ARCHIVED - Transcript - Yellowknife, NWT - 2000/06/20
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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 20, 2000 le 20 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 / Président
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 20, 2000 le 20 juin 2000
APPEARANCES / COMPARUTIONS
Phillipa Lawson CAC/NAPO
Roger Rondeau Utilities Consumers' Group
Pat O'Connor (UCG)
George Henry Council of Yukon First
Jan Staples Nations
Angus Oliver Government of Northwest
Peter Macdonald Government of Yukon
Tom Zubko New North Networks
Phil Rogers Northwestel
John Lowe Telus Corporation
TABLE OF CONTENTS / TABLE DES MATIÈRES
PREVIOUSLY AFFIRMED /
SOUS LA MÊME DÉCLARATION SOLENNELLE: PAUL FLAHERTY 1288
PREVIOUSLY AFFIRMED /
SOUS LA MÊME DÉCLARATION SOLENNELLE: RAY HAMELIN 1288
PREVIOUSLY AFFIRMED /
SOUS LA MÊME DÉCLARATION SOLENNELLE: RAY WELLS 1288
PREVIOUSLY AFFIRMED /
SOUS LA MÊME DÉCLARATION SOLENNELLE: CLAUDE VACHON 1288
EXAMINATION / INTERROGATOIRE
EXAMINATION BY / INTERROGATOIRE PAR:
Mr. Pratt 1288
Mr. Henry 1317
Mr. Zubko 1364
Mr. Lowe 1385
by / par Commission 1418
SWORN / ASSERTEMENTÉ: TERRY HAYDEN
SWORN / ASSERTEMENTÉ: JAMES PRATT
EXAMINATION BY / INTERROGATOIRE PAR:
Mr. Macdonald 1440
Mr. Rondeau 1442
Mr. Henry 1444
Whitehorse, Yukon / Whitehorse (Yukon)
--- Upon resuming on Tuesday, June 20, 2000,
at 0835 / L'audience reprise le mardi 20 juin
2000, à 0835
8689 THE CHAIRPERSON: Good morning, ladies and gentlemen.
8690 Before we return to cross-examination of the policy panel are there any preliminary matters which you wish to bring to the attention of the Chair?
8691 Mr. Rogers.
8692 MR. ROGERS: Only to indicate that we have provided the Secretary two more undertaking responses which perhaps you could read and provide exhibit numbers to.
8693 THE CHAIRPERSON: Madam Secretary.
8694 MS VOGEL: Thank you, Mr. Chairman.
8695 A response to an undertaking that Northwestel would provide an estimate of the expenditure Northwestel would incur as it pertains to the SIP expenditure in switch hardware were Northwestel not to provide enhanced features. That will be marked as Northwestel Exhibit No. 2.
8696 The other response was in response to the commitment to bring demographic data to the record and this is entitled:
"Where possible provide demographic information regarding First Nations communities and customers and provide information regarding timing of the service improvement plans to indicate when communities will see its benefits." (As read)
8697 That will be marked as Northwestel Exhibit No. 21.
8698 THE CHAIRPERSON: Thank you.
8699 Are there any other matters. Commissioner Williams?
8700 COMMISSIONER WILLIAMS: Mr. Chairman, it is with no small degree of trepidation that I have to tell you I have received another of these brown envelopes. The first one, although it was opened in your presence, I think is probably more appropriately handled if you open it directly here yourself.
8701 THE CHAIRPERSON: Be still my beating heart.
--- Laughter / Rires
8702 THE CHAIRPERSON: I think I had better have my counsel open this particular brown envelope.
--- Laughter / Rires
8703 THE CHAIRPERSON: Oh, well.
8704 COMMISSIONER WILLIAMS: Another brown envelope.
8705 THE CHAIRPERSON: A brown envelope inside a brown envelope.
8706 COMMISSIONER WYLIE: Even at the office there aren't so many.
8707 THE CHAIRPERSON: Perhaps counsel will read the exhibit into the record, please.
8708 COMMISSIONER WYLIE: The brown envelope says:
"A special message from the Birthday Fairy
Blow out your candles and you can have any wish you desire." (As read)
8709 It is my birthday today.
--- Applause / Applaudissements
8710 THE COMMISSIONERS AND STAFF OF THE CRTC: Happy birthday to you, happy birthday to you, happy birthday, dear Andrée, happy birthday to you.
8711 COMMISSIONER WYLIE: I will have to be very careful with my wish because the last story or joke I have been told is the following. A couple who had been married 60 years and were celebrating their 40th anniversary asked the fairy, just like this one, to give them a special wish because they had been such a good couple. So the woman partner said she wanted to travel all over the world and, poof, she had in her hand a pile of tickets to every destination possible. The man partner looked at his wife carefully and whispered to the fairy he would like to have a wife 30 years younger than him and, poof, he became 90.
--- Laughter / Rires
8712 THE CHAIRPERSON: Now it is with some trepidation that I ask --
--- Laughter / Rires
8713 THE CHAIRPERSON: -- are there any other preliminary matters?
8714 Seeing none, Madam Secretary, the next party to cross-examine the policy panel.
8715 MS VOGEL: Thank you, Mr. Chairman. For the record, the Government of Yukon will be the next party to cross-examine this panel. It is with consent that they have reversed order with the counsel for First Nations.
8716 THE CHAIRPERSON: Thank you.
8717 Good morning, Mr. Pratt, Mr. Hayden.
8718 MR. PRATT: Good morning, Mr. Chairman. Good morning, panel.
PREVIOUSLY AFFIRMED /
SOUS LA MÊME DÉCLARATION SOLENNELLE: PAUL FLAHERTY
PREVIOUSLY AFFIRMED /
SOUS LA MÊME DÉCLARATION SOLENNELLE: RAY HAMELIN
PREVIOUSLY AFFIRMED /
SOUS LA MÊME DÉCLARATION SOLENNELLE: RAY WELLS
PREVIOUSLY AFFIRMED /
SOUS LA MÊME DÉCLARATION SOLENNELLE: CLAUDE VACHON
EXAMINATION / INTERROGATOIRE
8719 MR. PRATT: Before I start with questions, there are a couple of issues with respect to the transcript that I wanted to just clarify, having both Mr. Wells and Mr. Vachon here.
8720 Mr. Vachon, I'm looking at the June 17th transcript. At several places -- one example is paragraph 4670 -- you and I were having a discussion about the company's frame relay network, at least that was my understanding, but it is transcribed -- you will see at page 729, is an example, you said:
"Trying to answer your question I will give you an example with our Family Network."
8721 It comes across at "Family" but I assume you meant frame relay.
8722 MR. VACHON: Yes. I reviewed all the transcripts and I made all those corrections. They will be provided to the Commission.
8723 MR. PRATT: Great. Thanks. I just wanted to make sure that that was clear on the record.
8724 Mr. Wells, at page 285 of the June 15th transcript, there it is, right at the top of the page, I was asking you a question -- I was talking about structural separation, I was asking you about the imputation test and it came across as the "amputation test", so I just --
--- Laughter / Rires
8725 MR. PRATT: -- wanted to make sure that you understood that.
8726 MR. WELLS: That would be quite a rigorous test.
--- Laughter / Rires
8727 MR. WELLS: I think we meant "imputation" there, yes.
8728 THE CHAIRPERSON: That's a synonym for structural separation.
--- Laughter / Rires
8729 MR. PRATT: Okay. Can I start, Mr. Flaherty, with you and ask a couple of questions in relation to the company's policy, perhaps your longer range policy for local rates.
8730 I think it is clear on the record from the discussion that we have had so far that it is unlikely local rates might ever get to cost. As a matter of fact, and I wondered what your views were on the movement, further movement of local rates and the direction of cost?
8731 MR. FLAHERTY: I think in the short term the company has no plans to move local rates further. Clearly, as we have indicated, they would be the highest in Canada. I don't think it is excessively high. I think it is a small margin over what others are likely to have to pay later this year depending on the Commission's rulings.
8732 Clearly, in the longer term, they will probably move up somewhat. But, as you indicate, it is not possible to have them ever move to its full cost. So short to medium-term I don't see any specific plans from the company.
8733 Longer term, who knows? We will see how things evolve over the next five to 10 years.
8734 So I would say the next zero to three years, or for the life of the SIP at least, we have no specific plans to increase local rates. Indeed, we may do tweaking around some of the other things that are perhaps non-compensatory. I think we have heard things about installation charges, things of that nature, but we don't see necessarily proposing a local rate increase.
8735 Now, that is assuming that there are no sudden shocks or there are no unusual requirements that come out of this proceeding. Clearly, if the model gets turned upside down, then we really need to go back and revisit the whole situation.
8736 MR. PRATT: What about rate deaveraging. Do you see a future direction of the company in deaveraging local rates?
8737 MR. FLAHERTY: By deaveraging, you are suggesting maybe a multi-tiered system where one area might pay something different than another area?
8738 MR. PRATT: Right.
8739 MR. FLAHERTY: No. I think the company has had some model like that in the past, and I think ourselves, like the other telephone companies in Canada, are trying to move away from that, rather, have more of an average rate across the entire territory.
8740 MR. PRATT: And you mentioned just a moment ago that this rate increase would put you at a level that -- a margin above where other companies are now. Is that an element of your rate policy. Is that where you would like to see the rates in the longer term?
8741 MR. FLAHERTY: I think there could be a small premium, but it wouldn't be our intent to have a continuous premium over everyone else, but maybe a small premium versus what exists.
8742 I should clarify. The premium that we are proposing is over proposed rates as well. So it's not over approved rates but over proposed rates.
8743 MR. PRATT: Right. Now, in your view, I wanted to just explore briefly the concept of reasonably comparable. Would you consider that your rates would still be reasonably comparable to those in the south at another level than the thirty-one thirty-three?
8744 For instance, let's talk specifics. What if it were a dollar either side, up or down, would that still be reasonably comparable?
8745 MR. FLAHERTY: I think if we were talking something like a dollar I wouldn't have a problem with that.
8746 I think to go much higher than what we have proposed would be starting to get unreasonable, but if you were talking a dollar I don't think we were that scientific in our proposals. But I would say, yes, within a dollar or so either side we'd still be reasonably comparable.
8747 MR. PRATT: One of the overwhelming themes here, obviously, is the implementation of long distance competition in your company's serving area. I wonder if you could comment on what you see as your company's most significant challenge in implementing and really adapting to the competitive environment?
8748 MR. FLAHERTY: I think there is a number of challenges. We have very much been a company that has been an order taker in the past, so we have our own mindset and approach to the marketplace that we have to develop as we go forward.
8749 Mr. Vachon talked very much about being customer oriented from a service point of view and we have been very good at that. As a service point of view we have responded to numerous emergencies very quickly and have done a very good job.
8750 I think some of the areas that were perhaps not as strong are in areas like marketing, understanding future customer needs. I think that's probably an area where we need to do more work.
8751 MR. PRATT: Do you see any benefits to Northwestel as a company in the advent of long distance competition?
8752 MR. FLAHERTY: I think so. I think it will make us a stronger company overall, better prepares us for the future as we better understand our markets and our customers. So, yes, we look forward to competition. I think it will, as I say, challenge us to move forward in many areas.
8753 MR. PRATT: All right.
8754 In your response to Yukon Government 404, the revised version, this is a question on your position on local competition, the company indicates that it's up to the Commission to decide and in your view perhaps a similar amount of time should elapse in the north as in the south before local competition is implemented. Are you familiar with that response?
8755 MR. FLAHERTY: Broadly, I am. Yes.
8756 MR. PRATT: Thank you.
8757 Now, given that you have gone through some amount of rate rebalancing already in Northwestel and that there is a mechanism defined for local competition and is workable in other parts of Canada, do you really think that three years, or if that's the estimated time, that that's necessary to wait that long?
8758 MR. FLAHERTY: I think Mr. Hamelin indicated yesterday we are putting on the table a proposal that dramatically changes the structure of telecommunications in the north. I think we need to understand what this is going to do and let some stability form in the marketplace before we launch into something even greater.
8759 The last thing we want to have happen is disrupt telecommunications for the northerners. Our goal is to have a service that's useful to them, meet their needs and demands and is affordable as well.
8760 I would just be cautious trying to throw too many shocks at this all at one time.
8761 MR. PRATT: Right. Well, here's what I was thinking, that the concept of local competition as it was unfolded in the south may not actually follow the same path here in the north. In that regard it would seem to me, and I will ask you what your view is on this, that in the provision of local Internet access, and we have heard quite a bit about the competitors that are out there, the small providers, really they are already in competition with the company on that aspect of local service. Right?
8762 MR. FLAHERTY: That's correct.
8763 MR. PRATT: And the company has considered or is in the process of developing a mechanism for helping make that workable, as we discussed with Mr. Wells, the opportunity of using the carrier access group to service the needs of your provider and the independent providers, the provision of the technical access that would enable more than one provider in the small communities?
8764 MR. FLAHERTY: That's correct.
8765 I think the other thing, though, that we need to think of, while the Internet is competitive in a number of communities within our territory, there are 66 that don't have any competitors and those are likely the same communities that won't see any benefit from either long distance competition nor local competition.
8766 So when you boil it down, you are talking about a very few markets. I think Mr. Hamelin referred to and "A" and "B" model I think was the term he used, those that are in the larger centres and those that are in the rest. So I think we will always be faced with the situation that some markets and a very few number of them will be much more attractive to competition than the others.
8767 I think our challenge is to maintain a telephone system that is ubiquitous to all the people in the north, not just provide advantages to a few small communities.
8768 MR. PRATT: Here's another way of looking at it. The subsidiaries that the company has, the cellular subsidiary and the cable subsidiary, are I guess technically capable of providing if not direct competition, at least a substitute for local access. Correct?
8769 MR. FLAHERTY: Not necessarily to the same degree. My understanding is in the cable business while groups are trying to perfect voice over cable, it's not to the point yet where it is very commercially attractive.
8770 In terms of the cellular network, it has limitations. I would suggest it can't necessarily provide all the elements of basic service, as the Commission has defined in their ruling. So I think both of those examples have limitations in terms of their applicability.
8771 MR. PRATT: Are there any situations where NMI and Northwestel might be providing competing bids for something, either practically, in your experience, or going forward, say something like the Ardicom project that you have talked about already?
8772 MR. FLAHERTY: I don't see that as a realistic proposition for something like NMI. The costs of establishing the network and what would be required to make that happen technically I think would be prohibitive. So, generally speaking, areas that potentially you could run into competitive bids might be in the Internet in time, as third generation digital networks come along and it becomes easier for cellular networks to offer high broadband services, that might be a possibility, but again that's probably only in the major centres as well. The rural applications for that are very unlikely to occur in the near term.
8773 MR. PRATT: And it's not realistic to think of NMI as providing an alternative for servicing some of the basic local service in some areas. Is that correct?
8774 MR. FLAHERTY: As I said, I think there are some situations where NMI cannot provide all of the features that the basic definition that the CRTC has adopted today.
8775 MR. PRATT: Right. Until the technology enables them to provide the data access. Right?
8776 MR. FLAHERTY: Not only data. I think not all the call management features are available necessarily.
8777 The other thing, while we are on the subject of NMI, one of the things that NMI will require to be able to offer digital services, such as you are seeing in the major centres in the south is a digital network. Much like the same problem in the telco, that digital network is somewhere in the neighbourhood of $5 million to $10 million and there is absolutely no business case to justify that. So it's not very likely in the near term that that will happen.
8778 MR. WELLS: Thank you.
8779 I would like to add a comment to Paul's comments. We have heard over the last week the complexity and challenges of the model that has been put forward and some of the risk that's there. I know the Chairman asked some questions about CAT rates and sustainability of long distance competition.
8780 We are proposing that three years from now, after we have had some experience with this model and whatever shape it turns out to be at the end of the decision through this process would be the time to consider other issues, but I think the complexities right now of even this first major step that we are about to take is going to consume us for the next while. I think local competition is something that maybe should be considered down the road.
8781 MR. PRATT: Thank you.
8782 Mr. Flaherty, the company's response to CRTC 1801 related to some of the boundary issues and this may be an area that Mr. Vachon would want to step in on. The reference in that interrogatory, the information I took out of it is that it appears to the company that there may be some private operators that are in northeastern B.C. that are rebroadcasting Telus dial tone into areas that are served by Northwestel. Are you familiar with that?
8783 MR. VACHON: It's mainly in the outback around -- north of Fort St. John. There is a big oil company over there which has built their own network. They are using a southern dial tone to communicate with the rest of the world, but it's mainly a major company.
8784 I am not aware of this service being offered to any residential customers in this area.
8785 MR. PRATT: So it ends up, even though it is technically someone else providing basic access in your territory, it's not something that is widely available.
8786 MR. VACHON: No. Not that I'm aware of.
8787 MR. FLAHERTY: I think there's one clarification. I believe that situation is a private network, so just like any company, they could have their own network, so they are not necessarily violating any rules in having their own network.
8788 MR. PRATT: That's what I expect. Yes.
8789 Mr. Wells, in the observation you made just a moment ago, you talked about needing to let things settle down perhaps for three years. Are there any specific things that you can identify that might be check points or targets that you would need to have settled before you felt comfortable with local competition?
8790 MR. WELLS: Some of the things that come to mind for me, obviously, is the success of the objectives that have been set out for us. I think we would have to take a look as we go forward, have we been successful in accomplishing reasonable rates and reasonable -- sorry, reasonably comparable rates and reasonably comparable services throughout the territory, has that become a reality for all the people in the north and has there been a level of competition that has given choice to customers.
8791 I think as we go forward over the next few years and look at the impact that the model will have on accomplishing those objectives, I think those are critical things to measure as we move forward, the success of that, and, of course, the impact on the company to be able to sustain itself as a full service provider in this territory is very critical to the customers.
8792 I know the governments have identified that very clearly as well, that it's going to be critical for Northwestel to be able to provide the types of services to northerners that meet their requirements on an ongoing basis.
8793 I think those are a couple of key things that we need to consider as we go forward over the next few years. We have identified a specific check point in three years to review this program.
8794 MR. PRATT: Right. Let me ask you with your marketing hat on whether you think that -- take the case of a small competitor, a small long distance competitor, wouldn't it be likely that that competitor would want to look at broadening its range of services in order to be able to compete given the very small market base that exists here?
8795 It's not very easy for a competitor to grow in size or in scale. Maybe it's more likely that they would be looking at expanding in scope. If that kind of pressure came or those kinds of requests came, what would be your view of that?
8796 MR. FLAHERTY: Maybe I could just answer for a moment.
8797 I think one of the concerns is companies that have gone into local competition in the south have generally found it very capital intensive, so it's not necessarily a duplication of the long distance network. Generally long distance is easier to get into for companies that wish to do so.
8798 Some other companies that Mr. Colville was referring to the other day, part of their financial issue is that they are now trying to become local exchange carriers and they are investing huge amounts of money in infrastructure.
8799 I think they are a little bit different. Back to what Mr. Wells was saying, I think it would be difficult. If we can't create a model that allows sustainable long distance competition, I think it will be difficult to create a model that encourages local competition more broadly.
8800 MR. PRATT: Thank you. I would like to move on now. Northwestel has been a fixture in the north for quite a few years. How old is the company, by the way? How many years should I fill in here?
8801 MR. VACHON: Fifty years.
8802 MR. PRATT: Fifty years. I don't know -- this occurred to me while I was looking at some questions, Mr. Flaherty, but the company is still called Northwestel even though they are covering all the north. Is that something you are going to consider in the future, what the right name for the company should be?
8803 MR. FLAHERTY: I hadn't really contemplated that, but I guess we will now.
8804 MR. PRATT: We are pretty happy with it the way it is, but in that time you have got a real significant impact on the economic social fabric of the north.
8805 There's some questions that I have asked that relate to different aspects of your contributions to the community. I wonder if you could tell me what is your corporate contribution to policy?
8806 MR. FLAHERTY: We have tried to be supportive of as many groups as we can within the territory. We have provided support, particularly of such large scale events as the Arctic Games that take place across the various territories within our organization.
8807 Generally, we have a policy that encourages our involvement in the community. I encourage my senior managers and myself as well to get out into the community and be involved in different organizations and boards, whether it be the Rotary Club or your involvement with the energy corporation.
8808 We have a lot of different ways that we try to have involvement in the community.
8809 MR. PRATT: One favourite of mine that I recall from past dealings with Northwestel is the process of creating the art for the telephone directory. I thought that was a tremendous program, very innovative. I don't know if you could speak about that.
8810 MR. FLAHERTY: Yes. I think we had a policy that encouraged local artists to put forward various art exhibits and a choice would be made of one of these works and we would display that on the front cover of our phone books.
8811 Within the last year we made a policy change to move away from that policy. We have had a fair amount of feedback that would have us go back and rethink that decision. I wouldn't say one way or another whether we will change back, but clearly we have had a lot of feedback from our customers that they indeed miss the same feature that you refer to as well.
8812 That's something over the next month or two that we will be revisiting in terms of future phone directories.
8813 MR. PRATT: Well, that's good.
8814 MR. WELLS: Maybe I could just add a little bit. Northwestel is seen in the north as being very active in the arts. We do have an annual awards banquet that we put on to recognize northern artists. It's called the Aurora Awards.
8815 Also, we were very fundamental in working with different interest groups in the Yukon specifically to build the Arts Centre up by the college.
8816 Northwestel has a long history of being involved in the arts in the north. As Mr. Flaherty pointed out, we did make the shift this year on the phone book cover. I'm sure we will be revisiting that before next year.
8817 MR. PRATT: The response that you gave to UCG1-21, the question related to the public information expenses. I think that category also included, Mr. Hamelin, not just public relations but donations and sponsorships.
8818 MR. FLAHERTY: That's correct.
8819 MR. PRATT: And the indication there was that amount has been declining since 1997 due to budget constraints. Is that -- how does that reconcile with the company's commitments to the community?
8820 MR. FLAHERTY: I think it's something we have to continue to monitor. I think, as I said earlier, one of the ways in which we are trying to compensate to some degree is to encourage more employee involvement directly with these organizations.
8821 As I said, I have encouraged my executive team and their directors to be actively involved and we would review on a semi-annual basis their involvement in various organizations.
8822 While the absolute dollars that we may be writing cheques for is somewhat lower, we are trying to make up for it by encouraging employee involvement in those activities.
8823 MR. VACHON: As a matter of fact, I just made the decision to sponsor the publication of the Literacy Council, their annual publication in Yellowknife for the Literacy Council. That's a new project we will undertake this year, in 2000. We have agreed to be a long term sponsor for the Literacy Council.
8824 MR. WELLS: Just a point. In the same survey that we have been talking about, we did find out what our customers' views were on long distance competition and a propensity to leave Northwestel for differential rates. We also had a series of questions related to Northwestel as a corporate citizen.
8825 I was very proud to see in those results it was well in the eighties, high eighties, as a percentage that felt that Northwestel was a very important corporate entity in the north. Just tying in with your line of questioning, we have some data that also shows strong results in that area.
8826 MR. PRATT: Okay. And with respect to other aspects of community involvement like training and education, is there anything that you plan to do or are able to do in relation to training and education? Let's talk specifically about the service improvement plan around that.
8827 MR. FLAHERTY: Maybe I will try to take those in two points. In terms of training and education, the company has been very active in the past. One of our former Presidents was very directly involved with Yukon College and the formation of the college. I believe he was the Chairman of the Board of that group.
8828 I think for a period of time the company moved a little bit away from that. We started discussions again with Yukon College and we hope to do the same with the colleges in both the Northwest Territories and Nunavut.
8829 Clearly, as has been discussed over the last week or so, there is a need to provide ongoing training to develop more resources in the north. One of the challenges that we face is when we do bring people from the south, they generally don't stay that long. We would much rather have northerners trained and have them participate in the company as we go forward.
8830 We are taking steps to do more of that. We are working with the colleges to develop some kind of a plan, but that will be more of a medium to longer term plan.
8831 In the short term, we are trying to get information on students who are away at school today and what types of programs they are doing. Mr. Vachon has approached the Northwest Territories government to see if we could get a list of students that are away and what courses they are taking and try to target those specific students. Again, depending on where they are in the program, it may be a year or two away.
8832 Trying to start from scratch and train someone from a starting level to utilize those skills in the SIP program is going to be difficult. We talk about how much work we have to do and the time frame we have to do it in.
8833 So while we would like to, and we will endeavour to, do more through targeting the students who are away now, realistically this kind of policy is going to take a little bit longer to have us bring people in.
8834 MR. VACHON: On a short-term basis I am also part of the advisory council of at the Aurora College in Yellowknife. We hire a student every summer to try to support him in going back to school, to go to NATE or SATE and come back with a technical degree. So we still have a student working for us this summer.
8835 On an ongoing basis during the year, our role is to try to provide what kind of skills we need in the marketplace today, arrange a visit of our central office, try to show them how interesting it is to work in communications and how much challenge they might have even in the north; that they don't have to go south. We have a lot of technology here.
8836 Those are the types of things we are doing with Aurora College.
8837 MR. PRATT: That sounds good. It is particularly important, I think, because of the impact that Northwestel can have on the north, that you are involved in that kind of a program. The idea of repatriating some northerners sounds like a good one as well.
8838 In the regional consultation there were some views expressed about Northwestel's reputation, and that perhaps there is a need for better PR.
8839 Is that something of a concern to you, Mr. Flaherty? Are you going to do something about that?
8840 MR. FLAHERTY: Very much so. It is going to be difficult to please everyone all the time. There is no question about that.
8841 Some of the comments that were made implied that it was a much bigger problem, which was somewhat new to me. It was refreshing to hear Mr. Henry come back and say that there were other groups who were very pleased, particularly in the native communities. I think we do need to make sure that we understand those needs as we go forward and deal with those issues.
8842 MR. PRATT: Mr. Vachon spoke very strongly the other day about the need to get the voice of the customer in his view in terms of measuring quality; that the real acid test is the voice of the customer.
8843 That is, in our view, a very commendable philosophy.
8844 I wonder if you are doing anything consciously to try to foster that sort of attitude throughout the company.
8845 MR. FLAHERTY: Most definitely, in two respects. For some time now the company has been conducting monthly customer surveys. So that information is now being shared more broadly within the company. We are trying to develop specific action plans to address items that come out of those services.
8846 The other thing that we implemented within the last, I guess, two months is we developed what we call an outreach program, whereby the executive team here is assigned to various communities across the north.
8847 While we have been tied up with much of this process for the last two months, our full expectation is that each of us will be out with those groups that we have been assigned to, make ourselves known to those individuals, develop a relationship with them so that they can come to us with any problems that they have on an ongoing basis.
8848 MR. PRATT: You mentioned the impact that this proceeding had on your resources. Did you have any similar concerns about the SIP and the tremendous impact that is going to have on the company in terms of your ability to meet the company's commitments of service, quality and performance?
8849 MR. FLAHERTY: I don't think so. I think the SIP is probably more traditional. This kind of a process has been very new. Virtually all of the panel members and all of their back-up, this is the first time they have had to be through a process like this.
8850 The thing about the SIP is that it is the kind of work that this company has been doing for 50 years plus. So we are more familiar with that kind of work.
8851 That is not to say that it is not going to be challenging. Mr. Vachon talked the other day about some of the challenges that we are going to face. I feel that that is sort of back to the roots of the company and more familiar than a proceeding such as this.
--- Pause / Pause
8852 MR. PRATT: I am nearly done, Mr. Chairman.
8853 The service improvement plan is a plan today to meet the future needs. I think we have talked, from the technology standpoint, about some of the challenges of using technology now to meet service requirements in the future.
8854 In particular, I am thinking about if we thought back four years ago about something like the speed of a modem. Four years ago there were still lots of 14.4 modems around. What is it going to be like four years from now is the kind of concern I have in mind.
8855 Mr. Flaherty, can you give me some ideas about how we as a customer, and how all of the customers, can have an assurance that the SIP is going to provide them with the best technology that is going to meet their needs as those needs go forward from today and continue to change?
8856 MR. FLAHERTY: As you say, it is somewhat difficult to predict where the future was. If we step back even within the last two years, I don't think anyone would have predicted the massive changes that the Internet is starting to bring forward.
8857 The one thing that I look at, though, is that a lot of the underlying infrastructure that the telecommunications have in place are continuing to be re-used, shall I say. People are finding new technologies to make use of that plan.
8858 I can recall about four or five years ago there was a notion that all of the copper cable would be doomed; it wouldn't be any good; we would move to a hybrid fibre coax type of methodology. Clearly that has not necessarily evolved.
8859 What has happened is that telecommunications suppliers have recognized that there is this huge imbedded base of copper plant across the world. So if they can find technology that makes better use of that, then they obviously have a captive market that is interested in purchasing it.
8860 That has happened very much in technologies like ADSL, VDSL, HDSL.
8861 I think much of what we are putting in place will form the backbone, and I think you will find a lot of the innovations that come up will be more at the periphery that will make use of that existing backbone.
8862 MR. WELLS: I think it is important to note here, as well, thinking back on the work that we have done with the Government of the Northwest Territories and yourselves, the Yukon Government, in identifying needs as you as a customer, not as a policymaker but as a government, you play a major role in the north as a catalyst for this well.
8863 The relationship we have developed with our governments in being able to identify the requirements of those governments as major large consumers and users of infrastructure has been valuable for us.
8864 I believe our continued working relationship with governments in the north is going to prove very positive as far as ensuring the objective that you speak of. That is a critical point.
8865 MR. PRATT: And certainly we will be looking very closely at the company to be leading that.
8866 Thank you, panel.
8867 Mr. Chairman, those are all of my questions.
8868 THE CHAIRPERSON: Thank you, Mr. Pratt.
8869 Madam Secretary...?
8870 MS VOGEL: The next party to cross-examine this panel is the Council of Yukon First Nations.
8871 Mr. Henry, please.
--- Pause / Pause
8872 THE CHAIRPERSON: Good morning, Mr. Henry.
8873 MR. HENRY: I believe we are making progress.
8874 THE CHAIRPERSON: I am pleased to hear that.
EXAMINATION / INTERROGATOIRE
8875 MR. HENRY: Mr. Chairman, based on Mr. Williams' request for an undertaking, this is statistical information on First Nation communities across the north that was prepared by Northwestel. It is community by community, the demographic, the relationship between aboriginal and non-aboriginal, the workforce, number of households, locations, et cetera.
8876 First I want to thank you team, Mr. Flaherty, for that.
8877 Second of all, given the extent of the information, it is certainly going to help in the planning process. So, thank you.
8878 I want to pick up on what my friend Mr. Pratt -- and by the way, I would like to thank YTG for switching positions with us the two times. Thank you.
8879 I wanted to pick up on one thing he asked you about the art work for the cover. Why was the policy changed?
8880 Not so much did it change. We know it changed. There are new pictures. Why did it change?
8881 MR. FLAHERTY: I think the feeling at the time was that we were moving into a competitive environment, that we need to think about how to relate to our customers in a different way as we go forward.
8882 I think that was the main driver.
8883 MR. HENRY: For competitive reasons.
8884 MR. FLAHERTY: Largely.
8885 MR. HENRY: Can you explain that a little bit more?
8886 MR. FLAHERTY: We have been using the cover more as a marketing tool as we would go forward, rather than just simply displaying the art as we had done in the past.
8887 MR. HENRY: It wasn't a cost factor or anything like that?
8888 MR. FLAHERTY: No.
8889 MR. HENRY: Thank you.
8890 Now, I was on Minister Manley's national panel on access to the information highway, particularly social impacts and access, and one of the things that was important was economic and social conditions.
8891 I asked the previous panel the question dealing with the Telecommunications Act, particularly 7(h), and it sets out the policy objective to respond to the economic and social requirements of your users, including First Nations for telcos. They referred me to you, so I'm going to ask how Northwestel works out their objectives when they are looking at the objective of the Telecommunications Act.
8892 MR. FLAHERTY: In terms of objective, in terms of serving the policies or the areas we serve?
8893 MR. HENRY: In terms of looking at the broad policy objectives to consider the economic and social conditions of your communities that you serve. And I coming directly to affordability.
8894 MR. FLAHERTY: Okay. Well, I think essentially what we try to do is look at all of the citizens. We would not necessarily treat First Nations any different than we would any other group within our territory. So first we look ubiquitously across the area.
8895 I think the company has demonstrated quite aptly that it's concern for those areas in the past led to having very high toll rates. There perhaps were other options instead of raising toll rates. We could have done something entirely different, which would have made no sense, such as raising local rates extremely high so we could have had low toll rates.
8896 So I think the fact that the company has taken the position over the years that it would leave tolls very high -- felt that it was perhaps a bit more of a discretionary service -- and keep local rates lower is probably a good example of how we try to recognize the importance of telecommunications in that social fabric that you are talking about.
8897 MR. HENRY: And then what about for the issue of affordability? Were there any analyses run as to what a threshold might be, a minimum?
8898 MR. FLAHERTY: You are talking specifically again about our proposal in this proceeding?
8899 MR. HENRY: For the $5.00 increase, yes.
8900 MR. FLAHERTY: I would say no, there wasn't a lot of specific analysis on affordability. It was more a judgment, more of looking at what other telcos were doing in the rest of Canada more than anything else.
8901 MR. HENRY: And then maybe I will ask just briefly what would be some of the factors that you would consider? Seasonal employment? Unemployment?
8902 MR. FLAHERTY: I'm not sure I would necessarily agree with seasonal employment as being a specific factor relative to affordability. There are some people in certain seasonal jobs that can make quite a large amount of money in a seasonal time frame. So I would say perhaps more income levels would be a better piece, but I think you would have to look at the total income.
8903 You know, we heard yesterday from UCG talking about specific income related to tax returns. Well, of course, in the north there are more things that are going through the barter system, so that may not be a good indicator of affordability.
8904 So it's a difficult one. There is no easy answer to exactly defining what affordability is. I think the Commission themselves had a full proceeding looking at affordability and it was difficult to come to a definitive conclusion on what was the single most important driver of affordability.
8905 So I think it still, unfortunately, comes down to some judgment and needs to be followed up with tracking. I think the fact that Statistics Canada will now be looking at tracking the penetration of phone service, that will be a much more useful tool as we go forward. At the end of the day, that penetration figure is probably the most telling story on whether rates are affordable or not.
8906 MR. HENRY: And as SIP is rolled out I imagine you expect that some of these issues will come forward as price is too high?
8907 MR. FLAHERTY: Definitely. As I said, armed with the tracking that Statistics Canada will be doing on a going forward basis we will have a better understanding of the situation for sure.
8908 MR. HENRY: Thank you.
8909 Does Northwestel now have a business strategy or does it have an interest in developing a business strategy for working with aboriginal customers or aboriginal governments, if you will?
8910 MR. FLAHERTY: We have an interest in working with all of our customers.
8911 In terms of aboriginals in particular, we have had numerous consultations. I think some of the previous panels have been a little bit too modest to the efforts that we have gone to to try to engage the aboriginal community in the SIP plans. We have had five meetings, we have met with virtually all of the chiefs from the various nations within our serving territory.
8912 So I think the group has gone to fairly extensive efforts, moreso with the aboriginal community than with any other group in our entire serving territory.
8913 Myself and Mr. Wells, as we mentioned earlier, met with the Grand Chief and have talked about working together for future partnerships in a different form of telecommunications, not so much what we are talking about here in SIP but more of advanced communication features, things like distance learning and more data-related services.
8914 MR. HENRY: But it's not a business strategy. You don't have a business strategy for how to either attract more business from the First Nations or how to work more closely in the process that you are talking about?
8915 MR. FLAHERTY: Not specifically for the First Nations, no. It would be a strategy more applying to all our customers rather than just First Nations.
8916 MR. HENRY: And then from a business strategy, a marketing strategy, you don't have that either?
8917 MR. FLAHERTY: Not a specific marketing strategy for First Nations, no.
8918 MR. HENRY: Okay.
8919 Now, has Northwestel -- I hesitate to ask about agents.
8920 Does Northwestel have an aboriginal business agent or client relations specialist, or did they have one in the past?
8921 MR. FLAHERTY: I think the short answer is, I don't believe that Northwestel has had an agent in the past. We do have payment agents, but I don't think that is what you are getting at.
8922 MR. HENRY: No. How to ask nicely for your money.
8923 No. No, I'm talking more about -- I'm just thinking about my -- a point of contact.
8924 My colleague, Ken Kane, was mentioning that he did a 17-community consultation. First Nations have certain views of Northwestel. Some of them are not supportive, in fact a significant number of them are not, and I'm just wondering how you might deal with that. Also, Mr. Pratt raised that as well.
8925 MR. FLAHERTY: As I said, we had a consultation with all -- virtually all, not all of them. I think a couple of the chiefs were unfortunately not able to make it.
8926 We talked about our entire plan, talked about their interests and where they were going in the future, and they were relatively pleased with what we were proposing.
8927 I met with, as I said earlier, the Grand Chief, and he did not allude to any of the specific things that Mr. Kane had talked about.
8928 So definitely we have the comments made by Mr. Kane, but I haven't seen the same comments coming from the Grand Chief or the chiefs of the nations in the consultation process that we had with them.
8929 MR. WELLS: If I could just add maybe a point to this.
8930 In the meeting with the Grand Chief that we had, it became clear to me -- and maybe I misunderstood it -- there is an IT group that has been formed now across the bands. It wants to centralize the issue of telecommunications across the bands.
8931 Historically Northwestel has worked on a band-by-band basis and it is apparent to me now that there is an intention, a new intention to centralize this. That brings opportunity for scale and scope in our discussion, and I believe going forward we will have more opportunity to work more closely with First Nations in the concept of a nation versus individual bands.
8932 So I think that will bring an opportunity for us to better understand the needs in that context. I'm looking forward to the meeting in July that we have on the table.
8933 MR. HENRY: Looking at the group as a whole as opposed to some of its parts kind of. Not wanting to get into their self-government agenda. Even I don't want to.
8934 Thank you very much, Mr. Wells, for that comment.
8935 I would like to ask who would be leading that up. I know you are the team for Northwestel, but I'm thinking more in terms of a business strategy, a marketing plan, customer relations, over and above SIP what the advanced telecommunication requirements would be for First Nations. That's a fair agenda.
8936 MR. FLAHERTY: I think it will probably happen at a couple of different levels. We have a sales individual who is assigned to work with the Yukon First Nations now that we have this centralized group. So that individual has already met with some of the contacts within that IT group.
8937 We also talked with the Grand Chief about setting up a steering committee to address telecommunications that might meet less frequently but to deal more with policy-type issues.
8938 So we have put in place, as I said, a sales contact particularly, and we have one of our marketing people as well that is part of that team as well supporting that salesperson. Then we have proposed to the Grand Chief the possibility of having some kind of a steering committee at a senior level.
8939 MR. HENRY: Given that we are all playing a little bit of catch-up on both sides, I'm wondering if it is something that might be considered at the executive level. Just given the mandate and given the number of groups and the fact that they are stakeholders in the system.
8940 MR. FLAHERTY: I just want to clarify. I don't believe we are catching up.
8941 As I said earlier, we are here to talk about the service improvement program. I think even the other day you said that what you were referring to wasn't what we presented in SIP; it's more broader than SIP. So I think in terms of SIP we have done lots of consultation with First Nations. The chiefs of the various bands have indicated their development plans, and we have incorporated all of those in SIP.
8942 So I don't feel with regards to SIP we are playing catch-up. I think where we have opportunities is in some of these advanced networks. Indeed, what we were talking with with the Grand Chief was an executive steering committee.
8943 MR. HENRY: I think I was just using catching up more in the context of Mr. Wells saying that Northwestel is moving from an individual band-by-band relationship and then the First Nations themselves are moving from Indian Act band status into self-governing First Nations with a plan and an agenda for how to improve their lives, is more what I was referring to.
8944 MR. FLAHERTY: I might just characterize it more as an evolution than as a catch-up. First Nations are evolving and we are evolving and we are working together.
8945 MR. HENRY: Fair enough. Thank you.
8946 In terms of the land claim and self-government agreements, are you familiar with the aboriginal business and other economic agreements that are under the Yukon umbrella final agreement?
8947 MR. FLAHERTY: No, I'm not.
8948 MR. HENRY: Is it something that you would want to consider?
8949 MR. FLAHERTY: Actually, the Grand Chief gave me a copy of a high-level overview of the umbrella agreement only. Unfortunately, with all of the other material that we have been studying for the last month or so, I haven't had a chance to read it but I would intend to do that. Whether I will get down into every one of the volumes -- I think he showed me an entire bookshelf full of volumes. It is unlikely I will get to that level of detail but I hope to have a broader understanding.
8950 MR. HENRY: Yes. It is reciprocal because we have had to go through a lot of your material for SIP.
--- Laughter / Rires
8951 MR. HENRY: I'm actually getting new glasses. But I appreciate that.
8952 We understand from the network panel -- oh, just as a point of clarification. I think First Nations would be more than happy to participate to make the agreements known for their content in settlement corporations or access to funds.
8953 We understand from the network panel that they are not aware of any easement or access to settlement land issues. Is that something that may arise as a result of the SIP and the roll out of it? Is that something that you would be considering?
8954 MR. FLAHERTY: When you say "considering" -- I think Mr. Yeulet mentioned the other day, much of the plans that we have make use of existing highway right of ways, things of that nature, so to the degree that there are broader issues that are related to highways and things of that nature, we would have to understand what those are.
8955 Our understanding is that the highway authorities are the ones who grant us permission on those roads. If there are broader issues involved, I'm unaware of what those are but we would obviously have to deal with them as part of SIP.
8956 MR. HENRY: And as life after SIP as well, that as the territory gets carved up and the right of ways change it is something that would be ongoing. I'm just wondering what assurances the First Nations would have that those access requirements would be considered, if any.
8957 MR. FLAHERTY: Just to clarify. Are you referring to access the company would have to those lands or are you referring to something else?
8958 MR. HENRY: To cross those lands. Just following up on Mr. Vachon's example when he was saying that the airport in Old Crow -- I'm not saying that it is owned by the Indians, I'm saying it's an access issue.
8959 MR. FLAHERTY: Definitely, if a form of the government would indicate that those lands were First Nations' lands and the requirement was there to get permission, by all means we would fully expect to comply with any laws that were in place.
8960 MR. HENRY: Thank you.
8961 As a regular course of business, do you use the Aboriginal Business Procurement Program? Are you aware of it?
8962 MR. FLAHERTY: Unfortunately, I'm not aware of it.
8963 MR. HENRY: Fair enough. But it is something again that you would look at, consider?
8964 MR. FLAHERTY: Yes.
8965 MR. HENRY: Thank you.
8966 In terms of employment and training -- I had the good fortune of working with one of your previous presidents, Mr. Dunbar, both for the arts centre as well as for cable, and that was very positive -- I'm wondering if you have provided employee or management training or support for people that want to learn that, whether it be through a scholarship or an actual program?
8967 MR. FLAHERTY: Sorry. Want to learn which?
8968 MR. HENRY: Just to work in the phone company, communications. Say, for example, a community -- we talked earlier with the previous panel about the need for community-trained workers that can work four hours a week for Northwestel or that it might be possible to have a training program for community maintenance support, both for Northwestel, for the Indian radio stations or for CBC? Just like a little cottage industry training program.
8969 MR. FLAHERTY: I was referring to something along those lines with Mr. Pratt in our previous questioning. Very much, that is what we are looking forward to doing. I have already made contacts with the Yukon college here. Mr. Vachon has spoken to the Aurora College in the Northwest Territories. We plan to do the same thing in Nunavut.
8970 We recognize that more and more we are going to have to train people in the north to fulfil our needs for employees in the future. We find that when we do bring people from the south they tend not to be long-term employees; the come for shorter periods of time. So very much we are interested in doing more of that.
8971 Unfortunately, it is going to take some time. You know, we are going to try and target kids at the elementary age level, in particular, to develop their interest in the telecommunications field, have the programs that are in place at the college level and work together to have employment for those individuals in the future.
8972 MR. VACHON: We are currently hiring 23 community technicians in the Arctic and around here in the Yukon too. In Iqaluit we have between three and four Inuit employees. In Yellowknife, just in Yellowknife, I also have, only in the field, that work for us outside, two or three daily employees that work for us. We also have some other employees in the centralized control group.
8973 So we have, I think, a good representation of First Nations' employees.
8974 MR. FLAHERTY: I think, as I indicated earlier to Mr. Pratt, one of the struggles that we have for the shorter term is to identify students who are away at schools in the south. If the Yukon First Nations had a list of people who are away in the specific types of education programs they were on, the company would be extremely interested in getting their hands on something like that to see whether we might have employment opportunities for those individuals.
8975 MR. HENRY: The First Nations have an education and training program where they do support students going out to school and they do track their progress. Northwestel, for the record, did employ a part-time computer science and mathematics student. She has now graduated. Northwestel had her employed for summer employment and she is back in the Yukon working full time with your competitor.
--- Laughter / Rires
8976 MR. FLAHERTY: We would prefer her not to be working for our competitor, but that's the kind of program that we would like to target, is again get to the students when they are in the elementary grades, talk to them about what the telecommunications industry has to offer, hopefully support them through particularly summer jobs and work that way.
8977 MR. HENRY: And as the dialogue increases I am sure this is the kind of information that would be shared between the parties, the First Nations.
8978 Yesterday Mr. Hamelin stated that Northwestel was moving away from some of its licences for cable. Can you tell me a little bit more about that as part of your direction?
8979 MR. FLAHERTY: I think we are looking at individual areas and trying to assess their long-term viability in particular. In some of the areas other options are now being made available through satellite services in particular, satellite television services.
8980 We are trying to ensure that there are alternatives to the customers. Customers in many cases are making their own decisions and moving to something different. So in some of those areas, it tends to be smaller areas, I have started to look at moving away from some of those particular licences.
8981 MR. HENRY: It's just no longer viable, that small dish competition?
8982 MR. FLAHERTY: Not for us in particular. We are looking to see if it may be viable for others in particular but, you are right, there is more and more small dish competition coming along.
8983 MR. HENRY: It's not the policy to approach First Nations to buy those is it?
8984 MR. FLAHERTY: We would be happy to have discussions --
8985 MR. HENRY: Sell them?
8986 MR. FLAHERTY: To have discussions with the First Nations about them, if First Nations were indeed interested, by all means.
8987 MR. HENRY: But it's not the policy to offload it because it's economically not viable to the First Nation, to you. Do you know what I mean?
8988 MR. FLAHERTY: I wouldn't say offload. I would say we would potentially look at making it available to others who think they may be able to make a profit at it. In terms of a company like us, it's not necessarily being fully our core business. It's one element of our business, but not necessarily the full aspect of it.
8989 If another entity, such as First Nations, felt that there was a venture that could have profit in it for them, that would be a decision that they would make.
8990 MR. HENRY: I was just checking the policy decision there.
8991 There have been previous discussions regarding the definition of remote and your proposed definition involving less than two full-time technicians. I know counsel for the Commission has dealt with this and asked for more information.
8992 What I am wondering is what assurances can you give First Nations, or for that matter your groups, that it's not going to be an economic hardship case or it's not going to be strategic or another operational factor that might include removing one or more of your support time in a community?
8993 MR. FLAHERTY: The decision on the staffing that we do in individual communities is directly related to the volume of work in those individual communities.
8994 Mr. Vachon I think has talked through the course of this proceeding about some of these communities having less than 10 requests a year for service. Clearly, to station someone there in one of those communities on a permanent basis would be not an economical use of our funds. So I think that's more the prime decision.
8995 I wouldn't want anyone to think we are not committed to providing service. I think Mr. Vachon talked about sort of the extraordinary efforts our team went to to get service or ensure service stayed within Sanikiluaq when the power plant burned down.
8996 Basically, we charted a jet, flew two technicians across that territory with a generator and spent approximately $10,000 to $15,000 to do it and the people there didn't notice one miss in the telephone service in that time.
8997 So whether there are technicians there or not we are still equally committed to providing quality service across the territory.
8998 I think the main reason that we have proposed the remote definition is strictly a reflection on what we can actually do. In order to have an out-of-service less than 24 hours in all communities, we would need to have access to those communities at all times.
8999 As you are fully aware, I am sure many of these communities don't have flights every day. They may have flights once or twice a week.
9000 We have had unfortunate situations where, as you are likely aware as well, paying freight takes priority. We have had our technicians arrive in the community, only to find out that their tools weren't deemed a priority. So now they are waiting there for two days for the next flight to come, totally out of commission for that period of time.
9001 So I think the desire to have the remote category is more just to reflect the conditions that we have to work with. We are not suggesting in the least that we would look to any less quality of service. In fact, as I said, Sanikiluaq is an excellent example of our response to an emergency situation.
9002 We had a similar situation in Griese Fjord where we had to rent a plane and fly a satellite dish at a cost of $50,000. The service was out for a very short period of time.
9003 In Fort Nelson we had a tower go down about a year or so ago. Again, within about 48 hours we had a whole tower rebuilt and in service back to the area.
9004 I think the company has a very strong history of providing quality service and responding appropriately. So all we are suggesting here is to be trying to measure us on a standard that is not possible to be met is unrealistic.
9005 We need to have access 24 hours a day and this environment just won't allow that.
9006 MR. HENRY: And given the importance of the human resources to do that, is it conceivable that Northwestel -- I know it's not your decision, it's your proposal, but that Northwestel would remove that component of it as part of the definition of remote?
9007 MR. FLAHERTY: I think what we tried to clarify and hopefully we have done so is we have tried to indicate that as we come up with this current list of communities we propose to be remote, we took into account the staffing of today. We would not propose to change that definition, irrespective of whether we change staffing.
9008 So today, based on the staffing and the access by air and the distance travelled by road, these are the communities and they are the ones that cause us grief.
9009 If we make staffing decisions in the future we would not propose to go back and change those designations again. So they would be a fixed point in time.
9010 MR. HENRY: And hence the need the need for increased community training programs perhaps as an option?
9011 MR. FLAHERTY: Perhaps.
9012 MR. HENRY: Thank you.
9013 I am going to talk a little bit more now about toll denial. My starting point is in terms of public safety. I asked a question the other day about public safety and one of the panel members said it was perhaps to improve or replace infrastructure for public safety purposes, as opposed to the safety of those individuals who are presently unserved or underserved. Would you agree with that?
9014 MR. FLAHERTY: I'm not sure I fully understand the context.
9015 MR. HENRY: I asked Mr. Vachon about public safety, what was the definition of public safety. It was the improvement or the replacement of a tower that might fall over on somebody.
9016 I was more looking at an answer of public safety as in exactly what the words say, public safety for the public and being safe and secure, or access.
9017 I will just mention one other part to it. It is that for individuals living in remote and underserved communities, the phone is a lifeline. That's it. Sometimes there is one pay phone and those that are four miles around that phone that's it. They have got to go to it and Jake's Corner was one example. Johnston's Crossing is another example for the pay phone. And so that's what I am asking about for public safety and access to a phone line.
9018 MR. FLAHERTY: As part of our SIP plan, as I think Mr. Vachon indicated, we have identified, we hope, everybody that exists out there and we will be proposing to provide facilities that could be utilized by all people out in those areas.
9019 So, in our service improvement plan we have tried to capture all of the unserved areas. We have proposed to offer service within those unserved areas.
9020 Obviously, there would be the $1,000 construction charge that we spoke of, but beyond that there would be no reason why others would not be able to have access to phone service as we go forward.
9021 MR. HENRY: In that line, Madam Hamelin, I believe it was talked about toll denial for bill management or other purposes, that sometimes the phone company has an interest in helping people manage their bill and toll denial might be a good thing.
9022 With toll denial, in the context of public safety from the human point of view as opposed to a tower, will you be able to get toll denial but still have access to, say, a 911 or an emergency call?
9023 MR. FLAHERTY: The emergency facilities, if they are on a local basis, would be fully accessible. 911 is all dependent on whether it's available through the municipalities that are there or it could be Indian bands. That's more of a community decision, not a phone company decision.
9024 We can offer the service, but it is a decision by the local community or geographical area. If the fire or ambulance are on 1-800 type services, those are available through toll denial. Toll denial will not stop those from working.
9025 MR. VACHON: I would like maybe to be precise on this tower thing. When we were talking about the tower and liability, you were asking me questions about the projects that are mandatory. When I said the projects that might be mandatory, that we don't have a choice to do, they are projects like a tower that could represent a danger for people that could fall.
9026 This is in this context that I have talked about the tall tower that can fall, not from a public safety point of view.
9027 MR. HENRY: In CRTC No. 103, your interrog, you made reference to the business practice of providing verbal quotes. You mentioned the thousand dollar up charge. You made reference to the business practice of providing verbal quotes. What is that?
9028 MR. FLAHERTY: Today, if an individual wanted service in an unserved area, we would develop a construction charge based on the actual cost of providing telephone service. So today we would develop a quote for the customer based on that actual cost.
9029 As part of the guidelines the CRTC has included in the decision 99-16, they have decided that rather than assessing people charges as to what it might cost, we feel that a thousand dollars is the maximum that you should be assessing individuals.
9030 Where you could run into a situation where an additional quote may be -- if you recall, our proposal was to provide the first $25,000. If there was a situation where it was $30,000 then there would be a quote for that incremental portion.
9031 MR. HENRY: $5,000.
9032 MR. FLAHERTY: Yes. So it depends. If you are talking about our policy today, prior to SIP, if someone was interested in getting service in an unserved area, we would have quoted a construction charge based on the actual cost.
9033 MR. HENRY: It's my fault. I'm actually asking what is a verbal quote, not a developed quote or a written quote. Presumably somebody phones you and you give them a verbal quote.
9034 MR. FLAHERTY: Mr. Vachon clarified the term. Basically what we will do is if a customer expresses an interest, we will give them a high level planning estimate over the telephone based on our understanding of where they are.
9035 If the customer continues to express interest at that level, then we will go out and do more detailed engineering and refine the quote to a more precise and detailed level. That would be the formal quote.
9036 MR. HENRY: And take some nitroglycerine. I'm just saying that as an aside because further in 103 you run some numbers, I believe it's the next page on the top. What was the total number of verbal quotes that were requested?
9037 MR. FLAHERTY: The document here actually puts them together. It says "Estimated written and verbal quotation". I don't have a separation of ARB.
9038 MR. HENRY: But it starts with the verbal quote, then they go to the next stage of asking you to develop a quote. What's the number there?
9039 MR. FLAHERTY: In 1998 from August to December, it was 65. In 1999, there were 206.
9040 MR. HENRY: Of those, how many actually went on to pay the thousand dollars?
9041 MR. FLAHERTY: Just to clarify, this isn't the thousand dollars. This could be 15, it could be 20, it could be $30,000.
9042 MR. HENRY: Sorry. How many went on to do it?
9043 MR. FLAHERTY: The number of quotes accepted in 1999 were eight of the 209. Again, as I said, the situation would be very different. You would find very, very few customers who would have been given a quote of a thousand dollars. Most of the customers, I would suggest, would be well in excess of five, ten thousand dollars.
9044 In the new plan, it's our belief that with a thousand dollars, you will find many, many more takers than you would in this existing model that we were working under.
9045 MR. HENRY: And what's that assumption based on? What's that assumption based on?
9046 MR. FLAHERTY: Just a broad understanding of typical quotes that we have had in the past. This isn't unique to Northwestel. In my experience in Northern Ontario, we had the same situation. People were more in outlying areas a fair distance from the phone line. It was just costly to get to them. There's no question.
9047 MR. VACHON: What we said before under our panel is the average cost to provide service to the unserved customer is between $12,000 and $15,000, so when a customer calls and asks us "I would like to have service, how much it will cost?", the answer now, not part of the SIP but before SIP, our answer is $12,000. He will say "Thank you very much. I will call later" or he will say "I am interested".
9048 At this time we will make a detailed quote, but if you come to the customer and the cost is a thousand, $1,500, he will be much more interested and most of the time he will ask us "Can I have a detailed estimate?". Now we prepare the detailed estimate and we give him a quote.
9049 I think what we have to remember is in a lot of areas we will provide that costs between 12 and 15 and we will ask a thousand dollars, so the number of people that will take this service should be much more higher than it is now.
9050 MR. HENRY: We paid $1,500 for a phone at Marsh Lake. That was rolled in as part of the property taxes. In fact, this year, this summer, it's the last payment from ten years. Do you see that same kind of program perhaps?
9051 MR. FLAHERTY: Not as part of SIP. As part of SIP we would have set a thousand dollars up front. There would be two options that we proposed. People could pay it one shot up front or they could spread it over a 12 month period with no interest.
9052 MR. HENRY: So it's not tied to a property tax.
9053 MR. FLAHERTY: No. That was more of a government program as I understand it.
9054 MR. HENRY: And then after SIP or during SIP, if there were requests to put in phone services, is that something that might be considered?
9055 MR. FLAHERTY: In terms of going to the tax?
9056 MR. HENRY For First Nations, yes, or a program.
9057 MR. FLAHERTY: At this point we would propose to have the same definition apply to all our customers in our territory. We wouldn't differentiate between any of our customers.
9058 MR. HENRY: Thank you. Now, on not so much this issue for getting increased services, but I believe it was Mr. Wells in a previous panel that talked about targeted subsidies. We talked a little about it yesterday for pockets that don't fit in as part of your capital program or as part of SIP.
9059 I'm thinking of a First Nation community as part of their land claims settlement going to rebuild a traditional village either as a healing centre without buildings and that kind of thing. I'm wondering what your view of the targeted subsidy is or would be.
9060 MR. FLAHERTY: I think the context of targeted subsidy had more to do with affordability and had to do with perhaps actions that the government may take, the federal government in particular, relative to creating targeted subsidies.
9061 Even within the Yukon government, the social assistance policy today, if an individual would qualify, they would pay for their local telephone bill cost today. I think that was more of the context.
9062 If you are talking about targeted subsidies to help fund the establishment of new facilities, I think largely we are talking about a SIP program today as part of our entire package that requires some supplementary funding. This is for what we know today.
9063 In meeting with the Chiefs, as we spoke of before, they told us all of their plans for the foreseeable future and we have incorporated those in here. When new land claim agreements change and new settlements are being developed, we will have to consider those at that time.
9064 Clearly, even the Chiefs were unaware of -- they told us everything they were aware of in the near term, and that's what we have incorporated.
9065 MR. HENRY: Okay. Now, Mr. Hamelin might want to respond as well.
9066 Northwestel has expressed its interest in accessing and taking advantage of subsidies or grants.
9067 What criteria would you follow, or how would you determine accessing the grant?
9068 MR. FLAHERTY: When you say we determined an interest in accessing a grant, I think I might characterize it a little bit differently.
9069 We have been asked to put together a service improvement program. We have been asked to address the issue of long distance competition. The Commission, I believe in the decision, has indicated after considering those factors it may be necessary for supplementary funding.
9070 That is what the outcome of all of this has been. We have put together a $76 million service improvement program aimed at addressing the basic service levels, both relative to the local service as well as improving long distance service. We have developed a framework that we believe, at least, will encourage competition to come to the area. We have also suggested that in order for us to compete on a level playing field we need to drive long distance rates to comparable rates to the south as well.
9071 Those elements together have developed the requirement for $40 million of supplementary funding. The way in which we propose a local rate increase, which would generate between $4 million and $5 million, and the other $35 million would fall out as supplementary funding.
9072 The form that that takes and the way in which the Commission will generate it, they have given some indication in the decision that that really is a decision for the CRTC.
9073 MR. HENRY: This is the strategic direction and policy panel. I am really more getting at Northwestel being able to access something such as the immigrant investor fund -- not Northwestel directly but in a partnership through Connect Yukon, because Connect Yukon is not part of the SIP.
9074 Is that correct?
9075 MR. FLAHERTY: That is correct.
9076 MR. HENRY: You are aware that First Nations expressed deep, deep concerns with accessing the immigrant investor fund without their participation. In fact, they passed a resolution to that effect.
9077 MR. FLAHERTY: I wasn't aware until you mentioned that yesterday.
9078 MR. HENRY: In future, when Northwestel is looking at some of these funds that are available, what would be the relationship to the First Nations in accessing them?
9079 MR. FLAHERTY: I think it would depend on the individual situation and whether the First Nations were involved at all.
9080 MR. HENRY: If they were involved. Let's look at that scenario.
9081 MR. FLAHERTY: If there was a direct involvement with First Nations, then I would suggest the First Nations would be part of the discussion, if that is what you are requesting.
9082 MR. HENRY: Part of the discussions and part of the decision-making process?
9083 MR. FLAHERTY: Again, it would depend on the individual process, what we were talking about.
9084 MR. HENRY: In principle, what would you say?
9085 MR. FLAHERTY: Again, it would depend entirely on what we were talking about.
9086 MR. HENRY: Well, it is a principle, though.
9087 MR. FLAHERTY: Again, it depends what the issue is, whether it is something that First Nations would have to make a decision on or not.
9088 MR. HENRY: Let's say instead of the former NDP riding in Marsh Lake and the other NDP riding in Carmacks, let's say you are going to Haines Junction, as an example, for high speed. You go by all the places that are in your SIP.
9089 Would you include the First Nations as part of that planning process?
9090 MR. FLAHERTY: In terms of would we include the needs of the First Nations as part of the planning process?
9091 MR. HENRY: I am really trying to get at more the decision-making process.
9092 For example, YTG and Northwestel went together in a joint venture to access the immigrant investor fund. That was to provide services to First Nation communities of which they are a part, Marsh Lake and Carmacks.
9093 In the future, if you are looking to extend high speed data services as well, and they are First Nation communities, would you include the First Nations in that process?
9094 And the supplementary question would be: Would the First Nations have an opportunity to be a part of the decision-making process for accessing the fund?
9095 MR. FLAHERTY: I take two points. The first point is in terms of including First Nations, we have included the requirements of First Nations. I think we have said that several times; that we have had several meetings with First Nations. They have told us what their future visions are for their communities, as they know it today. And I acknowledge that that will change.
9096 We have incorporated that, whether it be in the SIP plan or whether it be in the Yukon infrastructure program, we have addressed those issues.
9097 In terms of funding, it would all depend on whether the First Nations had a role relative to the funds that were being used.
9098 Just because we were going to provide facilities to a First Nation area would not necessarily mean that First Nations would be a deciding factor on the funds that were used. It would depend on where the funds are coming from.
9099 You have indicated that you feel strongly that First Nations have a role in the investor immigrant fund. I was unaware of that particular fact.
9100 But if it were some other pot of money, let's say the federal government decided to provide some funding, again I don't know that First Nations would have a very specific role in that.
9101 MR. HENRY: DIA.
9102 MR. FLAHERTY: If it was DIA, perhaps it would, if it was coming from some place else. So it depends on the individual situation that we are talking about.
9103 MR. HENRY: Let me come at it another way, then: What would be a situation? Can you give an example of a situation where this might --
9104 MR. FLAHERTY: You just gave an example. If we were doing something with the Department of Indian Affairs, clearly First Nations would have to be at the table for a discussion with funds that would involve the Indian communities.
9105 MR. HENRY: Or Industry Canada, Aboriginal Business Canada, different programs.
9106 MR. FLAHERTY: Aboriginal Business Canada perhaps. I am not so sure about Industry Canada, but Aboriginal Canada I would agree.
9107 MR. WELLS: Mr. Henry, you talked earlier about the level of detailed understanding that we might have about the umbrella final agreement and some of the responsibilities that are impacted by the UFA.
9108 I think there is an opportunity here, going forward -- and part of that can be through the discussions that we are going to begin in earnest in July -- to develop a better understanding of this.
9109 You obviously have knowledge of programs and opportunities that I personally don't have knowledge of. I think there is opportunity to learn in this relationship and work together.
9110 MR. HENRY: I will move on; thank you.
9111 It was raised earlier, a question of percentages. How many Indians or Inuit work for Northwestel as a percentage of the total workforce?
9112 MR. FLAHERTY: I'm sorry, I don't have that specific information.
9113 MR. HENRY: That is not a requirement to be tracked under employment equity or northern preference for hiring?
9114 MR. FLAHERTY: I believe there is a requirement to file on an annual basis with Human Resources Development Canada statistics on various groups within the company. But I don't have that information with me.
9115 MR. HENRY: Could you provide it?
9116 MR. FLAHERTY: I could provide you with the number or aboriginals.
9117 You are looking specifically at the number of aboriginals that we hire?
9118 MR. HENRY: Yes, please.
9119 MR. FLAHERTY: Including our community technicians?
9120 MR. HENRY: Yes, please. And a breakout of what percentage is the community technicians -- because they are not fulltime; correct?
9121 MR. FLAHERTY: Generally not, no.
9122 MR. HENRY: I just have a few more questions.
9123 Let's look at Whitehorse. At a time when you are asking for an increase in local rates, what do you think the public perception is that Northwestel is building a new building, consolidating its offices?
9124 MR. FLAHERTY: Did you say consolidating our offices?
9125 MR. HENRY: Yes. I just came across it in passing in a newspaper article.
9126 MR. FLAHERTY: I think that was a misunderstanding from the person who wrote it. There was even some confusion at city council. Northwestel is not consolidating any of its employees or any of its locations.
9127 Essentially, all Northwestel is doing is -- Northwestel was requested by an adjoining property owner to our compound to purchase some land. With the proceeds of purchasing that land and the fact that we were going to lose a number of the buildings of the piece of the land that we are giving up, we had to replace the structure that people work out of.
9128 If you have been up there, it is an old area.
9129 MR. HENRY: Yes.
9130 MR. FLAHERTY: It dates back to World War Two.
9131 MR. HENRY: Fifty years old.
9132 MR. FLAHERTY: There are a number of buildings, and a number of these buildings are on the property that we sold. So we are going to build a facility that will allow all of those individual buildings to be collapsed into one.
9133 The price of the facility that we are building is exactly equal to the amount we sold the property for.
9134 MR. HENRY: How much is that?
9135 MR. FLAHERTY: I believe the number quoted in the paper was --
9136 MR. WELLS: It's a million nine.
9137 MR. HENRY: Okay. So what do you think the response is?
9138 MR. FLAHERTY: So far, I attended City Council and there were people there and there were no issues with that.
9139 There was a bigger concern that we were relocating our office staff from downtown to the compound and that was a misunderstanding. We have no intentions of relocating anyone.
9140 MR. HENRY: Thank you.
9141 I have a question on pilot projects. My friends raised it the other day. It is whether or not we have agreed we are going to look at training programs, we are going to look at opportunities that might arise to be able to work together. I'm wondering about pilot projects.
9142 Does Northwestel ever get involved in pilot projects, say, for example, technical changes in -- I'm sorry, innovations in technology or anything like that?
9143 MR. FLAHERTY: We may on a small scale.
9144 Given the size of the company that we are, we don't have a lot of money to put towards research and development. We are in a very high cost area. It's very difficult.
9145 Being part of the B.C. family we tend to rely somewhat on the innovation that they experience, their knowledge of the industry as well. So I don't see us doing a lot of research and development-type activities. We will do some, but it will be on a very small scale.
9146 MR. HENRY: Mr. Wells, your previous President, Mr. Dunbar, was involved with the -- was it the National Research Council? Did he do a lot of work with them?
9147 MR. WELLS: He chaired the Research Council.
9148 MR. HENRY: Yes. I'm wondering if that is an area that you would be renewing your interest in, just given that there were research and development opportunities that did arise as a result of his work there?
9149 MR. WELLS: Not that I'm aware of. Mr. Dunbar was appointed as a chair and I haven't seen any opportunity for us to work more closely there.
9150 I would point out -- and Mr. Vachon mentioned this a couple of days ago -- one of the areas of opportunity for Northwestel that is very unique is in the area of satellite. There is obviously lots of development work done in Canada in North America in the classic terrestrial-based infrastructure, fibre and digital microwave. There is not a lot of research and development done in the area of satellite.
9151 I shouldn't say that. I should say there is not as much because there is not as much market demand in the area of satellite technology.
9152 We work closely with our prime supplier, Hughes and Telesat Canada and Alascom, which is a major provider of satellite in Alaska on a regular basis, looking at opportunities. We had talked about the frame relay project in the Northwest Territories.
9153 So I think that is where there is a lot of opportunity for Northwestel to do some leading edge work. Again, it is tied in with the opportunities that are in the marketplace, but we have done some first of the kind, for example the mesh network that we put in that didn't require any longer central hubbing but could take a northern community to another northern community avoiding that double hop.
9154 We rolled that network out in advance of Alaska, for example. We were one of the first companies in the world to put that into an operating telephone environment.
9155 So I think that's where the opportunities are, not so much pilot projects but opportunities to develop in satellite areas.
9156 MR. FLAHERTY: I think the other thing, as I said earlier, it is not realistic to expect that we are going to eat into a lot of research and development. What we will do is test things that people have developed.
9157 For example, in the frame relay network a small entrepreneurial firm out of Vancouver by the name of TRG developed some components to help make our first of a kind frame relay network. So they were the innovators. They were the research and development arm.
9158 Things like some of the Nortel products and services, they will be the research and development arm. So again, if you're question is specifically: Are we going to develop a new technology and trial it here? We are not going to develop a new technology here. I can say that most categorically. We don't have the resources to do that.
9159 Will we evaluate and make use of those and try those solutions as people develop them? Most definitely.
9160 MR. HENRY: And that could be in relation to the potential for joint venture or partnership or building on the Ardicom experience with other First Nations groups for example?
9161 MR. FLAHERTY: Could be.
9162 MR. HENRY: Thank you.
9163 I believe those are my questions for the panel.
9164 I would like to thank you very much. Thank you.
9165 THE CHAIRPERSON: Thank you, Mr. Henry.
9166 Madam Secretary.
9167 MS VOGEL: The next party to cross-examine this panel is New North Networks.
9168 MR. ZUBKO: Thank you once again, Mr. Chairman.
EXAMINATION / INTERROGATOIRE
9169 MR. ZUBKO: Mr. Flaherty, welcome to the north.
9170 MR. FLAHERTY: Thank you.
9171 MR. ZUBKO: I sincerely hope that your tenure will exceed that of the last couple of people who were in your position.
9172 MR. FLAHERTY: Unfortunately, I think that is a reality of the corporate world. I don't think you find too many presidents who are in a position much more than two or three years, unfortunately.
9173 MR. ZUBKO: Well, I do say that with sincerity because I think that -- and I don't say this with any deference to the people in your organization. I know personally a lot of the people in your organization, they are very bright, hard-working and loyal people and my comment is certainly not meant to cast aspersions on any of them.
9174 But it occurs to me that the people who live in a community, that are born in a community, are schooled and really consider a community to be their home, bring a different kind of perspective to the operations of a company.
9175 There was some discussion earlier today on northern training programs, which you have addressed, I know, over the years. I'm wondering, does Northwestel have a succession plan designed to bring northern-born people, northern-schooled people up the executive ladder? Is that something that the company has or that you would work towards, or is that something that the shareholder perhaps would discourage? I'm curious about that.
9176 MR. FLAHERTY: No. In fact, the shareholder is very much encouraging us to develop succession plans. Most recently, at our board meeting in March, this whole area of succession planning came up and it was recognized that we need to do more in this area.
9177 So a number of the initiatives I spoke to the last two cross-examiners about are a direct result of those discussions at the board level.
9178 To say that we have it in place would not be true though. Clearly we have a lot of work to do in this area and we believe that working with the education institutions at the elementary level -- I'm sorry, the secondary school level and the post secondary institutions we can develop the kinds of programs I was alluding to the last two cross-examiners.
9179 MR. ZUBKO: Okay, thank you.
9180 I know that there are some people -- I believe Mr. Walker who is leaving the room -- just did his MVA along with a friend of mine in another area and I think you sponsored that in some way. So I think that is -- I'm pleased to hear that.
9181 From an earlier discussion we talked about the importance -- or we talked about capital based. I assume that -- I guess it's rhetoric that looking after your capital base is an important part of looking after your company and I'm wondering if it surprises you that companies that have invested time and capital and services like Internet and other businesses in the north who supply radio connections to the telephone system would want to protect those businesses as well.
9182 MR. FLAHERTY: No, it doesn't surprise me.
9183 MR. ZUBKO: In earlier discussions, it was rather clear that no particular consideration had been taken by yourselves in conjunction with this -- I guess we could call massive, certainly in terms of the north -- massive communications subsidy program for which, over the term of this proceeding, you have variously described yourselves as a vehicle for the vision, a trustee, et cetera.
9184 Given that that trusteeship did not go beyond your own company, I guess, and your own clientele, do you understand why the trust that you seek might not be out there and why these service providers are saying there is not a level playing field and we don't really think that this is necessarily the right organization to be the gatekeeper?
9185 MR. FLAHERTY: Are you specifically referring to Internet or are you talking about the entire service improvement program?
9186 MR. ZUBKO: I'm talking about other services that are out there, other Internet companies, other radio common carriers, restricted common carriers, those companies that exist today that have reason to feel that the subsidies that you will be receiving as part of this program are going to threaten them and threaten their capital base, threaten their businesses.
9187 MR. FLAHERTY: Maybe I will take that in a couple of points.
9188 First, we are the incumbent telephone carrier in the territory for local service. The Commission in their decision indicated that the incumbent telephone provider was to provide the elements to make sure that the basic level of telephone service was provided to all of the residents within our territory. So I think, first and foremost, the decision sets that responsibility upon Northwestel.
9189 We have included elements in that program such as Internet, and I think maybe that is what you are referring to particularly.
9190 I think there are some challenges there, in particular, with the Internet. In our proposal we have provided the opportunity for competitive Internet services in 90 communities under 2000 lines, 66 of which do not have any ISP today. That's part of it.
9191 We have indicated that where there is a provider of services today they would be given first choice to use those facilities. I think that is another important piece of it. Clearly, you have raised the concern about the existing investment that is there today. But I think we need to stop, sit back and say what are other models we could explore.
9192 One other model could be to say let's not go into any community that has an existing ISP provider, and that is 24 of those 90 communities. So there are 66 that don't have any. Clearly, the mandate requires us to get the availability of services to that. Whether Northwestel would use them or not Northwestel has made no decision relative to that.
9193 Let's explore back to the model that may say in those 24 where there is Northwestel perhaps would not go in and offer service. I think there are some issues with that.
9194 First off, we would be creating a monopoly, there would be no choice, whereas the model that we offer is choice.
9195 There is no regulation on those services, so the customers and those individual entities are then subject to the price that the local provider deems to charge and there are no competitive pressures to keep those prices in line.
9196 So I think those are two important things.
9197 The third thing is that if down the road that provider were to decide he was no longer making money at that particular entity, well there is no backup plan. There are no facilities available to encourage anyone else to go into that community, and now we would be faced with a situation that no one would provide Internet service to that community.
9198 So while what I have described is an alternative, we still believe the model that we have put forward is a better model, one that offers choice and one that ensures that Internet facilities will be able to be provided in the long term as well.
9199 MR. ZUBKO: The concept of contracting that provider to fulfil your requirements under the basic service plan is not a -- you have deemed that not to be a viable or acceptable method of seeing that those services are met?
9200 MR. FLAHERTY: Just to be clear. In terms of contracting the Internet service, we are not being the provider of Internet service. What we have been asked to do is make available facilities that people could access the Internet on a local basis. So we have not said we would be that provider. We have offered up that we would be the provider of last resort, if the Commission deems that is required, where no one else will go into that territory.
9201 In the other areas, just like any other business person, we will make an assessment on whether or not we can make money at it.
9202 But it is not a case of contracting out. Any provider who wishes to make use of those facilities that we are putting in will have that opportunity to make use of those facilities.
9203 MR. ZUBKO: Maybe I should be more specific.
9204 Would you consider leasing a service provider's facilities in order to fulfil that requirement?
9205 MR. FLAHERTY: Again, are you talking about the Internet?
9206 MR. ZUBKO: Yes.
9207 MR. FLAHERTY: I don't have a requirement to provide service. I have a requirement to make available facilities to allow local access to the Internet. So, again, if you have facilities that are there today, I don't need to lease your facilities because I don't have a requirement to offer the service. I have a requirement to make available the services, the facilities to allow local access to the Internet.
9208 MR. ZUBKO: Could you not lease facilities from another service provider to fulfil that mandate, to make available to other carriers, to other service providers?
9209 MR. FLAHERTY: We would have to look at the situation. I don't know that we have looked at that specifically. I think there are some issues that we need to keep in mind there. Northwestel is responsible for providing the service and maintenance of our facilities to the customers. We are the ones accountable to the CRTC for the underlying infrastructure. So providing that providers could meet those requirements to ensure that we don't jeopardize any of our service obligations, then we would be open to discuss that.
9210 MR. ZUBKO: Thank you.
9211 Another issue that came out of a previous panel. Would you confirm the position taken by the marketing panel that any long-distance service coming off of your system or into your system should attract CAT even if it is not carried on your long-distance infrastructure?
9212 MR. FLAHERTY: If you were talking about direct access lines, indeed there is a framework similar to in the south that there is a component of CAT or a CAT that is assigned to those lines because in many cases they are simply avoiding contribution.
9213 There are differences where companies may have private networks that totally, totally stay outside of the network, but I believe even in those areas contribution is required as well.
9214 MR. ZUBKO: I wonder if you could put some parameters around that for me. For example, Internet access lines, would they attract a CAT? They are going from your system and going out, through some method or another, not necessarily on your long distance network, and they are going to another facility.
9215 MR. FLAHERTY: I don't believe today that is the case but, as you may or may not be aware, the Commission is in the process of reviewing all of the contribution mechanisms because of things like that, things like the increased use of cellular phones. There is a need to ensure that the contribution to continue to provide local service at reasonable rates is maintained. So I believe that is before the Commission as we speak.
9216 MR. ZUBKO: What about service-provider owned satellite services?
--- Pause / Pause
9217 MR. FLAHERTY: My understanding would be they would.
9218 Part of the issue here is a lot of what the -- what the contribution is for is to continue to offer local services, so if all people are doing are taking minutes that would otherwise be carried on a network and putting them some place else, the contribution to continuing to keep local affordable is still required.
9219 I believe the mechanisms that the Commission has been trying to put into place when they created contribution was to ensure that the contribution towards local from long-distance minutes is maintained. Whether they will move to a different mechanism other than minutes, time will tell. But the purpose of the whole mechanism is to ensure that minutes that otherwise would have been carried on that network and would have supported local, that that support for the local services is still provided.
9220 MR. ZUBKO: Okay. Where would we go then with a private satellite service where a company operating, say, in two areas in the north put in a system so that they can run their communications through a satellite service to I guess avoid toll charges and to integrate their data and voice into one system?
9221 MR. FLAHERTY: But again I think you used the operative word there, "avoid". Clearly by shifting minutes away from the telco network, we are shifting away the potential cross-subsidy, shall you say, that long distance makes the local.
9222 Otherwise, if we just continue to do that, then local service will have nowhere to go but up. There will be nothing left to sustain and support it. So the whole mechanism, as I understand it, and the framework that has been adopted across Canada is any subsidy that otherwise would have been there needs to be made up.
9223 MR. ZUBKO: So you don't see private companies carrying their own long distance traffic without paying a CAT.
9224 MR. FLAHERTY: I think ultimately it will be what the Commission decides in the contribution proceeding that they are undertaking right now. That will definitively answer that question.
9225 MR. ZUBKO: I appreciate that. I guess that helps. It will pretty well go in argument, but in the context of your proposal, I would like to flesh this out to its full extent.
9226 THE CHAIRPERSON: Mr. Zubko, I don't mean to interrupt your questioning here, but the rules for who pays what in CAT depending on the network structure are set by the Commission. This is not up to Northwestel from a policy point of view to set the rules as to whether or not if somebody runs the toll traffic on their own network and interconnects with their network, then they pay CAT.
9227 If it's a totally private network, they don't. Those are rules that the Commission has set for all the carriers in the south and the north. It won't be a policy decision for Northwestel. As Mr. Flaherty has indicated, we are reviewing the whole contribution scheme. We have another proceeding which is looking at alternatives to the per minute contribution scheme. We are going to be having a proceeding similar to this in early July.
9228 I just want to make it clear it won't be sort of a policy decision and Northwestel to be deciding who pays CAT and who doesn't.
9229 MR. ZUBKO: I appreciate that. Rather than ask for a response, I will just point out that there are issues in your restricted commentary. Your interconnects right now, there's companies in that. Yesterday briefly with a gentleman from Tagishtel who runs from your switch out to other people, in the future -- I guess right now they are not your customers, but in the future you will be offering service in those areas.
9230 Northern Navigation in Yellowknife, for example, has RCC services that they put out into the Ingram Trail area and beyond where you have a $1.2 million project to offer services. Is that long distance? I don't know. I know there's similar services in Iqaluit as well.
9231 Of course, there's mobile traffic carried by ancillary traffic, carried by Northwest Mobility and others as well.
9232 MR. FLAHERTY: Just one comment, I guess. As I said earlier, a number of those examples you cited don't meet the basic definition of telephone service as defined by the CRTC. Even our own mobility wireless company would not be able to meet all of the requirements of this decision.
9233 While indeed they may be able to meet individual requirements, I think it's an issue. I believe you asked the other day, you know, would we consider using other's facilities at places like the Ingram Trail, for example. Again, I can't stress enough that the Commission looks to us to have end to end responsibility for the quality of service that customer has. It's a big issue that we take very seriously.
9234 If the individuals who would be prepared to offer us access to their network have the capabilities that we need, if it has the reliability and durability that we need, if they have 724 maintenance as we do on our networks, if all of those conditions can be met, we would be happy to sit down and talk to those individuals, but at the end of the day, we are the ones who have to report on the quality of service to the Commission and have to be able to be accountable for those.
9235 Providing those things are met, we would be happy to sit down with those individuals and understand whether there's opportunities.
9236 MR. ZUBKO: That is heartening, I think, from a number of people's points of view. We will see how it comes to bear.
9237 Can you tell me what kind of corporate partnerships you have? I'm referring to business partnerships. I'm not referring to partnership, say, with governments that have been described apparently. Say partnerships of the Ardicom concept, do you have other similar partnerships?
9238 MR. FLAHERTY: I'm aware of two examples. Ardicom would be one that you spoke of and the other would be YKNet here in the Yukon. Those are the two that I'm aware of.
9239 MR. ZUBKO: Okay. I'm not familiar with the YKNet example. I'm somewhat more familiar with the Ardicom example. I think it was Mr. Vachon who made a statement earlier that Northwestel was satisfied with the outcome of the Ardicom project or partnership.
9240 MR. FLAHERTY: I would say yes.
9241 MR. ZUBKO: Have those partners -- I know there was a number of different people -- have those partners been knocking on your door to get into more arrangements?
9242 MR. FLAHERTY: Not that I'm aware of. No.
9243 MR. ZUBKO: Well, Northwestel may be satisfied with the outcome of that partnership. I have been told by active partners on the other side that they wouldn't do business with you again because of that, because of what transpired through the process of the Ardicom project. They are certainly not happy about it.
9244 MR. FLAHERTY: We had one issue with one partner who was supposed to deploy a portion of the network. That partner indeed did not deploy that network and as a result, we had to deploy it. Subsequently, they would like us to provide them the revenues even though they didn't deploy the network which we feel is perhaps unreasonable. Beyond that, I really couldn't give you any more details than that.
9245 MR. ZUBKO: Fair enough. It was in fact not that partner that I was speaking to, but I will leave it at that. I just don't think it's proper that the impression that Ardicom is a big, happy family should be left on the table.
9246 MR. FLAHERTY: I have never heard anyone say they didn't want the money.
9247 MR. ZUBKO: Do you -- I guess you probably answered this question, but do you see this event that is transpiring here, the current process of the CRTC, SIP program and subsidy program as being a single event or the beginning of a process to further competition in other areas?
9248 Again I would point out that some local competition does exist, even outside of Internet. RCPs for example, mobility services, radio services, cellular. More and more those types of services are going to become capable of approaching or equalling the requirements of the Commission's definition of basic service if that couldn't happen today or perhaps by systems that aren't set up yet.
9249 There is more and more technology coming along the line for voice over IP, on private networks, not Internet but Intranet type networks and systems like that. Where do you see competition starting in that area or continuing in that area?
9250 MR. FLAHERTY: If you were talking specifically about this process that we are going through over this period of time, this one is specifically talking about long distance competition. Those other issues are not part of this proceeding to my understanding and will be dealt with at a different point in time.
9251 Again, I think we need to consider the dramatic changes what we are proposing are going to occur and we need to understand how that is going to impact upon the company and upon the subscribers and the offering of service. To move the next step into local competition is premature, but again, as I said earlier, that's not part of the proceeding that we are here speaking about here today.
9252 MR. ZUBKO: Okay. Well, I will leave it at that. Gentlemen, you have a very great challenge in front of you. As a northerner, I hope you pull it off. I wish you the best. If I can help you, give me a call. There's a lot of talent in the north and I would hope that your company would see that and try and leverage that talent. I'm not pointing to myself here, by the way, but others.
9253 There is a lot of talent in the north. I hope that you would attempt to leverage that up to the benefit of the people in the north and the objective of the Commission.
9254 Thank you very much.
9255 MR. FLAHERTY: Thank you, Mr. Zubko.
9256 I think you have turned out to be a very articulate cross-examiner. For a person who is not a lawyer, an engineer or a finance person you have done an excellent job.
9257 MR. ZUBKO: Thank you.
9258 THE CHAIRPERSON: I would echo that.
9259 Thank you, Mr. Zubko.
9260 We will take our morning break now and reconvene at ten minutes to eleven.
--- Recess at 1040 / Suspension à 1040
--- Upon resuming at 1102 / Reprise à 1102
9261 THE CHAIRPERSON: Welcome back, ladies and gentlemen.
9262 Madam Secretary, from the parade of people who just presented you with more paper I suspect we have some more exhibits to number?
9263 MS VOGEL: Yes, Mr. Chairman.
9264 The first exhibit is an undertaking given by Northwestel to CAC/NAPO having to do with a request to provide the portion of market share loss assumed by Northwestel in areas that will not be equipped with equal access in the year 2001. That will be marked as Northwestel Exhibit No. 22.
9265 The next response to an undertaking has to do with a request that Northwestel provide a community list using the company's definition of remote under Interrogatory CRTC 101, showing NAS counts. That will be marked as Northwestel Exhibit No. 23.
9266 And next, the response to an undertaking that the company provide a response to an article from Friday, June 16 edition of the Yukon News, in which Mr. Clay Perreault alleges difficulties faced by ISPs when attempting to acquire wholesale ADSL service from Northwestel. This will be marked as Northwestel Exhibit No. 24.
9267 Finally, a response to an undertaking wherein Commissioner Williams asked Mr. Vachon the potential impact of Bell ExpressVu's recent announcement regarding a direct satellite delivered Internet service. That will be marked as Northwestel Exhibit No. 25.
9268 THE CHAIRPERSON: Thank you, Madam Secretary.
9269 Mr. Rogers.
9270 MR. ROGERS: One other quick preliminary matter. Mr. Henry in his cross-examination asked if the company had information, this was just before the break, whether or not the company had information about the number of aboriginal employees and what information could be provided.
9271 The President has a brief statement just to respond to the information that we have available.
9272 THE CHAIRPERSON: Thank you.
9273 Mr. Flaherty.
9274 MR. FLAHERTY: Thank you, Mr. Chairman.
9275 Further to Mr. Henry's question, we have checked and the most recent information that we have is 1999 and at that time we had 97 aboriginal employees, including both full and part-time employees. I trust that answers Mr. Henry's question.
9276 THE CHAIRPERSON: Mr. Henry?
9277 Mr. Henry is nodding in the affirmative.
9278 Thank you. Anything else?
9279 Madam Secretary.
9280 MS VOGEL: The next party to cross-examine this panel is Telus.
9281 Mr. Lowe.
9282 MR. LOWE: Thank you.
EXAMINATION / INTERROGATOIRE
9283 MR. LOWE: Gentlemen, picking up on Mr. Pratt's proposal to change your name to Northeasterntel, just for the record, it was 1992 when you acquired the eastern assets in the Arctic from Bell?
9284 MR. FLAHERTY: That's correct.
9285 MR. LOWE: And then at that time the corporate structure was Northwestel was separately held from Bell. It was a sister company of Bell. They were both --
9286 MR. FLAHERTY: It was part of BCE. It was a subsidiary of BCE, rather than of Bell Canada.
9287 MR. LOWE: All right.
9288 Now, in March of 1999 Bell acquired directly all of the shares of Northwestel?
9289 MR. FLAHERTY: What happened is BCE consolidated all of their telecom holdings under Bell Canada in order to complete the deal with Ameritech at that time.
9290 MR. LOWE: And so the business purpose was to better focus on wire line operations? That's part of the reason for doing it?
9291 MR. FLAHERTY: No, I would -- that could be part of the reason. I would suggest the other part of the reason was Ameritech had expressed an -6 interest with BCE to purchase part of the telecommunications activities of BCE. So they had to put them together to be able to facilitate that transaction in particular.
9292 MR. LOWE: So it was more to respond to what Ameritech wanted?
9293 MR. FLAHERTY: A combination of both, to try to consolidate all of the telecommunications in one area.
9294 MR. LOWE: And better focus on customers, would that have been part of it?
9295 MR. FLAHERTY: I don't know that that was an explicit reason for why that occurred.
9296 MR. LOWE: That's fair enough.
9297 But now the circle is complete in a way. Now Bell's wholly-owned affiliate owns the eastern Arctic assets. That's where we are today.
9298 I recognize it's a separate company, but it just struck me that in 1992 Bell owned the eastern Arctic and it sells it to Northwestel as a separate company and now today when we are talking about this case it's all under Bell again.
9299 MR. FLAHERTY: It is from a corporate structure. Clearly, as we have indicated before, we operate at arm's length from Bell Canada.
9300 MR. LOWE: And in 1992 when the Commission approved the transfer of the eastern Arctic assets and I think, Mr. Hamelin, you mentioned the quality of earnings improving and that had to do with that $18 million which was amortized over 10 years as part of the 92-6 decision?
9301 MR. HAMELIN: It does. The original earnings were of lesser quality than they are today. That's due to the draw down of that subsidy, if you will, from Bell Canada. It was $18 million, to be drawn down over time.
9302 MR. LOWE: Right. The arrangement was in Decision 92-6 that this $18 million would be amortized over 10 years to cover the kind of operation costs of the eastern Arctic and then, in fact, you ended up using the $18 million a little quicker than that?
9303 MR. HAMELIN: That's correct. And we filed every year in advance as per the CRTC decision at that time.
9304 MR. LOWE: And then part of the deal or the arrangement of Decision 92-6 was also the connecting agreement you have with Bell. Correct? That was also approved in that 1992 decision, the connection agreement between Northwestel and Bell Canada which uses that Commission and prorate method of settlements? You can accept it subject to check, if you want.
9305 MR. HAMELIN: Subject to check.
9306 MR. LOWE: And subject to check there is nothing in the decision which said that the payments under the connecting agreement were going to end after 10 years or anything like that? There was no kind of time limit put on it, or are you aware of any time limit or understanding that the connecting agreement in that form of implicit subsidy which we talked about yesterday was going to have a sunset date on it?
9307 MR. FLAHERTY: I'm not sure we can answer your question, Mr. Lowe. We don't have a copy of that decision with us.
9308 MR. LOWE: All right. I have got the decision. I have read it. I didn't see anything about a sunset date in it. Why don't I just leave it with you. If there was an understanding or if you had a business understanding that it was supposed to end sometime, you know, a definite 10-year horizon or anything like that you can just get back to me.
9309 MR. FLAHERTY: You are talking about the settlement arrangement to carry traffic from the eastern Arctic to southern Canada specifically, or are you talking about the draw down of funds?
9310 MR. LOWE: I am talking about the connecting agreement between Bell and Northwestel.
9311 MR. FLAHERTY: All right.
9312 MR. LOWE: And I take it that that's a revenue stream today, isn't it?
9313 MR. FLAHERTY: Of course settlements are a revenue stream today.
9314 MR. LOWE: And so that comes into your revenue requirement as kind of a number?
9315 MR. FLAHERTY: It forms part of the financials of the company.
9316 MR. LOWE: And you have projected it out then?
9317 MR. FLAHERTY: Yes.
9318 MR. LOWE: All right.
9319 Now, we talked yesterday about these connecting agreements and you also have connecting agreements with Telus. Correct?
9320 MR. FLAHERTY: That's correct.
9321 Actually, the majority of the traffic that we terminate is with Telus.
9322 MR. LOWE: We talked yesterday about there being some level of implicit subsidy embedded in these connecting agreements and I don't think that we ever landed on a number or anything, but do you recall that discussion?
9323 MR. FLAHERTY: I recall the discussion, but if you are asking me to get into that level of detail I won't be able to.
9324 MR. LOWE: No. That's fair enough.
9325 Then, just kind of as a housekeeping point, I think we were a little unclear on whether there was an undertaking or not on that. I am happy with the record the way it is, but I left it up to you if you wanted to file anything else on that.
9326 MR. HAMELIN: No.
9327 MR. LOWE: Fair enough.
9328 Do you see renegotiating the Telus connecting agreement when a decision comes out on this case?
9329 MR. FLAHERTY: That's implicit in the financials that we put forward. The assumption has been made that we would renegotiate settlement agreements.
9330 MR. LOWE: And so the assumption is you would negotiate agreements with all carriers?
9331 MR. FLAHERTY: That's correct.
9332 MR. LOWE: And do you see them following the same kind of time track?
9333 MR. FLAHERTY: Time?
9334 MR. LOWE: Well, that you would negotiate with all of your connecting agreements kind of in the same time frame and that you would put them before the Commission for approval in the same time frame, and you would get approval of the new agreements for all the carriers at the same time.
9335 Is that the kind of process you are saying --
9336 MR. FLAHERTY: Just so I am clear, we could start preliminary discussions now in anticipation of the decision. But we would not be able to finalize anything until the decision was finished. Clearly elements of that agreement will depend upon the outcome of this decision.
9337 MR. LOWE: Right. And then once the decision comes out, do you see doing them all kind of in one clump or do you see any merit to the notion of maybe doing the Telus ones first, getting those out of the way first and then maybe doing Bell's connecting agreement some time later?
9338 MR. FLAHERTY: I haven't thought about it.
9339 MR. LOWE: Well, do you see any reason why you could not do it that way, from a policy standpoint?
9340 You have two kinds of species of connecting agreements. You have one with Bell, you know, your shareholder that kind of fell out of this 1992 thing. Maybe there is something there. I am not saying there is, but maybe there is some kind of enduring obligation.
9341 Again, I am not saying that is the right thing, but maybe some people could say there is.
9342 There is kind of that agreement on one hand and sort of setting that aside and saying: Let's deal with the Telus agreements. It's a non-affiliated carrier, a potential competitor of Northwestel; none of this sort of eastern Arctic complications. Let's just get the Telus ones out of the way right away; hit the ground running as soon as this decision comes out.
9343 Do you see anything wrong with that?
9344 MR. FLAHERTY: As I said, we will take that decision internally. I don't think the order of who negotiates settlements is important to this proceeding.
9345 MR. LOWE: It may not be important to the proceeding, but I put it to you that it is kind of important to us.
9346 MR. FLAHERTY: As I can appreciate.
9347 MR. LOWE: So you are not going to help me at all? You are not going to give me --
9348 MR. FLAHERTY: I'm not going to tell you the order in which we are going to negotiate settlement agreements if that is what you are looking for, no.
9349 MR. LOWE: Okay. Then, would you see any reason why you should delay negotiating with Telus and finalizing those if there is any delay in dealing with the Bell agreements?
9350 MR. FLAHERTY: I don't see any need to delay or increase.
9351 MR. LOWE: Mr. Hamelin, we were kind of struck yesterday by your commitment to competition, and I mean that sincerely. We went away and we thought: Is there a way to make this work?
9352 What we tried to do is come up with a competitive model that would make competition workable using your five-cent sustainable CAT as a point of departure and using kind of rating principles that are reasonably comparable to those in the south.
9353 What we came up with -- normally, it would be well after sunset when we came up with this, but I can't say that here.
9354 MR. HAMELIN: There are no sunset clauses at this time of the year.
9355 MR. LOWE: We came up with a two-page document. I provided it to your counsel before the break. It is not as if we have been holding on to this and trying to ambush you with it, and I am not going to try to nail you to this thing, or anything like that.
9356 But I was hoping that we could talk about it and kind of go through it and talk about it at a high level. Where I was going to go with it is we are going to close the record on this proceeding fairly quickly, and I would like to get your views in principle on it.
9357 If you can't do it before the record closes, then maybe by Friday when you file written argument kind of thing is sort of the process we are shooting for.
9358 MR. FLAHERTY: We will try your first attack. This is a policy panel, but we will try to deal with it as best we can. If we get too deep, we will let you know and deal with it differently.
9359 MR. LOWE: Okay. The document is entitled "Northwestel Sustainable CAT or Canadian CAT".
9360 Do people have that document available?
9361 The two pages are different in that one describes a call from Whitehorse to Yellowknife, and the second page describes a call from Carcross to Whitehorse.
9362 The difference is one is inter-toll and the other one is intra-toll.
9363 If you look at the top, "Model Used in Canada", what we have tried to use there is a five-cent CAT which bundles switching and aggregation, and then we have split out switching and aggregation and said: Look, it's about a penny in the south, so that's the .4 cents and .6 cents for the peak. There is off peak as well, so we used 3 cents, plus .4 and .6 cents.
9364 What you come up with is a peak rate of 16 cents and an off-peak rate of 12 cents. Do you see that?
9365 MR. FLAHERTY: Yes. I am not aware of CATs at five cents down south. Are you suggesting that this is our CAT?
9366 MR. LOWE: No -- yes, we were trying to use your five-cent CAT as a point of departure, and then we were doing it peak, off-peak and stripping out the switching and aggregation.
9367 MR. FLAHERTY: Two comments. First, our proposal does not have a peak/off-peak in it.
9368 MR. LOWE: That's right, yes.
9369 MR. FLAHERTY: The second point would be --
9370 MR. LOWE: It sounds like a good idea, though; right?
9371 MR. FLAHERTY: The second point would be -- and I think you even said it -- our five cents includes the SWAG. The Commission directed us --
9372 MR. LOWE: Yes.
9373 MR. FLAHERTY: So it seems that you have the SWAG and then you are adding it again. I am not quite sure why you are doing that.
9374 MR. LOWE: We took it out. If we didn't use peak/off-peak, it would have been a four-cent CAT and then the one-cent switching and aggregation.
9375 If you average the numbers out, you will get that. But you can take that subject to check.
9376 MR. FLAHERTY: In our CAT proposal there is no peak/off-peak and it is a five-cent CAT.
9377 MR. LOWE: Oh, I know that. I realize that.
9378 If we had thought we could get workable competition with your proposal, we would not have bothered putting this together. This is what we are putting to you as something that might work.
9379 MR. FLAHERTY: I am just asking again: It seems that you add all of the numbers in the row across, but in doing so the .4, the .6 and then the .6 and the .4 are already included in the five cents. So it seems that you have added two cents to this calculation that isn't appropriate. That is just my observation.
9380 MR. LOWE: That is not the intention. The idea is just to take out the switching and aggregation. Your proposal is that it is bundled but we have tried to take it out.
9381 MR. FLAHERTY: But you didn't reduce the five cents.
9382 MR. LOWE: Yes. Like the five cents peak/off-peak, if you look at that -- and this is the kind of math I can do. That is eight. Five and three is eight, divided by two is four.
9383 MR. FLAHERTY: But our total is five.
9384 MR. LOWE: That's right. You have divided -- I should have done the D average version of this.
9385 MR. FLAHERTY: It would have been more helpful.
9386 MR. LOWE: If you average the minutes, peak/off-peak -- and you are about 50:50 anyway, aren't you: 50 peak, 50 off-peak, rough and ready?
9387 MR. FLAHERTY: I am not sure I would agree with that scenario.
9388 MR. LOWE: Okay. If you use that kind of averaging, which is I think the simplistic assumption we made in doing this, you add the five and three to get eight, divided by two is four, plus -- and you will notice in the peak/off-peak, the .4 and .6 don't change. So it is four plus one, equals five.
9389 MR. FLAHERTY: In the interests of simplicity, why don't we not use a D average CAT but use five cents plus four plus five, which gives you 14 cents.
9390 That might be less confusing to everyone.
9391 MR. LOWE: Maybe if we did it that way, it would have been better. But we think that in the south they have peak and off-peak, and the goal here is reasonably comparable rates and terms and service. If you are connecting with carriers that have peak and off-peak, we just thought that was the way to go.
9392 Maybe it is a little more complicated, but we wanted to put that forward. And that is why we did it that way.
9393 MR. FLAHERTY: It just makes it hard for people to follow, and that is not our proposal.
9394 MR. LOWE: Then we go from the middle part of the diagram, which sort of describes the facilities of what a call from Whitehorse to Yellowknife would look like, A to B. I thought this was actually a model of simplicity.
9395 It shows some telephones. They go to the class 5 switch, and then the class 4 switch, and then under your proposal below, it costs five cents to do that. In the middle part is the mega plan transport. Under your proposal -- we put it down as four cents, but I think the testimony as two to three cents, and then there was some talk that you might raise mega rates some time later. So we just threw four in. It's just a number.
9396 MR. FLAHERTY: We would say that would be more likely two.
9397 MR. HENRY: For three years?
9398 Anyway, you have this transport rate of four cents in our example, and then the terminating end, class 4, class 5 to the phone, and that is five cents. So we have 14 cents in the example.
9399 That is the kind of tiny-tot example that I took the other panel through.
9400 MR. FLAHERTY: Yes. Again, we would probably say that is closer to 12 cents rather than 14.
9401 MR. LOWE: And then the second page is a call from Carcross to Whitehorse. This is intertoll and so you have this -- the phone comes, the phone call goes through to class 5 and then on to the class 4, and then it terminates back through the class 5. The Northwestel proposal is, you know, you pay a contribution on each end, 5 cents and 5 cents.
9402 Do you see that?
9403 MR. FLAHERTY: That's right. I believe that is similar to what happens in the south, you pay a contribution on both ends.
9404 MR. LOWE: Okay. Then in the south you pay searching and aggregation only once within the toll area. Is that your understanding?
9405 MR. FLAHERTY: I can't answer that.
9406 MR. LOWE: Okay.
9407 Well, if we went this way, and I'm sure you will give me a discussion about transport not being free up here, but if we did go this way, under your proposal, using a 5 cent CAT, and now I'm talking about the peak/off peak, you would have competitors paying 10 cents to compete intertoll. Correct?
9408 MR. FLAHERTY: Do you mean intratoll?
9409 MR. LOWE: Intratoll. I'm sorry.
9410 MR. FLAHERTY: Yes, you are right.
9411 MR. LOWE: Now, it doesn't strike you as that unreasonable if you are thinking about trying to promote competition and have comparable terms and conditions as those in the south, does it?
9412 MR. FLAHERTY: It doesn't strike me as being unreasonable?
9413 MR. LOWE: Yes.
9414 MR. FLAHERTY: What? What you have put forward, you mean, or what our plan is?
9415 MR. LOWE: Well, this. This proposal. I mean, do you look at this and do you kind of just say, look, this is just beyond the pale? This is the kind of thing -- if we saw this and it was part of the decision, we would just bail on the SIP project and we would say: look, do not pass go, do not collect $200, we are out of here.
9416 MR. FLAHERTY: I guess maybe we are getting into a bit of a discussion on this.
9417 You have taken a call from Whitehorse to Yellowknife. Predominantly the calls aren't made from Whitehorse to Yellowknife. Predominantly, calls are made from places like Whitehorse to Vancouver, Yellowknife to Edmonton, so they are north-south types of traffic. It is more predominant than east-west types of traffic. I think that is the first point that I would want to make.
9418 So if I go back to your proposal and I look at -- let's not your proposal because that's not ours. Let's talk about Northwestel's proposal. That's what we are here to review.
9419 In the bottom scenario on your first page you have 5 cents for a CAT at one end, you have approximately 2 cents rather than your 4 shown, and my understanding is the CAT and transport costs to terminate, say, in Vancouver would be somewhere around 2 to 3 cents. So if you add all that up that's about somewhere in between 10 to 11 cents that someone would have to pay. The rate that we are proposing to charge for that type of call is 15 cents. So clearly there is a margin in that traffic. That is more typical.
9420 On your Schedule 2 you talk about the 10 cents. Again, I'm going to assume that the predominate amount of these calls are going to be residential calls. That's my assumption. The average revenue on residential calls, by the time you take into everything -- remember our plan is only off peak; it's not for during the daytime.
9421 So if you look at the average revenue per minute, by the time you include operator services, surcharges and everything else, and include the full daytime calling, on average it's probably around 20 cents a minute. I think that is what many of the telcos I suspect, Telus included, would see for residential traffic in general in the south.
9422 So, again, that's a mix of destinations. I mean it's a little bit unfair to take that but it's more than 10 cents a minute.
9423 So I would argue in my two examples, tied back to our exact proposal, indeed there is margin in both of those situations.
9424 MR. LOWE: And you mention that you do have -- you have peak/off peak in your own plans. Right?
9425 MR. FLAHERTY: In terms of the plans that are proposed?
9426 MR. LOWE: Yes.
9427 MR. FLAHERTY: For example, the residential plan has daytime rates that would be 15 per cent off of tariff rates.
9428 MR. LOWE: Yes.
9429 MR. FLAHERTY: Yes, you are right.
9430 MR. LOWE: Okay. And down south they have peak/off peak. Right?
9431 MR. FLAHERTY: Generally, although there are some plans that eliminate that distinction.
9432 Generally, for businesses --
9433 MR. LOWE: Down south they do deaverage. They have peak/off peak for contribution rates. Right?
9434 MR. FLAHERTY: That's correct.
9435 For the business market it seems more and more there is less distinction between peak and off peak. As I said, even some of the residential plans that are now being offered, some of them are 24 hours a day and would also eliminate the distinction between peak and off peak.
9436 MR. LOWE: And your rates going south are higher than your rates within territory, aren't they?
9437 MR. FLAHERTY: That's correct.
9438 MR. LOWE: So they are higher going south. So it's more expensive within a high-cost territory which is as far-flung as yours than from a high-cost territory to a low-cost territory, and that's why you have higher rates going south.
9439 MR. FLAHERTY: Let me just clarify.
9440 For residential rates they are the same. There is no distinction between -- anywhere in Canada. So that off peak plan that we have proposed, $20 for 600 minutes would apply to any destination in Canada. So there is no differentiation in that sense.
9441 Where we differentiate is in the business market where we would have higher rates going south than we would have intraterritory.
9442 MR. LOWE: So this curious situation only arises in the business market.
9443 MR. FLAHERTY: That's correct.
9444 MR. LOWE: Thank you.
9445 Now, if you had this model -- and if you want to get back to me on this on Friday that's fine. I would rather hear it tomorrow, but Friday is fine -- if this model was in some fashion maybe tweaked a bit but if it was put in the decision as something that would promote competition and you and I may not agree on that, but let's just say the Commission thought that -- maybe they do, maybe they don't, but let's say they did think that, it's in the decision, would you still go ahead with the SIP program?
9446 MR. FLAHERTY: We are in the habit of implementing decisions that the Commission gives obviously.
9447 MR. LOWE: Fair enough.
9448 MR. FLAHERTY: The only thing I guess that might enter into that is our ability to raise capital. So clearly if our ability to raise capital made it financial impossible for us to do it, that would be the only criteria that would step in and waive that.
9449 MR. LOWE: Now if you had this model and your connecting agreement stayed in place, let's just say that they weren't amended at all, would you suffer any kind of material financial impact? I don't want any dollars and sense here, but it just struck me that if you did this and if the connection agreements just kind of stayed in place you would be pretty well kept whole. I know you have already testified that you think that those connecting agreements are going to be renegotiated and driven down to the CAT rates, but if they weren't you would not see any revenue erosion as a result of this model, would you?
9450 MR. FLAHERTY: I just want to clarify. When you say "this model" is the main distinction you are making is developing a peak and off peak cap? Is that what you mean by "this model"?
9451 MR. LOWE: Well, it's peak/off peak and then it has the intratoll, the ability to not pay the transport for, say, the Carcross to Whitehorse call.
9452 MR. FLAHERTY: I think we stand by the model that we put forward. I think it is as simple as that.
9453 MR. LOWE: Okay. Let me put it another way, then.
9454 Let's say the model you put forward is implemented and you don't change your connecting agreements with Telus or Bell and a bunch of other competitors come in, you know, maybe a little more than you have expected, would you have any revenue erosion as a result of competition or would keeping the settlements in place basically keep the cashflows about where they are? Maybe you have less bypass, equalizes the minutes a bit more.
9455 MR. FLAHERTY: Are you suggesting that all the elements of our plan like our toll prices would be set at southern rates as we proposed?
9456 MR. LOWE: Yes.
9457 MR. FLAHERTY: But the settlement agreements would stay the way they are.
9458 MR. LOWE: Yes.
9459 MR. FLAHERTY: But if competitors came and took more of our revenues, we would somehow be held whole?
9460 MR. LOWE: No, no. The competitors come in and take about what you think is a bit.
9461 MR. FLAHERTY: But we keep the settlement rates at a higher level.
9462 MR. LOWE: Yes.
9463 MR. FLAHERTY: Is that an offer?
9464 MR. LOWE: No, no, not at all. No.
9465 MR. FLAHERTY: Maybe we should take you up on that.
9466 MR. LOWE: No, no. I was just hoping it might lead to a commitment on when we might actually get around to getting rid of these things. I don't know. You maybe don't want to negotiate on the stand.
9467 MR. FLAHERTY: No. I would prefer not to.
9468 MR. LOWE: As they say, is that because you are under oath?
9469 MR. FLAHERTY: I wasn't sure. Did you undertake to keep the rates at the same level?
9470 MR. LOWE: I can't undertake to do that. All right. Well, then, your proposal is that you are going to revisit competition in three years. Is that the notion, and you are going to try it on for size and then we are going to come back in three years and do a net review?
9471 MR. FLAHERTY: I think what we have been saying through the course of this proceeding is that it's got to be an ongoing process. The process that we have put in place that would address the annual supplementary funding requirements would also give opportunity for the Commission to look and see. If they didn't feel things were happening as they should unfold, it gives an opportunity for some adjustment.
9472 For example, if the CAT at five cents isn't driving the level of competition that we would hope it would or that we expect it to, there might be an opportunity in those annual reviews to revisit that.
9473 Likewise all the other elements. You know, the pricing, if for some reason the pricing isn't deemed to be similar to the south and customers are leaving in droves, again it may be an opportunity.
9474 In the broadest terms, the overall package we are proposing to review in three years, the method of regulation, but that doesn't mean that on an annual basis we can't look and be sure that the objectives of what we are trying to do collectively are being achieved.
9475 MR. LOWE: Now, say in the next couple of years your earnings really start to deteriorate and you really get butterflies --
9476 MR. HAMELIN: The butterflies are beforehand.
9477 MR. LOWE: It's something else after. I think we are clear on the record that you are not going to use the SIP funds to try to kind of prop up earnings, right? They are earmarked for the project and they are not going to kind of find their way into improving ROE. I think the record is clear on that.
9478 MR. FLAHERTY: Again, you call it the SIP funds. The funds are not for SIP alone. The sums are to achieve three goals that we have talked about previously. The funds are to address in part SIP. The funds are to address having comparable long distance rates to the south. The funds in part are to address sustainable CAT to encourage competition.
9479 It's a collective package. In fact, as Mr. Hamelin said yesterday, and I think people continue to be confused by it -- it's complex -- the $76 million we require for SIP, the company is going out to raise that money.
9480 The supplementary fund isn't giving us $76 million up front to do this project. In time, through the carrying costs and the depreciation, the supplementary fund will address that, but the cash that has to be raised up front is entirely the company's responsibility.
9481 MR. LOWE: Okay. So you run it through the balance sheet, right? I mean the SIP funding comes in, the 75 million bucks come in, you know, in these milestone payments. You have got all your other expenses and costs of operation. You have got competition coming in. You know, for whatever reason your earnings start to deteriorate.
9482 MR. FLAHERTY: Just to clarify. You said you get these lump sump payments for the $76 million. Again, just so we are perfectly clear, the company is going to the street to raise the $76 million. The supplementary fund is not providing the $76 million.
9483 We were asked that in one of the interrogatories: Would the company be open to a donation and grant type process which would have those in the south pay much, much greater amounts in the early years of this program. Over the period of eight ten years, they probably balance one another out.
9484 We are talking about two different things here. So the capital required as per the company's proposal, the company will go to the streets and raise that funding.
9485 MR. LOWE: So it's just another revenue item then. The $75 million coming in is just another stream.
9486 MR. FLAHERTY: The $75 million is the capital that we are going to raise. There will be some revenue associated with it, but nowhere near enough money to support the $75 million. That's why we are doing SIP now and haven't done in the past.
9487 MR. LOWE: Okay. Well, I think I am satisfied with that answer.
9488 In three years though, the example I am still trying to work with is, you know -- say competition bites a little harder than you thought and you start to, you know, SIP's working out pretty well, that part of it is good and everything else, life is good in general. Consumers are happy. They are getting a great deal on rates. Long distance prices are dropping and they have all sorts of choice.
9489 There's one guy that's not happy. Earnings are kind of bad. So do you think if you faced a situation like that, you might seek a rate increase from the Commission?
9490 MR. FLAHERTY: I think we went through discussion, maybe with Mr. Pratt yesterday. He went through a whole series of levers. I think through that line of questioning it became obvious that there are limits on those levers.
9491 The magnitude of what we are trying to do here, we are really throwing the whole model right up in the air. As much as Mr. Hamelin said over the last few days, everything has generally been subsidized by toll. All that gets wiped out. Now you don't have that.
9492 The magnitude that we are talking about, indeed local rate increases could be one consideration, but it would depend upon the magnitude. We have heard from a number of people of concerns of affordability, differentials, the Telus rates, for example, amongst others. I think there's limits on how much we can do through local rate increases.
9493 If you went through again that discussion, I don't want to repeat it, but all those levers, they have some applicability, but I would suggest they limit applicability. Once those are exhausted, then I think we are back looking at the supplementary fund.
9494 We really are talking about something here that's long term. This doesn't have a three year end to it. It's there. I think in one of the interrogatories we talked about how could this supplementary fund go away entirely. Probably one of the only ways, and it is very unlikely, is some dramatic technological change that makes it so much less costly to provide service. At this point in time, quite honestly, I can't conceive that kind of technological change occurring that would eliminate the requirement for supplementary funding.
9495 Once we start into this process, I would almost say it's a process with no return. We are committed for the long term. We collectively in this room, we are committed to a model that is going to require some supplementary funding to keep it sustainable.
9496 MR. LOWE: Okay. Not to take issue with that, the reality is if the earnings do deteriorate because of competition and all of the other factors -- you know, it's hard to say in a revenue requirement what causes what, but you know, competition develops a little faster than planned, and we have seen that happen before in Canada.
9497 The company would have the option open to it of coming back for a rate increase or maybe you have got the supplementary funding you mentioned. There is this kind of top-up ability, and I'm not saying that you are going to do it and I know that you will look at all your options, but it's possible that, you know, you reach the wall and you say "Look, competition has hit us a lot harder than we thought and we have got to do a local rate increase". That's possible, isn't it?
9498 MR. FLAHERTY: Oh, most definitely it's possible. There's a lot of things that are happening here. This is a very dramatic change, as I mentioned several times.
9499 That is very much why we proposed that three years from now we have a full review. We have to understand where it is. That doesn't mean that if after year one we find out we have lost 20 per cent market share that we aren't going to have to look at some options and perhaps come back. Indeed, we might.
9500 MR. LOWE: And then -- would competitors have a way to kind of get topped up or kept whole after three years of your suffering losses that they didn't expect or do they really have an option of exiting markets?
9501 MR. FLAHERTY: Well, I would suggest that competitors have options in all cases. They have no obligation to serve every one of the communities across the north. What we are trying to do is develop a ubiquitous rate schedule that benefits all the people in the north. I think it's a slightly different situation.
9502 Take Telus, for example. You may decide that there's two or three of your national customers that you would like to extend service to. I would suggest to you that it wouldn't matter what these numbers said on this page. If the Royal Bank decided that they wanted a bid for all their services across Canada, yourselves, Bell Canada and everyone else --
9503 MR. LOWE: Are you offering them up?
9504 MR. FLAHERTY: Sorry...? No, I am not.
9505 Basically any of those companies, in order to keep that kind of business, are going to average those costs across their entire customer base.
9506 Very much competitors have the opportunity to pick and choose in this market, whereas we have the obligation and we treat it seriously. We want to make sure that we have ubiquitous pricing for all of our customers.
9507 MR. LOWE: I have heard that and there has been lots of testimony on that, and I certainly listened to it.
9508 My only point was that in the north the link would remain between competitive losses and local rate increases. That link would endure up here.
9509 MR. FLAHERTY: Unfortunately, that is the reality of the north.
9510 MR. LOWE: Thank you, sir.
9511 Thank you, Mr. Chairman.
9512 MR. ROGERS: Mr. Chairman, just so we are clear: Mr. Lowe invited the panel perhaps to get back on Friday. I think the intention is that the evidence and testimony will wrap up in the next hour, or something like that, and then we will get into the argument stage.
9513 So I don't take it that we have an undertaking to Mr. Lowe on that score.
9514 If he wishes to argue from what is on the transcript, that is fine with us, and we can argue as well.
9515 MR. LOWE: I guess I am happy with that. It is written argument and Northwestel -- we have a long relationship. That is fair enough. We have a lot of things to work out.
9516 I would prefer to see it in the argument on Friday rather than reply argument. That's all.
9517 THE CHAIRPERSON: That's fine. I didn't think there was an undertaking, in any event, based on the discussion that was going on.
9518 Thank you, Mr. Lowe.
9519 I think that completes the cross-examination by the parties.
9520 MS VOGEL: Yes. We have one exhibit to enter into the record.
9521 The document entitled "Northwestel Sustainable CAT or Cdn. CAT" will be entered as Telus Exhibit No. 2.
9522 THE CHAIRPERSON: Thank you.
9524 MR. BATSTONE: I have no questions; thank you.
9525 THE CHAIRPERSON: I believe a couple of my colleagues have some questions. I will start with Commissioner Williams.
9526 COMMISSIONER WILLIAMS: Thank you, Mr. Chairman.
9527 Good morning, Mr. Flaherty and panel members.
9528 There is no question that you and your team have been very responsive to a wide variety of questions this week -- a somewhat stressful week for many of us. So I have perhaps only one or two questions for this panel.
9529 Northwestel is before us to answer questions in several areas of interest, and I guess in particular the service improvement plan.
9530 Mr. Wells put forward the idea that we have the opportunity to do the right thing. Mr. Vachon appears eager, capable and ready to extend the service. Certainly the concept of all Canadians having reasonably comparable service at reasonably comparable prices is a powerful vision for Canada, not just Northwestel.
9531 Yesterday Mr. Hamelin indicated that in order to make this type of investment, this service improvement, that there be forms of financial assistance in order to proceed with the plan.
9532 He stated by way of example that Canadian Tire would not consider investing in Old Crow, and I agree that this is certainly true. I think we should remember, though, that Canadian Tire might be interested in Old Crow if they operated under ROE regulation.
9533 Given that Northwestel has been described as a large company and a small company, but in any event has revenues in excess of $100 million a year out of a sparsely populated area, is technically requesting some form of assistance or financial grant or support from Canadian telephone subscribers in the form of a subsidy and also an increase in local rates from its subscribers, I as a Commissioner will give serious consideration to this potentially precedent setting approach to achieving the basic service objective in high cost areas across Canada.
9534 With that preamble, I want to spend a bit more time on the commitment. I just have a brief question or two here.
9535 As the President of Northwestel, do you and your senior management team see the service improvement plan and the basic service objective as something the CRTC has imposed upon you, or do you agree and support the thrust of the basic service objective as it pertains to residences and businesses in Northwestel's serving area, in particular the unserved and underserved markets?
9536 Specifically, are you and your team eager or reluctant participants in this service improvement plan?
9537 Is it something that you want to champion for the benefit of northern Canadians? I guess, in short, are you committed to seeing the full, as outlined in the evidence, service improvement plan deployed?
9538 MR. FLAHERTY: Yes, very much so to all of those points.
9539 In terms of the thrust, I think as employees -- if you were to walk around and ask individual employees of Northwestel, I would suggest to you that they have been frustrated over the last number of years knowing that they were in a model that they simply could not get what they were looking for.
9540 I think very much we support the thrust that the CRTC has made here. We think it is important that all people, whether you are in Griese Fjord or whether you are Yellowknife or Whitehorse, have access to the same kinds of communications services as those in the south.
9541 In terms of commitment to it, we are very much committed to this. We see it as an absolute necessity. We heard from numerous customers over the two days of consultation how important it is to them, and we recognize how important it is to them.
9542 Indeed, we take this commitment very seriously and we see ourselves very much accountable for delivering on the things we have put forward.
9543 COMMISSIONER WILLIAMS: Thank you very much, Mr. Flaherty.
9544 Given that your company will benefit from the ROE on this enlarged equity base, should not the shareholder have a larger contribution other than a continuation of its traditional capital investment pattern?
9545 MR. FLAHERTY: Are you referring to adding more equity into the equation?
9546 COMMISSIONER WILLIAMS: Yes, more of a contribution.
9547 We have the shareholders contributing. We have telephone subscribers across the country contributing. The shareholder has agreed to continue on with their traditional capital spending pattern.
9548 I am just exploring as to whether there is an increased equity base to increase your revenues and earnings. There seems to be an investment opportunity there, if you will.
9549 MR. FLAHERTY: There are a number of points to address that issue.
9550 One, in that the dividend rate is fixed, clearly the company has ensured that we have been able to plough back any retained earnings in excess of that dividend that we have earned.
9551 To our knowledge, there are no plans to change that. We are not anxious to go and raise the issue with them for fear they might think it is a good idea. Our expectation is that the dividend policy will remain fixed and we will continue to plough money back.
9552 The second point is we are going to raise significant amounts of capital money, as I was just trying to illustrate to Mr. Lowe. The $76 million is not money the fund is giving us in the proposal that we have.
9553 In time, the fund will give us the carrying costs and a return on that investment, but not up front. So in the period of time when we traditionally would spend something like $100 million over four years, we are now going to spend a projected amount of $176 million.
9554 So I think the fact that the shareholder acknowledges that, is conscious of the fact that the Commission provides a return, those are the elements that will sell the shareholder on contributing those additional amounts of capital that we were asking for.
9555 I think all of those elements suggest that in fact we are asking a lot from the shareholder.
9556 The other part of it is that we have talked in this term -- and we have just spoken of it a few minutes ago -- about having a review in three years. The uncertainty of what went beyond that three years, you could suggest is a risk, a very big risk as well.
9557 What form of regulation will exist at that time? Will someone want to change all of the supplementary funding approach?
9558 Some of those unknowns add to the risk as well beyond that.
9559 So I would suggest that I think the shareholder is putting a lot into this, whether it be the ability for us to go and spend the additional capital, or whether it be looking at the risk and still willing to proceed with this as well.
9560 COMMISSIONER WILLIAMS: Thank you, Mr. Flaherty, for that thoughtful and carefully considered response.
9561 I would like to take this opportunity to wish you and your team well as you continue on your efforts to improve service to your customer base throughout the north. Thank you.
9562 MR. FLAHERTY: Thank you very much.
9563 COMMISSIONER WILLIAMS: No further questions, Mr. Chairman.
9564 THE CHAIRPERSON: Thank you, Commissioner Williams.
9565 Vice-Chair Wylie.
9566 COMMISSIONER WYLIE: Thank you, Mr. Chairman.
9567 Good morning, gentlemen.
9568 Perhaps I should have asked my questions to the SIP panel on Saturday, but it was 5:30 and considering that Mr. Vachon is here and that it is my birthday I am sure you will make every effort to answer my questions.
9569 I have only one issue I would like some clarification on, but to me it's important because it seems to be the basis on which unserved customers will be served or a justification for not serving them and that's the financial framework you have put together to underlie whether you extend service to an underserved area or not, despite the fact that you had said repeatedly you have sought out every potential unserved customer and you think you served them all, but it will, nevertheless, be dependent on a financial framework, the $1,000 to $25,000.
9570 On Saturday in Volume 4, I don't know if you need it Mr. Vachon, but at pages 79 (sic) and continuing and then pages 976 and continuing, both Mr. Yeulet and you explained on the basis of four customers and $100,000 and since my ability to count or add is approximately that of Mr. Lowe, I will leave it to that example.
9571 Now, before I ask my questions, I want you to understand that I am not questioning at this time the appropriateness of the $1,000 and the $25,000, but more the mechanics, how in fact it will work in practice. If there are answers in the transcript you will point them out to me if my questions are not necessary because the answer is already there.
9572 First of all, I want to know what is the test you are using in the $100,000 example to arrive at the $25,000. For example, I would imagine on a spectrum it could be all of your unserved customers divided by the cost of serving them, but it appears from the examples to be more a potential conglomeration or concentration of customers in a certain area. Is that correct?
9573 MR. FLAHERTY: That's correct.
9574 COMMISSIONER WYLIE: Would it be fair to say that that test would also include encompassing an area which may be more than just one lot separate, but that the test would be based on the fact that serving all four customers is not much more expensive than serving one and, therefore, that's your agglomeration for calculating the $25,000?
9575 MR. FLAHERTY: That could be it. It depends on the individual situations. We heard a lot from the people in McConachie Creek through the consultation process on Tuesday I believe. That area is a geographical area, so indeed it costs more money to extend to all of the people. It's not just that they are side by side. They are spread out over a broader area.
9576 As I said, it will depend on the individual situation. McConachie Creek is a geographical area, referred to as a subdivision, not as the way in which we would think of subdivisions in an urban setting or of a very large rural type subdivision. So we would look at that whole area as one area, rather than as individual homes.
9577 COMMISSIONER WYLIE: I understand that we can't look at it the way you look at a city street, but nevertheless it's going to be based on a community that if you bring service there it makes more sense to bring service to the entire community.
9578 I notice in one of the interrogatories that you refer to project "Projects" program, so I assumed that this would be the case.
9579 MR. FLAHERTY: That's correct.
9580 I think someone talked about an individual that delivers mail by helicopter. He or she would be a community of one.
9581 COMMISSIONER WYLIE: Yes. So that when, if this were to be approved, when somebody complains that they are underserved and you explained why not if your plan was approved as projected, we would be able to circumscribe the area over which you found the cost and then divided by the number of potential subscribers?
9582 MR. FLAHERTY: That's correct.
9583 COMMISSIONER WYLIE: Now, the $1,000, is it primarily a financial contribution or is it an assurance that the customers in that area that we have just circumscribed will indeed be a revenue generator by connecting to the system, or is it both?
9584 MR. FLAHERTY: I would suggest it's more the first. It's more of a contribution to the cost.
9585 In all of this it's a situation of trying to strive to get balance. We have talked about increasing local rates by $5. I have heard numerous people in my previous position in Northern Telephone, as well as in this territory, particularly those who live in the cities, say why should we pay for the people who are in the rural area? They chose to live there.
9586 So I think while this isn't an exact science, I think the $1,000 allows for some contribution from the people who are in the more remote unserved areas, versus those that are in the urban areas, so it's a differentiation.
9587 COMMISSIONER WYLIE: So then, although you say you have identified all the customers that are unserved and you will serve them all, I think it was Mr. Vachon or Mr. Yeulet raised the possibility that some customers would not want service, either because they don't want to pay the $1,000 or because there is extra funds or an "excédent" after you have calculated the cost that goes over $25,000, they don't want to pay, so they don't want service, or maybe they are moving shortly after and they don't want to spend the money.
9588 So what if the following year after the SIP program has been extended to that agglomeration they change their mind and they want to be served, or a new resident is now in the house, or a new house is built. Would that person pay connect charges and the $1,000 as well after the program is implemented in that area?
9589 MR. FLAHERTY: Our proposal in I forget which interrogatory, we identify that we would propose that for up to five years --
9590 COMMISSIONER WYLIE: Oh, sorry.
9591 MR. FLAHERTY: -- after we put the facilities in place that anyone new coming along or someone who is existing who chose not to have it would pay it, again in the interests of fairness to those who have paid.
9592 COMMISSIONER WYLIE: Thank you.
9593 Now, if we go to the example of the $100,000 to serve four customers and one customer says no for whatever one reason that I identified or any other reason, so now it is going to cost $100,000 and there are three customers. I am sure that can be transported to five customers, six customers, but since the numbers are small I will do a better job.
9594 So three customers want service and they are going to pay a thousand dollars and it costs $100,000, so now it costs the company $97,000 because they have gotten three $1,000 payments. So you find a shortfall of $22,000 in this case because you don't have four customers on stream. Right?
9595 MR. FLAHERTY: What we would do in that particular case is we would take the $97,000, subtract $75,000.
9596 COMMISSIONER WYLIE: Yes, and you are short $22,000.
9597 MR. FLAHERTY: And that $22,000 would be shared amongst those three.
9598 COMMISSIONER WYLIE: Yes.
9599 So suppose they don't want to pay it because now it's a big payment and I am sure you don't want to bring violence to these communities to try to rope this other person in. Maybe they won't be served?
9600 MR. FLAHERTY: That's correct.
9601 COMMISSIONER WYLIE: And suppose that the other three want to actually share that cost and pay the shortfall, which in this case is quite a bit. And so it would be five years later that the neighbour could get in.
9602 What if he wants service the following year. He pays his $1,000 and he is now served and his neighbours have paid the sum that was a shortfall because he didn't want to join in on the first year. What happens then?
9603 MR. FLAHERTY: In that case we would propose to charge him the incremental cost. We wouldn't necessarily look at rebating the others.
9604 The costs associated with the service is not necessarily the cost of providing the service in the long term. All we are talking about is the initial capital cost of putting the service in. So at this point we have been contemplating that.
9605 Part of the difficulty you get in is, for example, in your case let's say someone chose not to be part of the program initially, but came along two years later. But of the three that were there, maybe two of them moved. Is it appropriate to give a rebate to someone who has moved, so you have a new owner in the house.
9606 Unfortunately, there is a lot of complexities with that. Our position was that given that the service overall is not very profitable and even with the contribution is not profitable in the long term in the rural remote areas, that we would simply use that money to assist in helping to be profitable and perhaps potentially reduce the supplementary funding that is provided.
9607 COMMISSIONER WYLIE: Is this last answer also in the interrogatory or only you explained to me the five years for the $1,000? But in the case where instead of reaching the cost of serving these four customers for $25,000 each you can't because one is recalcitrant. Is that an off record anywhere?
9608 MR. FLAHERTY: I believe that component is. I am just not 100 per cent sure about the rebate.
9609 COMMISSIONER WYLIE: I understand that the $1,000 is five years.
9610 So it wouldn't be a rebate. It would simply be that you would have angry neighbours.
9611 Have you explored the difficulty involved if that? You see, on the record Mr. Vachon did at page 979, when you were discussing with the Chairman and starting at line 6222 this question of a sum which is higher than $25,000 per customer. You say:
"The kind of problem we might face is if only two customers want to have the service and the two other ones say they don't want the service. Now we get into another kind of discussion where are the other ones willing to each pay the cost of having service?"
9612 But there is no continuation. I wouldn't dare, of course, continue the cross-examination of the Chairman at 5:30 on Saturday.
9613 So we settled that the $1,000 is five years if you can't make it because not enough customers want -- if you have some recalcitrant customers no one gets service and then the third is if somebody doesn't want service now, if it's a new occupant, the $25,000 is almost like attached to the property, not to the person inhabiting it?
9614 MR. FLAHERTY: That's correct.
9615 I think it is only reasonable. We don't want to ask the same premise to have paid twice for this, so we are assessing the $1,000 for the share over 25 per premise.
9616 COMMISSIONER WYLIE: I was talking more about if in the situation where the three customers want service out of four have made you whole, you will nevertheless get $25,000, but I understand that it's not --
9617 MR. FLAHERTY: Because it is not really being made whole in a sense, and that is the up-front capital cost only. The ongoing --
9618 COMMISSIONER WYLIE: Yes. Well, I'm using it loosely in the plan, so you will get another $25,000. If it costs more than $25,000 you will get more of the excess from the new person?
9619 MR. FLAHERTY: Of the increment.
9620 COMMISSIONER WYLIE: Of the increment, right, over $25,000, if it was $30,000 that had been assessed three years before for serving this area?
9621 MR. FLAHERTY: That's right. It's just the increment.
9622 COMMISSIONER WYLIE: Mr. Vachon, you wanted to add something.
9623 MR. VACHON: No. What I wish to say is the situation you describe under line 6222 is exactly what you have discussed with Paul before. The other customers won't have to pay the extra required to get service.
9624 COMMISSIONER WYLIE: So we have heard some cross-examination about the need to do some public relations on this program if it were approved, so that illustrates how important it will be to try to get everybody on side rather than people trying to gain if they can.
9625 MR. FLAHERTY: Very, very much so. We met with the residents of McConachie Creek in particular and we had a very frank discussion about that.
9626 I think Mr. Yeulet also indicated that it's our expectation that we won't run into many, if any, situations where we will be over $25,000.
9627 COMMISSIONER WYLIE: Yes, except that Mr. Vachon did raise the possibility that there would be some that would be close enough that it may deny service, especially when you are using an example that has a basis of four potential customers.
9628 MR. FLAHERTY: I think at the end of the day too we will have to apply some reason to this too.
9629 Clearly, if we go to a community, let's say there is a community of 40 people let's say, if only two people in that community are interested in paying the thousand dollars, clearly, in our opinion it would be unreasonable to serve that.
9630 So I think again we are trying to draw some balance to all of this proposal as well.
9631 COMMISSIONER WYLIE: It will be important in whatever decision we make that it's clear on what basis one can complain "I was supposed to get service. I am unserved and I'm not served. How come I don't meet the test," so that all of these are clear.
9632 Thank you, gentlemen.
9633 Thank you, Mr. Chairman.
9634 THE CHAIRPERSON: Thank you, Commissioner Wylie.
9635 Just a follow-up on this last discussion. Going back to the community of four, let's just assume that we had the same sort of numbers that we had been talking about and for whatever reason, perhaps portability I suppose, the four people in the community of four conclude that we can't afford to do this, as much as they would like to have telephone service in the community, they can't afford it. Where do we go from there?
9636 MR. FLAHERTY: In our proposal, the way we put it forward if they were not prepared to pay the thousand dollars, then we would simply not provide the service.
9637 THE CHAIRPERSON: Would the company consider the possibility of putting public telephone service in that community?
9638 MR. FLAHERTY: We would look at it.
9639 Part of the problem is depending on the community and the situation, we might have to spend a significant amount of money simply to get a public telephone into that same facility, the same area as we might to provide an individual service. So it would depend on the individual situation. If we could, we would.
9640 THE CHAIRPERSON: All right.
9641 I think those are all the questions for this panel then.
9642 Thank you very much, gentlemen. You may step down.
9643 It is slightly after twelve, but we only have, as I understand it, about two parties to question each for approximately a half an hour. So my suggestion would be to continue on and then we will be finished with this stage of the hearing and we can all go off to lunch or writing argument or whatever.
9644 So with that perhaps we will take a five-minute break just to give parties an opportunity to change at the table.
9645 We will come back at 12:15.
--- Recess at 1210 / Suspension à 1210
--- Upon resuming at 1217 / Reprise à 1217
9646 THE CHAIRPERSON: Order, please, ladies and gentlemen.
9647 MR. ROGERS: Just preliminary matters related to undertakings.
9648 We have provided -- I'm almost losing count at this point -- I take it maybe four -- three I'm told undertakings, one of which is, the Commission will recall, on June 8 we filed updates to budget projections for the year 2001 related to a series of interrogatories, 401, 501 and several others.
9649 The Commission staff had indicated that the extent of our revisions was not complete enough in their opinion and that we should file further revisions to other interrogatories, so that constitutes one of the refilings or amendments to the June 8 material. That has been provided to the Secretary. We have abridged versions for the public record.
9650 I think there are two other undertakings as well in the hands of the Secretary. Perhaps those could be given exhibits.
9651 THE CHAIRPERSON: Thank you, Mr. Rogers.
9652 Madam Secretary.
9653 MS VOGEL: Thank you, Mr. Chairman.
9654 The document just referred to by counsel for Northwestel, that being amendments to June 8 information, will be entered as Northwestel Exhibit No. 26.
9655 The response to an undertaking to CAC/NAPO wherein Northwestel was asked to explain the increase in payment in year 2000 for Actimedia. That will be entered as Northwestel Exhibit No. 27.
9656 Finally, a clarification of Northwestel's Exhibit No. 11 will be entered as Northwestel Exhibit No. 28.
9657 THE CHAIRPERSON: Thank you, Madam Secretary.
9658 Are there any other matters? No.
9659 Madam Secretary, call the next and last panel.
9660 MS VOGEL: Yes. We call Panel No. 7 which is Government of Yukon. I would ask Commission counsel to swear the panel in.
9661 MR. BATSTONE: Good afternoon. Would you like to take an oath or make an affirmation?
9662 MR. PRATT: An oath is fine.
9663 MR. BATSTONE: For both? Okay.
SWORN / ASSERTEMENTÉ: TERRY HAYDEN
SWORN / ASSERTEMENTÉ: JAMES PRATT
9664 THE CHAIRPERSON: Mr. Macdonald.
9665 MR. MACDONALD: Thank you, sir.
EXAMINATION / INTERROGATOIRE
9666 MR. MACDONALD: Mr. Hayden, would you please state your name and your role with the Government of Yukon?
9667 MR. HAYDEN: Yes. My name is Terry Hayden. I am the Director of Technology and Communications for the Government of Yukon.
9668 MR. MACDONALD: Mr. Pratt, would you please state your name and your role in this proceeding.
9669 MR. PRATT: My name is Jim Pratt. I am a consultant to the Government of the Yukon in the area of telecommunications.
9670 MR. MACDONALD: Thank you. Mr. Hayden, Mr. Pratt, was the evidence filed in this proceeding on behalf of Government of Yukon prepared by you or at your direction?
9671 MR. HAYDEN: Yes, it was.
9672 MR. PRATT: Yes, it was.
9673 MR. MACDONALD: And were the responses to the interrogatories on behalf of Government of Yukon filed in this proceeding prepared by you or at your direction?
9674 MR. HAYDEN: Yes, it was.
9675 MR. PRATT: Yes.
9676 MR. MACDONALD: And is this information true to the best of your knowledge?
9677 MR. HAYDEN: Yes.
9678 MR. PRATT: Yes, it is.
9679 MR. MACDONALD: Thank you.
9680 The panel is now available for cross-examination.
9681 THE CHAIRPERSON: Madam Secretary.
9682 MS VOGEL: Our first party for cross-examination of this panel is Utilities Consumers Group, Mr. Rondeau.
EXAMINATION / INTERROGATOIRE
9683 MR. RONDEAU: Good day. Again, thank you to the Commission for letting me get through the door at the last minute here.
9684 My question is to -- well, hopefully to ease the Commission's mind on the last round of questioning on the thousand dollar payable to unserved customers, at least in the Yukon.
9685 It's our understanding that there is a rural telecommunications program in the Yukon which offers upfront money. Mr. Hayden, perhaps you can clarify this program.
9686 MR. HAYDEN: Thank you, Mr. Rondeau.
9687 The rural telecommunications program was designed by the Yukon government to help finance the initial costs of the installation charges for telecommunications purposes.
9688 The premise of the program is a service area as proposed in conjunction with residents and the telephone company. We have come to an agreement in terms of the costs of the services. If 65 per cent of those residents voted in favour of adopting the rural telecommunications program, the Yukon government would finance that amount over a period of up to 15 years.
9689 MR. RONDEAU: Are you suggesting this will continue with the new program as well, the SIP?
9690 MR. HAYDEN: To the best of my knowledge, if this particular service area were to apply under the rural telecommunications program and were successful in getting a 65 per cent majority in favour of adopting the program, it could apply. Obviously we would have to check the final details with the department that's in charge of the program.
9691 MR. RONDEAU: And my last part of this, my last question on this, is are you aware if there are any such programs in the Northwest Territories or Nunavut?
9692 MR. HAYDEN: I can't comment on that, Mr. Rondeau. I'm not aware.
9693 MR. RONDEAU: Okay. Thank you very much, panel.
9694 THE CHAIRPERSON: Thank you, Mr. Rondeau.
9695 MS VOGEL: Our next party for cross-examination of this panel is counsel for Yukon First Nations.
EXAMINATION / INTERROGATOIRE
9696 MR. HENRY: I've got to watch my band width coming through a narrow.
9697 MR. PRATT: I have the same problem with amplitude.
9698 MR. HENRY: Just before I go into these questions, there's just a few questions for clarification. Earlier on Mr. Flaherty was saying in response to Madam Vice-Chair Wylie's question that some groups just might not be able to afford it. The thought was that in the consultations that might be as a result of choosing to live in an unserved or what's deemed to be an unserved or underserved area and that's it.
9699 Is the Government of Yukon concerned with perhaps a charter challenge on mobility as a result of this kind of understanding for where you live?
9700 MR. HAYDEN: We obviously share the concern that all Yukoners or northerners as well as all Canadians have an opportunity to get comparable service at comparable rates. Certainly we would consider it important to put in, I guess, a mechanism, an appropriate framework in which that should happen.
9701 I can't at this time particularly comment or obligate the government to look at such a thing. Obviously that would have to come from higher levels than I can comment on.
9702 MR. PRATT: I think, Mr. Henry, that we would certainly hope that the situation that you pose of a charter challenge could be avoided. I think that's why we have tried to work in conjunction with the company and with other groups within the Yukon to try to come to a solution that meets all the needs.
9703 Like I said, in the ideal situation, we would avoid resolving the needs by something other than what would be the normal means of providing telephone service.
9704 MR. HENRY: So it would be something that one eye would be on it as we are going through the process kind of.
9705 MR. HAYDEN: Ultimately, our goal is to try to get access to Yukoners. Obviously as the situation moves forward we are going to explore a number of options in order to do it. As Mr. Pratt alluded to, our first goal is to work with communities and service providers in order to make it happen.
9706 MR. HENRY: Thank you.
9707 Now, there's been a change in your territorial government; I believe it's from the NDP to the Liberals. Given that change in government, is something like Connect Yukon, as a program, still supported? Is that still a priority, those kind of programs?
9708 MR. HAYDEN: Yeah, the program of Connect Yukon is still strongly supported. As you probably heard in the news, it has moved from one department to another but, certainly, the focus on getting service as quickly as possible out to Yukon is still prime on the mandate. We have heard, over a number of years, as early as 1992, the requirement for both basic and conveyance telecom services in the Yukon and it's this imperative need that led to the program and, certainly, as time goes on, that need is increasing not diminishing and it's something that government has long recognized and will continue to carry forward.
9709 MR. PRATT: And if I could just add, I believe you are here, Mr. Henry, but the Minister did speak and did make a presentation at the regional consultation describing the program and the government's view.
9710 MR. HENRY: Okay. Thank you.
9711 If I can have you look at page 15 of your evidence, in the first paragraph -- maybe I should just back up, just briefly.
9712 What is Connect Yukon?
9713 MR. HAYDEN: Connect Yukon, essentially, is a program in which we are partnering with the Northwestel to bring advanced telecommunications to Yukon communities, in support of, primarily, distance education initiatives.
9714 MR. HAYDEN: Okay. And what's the value -- what's the time frame and then what's the value of the program?
9715 MR. HAYDEN: The program itself is scheduled to be done in approximately a year's time frame, and the value depends on what you include in it, like it's been described as about an $18.5 million program, Mr. Henry.
9716 MR. HENRY: Thank you, Mr. Hayden.
9717 And the 18.5, how is that apportioned?
9718 MR. HAYDEN: Essentially, we are looking at approximately $14 million to provide underlying infrastructure to rural communities in the Yukon and there's another $2 million to provide infrastructure and -- which telecommunication or telephone services can be built on to sell to Whitehorse, and then there's a $2.5 million investment in distributed education services.
9719 MR. HENRY: And how much is YTG paying and then how much is the phone company paying into this program?
9720 MR. HAYDEN: It varies from program to program. Inherent in the $14 million, there are some direct government investments. Essentially, that's split up approximately 11 million to $3 million. The bill to the south is a 50-50 proposition, where we are putting in 50 per cent and the telephone companies put in 50 per cent. The investment in the distributed education portion is a government initiative and we are financing that solely on our own initiative.
9721 MR. HENRY: That's the 2.5 for distance --
9722 MR. HAYDEN: That's correct.
9723 MR. HENRY: Thank you.
9724 And of the 11 million, where did that fund come from? Where did that money come from?
9725 MR. HAYDEN: That money is being sourced from the Yukon Government Fund Limited.
9726 MR. HENRY: Which comes from where?
9727 MR. HAYDEN: It's a program of the Immigrant Investor Fund.
9728 MR. HENRY: And that's the federal program?
9729 MR. HAYDEN: That's correct.
9730 MR. HENRY: Thank you.
9731 Now, on page 15, in the first paragraph, it says Connect Yukon is to supplement the SIP. And then you go on, in the next sentence, to say that Connect Yukon is directed at needs that would not otherwise be met and identify market forces regulatory action and then, finally, not satisfying Northwestel's business case criteria.
9732 That's a big crack to fall through. You have actually got three chances to fall through that on a program that's supposed to extend basic service.
9733 Is there a test? Is there a way that you work out how this wouldn't -- how it would supplement the SIP program?
9734 MR. HAYDEN: Yeah; I guess if you could just back up a little bit, in terms of how the program evolved. As I mentioned, since 1992, we have undertaken a number of consultative studies. We heard the same message over and over again, that Yukon was electing for a higher quality of service; they were looking for an opportunity to use telecommunication services, as both social and economic enabler; and they were looking to be able to achieve services at reasonable costs. Certainly, we were looking at that type of situation. We approached the telephone company to look at what it would take in order to deliver a program such for considering a distributed learning or distance education program and it was found, at that time, that the underlying infrastructure that was asked for simply couldn't deliver the type of service that we were looking at.
9735 At that point in time, we began a number of discussions to determine what, indeed, would it take in order to facilitate the building of this type of infrastructure and, through these dialogues, we came to, I guess, an understanding, in terms of what the opportunity was for the -- or the investment opportunities were, on both from our perspective and the telephone company, and came to a conclusion, in terms of what the requirement would be for additional support from the government in order to make this project move forward.
9736 MR. HENRY: Okay. Thank you, Mr. Hayden.
9737 Can you just have a look at page 14 of your evidence, and it's the first bullet at the bottom of the page. It reads:
"Every rural community will have access to reliable telephone service which is the intent, as well, of 99-16." (As read)
9738 It's that section I'm trying to focus on and trying to see at what point is the distinction made where, well, now, you come under -- you are not remote, you are not unserved, you are not underserved, so, now, you are coming under Connect Yukon, specifically, for what appears to me to be the basic 99-16 purpose.
9739 MR. PRATT: Let me see if I can clarify this.
9740 The context I think that we are speaking of there, at page 14, if you look at the initial paragraph above the bullets, what we are doing is aiming to act on the principles that have been enumerated here in the evidence that the government believes in and contributes the achievement of the goals of affordable access to quality telecommunication services throughout the Yukon.
9741 So, looking at the objective, in the broadest sense -- and, of course, the program, the SIP program, as we wrote this evidence, is a proposal, it's not a program that's approved -- we saw the need as being enormous, that the gap, as Terry has mentioned, based on the studies, between where telecommunications should be, in the Yukon, and where it is we see as being very large. And we also believe that it's imperative that we do as much as can be done to close that gap as quickly as possible.
9742 So, picking up from the program that the company has proposed, I think the extension of the Connect Yukon project is another piece of that puzzle and the objective is to make sure that there's not duplication but that the program that the government initiates is focused on delivering benefits where investment might not otherwise have been made.
9743 MR. HENRY: Thank you, Mr. Pratt.
9744 It's not so much duplication that I'm wondering about as much as the tradeoff -- do you know what I mean? I appreciate the objectives. At what point do you begin to do the telephone company's work with federal funding or with your own funding? At what point do you perhaps -- notwithstanding high-speed data?
9745 MR. HAYDEN: So your questions are what? There is some concern, in terms of where we should leave off and when the telephone companies should pick up?
9746 MR. HENRY: I wish I could say it that clear. Yes. Thank you.
9747 MR. HAYDEN: I would just explain, I guess, the fundamental difference between what we perceive as the SIP program and Connect Yukon.
9748 First of all, the Connect Yukon was put in place to address what we would consider some immediate needs.
9749 As Mr. Pratt alluded to, the SIP under review right now is a proposal and it is unlikely, given the time frames, that if, in fact, indeed it is approved we would see any development take place this year.
9750 We had heard numerous times, through community consultations, that they wanted action sooner or later so, as a result, we looked at what we could do this year in terms of a development program and that resulted in a portion of the program which built primarily the infrastructure from here south.
9751 We also heard that there was a requirement in the communities for services over and above what is being contemplated under a definition of basic services.
9752 So again, the Connect Yukon was put in place to address that. The underlying principle in Connect Yukon is not to address basic service requirements which, we are in agreement with you, Mr. Henry, is the primary responsibility of the telephone company. We are looking at it as a national policy that requires a national solution which, in this case, should involve Northwestel's proposal.
9753 Connect Yukon itself, the primary focus is building the underlying transport lengths to an extremely high capacity -- to use Mr. Hamelin's words -- to enable, in effect, a turbo SIP to go above and beyond what is being contemplated under these hearings.
9754 MR. HENRY: And that's coming out of the Toronto of the north?
9755 MR. HAYDEN: I wouldn't go that far.
--- Laughter / Rires
9756 MR. HENRY: Going to the Hampton's at Fox Lake.
9757 Now, I understand that your government is in consultations and, in fact, joint planning committees with First Nations in working out some of the telephone or telco requirements. Is that right?
9758 MR. HAYDEN: Yes, that's correct. Certainly, communications with First Nations and the communities' other major stakeholders is an important activity in any project of this nature. As the activities increase we believe that the need for consultation should increase as well. You are correct, we have been engaged in consultations, and we plan on continuing engaging in these consultations.
9759 MR. HENRY: And that is to be commended.
9760 What effect do the First Nations -- as you are working out -- everybody is agreeing, I think, we are in a transition period now as First Nations governments begin evolving and start coming out from under the Indian Act.
9761 As these government-to-government obligations, which you have already entered into, which are already in the constitution and are certainly law -- how are you starting to come at a common bandwidth requirement that may be factored into future initiatives or certainly will benefit from the initiative being put forward by Connect Yukon.
9762 MR. HAYDEN: If I hear your question correctly, are you asking how are we understanding what the potential bandwidth requirements will be for the emerging governance models that the First Nations have?
9763 MR. HENRY: Mr. Chairman, I'm getting whipped here.
9764 Yes. Thank you.
9765 MR. HAYDEN: Again, Mr. Henry, I guess it boils down to the need for consultations. What we believe is we have set the framework of an underlying infrastructure that will, in the telecommunications' near future, satisfy our requirements as a government, the emerging requirements of the First Nations, community requirements, business requirements, et cetera.
9766 Certainly, we would imagine continued consultations on what the longer term needs would be. Obviously, it seems that needs expand to the available bandwidth and, you know, we don't ever anticipate that what we are doing today is going to be a solution that is going to last forever.
9767 MR. HENRY: So there may be other initiatives similar to Connect Yukon, given its success, if it was to be successful, that involves future developments including First Nations?
9768 MR. HAYDEN: I would say that there is a need to continue discussion to determine if there is going to be a requirement or a need for future projects like Connect Yukon. Certainly, if we are able to achieve the benefits out of it that we are hoping to do, it's worthwhile to continue discussions and dialogues to see what the next generation, in terms of working together, might bring us.
9769 MR. PRATT: And let me just add quickly to that that, as I see it, down the road the ideal situation would be to have a great growth in demand for bandwidth because that would be an indication that the policies that the Commission has looked at in extending basic service and the ones we are looking at in the advanced infrastructure are successful because if the telecom demand is growing, that says some good things of what the economy is doing and that's better for everyone I think.
9770 MR. HENRY: Thank you.
9771 Is there any dialogue between the Government of the Yukon and the Government of the NWT relating to the results of the Ardicom project and what works? I'm not at the technical stage yet, I'm just at the government use stage. What was good, what was bad, did it meet the need? That kind of discussion.
9772 MR. HAYDEN: I would say that we have had some dialogue. Certainly, when we were looking at the opportunities for moving forward in the Yukon we wanted to compare what was done elsewhere. Ardicom had preceded us.
9773 We did have some initial discussions in terms of what the government was looking at doing under that particular program, and given the circumstance of that and the types of communities they were looking to serve, it fit them quite well.
9774 When we were looking at in terms of what we were trying to do, we found the circumstances were significantly different in the fact that our communities, the established communities except for Old Crow, were serviced or able to be serviced by terrestrial radio, and it was a matter of perhaps looking at an underlying infrastructure versus working on a satellite service.
9775 MR. HENRY: And what about some of the applications that are going forward now by GNWT? I'm thinking, for example, one of the earlier objects of Ardicom was -- one of the earlier purposes was telemedicine. It is turning out now that some of the communities, for example, may be using it for diagnostics as opposed to telemedicine requirements.
9776 Are you aware of those applications?
9777 MR. HAYDEN: An excellent question, Mr. Henry.
9778 Certainly, that is the whole foundation that the network is being put in place, it's -- you know, I have often said the best service, like cable service and television, is not of any benefit unless there are significant types of programming put on it that the end user requires. That's what it is all about is working quite hard to develop distributed education, telehealth/telepsychiatry types of applications, and we are working quite hard now and have been in discussion on a pan-northern basis on a number of applications.
9779 It's best set at probably the departments themselves, whether it is the department of education or the department of health.
9780 We made prime on those. Certainly they are the ones that are taking the lead. We are providing a degree of technical support in terms of helping manage the bandwidth and infrastructure requirements to what they want to do but, ultimately, that's the important thing.
9781 MR. HENRY: And those discussions include First Nations, such as Paishon(ph) or the First Nations constituency?
9782 MR. HAYDEN: The discussions from the department's side are included in First Nations. As we mentioned, as we are starting to move forward into the advanced applications, if we are looking at the community requirements, as you have pointed out earlier, in the Yukon there is a strong need in terms of making sure all stakeholders are consulted. We recognize that.
9783 MR. HENRY: Now, one thing. In earlier testimony I believe it was Mr. Hamelin who said that the Ardicom project was 40 to 50 per cent of a cost overrun. If it wasn't Mr. Hamelin it was part of the evidence presented or testimony presented. Did that cause concerns for YTG and Connect Yukon?
9784 MR. HAYDEN: In terms of the structure of the project, that is perhaps one lesson we have learned and we have entered into a fixed price contract.
9785 MR. HENRY: In terms of tracking, I know earlier as well it was also the testimony of Northwestel that they will look to the Commission for tracking and monitoring to see what the progress of SIP is as it rolls out.
9786 I am wondering, from your experience, what is the tracking and monitoring system within Connect Yukon?
9787 MR. HAYDEN: We are actually contracting for a project manager of what we would believe is significant quality to manage the project. We will be relying on his expertise in order to carry it out, using standard project management techniques.
9788 MR. HENRY: Thank you, Mr. Hayden.
9789 I want to go to the immigrant investor fund. As I understand it, the federal fund required three parties to access the fund.
9790 Is that correct?
9791 MR. HAYDEN: I can't comment on the intricate details of the fund, Mr. Henry.
9792 Essentially, it was the financing source for the project. But in terms of requirements or anything about that, I can't comment on what happened.
9793 MR. HENRY: Fair enough. What about First Nations being a part of that process?
9794 MR. HAYDEN: Again in terms of the management of the fund, I left those types of decisions up to those who were in charge of it. I can't comment on that portion of it at all either.
9795 But certainly I have heard your concerns, and I am more than willing to take them back.
9796 MR. HENRY: Thank you, Mr. Hayden.
9797 Can I move to the ISPs.
9798 As part of your holdco. for accessing the fund, there is the Government of the Yukon, Northwestel and then there is the numbered company representing the local ISPs.
9799 Is that correct?
9800 MR. HAYDEN: Could you repeat that, please.
9801 MR. HENRY: The holding company that accessed the fund comprises of which parties?
9802 MR. HAYDEN: The organization that accesses the fund is comprised of three ISPs.
9803 MR. HENRY: Is Sympatico one of them?
9804 MR. HAYDEN: No, they are not.
9805 MR. HENRY: Okay. That is a point of clarification.
9806 In terms of those ISPs that are not part of the group that accessed the fund, what mechanisms are in place or would be put in place to ensure that there is fair access to the high speed network?
9807 MR. HAYDEN: That is a very good question. That was a concern of all of the ISPs.
9808 Certainly all are invited to participate. Through one reason or another we ended up with three. But I had strong assurances to these that were unable to participate that they in turn would be kept informed in terms of the progress of the project and that any ISP participating within the project would not have any advantage in terms of accessing services or anything resulting out of the project.
9809 They seemed satisfied with that. I am in continuous dialogue with all the ISPs, whether they are playing an active role in the project formally or not.
9810 As you pointed out -- and part of one of my favourite areas is that I think the ISPs have demonstrated how the competitive model works in the territory.
9811 Through the hard work and the initiative of the small ISPs, we have achieved the Internet penetration that we have in this territory, both in terms of taking the initiative and putting services in the small communities and being very aggressive in the larger centres as well.
9812 Certainly I am of a mind that I would like to continue foster that in any way that we can.
9813 MR. HENRY: Thank you, Mr. Hayden.
9814 In earlier testimony from the panel dealing with strategic direction and policy there was an identified need for training to be able to benefit from these future developments.
9815 What is your view on that, if I could ask?
9816 MR. HAYDEN: I think that is an excellent question, and I think it represents a real opportunity.
9817 Considering the amount of territory that has to be covered and the number of communities that have to be covered, I think there is a real opportunity to work with the communities, both in terms of the needs of the types of services and programs that we are putting in place and potentially those that are under the consideration of the SIP, to work with individuals in the community and provide education and training so that you have eyes, hands and ears within the community itself to provide support.
9818 Collectively, if we work together, we should be able to contract or employ individuals within the community and help develop their skillsets so that they in turn not only have a source for funding in which to begin new careers, et cetera, but then they can use that as kind of a springboard in their own business.
9819 I am a strong believer that any type of major projects should leverage training and skills development.
9820 MR. HENRY: I recognize that the Yukon College is separate from your government. What is the relationship between the two?
9821 I am thinking more how do you track in-demand services?
9822 For example, SIP is a big project. It is going to be over a number of years. It is never-ending, if I understand it, in building the network and then the people that will be able to run the network.
9823 What is the working relationship between the two? How does the right hand know what the left is doing?
9824 MR. HAYDEN: I am not sure in terms of the question you are asking.
9825 You are asking about the relationship between the Yukon Government and the Yukon College?
9826 MR. HENRY: I was doing pretty good there for a while.
9827 Yes, I was, the relationship between the two.
9828 MR. HAYDEN: I can't comment on the high level in terms of relationship, in terms of reporting structures. I do know that the college is fairly receptive in working with all sorts of organizations, departments and agencies in developing programs.
9829 As you are aware, they do have a number of campuses out in the communities, and often in cases they are deemed as spokesperson for the community or community groups.
9830 I have used them on occasion. A number of the programs that you see in our evidence have been channelled through the college. Generally I would term it as a good working relationship and a flexible one that can be adapted to meet the ongoing needs.
9831 MR. HENRY: So something like -- I think it was referred to as a community technician program or training program, something that created opportunities at a local level, not just for Connect Yukon or SIP, but maybe other technical requirements in the community, might be something that you can envisage in this kind of setting?
9832 MR. HAYDEN: I would offer that any discussion along these lines would have to be taken up with the Yukon College. From my past experience in dealing with them, they likely would be receptive. But certainly any commitment along these lines would have to be dealt with them directly.
9833 MR. HENRY: It was more just as an adjunct or a result of the discussions here in the hearing, talking about the need for community training programs. That is all I was getting at.
9834 With that, thank you very much.
9835 Thank you, Mr. Pratt.
9836 THE CHAIRPERSON: Thank you, Mr. Henry.
9837 Madam Secretary, I understand that there are no other parties, including the Commission, who wish to question this panel.
9838 MS VOGEL: That is my understanding, Mr. Chair.
9839 THE CHAIRPERSON: Thank you very much, gentlemen. You may step down.
9840 Before we close off this phase of the proceeding, are there any other matters that parties wish to bring to the attention of the Commission?
9841 Ms Lawson...?
9842 MS LAWSON: Yes, Mr. Chairman.
9843 I just received an undertaking from Northwestel, Exhibit No. 27, and it does lead to a couple of follow-up questions.
9844 I am wondering if I could get Northwestel to provide an answer, in writing, to my follow-up questions.
9845 THE CHAIRPERSON: I wonder if you might give us a sense of the nature of the questions, and we might have a better opportunity to respond.
9846 MS LAWSON: Sure. The undertaking had to do with the figure of Bell Actimedia's revenues from the revenue sharing arrangement between Northwestel and Bell Actimedia. I had asked why there was this sudden jump in Bell Actimedia's share over the contract period.
9847 The response says that there was a mistake in the numbers, first of all. And once you correct that mistake, we still see a significant increase from 1999 which can be attributed to -- and I am quoting:
"...a new contract between Northwestel and Bell Actimedia, a credit received from Bell Actimedia in 1998 and revenue growth."
9848 I am still wondering, then -- and my follow-up questions would be:
9849 First of all: What are the details of this credit and where does it show up on Northwestel's books?
9850 And secondly: What is the justification for the apparent increase in Bell Actimedia's share of the revenues? In particular, which responsibilities were transferred from Northwestel to Bell Actimedia from the old contract to the new contract?
9851 THE CHAIRPERSON: Mr. Rogers...?
9852 MR. ROGERS: Mr. Chairman, as you know, the panels have all completed their testimony. At least I thought we were about to conclude the evidence portion of this proceeding within the next couple of minutes. We have oral argument to write for tomorrow morning.
9853 I would think it is a bit of an awkward process to be starting to file additional material on the record, which would probably only reach parties after they have delivered their oral argument. Certainly that is not the normal way the Commission does it.
9854 The Commission wants to have a completed evidence portion available to people before they file argument, for understandable reasons.
9855 We have done the best we can, of course, in responding to exhibits and undertakings. I think we are up to about no. 26 or 27 at this point. In fact, I have one more.
9856 All of the people involved in this process have been in this hearing room and working at night to provide the responses to those undertakings.
9857 I am not sure how much really can be done at this stage. Conclusions can be drawn from the record as it is. I would suggest that it is not proper to continue this process and have it lag beyond oral argument.
9858 THE CHAIRPERSON: Ms Lawson...?
9859 MS LAWSON: Well, we can certainly proceed with what is here.
9860 What I was envisaging was getting some information after oral argument but before written argument so that we might be able to include it with the written argument.
9861 THE CHAIRPERSON: Mr. Rogers, it strikes me that had the panel had the answer to Ms Lawson's original question, she might have followed up with the questions she has now.
9862 I am wondering how difficult it would be to provide the answers to her. I take note of the points you have already raised, but I didn't get a sense in your response whether this is a particularly difficult thing to answer or whether you would have somebody on the Northwestel team who could fairly quickly provide an answer in any event.
9863 MR. ROGERS: Mr. Chairman, just in the brief conversation I have had, there appears to be at least some question as to how much of that we can provide between now and Friday. We can certainly do our best efforts to provide as much of a response as possible from the information we have, bearing in mind it would have to be provided within about -- well, a little more than 24 hours.
9864 THE CHAIRPERSON: We can accept best efforts I guess.
9865 MS LAWSON: In any case, Mr. Chairman, I would just like to say I think this is important information for the Commission to have, at a minimum, in making its decision.
9866 THE CHAIRPERSON: We will accept your offer to undertake a best efforts to gather the information, Mr. Rogers.
9867 Thank you.
9868 It's over to you on another matter.
9869 MR. ROGERS: This, I believe, is the last of the exhibits and responses, I hope.
9870 We had filed a response to Northwestel/CRTC, 7 Feb, 1411 which had an attachment to it and had been asked by the staff to provide further information.
9871 This relates to balance sheet information provided to us by Bell Actimedia and we have provided that and given copies to the Secretary. The information is confidential to Bell Actimedia and we have not provided an abridgement because an abridgement would be meaningless. All the information on the balance sheet is confidential.
9872 THE CHAIRPERSON: Thank you.
9873 Madam Secretary.
9874 MS VOGEL: Yes, Mr. Chairman.
9875 This document will be entered as Northwestel Exhibit No. 29.
9876 THE CHAIRPERSON: Anything else from any party?
9877 No? Okay. Thank you.
9878 Well, that concludes the cross-examination phase of our proceeding, then.
9879 My understanding, subject to anyone raising any concerns, is that we would proceed with argument phase commencing tomorrow morning at 8:30. The parties would have a maximum of 30 minutes to present oral argument. We would go in the order of the parties listed in the org and conduct letter, with the exception that Northwestel, rather than being second last, would be last. So that would take care of tomorrow.
9880 Just a reminder that written argument would be filed by the close of business day here Friday.
9881 And just a reminder, while there is probably always a temptation to use the opportunity to present a written argument after the oral is done, I would remind parties that this argument phase is not an opportunity to address or rebut other arguments that one may have heard a day or a day-and-a-half earlier.
9882 Northwestel's reply would be filed a week later on June 30 at the close of the day.
9883 With that, is there anything else anybody wishes to raise?
9885 MR. BATSTONE: Mr. Chairman, I just thought I would add one thing to that.
9886 There probably will be no staff here on the Friday, so when you are filing your written comments it would be best to file them with one of the Commission's offices.
9887 THE CHAIRPERSON: Mr. Lowe?
9888 MR. LOWE: I don't think (off microphone). I'm just asking.
9889 MR. BATSTONE: Yes. The public notice only made provision for reply by Northwestel.
9890 MR. LOWE: That's fine.
9891 THE CHAIRPERSON: Anything else?
9892 Okay. Thank you very much.
9893 So we will see you here tomorrow morning at 8:30.
--- Whereupon the hearing adjourned at 1310,
to resume on Wednesday, June 21, 2000 at 0830 /
L'audience est ajournée à 1310, pour reprendre
le mercredi 21 juin 2000 à 0830
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