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
May 1, 2001
le 1 mai 2001
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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 secrétaire/Legal Counsel/ conseiller juridique
Northern Telephone Ltd.
The Senator Hotel
Hôtel le Senator
Salle Grand Ballroom
May 1, 2001
le 1 mai 2001
TABLE OF CONTENTS / TABLE DES MATIÈRES
PAGE / PARA NO.
SUBMISSIONS BY / SOUMISSIONS PAR
O.N. Tel / O.N. Tel
258 / 1613
Northern Telephone Ltd. / Northern Telephone Ltée
282 / 1713
Timmins, Ontario / Timmins (Ontario)
--- Upon commencing on Tuesday, May 1, 2001 at 1100 / L'audience débute le mardi 1 mai 2001 à 1100
1605 THE CHAIRPERSON: Ladies and gentlemen, welcome back to our proceeding. We will now turn to the next phase of our proceeding, that being oral argument. And as indicated yesterday, we'll first turn to O. N. Telcom, Ms Traynor.
1606 MS EMBREE: Good morning, Mr. Chairman.
1607 Just as a preliminary matter we were expecting two undertakings from Northern this morning. We've worked all of the night pretty well on the final argument. One of the undertakings relating to the remoting of certain communities I think is in the process of being prepared, and I think we gave this afternoon as our estimated time of delivery of that undertaking.
1608 The other undertaking relates to -- well, Mr. McCarty I guess undertook to get back to Mr. Brochu to confirm whether or not certain statements contained in a press article are correct, and from what I understand you haven't had a chance to get through yet to Mr. Brochu.
1609 THE CHAIRPERSON: No.
1610 MS EMBREE: So, we'll try. I think we can commit to getting everything in by the end of this week or basically when final arguments are filed.
1611 THE CHAIRPERSON: Thank you, Ms Embree. Ms Traynor.
1612 MS EMBREE: That's acceptable to us. Thank you.
SUBMISSIONS / SOUMISSIONS
1613 MS TRAYNOR: Good morning, Mr. Chairman, Commissioners.
1614 O.N. Telcom has appreciated the opportunity afforded by this proceeding and hearing to explore with you the unique circumstances of its territory. It has been a challenge to design a sustainable toll model for this territory, but O.N. Telcom remains committed to this cause. This is a serious commitment, especially since competitors have tended to concentrate on large urban areas and, consequently, very few rural and remote customers have had any real choice of toll service providers.
1615 One of the indisputable facts about this territory is that it is comprised of largely small communities. While there is little reason for concern, the customers served by the Timmins DMS-100 host will not benefit from competition, it is expected that merely implementing the national model would leave customers in the remainder of the territory with very few benefits of competition.
1616 In the face of this dilemma, we are fortunate that this territory also offers a potential solution. Due to it's none vertically integrated nature, another incumbent that provides local service and is equivalent in size to O.N. Telcom also have a very long history as a service provider within the territories.
1617 Furthermore, this local incumbent, Northern Telephone Limited or NTL has widespread customer recognition and, as a wholly owned subsidiary of Bell Canada, has significant financial backing. NTL is quite simply well positioned to enter the long distance market, either directly or through an affiliated company.
1618 Competition between these long standing non vertically integrated incumbents will provide a significant opportunity for an additional form of competition to that experienced elsewhere in Canada. In order to maximize the potential benefits to customers that may result, terms for competition within the territory must be established that prevent the chilling effect that would result from one incumbent being granted a significant advantage over the other.
1619 At the same time, if toll competition is to be sustainable and bring the recognized benefits to all customers, then the challenge before us now is to also ensure that an appropriate balance is struck between these incumbents and new entrants alike.
1620 In embarking upon its search for this appropriate balance, O.N. Telcom concluded that in order for the competitive toll market place to properly develop, the regime must be sustainable, and in order to maximize the customer benefits inherent in a sustainable competition, O.N. Telcom needs to be given a fair opportunity to compete.
1621 This may seem somewhat unusual. After all, it is normally presumed that the incumbent toll service provider will be the dominant player in the market, but in this case the usual is not applicable as non-integration is the critical factor that cannot be overlooked. It is in fact the reason why the terms and conditions established for toll competition elsewhere in Canada are not a perfect fit for this territory.
1622 All told, unless particular attention to paid to the unique circumstances of north eastern Ontario and the customers located here, it is very likely that NTL will be in a position to quickly capture a significant portion of the toll market, perhaps to the ultimate downfall of O.N. Telcom.
1623 You may ask, why should you care whether O.N. Telcom stays in business? The answer is quite simple: So that there will be competition in toll voice services, not
just on the first day but well into the future.
1624 As is apparent from the record of this proceeding, there are some complex issues that must be considered when addressing the unique circumstances of the territory. While the issues may be complex, O.N. Telcom nevertheless strove to find simple solutions. We believe that we were successful and bring to you four critical cornerstones upon which a strong competitive market place for this territory can be built.
1625 These four cornerstones are as follows: first, a proposal for a single point of interconnection at the access tandem; second, maintenance of the current local and toll responsibilities in the host remote segment of the network; third, a proposal that will allow the company to recover costs associated with its facilities on long thin routes; and finally, a four-year sunset proposal which will ease the company's recovery of stranded switching and transport investments associated with the diversion of traffic provided to it by NTL's parent, Bell Canada.
1626 Essentially, O.N. Telcom is prepared to compete in the competitive market place on the same basis as everyone else. O.N. Telcom understands that under a split rate base regime, it takes the risk and less than ideal performance in its competitive segment. O.N. Telcom is prepared to take that risk just as every other toll service provider does. O.N. Telcom is not looking to the Commission for a decision in its proceeding that will guarantee the company's overall performance. Rather, we seek the Commission's recognition of the factual differences that exist in the territory and how those differences require adjustment in order to bring competition in the territory beyond Timmins.
1627 Let us now turn to a more detailed examination of these four cornerstones. O.N. Telcom is proposing that there be one point of interconnection for the territory: O.N. Telcom's active tandem switch for the toll switch.
1628 There are two compelling reasons for this: policy and practicality. As already stated, in O.N. Telcom's view the terms and conditions for toll competition in the territory should be established to provide the greatest incentive and opportunity for competitive toll service providers to offer services throughout the entire territory.
1629 In other parts of Canada, the terms and conditions of toll competition have permitted interconnection at either the toll switch or the local end office. However, the record demonstrates that in practice toll competitors rarely interconnect at small end officers.
1630 In fact, Bell indicated that throughout its entire territory there were no interconnections at any end offices with less than 5,000 NAS. That's right. Not even one. This fact is critical. It is critical because in this territory the Timmins end office is the only end office with an associated NAS of 5,000 or more. It is also critical because the Timmins end office is located approximately one kilometre from O.N. Telcom's toll switch.
1631 If we take a moment to consider the implications of this critical fact, it becomes clear that regardless of the Commission's determinations in this proceeding, the practical reality is the competitors will chose to interconnect in Timmins.
1632 Therefore, what we are really here to decide is which point of interconnection in Timmins would provide the greatest opportunity to promote a healthy competitive environment and create the greatest potential for all customers to benefit.
1633 One might ask: Why not let the market decide? The answer is found in the other major unique aspects of the territory. That is, NTL has chosen largely in the last three years to reconfigure its network such that virtually all of its local customers are served by remotes off of this Timmins DMS-100 host switch.
1634 The result of this NTL decision has been that approximately two thirds of the communities in O.N. Telcom's toll serving territory does depend from the Timmins end office, while the remaining one-third of communities are served by stand-alone switches scattered across the territory's vast expanse.
1635 While interconnection at the access tandem would technically be available to competitors, the company's analysis indicated that the number of remaining minutes of traffic carried across the facilities associated with these stand-alone local switches resulted in SWAG rates nearly five times higher than the rate being proposed by the company at this time. Under these circumstances, interconnection at the Timmins end office would clearly be attractive to its competitors, but their decision to interconnect at the end office and not pay the entire SWAG rate would leave more than 10,000 customers in approximately thirty-five per cent of the communities in the territory without access to competitive toll services.
1636 From these challenges O.N. Telcom developed the balanced proposal that you now have before you. In accordance with this proposal, interconnection at the toll switch will provide access to all customers in the territory through one point of interconnection and will provide for the averaging of the switching and aggregation costs across all minutes of tolls carried in the territory.
1637 As a matter of policy, requesting a mandated single interconnection point for the territory struck a reasonable balance and ensured that the customers living outside the web of NTL's host remote network were not negatively impacted by the fact that NTL chose to implement a host remote architecture. This approach was particularly attractive since it reflects the reality of evidence throughout the country that competitors interconnect at the access tandem rather than small end offices.
1638 Moreover, the mandating of interconnection at the access tandem appears to be the only solution that meets all of the territory's requirements.
1639 In order to further explain this conclusion, a better description of the implications stemming from the deployment by NTL of this network architecture and the related impact upon O.N. Telcom's network is helpful since the transmission facilities between the host and remote in all other parts of Canada are owned and operated solely by the local exchange carrier.
1640 Historically, NTL utilized stand-alone local switches to serve its exchanges, and O.N. Telcom provided the transmission facilities between these local switches and its own toll switch. As NTL reconfigured its network to a host remote architect and exchanged stand-alone switches for remotes in each community, it overbuilt O.N. Tel s infrastructure to provide host remote links for local service. O.N. Telcom's total transmission facilities were, as a result of this change in architecture, reconfigured as host remote links associated with the provision of toll service.
1641 The exercise of rerouting toll traffic was a relatively simple one from a technical perspective since it merely required the redirection of the last kilometre of the toll facilities. But from a definitional perspective, the implications were colossal.
1642 Prior to this re routing exercise, the facilities were toll connect trunks. Once rerouted, they became host remote links.
1643 Let me say that again. For regulatory purposes, facilities between a stand-alone local switch and a toll switch are toll connect trunks. Toll connect trunks are assigned to the competitive segment insofar as their carriage of company toll traffic is concerned. However, the exact same facility, when rerouted from a remote through a host switch, becomes post remote links. Host remote links are considered local facilities and are assigned to the utility segment, regardless of the traffic being carried.
1644 Through its request that O.N. Telcom reroute this last kilometre of its toll facilities to the host switch, NTL invited O.N. Telcom into a segment of the network that is without a doubt considered part of the local, not toll, network in the rest of Canada.
It is this fact, in particular, that defines O.N. Telcom's territory as singularly different from all others in Canada.
1645 In accordance with this unusual network configuration, when calls are initiated in the territory, the bits and bites associated with both local and toll traffic flow indiscriminately over the first available facility, or link, until reaching the host link in Timmins.
1646 Upon arrival at the host, the intelligence resident in the switch determines whether a particular call is local or toll in nature.
1647 Once this determination is made, the host switch either routes the call back on to NTL's host remote links destined for a local calling area or sends the call on to O.N. Telcom's Access Tandem facilities on route to O.N. Telcom's DMS-200.
1648 Upon arrival at the toll switch, toll traffic is measured for both the purposes of gathering operational measurements and in order to create a billing record. In the latter case, the creation of the billing record is, in part, enabled by the LEAS software resident in the toll switch.
1649 If end office interconnection was available to new entrants in the territory, serious issues would arise with respect to the management of O.N. Telcom's facilities and the measurement of the usage of O.N. Telcom's host remote links by other carriers.
1650 Given the traffic on host remote links is, by necessity, pooled traffic, O.N. Telcom's host remote facilities could be used by NTL and other carriers for the carriage of their own toll traffic without O.N. Telcom having any means of knowing.
1651 More specifically, unless all of the toll traffic traverses O.N. Telcom's toll switch, there is no reliable way for O.N. Telcom to measure the usage of its host remote facilities by competitors. Under such a regime, O.N. Telcom would, in effect, be providing its competitors toll facilities without appropriate compensation or means to audit usage.
1652 For this reason, the maintenance of the current status quo in the host remote segment of the network is a second cornerstone of O.N. Telcom's proposed model.
1653 Off course a single point of interconnection at the toll switch would not be acceptable unless the standard of Feature Group D with CCS-7 signalling could be maintained. O.N. Telcom chose Nortel's LEAS software because it is widely used successfully in the U.S. in non-integrated carrier environments. This software provides feature group interconnection with CCS-7 signalling to the same standards set by the Commission to date.
1654 The single point of interconnection also raises certain questions associated with compensating O.N. Telcom for the use of its assets. In fact, there are two quite distinct issues.
1655 First, the use of O.N. Telcom's Access Tandem facility; and, second, the use of O.N. Telcom's host remote link facilities.
1656 O.N. Telcom derived a SWAG AT rate of .77-cents per minute which would apply to each minute traversing O.N. Telcom's toll switch. As is usual, O.N. Telcom has derived a single SWAG AT charge for each minute that traverses the toll switch, regardless of whether that minute is originating from or destined for an end office nearby or far away.
1657 As has already been noted, the SWAG AT has been averaged. This essentially averages the costs associated with carrying competitor toll traffic throughout the territory, averaging the costs of long, thin routes with the cost of one short, fat route to NTL's Timmins end office.
1658 To the extent that some may be of the view that this average SWAG AT amounts to obtaining a subsidy for uneconomic toll for many toll service providers that offer services in the territory, O.N. Telcom agrees that averaging the SWAG AT does have an element of cross-subsidization to it.
1659 Nonetheless, O.N. Telcom thinks that this approach strikes a reasonable balance. However, should it be determined that the SWAG AT must be lower, in order to counterbalance the fact that toll service providers will be required to interconnect at the toll switch, O.N. Telcom notes that in accordance with its proposed model, the SWAG AT rates could be lowered to a level that the Commission finds appropriate.
1660 The effect of this action would be that less SWAG AT revenues would be paid directly to O.N. Telcom. But the lost SWAG AT revenues could be made up, dollar for dollar, by the national fund in its subsidies from the shortfall in the Utility SWAG broad service category.
1661 In this respect, O.N. Telcom can see room for adjustment to ensure that the regime put into place, while requiring a single point of interconnection, still creates the required incentive for competitive toll service providers to come to the territory and offer their services throughout.
1662 In O.N. Telcom's view, it would be fair to make this adjustment and rely on the national fund if it is determined that such measures are necessary to benefit competition and customers in the territory.
1663 To the contrary, in O.N. Tel's view, it would not be fair to permit interconnection at both the local and toll switches, since this would mean that a significant portion of the customer base in Northeastern Ontario might find itself without any competitive choices at all.
1664 With respect to O.N. Telcom's host remote link facilities, O.N. Telcom has derived a host remote aggregation rate of .63-cents per minute which would apply to each minute of toll traffic travelling over O.N. Telcom's host remote link.
1665 It is important to understand what this charge represents. This charge is intended to compensate O.N. Telcom for the use of host remote links provisioned by the company for the purposes of originating or terminating toll traffic between NTL's local switch and NTL's remote:
1666 From a costing and accounting perspective, there is nothing unusual about this aspect of O.N. Telcom's proposal. That is to say, if an integrated carrier were serving the territory there would be recovery by that integrated carrier for the cost of switching, electronic and transmission facilities between the host and the remotes through the direct connection charge.
1667 However, in this non-integrated territory, each incumbent must recover its share of the costs associated with carrying toll and local traffic from the host switch to the remote.
1668 Therefore, NTL's direct connection charge should only recover that portion of NTL's local switching costs allocated to the switching of toll traffic.
1669 O.N. Telcom's host remote aggregation charge compensates O.N. Telcom for the use of its transmission facilities between the host switch and the remote.
1670 O.N. Telcom has chosen the name host remote aggregation charge in an attempt to distinguish it from the integrated charge known elsewhere in the country, and even in its own exchanges, as the direct connection charge.
1671 For greater clarity it is critical to note that the sum of the cost components underlying O.N. Telcom's host remote aggregation charge and NTL's direct connection charge is the equivalent of the cost components underlying the direct connection charges levied by integrated ILECs elsewhere in the country.
1672 Accordingly, every minute of toll traffic that traverses a host remote link in NTL's territory will pay both charges and neither is a substitute for the other.
1673 Similarly, even if a competitive toll carrier were permitted to interconnect at NTL's local switch, as NTL suggests, toll traffic travelling to the communities served by the remote will still attract the host remote aggregation charge, just as it would attract NTL's direct connection charge.
1674 The long, thin route from Cochrane north is uneconomic. Historically toll services on this route have been cross-subsidized from more profitable routes. However, O.N. Telcom believes that the most profitable routes will be the initial target of competitive toll entrants.
1675 Furthermore, significant market share losses are expected as a result of the presence of another long-standing incumbent in the territory. These circumstances are expected to leave O.N. Telcom with the responsibility of ensuring the toll services continue to be provided on the less profitable and uneconomic routes of territory, but with less and less recourse to the revenues from more profitable routes.
1676 The third cornerstone was developed to address the need to protect customers along this route and to promote their ability to benefit from competition. Therefore, in order to ensure that the company continues to be in a position to provide service to customers along this route and to maintain the current high level of service quality, the Phase III costs of this uneconomic route were assigned the Utility SWAG broad service category.
1677 To the extent that the revenues assigned to the Utility SWAG broad service category, are insufficient to recover the costs assigned to the category, the resulting shortfall is the amount of the subsidy being requested.
1678 O.N. Telcom's request for a subsidy for uneconomic toll is consistent with O.N. Telcom's role as the toll carrier of last resort in the territory. As the incumbent toll service provider who will be the default PIC for all customers in the territory, O.N. Telcom must be in the financial position to continue to provide high quality toll services to all customers in the territory.
1679 The subsidy for uneconomic toll routes is an important element underpinning O.N. Telcom's ability to fulfill its responsibilities in this regard.
1680 While the company is dedicated to ensuring that all customers have access to quality toll services at competitive prices, the company's mandate also strongly favours competitive choice for its customers.
1681 Through this proposal O.N. Telcom has proposed interconnection at the Access Tandem as a means of creating an incentive for competitors to offer their services throughout the entire territory. The Access Tandem charge has also been averaged across the widest universe of minutes as an additional incentive for competitive entry.
1682 If the company's proposal is successful, then all carriers will benefit from the company's ability to maintain this uneconomic route. If competitors fail to avail themselves of this opportunity, then the subsidy will be required to maintain service levels to customers along the route. In either case the company believes that the proposed subsidy is in the public interest.
1683 To this point it may seem as if O.N. Telcom is asking for many deviations from the norm elsewhere in Canada. However, that is not really the case. O.N. Telcom has had to approach a few things different due to the non-vertically integrated nature of the territory and the unique host remote network configuration. Consequently some of the charges that O.N. Telcom has proposed seem new and different, actually they're the same charges that apply in any other territory only with different names.
1684 The company notes that with the exception of the treatment of uneconomic toll connect facilities, the regulatory cost assignment to the utility and competitive segment is identical to that adopted in the rest of Canada.
1685 All of the other changes are simply changes to the manner in which the costs have been presented.
1686 O.N. Telcom did change the presentation of its cost when it chose to create a new broad service category entitled Utility SWAG. O.N. Telcom did this with the view to assisting the CRTC and interested parties to understand the subsidy being requested.
1687 However, assigning of the costs and revenues to the various broad service categories is not really the issue. What is important to note is that except for that portion of the toll connect trunk on the uneconomic routes used by O.N. Telcom itself to carry its own traffic, we have put all other costs and revenues on the same side of the Utility/Competitive segment split as any other carrier in Canada.
1688 O.N. Telcom is less concerned with where the numbers are placed, so long as the costs that O.N. Telcom has assigned to the utility segment remain in the utility segment and remain eligible for subsidy on a Phase III basis.
1689 Generally speaking O.N. Telcom is of the view that settlement issues between carriers are best left to negotiation between those carriers.
1690 As a result, O.N. Telcom has not proposed specific details to substitute for its settlement arrangements with various carriers. However, with respect to O.N. Telcom's relationship with Bell Canada a specific proposal has been made.
1691 This element forms the fourth and final cornerstone of the company's proposed model.
1692 O.N. Telcom and Bell Canada have enjoyed close to a century-long partnership. While O.N. Telcom was never a member of Telcom Canada or Stentor, through its alliance with Bell, the national interconnection and settlement net was extended into Northeastern Ontario.
1693 Under this arrangement O.N. Telcom all interexchange traffic terminating outside of the territory to the edge of its territory in North Bay where it was handed off to Bell.
1694 Further, any Bell traffic terminating in O.N. Telcom's territory is accepted for delivery by the company at the same point of interconnection.
1695 O.N. Telcom's network was specifically designed and built to reflect its rights and obligations under its agreement with Bell, including the obligation to switch and transport the large amount of Bell terminating traffic to any and all exchanges in its territory.
1696 Accordingly, the company's switching and transmission facilities were provisioned on that basis.
1697 Therefore, if this historical arrangement abruptly ended, the effect on O.N. Telcom could be devastating. If the worst were to occur, such that Bell Canada rerouted all its traffic to its subsidiary NTL, then O.N. Telcom's viability could be threatened.
1698 Consequently, O.N. Telcom has proposed a transition period during which the traffic entering the territory would continue on a declining four-year scale to be exchanged at the current point of interconnection.
1699 Obviously O.N. Telcom is hoping that it will be able to negotiate with Bell Canada with respect a portion of the traffic that Bell will exchange with O.N. Telcom well into the future. Unfortunately, negotiations to date with Bell have been difficult to conclude and, after much consideration, O.N. Telcom determined that recourse to a regulatory transition period appeared necessary.
1700 A toll transport charged of .68-cents per minute has been struck. However, the company notes that other facilities are also impacted to the extent that this same terminating traffic is switched at the Timmins toll switch and then transported to local exchanges throughout the territory.
1701 The approval of the requested transition period will reduce the company's reliance on the subsidy mechanism and which bring the competitive segment risk within an acceptable range and pave the way for the rest of the model.
1702 In conclusion: There are four key cornerstones to our proposal. First, a proposal for a single point of interconnection at the Access Tandem; second, maintenance of the current local and toll responsibilities in the host remote segment of the network; third, a proposal that will allow the company to recover costs associated with the facilities on long thin routes; and, fourth, a four-year transition out of the long-standing relationship with Bell Canada by providing for a regulated reduction of traffic coming into the territory.
1703 We have worked hard to put forward a proposal that achieves the balance of the interests of incumbents and new entrants. We have proposed simple solutions to complex issues.
1704 With the help of the Commission, providing the benefits of toll competition to all of the customers in the territory, present and future, can be our legacy.
1705 Thank you.
1706 THE CHAIRPERSON: Thank you, Ms Traynor. I don't believe we have any questions.
1707 Thank you very much for your argument.
1708 We will now turn to Northern Telephone's argument, Ms Embree.
1709 I guess it's going to be Mr. McCarty; is it?
1710 MR. McCARTY: Yes, it will be.
1711 THE CHAIRPERSON: Gooding morning.
1712 MR. McCARTY: Good morning.
SUBMISSIONS / SOUMISSIONS
1713 Mr. Chairman, Members of the Commission and Commission Staff, we'd like to begin our comments this morning by returning to the original reason why we are all here: Our customers want long distance competition; our customers want the choice of carriers; they want lower prices, and they want a wide variety of services and service providers to choose from.
1714 As local exchange carriers, Northern Telephone Limited and Cochrane Public Utilities Commission have responded to our customers' requests for long distance competition by recommending a model which encourages long distance carriers and service providers to come to northeastern Ontario, to build facilities and to deliver the benefits of competition to all customers in the region.
1715 This model for competition is virtually identical to the model for competition that has been approved by the Commission in every other region of Canada, and it is "the" model of choice for toll carriers and resellers that are looking for efficient and cost effective methods to interconnect their long distance facility and switches with the local networks of companies such as our own.
1716 Mr. Chairman and Members of the Commission, we recognize that the Commission may feel that it has to make some difficult choices in selecting the most appropriate method for interconnection in market entry in this part of the country. We'd like to assure you, however, that the choices here are not as difficult as some might have you believe. And I'd like to take a little of time to explain to you why we do not think that O.N. Telcom's existence will be threatened in any way, if the Commission approves the interconnection model proposed by our companies in this proceeding.
1717 First and foremost, it's important to remember that we are not dealing with an incumbent that is just managing to scrape by. O.N. Telcom is a very profitable Crown corporation that generates millions of dollars in surplus revenues every year, and the introduction of toll competition in northeastern Ontario along the lines proposed by our companies is not going to threaten their existence in the least.
1718 You might ask why we're so confident in saying this? Well, based on our review of the available evidence in this proceeding there are a number of reasons which we can give you that we think give a more balanced view of the impact of competition on O.N. Telcom, and these reasons include the following:
1719 O.N. Telcom's model for market entry failed to take into account the impact of the market simulation that's created by the introduction of long distance competition. When competition is introduced in the market, prices fall and people make more long distance calls. This means that the amount of overall long distance traffic in the market increases. So even if O.N. Telcom loses market share as a result of the introduction of competition in the long distance market, this doesn't mean that the amount of traffic that O.N. Telcom normally handles will decrease. In fact, if experience from the rest of the country is any indication, O.N. Telcom's overall minutes will increase.
1720 We have already seen evidence of this in one of O.N. Telcom's Interrogatory responses to the Commission where O.N. Telcom advised the Commission that the introduction of the new toll calling package would result in the generation of roughly fifty million more minutes of traffic in this year alone. That represents a sharp increase in O.N. Telcom's total year-over-year traffic.
1721 The O.N. Telcom model also fails to take into account that there's going to be a significant amount of demand for their facilities by both carriers and resellers. At the present time there is no one in northeastern Ontario with the high quality indicative toll network that O.N. Telcom currently has, and we are highly doubtful that anyone is going to be able to duplicate that network within the few months before toll competition is introduced. This means carriers and resellers are going to have a resell O.N. Tel's network facilities and services if they want to deliver toll calls to customers in this region.
1722 We think there's going to be a heavy reliance on O.N. Telcom's network facilities and service by carriers and resellers and that there is very little likelihood that O.N. Telcom's facilities will be stranded in any portion of their existing networks, including those portions that extend right up to the towns and communities along the James Bay coast. In fact, based on comments of O.N. Telcom's witnesses in this proceeding, it would appear that all of O.N. Telcom is forecasting significant growth along all of its inter exchange routes as a result of some other types of traffic that will be carried on those routes such as ATM and broadband services.
1723 Mr. Chairman, Members of the Commission, there are also countless problems with O.N. Telcom's economic models, particularly its model for uneconomic toll and its proposals to introduce a utility SWAG which forms a basis of O.N. Telcom's proposal for high cost toll subsidy.
1724 I don't have the time to explain all of the problems that we have discovered in these economic models in the short time that I have remaining this morning. Let me just say at this point, however, that O.N. Telcom has predicated much of its case for uneconomic toll subsidy on an allocation of access tandem revenues and cost that was prescribed by the Commission for former members in Telcom Decision CRTC 95-121. Unfortunately, this model cannot and should not be used for O.N. Telcom because it simply doesn't apply to O.N. Telcom's network.
1725 The 95-21 model only applies when the provider of access tandem services does not necessarily use the access tandem switch for their own traffic. In the case, of O.N. Telcom this is not the case. One hundred per cent of O.N. Telcom's toll traffic is routed through the access tandem switch.
1726 However, as matters currently stand, O.N. Telcom has backed out all of its usage of the access tandem switch in developing its proposal for a high cost toll subsidy. If it had included this usage and the revenues associated with that usage, this would virtually eliminate the subsidy requirement.
1727 Mr. Chairman, this is only one of the reasons why O.N. Telcom's proposal in this proceeding to create a high cost toll subsidy is fraught. We have many more to tell you about but it would just simply take too much time. In the interests of expediency, therefore, we will document all of those reasons and submit them to you and your staff in our final arrangements.
1728 Suffice it to say at this point there is absolutely no reason to worry about the long-term viability of O.N. Telcom or its ongoing provisions of toll services to customers in the more rural and remote areas of northeastern Ontario.
1729 O.N. Telcom has a high degree of recognition and visibility in this region of the country. It's customers make use of its services every day and they know that O.N. Telcom is part of a family of Crown-owned companies that provide transportation, telecommunications and other infrastructure services in northeastern Ontario.
1730 We have not seen O.N. Telcom's studies regarding market share loss so we cannot comment on the accuracy or the writer of those studies, but what we can tell you, however, is that before O.N. Telcom started billing its own customers, we were required in Decision 98-14 to identify O.N. Telcom by name in the monthly bills that we sent to our customers, and we were required to advise our local customers that O.N. Telcom is the toll carrier.
1731 Mr. Chairman, in the time remaining I'd like to return to the theme that we've repeated throughout this proceeding, which is to focus on the customer. When we refer to the "customer," we're referring to a model for interconnection and competition that offers our customers a true choice of facilities based long distance carriers, and it is our sincere belief that a true choice of long distance customers will not emerge in this region of the country unless toll carriers are permitted to interconnect with the local end office switch.
1732 Without this option, there will be no incentive for alternative carriers to invest in facilities, to invest in the region, and to lay down roots in this market. In fact, we are rapidly coming to the conclusion that if the only form of interconnection that is permitted in this part of the country is interconnection at the access tandem switch, IXCs will not even bother to enter the market on an equal access basis because of the numerous charges that they will be confronted with when they interconnect at that switch.
1733 Northern itself has indicated an interest in entering the toll market in northeastern Ontario. However, we do not want to mislead you. If the Commission approves a LEAS only solution, it is highly unlikely that we will enter the market.
1734 Mr. Chairman, our proposal to implement equal access Feature Group D with CCS-7 with the end office does not preclude O.N. Telcom from installing and activating its LEAS software at the access tandem switch. We have no dispute with O.N. Telcom's right to decide how best to implement equal access in the local exchanges where they are the provider of local telephone service. We just do not believe that our customers or long distance carriers should be limited in the terms of their choices.
1735 This is why we have proposed an interconnection model that is not only the same as the Commission has approved every else in Canada. It actually goes one step beyond because it allows at a minimum two carriers to provide their own transmission facility between the host and the remote facilities located in the northern serving area.
1736 We know that O.N. Telcom is concerned about this latter aspect of our proposal, but we also know there will be a very healthy demand for the transmission facility that O.N. Telcom has provisioned in this portion of the network.
1737 With respect to the rates that northern would charge for interconnection at its DMS-100 switch in Timmins, we wish to apologize for any confusion that we may have caused with respect to our DT, DC proposal. As I explained yesterday, the direct connection service that Northern Telephone currently offers is currently embedded in the rates that we charge for direct toll service.
1738 This latter service, the direct toll service, is actually a Phase 3 category that was created for the independent telephone companies a number of years ago. When we unbundled the direct connection service from the direct toll Phase 3 category, we're left over with a residual amount of money which basically reflects the say difference between Phase 2 and Phase 3 costing.
1739 Because we do not know how to recover this residual operate, we are uncertain at this juncture as to how best to proceed with the unbundling of our direct connection service from the direct toll category. We know, however, that we're not the only independent telephone company that are confronted with this problem. In fact, all of the other independent companies in Ontario and Quebec face this problem because we all have a direct toll Phase 3 category.
1740 What we propose to do, therefore, is to direct this issue at the upcoming round-table proceeding that will deal with the contribution requirements of the independent telephone company. In the meantime, what I'd like to do is assure each of you that we are fully prepared to unbundle our direct connection service from the direct toll component of our CAT and to develop a rate for host remote transport service that can apply as of the first day of competition.
1741 When it comes to the actual implementation date for toll competition in our local serving areas, we want you to know that our networks will be ready for interconnection by September of this year. In fact, both ourselves and O.N. Telcom have had since 1998 to prepare for this competition. We therefore view January the 1st, 2002 as the latest possible date upon which toll competition could be introduced and not the first such date.
1742 Mr. Chairman and Members of the Commission, I know there is a tendency in this proceeding for parties to come forward and frequently present a fairly one-sided view of things. I do not know if O.N. Telcom or ourselves are exception in this regard, but what I do know is that we have not forgotten about the customer. And when I say "customer," I just don't mean those customers that are located in our local serving area; I mean all of the customers that are located in this region of the country.
1743 We sincerely believe that our proposal in this proceeding will deliver the benefits of long distance competition to all customers in northeastern Ontario and will provide far greater choice and opportunities for investment and innovation than O.N. Telcom's single switch proposal.
1744 We are acutely aware of the needs of the customers in this region and we think they deserve the same rights and benefits of competition that are enjoyed by all other customers elsewhere in this country. We therefore urge the Commission to approve the proposals that we have filed and presented in this proceeding.
1745 In closing, Mr. Chairman, we'd like to thank each of the Commissioners and the Commission Staff for holding this hearing and providing us with the opportunity to present our views on matters under consideration in this proceeding. We wish each of you a safe trip home and we look forward to the next time that you are able to visit us up here in Timmins. Thank you.
1746 THE CHAIRPERSON: Thank you, Mr. McCarty. So that then concludes the oral argument stage of our proceeding.
1747 Are there any other matters anyone wishes to bring to the attention of the Chair before we conclude? No.
1748 Well, I want to thank you all for this hearing. I find it interesting that both parties acknowledge that these are complex issues that we have to deal with and each side has presented a rather simple solution. Unfortunately, we have two different simple solutions to this complex issue so we'll have to go away and wrestle with that and come up with a solution that, as both parties suggest, is in the public interest and in the interest of consumers in this part of Ontario.
1749 With respect to your last comment about us coming back to visit this area, I would hope that perhaps that as a result of the resolution of this issue, the next time we come back as individuals or as a group will be as tourists and not to have to resolve more of these complex issues.
1750 I want to thank both parties to the proceeding for the efficient use of our time. We had set aside an entire week to be able to deal with these issues and at the outset it looked like we would probably be at least three days, but the parties, both sides focussed on the issues and I appreciate the conduct that everybody had in the progress of our proceeding.
1751 I want to thank my colleagues, the fellow Commissioners and the staff for their efforts, it's been a pleasant but brief stay in Timmins -- the weather was certainly great for us -- and thank our technical help for getting through a few glitches yesterday. I guess we'll have to ensure in future that the interconnections on the floor aren't in a place where one simply moves the chair and it throws the hearing out of whack.
1752 Again, I want to thank you all for this. Just to remind you that written reply argument is due next Friday, the 11th of May. We hope to have a decision out by September, and I note your comment that both sides are ready to interconnect and get going as soon as our decision is out.
1753 So with that, we'll conclude this stage of our proceeding and, as I say, hopefully have a decision out in September. Thank you all very much.
--- Whereupon the hearing concluded at 1150 /
L'audience se termine à 1150