particular customer which of course would include the governments is confidential information for the government. While of course we are quite prepared to speak to the issue in generic terms, we could not address individual customers because that is confidential information to the individual customer.
1285 MR. HENRY: I actually wanted to know exactly how much the Gold Rush Inn is paying.
--- Laughter / Rires
1286 MR. WELLS: I don't have that information.
--- Laughter / Rires
1287 MR. HENRY: No, it's -- correct, a generic reference is what I'm looking at in terms of large volume. Like, what would constitute that? Or if not a number, what would be some of the factors?
1288 MR. WELLS: Again, I think it's back to the point I made at the beginning, Mr. Henry. It's based on spending patterns and toll is obviously a key, one of the key drivers of that.
1289 MR. HENRY: Okay. So if I was to backtrack, then a large volume customer is a hotel chain, the three levels of identified government or businesses, and excluding from that -- and Nunavut is new but Nunavut is also largely inuit but, aside from that, First Nations wouldn't fit into that definition generally based on what I have heard.
1290 MR. WELLS: I don't know if I could say that for sure. It would depend on the -- again, back to the spending patterns and crossing certain thresholds of our rates.
1291 MR. HENRY: So, Mr. Wells, you have resided in the territory for a long time. I am not saying you are old, but you are familiar with the land claim process here in the Yukon?
1292 MR. WELLS: I am familiar with it, yes. I wouldn't say that I have any great degree of knowledge about it in specifics.
1293 MR. HENRY: Well, you know the Council of Yukon First Nations?
1294 MR. WELLS: Yes, I'm familiar with that organization.
1295 MR. HENRY: And do you know of the First Nation bands that make up the Council of Yukon First Nations?
1296 MR. WELLS: I don't know that I could name them all, but I am familiar and there are I believe 17 bands in the Council of Yukon First Nations. No, I can't answer that question specifically. I can't.
1297 MR. HENRY: There are 14 First Nation bands affiliated with the Council of Yukon Indians here in the Yukon and then there is actually four more outside the Yukon region in northern B.C., Lower Post, Fort Ware, Dease Lake and Good Hope Lake are the 18 First Nations. They are all starting to look to amalgamate under the umbrella of the Council.
1298 Now, in terms of those First Nations it sounds like that's a lot of people or a lot of First Nation groups, 17, 18 here in your territory dealing with the Yukon. That sounds like a lot of -- it seems to me that would be a large volume of business.
1299 At any rate, are you familiar with the umbrella final agreement here in the Yukon?
1300 MR. WELLS: I am knowledgeable about the existence of that. Again, I don't have expertise in it, no.
1301 MR. HENRY: All right.
1302 So under the umbrella final agreement there is provision for land claim and self-government agreements. Are you familiar with that? Can you tell me what your understanding is of that?
1303 MR. WELLS: Sorry, could you just repeat that again?
1304 MR. HENRY: Under the umbrella final agreement there is provision for land claim and self-government agreements. Are you familiar with that?
1305 MR. WELLS: I am familiar with the terms that you use and they are the high level, the basic understanding, but again I have no level of expertise or knowledge in that area.
1306 MR. HENRY: Nor does it fit in with the planning of how these agreements might affect telecommunication requirements. Is that correct?
1307 MR. WELLS: The agreements? I am not sure what you are asking.
1308 MR. HENRY: The land claim and self-government agreements and what the -- let me go back, under the land claim agreement and self-government agreements they are made between the Yukon. These are law now, by the way. These are in the Constitution of Canada, but under the land claim agreements, as protected by section 35, there are provisions for settlement lands for enrolment for a variety of different First Nation lawmaking powers. Are you familiar with that?
1309 MR. WELLS: Generally familiar, yes, but again no level of expertise.
1310 MR. HENRY: And then, under the self-government agreements, have you looked at those or have you considered those in any way in the past?
1311 MR. WELLS: No, but I should say that we have had, and I think you are aware of this, we have had a meeting of late with the Grand Chief and have started some discussions about opportunities between -- for Northwestel and CYFN to have some discussions relating to telecommunications requirements that CYFN and the bands may have.
1312 We have actually committed to get back together in early July to carry on those conversations. So we are in fact beginning the process of discussion and better understanding of requirements and opportunities between Northwestel and CYFN.
1313 MR. HENRY: So having said that, would it be fair to say that in terms of First Nation requirements, needs or those new requirements that are arising because of law that Northwestel hasn't factored in a First Nation, like you are just saying you are beginning the process now, so would it be fair to say that First Nations haven't been factored into this program or the basis of this hearing up to this point, but that's something that is going to be addressed in the very near future?
1314 MR. WELLS: No, that's not accurate.
1315 As a matter of fact, Northwestel has had different meetings with CYFN on the SIP program. I think we shared information and got input and, in fact, a lot of the communities that are going to benefit from the SIP program in fact have a large constituency of First Nations' people. So we have had discussions in the past about that.
1316 Obviously, we have had ongoing discussions with First Nations, with bands, for a number of years as customers of Northwestel. The opportunity I speak of now is an opportunity as was explained to us by Ed Schultz, the Grand Chief, that telecommunications is becoming a critical part of the aspirations of the Council of Yukon First Nations to ensure that they are able to accomplish certain objectives under the new establishment of the government.
1317 Based on that, we felt -- the Grand Chief and myself and our President -- that there would be an opportunity for us to have some further discussion to see perhaps how could we work more closely together, is there an opportunity to link some of the requirements of these bands together. So I think we have started a very fruitful initiative here.
1318 As I said, we are going to follow up in July. We are going to have another series of meetings.
1319 MR. HENRY: I guess it's a point of clarification between starting something. I mean when you start something it wasn't there before and I think I would agree with you that there have been relations in the past, but I don't think -- for example, the relationship with the Government of Yukon when you are dealing with long distance rates or you are looking at new services or service requirements, what would that procedure follow, just as an example because they obviously have needs and require services to run their government.
1320 So just as an example, what would be the procedure that would be followed for consulting with them or getting their input?
1321 MR. WELLS: Just so I am clear on what you are asking me, are you asking the procedure that Northwestel would go through in having discussions with the government to identify their telecommunications requirements? Is that basically --
1322 MR. HENRY: Yes, Mr. Wells.
1323 MR. HENRY: I think a very classic process which, first of all, starting off by defining the needs of a customer, working with that customer, understanding where they want to go and what their objectives are, what they are trying to accomplish with telecommunications and from there determining how you might work jointly to build solutions to their challenges, a fairly straightforward process.
1324 MR. HENRY: And that would be with the planning team or a consulting team or technicians or joint technicians?
--- Pause / Pause
1325 MR. WELLS: I am sorry, can you repeat that?
1326 MR. HENRY: The question I had was what would be the planning team or the planning process once you have laid out the parameters for how to service the government requirements.
1327 MR. WELLS: You would bring whatever skills you required to the table. You need to ensure that you come up with a satisfactory solution for the customer.
1328 MR. HENRY: And is it fair to say that that's what you are talking about starting to do in early July, that up to now that process hasn't occurred with First Nations, that planning process akin to your planning process with the Government of the Yukon?
1329 MR. WELLS: I would think that on an individual band basis in the past, Mr. Henry, there has been obviously discussions on requirements for communications.
1330 The new model that was laid out for us in our current meet, previous meet, with the Grand Chief was there is now an opportunity because of the new government arrangement that has been established between the bands to look at telecommunications in a whole different way. Based on that, we are in the process now of working with CYFN going forward.
1331 MR. HENRY: And that up to now, up to this process, that's a new beginning. What you just laid out, Mr. Wells, is like a new beginning, a new relationship with First Nations.
1332 MR. WELLS: At the CYFN level, I would suggest that for myself and the first meeting I had with Ed Schultz and the President, it was described to us as a new vision, a new beginning for CYFN and, therefore, new opportunities, new ways that we could possibly work together to ensure that we were able to meet the requirements of the new government structure that was being established.
1333 In that context, yes, it's a new beginning because it has been communicated to us in a way that this is a new structure that is an IT group established between the bands, actually Ken Kane mentioned that to me the other day, and that this group was overseeing this cooperative approach to ensure that there is a communications solution put in place that help First Nations accomplish what they want to accomplish now in this new model.
1334 MR. HENRY: Now, in the self-government agreements, just as a point of clarification, are you familiar with some of the categories that are involved in self-government when you deal with it?
1335 MR. WELLS: Maybe you could say -- I'm not familiar with it. How do you mean by categories? Sorry.
1336 MR. HENRY: The types of government services that will be dealt with under the self-government agreements, the range of services, that kind of thing.
1337 MR. ROGERS: Mr. Chairman, there have been a number of questions along this line earlier. Of course, this panel and Mr. Wells are rates and marketing and long distance competition witnesses. They have made it clear that they have no more than a sort of layman's understanding from the newspaper about those agreements.
1338 In any case, it wouldn't be proper to ask them that question of interpretation about those agreements. It's clearly beyond their expertise, so I'm not sure that there's very much value in going back to this area. It has been pretty clear that Mr. Wells has a knowledge as a telecommunications service provider, but no more knowledge than that. It would be improper to ask him or expect him to interpret or explain any agreement along these lines.
1339 THE CHAIRPERSON: Mr. Henry?
1340 MR. HENRY: Thank you. The point that I'm getting at here, Mr. Chairman, is that it strikes me that the Yukon First Nations are in 17 communities just here in the Yukon and northern British Columbia. Northwestel is in the business of identifying new markets and providing new services, including more competitive long distance rates, competitive CAT tariffs and the demand for services and the $5 local service fee.
1341 I feel that there is a critical link between where the First Nations are going in terms of the demand for services that have been identified by Mr. Wells compared to what is now law and the range of services.
1342 To me, it seems like it's a good opportunity and a market that could be of some attraction as a large volume customer or potential large volume customer for Northwestel. That's what I'm getting at here.
1343 What I wanted to do was say these are the range of services that are going to be in demand by the First Nations and that are in demand now, but perhaps are not being serviced because of the location of the First Nation. That's what I was getting at.
1344 THE CHAIRPERSON: I take your point Mr. Henry, and I suspect there is much implication in the line of your questioning, but I think as Mr. Wells has indicated at several points, he doesn't know or understand the details of the land agreement other than perhaps anecdotal or newspaper stories, so the questions to him about "Are you aware about this in the agreement?" or whatever, I wonder if you might focus your questions more to the point of what you are trying to get to rather than his detailed knowledge of the land claims agreement.
1345 MR. ROGERS: Mr. Chairman, and for Mr. Henry's benefit as well, it may be useful and perhaps more productive if Mr. Henry briefly posed a question whether or not the First Nations communities were included in the SIP. The answer he got, as I recall, was yes. The matter was left there.
1346 There is, of course, a panel coming up. Although Mr. Wells has a very general knowledge about the SIP, the next panel is prepared to address the details of the service improvement plan, where it exists and what services and facilities would be installed. That might be a fruitful area to explore in terms of what is proposed by the company.
1347 MR. HENRY: Yes. I understand about the panel. It was more Mr. Wells getting at the range of services that are required by First Nations. Essentially it comes down to this. To be in the telco business, you need to know your market. You need to know what services are required.
1348 I'm not going to tell you how to do your business, but it's not so much your knowledge of self-government as much as what is going on in the First Nation community regarding government services, community development and social programs, distance education and training, cultural and aboriginal languages, health and social services, personal administration, just this -- the implementation plans between the three levels of existing government.
1349 It's getting at the point that for the First Nations, there is a concern that Northwestel identified large volume customers. You name them, hotels, business, et cetera. The point that I think they are wanting to make is to establish an ongoing -- I commend Northwestel that it starts in early July, but when it comes to long distance and affordability, a lot of the issues that are driven by the land claims factor into the services that need to be provided by Northwestel.
1350 For example, a good example is the land selection and the rebuilding of communities that have been identified and claimed under the land claims and that are new services. I will come to this point in terms of the definition that is used by Northwestel for identifying, and the Commission, for identifying high cost areas. I think you will see the impact that it has in terms of long distance affordability, competitive rates and then how it factors on the First Nations.
1351 Now, Mr. Wells, would it be a fair assumption to say that the First Nation homes have a significantly lower rate of service than non-native homes? Would you say that?
1352 MR. WELLS: I can't comment on that.
1353 MR. HENRY: You don't know the data? So you wouldn't know whether or not there is going to be a high demand for Internet or other use in the future for First Nations?
1354 MR. WELLS: For First Nations specifically, no, but I do know that the Internet is a growing -- is a fast growing service in the marketplace and I would assume that there will be a demand for the Internet right across our operating territory, including First Nations.
1355 MR. HENRY: Now, I had a question on section 7(h) of the Telecommunication Act. You are familiar with that section, are you?
1356 MR. WELLS: We may have a copy here. I'm not terrifically familiar with it. Is there something --
1357 MR. HENRY: Just by way of background, what it does is it sets out the policy objective of the Commission to respond to the economic and social requirements of users such as First Nations for the telcos. Specifically, it focuses on economic and social requirements. Okay, I will give you a chance.
1358 MR. WELLS: Sorry, you said (h)?
1359 MR. HENRY: Yes.
1360 MR. WELLS: Okay. I have got it here.
1361 MR. HENRY: What does that mean? How do you interpret that in your planning, if at all?
1362 MR. WELLS: Well, I guess fundamentally, Northwestel understands clearly how important telecommunications are to social and economic issues. We have worked in the past clearly with governments such as the Yukon government as an example to look at putting in place infrastructure to help ensure that we can deliver high speed access to many of the communities in the Yukon.
1363 A major part of the Commission, again, following along the lines of the Telecommunications Act that you noted here, is through the SIP program. It is to provide infrastructure and provide services such as Internet to all of the communities in the territory that will help accomplish that very objective that you point to.
1364 I should also note that we have built relationships through our Articom arrangements that you may be familiar with -- that's a partnership with First Nations organizations in the Northwest Territories -- to deliver frame relay services to many of the communities. There is no question in my mind that we have worked with different groups to help accomplish this.
1365 Fundamentally, I don't think anybody would question the fact that telecommunications plays a major role in social and economic development.
1366 MR. WALKER: If I could just add to what Mr. Wells has just said. When the pieces respond to the economic and social requirements of users of telecommunication services, our proposal that we put forward is one based on comparable services at comparable rates to the rest of Canada.
1367 Even in that very broad objective, we are proposing something that is generally available to the rest of Canadians. Our proposal is one that sees Canada, all of Canada, having similar services at similar rates.
1368 MR. HENRY: Thank you, Mr. Walker. A main point of that is affordability and accessibility. We will come to another point that deals with that a little bit later.
1369 For the benefit of those, you raised the issue so I will just follow up on it. Could you explain what Articom is and actually what that relationship is that you are talking about?
1370 MR. WELLS: Yes. We have got a partnership with NASCO, the Arctic co-ops, and with that partnership, Northwestel provides frame relay services to the communities throughout the Northwest Territories and into Nunavut.
1371 MR. HENRY: Frame relay. Is there more to it than that or it just frame relay?
1372 MR. WELLS: It's basically advanced communication services based on frame relay over satellite arrangement. I should note that that was the first of its kind, not only in this country but, to the best of my knowledge, around the world where we actually put in those kinds of advanced services over satellite into those remote areas in our operating territory.
1373 MR. HENRY: This is a mutually beneficial relationship.
1374 MR. WELLS: Sorry. Could you repeat that?
1375 MR. HENRY: And this is a mutually beneficial relationship?
1376 MR. WELLS: I believe so.
1377 MR. HENRY: Now, you heard from a number of intervenors and witnesses about affordability and rate shock and the impact on the number of northern families, although there was no specific data dealing with poverty levels.
1378 You also heard about families that live at or below the poverty line. Unfortunately, most people in Canada are familiar with living conditions in First Nation communities, whether it be dealing with levels of education, health, social services, et al, and that rates are usually a lot higher and that's a negative, that the conditions in First Nation communities aren't as good as they are in non-First Nation communities.
1379 What I am wondering is how in that context how you would look at rates or rate rebalancing in the context of First Nation communities that fit that bill, if you will. Do you know what I mean?
1380 MR. WELLS: The plan that we put forward tried to accomplish three main things. First of all, it's going to encourage choice in the marketplace. We are going to reduce the cost of entry into this market and open it up.
1381 It's also going to reduce long distance rates significantly to be comparable to those that are provided in the south and we are going to provide those rates throughout our entire territory regardless of whether or not there is competitive entry there. In fact, people in all parts of our territory will benefit from that.
1382 The third part is the significant capital investment, over $75 million, to improve services and to provide Internet access to every community in the operating territory at local rates.
1383 I believe that the plan that has been put forward is going to bring a lot of benefits to all northerners. In that we have been trying to strike a balance -- you probably heard us speak to this yesterday -- where the subsidy we are requesting from the south to help us meet the objective that has been put forward by the Commission is in the main to the tune of $35 million to $40 million.
1384 The local rate increase that we have put forward represents a very small piece of that overall request of $4 million. We believe that it was reasonable to have some level of expectation. That was supported, I must say, through some of the public consultations.
1385 Some of the people that did come and speak two or three days ago said that they were willing to pay the extra $5 because they recognized how much benefit was going to be brought to the north.
1386 We have tried to strike a balance here. We have put forward a plan that we believe will accomplish the objectives of the Commission as well as find balance of who is going to pay for the benefits that are going to be brought to the north. We believed it was reasonable that northerners, and if you put that in a percentage, perhaps about a 10 per cent payment towards that level of $40 million benefit on an annual basis.
1387 MR. HENRY: So it's Northwestel's view that the aboriginal community would be able to afford the $5 local rate increase generally speaking.
1388 MR. WELLS: Our view is that if you take the total bill that a customer pays and on average our customers are going to see gains from a total bill perspective, if there is an issue of affordability again, and we talked about this yesterday a little bit, I think the Commission has decided that if there is an affordability issue, there should be some sort of targeted subsidy to deal with that issue.
1389 MR. HENRY: I'm not sure I got an answer -- Well, let's look at it this way: are you saying that if affordability is an issue for First Nations, then a targeted subsidy may be considered, or should be considered?
1390 MR. WELLS: No, I didn't say that. What I said was if the Commission determined that there was an issue of affordability that they determined that there should be some sort of a targeted subsidy to help alleviate that issue.
1391 MR. HENRY: Okay. So you are saying the Commission is saying that if affordability, if the $5.00 is an issue for the First Nations, then the First Nations should consider a targeted subsidy?
1392 MR. WELLS: No, I'm not targeting this at any specific area or group. At the end of the day, affordability --
1393 MR. HENRY: Well -- sorry. I didn't mean to interrupt you.
1394 MR. WELLS: Okay. I was going to say, at the end of the day, affordability is a very difficult issue and it is one of judgment and there's been a lot of concentrated effort put into the issue of affordability and I think, at the end, there was a conclusion that basically stated that if, in fact, affordability was identified as an issue, the best way to deal with it is through some sort of targeted subsidy. That's all I'm saying.
1395 MR. HENRY: So it may or may not be something First Nations would consider then?
1396 MR. WELLS: I'm not sure what First Nations would consider.
1397 MR. HENRY: Okay. Who would consider this targeted subsidy, as an example, then? How do you determine who would -- I mean everybody would want a subsidy. So if it's a targeted subsidy, then what are the parameters for it is what I'm trying to get at?
1398 MR. WELLS: I have no idea.
1399 MR. HENRY: So we don't know who's going to ask for the subsidy? Because where it becomes a problem or where it's problematic is, first, in trying to determine what is affordable. You said yesterday that there was no consideration given to what was affordable or not affordable, yesterday, and what I'm wondering is -- well, I guess I'm going to confirm, then, that also, if affordability was an issue, then you are not really sure how a targeted subsidy -- who would apply for it or who would be eligible or who's even going to raise the issue, first of all.
1400 MR. WELLS: That's correct.
1401 MR. HENRY: So, in terms of the rate rebalancing, as you are talking about it, then, who would benefit from that? And the second part to the question would be: who would benefit the most from that, then, would you say?
1402 MR. WELLS: Number one, this isn't rate rebalancing, by any stretch of the imagination. The proposed reduction in long distance rates significantly outweigh -- significantly outweigh -- the increase in the local rate that's proposed, and we have shown, from an average bill perspective, the majority of our customers are going to, in fact, see a reduction in bills.
1403 MR. HENRY: Whoever uses the service would. That's what you are saying there? Like your customers. Any customers.
1404 MR. WELLS: I'm sorry. Could you restate that.
1405 MR. HENRY: Well, in terms of the -- the rate rebalancing, that's the terminology that Northwestel uses, and all I was asking was who would benefit. In other words, what would be the benefit for First Nation groups?
1406 MR. WELLS: Okay. Well, rate rebalancing isn't a term that's been used in this proposal. Maybe you are thinking of past proposals where, in fact, we have rebalancing where we have put an increase in local rates in and offset that by an equally -- from a revenue impact point of view, an equal reduction in long distance rates.
1407 That's not what's being proposed today, at all.
1408 We are talking about, through this proposal, a whole different model here. This isn't about rate rebalance; this isn't about a revenue requirement -- and I think this is an important point. We are talking about, this proposal, meeting some pretty fundamental -- you pointed out the Telecommunications Act earlier. This proposal is helping accomplish a lot of the objectives of that Telecommunications Act. So this much broader than just balancing some rates or ensuring a fair return on equity for a corporation. This is an opportunity that's not going to come by for the north every day. This is an opportunity for the north, now, to become an equal player, if you will, in the evolution of telecommunications in this country. I mean that's the type of model we are putting forward is to help accomplish that objective. So I think it's important for us to understand what we are trying to do here.
1409 Yes, there is an issue with local rate increases. Northwestel has put forward a model that's going to require, again, upwards of $40 million on an annual basis from souther Canadians. We felt that it was only reasonable that northern Canadians also put something in to accomplish this objective that's been set out.
1410 Will some benefit more than others? No doubt some will benefit more than others in this. But, again, if it comes back to an issue of affordability, at the end of the day, it's been stated that if there is a need for some sort of a subsidy that it should be targeted.
1411 MR. HENRY: I understood that from your previous statement; it's just we don't know who or how they are going to access that is what we are coming back to again.
1412 We did talk about the aboriginal position in some communities and the whole affordability issue, given that a lot of the communities, whether Nunavut or here, live below the poverty line and may not afford the service, and I think you agree with the right to a basic level of service akin to what other people enjoy. But, Mr. Wells, I need to ask you if you understand that sometimes -- well, do you know that First Nations don't live in central parts of communities. It's about concept of the last mile in a lot of communities, that they are strung out along the river -- Carmacks is a good example -- and that they don't sit in that community.
1413 In fact, in your proposal you are asking for unserved regions to put in $1,000 if they want service. That's one of your proposals.
1414 So you are aware of where -- do you know how many First Nation people that affects? How many households.
1415 MR. WELLS: I don't have that information. And, as Mr. Rogers mentioned, the network panel will be up and they will have some --
1416 MR. HENRY: But --
1417 MR. WELLS: I was going to say they will have some information on the SIP program generally. I don't know that, in fact, there's any information specifically on percentages of First Nations households versus non-First Nations households.
1418 MR. HENRY: Or their location?
1419 MR. WELLS: I don't know that.
1420 MR. HENRY: Now, just moving to a different area -- I'm talking about 1-800 numbers -- does Northwestel discourage or disallow the use of 1-800 numbers?
1421 MS HAMELIN: Generally, no.
1422 MR. HENRY: What's the exception?
1423 MS HAMELIN: There have been instances where we have had prepaid card companies entering our market, going to people in our market to sell their prepaid cards in our market, and we have shut down those numbers, blocked those numbers.
1424 I will just add to that. Competition is not currently allowed i the north, which is why we have shut down those numbers.
1425 MR. HENRY: And are there any other instances?
1426 MS HAMELIN: I am not aware of any specifically.
1427 MR. HENRY: That doesn't affect the use of calling cards from people coming into the territory from elsewhere though?
1428 MS HAMELIN: No, it shouldn't.
1429 MR. HENRY: I had a question in terms of long distance. Just based on the other questions I am going to assume the answer is no, but does Northwestel have any data dealing with the revenue derived from long distance for First Nations?
1430 MS HAMELIN: No, we don't.
1431 MR. HENRY: Now, I wanted to move to your toll denial. Yesterday you said that there were 8,000 subscribers that have toll denial, is that right, of your service area, 32,000?
1432 MS HAMELIN: Yes, I did say there were 8,000 subscribers to toll denial.
1433 MR. HENRY: Of a total of 36,000 subscribers or 32,000?
1434 MS HAMELIN: Yes, residentially we have 35.7 thousand.
1435 MR. HENRY: And of those subscribing to toll denial is that a normal number, 25 per cent of the market, do you know?
1436 MS HAMELIN: I don't have statistics on that.
1437 MR. HENRY: Do any of the other telcos?
1438 MS HAMELIN: I suspect they might keep statistics, but I don't know for certain.
1439 MR. HENRY: And then, of those that are requesting toll denial you don't know how many, or do you know how many are First Nations or from outlying, like which communities?
1440 MS HAMELIN: No, we don't have that information.
1441 MR. HENRY: And do you know how many customers request toll denial, as opposed to how many have no choice but accept toll denial because they can't get a hook-up?
1442 MS HAMELIN: I'm sorry, we do not track that separately.
1443 MR. HENRY: Just generally speaking, what does it take to restore toll service?
--- Pause / Pause
1444 MR. HENRY: Mr. Chair, I --
1445 MS HAMELIN: Sorry. I just was clarifying.
1446 We believe that if they have requested toll denial and then they want to come off toll denial there is a $10 fee when they come off.
1447 MR. HENRY: If that's your service charge what would the criteria be?
1448 MS HAMELIN: If the customer has requested toll denial of their own volition, then they just have to -- yes, they pay the $10 fee. I believe from a company point of view if we have put them on toll denial, then once they have paid the outstanding balance, it is my understanding then the toll denial would be removed is my understanding.
1449 MR. HENRY: I only raise the issue because it has been brought to our attention that sometimes that's not in fact what happens, that they continue to be denied toll access. That's the only reason I raised it, was just to see what happens there.
1450 But if once they are brought up to date, then that's not an issue. Thank you.
1451 Mr. Chair, I am beyond the morning break. Did you want to --
1452 THE CHAIRPERSON: Not beyond when I was going to take it.
1453 MR. HENRY: Good.
1454 THE CHAIRPERSON: I was planning to take the break at about 10:30, assuming my watch is on time. You have got another 10 minutes before we would take the break.
1455 MR. HENRY: Now, in terms of planning, not so much planning, but just when you are looking at long distance rates and increases, et cetera, is Northwestel or are you aware of the seasonal nature of employment in the north, particularly how it applies to First Nation people?
1456 MR. WELLS: I'm not sure if there are two questions there.
1457 MR. HENRY: It's the nature of seasonal employment in the First Nation community.
1458 MR. WELLS: I don't have, to the best of my knowledge, statistics on that.
1459 MR. HENRY: Could you say that it is generally accepted, just given the previous testimony and that it is a fact in the north?
1460 MR. WELLS: I can't say that it is a fact in the north.
1461 MR. HENRY: So you would say that there is no consideration of seasonal employment?
1462 MR. WELLS: Oh no, I -- excuse me.
--- Pause / Pause
1463 MR. WELLS: Again, if I understand, you are asking a two-part question and one has to do with development of services and what not related to seasonality of employment and are you asking if I am knowledgeable of seasonality of employment in the north?
1464 MR. HENRY: Tourism and mining is an example, if there was mining.
1465 MR. WELLS: Right. I don't know that mining is impacted by seasonality at all. I do know that mining is very cyclical over years.
1466 Tourism, obviously, is a larger employer in the summer than in the winter, yes.
1467 MR. HENRY: It was more seasonal being the four seasons is what we are getting at, that sometimes you have jobs in the summer and sometimes you have them in the winter and for the First Nation community there is a high degree of seasonal employment, whether it be on the land or construction in the summer seasons, and you are more familiar with that in Nunavut than over here.
1468 The only reason I am asking is I am wondering if Northwestel ever considered an averaging scheme in terms of phone services, where you would look at -- like they do it for the power bills now. I am just wondering if that was something that was ever considered in terms of affordability?
1469 MR. WELLS: No, I don't believe that we have, Mr. Henry.
1470 MR. HENRY: Is this something that could be considered?
1471 MR. WELLS: It has just been pointed out to me that we do provide sort of a seasonal disconnect opportunity for people that may be not using their services over a period of time.
1472 MR. HENRY: Or it's not so much a seasonal disconnect as much as long distance affordability. For example, Northwestel provides services to many of our elders in the community and many of the elders have, contrary to opinions or testimony that was given yesterday, many of the elders have grandchildren that are going to school elsewhere outside the territory.
1473 For many of the elders now the phone service is not affordable and by way of background information elders receive elders' cheques from the Council for Yukon First Nations as part of their land claims settlement.
1474 Many of those cheques are simply signed over to the phone company. When you look at when the students are going to school, it is the semesters for colleges or university and that's what I was getting at, would you consider something like that, as opposed to just a seasonal disconnect, gone south for the winter?
1475 MR. WELLS: I think the proposal that was put forward, and I am not sure if you are familiar or not with the rates that we are proposing that are reasonably comparable to the south, but you are going to find a dramatic drop if you are speaking about -- excuse me.
--- Pause / Pause
1476 MR. WELLS: Sorry. The plan that we have put forward is going to see a significant drop. You use an example of somebody that would like to be a frequent user of their telephone. This $20 flat rate, 600 minutes, is going to result in a significant decrease in the overall bill for a user like that. In fact, you could see it in a way, depending on the total usage, it is almost an averaging in that it is a flat $20 plan.
1477 There is a direct benefit I could see being derived from what we are proposing to the scenario that you just laid out.
1478 MR. HENRY: Yes, I am familiar with that cap, but I was really more referring beyond that for dealing with elders or First Nations. That is more what I was talking about.
--- Pause / Pause
1479 MR. HENRY: I am actually close to finishing.
1480 I am wondering if this is the time to ask if Northwestel might be able to respond to how you are going to solve this. What would be your plan to learn more about the First Nations market in the Yukon, given that in the issues and the things that we talked about today it is clear that there is not a market study or a market analysis for First Nations; and how to look at that.
1481 In other words, what would be the procedure you would follow in order to begin, starting in July, for identifying and determining the services and levels of services for First Nations beyond what you are talking about in your program?
1482 I am not referring at all to anything that is before the Commission now. It is really how are you going to learn about your market.
1483 MR. WELLS: Well, there are two points that I would like to make.
1484 One is exactly what you said in July, beginning to work more closely with the CYFN as an umbrella organization or representing the bands, getting a better understanding of the requirements and the opportunities in working with First Nations as Northwestel as the supplier of telecommunications.
1485 Obviously, that is a first key step.
1486 We are planning to do more detailed market segmentation work going forward and understanding better the make-up of our marketplace. I would think that coming out of that would be results that would give us better information about the needs of First Nations.
1487 MR. HENRY: Mr. Chair, could we ask for an undertaking that that would be set out just in terms of exactly what he said, but written as opposed to --
1488 THE CHAIRPERSON: There is a transcript, Mr. Henry, and the witnesses are under oath. I am not sure what more you need that Mr. Wells has sworn to tell the truth at this proceeding, and there is a written record of what has been said.
1489 I am not sure that we need an undertaking to that effect.
1490 MR. HENRY: Okay. It was just that given the lack of data or information, it is clear that affordability is an issue for First Nations. But there is not an understanding of how much of an issue it is, given the factors surrounding the First Nations community, including seasonal employment, standards of living, and locations where the First Nations live in the communities.
1491 Under the land claims you have community groups, Indians living in the community. You have Indians living in rural communities that are outside the main bodies. And then you have Indians living beyond the last mile, what some people would call out in the boonies. But that is where we come from before the road.
1492 THE CHAIRPERSON: As I heard the discussion this morning, Northwestel doesn't have details on all of those issues. But I also heard a commitment on the part of Northwestel, expressed by Mr. Wells, to begin discussions with the First Nations to better understand those issues.
1493 MR. WELLS: Mr. Henry, just a point of clarification to make sure that you understood what I mentioned about segmentation.
1494 You came back to the issue of affordability. I am not intending to address the issue of affordability in our market segmentation work that we are planning to do.
1495 MR. HENRY: I can't see how you would delineate from the two. Clearly if people are living in high access areas and have a house on the other side of the river, and Northwestel is saying take four lines or get nothing, that becomes an issue of affordability.
1496 That is where they live. They don't live in the community. So the two are related.
1497 The same thing with seasonal employment. If a person is employed in the summer in construction or if they are employed in the winter on the traplines, it becomes an issue.
1498 The same thing as elders. And it is seasonal for students going to school outside. Again contrary to what people are saying people born and raised in the north do have people to call south of 60.
1499 MR. WELLS: If you do have further questions on this SIP program, I think you will get a clear understanding of how widespread this program is proposed to be and the fact that we have put forward a proposal that will provide for services to many people today that are unserved or underserved.
1500 I think a lot of the issues that you speak about, about people not having service, not able to get services, readily will be addressed through a lot of the SIP program.
1501 MR. HENRY: In closing, the point that has to be emphasized is that the concept of a last mile is based on the status quo, the status quo for services that are offered today.
1502 But through the land claim process -- and it will become clear as the dialogue begins. It is beyond the last mile. For example, in Teslin, my community, through their land claim they are now looking at the south end of Teslin Lake. That area is being rebuilt, and historically upwards of 20 to 25 families used to live in that area.
1503 It is those areas that we are talking about. We are not talking about the last mile between, say, the Carcross cutoff and the Yukon River bridge. We are talking about those other areas.
1504 From that point, that is all the points.
1505 THE CHAIRPERSON: I would say a few things, Mr. Henry. First, I don't think the Commission ever defined the last mile in terms of a geographic area in our proceedings. As has been noted, I guess the Service Improvement Panel would probably be the most appropriate one to deal with those "last mile" issues.
1506 Mr. Rogers...?
1507 MR. ROGERS: Mr. Chairman, I wanted to briefly make the comment that much of what was just said over the last ten minutes was really more in the nature of submissions or even argument and not really cross-examination at all. I would invite Mr. Henry to raise that kind of submission at the appropriate time, either in oral argument or written argument.
1508 It is not really the time to make submissions. As you know, the Commission doesn't permit that. There is an appropriate time, which will come later.
1509 THE CHAIRPERSON: Thank you, Mr. Rogers.
1510 With that, then, we will take our morning break and we will reconvene at ten to 11:00.
--- Recess at 1035 / Suspension à 1035
--- Upon resuming at 1055 / Reprise à 1055
1511 THE CHAIRPERSON: Madam Secretary.
1512 MS VOGEL: Thank you, Mr. Chairman.
1513 Our next party for cross-examination of this panel is the Government of the Northwest Territories.
EXAMINATION / INTERROGATOIRE
1514 MR. OLIVER: Good morning, Mr. Chairman, Commissioners, Staff and Ray Wells and the Northwestel Panel.
1515 We had a number of areas that we were going to cover off, but most of those have been dealt with by previous intervenors. At this point there is just one issue we really want to talk to you about, and that is the timing of the introduction of long distance competition.
1516 To start off, perhaps I could ask you when, as a company, you started considering the possibility that long distance competition was going to be coming to the north.
1517 MR. WELLS: Well, we probably started considering that long distance competition would be in the north in earnest when Iqaluit filed their application in, I think, late 1996.
1518 MR. OLIVER: In October 1996.
1519 MR. WELLS: Yes.
1520 MR. OLIVER: That kind of put you on notice. You presumably had been thinking about it to some extent once the decision came out in the south I assume you were monitoring what was going on. But you really started thinking about it seriously in 1996.
1521 MR. WELLS: We started to focus energy and resources on dealing with the application that had been put forward at that point in time. We by no means started to develop any marketing strategies, if that is where you are going as far as preparing for competition back in 1996.
1522 MR. OLIVER: At that time did you have any discussions with your customers as to what their views were on long distance competition? Did you have any indication that they were eager for long distance competition to come to the north?
1523 MR. WELLS: We had mentioned, I think, bypass a number of times. And there is no more clear indication from customers, their desire to take advantage of rates that are lower than our rates, than by the actions that they take. So I think that is a pretty clear indication.
1524 That had begun at certain levels as early as the 1996, 1997 time frame and of course had significant impacts once the flat rate plans were put in place.
1525 But means of bypass have been there. And that was a clear indication to us that customers had expectations.
1526 MR. OLIVER: Then in February 1998 the CRTC issued its decision 98-1 where it found that it would indeed be in the public interest to have long distance competition in the north; and, as such, competition would be introduced on or after the 1st of July 2000, on completion of two things: one, the $10 rate rebalancing that was approved in the same decision; and secondly, a new mechanism to address high cost area issues.
1527 At this point in time you have had at least two years during which you have known that long distance competition was coming and during which your customers have anticipated long distance competition was coming to the north at about the current time.
1528 MR. WELLS: Yes. I would note, of course, that we do not know the model. We do not know the rules and regulations of it, which of course is an important piece of the puzzle.
1529 MR. OLIVER: But your expectation was that competition would be introduced about this time period we are in now, and similarly that would have been the expectation of your customers.
1530 MR. WELLS: Yes.
1531 MR. OLIVER: In terms of the two factors the Commission tied into long distance competition, the $10 rate rebalancing, that has now been completed?
1532 MR. WELLS: Yes.
1533 MR. OLIVER: And the current proceeding is going to put in place the mechanism that the Commission decided upon in 99-16 for addressing high cost area ratios.
1534 The two factors that led to the initial delay in introducing long distance competition either have already been addressed or will be addressed at the conclusion of this proceeding.
1535 MR. WELLS: Yes. They are being addressed at the latter part through this proceeding. I think we expect some decision later this year, just prior to the introduction of competition, which will lay out the rules that we will be working with in competition.
1536 MR. OLIVER: In your evidence you propose that you would introduce competition on January 1, 2001 with a cutover to equal access in March 2001. From a technical point of view, in terms of having a network, that sort of thing, those are dates which you think are achievable.
1537 MR. WELLS: Those are the dates that we put forward. Mark may want to talk about the proposed rollout in time frames if we get into detail on that. But yes, those are the dates that we have put forward, and we are working right now towards those target dates.
1538 MR. OLIVER: I am not interested so much in the detail of how you do the roll-out as to, from an operational point of view, you were ready to meet those dates. You have no operational technical difficulties in terms of long distance competitors coming in on January of next year.
1539 MR. WALKER: Thee are several technical components we have to have in place, some of it being software equal access facilities. We all know the terms PIC/CARE systems and billing systems. We have timelines right now that see all of those systems in place, tested by the end of the year ready for competition.
1540 And contingent upon a CRTC decision, we have estimated some time later in the year, pick mid-November. That would give us time from the decision to implement the tariffs that are approved by the Commission and would have to be filed.
1541 Say that takes place over a month or so. Then you can start talking to potential competitors, and we are suggesting that that will take a couple of months before the terms and conditions specific to that competitor would be worked out and ready for implementation for them to actually provide service at the end of the first quarter of 2001.
1542 MR. OLIVER: So for you that is an achievable schedule.
1543 MR. WALKER: It is an aggressive schedule certainly. We have contingency plans with respect to the systems that we are putting in place. They are all very much related. There are significant upgrades to the switches that we have.
1544 We are working towards those targets as we stand now.
1545 MR. OLIVER: At this point you have not bumped into any problems that would lead you to want to change those targets.
1546 MR. WALKER: At this point, no.
1547 MR. OLIVER: You were asked an interrogatory, CRTC-3701. Part (c) of that interrogatory discussed the possibility of having a three-year transition to toll competition.
1548 THE CHAIRPERSON: Mr. Oliver, could you give us a reference in 3701?
1549 MR. OLIVER: Page 7. In the second paragraph at page 7 you state, and I will quote:
"The company does not believe there should be a three-year transition to toll competition if this is what is suggested. Northwestel strongly believes that its customers want and deserve choice and supply of long distance service as soon as possible. Customers have been patient as several complex proceedings were dealt with by the Commission, the company and interested parties. However, Northwestel believes it would be inappropriate to impose further delays in introducing long distance competition. The long distance market in the north should be open to long distance competition on January 1, 2001 as proposed by the company." (As read)
1550 Taking that into account, could you comment upon whether you have in fact already experienced a certain amount of customer dissatisfaction as a result of the delays in introducing long distance competition in the north.
1551 Have you heard from your customers? Are they upset?
1552 MR. WELLS: It is reasonable to understand that the customers have been anticipating lower long distance rates for some time. That is shown through the amount of bypass and continued growth in toll bypass.
1553 I think it is reasonable to say that our customers are waiting for choice in suppliers and they are waiting for lower long distance rates.
1554 MR. OLIVER: When you held the public consultation, this was one of the issues that has been raised; that they want long distance competition at this point.
1555 MR. WELLS: Yes. Particularly people want lower rates, and that is associated of course with the opening of the market to competition.
1556 MR. OLIVER: Is this true in both the business and residence sector?
1557 MR. WELLS: Yes. I would say it would be applicable in both sectors.
1558 MR. OLIVER: If there were any further delays in introducing competition, would you have any insights or comments as to what the likely reaction to that would be?
1559 MR. WELLS: It would be speculation, of course, but I believe that there would be continued bypass of the network and customers would be dissatisfied.
1560 MR. OLIVER: That's all.
1561 THE CHAIRPERSON: Those are all of your questions, Mr. Oliver? Thank you.
1562 The next party, Madam Secretary.
1563 MS VOGEL: Our next party on cross-examination of this panel is the Government of Yukon.
EXAMINATION / INTERROGATOIRE
1564 MR. MACDONALD: Good morning, Mr. Chair, Commission, staff, panel.
1565 My name is Peter Macdonald. I'm a solicitor with the Government of Yukon. With me is Terry Hayden, Director of Technology and Telecommunications Program, Government Services, and Jim Pratt, consultant.
1566 We will be basing our questions on the Yukon Government 900 series of questions, beginning with the response to interrogatories Northwestel(AT&T)-901, with some exceptions, for your references.
1567 However, firstly, I would like to revisit toll denial because it's recent with the proceedings.
1568 MR. WELLS: I'm sorry. Where are you starting?
1569 MR. MACDONALD: We will be dealing with the Yukon Government 900 series and the Northwestel responses but, firstly, I would like to start with toll denial because it's relatively recent.
1570 We have heard about the 8,000 residential customers on toll denial.
1571 Is this a marketed service? Is it a form of protest? Or is it a beneficial service provided to prevent misuse of telephones? Or is imposed for credit reasons?
1572 MS HAMELIN: I'm glad you brought that up.
1573 Actually, toll denial is very much used as a bill management tool and it is used for customers who find that they are having difficulty managing their bills and they select toll denial as a form to help them. It is, on occasion, used, as I stated earlier in this proceeding, by people who are having difficulty in doing repayments. However, they might choose to go on toll denial because they are having difficulty paying their bills. However, we do have a policy at Northwestel of providing customers with a reasonable repayment period. If they run into trouble because they have run their bill up to some extent, we will work out negotiated sort of terms to help them pay over time these outstanding balances.
1574 We also would like to point out, in addition to this, another bill management tool that we have is the installation payment where that can be extended over time to pay the installation charges, and this has further been proposed to have an instalment plan for our $1,000 connection fee and any construction charges in the SIP program that go above what we have provided as an allowance. Toll denial is generally taken by residential customers in lieu of paying a security deposit and, certainly, if, at some point, they can pay that security deposit, then they can have their toll denial removed. They choose to do that.
1575 MR. MACDONALD: Thank you.
1576 Is this a marketed service? Or do the customers simply find out about it, as they must?
1577 MS HAMELIN: No; it definitely is a marketed service. We put it into our information that we send out with bills. And every new customers that calls in is told about these bill management tools.
1578 MR. MACDONALD: Thank you.
1579 If you have toll denial, is it still possible to make 1-800 calls or credit card calls?
1580 MS HAMELIN: Yes, it is possible to make 1-800 calls. You can certainly -- a credit card call, I would have to verify. I'm not sure about credit card calls. But, definitely, you can make 1-800 calls.
1581 MR. MACDONALD: Is it possible that you could verify the response to that question and come back?
1582 MS HAMELIN: Verify the part about the credit card calls?
1583 MR. MACDONALD: Yes, please.
1584 MS HAMELIN: Yes, I can. I will take that as an undertaking.
1585 MR. MACDONALD: Thank you.
1586 I understand that some of the 8,000 customers, or about 21 per cent of your residential customer base cannot make the long distance calls using your network.
1587 Is this a recent phenomenon? Is there a trend? That you are aware of.
1588 MS HAMELIN: I believe there has always been some toll denial customers that have -- or customers who have chosen toll denial, for various reasons, but they -- there certainly has been, we have noted, increase in the number of customers after the introduction of the flat rate plans down south. We noticed there seems to be a bit of a jump there.
1589 Certainly there was a jump in our lower spending categories.
1590 MR. MACDONALD: Of the 8,000, would you be able to tell us if some of those are credit issues or whether they are -- what percentage are voluntary protection? Could you break that 8,000 out?
1591 MS HAMELIN: One moment, please.
1592 MS HAMELIN: As of July, 1999, we had only 22 that were company initiated; the remainder were all customer-initiated toll denial.
1593 MR. MACDONALD: Thank you.
1594 And of those customer initiated...
1595 MR. MACDONALD: Have you done any studies or surveys on those customers? Is there any information that would be helpful to us?
1596 MS HAMELIN: Could you please elaborate on "those customers"?
1597 MR. MACDONALD: The customers that have requested toll denial. Have you pursued the issues with them? Have you made any studies or surveys with them?
1598 MS HAMELIN: No, we haven't made any surveys with them.
1599 MR. MACDONALD: Do you have any information on how the 8,000 customers are distributed? Are they throughout Yukon? Are they in the larger centres? Remote areas? Have you got any demographics on that?
1600 MS HAMELIN: No, we don't have any demographics on that right now.
1601 MR. MACDONALD: Assuming that the proposal for long-distance competition is approved, on January, 1, 2001, would these 8,000 customers be able to choose another long-distance carrier? Is that an issue?
1602 MS HAMELIN: I certainly believe they would be able to choose another long-distance carrier.
1603 MR. MACDONALD: Do you expect to repatriate any of these customers with the lower long-distance rates? Is that a factor?
1604 MS HAMELIN: Yes, I do expect to repatriate some of these customers, as I stated.
1605 I mean, these are bill management tools that customers use, and I think that when the flat rate plan is approved or if it is approved, then certainly our customers, a number of those customers, will avail themselves of it because it offers them sort of a limit. They will know how much they would be spending every month and it is defined and it makes it straightforward for them.
1606 MR. MACDONALD: Thank you. Now, how was this taken into account in developing your market share loss forecast? Are these customers considered part of the base and how are their repatriated minutes treated in your model?
1607 MS HAMELIN: They are actually just part of our general increase in minutes. The minutes that we have repatriated would include some of those customers. Then once we have sort of our base plus our new plan simulation and repatriation, then market share losses are applied to that total. So a portion, by definition of those repatriated minutes -- if they did apply to those particular customers, then there is a certain portion as well that goes to market share loss.
1608 MR. MACDONALD: Okay. Thank you.
1609 Would you know if there are any bypassers in this 8,000 customer group?
1610 MS HAMELIN: I don't have specific figures on how many would be bypassers, but I definitely think that there are a lot of customers in that group who are a bypass. I mean these people could very well have chosen toll denial because they don't want anyone else using their phone by accident or even themselves slipping up and dialling a number, and they have found a 1-800 number, an alternative carrier right now, who is taking them through 1-800 or through some prepaid or call-back arrangement and are using them to carry their minutes.
1611 MR. MACDONALD: Right. So what assumptions have you made in your share loss calculations?
1612 MS HAMELIN: For that specific group?
1613 MR. MACDONALD: For that --
1614 MS HAMELIN: I haven't specifically -- I mean I have treated all of my minutes as a total as opposed to specifically saying, okay, this particular group will lose this market share and this particular group -- I have treated our minutes more as a whole, I mean I have -- as opposed to breaking it down by those segments.
1615 MR. MACDONALD: Okay. Thank you.
--- Pause / Pause
1616 MR. MACDONALD: Okay. Just at the end of this line.
1617 Are the 8,000 toll-denial customers included in your calculation of the effects of your proposal on the average bill that has been designed as being a good representation of the real benefits to customers?
1618 MS HAMELIN: I'm sorry, I think I got the first part of the question which asks me if these customers are included in our calculation of the average bill, but I believe I missed the last part.
1619 MR. MACDONALD: That's fine. We can leave it there.
1620 MS HAMELIN: Yes, those 8,000 customers are included in my calculation of the average bill which -- therefore, of course, when we are looking at the average bill, we have the weighting of those customers with no toll and yet we do know that those customers are in fact -- or some of those customers are bypass customers and are, in fact, using their spending toll in a different form. So in the spec it's skewing our average down. If those customers had been remaining with us and spending toll our savings on an average bill would be much higher.
1621 MR. MACDONALD: Thank you.
1622 MS HAMELIN: Turning to the exception to the 900 series questions, to YG401 on future rate balancing plans, we would like to ask: What do you feel the general direction of local rates will take? Will local rates go up further? Do you see any trend there? And do you see fully cost-based rates introduced here in the north?
1623 MR. WELLS: I'm sorry. You pointed to 401 --
1624 MR. MACDONALD: YG401.
1625 MR. WELLS: Right. And your question was whether we felt that local rates would continue to increase. Could you restate the question for me please?
1626 MR. MACDONALD: That's correct.
1627 The question is: What is the general direction -- what do you feel is the general direction of rates? Will local rates go up further, and do you see in the future fully cost-based rates in the north? 401 I know has specific proposals, but further in 1701 and paragraph (g), if the Commission were to direct further rate increases, and you have done certain scenarios, what do you feel will be the tendency? Where do you think this will go?
1628 MR. WELLS: We have already stated that there are proposals -- besides Northwestel's proposal right now, various companies in the south have proposals to increase local rates. There is no doubt in my mind that there will continue to be upward pressure on local rates generally. However, will they ever reach compensatory levels -- for example, in communities in our territory we have costs that are over $90 per month to provide local access. So I would suggest that it would be unlikely in the foreseeable future that local rates would become compensatory. But, generally, the pressure for local rates across the country are in an upward stretch.
1629 MR. MACDONALD: What are your views on de-averaging? Do you have any plans on de-averaging?
1630 MR. WELLS: Specifically, local rates you are asking about?
1631 MR. MACDONALD: Sorry. Yes, lower costs.
1632 MR. WELLS: No, at this time we have no plans to de-average local rates.
1633 MR. MACDONALD: What about the costs in, say, the major centres of Whitehorse and Yellowknife, will they be going up in the same way? Do you anticipate them going up in the same way?
1634 MR. WELLS: The costs?
1635 MR. MACDONALD: The costs of providing local services.
1636 MR. WELLS: I just need to clarify this. You are not asking about rates here. You are asking about the underlying costs of Northwestel to provide that service?
1637 MR. MACDONALD: Yes. I'm referring to the $90 reference that you made. Is this a cost that will go up in Whitehorse and Yellowknife or are these remote area costs only?
1638 MR. WELLS: Those costs that I quoted are the smaller community costs, yes.
1639 MR. MACDONALD: And do you see the costs of Whitehorse and Yellowknife increasing?
1640 MR. WELLS: Nowhere near, I would suggest, the levels of the $90 that we are talking about, no.
1641 MR. MACDONALD: No.
1642 MS CHALIFOUX: In fact, if I could just add to that, Ray. I mean, we did put on the record that while the costs of providing local service in the communities less than 500 is $92; with communities greater than 1,500 NAS, that cost for a single line res is $43. So those numbers are on the record.
1643 MR. MACDONALD: Thank you.
1644 You have said earlier that your proposal was intended to balance various interested parties who are prepared to pay more for local service and parties who are not. Assuming you have access to supplementary funding, does it concern you whether the company would have an increase in local rates of $5.00 or $2.00 or no increase in rates, given access to supplementary funding?
1645 MR. WELLS: I'm sorry. You are going to have to restate that.
1646 MR. MACDONALD: If you have access to supplementary funding then does it concern the company whether the local rates are increased by the proposed $5 or the suggested $2 or suggested no increase at all, if you have access to supplementary funding?
1647 MR. WELLS: I guess I'm struggling with the word "concern".
1648 Again, we have put forward this model and this model is going to see a huge payment by southern Canadians to northern Canadians, in the magnitude of $40 million a year and we felt it was reasonable to expect that northerners would pay, we put forward a local rate increase of $5.
1649 Again, back to the cost issue, as Muriel clarified, even that increase is not covering the cost in the major centres of Whitehorse and Yellowknife. So we feel that what we have put forward is reasonable.
1650 I am not quite sure what you mean by "concern".
1651 MR. MACDONALD: I guess the issue is that it wouldn't seem to matter to the company whether you impose a $5 increase, $2 or whatever, if there was supplementary funding. In other words, you receive supplementary funding and the increase of $5 or whatever figure would seem to be not an issue for the company.
1652 MR. WELLS: If you are suggesting that if our model is accepted the way that it is proposed, that any shortfall in, say, the increase from $5 was only a $3 increase and that it would be made up from supplementary funding, then, yes, the mathematics would work out that way given our proposal.
1653 MR. MACDONALD: I don't think that's quite what I am after. It is that if there is supplementary funding flowing into the company, then the local increase could be $5. It could be $2. It could be no increase at all. The difference, of course, would be more or less supplementary funding. So the issue is in terms of the company, is it an issue that the $5 figure be adhered to or could it be a $2 increase or could it be no increase at all? Isn't that a function of supplementary funding?
1654 MR. WELLS: From a position of trying to strike a balance here, yes, it's an issue for us. From a pure financial impact on the company, whether or not -- assuming again that the model is accepted the way it has been proposed, that supplementary funding would make up that differential, then financially, no, it would not have a direct impact on the company.
1655 MS CHALIFOUX: If I could just add to that, Ray, I mean as a company this is much more to us than a dollar and cent game. We are trying to -- we are proposing a whole series of very broad objectives here. As Ray alluded to, it does come down to an issue of balance. We are seeking funding of approximately $40 million and we thought that a reasonable contribution must come from the northern customers.
1656 MR. MACDONALD: Thank you.
1657 Turning to YG901, which dealt with just vacations for various rate increases --
1658 MS HAMELIN: I'm sorry, could you give that 900 number again?
1659 MR. MACDONALD: 901. The question we have is: Has Northwestel maximized the revenue opportunities in the pricing? Will service charges move to compensatory for business and residence and how much of the local rate increase could be avoided by raising business rates? I can ask that separately or if you can deal with it as such.
1660 THE CHAIRPERSON: Mr. Rogers.
1661 MR. ROGERS: There were actually three questions there.
1662 MR. MACDONALD: Yes.
1663 MR. ROGERS: I think it would be easier for everyone if we dealt with them one at a time. It is certainly easier for the witnesses.
1664 MR. MACDONALD: Thank you, Mr. Rogers.
1665 The first question then would be: Has Northwestel maximized the revenue opportunities in the pricings in 901?
1666 MS HAMELIN: Yes, I believe we have maximized it, the revenue opportunities.
1667 MR. MACDONALD: Thank you.
1668 Will service charges move to compensatory for business or for revenues?
1669 MS HAMELIN: The increases that we have put forward for the service charges is a step in moving them towards being compensatory. However, we are also cognizant that we did an increase to our service charges I believe a number of months ago, and so we are proposing that this go in stages.
1670 I am not ruling out the possibility that at some point perhaps in business that we might not do other increases, but certainly moving them to be completely compensatory, certainly on the residential side, I wouldn't see with the costs the way they are that that would occur.
1671 MR. MACDONALD: All right.
1672 At any time? At any time?
1673 MS HAMELIN: I'm sorry, which at any time?
1674 MR. MACDONALD: That residential cost increases you said would not occur, at any time?
1675 MS HAMELIN: I believe that's what I said. I certainly don't foresee it occurring, reaching compensatory rates. I don't know if I said at any time, but I don't foresee it.
1676 MR. MACDONALD: No. And my question is you don't foresee it at any time at all?
1677 MS CHALIFOUX: Perhaps just to add to that, I mean uneconomic services are prevalent throughout the north and we foresee that situation remaining the same. To move rates to compensatory levels would reach extreme levels.
1678 MR. MACDONALD: How much of the local rate increase could be avoided by raising business rates?
1679 MS HAMELIN: Excuse me, are you talking about business service charges?
1680 MR. MACDONALD: The business service charges and the services referred to in 901.
1681 MS HAMELIN: Well, with respect to business service charges, it would be very hard to judge how much could be avoided. These are one-time charges. They are not recurring charges on business service charges, so it would be very difficult for us to assess how much that would be.
1682 MR. MACDONALD: That seems to be fine. Thank you.
1683 Turning to 902, Bell and Telus have no difference between residential and business charges. Are these compensatory rates and would Northwestel move in this direction in the future?
1684 MS HAMELIN: One moment, please.
--- Pause / Pause
1685 MR. HENRY: I'm sorry. You will need to look at the reference YG903 at Tab 1.
1686 MS HAMELIN: Yes. I'm just trying to get that right now. I'm sorry. I think I am misunderstanding your question. I believe you stated that Bell and Telor have no difference between their residential and their business service charges.
1687 Attachment 1 of 903 does not appear to support this.
1688 MR. MACDONALD: Attachment 1 of 903, page 1 of 1, service charges, Bell, it says residence is a 55 no visit required and 55 visit required, business 99 and 99. Do you accept that? I guess the issue is resolved. Thank you.
1689 903, could Northwestel price these services that are described in 903, non-recurring charges, could Northwestel price these services at compensatory rates?
1690 MS CHALIFOUX: I believe we responded to that already, but on the business side rates are nearing compensatory levels. We are not all that far off. Certainly over the future, yes.
1691 Residential, no. The disparity between rates and costs right now is at such a significant level that we feel it's unreasonable to reach compensatory levels in the foreseeable future.
1692 MR. MACDONALD: Thank you. 904, the rational for flat rate increase. Where are Northwestel rates compensatory or how close are business rates to being compensatory?
--- Pause / Pause
1693 MS CHALIFOUX: I believe if you refer to response to CRTC 1701, in there we provided some information by community size showing -- and by service type where rates are currently non-compensatory and which ones are. That's right. It's on a weighted average basis by service type.
1694 MR. MACDONALD: Thank you. 907, which refers to data and number of customers who found previous rate increases unaffordable. Do you have any further data on disconnects for reasons of affordability?
1695 MS HAMELIN: No, we don't.
1696 MR. MACDONALD: Can you tell us where the disconnects are located?
1697 MS HAMELIN: No. We don't have that information.
1698 MR. MACDONALD: Thank you. Would you continue to monitor the disconnect issue and, if so, how would you do it?
1699 MS HAMELIN: One moment, please. Yes. We monitor those disconnects for reporting as part of the local service, LSPO, and send those results to the CRTC on a quarterly basis.
1700 MR. MACDONALD: Thank you. 909 and measures to ensure affordability. What other measures have been considered dealing with affordability?
1701 MS HAMELIN: I believe I had mentioned earlier the bill management tools. I had indicated that in addition to the existing bill management tools, we are proposing as part of the SIP that we would introduce a payment plan for the $1,000 contribution charge and if the need arose, any construction charges over and above the allowance of the $25,000 that we have proposed in our SIP. Those would be paid over a 12 month period if a customer chose to have that, so that would be in effect a new one that we are proposing.
1702 MR. MACDONALD: Are you or do you have or are you planning to have any specific training with the customer service representatives on affordability?
1703 MS HAMELIN: I believe there has already been some training with respect to the bill management tools and certainly with respect to the new SIP proposal. With this new tracking system, we will be training the call centre people as to how they offer this, how they present it to people. Yes.
1704 MR. MACDONALD: And, finally, have you any plans or have you any thoughts concerning seasonal customers spreading a six month charge over a 12 month period? This was asked before. I thought I would ask again.
1705 MS HAMELIN: I'm afraid I would like some clarification on your question, the six month charge over a 12 month period. I'm not sure. Are you talking about a seasonal disconnect?
1706 MR. MACDONALD: The suggestion is if there is a seasonal industry in, for instance, tourism who uses telephone services for, let us say, six months, they may wish to spread the payments over a 12 month period. Is there any thoughts to accommodate that?
1707 MS HAMELIN: I believe that I could say that we would -- if a customer addressed this on an individual basis of being concerned, then we would look at this on an individual basis.
1708 MR. MACDONALD: Thank you. Referring to ONTel 10, justification for a sustainable CAT --
--- Pause /Pause
1709 MR. MACDONALD: The company response, I believe, was that the CAT rates are not the only factor considered by competitors in deciding whether to enter a market. The question is: Is Northwestel now or would Northwestel consider entering into other markets. Northwestel has not considered entering into other markets outside of its current serving territory.
1710 MR. WELLS: Northwestel has not.
1711 MR. MACDONALD: Okay. And the followup is if not, then why not?
1712 At this point in time we haven't considered that there is reasonable business opportunity. I think it's important to note that it's clear to us that our capabilities and expertise do reside in serving the northern market that we operate in.
1713 We have been building relationships and have successfully worked with local governments and, as I mentioned earlier today, with First Nations in the Northwest Territories in ensuring that we are able to roll out effective communications networks and solutions in the territory. That's where our focus lies.
1714 MR. MACDONALD: Thank you. Referring to CRTC 403 -- I'm sorry, that was for the finance panel. It doesn't concern this panel. Moving on to CRTC 410, I believe this panel can deal with it, Northwestel suggests for a review period of CAT, it suggests three years and the CAT would remain at .05 cents.
1715 The question is what are Northwestel's expectations for future toll rates?
1716 MR. WELLS: I'm sorry, I missed your last few words. What are our expectations for future --
1717 MR. MACDONALD: What are Northwestel's expectations for future toll rates, future CAT rates? What's the protection for future toll rates?
1718 MR. WELLS: I have been asked to ask you to clarify one more time whether we are talking about the CAT reference that we are dealing with in the interrogatory or whether you are talking about the toll rates.
1719 MR. MACDONALD: My question was: The review period for CAT and that Northwestel suggests three years and the CAT would remain at .05. The issue then is what are Northwestel's expectations for future toll rates?
1720 MR. WELLS: The market in the last few years from what we have seen of toll rates there seems to have been a degree of stability with the introduction of a flat rate plan. I can't speak with any level of expertise of what is going on in the U.S. market, for example.
1721 I don't know that we will see the same level of accelerated decreases that we have seen in the last few years. Our judgment is we are probably going to see a level of stability, possibly from downward pressures, but not as significantly as we have seen in the past.
1722 MR. MACDONALD: And is bundling expected in this area and, if so, when?
1723 MR. WELLS: Service bundling?
1724 MR. MACDONALD: Service bundling.
1725 MR. WELLS: Service bundling has become very prevalent in the south. There are a lot of examples now of companies that are utilizing the ability to bundle products and services on to one single bill, so I can see that with convergence of services and the desires of customers that bundling will continue to be a major factor in the marketplace.
1726 MR. MACDONALD: Referring to CRTC 708 and the average monthly bill, the $70 reduction in the west and rates would yield a 10 per cent return --
1727 MR. WELLS: Could you just hold on for a minute until we get it out.
1728 MR. MACDONALD: I'm sorry.
1729 MR. WELLS: It would be easier to follow.
1730 MR. MACDONALD: I'm sorry.
1731 MR. WELLS: Thank you.
--- Pause / Pause
1732 MR. MACDONALD: Okay. Northwestel I think responded that nearly -- a reduction of $70 in the west in the rates would yield a 10 per cent reduction overall. We wish to know what are the impacts of the total rate changes on subscribers. How many would be better off, how many would be worse off?
--- Pause / Pause
1733 MS HAMELIN: I believe our figures were around 53 per cent we would be better off, but I think what we need to clarify here is that because of again the number of customers in the lower spending toll categories that we expect that, you know, the customers' calling patterns will change somewhat.
1734 It's unreasonable to assume that customers will continue to call the same way as they have in the past. There will be some shift. There will be some additional savings as they shift into using more of the $20 plan, plus there is again the fact that we have seen the bypass. If those customers come back online, I mean if they had been part of our base to begin with, then we would have seen a much larger proportion of customers benefit on the average bill.
1735 MR. WELLS: I would like to add a point or two if I could. Our analysis shows that the customer that uses as little as $8.50 in the DDD off beat time will have -- it will be a neutral impact, the $5 local increase, so it doesn't take a lot of expenditure in the existing toll to make that up.
1736 Another point that often gets missed because it is so unique to our customers in the north and may be difficult to envision living in the south and having the ability to utilize the low rates that are there is people have lost the utility of the telephone. They are now using the phone almost as a receive only, a lot of our customer, a receive only device, so they don't any longer just pick up the telephone and make a long distance call.
1737 We heard a gentleman from Fort Nelson in the consultation process basically say that he will be glad when he will be able to pick up his phone and not have to wait for the call, the weekly call -- I can't remember from which relative it was.
1738 There is an issue of utility here as well. While there are going to be price savings in this reduction and, as Kathy mentioned, with a shift to -- that was based on a strict reprice, but with a shift to taking advantage of this lower rate, we expect there will be an additional increase. Our customers will again be able to use the telephone like Canadians in the rest of the country use their telephone.
1739 It's an important point, the value of the utility, that is also gained through the proposal that we are putting forward here.
1740 MR. MACDONALD: Thank you. Fifty-three per cent will be better off. Do you have a percentage on how many will be worse off?
1741 MS HAMELIN: I believe it would just be the difference, 47, unless I am misunderstanding your question.
1742 MR. MACDONALD: It may not split that way. There may be 53 per cent better off, a percentage with no change and some worse off.
1743 MS HAMELIN: As I say, this was a strict reprice only. We really just took the numbers and repriced them. We did not take a look at how many would have no change specifically when we were calculating it.
1744 We are not taking into account any of the other benefits that would come about as they stimulate their calls, as they switch their calling patterns and as they gain the utility of the phone.
1745 MR. MACDONALD: That's fine; thank you.
1746 I have some more questions relating to CRTC lines of questions. It is almost noon. I am wondering if this is a good time to stop.
1747 THE CHAIRPERSON: Mr. Macdonald, how much more time do you expect you would be?
1748 MR. MACDONALD: I would like to be able to do this in 30 minutes maximum.
1749 THE CHAIRPERSON: Well, if it is going to be half an hour, maybe now is an appropriate time to take our lunch break.
1750 MR. MACDONALD: Thank you.
1751 THE CHAIRPERSON: We will take our lunch break now and reconvene at 1:15.
1752 MR. MACDONALD: Thank you.
--- Recess at 1200 / Suspension à 1200
--- Upon resuming at 1318 / Reprise à 1318
1753 THE CHAIRPERSON: I will give the Commission's ruling with respect to the issue that Ms Lawson raised this morning.
1754 I see Ms Lawson is not in the room at this time.
1755 As I indicated at the outset, it is up to parties to follow the course of the proceeding.
1756 Earlier this morning Ms Lawson for CAC/NAPO requested disclosure of the proportion of Northwestel's market share loss expected to occur outside of equal access areas under Northwestel's proposal. This request relates back to a discussion yesterday of Northwestel's estimated market share loss of 13 per cent in 2001 under the company's proposed toll plan.
1757 Mr. Rogers, for Northwestel, suggested that the request was out of process but also that if the Commission considered the request, the public interest was not sufficient to outweigh the harm, and accordingly there should be no disclosure.
1758 We are of the view that the information should be provided. Procedurally, we note that the request seeks new information which relates to general statements made on the record. In these circumstances, we are of the view that it is appropriate to consider the request.
1759 On the substantive side we are not convinced that the harm from disclosure would outweigh the public interest, given the importance of exploring the reasonableness of the company's market share loss projections and the aggregated nature of the figures sought.
1760 I think the best way to treat this would be to have Northwestel file the proportion of expected market share loss in non-equal access areas in 2001 as an exhibit as soon as possible.
1761 Madam Secretary, I believe you have an announcement respecting further information requested by Commission staff?
1762 MS VOGEL: Yes, Mr. Chairman.
1763 There are questions on operating territory, the answers to which are requested by way of an undertaking. The document has been distributed to all parties.
1764 I would like to mark this as CRTC Exhibit No. 1.
1765 THE CHAIRPERSON: Are there any other preliminary matters before we return to questioning?
1766 Seeing none, Mr. Macdonald...?
1767 MR. MACDONALD: Thank you, sir.
1768 At this time, I have completed my line of questioning and I would like to turn the questioning over to Mr. Pratt.
1769 MR. PRATT: Thank you, Mr. Chairman. You may not be the only one rusty at this part of the process.
EXAMINATION / INTERROGATOIRE
1770 MR. PRATT: Good afternoon, panel.
1771 I would like to begin by talking about the construction charges and the $1,000 contribution towards construction charges.
1772 The proposal is that unserved customers are obligated to pay the $1,000 and underserved customers are not.
1773 Do you see any circumstances or foresee any circumstances where, from either the company's perspective or maybe more importantly from the customer's perspective, there is some ambiguity about whether the customer is underserved or unserved?
1774 MR. WELLS: I think we have defined that fairly clearly. I don't believe there will be any levels of ambiguity that are going to be an issue.
1775 MR. PRATT: From the customer perspective as well, Mr. Wells?
1776 MR. WELLS: Yes. It is important to note that we have had, and will continue to have, consultation with customers and help define clearly which customers will be defined as unserved and those that will be defined as underserved.
1777 MR. PRATT: Right. I understood that in the consultation or information sessions that were conducted there may have been some people who were not clear whether they had to pay the $1,000 or not.
1778 You don't know anything about that?
--- Pause / Pause
1779 MR. WELLS: There was an individual in Yellowknife, I believe, who during the consultations was unclear as to whether or not they would have to pay the $1,000. And that was cleared up.
1780 MR. PRATT: Right. I was not referring to the regional consultation. I was speaking of the company's information sessions prior to that, going out and talking to customers.
1781 That is not something that you know about?
1782 MR. WELLS: No. That would probably be better addressed by the Network Panel.
1783 MR. PRATT: Fair enough. Can we talk for a minute about what these customers will get for their $1,000 payment.
1784 What I am looking for is where will the facilities be delivered to. And more importantly from the customer's perspective, will the $1,000 cover everything? Will that allow an unserved customer to have dial tone? Or are there situations where the $1,000 will be the first payment and then there will be other payments, other tariff items that might apply after that?
1785 MR. WELLS: Yes. There would be other tariff charges that would apply to any customer coming on to the network. As well, I should clarify that if the cost of that construction goes beyond the limit of $25,000, the customer would also be expected to pay that additional construction cost.
1786 MR. PRATT: Let me get back to the first part of my preamble.
1787 What exactly will the customer be getting then for the $1,000?
1788 MR. WELLS: The customer will get basic service as defined in the new definition that has been put forward by the Commission.
1789 MR. PRATT: Unless there are other tariff charges that are necessary in order to complete the facilities to the customer's location.
1790 MR. WELLS: I'm sorry, you asked about what service the customer would get. And then could you repeat the rest?
1791 MR. PRATT: What is the company providing to the customer for the $1,000? Not the service itself, but to what point on the property would the facilities be extended? What is their entitlement?
1792 MS HAMELIN: I believe the $1,000 should be looked at as a customer's contribution towards the service that they will be getting under the SIP program. I think that is how we should look at it.
1793 We have a number of unserved customers, and the $1,000 contribution is felt to be sort of their contribution towards getting service to them.
1794 Further to that, in aggregate there is the $25,000 construction allowance per se, I believe it is, to get the service to their door. There may be in some cases -- and it is not expected to be a great number of cases -- where it could exceed the $25,000 limit. At that point we felt that it was reasonable for the customer to pay those additional construction charges.
1795 For that sort of whole package the customer gets the basic service that was defined in the high cost serving area decision.
1796 MR. WALKER: May I just add?
1797 So the $1,000, basically, brings the capability of the broad basic service objective to the customer. If the customer requires inside wiring, that type of -- so the service charge elements would apply to actually connect the customer to that capability and give them dial tone. So there are several basic service -- pardon me -- several service charge elements, non-recurring service charge elements.
1798 MR. PRATT: Thanks, Mr. Walker.
1799 If a customer, an unserved customer, pays the $1,000, and then if some of these other elements are also required in order to complete the installation and deliver the service to the customer, would your proposal for time to pay and affordability management -- if I can use that term -- would that apply to these other charges as well or just to the $1,000?
1800 MS HAMELIN: You are referring now specifically to the service charges?
1801 MR. PRATT: Service charges or any of the other elements that might apply.
1802 MS HAMELIN: Service charges. Well, certainly there is the policy for the service charges. We do have a policy for payment of service charges over time that exist today for any kind of non-recurring service charges.
1803 I believe I might have missed part of what Mr. Walker said or Mark said at the end there, sorry, about other charges beyond the service charges. If you are referring to any additional construction charges, yes, we do have a policy that we plan to put in lace that would extend the payment over 12 months.
1804 MR. PRATT: Right. That's what I was looking for, if you have time to pay for the $1,000 that you should have time to pay for whatever other charges are needed in order to have that customer hooked up, and that's the case. Right?
1805 MS HAMELIN: That's correct.
1806 MR. PRATT: Thank you.
1807 Okay. Let's take about the CAT. Who is up on the CAT?
1808 My understanding of the way you have reached the level of sustainable CAT is really to look at the number of circumstances that are out there, the comparable examples of other jurisdictions, apply what you know about your own market and come up with a judgment base number of 5 cents. Is that correct?
1809 MS CHALIFOUX: Yes, that's correct. We looked at, you know, sort of some boundaries, I guess, where we felt that certainly a cost-based CAT would be too high. It would not promote any sort of competitive entry.
1810 Then we started working down in terms of, you know, at what level of CAT do you start seeing some form of competitive entry, and we saw some situations in the independent companies of Ontario and Quebec. As CATs came down from 10 cents down to more of a 5 cent range, competitive entry started to incur. So that's where we thought as a starting point, as a reasonable estimate of where competitive entry would start to occur.
1811 MR. PRATT: Similarly, on the bottom boundary, the comparable rates that are paid in southern Canada you judge to be too low?
1812 MS CHALIFOUX: Yes, I mean, it also comes down to -- you have to take this in the context of everything we are trying to do, and it is very much an issue of balance. A CAT rate down to the levels that you see in some of the former Stentor companies, yes, we thought at this time it would be perhaps a little too much too soon, too aggressive and it would be a significant, a greater impact on our requirement for supplementary funding.
1813 MR. PRATT: Would it be fair to say, then, that the level of sustainable CAT that you have reached by using this judgment process was also affected by the other elements that you are trying to balance?
1814 MS CHALIFOUX: Yes.
1815 MR. PRATT: So it's a three-legged stool. You needed to look at what local rate increase might be fair or appropriate for the balance, look at the right level of CAT and adjust everything to come to a level that you felt comfortable with?
1816 MS CHALIFOUX: Yes. I mean, certainly, every element of our proposal was looked at as sort of a package.
1817 MR. PRATT: Okay.
1818 Can I just take you back to an answer you gave me a minute ago on the descending level from, say, the 10 cent CAT.
1819 You said that at 5 cents in some of the other companies' experience you saw competitive entry. Significant competitive entry, I take it?
1820 MS CHALIFOUX: No. I wouldn't say significant competitive entry, and I'm not exactly sure of the exact numbers, but in discussions with some of these companies, as they came down to this level of, say, five and a half to six and a half cents, it wasn't until they got down to that level that competitive entry started to occur. So we thought okay, well, six and a half, you know, just a little bit of competitive entry, but perhaps not a reasonable amount of competitive entry.
1821 So, again, it was keeping that in mind and the impact on supplementary funding, we thought 5 cents was a reasonable balance to ensure that there would be some degree of competitive entry.
1822 MR. PRATT: Right. But at, say, six and a half cents, you would still expect to see some competitive entry based on this other experience.
1823 MS CHALIFOUX: Perhaps some, but I think it would be very targeted entry.
1824 MR. PRATT: Would you still be able to reach some kind of a balance with all of the aspects of your proposal at that level?
1825 MS CHALIFOUX: Well, I mean, in terms of reaching a balance, I mean, as long as -- we are looking at being able to price the comparable rates and at the same time providing some element of choice. So I think a CAT at that level -- you know, I think we are compromising that element of choice. I think it is going to be quite narrow and doesn't quite achieve perhaps the level of objective that the Commission would like to see or that perhaps some of our customers would like to see.
1826 MR. PRATT: I understand.
1827 It is certainly extremely clear that 5 cents is your best judgment and that is the stasis point that you have reached. I was just trying to test what the level of range or sensitivity was in looking at the CAT. That's fine. Thanks.
1828 A friend of mine has a concern about the rental set market. Mr. Wells, if you would indulge me for a minute, maybe I can just ask you a couple of questions about that.
1829 Do you have any information about how many customers you have who rental sets?
1830 MR. WELLS: That have rental sets?
1831 MR. PRATT: Yes, rental set customers.
1832 MR. WELLS: I think we have that information.
1833 MR. PRATT: While you are looking for that, maybe you have that information there or need to check it out, but I would be curious as to what is the average length of time that a customer might have a rental set. Are these typically sets that have been around for a long time? What can you tell me about that?
1834 MR. WELLS: We don't measure that level of information.
--- Pause / Pause
1835 MR. WELLS: Approximately 28 per cent rent terminal equipment from Northwestel, residential equipment.
1836 MR. PRATT: So that would be 28 per cent of the 35,700?
1837 MS HAMELIN: That's correct.
1838 MR. PRATT: Okay.
1839 Now, does Northwestel periodically go to these 28 per cent of customers and replace obsolete sets or update models? How do you manage that rental base?
1840 MS HAMELIN: I don't believe we actually go out to the customers to update. I mean, if customer sets break down under a rental arrangement they can return their sets and we will replace them.
1841 MR. PRATT: Right. So the onus is just on the customer to identify whether that piece of equipment still meets their needs and then deal with you as they need to.
1842 MS HAMELIN: That's correct.
1843 MR. PRATT: Okay.
1844 Mr. Wells, can we speak for a couple of minutes about the ISPs, the provision of service to Internet service providers.
1845 I think you said, this morning, that you do have a wholesale tariff approved for provision of access to competitive ISPs?
1846 MR. WELLS: That's correct.
1847 MR. PRATT: All right. I want to ask you specifically about the small communities -- and you know what you have proposed for the communities under 2,000 population, in terms of provisioning.
1848 Can you tell me if that wholesale tariff would apply in those communities and if so, whether that's likely to be a -- whether you are likely to have any customers of the wholesale tariff in the small communities?
1849 MR. WELLS: We proposed a -- in our filing, we proposed a tariff that is different than the existing tariff that's filed today to ensure that there will be a level of entry of ISPs into the marketplace.
1850 Northwestel has also put forward a proposal that we will go into these communities as the provider of last resort and offer Internet services in those communities.
1851 MR. PRATT: Can you tell me a little bit about the sequencing, how that would work? Presumably, you, first of all, have to have the revised tariff made available to potential entrants.
1852 MR. WELLS: Yes. It would start, of course, with the roll-out of the technology. We are proposing to put in place the technology that would permit up to two ISPs to enter into the remote communities. These are communities that have less than 2,000 now. Communities above that are well served today by ISPs.
1853 Then we would -- our proposal is to go to the ISPs through a public process -- or I should back up. The first step would be if there is an incumbent ISP in one of those communities, they would have the right of first refusal to take up our new proposed tariff rates. Then we would go out to a public process and get interest from ISPs. In the case that there would be more than two ISPs looking to serve these communities -- and I should remind you that these communities that we are talking about get very small in numbers very quickly, from a line point of view. Then we would have our carrier service group -- who would manage this process in total, I should add -- this carrier service group would use some unbiased process to select the two ISPs for the communities.
1854 MR. PRATT: Do you foresee any opportunity for community input or third-party input into that evaluation process?
1855 MR. WELLS: No, we hadn't -- from a policy point of view, we hadn't considered that. And our proposal, now, is simply we would put out, as we have with other tariff rates, and see if there's interest beyond -- to your point, if there was interest beyond two ISPs, then we would have unbiased process. But we have not looked at anything to perhaps complicate this more than the need -- than there is a need to.
1856 MR. PRATT: So, you are accepting an obligation, as this carrier of last resort, to provide the service. So that would be your last option, I assume. Correct?
1857 MR. PRATT: Yes. If, in fact, in the communities that we have provisioned the technology in there were no ISPs that had an interest, Northwestel would enter that market.
1858 MR. PRATT: Would the company consider entering a market if there were only one ISP in a small community?
1859 MR. WELLS: The company would consider entering any of the locations if there was a business case to do that and would be put on an equal footing with other ISPs that are interested in providing service, from the selection process perspective. Only in the case where there was no ISPs interested would we go in as a provider of last resort.
1860 So, we would look at these markets as any ISP would and put forward -- through the same process, through the carrier service arm of the company, put forward our application to provide service there if we felt there was a business case to do so.
1861 MR. PRATT: Right. And the carrier access group manages all -- does it manage all of your interactions with ISPs today? So that's where -- request for service from ISPs either in small communities or here goes through the carrier group?
1862 MR. WELLS: It does not today.
1863 MR. PRATT: Is there any reason for that?
1864 MR. WELLS: Only that to date we have used the retail arm of the company to do that. But it is our proposal, going forward, to shift that responsibility to the carrier service group.
1865 MR. PRATT: And your own ISP offering is this Sympatico service. Right?
1866 MR. WELLS: Yes, that's correct.
1867 MR. PRATT: And that's the service that -- if you did enter on a business case business any of these small markets, that's the service you would offer?
1868 MR. WELLS: Yes; that's our current service and we would offer our -- the package that we offer in our larger communities, the 24.95 package.
1869 MR. PRATT: I think you said, this morning, that you are sitting at about 15 per cent share of the market? Sympatico. Right now.
1870 MR. WELLS: It varies by marketplace.
1871 What I mentioned was there are two major centres. Whitehorse and Yellowknife, I believe, were at 15 and 18 per cent, respectively. We are in some other communities that -- and we had to do different market shares there, again, depending on whether or not there's ISPs present there. I think, for example, Norman Wells were the only ISP, for example, so we tend -- we are dominant in that market.
1872 MR. PRATT: Right. Well, in the markets where you are not dominant, do you foresee doing any bundling of Sympatico with other of your service offerings?
1873 MR. WELLS: We have no plans, at this point in time, to do that. As I mentioned earlier, there was a question about bundling and the opportunity that that brings in a marketplace, and I think it's clear we've seen a lot of bundling going on in the southern part of the country and that's definitely a business opportunity that we will be considering. I think, today, the only bundling that we do have is a toll -- part of our toll discount is tied in with the 15 per cent discount -- yes, it's tied in with additional hours for Sympatico, so there is one element there today.
1874 MR. PRATT: So, from a longer-term strategy perspective in approaching the market, getting heavily into options like bundling is what, two, three years down the road? Do you have any sense of that?
1875 MR. WELLS: I don't have any time lines now for when we would enter that market.
1876 MR. PRATT: But for the time being, it's not been judged to be necessary, from your perspective?
1877 MR. WELLS: We had put forward, last year, with the Commission, a filing that it asked for Northwestel to -- to permit Northwestel to look at some joint marketing and our position is that there are advantages to customers, of course, for bundling; hence, the propensity in the marketplace to be looking at providing bundled services. Northwestel have asked to be permitted to do joint marketing and, at this juncture, we were denied that opportunity.
1878 I do know going forward, when we are in a position that some of the constraints have been lifted off of us, there is opportunity in that market space and I think there's -- there's customer demand for it, most importantly, and if we are going to operate as a full-service provider, I think that that's a very critical element to our capability.
1879 For example, if toll pricing was structured in a way that Northwestel was not able to compete effectively in this market -- and I talked, yesterday, about the data that we have got on record from an external consulting firm shows us very clearly that if there's any differential at all in our rates compared to competitors our customers will leave us.
1880 Obviously, for us to be able to take advantage in a competitive marketplace of bundling it's going to be critical for us to be able to be competitive on the toll pricing part.
1881 In addition to that, from a cost perspective -- and it's been identified by the Commission, clearly, as well, in some of the writings -- there is economies of scope that has costs associated with them and, again, economies of scope are covered off through the concept of being able to be a full-service provider. This all ties back to our ability to have rates that are comparable to those of competitors.
1882 So we feel that if we are unable to compete directly with rates that are comparable, we will be put or our customers, I should say, more importantly, will be put in a situation where they may not be able to gain benefits from the bumping opportunity.
1883 So we have got plans to do this, but, of course, right now there are constraints on the company.
1884 MR. PRATT: Good. Thank you.
1885 Just following up from one point you made in your statement there that I was curious about, you mentioned the study and the sensitivity of customers to price changes, the volatility I guess of customers to price changes. Is that homogenous throughout your market or are there certain segments, like high-volume users or urban users that are more sensitive towards them than others?
1886 MR. WELLS: It's homogenous. However, I think it's fairly straightforward to draw the conclusion and we have seen it through evidence now for years of bypass.
1887 The people that are high spenders are going to take advantage of competitors. They are going to take advantage of low prices. This information that we have got clearly identifies that over 60 per cent of our customers, if there is the slightest perceived differential in price, will leave us for a competitor. That's a huge market share.
1888 I mentioned yesterday that our market is very unique. You have got a very few large business customers in very few cities that represent a large portion of our toll revenues. So we are very vulnerable to competition and that statistic clearly showed us that without comparable prices we are going to lose the vast majority of our market share.
1889 MR. PRATT: All right.
1890 Thank you.
1891 I have one more area, Mr. Chairman, and that's just a couple more questions I think. It is on the general topic of entry in the long distance market.
1892 Under your proposal the market will be open for business January 1, 2001. What would a potential long distance competitor need to do to get into business say in the Yukon at that time? What would they need from you?
1893 MR. WALKER: Nothing that they don't currently have to do and I am speaking of the -- nothing that they don't currently have to do in southern Canada.
1894 So we are proposing -- we will have a carrier access tariff that is very similar to that which is used in southern Canada to date. All they will have to do is present themselves to the carrier service group, which is kind of forming now within Northwestel and we would go through a negotiation process which I think typically, and this is a little new to us, takes 60 to 90 days to determine the exact terms of interconnection.
1895 At that point they would pay whatever the approved carrier access tariff rates are. They would be able to pick their customers in equal access areas and they would have to have some kind of facility to get to the north, whether they built their own which is doubtful, or lease some facilities on a wholesale basis from Northwestel to get from south up to our Class IV switches.
1896 MR. PRATT: All right.
1897 Now, what if Terry and I wanted to go into the resale business based here, what would we need from you?
1898 MR. WALKER: Nothing different than what I spoke of. You would just need the capability of presumably you would, in that case, be looking to send those calls down south, people wanting to use your company. All the same elements that I just spoke to you would still require.
1899 MR. PRATT: What about resellers who are looking at the data router and an 800 access, the same kind of situation.
1900 MR. WALKER: A little different. There doesn't need to be quite the same kind of discussion and negotiation there because what we would have available is, for example, wholesale advantage where potential competitors could acquire that service and resell it or rebill it. We would be able to provide them with the information they need in order to rebill their customer.
1901 MR. PRATT: Let's stick with the example of a small competitor, Terry and Jim's telephone company. The real question I am concerned about, Mr. Walker, is whether the pricing, the advantage pricing is going to be at such a level that if we had to meet the amputation test we could meet it.
1902 MS HAMELIN: One moment.
--- Pause / Pause
1903 MS HAMELIN: I think to address that we would have to sort of understand, of course, we are not proposing a specific rate for wholesalers. It is built into kind of the large advantage. I shouldn't use the word "advantage" here, a large business plan that we have put forward on the market, and wholesalers, people who are doing rebilling, for example, and buying our service, a lot will be dependent. Their rates in effect will be somewhat dependent on the volume of the minutes that they gather and that will determine how much their margin is that will be built into that rate.
1904 So, if that rebiller is very successful and is able to convince them and have a lot of customers come to them, they will, of course, qualify for larger and larger volume discounts, based on the minutes that they have and they gain from their customers. So the margin will be built into that.
1905 MR. PRATT: Right. And the costs of that can be also an important element in determining the margin?
1906 MS HAMELIN: Right.
1907 MR. PRATT: Well, I think up until now what I have heard anyway is that when we talk about the amputation test and about the competitors you expect, you expect to see large competitors and competitors that might have more depth and more capability than Northwestel to really attack your market. But I didn't hear anything about the kind of hypothetical I was posing of a small operation that might want to get started.
1908 What I was concerned about is that it doesn't seem to me, and please correct me if I am wrong, it doesn't seem to me that those competitors, those potential competitors will be protected in your plan, protected from a relative ability to compete?
1909 MS CHALIFOUX: Yes, I think it's our firm belief that the primary competitive entrants are going to be national providers. However, in your example I think what you might see there is people who are going to selectively enter the market. They are going to target certain low-cost areas and high-volume customers.
1910 It is Northwestel, the one who has to provide service throughout the whole north. We are the ones who have that obligation, saying that's an important element to keep in mind. We are the one serving the far north communities.
1911 MR. PRATT: Sure. Let's not get too far down into comparing who has got the best shot at it.
1912 Just to follow from where you started, if this start-up company has to pay for its facilities more than the equivalent of five cents a minute, the sustainable CAT rate, won't they be at a competitive disadvantage on that particular element, on that cost element?
1913 MS CHALIFOUX: I mean I don't see that as a disadvantage at all. I mean they are going to come in, they are going to selectively target the market, whereas Northwestel is bearing the cost of serving the entire north. We are offering a subsidized CAT to allow them access to some of those high cost facilities.
1914 MR. PRATT: Subsidized CAT, but a CAT level that is set based on your objective of balancing the market. Right?
1915 MS CHALIFOUX: Yes. Subsidized at such a level that will encourage competitive entry.
1916 MR. PRATT: One last item and then I will retire again. Mr. Wells, we were talking about the ISPs in the small communities. I wondered if any consideration had been given to exploring a community based ISP option where you didn't have -- where there weren't entrants, potential entrants.
1917 MR. WELLS: The proposal that we put forward would be open obviously to a community based ISP if a community based ISP wanted to come forward and participate. Let's assume for a minute that this is approved and we go to the public process and a community based ISP could put their name forward just like a private ISP could.
1918 If there were two or less, obviously that community ISP would be selected. If there were two or more, they would go into that neutral process that the carrier service group would manage. We would select two out of the group, so they are on a level playing field with any other ISP.
1919 MR. PRATT: Would you be willing to work with any of these community groups or potential community groups to help them get on to the level playing just to help get them organized or informed?
1920 MR. WELLS: Well, I just spent a bit of today and heard through the consultation process two days before that that there is a concern with Northwestel and working in this market space, unfounded I might add, based on our market share and the tariffs that we put on the record today obviously.
1921 I might have a concern now with a perception that if Northwestel started to perhaps work with community based groups where we perhaps wouldn't be willing to work with other existing private ISPs, I think there could be an issue develop there.
1922 Again, as a provider of last resort, we would go into these communities, as I said, and offer up our service. Now, if there was a situation, and we have got a long history here and Mr. Hayden can attest to that, we put a long history in the north of working with governments to ensure that services are implemented throughout the territory.
1923 We just completed an agreement on the Yukon Connect project that is going to see us roll out a high speed network through this territory and including providing access residents out at Marsh Lake that is upwards of $18 million worth of investment.
1924 We do have a history of working with government. I mentioned today that discussions were going to begin with CYFN as far as their requirements from a business perspective.
1925 I wouldn't close the door on that potential, but I wouldn't want either to be seen as doing that and excluding the potential for Northwestel to work with any ISP to offer services where there might be a business opportunity to partner to do that sort of a thing.
1926 I think from our perspective there are many examples of Northwestel having been an active participant with communities and helped their interests along. I was just thinking, having listened to the same regional consultations that you did, there were also people who thought you had a PR image problem, so this might go a little ways towards helping that out too.
1927 MR. PRATT: Thank you, Mr. Chairman. I have no further questions.
1928 THE CHAIRPERSON: Thank you very much.
1929 Madam Secretary, the next party.
1930 MS VOGEL: The next party to cross-examine this panel is New North Networks.
EXAMINATION / INTERROGATOIRE
1931 MR. ZUBKO: Thank you, Mr. Chairman.
1932 I would like to point out at the outset that I am a businessman, I am not a lawyer. I hope you will be patient with me in that respect.
1933 THE CHAIRPERSON: Not all the parties so far have been lawyers, Mr. Zubko.
1934 MR. ZUBKO: Mr. Chairman, Board Members of the panel, I have a few questions. I will try to be as brief as possible.
1935 I would like to ask some questions on the Internet issue once more. I would like to understand where Northwestel sees itself in the Internet business right now, so I would like to ask: Does Northwestel consider themselves a leader in the provision of Internet service in the north?
1936 MR. WELLS: I mentioned earlier that from a market share perspective, I wouldn't consider ourselves to be a market leader in the Internet. We have in the past worked with, as I mentioned to the previous panel, government and some non-profit organizations to help early on in the evolution of the Internet -- I am going back a few years now -- to get this service up and running.
1937 From a leadership perspective relative to acting as a catalyst in the north and providing infrastructure and working with interested groups, yes, I would think that we have taken a leadership role there.
1938 As far as success in the marketplace from a market share perspective, as I mentioned earlier, the statistics would show that we don't have a leadership position.
1939 MR. ZUBKO: If we were to move that perspective out of the major communities to major communities in the north, there has been Internet service provided in a number of communities across the north by small -- relatively small companies, in some cases very small. I guess when I talk about leadership or leaders, pardon me, I'm talking about the people or the companies that went out and found technologies that they could utilize to treat that service.
1940 Beyond supplying in some cases pipe, has Northwestel taken any large steps or leadership steps in creating an environment for Internet?
--- Pause / Pause
1941 MR. WELLS: I just needed to confirm something. One clear example, and I spoke about it earlier today, is the rollout of frame services across 58 communities in the Northwest Territories and in Nunavut. We did that in partnership with two First Nations organizations and provided a backbone platform, if you will, for enabling high speed -- sorry, for enabling Internet access, that same investment we are now proposing to utilize to roll out the capability for up to two ISPs to provision services throughout the entire operating area.
1942 That is one good example of what Northwestel has done in a co-operative way to rule out the Internet.
1943 MR. ZUBKO: Would it be fair to say that that project was stimulated by the Northwest Territories Government?
1944 MR. WELLS: That project was a result of a request for proposal that was put out by the Government of the Northwest Territories. And Northwestel, in responding to that, built this partnership and developed, as I mentioned earlier, a unique solution that, to the best of my knowledge to date -- and I do know at the time that it was rolled out -- was the first of its kind anywhere in the world to put a frame service over satellite.
1945 It was not an easy solution by any stretch. It was a very creative solution, but it was not an easy solution.
1946 So yes, it was initiated through a request for proposal from the government, and we delivered that in co-operation, as I say, with the two First Nations organizations.
1947 MR. ZUBKO: Just for the record, I have been using frame relay service since July 1996 for the provision of my Internet service over satellite.
1948 I won't get into who was first, but it certainly was technology that was coming onstream rather rapidly at the time.
1949 I have heard this question asked a number of times and I have not heard a really definitive answer. So I am going to try it once more. This has to do with the costs attributed to your Sympatico service.
1950 My question is: Can an independent ISP get the same level of service at the same cost as your Sympatico service pays?
1951 MS CHALIFOUX: An ISP has to pay the tariffed rates. For our service we have put forward an accounting methodology that separates the cost attributed to our Internet services, including our retail offering of Sympatico.
1952 It is difficult. The exact elements and rates are not the same. However, the underlying principles are.
1953 What we are doing is we are attributing all the facilities that Internet services use for our Sympatico service and we are attributing the cost of those facilities to a reporting category.
1954 MR. WELLS: I would add that the methodology that Muriel has just spoken about has been approved by the Commission.
1955 MR. ZUBKO: I appreciate that a methodology has been approved by the Commission. However, you have not, with all due respect, answered the question.
1956 I don't want to get too technical, but if you need one and a half of something and that is what you pay for but you sell your product in bundles of ones, then the ISP needs to take two to get the same product that you are attributing one and a half to. That is not insignificant when it comes to buying various levels of bandwidths in a lot of cases.
1957 MS CHALIFOUX: Perhaps I could just clarify that.
1958 MR. ZUBKO: Sure.
1959 MS CHALIFOUX: For example, if we look at the access side, if we use digital access with 24, we attribute 24. Even if we are only using two of that 24, it is recognized that it is consuming 24 access components.
1960 MR. ZUBKO: Okay. And that would be the same rate that an ISP would pay?
1961 MS CHALIFOUX: It would be for the same facilities. If an ISP were looking to get digital access, again, as I explained before, an ISP is charged a tariff rate. What I am doing here is the same facilities that an ISP uses, whatever quantities our Sympatico service uses, in whatever blocks are appropriate, the cost of those underlying facilities are assigned to the Internet category.
1962 MR. ZUBKO: So the Internet category pays costs, and the Internet provider pays tariff. Is that a fair statement?
1963 MS CHALIFOUX: Yes.
1964 MR. ZUBKO: I don't want to put words in your mouth, but if one were to put a yes or no answer to this question, the answer would be no. Is that correct?
1965 Can an independent ISP get the same level of service for the same cost?
1966 You attribute cost to your own service. I assume that is an incremental cost. And you charge the ISP your tariff, which presumably is designed to make you money.
1967 MS CHALIFOUX: Some of our tariffs are certainly based on cost. However, some are not. Some are not compensatory at this time.
1968 MR. ZUBKO: Well, I am not going to try and beat this horse any longer.
1969 You have mentioned the terminology business case for testing a market for implementing a service. Can you describe to me how that test is performed and what kind of payback period you look at -- multi-year? How the existence of current services impacts the decision on whether there is a business case, et cetera.
1970 MR. WELLS: It strikes me as a very generic type of a question and it could be a very long and complex answer to it. You, being a businessman, I am sure would understand that it really depends on a lot of factors.
1971 One of those factors is obviously the marketplace itself. What is the size of the market? Who is in the market? What competitors are in the market? Does it fit with your core business? Strategically, does it align with where you want to move the company?
1972 There is a long list of things that you consider. I am sure you are well aware of them, and our company is no different than any other company in considering the elements that would go into making a business decision: things like payback, net present values, all of those components.
1973 MR. ZUBKO: Would you consider that strategically locating the service, even if it doesn't make money, could enter into that business case test?
1974 MR. WELLS: As I said earlier -- and I have often heard the term used in business schools that, by definition, if it's strategic it probably never will make you money.
1975 I would say that you make investments again based on a very complex process. There may be times when you invest in something and it may have a longer term payback than something else and, by definition, you may consider that to be somewhat more strategic.
1976 I would suggest to you that the same sort of thought process you go through as a successful businessman is the same sort of thought process that a telephone company goes through.
1977 MR. ZUBKO: So it would be fair to say that you don't apply consistent benchmarks to the analysis of a business case. It could have a number of different components, such as competition and strategic location as opposed to, say, a business case that is designed to make money or to be in the black in a 24-month period or something along that line.
1978 MR. WELLS: I think, obviously, at the end of the day, you are in business as a business person to make a profit. Whether that is, you know, three months or six months. I think an important point here, and I know we are speaking of specifics, I believe we are speaking specifics in the Internet business, is a lot of what Northwestel does does not fit into that economic model. I'm stepping a bit outside of the current Internet.
1979 To give you an example, there are a multitude of communities and services that -- communities that we serve and services that we provide today that lose money, a huge number, all subsidized by our long-distance toll revenues.
1980 The model we are putting forward here with the CRTC, just to illustrate this point because there is a significant difference here when you move it up from that level of just maybe one -- the Internet service itself.
1981 The proposal we are putting forward is going to require significant funding from the south. It's obviously not a sustainable model that Northwestel in the north can accomplish in and of -- on its own. So there are cases, and this is a classic example, of where we are looking outside of our own territories to get support for meeting an objective that has a much larger vision to it. I would suggest to you a timeline that maybe isn't even measured in short-term years but in decades and longer.
1982 So there are bookends at either end of the issue that you raise here.
1983 But to take it back down to the Internet level that you are speaking of now, it is a very complex process and I'm sure you go through it yourself, and we consider a little different factors in making this decision.
1984 MR. ZUBKO: Thank you.
1985 Has Northwestel ever initiated Internet service in a community -- or maybe I can ask you: Have you ever rolled out Internet service where it was not already provided by another service provider?
1986 MR. WELLS: Normal Wells.
1987 MR. ZUBKO: I think there was some there before.
1988 MR. WELLS: Not to the best of my knowledge.
1989 MR. ZUBKO: Okay. I'll accept that answer.
1990 So the rest of the communities were, I guess it would be fair to say, pioneered by other companies other than Northwestel?
1991 MR. WELLS: I'm being told that we don't have the exact timing of when we entered and other people entered. I do know in the major centres, the two major centres, we were not the first players in the dial-up market.
1992 MR. ZUBKO: In smaller communities, you benchmark 2000 -- I'm not sure if that was population or lines.
1993 MR. WELLS: That was lines.
1994 MR. ZUBKO: Lines.
1995 Would you see yourself competing with providers who contract to use your infrastructure at any time in the future?
1996 MR. WELLS: You are asking the model that I talked about earlier and where --
1997 MR. ZUBKO: yes.
1998 MR. WELLS: Yes. I think I explained that. Northwestel's Sympatico service would take a look at the business opportunities, given the wholesale model that we are putting forward, and if we decided that we wanted to enter that market, we would be on the same footing as any ISP that had interest in that market.
1999 In the cases, and we expect there could be some, where people elect not to go into communities, and I'm talking communities that have lines -- a dozen lines, 12 lines. We have communities, like in the Yukon, for example, Elsa, that has 15 lines. I don't know that we are going to get necessarily, even with our proposed wholesale model, though we have made it, I believe, as attractive as we can, we are going to get a lot of ISPs lining up.
2000 So in those cases we will go in as a provider of last resort.
2001 MR. ZUBKO: Okay. Perhaps I wasn't clear.
2002 Would you see yourself -- if you went into a community and or if you found an ISP to serve a community that was, say, under 2,000 lines, would you see the potential for you to move in there with Sympatico in the future?
2003 MR. WELLS: Maybe I can walk back through the process that we are going to use.
2004 Once we have installed the technology in a particular community, we will then go through -- and let's assume for a minute there is no existing ISP, because we would give a right of first refusal to that ISP, we will see if there is interest from business people in providing service, and, as was asked earlier, perhaps there could be a community interest. And if we deemed and decided that there was a business opportunity for our Sympatico service, we would put our name forward to the carrier service group of Northwestel along with any of other ISP that would be interested in that, and if there were more than two, then through a random process those two would be selected by that group.
2005 Now, after the fact, if you are asking some years out -- let's say there was one ISP in a community and Northwestel decided at that point in time that there was a business case for them to enter that community, yes, we would enter that community if there was a business case to do so, but so could any other ISP.
2006 MR. ZUBKO: Are you planning to put the facilities you speak of into all of the communities in the north, and, more specifically, do you plan to put those facilities into communities that already have alternative Internet access infrastructure?
2007 MR. WELLS: Yes, if -- again, the criteria is if a community has less than 2,000 lines, we would propose to go in and put in place the technology to enable two ISPs to compete in that community. Now, if there is an existing ISP in that community, they would have first right of refusal to be one of those two ISPs.
2008 I'm not sure if you are familiar with the wholesale model that we have put forward, but it is going to be a fairly attractive model to help encourage entry by ISPs. It's very similar to the concept of the sustainable CAT that we put forward, we are putting forward. Not a cost-based wholesale model here; this is very much a price-based so that we expect, we do expect to get a take by ISPs into these smaller communities. That's the objective of this.
2009 MR. ZUBKO: Okay.
2010 My question was aimed at -- I guess to be more precise, do you plan to duplicate Internet infrastructure in your system that is already in existence in a community?
2011 Just to be more specific, let me point at some of the Kuwaitan communities where they have put in infrastructure on their own. Are you going to be duplicating -- are you going to be putting infrastructure in beside those systems?
--- Pause / Pause
2012 MR. WELLS: I have three recommendations here --
--- Laughter / Rires
2013 MR. WELLS: You reference GNWT 4, revision June 8. That gives a lot of the information that you are asking for.
2014 I was also told that it is difficult to tell that without knowing exactly what the existing ISP has in there.
2015 There's likely to be a duplication at the modem pool level but not at the wide area network level; it's my understanding the same backbone is used.
2016 MR. ZUBKO: There are a number of Internet service providers in the north that have infrastructure that is separate and apart from Northwestel's infrastructure today, and I guess what I'm trying to measure is what they can expect the impact to be here.
2017 Is Northwestel going to -- is it your plan to come in and place a system with SIP money and subsidized rates that will potentially allow either Northwestel or another service provider to go into competition with the company that is already there using their own infrastructure that they paid for themselves?
2018 Is the question clear?
2019 MR. WELLS: I believe so. Just a minute.
2020 MR. WELLS: The proposed rates that we are going to offer for this are more attractive than the existing rates that are in place now that the ISP would pay for the multi-line and the other access components, so this is going to be very attractive for the incumbent ISP.
2021 Our proposal does put forward that that ISP would have the right to stay in that marketplace and that one other ISP would be able to take advantage of the rates that we would have there. So there would be some choice in that community.
2022 Now, it could such that a second ISP may not decide to go if the first ISP has, you know, a market share and is doing a good job in that marketplace. But this was to get back to the opportunity of providing choice in these communities.
2023 So, to answer your question, I think that the model that we put forward is going to be found to be attractive by both the existing ISP and, potentially, a second ISP in that community.
2024 MR. ZUBKO: Okay. You have answered three-quarters of the question. The quarter that's left out there is: How is that current ISP and his bank manager going to reconcile the fact that he's just had tens of thousands of dollars worth of infrastructure stranded in the way you say of a satellite uplink or whatever that he's gone out and purchased in order to provide that service?
2025 MR. WELLS: I would guess, from a pure economic sense, if you look forward at going-forward costs and revenues only, that there would be a better NPV business case, if you will, for the model that we are putting forward. There's no question that, with the model we put forward, there could be some stranded investments there by an existing ISP.
2026 MR. ZUBKO: Do you have a concern about that?
2027 MR. WELLS: There are advantages with our proposal, from a functionality network performance perspective, because of the type of technology we are talking about putting in place that will enable V90 interconnections, so it would see an improvement to performance for the customers; it would see a lower rate for the incumbent ISP; and, I would suggest, improve satisfaction and probably and improved business case. But you raise an issue -- I think that's a valid issue -- relative to the potential stranded investment.
2028 MR. ZUBKO: Is that an issue that you are prepared to address, in the context of this hearing?
2029 MR. ROGERS: Mr. Chairman, it's clear that this is a point that hasn't come up for consideration, at least in the interrogatory responses file, and Mr. Wells may well have reached the limit of his position, at least at the present time. It may be something that the company should address at a policy level, and there is the policy level panel coming with the president and three vice-presidents and perhaps the company could respond and give it further consideration and address the point then.
2030 THE CHAIRPERSON: Mr. Zubko, is that satisfactory?
2031 MR. ZUBKO: Oh, sure. I do -- well, I won't make argument or comment; I will stick to questions.
2032 THE CHAIRPERSON: Okay. But you can put the questions to the later panel, as Mr. Rogers suggested.
2033 MR. ZUBKO: Thank you very much.
2034 Can we move to -- and, I'm sorry, Mr. Chairman, I indicated that I wasn't going to take very long; it's stretched out longer than I anticipated. I will try and move along rapidly.
2035 Does your model -- because I couldn't find it -- does your model anticipate CAT contributions from competitors that use their own infrastructure for long distance?
2036 MS CHALIFOUX: The expectation is that, for the most part, competitors will, initially anyways, lease our facilities for intertoll and they would use CAT for the toll connect facilities to bring that call between a Class 5 end office and the Class 4 toll switch.
2037 MR. ZUBKO: Okay. But I don't think you answered my question.
2038 MS CHALIFOUX: You can try posing it a different way, if you like.
2039 MR. ZUBKO: Do you anticipate receiving CAT -- does your model anticipate receiving CAT contributions from competitors that use their own long distance infrastructure?
2040 MS CHALIFOUX: Well, CAT payments are intended for competitors who use our switching aggregation network and then as a contribution to the local access service shortfall. So the expectation is that competitors will be using our services and equal-access competitors will be paying us CAT charges.
2041 MR. ZUBKO: All right. Maybe I can be a little more direct.
2042 If I, in Inuvik, decide to gather long-distance traffic off of your local network and drop it onto my satellite link into Edmonton or Calgary or whatever, would you anticipate getting CAT charges?
2043 MR. WELLS: Inuvik -- we could use another example but Inuvik is not one of the first four communities to have equal access, so your scenario couldn't actually take place in Inuvik.
2044 MR. ZUBKO: Equal access is not absolutely necessary for me to gather long distance traffic. There's numerous ways of doing that, so the question is once it gets to my facility and I dump it on to a pipe facility that does not belong to Northwestel, would you anticipate gathering CAT charges in your model?
2045 MS CHALIFOUX: If you are referring to using that facility as an example like a DAL, then yes, it's our intention to charge CAT payments on that type of traffic.
2046 MR. ZUBKO: Sorry, I missed the first part of your answer. If I anticipate --
2047 MS CHALIFOUX: To use a DAL, a direct access line, as a form of connecting a customer to your facilities.
2048 MR. ZUBKO: Such as DID or --
2049 MS CHALIFOUX: I'm not sure technically. Do you have sort of a technical proposal how you are going to aggregate the traffic?
2050 MR. WALKER: A DAL is, as I recall, kind of a piece of copper that bypasses our facility, so what we are proposing is if you have a customer that has some kind of aggregator, you know, maybe even a PBX or whatever and you want to connect that directly to your own facilities then, yes, our proposal is that for that connection, for that DAL connection we would charge our proposed sustainable CAT rate just as we would if you were going to be using our facilities.
2051 MR. ZUBKO: So the CAT rate is not going -- is basically in your model attributed to all long distance calls that touch your system, whether they travel on your network or not, your long distance network or not.
2052 MR. WALKER: That's correct.
2053 MS CHALIFOUX: If I could just add to what Mark is saying there, I mean it's our intent to recover CAT in contribution being a significant part of that. In fact once you have considered the Commission's decision in 99.16 to move switching aggregation facilities into the access category as they were deemed to be an extension of the local network that in essence our CAT is made up primarily of contribution, it is our intent to recover that contribution on as broad a base as possible to minimize the impact on supplementary funding.
2054 MR. ZUBKO: Okay. And just to take that one step further, if private line access is sent out on a facility where it doesn't touch your network at all, do you also expect to see CAT payments in your model as you have designed it. I'm thinking, for example, of a mine site that has the satellite component.
2055 MR. WALKER: Yes. I think there are one or two of those examples today. As long as it's kind of a private facility going from one office location in a mine site to their office in a larger southern centre, that would be excluded. Yes.
2056 MR. ZUBKO: We are into the piece, into the telephone system in southern Canada.
2057 MR. WALKER: If it enters the telephone system in southern Canada, there may be some CAT to pay on the terminating end.
2058 MR. ZUBKO: But you wouldn't see that.
2059 MR. WALKER: Northwestel would not see that.
2060 MR. ZUBKO: Okay. I don't know if you will be able to answer this question right now. If you truly split your utility function and your competitive function in long distance services and paid the five cent CAT or attributed the five cent CAT as a cost against long distance service, would your long distance serve be economically sustainable?
2061 If I can help you maybe just a little bit. One of your plans is to sell service for three cents a minute up to 600 hours -- pardon me, 600 minutes. I think that works out to three cents a minute, but you would be paying a CAT five cents. I'm just wondering how that reconciles.
2062 MS CHALIFOUX: I mean you have raised a couple of things there. First of all, our proposed long distance plan has nowhere near an average rate per minute of three cents. Just to sort of clarify that on the record.
2063 Secondly, we don't have, you know, a traditional utility competitive split in the north. A number of our services are uneconomic in these communities. They are also very much monopoly in nature. Even if down south they are deemed to be competitive, up here no one else chooses to compete in these communities for services like private line, terminal, et cetera, and toll will probably be no different.
2064 These are not competitive services. They will not be truly competitive in the foreseeable future either. To sort of clarify that.
2065 Again, the economic dilemma of the north is such that there is always going to be uneconomic areas to serve and toll will be no different. We will make money in certain areas. Unfortunately, we will continue to lose money in other areas, particularly these far northern villages.
2066 MR. ZUBKO: I just have one last question. In the context of the Internet proposal that you have put in place for each community, do you think it's appropriate for Northwestel to act as the vehicle for a public process to determine who gets to use their facilities and who doesn't?
2067 MR. WALKER: Northwestel, there is the carrier service group that is being established in the company. This is quite common through the industry, a group that works at a distance from the retail part of the organization. It's very common.
2068 I would think that given that this wholesale service is going to be -- the service that is going to be put in place by Northwestel, it would make sense that that carrier service group manage that process.
2069 MR. ZUBKO: I guess the concern I have is that you are managing public dollars. You are not managing your own dollars. You are managing public dollars or dollars that are contributed by other than your own customers.
2070 MR. WALKER: Well, this model that we are proposing here is a very complex model. We are talking about a very complex model. We are talking about, and I don't know that you were here yesterday but there's really three pieces to this.
2071 One is the funds that are going to be required to support competitive entry in this marketplace. For example, you know, if you decided to compete in the market, there is going to be a subsidy that is going to flow through to you as a competitor through this public money. That's to reduce that CAT rate well below cost, so there's that piece of the equation.
2072 If you look at that, the benefits to that are really flowing through ultimately to the customers, and that's one of the key objectives of the model also, but also there's an advantage there to competitors, so that public money or the money from the south is flowing through in that leg of the model.
2073 As well, we are proposing to reduce our rates, Northwestel's rates overall, so that we can offer similar rates that are offered in the south everywhere throughout the territory, not just places where competitors may select to go.
2074 You mentioned Inuvik. There may be one or two other locations that people might find a little bit attractive. But there are going to be dozens and dozens of locations where nobody is going to go. We are proposing rates that will permit those customers in these very remote parts of our territory to take advantage of recently comparable rates. So there is a funding component there of public money.
2075 The last piece of the SIP program, the $75-plus million that is going to be invested to meet the service objective that the Commission has laid out, that will require some sort of funding as well.
2076 I think to portray at the end that this public money is ending up with Northwestel is not the fact at all. Northwestel is basically a vehicle to accomplish the objectives that have been set out by the CRTC here.
2077 The beneficiaries of these funds truly are the customers and the competitors in the marketplace to permit choice, reasonably comparable service and rates, and to improve the level of services in our territory such that northern Canadians can basically have the same level of services and rates that are enjoyed today by southern Canadians.
2078 So I don't buy your view that for some reason Northwestel shouldn't manage the selections of the ISPs.
2079 MR. ZUBKO: Would it be fair to define you as more or less the gatekeeper of the funds and the services?
2080 MR. WELLS: I don't know that I would use the term gatekeeper. I think the gatekeeper is the Commission at the end of the day.
2081 We have put forward a model here that we feel meets the objectives that have been set out, number one. We are the only organization that has put a model on the record.
2082 There has been interest in that model, but there was opportunity through evidence but I don't think other people have put a model on the record.
2083 We will ensure that the objectives are met that have been laid out. We have put forward -- and you have heard us use the term balance here. We have taken some criticism by local residents in the north on one piece of this, which is the local rate increase.
2084 We are trying to strike a balance here. We are not a gatekeeper as far as what the objective was. That objective was set up through the Telecommunications Act and then through the objectives that have been laid out by the CRTC.
2085 We are a vehicle to ensure that that happens. We are regulated. I am sure we will be reviewed on a regular basis to ensure that we are meeting those objectives and that there is a balance in everything we do; that our rate of return is reasonable.
2086 So I would not portray us as being the gatekeeper here.
2087 MR. ZUBKO: Fair enough.
2088 Mr. Chairman, those are all of my questions. Thank you for your patience with me.
2089 THE CHAIRPERSON: No problem. You get your law degree at the end of the hearing.
2090 MR. ZUBKO: Can I say no?
--- Laughter / Rires
2091 THE CHAIRPERSON: Madam Secretary...?
2092 MS VOGEL: Thank you, Mr. Chairman.
2093 The next party to cross-examine this panel is Telus. I invite them to come forward, please.
EXAMINATION / INTERROGATOIRE
2094 MR. LOWE: Good afternoon, Mr. Chairman, Commissioners. I know everyone is raring to get at rate of return, so I will try to move this along.
2095 Yesterday I provided to you, through your counsel, document no. 1, which is an excerpt from the transcripts of the high cost serving area proceeding.
2096 Do you have it?
2097 It is document 1, excerpt from transcript of proceedings before the CRTC, dated January 25, 1999, Telecom Public Notice CRTC 99-42.
2098 Were you at that proceeding, Mr. Wells?
2099 MR. WELLS: No, I wasn't.
2100 MR. LOWE: Just to set the stage, this is an exchange between the Chairperson, who was Mr. Colville at that proceeding, and some of the Bell representatives. Just to identify them for the record, they were Mr. Farmer, V.P. Regulatory Matters for Bell Canada; and Mr. Henry, Vice-President, Regulatory Law at Bell Canada.
2101 The question that kicked off the discussion, at line 613, is:
"Is it your view that the territory served by Northwestel could be sustainable with an intracompany or intraterritorial fund?"
2102 The discussion goes on and Mr. Farmer takes a crack at it. The part that I want to refer you to is at line 623 on the next page, where Mr. Henry says:
"Mr. Chairman, perhaps I should add, I think as part of making that case as well..."
2103 And that is the case for supplementary funding.
"...as you heard us say we believe that people in the north should be prepared to pay somewhat higher prices in recognition of the trade-offs and higher cost in the north..."
2104 Do you see that?
2105 MR. WELLS: Yes, I do.
2106 MR. LOWE: Do you agree with Bell's view that people in the north should be prepared to pay somewhat higher prices?
2107 MR. WELLS: Our position is that people in the north should get reasonably comparable services for reasonably comparable prices. I would note specifically we put forward a proposal to increase our local rates as a part of this overall package to just slightly above some of the highest proposed rates in the country.
2108 So I think there is an element there where we will have northerners paying slightly higher rates, reasonably comparable but slightly higher rates for local services.
2109 Our position is that northerners should receive comparable services at comparable rates.
2110 MR. LOWE: I don't want to mince words with you, but it seems to me that higher prices is different than comparable prices. If we go on to the next page, at line 626 Mr. Henry says:
"...we can't just do the calculations based on rates that are the same as the south in our view."
2111 I put it to you that the Bell representatives are saying the rates in the north have to be higher than in the south, and you are coming back and saying: "Well, we say that they should be comparable."
2112 Are you taking a different view than Bell in saying comparable rates instead of higher rates?
2113 MR. WELLS: Maybe I should clarify. Northwestel is owned by Bell Canada. We are not Bell Canada. We operate in a region of the country that is quite unique from Bell Canada.
2114 As a matter of fact, at one point Bell Canada sold their eastern Arctic assets to Northwestel, part in recognition that we have the capabilities to provide services in the north where that expertise does not preside in the south.
2115 We are not Bell Canada. We represent our customers' interests. We have put forward through this proceeding a model to accomplish the objectives of the Commission and our position is that our customers, northerners, northern Canadians, deserve comparable services at comparables rates to the rest of this country.
2116 MR. LOWE: And that's fair enough. You know, it ends up you are a separate company. Bell is Bell and what they say is what they say and what you say is what you say. I am putting it to you that Bell's position is different, Bell's position of higher prices is different than your position of comparable prices and if you say that we are different companies, they are different guys, we have different views about a lot of things that's fair enough. I am prepared to move on. Is that fair?
2117 MR. WELLS: That's fair.
2118 MR. LOWE: Now, Bell is a 100 per cent shareholder of Northwestel you said. Is that correct?
2119 MR. WELLS: That's correct.
2120 MR. LOWE: And so as the shareholder Bell gets all the earnings that you seek in this case, that we are going to hear about in the next few panels. Is that right?
2121 MR. WELLS: If you are going down the financial vein I would suggest that your questions might be better dealt with, more effectively dealt with by the finance panel. This is the marketing panel. I am not sure where you are headed with it, but I thought I would mention to you that may be better served on the finance panel.
2122 MR. LOWE: That's fair enough. Thank you.
2123 Now, there was discussion yesterday about the rates relative to at least one southern telco, Telebec. Do you recall that discussion?
2124 MR. WELLS: Are you referring to local rates?
2125 MR. LOWE: Local rates, yes.
2126 Are you familiar with Order 2000-531 which recently approved some rate increases for Telebec
2127 MS HAMELIN: Yes, we are.
2128 MR. LOWE: And that decision confirmed local residential rates at up to $34 per month and increased the average rate to $31.03 per month. Do you accept those numbers, subject to check?
2129 MS HAMELIN: Subject to check, but I would like to point out that they do contain I believe an EAS element to them.
2130 MR. LOWE: And Northwestel does not have EAS. Is that correct?
2131 MS HAMELIN: That's correct.
2132 MR. LOWE: And I presume there has not been sufficient community pressure for Northwestel to introduce EAS to date?
2133 MS HAMELIN: There has been some discussion of it at the community level, some indication from various communities that they would like to see us move to or look into providing EAS.
2134 We have, however, been putting most of our focus on attempting over the past number of years to lower our long distance rates for all customers, as opposed to focusing just on one specific community and that's been our objective throughout the past number of rate rebalancings that we have done and continues to be our objective here.
2135 I would also like to point out that it's quite possible that once we get approval of our plan that offers for residential customers a flat rate calling plan this may alleviate some of the concerns of those various communities.
2136 MR. LOWE: So you haven't got around or -- I am not trying to say that in a negative fashion, but one way or another you haven't gotten around to putting in EAS and you might never do it with flat rate calling?
2137 MS HAMELIN: I wouldn't necessarily say that we would not do it. I would agree that we have not yet done any studies on it. As I said before, we have been trying to lower our overall rates, toll rates.
2138 MR. LOWE: Thank you.
2139 Could you please refer to CRTC 1412, page 7 and I am not going to dwell on it, but at page 7 the company --
2140 MR. WELLS: Just a moment, please.
--- Pause / Pause
2141 MR. WELLS: All right.
2142 MR. LOWE: As I read it, the company leaves open the possibility that it might propose a further local rate increase if it's ROE is threatened. Do you see that?
2143 MR. WELLS: No, I don't. Would you like to direct me to that quote?
2144 MR. LOWE: All right. It's page 7, I believe.
2145 MR. WELLS: Yes. I am just trying to find --
2146 MR. LOWE: It's the sentence above the last paragraph on that page:
"One would have to consider all measures, including further local rate increases."
2147 MR. WELLS: I see that line.
2148 MR. LOWE: Now, is it the company's position then that if it's ROE was threatened it would consider further local rate increases?
2149 MR. WELLS: The statement here basically says that depending on what takes place in the business environment that we operate in we are not going to at this point say definitively there will never be another local rate increase in the north in the history of the company.
2150 MR. LOWE: So, if your ROE already started to sour, in a couple of years you could be back before the Commission asking for a further local rate increase. Correct?
2151 MR. WELLS: What we are saying is that we are not ruling out at this point in time the potential to increase local rates in the future.
2152 MR. LOWE: And so if the ROE deterioration, say it fell below Long Canada bonds, was due to increased competitive pressure, you might be back at that time for a further local rate increase?
2153 MR. ROGERS: Mr. Chairman, Mr. Lowe is pointing to page 7 of 1412 and there is a discussion of local rate increases. He is suggesting to the panel that this has a connection to an ROE context and if that's the case he should point it out to the panel. I don't see it in the paragraph he is pointing to.
2154 So either he has misread the question or misinterpreted the answer, but I don't see the reference to the ROE context that he is now suggesting to this panel.
2155 MR. LOWE: Well, that's fair enough. I will just put the question, if the ROE of Northwestel deteriorated would that be one of the circumstances in which you consider a further local rate increase?
2156 MR. WELLS: As I said, we have not ruled out the potential to increase local rates in the future. We have not ruled that out.
2157 MR. LOWE: Thank you.
2158 Now, could you please refer to CRTC 1701. It's page 2 of 6 and --
2159 MR. WELLS: Just a moment, please.
2160 MR. LOWE: I think this was touched on --
2161 MR. WELLS: Just a moment, please. Page 2 of what? What did you say?
2162 MR. LOWE: Page 2 of 6.
2163 MR. WELLS: All right.
2164 MR. LOWE: It's the table and it has got the average, the weighted average causal cost, causal cost plus mark-up, and then proposed rate. By the way, could you tell me how many single long business lines there are in Northwestel's operating territory approximately?
2165 MS HAMELIN: Approximately 39,000.
2166 Sorry, I apologize, that's total bus.
2167 MR. LOWE: That's total bus.
2168 Do you have a break down for support?
2169 MS HAMELIN: Sorry, that's filed in confidence.
2170 MR. LOWE: And so about rough and ready half of your network access lines or a little more than half are business lines, out of 71,000 network access lines 30,000 are business lines?
2171 MR. WELLS: That's correct.
2172 MR. LOWE: And then, even with the increases you propose I see that if we look at the line, the single line business, the business rates after your increase will not be compensatory. Is that right? I am looking at the difference between $56 and $49.70. Do you see that?
2173 MR. WELLS: Yes. Yes, I do.
2174 MR. LOWE: And so your proposal for supplementary funding would have residential customers in the south subsidizing business lines in the north. Is that correct?
2175 MR. WELLS: The plan that we put forward is a broad plan. I mentioned earlier that this covers a number of components allowing for the entry of competitors into the marketplace permitting Northwestel to drop its rates so that we can offer rates across our entire territory that are comparable to the south and supporting an investment of over $75 million. So to try to earmark specifically one set of dollars to cover another set of dollars doesn't really make any sense.
2176 MR. LOWE: So you can't slice and dice it, but part of your plan is to get supplementary funding from residential customers in the south. Correct?
2177 MR. WELLS: Our plan, and again it meets the objectives as laid out by the Commission, and the Commission has determined where -- if there is necessary supplementary funding -- where that funding will come from.
2178 MR. LOWE: Do you think that some of that supplementary funding will come from residential customers in the south? Or maybe you don't concern yourself with where it is going to come from, which is fair enough.
2179 MR. WELLS: It comes from, I understand, the contribution mechanism that is in place in the south.
2180 MR. LOWE: So it would come from southern customers in some fashion, would it not?
2181 MR. WELLS: I would expect so.
2182 MR. LOWE: And some of those customers would be residential customers. Correct?
2183 MR. WELLS: I would expect so.
2184 MR. LOWE: And under your proposal, a single line business is subsidized. Correct? It is set at rates which are below compensatory levels. Correct?
2185 MR. WELLS: Yes, the rates are below compensatory levels.
2186 MR. LOWE: Thank you.
2187 MS CHALIFOUX: I should point out, though, however, just to add to what Ray is saying -- I mean the costs in the north are very unique and they are very high cost. The nature of our business customers are also very unique, particularly in the high-cost areas where there are small bands, small band offices, you know, as an example.
2188 So, you know, it is a unique dilemma that the north has to face.
2189 MR. LOWE: Thank you.
2190 MS HAMELIN: And I would also like to add to what Muriel said. Many of our small business customers in the north are in fact operating, and I think it could very well be a contributing factor to why our business customers are so high, relative to what you might see in the south, is that many of these small business customers, in order to save some money, they utilize those as their residential line as well. They have one line and they use it for both. We have a lot of home-based businesses, small businesses. So we expect that that could be a factor as well.
2191 MR. LOWE: So that is by way of justifying this subsidy towards business lines, using supplementary funding to fund business lines. It's justifiable because of the unique circumstances --
2192 MS HAMELIN: Well, we are not justifying any one segment over another. As, Ray, alluded, you know, the supplementary funding is required to serve the broad objectives of our proposal. The benefits of our proposal aren't going to benefit one segment over another. It is broadly distributed across the north, and that's what causing the requirement for supplementary funding.
2193 MR. LOWE: Thank you.
2194 Now, I'm told your guiding principle is to have comparable rates. Do you recall your discussion with Ms Lawson yesterday where you equated comparable rates on toll to virtually identical rates? That's at transcript page 125, and I'm sure you will recall the discussion.
2195 MR. WELLS: Yes.
2196 MR. LOWE: Certainly you would agree with me that this is a departure from Bell's principle enunciated at the high-cost serving area proceeding that customers in the north should be prepared to pay higher prices than in the south?
2197 MR. WELLS: Yes.
2198 MR. LOWE: Thank you.
2199 MR. WELLS: I would like to note, however -- I have a quote here that I would like to read. This was used from the high-cost serving area from Telus on the record as stating that:
"Telus agrees that Northwestel may indeed be a special case." (As read)
"Material placed on the record of this proceeding by Northwestel in the form of the attachment to the oral presentations submitted by Northwestel and entitled `Northwestel Quickfax' discloses that the company has an unusual cost structure. In particular, it appears that Northwestel would require substantial operating and capital subsidies in order to achieve its aspirations." (As read)
2201 It also goes on to state that:
"Northwestel would be able to make use of a nationally-funded capital and operating subsidy." (As read)
2202 So clearly Telus has recognized the need.
2203 MR. LOWE: Mr. Rogers was at the high-cost serving area proceeding, I take it?
--- Laughter / Rires.
2204 MR. ROGERS: I'm not a witness here. Not yet.
--- Laughter / Rires
2205 THE CHAIRPERSON: We could arrange that, Mr. Rogers.
--- Laughter / Rires
2206 MR. WELLS: So I think clearly Telus has recognized the uniqueness of the north and I compliment you for that. I think --
2207 MR. LOWE: So you are prepared to accept the recommendations of Telus in this proceeding further?
--- Laughter / Rires
2208 MR. WELLS: That's quite a jump.
--- Laughter / Rires1515
2209 MR. WELLS: It's important to put this in a real context here. I understand that it's important that Northwestel's positions are challenged and that the details are reviewed and our demand forecast are considered, et cetera, et cetera. But this is a unique opportunity in this country's time. We are talking about now taking -- and we are talking about 40 per cent of this country's land mass' service is provided by Northwestel, and we are talking some very remote and sparse areas.
2210 The federal government is on record with a vision of saying this is going to become -- we want this country to be the most connected country in the world. Is there a cost to accomplish that vision? Yes, there is a cost to accomplish that vision. Can the north afford to pay to accomplish that vision? No, it cannot afford to pay.
2211 We require, and I'm talking northerners require now, a subsidy from the south to accomplish that vision. Northwestel is but a vehicle in this process. We are going to remain a regulated company. We are going to stay close to our market, we are going to stay close to our customers, but we are but a vehicle to deliver this vision that's been articulated.
2212 So I think it is important to keep that context in all of our minds as we go through these proceedings, and I do appreciate the fact that our assumptions and that need to be challenged, but I think that is a very important message for all of us to keep in mind. We are dealing with something here and, frankly, I don't know how often people recognize, when they are in the midst of something, that maybe 30 years later you look back on and go, "Wow, that was an incredible thing that was done." And, I have a feeling -- yes, I will be around -- 30 years from now I will look back and say, "This was an incredible thing we did in June in Whitehorse."
2213 I want to make sure that we keep it in that context as well as we listen to the arguments through this proceeding.
2214 MR. LOWE: Thank you.
2215 Now, turning to the terms of toll competition, the public notice, and if you want to refer to the public notice, fine, but the terms of it in paragraph 1.2 is that:
"As much as possible the terms and conditions of toll competition in the Northwest Territories" -- (As read)
2216 MR. WELLS: Excuse me. I'm sorry. Where are you quoting from?
2217 MR. LOWE: Oh, the public notice, 99/21. This is all --
2218 MR. WELLS: I would just like to follow along, if you don't mind.
2219 MR. LOWE: Yes.
2220 MR. WELLS: Thank you.
2221 MR. LOWE: I'm just trying to get to the beta stuff, you know.
--- Laughter / Rires
2222 MR. LOWE: The rate of return stuff.
2223 MR. WELLS: You have the wrong panel.
2224 MR. LOWE: I can't wait to listen to the next panel.
2225 MR. WELLS: You are not heading there is what you are saying.
2226 MR. LOWE: No.
2227 MR. WELLS: Okay. Good. Thank goodness.
--- Laughter / Rires
2228 MR. LOWE: Okay. Well, there is a discussion in paragraph 2 about the terms and conditions of toll competition in Northwestel's territory and that they should be the same throughout Canada, like the rest of Canada I presume:
"However, modifications may be necessary to reflect the uniqueness of Northwestel's territories." (As read)
2229 And then, in paragraph 5.1, the Commission seeks comment on the appropriate terms and conditions needed to introduce sustainable toll competition in Northwestel's territory, and my question to you is: Do you think that the proposal of Northwestel is flawed if competition is unlikely to take hold in its territory?
2230 MR. WELLS: I'm sorry. The very last part of your sentence...? Could you restate that last --
2231 MR. LOWE: Do you think that the proposal of Northwestel would be flawed if competition just doesn't take hold?
2232 MR. WELLS: The objective of the Commission is to provide choice for customers, in the north, and we put forward a proposal that we believe will accomplish that vision, that objective, and that decision -- the judgment would be made, I'm sure, by the Commission.
2233 MR. LOWE: And then, did Northwestel seek to propose -- we have talked about a sustainable CAT and so on. Did it propose a CAT which would promote competition?
2234 MS CHALIFOUX: Yes, we feel that the sustainable CAT that we propose is at a level that would certainly encourage competitive entry.
2235 MR. LOWE: And is there a separate cost-based switching and aggregation charge under your proposal as there is in the south? No, I presume --
2236 MS CHALIFOUX: No; it's sustainable rates.
2237 MR. LOWE: Thank you.
2238 And from a competitor perspective, at least, the other safeguards, such as the split rate base, an imputation test, an explicit contribution subsidy CAT paid by competitors and paid by the incumbent to the competitive segment, they are absent from your proposal, as well -- and I know we are going to get into the reasons why they are absent but the fact is they are not there, are they?
2239 MS CHALIFOUX: I would like to point out that there are -- we feel there are competitive safeguards enhanced in our proposal.
2240 MR. LOWE: Yes, but there is no rate base, is there? I just want to go through the checklist of what's in the south and what's not up here and then we can talk about the reasons, although I think --
2241 MS CHALIFOUX: Sure. I mean at this time we have no toll competition here and, no, we not have split rate base.
2242 MR. LOWE: No imputation tests either?
2243 MS HAMELIN: No, no imputation is proposed.
2244 MR. WELLS: I think it's important to note that that's not unusual that, for small companies, in the south there, in fact, are cases where imputation tests do not have to be passed by those companies again. Northwestel -- on a scale relative to large organizations such as yours, Telus and other large potential competitors -- is very small and does not have the same potential to compete in the market as larger companies and it has been clearly recognized by the Commission that, in fact, not needing to pass an imputation test is reasonable.
2245 MR. LOWE: And so, what you are saying is that the lack of an imputation test is reasonable not because of something to do with the serving territory of Northwestel, it's really to do with its size. Correct?
2246 MS CHALIFOUX: Well, if I can just add to what Ray is saying, what it reflects is the reality of the competitive market that's going to evolve in the north is that Northwestel will not be a dominant player; we will very much be a price taker in this business.
2247 Now, given that reality, the Commission has established a framework where no imputation test is required when the incumbent telco is, in essence, a price taker and is not a dominant player in the market, and they have established that type of framework for companies like ONTel, Telebec and QuebecTel.
2248 MR. LOWE: And you would 100 per cent of the tolls market, at least going into competition. Correct?
2249 MR. WELLS: Well, I don't believe you were here yesterday; we talked quite a bit yesterday about bypass and there's a significant amount of bypass going on in our territory. I would also suggest that clearly demonstrates that our customers are well aware of alternatives in the marketplace. Our customers are well aware of the rate plans offered by large southern companies and --
2250 MR. LOWE: Well, who's dominant right now, in the toll market, in Northwestel's territory? Are you a price taker right now? Or who is the dominant toll service provider right now?
2251 MR. WELLS: We are the only legal provider of toll in this marketplace.
2252 MR. LOWE: So you are the only legal prominent player. Is that the way you would put it?
2253 MR. WELLS: We provide toll services in this market and, today, there is no legal competition here, so, yes, in this relatively small marketplace, today, we have the dominant share of the market.
2254 I would state, however, that you have to look at the toll market as a national market. You don't look at it on a region-by-region, location-by-location -- and Northwestel, given our small base of NAS and customers, pales in comparison to some of the market powers that even a company like Telus has. So it's not -- I don't think, for discussion purposes, it's reasonable to consider Northwestel's toll market just as a stand-alone market.
2255 MR. LOWE: Now, if a competitor did enter the market, it would need to buy transport services from Northwestel -- and you just had this discussion, I think; I just wanted to get sort of a value around -- or some prices around the services which the competitor would need to transport within the territory.
2256 Now, just by way of background, you charge your business customers, or you will charge your business customers 13 cents a minute for intra-traffic. Is that correct?
2257 MS HAMELIN: Yes.
2258 MR. LOWE: And competitors to transport intra-traffic would subscribe to your mega plan services. Is that one way that they could achieve their transportation needs?
2259 MS HAMELIN: Yes, it is.
2260 I would like to just point out a correction to the intra price. I believe that our large business customers -- and I would presume that any competitor coming would be more of a large business taker -- would be 12 cents a minute intra, and that does not include the volume discounts and custom contract discounts that those people, or competitors, would subscribe to or be eligible for.
2261 MR. LOWE: Okay. So you could be charging large business customers 12 cents a minute? Like a large bank, for example.
2262 MS HAMELIN: I would say that a large bank, for example, as I said, if we are talking intra, and they were making calls intra, they would be charged 12 cents a minute plus volume discounts on top of that.
2263 MR. LOWE: Okay. And under a mega plan service, if a competitor subscribed to mega, under standard industry fill rates, the cost to use mega service to address this kind of market would be three or four cents a minute. Is that kind of a fair ball park?
2264 If you want to come back and, you know, take it subject to check and if you want to come back with some other numbers, that's fair enough.
2265 MR. WALKER: No; I think that's fair. Maybe a little lower, two- to four-cent range.
2266 MR. LOWE: Okay. And so, the competitor is going to be paying the five cents sustainable CAT on each end. Correct?
2267 MR. WALKER: For an intercall?
2268 MR. LOWE: Yes.
2269 MR. WALKER: Yes.
2270 MR. LOWE: Okay. So, not being a businessman and just a lawyer, you are going to have to bear with me.
2271 MR. LOWE: So that's five and five is 10 and then two to four is 14 cents for just transportation costs in CAT, and you are competing against customers -- you are competing for customers who get 12 cents a minute and you haven't even paid for your marketing costs, your billing costs, all of your other costs of keeping the lights on and doing business. That doesn't seem to pencil, to me, as a competitor.
2272 Am I missing something?
2273 MS HAMELIN: I think you seem to be focusing just on the interim market perhaps instead of looking at the whole picture of what markets the competitors would be coming into.
2274 MR. LOWE: Are you looking at raising your mega rates this fall.
2275 MS HAMELIN: Yes. We have a proposal to raise our rates.
2276 MR. LOWE: And that's kind of running counter to the way data rates are going in the south, isn't it? I mean they are generally dropping and you are increasing them, isn't that right?
2277 MS HAMELIN: I'm really not sure.
2278 MR. LOWE: Is there any business case on the record of this proceeding of how competitors would enter and thrive in the north? I was thinking of 92.12 -- as I say, I wasn't around then -- whether poor business cases put on the record. Is there anything like that on the record of this proceeding on how competitors are going to, you know, enter specific areas or general areas and compete?
2279 MR. WALKER: Well, for example, in a CRTC interrogatory 501, we did some settlement forecasting projections where when you don't just take a look at the intercall, but look at all calls, look at trans-Canada calls, look at adjacent company calls, we did come up with some weighted average numbers of what it would cost a competitor to come up here.
2280 For example, what I'm looking at is attachment 6 of 501 for the old BCTel, so the TC-BC, and we see there it would cost probably in the neighbourhood of about seven cents per minute and that includes transport.
2281 MR. LOWE: Okay. So that's something that was done for -- I see there's Telus, BCTel and then Bell Canada. This is a settlement analysis as opposed to a business case for a stand alone competitor to come in. Correct?
2282 MR. WALKER: That's true, but the rates which are in this case would apply almost identically to a stand alone competitor. The rates which we are proposing here, CAT rates, transport rates, would apply equally to Telus in this case or TC-BC as they would to a stand alone competitor that wanted to provide service up here.
2283 I think you could use this example as a relative example of a business case. Yes.
2284 MR. LOWE: So that's what there is. That's what we are left with on the record.
2285 MR. WALKER: Correct.
2286 MR. LOWE: Thank you. Now, some competitors could take the view, and I am not asking you to agree with the view, but they could take the view that rules of the game up here favour the home team a little more than they do down south. Do you think that's a possible view that some competitors could take?
2287 MR. WALKER: I think your initial statement was correct. I don't think you are necessarily going to get any agreement on that statement, but I would make a point that, as Muriel mentioned earlier, this five cent CAT rate is not unlike rates that are seen in other independents in Ontario and Quebec.
2288 Back to the issue of balance, you hammered a little bit earlier on the issue of local rates and, you know, why aren't we pushing rates up on this.
2289 At the end of the day, Telus for example could be a net beneficiary of this fund through the sustainable CAT rate. For example, we have settlement agreements with you folks and interexchange traffic.
2290 Now, if we dropped that CAT rate, and again it's a question of balance here, if we dropped that CAT rate one cent, our estimation is it will cost the fund over $2 million in increase. Now, how much more choice will that bring, how much closer to the objective of the Commission will that move us and how much more will it cost the southern residential contributors that you have such a concern about that would put money into this fund?
2291 Again, we are back to this issue of balance. Is it five cents, is it five and a half, is it four and a half? How much do we take from the fund to subsidize competitors, to subsidize people who exchange traffic with us? That's an important consideration as we go through this proceeding.
2292 THE CHAIRPERSON: Excuse me, Mr. Lowe. I would like to take the afternoon break some time within the next few minutes.
2293 MR. LOWE: One question. Famous last words. If I get one answer, one question and I may not even have the right panel for this, which is fair enough.
2294 Would Northwestel be adversely affected financially if competitors decided that the deck is stacked against them and they decide just not to bother entering Northwestel territory?
2295 MR. WALKER: Yes, we're trying to determine whether or not we should do the finance panel. I will make this observation. A key objective of the Commission is to have choice in this marketplace. It would not accomplish that.
2296 If competition didn't come into the northern market, then that part of the objective would not be accomplished.
2297 MS CHALIFOUX: If I could just add to what Ray is saying here. You know, if you take a look at that map on the wall and some of those pictures over there, you know, there's just going to be three types of competitive entry that we feel.
2298 One is going to be the large competitors who market their services nationally and who average their prices and their costs nationally. Secondly, you are going to have a competitor who is going to selectively enter the market. They are going to target the high volume areas, the low cost areas and unique market segments.
2299 Thirdly, you are going to have Northwestel, Northwestel who has the obligation to provide toll services throughout the north, and certainly with that obligation comes a higher cost.
2300 We don't have a competitive entry here or a competitive advantage we feel, you know, and through offering sustainable CAT, we find that we're promoting some degree of choice.
2301 MR. LOWE: Well, that's fair enough. I'm sorry, Mr. Chair, I just wanted an answer. If you can't answer it, if you want to pundit to the next panel, that's fine.
2302 Financially, Northwestel is no worse off if competitors do not enter. Isn't that correct? I mean financially, you don't really care if people come in, do you? You can talk about the objectives of the Commission. I have heard your comments on that. They are legitimate.
2303 Financially, when it comes down to your earnings, your return, maybe bonuses around the -- it doesn't matter if competitors enter at all, does it?
2304 MR. ROGERS: Mr. Chairman, I guess Mr. Lowe has had one answer to his question and he may not be entirely satisfied. I think his first inclination was correct. I think at this high policy level where this question is being put, it might be better put to the policy panel. I invite him to take it up with that panel.
2305 MR. LOWE: Fair enough. Thank you.
2306 THE CHAIRPERSON: Well, I'm not sure it's a policy question. I would like to hear an answer to this question frankly. I think it's an important question for this issue. It may not be this panel. Maybe it's the finance panel. I'm not sure it's a policy issue as to whether or not Northwestel is damaged financially if indeed we have a party and nobody comes.
2307 I think it's an important question. I'm not sure I have had an answer to it and I would like to hear an answer to it as well. It may be that the finance panel is a better panel to provide it.
2308 MR. ROGERS: Well, we are certainly prepared to give you an answer, Mr. Chairman.
2309 MR. LOWE: That's fine with me. Thank you, sir.
2310 THE CHAIRPERSON: I assume you are not finished all of your questions, Mr. Lowe.
2311 MR. LOWE: Oh, I'm finished.
2312 THE CHAIRPERSON: You're finished? Okay. With that then we will take our afternoon break and we will reconvene at ten to four.
--- Recess at 1535 / Suspension à 1535
--- Upon resuming at 1600 / Reprise à 1600
2313 THE CHAIRPERSON: Madam Secretary, I believe you would like to enter an exhibit.
2314 MS VOGEL: Thank you, Mr. Chairman.
2315 The document entitled "Excerpt from Transcript Proceedings Before the Canadian Radio-Television and Telecommunications Commission", dated January 25, 1999, Telecom Public Notice CRTC 97-42, will be entered as Telus Exhibit No. 1.
2316 THE CHAIRPERSON: Thank you. Now we will turn to questioning by Commission Counsel.
EXAMINATION / INTERROGATOIRE
2317 MR. BATSTONE: Thank you, Mr. Chairman.
2318 My first question is basically a clarification of a statement made in your evidence. It is at the bottom of page 37 and the top of page 38. In fact, I don't think you need to refer to it.
2319 What you had said there was that a higher CAT would result in -- and there were a few things, but one of the things was higher local rates.
2320 What I would like to understand is why a higher CAT would necessarily result in higher local rates.
--- Pause / Pause
2321 MS CHALIFOUX: I think what we are referring to there is that a CAT rate -- I believe this is also our "without rate" scenario where you have a high CAT rate and very limited target entry, which would impact the funding requirement, either through external funding or local rate increases.
2322 MR. BATSTONE: Thank you very much.
2323 I would like to turn then to the switching and aggregation rate. Specifically, you have stated a number of times now and in the evidence that you are proposing a rate which you felt would be appropriate in all the circumstances and which would be sustainable, as the Commission had requested.
2324 The 2.8-cent SWAG rate is averaged over the entire territory. Is that correct?
2325 MS CHALIFOUX: Yes, that is correct.
2326 MR. BATSTONE: Is it fair to say that the cost for switching and aggregation would be lower in the larger centres?
2327 MS CHALIFOUX: Yes, that would be fair to say.
2328 MR. BATSTONE: Would it also be fair to say that you are likely to have more competition in the urban areas?
2329 MS CHALIFOUX: Yes.
2330 MR. BATSTONE: So if the SWAG rate is above cost in the urban areas, would it be sustainable in those areas?
2331 MS CHALIFOUX: Again, we looked at sustainability from a total CAT at large perspective. The 5 cents we felt would in fact achieve effective competitive entry.
2332 MR. BATSTONE: If the SWAG, the cost of switching and aggregation, in the urban centres is in fact lower than the rate, would that stimulate people to come in with facilities based competition do you think? Would that be likely?
2333 MS CHALIFOUX: Well, when I say it is lower in the major centres, it is kind of a unique switching technology that we use in those centres, such as Whitehorse and Yellowknife where we have a Class 4-5 switch, such that the incremental cost of bringing a call from the Class 5 to the Class 4 is quite small because it resides within the same switch.
2334 So you don't see a lot of the high toll connecting facilities that you do in bringing a call say from Dawson City or Ross River to the toll switch in Whitehorse.
2335 Again, when we cost it out, we were looking at all the traffic that Northwestel carries, all the traffic that we originate and all the traffic that we terminate and taking into account that a percentage of that traffic just goes between the Whitehorse Class 4-5 switching arrangement.
2336 On average, our costs are quite high, I think in the area of six cents for switching and aggregation. Obviously we felt that to be too high. However, our sustainable rate is 2.8 cents, which represents a sustainable rate to originate traffic and as well to terminate traffic. And that termination could be anywhere. It could be competitors terminating traffic at Dawson, Inuvik, Pangnirtung, Pelly Bay.
2337 MR. BATSTONE: I guess where I am going with this is if you have this average rate and there is likely to be more competition in the major urban centres, and if competitors choose to come in with their own facilities such that they don't pay the switching and aggregation rate, is that going to reduce the revenues from switching and aggregation sufficiently that it is not going to be sustainable in the rural areas either?
2338 MS CHALIFOUX: We have recognized that as a concern, that there would be potential for avoiding SWAG payments say through the use of DALs, and for that reason we have intended to charge the sustainable contribution component and the SWAG component on DAL, on an estimated usage of 8,000 minutes per month.
2339 MR. BATSTONE: My next question is on the whole area of equal access rollout. There have been a number of questions from different parties about this.
2340 Specifically I would like to focus on the time frame for implementation of equal access in the exchanges outside of the four that were mandated. I know that you have budgeted for equal access rollout in four exchanges, but you would go through that process once there was a request.
2341 What steps would you have to go through in order to begin that implementation process?
2342 MR. WALKER: You are speaking of the four that we have budgeted beyond the -- all that we really need, because we have included those four in our calculation of start-up costs -- all we would really need is an expression of interest from -- well, two things, sorry.
2343 First of all, the community has to follow the SIP program because the costs that we have included for installing equal access is after the switch has been upgraded and whatever other facilities with respect to SIP have been completed.
2344 If that is done, if somebody wants to go in the community, SIP is done, then we can provide equal access to that community if a competitor expresses interest.
2345 MR. BATSTONE: I guess what I am wondering now is you said it would take 90 days to actually implement the equal access after you get that expression of interest.
2346 What is involved after you have that expression of interest in terms of negotiation with the competitor, or whatever? Why does it take 90 days?
2347 MR. WALKER: Are you referring to the 90 days, the negotiating part?
2348 A little bit different. The actual installation of the software on the switch, I think if somebody came to us, it would probably take three or four months to actually install the software on the switch.
2349 What I was referring to with respect to the 90 days was just the specific terms of interconnection with whomever wants to come up and interconnect with us and provide equal access competition.
2350 I think that is relatively standard, 60 to 90 days for negotiating those terms.
2351 MR. BATSTONE: What you are saying is it would be 90 days in locations where all of the work has been done to provide for the equal access.
2352 Is that right?
2353 MR. WALKER: That is correct.
2354 MR. BATSTONE: So four months to do that and then three months to do the negotiations, et cetera, after that? Or could it be done concurrently?
2355 MR. WALKER: I think in the case of those four communities it probably could be done concurrently.
2356 So if somebody expressed interest to go into one of the four communities, we could certainly start talking to them about the specific terms as the software is being installed in the switch.
2357 MR. BATSTONE: All right. Just on the negotiation aspect of it, it's 90 days just to come up with an agreement?
2358 MR. WALKER: Yes. This is all new to us, so when I mentioned 60 to 90 days that's just from speaking to people and other companies that have gone through this. That's I think what they have determined is kind of required in order -- I mean, if we can get it done quicker we will do it, but we are not proposing not to work as efficiently as possible.
2359 MR. BATSTONE: Right. Moving on from that, in circumstances where you do have somebody requesting that you roll out equal access to a new location, you said in your evidence and on the record that you would consider the implementation of that. I guess you judged the cost versus the demand I guess sort of thing. What factors would you look at when determining if you should roll out to a new centre?
2360 MR. WALKER: Is this above and beyond now? So we have got the four that we are currently doing. We have another done. And so you are onto the ninth kind of thing?
2361 MR. BATSTONE: I guess that would definitely be the case in the ninth. You can correct me if I am wrong, but for the four you haven't determined the locations for those, have you?
2362 MR. WALKER: No, we haven't.
2363 MR. BATSTONE: Right. So, if somebody came to you and said "I want equal access in," I don't know, pick a small place, you would go through a process, presumably, of determining whether you felt it was appropriate to do that, even if it was say the fifth one? What criteria would you apply to determine if you should roll out equal access to that particular location?
2364 MR. WALKER: We haven't actually -- besides having the competitor, the person wanting to provide service in that community and expressing that interest to us, we have not established another set of criteria that we would run into.
2365 If the competitor wants to go into, let's pick an example, Dawson City, and we have done the SIP program and we can install equal access onto that switch, then I think that would be sufficient.
2366 There was one other thing that I haven't mentioned earlier and that is we did say that we would do two switches in each of the two years, so two in 2002 and two in 2003.
2367 MR. BATSTONE: I will switch to a new area now.
2368 MR. WELLS: Excuse me, if you are moving out of this area I would like to maybe make just a general observation or comment, if I could.
2369 It has been reviewed today, clearly, that there are issues around the CAT and how effective competition will enter this market. Will they come? Is that CAT rate the right level or not? You talked a bit about the equal access roll out.
2370 What we've put forward here again is to try to balance out all of these factors that we described today and for every shift of that CAT rate it is going to cost the fund some additional money.
2371 I would suggest that there is an opportunity to review at some period of time in the initial phase of rolling out this new model to see how effective this has been. We could always -- a decision could be made at that time that the CAT rate should be adjusted. So I would say that there might be an opportunity, again we put forward what we believe is a reasonable model, to look at that and make sure that we are accomplishing the objective that is before us.
2372 MR. BATSTONE: Thank you.
2373 Just now in terms of your toll plan. You proposed toll plans that were based on being comparable to the plans in the south. For instance, with the residential plan it matches the rates and then puts a cap on the number of minutes.
2374 What I would like to get you to comment on is what do you see would happen if the rate for the plan, which is $20, was moved to, say, $25 or $30? What would be the implication for that?
2375 MR. WELLS: I will comment initially and ask my colleagues to jump in.
2376 We have done -- we had actually an outside firm do a market analysis for us and it clearly shows that any perceived difference in rates will result in over 60 per cent of our market moving from Northwestel to a competitor.
2377 To me that means if you are perceived to be 5 per cent above or -- it becomes irrelevant at a point because there is that differential there. All it does is grow and I think the point of sensitivity to switch price has probably been that barrier has been jumped after maybe a dollar above.
2378 So I would suggest if you are talking a flat rate of $25 or $30 it would basically mean that Northwestel's market share would be eroded.
2379 The other point that I think is important -- and I mean eroded significantly.
2380 The other point that I think is important to make here is that the comparable rates of the south -- the benefits of competition will not be realized in the vast majority of our territory if we've got rates that are $25 or $30. We are going to see potentially, at least through our proposal, local rate increases take place across the north.
2381 Then, on top of that you are going to see a rate plan, at least the way you are proposing it, that could be $25 or $30. You add these components together and we are going to have a large majority of our very remote villages in our operating territory will not see any benefits from competition. In fact, quite the opposite.
2382 So, there are those two pieces to this issue. One is the ability for northerners to take advantage of the model that we are putting forward and get gains from it in total. The other one is related to Northwestel being a full service provided -- in other words, being in the long distance market and being able to be competitive in that marketplace. We would not be competitive in that marketplace.
2383 The impact that that has, if you follow this through, we talked a little bit earlier today about the opportunity to bundle. It would basically take us out of the long distance market and we would not be able to take that, what is today still an important part of any service bundle, we would not be able to effectively take that and use it as a competitive tool for us.
2384 That then could result in us losing perhaps opportunities in other parts of the marketplace and ultimately could lead to Northwestel withdrawing more and more of its focus in those retail market segments today.
2385 I would like to give you an example. Today we employ in Iqaluit Inuk speaking toll operators and we provide customer support services in Inuk. We generate promotional material, informational material, our telephone directory, for example, is also printed in that language.
2386 Northwestel has been and wants to continue to be a critical part of the evolution of technology and telecommunications in the north. To us that means to benefit customers we have got to stay close to these customers.
2387 So if we get into this pricing scenario I can see, (a) very quickly that a lot of our customers will not benefit at all from competition. There will be a significant loss in market share and I think ultimately loss of opportunity for our customers to have a full-service provider across our territory.
2388 MR. BATSTONE: We have had a number of parties challenge the notion that there would be effective competition today. What happens if, for instance, the competition was less than what you expect? Are you still going to have the same problems?
2389 MR. WELLS: I am sorry, could you -- the same problems?
2390 MR. BATSTONE: Well, would you still experience the same market share loss from the increase in the price?
2391 MR. WELLS: I am sorry, could you restate that, please?
2392 MR. BATSTONE: Well, if competition were to develop in a less vigorous fashion than what you are expecting, customers wouldn't have the opportunity or wouldn't have the same opportunities to switch to alternative providers.
2393 So, I'm just wondering if that has an effect on the sensitivity there? You know, obviously they are going to -- if they have nowhere else to go, is it going to be -- obviously, I would think it would be less likely, then, that you would lose that segment.
2394 MR. WELLS: Yes. Now, are you still following your proposal of $25 to $30? You are?
2395 MR. BATSTONE: Yes.
2396 MR. WELLS: Okay. All of the components -- let me start here.
2397 The issue of comparable rates to southern Canada would not exist, right, at a $25 or $30 rate?
2398 MR. BATSTONE: You would have comparable long distance, though. Right? Like, the per-minute rate would be the same. I see what you are saying, the cap would be different.
2399 I was suggesting that you would have a cap of $25, a cap of $25 but you would still have the same 10 cent rate.
2400 MS HAMELIN: And what you are suggesting is that if we saw less competition come into the area -- am I correct in that is your question?
2401 MR. BATSTONE: Well, you seem to be saying that if you raise that cap so in effect a person could pay $25 instead of $20 per month you might see more people moving to competitors. That was how I read that.
2402 What I'm suggesting is if there were -- you know, if there were fewer competitors or no competitors in fact, they wouldn't have the option of switching to a competitor.
2403 MS HAMELIN: I think that what is happening in our marketplace today demonstrates that our customers will go out and find a competitor who is prepared to take them. They will seek out competition. I mean there is still -- we might have perhaps -- if less competition comes up in the form of equal access, that doesn't mean our customers won't find a way to get around some of our rates and seek out -- we already have -- in our operating today, we have one competitor who is offering a flat rate plan and is advertising here in town that that plan is available to people who sign up through I guess calling a 1-800 number.
2404 So I think there are still southern competitors who can arbitrage off of the cheaper costs down south and customers, because they are so aware of those lower rates, they recognize $25 is not $20 and they will go after something that will give them what they want, and that is why we feel that our customers will still -- we will still incur a high market share loss.
2405 MR. BATSTONE: But your customers don't currently have a $25 plan. I mean I can see, I can understand the urge to bypass in the current situation, but if it was $25, there is only a $5.00 difference there between what they can get in the south and what they would be paying here through your plan, would they go through all the hassle of calling the 1-800 numbers or the call-back -- you know, is it realistic to think that the amount of bypass would be the same if there were an alternative there, albeit a slightly higher alternative?
2406 MS HAMELIN: I tend to think there would be. Plus I think if we are sitting with a more lucrative -- a higher plan, I think that is inviting competition to come into our area because they can see a market that they could capture. They know that we are caught in a higher price. They can see that they could market their plan quite easily, their $20 plan, so they might be likely to come in much more readily into our marketplace.
2407 MR. BATSTONE: Okay. Thank you very much.
2408 I would like to turn now to the contract rates for large business customers that you referred to previously today.
2409 I'm just wondering, if you get the new full plan that you have proposed, where is the need -- why do you feel that it is also necessary to have these discounted plans on top of that?
2410 MS HAMELIN: I'm sorry? Why do I feel it's necessary to get large business or the small --
2411 MR. BATSTONE: No, the discount -- I'm sorry. I'm not being particularly clear.
2412 The contract rates to the large business customers, I'm just wondering -- you have proposed a plan which would significantly reduce the rates for all business customers -- I'm just wondering why do you need to have this additional plan on top of that?
2413 MS HAMELIN: This particular market that we are targeting or that would subscribe to our large business plan is in fact the most vulnerable market or one of the most vulnerable markets that we have. I mean, these are our large business customers. They are national customers in some cases. These are the customers who would be the target of competition, especially if they -- I mean, if they are coming in and just pinpointing.
2414 If they decide to just cream skim, these are the customers that they will be after, and if we are not offering something that would provide them with more discounts than what we have put forward for our medium and small business, then I think we are going to be in a position where we will lose a significant piece of our market.
2415 MR. BATSTONE: Now, with these discount rates, you will presume we have less revenue coming in. I'm just wondering, will that flow through -- presumably that flows through then. It would have to be picked up by the supplementary funding. Is that correct?
2416 MS HAMELIN: Yes, that's correct, in the model that we have.
2417 MR. BATSTONE: So I guess what I'm asking is for you to comment perhaps on the equities involved here where you would be offering larger discounts for business customers to be picked up through supplemental funding. Do you feel that is appropriate?
2418 MS HAMELIN: I believe that we have demonstrated in one of our interrogatories, 2702, that if we are not pricing competitively it would put upward pressure on the supplementary funding because of the higher market share loss and that in turn puts more pressure onto the supplementary fund.
2419 MR. WELLS: You know, there may be some -- back to the original objectives here.
2420 I guess, there may be risk. If in fact we are in a truly competitive environment and we see that major customers are leaving because we are unable to price competitively, we could end up having to change our rate schedules. Of course, we would make the schedules in such a way that we would be able to compete effectively, but that would cost again this concept of reasonably comparable rates across our entire territory to be at risk because the intra calling that takes place is the higher cost calling and, you know, we would have to consider making some adjustments to those schedules.
2421 That will not help accomplish the objectives that have been set out here. It's important I think to keep coming back to that, what are the objectives that we are trying to accomplish here, and make sure that in our tunings and tweakings we don't end up jeopardizing the overall objectives.
2422 MR. BATSTONE: I guess, just to take the other side for a moment, this could also be characterized as very little business risk for Northwestel because you have this backstop of the supplementary funding.
2423 You know, the first reaction might be -- to any competition, would be to reduce rates and keep reducing rates to offset competition knowing that or expecting, anyways, that the loss as a result of that would be picked up and recovered through the supplementary funding.
2424 MR. WELLS: There are a couple of issues here and I would ask my colleagues to respond as well.
2425 Number one, Northwestel is not in any position to be a leader in this price market. We are going to be filing tariffs and they will have to be approved by the Commission.
2426 I think it has been proven, shown before, and we cited -- I believe it's the independents, Quebectel and Telebec and ONTel, I believe are permitted to price below their imputation because there is no reasonable chance that small carriers like ourselves are going to in fact be setting prices in a large national market.
2427 It would not be in our best interests from a revenue perspective, in any given year, to be out setting prices below competitors and suffering because of -- you know, there is no proposed true-up mechanism in this fund, so we would eat whatever it was in that year.
2428 So, with those safeguards in place, I think that it's not unreasonable, at all, to see that Northwestel would not be leading prices down in its marketplace.
2429 MR. BATSTONE: Thank you.
2430 Just on -- maybe this is backtracking a little bit, but just on the notion of tracking the southern rates, for a moment, you know, we have discussed your position that the rates have to be comparable to avoid bypass. I'm just wondering, if the rates in the south were to go down, for instance, would Northwestel track that, then? Would you expect -- would you reduce your rates, as well?
2431 MS HAMELIN: I think we would have to judge sort of the extent and what is going on down south. I mean, naturally, we are talking comparable, we are not talking exact. I think even on the rate proposals that we have put forward there are variances to some of the southern rates. I mean there are some that are perhaps lower a little bit, some might be higher in different areas. So we are looking for comparable, we are looking for the main thrust.
2432 So, if rates went down significantly, in the south, then, certainly, we would have to take that into consideration and approach the Commission with perhaps a new proposal for our rates, but I don't think the small tweaks or the little ups and downs in the marketplace would cause us to do anything. I mean -- however, if it was a significant drop, for example, let's say rates in the south suddenly fell to five cents a minute, then I think we would have to re-investigate that and perhaps file something with the Commission.
2433 MR. BATSTONE: So maybe I could just get a better notion of what's significant. I mean Mr. Wells said, earlier, that as much as a dollar in the overall price could cause people to flee. So, if you are saying -- are you saying, like, two, three cents on the permanent rate might not make a difference?
2434 MR. WELLS: It's very difficult, obviously, to sit here and try to make a judgment at that granularity of pennies difference to a customer.
2435 What's clear to us, through the survey that we have done with our customers, is that if there's a perceived differential they will leave. And, you know, toll is, by all measures, a commodity and very much driven by price.
2436 Cathy's point, I think, is an important one, that we would have to see what the impact of those changes are in the marketplace. We would be filing with the Commission, obviously, our tariff to make adjustments, and there may be questions or criteria around that that might be put in place to judge the legitimacy of the rate reductions that we would be putting in place and asking for ex parte approval on.
2437 MR. BATSTONE: What if the rates from the south went up? Would you expect your rates --or I guess maybe it's a question of if it's significant again, but would you expect -- would you put your rates up?
2438 MS HAMELIN: Actually, I hadn't really given much consideration the way the rates have been going but, presumably, again, it would be a matter of consideration.
2439 MR. BATSTONE: Admittedly, it may not be likely, but I guess if rates is an issue you can -- if rates in the south are higher, presumably Northwestel could charge more and avoid bypass and, in turn, I would suggest that would mean perhaps need less supplementary funding. So do you see that --
2440 MS HAMELIN: Well, hypothetically, I would have to say that what you say is true. I mean if we were -- you know, if we judged it significantly going down, then I presume the reverse could be true, as well. But I, personally, wouldn't see that happening, at this point.
2441 MR. BATSTONE: Thanks.
2442 If you had a large national toll provider providing service within your territory and they were charging rates that were lower than your own, I take it you would want to match those prices, I assume?
2443 MR. WELLS: Yes. Again, reasonably comparable I think is the approach that we would take. And the customer is, ultimately, the judge of that.
2444 MR. BATSTONE: What if it was a small reseller or something? Maybe not even operating in your entire territory. Would you have the same competitive reaction to it?
2445 MS HAMELIN: I wouldn't think so. I think we are pretty much looking towards -- we are looking towards pricing more towards the net prices in the national market as opposed to the specific -- one specific reseller. We are not out to target any one specific -- we are not in a position, at this point, to do that. I mean prices are set nationally. Even a small reseller, another reseller that comes into the market, he's going to be pricing to national prices, as well, because the large national players themselves -- that's the market -- they are setting the prices, and our customers are seeing those prices through the advertising in the print media up here and that's what they will be judging what rates they should be getting on.
2446 MR. BATSTONE: Will you offer promotions, like below-cost promotions, in response to competitive entities?
2447 MS HAMELIN: It is possible. We haven't given a lot of consideration, at this point, to any promotions that we might put forward. Certainly, we are in the process of developing, you know, plans with respect to competitive entry and similar to companies down -- or to the telcos down south, we will have to have something in place from a win-back perspective. But, at this point, we have nothing in place.
2448 And, certainly, anything that we do develop, we would have to file with the Commission for approval. I mean we are still subject to the approval for all of our tariffs in this area.
2449 MR. BATSTONE: When you are filing, under your proposal, you wouldn't be filing an imputation test?
2450 MR. WELLS: That's correct.
2451 MR. BATSTONE: Without the imputation test, you could presumably reduce rates below costs, or where they are already below costs, further below costs and presumably undercut competitors. Is that correct?
2452 MR. WELLS: Well, I think the terminology costs, when you are dealing with a sustainable CAT rate in and of itself has no cost basis to it is kind of a foreign concept, if you will.
2453 MR. BATSTONE: Well, let me put it another way: How does the Commission, in a competitive environment, ensure that, you know, you are not undercutting competitors? And I guess my concern would be, again, we have got this backstop of the supplementary funding.
2454 MR. WELLS: Well, I as explained before, we see a number of ways that, you know, the Commission has some assurances that we are not going to become a price leader in this market and one is that we will be filing tariffs. We don't have the market power, we don't have the size to start a price war with some of these large national carriers. As well, financially, in a given year for us, as I said earlier, to go and reduce our rates in toll in advance of a competitor would have a negative impact on the company's financial position because, you know, we don't have any true-up mechanism or proposed true-up mechanism.
2455 So I think there are -- there are safeguards there to ensure that Northwestel would not become a price leader in the marketplace.
2456 MR. BATSTONE: You made reference to "There's no true-up", but at the same time it's still rate of return regulation. I mean if you lost those revenues, presumably you would be back the next year arguing that, you know, there was a greater gap there that needs to be recovered if you are to make your ROE. I'm not sure I understand that.
2457 How can we be assured in that circumstance that you wouldn't use sort of price below what, you know, you might otherwise be able to price, hoping that you could just make it up in the next year, for instance, back through the supplementary funding?
2458 MR. WELLS: I guess ultimately the fact that we are regulated and would be putting forward tariffs on these would be the ultimate measure, but again it's important to recognize that Northwestel doesn't have the market power to go forward and start and no desire to start price wars.
2459 It's important, and back again to us providing across our entire operating territory rates that are comparable to those that are in the south. That's a main objective, to ensure that all of our territory has rates that are similar to the south. This is the proposal that we put forward to accomplish that.
2460 MR. BATSTONE: So in filing your tariffs, would you object to filing economic studies on a case by case basis where the Commission thought that would be appropriate?
2461 MR. WELLS: There is -- again, when you are using the model that we proposed with sustainable CAT that is not based on economics, it would become -- I'm not sure how we would do an economic -- show economics on something that has no economics at the basis if it has no costs, true costs, associated with it.
2462 MR. BATSTONE: Okay. I'm going to think about that one. Just to move on now to the markup that you proposed. You had proposed a 33 per cent markup to recover fixed and common costs as opposed to the standard 25 that's applied in the south.
2463 I would just like to explore with you why the company feels it needs a 33 per cent markup as opposed to the 25. I guess my first question would be are Northwestel's incremental costs generally higher than those of the southern companies?
2464 MS CHALIFOUX: Yes.
2465 MR. BATSTONE: And so if the incremental costs are higher, I would have thought that applying the same percentage, that is the 25 per cent, would have generated a proportionately larger amount to recover the fixed and common and non-incremental costs. Is that right?
2466 MS CHALIFOUX: Well, maybe if we, say, look at an example of one of the studies we did, switching aggregation as an example, where you are looking on an existing route, take a Yukon example, say between here and Beaver Creek, okay? So up the Alaska Highway.
2467 So, incrementally, yes. As that network grows, we are adding circuits to it. However, as you drive along the Alaska Highway, you see numerous microwave towers along the route, little shacks at the bottom of the mountain, little generators outside or inside the shack to power the tower. These are what we are calling unusually high fixed costs as an example.
2468 On an incremental basis, no, those costs don't come into play. It's that incremental markup form 25 to 33-1/3 that we are saying is warranted due to the significant elements of fixed costs that you see throughout the network.
2469 MR. BATSTONE: So what you are saying is despite the fact that if we apply a 25 per cent markup, for instance, it would be on a larger base of incremental costs that would produce a larger amount to recover fixed and common. You are saying that's not enough. You need the additional 8 per cent or eight and a third per cent?
2470 MS CHALIFOUX: Yes, that's right. If you just look at an order of magnitude, I guess, incrementally costs causally related to a service are higher and over and above that, like the fixed costs are of a significant nature.
2471 MR. BATSTONE: I realize this is a bit of a hodge podge. I'm just sort of cleaning up questions that other people didn't ask.
2472 Turning now to billing and collection. You had stated that you didn't feel that a billing and collection tariff would be necessary from the outset on the basis that the expense wasn't warranted in relation to the potential demand for that particular service.
2473 I guess my first question would be did you have any discussions with potential competitors to assess whether there would be any potential demand for this service from the outset?
2474 MR. WALKER: We did not have discussions with potential competitors. We did have some discussions with the industry in general about billing and collections and the use of billing and collections agreement.
2475 MR. BATSTONE: But it's fair to say that you have no objective knowledge that nobody is coming and should appear. Nobody is going to use that service. It's just sort of a guess at this point.
2476 MR. WALKER: I wouldn't call it a guess. I would call it an informed decision based on discussions in the industry.
2477 MR. BATSTONE: So if there was a toll provider and maybe even somebody who was, say, using casual calling, also collect and bill to third party calling, how would they in the absence of that tariff recover costs for those types of services, casual calling, collect or bill to third party?
2478 MR. WALKER: Well, of course if we didn't offer -- if we don't propose to offer the service, it would be hard to imagine that case. Just an example of your casual calling.
2479 Casual calling requires a significant amount of traffic through a particular location. That's basically how it works. What we are saying is that there is probably not a large volume of calling that would warrant the use of a casual calling. There probably won't be that type of competition here in the north.
2480 MR. BATSTONE: But what about things like collect calls? If a competitor comes in here, you know, people may use their network to make collect calls. Where would that money go? You know, that's going to generate money which Northwestel will receive. Would Northwestel just keep it in the absence of a billing and collection tariff which would allow for that money to flow back to the companies discussed when they made the call?
2481 MR. WALKER: Could I just understand the scenario better. We have a competitor in the co-axis location like Whitehorse and a competitor customer is placing a collect call, so they would be using our operator services.
2482 MR. BATSTONE: Or even I assume somebody calling --
--- Pause / Pause
2483 MR. BATSTONE: Okay. Let me go back. If a competitor is going to offer collect calling bill to third party, and take the example where a collect call is made by a competitor's customer, say within Northwestel's territory. The person they are calling is going to be the person who pays for it.
2484 Northwestel may collect that money, right? Without the billing and collection tariff, it doesn't get remitted back to the competitor whose network was used for the call. That's my understanding of it. Correct me if I'm wrong.
--- Pause / Pause
2485 MR. WALKER: The scenario that you suggested sounds reasonable, that the party down south, the party that's being called collect would pay for the call.
2486 Somehow there would have to be an agreement, yes.
2487 MR. BATSTONE: The costs for billing and collection are essentially fixed. Is that right?
2488 To implement a billing and collection service, would the costs for that be essentially fixed?
2489 I think you had estimated the costs at about $250,000. So I was assuming from that that the costs were essentially fixed. They presumably are not all fixed.
2490 MR. WALKER: In the response to the interrogatory where we stated the costs, yes.
2491 MR. BATSTONE: You are not taking the view that you would never implement billing and collection, are you?
2492 MR. WALKER: I think we are suggesting, at least at the outset, that it not be considered. Part of our proposal is that after three years we would see how things are unfolding. Maybe at that point we would want to re-examine whether or not this was an important issue for our competitors.
2493 MR. BATSTONE: So you are suggesting in fact that you might not implement it. It would depend on the conditions: who is in the market, who might want it, that kind of thing.
2494 MR. WALKER: At the outset we are suggesting that it is not a necessary component of competition. Certainly after three years, when we are proposing that we review this whole thing, that could be included in the review.
2495 MR. BATSTONE: I will move on to collocation.
2496 You have said that collocation would only be provided in equal access areas and it would be restricted to interchange services.
2497 What services would a competitor be able to collocate? Can you give me an idea?
2498 I am not being precise. If they collocate, what services could they access -- if they collocate equipment?
2499 MR. WALKER: Collocation that we are referring to would enable a competitor to place its equipment so that it could provide its long distance competitive services. I am not sure that I know the exact pieces of equipment, but it is meant for a competitor to be able to put in its point of presence, its POP, for example, so that it can offer its long distance services in an equal access location.
2500 MR. BATSTONE: Would there be physical as well as virtual collocation?
2501 I was afraid you were going to ask me to explain that.
2502 MR. WALKER: What do I charge for virtual collocation?
2503 MR. BATSTONE: Well, there is such an animal. There are physical and virtual collocation tariffs for the southern companies.
2504 Your answer would suggest to me that you were not planning to do it; right?
2505 MR. WALKER: Either that or I have not experienced or am not knowledgeable of virtual collocation.
2506 MR. BATSTONE: This is an arrangement -- I don't know if I should try and get into this or not. I suspect not. Never mind.
2507 Do you propose to make collocation available to non-carriers? I am thinking in this regard of major customers, for instance, or resellers.
2508 MR. WALKER: I was just reminded that we currently don't have a policy of collocation of these other types of services from customers that you are referring to. So we would have to take that and look at it.
2509 MR. BATSTONE: Currently you are not collating equipment from major customers, resellers.
--- Pause / Pause
2510 MR. WALKER: Apparently we do have a collocation DSLAM tariff that has been filed for -- this is for the ADSL wholesale service.
2511 MR. BATSTONE: That was going to be my next question. Would you be offering space for collocation by ISTs, for instance?
2512 I take it if you have a proposed tariff for the DSLAM for ADSL, that is high speed Internet; right? So you would be proposing --
2513 Sorry, the tariff is for what?
2514 MR. WALKER: Yes. It is for wholesale high speed, and it has actually been approved.
2515 MR. BATSTONE: Would you allow other competitive ISPs to collocate their equipment?
2516 MR. WALKER: Today it is limited to the wholesale ADSL DSLAM component of that service. We haven't developed a policy with respect to that as far as -- we haven't assessed whether or not we would put such a policy in place. Maybe that is a better way to state it.
2517 MR. BATSTONE: At the regional consultation we heard from Mr. Perrault for Internet Yukon, and he had expressed some concerns that he was not able to provide the ADSL service himself.
2518 Would you comment on that.
2519 He was not able to resell your ADSL service, I guess.
2520 You have a tariff for that, and he should be able to resell it, I take it.
2521 MR. WALKER: We have a wholesale tariff that has been put in place. I am not sure how far I should go with specific customer information that is available today.
2522 Yes, it is available today in the market.
2523 MR. BATSTONE: Switching gears again, you had filed a table of planned and pending tariff filings in response to CRTC 707.
2524 I wonder if you could provide an update to that for us sometime before the end of the hearing.
2525 MS HAMELIN: I will take a look at it and see. I believe we had filed an update with the last round of June 8th interrogatories that were submitted.
2526 MR. WALKER: In fact, we did.
2527 MS HAMELIN: I will take a look at it to see if there is anything else that needs updating on it, though.
2528 MR. BATSTONE: There was new Centrex rates. Is that something that was included in that?
2529 MS HAMELIN: Actually, I am not sure. I will have to check.
2530 But it is quite possible that you are right; that we might have new data on that. We will refile that, yes.
2531 MR. BATSTONE: Moving on to terminal equipment, the company's terminal equipment service is not currently recovering its costs. Is that correct?
2532 MS CHALIFOUX: On an aggregate basis from a Phase III reporting perspective, where the broad service category includes rental and inside wire, yes, there is a shortfall in that category today.
2533 MR. BATSTONE: What is Northwestel's position on -- this is currently in the rate base obviously, and I suggest that it would be a competitive service.
2534 So there is a question in my mind as to whether or not competitive service should be subsidized.
2535 Do you agree that if there is currently a shortfall in terminal equipment, this is being picked up through the rate base. Is that correct?
2536 MS CHALIFOUX: Yes. I guess it's up to me to sort of clarify the market in the north here. Yes, it's in a competitive broad service category, but in many of our communities we are the sole provider of rental. We are the sole provider of inside wire as well. That's because no one else has chosen to enter.
2537 These are again, as with many of our services, at very high cost. So, I wouldn't label them as competitive in the sort of sense that you might see down south. In fact, I would label them more as monopoly.
2538 MR. BATSTONE: So, would it be appropriate, and again I am thinking because -- would it be appropriate to separate out the terminal equipment investment and revenues and expenses such as they are not considered for supplementary funding purposes?
2539 MS CHALIFOUX: Perhaps this might be better answered at the finance panel, but I can say from a marketing perspective over the last numerous years significant steps have been taken to improve this line of business.
2540 We have streamlined the set offerings from I don't know more than ten to two. We proposed a labour rate increase to help on the inside wire side and, in fact, if you go back and look at our Phase 3 results over the last few years you will see that those efforts are being reflected in the results, as you are starting to see some significant improvements in that category.
2541 MR. BATSTONE: Thank you.
2542 My final area relates to CRTC Interrogatory 3701. We have heard through the record of this proceeding that there is likely to be a certain amount of uncertainty associated with the transition to toll competition and associated with the forecast and everything else. So, in that interrogatory the Commission put forward one possible option to respond to that potential uncertainty, which was to have an interim amount of supplementary funding with the final amount subject to adjustment based on variances with the toll forecast.
2543 I would just like you to provide the company's view on whether that approach would be likely to distort the introduction on toll competition by removing incentives for Northwestel to be efficient and to actively compete during the transition?
2544 MR. WELLS: I would like to suggest, if you are agreeable, that you address that to the finance panel, if you could.
2545 MR. BATSTONE: Sure.
2546 Actually, I do have one more question and it just relates to a discussion that was held earlier with Mr. Zubko I guess, with respect to the Sympatico service and Internet service.
2547 You had said at the time that you impute the costs for the facilities that Sympatico uses or for the services that Sympatico uses. I guess what I would like to know is are the imputed costs higher or lower than the tariff rates, generally speaking?
2548 MS CHALIFOUX: Are you referring to our new wholesale tariff rates?
2549 MR. BATSTONE: I am referring to the tariff rates that an ISP would have to take in order to provide the service vis-à-vis the cost that you would impute for the Sympatico service.
2550 MS CHALIFOUX: I can kind of refer to what happens today or what will be happening because, of course, we haven't filed these results yet. The 1999 Phase 3 results will be the first year.
2551 So I don't impute per se direct costs. It's a Phase 3 assignment of costs and it is done at a very broad level even within the Internet services subcategory. So, it is very difficult for me to say one way or the other whether or not it is higher than tariff rates or lower.
2552 MR. BATSTONE: Maybe we should just use a specific example. For instance, if an ISP uses a DS-1 there is a tariff rate for that with the costs you impute. I assume Sympatico would use a similar facility. Is that correct?
2553 MS CHALIFOUX: Yes, that's correct.
2554 MR. BATSTONE: Then would the costs that you impute for that DS-1 for Sympatico be higher or lower than the tariffed rate that the ISP pays?
2555 MS CHALIFOUX: You know, again, it is very difficult to isolate costs from an embedded Phase 3 perspective and compare it to a specific tariffed component.
2556 MR. BATSTONE: I am not sure I understand that. Why is it difficult?
2557 MS CHALIFOUX: As an example, you take our entire cable plant, all of our embedded investment. I assign that to Phase 3 categories, at least on how they are consumed.
2558 Internet services might use four accesses, let's say, so I would prorate that as four based on, you know, what basic access consumes the rest. These are Phase 3 principles.
2559 MR. BATSTONE: But ultimately you still have to put a number in, right, when you impute the cost? Maybe I am being too simplistic, but is that number higher or lower than the number that the ISP would pay for the DS-1?
2560 MS CHALIFOUX: Nothing is simple in today's rates. I wish it was.
2561 At this time we are not imputing specific costs. We are assigning pools of costs. So if we have got $60 million worth of investment, embedded investment in a certain type of facility, I assign it to the various services based on what services consume that embedded facility and in what quantities.
2562 MR. BATSTONE: You said earlier that for digital accesses they come in bundles of 24 and you would attribute 24 even if you just used it as if a competitor had to take one they pay for all 24.
2563 MS CHALIFOUX: Yes. It's typically cut down to some sort of level of common denominator. So, in the case of digital exchange access or in the case of access it's brought down to like an equivalent voice grade channel. So, it would be assigned a quantity of 24, as opposed to say a basic access would be assigned a quantity of one.
2564 MR. BATSTONE: But is there a cost then for those 24?
2565 MS CHALIFOUX: It attracts costs. It attracts a proportionate share of our embedded investment.
2566 MR. BATSTONE: And is that higher or lower than what the tariff would say for 24?
2567 MS CHALIFOUX: I haven't done these results yet, so, one, it would be difficult to say. However, given where we are using the services I would have to say perhaps slightly lower, but again on a Phase 3 basis you can't isolate a component, a tariffed component.
2568 So there is no comparison. I would not be able to provide you with a comparison, even once I had the results.
2569 MR. BATSTONE: Thank you very much.
2570 Those are all my questions.
2571 THE CHAIRPERSON: Thank you, counsel.
2572 I understand some of my colleagues have a question or two. Commissioner Demers.
2573 COMMISSIONER DEMERS: Thank you, Mr. Chairman. I have very few questions.
2574 The first one I have, and it may be of a general nature, at the end of your SIP program do you know how many households in your territory who would not have available telephone service? Have you filed such an intervention?
2575 MR. WELLS: I don't believe we have filed that, no. The network panel may be able to address that better than us.
2576 COMMISSIONER DEMERS: If so, then --
2577 MR. WELLS: We may be close. Maybe if you would ask the network panel.
2578 COMMISSIONER DEMERS: Certainly.
2579 Then to the $1,000 service charge when the cost of service goes $25,000 and more. Is that meant to be an obstacle to somebody who would want to have the service or does it represent something, the $1,000?
2580 MR. WELLS: I believe the Commission put forward a limit, I think, of $1,000 in the high cost serving area decision. This is meant as a contribution to try to help cover some of these costs.
2581 I think it is important that we note that there is a cost to providing the service much higher than the $1,000. We have a program to help ease the payment terms here. I believe it is 20 per cent upfront at the beginning of construction, and we spread the rest of the payments over 12 months without interest I believe is the proposal that we have on this. That number was a limit that was put forward by the Commission.
2582 In paragraph 52 of the of the high cost serving area decision it says that the customer's contribution shall not exceed $1,000 per customer premise. So we used that as a base for the charge.
2583 COMMISSIONER DEMERS: But fixed at $25,000 as being your decision.
2584 MR. WELLS: I'm sorry. Yes, we selected the $25,000 as the amount of money that we felt that the customer should not have to contribute. Anything over that cost the customer would have to contribute the difference.
2585 COMMISSIONER DEMERS: Maybe it is the other panel again, but in the reality do you know how it applies? In other words, from your planning are there many instances where it will be $27,000, $30,000 or in other cases it would be generally $20,000, $23,000, $24,000?
2586 In other words, I will pay the $1,000 but my brother will not, and it is only because it is $25,500.
2587 In concrete application, how is that working?
2588 MR. WELLS: I don't have that information. If that information is available, the Network Panel will have that information.
2589 COMMISSIONER DEMERS: Thank you.
2590 There was reference today to seasonal rates or seasonal charges. Is it an important part of your customers that are seasonal? Is it important? Has it got --
2591 MS HAMELIN: I am not aware that there has been a high demand or requests for seasonal payments or that because of seasonality --
2592 One moment while I will check behind me.
--- Pause / Pause
2593 MS HAMELIN: I am not aware that there has been any kind of high demand or a significant demand for this kind of service. As I said, we offer the management tools to assist our customers with costs, things like service charges that are of concern. And where a customer does run into difficulty, if they haven't already taken toll denial, we offer -- if they get into difficulty we do offer them some jointly agreed to payment plan so that they can cover if they have gotten out of hand with their costs.
2594 COMMISSIONER DEMERS: Would you make a difference, or does your rate make a difference between a tourist of a residence, a second residence, for example, and a seasonal customer?
2595 MS HAMELIN: We do have a seasonal disconnect rate. So if a customer only wanted their service for part of the year, we do have a reduced rate for them if they want to hang on to their number.
2596 COMMISSIONER DEMERS: Is this rate in any way, I wouldn't say compensatory, but this disconnect is a cost to your operation. Does the rate reflect that?
--- Pause / Pause
2597 MS HAMELIN: We charged them half the network access rate for seasonal disconnect. I would expect --
2598 COMMISSIONER DEMERS: I didn't get your answer.
2599 MS HAMELIN: I'm sorry. For a seasonal disconnect we charge half of the network access for the period they are disconnected.
2600 COMMISSIONER DEMERS: This is not based on any cost. It is a rate you have had for a long time, I suppose.
2601 MS HAMELIN: I believe it is, and it is not based on any cost.
2602 COMMISSIONER DEMERS: These basic rates of course would go up as far as your proposal is concerned today.
2603 MS HAMELIN: Yes, I believe it is just standard. With whatever our rates are, it becomes half of the network access that is in place at that time.
2604 COMMISSIONER DEMERS: One last question.
2605 There was reference in answer to a question that you had already invested in some facilities that would be used should competition be put in place in the near future.
2606 Did I have it right that you have already started to invest?
2607 MR. WALKER: Yes, that is correct. In order to have the four equal access locations ready for January 1st, we had to start work very early this year.
2608 COMMISSIONER DEMERS: And all this is in the three or four areas where you intend to have competition at the very beginning.
2609 MR. WALKER: Yes.
2610 COMMISSIONER DEMERS: Equal access.
2611 MR. WALKER: Yes, the four locations that were identified in Decision 98-1, which is Whitehorse, Yellowknife, Fort Nelson and Iqaluit.
2612 COMMISSIONER DEMERS: The details of such investment, would that be the other panel also that would have that?
2613 What are we talking about here? Is it a small investment, an important investment, something that has to be done only for competition?
2614 MR. WALKER: That is correct. The software that we install in the switch, the equal access software, is strictly used for competition.
2615 The billing system and the PIC/CARE system are strictly required for competition.
2616 MS CHALIFOUX: And if I could just add to Mark, in response to an interrogatory, CRTC-1714, we did provide a significant amount of detail as to what those costs are.
2617 COMMISSIONER DEMERS: And where they are?
2618 MS CHALIFOUX: It is costs for the equal access locations.
2619 COMMISSIONER DEMERS: All right. Thank you, Mr. Chairman; merci.
2620 THE CHAIRPERSON: Commissioner Williams.
2621 COMMISSIONER WILLIAMS: Good afternoon. It's good to see a few familiar faces.
2622 It seems like just the other day I was a 17-year old aboriginal kid hiring on with the phone company and stringing wire and planning towers and building a lot of the stuff that we are talking about throughout Nunavut, the Northwest Territories and of course the Yukon.
2623 I have owned and managed a northern cable company for almost 20 years, so I'm familiar with some of the challenges in the north. It seems again only like yesterday, in between 1992 and 1996, when we sold that company to Northwestel. That was just by way of background.
2624 The areas I want to talk about -- ask some questions about, I should say, are -- I have a few concerns because I'm hearing so many mixed messages about this long-distance competition or the spectre or phantom competition and who benefits and who loses and who doesn't benefit. I want to talk a bit or ask questions about the affordability of local services, explore some basic general knowledge about the Northwestel service area just to flesh out the information we had.
2625 I didn't quite get enough information in some of the earlier sessions today. I guess one is: How long has Northwestel been serving this marketplace?
2626 MR. WELLS: It varies, obviously, because we purchased the eastern -- sorry?
2627 COMMISSIONER WILLIAMS: So it is combining the CN Telecommunications time, because many of the employees, the current employees of Northwestel were in fact former CN employees.
2628 MR. WELLS: Yes. And of course the purchase of the Eastern Arctic and other things that have taken place, I would say go back into the -- 50 years, 55 years.
2629 COMMISSIONER WILLIAMS: So that I can probably safely assume that you have developed some local knowledge and expertise over that 50 years in the communications business in northern Canada, then?
2630 MR. WELLS: Not individually, but I would say the company has just gained a good experience and knowledge of the marketplace that we serve.
2631 COMMISSIONER WILLIAMS: Is Northwestel considered to be a large employer in the north?
2632 MR. WELLS: Yes, I believe we are considered to be one of the larger private sector employers in northern Canada.
2633 COMMISSIONER WILLIAMS: Is Northwestel profitable?
2634 MR. WELLS: Yes, Northwestel is profitable.
2635 COMMISSIONER WILLIAMS: I wasn't quite sure, and I have to apologize, I didn't closely read the financial statement, and why I ask that is because so many of the services that we have been talking about today were being sold below cost. So there must be I guess some area where we are selling above cost in order to deliver that possibility.
2636 MR. WELLS: Exactly. The toll historically has been the major subsidizer of the uneconomic services and of course the uneconomic areas of the territory.
2637 COMMISSIONER WILLIAMS: Should effective and sustainable competition enter this marketplace, has Northwestel developed cost-cutting or efficiency or right-sizing or adjustment to the business plan contingency plans to deal with that eventuality if in fact it appears.
2638 MR. WELLS: It might be best to address that question to the finance panel when they are up because they have quite a bit of background on productivity and that.
2639 COMMISSIONER WILLIAMS: Yes. Yes.
2640 Some of these next few questions may not, I realize, also be able to be answered readily, but it would be appreciated if the information could be gathered and filed.
2641 The next area I go into is the demographics. What are the demographics of the Northwestel serving area?
2642 There was a fellow this morning that was asking about the aboriginal versus non-aboriginal, just from a total demographic. I think it is almost 50-50 in the western Northwest Territories which is the area I'm familiar with. I'm not sure on Nunavut. I know it's quite a bit higher percentage and I'm sure it's quite a bit different percentage here in the Yukon as well, so the total demographic for Yukon, NWT and Nunavut.
2643 Then, part two of that is where do they live? Are they concentrated in the large cities or do aboriginal people live in the small communities? You know, just information -- I don't know about the Yukon but the Northwest Territories, it can all be found in one book called the "NWT Data Book" and they list every individual community and how many -- right down to the individual. It's a census broken down into that type of data so it's not impossible to get. I'm not asking a hard thing to get I guess is what I'm saying. But it would be good information to have when we make our decisions.
2644 MR. WELLS: Just so we understand -- that I understand clearly, when you talk about demographics you are talking specifically about First Nations or just --
2645 COMMISSIONER WILLIAMS: You see, when you look at the demographics it is basically who and where they live and how much they spend would be the kind of information that I would specifically be looking for, you know, like calling patterns, long distance per capita. You know, rural versus urban. Do the small communities -- are they going to benefit from these much lower long-distance charges? And higher basic rates. Is that going to be a real advantage to -- and what percentage of the population and who are these people, where do they live and how soon do they get it to take advantage of these service improvement programs.
2646 So it would be that general type of information, but what we need is just the base demographic data to work through that.
2647 Other demographic information might be the economy: Are the large powerful economies in the smaller communities or the larger communities; and, again, who was effected, because it gets to the heart of that whole affordability question.
2648 You may have answered this yesterday, but is there a specific way that you can track exactly how much revenue is lost through bypass, because there may be other factors like economic slowdowns and -- you know, there have been several mines that have closed either permanently or temporarily and governments certainly have tightened their belts a bit?
2649 MS HAMELIN: No. There is no specific way that we can track bypass as I tried to do in responding to 411, which was the interrogatory that we were discussing yesterday. I attempted to estimate bypass. I was taking into account the fact that we have had mine closures and slowdowns. I was conservative in my growth-rate assumptions because I knew that those types of things were happening, so I think that I accounted for those in an attempt to differentiate and just come down to what is bypass.
2650 COMMISSIONER WILLIAMS: Okay.
2651 Did you also compensate for the fact that some of these minds are coming back on stream now, increased oil and gas development? I'm just wondering, did you look at both sides of it?
2652 MS HAMELIN: Well, I didn't -- I felt that my --
2653 COMMISSIONER WILLIAMS: In your projections, I mean.
2654 MS HAMELIN: I thought that my projections were fair relative to the overall growth rates that I used.
2655 MR. WELLS: Maybe I can just help a little bit, Mr. Williams.
2656 In the projections that we do we do take into consideration the GDP outlook and economics. It is a key indicator that we use to help us in doing our outlook, so that is taken into consideration, yes.
2657 COMMISSIONER WILLIAMS: Okay. Thank you.
2658 I heard a few references to the costs of providing services to a small community. I think someone said in the neighbourhood of, and my figure might not be right, but approximately $90 for some of the small communities.
2659 MR. WELLS: That's correct, $90 per month for --
2660 COMMISSIONER WILLIAMS: How important is the ubiquitous network to your major customers? Like, is it important to the Government of the Yukon or the Government of the Northwest Territories or some of these others that in fact they can actually phone all of the communities and, you know, a reasonable majority, the people within those communities? Is that an important factor to those customers?
2661 Like, I say, is that a competitive advantage that perhaps only Northwestel possesses? Does Northwestel see this as an essential part of their core business?
2662 MR. WELLS: To make sure I have the questions in the right sequence --
2663 COMMISSIONER WILLIAMS: I can just break them up if it's easier for you.
2664 MR. WELLS: Yes. I think the first one asked about --
2665 COMMISSIONER WILLIAMS: How important for a ubiquitous network.
2666 MR. WELLS: Right. I would say that everyone wants to be able to call wherever and so -- communications obviously, and being able to communicate effectively with anyone anywhere is critical. Particularly, there is a movement to this age, this information age, where from a position of health care and education, et cetera, having a network that you are able to basically reach all areas of not only the north but Canada and the world is very critical, yes.
2667 Your second question I think had to do with does this give Northwestel a competitive advantage.
2668 Our network would most likely be utilized by competitors as well. So in fact the network I think at the end of the day is the true advantage to our customers and competitors will utilize the infrastructure that we put in place and pay the charges applicable.
2669 And your third question I forget now.
2670 COMMISSIONER WILLIAMS: Well, I think you have answered it. It was: Is it considered to be a core part of your business.
2671 MR. WELLS: Oh, yes.
2672 COMMISSIONER WILLIAMS: Your first two answers confirm that.
2673 Much has been made of this eminent arrival of large southern competitors. How likely is this? Do you have specific examples? Like, we have heard argument, and I recognize this is a bit of a repeat of something that Mr. Batstone said earlier, but what makes you think that this marketplace --
2674 You know, it's high cost. If you leak, it poses all kinds of challenges. You have got to sell most things below cost just to keep the customers happy and then make a low bid.
2675 What would make this market so attractive to large southern companies, particularly in the low long distance environment that I think Mr. Lowe gave us an example of, the 14 and 14 cents I think it worked out to be.
2676 MR. WELLS: Well, a couple of points. The model that we are proposing in fact reduces the cost so that competitors will find it attractive to come to the marketplace. That's the discussions we have been having about the CAT, the sustainable CAT rate.
2677 Already there are competitors present in our market. You heard earlier today that in fact we have had numerous occasions where we have had to terminate 1-800 numbers that were illegally bypassing our network. Also, Sears and Canadian Tire are in the process of -- are actually involved in our marketplace today.
2678 Our customers are very aware of competitors. I believe that the model that we put forward will attract competitors into the territory and that our customers are very anxious to see rates go down. They will go to the supplier.
2679 The survey that we have done, that we have had commissioned and done, shows that any rate differential, in fact our customers will move to competitors, so I have expectations that there will be competitive entry into this marketplace.
2680 One point I should make, Mr. Williams, is the vulnerability. You talked about some of the demographics, major urban centres and you got these remote areas. Without a doubt, there would be a propensity for competitors to target markets where they can make revenue with, you know, minimal cost associated with it.
2681 Our proposal that we put forward on pricing to be comparable, it doesn't matter whether you are in Pond Inlet or in Old Crow or in Deace Lake or wherever you are in our territory, communities of 50 people, a hundred people, 75 people, we are going to offer that rate to all of those communities.
2682 Suddenly competition will come. Will they in fact go to all parts of our territory? No. I don't believe that will happen.
2683 MR. WILLIAMS: Okay. So some may come in to eat Northwestel's lunch.
2684 MR. WELLS: Yes. Smaller competitors feel that they may lose their lunch as a result of some of the service improvement plans and stranded capital and equipment. There doesn't seem to be much hope of a free lunch for the customers, for the people that live here. I think I understand your comments on competition.
2685 Local competition is not -- local facility based competition is not permitted here. You would have a regulated protected monopoly in that area. Would that be a fair statement?
2686 MR. WELLS: Yes. Local competition is not open in our marketplace.
2687 MR. WILLIAMS: Okay. How would you envision -- like I have heard many times today from various panel members and I admire the goal of meeting the CRTC's goal of introducing sustainable, effective competition into this marketplace.
2688 How would you envision these large -- how would you envision a smaller competitor specialized in niche, you know, specialized in a niche or an area or a community or a region getting established.
2689 You talk about these eight communities, legal access, this Iqaluit, Rankin and Yellowknife and Fort Nelson, and I tried to quickly think of a few others. I guess what gets to the top of my mind of your next four, which we haven't heard what they will be yet, is probably communities like Inuvik, Rankin and Hay River and Fort Smith and, I guess, Dawson and Watson to some extent would certainly be contenders. Two of them in 2002 you were saying and two in 2003.
2690 MR. WELLS: That's correct.
2691 MR. WILLIAMS: So smaller companies within these marketplaces, how do they find a way to work with -- maybe they have a goal of thinking that competition is good for this marketplace as well -- how would they work with Northwestel to make that happen?
2692 MR. WELLS: Northwestel would be the -- Mr. Zubko had laid out a scenario where maybe that wouldn't necessarily be the case. Northwestel would offer up tariff services to allow for interconnect. There are other ways of providing long distance service in the marketplace. I think we heard an example today of one such potential scenario.
2693 MR. WALKER: Mr. Williams, if I could just add.
2694 MR. WILLIAMS: Sure.
2695 MR. WALKER: It's these niche market players that you are talking about that could be very effective competitors to us because they can select the market they want to go to. They will get the same rates as the large national and they can target their entry to a particular business, a particular government.
2696 They would come to Whitehorse or they would come to Yellowknife and target very selectively. They could be quite effective competitors to us.
2697 MR. WILLIAMS: Okay. I have got to confess maybe I just wasn't following it closely enough, but I'm still having trouble with that ISP versus Sympatico margin question.
2698 I have heard it asked about 10 or 12 different ways. I am going to try just one different way.
2699 At the end of the day, whether it's tariff or cost or however you determine or measure it, will an ISP and Sympatico, both providing the same service over the same equipment, have the same margin or opportunity for profit? Would they have the same margin? Would they be treated equally?
2700 MR. WELLS: I can start and Muriel I'm sure will finish.
2701 At what level it's difficult to tell because there's more to the business cost than just the interface with Northwestel obviously. That's difficult to tell at that level whether the cost structure of one business versus the underlying cost structure of Northwestel are comparable.
2702 As I mentioned earlier, we have put forward a model that has been approved with the Commission to show that there is in fact separation there and that the reasonable costs are being charged to these services. I didn't know if you wanted to add any more.
2703 MS CHALIFOUX: What may be more relevant is the stuff away from the actual cost, but instead focus on the purpose of the actual accounting separation. That's to show that we are not cross-subsidizing this business. That is in effect what we are doing. We are assigning all the costs attributed to Internet and demonstrating that we are not cross-subsidizing it, so it's a competitive safeguard mechanism.
2704 MR. WILLIAMS: So would Northwestel undertake to adjust their tariff to adjust to these changing costs so in fact there would be an equal margin potential available to all ISPs, be they Sympatico or others?
2705 MS CHALIFOUX: These results were filed every year with the Commission and the methodology specific to the net services as an example were filed and approved by the Commission. The Commission will have opportunity to review the results as they come in.
2706 If they perhaps deem an alternate methodology to be more appropriate, then certainly we can investigate that.
2707 MR. WILLIAMS: Okay. I have no further questions, Mr. Chairman.
2708 THE CHAIRPERSON: Thank you, Mr. Williams.
2709 I just have a couple of questions. I think most of the ones that I had were covered by other parties through the day. I would just like to go back maybe with a question on a fundamental philosophy or approach.
2710 Mr. Wells, yesterday when you were responding to questions from Ms Lawson, and I am at page 103 in the transcript, you said in answer to a question from Ms Lawson:
"So the costs are actually lower than they were estimated."
2711 She was talking about the CAT at the time. You said at the top of page 103:
"Yes. And maybe I should just re-emphasize the model. There's the three pieces to this funding issue here. One of them is to help make it attractive to subsidize competition, to help make it attractive for competition to come in and give choice to consumers in the territory.
The other piece is to enable Northwestel to reduce its toll rates."
2712 The other piece of the model, I take it.
"The third piece is to help ensure that we can deploy the service improvement program across our territory into areas that have no economic basis for that type of an investment. Those are the three components."
2713 Now, those are the three components of the model, but I interpret from reading this, and perhaps I am wrong, that those are really the three components for assignments of the subsidy. Is that fair -- of the southern subsidy?
2714 MR. WELLS: I don't know that I would differentiate if you look at this as far as meeting the objective or how this funding impacts selected stakeholder groups maybe is a different way of looking at it.
2715 THE CHAIRPERSON: Would it be fair to say that three -- that the southern subsidy is in fact being assigned to these three components of the model?
2716 What I am getting at and maybe I should ask this question, what I am getting at is it almost appears as if you have started with the subsidy and taken the approach of how can we best assign this subsidy or balance, to use the term you've used, how can we best balance this subsidy from the south across the heart of three needs here?
2717 MR. WELLS: No. Quite the reverse. To accomplish the objectives of choice for customers to complete the Service Improvement Plan as laid out by the CRTC and meet the new basic terms of service or the levels of service and to ensure that in fact there is an opportunity for all of our customers to benefit from this model which would have Northwestel bring its rates down to be able to compete in the marketplace and provide those rates right across the entire territory.
2718 We talked about tweaking the CAT rate is five cents, 5.5, four. At the end of the day we said to accomplish this, given the internal opportunities that we have to generate revenue, here is what is left over that is required to meet those objectives.
2719 So it's quite the inverse to the way that you described, perhaps starting, if I understood right, starting with a funding.
2720 THE CHAIRPERSON: Well, when you end up then with what's left over, how is it that you would determine how you are going to assign what's left over because it appears it got assigned to those three sort of basic areas.
2721 When you started off, if I can read the sentence back to you, the second line on page 103, there is three pieces to this funding issue. I assume the funding we are talking about here is the subsidy from this?
2722 MR. WELLS: Yes.
2723 THE CHAIRPERSON: So one of those three pieces is to help make it attractive to subsidize competition. So you are going to some of the subsidy from the south to subsidize, one element?
2724 MR. WELLS: To reduce the CAT rates.
2725 THE CHAIRPERSON: Right.
2726 And then you went on to describe the other two.
2727 MR. WELLS: Yes. Maybe the other way to look at it is what sort of CAT rate do we need to attract competition? What are the costs? What are the true costs of that CAT? Well, there is a difference there has to be made up somewhere through funding.
2728 You do this in an entire model and it maybe the finance panel may be a better panel to deal with it at that level, but you tackle this thing in an entirety and at the end of it the amount of funding that's required is a result.
2729 It happens that that funding, and I have used the analogy or the term before that this flows through Northwestel, if you will, to accomplish the objectives that have been laid out.
2730 THE CHAIRPERSON: Let's take the first piece then on the CAT. I know we have been through this with a number of the parties through the last two days, but it strikes me that there is no or little analytical analysis here to reach the conclusion that a, quote, "sustainable CAT rate" is five cents or four cents or seven cents.
2731 I am struck, if I put all of this together, or maybe I should ask this question: Do you think the $20 plans in the south are sustainable? It's a term you have been using a lot over the last two days.
2732 MR. WELLS: There was a question earlier, I can't remember if it was today or yesterday, about where this pricing was going. I assume from that question is the impact on profitability such that these prices are going to have to move again. Is that the essence of your question, from a sustainability point of view, just so I am clear? In other words, are you saying do you see these plans moving back up from a price point of view?
2733 THE CHAIRPERSON: That's not the question I asked.
2734 MR. WELLS: I'm sorry.
2735 THE CHAIRPERSON: My question is: Is it your opinion that those plans in the south are sustainable in the south?
2736 MR. WELLS: I'm sorry if I am being a little obtuse here. Could you restate that in some different words for me, so I can understand the concept a little bit.
2737 THE CHAIRPERSON: Is there a problem with sustainability?
2738 MR. WELLS: Yes. I understand your question to be --
2739 THE CHAIRPERSON: Do you have any knowledge of whether the companies that are offering those services are reaping profits from offering those services?
2740 MR. WELLS: I don't have any -- I understand your question now. I don't have any specific knowledge there.
2741 Someone mentioned to me yesterday that in fact a company in the U.S., I think perhaps it was Sprint, is gone now to 1,000 minutes for the $20 plan. I think what could be happening, and it's speculation on my part, as bandwidth is being driven to larger capacities in the marketplace through the Internet and that, maybe the marginal cost, if you will, of these minutes and from a voice perspective may be coming down.
2742 I have heard of prices moving slightly lower, but, on the other hand, I do understand from certain sources of information, from readings and that, that very, very small margins are being made today. So it sounds like there may be on one hand some upward pressure, but I am wondering if because of the expansions in technologies and the efficiencies and everything else --
2743 THE CHAIRPERSON: I mean right now, today.
2744 MR. WELLS: Sustainable today. In the short term I'd say yes.
2745 THE CHAIRPERSON: You believe they are, those rates in the south are sustainable today?
2746 MR. WELLS: In the short term I would say yes.
2747 THE CHAIRPERSON: Would that be why AT&T Canada got out of that business?
2748 MR. WELLS: I don't know the answer to that, unless they decided to refocus their business in areas that they felt was more suited to what they would consider to be their core business perhaps.
2749 THE CHAIRPERSON: Are you aware of whether or not CallNet was making money on those plans?
2750 MR. WELLS: I'm not aware.
2751 THE CHAIRPERSON: And Bell Canada's competitive segment?
2752 MR. WELLS: I'm not aware of that either.
2753 THE CHAIRPERSON: Are you aware that parties have been alleging that it's difficult to make a profit even with the CAT rates at the levels that they are in the south?
2754 MR. WELLS: No.
2755 THE CHAIRPERSON: You are not aware of that?
2756 MR. WELLS: No, I'm not aware of that.
2757 THE CHAIRPERSON: That with Telus' CAT rate around two cents and other CAT rates around two cents it's difficult to make a profit in the south, you are not aware of that?
2758 MR. WELLS: No.
2759 THE CHAIRPERSON: It has been alleged.
2760 MR. WELLS: Okay.
2761 THE CHAIRPERSON: You are not aware of that?
2762 MR. WELLS: I am now.
2763 THE CHAIRPERSON: That the parties are alleging that. You weren't aware of it before now that parties were alleging that?
2764 MR. WELLS: Personally, no.
2765 THE CHAIRPERSON: Well, if it were true that parties were having difficulty making profit in long distance calling plans in the south with CAT rates that vary between a half a cent and two cents, why would a company come to this territory with a CAT rate of five cents when my competitor, Northwestel, is going to offer a calling plan at the exact same price as mine, why would anybody come here?
2766 MR. WELLS: If the facts are that competitors or people in the industry generally are not making profit today at the sort of costs that you have described, then I would say that your point is a valid one.
2767 What we did take into consideration are existing CAT rates in territories that the independents in Ontario and Quebec I believe that were up around the 5.5, 6.5 cent rate and --
2768 THE CHAIRPERSON: Yes, I have heard that, but I take it beyond that.
2769 You have sort of kind of anecdotal analysis, you really don't have a sense of whether companies would come here.
2770 MR. WELLS: It's our position that this rate -- maybe another way to look at this is: today, there are people that are bypassing our network using calling cards and 1-800 numbers and our settlement rates are well above the amount that we paid; it's well above the five cents. So somebody, in their wisdom, is marketing into this territory, for some reason, at rates that are higher than what we proposed.
2771 It's possible that, for strategic reasons perhaps, some large national carriers may -- banks, you know, Bank of Montreal, bank branch offices that are up here may see some rationale to consider going into a market such as ours to retain that customer overall, but I think what's important here -- and it is back to the balance issue -- if we drop this CAT rate to four cents, or to three cents, or two cents, there is a couple of million dollars associated with each of those pennies, from a funding point of view, as far as our forecast, and if the Commission decided that five cents was not the right number and four cents was the first CAT rate to start at and see what happened after a year and perhaps if competition didn't evolve the way that you have expectations and that our plan outlines that we would see competition evolving, that that rate could be adjusted again.
2772 THE CHAIRPERSON: I guess I was thinking as much the other direction.
2773 If nobody was going to come here at five cents, would it make a difference if nobody came here at six cents? Or seven cents?
2774 MR. WELLS: It would make a difference, obviously --
2775 THE CHAIRPERSON: I guess I'm phrasing Mr. Lowe's question a little bit.
2776 MR. WELLS: It would make a difference to the customers, obviously, from a choice point of view, yes, if there's no competition -- I understand your point -- if there's no competition at a nickel, no competition at six cents, you know, it doesn't make any difference.
2777 THE CHAIRPERSON: Let me ask this -- and I appreciate it's difficult for you to answer this because there really isn't any data to support the model, in the first place, in terms of the five cents.
2778 You have referred many times over the last couple of days about the objectives. I guess the question that keeps running through my mind is: Do you really think the objective is achievable? Or does this come under the heading, "It seemed like a good idea at the time"?
2779 MR. WELLS: Well, we put forward a proposal and we have been spending a few years, as you are well aware of now, going through this entire process and we put forward a proposal that we believe will accomplish the objectives, and I agree with your point about not having data to support a sustainable CAT -- what is it? A nickel? Is it three cents? Where does it come? And I think that -- I know that the model that we put together will support the objectives, and if we walk through them, the issue of choice is tied in to CAT and --
2780 THE CHAIRPERSON: But it isn't clear we will have choice?
2781 MR. WELLS: Yes. Yes.
2782 If we want customers in the north to have reasonably comparable rates and reasonably comparable service, definitely the plan that we put forward will accomplish that. Meeting the service objectives that have been -- the new service objectives that have been outlined by the Commission are planned and we will accomplish that.
2783 The question of competition coming north. Yes, it's one of price. There are a multitude of issues, I think, that are taken into consideration when a business makes a decision where they are going to target and one of them definitely is -- well, let me back up a minute. If we are saying, now, that businesses have been willing to operate at very thin margins, or even at a loss, for a while, in the south, then maybe -- there are drivers here that go beyond profitability, in the short term.
2784 THE CHAIRPERSON: See, part of the problem we have to wrestle with here is that we may well have a situation in the south -- and I don't know whether it's for certain either -- where those rates aren't sustainable, but we have to wrestle -- those rates aren't regulated by us, in the south. We chose to not regulate the rates for the new entrants and we forbore from regulating the incumbents in the south several years ago, as you know. But here, we are still regulating all your rates, and we are going to have to make a conscious decision and, in effect, approve what may not be a, quote, sustainable rate, a subsidized rate, so we would have a subsidized tariff and perhaps a subsidized rate for toll service, so this has to become a very conscious decision this Commission has to make.
2785 I don't think I have any more questions. I think that concludes our questions for this panel.
2786 We will start tomorrow with the rate of return/return on equity panels, and I guess it's been agreed that the CAC return panel would follow that one.
2787 I would be proposing, today -- we have actually probably taken almost twice as much time to question this panel as parties had originally estimated, so unless somebody strenuously objects, following the close of this, and I would suggest you talk to the Commission counsel about this, I am going to propose that we do sit this Saturday. It isn't clear to me yet whether we will -- we may need that even to finish next Friday. If that's not the case, we can finish a little easier; so much the better. So unless somebody has a strenuous objection, immediately following today's session I'm going to propose that we sit this Saturday.
2788 As I say, we have taken more than twice the amount of time to question this panel than parties had originally estimated and if that pattern were to follow, we may well have trouble finishing by next Friday, in any event, even if we do sit Saturday.
2789 So, with that, I will adjourn for the day and we will see you at nine o'clock tomorrow morning.
--- Whereupon the hearing adjourned at 1800,
to resume on Friday, June 16, 2000 at 0900 /
L'audience est ajournée à 1800, pour reprendre
le vendredi 16 juin 2000 à 0900
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