TRANSCRIPT OF PROCEEDINGS
FOR THE CANADIAN RADIO-TELEVISION AND
TRANSCRIPTION DES AUDIENCES DU
CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT / SUJET:
Implementation of toll competition and related matters/
Mise en oeuvre de la concurrence dans
l'interurbain et questions connexes
The Senator Hotel
Hôtel le Senator
Salle Grand Ballroom
April 30, 2001
le 30 avril 2001
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.
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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
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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
O.N. Tel - Implementation of toll competition and related matters / O.N. Tel - Mise en oeuvre de la concurrence dans l'interurbain et questions connexes
BEFORE / DEVANT:
Chairperson of the Commission / Président du Conseil
Commissioner / Conseillère
Commissioner / Conseiller
Commissioner / Conseiller
Commissioner / Conseiller
ALSO PRESENT / AUSSI PRÉSENTS:
Hearing Secretary / Gérant
de l'audience et
Northern Telephone Ltd.
The Senator Hotel
Hôtel le Senator
Salle Grand Ballroom
April 30, 2001
le 30 avril 2001
TABLE OF CONTENTS / TABLE DES MATIÈRES
PAGE / PARA NO.
PRESENTATION BY / PAR
O.N. Tel / O.N. Tel
10 / 53
ROBERT HUTTON, affirmed / affirmé
25 / 134
BRIAN WHEELER, affirmed / affirmé
25 / 134
TOM CALDWELL, affirmed / affirmé
25 / 134
RICHARD CUSHING, affirmed / affirmé
25 / 134
ROGER CHOQUETTE, affirmed / affirmé
25 / 134
EXAMINATION BY / INTERROGATOIRE PAR
O.N. Tel / O.N. Tel
25 / 136
Northern Telephone Ltd. / Northern Telephone Ltée
29 / 182
Commission Counsel / Conseiller juridique
63 / 467
DENNIS McCARTY, sworn / assermenté
162 / 1004
ED BESSERER, sworn / assermenté
162 / 1004
LAWRENCE SINNEAVE, sworn / assermenté
162 / 1004
SUSAN FOURNIER, sworn / assermentée
162 / 1004
EXAMINATION BY / INTERROGATOIRE PAR
O.N. Tel / O.N. Tel
164 / 1021
Commission Counsel / Conseiller juridique
249 / 1560
LIST OF EXHIBITS / LISTE DES PIÈCES
O.N. Telcom Opening Statement, text
25 / 126
O.N. Telcom Opening Statement, slides
25 / 126
The Company's Exhibit No. 1, chart
63 / 471
Curriculum vitae of Dr. Karl Morin-Strom, Ph.D.
152 / 957
Final Argument of Northern Telephone Ltd. January 29, 1999 with reference to public notices 97-42, 98-5, and 98-18
246 / 1544
Newspaper article entitled "Northern Telephone Conitnues with Upgrades", the Daily Press, 1 March, 2001
247 / 1544
Press Releases About Us, five pages from Northern Telephone's website, with articles dated from 27 October to 19 December, 2000
247 / 1544
Télébec Annual Report 2000
247 / 1544
NT News September/October 2000 message from Pierre Brochu
247 / 1544
Timmins, Ontario / Timmins (Ontario)
--- Upon commencing on Monday, April 30, 2001 at 0920 /
L'audience débute le lundi 30 avril 2001 à 0920
1 THE CHAIRPERSON: Order please.
2 We have had some technical difficulties and we will begin our proceeding.
3 I am not sure if we are ready or not, but are going to begin anyway.
4 Bienvenue à cette audience publique qui a été convoquée afin d'examiner la mise en vigueur de la concurrence dans le marché interurbain dans le territoire de desserte de O.N. Telcom.
5 My name is David Colville and I am Chairman of the CRTC and Vice-Chair of Telecommunications. I will be the Chairman for this hearing.
6 With me today are Commissioners Martha Wilson, who is the Regional Commissioner for Ontario and Andrew Cardozo, David McKendry and Stuart Langford.
7 At the table to my left are Commission staff including Peter McCallum, Commission Counsel and hearing Secretary for this hearing in the middle, Steve Delaney, who is the Team Leader for this proceeding on my left, and Paul Godin, Director, Independent Carrier Relations.
8 As you know, the purpose of this proceeding is to consider the terms and conditions associated with the implementation of toll competition in O.N. Telcom's territory and the appropriate regulatory framework for O.N. Telcom and carriers entering the toll market.
9 In September of 1998, the Commission issued Telecom Decision 98-14 in which it concluded that competition in the provision of long-distance service in O.N. Telcom's operating territory would be in the public interest.
10 However, we also concluded that competition should not be introduced until the Commission had finished its deliberations in the high-cost proceeding and had established the specific terms and conditions for long distance competition in O.N. Telcom's serving territory.
11 The Commission issued its determination in the high-cost serving areas proceeding in October of 1999 and has initiated this proceeding to determine the terms and conditions of toll competition.
12 In this proceeding, O.N. Telcom has asked for compensation for lost toll revenues if extended area service expansion is allowed. This matter will be dealt with in a general proceeding dealing with free calling areas or extended areas of service, and last Friday the Commission issued a public notice launching that proceeding.
13 At this point, I would like to review a few general matters. First, on the subject of sitting hours for this hearing, as indicated in the Organization and Conduct letter issued on the 20th of April 2001, we propose to sit from 9 a.m. to 5 p.m. each day. We will take a lunch break of about an hour as well as a 15-minute break for coffee at mid-morning and mid-afternoon.
14 The hearing will conclude no later than Friday, May 4th and given the limited number of parties participating in the hearing process, the oral hearing should finish, we expect, well before then.
15 While we do not anticipate sitting into the evenings, it may be necessary to consider -- not so much necessary, I suppose, but it may be opportune to consider sitting a little longer perhaps today. We will see how the day goes.
16 Now assuming our court reporting equipment is working, in order to ensure that the court reporters are able to produce an accurate transcript, when speaking please ensure that your microphone is turned on.
17 Anyone wishing to purchase a copy of the transcript -- assuming we are going to have one, Marc -- should make the necessary arrangements with the court reporter.
18 As is our usual practice, rather than take oral appearances at the beginning of the hearing, we will do so in writing. Our Legal Counsel, who is also acting as Hearing Secretary, has forms which, when completed, provide a written record of appearance. If you have not already done so, please ask for one and fill it out. The information in the form will allow us to contact you, if necessary.
19 Parties' witnesses will appear in the order set out in the Organization and Conduct letter sent out on the 20th of April.
20 Consistent with our usual practice, traditional examination-in-chief by any party will not be permitted. Rather, a party calling a witness will generally be entitled only to examine its witness briefly regarding the preparation of the evidence, any errors or routing updates to the evidence and the witnesses' qualifications.
21 Nevertheless, in the present case, as set out in the Organization and Conduct letter, we will allow O.N. Telcom and Northern Telephone Limited to make oral opening statements not exceeding 30 minutes, at the beginning of the time when they are to present their witnesses. They should serve and file a written copy of any such opening statements, and the Hearing Secretary will give it an exhibit number.
22 The order for cross-examination is also stated in the Organization and Conduct letter. Generally, Commission counsel questions and those of the Commissioners will come after the parties have completed their cross-examination of a particular representative or panel of representatives.
23 The Commission will first hear O.N. Telcom's panel and then the panel from Northern Telephone Limited. Parties should provide the Hearing Secretary with their best estimates of the time they require for cross-examination of each witness or panel of witnesses and also advise as soon as possible of any changes to those estimates.
24 Parties should also inform the Hearing Secretary as soon as possible if they do not intend or no longer intend to cross-examine a witness or panel. This will help us avoid the situation where a witness or witnesses are brought to the hearing only to find there are no parties to question for them.
25 We rely on the cooperation of all parties with respect to their estimates to help in ensuring the orderly and timely conduct of the hearing.
26 Our experience in past proceedings is that there is usually no need to engage in redirect examination, although we recognize there may be situations where redirect is necessary and appropriate.
27 After all cross-examination has been completed, we will move on to final argument. Once again, as noted in the Organization and Conduct letter, the Commission intends to have oral final argument at the hearing.
28 Parties will be permitted to supplement their oral argument with written submissions filed and served on all parties at the time they present their final argument. Any party who plans to make oral argument but who is not presenting witnesses or participating in cross-examination should advise the Hearing Secretary accordingly. Written reply argument may be filed by May 11, 2001, or seven days after the hearing ends, whichever is later.
29 All parties are responsible for monitoring the progress and content of the hearing and for attending and having their witnesses available at the correct time.
30 All parties should be aware that for each document to be filed at the hearing, 20 copies must be provided to the Hearing Secretary. In addition, a copy must be served on all other parties present in the room on the date the document is filed.
31 That concludes the initial comments that I wish to make at this time.
32 I will now call on Commission counsel to address some additional procedural matters.
34 MR. McCALLUM: Thank you, Mr. Chair.
35 There is a public examination room open to all parties and the public for the duration of this hearing. The public examination room is located in Conference Room 2 and will be open during hearing hours.
36 Il y a une salle d'examen public ouverte aux parties et au public au cours de cette audience publique. La salle d'examen public se trouve dans la Salle de conférence 2 et sera ouverte pendant cette audition.
37 The public examination room contains a comprehensive record of this proceeding, as well as copies of the briefing document prepared by Commission staff. This document was prepared based on the record of the proceeding up to mid-April. As indicated in that document, it is not intended to contain a complete discussion or summary of the record of the proceeding, or of the issues that are being examined in this proceeding.
38 Any party who considers that there is a material omission or inaccuracy may file a submission with the Commission setting out that party's position. Any such submission must be served on all parties participating in this proceeding, and the document will be entered as an exhibit at that time.
39 The procedure that will be followed in this proceeding for the introduction of exhibits will be that which was set out in the Commission's Organization and Conduct letter.
40 Finally, Steve Delaney, Paul Godin and myself will be available throughout the course of the hearing day to assist any party that may have questions regarding practices and the procedures that we follow.
41 THE CHAIRPERSON: Thank you, Counsel.
42 We will now turn to other preliminary matters.
43 Before I turn to preliminary matters, Ms Traynor, I understand you are counsel for O.N. Telcom and it's probably an unusual procedure, but I am wondering whether you swear to tell the truth, the whole truth and nothing but the truth?
44 MS TRAYNOR: I think that depends on the question.
45 THE CHAIRPERSON: Well, I was wondering whether you were prepared to tell the room how many years old you are today?
--- Laughter / Rires
46 Happy birthday!
--- Applause / Applaudissements
47 MS TRAYNOR: I think I already confessed to Paul. So everyone will have to see him later.
48 THE CHAIRPERSON: In any event, happy birthday.
49 Perhaps on a less formal note, some of us have never been to Timmins before and we certainly appreciate the warm welcome we have received here. It's probably the warmest place in the country today, although we are going to be stuck in this windowless room, I guess, for the better part of today and tomorrow. Nonetheless we appreciate the opportunity to come here and to hear this issue on your home turf so to speak.
50 So with that, are there any preliminary anyone wishes to bring to our attention before we commence?
51 Well then I will turn it over to O.N. Telcom to do their opening presentation and I will just remind you we have a copy of the slides and the presentation, but I'm not sure when you see this you can cover it all in a half hour, but I encourage you to attempt to do so.
52 Ms Traynor.
PRESENTATION / PRÉSENTATION
53 MS TRAYNOR: Thank you, Mr. Chairman, Commissioners.
54 Robert Hutton, President of ONTC and O.N. Telcom will be presenting the opening statement, assisted by Brian Wheeler, who is Vice-President, O.N. Telcom.
55 MR. HUTTON: Mr. Chairman, Commissioners.
56 O.N. Telcom welcomes the opportunity to provide a high level overview of its proposal to bring customer choice and sustainable competition to all residents in its vast serving territory.
57 The goals of this presentation are to help you understand O.N. Telcom's proposed practical solution which is designed to put the priority on customer choice, focus on sustainable competition and balance the interest of incumbent toll providers and potential competitors, to highlight the territory's unique characteristics and to show how sustainable choice can be provided to all customers in the territory and to take complex issues and simply the concepts/mechanisms that we have proposed.
58 We will give you a brief overview of O.N. Telcom, we will describe for you the evolution of the network, and in particular how the host remote links are provided in the territory. We will show that our proposal has customer choice as its priority and how sustainable competition can be achieved, applying the knowledge gained from the Canadian experience.
59 We will demonstrate the unique aspects of our operating environment and conclude by reviewing our challenges and our opportunities.
60 Since its inception one hundred years ago, ONTC has been focused upon fulfilling its statutory mandate to provide transportation and communications services to the residents of northeastern Ontario to develop the North.
61 This has, of course, at times been a challenge that has required the ONTC board and its management team to make tough decisions that attempt to balance various stakeholder interests, but always made with the objective of making the North a better place to live, work and do business.
62 Just as the rail lines were constructed in the early 1900s to provide connections for passengers and freight moving in and out of the North, telegraph lines were strung, firstly for railway communications, but subsequently to connect the newly emerging communities and business of the North with each other and the outside world.
63 It now utilizes modern technology to provide these same vital connections. For example, digital switching is in all of our toll and local switches, we have FOTS from Moosonee/Moose Factory, south to North Bay and west from Cochrane to Hearst and we have ATM technology in the back bone.
64 To assist ONTC in meeting its mandate, all the revenues generated by O.N. Telcom are reinvested to develop the North either through continued enhancements to its telecommunications infrastructure and services, or through the subsidization of other services provided by ONTC.
65 O.N. Telcom's territory encompasses approximately 200,000 square kilometres in the northeastern part of Ontario.
66 The distance from North Bay in the south to Peawanuck, the northern most community, is 1,300 kilometres -- approximately the distance from Windsor to Québec City.
67 O.N. Telcom provides local service in only five local exchanges: Temagami, including Lake Temagami, Moosonee, Moose Factory, Marten River and Iroquois Falls.
68 Toll service is provided to 43 communities with a total NAS of just over 79,000. Over 50 per cent of the communities served have less than 500 NAS. Timmins is the only end office with more than 5,000 NAS. Many remote communities are not road accessible. For example, Peawanuch is only accessible by air, whereas communities along the James Bay coast are accessible only by air or winter road.
69 Others are only accessible by rail, air, ice bridge, or snowmobile, including our local exchanges of Moosonnee, Moose Factory, and Lake Temagami. This provides both operation and financial challenges.
70 We have almost completely a non-vertically integrated territory. We have long thin interconnecting routes. We provide toll over a large host remote network that is uniquely owned and operated. We rely heavily on traffic coming into the territory from bell. We have customers who are anxiously awaiting toll competition.
71 These pictures show some of the challenges associated with service remote, sparsely populated areas. A microwave route was built along the coast of James Bay to provide telecommunications and CBC audio and television services to communities north of Moosonee.
72 Tasks that are straightforward in other territories require careful planning, coordination and the use of various modes of transportation for people and equipment in order to provide good quality service.
73 Sites with no commercial hydro require on-site diesel generators and the hauling of fuel over winter roads. As shown in the photos to the right of the slide, even with careful planning, sometimes things go off the road.
74 On route to Fort Albany, Kashechewan and further up to Attawapiskat, technicians access sites via helicopter as shown in the two slides to the left of the picture -- the two pictures on the left of the slide.
75 In some cases, the best way to build FOTS infrastructure to remove locations is by helicopter. In other cases, the best way has been to leverage O.N. Rail's right of way. This picture shows fibre optic facilities being buried four feet below the rail bed using a locomotive drawn rail plough. In the case of Peawanuck, toll services are provided by satellite links.
76 Today O.N. Telcom's transmission facilities are almost completely FOTS.
77 Undoubtedly, the most unique aspect of O.N. Telcom's circumstances in the non-vertically integrated nature of the incumbent carriers.
78 Except for five small exchanges where O.N. Telcom is the local service provider, other unaffiliated local exchange carriers provide local telephone services. In contrast, O.N. Telcom provides toll services to all customers in the territory.
79 This has led to a need to work closely with Northern Telephone Limited, Cochrane PUC and Bell to provide services in a coordinated and cost-effective manner.
80 As a result, four companies each with its own service responsibilities have together built an integrated network.
81 Until relatively recently, customers in the various communities were provided local service via multiple discrete end offices. ILECs provided local switches in each end office and O.N. Telcom connected these end offices via toll connect trucks to its toll switch.
82 In other words, it had been O.N. Telcom's responsibility to provide the toll transport facilities required to meet the ILECs at their end offices. Each ILEC in turn has been responsible for providing local exchange services.
83 As well, transport in and out of the territory has been provided by O.N. Telcom's inter-toll facilities from its toll switch in Timmins to a point of connection with Bell in North Bay.
84 A critical change is that NTL's discrete stand-along switches have recently been replaced with remote switches served by the Timmins DMS-100 host. In this "master-slave" relationship, each remote must be linked to the host. To accommodate this change, NTL built host remote links from each remote back to the host in Timmins.
85 Even in this configuration, it is O.N. Telcom's obligation to provide toll services to the communities now served by the NTL remotes.
86 Moreover, as a result of this drastic change in Northern Telephone's network, O.N. Telcom's toll facilities are now host remote links.
87 What is truly unique about this situation is that two companies separately provide an integrated technical solution. That is, there is a pool of host remote links between the host, the DMS-100, and each remote, a portion of which is provided by the incumbent toll carrier, O.N. Telcom, and a portion of which is provided by the incumbent LEC, Northern Telephone Limited.
88 In this environment, the only way that toll traffic can be measured is through the use of Operational Measurements and Call Detail Records at a DMS-200.
89 As already noted, O.N. Telcom provides the portion of the pool facilities required to carry toll traffic. NTL provides a portion of the pool facilities required to carry local traffic.
90 For the most part, the facilities are physically separate from each other, and in some cases they are physically common with arrangements for joint use or joint ownership.
91 Even though O.N. Telcom provisions for the portion of the pool required to carry toll traffic and NTL does likewise for local traffic, a call and associated information which is just a stream of light pulses representing 1s and 0s, travel indiscriminately between the host and the remote.
92 The technology does not recognize a call as either local or toll until it reaches the DMS-100. Regardless of call direction, the technology does not support the ability to preselect a particular link on the basis of whether a call is local or toll.
93 In a competitive environment, competitors' toll traffic will travel between the host and the remotes, indiscriminately using the available pool of O.N. Telcom's and NTL's host remote links.
94 In all other territories, the entire pool of host remote links is provided by the ILEC, and so the use of the host remote links by toll competitors is not a contentious issue.
95 In this territory, the issues are more complex. That is, in addition to O.N. Telcom's tool traffic and NTL's local traffic, competitors' toll traffic will also travel over the same pool of host remote links.
96 In an integrated territory, the ILEC recovers the cost of both switching and transporting competitor toll traffic through a single Direct Connection charge. Under O.N. Telcom's proposal, new entrants will be deemed to be using O.N. Telcom's portion of the pool of host remote links to originate and terminate toll traffic in NTL's local serving territory.
97 O.N. Telcom has significant investments in the facilities that have bene transformed from toll connect trunks to host remote links.
98 For the use of its facilities by new entrants, O.N. Telcom will be compensated to throughout the host remote aggregation charge. Likewise, for the switching of toll traffic, NTL will be compensated through a Direct Connection charge.
99 In summary, the costing methodology that has ben applied to these unusual circumstances is essentially the same as used elsewhere.
100 Another unique feature of O.N. Telcom's proposal is that the new entrants must connect at O.N. Telcom's access tandem and not directly to the end office.
101 The two fundamental reasons for this proposal are: This is the only way we can measure competitors' use of our host remote links and of our toll transport facilities between North Bay and Timmins and this is the best way to ensure that all customers can benefit from toll competition.
102 In order to ensure that the SWAG AT rate is low enough to incent new entrants to offer services throughout the territory, O.N. Telcom has proposed that all of the territory's toll traffic be switched through its access tandem. The more toll minutes that are switched to the access tandem, the lower the SWAG AT rate will be.
103 The one large end office in Timmins serves 65 per cent of the communities in the territory. If only the toll traffic of the remaining 35 per cent of the communities is switched at the toll switch, then the SWAG AT rate will be in the order of five times higher than having one point of interconnection at the access tandem.
104 This would be a huge barrier to entry and more than 10,000 customers could be deprived of the choice of competitive toll services. In addition, O.N. Telcom's resulting stranded investment could not be reasonably recovered.
105 O.N. Telcom has proposed that Bell Canada must continue to route all traffic terminating in the territory via out inter-toll facilities between North Bay and Timmins.
106 For close to a century, O.N. Telcom has interconnected its facilities with Bell at North Bay to deliver the high volume of traffic entering and exiting the territory. O.N. Telcom is concerned that, upon the introduction of long distance competition in the territory, Bell would quickly migrate its traffic from O.N. Telcom's facilities to those of its subsidiary, Northern Telephone Limited.
107 The loss of such as significant portion of traffic would threaten O.N. Telcom's viability, strand much of O.N. Telcom's associated investment and jeopardize sustainable competition in the territory.
108 Therefore, a transition period for the migration of Bell's traffic is necessary given the extensive and largely non-fungible investments that were made to accommodate this traffic.
109 O.N. Telcom has proposed that it receive a subsidy for the national fund to support the costs associated with serving uneconomic toll routes within its territory.
110 O.N. Telcom has defined an uneconomic toll route to be a route where the revenues do not recover the Phase III costs, including a reasonable rate of return.
111 Accordingly, the routes north of Cochrane to Moosonee and along the James Bay coast are uneconomic. In the past, O.N. Telcom has supported the costs of these routes form its more profitable southern routes.
112 Its ability to continue to cross-subsidize in a competitive environment will be limited. Quality of service will be at risk and consequently subsidy is required.
113 We have described for you a truly unique set of circumstances that we have addressed through methodologies that are common in the rest of Canada, modified as appropriate to reflect the realities of our environment.
114 We have described some new challenges, the most unique of which is how to deal with the introduction of long distance competition in a territory which is essentially non-vertically integrated.
115 We have worked hard to put forward a proposal that achieves the balance of the interests of the incumbents and new entrants.
116 We have proposed a simple solution to the complex issues associated with two companies providing host remote links in the network.
117 A single point of interconnection at the access tandem is essential to provide the traffic transport into our territory by valve given the heavy reliance O.N. Telcom has on the revenues that this generates.
118 We have described our long, thin routes to remote reaches of our territory that require a subsidy to ensure continued high quality and reliable long distance services at competitive rates.
119 With all the unique challenges also comes a unique opportunity for all of us. Where else in Canada has there been a prospect of two regionally-based, not affiliated, not vertically integrated incumbents to compete with new entrants for the privilege of providing customers with competitive long distance choices.
120 We have, I think, a real chance of providing one hundred per cent of the customers in the territory with real choice, not only on day one when competition is introduced, but on a sustainable basis into the future.
121 This will help to make Northern Ontario a better place to live, work and do business. This is what we all want, this is what we are about, this is what we have always been about, this will be our legacy.
122 Thank you.
123 THE CHAIRPERSON: Thank you very much for your presentation, and well within the 30 minutes.
124 Thank you.
125 With that, Ms Traynor, will you present O.N. Tel's Panel, please.
126 MR. McCALLUM: Mr. Chairman, may I assign the exhibit numbers to the opening statement? If I may, I assigned as O.N. Telcom Exhibit No. 1 the Opening Statement, the text, and as O.N. Telcom, Opening Statement, the slides, as Exhibit 2.
EXHIBIT NO. 1: O.N. Telcom Opening Statement, text.
EXHIBIT NO. 2: O.N. Telcom Opening statement, slides.
127 THE CHAIRPERSON: Thank you, Mr. Secretary.
129 Ms Traynor.
130 MS TRAYNOR: Thank you, Mr. Chairman. We'll just give the Panel a moment to get organized at the table.
--- Pause / Pause
131 MS TRAYNOR: They seem to be organized. The witnesses being presented by the O.N. Telcom are in the front row, the support personnel in the back row.
132 I will be introducing the back row during my opening comments, and at this time would it be appropriate to have the witnesses sworn in.
133 THE CHAIR: Counsel?
134 MR. McCALLUM: I understand everybody is happy with a solemn affirmation.
ROBERT HUTTON, affirmed / assermenté
BRIAN WHEELER, affirmed / assermenté
TOM CALDWELL, affirmed / assermenté
RICHARD CUSHING, affirmed / assermenté
ROGER CHOQUETTE, affirmed / assermenté
135 MR. McCALLUM: Thank you, Panel.
EXAMINATION / INTERROGATAIRE.
136 MS TRAYNOR: Okay, Mr. Hutton will be the Chair of the Panel.
137 Mr. Hutton, could you indicate your position with ONTC and O.N. Telcom?
138 MR. HUTTON: I'm the acting President of ONTC and O.N. Telcom.
139 MS TRAYNOR: When did you assume this position?
140 MR. HUTTON: Assumed this position on December the 4th, 2000.
141 MS TRAYNOR: And was the evidence and the interrogatories prepared under your direction and control?
142 MR. HUTTON: Yes.
143 MS TRAYNOR: And is the evidence and those resposes true and accurate to the best of your information and belief?
144 MR. HUTTON: Yes.
145 MS TRAYNOR: Do you have any additions to this evidence or responses at this time?
146 MR. HUTTON: No.
147 MS TRAYNOR: Mr. Wheeler, can you indicate your position with the company?
148 MR. WHEELER: I'm vice-president O.N. Telcom.
149 MS TRAYNOR: Mr. Cushing, your position?
150 MR. CUSHING: I'm Director of Business Development and Regulatory Matters.
151 MS TRAYNOR: Mr. Caldwell, your position?
152 MR. CALDWELL: I'm Director of Advanced Networking Services.
153 MS TRAYNOR: Mr. Choquette, your position?
154 MR. CHOQUETTE: I'm President of CongateTel(ph) Management and consultant to the company.
155 MS TRAYNOR: And did each of you assist in the preparation of the evidence and responses, Mr. Wheeler?
156 MR. WHEELER: Yes.
157 MS TRAYNOR: Mr. Cushing?
158 MR. CUSHING: Yes.
159 MS TRAYNOR: Mr. Caldwell?
160 MR. CALDWELL: Yes.
161 MS TRAYNOR: Mr. Choquette?
162 MR. CHOQUETTE: Yes.
163 MS TRAYNOR: And to the best of your knowledge and belief, is the evidence and responses correct and accurate, Mr. Wheeler?
164 MR. WHEELER: Yes.
165 MS TRAYNOR: Mr. Cushing?
166 MR. CUSHING: Yes.
167 MS TRAYNOR: Mr. Caldwell?
168 MR. CALDWELL: Yes.
169 MS TRAYNOR: Mr. Choquette?
170 MR. CHOQUETTE: Yes.
171 MS TRAYNOR: The curriculum vitaes of the witnesses have been previously filed with the Commission.
172 I would also note in the second row assisting and supporting the panel are Dr. Karl Morin-Strom, Ms Buckner, Mr. Peters, Mr. Donnelly, Mr. McLaughlin and a seating plan has been provided for the convenience of the Commissioners.
173 Mr. Chairman, the Panel is now ready for cross-examination.
174 THE CHAIRPERSON: Thank you, Ms Traynor and thank you for the seating plan, that's helpful.
175 Good morning lady and gentlemen, welcome to our proceeding.
176 Secretary, would you call the first and I believe only party to cross-examine.
177 MR. McCALLUM: Would Northern Telephone Limited please come forward.
178 MS EMBREE: Good morning, Mr. Chairman.
179 THE CHAIRPERSON: Good morning, Ms Embree.
180 MS EMBREE: Good morning Members of the Commission.
181 We have just a few questions of cross-examination. Before I begin I just want to introduce my seat mates here. On my left is Mr. Lawrence Sinneave, you'll be introduced to him a little later on today when he gets up for Northern Telephone, and on my right is Mr. Ed Besserer.
EXAMINATION / INTERROGATAIRE
182 MS EMBREE: Good morning.
183 MR. HUTTON: Good morning.
184 MS EMBREE: I'd like to start by asking you a few questions about your network and your LEAS software proposal. I'm not exactly sure who I should address those questions to.
185 MR. HUTTON: You ask the questions and we'll sort it out for you.
186 MS EMBREE: Sure, okay. Well, why don't we start by turning to the map which is I guess Figure 1 of O.N. Telcom's revised initial submission. I think it's at the end of the initial submission:
187 MR. HUTTON: We have that.
188 MS EMBREE: Okay. Now, just for the record, can you identify -- I think you went through a little bit of this in your presentation, but for the benefit of us all here, the exchanges where O.N. Telcom provides local telephone service?
189 MR. CALDWELL: We provide local telephone service in Moosonee, Moose Factory, Temagami, Lake Temagami, Martin River and Iroquois Falls.
190 MS EMBREE: Okay. And those would be in the James Bay region and then down the line a bit?
191 MR. CALDWELL: Yes, Moosonee/Moose Factory in the James Bay region, Temagami much closer to North Bay as is Martin River, and Iroquois Falls not too far from Timmins.
192 So, in other words, from one end of the territory pretty much to the other, north and south.
193 MS EMBREE: Right down to North Bay. Okay.
194 Now, can you just identify for us, I think they're numbered here, but can you just identify the exchanges that Bell Canada provides local telephone service?
195 MR. CALDWELL: Yes. Bell Canada provides local telephone service, if you'll look up at the north end of the map, in Attiwapiskat, Kashechewan and Fort Albany and Peawanuk as well.
196 MS EMBREE: Okay.
197 MR. CALDWELL: Temiskaming as well actually.
198 And Foleyet.
199 MS EMBREE: And Foleyet, okay. And North Bay.
200 MR. CALDWELL: Pardon me?
201 MS EMBREE: North Bay as well?
202 MR. CALDWELL: Yes, but we do not provide the toll connect portion for North Bay.
203 MS EMBREE: Okay. And also a couple of more geography questions. Could you just show us where Cochrane, is that Cochrane PUC and Northern Telephone provide local exchange services?
204 MR. CALDWELL: The Cochrane PUC is I believe number 10 on the map, and NortHern Telephone are pretty much the rest of that territory.
205 MS EMBREE: Right. So arcing up from basically the south sort of to the west, I guess, it would be of the map?
206 MR. CALDWELL: Yes. That would be correct and there could be perhaps a better detailed map over here to my far left -- my far right.
207 MS EMBREE: My eyesight isn't that good. Okay.
208 Now in between all of those exchanges, O.N. Telcom is the toll carrier?
209 MR. CALDWELL: That is correct.
210 MS EMBREE: All right. Now, O.N. Telcom has a few switches, I think it has one toll switch; is that correct?
211 MR. CALDWELL: That is correct. Presently we have one toll switch DMS-200 located in Timmins.
212 MS EMBREE: Okay. And how familiar are you with the switches that are owned and operated by each of Bell Canada, Cochrane and Northern Telephone?
213 MR. CALDWELL: Do you mean familiar technically or just as to what they are?
214 MS EMBREE: What they are and where they are located.
215 MR. CALDWELL: Yes. What they are and where they're located, yes.
216 MS EMBREE: Yes. So the Bell switches, where would they be located in each of the exchanges that you identified for Bell?
217 MR. CALDWELL: That is correct.
218 MS EMBREE: And they're local end office switches.
219 MR. CALDWELL: Yes, they are.
220 MS EMBREE: Okay. And Cochrane it has one end office switch?
221 MR. CALDWELL: Yes, it does.
222 MS EMBREE: And that's in the Town of Cochrane?
223 MR. CALDWELL: Town of Cochrane?
224 MS EMBREE: And Northern Telephone where would its end office switch or switches be located?
225 MR. WHEELER: I'd just like to add that Temiskaming is actually DMS-100 remote.
226 MS EMBREE: Okay.
227 MR. WHEELER: Could you repeat the question, sorry.
228 MS EMBREE: Where would Northern's end office switch or switches be located?
229 MR. WHEELER: Northern's end office switch is in Timmins and there are several others.
230 MR. CALDWELL: I believe Northern also has end office switches in Detour Lake and Gowganda and Abitibi Canyon.
231 MS EMBREE: And O.N. Telcom's network interconnects at all of those switches as well?
232 MR. CALDWELL: Yes, it does.
233 MS EMBREE: Okay. Thank you.
234 MR. CUSHING: And as well O.N. Telcom's network interconnects through the 100 through to the remotes subtending the 100.
235 MS EMBREE: If you want you can put away the map. I won't be using it again.
236 I actually would like to turn, if possible, to --
237 MR. CALDWELL: I just wanted to add that Matisse and Opasatika we also believe are end offices of Northern Telephone.
238 MS EMBREE: Right. And once again, in those instances O.N. Telcom has toll transmission facilities that go directly to those end offices?
239 MR. CALDWELL: In the case of Abitibi Canyon, Detour Lake and Gowganda, yes.
240 Matisse was planned in 2001 we believe to be a remote off the DMS-100.
241 MS EMBREE: Okay, thank you. I would like, if possible, to turn to a diagram that we gave to you earlier this morning. I think we've also provided copies to Commission secretary for distribution to the Panel and staff.
242 MR. HUTTON: We all have it.
243 MS EMBREE: That's great. I have to apologize, we don't have fancy colour graphics, so you'll have to try and imagine a little bit, dress up this diagram with colour if you can.
244 The first thing you've got to try and imagine is that we're in the Town of Timmins, which in fact we are, and what this diagram shows is O.N. Telcom's access tandem or toll switch in Timmins as well as Northern Telephone's local DMS-100 end office switch.
245 It also shows three hypothetical toll carriers or IXCs on the lefthand side of the page and also at the top of the page.
246 Now, what I'd like to do is walk through a few simple long distance call scenarios with each of the carriers on the page, and what I'd like to do is have you describe each of the charges that those IXCs will have to pay to either O.N. Telcom or Northern under three different interconnecting arrangements.
247 Now, if we begin with IXC No. 1 which is on the lefthand side of the page, and we assume that this IXC interconnects with O.N. Telcom in North Bay, can you tell me about each of the charges that this IXC would have to pay in order to terminate a call in Timmins?
248 MR. CHOQUETTE: You're talking about a call off the Timmins DMS-100 or off a remote off Timmins?
249 MS EMBREE: In Timmins itself.
250 MR. CHOQUETTE: Okay. If you're terminating a call in Timmins itself there would be, assuming that the IXC interconnected in North Bay in the question, there would be a toll transport charge associated with transporting the traffic from North Bay to Timmins, there would then be an equal access charge under the company's proposal to switch the call.
251 There would then be an access tandem charge from the DMS-100 -- from the DMS-200 in Timmins to the Northern Telephone DMS-100 end office.
252 I assume that there would be a direct connection charge charged by Northern Telephone and that would be it, I would assume.
253 MS EMBREE: Okay. Now, if the IXC was located or if it had a customer that was located in Earlton, that customer in Earlton was actually PIC'd to the IXC, could you tell me which -- what charges IXC No. 1 would have to pay if the customer in Earlton was calling someone in Kapuskasing?
254 MR. CHOQUETTE: So you have a call originating in Earlton and terminating in Kapuskasing?
255 MS EMBREE: Mm-hmm.
256 MR. CHOQUETTE: Okay. So you would have a host remote transport charge associated with the transport of the call from the remote to the Timmins DMS-100, there would then be a direct connection charge applied there -- as I understand Northern's proposal, there would then be an AT charge associated with the transport of the traffic from the Timmins DMS-100 to the Timmins DMS-200 and you would essentially the same charges would apply to the terminating part of the call.
257 MS EMBREE: I'm sorry, so the call goes from Earlton to the Timmins DMS-100 switch then to the Timmins DMS-200 switch out to IXC No. 1, back to Timmins DMS-200, back down to the DMS-100 and down to the Kapuskasing customer; is that how it works?
258 MR. CHOQUETTE: To the extent that the IXC No. 1 is interconnected -- still interconnected in North Bay or...
259 MS EMBREE: Yep.
260 MR. CHOQUETTE: I would not necessarily expect that the call would necessarily go to North Bay, it may simply be switched to Timmins, it would stick to Timmins. Is that what you're talking about--
261 MS EMBREE: Yeah.
262 MR. CHOQUETTE: -- an internal company call, intra territorial call?
263 MS EMBREE: Well, what I'm actually trying to find out is whether or not the call does have to go all the way out to North Bay and back again?
264 MR. CHOQUETTE: No, that would not be the scenario that we are proposing, no--
265 MS EMBREE: So...
266 MR. CHOQUETTE: -- for an intra territory call.
267 MR. HUTTON: Could we have a second?
268 MR. CHOQUETTE: I've just been informed that the scenario that I was describing is a case where the IXC is actually providing its own facilities to the DMS-200 at Timmins.
269 To the extent that that IXC was actually leasing or using our particular facilities to North Bay then, yes, they would pay a transport charge.
270 MS EMBREE: Okay. So I'll just see if I can add up the charges and maybe you can let me know if you agree with my understanding of all the charges that would apply in this particular call scenario.
271 The call leaves Earlton and there is a host remote transport charge that applies between Earlton and the Timmins DMS-100; is that correct?
272 MR. CHOQUETTE: That's correct, originating minute, yeah.
273 MS EMBREE: All right. And then when it hits the DMS-100 in Timmins, there is a direct connect charge; is that correct?
274 MR. CHOQUETTE: Yes, that would be the Northern Telephone proposed direct charge.
275 MS EMBREE: Okay. Now, is there also an equal access charge that's levied by Northern Telephone there?
276 MR. CHOQUETTE: I'm not sure. You'd have to ask Northern Telephone.
277 MS EMBREE: Okay. Are you assuming when you're responding to my questions that Northern does not have Feature Group D with CCS-7 capability installed on the end office switch?
278 MR. CHOQUETTE: To the extent that the equal access charge that you're describing is separately identified as an equal access charge, they would charge for it separately.
279 To the extent that that functionality is bundled into the direct connection charge, then it would be charged just as a direct connection charge.
280 MS EMBREE: Did you know that Northern Telephone has a separate equal access charge proposal filed in this proceeding?
281 MR. CHOQUETTE: Well, I'm aware that there is an equal access charged filed, however, I'm also aware that the company, Northern Telephone, modified its direct connection proposal recently and I'm not sure that -- I wasn't sure if that actual proposal which was called the DC/DT rate would have also included the EA charge.
282 MS EMBREE: Right. Well, I guess you'll be able to get clarification of where Northern's equal access start-up costs are located when our Panel gets up.
283 All right.
284 Now, let's continue following the call.
285 I didn't realize it would be this complicated.
286 The call leaves the Timmins DMS-100 office, it then hits the tandem switch, the DMS-200, and there would be two charges there; is that correct;
the equal access charge for the LEAS software and then the access tandem charge?
287 MR. CHOQUETTE: That's correct.
288 MS EMBREE: Okay. And then -- now, we're still following on IXC 1 here who's out in North Bay. Does the call then go off to North Bay for processing through the IXC 1's tandem switch?
289 MR. CHOQUETTE: Yes, to the extent that he's using the company's facilities, yes.
290 MS EMBREE: To the extent that he's using the link between North Bay and Timmins?
291 MR. CHOQUETTE: Yes. I mean, he obviously would not pay a charge if he was providing his own facilities. That's the only point I'm making.
292 MS EMBREE: Right. So let's assume that this IXC is -- there would be a toll transport charge there.
293 MR. CHOQUETTE: If he's using the company's facilities, yes.
294 MS EMBREE: All right. So now our IXC 1 has looked at the details and they've captured the billing data and they're sending the call back down now to Kapuskasing.
295 And do we have another toll transport charge there?
296 MR. CHOQUETTE: Essentially all of the charges that we're talking about are originating or terminating minutes.
297 MS EMBREE: Right.
298 MR. CHOQUETTE: To the extent that you're taking a call and following a similar path--
299 MS EMBREE: Mm-hmm.
300 MR. CHOQUETTE: -- the terminating call would absorb the similar rate.
301 MS EMBREE: So these charges would be duplicated for the return path?
302 MR. CHOQUETTE: Well, I wouldn't say they're duplicated, they're just the terminating minute now as opposed to the originating minute.
303 MS EMBREE: Okay. All right. Now, I just want to walk through IXC No. 2 and IXC No. 3. IXC No. 2 isn't in North Bay, they decided that they would interconnect with the Timmins DMS-200 directly in Timmins.
304 First of all, is it possible for an IXC to do that under O.N. Telcom's proposal?
305 MR. CHOQUETTE: Yes, to the extent that that particular IXC wants to provide its facilities to Timmins, yes.
306 MS EMBREE: Okay. Is it possible for Bell Canada to connect directly to the Timmins DMS-200 switch?
307 MR. CHOQUETTE: The company's proposal at this time requires that there be a transition period for settlement traffic, and so the scenario that we're describing here which is an originating call in your territory would not necessarily apply. We are talking about terminating settlement traffic with respect to the transition period for Bell.
308 MS EMBREE: So Bell Canada has to basically interconnect with O.N. Telcom at North Bay and have its traffic handled by O.N. Telcom's toll transmission facilities between North Bay and Timmins?
309 MR. CHOQUETTE: Just for terminating traffic from outside the territory.
310 MS EMBREE: Right, okay. All right. And I guess in terms of the charges that would be assessed on IXC No. 2, just returning to our IXC No. 2 scenario, they're coming in let's say they're terminating a call in the territory, let's say to Earlton, would I be correct if I said that there would be an equal access and access tandem charge at the DSM-200 switch?
311 MR. CUSHING: Just to clarify on that last point previous to this question, the same applied for 800 calls leaving the territory going to Bell.
312 MS EMBREE: IXC -- I'm just going to go back to IXC No. 2. For IXC No. 2 they're going to, let's say, terminate a call in Earlton. Is that IXC - maybe you can just let me know if I've got this correct - when their traffic hits the DMS-200 switch they would pay an equal access charge and an access tandem charge; is that correct?
313 MR. CHOQUETTE: That's correct.
314 MS EMBREE: Okay. And then the traffic is handed down to the DSM-100 end office switch and there there would be a direct connect charge assessed by Northern and subject to verification and equal access charge as well?
315 MR. CHOQUETTE: That's right.
316 MS EMBREE: Okay. And then again there would be a charge for the host remote links; is that correct?
317 MR. CHOQUETTE: There would be a host remote transport charge.
--- Technical difficulties / Difficultés techniques
318 MR. CUSHING: O.N. Telcom's proposal does not contemplate that as all the providers of a competitive toll would interconnect at the DMS-200 or through the DMS-200 at the AT.
319 MS EMBREE: So we would have to put the line from the IXC No. 3 actually not at the end office switch but at the DMS-200?
320 MR. CUSHING: That's correct. The line would more appropriately be drawn to the DMS-200 or interconnecting through the DMS-200 at the AT point.
321 MS EMBREE: Could an IXC put in a facility between the Timmins DMS-200 and DMS-100, one that it has built itself?
322 MR. CUSHING: Again, the proposal contemplates interconnection at the AT.
323 MS EMBREE: I'm sorry, I'm not sure I know the answer.
324 MR. HUTTON: Can we just have a second, please?
325 MS EMBREE: Sure.
--- Pause / Pause
326 MR. CHOQUETTE: The proposal doesn't contemplate facilities being provided by the IXC No. 3 in this particular example between the 200 and the 100. It goes simply back to the issue of trying to average out the transport and switching costs that the company has to bear.
327 To the extent that the DMS-100 is serving roughly 65 per cent of the communities with their remotes and the remainder are not provided by host remote technology but just end offices. To the extent that there's a high volume of traffic in the territory simply on the basis of the number of the NAS subtending the Timmins DMS-100, the only way you can actually average out the AT charge of the whole territory is to provide for interconnection at the AT. Otherwise, what you have is a large part of the traffic travelling over a one-kilometre link with a very small proportion of the traffic travelling over a one kilometre link with a very small proportion of the traffic travelling over the rest of the territory. And, of course, the cost becomes exorbitant accordingly.
328 MS EMBREE: Okay.
329 So under the scenario IXC No. 3 does not put any facilities in between itself and at Timmins DMS-100, it actually has to put its facilities into the DMS-200. Then from the DMS-200 to the DMS-100 it must use facilities provisioned by O.N. Telcom. Is that right?
330 MR. HUTTON: Could we have a second, please? We're just trying to sort out your various combinations here. Just a second.
331 MS EMBREE: Sure.
--- Pause / Pause
332 MR. CHOQUETTE: We have consulted. Your premise is correct. The IXC would interconnect at the DMS-200.
333 MS EMBREE: Great, okay.
334 One last question on this diagram then we can put it away.
335 MR. CALDWELL: Perhaps if I could just maybe add one comment to Mr. Choquette's. If IXC No. 3 did interconnect at the access tandem, at the DMS-200, as Roger pointed out earlier, certainly that 100 per cent of the communities would benefit. Carriers have access to 100 per cent of the communities as opposed to 65 per cent, but a hundred per cent of those customers out there have access to carrier IX 3 if they choose.
336 MS EMBREE: Thanks.
337 Okay. Last question on this diagram and then we can put it away.
338 When we talk about the host remote links, let's just take for example the one between -- the link between the Timmins DMS-100 end office and the Kapuskasing remote, under the company's proposal in this proceeding is it possible for IXC No. 3 to put facilities in between the host and the remote?
339 MR. CHOQUETTE: No.
340 MS EMBREE: Okay, thanks.
341 I have a few questions about the LEAS software that O.N. Telcom has installed at the access tandem switch.
342 Could you tell me who the vendor or manufacturer is of the software?
343 MR. WHEELER: Nortel Networks is a standard feature of the DMS-200 technology.
344 MS EMBREE: Okay.
345 Are there any carriers in Canada that you're aware of that have installed LEAS software, equal access software?
346 MR. WHEELER: Not in Canada, but in North America it's widely used, particularly in the U.S. environment that would be similar to the environment that we find ourselves in in this region.
347 MS EMBREE: Okay.
348 Does the LEAS software support all the same features and functionalities of the standard Feature Group D equal access group software that is widely used at end office switches in Canada?
349 MR. WHEELER: Could I have a moment?
--- Pause / Pause
350 MR. WHEELER: Yes.
351 MS EMBREE: Okay.
352 If a new feature for the Feature Group D end office software that every other carrier in Canada has installed in their end office, if there's a new feature that's introduced to that software, let's say next year, will Nortel release the same functionality for the LEAS software at the same time; do you know?
353 MR. WHEELER: It's a hypothetical question. As I said, this software is widely used in the U.S. Nortel is delivering all the features that they are today and we expect that they would in the future.
354 MS EMBREE: Okay.
355 But for the Canadian market we don't know if they would bring on the new feature of functionality in the same time frame as the Feature Group D end office software?
356 MR. WHEELER: Nortel Networks is a vendor like any other and we are a customer of theirs and we expect that they would provide the same level of support they provide to all the other Canadian carriers.
357 MS EMBREE: Okay. That's support, but I'm talking about introducing a feature on the LEAS software at the same time as it is introduced on the end office Feature Group D software that every other carrier in Canada uses.
358 In other words, we want to make sure that the capability that an IXC gets at an end office switch elsewhere in Canada and the functions that they get at that switch are the same if they interconnect at the tandem switch and use the equal access software that's been installed at the tandem switch.
359 So what I'm trying to understand is: Has Nortel committed to giving O.N. Telcom the same level of functionality and release dates for new features on the LEAS software as the end office software that's used elsewhere in Canada?
360 MR. WHEELER: One moment.
--- Pause / Pause
361 MS EMBREE: You'll have to give me a moment as well, please.
--- Pause / Pause
362 MS EMBREE: Sorry about that. I seem to have been the cause of some interruptions in this proceeding. My apologies.
--- Pause / Pause
363 MR. WHEELER: The Nortel Networks has a track record with LEAS of implementing features in concert and in parallel with development of Bell Corp's standard features and our expectation from Nortel is that they'll continue to do that. But if track record is an indication, then we expect that we'll be able to track developments in the industry just like anyone else with this software.
364 MS EMBREE: Thanks.
365 Mr. Chairman, I have just a few more questions on the network and on the LEAS software and I think after that we could break, if it's a convenient time for you.
366 THE CHAIRPERSON: Fine.
367 MS EMBREE: Okay.
368 Another question I had about the LEAS software. Do you know if it supports 1-800 calls with CCS-7 signalling?
--- Pause / Pause
369 MR. WHEELER: To respond to your question, the LEAS software is not involved in those calls, they're handled by Feature Group C which is the traditional method of transporting those calls.
--- Pause / Pause
370 MS EMBREE: Okay.
371 I am given to understand from what you've just told me that this means that 800 calling, I guess 1-800 calls are not supported by LEAS or at least it sounds like right now it's MF trunking that's used in conjunction with those calls?
--- Pause / Pause
372 MR. WHEELER: The 800 calls are supported with CCS-7 and, as I said, 800 is handled through Feature Group C which is the traditional method for the Canadian carriers and, as such, CCS-7 also applies there.
--- Pause / Pause
373 MS EMBREE: Okay. Just a couple more questions.
374 Has LEAS been tested for all service combinations currently in use today in Canada?
375 I think you're in the process of testing the software right now and I just wanted to find out if you've been through all the different service combinations?
376 MR. WHEELER: Again, just give me a second, I'll talk to my technical guy.
377 COMMISSIONER LANGFORD: Seems to me that Mr. Besserer, Mr. McLaughlin are a little bit like Earlton and Kapuskasing, they can't seem to talk directly; can they?
378 So the diagram's become very interesting.
379 MS EMBREE: I think we just get them together and we can dispense with the rest.
--- Pause / Pause
380 MR. WHEELER: I think it's important that you get a sense for the magnitude of the LEAS software application in the North American market. In the Iowa Network Services, there are 147 telcos served; of that 350,000 NAS, 330 communities --
381 MS EMBREE: I'm sorry. I don't mean to interrupt you. I'm asking you about the testing of LEAS software by O.N. Telcom. I just want to understand whether or not it's been tested for all service combinations that are currently available in the Canadian market today?
382 MR. WHEELER: Yes, it has.
383 MS EMBREE: Thanks. Okay.
384 I've got one other question. According to ED -- and ED should probably ask the question -- does O.N. Telcom plan to convert the 1-800 traffic originating at the Timmins DMS-100 switch to CCS-7 signalling when CCS-7 is activated on that switch this fall?
385 MR. WHEELER: Yes, we will and we're already doing it with Cochrane.
386 MS EMBREE: Great. Thanks.
387 Mr. Chairman, I think we're ready for a break.
388 THE CHAIRPERSON: Okay. We'll take our morning break now for 15 or so minutes. I've got about 17 to 11:00, so we'll re-convene at 11:00 o'clock.
--- Upon recessing at / Suspension à 1043
--- Upon resuming at / Reprise à 1100
389 THE CHAIRPERSON: Order, please, ladies and gentlemen. We will return to our proceeding now with cross-examination by Ms Embree of O.N. Telcom. Are there any preliminary matters before we return to cross-examination?
390 I would encourage everybody to check their cell phones and make sure they are turned off.
391 Ms Embree.
392 MS EMBREE: Thank you, Mr. Chairman. My apologies once again.
393 I have a few questions I guess of clarification. They are mostly relating to O.N. Telcom financial evidence. I'm not sure once again who I should address those questions to but I'll ask the question and we'll see who answers.
394 Could you turn to the response to interrogatory, O.N. Telcom CRTC 1100.
395 MR. HUTTON: We have it.
396 MS EMBREE: Okay.
397 I'm looking at page two of five of the response to that interrogatory, not the attachment, and on page two of five the response to part B (2) two says:
"For the SWAG AT Service, the total current capital cost estimate for toll tandem switching facilities in the year 2001 is divided by the company's forecast of the total number of toll minutes originating and terminating in the company's toll tandem switch for the year 2001."
398 Now, I just wanted get a little bit of clarification on the use of the term "total current capital cost." Does that mean the replacement cost?
399 MR. CHOQUETTE: That is right.
400 MS EMBREE: Okay. Thanks.
401 Okay. Now, I guess I don't need to turn to an interrogatory response right away, but I was wondering if I could just ask a few questions about the Uneconomic Toll study for split-rate based purposes. Where are the costs of uneconomic toll facilities assigned to the -- is it to the utility segment or the competitive segment, the costs?
402 MR. CHOQUETTE: The historical costs, the embedded costs are assigned to the utility SWAG BSC which is part of the utility segment under this proposal -- what is proposed.
403 MS EMBREE: Okay. And where are the revenues associated with uneconomic toll assigned?
404 MR. CHOQUETTE: The revenues with respect to the SWAG AT service in which the uneconomic toll costs are included are assigned to the same broad service category.
405 MS EMBREE: To the utility segment?
406 MR. CHOQUETTE: That's correct.
407 MS EMBREE: Thank you. Okay.
408 Can you turn to the response to 1108, O.N. Telcom CRTC 1108? This time I'm looking at attachment one. On, I guess, page four of eight of that attachment there's a paragraph numbered 1.1. It is entitled "Definition," and it says:
"Uneconomic toll is defined to include those segments of toll connect routes excluding host remote links and associated toll markets where in a competitive market place toll revenues are not forecast to recover related Phase 3 costs including the rates of return on the..."
-- I think there's a typo there --
"on the invested capital."
409 Now, you based the uneconomic toll study on Phase 3 costs?
410 MR. CHOQUETTE: That's right. The uneconomic toll study was used to identify the segments which should be costed with respect to that SWAG AT service I was referring to earlier.
411 MS EMBREE: Okay.
412 Has O.N. Telcom conducted a Phase 2 study of its uneconomic toll?
413 MR. CHOQUETTE: The only Phase 2 costs that we have identified was in response to a Commission interrog where the Commission requested the cost inclusions associated with uneconomic toll when we developed our SWAG AT rate, and we identified those. So to the extent that the Phase 2 costs which had been included in the SWAG AT service study were identified, that's the extent to which the Phase 2 study of uneconomic toll, that's as far as it went.
414 MS EMBREE: Okay. But your proposal is predicated on the Phase 3 costs of uneconomic toll?
415 MR. CHOQUETTE: The proposal is based on Phase 3 costs to identify the routes, the segments, but when we actually developed the SWAG AT service, we actually are looking at the incremental costs of that route.
416 MS EMBREE: Okay. Thank you.
417 Could you turn to the response to O.N. Telcom CRTC 1106, it's not far off your 1108. Have you got that?
418 MR. CHOQUETTE: Yes, I do.
419 MS EMBREE: Okay.
420 MR. CHOQUETTE: Yes, I have that.
421 MS EMBREE: Just so we are putting this into context, this is the study for O.N. Telcom's equal access start-up costs; is that correct?
422 MR. CHOQUETTE: 1106 actually puts forth a scenario whereby O.N. Telcom's toll serving territory, assuming the competitors are free to route their traffic, and there's actually more than actually more than EA. There's EA, AT, DC, AG toll transport, all of the --
423 MS EMBREE: Everything.
424 MR. CHOQUETTE: Yes.
425 MS EMBREE: Okay. If you go to page nine of attachment one, I'm looking at a paragraph 22.214.171.124 (c).
426 MR. CHOQUETTE: You'll just have to bear with me here.
427 MS EMBREE: Sure.
--- Pause / Pause
428 MS EMBREE: If you don't have it, you can actually look at the response to CRTC 104. It has the same paragraph in it.
429 MR. CHOQUETTE: So this is the equal access study?
430 MS EMBREE: Yes.
431 MR. CHOQUETTE: Yes.
432 MS EMBREE: Okay.
433 So you've got page nine there --
434 MR. CHOQUETTE: Yes, I do.
435 MS EMBREE: -- of the attachment? Okay. Great. All right.
436 126.96.36.199(c), it says:
"PIC CARE and carrier billing operations expenses for all years are determined by applying the company's base year PIC CARE and carrier billing operations and unit costs to the forecast competitors IXC equal access traffic usage for those years."
437 What I'm wondering, when I read this paragraph, does this mean that the ongoing costs of PIC CARE are included in O.N. Telcom's equal access startup cost charge?
438 MR. CHOQUETTE: The initial investments are included, yes. And to the extent that there is a recurring training charge, it's been actually brought forth to a net present value in terms of the startup, yes.
439 MS EMBREE: Okay. I'm going to ask a question of clarification. I'm going to take an example.
440 PIC CARE -- or, excuse me, a PIC change charge, that wouldn't be included in -- the costs associated with PIC changes wouldn't be included in the rate, would it?
441 MR. CHOQUETTE: Right now, no, the PIC change has not been included. What we have included is some equipment associated with setting up the operation, if you will, and also some of the related expenses to maintain the equipment and that type of thing.
442 MS EMBREE: Okay. That's great. Thanks.
443 I have another question, and again I'm not sure who it's for. It relates to the O.N. Telcom access tandem switch.
444 Will O.N. Telcom's own toll traffic be routed through the access tandem switch, assuming that the LEAS software is installed on that switch?
445 MR. CHOQUETTE: The O.N. Telcom traffic -- from the competitive segment? Yes, it goes through the same switch.
446 MS EMBREE: Okay.
447 So all of O.N. Telcom's own toll traffic for its own toll customers would go through the access tandem switch?
448 MR. CHOQUETTE: The traffic travels through that switch, and yeah, I guess that's a simple answer, "yes."
449 MS EMBREE: Great. Thanks.
450 Okay. Just a couple more questions, Mr. Chairman, just so you know I've got maybe two or three left and I'll be finished.
451 Could you turn to page twenty-three of O.N. Telcom's revised initial submission?
--- Pause / Pause
452 MS EMBREE: Have you got that?
453 MR. CHOQUETTE: Yes.
454 MS EMBREE: Okay.
455 I'm looking at paragraph 54, the second sentence of paragraph 54 says:
"The required LATA equal access system, LEAS software, has already been installed in the Timmins toll switch, as it is required in any event, to capture toll billing records and to facility the implementation of Feature Group D Equal Access to the end offices where O.N. Telcom is the local service provider."
456 I guess my question is: When O.N. Telcom prepared its equal access study, did it back out the costs that are incurred when O.N. Telcom captures its own toll billing data?
457 MR. CHOQUETTE: Yes.
458 MS EMBREE: Okay. Thank you.
459 Those are all my questions, Mr. Chairman.
460 THE CHAIRPERSON: Thank you, Ms Embree.
461 Mr. Secretary, could we have a number for the company's exhibit?
462 MR. McCALLUM: Yes. This diagram will be called for the record "The Company's Exhibit No. 1."
463 THE CHAIRPERSON: Thank you.
464 I understand, Mr. Secretary, there are no other parties to cross-examine?
465 MR. McCALLUM: That's correct, Mr. Chairman.
466 THE CHAIRPERSON: So, it's over to you.
EXAMINATION / INTERROGATOIRE
467 MR. McCALLUM: Thank you, Mr. Chairman.
468 Just as we begin, we're going to be asking some questions based on a a diagram so I'll ask Mr. Hill if he'll distribute a copy of the diagram.
469 Even though my first set of questions will be in the nature of clarification, I'll be asking some questions on the diagram in a minute if that's all right. And for the record, I'll label the copy of what's being distributed right now as CRTC Exhibit 1.
470 THE CHAIRPERSON: Counsel, you said "diagram". Did you mean diagram?
471 MR. McCALLUM: We'll amend that to call it a "chart".
EXHIBIT NO. 1: The Company's Exhibit No. 1, Chart
472 MR. CUSHING: Mr. Chairman, would there be more copies available for the backup, please?
473 MR. McCALLUM: If I may, I'll start with a couple of questions of clarification.
474 The first several questions relate to the company's, I guess the computer desk model called "O.N.Tel financial model 2002 to 2004," and it's the model that I believe was filed in confidence with the Commission. The model appears to apply a factor to what's called in the model "Internal billed traffic total."
475 Is it helpful for you to get the model in front of you in order to answer the question?
476 MR. CUSHING: If you could just continue with the question, we may be able to answer that first question. It all depends on --
477 MR. McCALLUM: Sure. The model appears to apply a factor to internal billed traffic total in order to arrive at a figure for what's called in the model "Switch Minute Total Attributable to O.N. Telcom."
478 Could you please explain the source and the use of the factor?
479 MR. CHOQUETTE: If you could just give us one minute, we'll get back to you.
480 MR. McCALLUM: Sure.
--- Pause / Pause
481 MR. CHOQUETTE: There are a couple of factors that are applied to traffic. One relates to the proportion of originating bill calls which are actually terminated inside the territory, so "total," "originating," and "terminating," if you are looking at a total originating number and you want to have a total originating and terminating, you would apply a factor to pick up that proportion which doesn't leave the territory. So that's one.
482 Another factor is applied to the market share in a sense that the market share is applied to originating bill traffic in the company's territory. So that's a second factor.
483 So, it would depend on which one you are referring to.
484 MR. McCALLUM: I am referring really to what, I guess, multiplication you have to do or what adjustment you have to do in order to take the number that you have for internal billed traffic total up to the number which you call switch minute total attributable to O.N. Telcom.
485 What is the source and use of that adjustment factor?
486 MR. CHOQUETTE: I think what we'll have to do is probably get a reference to the specific worksheet that you're referring to.
487 Could you tell us if it's related to the computation of the SWAG AT or...
488 Okay, so it's related to the worksheet entitled SWAG AT?
489 MR. McCALLUM: The fact reference is O.N. Tel, Financial Model 2002-2004 low share read only revision 5.XLS worksheet SWAG AT 2002.
490 MR. CHOQUETTE: Okay, I think I can picture it in my mind right now. Go ahead.
--- Laughter / Rires
491 MR. CHOQUETTE: So the question is, the factor which was applied to a particular cell to get another total number; right?
492 MR. McCALLUM: That's right. The factor's applied to one cell to get another cell and the one cell is internal billed traffic total and the one that you're trying to derive from that is switch minute total attributable to O.N. Telcom.
493 MR. CHOQUETTE: Okay. I think what we will have to do is actually go into the model and figure out what that particular cell is to give you an accurate answer.
494 So to that extent, if you don't mind, we could take an undertaking to provide that to you once we can get into the model with our computers.
495 Is that okay, or -- because I can see it but I just can't remember what that particular cell does.
496 MR. McCALLUM: You would be able to get back to me or back to the Commission, for example, later today?
497 MR. CHOQUETTE: It all depends how long your cross is, but I expect if it wasn't too long, yes.
498 MR. McCALLUM: Okay. And I don't know if you have responded to the following or if you need to look at the model in order to respond to it, but we are trying to get an understanding of the difference I guess in terminology and difference in computation between these two terms: The internal billed traffic total and the switch minute total attributable to O.N. Telcom.
499 What is the difference between those?
500 MR. CHOQUETTE: And you're referring to the same worksheet?
501 MR. McCALLUM: That's correct.
--- Pause / Pause
502 MR. CHOQUETTE: Yes. I think we'll understand and we will provide the explanation, the actual calculation there.
503 MR. McCALLUM: Right. The calculation and the explanation. Thank you, that's your undertaking.
504 Again, a question on the same worksheet. Again, I don't know if you can answer it off the top, but could you explain where the company includes official telephone service OTS minutes; would it be in either or both of these two terms, internal billed traffic total and switch minute total attributable to O.N. Telcom; would it be in one of those two figures the OTS minutes or would it be somewhere else?
505 MR. CHOQUETTE: No, the OTS minutes in the company's territory they're actually billed at tariff rates to the company.
506 Most of the company's OTS traffic is actually provided by Bell Canada because the headquarters is situated in North Bay, but there is an element of toll traffic associated with OTS and, yes, it is included as part of the normal traffic.
507 It's billed and it actually shows up as a revenue and it actually shows up as an expense, a telephone expense to a particular work centre. And so to that extent the answer would be it's included in the traffic estimates which were prepared because the company doesn't discriminate between OTS or any other traffic.
508 MR. McCALLUM: Well, since you're going into the worksheet, could you perhaps in responding to the undertaking just in responding to that say which line that the OTS minutes show up in?
509 MR. CHOQUETTE: Well they show up in every line but fine, yes, we'll clarify that.
510 MR. McCALLUM: Thank you. If I turn to the chart that we have just distributed a couple of minutes ago, CRTC Exhibit 1.
511 MR. CHOQUETTE: Yes.
512 MR. McCALLUM: This was prepared by Commission staff of course. The attachment shows the toll subsidy that O.N. Telcom proposes that it receive from the central fund to compensate for the revenue shortfall associated with uneconomic toll and those facilities associated with host remote links.
513 The rows called market share and subsidy have been taken directly from the O.N. Telcom revised submission page 42 table 3, that's where they come from.
514 The figures in the columns entitled 2002 base 65 per cent have been taken from the O.N. Telcom CRTC interrogatory No. 400 attachment 7 called forecast results with proposed local rate increases and SWAG in utility.
515 We note from this chart that in the year 2002 the subsidy under the 65 per cent market share scenario is $815,000 while the subsidy under the higher market share scenario of 82.5 per cent is higher at $962,000.
516 We also note from this in the years 2003 and 2004 the circumstance holds true, the larger the company's market share the greater subsidy requirement.
517 Could you please explain for the record why the subsidy appears to increase as the market share increases?
518 MR. CHOQUETTE: The financial model was set up on the basis of a utility SWAG DSC which accumulated revenues with, as you pointed out, host remote AG revenues that was, I think it's line 3 in your chart and host remote AT revenues, line 2.
519 What happens is that when the company's market share improves there's less traffic, there's less competitive traffic being carried by the company on those facilities and so the revenues go down because they are not paying for as many minutes.
520 Now, in terms of the actual costs, which are associated with that particular same SWAG DSC, they are embedded costs and the uneconomic toll portion is not modified on the basis of market share; in other words, the uneconomic toll portion remains stable and the same thing applies to the host remote link.
521 And so to that extent you have a reduction in revenues under the split rate base and you have costs which are diminishing but not to the same extent as the revenues are diminishing, and so that is why the subsidy increases or is larger, I should say.
522 MR. McCALLUM: So for the year -- for the three-year period 2002-2004, your study shows that as the market share continues to decline as does the subsidy requirement during that period of time?
523 From this we were wondering if we can conclude that O.N. Telcom anticipates the nature of its business will change. It becomes, it looks like to us, more of a carrier's carrier as opposed to a retailer of toll service.
524 MR. CHOQUETTE: I don't think you can conclude that. As I explained, the reason for that phenomenon, if you wish, or the fact that the subsidy is going up and our market share is going up at the same time is simply the nature of a split-rate base where you essentially divide the performance of the competitive segment from the utility segment and to the extent that we are keeping certain costs constant in the utility segment; namely uneconomic toll, and the fact that the only revenues that that particular part of the utility segment had are SWAG revenues, and to the extent that the competitors are losing market share or they don't have as much market share as they had under the other scenario, you get a larger deficit at the end of the day.
525 And that's really the simple explanation. It really has nothing to do with the company changing its business or anything like that.
526 MR. McCALLUM: And conversely as the competitors get better market share they have a smaller -- there's a smaller deficit?
527 MR. CHOQUETTE: That's right. To the extent that the company is carrying competitive traffic, the revenues associated with that particular broad service category are going up and so the deficit, you know, approaches zero.
--- Pause / Pause
528 MR. CHOQUETTE: Maybe one way of clarifying this a bit is to -- it's not intuitive, I totally agree with you.
529 If the company had not proposed something like this, say the company had said we're going to do it exactly with no adjustments at all with respect to the rest of Canada, we would have had all of those host remote link charges assigned to the utility segment and they would have been drawing contribution, we would have had no revenues associated with that, and so we would have had this enormous contribution requirement in the territory which, in our view, when we looked at it initially was just not acceptable, it just didn't work. I mean, we have so many -- we have very few local mats and we have something like 5,000 subscribers and yet we have this huge investment in host remote facilities where in the rest of Canada that's part of the local network.
530 So this particular alternative which was related to: Look, let's see if we can get revenues in there to make the subsidy requirement a little more reasonable, was the path that we chose.
531 MR. McCALLUM: By the year 2004, according to this table, you would have 40 per cent of the market which means that you would have to provide more of the underlying services to the competing carriers; you're providing less of the services to yourself to carry toll traffic, it's the competitors that are carrying more toll traffic; is that not correct?
532 MR. CHOQUETTE: Well, that's right. Like I said, we are providing the host remote link. It's a significant investment, it's a large cost. If we follow the Commission guidelines associated with 95-21 and the split rate base regime we would have put it all in utility with no revenues.
533 And so to the extent that we are charging a carrier to carry traffic in that local part of the network, if those facilities were owned by Northern Telephone they'd simply be charging -- the DC rate that they charge would be higher, there would be a greater volume associated with that DC rate, so those revenues would be going to them.
534 All we're saying is: Look, we happen to provide a significant portion of their local network but we only have 5,000 NAS in our local network, and so this is a mechanism to at least alleviate somewhat the problem of having high, very high utility costs, very few NAS and having a large contribution requirement that would have resulted from that.
535 That's the phenomenon you're looking at basically.
536 MR. McCALLUM: The phenomenon essentially is that you're carrying traffic for other carriers so you're effectively, to a large degree, acting as a carrier's carrier in this scenario of retaining 40 per cent of the market?
537 MR. CHOQUETTE: What we are -- essentially we are carrying competitor's traffic in northern local network, just like Northern would have. I mean, that's essentially all it is, nothing more than that.
--- Pause / Pause
538 MR. McCALLUM: So if we take your scenario of the market share loss of 35 per cent in the first year, which is the base case, what changes would you have to make in order to accommodate providing service to other carriers?
539 For example, what changes would you have to make to attract and accommodate business -- new business from other carriers in a scenario of retaining 65 per cent of the market and losing 35 per cent of the market?
540 MR. CHOQUETTE: Well, you have to understand that the market share number is related to internal billed traffic.
541 I think you realize that a significant -- as a matter of fact I think it's a very, very large proportion of the traffic that's being carried in this territory today relates to inbound settlement traffic from Bell Canada.
542 So when we're talking market share we're talking about internal billed market share so just to clarify that, and to the extent our proposal -- if we lose 35 per cent of the internal billed market share to another carrier in our own territory we are not proposing that we are going to carry that traffic outside of the territory, I mean, they can provide that capability as well.
543 All we're saying is that the per cent market share retention really focuses on the internal billed traffic only, not on the settlement traffic because, as you know, we propose a transition period for the settlement traffic of four years with Bell Canada.
544 And I think the Commission knows, even though it's confidential, that that's a big chunk of the traffic.
545 THE CHAIRPERSON: Mr. Choquette, if I can just reduce this to fairly simple understanding.
546 Your position is that we characterize this tandem traffic as utility segment traffic, which I believe you said in the normal environment you would have no revenue, so the more market share you lose here the more revenue you gain, hence the smaller the shortfall?
547 MR. CHOQUETTE: That's right. The revenue -- the revenue, it's a mechanism to provide -- to reduce the subsidy to keep it manageable.
548 MR. McCALLUM: I would also note that, in line with the question that Mr. Colville posed, you know, the competitive segment, when we start losing at these revenues, the competitive segment is not doing very well,
549 MR. CHOQUETTE: Right.
550 MR. McCALLUM: I mean, we are just focusing here on the utility segment.
551 MR. McCALLUM: Yes. Essentially what we are trying to get at in this is what changes would you have to make to your operations to accommodate, I guess, the change that is being depicted in the scenario. We were thinking that you might have to change, for example, develop new rates, perhaps establish new marketing services, perhaps interface groups, customer operations, there might be several things you have to do to accommodate a transition from having 100 per cent of the toll traffic to 65 per cent of the toll traffic.
552 MR. WHEELER: We would certainly make adjustments to our business depending on the market share that we actually retained.
553 MR. McCALLUM: And those would include some of the examples that I gave to you, I would assume?
554 MR. CHOQUETTE: The forecasts that we provided include that. Okay. I mean, there are -- the expenses have been adjusted to reflect market share loss. The market share figures themselves relate to the fact that the incumbent -- the other incumbent in the territory, should that incumbent decide to become a toll carrier, is a subsidiary of Bell Canada and to suggest somehow that the market share loss would be less is -- it's always possible, but certainly we consider these type -- these particular projections as being reasonable considering the environment we are in.
555 MR. CHOQUETT: Yes. I think Mr. Wheeler agreed that there would have to be some changes to the business to accommodate the situation of going to a 65 per cent share loss in the first year.
556 And could you give an idea of how fast the proposed -- how fast the changes would be done to accommodate that scenario?
557 MR. WHEELER: That's good question because we are going from an environment where we have a hundred per cent market share and we are geared up to support that level of customers. We're now billing those customers, which we just started in October, and to go from a hundred per cent market share to 65 per cent market share, as the base case shows, is a dramatic change in a single year and, at the same time, we're going to be aggressively trying to win back customers.
558 And so it's a difficult thing to necessarily determine what specifically we would do.
559 We've estimated the changes we would make to the business, but as you have got to recognize, we're losing market share, you know, we're going from a hundred per cent, very quickly reducing market share and then we're still trying to serve the customers we have and continue to win back market share.
560 So the determination of those changes was -- it's difficult for a company to make that kind of an adjustment in a single year.
561 MR. CUSHING: And to the extent that the model as proposed contemplates that in this scenario that market share decrease could occur, the model also reflects those changes with respect to those aspects of what you discussed?
562 MR. McCALLUM: So most of these changes that you were discussing would happen within the first yearin order to make the adjustmentss to the business to make you into a carrier's carrier.
563 I take it from your response that they wouldn't be in place necessarily by the first of January 2002?
564 MR. CHOQUETTE: Well, if you look at the financial model in terms of what it projects, the company's financial situation starts to stabilize after about three years. For the first three years we have a loss situation, a significant loss situation in the competitive segment and the adjustments are made over that period.
565 And so to the extent that the financial model reflects a certain forecast of what our expectation is, then I would not suggest that one year would be an appropriate time frame with respect to these adjustmentss.
566 MR. McCALLUM: But in terms of really the operational changes that have to be done in order to transition to toll competition in the market, I was really trying to get a sense of how long the operational changes would have to -- how fast they would have to be done in order to prepare?
567 MR. WHEELER: Could we have a moment please.
568 OFF RECORD
569 MR. WHEELER: If we understand your question correctly, basically over the last couple of years we've been gearing up for competition with the introduction of our new billing system, taking over billing, and in October we've introduced new toll plans, new toll plans are on the way, they're in development, we're aggressively marketing to preserve our customer base, serve the customers we have. So we're aggressively doing those things now and we'll continue to do that into competition.
570 And to try to explain what I said, we're going from a hundred per cent market share to a dramatic reduction in market share, and those projections are based on us doing the things that we need to do to be competitive. So that's where the projections come from.
571 And basically what I'm getting at is what we've estimated is the reaction time we have to cut expenses to the extent we can while still trying to win customers back and continue to work with the customer base we have.
572 So, there are a number of things happening and we're doing everything we can to ensure that we're being competitive in the market.
573 MR. McCALLUM: Thank you. I have another series of questions, then, on a slightly different topic. The topic is now dealing with the market share and the market share loss that you are estimating, and I'm going to start by referring you to CRTC Number 1400, the 26 February 1400 where you provided two estimates of the market share loss in 2002, the base case of 35 per cent, sensitivity case of 17-and-a-half per cent.
574 MR. WHEELER: We have 1400 open. Could you tell us basically where you're looking?
575 MR. McCALLUM: I'm just looking at where you've looked at base case, 35 per cent and sensitivity case 17-and-a-half. And my first question effectively is what was the pricing differential assumed between O.N. Telcom and the competitors in the 35 per cent market share loss scenario?
576 MR. HUTTTON: Could you repeat the question, please?
577 MR. McCALLUM: What was the pricing differential assumed between O.N. Telcom and the competitors in the thirty-five per cent market share loss scenario?
578 MR. HUTTON: Basically, if it would make things clearer and more expedient, we would be prepared to have Dr. Morin-Strom sworn in so he could answer those questions directly. Would that be all right?
579 MR. McCALLUM: I think that would be satisfactory, with the permission of the Chair.
580 THE CHAIRPERSON: He's your witness, if you want him sworn in.
581 Dr. Morin-Strum, do you want to move forward? Do you wish to be solemnly affirmed, Dr. Morin-Strom?
582 DR. KARL MORIN-STROM
584 MS. EMBREE: Just as a preliminary matter, we've now provided a copy of Dr. Morin-Strom's CV and it will be circulated over lunch.
585 DR. MORIN-STROM: Did you want me to try to reply to that last question?
586 MR. McCALLUM: Yes, please.
587 DR. MORIN-STROM: In these cases, we are assuming that our average rate in the territory will be the same as other competitors because we will be meeting the competition with equivalent plans, not necessarily identical plans, but we expect that we will be competitive and our rates will match those of the average of other competitors in the territory. So there will be no difference.
588 MR. McCALLUM: Given that you've suggested that there is no differential, could you look -- I guess it is a document filed in confidence, so I have to give you the specific page reference. It's O.N. Telcom CRTC, 26 February 1501, and it's the market survey, executive summary.
589 DR. MORIN-STROM: Which page?
590 MR. McCALLUM: I'm on the executive summary page, page seven.
591 DR. MORIN-STROM: Yes.
592 MR. McCALLUM: Do you have the document in front of you?
593 DR. MORIN-STROM: Yes.
594 MR. McCALLUM: At page one, third paragraph, second sentence, end of the third line.
595 DR. MORIN-STROM: "Not surprisingly?"
596 MR. McCALLUM: That's the sentence I'm referring to.
597 DR. MORIN-STROM: Yes.
598 MR. McCALLUM: Could you please explain the 35 per cent share loss in the light of what you've said on that page, and you've also responded that there is no pricing differential.
599 MS. TRAYNOR: Mr. Chairman, perhaps while the witnesses are preparing their answer, just as a point of clarification, the document that's being referred to is not an O.N. Telcom document; it was prepared by a third party.
600 DR. MORIN-STROM: This market survey was one of a number of tools that was used to estimate what the potential of the market share loss might have been, and much of the focus of it was on the situation where we would have perhaps ad rates ten or twenty per cent or some percentage higher than competitive rates in the territory.
601 One of the reactions we've had to this is that we believe we have to have competitive rates in the territory and, despite having competitive rates, there is a range of potential market share losses. We have to plan our business based on what we've put in as the base case which we think has a reasonable likelihood of occurring but might be viewed as being on the pessimistic side of that range.
602 MR. McCALLUM: So what other factors, then, other than the pricing differential, were included in your consideration in developing the thirty-five per cent share loss scenario?
603 MR. WHEELER: Other considerations are the marketing strategies of the competitors that surround us, and because of the nature of the territory and the potential for aggressive marketing in the territory, we felt the survey took into account status quo, but we're also anticipating that there will be aggressive marketing to capture significant market share at the outset and that's the way we've planned our business.
604 MR. McCALLUM: What do you have in mind by "aggressive marketing?"
605 MR. WHEELER: Well, one example was the introduction of Bell Expressview in the Timmins where there was a significant activity around aggressively pursuing market share in the region, and having seen that happen, we felt that that type of scenario could occur as well when it came to toll competition.
606 MR. McCALLUM: Are you assuming, for example, that Northern Telephone would be a competitor?
607 MR. WHEELER: Well, certainly, Northern Telephone, Bell Canada. The other thing is that our customers have access to television advertising where they are seeing all the time the other options that are available to them, and we felt that with the knowledge the customers have about new toll plans in the market and the potential for aggressive additional marketing on top of that and the fact that we're relatively new to customers -- like, we have just started billing them in October -- so when you put all those things together, we felt that a thirty-five per cent market share loss in the first year was still a reasonable thing.
608 MR. CALDWELL: Perhaps if I could just add to that, we are very aware of the pent-up demand in our territory for long distance competition. Our account managers in our customer care centres on a daily basis perhaps are reminded of some of the national carriers' plans. Because of the national advertising, they are well aware of those plans. So we recognize that there is significant pent-up demand.
609 MR. WHEELER: I'd like to add to that as well. When you look at the business segment, I mean, we've been talking about the consumer segment, but when we look at the business segment, there's a significant portion of our business that is national accounts that we feel will go to the competitor almost immediately.
610 MR. McCALLUM: If I could ask a few more questions about the survey, then, that we were referring to a couple of minutes ago. My first question - and that was filed as an attachment to 1501.
611 When were the questions in the market survey asked?
612 MR. CALDWELL: I believe the questions were asked in the month of September 2000.
613 MR. McCALLUM: Was this survey conducted after some of the customers in your operating territory began receiving two separate bills, one for local service and one for toll services?
614 MR. CALDWELL: Just prior to that. They started receiving bills in October.
615 MR. McCALLUM: So the survey was done before the customers started receiving two bills?
616 MR. CALDWELL: But they were advised that a second bill was coming.
617 MR. McCALLUM: Is it possible the results of the survey could be different if O.N. Telcom had started billing for toll service before the questions in the survey were asked to people?
618 MR. CALDWELL: Yes, that's very possible. Certainly our awareness would increase.
619 MR. WHEELER: I'd like to add to that as well that this is the first time that these customers have had to deal with two bills in the market, and the reaction to a second bill hasn't been favourable.
620 MR. McCALLUM: So how was customer awareness of who is their toll carrier factored into the development of market share loss?
621 MR. CALDWELL: Could you repeat the question, please?
622 MR. McCALLUM: Yeah. The survey was done just before O.N. Telcom started to bill for toll service. Perhaps, us you said, customers were aware that a second bill was coming, but the questions were asked, the questions were asked first before people started to receive two bills.
623 So how was customer awareness of who is their toll carrier factored into the development of the market share losses?
624 MR. CALDWELL: I believe that all those issues were considered. I think that we recognize that as awareness grows, we have a challenge ahead of us to continue to do a good job, a good job in customer care. There will be many challenges. But surveys will change from time to time and factors will change from time to time.
625 MR. McCALLUM: So a survey might have a different result if done today, for example?
626 MR. CALDWELL: That is possible, yeah.
627 MR. WHEELER: I would just like to also add the consideration that the survey may not be more positive. The second bill is one consideration in that.
628 MR. CALDWELL: There's no question that we've had a number of customers that have approached us complaining of the second bill.
629 I might even cite one of the townships in Hearst issued a proclamation in council suggesting that we continue with one bill even though we were not able to do so.
630 MR. McCALLUM: If you had the capability of providing one bill, then, to toll and local subscribers, would that have an impact on your market share and, if so, what kind of impact?
631 MR. CALDWELL: I can give an example of a specific customer, an important business customer who on several occasions contracted both Northern Telephone and ourselves, our customer care departments, complaining about various issues. When we really got into the root of the problem for the customer, we discovered that it was the second bill that was his only concern. So we know how important that is.
632 So we recognize that perhaps not every customer will be concerned about getting a second bill, but definitely there are many that are and they can be sometimes the more significant customers from a revenue perspective.
633 MR. McCALLUM: Thank you very much.
634 If I could clarigy just a couple of points before dealing with the economic study. One of the uneconomic toll routes runs from Cochrane to Attawapiskat; is that right?
635 MR. CUSHING: That's correct.
636 MR. McCALLUM: And the portion from Cochrane to Moosenee is fibre optic cable, correct?
637 MR. CUSHING: The portion from Cochrane to Moosenee and over to Moose Factory is fibre.
638 MR. McCALLUM: And the exchanges north of Moosenee, namely, Fort Albany, Kashechewan and Attawapiskat are linked to Moosenee by analogue microwave right now; is that also correct?
639 MR. CUSHING: That's correct.
640 MR. McCALLUM: And the other uneconomic route that links Cochrane and Detour Lake, WOULD I take it that's also analogue microwave?
641 MR. CUSHING: Yes, the link to Detour Lake is microwave and it is analogue microwave. And, furthermore, the link to Peawanuk is by satellite link, as demonstrated in the presentation.
642 MR. McCALLUM: The economic study that I think Miss Embree referred to earlier was attached, I think, as an attachment to CRTC 1108, and I think you said in response to some of her questions that the company had done a Phase 3 type study in order to develop that economic study; is that correct?
643 MR. CHOQUETTE: Yeah. The economic study was actually put - when we started, we were trying to look at how we would identify the uneconomic routes, and we chose to look at the net cash flow from exchanges and the different costs associated with the segments interconnecting them to Timmins and, indeed, that's what that study does.
644 MR. McCALLUM: If the company were to do a Phase 2 type study of these routes, would the shortfall decrease?
645 MR. CHOQUETTE: I would expect that the shortfall would decrease, yes.
646 MR. McCALLUM: On page five of the study, paragraph 2.3.1.
647 MR. CHOQUETTE: Yes.
648 MR. McCALLUM: Do the revenues included in the study include payments for all voice telecommunications services provided by O.N. Telcom to ONTC or the province?
--- Pause / Pause
649 MR. CHOQUETTE: You'll have to repeat that one because I think I missed something.
650 MR. McCALLUM: Do the revenues included in the study include payments for all voice telecommunications services provided by O.N. Telcom to ONTC or the province?
651 MR. CHOQUETTE: Yes. Our models always assume that service is provided to ONTC or the province are costed at tariff rate.
652 MR. McCALLUM: On page eight of that same study, I guess it's Section 2.5.2, Costs and Revenues:
"The company indicates that revenues on the uneconomic toll routes would decrease from a million four thousand dollars in 2002 to $860,000 in 2003, a 14 per cent decrease."
653 Could you explain why market share losses are different on the uneconomic routes versus the total company market share loss of 35 per cent?
654 MR. CHOQUETTE: The actual market share losses are reflected in minutes with respect to the billed traffic that we we're referring to earlier, the 75 per cent, et cetera. These revenue numbers relate to net cash flow, so what happens is net cash flow means that it's billed, the told revenue minus any cash that we have to pay our toll terminating charges to Bell Canada.
655 And what we did to actually compute the number is simply look at the percentage of the net cash flow of the company generated by those exchanges. And to the extent that the toll revenues of the company were going down, so assuming that in 2002, for example, we had total company, say, revenues of $100 million, we would apply the same per cent net cash flow in the following year to those exchanges. So that that is probably the explanation as to why it doesn't have necessarily a one-to-one match with respect to those percentages that you were referring to.
656 MR. McCALLUM: Then just again, earlier we were discussing how much of market share loss in the thirty-five per cent scenario where we started earlier today was due to market share loss and how much is due to repriced loss. How much is that true in this scenario?
657 MR. CHOQUETTE: We didn't do it that way. This is not a bottom-up analysis of revenues. What we did, like I said, we took the net cash flow percentage of the company associated with those exchanges and we simply applied the same percentage to the subsequent year's toll revenues. So we really can't answer the question as to what particular components contribute to that reduction.
658 Q. Thank you.
659 On page 5 of that study, then, there's a definition of total cash flow forecasts and NCF, net cash flow, is defined to be equal to total company toll voice revenues minus local exchange carrier, carrier access tariff expenses and toll terminating expenses paid on settlement traffic.
660 Could you advise what other types of telecommunication services does the company offer over these uneconomic toll routes?
661 MR. HUTTON: Maybe you could just repeat the question for us.
--- Pause / Pause
662 MR. McCALLUM: We're dealing, of course, in the study with the uneconomic routes. So what I'm trying to get a handle on is what other types of telecommunication services other than voice, we just looked at the definition of voice, does the company offer over these routes?
663 MR. CALDWELL: Perhaps I can answer that. There's some private line data and video services as well, although relatively minimal.
664 MR. McCALLUM: These services, of course, are compensatory?
665 MR. CALDWELL: These services today essentially are charged at tariff rates.
666 MR. McCALLUM: And the tariff rates are, of course, compensatory?
667 MR. CALDELL: To the best of our knowledge, yes.
668 MR. CHOQUETTE: I would just add one thing with respect to this compensatory issue.
669 The tariff rates for the company are set over the whole territory and to the extent a particular segment is situated on the James Bay, it's not clear to me that the particular services that you're talking about travelling on that particular segment would necessarily be compensatory.
670 On average, yes, but on that particular route, certainly I'm not aware that the company has actually done the calculation as to whether or not they are or are not, but it's not clear to me that they would.
671 MR. McCALLUM: So it's possible, given your answer, that if these services are possibly compensatory that the overall shortfall on these uneconomic routes would be reduced?
672 MR. CHOQUETTE: To the extent that you have other services on that segment which are compensatory, your hypothesis is correct.
673 MR. McCALLUM: So given that possibly the revenues are understated, possibly in line of what you just said there, and given that the study is a Phase 3 study and not a Phase 2 study, is it possible to conclude that the Cochrane/Moosonee route is an economic route?
674 MR. CHOQUETTE: It's possible to conclude anything when you don't have any particular data to support it. So yes, it's possible.
--- Pause / Pause
675 MR. CHOQUETTE: To the extent that the reference was made to Cochrane and Moosonee, I believe it should be Cochrane to Attawapiskat part of the uneconomic.
676 MR. McCALLUM: Thank you very much.
677 MR. CALDWELL: Perhaps I could just as well, I indicated that the services were charged at tariff rates. There are a couple of exceptions with respect to video and audio contracts that we have, in essence they're national contracts and we play a role in that.
678 MR. McCALLUM: In this proceeding, I think both Bell and the companies have stated that there is no need to designate a toll carrier of last resort.
679 If one were to look at the high cost serving area decision, Decision 99-16, it indicated that it is the responsibility of the incumbent ILEC to ensure its subscribers have access to the toll network.
680 If we were to assume for the sake of the next couple of questions that there's a liberalized interconnection regime where the Commission allows toll competitors to interconnect at the end office switches of their choice and that there's no designation of a toll carrier of the last resort, in response to part (b) of interrog 2304, which was 18 April 2304, O.N. Telcom stated that it would consider leasing facilities to allow and ILEC to connect its local exchange customers to the toll network under the appropriate circumstances.
681 Given all those things and the assumption that there's a liberalized interconnection regime and assuming there's no designation of a toll carrier of last resort, would O.N. Telcom consider withdrawing from the provision of toll service to, say, Detour Lake and lease facilities to Northern to allow Northern's customers access to toll?
--- Pause / Pause
682 MR. HUTTON: The question relating -- the example to Detour Lake probably is not a particularly good one given the circumstances there; however, we look upon it as the toll -- the local carrier has the responsibility to provide access to toll.
683 Within our territory, we would see our obligation to provide the toll at the local carrier -- to the local carrier, and we're prepared to meet that obligation, but we also need to recognize that to a large part of our territory we would need a subsidy to do that. We also would have to look at probably some more consideration on this one.
684 MR. CHOQUETTE: I think the difficulty here is the financial impact. I mean, if you take one example to Detour Lake that's fine, but if you're talking about some kind of universal rule associated with the lease of facilities to end offices in the territory, we have not done a financial analysis of that with respect to whether, first of all, such leased rates would be reasonable or appropriate.
685 And I think it's somewhat difficult for us to deal with that issue right now in terms of, you know, the way that you pose the question.
686 MR. McCALLUM: See what I'm trying to get at is that assuming the hypothesis of no subsidy, why would you want to continue to offer service in an area where, under the high cost serving decision, you're not necessarily required to offer service. The local exchange carrier has to provide access to the toll network; why wouldn't O.N. Telcom simply withdraw from the provision of toll service in that circumstance?
687 MR. CUSHING: The difference being, obviously, with respect to the local carrier has to provide, and the key word here -- the operative word here is access and we view that as the responsibility of the local exchange carrier.
688 And to the extent that O.N. Telcom's responsibility lies in the area of providing toll to those communities, we view that as our obligation which we fulfill and expect that we will continue to fulfill.
689 MR. McCALLUM: Even if that were at a loss?
--- Pause / Pause
690 MR. CHOQUETTE: The company offers services in a number of remote areas including, some of those remote areas relate to our company's own local exchanges.
691 To the extent that you're parsing out or removing some of the other remote areas with respect to an obligation to provide toll service, the company is still obligated to serve its own exchanges. I mean, it's not as if we're only serving remote areas that relate to somebody else's exchange.
692 MR. McCALLUM: If we deal with, let's say, the provision of toll service to Bell exchanges along the James Bay area, would O.N. Telcom consider withdrawing there and lease facilities to, say, Bell to allow Bell to serve its local -- to gets its local customers access to the toll?
693 MR. CUSHING: Depending, obviously, on the rate and the compensation with respect to the provision of those facilities, O.N. Telcom would consider leasing facilities, but one aspect of this is the fact that leasing facilities or providing them does not in itself make a particular route become economic.
694 MR. McCALLUM: But leasing facilities would reduce the shortfall. I think you've anticipated that in your response to 23-04 because you've considered the idea that you would lease the facilities is in certain circumstances anyway and certainly leasing would reduce the shortfall to a degree.
695 MR. CHOQUETTE: Well, to the extent that you're recovering more revenues than you are with respect to the toll service in that territory, yes, revenues are higher.
696 But I would also note that the fact that these particular remote exchanges subtend to part of the network, you know, we aggregate traffic over those facilities, that traffic to Bell Canada exchanges up in that area are actually travelling on facilities going up to Moosonee/Moose Factory.
697 And so if you're suggesting that just leasing a facility from Moose Factory to Attawapiskat or one of those Bell exchanges helps us a heck of a lot, not really, because we are aggregating that traffic all the way from Timmins.
698 Now, if you are referring to leasing a facility from Timmins all the way up to the James Bay, well that to me would be a totally different scenario.
699 DR. MORIN-STROM If I could add, we obtain substantial settlement revenues from the traffic to those communities although perhaps not enough to cover our costs, and in that vein they are uneconomic routes.
700 To support those facilities we need the equivalent dollars still out of the lease agreement and a lease agreement may have to be at quite high rates in order to maintain the kinds of settlement revenues that are obtained from traffic in and out of those remote communities.
701 MR. CUSHING: And I guess in part, you know, the concept of having someone else provide the facility through a lease from us, the economic or the uneconomic portion of that, obviously, would fall into their area.
702 So, again, simply leasing of the facilities does not in itself cause the route to become economic.
703 MR. McCALLUM: Excuse me, I simply didn't hear the last part of that. You sort of faded out. It may be my form of aging, here, I'm losing my hearing. But if you could just speak up a little, I'd appreciate it.
704 MR. CUSHING: Sorry, it is probably a little bit of nervousness here at this end as well.
705 But what I was conveying was that in the last part was that simply the leasing of our facilities to someone else in order to provide toll service on a route that is uneconomic simply does not in itself cause that route to become economic in itself.
706 MR. McCALLUM: But it's better than a stranded investment?
707 MR. CHOQUETTE: Stranded investment under what scenario? Are you implying some scenario where the investment is stranded?
708 MR. McCALLUM: It would be a stranded investment if you withdraw from the toll market in certain areas and forced -- and relied on the local exchange carrier to provide the service to allow their customers access to toll.
709 MR. CHOQUETTE: Oh, I see. Okay, I understand. Sorry.
710 MR. McCALLUM: And my question was, effectively, that getting some revenue from leasing of channel capacity is certainly better than the scenario of leaving the investment stranded.
711 MR. CHOQUETTE: But I think -- you know, I mean, you're making a point, but the point is is that we have to provide the facilities that he's going to lease.
712 I mean, if the carrier wants to construct -- are you talking about a situation where you would foresee Bell Canada constructing facilities from Moosonee/Moose Factory up to that area and somehow strand all of our investment?
713 I mean, to the extent that we're leasing it, yeah, it's not stranded because we're using it for something else, but certainly the scenario where they're building would -- well, it would certainly strand some of it anyways.
714 MR. CUSHING: To the extent as well what we're talking about with respect to Bell Canada and local exchanges, their obligation there again is to provide access to toll, not necessarily toll.
715 MR. McCALLUM: Thank you. If I could just look at 23-05 for a minute or two.
--- Pause / Pause
716 MR. McCALLUM: Mr. Chair, I have about three questions on this area and then I have a series of other questions on other areas that will not take nearly as long as this, but maybe it would be a time to break after I finish with the two or three questions here.
717 In 23-05 the company states that there is a requirement to replace the analogue raido system that serves the uneconomic routes in order to maintain a reasonable quality of service.
718 So my first question is has the company received a good number of complaints about the quality of toll services over those routes in the previous twelve 12 months?
719 MR. HUTTON: No, it's not a matter of having received complaints, it's just the radio system itself is aging.
720 MR. McCALLUM: So it's not really a question of quality of service at this point in time, it's just aging facility?
721 MR. HUTTON: It's analogue and, to some extent, the ability to provide services such as internet and to ensure the ongoing reliability of the system, we would look at those as partial requirement replacement.
722 We also noted in the slide that those routes are serviced -- they're not serviced at this point by hydro, so we're hauling fuel up the coast every two years and some of those costs could be avoided and would certainly reduce the potential for any sort of environmental problem.
723 MR. McCALLUM: Is the company expecting any sort of financial assistance to undertake these upgrades?
724 MR. HUTTON: We would certainly look to whatever source of assistance that was available to assist.
725 MR. McCALLUM: Who do you have in mind?
726 MR. HUTTON: In that particular situation we would probably look to the Northern Ontario Heritage Fund as one of the potential sources.
727 MR. McCALLUM: Would the company proceed with these upgrades if the Commission were to establish a liberalized toll interconnection regime in the area including, for example, interconnection at the DMS-100 and does not designate a toll carrier of last resort?
728 MR. CHOQUETTE: Well, I guess maybe just to frame our view of that type of a situation, first of all, there would only be a very limited amount of traffic travelling on those cross-sections under the scenario that you're proposing, and I think the question here talks about 50 and 25 per cent increases in traffic.
729 So to the extent that there is -- you know, to the extent that we would be exacerbating an AT charge of, you know, like seven or 8-cents and make it larger, I think it would be certainly a consideration that the company would have in order to make sure that it's not even worse than, you know, than it otherwise would be.
730 Certainly that would be one consideration and I'm sure the company would have others.
--- Pause / Pause
731 MR. HUTTON: You know, the problem is this, is that there's the issue of the billed traffic which is originating and terminating there, but as Dr. Morin-Strom mentioned earlier, there's all that settlement traffic, too.
732 So to the extent that there's an interconnection of the DMS-100, where does all that settlement traffic terminate if it turns out that Bell Canada is providing all of that and the DMS-100 happens to be owned by their subsidiary?
733 Well, it's pretty obvious what the answer to the question is. And so there is actually a real reduction in traffic simply on the basis of settlement traffic.
734 MR. McCALLUM: I guess what I was getting at, with the possibility of a subsidy from the Heritage Fund, would it be possible to proceed with that upgrade even if the scenario that I put in front of you happened?
735 MR. HUTTON: What we would be applying for from the Heritage Fund would be purely the construction cost, the up-front capital costs, it would not relate to the on going operating costs.
736 MR. McCALLUM: Thank you.
737 Mr. Chair, that's the end of my questions in this area.
738 THE CHAIRPERSON: Okay. Thank you very much counsel. It's probably a good time to take our lunch break then.
739 So as I indicated at the outset, we'll take a one-hour break for lunch and we'll reconvene at 1:30.
--- Upon recessing at / Suspension à 1227
--- Upon resuming at / Reprise à 1330
740 MR. McCALLUM: Order, please. Ladies and gentlemen. We'll return to our proceeding now and return to questioning by Commission counsel.
EXAMINATION BY COMMISSION COUNSEL:
741 MR. McCALLUM: Thank you, Mr. Chair.
742 We'd like to seek clarification relating to, I guess it's interrog response 1100C, 26 February 1100C. From your response to 1100C, we note that the SWAG AT and the host remote AG service unit costs appear to be reduced by ten per cent.
743 Could you confirm whether a similar reduction was applied to the other interconnection services such as the SWAG DC, the EA and the transport rate?
744 MR. CHOQUETTE: The reduction of ten per cent related to the -- I believe we were referring to the switching unit costs?
745 Okay. With respect to the EA, it wouldn't necessarily apply. We don't have any switching unit costs in the EA. All we do is we have the Lee software costs.
746 With respect to the DC charge, there we are actually using different switching unit costs associated with the company's local exchanges as opposed to the to total DMS-200, and so we actually developed the DC charge on the basis of the costs associated with 1999 as opposed to a reduction of ten per cent.
747 So we did not reduce - the switching costs that we had with respect to the SWAG AT service, that was the only one where we actually did a ten per cent reduction.
748 Is that what you are referring to or are you referring to more the transmission?
749 MR. McCALLUM: I'm trying to get a sense of why you applied a reduction to one of the elements because it seemed to be 1999 data --
750 MR. CHOQUETTE: Oh, I see.
751 MR. McCALLUM: -- and why you didn't apply reductions to the other elements and try to establish the parallelism between how you got from 1997 numbers in some cases or '99 numbers in other cases down to 2001 numbers?
752 MR. CHOQUETTE: Okay. The only reduction -- the reason we actually did a ten per cent reduction on the COE transmission unit costs was because it was data that we actually gathered in 1997 and it was actually related to projects that were actually done earlier than that. They may have been done in '95 or '96, I don't recall.
753 So we actually reduced the COE transmission unit costs -- I'm correcting myself there -- to reflect the fact that the data was pretty old in the sense that it was least three or four years old.
754 Now, with respect to the other elements, which is the switching unit costs associated with DC and also the switching unit costs associated with AT, we actually looked at current costs. We didn't use data that was back from 1997. It just turned out that that's the source of information we had for the COE transmission in '97 and that's why we reduced it by ten per cent.
755 MR. McCALLUM: But just to be sure, the data that was in 1997 was the COE transmission unit costs and the fibre cable unit cost and, according to 1100C, what was reduced by ten per cent appears to be the SWAG DC service which relies on 1999 base year costing data. So again, I just wasn't quite sure.
756 MR. CHOQUETTE: Sorry. The data that was actually -- in terms of developing the SWAG DC, we only look at one transport and fibre cable cost, and that relates to host remote links located in the company's local exchanges. These are very, very short links, in the order of, you know, maybe the longest link may be Moosenee/Moose Factory, maybe it's twenty kilometers or something -- I'm sorry -- three kilometers.
757 So actually for those we actually used specific data to the exchanges because it's such a small investment. With respect to the data that was accumulated in 1997 which we used for the toll connect and the intertoll facilities, that's where we applied the ten per cent but that's because it related to the intertoll and the toll connect investments. Those were the projects that we were looking at. The projects that we used to develop that base unit cost in '97 were all intertoll and toll connect projects. There weren't any of them related to installing a three kilometre fibre link between a host and a remote in Moosenee or whatever.
758 So that's the explanation as to why we did not apply it. They are actually different.
759 MR. McCALLUM: All right. Thank you.
760 If I can look at interrog number 2102.
--- Pause / Pause
761 MR. McCALLUM: 2202 refers to an example of a toll call from a Bell Canada customer in Toronto to a northern local customer in Timmins and there are five rate elements that are applied, according to your answer to 2102.
762 MR. CHOQUETTE: That's right.
763 MR. McCALLUM: On 2102. And what I notice is there are two EA rates. There's an O.N. Telcom equal access rate at element two, and then there's a northern EA rate at element five.
764 Are you aware of any other situation where competitors have to pay two EA rates?
765 MR. CHOQUETTE: I'm not, no.
766 MR. McCALLUM: Your answer is "no"?
767 MR. CHOQUETTE: That's right.
768 MR. McCALLUM: If there were a regime where interconnection at the DMS-200 were not mandated, would this pricing policy of applying two EA rates provide some sort of incentive for competitors to interconnect somewhere else, for example, at the northern DMS-100 in order to avoid paying an extra EA charge?
769 MR. CHOQUETTE: To the extent that Northern has an EA rate as developed by the company, as I was mentioning earlier, depending on the functionality that's being provided in the feature group D software in that local exchange of DMS-100, one could probably argue that it could be included in the DC rate, in which case there would not be a separate, another EA rate.
770 If you had a situation where the Lee's software in the DMS-200 Timmins is actually providing for the equal access functionality, I don't see why you would not simply take the component of the EA costs that Northern Telephone has identified and simply bundle it into their DC rate to the extent that it's providing some information for communications between the DMS-100 and the DMS-200.
771 But to the extent of your question, if it's packaged as a separate EA rate, to the extent that a competitor wants to serve a hundred per cent of the traffic of the territory, no. To the extent that he's willing to simply service those customers which are on the DMS-100 in Timmins, yes.
772 MR. McCALLUM: Thank you.
773 Have you given any consideration to recouping the EA costs from the toll calls that originate and terminate in O.N. Telcom's ILEC territory?
774 MR. CHOQUETTE: When you refer to "recovering the EA rate" --
775 MR. McCALLUM: In other words, to avoid doubling up on the charges. In order to avoid doubling up on the charges, have you given consideration to recouping EA costs from toll calls that originate and terminate in the ILEC territory of O.N. Telcom?
776 MR. CHOQUETTE: Well, we actually do that now. I mean, to the extent that there's a toll call in the territory from one exchange to another exchange and it's a toll call, there is an EA rate applied to the extent that the competitive segment is actually absorbing that cost.
777 Is that what you are referring to?
778 MR. McCALLUM: No. I guess what I'm trying to do is I'm starting from, for example, Decision 98-14 which suggests that, in paragraph 48, which says that the terms and conditions for toll competition should be the same throughout Canada as much as possible for O.N. Telcom. And I'm trying to see if, you know, if there's any regime that can be imported here that would make the terms and conditions as close as possible to what applies elsewhere in Canada.
779 And I understand that elsewhere in Canada the EA costs are recouped from toll calls that originate and terminate in telephone companies in ILEC territory, and I'm wondering if the same thing could being done for O.N. Telcom for toll calls to avoid doubling up of the charges?
780 MR. CHOQUETTE: Well, we are actually doing that. I believe in our proposal we actually ask for an EA rate associated with the transport of toll calls in the territory.
781 Maybe, what I'm misunderstanding is the situation where there is no -- you are referring to a situation where there's a toll call and that our proposal does not accumulate an EA charge?
--- Pause / Pause
782 MR. CHOQUETTE: Well, I think now I understand. I was advised that maybe I should be looking at the question in a slightly different way.
783 To the extent that we were only looking at told traffic which is terminating in the company's local exchanges as we discussed earlier this morning, this EA charge is computed on the basis of a certain amount of volume of traffic. If we were simply looking at the volume of traffic associated with the company's local exchanges, then you would get an EA rate which would be very high simply because the volume is very small. Because as you know, the company only has 5,000 NAS, five exchanges.
784 To the extent that we're talking hundreds of millions of minutes of traffic, you can well imagine that a very small proportion of those toll calls actually transit the company's local exchanges.
785 So if you actually decided, well, I'm going to take the EA costs associated, for example, with Lee's only, even though it's actually installed in the Timmins DMS-200, I'll charge for it just on the basis of traffic that's originating and terminating in the company's local exchanges, then you would have a much higher rate.
786 We've provided a proposal where the rate is something like one tenth of a penny. That rate would be substantially higher simply because the volume wouldn't be there.
787 MR. McCALLUM: Would you be expecting competitive entry into in our ILEC territory?
788 MR. CUSHING: I assume you're meaning toll competition, and certainly our proposal addresses the solution whereby toll competition could be extended to all end offices within our serving territory including our own.
789 MR. McCALLUM: I guess what I'm trying to get it is, the cost would be very high if you were to recoup EA costs from toll calls that originate and terminate in your ILEC territory. Mr. Choquette just said that a second ago.
790 So if that were to be the regime, with such high EA rates that would happen in such a situation, would I correctly infer that such high interconnection rates would really hinder competitive entry into your ILEC territory? It would really prevent it in that situation if the EA costs had to be recouped from the toll calls that originate and terminate in that territory?
791 MR. CUSHING: Yes, that would be correct, the rates would be such that it would likely discourage entry.
792 MR. McCALLUM: On the other hand, would that not make you more competitive in Timmins because then there would be only one EA rate in Timmins?
793 MR. CHOQUETTE: You're saying it would make the company more competitive in Timmins?
794 You have to understand that you're still talking volume, right. I mean, to the extent that a very large proportion of the traffic relates to Timmins traffic, I'm not sure how it makes it more competitive to the effect that a small proportion of the traffic is not drawing an EA rate.
795 MR. MORIN-STROM: Can I follow up. I take it you're suggesting that if there was a very high EA rate in -- well, our own LEC, that would be a discouragement for competitors to come in and we would be able to recover our costs on that high EA rate, perhaps from settlement traffic but, on the other hand, have a better chance to compete with Northern.
796 However, you seem to be working on the premise that there's going to be two EA rates and our proposal includes only one EA rate; that is, our EA rate because we will provide access to a hundred per cent of the exchanges in our territory through equal access at the access tandem.
797 MR. McCALLUM: Yeah, we were assuming liberalized access for the question. I think that concludes that area.
798 I have a couple of other questions in slightly different areas.
799 Dealing with the transport rate from North Bay to Timmins, I think in response to Interrogatory 500, in other words, Bell 30 November, 500.
--- Pause / Pause
800 MR. CUSHING: Could you repeat that specific interrog just to make sure we have the same one.
801 MR. McCALLUM: Yes. Bell 30 November 500, and what I'm looking at is where Bell says that:
"Once toll competition is introduced, it would give consideration to the exchange of toll minutes with O.N. Telcom on a proportionate return basis." (As read)
--- Pause / Pause
802 MR. McCALLUM: That's in the (b) part of the interrog. Do you have it now?
803 MR. CUSHING: Yes, I do. Just a moment, please.
804 MR. McCALLUM: In a competitive environment would Bell's proposal provide a reasonable alternative to O.N. Telcom's possibly restrictive routing proposal?
--- Pause / Pause
805 MR. CUSHING: In viewing Bell's response to this interrog it still remains vague to us, to some extent, what they mean by "proportionate return basis" and, as such, that there's still a question as to what that settlement would be.
806 MR. McCALLUM: My understanding of it was that it would be in some way -- there would be some sort of arrangement negotiated between the parties, obviously they didn't set out all the specifics, whereby the amount of traffic that Bell would deliver, I guess from North Bay to Timmins, would bear some relation on a proportionate basis to the amount of traffic that O.N. Telcom delivered from Timmins to North Bay and some sort of sharing of proportionate return of the traffic, from what I understand.
807 MR. CHOQUETTE: I think that, you know, if the proportion means if you give me a hundred per cent of your traffic I'll give you a hundred per cent of my traffic, I don't think it's a problem, that's not a problem.
808 The problem is we don't really know what -- is it a proportionate percentage or is it a proportion based on volume, we have no sense of that.
809 MR. MORIN-STROM: If I can follow up. We are particularly concerned if we have lost 50 per cent market share whether that means Bell would only have to supply us with 50 per cent of their traffic.
810 So it's very vague in terms of what Bell means in terms of that answer.
811 MR. CUSHING: But insofar as with respect to O.N. Telcom's proposal where we have indicated, you know, obviously because of the nature and the volume of the traffic a transition of some sort is -- would be warranted, given that on day one the ability of Bell and its affiliate to reroute that traffic would not be appropriate and, to the extent that O.N. Telcom is of the view that it has in its proposal a phasing of that traffic, Bell obviously as well, at least here, have indicated that they have an understanding of that with respect to having offered a proportionate return basis, it's just that the specific details relating to that and in fact the types of traffic that would be involved in that with what the specifics would be, we expect that through negotiations and discussions.
812 However what's important here is that this is an important aspect, a very important aspect of our proposal with respect to that traffic.
813 MR. McCALLUM: Yes. Your own proposal provides for a staggered reduction of the amount of traffic that's exchanged with Bell; is that not correct?
814 MR. CUSHING: That's correct.
815 MR. McCALLUM: And I guess what I'm trying to get at is even though there's a certain degree of vagueness associated with what Bell says, could it not possibly provide more traffic in the long run than your own proposal because Bell's is not capped in terms of length of time or staggered, it's proportionate but indefinite?
816 MR. CUSHING: Given the nature of the traffic and given what Bell's view of what proportionate return basis actually means - and obviously they are not here today to explain that - I don't know that I could draw that conclusion necessarily.
817 MR. CHOQUETTE: Point of clarification. I think it's important to understand that the company is not suggesting that it's to be transporting traffic from a competitor that's billing traffic in its own territory out on that link to Bell. So I mean, that's factored in as well.
818 So to the extent that we lose market share, we have less traffic to give to Bell to the external territory. So it becomes very important to understand what that term proportional means before we can even have a sense of what the financial impact would be.
819 MR. McCALLUM: Sure. And I guess what I was driving at is, my conclusion is one conclusion that one could come to, it's not necessarily the only conclusion from the exchange that we have had, but it's certainly a possible conclusion.
820 MR. CHOQUETTE: Well, I think your conclusion was that it's going to last longer, right.
821 I mean, you were concluding that to the extent that you would have this arrangement over a longer period of time as opposed to the four-year transition period, that that would be a net benefit to the company; am I interpretting --
822 MR. McCALLUM: I'm putting that as a possible conclusion amongst other possible conclusions.
823 MR. CHOQUETTE: But the greatest risk that the company has is in the short term okay because -- because the network was actually configured, provisioned and dimensioned to carry this huge amount of traffic the impact of not carrying traffic four years from now is really different than the impact of not capturing that traffic a year from now because the company has an opportunity to reconfigure its facilities and to deal with knowing that there's going to be less traffic to be carried but you cannot react in a one or two-year period because the network -- because of the size, the volume of that traffic.
824 MR. McCALLUM: Thank you. I just have one I guess final area to ask a few questions about.
825 I guess I'd start with interrog No. 1700 O.N. Telcom's CRTC 26 February, 1700.
--- Pause / Pause
826 MR. WHEELER: We have it.
827 MR. McCALLUM: In that interrogatory you were asked to provide certain details about your proposal that toll carriers be able to rebill for local services.
828 Under your proposal, would a toll provider be able to rebill O.N. Telcom's local services?
829 MR. WHEELER: Actually in this response we hadn't addressed that particular topic.
830 MR. CUSHING: I would think that with respect to that that certainly that O.N. Telcom would entertain that, but the nature of the issue here is the fact that O.N. Telcom does not have the customer awareness that flows from the vast majority of our territory and obviously what we're seeking here is the ability to provide one-stop shopping to the customers, to the extent that we've had customers come to us asking if we could bill our local as well, and perhaps Mr. Caldwell would clarify on that.
831 MR. CALDWELL: Yes, that's correct. As I mentioned earlier, we have several instances in our customer care centre and with our account managers, and even I have to add myself personally, where long-standing customers, both residential and business in the Northern Ontario market after we started billing questioned that fact and wanted to know why they couldn't have an individual bill.
832 MR. WHEELER: But to answer your original question, yes, we would be willing to consider it as well, for sure.
833 MR. McCALLUM: Okay. So what would it take -- how long would it take O.N. Telcom to develop a tariff and modify its billing system in order to allow a competing toll carrier to rebill local services provided by O.N. Telcom?
--- Pause / Pause
834 MR. CALDWELL: We'd be prepared to address that and I think it would not take very long. It would be difficult to put a time frame on it, but not very long.
835 MR. McCALLUM: By "not very long", are we looking at -- I mean toll competition is starting in 2002. Are we looking at four months into 2002 to take an example?
836 MR. CUSHING: I would expect that given the nature of the method by which O.N. Telcom performs its billing and the new billing system that it has introduced that the aspect, first of all, of filing the appropriate tariff and getting the approval and undertaking to do the modification could be easily accommodated within the time frame to be effective Jan. 1, 2002. That's my view.
837 MR. McCALLUM: What factors would O.N. Telcom consider to develop a tariff to permit the rebilling of its local services?
838 MR. CHOQUETTE: Well, I think, you know, the essence of the exercise would be to remove the costs associated with services that being provided by the rebiller. So to the extent that the rebiller is billing, or the reseller or the rebiller is actually doing his own bill, then obviously he wouldn't be charged for that.
839 To the extent that that particular company is doing its own customer care functions of some type, then clearly you would not charge for that.
840 So to that extent you would have -- I would suspect you would probably have a little menu of possible scenarios depending on the type of service that that particular company wants and clearly there has to be, though, a function performed by the other company so that you can actually offer a wholesale rate.
841 MR. McCALLUM: Would the costs be significant of providing this service to a toll carrier?
--- Pause / Pause
842 MR. CUSHING: If your question is going to the area of how difficult it would be for us to do this and thereby how much the cost -- for us to affect the change in order to carry that out, I don't expect that the costs would be, given the nature of our billing system, what we have to undertake to do would be that significant.
843 MR. McCALLUM: How long would it take O.N. Telcom to develop a tariff and modify its own billing system in order to allow O.N. Telcom to rebill local services provided by Northern?
844 MR. CUSHING: I'm not sure I follow the question.
845 MR. McCALLUM: The essence of the question was to try to, I guess, build on what I understand to be your proposal, which is that you wish to be able to rebill the local services provided by Northern.
846 So I'm trying to get at how long it take O.N. Telcom to develop the tariff and do the steps that would have to done to allow it to do that?
847 MR. CUSHING: I understand. I'm just slightly confused with respect to our doing the toll billing of our own customers. I apologize for that.
848 With respect to the appropriate tariff and the steps we need to undertake in order to modify our system to do that, again, I would expect that to be in the order of four, possibly five months for a time perspective.
849 MR. McCALLUM: Five months from -- when did you have in mind?
850 MR. CUSHING: I guess given that obviously, regulatory approval is required in order to proceed with this from the point at which it was approved.
851 MR. McCALLUM: Should it be a pre-condition for an ILEC to enter the toll market that there be a rebilling tariff in place?
852 MR. WHEELER: The intent of the proposal was to level the playing field, right? That was the idea. We would be competing on an equal basis.
853 Maybe you had better rephrase the question or just ask -- repeat the question again. I just want to make sure I answer the right question.
854 MR. McCALLUM: Should it be a pre-condition for an ILEC to enter the toll market that there be a rebilling tariff in place?
855 MR. WHEELER: To the extent that the intent is to level the playing field, I think our position would be: Yes, that would be appropriate.
856 MR. McCALLUM: So if the Commission put a short time fuse on the time it would require you to develop a tariff, you would have no problem with adhering to a short time fuse?
857 MR. CUSHING: That's correct, we would undertake to do that expediently.
858 MR. McCALLUM: In your view, should a toll carrier obtain the customer's consent before it could rebill for local services?
859 MR. WHEELER: Yes, that would be the intent, that the customer would have the choice of deciding whether they wanted one bill or two.
860 MR. McCALLUM: Thank you. Mr. Chair. That completes my questions for now.
861 THE CHAIRPERSON: Thank you, counsel. I believe a couple of the Commissioners have one or two questions.
862 Commissioner Langford.
863 COMMISSIONER LANGFORD: Thank you, Mr. Chairman.
864 Just following up, Mr. Choquette, on an answer you gave to legal counsel not very long ago -- it's hard to keep an exact time; in the last ten minutes or so. I haven't captured your words exactly, so correct me if I've got it wrong. I think I've captured the spirit of what you said.
865 The questions were around, you know, what would happen if you didn't get your proposal and the various variations on your company not being successful in obtaining approval of the precise proposal. And you said something along this line, I think, but as I say correct me if I'm wrong: that the immediate impact was the big problem, that four years down the road you might be able to adjust, reconfigure the network I think was the term you used, but in the short term, one or two years, you just couldn't react fast enough.
866 And I want to know if I'm being unfair in suggesting that you had a few years though to react to all possibilities and to have contingency plans and whether you've basically just put all your eggs in one basket and it's that plan or disaster?
867 MR. CHOQUETTE: Well, I think that just to respond to that particular point of view, we have a requirement to transport that traffic whether we want to or not. I mean, it's traffic. It has to be delivered to the customers. It's both originating and terminating, and as I pointed out, there's a large proportion which terminates.
868 The point I was trying to make was simply this: To the extent that you turn off the tap overnight you cannot expect the sink, which is the network to suddenly get very much smaller very quickly. There is a certain amount of work and reconfiguration that has to be done so that you can actually provide for services cost-effectively.
869 To the extent that the costs of the company are related to capital costs as well as maintenance of facilities, and to the extent that you would have a significant amount of those facilities under-utilized not generating any revenues, that's what I was referring to.
870 COMMISSIONER LANGFORD: So it isn't a question of preparing for all sorts of scenarios; in effect, you are just stuck with the status quo until that changes. Is that a fair statement?
871 MR. CHOQUETTE: That's right. Because the company has to deliver the traffic.
872 MR. CUSHING: If I could just clarify a little further on that, certainly the aspect of that traffic which we are talking about between Bell and ourselves, obviously, and to the rest of the territory, we have very little or no, virtually no control over that aspect of it. And to the point that our proposal at least provides a period by which, in spite of our best efforts, that we can have a gradual phasing out of that as might naturally occur.
873 COMMISSIONER LANGFORD: Following -- oh, sorry.
874 MR. WHEELER: I would just like to add that we have known that toll competition is in the public interest and we've been aware that it's coming. We have been diversifying our business. We have been expanding into new services. We brought ATM into our own territory and we have expanded and we're providing those services outside of our territory as well.
875 So we have taken steps to diversify our business. But at the same time, as Roger said, there is this issue where we are delivering a hundred per cent of the traffic today. If that disappeared all of a sudden, no company could adjust to that.
876 COMMISSIONER LANGFORD: Thank you.
877 That's a very nice segue to actually the other line of questioning I had which is very general compared to what you've been facing here. I leave to the engineer and the legalists the differences between the one hundreds and the two hundreds and how they perform.
878 But I was taken by some of Mr. Hutton's opening remarks in the kind of general sense -- a particular statement again which I think I'm capturing accurately, but you'll correct me if I'm wrong, with regard to what the company has done over the years with its revenues in investing in Northern Ontario, and not only in the telephone business in Northern Ontario but in other related businesses that are associated with your parent company.
879 And I'm trying to get a sense of how you see O.N. Telcom. Do you see it as a public servant or as kind of a corporate entrepreneur? Is it a public servant much as we are public servants up here - an honourable role - is it a public servant that was given the job to do 99, a hundred years ago, but should that job disappear, well then, would go on to public service in some other area? Or do you see this company as a entity the way any entrepreneur would see their company, that they want to see it go on forever and, as Mr. Wheeler was just saying, would diversify to do that or change their products? How do you see this company?
880 MR. HUTTON: I guess we have seen this company as a company that provides the essential services, the long distance, the local services, that has perhaps done things that other companies might not have done. We have taken some of the profits from O.N. Telcom and used them to deliver other services as part of the broad ONTC mandate.
881 I think we look over the next few years and what we see is probably O.N. Telcom requiring, when it goes through this transition, to use most of the funds that it generates internally to continue to provide telecommunication services in a competitive environment. Its ability would appear to be lessened to do some of those cross-subsidizing to the other parts of the organization.
882 Our commercial services, which include rail and bus and telecom, are expected to generate enough cash to be self sustaining. And I guess in the telecom case, there's always been within the telecom the public service interest as well in some ways going the extra mile to do things that it might not otherwise have done.
883 I think in looking at it going forward, I think we see the importance of O.N. Telcom in the market place as being a company that will -- and really, the thrust of our proposal, to ensure that customers have choice. We're a regional carrier. This is our area of focus. This is where our priorities are. Even in a competitive environment we're going to focus on the north and, hopefully, generate enough profit or revenues to remain viable and will continue to do that.
884 We have worked in small communities with programs such as the CAT program to help communities bring Internet services to their communities. I guess it's part of our fibre or part of our soul -- let me put it that way instead of fibre -- that we tend to have this as part of our character that we want to be able to continue to deliver services to remote. And we think we're pretty good at it and we have a fair bit of experience at it.
885 I'm not sure I've answered your question.
886 COMMISSIONER LANGFORD: Well, you have. I'm just trying to get -- as I said this is very general, but I'm trying to come away from here with a sense -- you know, we come up here as visitors and I'm trying to get a sense for what it is, what your part of the community is and how you see yourself. It's important, at least to me and I think to, you know, the work we have to do after we leave here, the analysis of all of this.
887 And let me give you another sort of hypothetical if you don't mind, and if these stray beyond the real, then fine, just tell me they do. But if five years from now some other company or companies can provide everything you are providing now, everything, do you see that O.N. Telcom should then fold up and go away because your job, your mandate is to provide something that no one else could provide? Or do you think you should find other products that can't be provided, perhaps converting your access to people's homes to bring them data communication, to bring them a form of cable television perhaps, you know, which SaskTel has recently gone back into that market hoping to use its network in that way.
888 Do you see that you would branch out and try and diversify as Mr. Wheeler said and try to find new products, or would you say, "Well, our job's done. We were public servants. We were trying to do something that no one else would do or could do. Now they are doing it. They don't need us."
889 How would you see that sort of scenario?
890 MR. HUTTON: I would say that, as you may know, the province has done a service improvement study to look and see if there are ways that services to northern, people in northern Ontario, telecommunications service and other parts of our business, whether or not there is a potential for an organization other than ONTC and O.N. Telcom, as a Crown corporation, to deliver high quality services at good rates and in a competitive environment, and that process has to some extent started.
891 I guess as long as O.N. Telcom exists in its current form, we will continue to look to developing new products and services, trying to generate more business, devilver technology, keep jobs in the area, those sorts of things. As long as we exist as we do, that's the kind of company I think we are.
892 I think we accept that there are -- and one of the reasons I guess when we look forward to competition and one of the reasons we ask for a thing like high-cost toll subsidies, we know that some of our ability to cross-subsidize those things in the future in a competitive environment will be lessened because we expect that competitors will go after the areas like Timmins and the like, and that will certainly lessen our ability to do some of the things we have done in the past.
893 COMMISSIONER LANGFORD: Thanks very much. Those are my questions.
894 THE CHAIRPERSON: Thank you, Commissioner Langford. Commissioner Wilson.
895 COMMISSIONER WILSON: Thank you, Mr. Chairman.
896 I have a couple of areas and, like Commissioner Langford, I'm going to ask slightly more general questions than the kinds of specific questions you've been getting all morning. It sort of goes back to something that I think our counsel was trying to get at, and it's of a similar theme to Commissioner Langford's questions in the sense that we know certain things about what's going to unfold or might unfold, the introduction of toll competition, the fact that the Ontario government has said that they'd like to sell O.N. Tel.
897 So, sort of keeping that in mind --and when you think about the competition in Canada being premised as much as possible on eliminating what some would call sort of artificial or regulatory constructs in the market place. You know, you've talked a lot about how long it's been since toll competition was introduced in you rest of the country and a pent-up demand on the part of consumers, both residential and business to be able to choose their long distance provider, and you've talked quite a lot about the unique circumstances of this territory which would warrant a different treatment than what we've done in the rest of the country.
898 And so you propose -- I mean, you talk about having competition and offering the consumers choice, but the way that you propose to do that is by having everybody connect through your switch. So, it's not a complete opening up of the market place, the competition; it's still a regulatory construct. It's handling the traffic through a certain point. I think Ms Embree talked about it a little earlier when she was looking at the different examples of traffic routing. And I think it was Mr. Cushing who said, you know, that IXC No. 3 should have been routed through the DMS-200 according to your proposal.
899 And I guess I can understand what you're doing when you say that because that helps you and that helps your business and helps you maintain your business and what you've done all along. But how does that help the consumers at the end of the day if costs are higher to go through, to route the traffic through the DMS-200, if that means that you are not going to be able to lower the rates to the consumer as low as they might go if there are no routing restrictions like that?
900 So, I guess what I'm taking is, you know, on the one hand you are preaching the gospel of competition and benefits to the consumer, but I'm not sure I see how the consumers in your territory are really going to benefit. I mean, there seems to be advertising all over the place about what plans are available. Are they going to get prices as low as are available everywhere else in the country or are they going to have to be higher because of this routing through the DMS-200?
901 I need you to help me sort of figure out how to balance the public interest against your interests.
902 MR. HUTTON: Yes. It's a balancing act I guess. I guess a good part of our rationale for requiring the traffic through the DMS-200, I guess there's probably two primary reasons for that:
903 One is to direct connect at the Timmins local end office. There is the prospect that those customers not subtend -- not in Timmins or not subtending Timmins could conceivably be left out of the choice -- structured choice opportunities. There are, I guess, roughly 35 per cent of the communities and 10,000 customers that could be threatened with the prospects of not getting choice.
904 I guess the other thing that Mr. Choquette alluded to is by putting all the traffic through the DSM-200 switch, switching aggregation rates are averaged across the territory. If it was other than that we would see the switching aggregation rates becoming again a barrier to going to some of these more remote communities that aren't served off the DMS-100 host.
905 Our proposal, as Dr. Morin-Strom noted, is based on rates going to sort of the national average, so we still would see the benefits of lower competition or lower rates in our territory being passed through to the consumer.
906 COMMISSIONER WILSON: So - and I'm looking at this picture that you've got up behind you, the schematic with the various remotes and the switches and whatnot.
907 You're saying that unless everything goes through the DMS-200 choice won't be available to everybody.
908 You're saying that unless everything goes through the DMS-200 choice won't be available to everybody.
909 I mean, let's say a competitor comes in and they connect at Timmins to NTL CMF-100, and then they go and they connect to Bell, individually in those communities, and at Cochrane they could connect in your five communities; could they not?
910 Because I think what I heard -- I think what I heard you say was that if they don't go through the 200 the choice won't be available to 35 per cent of the people who live in this territory?
911 MR. HUTTON: 35 per cent of the communities. I guess I would say an additional barrier or additional disincentive to providing choice.
912 COMMISSIONER WILLSON: So you think that the fact that the costs to connect at your switch is higher is less of a disincentive?
913 MR. HUTTON: I think that the ability to average across the territory is what lowers the barrier, if you will, to -- or lowers the disincentive or provides an incentive, if you want to, to provide service -- competitive service to a hundred per cent of the territory.
914 As well, the proposal that we have provides equal access on day one to all of those communities and all of those customers.
915 COMMISSIONER WILLSON: Now, what if the competitors just don't even bother coming; if we say: Okay, you have to connect through the DMS-200. What happens if they don't show up because for them it's more expensive to do that?
916 MR. HUTTON: I think that what the experience has been is that the majority of the competitors do connect at an access tandem.
917 COMMISSIONER WILLSON: Okay. Just one other thing that I wanted to clarify for my own purposes, and that is the notion of the toll carrier of last resort because Mr. Choquette has said a couple of times we have to carry the traffic, the toll traffic.
918 I think counsel asked a little bit earlier, you know, would you withdraw from some of your uneconomic routes if we didn't give you everything that you had proposed, and you said -- I think you suggested that you couldn't, that you would have to, and counsel said, no, but you know, if Bell is serving Fort Albany and Kashechewan and Pawanuk they would have to provide access one way or the other to the toll services.
919 So I guess our counsel was suggesting you could withdraw your services and Bell would then become responsible.
920 But you're saying, no, we are the toll carrier of last resort. So do you want to be designated as the toll carrier of last resort, is that what you're asking for, or do you see yourself that way?
921 MR. HUTTON: I guess a little bit of both. I guess we see ourselves that way as having the service obligation to provide to those locations. We -- I guess from the perspective of those routes remain economic -- uneconomic -- if someone else provided the service, I think the concept is we're prepared to continue to do that. We need a bit of help because of the costs and the revenues don't support those costs.
922 Again, I'm not sure if I've answered -- Roger, if you can add...
923 MR. CHOQUETTE: Well, you know, clearly your question is a good one, I mean, but, you know, do you want just one homogeneous carrier, Bell Canada, serving all of Ontario?
924 And the company is large enough, I'm sure to build facilities up to Attawapiskat and use revenues from Toronto, Ottawa and Montreal to actually satisfy that service. However, how much choice are you going to have up there? How much choice are you going to have up there and also the other exchanges on the same route?
925 I mean, the experience, for example, in public utilities, independent PUCs in Canada, is that they offer a variety of services that are typically not available in other independent territories and why, it's simply because they have a public mandate and they actually satisfy that mandate.
926 So you go to a company -- you go to places like Prince Rupert and you'll get ADSL service and all kinds of exotic services that otherwise you would not expect to have in any other small community in B.C. that is served by Telus.
927 And the issue here is that clearly Bell could do it, no doubt about that. But the point is, is that, do you want a bit of variety, or do you simply want Ma Bell to be providing all toll competitive services in this territory?
928 They have indicated, for example, on the record that 60 per cent of all toll traffic that they carry for other competitive carriers they all interconnect at a toll office anyways. They have indicated that they don't have any instance that they're aware of where you have a direct connection at a community where the NAS is less than I believe, how much, 500, so -- 5,000.
929 So the practicality of the situation is that ATLDSs in Canada just don't go there for economic reasons, and so speaking to the scenario that you were raising, sure it's an option, but I'm not sure it's a very palatable one.
930 COMMISSIONER WILSON: Thank you.
931 THE CHAIRPERSON: Thank you. Commissioner Wilson.
932 I don't know whether that was an editorial comment on something you said, Mr. Choquette, but you managed to shatter a glass in the middle.
933 Ms. Traynor, any redirect?
934 MS. TRAYNOR: No, thank you.
935 THE CHAIRPERSON: I believe those are all the questions then, gentlemen, and the back-up team.
936 Thank you very much for your --
937 MS. TRAYNOR: Just one moment, there was an undertaking given this morning -- two undertakings given this morning and I believe the panel might be in a position to address those.
938 THE CHAIRPERSON: Oh, you're prepared to reply verbally now. Okay, please proceed.
939 DR. MORIN-STROM: Yes, I have replies that I'd like to give to response, first of all, to undertaking I assume it was O.N. Telcom No. 1 from this morning. It was given by, I believe, Roger Choquette to the CRTC.
940 The question as I have it recorded said: What is the factor used in the relationship between internal billed traffic total and switch minute total attributable to O.N. Telcom on the worksheet entitled: "O.N. Telcom Financial Model 2002-2004 Load Share SWAG AT 2002". Provide the calculation and an explanation of the calculation.
941 My answer is that the switched minute total attributable to O.N. Telcom, line 86 on that sheet, equals the O.N. Telcom -- equals the internal billed traffic total, line 84 on that sheet, times O.N. Telcom's market share for the year in question. For example, in the year 2002 it would be times 65 per cent and then again times a factor of 1.3.
942 As an explanation, the total of the internal billed traffic represents our estimate of the total number of minutes that will be billed in the territory by us and competitors combined in the territory.
943 So we take our market share to get how much we were going to bill and then we use a factor that very closely approximates 30 per cent is the amount of our traffic, or that that billed traffic in the territory that is intra-territory traffic which both originates and terminates in the traffic and so it would be double counted in terms of total switch minutes, so that is the explanation for the factor of 1.3 used as well as the market share.
944 MR. McCALLUM: Just one second, please.
--- Pause / Pause
945 MR. McCALLUM: Thank you very much.
946 DR. MORIN-STROM: Can I proceed to the second undertaking?
947 THE CHAIRPERSON: Please do.
948 DR. MORIN-STROM: The second undertaking which I assume would be called O.N. Telcom undertaking No. 2 dated today, the question as I have it written says: On which line does OTF appear on the worksheet entitled: "O.N. Tel Financial Model 2002-2004 Load Share SWAG AT 2002".
949 My response is that the OTF traffic appears on line 86 as part of the switch minute total attributable O.N. Telcom.
950 MR. McCALLUM: Thank you. However, there's one aspect I'm quite clear on whether we have the response and that's the difference in terminology or difference between internal billed traffic total and switch minute total attributable to O.N. Telcom.
951 DR. MORIN-STROM: Internal billed traffic total that line is referring to the total minutes billed by carriers within the territory. Currently that is our billed traffic.
952 But as of 2002, it is our estimate as to the total minutes that will be billed, that will be transacted by customers in our territory, some of which will be retained market share that we have and some of it will be the market share that is obtained by new competitors.
953 So that line, the internal, is not referring to internal to O.N. Telcom, it is referring to internal to the territory, the total amount of minutes billed within the territory.
954 Those minutes are identified on a one-minute-is-one-minute basis, not a switch minute, whether it is an originating and terminating intra-territory minute,that will count as one minute, whether it is an outbound southbound minute billed like a cent paid call, or whether it's an inbound 800-call, we're counting the minutes of traffic.
955 On the other hand, the line with regards -- when we talk about switch minutes, then we are not counting how many minutes are billed but either we are talking originating or terminating and we count up separately how many originate on the switch and how many terminate on the switch. And so some minutes get double counted intra the territory if they come into the switch and back out.
956 THE CHAIRPERSON: Thank you.
957 MR. McCALLUM: For the record, Mr. Chair, I've identified the curriculum vitae of Karl Morin-Strom Ph.D. as Exhibit 3.
EXHIBIT NO. 3: Curriculum vitae of Dr. Karl Morin-Strom, Ph.D.
958 THE CHAIRPERSON: Thank you, counsel. I think that concludes the undertakings then, gentlemen.
959 Well thank you very much, Ms. Buckner, gentlemen, that concludes the questioning for this panel, you may step down.
960 THE CHAIRPERSON: And I think just to facilitate change of the panels, we'll take a short ten-minute break which will allow the Northern Panel to take the stand.
---Upon recessing at / Suspension à 1440.
---Upon resuming a / Reprise à 1450
961 THE CHAIRMAN: Order, please, ladies and gentlemen. We will return to our proceeding now.
962 We have been asking parties off line about issues of progress of the proceeding and oral argument. And it is our best guess now that given the progress that we've made dealing with the issues that we will probably finish the cross-examinations today. In fact, my sense is we'll go until we finish the cross-examination today and provide an opportunity for oral argument commencing at 11:00 o'clock tomorrow morning with O.N. Tel, followed by Northern.
963 So, with that are there any other preliminary matters? No? Over to you, Miss Embree.
964 MS. EMBREE: Thank you, Mr. Chairman. The opening statement of the Cochrane Public Utilities Commission and Northern Telephone Limited will be delivered by Mr. Dennis McCarty who, up until his recent but apparently short retirement, was the former Vice President of Strategic Development and Regulatory Affairs for Northern Telephone Limited.
965 THE CHAIRPERSON: Welcome back to the working world, Mr. McCarty.
966 MR. McCARTY: The weather outside is appropriate today.
967 Thank you, Mr. Chairman.
968 Mr. Chairman, Members of the Commission and Commission staff, welcome to Timmins and welcome to what we hope to be the final step in the process that was initiated by the Commission in 1997 to implement toll competition in north eastern Ontario.
969 Let me begin by saying how delighted we are to be here. Northern Telephone and Cochrane Public Utilities Commission, on whose behalf we are also here today, are independent local telephone companies that are regulated by the Commission pursuant to the regulatory framework that was established by the Commission for independent telephone companies in Telecom Decision CRTC 96-6 and 98-13 for Cochrane PUC.
970 As local telephone companies, we regularly hear from our customers about long distance competition and their keen interest in seeing the benefits of competition brought to that region of the country. In fact, during the town hall meetings that were held in this area to consider northern service improvement proposal, our customers had the opportunity to tell the Commission firsthand about their high level of interests in the toll competition.
971 This is not surprising. Our customers are surrounded by regions of the country that have already experienced the benefits of competition. For example, our customers have witnessed introduction of long distance competition in the territory of Bell Canada, which is immediately to the south of us, when facility based competition or long distance competition was introduced in that region of the country almost ten years ago.
972 Our customers have also witnessed the introduction of facilities based long distance competition in northwestern Quebec, a region which is directly adjacent to the long distance territory served by O.N. Telcom and the local exchange territories of Northern Telephone and Cochrane Public Utilities Commission.
973 Having seen their neighbours on every side enjoy the benefits of long distance competition for several years, our customers are anxiously awaiting for the introduction of long distance competition in the towns and the communities where they live in northeastern Ontario.
974 Mr. Chairman and Members of the Commission, as local exchange carriers, Northern Telephone and Cochrane Public Utilities Commission will do everything we can for our customers and long distance carriers to make this a reality. In fact, we are prepared to implement toll competition in our serving area before January 1st, 2002 should the Commission deem it to be in the public interest to adopt an earlier implementation date.
975 We want our customers to experience meaningful competition and a true choice of long distance carriers and service providers, and to this end we have put forward a proposal in this proceeding which provides long distance carriers and service providers with the maximum choice and the flexibility to interconnect with our local exchange networks and to build and provision their inter-exchange facilities in whatever portion of the inter-exchange market in northeastern Ontario that they desire.
976 The cornerstone of this proposal, Mr. Chairman, is the implementation of equal access as defined as "Feature Group D, Software with CCF-7, signaling capability at our end office switches."
977 We sincerely believe that without this form of equal access competition that there will be no true facilities based competition in northeastern Ontario, there will be no true customer choice of facilities based long distance carriers, and that there will be no interconnection options available to long distance carriers and service providers other than to connect to a single gateway toll switch that is owned and controlled by the incumbent toll carrier who proposes in this proceeding to carry all of the long distance traffic in and out of northeastern Ontario on its own long distance facilities.
978 Over the next few days we hope to show you why customers in this region of the country neither want nor need the limited form of to toll competition proposed by O.N. Telcom in this proceeding. We hope to show you that each of the toll carriers that have commented on the issue of interconnection in the operating territory currently served by O.N. Tel have expressed the distinct preference for the local equal access introduction model proposed by the companies in this proceeding, and for very good reason.
979 This is the same model for equal access interconnection that has been embraced by the Commission in every other region of Canada, including the former members of Stentor, the independent telephone companies, QuébecTel, Télébec and Northwestel.
980 With respect to some of the other issues under consideration in this proceeding, we recognize that there is a proposal that has been tabled by O.N. Telcom to establish a subsidy for high cost toll routes. We hope to show you, however, that there's no need for such a subsidy in this region of the country. The Commission has never established such a subsidy for QuébecTel and Télébec, two companies that share the same regulatory framework as O.N. Telcom, and we know see know compelling reason why such a subsidy is warranted for O.N. Telcom, particularly when O.N. Telcom and Télébec are literally right next door to each other serving in parallel territories.
981 Insofar as the regulation of O.N. Telcom is concerned, we think that it's important for everyone to recognize that O.N. Telcom is a very profitable Crown corporation. In fact, unlike other companies that are trying to survive in today's financial markets, O.N. Telcom has consistently and consecutively generated a surplus over profit over the many years of its operation.
982 Mr. Chairman and Members of the Commission, as I mentioned earlier, we want our customers to experience the full benefits of long distance competition.
983 In the time remaining I would say like to summarize the other elements of our proposal which we believe will deliver these benefits to our customers and introduce meaningful facilities based competition in this region of the country.
984 First, as I mentioned earlier, meaningful facilities based competition and market entry is not possible without providing IXC's and resellers the flexibility to build and to connect their facilities to the switch of their choice. For that reason we have proposed an interconnection model which involves the installation of equal access software at our end office switch in accordance with the Commission's directions and Telecom decisions CRTC 98-13 and 98-14.
985 This is not to say that toll carriers cannot connect to O.N. Telcom's switch or that they cannot make use of equal access software that has been installed on that switch. What it does say, however, is that long distance carriers and resellers must be given choice of interconnection. Otherwise, there will be no facilities based entry into the market, something which the Commission has consistently promoted in every other region of the country.
986 Second, given the fact that the incumbent toll carrier will have a hundred per cent of the market on the first day of competition and that all local customer telephone lines will be PIC'd to O.N. Telcom on day one, we have recommended that the Commission not exercise its forbearance powers with respect to O.N. Telcom's long distance rates, including the rates for basic toll, discount toll and 800 toll service.
987 Third, we as local exchange carriers, wish to have the right to carry toll traffic between our host and remote switches just as all other local exchange carriers currently have the right, indeed the mandate, to do elsewhere in Canada. To this end we propose continuing offering a direct connection service which forms a portion of our direct toll component of our carrier access tariff and to develop a rate for our own host remote transportation services.
988 Fourth, we will offer PIC CARE services to each of the long distance carriers who interconnect with our end office switches on an equal access basis and, as we've indicated in our evidence in this proceeding, our PIC CARE services will be based on the same procedures that have been proved by the Commission elsewhere in Canada.
989 Fifth, in order to bring its Phase 3 accounting procedures into line with industry practice elsewhere in Canada, Northern has filed a split-rate based proposal which it hopes to have in place by January the 1st, 2002 or, if competition is introduced earlier, as I said, we would have it in place earlier.
990 Finally, as I've indicated earlier, we do not see a need at the present time for a high cost toll subsidy or for a toll carrier of last resort. The incumbent toll carrier is a very profitable enterprise which currently enjoys a tax-free status as a result of its status as a Crown corporation.
991 Our review of the available evidence does not suggest that there's a need at this juncture to subsidize the incumbent's toll operation. Although the incumbent may see things otherwise, we have yet to hear Québec Tel or Télébec ask for a high cost toll subsidy or to be designated as a toll carrier of last resort.
992 This is an important consideration given the fact that these two companies, one which is right next door to O.N. Telcom, have had long distance competition in their operating territories for more than five years.
993 Mr. Chairman and Members of the Commission, I'd like to close by thanking you for the opportunity to appear at this hearing and allowing us to participate in a proceeding which has tremendous importance for our customers.
994 We would be happy to answer any questions which you or your colleagues may have over the next few days and we will do our very best to assist the Commission in the timely conduct and conclusion of this proceeding.
995 Thank you.
996 THE CHAIRPERSON: Thank you, Mr. McCarty.
997 I expect before the day is out there will be one or two questions.
998 Miss Embree, anything else before we swear or affirm the witnesses?
999 MS. EMBREE: No, Mr. Chairman.
1000 You can swear the witnesses.
1001 THE CHAIRPERSON: Counsel?
1002 MR. McCALLUM: For the record, I have entered the Northern Telecom opening statement as the company's Exhibit No. 2.
--- Exhibit No. 2: Opening Statement, Northern Telecom
1003 I believe the witnesses have agreed to be solemnly affirmed.
DENNIS McCARTY, sworn / assermenté
ED BESSERER, sworn / assermenté
LAWRENCE SINNEAVE, sworn / assermenté
SUSAN FOURNIER, sworn / assermentée
1004 MR. McCALLUM: For the record, Mr. Chairman, all four persons have agreed and have been sworn.
1005 THE CHAIRPERSON: Miss Embree.
1006 MS EMBREE: Thank you, Mr. Chairman.
1007 I will introduce the members of the panel beginning with Mr. McCarty. I think I've already given you some background on Mr. McCarty. I'll simply ask him whether he is now a contract employee for Northern Telephone?
1008 MR. McCARTY: I am.
1009 MS EMBREE: And to Mr. McCarty's left is Ed Besserer. Mr. Besserer, are you currently the Director of Network Planning and Provisioning of Northern telephone?
1010 MR. BESSERER: Yes, I am.
--- Technical Difficulties / Difficultés techniques
1011 MS EMBREE: I think we had just finished with Mr. Besserer, but maybe one more time, Mr. Besserer, can I just ask you to confirm that you are currently the Director of Network Planning and Provisioning at Northern Telephone Limited?
1012 MR. BESSERER: Yes, I am.
1013 MS EMBREE: Thank you. To Mr. McCarty's right is Mr. Lawrence Sinneave, and Mr. Sinneave, can you confirm that you are currently the Financial Analysis Manager for Northern Telephone Limited?
1014 MR. SINNEAVE: Yes, I am.
1015 MS EMBREE: And finally to Mr. Sinneave's right is Ms. Susan Fournier, and Ms. Fournier, can you confirm that you are the Controller of Northern Telephone Limited?
1016 MS FOURNIER: Yes, I am.
1017 MS EMBREE: Now, there are two people who I had not mentioned but you will know at least Molly Slywohuk, she is in the row behind the panel, and Molly along with her administrative assistant, Renee Connelly, will provide backup support to the panel.
1018 And I think with that, Mr. Chairman, the panel is ready for cross-examination.
1019 THE CHAIRPERSON: Thank you. Welcome to our proceeding. I'll turn the questioning over to O.N. Tel and Ms Traynor.
--- Pause / Pause
1020 MS TRAYNOR: Mr. Chairman, the cross-examination for O.N. Telcom will be conducted this afternoon by Mark Geddes.
EXAMINATION / INTERROGATOIRE
1021 MR. GEDDES: Good afternoon, Mr. Chairman, Commissioners.
1022 THE CHAIRPERSON: Good afternoon, Mr. Geddes.
1023 MR. GEDDES: If I could ask the witness panel, first of all, to refer to a document that's been provided to you. That document is the final submission of Northern Telephone in the proceedings initiated by Telecom Public Notice 479742 regarding service to high cost serving areas.
1024 Just as the witnesses are looking for that document, I may state, for the purposes of brevity in my cross-examination, I will be referring to the parties, Northern Telephone Limited as "Northern", O.N. Telcom as "O.N. Tel" and Bell Canada as "Bell".
--- Pause / Pause
1025 MR. GEDDES: I take it the witness panel has that document before them?
1026 MR. McCARTY: Yes, we do.
1027 MR. GEDDES: Okay. That document, as noted on the front, was dated January 29th, 1999; is that correct?
1028 MR. McCARTY: Yes, it is.
1029 MR. GEDDES: And if I could ask you to refer to page three of that document, please, the third paragraph. That third paragraph, it stateS:
1030 "In Northern's view, customers should not be disadvantaged in terms of telephone service that they require simply because they live in rural or remote areas of the country."
1031 Does Northern still adopt that principle?
1032 MR. McCARTY: Which paragraph, please?
1033 THE CHAIRPERSON: This is at page three.
1034 MR. GEDDES: Page three. The page number is indicated in the upper right hand corner, page three. I'm sorry, not the third paragraph. It is the last paragraph on the page.
1035 MR. McCARTY: Oh. Thank you.
1036 MR. McCARTY: I apologize for that, Mr. Chairman.
1037 THE CHAIRPERSON: That was a trick question.
1038 MR. GEDDES: It was a trick question. Unintentially tricky.
1039 Just to repeat my question, does Northern still adopt the view as expressed here that customers should not be disadvantaged in terms of telephone service that they receive simply because they live in rural or remote areas of the country?
1040 MR. McCARTY: Just give me a second to review that paragraph.
--- Pause / Pause
1041 MS. EMBREE: Mr. Chairman, I just thought I would mention that it's customary for witnesses to receive exhibits in advance, and this is the first time our witnesses have seen these documents.
--- Pause / Pause
1042 MR. GEDDES: I would also indicate that this is a matter that was referred to in one of the interrogatories.
1043 MR. McCARTY: In the contents that that document was put together, and Northern was responding as a local service provider, and when you read the total paragraph in the way it is produced in this document, yes, Northern supports that view.
1044 MR. GEDDES: And the paragraph goes to state: "Customers in all areas of the country should have high quality urban grade telephone services and a choice of service providers."
1045 Does Northern still adhere to that philosophy?
1046 MR. McCARTY: Yes, we do.
1047 MR. GEDDES: I take you'd agree with me that that philosophy as expressed in Northern's document is consistent with Section 7 (b) of The Telecommunications Act which suggests that telecommunications policy in Canada should strive to render reliable service and affordable telecommunications services of high quality that is accessible to Canadians in both rural and urban areas? Would you agree with that?
1048 MR. McCARTY: Yes, I would.
1049 MR. GEDDES: Would you agree that those principles should be the foundation for the terms and conditions for toll competition established in this territory?
--- Pause / Pause
1050 MR. McCARTY: Not for choice, no, we wouldn't.
1051 MR. GEDDES: Why not?
1052 MR. McCARTY: Why would we not have a problem for customers to have choice?
1053 MR. GEDDES: No. Maybe you misunderstood by question. Would you agree with these same principles, those being that whether customers live in rural or remote areas, they should have the same quality of service and choice of service as urban customers should be the foundation for the terms and conditions of toll competition?
1054 MR. McCARTY: I don't have a problem with that statement.
1055 MR. GEDDES: Thank you. Before we get into those terms and conditions in some detail, I'd like to ask you a few background questions regarding Northern and its past relationship with O.N. Tel. As I understand it, Northern has been a local service provider in the territory for almost one hundred years; is that right?
1056 MR. McCARTY: Yes, that's partially right, but since you've referred to a hundred years, I was there for thirty-seven of those hundred years and Northern was also in the toll business.
1057 MR. GEDDES: When was Northern last in the toll business?
1058 MR. McCARTY: If memory serves me correct and it is right, in the early '70s.
1059 MR. GEDDES: And why did Northern get out of the toll business and to what extent?
1060 MR. McCARTY: I'm not able to answer that right now.
1061 MR. GEDDES: I take it though you'll agree that over a period of almost one hundred years in this territory, O.N. Tel has provided the toll service while Northern has provided local service; is that right?
--- Pause / Pause
1062 MR. McCARTY: I would agree generally that O.N. Tel has provided the toll service for much of the time to Northern's customers, yes.
1063 MR. GEDDES: Would you agree that this territory has a history that can be characterized as one of vertical non-integration?
--- Pause / Pause
1064 MR. McCARTY: I think as a general comment we would agree to that, but not on an entirely total basis.
1065 MR. GEDDES: And would you agree with me that the territories that you refer to in your opening statement, those of Telebec and Quebec have not had the same history of vertical non-integration?
1066 MR. McCARTY: I'm really not in a position to answer that, I'm not that familiar with Telebec and Quebec Tel and their total history.
1067 MR. GEDDES: But it is Northern's position, as I understand it, that O.N. Tel should be treated in the same manner as Télébec because of the similarities between the territories and the nature of the carriers; is that not right?
1068 MR. McCARTY: In our opening statement we did make reference to Québec Tel and Télébec that we felt O.N. Tel should be treated similar, yes.
1069 MR. GEDDES: Would you agree that opening of toll competition for this territory there will be two incumbents Northern and O.N. Tel vying for the loyalty the same customers that each has served for many, many years?
1070 MR. McCARTY: Could you repeat the question, please?
1071 MR. GEDDES: Would you agree that upon the commencement of toll competition in this territory there would be two incumbents O.N. Tel and Northern who will be vying for the loyalty of the same customers that each has served for many, many years?
1072 MR. McCARTY: No, I wouldn't.
1073 MR. GEDDES: Why not?
1074 MR. McCARTY: If I understand your question correctly, I'm led to believe that you are under the assumption that Northern and O.N. Tel will be competing for the same customers in the toll business. Is that what you're leading to?
1075 MR. GEDDES: That is my -- yes, that's my assumption.
1076 MR. McCARTY: Obviously Northern would like to be in the toll business, I don't think there's any question about that, but Northern has not made a decision to be in the toll business until they Are aware of what the terms and conditions are for the implementation of toll in its territory.
1077 I'm not aware of -- well, I shouldn't say I'm not aware, I'm not able to support that statement.
1078 MR. GEDDES: I understand that has been the position in the interrogatories of Northern that it cannot make a decision as to whether or not to answer the toll competition in this territory until those terms have been established.
1079 If I could ask you to refer to another document that has been provided to you. This is a copy of an article taken from the Timmins Daily Press dated March 1st, 2001.
1080 MR. McCARTY: Yes.
1081 MR. GEDDES: If I could ask you to read for the record, please, the first two paragraphs of that article.
1082 MR. McCARTY: "Northern Telephone is committed...",
or as the article states:
"Northern Telephone is committed to bringing competitive long distance to the Timmins area and whether that means purchasing O.N. Tel at fair market value or upgrading their own system, it will happen January 1st, 2000 said new northern Telephone President/Chief Executive Officer Pierre Brochu, who was in Timmins as part of a tour of the company's 900,000 square kilometre coverage area."
1083 MR. GEDDES: Do you have any reason to dispute Mr. Brochu's statement in this newspaper article that in fact Northern will enter the toll market?
1084 MR. McCARTY: I do not know whether those are the exact words that Mr. Brochu stated or not. Those may be the words that some reporter interpreted that Mr. Brochu may have said, but as I indicated earlier, Northern, obviously, is anxious to get into the market, but Northern has not made a commitment to get into the market. I mean, how can you do that when you don't even know what the terms and conditions are for entry.
1085 MR. GEDDES: Well, I understand your position is you're not quite sure whether the reporter actually covered Mr. Brochu properly.
1086 I ask for an undertaking to have you speak to Mr. Brochu and advise whether or not his position if this is a misstatement of his position?
1087 MR. McCARTY: We can do that.
1088 MR. GEDDES: Thank you.
1089 We can move along then. I understand that Northern currently provides local service to 31 of the 43 communities in this territory; is that right?
1090 MR. McCARTY: That's probably correct.
1091 MR. GEDDES: And Timmins is one of Northern's local exchanges?
1092 MR. McCARTY: Yes, it is.
1093 MR. GEDDES: And the NAS count of Timmins at over 22,000 represents more than 25 per cent of the total NAS in this territory; would you agree?
1094 MR. McCARTY: Yes.
1095 MR. GEDDES: Because Timmins is the end office for Northern's host remote links, it also represents about 85 per cent of the NAS in the territory; would you agree with that?
1096 MR. McCARTY: Yes, that's a fairly close answer.
1097 MR. GEDDES: Given the size of Timmins, would you agree that it will be the preferred toll market for new entrants in a competitive regime?
1098 MR. McCARTY: Generally I would support that statement, but until I know what the terms and conditions of entry are, I'm not able to support that fully, but on a general basis I would think so since it's the largest exchange in our territory.
1099 MR. GEDDES: And to look at the history a little bit. Historically I understand that Northern had discrete local switches in each of its local communities; is that right?
--- Pause / Pause
1100 MR. McCARTY: Back in 1970 that was probably the case, but starting in the 80s we started using host.
1101 MR. GEDDES: And presently Northern now provides local services to 26 of its communities by the host remote technology; is that right?
1102 MR. McCARTY: It's pretty close.
1103 MR. GEDDES: And, as I understand it -- well, with respect to the upgrades to host remote technology, can you tell me how many of those end offices have been converted to host remote since 1997?
1104 MR. BESSERER: I don't have the answer to that question with me, but we can take an undertaking to get you the answer.
1105 MR. GEDDES: Thank you.
1106 With respect to Northern's local communities that are not currently served by host remote technology, I understand that there are five including Detour Lake, Abitibi Canyon -- Abitibi Canyon, sorry, Goganda, Mattise and Opasatika; would that be right?
1107 MR. BESSERER: That is correct. There are currently five end offices which are not remote off Timmins and there are currently three other offices that are in the process of being converted.
1108 MR. GEDDES: Yes, and with respect to those five end offices that are separate and not honed off the host remote system, would you agree that they are all small rural and remote communities?
1109 MR. BESSERER: They are all small communities. Some of them are closer to us than Hearst is.
1110 MR. GEDDES: And with respect to two of those communities, particularly Detour Lake and Abitibi Canyon, I understand that Northern has decided that it will not implement equal access in those end offices because the costs are simply not commensurate with the benefits; is that right?
1111 MR. BESSERER: No. That is not correct. Abitibi Canyon is an analogue exchange today which is being converted to digital technology in 2002 as part of our service improvement plan. The technology to provide the digital switching has not been finalized and the question of equal access will be dealt with at that time.
1112 Detour Lake is an analogue step office which presently serves two customers, a mine and a tourist outfitter. The mine is in the process of closing, tearing their buildings down, removing the road. We're not sure at this point if that exchange will remain in existence in 2002, so there's no decision as to what will happen in that exchange.
1113 MR. GEDDES: With respect to the decision by Northern to replace its discrete end switches or end office switches with host remote technology, I take it that that was a decision made by Northern as opposed to being a request from O.N. Tel or a joint decision?
1114 MR. BESSERER: The decision to upgrade various offices to DMS technology using DMS-100 remotes was a decision made by Northern Telephone. There was discussion with O.N. Tel, so they were aware of it, but Northern Telephone made the decision.
1115 MR. GEDDES: And O.N. Tel cooperated to facilitate those upgrades, I take it?
1116 MR. BESSERER: It has been the history of Northern Telephone and O.N. Tel to cooperate very closely in the upgrading of the network both local and toll.
1117 MR. GEDDES: Prior to the change of those discrete switches to part of the host remote network O.N. Tel's toll facilities were direct toll trunks to the discrete -- sorry, I'll try that again, to the discrete switches; is that right?
1118 MR. BESSERER: Could you repeat it, I got lost.
1119 MR. GEDDES: I don't blame you for getting lost in that one.
1120 Prior to the change of Northern's facilities to host remote technology, I take it that O.N. Tel's toll facilities were toll connect trunks to those end offices?
1121 MR. BESSERER: That's correct.
1122 MR. GEDDES: And after that change O.N. Tel's toll facilities became part of the host remote links; is that right?
1123 MR. BESSERER: That's correct.
1124 MR. GEDDES: And as you have indicated earlier, there was cooperation between O.N. Tel and Northern in making those upgrades?
1125 MR. BESSERER: There was cooperation in converting the end office to digital switching which Northern Telephone did in cooperation on O.N. Tel's part on providing facilities to carry their toll traffic.
1126 MR. GEDDES: And there was a matter -- certain matter of joint engineering that was involved as well between Northern and O.N. Tel?
1127 MR. BESSERER: That depends on your definition of joint engineering.
1128 O.N. Tel determined the quantity of toll trunks to serve a particular exchange like Kapuskasing, that is an O.N. Tel decision based on their forecast of traffic growth, they then verify with Northern Telephone that that is reasonable and we can provide the end office termination.
1129 Once that is agreed to O.N. Tel then provides the equivalent facility capacity between Timmins and the remote. So that's not much in the line of joint engineering, but there is cooperation in providing the facilities to the remote.
1130 MR. GEDDES: And just to clarify, notwithstanding the cooperation and facilitation that goes on, the toll facilities and the host remote links belong to O.N. Tel and the local facilities and host remote links belong to Northern; is that right?
1131 MR. BESSERER: O.N. Tel today has responsibility to provide the facilities for the host remote links to carry toll traffic, the equivalent facilities; Northern Telephone has the responsibility to provide the equivalent facilities to carry the local traffic.
1132 Sometimes these are carried on each of our own networks, sometimes we each lease facilities from the other carrier to carry our responsibility.
1133 MR. GEDDES: Would you agree that in a competitive market as owner of the toll facilities and the host remote links, O.N. Tel would be entitled to charge IXCs a host remote aggregation rate for any competitor traffic that travels along those toll facilities in the host remote links?
1134 MR. BESSERER: I would think for the traffic between the host and the remote that capacity can be provided in a number of ways for a competitive IXC entering the market.
1135 They could lease that capacity from Northern Telephone, they could lease it from O.N. Tel or if the CRTC so decides, they could provide their own
1136 MR. GEDDES: But assuming that O.N. Tel is entitled to retain its toll facilities between the host and the remote, you would agree with me they are entitled to charge for the use of those facilities by other IXCs in a competitive market?
--- Pause / Pause
1137 MR. BESSERER: Until we know what all the terms and conditions are going to be for competition, our facility-based competition in the exchange, it is hard to answer that question.
1138 If it's decided O.N. Tel is the only carrier of facilities between the host and the remote for message toll traffic, then yes, they should have a right to charge carrier usage, if that is the assumption being made.
1139 MR. GEDDES: If I could ask the witness panel to refer to the response to interrogatory, the company's O.N. Tel 26 February 01 No. 13, please.
--- Pause / Pause
1140 MS EMBREE: Sorry, can you just repeat the interrogatory number, please.
1141 MR. GEDDES: Yes, it's O.N. Telcom No. 13 to the company's. Particularly I'd refer you to page 3 of 3 which is a diagram, page 3 of 3.
1142 Yes, this is a revised document as of April 9, 2001. If I can assist, I'll pass my copy over so you can identify what I'm looking for.
1143 MR. BESSERER: We have that document now.
1144 MR. GEDDES: Okay. If I understand the purpose of this document, it was prepared to show potential provisioning between the host and remote links in two scenarios; firstly, by Northern and secondly by other IXCs; is that right?
1145 MR. BESSERER: Yes, that's correct.
1146 MR. GEDDES: And just for illustrative purposes to discuss the present network, I'll ask you to assume for the second that the facilities on the lefthand side of the diagram between the host and the remote are Northern's local facilities that are currently there and I'll ask you to assume that those facilities on the right hand side of the diagram are O.N. Tel's toll facilities that are currently between the host and the remote.
1147 MR. BESSERER: Could you repeat again what you're trying to get across?
1148 MR. GEDDES: Basically - I realize that this was prepared for another purpose and we'll get to that specific purpose later on - but I just wanted to have a diagram that illustrates -- that we can use to illustrate how the current network is presently set up.
1149 And I'll just ask you to assume for the purposes of these questions that the facilities on the lefthand side, which are identified as Northern DS 1 facilities, represent the current local facilities, and the facilities on the right hand side would represent O.N. Tel's current toll facilities between the host and the remote.
1150 MR. BESSERER: Yes, the facilities on the left are current facilities in place by Northern Telephone.
1151 MR. GEDDES: Okay. And in the bottom lefthand corner you have noted that the host remote facilities are treated as one pool, a facility in each DSM 1 will handle local and toll calls simultaneously; is that right?
1152 MR. BESSERER: Yes, that's correct.
1153 MR. GEDDES: So I take it that when a toll call travels over a host remote link it will travel over whatever link is available at the time, whether it be a local link or a toll link?
1154 MR. BESSERER: That is correct.
1155 MR. GEDDES: And the route of the calls between the host and the remote cannot be predetermined, it's a random selection; is that right?
1156 MR. BESSERER: The host remote facility provided by all the companies providing all those facilities are treated as one pool.
1157 Each company provides sufficient capacity for their responsibility and each company agrees that those facilities are jointly used by all the parties participating in that pool.
1158 In the case of Northern Telephone and O.N. Tel we have two sets of facilities treated as a pool and we have agreed that either company's traffic can be carried by either company's facilities as long as we each meet our own responsibilities.
1159 MR. GEDDES: I understand that, but just speaking from a technological point, it's not possible for Northern to predetermine whether a toll call will go over a local link or a toll link when the call transverses between the host and the remote; is that right?
1160 MR. BESSERER: That is correct.
1161 MR. GEDDES: And due to this pooling effect, it's not possible to distinguish whether a call going between a host and the remote, it's not possible to distinguish whether it's a local or a toll call until that call reaches the DMS-100 or the host; is that right?
1162 MR. BESSERER: There is no need to determine if it's a toll call or a local call in the host remote network.
1163 MR. GEDDES: Well, can you tell me how does O.N. Tel presently measure the use of its facilities for toll purposes between the host and the remote links?
1164 MR. BESSERER: O.N. Tel currently provide a number of trunks at the DMS-100 and if we use Kapuskasing and the items on the record, 276 trunks, those 276 trunks will utilize 276 channels between the DMS-100 in Kapuskasing.
1165 If you take 276 divide by 24, it's 11 1/2 DS 1 channels, so O.N. Tel round up and provide 12.
1166 At any one time all of the toll calls may be on the local facilities and all of the local calls on the toll facilities. In the pool you do not keep track of which circuits are used by which type of call. You provide enough to meet your responsibility and it is determined by the quantity of service you provide at the DMS-100.
1167 MR. GEDDES: Well, it's my understanding that when a call, let's say it originates from Kapuskasing, and it travels to the DMS-100 that there is intelligence in the DMS-100 which determines that it's a toll call and it then forwards that toll call on to O.N. Tel's AT for measurement and billing; is that right?
1168 MR. BESSERER: When a customer in Kapuskasing decides to make a call, he seizes a channel between Kapuskasing and Timmins.
1169 After he's finished dialing the digits, then the DMS looks at the digits dialed and determines if it's a local call or a toll call. If it's a toll call, it will route it out to one of the 276 channels provided by O.N. Tel.
1170 MR. GEDDES: And with respect to this existing host remote network, I understand that there is only one end office that being the DMS-100 in Timmins?
1171 MR. BESSERER: That is correct. There is one switching office and there are a number of exchange remotes.
1172 MR. GEDDES: And the DMS-100 is located approximately one kilometre away from O.N. Tel's access tandem; is that right?
1173 MR. BESSERER: That's approximately correct.
1174 MR. GEDDES: Would you agree that from the perspective of competing carriers, there's no geographical advantage to end office interconnection except perhaps that one kilometre?
1175 MR. BESSERER: The geography isn't really the question and the issue between the access tandem and the DSM 100. The issue really is the extra cost of facilities terminating at the access tandem, facilities at the access tandem and the DMS-100 and the associated costs of both those components.
1176 The matter of an IX terminates at the Timmins O.N. Tel office or the Timmins Northern office will be basically the same cost.
1177 MR. GEDDES: Okay. With respect to O.N. Tel's proposal for interconnection at the access tandem, do you agree that that would provide each end customer with choices and each IXC with the ability to reach each end customer on the first day of competition?
1178 MR. BESSERER: Could you repeat it, please?
1179 MR. GEDDES: Sure. I'll break it down a little bit.
1180 Would you agree that O.N. Tel's proposal for access tandem interconnection would, first of all, allow each IXC to reach every end customer in the territory on the first day of competition?
1181 MR. BESSERER: If an IXC carrier comes through the access tandem, yes, it would.
1182 MR. GEDDES: And, conversely, each customer in the territory then would have the choice of toll providers that would interconnect at the access tandem?
1183 MR. BESSERER: Yes, it would have choice if an IX carrier came and the IX carriers were willing to bear the extra cost.
1184 MR. GEDDES: And on the other hand, would you agree with me that end office interconnection provides no such guarantees to either IXCs or customers?
1185 MR. BESSERER: There is no guarantees that any carrier will come to Northern Ontario for toll competition, that's what we're here to decide.
1186 MR. McCARTY: Except I would like to just add to that that the two toll carriers that have participated in this proceeding have indicated their choice of connection.
1187 MR. GEDDES: And besides the end offices that belong to Northern that we talked about, you will agree with me that there are other end offices in this territory that serve rural and remote communities, such as Attawapiskat?
1188 MR. BESSERER: That's correct.
1189 MR. GEDDES: Okay. And like Northern's own decision not to implement equal access in Detour Lake for economic purposes, would you agree with me that IXCs may not incur the cost of built facilities to such end offices given the very limited potential for return?
1190 MR. BESSERER: I'm not quite agreeing with your statement. At Detour Lake the decision provided for equal access is not determined at this point. The decision was not to put equal access in there because of costs. It's because of the uncertainty that the community will even exist in another year.
1191 MR. GEDDES: Okay. But you would agree with me that on a strictly economic basis, with respect to provisioning these small end offices some toll competitors may simply prefer to connect at the access tandem?
1192 MR. BESSERER: With competition there is no reason why some IXCs could connect at the Timmins end office for access to the Timmins customers and that the access tandem for interconnection to all the remaining smaller exchanges. That could be done in a free open competition given the IX Carrier the choice of where they want to connect.
1193 MR. GEDDES: If I can refer you next to a response from Bell to the interrogatory from O.N. Tel number eleven, and particularly subparagraph (d).
1194 MR. McCARTY: Could you just repeat the document number for me?
1195 MR. GEDDES: Yes. Bell, interrogatory from O.N. Tel No. 11.
1196 MR. BESSERER: And could you tell us which date for that?
1197 MR. GEDDES: I'm sorry. It is February 26th, 2001.
1198 MR. McCARTY: Yes, we have that document and have had a chance to review it.
1199 MR. GEDDES: Thank you. In that interrogatory, Bell was asked:
"To advise of any circumstances where IXCs have chosen to connect directly to an end office with a NAS count of five thousand or less."
1200 Would you agree that that responded that Bell responded that it knew of no examples IXCs have interconnected with end offices with a NAS count of five thousand or else?
1201 MR. McCARTY: Yes, that's true in Bell's case, and there may be reasons for that.
1202 MR. GEDDES: Would you agree that there's only one end office in this territory that has a NAS count of greater than five thousand?
1203 MR. BESSERER: I don't agree. There are four end offices with a NAS count of over five thousand: Kirkland Lake, Kapuskasing, New Liskard and Timmins.
1204 MR. GEDDES: Technically speaking, as far as I understand anyway, they aren't end offices; those are remotes off the Timmins host, are they not?
1205 MR. BESSERER: They are remotes off the Timmins host and they are treated as exchange end offices, and if they weren't considered as exchange end offices, O.N. Tel wouldn't be providing facilities to them.
1206 MR. GEDDES: Is it possible for an IXC to interconnect directly to a remote?
1207 MR. BESSERER: An IXC can connect to the DMS-100 in the general situation as O.N. Tel today and provide their equivalent host remote facilities identical to O.N. Tel today. Technically there's no reason why a new IXC couldn't do the very same thing.
1208 MR. GEDDES: Would you agree with me that from a regulatory perspective those are not end offices and it is only Timmins that is an end office?
1209 MR. BESSERER: From a regulatory perspective in the rest of Canada, to the best of my knowledge, the toll IX Carrier does not provide any host remote link. They would all be provided by the local carrier.
1210 MR. GEDDES: But just to answer my question, would you agree with me that from a regulatory perspective there is only one end office in the territory and that would be Timmins that has a NAS of 5,000 or greater?
1211 MR. BESSERER: I don't know if that's true from a regulatory perspective or not. In the alternative, there are a number of communities in this area with a NAS count of more than five thousand. If you call them one switch or you call them a number of switching exchanges, it doesn't make any difference in the end result. The carriers will interface at the DMS-100 and the carriers will have the option of providing the facilities to the remote if they so choose.
1212 MR. GEDDES: If I can just go back to a previous answer where we were talking about Bell's knowledge of interconnection at end offices of NAS count 5,000 or less, and the response was that maybe there was some reason that Bell has no knowledge of this.
1213 Does Northern have any knowledge of end office connections where the NAS count is 5,000 or less?
1214 MR. BESSERER: I have no knowledge there.
1215 MR. McCARTY: I may be able to just add to that a little bit with my experience with being with the Ontario Telephone Association for a period of time. They have many exchanges which are less than 5,000 NAS. Some of the reasons the connections may not have appeared may have been because of high CAT rates or those types of things that were in place.
1216 I don't think one can just sort of generalize and say anybody that's less than 5,000 NAS wouldn't have an end office connection.
1217 MR. GEDDES: As I understand it, it's Northern's position that the terms and conditions of total competition for this territory should be the same as elsewhere in Canada.
1218 Is Northern now suggesting that the definition of an end office in this territory should be somewhat different, and is that used elsewhere in Canada?
1219 MR. McCARTY: No, I don't think so.
1220 MR. GEDDES: Well, seeing as no one knows of any examples where there has been connection at end offices with a NAS count of 5,000 or else, if we assume that the IXCs act in a similar manner in this territory, would you agree with me that there would no end office interconnections except at Timmins?
1221 MR. BESSERER: As I've stated a number of times, the physical connection of the IX Carrier for the Timmins switch will be at the Timmins DMS-100. The exchange at Kapuskasing is a separate rate centre, separate rates. That exchange is fed by host remote links and competitive carriers, if the CRTC so orders, could provide their own facilities, have the equivalent connection at the end office the same as O.N. Tel does today.
1222 MR. GEDDES: With respect to the issue of toll transport, I take it you are aware that O.N. Tel is requesting that there be a toll transport rate between North Bay and Timmins that applies to Bell for a transition period? You are aware of that request?
1223 MR. McCARTY: Yes, we're aware that that's part of O.N. Telcom's proposal.
1224 MR. GEDDES: With the exception of Bell, given the historic relations it has with O.N. Tel, would you agree that facilities based competition would be allowed for any other carrier to bring its traffic from the outside world to Timmins under O.N. Tel's proposal?
1225 MR. McCARTY: As I understand O.N. Tel's proposal, other carriers could connect in North Gay or they could connect at O.N. Tel's switch in Timmins. That's not Northern's proposal; that's O.N. Tel's proposal.
1226 MR. GEDDES: No. I understand. With respect to the Swag AT rate that O.N. Tel is proposing, are you aware that that's an average rate which averages the say costs of carrying competitive traffic over the very long thin routes that we discussed this morning and over the very short fat route that currently exists between the DMS-100 and the access tandem in Timmins?
1227 MR. SINNEAVE: Yes, that's our understanding.
1228 MR. GEDDES: And as a result of this average rate, would you agree than under O.N. Tel's proposal, the same AT rate would apply to competitors whether they are sending their toll traffic to Timmins or Piwanic(ph) up in Hudson's Bay?
1229 MR. McCARTY: That's my understanding, if they choose to come that way, yes.
1230 MR. GEDDES: I understand it's Northern's position that it would be more cost effective for IXCs to interconnect at the end office as opposed to the access tandem; is that right?
1231 MR. BESSERER: Yes, that's correct. And the O.N. Tel proposal is everyone connects at the access tandem, and the increased cost is shared over all the minutes it's going through the access tandem, but there is added cost to do that. It is more cost effective to interface directly at the end office if all you are trying to do is get to the customers on the DMS-100.
1232 MR. GEDDES: Let's look at the cost to IXCs with respect to provisioning new facilities. As I understand Northern's position, they state that it would be more expensive for IXCs to provision new facilities to interconnect at the access tandem than it would be for them to interconnect at the end office; is that right?
1233 MR. BESSERER: Would you repeat that?
1234 MR. GEDDES: Yes. Maybe what I should do is refer you to a specific interrogatory, which would be the company's interrogatory from O.N. Tel number fifteen from February 26, 2001, specifically subparagraph (a).
1235 MR. BESSERER: Yes, we have it. What's your question?
1236 MR. GEDDES: Okay. If I can maybe just take this step by step. Number one, as I understand this interrogatory response, Northern states that if an IXC was to interconnect at the access tandem they would be required to provide more facilities than they would if they interconnected at the end office; is that right?
1237 MR. BESSERER: No, I don't think I said that in that Interrogatory. I said there would be more costs in the network and someone's got to pay the costs in the network if they interconnect at the access tandem to get to the DMS-100.
1238 MR. GEDDES: Well, let me put my understanding to you as far as what this interrogatory states. I understood it to state that if an IXC interconnected at the access tandem they will require three new trunk terminations: one for incoming to the AT, one for outgoing from the AT, and one for termination at the DMS-100; is that not right?
1239 MR. BESSERER: That's correct.
1240 MR. GEDDES: And similarly, the new IXCs would require three new interconnecting facilities: One for incoming at the AT, one for outgoing from the AT, and one for termination at the DMS-100; is that right?
1241 MR. BESSERER: The facilities are correct but not the provider. The new IXC would provide the one facility to the DMS-200 to connect to O.N. Tel, and O.N. Tel would be providing the facility between the DMS-200 and the DMS-100. I believe this morning you confirmed that it is not in your proposal to allow an IXC to provide the facility between the 200 and the 100.
1242 MR. GEDDES: So from a standpoint of provisioning new equipment or network facilities, I take at you'll agree with me that there's no difference for an IXC as to whether it interconnect at the AT or the end office? There would be no additional cost for the AT?
1243 MR. BESSERER: There is no additional facility requirement for the IXC. There may be more costs if he has to pay an access tandem rate and an access, an equal access rate at the access tandem. So facilities, the same amount of facilities, the costs may not be the same.
1244 MR. GEDDES: I take it you're aware from O.N. Tel's proposal that they oppose end office interconnection with respect to the host remote links as it would be unable to independently and objectively measure the use of its toll facilities in those links by others; would you agree?
1245 MR. BESSERER: I understand that's O.N. Tel's concern. That problem exists today. O.N. Tel cannot measure if Northern Telephone, O.N. Tel is using a link provided by O.N. Tel. All O.N. Tel can do is provide the required capacity they need for their calls. An IXC could do the very same. We'd have three suppliers providing the pool. All three would know that they're providing enough capacity to meet their needs but not knowing over which link any particular call is going.
1246 MR. BESSERER: In that case, how would the IXCs or O.N. Tel be able to measure the use of its toll facilities between the host and the remote for purposes of billing customers?
1247 MR. BESSERER: The IXC would provide the trunks at the DMS-100 and provide the equivalent capacity from the DMS-100 to that remote. If two IXCs were providing the very same arrangement, we'd have IXC number one with we'll say 24 trunks at the DMS-100 and one DS one to the remote. We'd have IXC number two with 24 trunks at the DMS-100 and one DS one to the remote, and we'd have Northern Telephone providing the remaining facilities required for quality service for load balancing for local responsibility.
1248 At any one time an IXC No. 1 would say, "I know I got a call that came in on my group of 24 trunks and I know it transferred over the capacity I provided between the host and the remote. I don't know if it went on my link but it went over my equivalent capacity."
1249 There's no need to measure which link is used for any one particular call.
1250 MR. GEDDES: I take it that under that scenario, everybody would be on an honour system, and how would one tell whether they have provisioned properly and whether one has used the proper links?
1251 MR. BESSERER: This isn't an honour system. It's very easy to administer the quantity of host remote links for each IX Carrier. The IX Carrier provides a quantity of trunks at the DMS-100 host. If they provide 24 trunks at the DMS-100 host, they provide one link from the host to the remote. If they don't provide the link, we don't turn up the trunks.
1252 So it's not an honour system and it's very easy to control and administer.
1253 MR. GEDDES: I take it that the number of trunks provided would depend on the volume of traffic that goes between the host and the remote, and in the competitive environment how is one going to determine in advance the number of trunks that are going to be needed?
1254 MR. BESSERER: The IX Carrier determines how many circuits they wish to have to that particular remote. Example, the Town of Kapuskasing. If an IXC figures they want 24 channels, they provide 24 trunks at the DMS-100 host and the equivalent DS one facility from Kap' to Timmins. If the IXC gets more traffic volume than 24 trunks can handle, they'll increase the trunks which then increase the host/remote length. It's not the reverse. The trunks determine the host/remote length.
1255 MR. GEDDES: How do you measure in that scenario the actual amount of traffic on a permanent basis?
1256 MR. BESSERER: The traffic is measured at the trunks provided by the IXC at the DMS-100 and the equivalent terminations at the access tandem where the IXC can measure all of their volume on their 24 trunks.
1257 MR. GEDDES: Well, just to come back to terms and conditions that are used elsewhere in Canada, would you agree with me that toll carriers are generally entitled to measure the use of their own facilities by either IXCs on a permanent basis elsewhere in Canada?
1258 MR. BESSERER: Elsewhere in Canada, toll carriers interface at the end office and do not provide host remote links.
1259 MR. GEDDES: But just in a general scenario, would you agree with me that elsewhere in Canada toll carriers are entitled to measure the use of their own facilities by other competing IXCs on a permanent basis?
1260 MR. BESSERER: I'll need you to repeat the question.
1261 MR. GEDDES: I think I'll just move on. Thanks.
1262 If I could just have a minute, Mr. Chairman.
1263 I think I will go back to that question as far as I recall I was asking. Would you agree with me that elsewhere in Canada toll carriers are entitled to measure the use of their own facilities by competing IXCs on a minute per minute basis?
1264 MR. BESSERER: As far as I know they are and I don't see any difference in this case.
1265 MR. GEDDES: I take it that -- if I can refer you to O.N. Tel or the interrogatory to the companies from the CRTC No. 1500, please.
1266 MR. BESSERER: Could you tell us which date?
1267 MR. GEDDES: Sorry, I'll try to remember. February 26, 2001. Yes, in fact this answer has also been revised and sent out. The revision is dated April 9th, 2001.
1268 MR. McCARTY: So should we refer to the revised one?
1269 MR. GEDDES: I think that's probably -- yes.
--- Pause / Pause
1270 MR. GEDDES: As I understand the response to this interrogatory, Northern has set out three scenarios under which toll facilities might be provided between the host and the remote.
1271 The first scenario is where the IXCs would be allowed to provision facilities between the host and remote.
1272 MR. BESSERER: That is correct, exactly the scenario used by O.N. Tel today.
1273 MR. GEDDES: And I take it that you'd agree with me that this would be basically allowing competition between the host and the remote?
1274 MR. BESSERER: If we're going to have true competition for toll -- message toll traffic in Northern Ontario you will need facility-based competition.
1275 MR. GEDDES: The second scenario would be one where Northern provides all the facilities between the host and the remote; is that right?
1276 MR. BESSERER: This is where Northern would file a transport charge and provide the host remote capacity for any IXC who wanted to use our facilities, yes.
1277 MR. GEDDES: And the last scenario is one proposed by O.N. Tel where there's interconnection at the access tandem; is that right?
1278 MR. BESSERER: Yes, the third scenario is where the IXC interfaces at the access tandem.
1279 MR. GEDDES: Just to go back to the second scenario, the one where Northern would provide all the facilities between the host and the remote, would you agree with me that that would not allow facilities-based competition between the host and the remote in that scenario?
1280 MR. BESSERER: Between the host and the remote today we already have O.N. Tel providing some facilities for toll and if Northern Telephone was providing some facilities for toll for other IXCs, then there would be competition between the host and the remote.
1281 MR. GEDDES: But to stick to the example on the scenario, I take it that if Northern provisioned all of the toll facilities between the host and the remote that that would leave O.N. Tel's present toll facilities as a stranded investment; would you agree?
1282 MR. BESSERER: Not necessarily. The equipment capacity would still be needed, the equivalent DS 1 would need to be provided. Northern Telephone may be able to lease those from O.N. Tel.
1283 MR. GEDDES: But if it turns out that there was in fact stranded investment, what would O.N. Tel propose -- sorry, what would Northern propose with respect to compensation to O.N. Tel for that stranded investment?
--- Pause / Pause
1284 MR. McCARTY: If in fact there is stranded investment, then we would suggest that that would be a situation which falls within the control of O.N. Tel and that would be their problem to solve.
1285 MR. GEDDES: Just coming back to this lease idea. Do I understand correctly that Northern's facilities between the host and the remote are fibre facilities?
1286 MR. BESSERER: Today between the host and the remote Northern has some fibre facilities, some other copper-based facilities, and in some cases joint facilities with O.N. Tel, and in many, many situations in the past we have leased facilities and currently lease facilities from O.N. Tel for host remote links.
1287 MR. GEDDES: Given the fibre nature of those facilities between the host and remote, does Northern think that it would require extra capacity in addition to what is presently there?
1288 MR. BESSERER: The fibre itself can handle lots of capacity, that's not the issue, it will be the associated electronics. If there are spare ports on the electronics, without increasing the investment, then we would use our own facilities. If we have to add fibre MUX investment to get additional capacity, it may be more cost effective to lease facilities from O.N. Tel.
1289 MR. GEDDES: Let's move on to the first scenario -- back to the first scenario, this is the one where competitors would be allowed to provision facilities between the host and the remote.
1290 Firstly, I understand that Northern and Cochrane PUC have no studies, reports or technical documentation relating to host remote facilities and competitive access thereto; is that right?
1291 MR. BESSERER: Repeat the question, please?
1292 MR. GEDDES: Yes. Again, I'm referring to an interrogatory response, this one is No. 71 to the companies from O.N. Tel originally dated and still dated February 26, 2001.
1293 I understand from that interrogatory response that Northern and Cochrane PUC have no studies, reports or technical documentation relating to host remote facilities and the competitive access thereto; is that right?
--- Pause / Pause
1294 MR. BESSERER: We don't have any studies for competition on host remote links.
1295 MR. GEDDES: And I'll have to ask you to refer back to another Bell interrogatory, this one is from O.N. Tel, it's No. 55, again dated February 26, 2001.
--- Pause / Pause
1296 MR. BESSERER: Okay, we have the document.
1297 MR. GEDDES: And with respect to question No. (a), my understanding is that it is Bell's response that given the integrated master slave nature of the host and remote that it would be inappropriate to allow IXCs to provision facilities between the host and the remote.
1298 Would you agree that that's Bell's position?
1299 MR. BESSERER: Yes, that is Bell's position.
1300 MR. GEDDES: And I understand once again that it's Northern's position that the terms for competition in this territory should be the same as those used elsewhere; is that right?
1301 MR. BESSERER: Yes.
1302 MR. GEDDES: And in the balance of this interrogatory Bell goes on to state that it's not aware of any regulatory regime where a toll provider has been granted the option of provisioning its own facilities between the host and the remote.
1303 Would Northern agree with that suggestion as well?
--- Pause / Pause
1304 MR. BESSERER: That is Bell's position. If we go back to that situation in Northern Ontario where we are discussing the host remote links from Timmins to all the remotes, that would basically ask O.N. Tel tell to remove all of their facilities between the host and the remote and we would have no competition. It would be equivalent of having one gate keeper as proposed by O.N. Tel at the access tandem.
1305 And so far Northern Telephone is trying to be pro competitive and give customers choice.
1306 MR. GEDDES: So are you suggesting to me that departure may be required from the standard terms and conditions because of the uniqueness of this territory and particularly the non-integrated nature of the host remote network?
1307 MR. BESSERER: That is up to the CRTC to decide.
1308 MR. GEDDES: Okay. Assuming that these technical and regulatory obstacles can be overcome that have been identified by Bell, let's look at some of the costs of IXCs provisioning some of these facilities between the host and the remote.
1309 If I can just ask you to go back, I believe it was the interrogatory number -- it was that diagram that we were referring to earlier, the interrogatory from O.N. Tel to the companies dated February 23rd, No. 13, page 3 of 3.
1310 MR. BESSERER: Yes, I have it.
1311 MR. GEDDES: The note in the lower right hand corner notes:
"The quantity of DS 1s between the host and the remote will equal the number of IXC trunks that are terminated at the DMS 100 host." (As read)
1312 Is that right?
1313 MR. BESSERER: That is correct.
1314 MR. GEDDES: So if an IXC wanted to have access to each of the 26 communities honed off the DMS 100 they would be required to provision 26 separate toll facilities between the host and the remote; is that right?
1315 MR. BESSERER: That would be one choice that the IXC could pursue. Another choice that the IXC could pursue would be to lease facilities from O.N. Tel. Another choice would be to pay Northern Telephone to provide the transport between the host and the remote, and another choice would be to lease private line facilities from Northern Telephone.
1316 So the IXC has many choices of how to provision their facilities between the host and remote and one choice is to build new facilities, but they don't have to and they still have competitive choice.
1317 MR. GEDDES: Okay. Just looking at the scenario though that you've presented, if they were to build 26 new facilities from the host to each remote, would you agree with me that that would be less efficient than simply connecting up the access tandem where they then have access to every end customer in every community in the territory?
1318 MR. BESSERER: We're going in a very hypothetical cases which is saying let's come up with the most expensive way and compare that to another way.
1319 A carrier entering a market will have a choice to access a remote. They can build their own facilities and they may have facilities close by that they may want to use.
1320 If they don't like that option, they can facilities from O.N. Tel. If they don't like that option, they can lease facilities from Northern Telephone. If they don't like any of those options, they can decide not to enter that market.
1321 They have the choice to make. For me to hypothetically answer it is more cost effective to build all your own facilities, I don't know. In some cases it will be, in some cases it won't be.
1322 MR. GEDDES: Okay. I'd like to look next at Northern's proposed equal access rates. Firstly, would you agree that the equal access rate that Northern has proposed is in fact higher than that proposed by O.N. Telcom?
1323 MR. McCARTY: If you look at their rate in isolation, yes, it is, but when you add it on top of ours, no, it's not.
1324 MR. GEDDES: Just to confirm, under O.N. Tel's proposal you'd agree that Northern would still be entitled to collect its own equal access rate for any traffic that transverses the DMS 100?
1325 MR. BESSERER: Could you repeat that question again, please?
1326 MR. GEDDES: Yes. I just would ask you: Do you agree that under O.N. Tel's proposal there's interconnection at the access tandem, that Northern would still be able to collect its equal access rate for any traffic that transverses the DMS 100?
1327 MR. BESSERER: Under the O.N. Tel proposal O.N. Tel would collect an equal access rate at the access tandem and Northern Telephone would provide equal access functionality on the DMS100 and then would charge our equal access rate, yes.
1328 MR. GEDDES: With respect to establishing Northern's equal access rate, I understand that the entire cost of equal access is attributable to equal access software; is that right?
1329 MR. McCARTY: Northern's equal access rate was developed on the premise that we have our software and hardware needed to provide equal access functionality plus start-up costs for PIC CARE functionality as well, plus CCS-7.
1330 MR. GEDDES: Sorry, could I ask you to refer to one of the most recent interrogatory responses, this would be the company's response to CRTC 2301.
1331 MR. BESSERER: Which interrogatory?
1332 MR. GEDDES: This is the company's CRTC April 18th, 01, No. 2301, specifically page 205 at the end of paragraph (a).
1333 Okay. That last paragraph under subparagraph (a) talks about the cost to provide equal access on the DMS 100 is, and it's a confidential number.
1334 First of all, let me just confirm, equal access will only be provided by Northern Telephone on the DMS 100 and not at any other end office; is that right?
1335 MR. BESSERER: Northern Telephone's proposal is to add equal access and CCS-7 functionality at the DMS 100 and then to upgrade the existing three small offices at Mattise, Opasatika and Goganda to DMS 100 remotes because that's more cost effective than providing CCS-7 and equal access at the DMS 10.
1336 MR. GEDDES: I understand that. And to proceed on with this paragraph, it says:
"The entire amount is attributable to the line item entitled DMS 100 SW."
1337 I take it SW is software; is it?
1338 MR. BESSERER: Yes, SW is software.
1339 MR. GEDDES: So if we can go back to the conversions at Goganda, Mattise and Opasatika, would you agree with me that the conversions there require Northern to change DMS 10s to DMS 100 remotes?
1340 MR. BESSERER: That is correct.
1341 MR. GEDDES: And do those conversions involve matters of software only or are there hardware costs as well?
1342 MR. BESSERER: There are also hardware costs and the equal access rate, I want to reiterate, includes providing a functionality of CCS-7 which is hardware and software.
1343 MR. GEDDES: So can you explain the statement at the end of paragraph (a) here interrogatory 2301 that, as far as I read it, says the equal access costs are attributable to software only, certainly there must be some hardware costs from these conversions?
1344 MR. BESSERER: The question that is being referred to in interrogatory 2301 was a direct question relating to the particular software related to equal access.
1345 To provide equal access and CCS-7 functionality at Timmins and the three DMS 10 offices there is hardware and software costs.
1346 MR. GEDDES: And this response to 2301 also goes on to talk -- yes, I recall correctly, talk about a situation concerning a call centre in Timmins, call centre that required CCS-7 signalling functions; is that right?
1347 MR. McCARTY: Yes, that's correct.
1348 MR. GEDDES: And as I understand it, that call centre required call display for incoming toll calls and that's why the CCS-7 functioning is required; is that right?
1349 MR. McCARTY: Yes.
1350 MR. GEDDES: If I also read the answer correctly, since that CCS-7 signalling would result in blocking of toll billing data, O.N. Tel asked Northern to activate equal access with Feature Group D on the DMS 100 so it could use its LEAS software to collect billing toll data; is that right?
1351 MR. BESSERER: Yes, that's correct.
1352 MR. GEDDES: Now, can you tell me with respect to the normal methodology used to assign CCS-7 costs to local and toll BSCs, would you agree that it's normally done on a proportional use basis?
--- Pause / Pause
1353 MR. BESSERER: CCS-7 is being installed on the Timmins switch to meet a customer's needs to provide calling line display on toll calls and the cost hasn't been assigned to the toll costs.
1354 MR. GEDDES: The customer is a local customer though; is it not?
1355 MR. BESSERER: Yes, the customer is a local customer who required calling line ID on incoming toll calls. We could have provided calling line ID fine on local calls, that was never the issue.
1356 MR. GEDDES: So once the CCS-7 signalling is activated in its switch, I take it that Northern does not intend to use that for any local optional services?
1357 MR. BESSERER: I'm not aware of any local optional services that we would be using it for.
1358 We have calling line ID today working as a local service and did not require CCS-7. We will -- those customers now will get calling line displays on incoming toll calls, so they will see a benefit, but I'm not aware of any other benefit that will use CCS-7 as a local optional service.
1359 MR. GEDDES: Wouldn't you agree that the value of the service provided to this local customer has been increased by the provisioning of this CCS-7 function?
1360 MR. BESSERER: It's been increased for its long distance capability, yes.
1361 MR. GEDDES: Let's look back at the end office in Goganda, Mattise and Opasatika that will have to be converted.
1362 Would you agree that there will be certainly a local function to those end offices as well as a toll function?
1363 MR. BESSERER: Are you referring to a local function relating to CCS-7?
1364 MR. GEDDES: No. As far as I understand it, Northern is including the conversion costs of those end offices in the equal access rate, and I am just asking why it wouldn't be proportioned between the local and toll BSCs?
1365 MR. BESSERER: Those customers are presently on digital switches. They presently have the optional services for customer calling features. To provide them with the equivalent of equal access and CCF-7 functionality at each of those offices, it is more more-effective to upgrade the switch to a remote than to upgrade the DMS 10. So we've gone the most cost-effective route to provide them the capabilities.
1366 MR. GEDDES: I think I understand the cost-effectiveness of the decision. I'm wondering about the costing though and the resulting EA rate that Northern has proposed.
1367 As I understand it, the cost of making those conversions have been included one hundred per cent in the EA rate; is that right?
1368 MR. BESSERER: Yes, it is correct that the cost of making the conversions is included in the equal access rate.
1369 MR. McCARTY: If we could just have one second?
--- Pause / Pause
1370 MR. McCARTY: Perhaps just to add, the rationale I guess to using THIS technology is to bring equal access to those offices in a most cost-effective manner. There's no gain from a local perspective. Those people already enjoy the benefits of having that digital technology, but in order for us to bring equal access software to those offices, it's best to do it through the host/remote relationship.
1371 MR. GEDDES: Mr. Chairman, I'm just looking at the issue of time. I think I could wrap up in another forty minutes. I'm not sure if you just wanted to take a brief break or just plow on through.
1372 THE CHAIRPERSON: If it's a half an hour, I'm inclined to let you continue on.
1373 MR. GEDDES: Thank you.
1374 Next let's look at Northern's proposed DT, DC rate. Following the progression of this rate through the proceedings, as far as I understand it in its initial submission Northern was suggesting that this rate should be calculated in accordance with the methodology set out in Decision 96-6; is that right?
1375 MR. McCARTY: Yes, that was our initial position.
1376 MR. GEDDES: And then I understand that Northern determined it was unable to develop its own rate for DC service; is that right?
1377 MR. McCARTY: Yeah, this is correct. We didn't have the resources to do the Phase 2 study required.
1378 MR. GEDDES: Okay. And as a result, Northern then proposed adopting the DC rate of Télébec; is that right?
1379 MR. McCARTY: In response to an interrogatory from the CRTC - and I don't have that number right now; I could get it if you need it - Northern indicated they were unable to come up with the rate because we didn't have the resources to do a Phase 2 study. We then looked around for a proxy. We saw Télébec's proxy. It made sense to us to use a proxy because we were unable to do a study, and that was our position at that time, yes.
1380 MR. GEDDES: And then on further consideration I understand that Northern determined that that Télébec proxy was not appropriate; is that right?
1381 MR. McCARTY: It's a little bigger than that, but since making those statements and going around this issue - more than once I might add - there is an inherent problem when we looked at the rate, particularly looked at our direct toll rate which contains direct toll plus the direct connect. And within that or since making those statements, the company looked at it to give further consideration, and we've determined that unbundling the DC from the DT rate would be appropriate.
1382 And one of the problems that presented in that rate is that there is a residual cost that is a fall-out from the common costs from billing and collection, and it's nobody's fault. Unfortunately that's just the way Phase 3 works. It's the way the common costs were allocated.
1383 It's a problem that all of the independents in Ontario and I think Quebec are faced with currently, and we've chosen to take a look at that rate, and our position right now is that we're going to -- our position right now is to deal with the residual in the upcoming round table discussions dealing with contributions for independents and therefore back the residual out of the DT rate and then develop a DC rate, a true DC rate without the residual in it.
1384 MR. GEDDES: I think I recall you saying in the opening statement, "Northern has committed itself to splitting its rate base on a Phase 2 basis but it's proposing using a DT Phase 3 rate for direct correct under a competitive toll environment"; is that right?
1385 MR. McCARTY: I need to hear that question again. There was too much for me to absorb at once.
1386 MR. GEDDES: Yes. I'm sorry.
1387 In the opening statement - I may be incorrect - but I thought I heard you say that Northern is prepared to split its rate base on a Phase II basis; is that right?
1388 MR. McCARTY: Northern has failed a split rate base of application with the Commission in response to an interrogatory in this proceeding.
1389 MR. GEDDES: And am I correct also in understanding that it is prepared though to not just file but to proceed to split its rate base on a Phase II basis?
1390 MR. McCARTY: Once toll competition is introduced in the territory, yes, we hope to have to have a split rate base in place.
1391 MR. GEDDES: But also for the introduction of toll competition, You are proposing a DC rate that has a Phase 3 basis; is that right?
1392 MR. McCARTY: No. We will undertake to come up with a DC rate based on Phase 2 costing. With the residual out we have a residual problem that we have to deal with along with every other independent in Ontario and Quebec, and that is basically because we were -- I'm getting dated here; I think I was in the sun too long. However, I understand with the billing and collection there were common costs that were left over that remained in the DC rate and that residual cost has to be dealt with.
1393 MR. GEDDES: And the particular rate, this DT/DC rate was being proposed, as I understand it, is .98 cents per minute?
1394 MR. McCARTY: Yes, that number is correct. However, that number contains a residual that needs to be backed out of there.
1395 MR. GEDDES: That number also includes switching costs only; isn't that right? It includes no transport costs?
1396 MR. McCARTY: Yes, that's correct.
1397 MR. GEDDES: Once the round-table settles these issues regarding the Phase 2 and the Phase 3 rates, I take it that a transport component will have to be added to this rate as well?
1398 MR. McCARTY: Or a separate transport rate. We haven't made that determination yet.
1399 We're also not guaranteed that the round-table is going to resolve the residual problem either. That's just where we choose to deal with it at the moment.
1400 MR. GEDDES: Assuming that O.N. Tel's toll facilities are left in place between the host and the remote, would you agree that Northern would not be entitled to charge a transport component to its DC for any traffic that travels over O.N. Tol's facilities between the host and the remote?
1401 MR. McCARTY: To get some clarification, is this in the current situation or in a competitive mode?
1402 MR. GEDDES: Well, I asked to make the assumption but I'll make it a little bit clearer. Assuming that under a competitive market O.N. Tel's toll facilities sill exist between the host and the remote. In that scenario, would you agree with me that Northern's DC rate would have to back out the transport component because that would already be covered by O.N. Tel's HRAG rate?
1403 MR. McCARTY: No, because the transport is not included in the DC rate.
1404 MR. GEDDES: But I thought currently you told me that this rate being proposed is just switching, but I thought you also told me that once these issues are resolved you'll have to put back in a transport cost in the DC rate; is that right?
1405 MR. McCARTY: No, I'm sorry. I must have mislead you. We have to also then come up with a transport rate which is separate from the DC rate.
1406 MR. GEDDES: I'm sorry. I thought that's the way I read 2302, but even if it is a different transport rate, would you agree with me that if traffic travels over O.N. Tel's toll facilities between the host and the remote, that transport cost would already be covered by O.N. Tel's host/remote aggregation rate and it would be a duplication for Northern to charge a transport rate on top of it?
1407 MR. BESSERER: Northern Telephone will come up with a direct connect rate which would be charged to O.N. Tel where O.N. Tel provide their own equivalent facilities between the host and remote for the transport of the toll call.
1408 Northern Telephone will come up with a second rate which will be a transport rate which will be used by IX Carriers who choose to use Northern Telephone facilities between the host and remote. So, those carriers will pay the direct connect rate and the transport rate.
1409 Now, as you work your way through the details maybe it will be a DC rate without transport and one with transport is two rates, and maybe they will be separate rates. We haven't decided that yet. But the functionality will be one DC rate where the IX Carrier provides their own equivalent transport and a second rate where the IX Carrier uses Northern Telephone provided transport.
1410 MR. GEDDES: Okay. I'd like to ask you next about Northern's ability to measure and bill DC minutes.
1411 As I understand your response to Interrogatory CRTC 2101, Northern stated that the equal access software in its DMS 100 will allow it to track DC minutes and bill IXCs; is that right?
1412 MR. BESSERER: When CCS-7 is added at the DMS 100, as prerequisite we have to add the local automatic message accounting capabilities along with equal access. The local automatic message accounting capability will allow us to collect the minutes they've used by carrier.
1413 MR. GEDDES: Those are --
1414 MR. BESSERER: They will be minutes of use by carrier trunk groups. I'm assuming they will be toll minutes.
1415 MR. GEDDES: Would you agree with me that a toll call that comes into the DMS 100 from the access tandem owned by O.N. Tel arrives in an aggregated fashion in the sense that it's unable to tell whether that calls belongs to O.N. Tel or another IXC that may interconnect through the access tandem?
1416 MR. BESSERER: Are you asking the question -- I'm going to rephrase it; I'm not sure I got the question right, that if an IXC interconnect is at the access tandem, then calls coming from the access tandem to the DMS 100 on a combined trunk group would contain O.N. Tel's calls and the IXC's calls?
1417 MR. GEDDES: Yes, in an aggregated fashion, and that's at the DMS 100 it wouldn't be possible for Northern to determine whether that was a call belonging to O.N. Tel or the IXC?
1418 MR. BESSERER: That will depend on how the ISC interconnects at the access tandem. If the IXC interconnects at the access tandem using the proposed O.N. Tell leaves functionality, then we will not know who the carrier is and the carrier will be identified to us as O.N. Tel and we would bill O.N. Tel for all of the minutes.
1419 The same thing would be true if they interconnect at - and terminating calls, the minutes will come from O.N. Tel and we'll charge O.N. Tel accordingly.
1420 MR. GEDDES: Okay. I'd like to move on next to the issue of local rebilling. I understand that Northern opposes the concept of local rebilling; is that right?
1421 MR. McCARTY: Northern believes that the rebilling issue would be more properly dealt with in a proceeding that dealt with all of the local competition issues in a separate proceeding rather than dealing with a very narrow issue of rebilling of their local services.
1422 In the local competition, I guess in Decision 98-14, the Commission stated it intended to introduce a public process, if appropriate, dealing with the terms and conditions for local competition, and they go on at great length.
1423 However, the Commission also noted that O.N. Tel would be included in that proceeding, so on that basis it would be included in that proceeding with all other independents, and so on that basis Northern felt that it would more appropriate to deal with it with all of the independents and O.N. Tel as the Commission had previously indicated in Decision 98-14.
1424 MR. GEDDES: Okay. Maybe I should be a little more specific. If I can refer you to the latest interrogatory, 2700 from the CRTC to the companies, I understand in answer to this interrogatory, Northern is opposed to developing a wholesale discount tariff for rebilling as its local rates are already below cost; is that right?
1425 MR. McCARTY: Yes, that's correct.
1426 MR. GEDDES: Would you agree with me that the wholesale discount tariff would not include an element for billing or customer care cost and therefore there would be some margin for a wholesale tariff, notwithstanding the low rates?
1427 MR. McCARTY: It poses two problems for Northern: One, because we feel that local competition issues should be dealt with together, and then the other aspect is to have the capability to do the Phase 2 studies that will be required there. So, I'm not able to provide an answer to the question.
1428 MR. GEDDES: I guess that was my follow-up question: How can Northern in its interrogatory response suggest that the rates are below cost when in fact it hasn't done any type of Phase 2 study on local rates?
1429 MR. McCARTY: This is a personal view. I don't think any study is required to indicate that Northern Telephone's local rates or O.N. Telcom's local rates or any independent in Ontario local rates are below cost.
1430 If you take a look at the carrier access tariffs that are in place in a contribution proceeding that we're going into, I think it certainly indicates that local rates are not near cost. So from my own personal view, without checking with my financial gurus here, I don't think a Phase 2 study is really required to say that our rates are below cost.
1431 I'm aware of studies that we worked on partially during a high cost proceeding, and I think they certainly indicated to me in a general sense that our rates were well below cost.
1432 MR. GEDDES: As I understand it then, the basis of the objection to local rebilling is, number one, local competition issues should all be dealt with at one time; and number two, although you can't measure it, the current rates may be below cost in any event?
1433 MR. McCARTY: Our position is that this is a very narrow issue of the total issue of local competition. The Commission indicated that O.N. Tel would be involved in a local competition proceeding with all other independents in Ontario and Quebec, and that's how we feel that this issue should be dealt with.
1434 MR. GEDDES: To deal with issues of local competition, would you agree that traditionally host remote links have been considered part of the local network?
1435 MR. McCARTY: Generally, we'd agree with that statement.
1436 MR. GEDDES: Would you agree then to go back to your proposal to allow competition between the host and the remote should also be an item addressed together with other local competition issues?
1437 MR. McCARTY: No.
1438 MR. GEDDES: Why not?
1439 MR. McCARTY: Because the proceeding we're dealing with now deals with the introduction of long distance in O.N. Tel's serving territory. Northern Telephone, because of the technology that they have in place, should not in our opinion be deprived of using that technology.
1440 MR. GEDDES: And the technology that Northern has in place between the host and the remote, I take it you've received compensation for that through the CAT charges over the years; is that right?
1441 MR. McCARTY: Well, a factor here will be a factor here too.
1442 Would you mind repeating the question? We're just a little confused and I just sort of forgot the main issue.
1443 MR. GEDDES: In response to your comment that Northern has facilities between the host and the remote and should be able to recover those costs, it's my understanding that over the years Northern has recovered those costs through CAT; is that not right?
1444 MR. McCARTY: I don't think I said anything about Northern recovering costs. I said that Northern should be allowed to use the technology that they have available to them. I thought your question to me was did CAT pay for that? I'm not - and that's why I wanted some clarification. I'm not sure if that was the question or not.
1445 MR. GEDDES: Okay. Let's move on to the issue of market share in a competitive environment. Certainly I understand from your statement earlier this afternoon and the submission that Northern does acknowledge that the residents of this territory have waited anxiously for toll competition; is that right?
1446 MR. McCARTY: That's correct.
1447 MR. GEDDES: However, I understand that Northern also disputes O.N. Tel's position that O.N. Tel may lose a significant portion of its market share upon toll competition, for two reasons as I understand: Number one, there's been a suggestion that there may be customer inertia or resistance to changing toll carriers; and number two, it's been suggested that whatever demand there is for total competition has been concentrated in the hands of a few sophisticated clients; is that right?
1448 MR. McCARTY: Northern believes that perhaps O.N. Telcom have overstated what they may lose in the market. They obviously have undertaken studies which I guess have been filed in confidence which shows.
1449 I find it hard personally to believe that O.N. Tel is going to go out with something like a 65 per cent market share in year one, knowing full well that O.N. Tel is a very reputable toll carrier, that it's well recognized in this area, it has been in this area for a hundred years.
1450 They currently have a hundred per cent market share, they're going to have a hundred per cent market share on day one, and particularly when I heard today that O.N. Tel is going to match rates with all of the other carriers that are around, if O.N. Tel then goes from 100 per cent to 65 per cent market share, I would be very surprised.
1451 And then the other aspect that may not be taken into consideration is the wholesale business in their market.
1452 So for those reasons, I think O.N. Tel has overstated what they will lose..
1453 MR. GEDDES: And, sir, Mr. McCarty, I understand that notwithstanding your own personal opinion, that Northern has no market studies or surveys like O.N. Tel prepared to back up that position; is that right?
1454 MR. McCARTY: I'm not aware of any market studies that Northern has.
1455 MR. GEDDES: If I can ask you to next refer to the response to interrogatory No. 2300 from CRTC to the companies, this one would also be dated April 18th, 2001.
1456 MR. McCARTY: 2300?
1457 MR. GEDDES: 2300.
1458 MR. McCARTY: Okay, we have that document.
1459 MR. GEDDES: Okay. This interrogatory asked Northern to, first of all, assume that it's not economic for IXCs to build new facilities on uneconomic routes, and then it asked for some specific comments on the potential effect on the route from Timmins to Kapuskasing, if an IXC interconnected at the DMS 100 and captured a certain proportion of the market share, 35 per cent and 50 per cent.
1460 So do you agree with me?
1461 MR. BESSERER: That's what the question was, yes.
1462 MR. GEDDES: And do I understand the answer of Northern correctly to be that if O.N. Tel lost 35 per cent of the market, essentially 35 per cent of its host remote toll facilities would become redundant; is that the position?
1463 MR. BESSERER: That's not quite what my understanding of what was stated there.
1464 If O.N. Tel lost 50 per cent of the market share and the market did not grow at all, it stayed exactly as it is today, and O.N. Tel did not wholesale any facilities to the competitors coming in then, yes, O.N. Tel would have some removal of facilities.
1465 But in all likelihood the market will grow with competition, and even if O.N. Tel loses some market share they may end up with more facilities at the end to carry their portion of the market share.
1466 MR. GEDDES: Okay. With respect to those facilities that O.N. Tel has, whether they lose 35 per cent of market share within the territory, you've heard that they still have settlement traffic from outside the territory they would have to carry; is that right?
1467 MR. BESSERER: I don't know what traffic O.N. Tel gets from outside the territory that they have to carry.
1468 MR. GEDDES: With respect to the end comment in this interrogatory, you've implied here in the competitive market there will be somebody stimulation of minutes.
1469 MR. BESSERER: I believe there will be stimulation of minutes with competitive market, yes.
1470 MR. GEDDES: And is it the position, as suggested here, that even though O.N. Tel may lose market share it doesn't mean that it will experience a loss in minutes or revenues; is that right?
1471 MR. BESSERER: It says they may not experience a loss in minutes.
1472 MR. GEDDES: Or revenues. It seems to me it says in the second last paragraph, two last words.
1473 MR. BESSERER: You're correct, it is.
1474 MR. GEDDES: And is the inclusion of revenues there a mistake; should that not be there?
1475 MR. BESSERER: No, the more I think about it the revenue per minute will go down but if the minutes go up the revenue at the end could be more.
1476 That will depend on O.N. Tel's strategies and what the rates are.
1477 MR. GEDDES: That seems then an elasticity factor of greater than one; doesn't it?
1478 MR. BESSERER: I'm not familiar with that.
1479 MR. GEDDES: We've talked earlier at the beginning of this cross-examination about Northern's intention to enter this toll market itself.
1480 I understand that Northern opposes O.N. Tel's request for forbearance on the ground, according to Northern, that O.N. Tel will be the dominant carrier in this toll market; is that right?
1481 MR. McCARTY: Since they will have a hundred per cent of the traffic on day one, yes, in our opinion they would be dominant.
1482 MR. GEDDES: Would you agree with me that Northern will be well positioned and perhaps uniquely positioned to enter the toll market itself on day one either directly or through its affiliates?
1483 MR. McCARTY: As I indicated earlier, we'd like to. We have thought a lot about it, we have had lots of time to think about it, since 1997, however until we know what the terms and conditions for entry are, I don't know what our plans are, I don't know how we could make plans when we don't know what those terms and conditions are.
1484 Certainly as Northern wants to offer its customers an alternative to O.N. Tel's proposal, they've suggested that if there is a marketplace that's opened up with facilities-based equal access available at the end office, Feature Group D, CCS-7, which is the Canadian standard, then I'd say it's likely that Northern will enter the market in some form or fashion.
1485 If however -- it's very unlikely that Northern will enter the market if the only alternative is lease.
1486 MR. GEDDES: With respect to making plans to enter the toll market, I understand that Northern has been taking steps in the last year to basically accelerate its future growth in telecommunication services by developing a relationship with Telebec; is that right?
1487 MR. McCARTY: On November the 1st, I believe of the year 2000, Northern Telephone and Telebec formed an alliance in which they have a common president who was appointed on that date, they have a common executives team in place.
1488 It's an alliance that's been formed to explore opportunities. Most of those opportunities to my knowledge are dealing mainly right now with competitive wire line type services and exploring those opportunities, that it makes sense that rather than, you know, rather than both organizations develop products that we can do them together and bring them to the marketplace much quicker and that's what we're doing and mainly it's in the competitive side.
1489 MR. GEDDES: If I can refer you to a document that you have, it's a press release taken from the Northern Web site, this one I'll find the date, this one has the words "Budding Artist Abound" at the beginning, though not what I'm going to refer you to, did you find them?
1490 I can refer you to the press release on page 4 or 5 of that document. As I understand it, this is the press release announcing the appointment of Mr. Brochu as the President and CEO of Northern Telephone; is that right?
1491 MR. McCARTY: Yes, I believe it is.
1492 MR. GEDDES: And in the middle of the last paragraph, Mr. Brochu is quoted as saying that the relationship with Telebec will allow Northern to grow and to accelerate future growth in areas that are merging integrated telecommunication services.
1493 Do you agree with that?
1494 MR. McCARTY: Where is this comment?
1495 MR. GEDDES: In the last paragraph before the title "Company Profiles".
1496 MR. McCARTY: Okay. Is this where it starts off, "Our intention is..."?
1497 MR. GEDDES: It starts off, "Our relationship..." Well, let's starts off, "Our intention..."
1498 Essentially as I understand it, this relationship between Telebec and Northern is aimed at allowing it to accelerate future growth in competitive markets; is that right?
1499 MR. McCARTY: Yes, I think that would be a fair statement and as I had indicated earlier, these initiatives are concentrating on the competitive wire line type services.
1500 MR. GEDDES: Next if I can refer you to the Telebec 2000 annual report that's been provided to you.
1501 MR. McCARTY: Okay.
1502 MR. GEDDES: You note that the very first page is a map of Telebec's territory which also includes the territory of Northern beside it.
1503 MR. McCARTY: Yes.
1504 MR. GEDDES: Okay. And I believe it's at page 4 of the document that it discusses what it calls a strategic alliance between Telebec and Northern.
1505 MR. McCARTY: Yes.
1506 MR. GEDDES: And you mentioned to me that there was some sharing of management. Can you tell me, are there any directors from the director level above at Northern who do not share the same position at Telebec?
1507 MR. McCARTY: When you refer to "directors", are you talking within the organization or Board of Directors?
1508 MR. GEDDES: Underneath the Board of Directors.
1509 MR. McCARTY: Yes, I believe there are directors that have shared responsibilities with both organizations and others that don't.
1510 MR. GEDDES: And this document describes the relationship between Northern and Telebec as an integration.
1511 Is there sharing of assets as well?
1512 MS FOURNIER: There are no sharing of assets.
1513 MR. McCARTY: You are going to have to bear with us a bit. This is a Telebec document and I'm representing Northern Telephone in this hearing and this is kind of new to me when I'm reading this stuff.
1514 But I would agree that I'm not aware that there is any sharing of any assets. In fact there can't be because, if I understand, both organizations have their own corporate identity and standing on their own and nothing has changed in that area at all.
1515 This is an alliance formed between two companies to explore opportunities to be more efficient in the future.
1516 MR. GEDDES: Along that lines, is Telebec currently taking over Northern's billing functions?
1517 MR. McCARTY: I'm not aware of that.
1518 MS FOURNIER: I'm not aware of any completed studies at this point.
1519 MR. GEDDES: I guess the reason why I asked the question about pooling of assets is the other document that you should have before you, and that's a copy of what's called NT News from September and October, 2000.
1520 MR. McCARTY: Right.
1521 MR. GEDDES: Just wait for a second. On the first page there's a message from Northern's President and CEO Pierre Brochu, talks about this alliance between Telebec and Northern. The second paragraph it says:
"The pooling of our resources and know-how will make us a stronger organization with operating revenue of nearly $280-million."
1522 Do you know what the reference to "pooling of resources" refers to?
1523 MR. McCARTY: No, I'm not. I'm assuming the reference made there, from my previous experience, would be -- when we make reference to that would be probably talking more about the pooling of human resources because we talk about know-how which will make us a stronger organization. So I'm assuming that's what's referred to there.
1524 Because then if you take a look at the third paragraph it does then lead into employees, so I'm assuming that's the reference.
1525 Makes it very difficult. This is the first time I've seen this document.
1526 MR. GEDDES: Excuse me, Mr. Chairman, if we could just have a few more minutes to consult. We're getting very close to the end here.
1527 Just following up on the issue of market loss, do you agree that until October, 2000 Northern billed for both the local and toll services in the territory including of course O.N. Tel's toll services?
1528 MR. McCARTY: The date may be September, but Northern billed O.N. Tel's toll services as it was related to Northern's local customers.
1529 So, therefore, O.N. Tel I believe also had customers in their local exchanges which we did not bill.
1530 MR. GEDDES: Would you agree then that Northern's customers which represent the vast majority of the customers in this territory identified Northern as their toll company until that point?
1531 MR. McCARTY: No, I wouldn't agree with that statement. Northern was the local provider and O.N. Tel was the toll provider.
1532 MR. BESSERER: Maybe just to add to that.
1533 I do recall that I think O.N. Tel thought there was some confusion at some point in time and I think we actually put on the toll bill that O.N. Tel was their toll provider.
1534 I don't recall a date, see I get a little dated, but I know it was some time ago, three or four years ago perhaps.
1535 MR. GEDDES: But would you agree with me that if customers didn't appreciate that O.N. Tel was the toll provider, that that could have an impact upon market share in a competitive environment, assuming of course that Northern does enter the competitive toll environment in this territory?
1536 MR. McCARTY: Well, in a hypothetical situation I guess generally I might agree to that. First of all, Northern, you know, I think has indicated and we've said here today we're very interested, but I don't know what the rules are.
1537 And if they all think they're my customers now, great. But I don't believe that for a minute.
1538 I mean, O.N. Tel is predominant in this territory with many operations. I mean, their name is well known in this territory by customers and I'd be very surprised that their toll customers don't know who their toll provider is.
1539 MR. GEDDES: Those are all my questions. Thank you.
1540 THE CHAIRPERSON: Thank you, Mr. Geddes.
1541 Counsel, Mr. Secretary, do you have the exhibit numbers for Mr. Geddes' exhibits, I guess starting with the Daily Press.
1542 MR. McCALLUM: I have assigned the Exhibit numbers in the following way: I have five exhibits in all. The first one is the Final Argument -- all these I'm labeling as O.N. Telcom exhibits - starting with Final Argument of Northern Telephone Limited January 29, 1999 with reference to public notices 97-42, 98-5 and 98-18, Exhibit 4.
1543 Newspaper article entitled: "Northern Telephone Continues with Upgrades", the Daily Press, 1 March, 2001, Exhibit 5.
1544 Press Releases About Us, five pages from Northern Telephone's Web Site with articles dated from 27 October to 19 December, 2000, Exhibit 6; Telebec Annual Report 2000, Exhibit 7; and NT News September/October 2000, Message from Pierre Brochu, Exhibit 8.
EXHIBIT NO. 4: Final Argument of Northern Telephone Limited January 29, 1999 with reference to public notices 97-42, 98-5, and 98-18
EXHIBIT NO. 5: Newspaper article entitled "Northern Telephone Continues with Upgrades", the Daily Press, 1 March, 2001
EXHIBIT NO. 6: Press Releases About Us, five pages from Northern Telephone's website with articles dated from 27 October to 19 December, 2000
EXHIBIT NO. 7: Telebec Annual Report 2000
EXHIBIT NO. 8: NT News September/October 2000 message from Pierre Brochu
1545 THE CHAIRPERSON: Thank you very much.
1546 Thank you, again, Mr. Geddes. I believe, counsel, those are all the questions from parties wishing to cross-examine Northern.
1547 MR. McCALLUM: I understand that to be correct, Mr. Chairman.
1548 THE CHAIRPERSON: So it's over to you.
1549 MR. GEDDES: Excuse me, I was just wondering when we might expect to receive the answers to those undertakings?
1550 MR. BESSERER: I think we've got one undertaking I'm aware, and I believe the undertaking is which offices were upgraded to DMS technology since 1997; is that correct?
1551 MR. GEDDES: That was the first one. The second one was to speak to Mr. Brochu to see if he has been misquoted?
1552 MR. McCARTY: I'll try to provide an answer to that soon. I may be able to do it when and if we have a break and I may not, I'll probably know whenever I have a break.
1553 First of all, I have no idea where Mr. Brochu is so that poses a bit of a problem, so I may be able to answer it without necessarily discussing it with him, if I have a chance.
1554 I believe I have another document but it happens to be in my brief case over there not with the back-up documents.
1555 MR. GEDDES: Sorry, just to follow up on that though, the undertaking is to speak to Mr. Brochu himself to see if he was misquoted.
1556 MR. McCARTY: I'd be pleased to speak with Mr. Brochu.
1557 MR. BESSERER: And I'll have the undertaking No. 2 done for tomorrow.
1558 THE CHAIRPERSON: Counsel?
1559 MR. McCALLUM: Mr. Chair, I expect to have no more than about 10 minutes of questions.
EXAMINATION / INTERROGATOIRE
1560 MR. McCALLUM: If I may just start by referring to the companies's O.N. Telcom 26 February 4.
1561 MR. McCARTY: We have that document now.
1562 MR. McCALLUM: It concludes with the sentence:
"The companies also note that even though Northern does not provision these things for toll traffic today, Northern has the capability to do so and it specifically seeks authorization to do so in this proceeding as part of its DC interconnection proposal."
1563 You found that of course.
1564 We know of course that that proposal had not been included in the company's original submission. Is the authorization of the provision of these links one of the preconditions for Northern to enter the toll market?
1565 MR. McCARTY: I'm sorry we have a revised answer to that also and I'm not sure whether your question is whether it matters or not, and if you can repeat it for me I'd appreciate it.
1566 MR. McCALLUM: What I was reading from was the version that was revised I think April 17, page 2, fourth paragraph.
1567 MR. McCARTY: Okay. Generally I would say the answer is, yes, but of course that is determinative upon what is the terms and conditions for introductory into the marketplace.
1568 In isolation it's sort of yes, but don't hold that against me. There may be other terms that make that inappropriate.
1569 MR. McCALLUM: Well I guess what I'm trying to do is sort of take them separately. I understand your answer elsewhere that it depends on the terms and conditions of entering the marketplace in a global sense, but I'm just trying to understand maybe for this record the importance of this authorization that NTL seeks.
1570 MR. McCARTY: In our opinion it's a very important thing, particularly if we're going to have facilities-based competition and particularly if there happens to be two models at work when we have this, this is very important for us, and for every other local exchange carrier, as I understand, in Canada.
1571 MR. McCALLUM: Without this authorization then NTL might not enter the toll market?
1572 MR. McCARTY: It's very unlikely.
1573 MR. McCALLUM: Referring to the situation at Detour Lake which I understand is an exchange which may no longer be in existence in the future.
1574 Assuming that it had some status in the future for the purpose of the question, as we know in the high cost decision it indicated that the responsibility of the incumbent ILEC to ensure that the subscribers had access to the toll network.
1575 As we know from the O.N. Telcom submission the Cochrane to Detour Lake is an uneconomic toll route.
1576 In a competitive toll environment would it be your view that O.N. Telcom should be obliged to provide this uneconomic toll route for northern's local subscribers, or should Northern provide it?
1577 MR. McCARTY: As I understand our obligation from the high cost -- and bear with me, I may have the wrong references here because I have been out of circulation a little bit.
1578 My understanding is the definition of -- I'm trying to think of the right words that relate to a customer, but I was under the understanding that it was a local responsibility to ensure that customers had access to long distance carriers. And currently in a monopoly, O.N. Tel obviously were providing access to those services through O.N. Tel. If O.N. Tel decides not to provide those services, then we would face that situation when we got to it as being a local exchange carrier with the responsibility of providing toll access to our customers.
1579 We think in the scenario that we are proposing there are going to be many players in the market and there will be opportunities. If one chooses not to, others will be there.
1580 MR. McCALLUM: Thank you.
1581 For clarification, and I guess the reference would be to the company CRTC 30 November 502 which was revised on the 7th of February. I'll ask the question and if you are able to answer it, then that will do it. If necessary, we --
1582 MR. McCARTY: We have two of the documents so perhaps we can.
1583 MR. McCALLUM: Okay.
1584 MR. McCARTY: We note that at the local exchanges of Folkier, Dalganda, Hearst, Mattise, Oppasatica and Smooth Rock Falls have DMS 10 switching equipment. With this type of equipment, would a local call within the exchange be switched in the exchange itself or does the call go to the DMS 100 in Timmins to be switched?
1585 MR. BESSERER: If you could just repeat one of the offices and I can use that as an example.
1586 MR. McCARTY: Folkier, Dalganda, Hearst, et cetera.
1587 MR. McCALLUM: Okay. So let's take Folkier. It's a question as a current DMS 10 or when it is upgraded to a DMS 100 remote?
1588 MR. McCARTY: DMS 10.
1589 MR. BESSERER: Okay. Currently as a DMS 10, local calls are handled within the Folkier exchange, period, they stay there.
1590 MR. McCALLUM: Can the DMS 10 be called a stand-alone DMS 10 in that it handles local switching?
1591 MR. BESSERER: The DMS 10 would be a class from previous discussions this afternoon as an end office or as a switch very similar to a DMS 100, only the baby brother of it.
1592 MR. McCALLUM: Would it be similar to the exchanges that Bell has along James Bay?
1593 MR. BESSERER: Yes, it would be.
1594 MR. McCALLUM: As you know from this proceeding, O.N. Telcom has stated that it is or would like to be the default toll carrier, that is if a customer does not pick a toll carrier, the customer will be O.N. Telcom's customer. What is your view on whether O.N. Telcom should be the default toll carrier?
1595 MR. McCARTY: When you refer to "default carrier," are you referring to "carrier of last resort" that O.N. Tel have indicated, or are you referring to something else?
1596 MR. McCALLUM: I guess it's for a new customer, when a customer does not specify a toll carrier, O.N. Telcom I believe believes that it should be the default toll carrier.
1597 MR. McCARTY: We believe that the customer would make the decision, so I think our answer would be "no."
1598 MR. McCALLUM: What I'm trying to get is, I guess similar to a Bell situation where a customer I guess would be picked to bell if the customer did not specify who would be the toll provider. In O.N. Telcom's case, O.N. Telcom would want the customer to be picked to O.N. Telcom if the customer did not specify.
1599 MR. McCARTY: Well, we're approaching this proceeding from a local exchange carrier. We're not a toll carrier. It those are the terms that exist in Canada today, then I don't believe we would have a problem with that.
1600 I mean, we've asked in our submission that long distance competition be introduced in our territory the same as it is every else in Canada, and if it's the way it is every else in Canada, then sure that would be our position.
1601 MR. McCALLUM: Thank you, Mr. Chair. That concludes my questions.
1602 THE CHAIRPERSON: Thank you, counsel, and I don't believe any of the Members have any questions so I believe those are all the questions for the Northern panel. Thank you very much for your participation and cooperation in this proceeding. You may step down.
1603 So that concludes this phase of our proceeding, and as I indicated earlier, we will proceed to the next phase of the proceeding tomorrow morning at 11:00 o'clock when we'll hear oral argument from O.N. Tel followed by Northern.
1604 So we'll see you here tomorrow morning at 11:00 a.m.
--- Whereupon the hearing adjourned at 1742, to resume
on Tuesday, May 1, 2001, at 1100 / L'audience
est ajournée à 1742, pour reprendre le mardi
1er mai 2001 à 1100