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Please note that the Official Languages Act requires that government publications be available in both official languages.

In order to meet some of the requirements under this Act, the Commission's transcripts will therefore be bilingual as to their covers, the listing of CRTC members and staff attending the hearings, and the table of contents.

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PRIVATE

 

 

 

 

 

 

                 TRANSCRIPT OF PROCEEDINGS BEFORE

                 THE CANADIAN RADIO‑TELEVISION AND

                   TELECOMMUNICATIONS COMMISSION

 

 

 

 

                 TRANSCRIPTION DES AUDIENCES AVANT

                   CONSEIL DE LA RADIODIFFUSION

               ET DES TÉLÉCOMMUNICATIONS CANADIENNES

 

 

                             SUBJECT:

 

 

 

     FORBEARANCE FROM REGULATION OF LOCAL EXCHANGE SERVICES /

        ABSTENTION DE LA RGLEMENTATION DES SERVICES LOCAUX

 

 

 

 

 

 

 

 

 

 

 

HELD AT:                                  TENUE À:

 

Conference Centre                         Centre de conférences

Outaouais Room                            Salle Outaouais

Portage IV                                Portage IV

140 Promenade du Portage                  140, promenade du Portage

Gatineau, Quebec                          Gatineau (Québec)

 

 

September 26, 2005                        Le 26 septembre 2005

 


 

 

 

 

Transcripts

 

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of

Contents.

 

However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

 

 

 

 

Transcription

 

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès‑verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

 

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.


                   Canadian Radio‑television and

                   Telecommunications Commission

 

                Conseil de la radiodiffusion et des

                  télécommunications canadiennes

 

 

                    Transcript / Transcription

 

 

                                

     FORBEARANCE FROM REGULATION OF LOCAL EXCHANGE SERVICES /

        ABSTENTION DE LA RGLEMENTATION DES SERVICES LOCAUX

                                

 

 

BEFORE / DEVANT:

 

Charles Dalfen                       Chairperson / Président

Richard French                       Commissioner / Conseillier

Michel Arpin                         Commissioner / Conseillier

Stuart Langford                      Commissioner / Conseillier

Joan Pennefather                     Commissioner / Conseillère

Andrée Noel                          Commissioner / Conseillère

Elizabeth Duncan                     Commissioner / Conseillère

Rita Cugini                          Commissioner / Conseillère

Barbara Cram                         Commissioner / Conseillère

Ronald Williams                      Commissioner / Conseillier

Helen del Val                        Commissioner / Conseillère

 

 

ALSO PRESENT / AUSSI PRÉSENTS:

 

Marielle Girard                      Consultation Secretary /

                                     Secrétaire de la

                                     consultation

 

James Wilson                         Legal Counsel /

Shelly Cruise                        Conseillers juridiques

 

Chris Seidl                          Project Manager /

                                     Gestionnaire des projets

 

 

HELD AT:                             TENUE À:

 

Conference Centre                    Centre de conférences

Outaouais Room                       Salle Outaouais

Portage IV                           Portage IV

140 Promenade du Portage             140, promenade du Portage

Gatineau, Quebec                     Gatineau (Québec)

 

September 26, 2005                   Le 26 septembre 2005


              TABLE DES MATIÈRES / TABLE OF CONTENTS

 

 

                                                       PAGE / PARA

 

 

PRESENTATION BY / PRÉSENTATION PAR:

 

Aliant Telecom Inc.                                      10 /   63

 

The Companies                                           178 / 1015

 

 

 

 

 


                        Gatineau Quebec / Gatineau (Québec)

‑‑‑ Upon commencing on Monday, September 26, 2005

    at 0930 / L'audience débute le lundi

    26 septembre 2005 à 0930

seq level0 \h \r0 seq level1 \h \r0 seq level2 \h \r0 seq level3 \h \r0 seq level4 \h \r0 seq level5 \h \r0 seq level6 \h \r0 seq level7 \h \r0 1                  THE CHAIRPERSON:  Good morning, ladies and gentlemen.

2                  Bonjour et bienvenue, mesdames et messieurs.

3                  My name is Charles Dalfen, and I am Chairman of the Commission and of this hearing.

4                  With me on the panel are, to my immediate right, Richard French, the Commission's Vice‑Chair, Telecommunications.

5                  To his right, Barbara Cram, Commissioner for Manitoba and the Saskatchewan regions.

6                  To her right, Helen Ray del Val, Regional Commissioner representing the regions of British Columbia and the Yukon.

7                  And to her right, Ronald Williams, Commissioner, Alberta and the Northwest Territories regions.

8                  To my immediate left, Michel Arpin, the Commission's Vice‑Chair, Broadcasting.

9                  To his left, Elizabeth Duncan, Commissioner for the Atlantic Region.

10                 To her left, Joan Pennefather, National Commissioner.

11                 To her left, Andrée Noël, Commissioner for the Quebec Region.

12                 And to her left, Rita Cugini, Regional Commissioner for the Ontario Region.

13                 And to her left ‑‑ I can't identify the character waving at the end there ‑‑ Commissioner Langford, National Commissioner.

14                 We have a number of Commission staff here as well.  At the staff table are our Consultation Secretary, Marielle Girard; Commission counsel, James Wilson and Shelley Cruise, Chris Seidl; Project Manager; and behind them other members of the team.

15                 Over the next few days, we will hear the oral presentations of parties who indicated in their submission that they wished to appear in person.

16                 In addition, we will give careful consideration to all of the written material filed in this proceeding, both by those appearing this week and by others who are not appearing.

17                 Comme vous le savez, dans l'avis public de télécom CRTC 2005‑2, le Conseil a amorcé un processus public sur l'abstention de la réglementation des services locaux.

18                 Le principal objectif de cette instance est de développer des critères clairs dont le Conseil pourra se servir pour déterminer lorsqu'il convient de s'abstenir de réglementer les services locaux.

19                 La présente instance est la plus récente d'une série de processus destinés à favoriser la concurrence dans les marchés locaux.

20                 Le Conseil a établi un cadre de réglementation de la concurrence locale dans la décision télécom CRTC 97‑8, laquelle découle de la décision télécom CRTC 94‑19 intitulée Examen du cadre de réglementation.

21                 Dans cette décision, qui fut la première décision rendue suite à la promulgation de la Loi de 1993 sur les télécommunications, le Conseil a énoncé sa politique de base, qui consiste à ouvrir tous les marchés de télécommunication à la concurrence, y compris le marché des services locaux, et il a développé un cadre réglementaire dans le but d'atteindre cet objectif.

22                 In its annual monitoring reports of the Canadian telecommunications industry over the past five years, the Commission has found that in general competitors have not gained a substantial market share with respect to local telecommunications services since the issuance of Decision 97‑8.

23                 Local competitors have, however, made some inroads in local business‑driven market and the local residential urban markets in some parts of the country.

24                 Since Decision 94‑19, the Commission has forborne from regulation in most telecommunications markets as competition has taken hold.

25                 The Commission looks forward to the time when it can forebear from regulating the local exchange market as well, when competition in that market is sufficient to protect the interest of users.

26                 In the Commission's view, robust, sustainable competition is the key not only to protecting consumers of telecommunication services, but about stimulating investment and fostering innovation by telecommunications companies.

27                 I will quickly recap the six questions that the Commission put to interested parties in Telecom Public Notice CRTC 2005‑2.  They are:

28                 What local exchange services should be within the scope of this proceeding?

29                 What is or are the appropriate, relevant market or markets for forbearance from the regulation of local exchange services, taking into consideration both services and geographic areas?

30                 What are the appropriate criteria to be applied to determine whether the relevant market or markets is or are sufficiently competitive for forbearance?

31                 What Commission powers and duties should be forborne?

32                 What post‑forbearance criteria and conditions should apply and why?

33                 What is the appropriate process for future applications for forbearance from the regulation of local exchange services?

34                 As stated in the Public Notice, the Commission intends to apply these criteria in deciding upon Aliant Telecom's forbearance application, as well as in decisions on future applications for forbearance from regulation of local exchange services.

35                 These proceedings will also assist the Commission to determine whether there should be a transitional regime that provides ILECs with more regulatory flexibility by removing certain competitive safeguards prior to forbearance and, if so, what the appropriate criteria should be.

36                 As we have a packed agenda, I would ask all parties to ensure they are available when their turn is called; to restrict their presentations to the matters set forth in the public notice; and to adhere to their allotted time.  Your cooperation will ensure that our time is used efficiently and effectively.

37                 Unless otherwise indicated in the organization and conduct letter of August 17th, parties will be allotted a maximum of 20 minutes to make their presentation.

38                 The Consultation Secretary will advise you by holding up a card when you have five minutes remaining.

39                 Generally, Commissioners' questions as well as questions by Commission counsel, if any, will come after each party has completed its presentation.

40                 Parties wishing to make a closing statement will be allotted five minutes, in reverse order of their presentation, after all parties have made their initial presentations.

41                 Si vous avez d'autres questions sur le déroulement de la consultation, je vous demanderais de vous présenter à Marielle Girard, secrétaire de la consultation, que j'invite dès maintenant à vous faire part de certaines questions additionnelles.

42                 Madame Girard ?

43                 THE SECRETARY:  Thank you Mr. Chairman.

44                 Avant de débuter, j'aimerais clarifier quelques points afin d'améliorer la conduite de cette consultation.

45                 First, we would ask you to please turn off you cell phones and beepers or to set them on a vibrator mode while you are in the hearing room as they tend to be an unwelcome distraction for participants and Panel members.

46                 Also, please turn off Blackberries and other text messaging devices, as they cause interference on the internal communication systems used by our translators and court reporter.  We are counting on your cooperation in this regard throughout the consultation.

47                 As indicated in the organization and conduct letter issued on August 17, 2005, we propose to sit from 9:30 a.m. to 5:30 p.m. each day.  We will take a 90‑minute lunch break, as well as a 15‑minute mid‑morning and mid‑afternoon break.

48                 While we do not anticipate sitting into the evenings, it may be necessary if the consultation falls behind schedule.  It may also be necessary to extend the consultation to include Friday, September 30th.

49                 The order of appearance for this consultation was set out in Schedule A to the Commission's August 17th organization and conduct letter, and appears, with few slight amendments, on the consultation agenda.

50                 If you do not have a copy of the agenda, additional copies are available at the reception and in the Papineau Room.

51                 The Papineau Room will serve as the public examination room and is open to all parties and to the public for the duration of the consultation.  It contains a complete copy of the record for this proceeding.  An additional copy of the record is available for parties at their presentation table.

52                 Furthermore, please be reminded that all parties are to provide the Commission with 25 copies of their oral text prior to delivery of their presentation.

53                 These copies are to be provided to Commission's staff at the registration table located in the reception hall, with 25 additional copies to be made available for all other parties presenting at the consultation.

54                 Parties are also reminded that copies of their oral presentations do not form part of the public record of this proceeding.

55                 In addition, cross‑examination by other parties and audiovisual presentations will not form part of this consultation.

56                 Also, parties will be asked to come forward when making their presentation.  Spokespersons will be required to present themselves, their team members, and to proceed with their presentations within the prescribed timeframe.

57                 Finally, in order to ensure the court reporters are able to produce an accurate transcript, please ensure that your microphone is turned on when speaking.

58                 A copy of each day's transcript will be available in the Papineau Room at the start of the next consultation day and the full set of transcripts will be posted on the Commission's website shortly after conclusion of this consultation.  Parties who wish to purchase copies of transcripts or other services from Mediacopy Inc. should deal with them directly.

59                 Maintenant, monsieur le président, nous allons préceder avec les comparutions.

60                 I am now calling on Panel No. 1, Aliant Telecom Inc.

‑‑‑ Pause

61                 THE SECRETARY:  Please introduce yourself and your colleagues and start your presentation.

62                 Thank you.

PRESENTATION / PRÉSENTATION

63                 MR. ROBERTS:  Good morning.  My name is Mike Roberts.  I am Vice‑President of Regulatory and Government Affairs for Aliant.

64                 With me here today representing Aliant, to my immediate right, is Heather Tulk, Aliant's Vice‑President, Broadband and Marketing; to her right is Rick Stephen, Aliant's Director of Regulatory Matters.

65                 To my far left is Dan Campbell, counsel to Aliant, and to my immediate left is our economic consultant, Margaret Sanderson, Vice‑President of CRA International.

66                 We are pleased to be here with you this morning to talk about our application for forbearance of residential local services in 32 exchanges in Nova Scotia and Prince Edward Island.

67                 In this proceeding, you will be considering a number of matters including framework issues for future forbearance applications.  We have filed comments in our written submissions and will be pleased to discuss them with you, but our presentation this morning will focus on our forbearance application.

68                 Heather.

69                 MS TULK:  The Telecommunications Act sets out a two‑step process of analysis in section 34.

70                 The first step is to examine the evidence to determine whether competition with respect to the services under consideration is sufficient to protect the interests of users.  If it is, the Commission is directed to forbear from regulation.

71                 We submit that our evidence demonstrates that this test has been met for the 32 exchanges.  On any reasonable analysis competition in these exchanges is robust.  Nobody has seriously suggested otherwise.

72                 The second step is to consider the evidence and determine whether it has been established that competition is unlikely to continue if forbearance is granted.  If that is proved the Commission is directed not to forbear.  We submit that this has not been proved.  Indeed, nobody has seriously suggested that competition will be impaired at all in the 32 exchanges.  There is no basis to hesitate in granting forbearance on the grounds that competition is not likely to be sustainable.

73                 With respect to the products and services to be included in the residential market, we took a very conservative approach in our application, including only wireline services in our calculations of market share, but it is clear that the market is much more than this.

74                 The increasing use of wireless high‑speed internet access and various internet applications have all contributed to an industry‑wide decline in the number of wireline lines and services.  This will be important to understand in future applications, but in our application we have been conservative and have not included them.

75                 With respect to the geographic market, we strongly believe that the exchange is the appropriate unit.  The economic analysis that Margaret will take you through will explain this further, but from my perspective it is fully reasonable for local forbearance to unfold on an exchange‑by‑exchange basis. The exchange is the basic building block of local service and it is from our services that you are being asked to forbear.  It is the smallest basis on which we can exhibit market power and that we can operationalize.

76                 As competition unfolds, we will have to operate for some time in a partially‑forborne environment as our competitors are not mandated to provide service throughout our territory.  As competitors are choosing where and when to enter, the exchange is the smallest basis on which a competitive footprint can be mapped to operational reality in our industry.

77                 Quite simply, the exchange is the practical unit for our industry and, indeed, for the Commission to administer in the future.

78                 As stated in our application, competitor share of lines in these 32 exchanges stood at 21 per cent at year end 2003.  By year end 2004 this had risen to 29 per cent and, as we have shown you in our update this morning, by the end of last month the share has a climbed to 33 per cent.

79                 Obviously, without access to our competitor's total line count these shares are estimates, but we believe them to be a reasonable representation and it is notable that nobody has questioned them.

80                 With respect to demand conditions, the rapid growth in competitor share of lines clearly demonstrates that consumers are not afraid to exercise choice.  Inertia is simply not standing in the way of customer choice.

81                 The Competition Bureau has noted that an important indicator of effective competition is the ability of competitors to retain customers.  Aliant has filed in confidence with the Commission data on our ability to win over customers from competitors and, clearly, retention by our competitors is also not an issue of concern.

82                 With respect to supply conditions, some parties suggest that you need numerous competitors for a market to be truly competitive.  In my experience this is simply not true in the telecom industry.

83                 Initially, there were only two cellular competitors.  In high‑speed internet service there are usually only two competitors in any given market.  In both cases competition is intense and customers have benefited.

84                 It is not how many competitors exist, but whether an effective alternative is available to customers.  In the case of the 32 exchanges, we provided our estimate that EastLink has 98 per cent network coverage.  With access to unbundled loops this is really 100 per cent.

85                 There are clearly no barriers to entry for EastLink.  It already has entered and, as I mentioned, has virtually complete coverage in the 32 exchanges.

86                 In addition, VoIP providers can enter quickly and at very low cost, as shown by how rapidly they are setting up in Halifax.  High‑speed internet service is widely available and Aliant has recently introduced dry loop high‑speed internet service.  This means that any customer in our high‑speed footprint can now quite easily choose telephony services from any provider while purchasing only high‑speed Internet from Aliant.

87                 Wireless is already here and, as you know, the number of wireless‑only households is growing quickly.  Customer inertia is not an issue as customers have demonstrated their willingness to choose from more than one alternative.  This is not a marketplace where barriers to entry are an issue.

88                 With respect to rivalrous behaviour, I can say that if you are living in one of these 32 exchanges you are witnessing a vibrant rivalrous market for residential local service.  There is a full and dynamic intent by all parties in the market to earn the choice of each customer.

89                 In the last year alone, examples of communications with respect to local service offers from our major competitor have ranged from free local service for one month, free local service for six months, save $174 per year on local service, to the latest offer last week of $9.00 per month for local service with all features.

90                 In a market with such quick‑changing offers, customers would certainly expect and deserve to see all competitors in the market working hard with new offers to earn their business.  Certainly, Aliant has been working hard within the current regulatory framework to earn the right to be chosen by our customers and we work hard to communicate our value proposition.  However, for over two years local service promotions by Aliant were banned and rivalrous behaviour exhibited by us was perhaps less than it otherwise would have been and presumably, therefore, EastLink's promotions too have been less as they would have benefited from our regulatory restrictions.

So the market is very rivalrous, but forbearance is necessary so that customers can see the full benefits of this rivalry.

91                 And evidence of rivalry is not new.  As you know, we felt that we could not raise residential local prices four years ago in Nova Scotia, even though we have price cap headroom to do so.  Even back then competition was sufficiently rivalrous to prevent us from raising rates.  That would be even more so today.

92                 In short, customers have options and have shown that they are willing to choose.  It is clear that the 32 exchanges are intensely and irrevocably competitive.

93                 So why forbearance now?  If our application is approved it will be approximately two years after we filed.  In the meantime, customers have been missing out on the benefits of competition, including faster market response, greater innovation and flexibility, more promotions, more incentives and innovative bundles.  The potential further benefits to customers during those two years are lost forever.

94                 I know that some have questioned Aliant's intentions post‑forbearance.  On this point I wish to be extremely clear:  Aliant's only intention in a post‑forborne world is to ensure that customers have the full ability to benefit from competition and are given a free, equal and open ability to choose.  Put simply, we aim to operate the way any reasonable consumer marketer in this country does, to continually adapt our offers based on our customers needs and ensure that we earn their business.

95                 Let me give an example of what I mean:  As I mentioned, just last week EastLink launched a new promotion; residential local service and all options and features communicated for $9.00 a month.  There are some strings:  sign up for a year, subscribe to a bundle, but $9.00 a month is the offer they are communicating.

96                 How do we respond?  A normal consumer marketer in a normal competitive market would look at what the customer is saying and decide on their offers based on how they need to communicate their value proposition.

97                 In our case a large part of our alternative response has to be:  Will the Commission let us respond in that way?  What has to be filed with the Commission?  Does it meet the bundling rules and imputation tests?  Does it meet the promotion rules?  Can we file something without the details being made available to competitors?  Can we get it approved fast enough?  And on it goes.

98                 In the meantime, customers in our market are not able to see a true like‑to‑like comparison between their offer and theirs.  They are not able to hear about their real choices and they are not getting the benefits of an intense competitive rivalry that should accrue to them.  All that disappears with forbearance.  We will be able to react to changes in market conditions as quickly as our competitors.  We will be able to bring new and innovative offers to market to appeal to customers and customers will benefit.

99                 Let me also be clear on what we will not do.  We will not cut prices recklessly.  Local access is a valuable service and there is a cost to provide it.  If we want to continue to make money in the business pricing has to be rational.

100                Because of the comments of our competitors you may question as to whether competition will continue after forbearance.  Let me be very clear here as well.  There is no issue here with the sustainability of competition in these exchanges.  EastLink has strengths in television service, high‑speed internet and bundling.  Their network is in place and they already have a substantial telephony base.  They are already in many more than the 32 exchanges with a significant and growing number of business customers in addition to their residential base and they continue to expand to new exchanges.

101                EastLink's costs are competitive.  They must be for them to be able to offer local service at $9.00 with all features included.

102                Finally, predatory pricing, if one were foolish enough to want to try it, is prohibited under the Competition Act.  If you look at the history of Canadian telecom, no forborne market has ever been re‑monopolized; not terminals, not cellular, not long distance, not private lines.  Competition is here and competition is here to stay.  It is time for customers to truly benefit.

103                Margaret.

104                MS SANDERSON:  Thank you, Heather.

105                Aliant has asked me to briefly summarize my assessment of the extent of competition for residential local services in the 32 exchanges.

106                This analysis is directed to answering the question that Heather posed initially:  Does Aliant have substantial market power in the specified exchanges?  If no, the Commission should forbear as there is sufficient competition to protect the interests of users.  As well, customers will be better off if Aliant is free to respond to EastLink unencumbered by regulation.

107                The first step in this process is market definition.  I will not spend much time on product market definition as most parties agree it is appropriate for you to find it to be the collection of basic local service and optional calling features available to residential customers.  Several technologies deliver this service, including telephony‑over‑cable infrastructure like that of EastLink, VoIP and wireless.

108                In my report, I adopt the CRTC findings that VoIP is part of the relevant product but wireless is not.  I do this to be conservative.

109                Geographic market definition is more controversial here.  Aliant argues that the exchange is the relevant geography for assessing competitive conditions.  The CCTA and EastLink argue for a much broader area like the local interconnection region (LIR) or even the province.

110                There is agreement among the various economic experts that users do not consider alternative calling pairs to be good substitutes.  In theory, then, this may mean that each individual calling pair is a unique market.  This is not practical and some form of aggregation is required.  The question is how much.

111                In Decision 94‑19 the Commission defined the relevant market as:

                        "... the smallest group of products in geographic area in which a firm with market power can profitably impose a sustainable price increase."  (As read)

112                As a result, any aggregation of calling pairs must stop at the smallest area over which market power would be exercised.

113                Because investments at the local level are required to offer local service, the set of suppliers or the set of competitive alternatives differs by location.

114                EastLink cannot offer local service in Cape Breton by making investments in Halifax.  EastLink has to make some investments in Cape Breton in order to offer service there.  As a result, the competitive alternatives are not the same throughout the province.  This makes the province the wrong geography for considering forbearance applications.  It is too big.

115                What about something smaller like local calling areas or LIRs?  Do they make sense?

116                It is clear from the maps distributed by Aliant this morning that LIRs like provincial boundaries are also too broad.  They fail to distinguish areas with different competitive conditions.  This is easily demonstrated by looking at the Halifax LIR.  There are over 60 exchanges within the Halifax LIR, but EastLink offers service in about half of them.

117                If the Commission were to adopt the LIR as the appropriate geography, it would be melding highly competitive areas where EastLink is present and less competitive areas where Aliant is the only wireline provider.

118                As with the province, the LIR is too big.  It fails to limit the geographic market to an area with similar competitive conditions.

119                This leaves the local calling area.  For every exchange there is a local calling area composed of several exchanges.  As a result, local calling areas overlap.  As well, local calling areas will mix competitive and less competitive areas.

120                Consider Antigonish.  Within the Antigonish local calling area there are nine exchanges but EastLink is present in only two.  Further, the Antigonish exchange is included in seven other local calling areas.  These two will include a mix of areas with EastLink present and areas without EastLink.  To my mind, use of local calling areas introduces unnecessary complications without improving upon exchanges at the smallest geographic area for consideration.

121                The CCTA proposes broader geographies, not because this is the result of economic analysis directed to finding common competitive conditions; rather, it is because broader geographic areas will make forbearance more difficult when that is paired with high market share loss thresholds.  This will be a significant departure from the Commission's stated principles for forbearance.

122                I believe the Commission's test for geographic market definition is the right one and we need to stop at the smallest geographic area over which market power would be exercised.

123                Finally, there is the proposal to define the geographic market around the overlapping footprint of the ILEC and perhaps a full facilities‑based competitor.  This approach will distinguish different supply conditions and, hence, it is conceptually very appealing.  However, I understand the practicalities of this are much more difficult.  In essence, it would be extremely costly for Aliant to administer forborne and non‑forborne areas below the exchange which this proposal might entail.

124                Practically, if we want to compare the area of overlap between the cable provider and the ILEC, we are brought back to the ILEC's infrastructure which is built around the exchange.  So we are bought back to looking at individual exchanges or perhaps collections of exchanges where we have a comparable competitive presence.  This is what Aliant has presented to the Commission in this proceeding.

125                Once markets are defined, the analysis turns to assessing the vigour of competition.  Here the record, as Heather has mentioned, is unambiguous.  EastLink is an independent facilities‑based service provider.  EastLink offers attractive bundles that include television, internet, wireless and local telephony.  Within a short time of entering global markets EastLink has captured a substantial share of the market, one‑third of residential wirelines in the 32 exchanges.

126                Aliant's market research confirms that residential consumers are willing to, and readily switch, suppliers.  As well, EastLink retains its local customers as Aliant's data, filed in confidence with the Commission, indicates.

127                Should the Commission grant forbearance, it is clear from all of this that Aliant would not find it profitable to increase prices above competitive levels in the 32 exchanges.  From my reading of the record in this proceeding, no party is even suggesting that Aliant would charge monopoly prices following forbearance.

128                If there is any pricing concern, it is one of prices that might be too low.  Whenever such claims are made it is important to recall that low prices is one of the reasons why we want competition.  The only low prices that the Commission needs to worry about are ones that might be predatory.

129                But here the concern is not the low prices.  Here the concern is the higher prices that would follow the period of predation once the competitor exits.  It is critical, then, to assess the likelihood that EastLink would exit local telephony markets if Aliant has the flexibility to engage in the type of promotional activity that Heather spoke about.

130                We know EastLink is not going to exit the communications business overall, because it is the incumbent cable provider and it also has a significant internet presence.

131                But for EastLink to be driven from the local services market, Aliant would have to charge extremely low prices.  The bulk of EastLink's costs to provide local services are fixed and sunk.  This is simply a feature of the capital intensive nature of the industry.  Aliant would have to price below EastLink's variable costs of providing local service to drive EastLink from the market.

132                EastLink has just demonstrated that these costs must be very low, it is charging $9.00 for local service and unlimited features.  Nine dollars must be above EastLink's variable costs of providing local telephony or EastLink's pricing is completely irrational.

133                Could Aliant ever recoup the revenue losses that it would take to drive EastLink out of the telephony business, assuming it is possible to price low enough?  The short answer is no.  Aliant cannot increase prices in competitive markets, like wireless and internet, because this would simply cause customers to flock to Rogers, Telus and EastLink.

134                Aliant cannot increase prices for local services in non‑forborne areas because you, the Commission, and your regulation prevents this.  If Aliant tried to raise prices to recoup its losses from predation in local telephony markets after it supposedly drove EastLink out of the market, it is likely to find VoIP providers present this and EastLink has the ability to re‑enter.  After all, it is profitable for EastLink to compete against Aliant at current prices today.  Given much of EastLink's investments to this are sunk, it would be profitable to compete against Aliant if Aliant were to raise prices back up to current levels or beyond after the period of predation.

135                Some might argue that Aliant could try to discipline EastLink through low pricing in order to curtain its expansion elsewhere, but the horse left the barn a long time ago.  In a year EastLink will have invested enough to offer local service to 90 per cent of it's cable footprint.  EastLink is already in the largest and most lucrative markets.  I makes little sense for Aliant to lose money in Halifax in order to convince EastLink not to expand into the Cape Breton Highlands.

136                No matter what theory of predation is postulated, the facts indicate that a predatory strategy is not likely to be profitable.  If it is not profitable, it will not be attempted.  The Commission does not need to fear this speculative concern in respect of the 32 exchanges.

137                MR. ROBERTS:  Thank you, Margaret.

138                So if I could briefly summarize.

139                First, the local exchange is the proper geographic market for consideration.

140                Second, the evidence is clear and uncontradicted that competitive market forces are already protecting interests of consumers in that they are into exchanges.

141                Third, competition is well‑established and will remain vibrant after forbearance.  There is no evidence to the contrary.

142                Finally, delaying forbearance is unnecessarily denying customers the benefits of a full and open competitive market.

143                Thank you very much.  We are prepared to take any questions you may have.

144                THE CHAIRPERSON:  Thank you very much to the panel.

145                Commissioner Duncan.

146                COMMISSIONER DUNCAN:  Good morning.

147                First of all, I am going to be referring to the company's final argument at page 24, paragraph 87.

‑‑‑ Pause

148                MR. WILSON:  Sorry.  Just if I can clarify, I believe when Commissioner Duncan says "the company" she is referring to the Bell Canada's final argument.

149                COMMISSIONER DUNCAN:  Sorry about that.  Sorry.

150                MR. WILSON:  Just to clarify that.

151                COMMISSIONER DUNCAN:  Thank you.

152                MS TULK:  We need to get a copy of that.  We only have our final arguments here.

153                Just a second.  Sorry.

‑‑‑ Pause

154                COMMISSIONER DUNCAN:  Sorry about that, Mr. Roberts.  We are off to a good start.

155                It is clear what Aliant's recommendation is, but we would like to explore the local calling area as a possible geographic market.  The Companies, in their final argument, list some of the difficulties associated with selecting the local calling area as a relevant geographic market.

156                LCA includes many exchanges, each of which is part of other LCAs.  So the LCA's overlap and it is not clear which LCA should be relied upon in the context of a forbearance application.

157                Could you discuss whether it might be appropriate as part of the application for forbearance for the applicant ILEC to pick a central exchange and its associated local calling area?  Is this solution workable as an appropriate, relevant geographic market and could this minimize the problem of overlapping LCAs?

158                MR. STEPHEN:  In selecting the configuration that you would call the local calling area I think it would be certainly open to a lot of discussion and debate in terms of what should be included and what shouldn't.  So while your suggestion obviously could be done, that a proposal could be put forth, we would think it would raise a lot of questions.

159                Some of these exchanges have really like a daisy‑chain effect to them and it is not necessarily just one exchange that would be in question in terms of which local calling area would it belong to, so it would seem to us to be a lot simpler to just focus on the exchange.

160                The local calling area is made up of exchanges, so to us it was easier to go with the smaller and not have to worry about the confusion and any, I will say, debate of is a certain exchange in one calling area or another when in fact they are in several.  So rather than debate the issue, it is so much easier to just accept the exchange as the proper measure.

161                MS SANDERSON:  I will just add to what Rick has said.

162                Commissioner Duncan, if you do proceed in that fashion I would urge you that ultimately what you want to do with the geographic markets is you want to find the smallest area that has the common competitive conditions.  So you want to be careful not to expand this area to be beyond the areas where the cable provider ‑‑ in this case EastLink ‑‑ has a significant presence.

163                So if I was to take your example and think about, let's say, Amherst as an example, then you might think about the Amherst exchange and the competitive conditions that exist in the Amherst exchange and then you might say:  Well, what are the common competitive conditions just in the adjacent exchanges that are part of, say, this local calling area.  So perhaps you would include Springhill, you might include Collingwood, you might include Oxford.

164                But you do not want it to be the case that you take that expanding market, which really if you think about it it is just an aggregation of exchanges with common competitive conditions.  In essence, your building block is still back at the exchange level, but now what you are doing is, instead of examining the market four times, Springhill different from Amherst, different from Collingwood, different from Oxford, you are saying the competitive conditions within this collection of exchanges is similar and you are assessing the market in that sense.

165                So in some sense you are brought back to the exchange of this basic building block where adjacent exchanges have common competitive conditions and common alternatives.  I do not see any harm in examining the competitive conditions of the collection of those exchanges in one application.

166                COMMISSIONER DUNCAN:  So in that instance you would be in agreement then?

167                MS SANDERSON:  It would depend on what the competitive conditions were in the areas that you went out to.  So you would not want to just say, "Well, I am going to define the market around these local calling areas and then pull in areas where, for instance, Aliant is the only provider, EastLink has no infrastructure in place.  Essentially, you need to guard against that.

168                COMMISSIONER DUNCAN:  All right.  Thank you.  I take your point.

169                I notice the Halifax central exchange serves 11 exchanges.  Hopefully I have interpreted this correctly from your tariff.  It says it serves 11 exchanges, and three of these exchanges, Chezzetcook, Elmsdale and Musquodoboit Harbour, are not included in the 32 exchanges you have applied to have forborne.

170                Similarly, in the Heatherington exchange, which serves four exchanges, only one, Antigonish ‑‑ interesting, because that was in your opening comments ‑‑ is included in the 32 exchanges you have applied to have forborne.

171                You indicate again today the percentage market share that you have lost.  I wonder what your market share would be if the loss was calculated based on a central exchange and its associated calling area.  So for these 32, how it would impact your market share loss.

172                I think it points to some of the complications in using this approach, but I am assuming that you would only consider an exchange area once for the purpose of this calculation.  So, for example, you would have to decide whether Halifax exchange would be included in the Halifax or Hubbards central exchange ‑‑ because I notice Halifax is also listed in the Hubbards central exchange.  Of course I am interested to know if you disagree with that, but I would assume you could only use it once.

173                MR. STEPHEN:  Commissioner, when you referenced the exchange make‑ups, are there some documents that we would have that you are referring to or is it from our tariffs?

174                COMMISSIONER DUNCAN:  I used your tariff, your General Tariff, CRTC 21‑491.

175                MR. STEPHEN:  Sorry, I don't think I have a lot of specific data on those particular exchanges.

176                COMMISSIONER DUNCAN:  I think it would be interesting.  I don't realistically expect you are going to have that percentage right here with you.

177                MR. STEPHEN:  No.  I am trying to recall whether or not I have anything close to it and I am not aware that I do.

178                But I think what is important is that when we came up with our 32 exchanges the approach we used was to look at where the competitor is.  In fact, our whole philosophy of adopting the exchange that wasn't the starting point.  The starting point was really looking at the geography where competition exists.  Obviously as we did work on that we consulted with economists to determine how best to use that information in terms of meeting 94‑19 tests, you know the framework tests.

179                The exchanges, when we adopted that it was after looking at all other forms of aggregations and concluded that the exchange made the most sense.

180                So in the exchange that you referred to that would be adjacent to, let's say Halifax, in those cases EastLink may or may not be offering service.  So when we looked at the 32 exchanges we were very much looking at where is the competitive footprint and how does that match or map to our service areas.

181                So if we didn't include it in the 32 exchanges it would have been that at the time of our application we wouldn't have felt there was sufficient competition in those areas to include it.

182                So while I don't have the mathematical response in terms of if we include certain exchanges what that would do to market share, obviously if they are in exchanges where EastLink is not that will obviously reduce the share of line loss simply because of you are adding into, you know, the base without adding any additional loss perhaps.  So the answer would be the number would go down.

183                MS TULK:  We did file, Commissioner Duncan, during the proceeding our market share in confidence with the Commission by local calling area, which was aggregated up above the exchange level.  So that would be in the abridged copies of our filings.

184                It is not on the public record and it is competitively sensitive so we wouldn't be able to disclose those particular numbers today.

185                MR. ROBERTS:  I believe the interrog reference is 808.

186                COMMISSIONER DUNCAN:  808, thank you.

187                MS TULK:  Yes.

188                COMMISSIONER DUNCAN:  Just on that point then, how did you handle the fact that some of the exchanges were counted in the overlapping aspect of it?

189                MS TULK:  Well, I think that speaks to what we did was we provided the exchange per the defined local calling area, but definitely that is the issue.  That is why we believe the local calling area is not appropriate, because you can have a specific exchange, whether that exchange is competitive or not can fall within the market share and line counts of different local calling areas because they can be on the border with more than one other local calling area.

190                So an example where you have a community between two competitive exchanges that is not competitive, it could in fact be in the local calling area of both the competitive exchanges.  Actually, in using a local calling area test, that non‑competitive exchange could be pulled into forbearance because the total local calling area meets a forbearance test that will be established.

191                That is why we believe strongly that in order to protect against that the exchange is the right building block, and if, for example, all exchanges inside the Halifax calling area were competitive and met the test, then de facto 10:15:51) the local calling area would meet the test.

192                But what it prevents against is having the local calling area meet the test and through that pull in exchanges that individually are not competitive.  So we believe it is important to have the test at the exchange level and then as exchanges pass the test, in certain cases full local calling areas would in fact meet the forbearance tests, in other cases they wouldn't.

193                COMMISSIONER DUNCAN:  I appreciate your comments and they are well taken.  I know that at Aliant's heart, of course, is the 32 exchanges.  We are trying to develop a national framework so we will certainly take all that into consideration.

194                MS TULK:  One great of example of that ‑‑ we have many examples of that outside these 32 exchanges in our footprint, so a great example for us would be the St. John's area where in St. John's Newfoundland, Long Pond as an example, will be part of the St. John's calling exchange.  It is not part of the calling exchange with Torbay.

195                You could easily foresee a world where you could have competition in the heart of St. John's and because the heart of St. John's is so much bigger on a line count basis than either Long Pond or Torbay, looking at the calling area St. John's could pass a reasonable test and pull Long Pond and Torbay into forbearance even though there may never be a competitor in either Long Pond or Torbay.

196                That is why we believe that keeping it at the exchange level prevents that type of occurrence and makes sure that areas outside of a competitive footprint aren't in fact pulled in through the local calling area.

197                COMMISSIONER DUNCAN:  But a VoIP provider might be a competitor in that example, would you say?

198                MS TULK:  It may be, if they choose.

199                COMMISSIONER DUNCAN:  As things evolve?

200                MS TULK:  Right, yes.

201                The big thing for us really in filing our application and landing on the exchange in our proposal is really looking at:  How do you map a forbearance test for local service with the way this industry is going to evolve?  How do you map a forbearance test for local service that has to be mapped something to how competitors are choosing to operate?  Competitors are not mandated nor certainly demonstrating any intent to date of rolling out on a provincial or national basis or on a local calling area basis.

202                Competition is unfolding at a very grassroots level, both in the EastLink example, but also in the VoIP example, also in the wireless as a substitute, example.  It is happening on a location‑by‑location basis in terms of where it is being provided as a local service alternative.  It is important that the administration of forbearance in that regime is matched to that grassroots type of rollout.  That is why we are proposing the exchange.

203                MR. CAMPBELL:  Commissioner Duncan, in terms of a national standard, this applies to a limited extent I suppose in our territory.  There is at least one exchange in New Brunswick that has free local calling into the United States.  The same exchange has free local calling into Telus territory in Quebec.  Needless to say, competition to the American carrier or competition to Telus doesn't discipline Aliant in its exchange.  But under this postulated test, that would be part of the forbearance test.  That will probably be more relevant as you apply the test across the country.  We don't have much border with the U.S.

204                COMMISSIONER DUNCAN:  That is a very helpful comment.  We will be able to take that into consideration.  Thank you.

205                I will move onto the next question if you are satisfied with that.  Okay.

206                Mr. Townley suggests that in low density areas possibly overlooked by competitors an incumbent may not be able to raise prices.

207                Can you explain why an incumbent would not be able to raise prices?

208                MS SANDERSON:  Could you refer me to the reference in Peter Townley's report?

209                COMMISSIONER DUNCAN:  I don't have the reference here, unless staff has it maybe.

‑‑‑ Pause

210                COMMISSIONER DUNCAN:  If we can't easily find the reference I could maybe just pose the question a little differently.

211                Do you want me to do that?

212                MS SANDERSON:  I wouldn't want to try to interpret Professor Townley incorrectly.

213                COMMISSIONER DUNCAN:  I appreciate that.  Me either.

214                MS SANDERSON:  Particularly if you ever met him.  He is a very large imposing figure.

‑‑‑ Laughter / Rires

215                COMMISSIONER DUNCAN:  I will keep that in mind, too.

‑‑‑ Pause

216                COMMISSIONER DUNCAN:  The suggestion is I will move on to another question and they will look for that.

217                MS SANDERSON:  Okay.

218                COMMISSIONER DUNCAN:  So with respect to LIRs, assuming the geographic area proved is the local calling area or the LIR, I notice in your final argument at paragraph 21 you explain, and I quote ‑‑ I will wait for you:

                        "The larger the geographic market to be considered the greater the likelihood that it will include areas in which subscribers do not have the benefit of a competitive market.  For example, if forbearance were granted for a large area such as LIR or an entire province on the basis of the average degree of competition across the entire area, then the possibility of some subscribers in portions of the area having insufficient competition to protect their interests increases."  (As read)

219                What regulations could be put in place to protect these consumers and ensure their quality of service and their rates are reasonable and affordable?

220                MS TULK:  Well, certainly there is a tremendous amount of regulation in place today to ensure quality of service and rates are reasonable for consumers in the absence of a competitive market, as a gatekeeper.

221                So I think, to answer that question, the easiest way to ensure that happens it to make sure that forbearance is granted on the right building block in the first place.

222                So to make sure that a building block for forbearance is chosen such that it prevents forbearance being applied where no competitive market exists, which gets right back to why we believe the LIR is too big and the LIR doesn't protect the interest of those consumers.

223                To try to build in a set of safeguards around such an event happening is in and of itself, we would believe, an admission that the LIR is too big on which to grant forbearance, because choosing the right relevant market would in fact mean that in a post‑forbearance world the market will operate effectively and competition will rule the market.

224                So to say that we would expand the relevant market to the point where we need to protect those people who have been drawn unduly into forbearance would seem to me in and of itself an argument that that market is too large to be the building block for forbearance.

225                MS SANDERSON:  I just wanted to reiterate what Heather was saying.

226                If you take the example that I offered of the Halifax LIR exchange, so there are about half of the exchanges within the Halifax LIR ‑‑ EastLink is not currently offering local telephony service.  So if you think about if you were to start in one of those areas and you were to pose the question that is the hypothetical thought exercise that you go through for geographic market definition and you were to ask yourself:  Could the provider Aliant in those locations potentially exercise market power following forbearance ‑‑ assuming for the moment that we accept the proposition that wireless is out of the market to be conservative and follow your previous findings ‑‑ you would probably say "Well, yes, Aliant could."

227                In that context you would then be saying, "Well, I don't want" ‑‑ these are presumably the customers that you would wish to protect.  But of course if you define the relevant market narrowly you won't forebear in those areas.  So that you don't in fact need to have pricing safeguards added because your regulatory regime will remain in place for those consumers and then for the consumers that actually have competition in the other half of the exchanges that are within the Halifax LIR, in that instance you will then assess whether you think the competitive conditions are sufficient to forebear in Aliant's application.  I guess in my opinion they are.

228                I can't spoke to what those actual share numbers are because they have been filed on the confidential regard record, but they are very substantial.  It's a very substantial loss of customers, a very large number of customers that EastLink has across that set of exchanges.

229                Then in that way you have no reason to worry about pricing safeguards afterwards, because you have properly defined the relevant geography for which you are doing forbearance.

230                MR. STEPHEN:  I would add a couple of comments about the LIR.

231                Having read the record in the proceeding, a number of parties of course are advocating the LIR.  When I read the rationale for them wanting to adopt the LIR, it makes me think that they have read the decision on LIR but have not watched exactly what has happened in terms of the actual definition of LIRs in our region.

232                When the decision came out ‑‑ and I am referring to Telecom Decision 2004‑46 ‑‑ the decision itself was based on trunking and it was trying to achieve greater efficiency and less cost for interconnection, so it wasn't anything to do with retail pricing, it had everything to do with exchange carrier to exchange carrier connectivity.

233                However, in the decision the Commission laid out counties, or in Nova Scotia's case they identified there would be 18 LIRs.  When you go through the list they are very similar in nature to calling areas.

234                However, in the decision the Commission also had a bunch of what I refer to as overlay rules, and it goes to a number of the parties.  All the reasons they say LIRs are good really are all done away with by these overlay rules, things like community of interest, things about not relating to networks.  A lot of those conditions, as I say, are done away with with the overlay rules.

235                The critical overlay rule was ‑‑ and I will read it here:

                        "In cases where an exchange is served by a remote switch, the exchange will be included in the LIR of the exchange of the host switch."  (As read)

236                So what that means is, of that those 18 LIRs that were defined in the decision they quickly got grouped up into four, because there are four host switches in Nova Scotia.  So because of the switching network it redescribes all of the LIR.

237                The original intent was to do away ‑‑ find something that was neutral, that had nothing to do with our network.  The LIRs have everything to do with our network and they are very large geographic units, significantly larger than what would have been laid out in the original decision, only because of the rules within the decision.

238                So when people are proposing to use the LIR, I don't think they fully appreciate the sheer geography that is covered and the fact that the design of switching really has nothing to do with the retail pricing.  So a number of parties are arguing that it is a good measure for retail pricing, but they are totally unrelated.

239                One of the attachments you have has the LIRs colour coded for Nova Scotia.  If you refer to that, you will see that there are just the four and you will also note that there are large geographies.  Again, I would ask that people consider that those geographies really don't go to a ‑‑ when you are looking at forbearance criteria, that this is the relevant market.  They are very large, certainly a lot larger than local calling areas.  It would be the summation of multiple calling areas.

240                Thank you.

241                COMMISSIONER DUNCAN:  Thanks, Mr. Stephen.  Again, we are interested in your comments and they will certainly be considered.

242                Just to maybe go back, and even if we were to accept the local exchange as the relevant market, I think it is possible, as competition rolls out, that we will come ‑‑ now, in the first 32 exchanges I gather that EastLink is fully serving or essentially fully serving them all.

243                But as time rolls out, it is quite likely there will be exchanges where EastLink, the facilities‑based competitor, is not situated.  How will the rights of those consumers that are situated in a forborne exchange that is not served by a competitor, how will those consumers have their rights protected?  How will they be assured quality of service and reasonable and affordable rates?

244                This is sort of extending it down the road a bit.

245                MS SANDERSON:  Right.  If there are not sufficient competitive alternatives in that exchange, you will not have forborne from regulation, because it will not have met the test under section 34(2).

246                So if an ILEC in the future comes to you with an exchange and you look at that exchange and you feel that there is insufficient competition in it, because perhaps you want a facilities‑based provider that isn't in fact there, then you will turn down the application.

247                So in that sense the regulatory regime will remain in place and the customers within that exchange will remain fully protected by regulation.

248                In instances where you forbear, you will have found that there is sufficient competition from whatever the set of alternatives is and the set of technologies are that you will have found are good and close substitutes to the ILEC.

249                COMMISSIONER DUNCAN:  I'm thinking in an instance, for example, where maybe the exchange is picked and the facilities‑based provider is serving 75 per cent of the area ‑‑

250                MS SANDERSON:  Right, okay.

251                COMMISSIONER DUNCAN:  ‑‑ about the 25 per cent.

252                MS SANDERSON:  Okay.  I understand.

253                I think this actually is one of the features that makes the exchange a nice ‑‑ or at least a starting point in terms of the geography, is that they do tend to be relatively small.

254                Now, I cannot at all speak to the exchanges across the rest of the country, but in the context of the exchanges that Aliant is seeking forbearance in, it is certainly true that EastLink's infrastructure is very extensively deployed.

255                I would hazard a guess that if you are in a situation where you are looking at an exchange where the second facility is not extensively deployed, that will be a more difficult decision and ultimately you will have to assess the extent to which the infrastructure that is in place, or the competitor that is in place, how readily and easily could they expand to meet the needs of the remaining customers.

256                If you think that they can do that relatively easily, then you would be presumably comfortable finding sufficient competition to forbear.

257                If instead you are looking at the type of exchange where the facilities‑based competitor, if that is what you limit yourself to, is only covering a third of the market, then you might say well ‑‑ and there are, for whatever reason, substantial cause for expansion and you feel that there aren't other technologies that could be deployed to offer the service, then in those instances you will probably find there is insufficient competition and you will refrain from forbearing.

258                MS TULK:  Yes.  I think the other thing that is important to that specific discussion is that one of the other reasons that we proposed the exchange is because it is also realistically the smallest building block on which you can operationalize.

259                So the thought that, as an example, we would be granted forbearance inside an exchange and then treat the customers within that exchange disproportionately different, in fact the risk is much more, I would say ‑‑ maybe not a risk, it is hard to call it a risk ‑‑ but the reality is much more on the other side, which is what is likely to happen is that customers outside the competitive area are likely to benefit from the competitive offers that are in place to deal with the competitor and the promotional pricing and the opportunities there.  Because the ability for us to identify below the exchange level someone who is inside versus outside the competitive footprint is in reality extremely and extraordinarily different.

260                So the thought that we would do something different to harm the customers who don't have a competitive choice while fighting competitively to earn the business of those who do have a competitive choice, is actually not operationally feasible.  I would say although there has been I think some discussion and fear‑mongering and that, it is impracticality not a risk to the customers, and the competitive market presence in the exchange of scale enough to grant forbearance will in fact manage the entire of that exchange from a practical purpose.

261                COMMISSIONER DUNCAN:  I'm sort of just wondering, even if it is  not a rate difference, I mean is it possible that people living in the noncompetitive area wouldn't have the service technician dispatched as quickly as the person living in the competitive area?  I mean it is a local exchange, it is small.

262                MS TULK:  Again, the ability for us to actually do that and weigh it off against the risk of the reality, certainly of ‑‑ we certainly, and I know all the companies in Canada recognize this because the rest of our business is so fully competitive ‑‑ we certainly recognize with respect to local service the thought that I would look at a customer on Parker Court and say, "Well, you live off Acadia Mill Road and I got forbearance there, but because they haven't yet built on your cul‑de‑sac I'm not going to come and serve you, would be ‑‑

263                COMMISSIONER DUNCAN:  Not that you wouldn't come, but you mightn't come first.

264                MS TULK:  Yes, but even so it would be foolhardy in the extreme, because in fact we know as a fact that one of the main retention variables in our business is the service quality.  In fact, to alienate a customer in that way, particularly on a neighbourhood basis when you know that at the next barbeque on Saturday night they are going to hear all about it from the their friend on Acadia Mill who got the guy the next day, I mean it would be ludicrous and certainly at our own peril that we would do that.

265                So I really don't think that is a realistic risk for those customers.

266                In fact, you know, if anything, we are going to be more and more aggressive because they are so near to where we see competition unfolding.

267                So the reality of a consumer marketing organization, it would be like saying that a supermarket is going to charge you walking in the front door a different price on green peppers than the person who walks in next, because they know the person who walks in next is less likely to buy down the street.  It is just not a reality of the consumer market.

268                COMMISSIONER DUNCAN:  Thank you.

269                Mr. Campbell...?

270                MR. CAMPBELL:  Thank you, Commissioner Duncan.

271                Another reason that the exchange is particularly appropriate is that if you have got a cable LEC who has a substantial presence but not 100 per cent, if they are a LEC in the exchange by definition they have access to every customer in the exchange through use of local loops.  So you are not going to have these isolated customers who have no competitive alternatives.  This will give the opportunity for natural growth as well.

272                COMMISSIONER DUNCAN:  Thank you.

273                I'm just wondering ‑‑ and maybe you filed this and I didn't see it ‑‑ did you happen to calculate what impact these markets that you are requesting to have forborne, if we selected an LIR, what impact that would have on market share loss?

274                MS TULK:  We did supply in the interrog we previously mentioned our market share by LIR and local calling area.

275                COMMISSIONER DUNCAN:  Okay.  I will look it up.  Thank you.

276                Moving along here, in keeping with the same discussion, what factors do you take into consideration in defining a community of interest and in what ways do local calling areas actually reflect communities of interest?

277                MR. STEPHEN:  In terms of the establishment of exchanges, which certainly is a historical event, there would have been a establishment of community of interest at the time the exchange was built.

278                Similarly, the expansion to what would have been referred to as extended area service or EAS, which makes up the local calling area, over the years there has been different processes to determine community of interest.  In many cases there would have been voting by customers to whether or not they would be involved in the larger calling areas.

279                So there were tests established.  I believe they were certainly all established either in tariffs or in public proceedings that we would have gone through.

280                I don't have the list of them in front of me in terms of what makes up the community of interest from a regulatory standpoint, but certainly calling patterns was a critical component of that.  It likely varies by province because of the history of the company.

281                I know in New Brunswick, for instance, there was a major re‑establishment of the local calling areas in the mid‑ to late‑90s.  There was a formal proceeding on it and it examined the various issues of what makes up the community of interest.

282                I can't speak to each province in the Atlantic area in terms of how they established the community of interest.  However, I can say that they would have all been through CRTC proceedings.

283                COMMISSIONER DUNCAN:  I think as time goes on if the decision is to go on local calling areas and to take the central exchange, and you have to make that decision which local calling areas go within, then that would be a factor that we would have to consider.

284                I have a follow‑up question, if you have no other comment.

285                The geographic definition of a particular market will likely change over time as communities grow.  These new subdivisions and developments adjacent or near to your existing geographic markets, the ones that are going to be determined, will very likely have the same community of interest but they will not be part of the forborne market.

286                How and under what conditions would you expect to come back to the Commission to expand your forborne market?

287                MS TULK:  Well, in our proposal, using the exchange, that wouldn't be an issue because, of course, when subdivisions are established, they are established inside a particular exchange boundary.

288                We certainly live that in reality today.  I can say that within a competitive marketplace, the competitor is as focused on the new subdivisions as the incumbent is and certainly it is not the case that inside our competitive footprint, new areas are opening up that aren't competitive.

289                So by choosing the exchange, and therefore new subdivisions get mapped to exchanges, the new subdivisions will be either forborne or not on the basis of whether the exchange is forborne or not.  We believe that to be practical and reasonable because it is also highly likely that if that subdivision is inside the competitive exchange it is likely to be subject to competition from day one and competitive market forces would rule there from day one.

290                COMMISSIONER DUNCAN:  Do you think, Ms Tulk, that at some point there would be a subdivision adjacent to an exchange that would have the same community of interest but might end up in a different exchange, given we are doing a national ‑‑

291                MS TULK:  Yes.  Certainly, that is the case.  I mean, with the urbanization that is happening in Canada, and certainly in Atlantic Canada, we see all the time that subdivisions are moving in the suburbs of the major cities.  There a constant, I guess, analysis and watch in the market that has to take place as the cities get larger in terms of what exchange a given subdivision, particularly if it is an in‑fill subdivision between one or more existing exchanges, and which exchange that has to get mapped to.

292                But at the end of the day every line in Canada is mapped to an exchange, each and every one, and once that decision is made and mapped and it is based on the practicality and the community interest and where they are and how that community ‑‑ it is a very community‑based approach, and by choosing the exchange it would actually be better in that case than the local calling area because in fact the debate happens more around the local calling area than it ever does around the exchange.

293                So in terms of what exchange various subdivisions fit in tends to be a lot more readily apparent versus whether or not it changes the community of interest vis‑à‑vis the local calling area or an equal access area definition.  Certainly, we see that quite a bit around the St. John's area in Newfoundland as that area is growing so fast.

294                I think that, again, keeping forbearance at a smaller building block, helps prevent that from becoming an issue in the future.

295                COMMISSIONER DUNCAN:  Thank you.

296                This one is a little different:  What are some of the approaches that could help safeguard vulnerable customers such as the disabled, rural, old or poorer customers, and ensure they receive reliable, high‑quality and affordable telecom services?

297                What safeguards could be put in place or should be put in place?

298                MS TULK:  Well, certainly, we believe that a competitive market is in and of itself a safeguard and protects the interest of consumer, as presumably if one or more of the competitors isn't doing a good job by consumers then someone else will attract their business that way.

299                However, we believe, with respect specifically to social obligations and that area, that what is important for the Commission to consider is how increasingly important it is that all players in the marketplace have the same obligations in that direction.  It has not been, nor is it or will it be Aliant's intention to walk away from our responsibilities to our customers.

300                That being said, we think it is very important that the Commission and the Commission's policies recognize that we are not the only game in town and that those citizens have the same rights no matter which competitor they choose to purchase from.

301                COMMISSIONER DUNCAN:  Thank you.  I want to switch now to mobile.

302                Is wireless ubiquitous in all the areas that you have requested to have forborne and, if it isn't, does each area need to be reviewed separately?

303                MS TULK:  I'm sorry, is wireless ubiquitous?

304                COMMISSIONER DUNCAN:  Yes.

305                MS TULK:  Do you mean with respect to wireless coverage?

306                COMMISSIONER DUNCAN:  Coverage and reliability, yes.

307                MS TULK:  Wow, that's a ‑‑

308                COMMISSIONER DUNCAN:  I'm just thinking that if wireless were decided to be included as a factor in the calculation of ‑‑

309                MS TULK:  Right.

310                COMMISSIONER DUNCAN:  Yes.

311                MS TULK:  Yes.  Definitely I would feel uncomfortable answering yes or not to that.  I don't know any of the 32 exchanges where wireless is not available, but to say I would definitely expect it to be the case that there will be coverage in services just like there is coverage and service differences in Mississauga versus downtown Toronto.

312                So to say "ubiquitous", certainly, there is availability of wireless from more than one supplier in all of those 32 exchanges that we are looking at.

313                We, specific of course to our application, didn't include wireless in the calculation.  We do though, and as we speak in our submissions, believe very strongly that go forward it should be and we would feel that it would be a reasonable question to be asked with respect to future forbearance applications as to the availability of wireless and it will be reasonable for us to supply that in our forbearance applications go forward.

314                COMMISSIONER DUNCAN:  So would you agree, then, that that would be a factor on an ongoing basis?  If wireless was to be considered, that we would have to consider the extent of coverage and the reliability of the service?

315                The quality of the service as experienced to date always isn't the same.

316                MS TULK:  Yes.  Well, I think the issue would be the availability and willingness of customers to choose.  Certainly, I haven't seen anything in this proceeding that would dispute that given the market share numbers that we put in front of you that customers are therefore saying that they believe that the quality of the service they are choosing is acceptable.

317                So if customers are choosing ‑‑ as an example, in the Statistics Canada numbers, when 4 per cent of households in the Halifax area have said that they have gone wireless only, then presumably that would tell you that there is a substantive portion of the population that believes it is an acceptable alternative and a reasonable product alternative that is available to them.

318                COMMISSIONER DUNCAN:  How would we go about getting those numbers in the future, like having access to those wireless numbers?

319                MS TULK:  The wireless only households?

320                COMMISSIONER DUNCAN:  Yes.

321                MS TULK:  Yes.  Well, we propose in our submission that the Statistics Canada data be used, which of course does create the problem that it is likely to be conservative because it will be rear‑view versus current view.  So at any point in time, as an example, in using the wireless only calculation right now we would be held to a 2004 number so in fact it would be a conservative element of the forbearance test, but we believe that it is an independently available number that should be used.

322                COMMISSIONER DUNCAN:  I believe I read in your comments that it is not available by exchange or by local calling area, that we would have to agree to settle on a census, metropolitan or whatever.

323                MS TULK:  Yes.  That is correct.

324                MS SANDERSON:  I was just going to say that the Statistics Canada data distinguishes the major metropolitan areas and then it gives you a provincial number as well.

325                So what you might be able to do ‑‑ which, again, it is an estimate, it is not 100 per cent accurate, exchange‑by‑exchange, but assuming that you have established that wireless is in fact ‑‑ there is wireless coverage in that area that you are speaking about, you might be able to turn to the provincial number outside of the metropolitan areas.

326                COMMISSIONER DUNCAN:  Thank you.

327                Speaking about the 4 per cent, I was just wondering ‑‑ because at this point on your 32 exchanges it may not be as relevant, but into the future it is going to be relevant and wireless is going to increase.

328                Would you agree that if wireless only households were to be included in the relevant product market that we should exclude the ILEC's portion of the 4 per cent, because we are trying to get sustainable competition?

329                MS TULK:  No, I wouldn't agree with that.  The reason I wouldn't agree with that is because the fact that a household has gone wireless only is showing that wireless is an accepted substitute for wireline services.

330                COMMISSIONER DUNCAN:  Thank you.

331                MS TULK:  If you accept that the wireless market is competitive and that wireless providers ‑‑ be they Aliant, be they any of our competitors ‑‑ are in a competitive market having to earn and that the competitive marketplace that wireless is is dictating and allowing customers to freely choose and presenting many alternatives to customers, then the fact that the ILEC's wireless division happens to have that specific customer is irrelevant.

332                The relevant test is:  Is wireless being used as a substitution for wireline and is wireless overall substitution such that the market share of wireline services has fallen?

333                I would say, "Well, why would you want to exclude the Aliant subscribers?"  Presumably you would say, "Well, it is because we want to prevent you from being able to move wireline subscribers to wireless in order to get forbearance."  Well, the reality is the wireless market is fully competitive and, given that it is fully competitive, we can't move someone from wireline and lock him into Aliant by putting them in wireless, because if we tried to do that they would simply change to another wireless supplier.

334                So if you assume that the wireless market is itself fully competitive, then the test is:  Are people moving from wireline to wireless and has there been a reasonable level of movement from wireline to alternate suppliers, not which alternate supplier they are choosing.

335                COMMISSIONER DUNCAN:  Thank you.

336                Now, Mr. Ergas ‑‑ and hopefully, I have pronounced that correctly ‑‑ maintains that and I quote:

                        "Some consumers prefer products or services of one firm; others prefer the products or services of another.  Many customers are willing to pay a premium for services from the firm that they prefer.  By using price discrimination, the firm may decrease prices for customers who are less attached to the products of that particular firm while maintaining prices for those customers who are not likely to switch.  This can increase competition in comparison to a situation where all firms are forced to set a single price."

                        (As read)

337                Is it really the firm to which people are loyal or is it a particular product which is perceived as superior, and what role does the ongoing introduction of new technological innovations play with these customers?

338                MS TULK:  Well, certainly in my experience over the last 11 years across all of our product areas, both those that are competitive and not, the concept of customer loyalty is quite a multifaceted, complex and often frustrating dynamic.

339                So to say that it is simply as simple as ‑‑ well, that would be like saying, "I buy my gas from gas station X, I prefer to buy gas from gas station X, so no matter what price gas station X charges I am going to buy my services from them."  Well, any of us who purchase gas know that that is not the case.

340                You could take that and you can apply that to green peppers.  It is like saying I like to shop at the supermarket down the street, I like to buy green peppers and any price they price green peppers I am only going to buy from them.

341                So it is a much more complex dynamic than that.  The dynamic is sometimes customers choose to buy from a firm, absolutely.  Our customer research would show that very strongly.  Sometimes customers are choosing to buy by product.  Sometimes customers are rate‑shopping offers, particularly in the bundled world and in the bundled environment.  Sometimes customers are looking for a certain product feature or element that is available in one or they like it better in another.

342                So there is not a single silver bullet for why a customer is purchasing telecommunications products from a given supplier.  It is very customer‑dependent, it is very offer‑dependent, it is market segment‑dependent.  Youth look for completely things than empty‑nesters.

343                So the relevant discussion is:  Are there available substitutes?  Are customers able to choose relevant substitutes and is the competitive market prevailing to make sure that customers aren't being harmed?  That is the test.

344                MS SANDERSON:  Commissioner Duncan, you will be able to ask the question directly to Henry Ergas later today, but at the risk of stealing his thunder and paying for it later I will just say that it depends often on what type of product you are talking about.

‑‑‑ Laughter / Rires

345                     MS SANDERSON:  When Heather was speaking about gasoline for instance, that is going to be a homogeneous product.  There will be other instances where products are differentiated.

346                If we think of branded products, for instance, it is very hard to sometimes separate the firm from the nature or the attributes of the product.  The reason for that is that the firm has invested great effort to create a product, a particular branded product that is its alone.

347                Coca‑Cola.  Coca‑Cola is completely different from Pepsi.  Having spent the weekend preparing for this hearing, I know that Lourdes Clancy has tremendous preferences for Pepsi, coming from Atlantic Canada and is undoubtedly ‑‑ but could Pepsi actually find her in the marketplace to then charge her a higher price when she shows up in the supermarket versus somebody else who is less committed to the product.  It is in that context that the competition goes forward.

348                So there will be types of product where in essence you can't easily distinguish the firm from the product because that is what the firm has done, it has established itself as the provider of Coca‑Cola. and so on.

349                Then there will be other products where multiple firms provide similar products and perhaps consumer loyalty may be to a product or perhaps there will be very little consumer loyalty, as Heather was mentioning.

350                COMMISSIONER DUNCAN:  I think this probably moves into this whole area of customer inertia and because people have been dealing with Aliant for so many years ‑‑ I think of our own home for example ‑‑ I am just wondering if you can say that this reputation effect ‑‑ we refer to it as that ‑‑ gives the incumbent an added advantage in the market?

351                In determining when to forebear, should market tests or related measures adjust for this advantage and how would you see this adjustment being calculated?

352                MS TULK:  First of all, stating Aliant would feel very proud of our reputation advantage, as you stated, however, that is not to say other firms don't also have reasonable reputations with their customers.  So we don't believe that there is a reasonable test that could be applied to measure that as part of a forbearance application.

353                In any case, to say that Aliant's brand and reputation is necessarily de facto stronger because we have been in that particular product market longer ignores the fact that in many cases we are competing with companies whose own reputation and brand has been around as long or relatively long ‑‑ certainly from an individual customer perspective they have been dealing with them as long, i.e., EastLink ‑‑ or their reputation is perhaps international or multinational.

354                So how do you measure the reputation of a company like Vonage and how does that reputation difference change vis‑à‑vis a certain customer segment, because reputation also is very different on a customer‑by‑customer basis?

355                So how do you map Aliant's reputation overall against a reputation of a niche player, you know, a business market niche player?  How do you do that?

356                So I don't believe that there is a relevant measure that can be used.  The measure is:  Are customers moving?  If they are, there is no inertia.

357                MS SANDERSON:  Just to follow up on what Heather was saying, ultimately you will be able to identify whether there is inertia or there isn't by what do the customers do.

358                So in the case of these 32 exchanges, a third of them have walked and they have gone across the street to another provider.  I don't really see how you can then adjust that share.  You can't really sort of say, "Well, it really isn't a third of the people that chose to walk away from Aliant or never went to Aliant in the first place because they moved into a new subdivision and they had a choice right from the beginning and they were never Aliant customers".  You can't really sort of adjust it by downgrading it in some fashion to say, "Well, it really isn't a third; it is something less than that."

359                So, in essence, there isn't really a need to make an adjustment.  You can just look to what customer behaviour actually is.

360                COMMISSIONER DUNCAN:  Thank you.

361                You propose that"

                        "... the Commission forbear from regulation of local exchanges in a relevant market if the market power analysis of Decision 94‑19 indicated that the ILEC did not have market power and if its competitor served 5 per cent of the relevant market."  (As read)

362                Could you discuss why you selected 5 per cent and whether it is, in your opinion, that at that level of market penetration competitors would be viable?

363                MR. STEPHEN:  When we put our application together we were obviously very much focused on 32 exchanges.  We were also looking at where do we think competition will go in our territory next?

364                One of the things that became clear to us it that with the success of our competitor in Nova Scotia and Price Edward Island that they can easily roll out to any additional exchanges.  In fact, one of the handouts we have, one of the maps, shows areas where they have already announced they will be rolling out their service.  Because of the type of competitor they are, in terms of facilities, in terms of their ability to provide service, there is really nothing new for them as they moved exchange to exchange.  It is just an extension of the business they have.

365                So from our perspective it became clear that the tests that are established in 94‑19 are in fact the nature of them as a competitor.  You know, the conditions are already met.  What hasn't been met is market share.

366                So in our minds, as soon as the competitor gets into a new exchange and demonstrates that they are offering service, it doesn't require a great big number of loss simply to indicate that they are going to be successful.  The data that we have provided to the Commission in terms of their ability to, I will say, get customers by year, they certainly increase their number of customers in each exchange they have been in quite handily year‑after‑year.

367                So that is where we started from, was looking within our own territory, what we thought would happen next.

368                So when we started looking at what should the test be we said, "Well, it shouldn't be a big number; what experiences are out there today in terms of tests"?  Clearly, we went to look to see where the Commission has gone before in terms of other tests.  In the case of the interchange private line it was down to that there is competitor on a route that makes an offer for sale of a service.  So there is not even a requirement to have lost a customer, just the fact that the competitor has made an offer.  So that would be basically one extreme.

369                We then looked and said, well, the Commission on the cable side had developed a 5 and 30 test.  So we looked at that and said that seems to be a reasonable ‑‑ it was reasonable for the cable companies and, of course, in our case that is who we are competing against largely, are cable companies.  So we honed in on that as being a guide to how to look at a future forbearance.  So that is the origin to the 5 per cent.

370                COMMISSIONER DUNCAN:  Can I ask you, if we just looked at Newfoundland for example, where there is no competition from a provider like EastLink ‑‑ that I know of at any rate, you can correct me if I'm wrong ‑‑ how would your 5 per cent rule apply to that?

371                Do you feel that that would be attractive enough for a competitor to make the investment necessary?

372                Do you think they would consider it viable at 5 per cent?

373                MS TULK:  Five per cent would be the test.   Five per cent doesn't illustrate the upside of a competitor's potential.  Five per cent illustrates the test after all of the conditions for forbearance has been met.  Once that final check of:  Has it taken hold and are customers moving and in fact has it taken hold in the marketplace?

374                So our understanding of the forbearance test is it is not supposed to be any type of communication to a competitor of what the upside of their business case is, but once a competitor has entered is competition taking hold?

375                Certainly, it would be reasonable, I would think ‑‑ and in the example of St. John's where we do have quite a bit of competition actually in the business market, much of it from the local cable company ‑‑ but when you look at the case of that it is reasonable I think for competitors ‑‑ I can't imagine that EastLink would enter our market expecting that forbearance would never be granted.  I can't imagine that any reasonable business person would look at our market and expect to be given a completely unfettered attack at the market, because you are choosing to enter a competitive market and this is supposed to be about creating competition.  If you are entering a competitive market, as a business person you expect to have to compete.

376                So this 5 per cent is simply:  After all the other conditions have been met, has it taken root, is it taking hold, is there a reasonable trend that shows that the market is functioning as a competitive market?  We believe 5 per cent reaches that goal.

377                COMMISSIONER DUNCAN:  The Competition Bureau, in response to CRTC Question 303, if you want to look that up or you are familiar with it, whatever?

‑‑‑ Pause

378                MS TULK:  Yes, okay.

379                COMMISSIONER DUNCAN:  So the Competition Bureau said in that response, and I quote, that:

                        "Forbearance should be based on the actualability of a competing network to provide competitive services, i.e., actual entry that is competitive."  (As read)

380                On the record of this proceeding there is evidence that service providers in this industry incur high fixed costs.  I realize that the entrants and incumbents may have different technical platforms.  Even so, how can competitors serving only 5 per cent of the market compete with the ILEC that may serve 95 per cent of the relevant market?

381                MS TULK:  Again, the 5 per cent test is not with the expectation that that is where the competition stops.  The 5 per cent test establishes a signal that competition has fully started.

382                So once a competitor has made the investment into the marketplace, once a competitor is in place and has sufficiently ‑‑ or competitors have sufficiently garnered 5 per cent, then that would tell you that the market is now alive and moving and that customer inertia, if there ever was one, has been overcome and that competition is established.

383                Certainly I can only speak for myself as a business person looking at new product introductions, new service launches, any new business decision, you don't assume that you are going to enter into a market and then have it stop at some point.  There is not an upper limit.  In fact, once you gain velocity in general your forecasting improves.

384                So once a competitor or competitors have been allowed to enter and gain that kind of velocity and traction, it would in fact be reasonable to expect that their velocity would improve.  Certainly in the numbers we have filed with you that is what we have seen.

385                So I don't believe that the forbearance test at 5 per cent would hamper or reduce the sustainability of competition.

386                Margaret, I don't know if you have anything on that?

387                MS SANDERSON:  I would just add that the Bureau also makes mention of this, that the nature of this industry is such that when an entrant enters, particularly an independent facilities‑based entrant like a cable company, the investments that are required to provide these services are large, fixed and sunk.  What that does in essence is that commits that entrant to the marketplace, but it also makes the cost of expanding and offering additional services quite low.  Essentially, once you have committed that money to being able to offer the service you have a relatively low variable cost to then expand that service outward.

388                I think it is in that context ‑‑ in fact, it is partly for that reason that the Bureau notes that perhaps shares are in fact properly counted on the basis of capacity, and not even on the basis of whether you have actually taken that customer but do you have a capacity to serve that customer.  If you imagine a world where you have got two ‑‑ and the Bureau makes mention of this in one of the interrogatories ‑‑ if you have two independent facilities‑based competitors that maybe you just think of the world as they have a 50:50 share of the market based on capacities, whether or not they have actually taken customers.

389                So I think it is in that context that you initially have a base like that.  Then, as Heather says, there is a proven ability to take customers as customers start to move.

390                COMMISSIONER DUNCAN:  I'm just wondering, do you think if we settle on a 5 per cent mark that that would inhibit a potential competitor from deciding to enter that market?  EastLink is already in there, they have made the commitment, but what about an instance where somebody is looking and deciding to make that investment?  Do you think 5 per cent is sufficient to make it attractive to them?

391                MR. STEPHEN:  When we looked at the rest of our region we reasonably expect, based on both what we are seeing elsewhere and the stated plans of Rogers, as an example, that they would offer telephony services in New Brunswick and Newfoundland.  While maybe on a different technology platform than EastLink, one would reasonably expect that they would have the same results.

392                When we look at where the markets are going and where competition is going and the competitors it's very ‑‑ at least to us it is very clear that the participants are going to be reasonably well established somewhere, perhaps not in our region but as they come into our region.  They are likely coming from abroad with the knowledge and the experience to do the job, to compete in our markets.

393                All to say that we look at where competition is and going.  We feel the 5 per is a relevant number.

394                COMMISSIONER DUNCAN:  Just continuing on sort of along those lines.  In your answer to CRTC Question 305(c) and (d) ‑‑

‑‑‑ Pause

395                COMMISSIONER DUNCAN:  ‑‑ you indicated you were:

                        "... not aware of any studies done in any other jurisdictions on the telecommunications industry or other network industries that confirm the incumbent is no longer dominant when it has lost 5 per cent of the market."  (As read)

396                Have any such studies come to your attention since your August 15th reply?

397                MS TULK:  No, we have not.

398                COMMISSIONER DUNCAN:  No?

399                Are you aware of such studies in any other industry that would confirm gaining a 5 per cent market share is sufficient to bring about competitive results?

400                     MS TULK:  No, we have not.  As Margaret has mentioned, the only economic studies that certainly I have seen would argue that the availability of competition and in fact a single customer moving is a relevant test.  So our 5 per cent proposal is actually conservative to the economic theory that we have seen and, in fact, was proposed simply on the basis of symmetry and the fact that it is the test that the Commission has already established in the cable industry.

401                COMMISSIONER DUNCAN:  Given the European Union uses 25 per cent share as a benchmark for possible market power and 50 per cent for possible market dominance, shouldn't the level be higher than 5 per cent?

402                MS TULK:  I wouldn't be able to comment on what led the European Union to that conclusion.

403                Margaret...?

404                MS SANDERSON:  Again, it is going to depend, I think, on the industry and the nature of the investments that you are considering.

405                These market share thresholds are highly imprecise.  I mean, the nature of the world is that we know, and the Commission has indicated this, market share alone is not indicative of market power.  If market share alone is not indicative of market power, then setting a particular threshold to say 7 per cent isn't enough, 8 is, is going to reflect the same considerations.

406                So ultimately it is going to depend on the nature of the competitive environment.  You are facing the nature of the investments that the competitor has made.  As I say, if you are in a world that is two independent facilities‑based competitors where the entrant has made substantial investments, maybe not in local telephony, they made substantial investments in the ability to provide high‑speed Internet through cable infrastructure, so that is what they have made the substantial investments with ‑‑ they are going to keep providing that service.  It doesn't cost very much then, relative to the initial investments, to then provide local telephony on top of that.

407                So it is going to vary tremendously by industry and the nature of the products.

408                Actually, Henry Ergas is someone who does quite a bit of work in Europe and he may be able to give you greater insights in respect of those particular thresholds.

409                COMMISSIONER DUNCAN:  Okay, thank you.

410                Interesting, your comment about our ability to precisely calculate that, even that 5 per cent.  So that is going to be interesting.

411                Thank you.

412                The CHAIRPERSON:  We will break for 15 minutes. Nous reprendrons dans 15 minutes.

‑‑‑ Upon recessing at 1120 / Suspension à 1120

‑‑‑ Upon resuming at 1140 / Reprise à 1140

413                THE CHAIRPERSON:  Order, please.  A l'ordre, s'il vous plaît.

414                We will resume the questioning by Commissioner Duncan.

415                COMMISSIONER DUNCAN:  Thank you.

416                With reference to CRTC Question 210, which was answered by Rogers, Cogeco, Eastlink and Shaw ‑‑

‑‑‑ Pause

417                COMMISSIONER DUNCAN:  ‑‑ in their response to the CRTC's question those cable companies expressed concerns regarding the administrative problems in terms of collecting and reporting accurate information on market shares, as well as applying a market share threshold, for example how to ensure that an ILEC and its competitors are reporting market share information on an equivalent geographic basis.

418                With respect to these administrative problems associated with Telus' two‑facilities bright‑line test, can you explain with supporting rationale whether you share the views of the cable cos?

419                MS TULK:  Specific to the market that we have proposed, being the exchange, we believe that it is entirely possible for all of the cable cos to provide information as to their numbers of subscribers by exchange.  In fact, the way that the industry has unfolded, all of the numbers are mapped to exchanges and they can, we believe, quite easily supply to the Commission information as to what their customer accounts are on a per‑exchange basis.

420                I believe you have some evidence of that that was supplied in confidence to you by our competitor.

421                I guess with respect to the Telus‑specific position, we would share concern with going below the exchange level, because of the operational issues that I have already outlined, and we would share the cable companies concern with respect to trying to manage forbearance applications below the exchange level.

422                At the exchange level we believe it is entirely possible for them to provide you with subscriber level detail for the exchange counts.

423                COMMISSIONER DUNCAN:  That is going to assume that they exactly match, but you are not concerned that they would?

424                MS TULK:  Certainly the exchanges are defined and the NXS' are all mapped to exchanges.

425                Rick, I don't know if you had anything you wanted to add on that?

426                MR. STEPHEN:  Just that, as Heather has indicated, all LECs get their telephone numbers through a third party and in order to get telephone numbers the NXS' are linked to exchanges so every local service provider should have the ability to sum those up to an exchange,

427                So we would think that, you know, every supplier, if it's a CLEC or LEC, should be able to get at the exchange level.

428                COMMISSIONER DUNCAN:  Perhaps we will be able to have some discussion later on today and explore this more fully with the cablecos just to see where they see that as a problem.  It seems to be quite a problem.

429                Also with respect to the Telus test, they are proposing, as you know, the 5 per cent tripping line.

430                Should there be a tripping point for re‑regulation as well and, if so, what should that indicator be and, if not, why not?

431                MR. STEPHEN:  We don't believe that there should be some sort of tripping point.  I think that some people use the term "deforbearance".

432                We go through quite a lengthy process to determine whether or not there is competition and that the state of competition is such that there should be forbearance.  It would seem to me that once we go through that, it shouldn't be a simple thing to undo that, that if it takes a significant effort to demonstrate that all the conditions under 94‑19 are met, that to reverse that it shouldn't just happen at a flip of a switch, so to speak.

433                Once companies have forbearance, as you know, they will be governed under the Competition Act.

434                It seems to me that if there is a problem of any competitive behaviour, for example in, you know, a forborne area, that it will be addressed under the Competition Act.

435                It would seem to me that obviously if there is dominance and abuse of dominance, then that will be addressed in that forum.  I guess that's what I would look to, to say that if there needs to be reevaluation downstream of whether or not there should be re‑regulation, that it should only occur after there has been demonstrated abuse and, again, that would be under the Competition Act.

436                COMMISSIONER DUNCAN:  Sorry.  Go ahead.

437                MS TULK:  I was just going to mention that the way I read section 34(3) is that to some extent in making the decision to forbear you will be thinking a bit about the future and whether the competition is in fact sustainable.  So to some extent that will be brought into the initial forbearance decision.

438                Now, of course, you know, ex post the world can change but, as Rick has already mentioned, it would be a very high threshold.

439                I take the point that the Bureau makes in their argument that there should be a very high threshold for any decision to potentially reimpose regulation in a forborne market.

440                COMMISSIONER DUNCAN:  I guess that brings me maybe to two other questions then.

441                If we are only dealing with a 5 per cent benchmark we don't have much room there as far as a high test.

442                How would you see that working?

443                MS TULK:  Well, again, the 5 per cent benchmark is meant to demonstrate that competition is alive and that competitive alternatives are available and being used and they will continue to be so.

444                This whole issue of re‑regulation or deforbearance, as some are calling it, to me is somewhat of a moot point.

445                So, first, in a forborne world the Competition Bureau has the power to monitor the market and in fact in every other industry under their jurisdiction they do, and actively, and in the other parts of our business they actively monitor what's happening.

446                Second, the Commission in its forbearance reserves the right ‑‑ and I'm sure if there were to be a situation where forbearance was no longer necessary, or the market was to get so profoundly impacted by deterioration of the competitive marketplace that I can imagine it will be brought directly to the attention of the Commission and the Commission reserves the power to step back in.

447                Third, in every other market since terminals, this is not been an issue.  It hasn't been an issue in terminals; hasn't been an issue in long distance; hasn't been an issue in wireless; hasn't been an issue in internet.

448                We have seen competitors move into the market.  We have seen competitors, presumably ones who weren't as good as others at managing their business, move out of the market.  New competitors move in and take their place, oftentimes purchasing the assets of the departing competitor at a very low price and reducing their cost to serve.  Very vibrant marketplaces.

449                There is absolutely no evidence that I have seen anywhere in this proceeding that anything different than any of those experiences would happen in a local market.

450                So why people are proposing that the forbearance of a local market requires something different or more than what happened in each of those other marketplaces, I honestly don't see the logic in that.  To me it is fear‑mongering.  There is no risk here that needs to be protected, and the risks that are there will be fully protected by both the Competition Bureau and the future functioning of the Commission and, in fact, the Government of Canada.

451                So this issue, I really struggle with this one.

452                COMMISSIONER DUNCAN:  Just bear with me.  I have one more question.

‑‑‑ Laughter / Rires

453                COMMISSIONER DUNCAN:  Just humour me, then.

454                Assuming that a tripping point was established, how long a period do you think that market recapture, if you like, should be in place before the market is re‑regulated?

455                MS TULK:  Sorry, so how long between the time that you pass the tripping point?

456                COMMISSIONER DUNCAN:  How long a period?

457                Yes.  So if the tripping point was ‑‑ I hate to throw out a number there ‑‑

458                MS TULK:  Yes.  But at such a number, at which point we fall below that number and the market gets re‑regulated?

459                COMMISSIONER DUNCAN:  How long should we go?  Yes.

460                MS TULK:  Well, as passionately as I believe ‑‑

461                COMMISSIONER DUNCAN:  I have seen.

462                MS TULK:  ‑‑ that a tripping point is ludicrous, if I couldn't hypothetically say that there was one, I can also ‑‑ I can only support what we have said on the public record many, many times, which is regulation needs to be applied swiftly.

463                So when it comes to delays between regulatory rules, it would be unconscionable for me to say that there should be some prolonged process for that when we clearly advocate that our marketplace, competitive, deserves to happen and function efficiently and any regulatory delays stand in the way of efficient marketplace.

464                So if it was there, I would hope that it could be administered swiftly because I hope that all regulation that exists can be administered swiftly.

465                That being said, I see absolutely ‑‑ this one is overhead, regulatory cost and burden with absolutely no customer benefit.

466                COMMISSIONER DUNCAN:  Thank you.

467                Just moving on, now I am referring to Crandall and Sanderson.  These are filings they did for Aliant and Telus I gather.

468                The economic theory has been presented as showing that predatory price cuts are not a viable strategy for incumbent carriers.

469                Does it matter, in your view, how broad or targeted the projected price cuts would be and possible selective increases in cuts applied dynamically with consideration of the changing competitive situation in given sub‑areas would produce different results in terms of profitability and market share than Crandall suggests?

470                Could you comment on that?

471                MS SANDERSON:  I will speak just for myself and then I will let Dr. Crandall speak for himself, I guess either later today or tomorrow.

472                In terms of thinking about predation and the possibility that you might drive a competitor out of the market, a predatory strategy is expensive for the predator.  You are losing money in the period that you are ‑‑ you may not be losing money, but you are certainly foregoing profits that you would otherwise earn.

473                Shareholders typically aren't too crazy about such strategies, unless there is a prospect that you are going to be able to recoup those foregone profits in some other fashion.

474                So there are a number of ways of thinking about this.

475                How would you in fact recoup these potential losses?

476                The traditional story in predation is that what you do is you price low enough to drive your rival out of the market and then after your rival has left the market there are sufficient barriers to entry for that player to come back and there are sufficient barriers to entry in order to prevent new players from coming in that you are able to raise your prices up.  And you have to raise your prices up to recoup whatever the loses are that you have incurred.

477                That is something different than targeted pricing.

478                Target pricing is essentially just responding to competitive conditions and pricing lower where you face greater competition than in a situation where you don't have as much competition.  Competitive firms engage in differential pricing all over the place.

479                In fact, there is a fair amount of literature written in the economics area about the fact that if you are a firm that has large, substantial fixed sunk costs and you have to recover those costs, that in fact you will typically try to do that through differential pricing, and that when you are engaged in that that is actually a beneficial thing to do in the sense that you are then able to provide services that you wouldn't otherwise be able to provide if you had to charge uniform prices.

480                So I think it is very important to distinguish targeted pricing or just differential pricing because you are meeting different sets of competitors in the marketplace or you are offering a product that for whatever reason isn't as desirable to consumers, you have to lower the price and so on.  That is quite different from predation.

481                I apologize for this long preamble.

482                Then in the context of predation, which really is the area that you would then be concerned about, you have to think about, in the case of Aliant in the 32 exchanges, what prospects does Aliant actually have here to recover any costs that it would need to incur to drive EastLink out of local telephony markets?

483                So the first question is just:  How low do they have to price in order to drive EastLink out?

484                EastLink is a pretty vigorous and effective competitor.  It's here.  It has a great bundle because of the ability to tie into television.  It is not going out of the market overall and it would appear to have relatively low costs of providing that local telephony, given this most recent offer that has been spoken about.

485                So that would suggest to me that it is going to be very difficult for Aliant to actually price at a low enough level to actually drive them out of the market.

486                But even if you imagined that in fact it might be able to do that, where is it going to earn the money back?  What incentive does it have to gain this money back?  Where is it going to get it from?

487                Some people might say:  Well, Aliant is going to be able to earn that money back because it is regulated in Newfoundland and it is regulated in New Brunswick.

488                Well, you are not going to let them raise prices there.  At least I would hope that you are not going to let them raise prices there to recover these losses, so they are going to remain regulated in those other areas.

489                Some people might suggest:  Well, perhaps there is a big pot of gold in Newfoundland that they are earning through the regulatory regime because for some reason the price cap isn't set appropriately ‑‑ I'm assuming again that is not true ‑‑ the price cap regime is such that you are curtailing the available profits, but even if there was this big pot of gold sitting in Newfoundland that they are being able to access, they are still foregoing profits somewhere else.

490                You have a money losing division, so to speak, because you are engaged in this predatory strategy, why would you necessarily want to do that unless you have some hope of earning that money back?  Because overall you would be better off if you didn't engage in that, particularly if you don't expect to earn additional profits back from getting rid of the entrant.

491                COMMISSIONER DUNCAN:  That is very helpful.

492                I'm just curious, would your answer be any different if I asked it in the context of business customers?

493                MS SANDERSON:  I guess you would then just be thinking about the available set of alternatives to business customers.  So you might be talking about a different competitor, I suppose, and whether you could drive them out of the business segment of the market, but I think the principles would be essentially the same.

494                COMMISSIONER DUNCAN:  Thank you.

495                In a forborne market should there be a requirement to substantiate all price discrimination to show that it is economically justified?

496                MS SANDERSON:  Sorry, I will just jump on this one.

‑‑‑ Laughter / Rires

497                MS SANDERSON:  No.  Price discrimination is not necessarily bad.  It is often efficient.  As you alluded to, Commissioner Duncan, there are circumstances in which it may be economically inefficient and there are circumstances when it would be economically efficient.

498                It is the case that the Competition Bureau ‑‑ and there are provisions that deal with price discrimination under the Competition Act.  Also, not only are there specific price discrimination provisions under the Competition Act, but it is also possible for the Bureau to take actions in the context of section 79, which is their abuse of dominant position section.

499                The issue of targeted pricing and differential pricing can also be raised in the context of a practice of anticompetitive acts to the extent that it in fact forms part of a practice of anticompetitive acts.

500                So there is another regulator, so to speak, to deal with these issues in forborne markets and that body deals with them in other telecommunications services which are forborne and in any other part of the industrial make‑up of the country.

501                COMMISSIONER DUNCAN:  Just to explore that a little further, if it is a relatively small area ‑‑ I mean it is not going to attract the attention of the Competition Bureau or probably prompt a complaint, I wouldn't think, to the Competition Bureau ‑‑ but if we were to decide on a local calling area for example, or an LIR, then there is the possibility that there would be a larger number of subscribers in a forborne market that do not have a competitor.  So then it might be feasible for an ILEC to charge a different rate there.  I mean, you could justify the rate based on costs,

502                But what if it was just a higher rate, higher than it needed to be?  In that instance is there a need to protect the consumers in that ‑‑

503                MS SANDERSON:  Well, if it is a forborne market it has been forborne because there is some prospect for competition in that market, and if that rate is higher than it needs to be, if Aliant is charging a rate that is higher than it needs to be, EastLink is just going to take their customer.

504                So you can rely essentially on that and then you don't have to get into this problem of what should the price be, what does it need to be?  That is extremely difficult to do.

505                COMMISSIONER DUNCAN:  Okay.  That is helpful.  Thank you.

506                MR. STEPHEN:  I think as well on that, it argues for trying to keep the geography as small as is reasonable.

507                COMMISSIONER DUNCAN:  As a local exchange area.

508                MR. STEPHEN:  Thank you.  That is exactly what I was thinking.

‑‑‑ Laughter / Rires

509                COMMISSIONER DUNCAN:  Just moving on, are two facilities‑based competitors in each market sufficient to create a truly competitive market?

510                MS TULK:  I guess the short answer is yes.

511                The longer answer is, two suppliers of substitutable alternatives is reasonable to dictate a competitive market; and the facilities‑based versus non‑facilities‑based, particularly the way our industry is unfolding, becomes quite a red herring.

512                If you look at including wireless in, well, is Telus a facilities‑based competitor in our territory or not?  What is facilities based, that at some level the traffic rides on a facility or that they own the facility?

513                So you say:  Well, we are going to dictate that.  The only competition we count is facilities based.  Well, that to me would seem completely counter to the goals that you yourselves have set down and has been set down in Canada of trying to encourage facilities‑based competition, because in general presumably you would now, as a competitor, say:  Well, I don't want to enter as facilities‑based because that makes forbearance more real, so I will enter as a non‑facilities‑based and try and stave off forbearance.

514                So the question is:  Are there reasonable substitutable choices for customers in that market and, if there is, then forbearance is mandated.  The facilities‑based really, I believe, is a red herring to the whole discussion.

515                MS SANDERSON:  It is not that many industries where two is enough.

516                We often think about we have quite different circumstances in other types of industries, but as the Competition Bureau pointed out, and as a variety of players and as actual experience in telecommunications indicate, particularly in respect of high‑speed internet, is that these kinds of industries, the economies of scale are such, the scale of the investment is such that you are not going to have 10 wires into your house.

517                So if you are thinking about it in the context of facilities and the investments that are required to provide facilities, you are not likely to have large numbers of players with facilities.

518                The existing facilities providers, once they make those investments they are here to stay, they are committed to the market, they have low costs of expansion, and it is in that context that you do not need very many of them.  Then, hence, two gives you very vibrant competition in the context of broadband internet.

519                COMMISSIONER DUNCAN:  I understand that.  I think it is along the lines of what you are addressing there, but I understand that every cellular market in the world has seen dramatic improvement in pricing and service offerings once a third competitor entered the market.

520                So I gather we would be talking there in that context VoIP or wireless.

521                MS SANDERSON:  Yes.  I mean one of the things that is great about VoIP I suppose is that essentially it ‑‑ I have gone into this at great lengths in other proceedings, but it divorces the transport facility from the actual services that can be provided.  Essentially, Primus or Vonage can ride on top of one of two facilities and that allows you to have many competitors enter the market.

522                Just the fact that when I say two may be enough, obviously three is going to be better.  So it is not the case that you are necessarily going to always have just two.

523                COMMISSIONER DUNCAN:  If three is going to be better, that answers my next question which I didn't have to ask.  Thank you.

‑‑‑ Laughter / Rires

524                COMMISSIONER DUNCAN:  Ergas implies that as few as two carriers are suffer to ensure competition, as if a duopoly has no potential down sides.

525                How does one ensure that price differentiation in a duopoly context does not result in higher than competitive prices being imposed not only on consumers willing to pay a higher price band or other reasons, but on those just looking for the best deal?

526                MS SANDERSON:  When you speak about price differentiation, may I just ask you to clarify that?

527                Is that in the context of just that there will be two firms and are they each offering different prices to ‑‑ so in the example that we talked about earlier, for my customers that really like my product I charge them a higher price and is the other player doing the same thing, or are they each charging different prices to the same set of customers?

528                COMMISSIONER DUNCAN:  I guess what I'm thinking is that if there are only two players we mightn't get the most competitive price.

529                MS SANDERSON:  Economists have a series of models, which I will not bore you with, but there are certainly circumstances where you can get right to the competitive price with only two firms in the marketplace.

530                Essentially what happens, imagine a situation where the firms offer a very similar product, it is a completely homogeneous product, it is gasoline, and we are two retail gasoline stations in a small town.

531                I am the one retailer and Heather is the other retailer and because she is a much better marketer than I am she cuts her price a little bit below my price, what is my reaction?  Basically I have to match her or I potentially lose all my customers because they can drive over to her station.  In essence what happens is the process proceeds and we charge the same price.

532                It is unlikely in those circumstances that you get much in the way of differential pricing between the two of us, and you also very quickly get down to pricing that would be thought of as being at the competitive level.

533                You can have different circumstances.  If we produce products that are differentiated in some fashion and by branding, that is a sort of Coke/Pepsi type example, but even here the consumer, sort of the attributes ‑‑ if the products are sufficiently close substitutes for a large enough group of consumers and customers are willing and able to move back and forth between the providers, then you will certainly have situations where you can have quite competitive pricing with two players.

534                I mean, with two players you can also get them colluding with each other, so it is not the case that two is always enough.  You have to basically look into the circumstances of the industry and the characteristics of the industry.

535                COMMISSIONER DUNCAN:  Thank you.

536                Just sort of following along on that, then, in reference to winbacks, the question revolves around whether the customers that are being recaptured are true returning customers or whether they are just churning for the best offer.  So I'm just wondering if there shouldn't be some type of regulation in place to ensure winback restrictions protect new entrants from the deep pockets of the ILECs, assuming that the ILECs could afford to offer.

537                MS TULK:  Yes.  Well, I guess the short answer is no.  The customer benefit that should accrue to customers from a competitive market is that the competitors in that market should be free to try and earn their business and the same market dynamics that dictate all the other parts of that competitive market would apply to what types of things you would do to try and win back customers.

538                The fact that customers choose to leave an ILEC, right, which is representation of the competitive market, should accrue to the ILEC the right to try to woo them back, the same way that the other competitors in the marketplace have the position to be able to woo them in the first place.

539                The other thing is ‑‑ interestingly enough and certainly in a number of the questioning interrogs and positions that I read through ‑‑ what is interesting is we need to forget that in a competitive marketplace a new customer coming from the second in or third in or whichever number in competitor to the one that happened to be there the longest is not necessarily a winback.  In some cases it is just a win.

540                Customers in these 32 exchanges, as an example, a number of them have never been with us.  So they are choosing, when they first move into the region or they first move out from their parents' home into their own home, or the first move that they are connecting first with the other competitor, they are making that choice right at the beginning, and why shouldn't they have the ability to decide later if that choice was right?

541                So if you preclude the ILECs from trying to win customers from competitors, you are in fact restricting customer choice and you are restricting the customers from being able to benefit from the competitive marketplace.

542                So once you realize that the marketplace is competitive, you have to accept that the competitive dynamic will encourage and should encourage businesses trying to win the customers back and forth and that that movement, in fact, is not an example of something anticompetitive; in fact, that movement is an example of a functioning competitive market.

543                COMMISSIONER DUNCAN:  Do you think that there is a need, then ‑‑ I think I can anticipate your answer ‑‑

‑‑‑ Laughter / Rires

544                COMMISSIONER DUNCAN:  At any rate, because our objective is to develop sustainable competition, do you think there is some need for some winback restrictions at least in the initial stages?

545                MS TULK:  Well, I guess in answering some of your previous questions ‑‑ that question could apply to any other piece of our industry as it is gone through into a forborne circumstance.  It can apply to any other industry out there.

546                You say, "Well, if you have a new entrant coming into a certain industry should there be some restrictions that the first X number of customers they get can never go back"?  It is an unnecessary tampering of the marketplace.

547                As I mentioned, there is monitoring of the marketplace to make sure anticompetitive behaviour doesn't exist; there is the ability of the Commission, if it ever were to become a point the competition wasn't sustainable, there is the ability to re-regulate at such time as that were to happen.

548                So it is again an unnecessary and burdensome overhead that really stands in the way of customer choice and a competitive marketplace is supposed to be around letting the customers choose.

549                COMMISSIONER DUNCAN:  Thank you.  I will move on.

550                How do you feel about regulation with regards to propping up a company that would otherwise not remain in the market, in other words, that supports companies that are being innovative?

551                MS TULK:  Supports companies that are being innovative?

552                COMMISSIONER DUNCAN:  Yes.

553                MS TULK:  So propping up companies that will be deemed to be innovators in some way?

554                COMMISSIONER DUNCAN:  Yes.  Do you think there is or should be a relationship between regulation and innovation?

555                MS TULK:  Well, if you look at a marketplace, innovation ‑‑ which oft written about and published on a weekly basis now I think, or daily basis all over the world ‑‑ innovation is no simpler than the ability to try to uncover new customer needs or unidentified customer needs and develop a product or service that meets those needs.

556                In a competitive market it is the job of all of the players to try to and innovate in order to drive new benefits to their customers.

557                So I don't think there is anything special needed to prop up innovation, because true innovation has a customer benefit and therefore true innovation is a product or an offering that you can sell.  A company coming in and innovating will find a market, given that there are no carriers to entry and there is no customer inertia.  So the market will decide whether that innovation is warranted and the market will decide whether that innovation is worthy to be sustained.

558                I can't imagine what it is, but presumably unless there is some innovation that were deemed to be necessary to the public good, and therefore there was a need to force that to be provided, then innovation, successive innovation is designated by do customers buy the innovation in question.  So I don't see why there would be any need to prop up innovation.

559                In fact, an open and competitive landscape encourages innovation, because it encourages companies, both ones like ours as well as new entrants, to find new ways to attract the customers' buying decision.  That is the only thing that truly drives innovation.

560                MS SANDERSON:  Just to add to that, I think if you look at telecommunications in particular, you will hear the idea of sort of a dynamic ‑‑ almost a destructive form of competition, there is a leapfrogging that happens, because when you get these innovations they are essentially huge breakthroughs and then the party that shows up with this innovation now has a totally different cost structure than the old incumbent.  Typically, if you look at telecommunications, generally those costs are falling.

561                So that innovation, what drives that innovation is, as Heather was saying, from the marketing side, it is offering a product that is very popular and desirable and hence there is no need to prop them up because customers will flock to them.

562                But it can also be the ability to now offer the other product or a new product at an entirely different cost structure and that typically means there isn't really any need to prop them up as well.

563                COMMISSIONER DUNCAN:  Thank you.

564                MR. STEPHEN:  Just a final comment on that, I would suggest that there is a relationship between regulation and innovation, but it is not a positive one; that in fact can be very negative.

565                I would say, for instance, as an example, the banning of promotions for several years in local services was very destructive in terms of stifling innovation in that market.

566                So I would be concerned about the thought process that takes us down that regulation should be viewed as something to incent innovation.  I would say that the evidence would be to the contrary.

567                COMMISSIONER DUNCAN:  Thank you.

568                Does the nature of the entrant, whether it is a cable company, a standalone non‑facilities‑based VoIP provider, another ILEC from out of the market, does it matter?  Should they all be treated equally in developing the forbearance criteria?

569                MS TULK:  Well, it doesn't matter to the customer.  Forbearance is about is there competitive alternatives that customers are willing to choose and is the market functioning competitively?

570                Presumably, no matter who it is, whether they are from the local community, whether they are from somewhere else in Canada, whether they are using the specific technology that we use or they are using another technology, one that exists today or one to be developed, if customers are choosing it as an alternative to wireline local service then the market is competitive and they deserve to be treated in terms of the set of establishing is the market competitive?

571                So I don't think it does matter with respect to a definition for whether a forbearance test is being met.

572                COMMISSIONER DUNCAN:  Thank you.

573                MS TULK:  I think just to take it further, to assume that there needs to be some dictation around that in fact gets back directly to the most previous question, which is now it is a regulatory regime trying to dictate the direction of innovation.  If we want to stimulate innovation in this industry in Canada we should be setting up a regime that allows innovators to find ways to attract customers inside a market niche or a market area.  To say that we are going to deem what is or isn't the technology or what is or isn't the ownership definition of a competitor in fact will stifle innovation.

574                COMMISSIONER DUNCAN:  Thank you.

575                If the current competitive safeguards on promotions are removed if certain criteria are met, the decisions to remove the safeguards, can you comment on which consumer groups are or are not likely to benefit?

576                MS TULK:  Well, I don't think the safeguards protect consumer groups.  The safeguards presumably protect competitors.  I think those particular safeguards in fact do the opposite with respect to consumer groups, because they are standing in the way of consumers getting offers that they might otherwise get.

577                So I would think that removal of those safeguards would benefit all consumer groups.

578                Now, to say would the specific benefit of that removal be completely the same, I would suspect not, because the definition of the promotion that might be entered into the marketplace would differ.

579                So as an example, I would fully expect to have different promotions into the student market than I would have for families with kids, that I would have for empty nesters, than I would have ‑‑ because as a marketer, and the same thing if you take that into the full regime into the business market, you would offer different promotions for small businesses than you would offer for large businesses because the needs and what appeals to those market segments are different.

580                So to say would every consumer get the exact same promotion?  No.  Would every consumer benefit from the ability of companies to try and woo and earn their business with promotions?  I would expect that they certainly would.

581                I can't foresee any place where there is a safeguard for consumers that would be lost, because that restriction doesn't safeguard consumers today.

582                COMMISSIONER DUNCAN:  I suppose the initial safeguards were put in place to try to ensure we had sustainable competition.

583                MS TULK:  Right.  So that's what I'm saying, trying to link that safeguard with consumer protection in your question.  That is not what that safeguard is about and in fact that safeguard stands directly in front of consumer benefit and prevents consumers from benefitting.

584                Consumers in these 32 exchanges and in the other exchanges we have that are competitive, absolutely would have seen further benefit in the last two years in the a forborne world than they have seen today.

585                On any basis of economic analysis. either theoretical or the real situation that we are in, customers are not seeing the full benefits of competition because of these safeguards, so to speak, that have been put in place.

586                COMMISSIONER DUNCAN:  If the current winback rules are removed, would you care to comment on which consumer groups are or are not likely to benefit?

587                It is probably the same answer.

588                MS TULK:  The only consumer group that wouldn't benefit from the winback rule being removed would be a consumer that never left us I guess.

589                The winback rule is about winning back, so it applies to customers of the competitor, but I can't imagine any other specific consumer interest group, so to speak, that would be affected any more or less than any other.  It doesn't have a tie to a specific consumer group.

590                COMMISSIONER DUNCAN:  What about if the winback rules were reduced from twelve months to three months.  What impact or what would be your reaction to that?

591                MS TULK:  The point of the winback rule is, as you just yourself mentioned, some of these rules have been in place to safeguard presumably competitive entry, our position, and we believe all the evidence shows that competition is well and firmly established.

592                The analogy for that for me ‑‑ and I can't help but think about analogies ‑‑ is, well, so if I go into one store in the mall and I make a purchase and then I go into the next store ‑‑ so I buy a blouse in one store and then I go to the next store and I see a blouse I like better, right, should there be a rule that I can't return the first one until I have thought about it for three months just to make sure that I really like the second blouse better?

593                In a competitive market you buy something, if you have dissonance ‑‑ I mean, there are books and books and books written on customer and consumer dissonance; if you have dissonance and you regret your decision you should be allowed to rethink and change your decision.  Winback rules stand in the way of customers making choices and it is a rule that stands in the way of choice.

594                COMMISSIONER DUNCAN:  Bearing in mind that we are trying to develop a national framework and all the ILECs across the country haven't had the degree of competition that Aliant has been faced with since 1999, would your answer be different?  Do you think there is a need for ‑‑

595                MS TULK:  Keeping in mind that I also have accountability for many other exchanges in two other full provinces that haven't seen competition in the residential market, I would say clearly, no, my answer isn't different.

596                So what I'm saying is, once a market is forborne, once you have met the test of a competitive market, then competitive forces in that marketplace should be allowed to prevail and these safeguards for competitive entrants are not necessary.  That is true in the 32 exchanges and it will be true at such a time as we meet the forbearance test for St. Lawrence, Newfoundland or Miramichi, New Brunswick.  Once you meet the test, once the market is competitive then the marketplace should be allowed to provide full choices to consumers.

597                MR. STEPHEN:  I would like to add, though, that irrespective of forbearance these rules and safeguards are probably not necessary and they are probably doing more harm to the public than good.  I don't see this discussion as being a substitute for forbearance, but the core rules themselves should be re‑examined on the basis of:  Are they effective in doing something for the public good?

598                That is what I would question.

599                MS SANDERSON:  I wanted to just add one point, and that is that because this is local service the competitive conditions are going to differ locally across the country and whatever set of rules you are applying you have to apply to the competitive circumstances in that location.

600                So if there isn't enough competition in Timmins or Lethbridge or Nanaimo and you want to have winback restrictions in those locations, none of that matters for Dartmouth or Halifax or Charlottetown, because ultimately what matters is the competitive conditions in Charlottetown and Halifax and Antigonish and Truro and if in those markets there is sufficient competition to forbear there is absolutely no reason to have winback restrictions if they exist somewhere else.

601                COMMISSIONER DUNCAN:  That is an excellent point.  It's not that you disagree that it would be useful, it's just unique to the market.

602                MS SANDERSON:  Exactly.  I mean, you might want to have them in Nanaimo, but that doesn't mean that you need to have them in Truro.

603                COMMISSIONER DUNCAN:  Sure.  I appreciate that.  Thank you.  Thank you.

604                Do you consider that market forces will be sufficient to ensure that disabled customers receive a level of communication service equal to that received by other subscribers?

605                ARCH provided recommendations to ensure persons with disabilities receive telecom services on a non‑discriminatory basis in a forborne market.  For example, telecom service providers should audit their services and products to identify barriers to disabled persons and design and implement barrier removal strategies and they should be required to file an annual report with the Commission regarding the accessibility of services for disabled persons and plans for barrier removal.

606                Could you just give us your comments on the costs and practicality of these recommendations?

607                MR. STEPHEN:  I think these types of recommendations really shouldn't be tied into a discussion on forbearance.  If there are requirements to address special needs and the Commission feels they should be addressed, then that should be a standalone issue.  They are really not something that I see as being part and parcel of a forbearance discussion.

608                MS TULK:  The other thing, and I think I mentioned it earlier, I myself and Aliant totally feel very strongly that any protection that the Commission were to deem required for any interest group in this country, that that interest group or individual deserves that protection no matter which supplier they are choosing to purchase their services from.

609                The importance of that protection and the reality of a competitive marketplace ‑‑ and we have seen that in our market, that we need to always keep in mind that both today in certain exchanges and in the future that you are planning for across this country, ILECs are not serving every customer and if there is something that individual citizens in Canada need then they need it from everybody.

610                COMMISSIONER DUNCAN:  Just to follow on that, if the Commission maintains sections 24 and 27(2) to ensure access for disabled consumers and imposes these or other conditions on all service providers, would competition be impeded in any way?

611                MS TULK:  I guess if it is a case that you are saying, well, you have to provide certain services to the deaf or you have to provide ‑‑ I don't see how that's going to impair competition if it is provided equally across different providers.

612                MR. STEPHEN:  The only way it may impede is if it is at a very high cost.  So assuming that there is a relationship between the regulatory requirement or obligation and the cost to achieve it, it should affect all service providers the same way.

613                COMMISSIONER DUNCAN:  Do you think that all of these providers are equally able to provide these services at this point in time?

614                MS TULK:  Well, I think that ‑‑ I can't speak to the capability and I can't speak to hypothetically what the cause of them are, but as an example, one example being billing inserts in Braille, right?

615                COMMISSIONER DUNCAN:  Sorry?  Again, sorry?

616                MS TULK:  Billing inserts in Braille.

617                COMMISSIONER DUNCAN:  Oh, yes, okay, sure.

618                MS TULK:  One specific example.  So if only the ILEC is mandated, as an example, to provide that, then that is the Commission de facto saying that the blind shouldn't have choice in communication services.  If you believe that that is necessary for citizens who are visually impaired, then visually‑impaired citizen should enjoy the same choices in communications products as other citizens.

619                So if the requirement is reasonable, then everyone should be able to provide it.  On the other side of that, if the requirement is such that everyone can't be mandated to provide it, then the requirement is not reasonable.  Because I would not believe it is the Commission's place to dictate that certain citizens in Canada should have less choice in communication products than others.  That would be de facto what you would be doing if these mandates weren't applied equally.

620                COMMISSIONER DUNCAN:  I think probably it is the concern that if everybody is not equally able to provide the service ‑‑ and I don't know at this point in time that everybody is but we will have an opportunity to ask the capabilities as we move along.

621                MS TULK:  Well, yes, and you can certainly ask them, but again it is ‑‑ and obviously through this proceeding you will examine it in great detail, or through other proceedings, but I think that you really have to ask yourselves very strongly if you are putting a requirement on one company, one player in a fully competitive market, then you are dictating where citizens can choose to buy, and is that your role?

622                COMMISSIONER DUNCAN:  We of course are going to take your comments into consideration.

623                Just moving on to quality of service, your comments on how quality of service is maintained in a competitive market.

624                If companies are enticing new customers with cheaper services, isn't it possible that this type of consumer market will lead to a race to the bottom in service quality?

625                MS TULK:  Well, I suppose certain players in a market could choose to try and offer lower costs, lower service alternatives.  Presumably, if they were to try and do that, then you as a business person would look at what proportion of the market is willing to pay for higher cost/higher service alternatives, and that value proposition between price and service, just like it does in every other industry, will dictate what customers buy and where they make their choices and competitors will make decisions on what they market to who in order to attract that customer.

626                So again, in a fully competitive market customers have the ability to choose and if one player is not doing a good enough job in establishing their value proposition, i.e. costs versus service, then presumably one of the other competitors will step in and fill that gap.

627                COMMISSIONER DUNCAN:  Considering that in this question we are anticipating that both competitors might slacken off on their quality of service objectives, do you think that there should be any regulations left in place that address issues like price or voice quality, percentage of calls completed, billing available bundles?

628                MS TULK:  Well, we believe that.  As we have stated in our application, in a forborne world the market should dictate the level of service that is provided and customers are willing to pay for and buy and, certainly, any asymmetrical mandate such as that would hamper full competition.

629                MS SANDERSON:  You are unlikely to find ‑‑ there are other competitors that are part of this marketplace so, first off, if Aliant was considering, "Do I degrade my quality?" the first thing it has to think about is what EastLink's response is going to be, so if EastLink is just going to take the customer because Aliant's quality is no longer what it should be relative to the price that it's charging.

630                I guess the premise of your question is that perhaps EastLink might also degrade its quality.  Well, then, Rogers Wireless or Telus Wireless is also there to step in, VoIP providers are there to step in.

631                So if you think about the total environment it is unlikely to be the case that you are going to get these kinds of degradations in quality, assuming you have a competitive environment, which is the presumption because we are talking about a forborne environment so if you are forborne there is enough competition to not worry about these things.

632                You can certainly have different players in different products provide different types of levels of quality, but then customers will go to whatever value proposition they would like to purchase.

633                COMMISSIONER DUNCAN:  I think the concern would be that you know the bottom line will be the motivation and so the competitors will be equally influenced and perhaps decide instead of having 10 technicians in a certain area maybe they would have five.  Just a thought.

634                MS SANDERSON:  You are always going to expect a company to maximize its profits and that i going to entail two components; one is minimizing the cost of providing service, but it also entails maximizing your revenues.

635                The beauty of the competitive market is that someone will eat your lunch if you are really crummy to your customers.  In fact, that is actually a useful way to know if you have a company that has monopoly power, because a company that has monopoly power can treat its customers in a way that is, I suppose, "Well, I will charge you a lot of money for something that isn't very good", but as soon as you are in a competitive environment that is not possible because somebody else is going to take that customer away from you.

636                MR. CAMPBELL:  Commissioner Duncan, I think you should try to assess whether this is a realistic risk in any case.  Look at the markets which are served in competition now.  I don't think there is any evidence of that sort of problem.  High‑speed internet, we are getting increasingly good quality; cellular, we are getting increasingly good quality.  There is no issue in that regard.

637                Remember how we got into quality service regulation in the first place.  It was an adjunct to price cap, because when the Commission began regulating prices directly it had to also observe these indirect price changes through quality degradation.  But if you are satisfied that the market is sufficiently competitive to protect the interests of users and prices, it is sufficiently competitive to protect your interests in other ways.

638                COMMISSIONER DUNCAN:  So I take it your position is there is no need?

639                MR. CAMPBELL:  Yes.

640                COMMISSIONER DUNCAN:  Okay, thanks.  Thank you.

641                In a forborne environment, do you foresee selling a basic local exchange service as currently defined by the Commission on a standalone basis?

642                MS TULK:  Yes, we do.

643                COMMISSIONER DUNCAN:  So would that be an undertaking on behalf of your company to see that that is done?

644                MS TULK:  Certainly, we have no plans.  We offer it today.  We have no plans to discontinue it.  It is available from our competitor today.  Obviously in a competitive marketplace as things change it is very difficult to predict what the market offers will or won't be, but certainly it is a fact of our market today and I think it would be reasonable to expect to continue.

645                COMMISSIONER DUNCAN:  Okay.  Thank you.

646                Now, I'm looking at the argument of the Competition Bureau at page 9, paragraph 48.

‑‑‑ Pause

647                COMMISSIONER DUNCAN:  In its argument the Competition Bureau submitted that first lines of residential customers could be one relevant market; and second lines, mobile wireless and VoIP services, could be a different relevant market.

648                Could you comment on the Competition's proposed division of the relevant residential market into a first line market and another market that includes second lines, mobile wireless and VoIP services?

649                MR. STEPHEN:  In terms of the secondary lines, I think it is important to note that we do not have a very large base of second lines, in fact I believe we have an interrogatory response and it is approximately 2 per cent of our lines, in response to a CCTA Interrogatory No. 4.  Anyway, it has been declining each and every year for the last number of years.  So we don't have a big market for second lines in the Atlantic area.

650                I think that makes sense, given the expansion of mobility certainly over the last number of years.  Our only experience with second lines was initially for internet there was a big demand for it.  However, as more and more customers adopt high speed we are seeing second lines disappear.  So we don't see that as being, at least in our market, an applicable break point or at least there is no distinguishing between first and second lines.

651                MS SANDERSON:  I think what that means, then, is that the calculations that have been presented to you, the confidential calculations and so on, are basically of primary lines, primary service.

652                I guess what the Bureau might be worried about is that you have a situation where if you are looking at market shares the competitor EastLink basically has all of Aliant's second lines, so that the customer still is purchasing product ‑‑ service from both Aliant and from EastLink.  It is not known definitively if that never happens, but given the context that second lines are such a small percentage of this market, and also I think given the consumer research that Aliant has filed with you on a confidential basis as to why customers go to EastLink, at least the consumer research that Aliant has done, I think you can be fairly safe in assuming that most of those calculations are basically primary lines.

653                COMMISSIONER DUNCAN:  Does your answer change with respect to VoIP services?

654                MS SANDERSON:  I suppose people might ‑‑ well, first, Aliant and the 32 exchanges hasn't put in any numbers, calculations on VoIP.

655                COMMISSIONER DUNCAN:  Looking down the road, yes.

656                MS SANDERSON:  Right.  I suppose that will be something that one will see as you deal with different markets and get statistics as to what shares would be like for VoIP providers.

657                If VoIP is a close substitute for a local wireline ‑‑ which the CRTC has found that in fact it is, it is sufficiently close to be included in the relevant market for local services ‑‑ then you would expect that if someone is going to buy VoIP they are probably going to leave their wireline.  Why would you bother buying two things that are good substitutes for each other?

658                COMMISSIONER DUNCAN:  In the event that some people do, and I could actually even point to an example where somebody close to me is actually doing that, would that affect your ‑‑ well, maybe that is a very rare circumstance.

659                MS SANDERSON:  I suppose it is the type of thing where they might do that.  You can imagine the situation where somebody is trying it out to see what it's like and that if they are happy with it they would go ahead and switch entirely.

660                It is certainly the expectations ‑‑ if I think of just the telecommunications analysts that are forecasting going out into the future, if you think of analysts at RBC Capital Markets and people like Michael Sone that are regular analysts following the industry, those forecasts for VoIP are basically that it is going to be a good substitute for the wireline in that you will not have a lot of this situation arise.

661                Thank you.

662                MS TULK:  I think the other thing is. the definition of primary versus secondary line is a somewhat archaic definition based on a monopoly industry.  So I have no way to know which of the lines that I have into consumer's homes are primary lines, secondary lines.

663                In the case of my home, we have a wireline line, we have a wireless line.  Which of those is the primary line?  Well, we in fact talk more on our wireless phone than we do on our wireline phone.  So is the wireline the primary line for our home or the secondary line?

664                As you move forward into that you look at a customer who has a single line from us who shows in our billing system as their primary line, that could in fact be the third or fourth line and the least used in their home if they have an EastLink service and they have VoIP service or they have a wireless line.

665                So this primary second line definition is predicated.  The only way we know what a primary or secondary line is predicated on the belief that we are the only supplier in the market, which isn't the case.

666                COMMISSIONER DUNCAN:  So then you wouldn't see this distinction that the Competition Bureau has suggested as being practical?

667                MS TULK:  Yes, so definitely not.  It definitely is, sorry, impractical, yes.

668                COMMISSIONER DUNCAN:  My next question is addressed to the Competition Bureau's Response to CRTC‑303.

‑‑‑ Pause

669                COMMISSIONER DUNCAN:  Okay.  Among other matters, the Commissioner of Competition proposed a possible forbearance test for facilities‑based entry. In bullet 2 of the response the Commissioner stated that:

                        "One condition of the test is that the variable costs of provision on the two networks are similar or that costs of the entrant is lower and neither network is capacity constrained."  (As read)

670                Could you give your views as to whether as part of the forbearance test the Commission should examine the entrant's and incumbent's cost structures, including whether the entrant has similar or lower variable costs than the incumbent?

671                MS SANDERSON:  I will take that.

672                Obviously, you will have to ask the Bureau directly what they were thinking of here.  I am going to try to read minds, just having worked there for 10 years.

673                When you read that test the Bureau is outlining conditions that are sufficient under their structured rule of reason test.  So they are not necessary, but they are.  So what you are reading about is, you are reading about conditions that if these conditions are met then it is surely the case that the market is sufficiently competitive for you to forebear. So something less than this in fact may give you the same end result that you have sufficient competition to forebear.

674                On the variable cost issue, there are a lot of markets that will be competitive without necessarily having firms that have the exact same cost structure.  In fact, if they are using different technologies to deliver the same product they are bound to have different cost structures.

675                The way I interpreted that second condition from the Bureau is that if the entrant that has arrived does have variable costs that are at least the level of the incumbent in providing that service, then that is sufficient to demonstrate that that entrant is in fact a viable sustainable entrant who won't be, say, easily marginalized following forbearance.

676                That is the way that I thought about it in looking at it, but it certainly can be the case that you could get an entrant that had a higher variable cost than the incumbent, and unless it's wildly ‑‑ I mean you can have situations that it is very, very high and, in essence, what you are then looking at is that perhaps that entrant is not in fact sustainable because it is too high cost a player.  But in situations ‑‑ it doesn't mean the cost structure needs to be identical.

677                So I guess if you were to adopt the Bureau's test instead of a bright‑line test, then that is one of the sufficient conditions that they suggest may be needed.

678                Just a word of caution, though, on just trying to calculate variable costs, because when you are thinking about ‑‑ the Bureau in writing about this is, I think, thinking about it as an economist and financial statements are not written by economists.  It is probably good for economists, so the old jokes about the accountants:  Who is more boring, the accountants or the economists?

679                But there are going to be differences between the accounting statements and trying to actually transcribe what is a variable cost in this economic context and derive that from the financial statements.

680                Then, of course, in these types of industries, as you well know from your Phase II hearings, there are always these issues about what do you do when there is a joint product and it is provided across a common infrastructure, how do you attribute the cost of that infrastructure or that asset across all these different products?  I mean, it is a difficult process.

681                COMMISSIONER DUNCAN:  That's helpful.  That's very helpful.  Thank you.

682                The Competition Bureau's structured rule of reason approach requires information on the costs of each party, the possibilities of capacity expansion and measurements of demand.  This probably follows along on your last comment, but is this information likely to be available for both the entrants and the incumbents?

683                MS SANDERSON:  I guess that would depend on the extent of the information that you would require.  As the Bureau notes, if you undertake a full analysis, which essentially is what you are going to be doing in respect of Aliant's application under 94‑19, if you take a full‑blown approach that is going to minimize the probability of error.

684                There are certain costs that come with that in the context of all the people that here in this room and the time that it takes to go about a full‑blown analysis.  So it is in that context that other parties have suggested that it may be prudent moving forward to have either a bright‑line test or something that would minimize these administrative costs and expedite the process in some fashion, bearing in mind that as soon as you do that you potentially may increase the risk of some kind of error.

685                The Bureau's test, I am assuming that this structured rule of reason is going to require less information than under a full 94‑19 process, otherwise you just flip back to the 94‑19 process.

686                The criteria that are actually outlined easily fit within the criteria that the Commission has already outlined in the context of 94‑19 under demand conditions and supply conditions.

687                So I think it would depend somewhat on the extent of information that you would require.  You may be able to look to indicia that these are met.

688                For instance, in the context of the first criteria that the Bureau had noted ‑‑ and if you think of the Aliant application ‑‑ is EastLink an independent facilities‑based provider?  Yes.  Are they offering a service that is of comparable quality to that of Aliant?  Well, a third of the customers in 32 exchanges think so and also the customer research would indicate they are.  So in that sense you can gather that at a relatively high level with not a lot of detailed analysis.

689                I guess the only ‑‑ also the third criteria would be similar in the sense of you would be able to get information on that to some extent by seeing the marketing materials, the type of thing that has been filed in this proceeding, and market research on customer retention rates which could be readily filed.

690                The last criteria on industry characteristics, the Bureau does quite a persuasive job, I think, in talking about the fact that if the anticompetitive behaviour that you are fearing is predation.  If you have met the first criteria in their set of four, which is that you have an independent facilities‑based provider who has sunk these costs, entered the market, and so on, that the risks of predation are very low.  So in that sense that criteria ends up being met if the first criteria gets met.

691                Thank you.

692                Mr. Chairman, that's it.  Thank you.

693                THE CHAIRPERSON:  Thank you very much.

694                Commissioner Langford.

695                COMMISSIONER LANGFORD:  Thank you, Mr. Chairman.

696                I will try not to keep you very long. You have had a long morning.

697                I was interested in a couple of statements you made in your opening statement and then reiterated and emphasized in answer to questions from Commissioner Duncan.

698                I want to take you to paragraph 25 of your opening statement where you announced to us the launch of EastLink's latest promotion with the local service and all options and features for $9.00 a month, which you say then have some strings attached.

699                Could you tell me what the strings are?

700                MS TULK:  I guess if you want detailed information on the offers, EastLink, I understand, will be testifying and they can take you through that, but if ‑‑

701                COMMISSIONER LANGFORD:  Sorry, I am not hearing you.

702                MS TULK:  Sorry.

703                COMMISSIONER LANGFORD:  It may just be ancient old age creeping in.

704                MS TULK:  Oh, sorry.  I said I can give you a little bit, but if you want to go really deep into that offer I think you would have to ask EastLink when they appear.  We only have the information, obviously, that is publicly available.

705                COMMISSIONER LANGFORD:  That will be good enough.

706                MS TULK:  We did provide you in Attachment 1 a copy off their website.  Sorry, Attachment 3, a copy of the printout of their website.

707                So their advertisement that they are running is very clearly presenting local telephone and calling features for only $9.00.  Then, in the fine print beside that, it says $9.00 a month for 12 months in a watch, surf and talk bundle.  Then they go on to say it is $9.00 a month for up to 12 months.

708                Further down they say, and we have pulled it out there, local telephone, all calling features, free installation and available in a TV, internet and phone bundle.

709                So that is what they launched in our marketplace and that is being advertised to customers as of last week as far as ‑‑

710                COMMISSIONER LANGFORD:  Well, you are in the business, what is a walk, talk and surf bundle? Can you give fill us in?

711                MS TULK:  Walk, talk and surf bundle would be EastLink's bundle ‑‑ sorry, it is watch, talk and surf ‑‑

712                COMMISSIONER LANGFORD:  Sorry, watch.

713                MS TULK:  Did I say walk?  I probably did.

714                COMMISSIONER LANGFORD:  Maybe you said watch, sorry.

715                MS TULK:  Yes, watch.  It is TV, telephony and high‑speed internet inside a single price, but they in this case seemed to have pulled out a specific attribution of the component of that bundle that has to do with local service.

716                COMMISSIONER LANGFORD:  Do you know whether EastLink offers local service with calling features on a standalone basis?

717                MS TULK:  I believe that they do.

718                COMMISSIONER LANGFORD:  Do you have any idea what that price is?

719                MS SANDERSON:  I have that here, yes.

720                MS TULK:  At Table 1, which was page 63 of Attachment 1, which was my report to Aliant, there is a listing of the prices for each of the various services for Aliant, EastLink, Vonage and Primus.  Some of these may be somewhat out of date just because the information was pulled from websites in late May and early June of this year.

721                Do you want me to read you the numbers?

722                COMMISSIONER LANGFORD:  Maybe you could just give me kind of a number of hat a package like this.

723                You folks know what local service is and you know what all the features are so maybe we could jump to a kind of final answer, or something close to it, what you think EastLink is selling at this at, or probably selling it at on a standalone.

724                MS TULK:  Well, the standalone service as listed here is $20 for basic monthly service and then $4.95 per feature, so Call Answer, voice mail, Call Display, Call Forwarding, et cetera.  They also sell a feature bundle, any three features for $7.95; entire set for $12.95.  So given that this offer seems to say all features, I would presume the comparison will be the $20 basic fee plus the $12.95 for the entire set of features, therefore, $32.95.

725                COMMISSIONER LANGFORD:  Right.  What would Aliant be selling that for on a standalone basis?

726                MS TULK:  Aliant, I guess the nearest comparison would be our enhanced consumer access under our tariff, which is $36 including all features.

727                COMMISSIONER LANGFORD:  Okay.  I assume you sell bundles as well?

728                MS TULK:  Yes, we do.

729                COMMISSIONER LANGFORD:  You bundle products?

730                MS TULK:  Yes.

731                COMMISSIONER LANGFORD:  So there would be savings on certain things when you bundle products?

732                MS TULK:  That $36 would be the bundled price for local service and all features under our tariff.  So that would be the lowest price that you can get local with all features.

733                COMMISSIONER LANGFORD:  Don't you bundle with anything else, with long distance?

734                MS TULK:  Not local service, no.

735                COMMISSIONER LANGFORD:  No local service at all.

736                MS TULK:  So $36 is the lowest price that a consumer can buy local service with all features from Aliant at this time.

737                COMMISSIONER LANGFORD:  But you do bundle your forborne services I assume?

738                MS TULK:  We do bundle our forborne services.

739                COMMISSIONER LANGFORD:  I guess the deal is there.

740                MS TULK:  Pardon me?

741                COMMISSIONER LANGFORD:  You give deals there?

742                MS TULK:  We give deals on the forborne products and their available standalone separately from the local service products.

743                COMMISSIONER LANGFORD:  Right.

744                To go on with the rest of paragraph 25, I was confused by it.  I am not in the business end of this, I am in the regulatory end, the dark side as I inevitably must think of it, but it seems to me that essentially looking at this you have thrown up your hands and you have said, "We can't do anything.  Until you lift the rules, we can't win".

745                MS TULK:  No.

746                COMMISSIONER LANGFORD:  I don't see anything that you are doing here in all of these papers ‑‑ and I have read your final argument and I have read your initial submissions ‑‑ and I don't see anything you are doing to fight back.  I don't get a sense that there is a battle going on here and I want to know why that it is.

747                I want to know why you have put so much on this one particular proceeding.  You seem to have so much at stake, when my reading of a move from the regulated environment you are in now to a forborne environment for local services wouldn't be that big a change.  So it is your chance to instruct me and just why it is that you are not fighting back.

748                For example, you can lower prices.  $36.95.  You can do better than that, I'm sure.  Those optional services are way above costs, I'm sure of it.  I have seen the imputation tests.  So have you.

749                So why aren't you fighting back?  Why are you waiting for us to do this for you when you could fight back right now?

750                MS TULK:  That's a long question.

751                COMMISSIONER LANGFORD:  Well, it comes down to the last bit.

752                MS TULK:  I think it is definitely not true that we are not fighting back.  The intent of that in the opening argument we have there is not to say that we won't react, it is to show the regulatory time lag and burden that stands in the way of the customers benefiting immediately from the natural rivalrous behaviour in a competitive market.  It stands and places the hoops one after another, after another, after another that you have to jump through in order to react to something like this.

753                The other thing is, if you look at our history over the last number of years in question as competition has unfolded, and certainly we have been before you talking about some of them, we have reacted again and again and again.  We have pro‑acted again and again and again and we are doing everything that we possibly can within the regulated environment to be able to earn our customer's business and we continue to do so.

754                However, customers have free and open choice.  There is a free and open competitive market.  Customers should be able to freely and open benefit and it is not right in this situation ‑‑ forbearance as defined under the Act is definitely warranted and should be applied.  Once it is applied, we will continue to continue to fight to earn our customers' business each and every day and we will continue to be able to allow customers to benefit from that.  We are absolutely not afraid to work to earn our customers' business and we do that each and every day.

755                However, when you look at something like this, this is just one example of how a competitor in the market is being given an unwarranted advantage in terms of their ability to bundle across their product lines in a free and unfettered basis; their ability to change promotions regularly, swiftly, naturally; their ability to go into sub‑segments of the market and put in place special promotions and special offers and to change them on a frequent basis.

756                The time lag, the overhead, the burden that is on us to do the same, to act as a natural marketer in a naturally competitive environment would is simply unwarranted.

757                COMMISSIONER LANGFORD:  Well, I have heard that from you all morning ‑‑

758                MR. STEPHEN:  There is also ‑‑

759                COMMISSIONER LANGFORD:  ‑‑ and I have to say I am not impressed by it.  I mean, I am not impressed by it.

760                I am sorry.  But we might as well put it on the table here.

761                It seems to me that if you have got prices at $36 and you have got flexibility in the optional features of those bundles to lower them, and that the most that perhaps ‑‑ and you have got the flexibility to bring in the sort of new products that the folks behind you at Bell have brought in over the last month with ceiling prices and minimum floor prices so they have got flexibility in, it seems to me that the folks behind you are being more proactive.

762                You used the word proactive once.  You used the word reactive about seven times.

763                And it seems to me, yes, if your plan is to react all the time, you have got a little bit of a regulatory ‑‑ a few regulatory hoops to jump through.

764                But there is ‑‑ it also seems to me that you have enormous scope here to cut productivity costs, to move to a smaller building on the waterfront ‑‑ maybe your costs are too high in that high rise on the harbour ‑‑ to make cuts in ways that you could pass on to subscribers.

765                And, sure, you have to come to us for a ten‑day process to run some of these tariff changes through.

766                But if you put together a proactive plan rather than a reactive one, it seems to me that there is very, very little left that forbearance is going to offer you.

767                You know, some targeting if winback is gone, some promotional opportunities if that is gone.

768                But, you know, you are still going to have to make an imputation test or you will be into predatory pricing.

769                So, you know, really, it seems to me you have come to us here looking for the kind of philosopher's stone here that is going to open everything up.

770                But I don't see evidence that you are using the tools available.  And to me that demonstrates ‑‑ the reason I bring this up is, I mean, this isn't a shaming process here ‑‑ I bring it up because it seems to me that you have got too much riding on what isn't going to offer you what you want.

771                And it seems to me that I don't see the kind of proactive marketing and pricing and product definition of somebody who really feels they are under threat by a competitor.

772                I don't see before me, I don't hear before me, and I don't read in your papers the kind of sense that you feel threatened.

773                It just seems to me you want it easier.

774                MR. STEPHEN:  I would like to ‑‑

775                COMMISSIONER LANGFORD:  And it seems to me that if you get it easier, the consumers might end up paying a very big price.

776                So that is another long question, for which I apologize, but I don't understand why you have so much riding on what appears to me to be so little.

777                MR. STEPHEN:  I think you would agree that in most cases the things you are referring to would require to come back to the Commission and get approval for.

778                And while there have been a number of changes over the last six months, largely of a positive and progressive stance, I think you would also have to agree that they have been fairly prohibitive.

779                We have seen over this period of time, these several years, the Commission at every turn wrench up the rules and make it more difficult to compete, whether we talk about the winback rules, which went from 30 ‑‑ you know, from a 90‑day to a one‑year.

780                We have seen applications for tariffs take up to two years to get approved.  We have seen nothing but discouragement by the Commission on reducing prices.

781                If it wasn't for the floor price decision that came out earlier this year, ‑‑ you know, that was the first time in three years that the Commission has accepted that we could come in and start reducing prices.

782                I can take you through tariff filings where the Commission routinely denied them and ‑‑

783                COMMISSIONER LANGFORD:  But I could take you through instances of you folks breaking the rules flagrantly.  So let us not get into a pointing game here.

784                I am simply asking why it is that you aren't competing more vigorously ‑‑

785                MR. STEPHEN:  But what I am telling you ‑‑

786                COMMISSIONER LANGFORD:  ‑‑ under the present rules.

787                MR. STEPHEN:  Mr. Commissioner, what I am trying to explain to you is that we have made many attempts in our market place to address some of this in front of the regulator and, at every turn, it gets more difficult.

788                So you say what have we done?  Well, you know, it took us several attempts to get approval of our bundled local service and features.

789                It did get approved but a long history in terms of the duration ‑‑ it wasn't ten days, let me tell you.  I am not sure it was even ten months.  The point is, is that ‑‑ that you are saying we have done nothing.  I think if you look at the record, you will see that we have tried many things.

790                The discouragement of price reductions has been pretty incredible over the last three years.

791                As I say, I can take you through a number of tariff situations.  Our discussions with the Commission, until the decision on floor prices, the Commission was of the mind that we could not reduce prices during the price cap period.

792                COMMISSIONER LANGFORD:  I am afraid you would have to point to some paper on that.  I think that was a misconception in the industry.  But I don't think the Commission ever said anything like that.

793                MR. STEPHEN:  Very much from within the Commission.

794                MR. CAMPBELL:  Can we be clear, though, Mr. Commissioner ‑‑

795                COMMISSIONER LANGFORD:  Well, it would be very interesting to know where you are getting your information.

796                MR. CAMPBELL:  We are not submitting that forbearance should be granted because we are hurting.

797                The test has nothing to do with whether or not we are hurting.  The test specified in the legislation is whether or not there is sufficient competition to protect the interests of customers.  And you prescribed a test ‑‑ or your predecessors perhaps prescribed the test in Decision 94‑19.

798                We, I think, have demonstrated that test that has been prescribed is met.  On any reasonable analysis of the evidence and any reasonable standard, including some of the unreasonable standards that have been proposed here, it is clear that forbearance isn't justified in these 32 exchanges.

799                It is not a question of whether we are hurting or whether EastLink is hurting.  It is ‑‑ the focus should be on the customers.

800                COMMISSIONER LANGFORD:  My question wasn't on pain levels.  It was on reactive or proactive strategies.

801                Le me give you another example where I see a ‑‑ what I have heard this morning ‑‑ something of what I think is a total misconception here.

802                Miss Tulk, you sort of took us on this kind of buying of the blouse expedition a little earlier.  If I understood what you said correctly ‑‑ and I am pretty sure I did because I wrote it down ‑‑ you saw winback as comparable to preventing you from going to a first store, buying a blouse and then finding a better deal in a store down the mall and not being able to take the blouse back for three months.

803                But that is not the comparable at all.  I mean, to find the situation comparable to that scenario, really, it would have to ‑‑ you would have to have the owner of the first store following you from store to store and offering to beat or match any other blouse offer you got.

804                And in telecom that is not what happens.  I mean, the subscriber can decide to return to an ILEC.  That is okay.

805                And the ILEC, you folks, can put adds in the paper, as long as the prices apply generally, to try and win back all the subscribers you want.

806                All you can't do is focus in on that one subscriber and focus and funnel all you marketing power and energies on that one person.

807                So, you know, you talk of winback, it seems to me, in the terms of this poor woman trying to get her blouse deal and return her blouse, but it simply isn't like that.  And I just wonder whether you haven't exaggerated.

808                That is what I am hearing here today.

809                MS TULK:  Well ‑‑

810                COMMISSIONER LANGFORD:  A huge exaggeration of the few regulatory hurdles you have to get over.

811                MS TULK:  I can give you, you know, another example, which would be, if you go to put money into a financial institution and you request to have a transfer from your existing financial institution.  The winback restriction would be anomalous to your current financial manager not being able to call you and talk about that choice and try and change your mind.

812                But I think, getting back to ‑‑

813                COMMISSIONER LANGFORD:  Well, if I may, excuse me ‑‑

814                MS TULK:  Getting back to the point ‑‑

815                COMMISSIONER LANGFORD:  Excuse me.  I rarely interrupt, but ‑‑

816                COMMISSIONER LANGFORD:  ‑‑ since we are on this point ‑‑ I do go on, but I rarely interrupt.

‑‑‑ Laughter / Rires

817                COMMISSIONER LANGFORD:  I don't think that is the same at all because trying to stop the Royal Bank from taking a customer back from the CIBC, I would agree.  You know, these are equal competitors.

818                But the winback is ‑‑ you know, as you know, is trying to nurture new entrants and give them a chance to build a customer base.

819                Every customer a new entrant gets must be wrestled away.

820                MS TULK:  So what about the ‑‑

821                COMMISSIONER LANGFORD:  Its "New Entrant Agonistes", if I may borrow from Milton, must be wrestled away.

822                MS TULK:  What about the Eastern Edge Credit Union?

823                COMMISSIONER LANGFORD:  Pardon me?

824                MS TULK:  What about the Eastern Edge Credit Union?  What about if it is a credit union I am trying to move my money away from the Royal Bank from?

825                Should the Royal Bank then not be able to contact me about that because the credit union is smaller than the Royal Bank?

826                COMMISSIONER LANGFORD:  No, because we ‑‑

827                MS TULK:  And keep in mind this particular ‑‑

828                COMMISSIONER LANGFORD:  ‑‑ don't have Royal Banks to take you on, you see.  We don't have anything comparable over the national situation.

829                MS TULK:  Yes.  So in this ‑‑

830                COMMISSIONER LANGFORD:  You have a particular situation in 32 exchanges but nationally that is not duplicated anywhere that anyone can see yet.

831                MS TULK:  Which is why we are proposing that the forbearance test be kept local where you can look at that situation.

832                In these 32 exchanges, this competitor has the same ‑‑ very comparable revenues out of consumer homes than we do.

833                And this competitor is not at harm.  There has been no evidence that the competitor will be harmed by any forbearance decision.

834                And with, you know, due respect ‑‑

835                COMMISSIONER LANGFORD:  Well, there can't be any evidence until we make the decision, can there?

836                MS TULK:  Well there has been no suggestion that that will be the case.

837                And to the point, I mean, I could sit here for quite a long time and take you through as I do with my boss on a regular basis what our department does to try and earn our customers' business and how we are proactively marketing the customers and what our business plan is.

838                And I think I could definitely prove to you that within the regulatory regime we are doing everything possible.  And I said in my remarks that we are absolutely committed to earning customers business, and we will continue to be so.

839                The question and issue of the day is, is forbearance warranted here under the Act?  We have proven that it is.  By any reasonable test it is.  And under the Act, the duty is to forbear when those tests are made.

840                And so, it is not a matter of whether you think I am doing a good job at marketing in Atlantic Canada or not, it is about whether or not forbearance is warranted under the Act here.

841                COMMISSIONER LANGFORD:  And I would say ‑‑

842                MS TULK:  And we believe we have met that test.

843                COMMISSIONER LANGFORD:  I would say you have submitted that it is.

844                But whether you proved you have, well ‑‑

845                MS TULK:  Well, I guess that is what ‑‑

846                COMMISSIONER LANGFORD:  We will be closer to knowing Friday ‑‑

847                MS TULK:  That is what this proceeding is about.  That was our ‑‑

848                COMMISSIONER LANGFORD:  ‑‑ and even closer in the fullness of time.

849                MS TULK:  I mean, our belief coming into the room that this proceeding was about the collective group of you looking at all the evidence and making that ‑‑ and ascertaining whether or not it has been proven.

850                I didn't expect that the meeting was about, am I going a good job at marketing?

851                COMMISSIONER LANGFORD:  Well, I think that is part of it because, I mean, the sense of urgency that I am hearing from your table today strikes me as somewhat unwarranted.  And that is really the point I am making.

852                There you are.  We will agree to disagree on that.

853                Those are my questions, Mr.Chairman.

854                THE CHAIRPERSON:  Thank you.

855                We will break now and resume at 2:15.

856                Nous reprendrons à 14 h 30.

‑‑‑ Upon recessing at 1315 / Suspension à 1315

‑‑‑ Upon resuming at 1415 / Reprise à 1415

857                THE CHAIRPERSON:  Order, please.  À l'ordre, s'il vous plaît.

858                Welcome back.  I hope you have had a chance to exchange any merchandise you may have purchased in the last few days.

‑‑‑ Laughter / Rires

859                THE CHAIRPERSON:  Commissioner Cram.

860                COMMISSIONER CRAM:  Thank you, Mr. Chair.

861                I was looking at your attachment and it is the one of Nova Scotia with the LIRs bands and EastLink Telephony.

862                By the way, I didn't want to let this moment pass without commending Aliant on their near‑gender equity of their panel and the excellence of that panel.

‑‑‑ Laughter / Rires

863                MS TULK:  Well, it is duly noted on our side the gender balance on the Commission as well, which is very good to see.

864                COMMISSIONER CRAM:  Thank you.

865                MS TULK:  Which is not reflected in the back half of the room, I do note.

‑‑‑ Laughter / Rires

866                COMMISSIONER CRAM:  I did notice that.

867                MS TULK:  Yes.

868                COMMISSIONER CRAM:  However, it is a lot easier in the washrooms, isn't it?

‑‑‑ Laughter / Rires

869                COMMISSIONER CRAM:  If we can go the Nova Scotia LIRs bands EastLink Telephony, and I notice that you are asking for forbearance from F bands.  Are those in high‑cost areas?

870                MR. STEPHEN:  Exactly what they are.  Yes.

871                COMMISSIONER CRAM:  So they are high‑cost areas.

872                Yes it is the colour ‑‑ well, I cannot tell you ‑‑ yes.  They are high‑cost serving areas.

873                MR. STEPHEN:  Correct.

874                COMMISSIONER CRAM:  And so right now you are getting a subsidy from the fund and I would take it that EastLink is also getting a subsidy for its subs.

875                MR. STEPHEN:  I can only assume that they go through and receive that.

876                COMMISSIONER CRAM:  Because your numbers go down.

877                MR. STEPHEN:  Yes.

878                COMMISSIONER CRAM:  So what can you hope to gain in these high‑cost serving areas?  Because I guess I can't see us being likely to ‑‑ I mean, you would be reducing your prices even lower than cost?  Because it is under ‑‑ these prices are under cost already.

879                MS TULK:  Well, I think it gets back to some of the things throughout our submission we try to be clear on and that is that forbearance is not specifically about pricing.  Forbearance is about the ability for customers to have an unfettered choice in the marketplace.

880                So it is not a necessary chain of logic that forbearance directly leads to cost reduction.  Forbearance leads to a better ability for the market to operate in a competitive manner and for customers to choose and presumably we need to be able, anywhere, to be able to compete on a basis at a price point that a customer is willing to pay and at a basis in which as a business company that we can manage our costs and be profitable and provide profitable returns for our shareholders.

881                And so we would continue to do that, just like we do in all the other markets, high‑speed, wireless, long distance, et cetera, so we don't see the direct link between high‑cost serving areas and the need for forbearance.

882                The link on the need for forbearance is the market competitive and has it passed the ‑‑

883                COMMISSIONER CRAM:  And giving you the flexibility to do win backs and ‑‑

884                MS TULK:  And promotions, et cetera.

885                COMMISSIONER CRAM:  Yes.

886                MS TULK:  And has that market passed the forbearance test and I guess it is indicative of our commitment to customers throughout our region that we are not seeking forbearance on specific exchanges, the ones we like, so to speak, among the ones that qualify versus all the ones that qualified.

887                Our application in 2004 consisted of all exchanges, then what we proposed was a reasonable forbearance test at that time.

888                COMMISSIONER CRAM:  Now, there is some band E.  Is band E high cost also or ...

889                MR. STEPHEN:  That is correct.  It would be.

890                COMMISSIONER CRAM:  Okay.  So the same would apply to it.

891                I wanted to sort of get an idea of the number of exchanges.  How many exchanges are there in Aliant territory?

892                UNIDENTIFIED SPEAKER:  All four provinces?

893                COMMISSIONER CRAM:  Yes, all four provinces.

894                You can tell me later.

895                MS TULK:  It is about 400.  We can get you the exact number.

896                COMMISSIONER CRAM:  All right.

897                MS TULK:  But it is in that range.

898                COMMISSIONER CRAM:  And Halifax has, I don't know how many, band A.  How many band A do you have across all of Aliant territory?

899                MR. STEPHEN:  Just the one band A.

900                COMMISSIONER CRAM:  So you could presumably, then, right now apply to lower those prices in band A without ‑‑ I mean, you would take away from the deferral fund, but you would have always been free to reduce those prices, then, in Halifax.

901                MR. STEPHEN:  Band A is the Halifax area, that's correct, and as a band we could reduce prices there and not be concerned about de‑averaging.

902                COMMISSIONER CRAM:  Yes.

903                MR. STEPHEN:  If that is what you are asking about.

904                COMMISSIONER CRAM:  And you wouldn't have suffered any ill effects of having to do it all across the band, because this is your only band A.

905                MR. STEPHEN:  That would be correct.

906                COMMISSIONER CRAM:  Okay.  Now, I see that Charlottetown is band B.  How many band Bs are there across Aliant territory?

907                MR. STEPHEN:  There would be numerous band Bs in each province.  They would be St. John, Fredericton, Moncton, St. John's, Newfoundland, for example.  So there typically would be the other cities.

908                COMMISSIONER CRAM:  Okay.  Could you tell me later, just give me a breakdown of the ‑‑ I don't know how many band Bs there are in Charlottetown and then also give me the total number of band Bs in your territory.

909                MS TULK:  How many band Bs?  You mean customers or how many ‑‑

910                COMMISSIONER CRAM:  How many band B exchanges.

911                MS TULK:  Oh, how many band B exchanges.  Okay.

912                COMMISSIONER CRAM:  Yes.

913                MS TULK:  Okay.  We'll get you that.

914                COMMISSIONER CRAM:  And how many exchanges there are in Charlottetown band B also.

915                MS TULK:  Yes.

916                COMMISSIONER CRAM:  And I wanted to sort of get into what you said I think in your final argument about exchanges in different parts of the country are different sizes.

917                Do you know the average population range in each of your exchanges or could you find it out, Ms Tulk?

918                MS TULK:  Yes, we can certainly find it out.  I don't have it right here.  I don't know if you do.

919                No, certainly we can estimate that.

920                COMMISSIONER CRAM:  Yes.

921                MS TULK:  We don't track specifically population, but we can certainly do a very good estimate of that, yes.

922                COMMISSIONER CRAM:  Yes.

923                MS TULK:  And we could supply that.

924                COMMISSIONER CRAM:  And if I understand your test, it is really that you lose five percent of customers; is that correct?  Not households, but customers.

925                MR. STEPHEN:  It will be number of lines lost.

926                COMMISSIONER CRAM:  Okay.  And I have already heard you say, Ms Tulk, that ILEC wireless, Aliant wireless, whatever that share is would also be a subtraction from ‑‑ that it would not be attributed to your side of the ledger, it would be attributed to the competitive side of the ledger.

927                MS TULK:  So we believe that that would be appropriate in the inclusion of wireless in a future forbearance test.  Specific to the 32 exchanges and the numbers we have supplied, we haven't included any wireless components in that.  These are purely us and the other facilities‑based competitor, the share numbers that are reflected there.

928                But our proposal would be in including wireless in a forbearance test the relevant test is has a customer chosen wireless and if you accept that the wireless market is in and of itself competitive, it would govern the protection of customers in that side of the market.

929                COMMISSIONER CRAM:  So, in other words, for this test Aliant wireless does not count as Aliant ‑‑ as an Aliant customer.

930                MS TULK:  Right.  They count as ‑‑ and again, it is not Aliant wireless subscribers.  We propose wireless‑only households.

931                COMMISSIONER CRAM:  Yes.

932                MS TULK:  So in that case it would be households that are not choosing a landline‑based voice service.

933                COMMISSIONER CRAM:  And wireless substituted.

934                MS TULK:  So it is total wireless‑only households.

935                COMMISSIONER CRAM:  And I note what you are saying here today and I note that you said something different last year and are saying something different to another forum.

936                Where would your VoIP, if you had a VoIP product, where would it stand?  Would it be part of that would make up the 95 percent that you would have or would it be also making up part of the 5 percent or more?

937                MR. STEPHEN:  Any lines lost to VoIP we would consider to be part of the lost lines, so that as customers adopt VoIP, just as they would wireless or just as they would take service from another CLEC, we want count that as a lost ‑‑

938                COMMISSIONER CRAM:  As a loss?

939                MR. STEPHEN:  Yes.

940                MS TULK:  Yes.  I think the reason ‑‑ and I guess you bring up a good point ‑‑ that our position seems inconsistent ‑‑

941                COMMISSIONER CRAM:  I was going to ask ‑‑

942                MS TULK:  Yes.  If I could just explain that, we believe, as we have put in front of you in the past, that the VoIP market should not be subject to wireline regulation and the same regulation.

943                Now, obviously this proceeding today isn't about debating the ruling on that.

944                So if you assume that the VoIP market is competitive and open to competition, then in that case it would be reasonable, as we have said with wireless, that once someone disconnects from wireline, if you assume VoIP is a substitute for wireline, then when someone leaves wireline, you would not include them in our numbers.

945                If, however, we apply the thinking that the Commission has put forward, that VoIP is a like‑to‑like service and really is ‑‑ that it is just a technology difference and we are still providing local voice service in that basis, then under that lens you would include it as an Aliant subscriber and not have it in the 5 percent forbearance test.

946                So, I mean, that's what causes the vacillation, so the theory behind our argument has been the same, which is customers leaving wireline, if they are moving to another competitive market, i.e. wireless, then it doesn't matter whether they are buying that from Aliant or not, they have left the market and a competitive market will dictate them.

947                If you take the stance, as has been put forward in the Commission's decision, which we have since subsequently tried to reflect in our thinking, that it is still like‑to‑like wireline per se subscriber of Aliant, then you would not include it in the five percent test and it will be counted as an Aliant subscriber as part of the forbearance test.

948                COMMISSIONER CRAM:  So what is your position today?

949                MR. STEPHEN:  Our view is that we would treat that VoIP lost line as coming out of the ‑‑ as a lost line.  So if a customer goes to VoIP, then ‑‑

950                COMMISSIONER CRAM:  That's a loss of share for you.

951                MR. STEPHEN:  Yes.

952                COMMISSIONER CRAM:  And in a way, though, you could engender that, couldn't you?  I mean, say the competition was cooking along at 3, 3.5 percent, if you pushed your VoIP, lowered the prices, you could get over the 5 percent if you ‑‑

953                MR. STEPHEN:  Well, I think that's more than hypothetical because we do not even have such a service, so, I mean, it is ‑‑ I respect where you are going with this.

954                COMMISSIONER CRAM:  Yes.  I'm not personally talking about you.  I am talking about anybody else in the market.

955                MS TULK:  But presumably, yes.  And I guess that to do that the ability to do that would, of course, depend on whether VoIP pricing itself is subject to regulation.

956                COMMISSIONER CRAM:  Which it is, as we speak.

957                MS TULK:  Exactly, yes.  So given that it is, we would not have the ability to engender that in that way that you are speaking of, so we would not be able to force that migration.

958                COMMISSIONER CRAM:  Yes.  And I was wondering also why you suggested that the competitor Q of S should not ‑‑ should be gone along with forbearance?  I am asking that because it seems to me if I take your position that the competitor in the market doesn't necessarily have to be facilities‑based, it could be a reseller and thus quite dependent upon Aliant for loops and everything else, and yet you say that you should not be bound by your competitor Q of S.

959                MR. STEPHEN:  I am sorry, could you refer to me where that you are ‑‑

960                COMMISSIONER CRAM:  It was in your initial argument, it was in the ‑‑ you know, at the end where you are talking about what sections of the Act we should we should and should not keep.

961                UNIDENTIFIED SPEAKER:  They said the same thing in the final argument.

962                COMMISSIONER CRAM:  Pardon?

963                UNIDENTIFIED SPEAKER:  I think they said in the final argument as well.

964                COMMISSIONER CRAM:  You didn't say that?

965                MR. STEPHEN:  Well, I don't think so.  That is ‑‑

966                MS TULK:  We are trying to find it.

967                MR. STEPHEN:  That's why I want to understand the context under which ...

968                COMMISSIONER CRAM:  Okay.

969                MR. CAMPBELL:  Commissioner Cram, the position we have tried to take was that competitor services are not within the scope of the proceeding at all, so we were not seeking any changes with respect to competitor services.  If we have not excluded them in some sentence, it is by accident.

970                COMMISSIONER CRAM:  So even if you did say it, you do not mean it any more.

971                MR. CAMPBELL:  If we said it we do not mean it.

972                COMMISSIONER CRAM:  Okay.

973                THE CHAIRPERSON:  I think we are looking at page 32 of 49 of your opening submission, initial submission, where you make the point that as a result of competitive services not being within the scope of this proceeding, as a result the issue is removing the Commission‑mandated quality of service standards for competitive services would also appear to be outside the scope of this proceeding.

974                MR. CAMPBELL:  Yes.

975                THE CHAIRPERSON:  So that's your point.

976                MR. CAMPBELL:  That's ...

977                COMMISSIONER CRAM:  Okay.  Thank you.  Those are all my questions.

978                Thank you, Mr. Chair.

979                THE CHAIRPERSON:  Thank you.  Commissioner del Val?

980                COMMISSIONER del VAL:  Ms Sanderson I am just going to paragraph 43 of the oral presentation and I am wondering whether you could please elaborate on the administrative difficulties in using the competitor's footprint as the geographic market.

981                MS. SANDERSON:  I would be happy to.

982                So I think one of the ... it is conceptually very appealing to use the overlap between the ILEC and the competitor's footprint, the cable footprint, because if you take that approach you will be ‑‑ from a conceptual point of view you will most certainly be dealing with, say, a common set of competitive or supply alternatives, because if you have overlap within that overlapping area you have two facilities‑based providers as opposed to another area where you do not have the cable footprint crossing, you just have, say, Aliant.

983                So in that sense it is a ‑‑ it is a good test on sort of an economics grounds to be getting at the common competitive conditions.

984                Now, what you have to do, of course, is you ultimately have to overlay the two networks so when you take the ‑‑ I guess it is not ‑‑ there is two parts to this.

985                In some respects, because the ILEC's offering has to be overlaid onto the cable footprint, you are going to end up dealing with exchanges in that context, because you are going to basically take ‑‑ no matter which direction you start, if you start with the cable footprint you are going to have to then map the ILEC infrastructure on top of that to see what the extent of the overlap is.

986                Now, at the end of the day you are going to be ‑‑ if you choose to forbear, the ILEC at its end is going to have to administer areas that are forborne and areas that are not forborne.

987                Now, I make that assumption on the basis that it is unlikely that you will find, certainly in this proceeding, it is certainly not been claimed that Aliant has sufficient competition across its service territory to forbear.  There is sufficient competition in 32 exchanges to forbear in those 32.

988                So when Aliant is then going to be administering this mixed regime, because it is the body that will then have to know do those ‑‑ do these bundling rules apply, do these promotion rules apply and so on, it is going to have to know, according to its infrastructure where that customer is.

989                It does that, and Aliant can explain in an operational sense how it does that, but it basically does that at the exchange level.

990                And that is sort of operationally what brings you back to the exchange, if you are thinking about the ILEC's infrastructure.

991                Now, it is certainly not the case that the cable company is thinking about its world in the context of exchanges, but that doesn't actually matter here.

992                What the Commission will need, the Commission will need a map of the cable footprint and it will need a map that, you know, has the contours of the Province of Nova Scotia to be the same that it can stick the map of the ILEC's exchanges on top of that and then it can look for the extent of the overlap.

993                The nice thing with the exchange is that, at least with these 32 exchanges, they are small enough that where EastLink is present in that exchange it has got a very expansive or extensive network, and so you can imagine that there will be problems with exchanges that are half in and half out of the cable footprint and that is where the complication essentially will arise as you look to the contours of this overlap.

994                If you are in a situation where most of the exchange is in the cable footprint and you are satisfied that there is sufficient competition in that ‑‑ as a result of the criteria you are going to look at, then you will be comfortable forbearing for that exchange.

995                And then there will be more difficult circumstances where you are essentially trying to decide is the exchange in or out.

996                The issue at Aliant's end is let's say you take the example of an exchange that is half in the cable footprint and half out of the cable footprint, that would not be any of the 32 that we are discussing here, because we have looked into that, but if you had that situation for a future hearing, it is my understanding and I will let Aliant elaborate, that they are not actually going to be able to then say ‑‑ they are going to have to either treat the people in that exchange as forborne or not.  They are going to have great difficulty, because of their billing systems, to change ‑‑ they could presumably make substantial investments to do this, if they needed to ‑‑ but to change how they deal with that customer to then know that that customer is in the half of the exchange that is forborne or the half that is not.

997                COMMISSIONER del VAL:  Okay.  Thank you.  The next question is for Ms Tulk.

998                In your discussion with Commissioner Duncan regarding the win backs as a competitive, not consumer, competitive safeguard, you were drawing the distinction between a win and a win back.

999                I was just wondering whether you were thinking that the win back rules would tie your hands in trying to get a win situation.

1000               MS TULK:  Well, no, that wasn't what I was trying to say, so I guess I was trying to say that the counted customers coming to us from the competitor are not necessarily all win backs.  In some cases they are first time wins, but I wasn't putting that ...

1001               COMMISSIONER del VAL:  Thank you.  Just my last question is why do you think the kind of competition that we see in Aliant's territory is not happening in the rest of the country, in other ILECs' territories?  What is it that Aliant is doing, what is it that EastLink is doing and what is it that the consumer is doing so that we do not see that kind of competition in the rest of the country?

1002               MS TULK:  Yes.  It is an interesting question and certainly for me it is an interesting question even within my territory.

1003               So why is it that what we are seeing in Nova Scotia and PEI is happening fundamentally so differently than what we are seeing ‑‑ and has certainly been.  It is starting to change and there is certainly indications that it is changing, but so much different than what we have seen in New Brunswick and Newfoundland.

1004               So when you look at, you know, what Aliant is doing, fundamentally, if anything, we have been the most proactive inside Nova Scotia and PEI, because of the competitive entrant, so there is ‑‑ certainly, though, across the rest of is it there is nothing fundamentally different between the way that we are operating in New Brunswick and Newfoundland versus Nova Scotia and PEI, that should make competitive entry any more likely in Nova Scotia and PEI.

1005               From a customer perspective, certainly, you know, there are many differences within our customer base, but they are not based on whether you are a Nova Scotia consumer or a Newfoundland consumer.  They are based on other characteristics of the consumer group and, in fact, our segmentation tends to find similar customers across all the four provinces and the heterogeneity actually happens, you know, within the province, so that is not the difference.

1006               So that really leads you back to the business decisions of our competitors and I guess it's not really ‑‑ it would be an interesting question to ask some of the other competitors, why they have not been as quick to enter as EastLink has been or presumably to ask EastLink why they have been so quick.

1007               Obviously we do not have access, EastLink not being a publicly‑traded company, we have no information about their financial success, but presumably the fact that they have sustained this competition, that they continue to expand and grow, would tell you that if they are being rational business people, that they must be seeing some financial success, so really it is a question you would have to ask them.

1008               But from our perspective and the perspective of our customers ‑‑ and I think that has come up in a number of previous discussions and through a number of pieces of this ‑‑ and again, speaking to the importance of being able, and the economic rationale that has been presented to you, of being able to look at forbearance at the smallest relevant market, because otherwise you would be holding the ILECs accountable for decisions they don't control and, in fact, restricting the ability of the ILECs to compete based on decisions that we cannot be expected to control.

1009               I cannot be expected to control why the business decisions for Rogers are different than they are for Eastlink or why the business decisions of why certain competitors have entered the business market in Halifax but not St. John's or why they are in St. John's and not Moncton.

1010               That is not a decision that we make but the fact is once they choose to enter, once they build a business, once they start winning customers, then the customers need to be able to benefit there and they shouldn't be held back from seeing the benefit of competition because the provider who happens to be the ILEC in their territory happens to also serve other territories and it is why the relevant geographic market must be kept small so that it is relevant to the customer so that the customer can benefit.

1011               THE CHAIRPERSON:  Thank you very much.  Those are all our questions.  Your answers have been very clear and responsive.  Thank you.

1012               Madam Secretary.

1013               LA SECRÉTAIRE : Merci, monsieur le président.

1014               I will now call on The Companies.

‑‑‑ Pause

PRÉSENTATION / PRESENTATION

1015               M. BIBIC : Bonjour, Monsieur le Président, conseillers.  Je suis Mirko Bibic et je suis Chef des Affaires réglementaires de Bell Canada.

1016               Je suis accompagné, aujourd'hui, à ma gauche de Steven Bickley, Premier vice‑président, Marketing intégré; à sa gauche, on retrouve Bob Farmer, aussi de Bell Canada, que certains parmi vous connaissez sûrement très bien; et à ma droite, Henry Ergas, Chef de CRA International, Région Asie‑Pacifique.

1017               Dans la courte période qui nous est attribuée aujourd'hui, nous traiterons du milieu concurrentiel dans lequel nous évoluons et de l'urgente nécessité d'établir un cadre de réglementation approprié à l'abstention de réglementer les services locaux, un cadre aux critères clairs.

1018               Mes propos porteront en particulier sur les changements qui ont marqué notre environnement.

1019               Steven vous parlera des conséquences de la présente instance sur les consommateurs canadiens.

1020               Commissioners, as I was preparing in the last couple of days to appear here today, I spent some time thinking back to a year ago, just about now, when we appeared before you in the context ‑‑ or some of you, in the context of the Voice‑over IP public consultation, just to take stock of what we learned there and especially what has transpired in the past year.

1021               I remember ‑‑ I remember because I pulled our opening remarks from a year ago ‑‑ I remember appearing here and my colleague mentioning that ‑‑ at the time, he said:

                        "This is not telecom as usual."

1022               And at the time, we said:

                        "Competition is here today."

1023               And then what happened?

1024               Well, party after party followed us a year ago and some in particular, cablecos, urged the Commission not to be swayed by the ILEC hype, they called it, and apparently, in the past, the allegation is that Bell Canada has made some pretty grand predictions that have never come true.

1025               I pulled, in the context of this proceeding, one of the cablecos replies, the one that was filed September 15th, and I read in there an accusation that Bell Canada was crying wolf again by claiming that competition is around the corner.

1026               None of those responses personally surprise me and I don't think those responses should surprise any of us.  It serves the competitors' interest to deny the existence of market conditions that would trigger forbearance from regulation.  Regulation, of course, shields them from market forces.  Their rhetoric is thus designed to distract us from the facts.

1027               So what are the facts?

1028               A year ago, Bell Canada predicted, and I quote:

                        "The cablecos are strongly positioned to deliver on the true promise of VoIP."

1029               And today, the four largest Canadian cablecos are offering digital telephony and they are succeeding.  Eastlink, of course, has been succeeding since 1999.

1030               A year ago, there were predictions that competition would come from every direction, from big players and from small players, and today, we are witnessing eBay jumping into the telephony market by purchasing Skype.

1031               In fact, some of the most successful corporations in the new global economy, Google, Yahoo, Microsoft, AOL, they all intend to offer the same and let us not forget that when they enter Canada, they will be joining more than 50 Voice‑over IP service providers offering service to all of us today.  Last year, there were 25 and that was a lot.  A year later, there are 50.

1032               Last year, we questioned whether VoIP competitors really needed a regulatory leg up on the established telcos, and less than two weeks ago ‑‑ I had a copy of the magazine here ‑‑ less than two weeks ago, I picked up a copy of "The Economist" and there is a story in here titled "How the internet killed the phone business," and permit me to quote one passage from it:

                        "The rise of Skype and other VoIP services means nothing less than the death of the traditional telephone business established over a century ago.  Skype is merely the most visible manifestation of a dramatic shift in the telecom industry as voice calling becomes just another data service delivered via high‑speed internet connections."  (As read)

1033               So many of the predictions that were made in the past year have proven to be accurate and I am quite comfortable sitting here today and asserting that, in fact, I think Bell underestimated the force and speed of change.

1034               Looking ahead, no one, absolutely no one, is predicting anything other than escalating competition.

1035               So we ask again here today, a year later, does anyone really need a regulatory leg up on the telcos?  The answer is no.

1036               The facts on the record of this proceeding show that competition is not just around the corner, it is here today, and customers, commissioners, are prepared for it.

1037               A study by Decima Research last month found that Canadians overwhelmingly support policies and regulations that treat incumbents and entrants the same.  That is because such policies and regulations would give them greater choice.

1038               Bell Canada is prepared for competition too.  We experience it every day.  We think and act like a competitor, not out of principle but because we wish to survive and we wish to thrive.  Everything we do is viewed through a competitive lens.  Everything we do is focused on building broad and deep relationships with our customers.

1039               Finally, our competitors.  Despite what they will tell you, they are prepared for competition.  They are not infant companies.  They are already making major inroads in major markets across the country and they are cashing in on the IP revolution that has blown the communications industry wide open.

1040               Customers are prepared for competition.  Bell Canada is prepared.  Our competitors are prepared.  I submit then that the only issue is whether or not the regulatory framework is prepared.

1041               The regulatory framework has to start with an assessment of competition.

1042               Let me take a moment to flesh out our view of competition and how it differs from our competitors.

1043               The cable companies view it as a regulated market in which one set of competitors get a regulatory advantage over another set.  This advantage, they say, is needed to give them time and room to grow.

1044               They hold this position despite the fact that, in the case of the cablecos, they are multibillion dollar enterprises with millions of customer relationships, despite the fact that there remain no barriers to market and wholesale regulation remains, despite the fact that their networks and penetration into those millions of Canadian homes gives them a distinct technological and marketing advantage when bundling telephony with other services, despite the fact that even Ted Rogers admits that he is far from an underdog.

1045               In his own words, and I quote:

                        "How has it happened that cable guys have come the old Bell guys and the Bell guys have given up the advantage that they have had?"  (As read)

1046               Despite all that, these communications giants equate sustainable competition with regulated competition.

1047               But Ted Rogers had it right, the tables have turned and indeed the old Bell guys see the world very differently today.  It is because we have no choice.

1048               We see competition first and foremost as a process of experimentation and discovery, and for the competitive process to work, competitors must be free to experiment so that they can continuously improve their products and services.

1049               With today's regulatory regime, our competitors do have that complete flexibility.  We do not.  This doesn't sustain competition, it distorts it and it deprives customers in the process.

1050               Another key difference between Bell and our competitors is that we do not believe in just‑in‑case regulation.  That is because regulation bears a cost to the consumer, which Steve will explain further in a moment.

1051               Our competitors say they want regulation just in case an ILEC somehow, someplace, somewhere, someday, might engage in predatory pricing.

1052               Yet, the Competition Bureau, on the record of this proceeding, says the following, and I quote:

                        "A particular concern of the CCTA is the possibility of predatory pricing by the ILECs if forbearance is granted prematurely.  In the Bureau's view, the CCTA has not established the validity of their concerns."  (As read)

1053               Those are powerful words.

1054               Our competitors want regulation just in case they don't succeed but the facts say otherwise.  They are already acquiring customers rapidly and are poised to make further inroads using new technologies.

1055               Our competitors want continued regulation now just in case an ILEC might regain significant market power, this despite the fact, as we heard from Heather Tulk this morning, that no previously forborne market has been re‑monopolized.

1056               Our competitors' views are all the more extraordinary given that what is at issue is not the complete and immediate removal of all regulation, what is at issue is a framework for removal of economic retail regulation in competitive local exchange markets.  Wholesale regulation, social regulation and technical regulation are not at issue here.

1057               A decision to regulate must be based on the evidence, not on unwarranted and unsubstantiated fears, and a decision to continue to regulate must follow a proper analytical framework.  We need to put an end now to just‑in‑case regulation.

1058               So let us examine the basis for regulation.

1059               A proper analytical framework requires the right product and right geographic market definitions.  Only then can one undertake a valid assessment of the state of competition.

1060               Let us start with the geographic market.

1061               Some would have you believe that the purpose of defining a geographic market is to minimize the potential for differential pricing.

1062               This is wrong.  It is no way to define markets and the Competition Bureau has pointed this out.  Those who advocate this view simply want the broadest market definition because it suits their agenda of preserving regulation that is long, deep and broad.

1063               We also emphasize that once a geographic market has been defined, any forbearance analysis should not be based on market share alone.

1064               Public Notice 2005‑2, the very PN that launched this proceeding, confirms this proposition.  It says, and I quote from that PN:

                        "High market share is a necessary but not sufficient condition for market power.  Other factors must be present to enable a firm with market power to act anti‑competitively."

1065                    (As read)

1066               In short, commissioners, we are simply asking the Commission to follow Telecom Decision 94‑19.  This means considering markets separately.

1067               The state of competition in Toronto differs dramatically from the state of competition in Chicoutimi and the CRTC should stop citing figures, for example, like in its Monitoring Report, that say that nationally, ILECs have, for example, 98 per cent market share.  That number tells us nothing about what is going on in Calgary versus Toronto versus Montreal versus Halifax.

1068               In Decision 94‑19, the Commission adopted the fundamental economic principle that a competitive market is one in which no single firm has the power to profitably sustain prices that are significantly above competitive levels.  In such markets, the Commission decided that forbearance from economic regulation of local exchange services is required.

1069               Fundamentally, it is about high prices.  It is not about low prices, it is not about differential pricing, it is not about protecting competitors, it is about high prices, and this economic principle, supporting forbearance, has been endorsed by a multitude of economists who have filed evidence in this proceeding, including Henry, Dr. McFetridge, Ms Sanderson, who you heard from earlier, and Drs. Khan and Crandall.

1070               On this point, I would like to make a final remark.

1071               There is a very compelling piece of evidence on the record that I would like to bring to your attention.  The cable companies have their own economic experts, of course, in the form of Drs. Gillan and Ross, who filed the report, and the cable companies' own experts, on the record of this proceeding, admit that they are not concerned that prices would increase with forbearance.  That is the evidence and it is on the record.

1072               Steven.

1073               MR. BICKLEY:  Thank you, Mirko.

1074               I would like to focus on two issues, the impact of competition on Bell and the cost of regulation to the customer.

1075               As Mirko said a few moments ago, everything we do at Bell is viewed through a competitive lens.  We have no choice.

1076               We look at market leading incumbents, all household names, who falter in the face of disruptive new technologies:  IBM when faced with the personal computer, Kodak when faced with digital photography and K‑Mart when faced with the Wal‑Mart distribution system.  These established brands were either too slow or unable to respond to the tectonic shift that was going on in their markets.

1077               Every day, we witness such a shift in the communications industry in Canada.  Our competition is aggressively getting out their message of choice.  Walk into your local shopping mall and you will be able to walk out with competitive telephone service from Primus, Telus or Vonage.  Go to a Jays' game in Toronto and you will hear about real choice from Rogers.

1078               Telemarketers, direct mail, door‑to‑door salesmen are just some of the marketing vehicles being employed by cable, VoIP, CLEC and wireless competitors that woo customers.

1079               Last night as I was trying to relax before this proceeding, I turned on the TV only to find a Primus ad on there and I will tell you it wasn't very relaxing.

1080               So the question becomes:  What has been the customer response?

1081               Well, the customer response is they like choice.  Videotron has stated that the interest in cable telephony service has exceeded their expectations and customers are flocking to their service.

1082               Bell does not have the luxury of standing still in the face of this rivalrous competition and we are not.

1083               We have developed new products such as Bell Digital Voice to compete with VoIP competition.

1084               We have provided competition training to our customer service representatives so they can adapt to this new environment.

1085               We have revamped our customer intelligence gathering in order to better assess our vulnerabilities in customer behaviour.

1086               We have completely re‑engineered our forecasting process to acknowledge all competitive threats.

1087               Yes, competition has arrived.  Yet, the current regulatory framework constrains us from responding to this competition.

1088               So now, let us turn to the cost of those constraints and how it harms consumers.

1089               First, the most obvious example, the winback row.  Put aside for the moment that this regulation presumes customers are childlike, gullible, uninformed of their choices, a presumption refuted not only by polling data but also by observation, the simple observation that they make complex purchasing decisions every single day.

1090               Depriving customers of choice is simply wrong.  It removes the normal checks and balances that competition brings.  By not allowing ILECs the opportunity to present a counter‑offer to a customer who has left, there is no pressure on the CLEC to enhance their offer.

1091               Let us take a recent example that involved customers who switched to a competitor's service only to find their voice mail didn't work.  It is a shame that these customers were denied the opportunity to be contacted directly about a competitive alternative.

1092               You see, choice holds companies accountable.  In previous winback decisions, the Commission stated that targeted winback activities increased customer churn and that increased churn was likely to be especially detrimental to CLECs because they don't have large, stable bases of customers capable of funding their ongoing operations.

1093               I think we should look at the cable companies and realize that they do have large bases of customers but a real point that I want to make here is that customers are not the property of any company.  Their business has to be earned each and every day.  The relationship cannot be taken for granted but it must be sustained through hard work.

1094               From a corporate perspective, changing companies is called churn.  When a customer is doing it, it is called choice.

1095               We cannot create choice by limiting choice.  Our competitors, some large and powerful, others small and aggressive, they don't need the winback rules that restrict customer choice.  The only loser here is the customer.

1096               In the interest of time, let me briefly mention two other regulatory costs for customers:  the stifling impact on marketing innovation as well as product introduction.

1097               The bundling rules are a disincentive to creation or offering of bundles that include both regulated and unregulated products.  We cannot create these bundles without subjecting the unregulated products to this onerous regulation.

1098               Therefore, product bundles that have a single price point, like the EastLink model, for escalating discounts like the Rogers model, have all been rejected by Bell solely on the account of regulation.

1099               Bundles that would have a natural customer appeal like our Bell digital voice with a broadband offering, again, because of the cost of regulation, not brought to market.

1100               So let us turn to product introduction.  In 2004, we launched a managed IP telephony service.  That product would have been launched much sooner had it not been for the cost of regulation.

1101               When new products, new service packages, new ideas are delayed or even shelved because of the regulatory burden on the company, it harms innovation, productivity, and the competitive process.

1102               In closing, let me touch on the issue of price discrimination, or more accurately, differential pricing.

1103               Our competitors will claim that this is anti‑competitive, even though it is the basis of all their offers.  In fact, differential pricing is a normal and healthy consequence of competition.

1104               This is overwhelmingly supported by the evidence.  You can look at whether somebody is booking a hotel room, buying a car or new clothes, differential pricing is a fact of life.

1105               It gives freedom and flexibility to the buyer.  They can choose better deals or choose convenience.

1106               It gives freedom and flexibility to the seller, who can tailor products and services to meet their customers' needs and to respond to rapidly changing market conditions.

1107               Our customers are the exact same ones who buy cars, clothing, hotel rooms, and they want the exact same choice.  They want the exact same control.  They want the exact same flexibility.

1108               And yes, they are willing to pay differential prices to get what they want.

1109               In short, benefitting one customer will not harm another customer.

1110               Mirko?

1111               M. BIBIC : Pardon.

1112               Conseiller, la concurrence est maintenant établie dans le marché des circonscriptions locales.

1113               Nous constatons chaque jour la puissance de technologies perturbatrices qui ont fait disparaître les notions traditionnelles relatives aux communications téléphoniques et qui feront de même pour les entreprises qui ne voudront pas ou ne pourront pas s'adapter.

1114               As Stephen said, you cannot create choice by limiting choice.  It is time to allow competition to do its job, and create a regulatory framework where the customer rules.

1115               The evidence is in, and it is on the record.  Now all we need is regulatory certainty.  We need a forbearance framework based on the evidence and on firmly established economic principles.

1116               These attributes of sound regulation are essential to all market participants as we make our product development decisions, our expansion decisions, and our pricing and marketing decisions.  They are even more critical in a rapidly changing environment.

1117               We ask the Commission to set the criteria for forbearance in local exchange services in accordance with that evidence.

1118               Thank you.

1119               THE CHAIRPERSON:  Thank you very much, gentlemen.

1120               If we don't take you through questions on every aspect of your presentation, your evidence, it is because they are clear to the questioner.

1121               So I will be starting the questioning, and I will ask you questions to make sure I understand what your position is.  That is really the purpose of this exercise.

1122               Just to start, on page 12 of your argument ‑‑ sorry, paragraph 12 of your argument ‑‑ page four, you say,

                        "...as the company has pointed out in their submissions" ‑‑

‑‑ and you did.  I even checked back for this exact quote.

1123               You say:

                        "The Commission must apply the principles found in Telecom Decision 94‑19."

1124               Were you using "must" in a ‑‑ you weren't using that in a legal sense?  Were you using that in a "we think you should" or what?

1125               MR. BIBIC:  Mr. Chairman, which ‑‑ are you talking about the June 22nd submission?

1126               THE CHAIRPERSON:  Your final argument, 15th of September.

1127               MR. BIBIC:  Fifteenth of September.

1128               THE CHAIRPERSON:  Paragraph 12.

1129               MR. BIBIC:  Paragraph 12, was it?

1130               THE CHAIRPERSON:  Yes.

1131               First line.  You use the word "must".  "The Commission must apply the principles..."

1132               And I am just ‑‑ I don't want to make too much of it.  I just want to make sure.  I am reading it as "you should" or "we advise you to".

1133               MR. BIBIC:  It is a combination of both, I would say.

1134               The principles of 94‑19 are well established.  They are used by other regulators.  The Competition Bureau.  They are supported by the economic experts.  And I think they flow quite nicely from the statutory requirement in subsection 34(2) which does have a "shall" in the "shall forbear if competitive market forces are sufficient to protect the interests of users."

1135               So it is a combination of both.

1136               THE CHAIRPERSON:  A combination ‑‑ you are not saying it is a matter of law, that we have no choice, we have to apply ‑‑

1137               MR. BIBIC:  I would say it is a matter of law under section 34(2) that the Commission forbear if it finds that a market or a class or:

                        "...that a telecom services or a class of services provided by a Canadian carrier is or will be subject to competition sufficient to protect the interests of users."

1138               And Telecom Decision 94‑19, in terms of setting the forbearance criteria, certainly an advisable framework to follow in order to meet the requirement under 34(2).

1139               THE CHAIRPERSON:  I understand the link and the advisability.  And that is the sense in which you meant it?

1140               MR. BIBIC:  Correct.

1141               THE CHAIRPERSON:  Thank you.

1142               Okay.  When you look at 94‑19 ‑‑ and we are familiar, I am sure, with the steps that were set out ‑‑ the first step was, defining the relative market, generally the definition of the relevant market.

1143               I can refer you to page 66 of that, but I am sure you are familiar with it.

1144               MR. BIBIC:  No, I have it here.  That is fine.

1145               THE CHAIRPERSON:  You have a print version of it, but ‑‑

1146               Then there is the phrase:

                        "Indeed, once defined, the relevant market forms the basis of the entire forbearance exercise, as well as any subsequent analysis examining alleged anti‑competitive behaviour."  (As read)

1147               So do you see that the definition of the relevant market then provides the boundaries service‑wise and geographically for the forbearance exercise and that the focus should then be on that market so defined?

1148               MR. BIBIC:  That is the way we see it.  Correct.

1149               It all starts, as you indicated, with the relevant market, and, again, paragraph 17 of PN 2005‑2 essentially reiterates, Mr. Chairman, what you quoted from Telecom Decision 94‑19.

1150               Once the market, from a product perspective and a geographic perspective, is defined or scoped out, the analysis turns to market power, which Telecom, again, 94‑19 defines, and is in paragraph 18 of the PN 2005‑2 question, being, can it be demonstrated ‑‑ the market power can be demonstrated by the ability of a firm to raise or maintain prices above those that would prevail in a competitive market.

1151               Which is the reason for my opening remarks, that it is about the ability to increase prices above competitive levels.  It is not about the ability to decrease prices.

1152               First of all ‑‑

1153               THE CHAIRPERSON:  Wait, wait.  This can be long and drawn out, or you can answer the questions I am trying to put to you.  So I am not going to stop you if you want to speak, but that doesn't address my question.

1154               I was looking at the specific question of, are the boundaries coterminous?

1155               When you define the relevant market, you then focus on forbearance, and through the market power exercise, and so on ‑‑ but is that the market that you then are talking about when you are talking about forbearance?

1156               Is that the boundary of the market?

1157               MR. BIBIC:  Well, I am not sure I ‑‑ Mr. Chairman, I must confess, I am not sure I understand the question.

1158               One defines the market, and then one decides whether or not to forbear in that market?

1159               THE CHAIRPERSON:  In that market.

1160               MR. BIBIC:  Correct.

1161               THE CHAIRPERSON:  Okay, and the reason ‑‑ and it is not a trick question, but it seemed to me, on the face of it, that there was a bit of a dissonance in the approach because, as I saw you defining the four markets ‑‑residence primary, local business primary, local Centrex, and digital upfront ‑‑ you then would obtain ‑‑ that was your definition of the relevant market.

1162               So zeroing in on any of those, I understood what you were getting at and there is a list of service that virtually defines that.

1163               But when it came to forbearance, it seemed to me that you expanded the scope into wireless and then you said, I think ‑‑ and we will get back to that later on ‑‑ but I am just trying to understand your overall conception.  You then said, but take into account, in addition to those markets I have just defined, wireless substitution, those wireless substitutions that have taken place.

1164               Now, your position is either that wireless is part of each of those larger markets, which I think it really is ‑‑

1165               MR. BIBIC:  That is our position, yes.

1166               THE CHAIRPERSON:  That is your position.

1167               And then your reason for, in effect, shrinking the forbearance market to only wireless substitution, I think the reason you gave was to be conservative.

1168               Is that correct?

1169               MR. BIBIC:  No.  The way ‑‑ well, let us take the residential market because that is probably the easiest one to use in order to answer the question.

1170               The products which are the subject of forbearance in the residential local exchange services market, our primary exchange service, the traditional wire line service as well as voice over IP services, because the Commission found them to be the same in 2005‑28 and, therefore, they are also regulated.

1171               So the question is, if we are going to examine whether or not those services should be the subject of forbearance, we need to decide in what market they reside from a product perspective, from a geographic market perspective.

1172               And our position, in terms of residential services, is that, if a hypothetical monopolist offering either one of those services, traditional PSTN services or VoIP services, were to try to impose a significant and non‑transitory price increase, would there be competitive constraints to keep in check those price increases?

1173               If the answer is, "Yes, there would be competitive constraints," those other products come into the product market definition as well.  If not, then the product market definition is only those two products.

1174               So in the case of PSTN services and Voice over IP services, it is our position and our view that if a hypothetical monopolist were to try to increase those prices to supra‑competitive levels, wireless, for example, would act as a competitive check.  So would the digital cable telephony products.  So would traditional CLEC offerings.  And, therefore, all of those are in the product market.

1175               But, of course, many of those products that are in the market are already forborne and, hence, aren't the subject of this proceeding in terms of forbearance.                               

1176               THE CHAIRPERSON:  No, I follow that.  But, I guess, if you turn to your measurement criteria, ‑‑ and I am using you final argument paragraph 101 ‑‑ the denominator of that ratio includes all local non‑wireless connections and all wireless only.

1177               So it doesn't use the entire wireless residential market, as you are calling it.

1178               Is that correct?

1179               MR. BIBIC:  Okay.  Well, Henry would like to say a few words, but the short answer to your question is, yes.  But again, for the same reasons as Aliant, it is to be conservative.

1180               THE CHAIRPERSON:  Right.  So that is what I was suggesting, that you were trying to be conservative.

1181               I guess I understand that but to be conservative is, in effect, to deviate from the logic of 94‑19 in that regard, because you would have thought that you would be focusing on the same market.

1182               Now I appreciate that part of that market that you are defining is forborne, namely, the wireless portion.  But, in terms of the market as you are defining it and for purposes of measuring it, your desire to be conservative which, again, may be a good thing or a bad thing but, as I see it, it deviates from the logic of the model.

1183               Now I may be wrong about that, and perhaps you or Mr. Ergas can clarify it for me.

1184               MR. ERGAS:  If I may come back to your earlier question, it seems to me that it may be helpful to think of this in terms of an analogy.

1185               And it maybe that I misunderstood the underlying point that you were making, but assume that at the outset I regulate the supply of natural gas within a particular area and the question that I am, then, dealing with is, should I continue to regulate that supply or ought I to forbear from regulating that supply?

1186               Now what I would want to do, and certainly one approach to carrying out that analysis, would be to start off by asking, what is in the market in which natural gas is supplied?

1187               And I might look at that and decide that electricity, or electric power, is a very good substitute for the uses to which natural gas is put in that area and so the market in which natural gas is supplied includes electricity.

1188               Now, obviously, having come to that view, the forbearance decision would be with respect to natural gas because by my initial assumption I am not regulating the price of electricity and I have decided that the electricity supply acts as a competitive constraint.

1189               Now, having done that, I then focus on the supply of natural gas, and what I might want to say to myself is I believe that the supply of electricity imposes a reasonable constraint and it may be that my assessment of competitive conditions in electricity is such that I conclude that the market in which electricity is retailed is, effectively, competitive.

1190               But I might then want to have, for the avoidance of doubt, some additional step that would buttress or underpin my view that I could safely forbear from the regulation of natural gas.

1191               And what I might do at that point is I might look at how many of those consumers for whom natural gas would meet their needs, how many of those consumers use not only natural gas but how many of those are in the overall market taking natural gas or taking electricity.

1192               And if I found that a significant proportion of those consumers had shifted to electricity or were taking up electricity, then that might, as it were, be an element of additional proof in my view.

1193               And that is what I see that particular formula as doing, and that is the logic that leads you from the market definition step through to the formula set out in paragraph 101.

1194               THE CHAIRPERSON:  Thank you.

1195               It is a perfect analogy.  You could have used the products and services we have here.  I guess I am taking it to mean, we, Bell, think it is the whole market‑‑ it includes wireless, all connections, VoIP wireless and wire line ‑‑ the wireless portion is forborne and, therefore, we want you to forbear from the rest, the wire line portion and including VoIP.

1196               And in reaching that stage, throw into the count those wireless subscribers who have abandoned wire line phones.

1197               And I guess ‑‑ I understand that as a policy advocate.  See, I am just wondering whether it is consistent with the approach that you ‑‑ of 94‑19.

1198               It is not worth belabouring ‑‑

1199               MR. BIBIC:  Well, Mr. Chairman, we would be ‑‑ we could certainly include all wireless lines in the numerator and all wireless lines in the denominator because we do firmly believe that wireless is in the market.

1200               But I think there ought not to be too much debate that if a consumer has decided to completely forego a wire line connection and use wireless as a replacement that clearly is in the market and that is why we drafted it the way we did.

1201               THE CHAIRPERSON:  I am not sure about that.  I mean, I would be interested in hearing views on that.  I am not sure that that is what it establishes.

1202               I think it establishes a converging of the markets, an overlapping, clearly, because you are getting the overlapping but whether or not you now look at the entire wireless and wire line sector as one market or not is a separate question.

1203               Your position is that they are separate but, however, for purposes of forbearance, you only need to count the substituted portions in the denominator.

1204               MR. BIBIC:  Our position is not that they are in ‑‑ that wireless and wire line are in separate markets.

1205               THE CHAIRPERSON:  That they are in the same market.

1206               MR. BIBIC:  Correct.

1207               THE CHAIRPERSON:  But that for purposes of forbearance, you ought to count the wireless substitutions only.

1208               MR. BIBIC:  For the purposes of administering the streamline test that we are presenting to the Commission, it should ‑‑ we indicate in paragraph 101 ‑‑ count only all wireless.

1209               THE CHAIRPERSON:  Right.

1210               MR. BIBIC:  Wireless only counts.

1211               It wasn't to suggest that it is only wireless only usage that is in the market.

1212               THE CHAIRPERSON:  No, no.

1213               MR. BIBIC:  Okay.

1214               THE CHAIRPERSON:  I follow that.

1215               MR. BIBIC:  That's correct.

1216               THE CHAIRPERSON:  But it was, I guess, in reading, and we have wrestled with this in a number of proceedings ‑‑ in reading the 94‑19 criteria, the statement that the first step is defining the relevant market and, then, that becomes the basis for the entire forbearance exercise led me to a different sense of how you would count and measure.

1217               But I take that your position ‑‑

1218               MR. BIBIC:  Okay.  Can I ‑‑ Henry would like to say a few words, but I would like ‑‑ I just want to make one thing ‑‑ I just want to make sure of one thing.

1219               Just because the forbearance analysis by definition examines whether or not to forbear from a regulated service ‑‑ if the service weren't regulated, we wouldn't be here, but that doesn't foreclose the possibility that non‑regulated services will or won't be in that same product market.

1220               THE CHAIRPERSON:  Oh, no!  Absolutely.

1221               MR. BIBIC:  Okay.

1222               THE CHAIRPERSON:  The inconsistency is not on that side, it is between a view that the entire wireless market is part of the market that we are speaking about, and in the measurement test, you are only including ‑‑ and I understand ‑‑ to be conservative ‑‑

1223               MR. BIBIC:  Okay.

1224               THE CHAIRPERSON:  ‑‑ you are only including a portion of it.  That was all.

1225               MR. ERGAS:  Excuse me, just for the avoidance of any doubt or uncertainty in this respect, it would not be quite accurate to say that wireless and wireline are one market.

1226               What is being said is that wireless is a substitute for wireline but you clearly could not infer from that that wireline is a close substitute for wireless.  The substitution constraint is a constraint that bears on the wireline market and the market in which wireline services are provides includes wireless services because wireless services are a substitute for wireline services.

1227               However, if you were investigating the market for wireless services, it may or may not be the case that wireline services are a substitute for wireless services and I would suggest that from an economic perspective you would think that wireline services would not provide the full set of functionalities that wireless service provides and particularly they would not provide mobility.

‑‑‑ Laughter / Rires

1228               THE CHAIRPERSON:  Okay.  Well, I guess we will go back to what you said in terms of when you were defining the market in your original submission just to make it clear what you are saying because I don't want to mischaracterize it.

‑‑‑ Pause / Pause

1229               THE CHAIRPERSON:  Okay.  This is paragraph 69 on page 20 of your original submission.

1230               Now, we are always defining the relevant market for this exercise, are we not, Mr. Bibic, Professor Ergas?

1231               MR. BIBIC:  Yes.

1232               THE CHAIRPERSON:  Okay.  So the first sentence in paragraph 69 says:

                        "Based on the Commission's reasoning in Decision 2005‑28, wireless telephony services are also part of the residential local services market."

1233               Then you go on to say they have the same functionality and so on.

1234               So we should understand them as part of the residential primary market?

1235               MR. BIBIC:  Correct.  Again, the products or services which are the subject of this proceeding are voice over IP and traditional primary exchange service.

1236               So to examine what other products are in the relevant market, one decides what are the competitive constraints on the ability of a provider of those services to increase the prices I mentioned earlier, and wireless does act as a competitive constraint on the ability of a hypothetical provider, monopolist provider, of PSTN services and VoIP services.

1237               What Henry was explaining is that if we were ‑‑ and we are not ‑‑ but if this panel were the Competition Tribunal, for example, and were examining a merger in the wireless market, one would look at what are the competitive constraints on a hypothetical wireless monopolist.

1238               The one important thing ‑‑ just to finish, Mr. Chairman ‑‑ the one important thing, several parties in this proceeding have suggested that the Competition Bureau when it reviewed the Rogers and Microcell transaction found wireless and wireline not to be in the same market.  They did not.  What they found is that wireline services would not constrain the pricing of wireless services.  They did not find the converse.

1239               THE CHAIRPERSON:  Right.  No, I understand that and notwithstanding Mr. Ergas' previous intervention, I am taking the sentence in section 69 as saying that for purposes of this proceeding, wireless telephony services are part of the residential local services market.

1240               MR. BIBIC:  Correct.

1241               THE CHAIRPERSON:  Now, you are saying because of the Commission's reasoning, because in that same decision that you cite, of course, the Commission said that it was not and did not regard it as being part of the same market?

1242               MR. BIBIC:  Well, the Commission in that decision did find, certainly did find that voice over IP services are in the same market, and there is a reference to that in paragraph 69, and I ‑‑

1243               THE CHAIRPERSON:  Where do you see that?

1244               MR. BIBIC:  No, it is not in paragraph 69.  It is elsewhere in the submission, of course, where we make the point that the Commission has found voice over IP services to be in the same market as ‑‑

1245               THE CHAIRPERSON:  Well, of course ‑‑

1246               MR. BIBIC:  Okay.

1247               THE CHAIRPERSON:  ‑‑ but the first sentence in 69 is the Commission's finding was the contrary ‑‑

1248               MR. BIBIC:  Okay, on wireless.

1249               THE CHAIRPERSON:  ‑‑ on wireless.

1250               MR. BIBIC:  Yes.  Well, let me address that.

1251               THE CHAIRPERSON:  Yes.

1252               MR. BIBIC:  What I find particularly striking about ‑‑ well, one of the things I find particularly striking about the voice over IP decision is in coming to the conclusion that voice over IP services are in the same market as primary exchange service, the Commission went through the functional equivalence test.

1253               My first comment is that service doesn't have to be functionally equivalent to be in the same market.

1254               My second point would be having done that for voice over IP services, gone through the functional equivalence test, the Commission glossed over in one sentence why wireless is not in the same market, and had it ‑‑ in my respectful submission, had the Commission gone through the same functional equivalence test, it would have found for the same reasons that wireless is in the market.

1255               So it is correct that the decision doesn't say that ‑‑

1256               THE CHAIRPERSON:  This is not an RNV of Decision 2005‑28.  So notwithstanding those views, I guess we are looking at wireless here with this point.

1257               MR. BIBIC:  It is not an RNV. However, it is an independent proceeding where, again, we are advocating that wireless is in the market and it is incumbent on the Commission to look at that again.

1258               THE CHAIRPERSON:  No, that is fair enough and I will take you through those questions, and you can make reference to 2005‑28 but I am not sure it will be helpful.

1259               I think it would be more helpful to focus on the tests that we did use and one of those tests was the way a service is marketed and presented to the public.  Would you agree with that, that that is a test for whether services are in the same product market?

1260               MR. BIBIC:  Oh, I disagree.  I mean I do agree that the Commission used that as part of its functional equivalence test ‑‑

1261               THE CHAIRPERSON:  Right.

1262               MR. BIBIC:  ‑‑ but again ‑‑ maybe Henry can jump in ‑‑ but I do not believe that a product has to be exactly functionally equivalent in order to be in the same product market.

1263               THE CHAIRPERSON:  No, but in your own company, do you structure your company and market wireless as part of the same market as residential service?

1264               I noticed this month there was a structural reorganization in your executive ranks and you have now a president of Bell Mobility responsible for managing Bell's wireless business and you have a president of residential services responsible for wireline, voice and internet solutions.

1265               Would you say that your company offers wireless and wireline as part of the same market?

1266               MR. BIBIC:  I will let Steve jump in in a second but to answer the question about our corporate structure, I will explain the reasoning for restructuring our organization that way.

1267               Before last month, wireless was actually in our consumer business, despite that the Commission didn't find wireless to be in the same market as PSTN ‑‑

‑‑‑ Laughter / Rires

1268               MR. BIBIC:  ‑‑ a few months ago.

1269               The other answer is that the reason we moved wireless to be its own separate unit under a separate president reporting to Mr. Sabia is that we found that in the consumer business our business customers felt they weren't getting ‑‑ our enterprise business unit felt that they weren't getting the full attention that their customers deserved from wireless or necessarily were getting that attention.  So now we have one wireless business unit whose job it is to offer services to consumers and businesses and meet the needs of those two separate customer segments.

1270               THE CHAIRPERSON:  Right.  But historically, I think, they haven't been regarded as the same market by the Commission or the players.

1271               Have you been able to get a hold of any of the early submissions that the Mobility companies made in regard to the regulation of cellular in those days?

1272               MR. BIBIC:  How long ago?

1273               THE CHAIRPERSON:  Oh, 20 years ago, going back ‑‑

1274               MR. BIBIC:  Well no, but things change and they change rapidly, Mr. Chairman.

1275               THE CHAIRPERSON:  No, but it was interesting ‑‑ well, that is right.  You are absolutely right about that but you would agree that historically they have not been seen as part of the same market, including in submissions by Bell, which I am sure maybe Mr. Farmer has memory of but where the argument was ‑‑

Laughter / Rires

1276               THE CHAIRPERSON:  ‑‑ where the argument was certainly made ‑‑

Laughter / Rires

1277               MR. BIBIC:  I shouldn't have brought him along.

Laughter / Rires

1278               THE CHAIRPERSON:  The argument certainly was made that this is not like wireline, this is totally different for all the reasons we knew at the time.  I am not saying that markets don't change but historically, I think you would agree that they were not ‑‑ they didn't evolve as part of the same market and your company made those points ‑‑

1279               MR. BIBIC:  Well, they were ‑‑ 20 years ago was 20 years ago.  The products were different.  I remember people walking around with these big clunky shoulder straps and I mean who would want that in place of a wireline phone?

1280               THE CHAIRPERSON:  It was a great phone.

‑‑‑ Laughter / Rires

1281               MR. BIBIC:  But things are different today.  I mean there is a lot of functionality, the prices have gone down, and a very important ‑‑ Mr. Chairman, a very important point.

1282               We are now ‑‑ because we are in a competitive environment and we have to do this, we are tracking why our customers leave us.  Those customers actually call us and say we don't want you any more and we are disconnecting.  We ask, well, why.

1283               Fully 6 per cent of those are leaving to wireless only.  I mean that in and of itself is indication that those customers ‑‑ it is 6 per cent ‑‑ do view it as a total substitute.

1284               THE CHAIRPERSON:  I don't know whether it is in this proceeding or elsewhere but the ‑‑ and the argument will go on.

1285               I guess if I had to ask you when during the past 20 years you think the markets merged, because Bell certainly didn't take the view of that 20 years ago, would you have any sense of when the company began to believe that they were part of the same market?

1286               MR. BIBIC:  The short answer is I think that is irrelevant.  We are here to discuss the state of the marketplace today, and 34‑2 as well as Telecom Decision 94‑19 makes clear that it is a forward‑looking test, we don't look back in the rear‑view mirror, and the question is not only is wireless a competitive constraint on wireline pricing today, the real test is will it be a competitive constraint looking out one year or two years, which are the words from Telecom Decision 94‑19.

1287               My position today, Mr. Chairman, is that wireless is in the market and it will be even more so a year and two years from now for a whole host of reasons which are on the record.

1288               For example, the CRTC's own Monitoring Report, the 2004 version, if one turns to page 102 there is a reference there from the Commission citing a survey that 48 per cent of Canadians indicated that wireless quality was superior or no worse than wireline quality and 36 per cent considered wireline to be superior in quality.

1289               There are a whole bunch of touch points, including the Stats Can data indicating that wireless is in the market.

1290               THE CHAIRPERSON:  Would you agree or disagree with the proposition that when you market residential or business services, you are marketing them to households or businesses; when you market wireless, you are marketing it primarily to individuals?

1291               MR. BICKLEY:  As we think about wireless, on it there are fields, and you do very much in wireless market to households too.  You have family plans where you can get multiple cellphones there on it.

1292               As we go through this conversation, I can tell you the reality is what we experience every single day.  We can ask ourselves all these questions but the consumers are voting and they are voting by leaving us to use a wireless solution.  They look at their total telecom spending and make a complex decision around purchasing them.  Some customers are coupling it with over the top VoIP and saying that that is a good telecommunication solution that they have.

1293               So as we look at all this, what I can sit here in front of you and say is that absolutely it is a substitute.  It is a growing trend and it is one we take very seriously.  We have a separate category as we look forward in our market share that says what do we think will happen with wireless substitution and the debates we have around it is will it grow faster than we have predicted it to grow around it.

1294               THE CHAIRPERSON:  All right, thank you.  Okay, I take your point that the statutory provisions do require a future‑oriented guess to be made, an estimate to be made.  There are no facts in the future but you are taking account of it.

1295               But in today's marketplace ‑‑ I think either Mr. Bibic or ‑‑ I am sorry, Mr. Bickley ‑‑

1296               MR. BIBIC:  Mr. Bickley.

1297               THE CHAIRPERSON:  ‑‑ Mr. Bickley ‑‑ differential pricing, differential service quality, differential access to 9‑1‑1, differential directory listing rules, all of these are still in place as between wireless and wireline; would you agree?

1298               MR. BIBIC:  Well looking forward, there will be wireless number portability.  In terms of price comparison, I think the evidence on the record demonstrates that based on median wireline usage, the price for wireline and wireless are more similar than one would think just kind of looking back to two, three, four years ago.

1299               I would concede that they are regulated differently but that doesn't indicate that they are not in the same market.

1300               THE CHAIRPERSON:  No, I wasn't making the regulatory distinction, I was ‑‑ I mean the regulatory distinction grew up because, I guess, the Commission at the time was persuaded by Bell and its competitor that they were truly a different market but the question today is are they still a separate market or not and your evidence is you think that they are part of the same market ‑‑

1301               MR. BIBIC:  That is correct.

1302               THE CHAIRPERSON:  ‑‑ notwithstanding those differences.

1303               Okay.  Now, residence and business, is it the practice of the industry, again, to ‑‑ again, your corporate structure doesn't reflect that but as Mr. Bibic rightly pointed out, if we could have our regulatory outcomes dictated by your corporate structure, they might change more often.

‑‑‑ Laughter / Rires

1304               THE CHAIRPERSON:  So I take that point.

1305               MR. BIBIC:  My job would be easier, I think.

‑‑‑ Laughter / Rires

1306               THE CHAIRPERSON:  I take that point.

1307               But is it the practice of the industry, Mr. Bickley, to break these accounts down between residenc