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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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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TRANSCRIPTION DES AUDIENCES AVANT
CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
FORBEARANCE FROM REGULATION OF LOCAL EXCHANGE SERVICES /
ABSTENTION DE LA RÉGLEMENTATION 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 29, 2005 Le 29 septembre 2005
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès‑verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
Canadian Radio‑television and
Conseil de la radiodiffusion et des
Transcript / Transcription
FORBEARANCE FROM REGULATION OF LOCAL EXCHANGE SERVICES /
ABSTENTION DE LA RÉGLEMENTATION 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 Noël 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
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 29, 2005 Le 29 septembre 2005
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
PRESENTATION BY / PRÉSENTATION PAR
Cogeco Cable Canada Inc. 1058 / 5600
Shaw Communications Inc. 1105 / 5873
Rogers Communications Inc. 1185 / 6341
Québecor Média Inc. / Vidéotron Télécom ltée 1268 / 6844
EastLink Telephone 1329 / 7227
Gatineau Quebec / Gatineau (Québec)
‑‑‑ Upon resuming on Thursday, September 29, 2005
at 0930 / L'audience reprend le jeudi
29 septembre 2005 à 0930
seq level0 \h \r5594 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 5595 THE CHAIRPERSON: Order, please. À l'ordre, s'il vous plaît. Good morning, everyone.
5596 Madame la secrétaire...?
5597 THE SECRETARY: Thank you, Mr. Chairman. Bonjour, tout le monde.
5598 Please note that Panel 14, Rogers Communications Inc., traded places with Panel 16, Cogeco Cable Canada Inc.
5599 Nous allons procéder maintenant avec Cogeco. Thank you.
PRESENTATION / PRÉSENTATION
5600 MR. MAYRAND: Thank you.
5601 Good morning, Mr. Chairman and Members of the Commission. I am Yves Mayrand, Vice-President Corporate Affairs, Cogeco Cable Inc. With me today are, on my left, Ron Perrotta, Vice-President, Marketing and Sales; on my immediate right, François Audet, Director, Telecommunications and, to his right, Michel Messier, Director, Regulatory Affairs, Telecommunications.
5602 Merci de nous recevoir dans le cadre de cette importante audience publique.
5603 As you probably know, Cogeco launched its digital phone service last June in the cities of Burlington, Oakville and Trois-Rivières. We have since rolled it out to Windsor, Drummondville and St-Hyacinthe. This new service is essentially offered to residential customers. At this time, we plan to extend it gradually to most cities served by Cogeco, hopefully by December 2006, but obviously only where we can have a reasonable expectation that the service will be economically viable in the long run.
5604 The outcome of this proceeding is just as vital for us as the outcome of the VoIP proceeding. We waited for your decision and we relied on it for our own decision to enter into the residential local telephone market.
5605 In that decision, you confirmed that local VoIP services, dependent or independent of access, should be regulated as local exchange services.
5606 Of more direct relevance for the current proceeding, the Commission decided to deny the ILEC requests for forbearance from the regulation of local VoIP services. Without ambiguity, the Commission based its determination on the fact that eight years after local competition was officially introduced the ILECs continue to be the dominant providers of local exchange services in Canada.
5607 The local market data recently released by the Commission has confirmed this undeniable fact. Indeed, at the end of 2004, the ILECs accounted for 97 percent of revenues for local residential services on a national basis and continued to hold almost 100 percent market share in several local residential markets.
5608 There is no guarantee of financial success in the local telephony market, nor are we seeking such a guarantee from the regulator. All we are asking for in this proceeding is predictability and consistency of the rules set by the Commission and a fair chance to roll out our service throughout our service area and to capture a sustainable position in the market as a new entrant before you leave it all to market forces.
5609 Competition should have a decent opportunity to take hold in the local telecommunications market before forbearance occurs. Indeed, you must consider not only the establishment of competition but also the continuance of competition. The benefits of that competition should extend to all regions of Canada, not just the largest cities in the country. That is what the Telecommunications Act clearly contemplates, and it makes sense.
5610 The public interest would not be served if you did not make the right call the first time and you had to re-regulate because competition, and particularly facilities-based competition, did not take hold in the local telecommunications market across Canada.
5611 As a member of CCTA, Cogeco fully supports CCTA's proposed local forbearance framework and criteria. We would like to focus our presentation today on the barriers that we must still overcome for effective entry into the core residential market of the incumbent telephone companies.
5613 MR. AUDET: Thank you, Yves.
5614 Cogeco operates cable systems dispersed throughout the provinces of Québec and Ontario, that embrace 83 exchanges in 41 LIRs, involving some metropolitan, but mainly mid-sized and smaller urban and rural areas. This geographic diversity creates a particular challenge for Cogeco to expand its telephony offering throughout its serving territory.
5615 While urban metropolitan areas are likely to provide reasonable penetration and yield satisfactory economics, smaller centres remain a challenge. Cogeco plans to roll out its telephony offering gradually to most of its territory by the end of 2006, but smaller markets will likely remain unaddressable under the current interconnection regime.
5616 Further, Cogeco needs to obtain PSTN connectivity to all ILEC exchanges where it wishes to provide its telephony offering. Instead of establishing its own local interconnection LIR by LIR, exchange by exchange, Cogeco has opted to obtain its PSTN connectivity through an arrangement with a third party, namely Telus, in a manner that assures compliance with Decision 2005-28.
5617 Cogeco believes that direct interconnection is an option in the long run, as it may provide better control over costs and more operational flexibility. However, despite the improvement brought by the establishment of LIRs, Cogeco is still of the view that the current local interconnection default model would have been uneconomical for Cogeco in almost all the local markets that it services due to higher initial capital cost and insufficient returns.
5618 This remains a high barrier to entry for a carrier that primarily serves the residential telephony market, particularly outside of the large metropolitan areas. In smaller markets, it has become critical to create synergies with a partner whose business model is highly complementary to our own.
5619 In this regard, Cogeco submits that it is urgent that a new VoIP-to-VoIP interconnection model be implemented to reduce the barrier imposed by the current default local interconnection model. VoIP-to-VoIP interconnection should be inspired by the highly successful and efficient IP peering model that has developed between nearly all ISPs, where no compensation is paid, and where traffic is exchanged in neutral third-party controlled locations.
5620 It should be noted that Telus does not operate as a CLEC throughout Bell's territory and, therefore, significant time and effort is required for Telus to establish the necessary interconnections with Bell. As a result, Cogeco's deployment schedule is lengthy, and one of its critical elements is Bell.
5621 It is a priority at Cogeco to assure telephony service reliability. To this end, we are improving electrical powering of HFC network active components, we are building redundancy in key telephony network elements, including headend equipment, softswitches, trunking gateways, routers, and servers. Likewise, we are splitting a number of optical nodes to increase network capacity. This represents significant reinvestment in our networks.
5622 In order to be able to provide telephone service meeting CLEC requirements, Cogeco has also had to implement several business processes related to the portability and activation of telephone numbers, the provisioning of the emergency services database, the availability of equal access, directory listings, and the list goes on.
5623 These business processes have had to be developed, put in place, refined and automated. These processes are new to Cogeco and require major modification, development and testing of our provisioning systems on an ongoing basis, as well as substantial learning for our staff.
5624 In light of these challenges, the contrast with Bell is overwhelming. Last March Bell launched its Digital Voice Service, renamed Digital Voice Service Lite, in three cities in the Province of Québec. Six months later, not only did Bell announce that this service will be available throughout the provinces of Ontario and Québec, but it also announced that its new Digital Voice service, offered initially in Toronto and Hamilton, will be extended within a month in major Ontario and Québec cities.
5625 This demonstrates that Bell has a deployment capacity that is vastly superior to that of a new entrant in the local market such as Cogeco. It is currently impossible for a cable company like Cogeco to deploy competitive services at the same pace throughout the same footprint.
5627 MR. PERROTTA: Thank you, François.
5628 We are entering a mature market still highly dominated by an incumbent carrier with a 125-year heritage in telephony. The incumbent as also had eight years to prepare for real competition in the field.
5629 The real question is this: Will new entrants be able to build a critical mass of customers for their alternative telephony offerings in order to be in a position to compete on a sustainable basis against the incumbent telephone companies?
5630 Despite the initial interest for voice over IP and cable telephony services, nobody can really predict at this time how long it will take for sustainable penetration levels to be achieved by new cable entrants. Consider some findings of the POLLARA consumer research filed by Bell, conducted across Canada this year, at the end of January, with regard to VoIP service.
5631 The vast majority of respondents, 95 percent, have at least one concern with voice over IP services; 60 percent cited reliability of service; 56 percent security; 42 percent quality of connection; and 42 percent cited the costs of purchasing the necessary equipment.
5632 Only 47 percent of respondents expressed an interest in acquiring VoIP services for their home if the cost was the same or less than their regular telephone service, but 73 percent of these respondents said they would replace their primary line service.
5633 44 percent of respondents believe that VoIP services will be less expensive than their current phone service and the average discount they expect is 43 percent.
5634 Finally, 40 percent of Québec respondents and 39 percent of Ontario respondents cited Bell Canada as their first choice for voice over IP service provider, far ahead of any other providers which ranged between 1 and 20 percent individually.
5635 These findings are instructive. First, they confirm once again that VoIP services are clearly considered by consumers as substitutes for traditional local phone services.
5636 Second, concerns about the quality, reliability and security of voice over IP services held by the vast majority of the population must be overcome for voice over IP services to gain critical mass as a replacement for their traditional local wireline phone service.
5637 Third, the findings confirm that customers are very reluctant to switch unless offered significant savings in their decision to replace their phone services. The conclusion is clear, to make inroads in the residential telephony market, new entrants need to offer substantial savings for a comparable service offering to a potential customer's current phone service.
5638 Finally, and perhaps most striking of all, is the high level of customer inertia to switch to an alternative voice over IP telephone service provider. Almost three-quarters of respondents are inclined to stay with their traditional telephone company, either with a traditional service or a voice over IP service.
5639 The initial pace of growth for competitive voice over IP services is fuelled primarily by a limited pool of early adopters and dissatisfied telephone company customers. To build critical mass, alternative voice over IP providers will need to educate, convince and convert a fair portion of the generally satisfied mainstream customers of traditional phone services. This will no doubt require expensive customer acquisition efforts and costly mass marketing campaigns.
5640 But educating and converting consumers is not the only marketing challenge. A major challenge is also overcoming the ILECs' retaliatory marketing efforts designed to impede the progress of competitive VoIP providers.
5641 Consider Bell marketing tactics deployed to counter the emergence of competitive VoIP services:
5642 With the 1,000 minutes of North American calling for only $5.00 per month launched in June 2004 and only recently discontinued, aiming to increase the loyalty of its customers through bundling and reduce the attractiveness of VoIP offerings, Bell succeeded to lock up 406,000 customers on two-year contracts.
5643 Two months before the release of the Commission voice over IP decision, Bell launched its own voice over IP service. This month, Bell announced a price reduction of approximately 10 percent for its initial digital voice service, renamed Digital Voice Lite.
5644 Simultaneously, Bell also launched its new Digital Voice service in Hamilton and Toronto. By positioning this offering as a digital service delivering "superior quality and reliability", Bell now tried to retain customers who are interested by the features offered by VoIP services by capitalizing on customer concerns about VoIP services.
5645 Finally, in addition to the pricing flexibility provided by the approved confidential ranges of rates which enable Bell to quickly respond to competition, Cogeco notes that Bell is further trying to obtain the ability to better target customers by province before it can do it by local markets.
5646 It is clear that Bell will expand its retaliatory marketing efforts to protect its market share if it is given the means to deploy more aggressive and narrowly targeted marketing strategies.
5647 Bell has already proven in the past in other markets that it is capable of developing efficient winback campaigns with targeted pricing and promotions to defend its position.
5648 Clearly, current competitive safeguards related to marketing activities are more than ever necessary to permit new entrants to overcome the barriers related to customer inertia and the ILECs' targeted retaliatory marketing efforts where nascent competition is the most vulnerable.
5649 Furthermore, an immediate all-out price war should be avoided in the local telephone market. It will only lead to the implosion of competition and the remonopolization of the local residential market.
5650 Since residential customers are very price sensitive and the operating margin to permit the recovery of fixed capital costs in a reasonable period of time is low, there is no manoeuvring room for competitors to survive such a preemptive strike by incumbent telephone companies, specifically against a "deep pocket" competitor like Bell, which is 50 times ‑‑ yes, 50 times larger than Cogeco.
5651 It is therefore critical that the Commission prevent targeted low pricing and winbacks by incumbent telephone companies from stifling the establishment of sustainable competition in local residential markets.
5652 Certainly in order to create the conditions for the emergence of sustainable competition, new entrants must have the opportunity to demonstrate the quality and reliability of their services and to get a viable foothold in residential local telephony markets before the incumbent telephone companies are deregulated.
5653 Forbearance was never intended as a licence to kill off competition, with an ex post autopsy of dead competitors taking place once the bodies are cold!
5655 MR. MESSIER: Thanks.
5656 In its recent past decisions the Commission recognized that significant barriers to entry remain in the local market, limiting the ability of competitors to effectively resist anti-competitive behaviour by incumbents. Specifically, Cogeco notes the following:
5657 The winback rules were extended in the residential market to 12 months, recognizing that the winback activities increase churn, which is especially detrimental to CLECs as they do not have a large stable base of customers capable of funding the CLECs' ongoing operations.
5658 Several competitive safeguards were imposed with respect to the ILECs' promotions, recognizing that the ubiquitous nature of the ILECs' operations enables them to offer lower promotional prices to target the customers of competitors in areas where competitors have introduced local services, with major consequences for competitors and little risk to themselves.
5659 The rate de-averaging policy which precludes targeted pricing reductions in small geographic areas within a rate band was reaffirmed, recognizing that this practice could deter entry into the local market where the ILECs continue to be the dominant service providers.
5660 These competitive concerns are still relevant today.
5661 At the 2005 Canadian Telecom Summit, held last June, you stated, Mr. Chairman, that while price deregulation is the Commission's intended end-game in local telephone services, it was also important for the Commission, since VoIP offers the prospect of real competition:
"... to stay the course and to ensure that the market is not prematurely deregulated ..."
5662 Given that:
"... incumbents are so dominant and capable of nipping that competition in the bud." (As read)
5663 Cogeco partage entièrement cette position. Cogeco reconnaît qu'à terme, les forces du marché elles-mêmes devront réguler les marchés locaux. Mais pour le moment, reconnaissons que nous sommes encore loin de l'atteinte de cet objectif.
5664 Dans la Décision 94-19, le Conseil a conclu que "des preuves confirmant l'élimination des principales entraves à l'entrée en concurrence et l'existence réelle de la concurrence ou son établissement dans un délai d'un à deux ans" devaient être examinées, afin d'établir si la concurrence dans un marché s'annonce durable et suffisante pour protéger les intérêts des usages. Cette condition est toujours d'une grande pertinence.
5665 Précis, simple à administrer, forçant l'établissement d'une base factuelle appropriée, et cohérent avec le cadre d'abstention réglementaire en place, Cogeco soumet que le cadre d'abstention proposé par l'ACTC pour les marchés locaux rencontre parfaitement cette condition.
5666 MR. MAYRAND: Let me summarize our position.
5667 First, the incumbent telephone companies clearly dominate the local telephone market in our footprint by any yardstick. That is simply an undeniable fact.
5668 Second, competition in that market has just started to deploy in the field, eight years after you adopted an official competitive framework for that market. Competition must not just get started for forbearance to occur, it must be able to continue.
5669 Third, for competition to continue and be sustainable, new facilities-based entrants such as Cogeco must be able to roll out throughout the areas covered by their facilities within the incumbents' pervasive footprint, which they can only do local market by local market, and they must have a reasonable expectation of return on the investment required to roll out and grab a sustainable market share.
5670 Forth, a number of very real technical, marketing and behavioural barriers must still be overcome by new entrants before completing that roll out and grabbing a sustainable market share, and that is also an undeniable fact.
5671 Fifth, the rules of competitive engagement must remain clear and consistent, including on forbearance. You set the basis rules in 1994 under the authority of the same Telecommunications Act that governs us today.
5672 The final point, you should not roll the dice and hope that competition will take hold based on academic theories, you should make sure, in our respectful submission, that actually happens.
5673 Thank you very much. We will be pleased to answer your questions.
5674 THE CHAIRPERSON: Thank you.
5675 Vice-Chair French.
5676 CONSEILLER FRENCH : Merci, monsieur le président.
5677 D=abord, bienvenue à ces auditions, messieurs Perrotta, Mayrand, Audet et Messier. Très heureux de vous avoir avec nous.
5678 Je voudrais d=abord vous faire parler un petit peu plus de votre entreprise puisque vous êtes un peu dans une situation assez unique. C=est-à-dire que vous opérez dans deux grands marchés : Québec et Ontario.
5679 Je voudrais d=abord vous demander de nous décrire un petit peu plus vos zones de desserte et vos différents réseaux et le défi qu=est le vôtre, soit d=opérer dans des marchés assez distincts.
5680 M. MAYRAND : Je vais demander à Ron de vous brosser un tableau aussi succinct que possible parce que c=est relativement varié, effectivement, comme situation.
5681 Ron ?
5682 M. PERROTTA : Merci.
5683 Oui, comme vous avez constaté, nous avons des territoires assez dispersés à travers le Québec et l=Ontario. Des marchés secondaires. Nous n=avons pas des grands marchés comme Montréal, Toronto, Vancouver, Calgary, et cetera.
5684 Alors, nos zones de desserte principales, disons, dans le Golden Horseshoe, Burlington, Oakville, Hamilton, St. Catharines. Nous avons aussi une présence à Windsor, Kingston, Belleville. Comme marchés principaux en Ontario.
5685 Au Québec, Trois-Rivières, Rimouski, St-Hyacinthe, Drummondville. Ce sont nos plus grands marchés au Québec. Et nous avons aussi comme zone de desserte certains systèmes dans les Laurentides, Valleyfield, et cetera. Et le Bas Saint-Laurent, certains réseaux aussi.
5686 Alors, notre clientèle, elle est un petit peu variée aussi. Elle est différente que celle dans les grands marchés.
5687 Elle se porte un petit plus âgée, un petit peu moins technologiquement ouverte à des nouveaux changements et développements.
5688 Et cela nous amène à considérer des stratégies de mise en marché très particuliers pour nos clients cibles, qui sont essentiellement un petit peu différents au Québec et en Ontario.
5689 Alors, ce sont les grandes lignes de nos défis.
5690 CONSEILLER FRENCH : Est-ce que les caractéristiques les plus distinctives se désagrègent par les frontières provinciales ? Ou est-ce qu=il y a des différences à l=intérieur du marché ontarien, par exemple ?
5691 M. PERROTTA : Nous avons fait des études de marché pour bien connaître toute notre clientèle, et ce que nous constatons essentiellement, c=est, ce qui est le plus important, ce n=est pas nécessairement les différences entre le Québec et l=Ontario comme tels, mais plutôt entre les grands marchés et les plus petits marchés.
5692 Et nous avons ce genre d=information sur lequel nous nous fions pour axer nos communications parce que, comme j=ai expliqué, notre clientèle est un petit peu plus âgée et un petit peu moins technologiquement ouverte à des nouveaux développements.
5693 Mais la différence primaire, ce serait entre, je dirais, la grandeur du centre par rapport à sa population.
5694 CONSEILLER FRENCH : D'accord.
5695 Alors, la segmentation est surtout par la taille du marché ?
5696 M PERROTTA : La taille du marché parce que, étant donné que nous occupons, que nous avons des zones de desserte différentes au Québec et en Ontario et nous avons deux divisions d=opérations, le Québec et l=Ontario, nous avons voulu essayer de développer une vue commune à travers l=ensemble de nos marchés pour voir essentiellement quel est le potentiel de chacun de nos marchés pour nos services.
5697 Alors, nous avons établi une segmentation commune. Et c=est de cette segmentation là que nous faisons le constat que je vous ai expliqué ce matin.
5698 CONSEILLER FRENCH : Maintenant vous avez introduit les -- ce n=est pas le bon mot en français -- vous avez offert, vous avez décidé d=ouvrir le marché du * voice over IP + pour vos différents marchés.
5699 Est-ce que le packaging, le prix des différents aspects du produit est identique dans tous vos territoires qui sont actuellement sur IP ?
5700 M. PERROTTA : Nous avons deux prix. Nous avons un prix pour les marchés en Ontario et un prix pour les marchés au Québec.
5701 Et ceci relève du fait du * purchasing power + relatif de chacun de nos marchés, et c=est consistent avec le * pricing + que nous avons pour nos services télévisuels et nos services Internet, qui sont un petit peu moins chers au Québec aussi, en reconnaissance du * purchasing power + relatif de nos marchés québécois par rapport à nos marchés ontariens.
5702 CONSEILLER FRENCH : Alors, est-ce que vous diriez que c=est non seulement un avantage pour vous, mais également pour les clients ?
5703 M. PERROTTA : Un avantage ? Dans quel sens ?
5704 CONSEILLER FRENCH : Vous avez la possibilité de tailler vos produits pour les clients à partir de leurs caractéristiques particulières ?
5705 Et cela est un avantage pour vous parce que vous vendez davantage parce que l=utilité marginale et le pouvoir d=achat diffèrent entre les différents marchés ?
5706 Vous êtes capable de rencontrer les attentes des clients différemment dans les différents marchés ?
5707 M. PERROTTA : Si le sens de votre question c=est, est-ce que nous avons une contrainte du type d=un prix moyen sur une bande de services définis qui recoupent les deux provinces, sans doute.
5708 Je vous dirais que nous l=approchons d=une perspective tout-à-fait différente, qui est que pour nous, en fait, nous devons nous adapter à une contrainte de pouvoir d=achat moindre dans le marché québécois, de façon générale, qui nous force, en fait, à encourir dans certains cas des coûts additionnels pour avoir une offre différenciée.
5709 Idéalement, je pense qu=on souhaiterait avoir une offre aussi uniforme que possible. Mais en réalité, le marché nous impose des contraintes. Et ce sont des contraintes qui nous imposent des coûts également.
5710 CONSEILLER FRENCH : Et je vous dis qu=en économie, on dirait que c=est un avantage non seulement pour vous, mais également pour les clients qui ont des * packages + appropriés à leur pouvoir d=achat.
5711 M. PERROTTA : Je ne prétendrai pas débattre avec vous sur le terrain économique, parce que je ne suis pas économiste, mais sans doute que nos clients apprécient les niveaux de prix que nous leur offrons respectivement en Ontario et au Québec.
5712 CONSEILLER FRENCH : Alors, en abordant la question de l=abstention de réglementation, c=est important pour le Conseil de considérer les différents aspects du marché que vous dites essentiellement hétérogène ou hétéroclite.
5713 Nous devons donc considérer cette grande concurrence que vous avez évoquée à plusieurs reprises dans vos commentaires initiaux, soit le face-à-face entre vous et l=ILEC en question (c=est Bell).
5714 On doit se poser la question, Ne serait-il pas avantageux pour les clients d=avoir, tout comme les vôtres, les clients de Bell, d=être adressés par les * packages + et les offres de services particuliers à leurs caractéristiques ?
5715 M. PERROTTA : D=abord, permettez-moi de préciser sur la question de l=homogénéité ou de l=hétérogénéité des marchés.
5716 Je pense qu=on a parlé strictement de petites variations de prix dans notre offre de services qui est émergente -- Ça fait trois mois à peine qu=on offre le service téléphonique -- entre deux provinces.
5717 On n=a pas parlé d=absence d=homogénéité ou de problème d=hétérogénéité à l=intérieur de chacune des provinces, et certainement pas entre circonscriptions locales.
5718 Alors, je voulais faire cette précision là pour commencer.
5719 Ceci étant dit, je pense que, bien que nous comprenions que le Conseil soit assurément préoccupé par les bénéfices que la concurrence doit apporter aux utilisateurs, aux usagers -- donc, aux consommateurs.
5720 À notre point de vue, la question fondamentale de toute cette procédure, de cette audience publique, c=est quel est le compromis, s=il en est, qu=il faut accepter sur les gains de prix à court, même à très court terme, pour certains petits groupes de consommateurs par rapport aux avantages plus larges de la concurrence sur une période plus durable.
5721 Je pense que c=est ce que la loi vise à obtenir dans le cadre de l=abstention de réglementation. Pas des gains très ciblés de prix pour certains consommateurs choisis par l=entreprise dominante pour de courtes périodes de temps.
5722 CONSEILLER FRENCH : Je pense que vous avez très bien saisi l=enjeu. Et c=est là où je veux en venir.
5723 Il y a évidemment un coût à court terme pour les clients qui sont privés d=offres de services de la part des entreprises que vous dites dominantes qui ne pourraient -- qui n=ont pas la liberté et la flexibilité complète d=offrir de tels * packages +, de telles offres de services.
5724 J=aimerais vous faire parler un petit peu de ce genre d=échange, de * trade off +, que vous venez d=évoquer, puisqu=il me semble important, et c=est un peu injuste envers vous puisque vous êtes les seuls qui ont cette situation de concurrencer une entreprise en selle, en place, une entreprise titulaire, dans deux marchés qui sont, dites-vous, très différents et donc où vous revendiquez à juste droit la possibilité d=établir des prix qui sont taillés pour les différents marchés.
5725 C=est tout simplement de discuter cette question là, qui est devant nous essentiellement, puisque les entreprises de téléphonie traditionnelles nous disent que nous privons, nos contrôles privent, les clients de bénéfices que, vous dites si bien, sont à court terme, mais sont néanmoins importants, au nom d=un rendez-vous avec le destin quelque part dans l=avenir où on serait en mesure de permettre, d=après vous, une pleine concurrence.
5726 C=est justement notre question. Où est ce rendez-vous avec le destin et quels seraient les critères nécessaires pour l=identifier quand il arrive ?
5727 M. MAYRAND : Bien, voici notre perspective sur le rendez-vous avec le destin.
--- Rires / Laughter
5728 M. MAYRAND : Vous savez, nous avons, grâce à vos décisions de 1994, et particulièrement celle de 1997, un cadre officiel pour la concurrence dans les marchés téléphoniques locaux.
5729 Alors, nous avons eu ce cadre là pendant une période de huit ans. Je pense qu=on en a fait abondamment référence au cours des procédures.
5730 Et vous êtes à même de constater, et c=est strictement un constat, nous ne faisons pas de jugement, nous ne portons pas de jugement sur les raisons qui ont fait qu=au cours de ces huit années la concurrence sur le terrain a fait défaut de se réaliser.
5731 Nous avons donc eu une longue période d=attente. À partir du moment où le feu vert a été lancé par le Conseil, et je vous dirais que nous sommes -- nous arrivons précisément au point de jonction que le Conseil envisageait en 1997, c=est-à-dire au point où l=entreprise concurrente qui dispose d=installations de télécommunications, telle que le câblodistributeur est effectivement en mesure de commencer son entrée sur le marché.
5732 Alors nous sommes exactement à ce point là. Les annonces d=entrée en concurrence sont récentes. Dans notre cas, ça fait un petit peu plus de trois mois que nous y sommes. Dans certaines parties géographiques de ce marché.
5733 Et je pense que le sentiment en général que vous pouvez avoir de ces procédures -- il y a des commentaires des différentes parties -- c=est que le marché évolue assez rapidement avec les avantages que procure, entre autres, la téléphonie sur IP.
5734 Cependant, nous devons, nous, les nouveaux venus avec des facilités de télécommunication, nous devons établir un glacis -- en anglais, a * beach head + -- que nous pouvons soutenir face à la concurrence des grandes entreprises établies telles que Bell Canada.
5735 Et je vous dirais que ce glacis, il faut le tenir, si nous voulons étendre notre offre de services le plus rapidement possible à l=intérieur des zone de desserte que nous desservons et que les compagnies établies desservent.
5736 Alors, je ne vois pas un horizon tant infini pour y arriver. Je vois cependant une situation où il y a dominance des compagnies établies. Clairement, partout. Toutes les mesures possibles et imaginables, au moment où nous nous parlons.
5737 Et je vois une période relativement courte -- je ne peux pas la quantifier exactement en termes de mois ou d=années - où le glacis doit être établi, et doit être solidement établi.
5738 Alors, c=est ce qui fait pour nous, les nouveaux venus, la différence entre une campagne réussie ou un désastre. Et sans sombrer dans le dramatique, il n=y a personne en tant que nouveau venu, et certainement l=entreprise que je représente, qui veut passer à l=histoire comme ayant eu son Dieppe plutôt que son Normandie. Hein ? On se comprend.
5739 Alors, ce n=est pas --
5740 CONSEILLER FRENCH: Merci beaucoup, Monsieur Mayrand. C=était très clair.
5741 M. MESSIER : Si je peux me permettre d=ajouter un commentaire avec le rendez-vous avec le destin, sur cette question.
5742 Récemment Bell nous a un peu forcé la main à ce rendez-vous avec sa demande récemment sur laquelle on a eu à se prononcer dans une procédure assez rapide, à savoir d=avoir la possibilité d=offrir des prix différents pour son nouveau service, son * digital voice service +. Des prix distincts pour l=Ontario et le Québec.
5743 Et notre première réaction a été fortement de voir une grande réaction sur la possibilité de, quelles sont les conséquences ? Vers où on se dirige ? À partir du moment où on fait se premier pas là.
5744 Notre grande préoccupation, et là est le compromis puisque dans nos interventions nous avons finalement reconnu que, oui, il pouvait y avoir des prix distincts pour les provinces et que Bell était la seule entreprise au Canada qui ne pouvait pas pratiquer des prix différents pour les provinces -- mais là, pas que nous ne voulons pas franchir.
5745 C=est celui d=avoir des prix distincts dont l=objectif ne serait pas de rencontrer les besoins ou des particularités des consommateurs, mais bien plutôt strictement de protéger ses parts de marché face à un nouveau venu qui entre dans le marché.
5746 Et cela, les pratiques au niveau du * winback +, au niveau la possibilité d=avoir des prix très ciblés par marché, ouvriraient cette porte là et pourraient mettre en cause la concurrence qui semble présente.
5747 Alors, cela est un niveau de compromis que nous n=acceptons pas présentement.
5748 CONSEILLER FRENCH: Monsieur Messier, je vous remercie beaucoup.
5749 Cela a été un jugement nuancé, et c=est apprécié, ces nuances là.
5750 Là où je vous trouve moins nuancé, c=est la comparaison entre vous et Bell, où Bell est 50 fois plus grand que vous.
5751 N=est-il pas le cas que, essentiellement, Bell concurrence non seulement vous, mais quelques autres compagnies quelque part ?
5752 Et êtes-vous seul contre ce géant ?
5753 Donc, est-ce que cette comparaison là est vraiment légitime ou non ?
5754 M. MESSIER : En ce qui concerne ce qui se passe dans notre territoire, elle est très légitime parce que nous, bien entendu, on fait concurrence avec une grosse machine.
5755 Chaque matin que je me lève, je sais que mes dépenses marketing seront dépassées grandement par mon concurrent. Alors, * it is a fact of life. + On vit avec.
5756 Mais, la comparaison, pour nous, parce que c=est nous qui travaillons dans nos marchés, elle est très juste, à mon avis.
5757 CONSEILLER FRENCH : La comparaison est peut-être très juste pour vous motiver le matin, mais maître Michael Sabia ne se lève justement pas en pensant à vous. And that is the point.
5758 Tout ce que je vous dis, c=est que c=est un morceau de rhétorique qui sied mal avec la subtilité et l=honnêteté avec lesquels vous avez répondu à mes questions.
5759 Encore une fois, ils concurrencent Vidéotron, ils concurrencent Rogers, ils concurrencent Mountain, et cetera. Pas juste vous.
5760 Cette comparaison là est hautement trompeuse, dans la mesure où elle est supposée de nous informer sur les décision de réglementation d=un marché.
5761 MR. MAYRAND: Alors, Monsieur French, je suis tout-à-fait, d=emblée, prêt à reconnaître que Bell a d=autres concurrents dans sa zone de desserte que nous.
5762 Je pense que ce que nous exprimons, et en fait, dans la mesure de temps, on a rajouté une note qu=on n=a pas lue évidemment lorsqu=on a fait la présentation.
5763 Mais on réfère en fait au concept de * deep pockets +, excusez l=expression anglaise. Et c=est vraiment l=image d=EBITDA comparative.
5764 Alors, quelque soit la façon dont vous feriez une répartition des marges bénéficiaires respectives, notre constat à nous, et nous vous soumettons, le problème que nous avons, c=est que la compagnie établie a énormément de latitude financière pour dépenser sélectivement sur les quelques clients que nous réussirons à obtenir dans la première phase de déploiement de notre service téléphonique.
5765 Voilà le sens de l=argument.
5766 CONSEILLER FRENCH : Oui, je le vois.
5767 Justement, je veux vous poser une question sur la page 9, où vous dites :
"Bell has already proven in the past in other markets that it is capable of developing efficient winback campaigns with targeted pricing and promotions to defend its position."
5768 I don't deny that for a minute, but I would like to know more about exactly what you were referring to, if you could tell us what you had in mind when you raised that.
5769 MR. PERROTTA: A recent example would be in the Laval area, in the Montreal area, of ExpressVu pricing we believe in response to Videotron Voice over IP service where the outbound telemarketing offers to satellite customers for ExpressVu two‑receiver solution was, I believe, as low as $17 or $18 for a regularly priced $35 or $36 product. That was selectively offered in a very specific area.
5770 That is the first one that comes to mind. I think some of my colleagues here with longer corporate memories in the telecommunications industries would harken back to the long distance example.
5771 COMMISSIONER FRENCH: The $5.00 for a thousand minutes, for example. Or are there others?
5772 It is a matter of information. I am not trying to ‑‑
5773 MR. PERROTTA: It would be others. The $5.00 was basically offered to everyone.
5774 COMMISSIONER FRENCH: It is the targeting, Mr. Perrotta, that I am trying to get a grip on. It is important for us because everyone who comes before us with your set of interests is going to tell us the kinds of things you have told us, and much depends on how much we believe that an incumbent has the opportunity to genuinely target on small demographic slices and small slices of market.
5775 In practice, if all we are doing is being told that they will fight us on their market against our market, we say that is called competition. You really have to make an additional case. The additional case is that the very large resources of an incumbent generated by history will be unduly focussed on a very small set of markets in order to explicitly deny the opportunity to establish the beachhead that Mr. Mayrand evoked.
5776 I am absolutely not trying to take a position on this question. I am just saying this is absolutely at the core of this case. So anything you can tell us about it is helpful.
5777 You have given us one good example. Are there any others that come to mind?
5778 MR. PERROTTA: In our other product categories, high speed internet and television services, when we compete against Bell Canada there is one advantage that Bell has that we don't have. They have a complete telephone record of the entire customer base.
5779 By and large all of our customers are Bell customers, but the inverse is not necessarily true.
5780 Consequently, a lot of the targeted winback offers occur on an outbound telemarketing basis, so there seldom is ever any printed material available. It is very targeted insofar as they are working with their database of customers. They know what the history has been, so they can put together a targeted offer.
5781 Consequently, there is always reports we get from the field of what is happening. We try to do some mystery shopping, and it is hit and miss in terms of what is a rogue agent in the fog of war offering something versus what is a conscious strategy.
5782 There are numerous examples of attractive pricing on internet or attractive pricing on ExpressVu in our other services offered on an outbound telemarketing basis that leads us to believe that this is certainly a well‑oiled machine.
5783 COMMISSIONER FRENCH: How do they bill that, Mr. Perrotta? With a billing requirement of, I don't know, 7 or 8 million residential customers in the two provinces, how would they bill those precise specified focussed offers?
5784 MR. PERROTTA: I think you would have to ask them that question in terms of their billing systems. If they are like most other operators, CSRs or supervisors have opportunities to make manual adjustments on invoices.
5785 Beyond that, I really couldn't comment on how they go about it.
5786 COMMISSIONER FRENCH: I wish I had had that when I was the Vice‑President of Residential Services for Bell in Quebec.
5787 Mr. Messier.
5788 M. MESSIER : Sur l=efficacité des campagnes de * winback + de Bell, le seul exemple que je voudrais apporter, et puis pour l=avoir vécu personnellement et pour avoir eu plusieurs témoignages dans les fonctions que j=occupe, on sait au niveau du marché des appels interurbains que Bell, aussitôt que quelqu=un a décidé de passer chez un concurrent, en moins de 48 heures, il va recevoir ou il peut recevoir un appel chez Bell directement lui offrant soit, parce que déjà on a son pattern d=appel -- donc, lui proposant un plan qui est davantage adapté à son profil, lui proposant aussi des montants forfaitaires pour revenir chez Bell dans une période très courte.
5789 Alors, si on applique cela dans le marché local, où on est en train -- on est entré -- où on a démontré à nos clients qu=on a un service qui est fiable, principalement si vous regardez les perceptions dont on a fait part par l=étude POLLARA sur cette forme alternative que représente le * voice over IP +, que ce soit offert par un câblo ou par d=autres, bien vous avez là des clients qui sont très réceptifs et très fragiles et qui sont très sensibles aussi à leur motivation pour avoir changé de fournisseur à un escompte de prix.
5790 Alors, si Bell revient très rapidement et rapidement lui offre exactement ce qu=il faut pour sécuriser le client, bien écoutez, on va avancer à petits pas. Sinon, on va reculer.
5791 CONSEILLER FRENCH : Monsieur le Président, cela termine mes questions. J=apprécie beaucoup la franchise avec laquelle vous avez répondu.
5792 Je veux juste dire, avec votre permission, Monsieur le Président, que -- je vais prendre l=occasion publique de dire à monsieur Audet que votre père est un grand homme des communications au Québec. J=ai beaucoup de respect pour lui, et puis il a contribué énormément au développement des communications.
5793 Merci beaucoup.
5794 M. MAYNARD : Nous lui transmettrons ce message.
5796 THE CHAIRPERSON: Thank you.
5797 Commissioner Cram.
5798 COMMISSIONER CRAM: Welcome, gentlemen.
5799 In your three‑four month life of VoIP, I am assuming you have had some churn. Did you find the reasons for the churn? When people leave you, did you ask them?
5800 MR. PERROTTA: We have been obviously monitoring this. In terms of the reasons why people have left, some have been change of mind. Some have been moves. It is very early results.
5801 There is not enough of a base to establish sort of key drivers at this point. Quite frankly we have had some SNAFUs on installation on our side where people have said they have just cancelled because we couldn't get there on time because we have a lot of other things happening.
5802 So it is a little early to say what are the key drivers at this point. I suspect that over the life of the product, it will settle in pretty much like the rest of our products in terms of reasons for churn.
5803 COMMISSIONER CRAM: Mr. Audet?
5804 MR. AUDET: If I may add, one thing that we have seen happen from time to time is because of the backlog for LNP transactions at Bell, we typically find out ‑‑ we take an order today. We schedule installation for a week from now. Normally, we would expect that halfway through that period we know that we will be able to install on the projected date.
5805 As it turns out, we usually find out in the evening of the day before. If we don't get the confirmation in time, we have to cancel and that is a contributor to churn.
5806 COMMISSIONER CRAM: Thank you.
5807 THE CHAIRPERSON: Thank you.
5808 Monsieur le vice-président Arpin ?
5809 CONSEILLER ARPIN : Merci, Monsieur le Président.
5810 Vous avez répondu à monsieur French, à une question concernant vos différences de prix entre l=Ontario et le Québec.
5811 Est-ce que vos coûts sont aussi différents entre l=Ontario et le Québec ?
5812 M. AUDET : Certainement. Au Québec, la composante d=appels que d=autres traitent interurbaine, voyez-vous, nous, on ne fait pas cette distinction là.
5813 Notre prix inclut les cinq services accessoires les plus appréciés dans le marché. Les plus répandus.
5814 Et la zone de couverture locale qui est offerte est le Canada au complet et les 48 États contigus des États-Unis. C=est une zone d=appels locale très étendue.
5815 En pratique, on observe que, au Québec, il y a une nettement plus grande proportion des appels qui se limite au territoire du Québec, comparativement à, disons, en Ontario, où il y plus d=appels vers d=autres provinces ou vers les États-Unis.
5816 Donc, effectivement, oui, Monsieur, il y a une différence de coût.
5817 CONSEILLER ARPIN : Est-ce que c=est une des raisons pour laquelle vous motivez votre différence de prix ? Ou si c=est la capacité de payer des abonnés ?
5818 M. AUDET : Cela fait sans doute partie aussi de l=équation, Monsieur.
5819 M. MAYRAND : Je voudrais juste ajouter, Monsieur Arpin, que ce sont évidemment des prix d=entrée que nous avons mis de l=avant pour depuis, en fait, un petit peu plus de trois mois.
5820 Alors, je réserverais le jugement sur la solidité de la structure des prix et des différences qu=il pourrait y avoir, mettons, entre nos zones de service au Québec et celles de l=Ontario.
5821 Et je vous rappelle que, évidemment, ce sont des prix qui ne sont pas différenciés à l=intérieur de l=une ou de l=autre province.
5822 CONSEILLER ARPIN : Merci.
5823 LE PRÉSIDENT : Merci.
5824 Madame Noël ?
5825 CONSEILLÈRE NOËL : J=ai juste une question, une petite question.
5826 Vous offrez un service, comme vous avez dit, Monsieur Audet, avec les cinq capacités les plus --
5827 M. AUDET : Populaires, oui.
5828 CONSEILLÈRE NOËL : -- ce que les gens préfèrent et vous offrez cela pour un prix global alors que Vidéotron qu=on va voir tout à l=heure offre un produit qui est tout nu.
5829 M. AUDET : Hm-hmm.
5830 CONSEILLÈRE NOËL : Ils offrent un service à 14,99 $ et toutes les options sont effectivement en option.
5831 Est-ce qu=il y avait une décision -- comment vous êtes arrivé à ce choix d=option ou d=offre de services ?
5832 M. AUDET : On a examiné la chose depuis, en fait, plusieurs années. En fait, depuis très longtemps, comme vous le savez.
5833 On avait déjà fait un essai de téléphonie IP qui a couru de 1999 à 2001.
5834 CONSEILLÈRE NOËL : Je me rappelle. À partir de Trois-Rivières.
5835 M. AUDET : Ça fait très longtemps qu=on étudie le modèle d=affaire de la téléphonie. À mon sens, et c=est peut-être relié à la grosseur de nos marchés, je ne le sais pas. Vidéotron pourra vous dire si son expérience est différente pour la grosseur de marché qu=ils contemplent.
5836 Mais certainement, dans notre cas, un service à ce niveau là, on n=en voyait pas l=intérêt.
5837 Je dirais, philosophiquement, l=attitude qu=on a pris est qu=on aime mieux offrir plus de valeur à notre client pour un prix donné que d=essayer de juste jouer sur le prix.
5838 Enfin, c=est une approche qu=on a pris corporativement.
5839 CONSEILLÈRE NOËL : Est-ce que le fait que -- bien, Rogers n=avait pas annoncé sa -- ou est-ce que Rogers avait annoncé sa façon de pénétrer le marché quand vous avez lancé votre produit ?
5840 M. AUDET : Notre prix avait été établi avant le lancement de Rogers.
5841 CONSEILLÈRE NOËL : Je vous remercie.
5842 LE PRÉSIDENT : Merci.
5843 Madame Cram ?
5844 COMMISSIONER CRAM: I am back; I'm sorry.
5845 Commissioner French and I were discussing the cable penetration rate. In Quebec, isn't it 57 percent?
5846 MR. AUDET: Basic cable penetration in our market is 53 percent now.
5847 COMMISSIONER CRAM: Fifty‑three? In all of your markets, including Ontario?
5848 MR. AUDET: Ontario is 50 percent.
5849 COMMISSIONER CRAM: Fifty percent and 53. Thank you very much.
5850 THE CHAIRPERSON: Thank you.
5852 MR. WILSON: Thank you, Mr. Chairman.
5853 I have three questions that I want to follow up on: your experience in the marketplace thus far, although taking into account, as you discussed with Commissioner Cram and Vice‑Chair French, that is a small slice of experience, at least as far as the telephone business thus far.
5854 I will start with churn rates, following up on your discussion with Commissioner Cram.
5855 This is a small slice of data yet, but have you noticed whether there appears to be any relationship between the churn rate in the telephony business and the churn rate in the cable business in the sense of if a customer turns from telephony, if you lose them for telephony, are you noticing that you are also losing them for the cable side of the business?
5856 MR. PERROTTA: It really too early to tell that. I couldn't answer that question.
5857 MR. WILSON: We have had some discussion in particular in the CCTA, whose approach you have indicated that you agree with, about the notion of measuring market share in terms of households served.
5858 In your experience, does a household generally speaking get all of their services from one provider or are the services likely to be splintered across two or three providers?
5859 MR. MAYNARD: It is a little hard to answer that question in terms of understanding what basket of services underlies your question.
5860 MR. WILSON: I am thinking in terms of the kinds of services we have been talking about here: so your basic telephone service, your video service, the internet service, that basket of services that we have been discussing in the hearing.
5861 On a household basis do those tend to come from one supplier or is more of a heterogenous kind of situation?
5862 MR. PERROTTA: The multi‑service households with one supplier is clearly the Holy Grail that all of us are trying to achieve. I think there have been a number of statements made by various different operators in telecom space in terms of their progress in going from single services to multi services. I think the reality is that the second service that you add is a good one. I don't think a lot of people have made great progress on three and four services. There is probably a healthy dose of first service and double service households. I am not entirely sure that there would be a preponderance once way or another, depending on which supplier you are looking at.
5863 MR. WILSON: I have one final question, and I may know the answer to this based on the discussion that you had with respect to local number ports.
5864 The kinds of customers that you are getting, are those generally former ILEC customers or are you attracting a lot of what I will call new customers, maybe young people that are moving into the telephony market for the first time?
5865 MR. AUDET: I would say that any measurable sales are with customers transferring from Bell to us. Brand new customers would be such a small percentage. It is not something that has bubbled up to our attention.
5866 MR. WILSON: Those are my questions, Mr. Chairman.
5867 THE CHAIRPERSON: Thank you, gentlemen.
5868 We will take a very brief break now, five minutes, and resume with the next panel after that.
‑‑‑ Upon recessing at 1027 / Suspension à 1027
‑‑‑ Upon resuming at 1035 / Reprise à 1035
5869 THE CHAIRPERSON: Order, please. À l'ordre, s'il vous plaît.
5870 Madame la secrétaire.
5871 LA SECRÉTAIRE: Merci, monsieur le Président.
5872 We will now proceed with panel No. 15, Shaw Cable Systems.
PRESENTATION / PRÉSENTATION
5873 MR. SHAW: Good morning, Mr. Chairman and Commissioners. My name is Jim Shaw and I am CEO of Shaw Communications.
5874 With me today on the panel are Peter Bissonnette, President of Shaw; Ken Stein, Senior Vice‑President, Corporate and Regulatory Affairs; Michael D'Avella, Senior Vice‑President, Planning; and David McKeown, Consultant to Shaw.
5875 Let me start by thanking the Commission for this opportunity to present our views on the development of a competitive and vibrant local telecommunications market. We and other participants in this proceeding have filed extensive comments on the framework and criteria the Commission should consider to determine when it is appropriate to forbear from regulating the local exchange services of the incumbent, monopoly telephone companies.
5876 We consider this a critical proceeding and the framework and criteria the Commission establishes for local forbearance will have a significant impact on how successfully competition evolves in the local telephone market.
5877 What we would like to focus on today are the business and operating realities of entering the local residential telephone market and what our company has to do in order to enter this market with a reliable, credible and competitive telephone product.
5878 We would also like to address some of the ongoing challenges we face in rolling out our telephone service and provide the Commission with a sense of the significant capital and operating investments we are making to ensure we have a viable and successful service offering.
5879 Let me say at the outset that our company is committed to providing a reliable and credible phone service. Our customers want an alternative to their local provider and we are answering the call.
5880 On February 14th, or Valentine's Day, we launched Shaw digital phone in Calgary, our first telephony market, followed by Edmonton on April 20th and Winnipeg on July 28th. With these markets launched, about 35 percent of our basic customers will now have access to Shaw digital phone.
5881 In the next year or so, we will be launching digital phone in most of our major markets including Vancouver, our single largest operating unit. We also plan to offer Shaw digital phone in smaller communities like Red Deer, Canmore, Prince George and Cranbrook.
5882 By any measure we are still in the early stages of our telephone deployment, with less than eight months of operating experience. While we are encouraged by the initial results, it is far too early to judge how well this market will evolve and whether our customers will have the continuing confidence in us to provide them with local telephone service.
5883 As you know, the start‑up of a new business is not a new undertaking for Shaw. Our experience with new start‑ups such as Star Choice, which took us into the satellite business, and new service offerings such as high speed internet, have been positive examples of the ability of our people to launch new products and services that have gained the support and confidence of consumers across Canada.
5884 It took over five years to put Star Choice on a solid financial footing and the company has only recently begun to generate a return on the billion dollars we invested in Star Choice. We now have close to 840,000 Star Choice customers and about 1.1 million high speed internet customers.
5885 We have been pleased with this success and the lessons learned have been put to good use in the launch of digital phone. This is, without a doubt, our largest challenge to date.
5887 MR. BISSONNETTE: Mr. Chairman, Commissioners, our decision to launch a competitive local telephone service was motivated largely by the need to ensure that we had the ability to provide our customers with a package of voice, video and data services. In this new competitive environment our success is increasingly driven by our ability to package various products and services and to provide customers with a steady stream of new and innovative products and services.
5888 It took us two years to conduct the business analysis, assess technologies and back office systems and understand the investments and operational requirements that would be needed to offer a competitive local telephone service.
5889 In developing and launching our local phone service, we faced significant challenges in implementing interconnection arrangements with the incumbents, striking agreements with local authorities for E911 services, developing processes for local number portability and establishing a long distance carriage and termination agreement. The process is complicated and lengthy.
5890 The incumbents are effectively the gatekeepers to the PSTN and they determine when and how you, as a new entrant, can offer a competitive local service. Even with all the Commission's policies, regulations and rules governing these interconnection arrangements, the telcos ultimately determine your launch date. Remember, the incumbent telephone companies are not only the incumbents, they are also a monopoly, and they run the system.
5891 For over 100 years they have done an excellent job and the system they built enjoys the confidence of all Canadians. But that's exactly the point: they run the system. So not only are we trying to compete with them, we have to compete on their terms and we have to operate in an environment that they control.
5892 As we considered our options and the process of becoming a CLEC on our own, we quickly came to the conclusion that we simply could not put ourselves in a position where the incumbent set the timetable for competitive entry. We decided, therefore, that in order to get our telephone product to market on our timetable, we would use the services and facilities of an established CLEC. So we chose BellWest to provide us with interconnection to the PSTN, to help us port numbers and provide long distance carriage and termination.
5893 If we tried to perform all of the functions of a CLEC on our own, we would probably still be negotiating with the incumbents for interconnection.
5894 MR. D'AVELLA: Thank you, Peter.
5895 There is no question that the development of PacketCable specifications by the cable industry, primarily through CableLabs, has made telephony services over cable networks an economically viable and technically sound proposition.
5896 As we continue our Digital Phone deployments and as the customer base grows, over the next several years we will be investing well over $350 million in rolling out this new service.
5897 Telephony will continue to be our single largest capital project for at least the next four to seven years.
5898 We have also made significant investments in human resources, hiring and training over 650 new employees to support our entry into the telephone business.
5899 These investments are being made, in part, on the understanding that the Commission will continue to ensure that competition in the local exchange market can develop and take hold.
5900 Our greatest concern is that premature deregulation of the phone companies could kill local competition before it gets started.
5901 In our view, the Commission must ensure that local competition is firmly established, vibrant and sustainable before the telcos are forborne in the provision of local telephone services. We can't see this happening for at least another three to five years.
5902 In developing our telephone services, we took the view that in order to be competitive with the incumbents we would have to offer a primary line service that would be as reliable as theirs. This meant that we would have to make investments in plant upgrades, backup power supplies, new provisioning and back office systems, customer premise equipment, softswitches and, on top of all of that, we had to overlay a new PacketCable network.
5903 My point is that this is not a simple voice application riding on an IP network. Shaw Digital Phone is a replacement for your local telephone service, and customers expect the same level of reliability and quality, at a competitive price, if they are going to switch their telephone provider.
5904 MR. STEIN: Let me deal with the competitive response of the telcos to this point. We have found that telcos use every means, tool and tactic at their disposal to stymie competition. We know this from our experience in competing against them in the internet access business and, more recently, in the video market.
5905 We understand where they are coming from. None of us wants to lose any customers. Even in these early days of local competition, though, we are seeing the results of telco anti-competitive behaviour.
5906 Aggressive winback campaigns that include offers of free services for up to a year.
5907 Telemarketing campaigns designed to win back customers that have recently switched to Shaw, within days.
5908 Misinformation about the quality and reliability of our telephone product. Some telcos have been telling our customers that Shaw Digital Phone does not support E911, that the service doesn't work in a power outage and is unreliable because it makes use of the internet.
5909 This is another reason why I believe it is critical that we have all of the tools and vehicles at our disposal, like local avails to inform our customers about our products and services.
5910 There are delays and outright denials in porting numbers.
5911 There is inadequate and inconsistent capacity within the LNP process.
5912 There are refusals to port the numbers of customers who also take other telco products like internet and television.
5913 There are unacceptable delays in interconnecting contiguous exchanges.
5914 In the city of Calgary, for example, we have not been able to offer Shaw Digital Phone in Airdrie and Okotoks, two communities that are essentially suburbs of Calgary.
5915 We have similar problems in Edmonton, where Telus delays extending interconnection to St. Albert and Sherwood Park, leaving large gaps in our coverage area.
5916 On average, it takes Telus 97 days to respond to an application from Shaw for access to Telus support structures. That is 67 days longer than the tariffs permit.
5917 On average, it takes 259, or eight months, to have an application approved and work completed.
5918 Finally, last week we heard of a winback offer by MTS to a customer that signed up with Shaw. Our customer was offered a $73.31 bundle, including local phone service, five calling features, high‑speed internet and long distance throughout North America at no additional charge. Needless to say, this bundle was not filed for approval and is not generally available to MTS customers. We are still investigating.
5919 This is only a partial list, and these are early days, of the telcos anti-competitive tactics. The Commission is well aware of the litany of access issues we face on a day-to-day basis, including local number portability.
5920 MR. BISSONNETTE: "Local Number Portability" -- LNP -- is an acronym we learned as we entered the telecom business. From our experience, the telcos' acronym for that is "Let's Not Play".
5921 The current LNP mechanism is ineffective. The system is inefficient and subject to the vagaries of the telco's LNP process.
5922 We effectively need the incumbent's approval to port a customer's telephone number. Without it we can't install a customer. We believe that the telcos need to be removed as the arbiters and gatekeepers of the LNP process.
5923 In a world where we are competing with the telcos for voice, video and data customers, the telcos require nothing from Shaw in order to acquire a video or data customer.
5924 In the video business, for example, the telcos can build out their networks, acquire programming and customer premise equipment, and provision and service customers without seeking Shaw's approval for anything. Their entry into the video business is completely unfettered and unencumbered.
5925 The management of the broadcasting system is much more diverse, with numerous players, none of whom control the system. The only issue that had to be dealt with to encourage competitive entry was the inside wire. The CRTC decided that it belonged to the homeowner, and that was that.
5926 The success and growth of the Canadian DTH market, with 2.5 million customers, is a direct result of the CRTC's active role in ensuring that competitive entry would be facilitated.
5927 MR. SHAW: Historically, the Commission has opened up monopoly-based telecommunications markets to competition in a gradual and orderly manner. As a result, we have healthy, vibrant, and sustainable facilities-based competition in a variety of telecommunications and broadcasting services.
5928 The local phone market is not among them.
5929 We believe that the Commission is taking the right approach in establishing a framework and criteria for local forbearance, but it is far too early in the game to consider local forbearance.
5930 Local competition has just started. Only 35 percent of our customers even have access to Shaw Digital Phone.
5931 We have been in the telephone business for only eight months.
5932 We have significant investments ahead of us to complete our deployments of Digital Phone, including deployments in small communities that may never see a competitive alternative if the telcos are forborne.
5933 These investments are being made on the assumption that the Commission will ensure that local, facilities-based competition will evolve and take hold.
5934 The telcos have the opportunity, incentive and capabilities to delay, impede and deny competitive entry. Our real world experience is clearly evidence of telco anti-competitive behaviour.
5935 The telcos control critical elements of the business, including access to the PSTN, interconnection, local number portability, and access to support structures.
5936 We need access to all communications tools at our disposal, particularly local avails, in order to inform our customers of our products and ensure they know that we can provide them with a reliable service all the time.
5937 The telcos don't need any transitional measures. They already have them. They compete in every market segment -- voice, video, data, wireless, residential and business. They have ubiquitous service offerings and the ability to bundle services and target specific market segments. They have substantial cash flows to compete on any level and in any market, and have no barrier to entry in any of our markets.
5938 Nothing precludes them from offering a VoIP service. Bell's launch of Digital Voice demonstrates this.
5939 We are not asking for protection. We are confident in our abilities to compete successfully.
5940 Shaw's culture has always emphasized growth, customer service and entrepreneurship. We are prepared to take the risks and make the investments to provide our customers with choice. All we are asking for is an opportunity to compete fairly. Let the local market evolve and let competition take hold before you unleash the telcos.
5941 Thank you, Mr. Chairman, that completes our remarks today.
5942 THE CHAIRPERSON: Thank you.
5943 Commissioner Williams.
5944 COMMISSIONER WILLIAMS: Good morning, Mr. Shaw and Shaw panelists. Welcome to this hearing.
5945 I will be asking a variety of both specific and general questions this morning. If some of my questions are of a nature that you feel your response would include competitively sensitive material, you can certainly file this information with the Commission on a confidential basis.
5946 Let's begin.
5947 In your oral presentation this morning you gave us the general overview of your entry into the telco arena. Could you please discuss your experience to date, outlining the variety of uncompetitive barriers that you have experienced within the first eight months of this new business venture?
5948 MR. SHAW: We have been involved in the hearing, and earlier this week we listened to Manitoba Tel, who has promised us number porting for weeks and weeks and weeks. I think they even told the Commission the other day that they are porting numbers.
5949 I am glad to report that yesterday we got four ports done in one day, and we have been at it since July.
5950 I am not saying that they are not working on it, but they come up with things like: The person who was hired to be in charge of number porting is a retired MTS employee and works half-time, one week on, one week off.
5951 There are various delays.
5952 We see all sorts of problems in the local area, where they just really don't want to deal with us. If you, in turn, are a data customer -- a DSL customer, let's say -- that port is denied because you are a DSL customer.
5953 If you are a TV customer, that port is also denied because you are a TV customer.
5954 What we are seeing is, any way to take advantage of the rules to slow down what they would be perceiving as a competitor in the local arena, or what they would be perceiving as us taking away their customer, seems to be happening across the board.
5955 MR. BISSONNETTE: It is interesting, because from the beginning -- of course, we have a softswitch, the PacketCable softswitch, and just in the testing of that softswitch the first response was, "That is not a traditional switch, so it will probably take us two months to garner confidence that the switch will actually work on our network," even though that switch is certainly being used by others in the industry.
5956 Jim mentioned that it took us eight weeks to have somebody actually doing the SS7 signaling tests, because that person had retired and they had nobody else in the whole company who could actually do SS7 signaling.
5957 It is interesting, on the porting, as you mentioned, we have certainly expressed that to the Commission. We continue to have problems. We continue to see porting.
5958 As Jim mentioned, we had four the other day. They are doing just enough to ride on that line that they are doing something. They are very nice people, but they are doing everything they can to stymie us.
5959 Interestingly enough, the day after we launched the service the Winnipeg Police came out and said that they have a concern about VoIP services in general because E911 doesn't work.
5960 When the power goes out, this happens.
5961 You are competing with the internet.
5962 All of that misinformation is being promulgated by MTS.
5963 Our customers who are in the porting process are sitting like fish on the docks, waiting to be pulled back by MTS. They say, "We can't get you their number." In the meantime, they are trying to win back these customers.
5964 I have a litany of examples, if you want specific customers and specific dates, where the customer has said, "We would like to come over to Shaw and try your Shaw Digital Phone service." In the interim, when their number is not being ported -- we have to identify to them that, unfortunately, there is going to be a timeframe beyond what we would expect to be normal for the number to be ported -- there are direct winbacks that are being made to those people.
5965 We get calls from them saying, "We have changed our mind. MTS has offered us free long distance. They have offered us a $10 discount on their wireless product."
5966 So every conceivable way of either deferring or coming back with winbacks we have experienced with them.
5967 The other incumbent that we deal with, of course, is Telus in Alberta and in British Columbia, and we have a backlog of over 5,000 customers who have told us that they want to come and enjoy our service, but they cannot be accommodated because their numbers can't be ported.
5968 We have met with senior people within the company, and they have said they will do their best to try and improve that, but, frankly, the numbers they are now porting are about half of what would be necessary just to keep up with the kind of transitions that customers from Telus to our Shaw Digital Phone are experiencing.
5969 So constant delays.
5970 We launched, as we mentioned, in Edmonton. Sherwood Park is an integral part of Edmonton. Sherwood Park can't get our service because the interconnections between ourselves and the incumbent can't be accommodated.
5971 When we launched in Calgary, Okotoks and Airdrie, and when we launched in Vancouver -- half of Vancouver is not available because we can't be accommodated on their interconnections.
5972 So an LIR, which we have talked about, is important, but we can't even get an LIR interconnected.
5973 COMMISSIONER WILLIAMS: Let's continue with this topic of porting.
5974 What percentage of your customers want to retain their numbers, so that you in fact need porting?
5975 Are there any other actions you are taking to deal with your backlog?
5976 You have customers who want service.
5977 MR. BISSONNETTE: Initially, about 40 percent of our customers were prepared to take a new number, but 60 percent -- as you know, some people have had their number for 10 or 15 years, and it is a very important part of their lives.
5978 They have said, "We want to come over to Shaw -- "
5979 You should know that we talk to our customers every day. Jim calls five customers a week. Michael does. I do. We are hearing directly from them.
5980 The reason we do that is because we want to make sure that when we launch our service our customers see that service as being reliable, and if they have any issues, they can talk to one of us, and we can certainly facilitate any cure for any problems they might have.
5981 The number is sacred to them.
5982 Since we have seen the delays in our launches in Alberta, some customers are saying, "I can't wait any longer. I am going to take a new number."
5983 The ratio now is that 60 percent of our customers are prepared to take a new number, but 20 percent of them are doing it begrudgingly. They would love to have their old number back.
5984 We have met with Telus and we have suggested: Because you have a manpower issue, a constraint with your strike, why don't we preserve that number for our customers, have them come over to us, and they will take a new number, and when your strike is over, let's give them the old number back.
5985 That doesn't work for them.
5986 Customers that are now taking new numbers -- as you know, part of the tariff of a telephone company is to put a recording on that number, which says, "The number you have called is no longer in service. The customer's new number is this."
5987 They aren't doing that, so those customers are going into a bit of a vacuum, and you can understand why there would be a reticence to take a new number.
5988 It is a frustration, and what is happening now is that the customer is saying, "I can't be bothered to wait any longer. I am not even going to bother. I am going to go back to the incumbent." We have lost an opportunity.
5989 COMMISSIONER WILLIAMS: When you lose the opportunity, a potential phone customer going back to the incumbent, I understand that some of your packages are offered in a bundle, so do you also lose other parts of the bundle or risk other parts of the bundle or risk damage to your brand?
5990 MR. BISSONNETTE: Absolutely. Customers are really attracted to our service by virtue of our bundles, and many customers are coming to us and they are bringing those other services with them.
5991 The reverse happens, of course, when we can't satisfy their need to maintain their number, so the services that they had chosen to also bring over as part of the bundle are lost to us.
5992 We, essentially, have no place in their home.
5993 MR. SHAW: We call these customers, really, to get a feel of the marketplace, to know what the competitor is doing. Because we can mess up too.
5994 One of the things that customers say to us that we find encouraging is, "This is really great." They think that competition in the local arena is great. They think that you, as the Commission, have got it right. For once, it is something that gives them a better option and better pricing and more features.
5995 What we are finding is that they then get frustrated by the process and say, "The thing is messed up like it used to be," when we in Canada and the Commission and the players have a chance to get it really right, so that it works well. We lose that opportunity, to some degree, and I don't think it looks good on us, or on the regulatory system in Canada either.
5996 But right now, when we talk to them, they are supportive of the group. They think that you guys have made good decisions, and they are seeing some results in the marketplace.
5997 Guys in the smaller towns are saying, "I have never even seen long distance competition" ‑‑ in Fort MacMurray or Prince George or Red Deer. They are dying for it to come there, yet we still can't get the big city to run right.
5998 So it is going to be really hard for us if we can't get the area, generally, like Calgary, Edmonton, Vancouver, Victoria, to run right. Then, it will be really hard for us to make the next move out to the smaller guys, who want it even more desperately than they want it in Calgary and the other larger centres.
5999 COMMISSIONER WILLIAMS: What has the effect been of the Telus labour unrest in the west in regards to your ability to attract customers? Then, I guess, once you have attracted them, to get them connected and convert them.
6000 COMMISSIONER WILLIAMS: What has the effect been of the Telus labour unrest in the west in regards to your ability to attract customers, and I guess once you have attracted them to get them connected and convert them?
6001 MR. SHAW: I guess that we have taken the approach that Peter has met with senior people at Telus and I have talked to Darren at various times. We have done a couple of things.
6002 We said that we weren't going to what I call "pile on". So we haven't done a lot of advertising about our telephone service, because it is just too frustrating for somebody that wants to port their number and we can't and we can't fulfil them and it just looks bad on us.
6003 We have probably slowed the process down to some degree. There is some demand there. We are conscious of their labour dispute and are supportive of where they are going with that.
6004 So we are really kind of, Peter, on hold to some degree, aren't we?
6005 MR. BISSONETTE: We are.
6006 Recognizing that there are some manpower constraints, we have actually proposed a methodology with respect to LSCs and LSRs that would require as little manual intervention as possible. There is a process with the Canadian Numbering Association that would allow us to do that, but unfortunately it hasn't been embraced.
6007 We really would hope that ultimately there is absolutely no reliance one on the other for number portability, because that is the huge stumbling block that we have right now.
6008 COMMISSIONER WILLIAMS: Back to the number portability, are you doing anything innovative to try to sign up a customer in the event that you can't give them a number? Do you offer any incentives? Do you do anything in that area?
6009 MR. BISSONNETTE: Yes. We have called all of those 5,000‑plus customers that are still waiting for their number to be ported and we have offered them an opportunity to come onto our service for a month for free, try it out, take a new number.
6010 Some have actually been attracted to that. But again, it just goes to the sanctity of the number that many have still said "no".
6011 September is our busy season. New homes are being constructed or finished construction, people are moving in and they have said, "I have to have a phone". So they are taking our number because they really, truly want to come and enjoy our service. They take our internet service and they take our other services and this just makes sense to them.
6012 COMMISSIONER WILLIAMS: How fast is this backlog building in terms of, say, a percentage or an actual number?
6013 You can use your discretion on how you answer that.
6014 MR. BISSONNETTE: Yes. We are being satisfied now at a level of about 50 percent of what the demand is. We have a backlog of over 5,000 customers which will take, at the rate that they are being ported now, some several months to deal with in the absence of any other sales.
6015 COMMISSIONER WILLIAMS: So will these customers wait several months? Is your service that attractive to them?
6016 MR. BISSONNETTE: Many aren't. Many are going back.
6017 COMMISSIONER WILLIAMS: What are the key attractions of the Shaw service versus the current alternatives?
6018 MR. BISSONNETTE: We offer same-day/next-day service. We can do that. When a customer takes a new number and they phone us today, tomorrow in most cases we have actually installed their telephone service along with any other services that they might have.
6019 They tell us that they love the long distance that goes with the services. We have many customers in our areas that come from Newfoundland and now they can talk to their parents in Newfoundland unlimited whether it is Saturday, Sunday, three in the morning, two in the afternoon. They love the plan.
6020 COMMISSIONER WILLIAMS: So you have unlimited, what, free long distance?
6021 MR. BISSONNETTE: It is unlimited long distance, North America included; that's right.
6022 Service calls are included. We don't charge customers. If they have a problem with any of our services, it is included with their subscription with our services. They really like that. They call us up and we will dispatch a technician to address their concerns.
6023 If they have concerns with their internet ‑‑ many people load new software and something goes wrong ‑‑ we have technical support staff there 24 hours a day to help them.
6024 That is a really integral part of our brand, the service orientation of our company. That is attracting companies to our telephone services.
6025 COMMISSIONER WILLIAMS: What is the typical take‑up in each household? Do they just call you for a phone or are they already a cable customer?
6026 MR. BISSONNETTE: It is an interesting ‑‑
6027 COMMISSIONER WILLIAMS: What do they want when they call?
6028 MR. BISSONNETTE: Many are already cable customers who take our internet services and take all of our other video services and they trusted us because they have had our internet service for some time and they want to try this new Shaw digital phone service.
6029 Interestingly enough, there is a portion of customers that are now coming to us that have never been a customer of Shaw and are taking our bundled products because they have heard about them. The telephone product was what essentially moved them into our direction and they said, "We have never really had a need" but when they are coming on they take everything.
6030 COMMISSIONER WILLIAMS: Your historical churn rates in cable you are familiar with.
6031 Is the churn rate in your new phone business similar or are there any differences?
6032 MR. BISSONNETTE: The churn rate between when we get a customer and when they get ported, that is in question right now. Once our customers come on I think it is probably too early. There is a traditional churn rate that goes to people moving from their homes, so you are going to churn from one address to another.
6033 MR. SHAW: We would think it would be pretty close to the same as cable once we kind of get operating, which is going to be in 1.5, 1.8 percent a month.
6034 COMMISSIONER WILLIAMS: 1.8 percent a month. That is of ‑‑
6035 MR. SHAW: Basic.
6036 COMMISSIONER WILLIAMS: ‑‑ the two million customers you have?
6037 MR. SHAW: That will be of the percentage we have.
6038 COMMISSIONER WILLIAMS: Yes.
6039 MR. SHAW: So if we are only 35 percent deployed ...
6040 COMMISSIONER WILLIAMS: Yes.
6041 MR. SHAW: Now is the easiest time in the market because you get all the people that are the early adopters who want to try it. No different than when satellite came, all the people who didn't like their cable provider moved right away. No different. That is probably what we are seeing with RBOCs.
6042 COMMISSIONER WILLIAMS: You talk about within 35 percent of your cable marketplace.
6043 Will you eventually offer service in your entire cable operating area?
6044 MR. SHAW: Yes, we will. The one fact, we just finished on our high-speed. We have been at it, I think we were talking seven years and a bit, really, really hard at it. We just finally moved the deployment down to a level where communities with 1,000 homes have high-speed. So it has taken us that long to get down to that far.
6045 In in the small reaches of Alberta and Saskatchewan and British Columbia and all these little towns, it will probably take that long in Shaw's whole network, but what will happen in the first probably two to three years is that 95 percent of our market will be deployed. It is the last 5 percent that will take us some work to get to as we have little fibres and little different interconnects and switches and stuff.
6046 COMMISSIONER WILLIAMS: At what percentage of the phone market or percentage of your current customers that take phone do you believe your company will achieve breakeven in the phone business?
6047 What percentage is required to get a return on this, I guess, $350 plus‑million you spoke about earlier?
6048 MR. SHAW: Yes. I can answer that question. It is a little bit hard in that you are layering on lots of products onto one line so it is like trying to find where actually the profit comes.
6049 We have stated our goal. We think as long as the regulations ‑‑ and we can fix this number porting thing a little bit up, we think we will be at 20 percent penetration of markets deployed three years after they are deployed. So from a three‑year date ‑‑ and I think we have gone public with that number ‑‑ I would think that we start showing what I will call positive EBITDA, I would say right around the 10 percent level, which we think is very achievable, whether that is in year one or two. Probably not in year one but maybe in year two.
6050 COMMISSIONER WILLIAMS: Okay. Can you now please discuss some of the challenges that your company has also experienced in the area of access to municipal rights‑of‑way and access to support structures in rolling out your phone business?
6051 MR. BISSONNETTE: Access to support structures obviously is fundamental for us, particularly as we are launching our telephone business where it is really important that we continue to segment our nodes. I know that the folks from Cogeco talked about that. But node segmentation: the smaller the node, the higher the quality, the more reliable the service.
6052 What we are running into now ‑‑ and this is not a phenomena of the labour dispute in Alberta or British Columbia ‑‑ over the last two years the access to support structures is becoming more and more difficult. The reasons for not providing access to support structures are becoming more and more vague.
6053 Typically, we have a process called a P408 process where we apply to the telephone company to run our cable from point A to point B. Within a timeframe of about 60 days we should hear back from then saying, "Yes, we have facilities there and, yes, you can access those support structures".
6054 What we are hearing now is, first of all it is taking upwards of a year to hear back from a telephone company about an application. What they are saying now is a new twist, it is that, "The make-ready will have to be done, but it is not in our best interest to do that. Even though you are going to pay for the cost of making that make-ready and overlashing that cable, we decided it is not in our best interest to do that".
6055 So that is one. That is a very vague response and we don't know what the response to that is. We have to look for alternative routes.
6056 The other one is our capacity induct systems. We have now done a 50‑year plan and because of that plan we think we might need those support structures in 20 years from now and so therefore we can't afford to give you access into those support structures. So find an alternate route.
6057 There are just more and more ways of putting roadblocks in our way to have infrastructure that is absolutely critical to us providing our telephone service. So that's a problem.
6058 We met with the Premier of B.C. the other day to talk about our role as a third party usually leasing facilities from a hydro company or from a telephone company and the need for us to have interconnections to serve the kind of communities that Jim just talked about in some of the smaller communities. We need to have support structures. We need to have some kind of status, if you will, on those support structures in order to place our facilities.
6059 So we have a situation, as you know, in Vancouver where the City of Vancouver had denied us access to critical facilities to launch our telephone products in the city.
6060 Thunder Bay is another example, where we have been whipsawed between the hydro company and the telephone company, who happen to both be owned by the city, with respect to getting access. So when we launched our internet services in Thunder Bay, we had to actually use creative approaches like AML microwave, digital microwave that would allow us to use wireless approaches to get into critical hubs as opposed to being able to place fibre optic networks.
6061 We don't want to sit here whining in front of the Commission. We have challenges. We are prepared to deal with those challenges.
6062 Where you can help us by maintaining regulations that force incumbents to at least act in a certain way, that is going to help us to make entry into the market in a meaningful, meaningful way.
6063 COMMISSIONER WILLIAMS: Okay. That is a perfect segue into the final set of questions that I have.
6064 In order to rule out your competitive product, what would be the ideal regulatory environment that the Commission could provide to ensure that, one, when we did forbear, as is our eventual goal, that it is at a time that is fair to all, that would produce meaningful and sustainable competition. With what specific criteria do you think?
6065 What advice can you give us from your company's point of view for the ideal environment in order for your company to grow in this new competitive marketplace?
6066 MR. SHAW: Well, I guess the first thing we think is that the Commission does have this right. So we are not here saying you have it wrong; we are here saying you have it right. The stuff that you have in place now, with some minor tweaking, can take this to the next level.
6067 I think our number one issue that we are always most frustrated with is when there is a problem between us and the RBOC and the customer is in the middle, because we value that relationship. At the end of the day I guess we are all just here because of those customers and because of Canadians and that is why we do what we do.
6068 So probably the most frustrating would be the number porting issue. If we had to rank them, I think the facilities, while it is frustrating, some of the approaches that are taken we do find ways around that. We are pretty creative. We can always dig in our own fibre if we have to. While it is more money and maybe not how we should go, we tend to do that. So we have been able to find ways around those things.
6069 So I think any time we can err on the side of the consumer in Canada we are going to win. The whole system wins.
6070 These companies are of larger size. Telus won't kill Shaw and Shaw won't kill Telus. I think there is lots of market for everybody here.
6071 We have seen some market expansion just by these products across the board so I think we are pretty good there.
6072 I guess we really think that it is time in this area that consumers benefit. We need a little more time just to get a little more footing under us. We are not the protectionist type so we think there will be a time to forbear and we just think that it is just a little bit early now in our recognition of this.
6073 Ken, do you want to add anything to that?
6074 MR. STEIN: I think the basic point to be made from a regulatory point of view is that people try to come up with simple models, whether they are amoebas or charts as to the competitive environment. It is actually, as we found when we entered into the DTH business, the Commission actually did that correctly, because the issue wasn't just a simple 5 percent/100 percent kind of rule. There are a whole range of other things that were put in place.
6075 It's interesting, the telcos are asking for transitional arrangements and more flexibility. Actually, what happened in the DTH market was that the entrant got all the flexibility and the incumbent, the cable companies, actually the Commission tightened up on us. So the telcos are asking for the reverse.
6076 I think the key issue that seems to be ignored in the competitive models is the fact that they run the system. The thing we have learned over the past couple of months is that all the rules, all the regulations with respect to interconnection and LNP, et cetera, don't mean very much, that really you have to build a relationship in order to try to make it work and all the rules and regulations don't really help.
6077 I know Telus complains ‑‑ not complains, but basically says they do have a labour issue and we are very sensitive to that in terms of resources, but yet they have the resources to put in the telemarketing.
6078 So we find that within days of people being ported that they are being phoned by a Telus telemarketing firm saying, "Geez, you switched. Why did you switch?" and "How would you be incented to come back?"
6079 They have the resources to do that, but they don't have the resources to have somebody sit at a terminal and do a number port. That just seems to me to be just strictly anticompetitive.
6080 So how the Commission can help in that is to basically do as it has. The Commission has had a tremendous success record in introducing competition to this country.
6081 When you look at Winnipeg. Winnipeg is the most competitive television market in the world. People have seven choices as to how they get their television in Winnipeg, they have fundamental choices as to how to get their high‑speed internet, and they are going to have fundamental choices about how they are going to get telephone service. This is going to be the best example of competition in a telecommunication and broadcasting system in the world and we are getting screwed up by number portability.
6082 Two days after we launched the service MTS says, "Oh, we can't port high‑speed internet customers. We can't port television customers". Well, I mean, Jim went in there a month before to give them kind of a hint that we were coming.
‑‑‑ Laughter / Rires
6083 MR. STEIN: So they have reacted. Then when you see the emails that we get from people about the offers. I have got some. They tell my sister that she had to change all her inside wire, which is wrong.
6084 So I think the thing is that it is that specific targeting. If they came at us with huge promotions and we were able to deal with it on that basis, that would be fine. That would be a real fair competitive thing. But it is the targeting that they are able to do and the running of the system in a way that is to their advantage and to our disadvantage and the targeting of the customers who are lost that is a real disadvantage.
6085 I think that the more that the Commission can just basically indicate to them that the system has to be managed in a way that encourages new entrants in competition and that customers have to be treated equally, that the more the Commission takes that approach and doesn't get bound up with simplistic rules ‑‑ you know, an amoeba is a single‑cell animal with no brain and I think that that kind of approach just doesn't fit.
6086 The Commission has it right. The Commission has it more right about competition in this business than in most other businesses in this country. So we don't want to go the route of the airline business or other kinds of businesses which have followed theories which have failed. The Commission's experience in this area has been very good and applying that experience to this area is what is required.
6087 Thank you.
6088 COMMISSIONER WILLIAMS: Thank you very much, panellists.
6089 I think that concludes my questions, Mr. Chair, although I may think of one or two more. I reserve the right to come back later.
6090 Thank you.
6091 THE CHAIRPERSON: Thank you.
6092 Commissioner del Val...?
6093 COMMISSIONER del VAL: Thank you.
6094 I found your presentation very helpful in the examples you gave of customers expressing interest, changing, sort of the hurdles that you face, but it sounds like you do have a lot of interest in the service that you have offered in Alberta.
6095 MR. SHAW: Yes. There is a fair amount of interest, but understanding there has been no local competition and really no ability. Edmonton has never really had any competition in the local arena, to a large degree. So there is a lot of pent‑up, I would say, in the early days of launch of these products, as well as in Calgary. Plus, we are probably a little more advantaged by the fact that Alberta is experiencing quite a large boom right now and so cities like Edmonton and Calgary are really, really building out fast.
6096 COMMISIONER del VAL: So inertia isn't really a problem for you as a cableco, is it, but but for your complaints about violations of winbacks.
6097 Inertia isn't really a problem for the cable company. That wouldn't be a problem you face then?
6098 MR. SHAW: It might not be a problem short term, but longer term it will be sustainable. It's just like if you go to a store and you order some clothes and they don't come for two months and they don't come for four months. You go back to the store and say, "Well, gee I would like my money back". How many people are you going to tell about that experience or that store? That is kind of what we are dealing with. We are dealing with the fact that we come, we promise we can port your number.
6099 You know, before we used to say we could have it done ‑‑ I forget, 10 days, Peter, something like that ‑‑ and we were pretty well on track. Then the next thing you know we are phoning you back to say "Well, it's two weeks", then we are phoning you back to say "Well, it's three weeks", then we are phoning you back and saying "Well, we have an offer, do you want to take our number"?
6100 We were getting so creative in the end, we were going "Okay, we will let you pick your number". So if you have family you could be, you know, 2221, your brother could be 2222, and you could be 2223, that kind of thing. It is kind of just to come up with something that we could offer and, of course, we could put that in in a day or two. The other one they go, "No, but I want my number."
6101 I always say this to my mom and dad ‑‑ I shouldn't say this but they are not here so I can say it ‑‑ you finally talk a senior citizen into coming over and then they have a senior's moment, which means they basically forget everything you have told them, and they don't understand. They say, "Well I don't understand why you can't port my number here.
6102 COMMISSIONER del VAL: But all those examples are examples of the difficulty in actually getting the customer and retaining. It is not inertia. It is because there is a lot of talk about just inertia, people not even considering switching.
6103 So that is not really a problem that you as an established cableco faces.
6104 MR. SHAW: Right. Not that we have seen yet.
6105 COMMISSIONER del VAL: Okay, thanks.
6106 The Competition Bureau proposed dividing the product market into primary lines and secondary lines. I also note in your presentation your goal to be a replacement for local telephone service.
6107 I will try to break this down.
6108 First, what do you think of the Competition Bureau splitting the products market for residential service into primary and second lines?
6109 The second question will be: Do you think that there is a good market for you in the second line residential market?
6110 MR. SHAW: We initially have looked around at other companies that launch what I would call a secondary line offering first, converting over to a primary line. We felt that in marketing that with an inferior product and just trying to compete on a second-line basis would not be where our company should go. So, in turn, while we might offer you a second line that restricts long distance on it, because you want it at a discount, we think our service should be totally primary line with all the features that any other line should have.
6111 Ken, I don't know if you have ‑‑
6112 MR. STEIN: I think the model just gets too complicated, because as you try to apply that model in any given circumstances people use secondary lines in a whole bunch of different ways and there is a lot of change that goes on. There are also different features. You can have the same telephone number and get a secondary fax line with using a feature rather than having a secondary line.
6113 So there is a lot of different ways of achieving a secondary line and there is probably a lot more change within households in terms of how they do that.
6114 So we felt that in terms of entering into the market what we wanted to go after was the market that is there and that market is the primary line market. AJim says, it also gives you the quality features.
6115 But to try to trace through secondary lines would be trying to judge whether the cell phone is a primary line or the secondary line as well. So I think it just gets overly complicated and I don't think people really look at it that way. I don't think people look at there is a primary market or a secondary market. Maybe economists do or academics do, but I don't think individual homeowners do.
6116 COMMISSIONER del VAL: It's funny that you say that, because in my simple mind as just a consumer in a household I actually thought that first line and secondary line, you know, it actually had some appeal, because you would think that, okay, if there is the inertia with the primary line with the incumbent telco and then, you know, say if I have the computer ‑‑ most households have computers ‑‑ with high-speed internet from cable, the secondary line would be the perfect place to try out my teen phone.
6117 So I don't see that as an economist's view, I am just seeing it as a simple consumer's view.
6118 MR. SHAW: No.
6119 COMMISSIONER del VAL: So I'm just wondering, am I missing something?
6120 It strikes me that sort of we don't want competition until we want it perfect, we want the perfect scenario, we want the primary line.
6121 MR. SHAW: No, no, no, and we offer primary line now, that is all we offer. You can use it as a secondary line if you want, that is your choice. You might pull it into your household and say, "Well, I'm keeping my main Telus number and I'm using Shaw as my long distance number, so when everybody makes a long distance call they walk over to the other number and use it. It is mainly outgoing when you do long distance, so does it really matter that the other one is for incoming?
6122 So I think lots of people do that. It is just we made the decision that we are not going to have someone go and say, Well, I tried to call 9-1-1 on that service and it didn't work" or "I tried to call 4-1-1 and it didn't work". So we want it fully featured, but by no means has that slowed us down at all.
6123 COMMISSIONER del VAL: Okay. Those are my questions. Thank you very much.
6124 THE CHAIRPERSON: Thank you.
6125 Commissioner Cram...?
6126 COMMISSIONER CRAM: I see Red Deer is on the map. I guess my brother will be pleased.
6127 Why isn't Saskatoon on the proposals too?
6128 MR. BISSONNETTE: Saskatoon is on our radar map.
6129 COMMISSIONER CRAM: Oh, okay.
6130 MR. BISSONNETTE: It is a matter of getting the interconnects that are necessary to provide us, as a CLEC, with interconnects to the telephone network in Saskatoon. So they are clearly on our map. They will be launching. We are doing the kinds of things we have to do now, the lead time ‑‑ I think we talked about two years to announce the telephone switch, the lead time typically has been in a year to get those kinds of things resolved with the telephone company.
6131 MR. SHAW: I would say that of Shaw's major systems ‑‑ let's go with a cable system above 20,000 to 30,000 ‑‑ above that everyone will be launched within a year. So Saskatoon is on there, we didn't write it in the thing, but it is on the list.
6132 It is a little more complicated one because Bell doesn't have an interconnect agreement, so it is one of the ones we have to do directly with SaskTel. We have held talks with them already and that process is starting to get under way.
6133 So it is more just a function of the ability to get the interconnection agreement, get our status and then work ahead and then you will see actually Prince Albert and Moose Jaw and Swift Current and all those place launch.
6134 COMMISSIONER CRAM: So you are partnering with BellWest, but you are also competing with BellWest in Alberta.
6135 Is that right?
6136 MR. D'AVELLA: Bell West is essentially a wholesale provider of access services and a variety of other things. Their focus is largely the enterprise and small and medium sized business markets. So they are not really in the residential telephony market. They see this largely as a wholesale business for them, which they are very happy to have.
6137 COMMISSIONER CRAM: When I get to some of these questions I wonder if you could file, I guess on a confidential basis, your basic penetration rate in Calgary, Winnipeg, Saskatoon, and then your high-speed penetration rate as a percentage of the basic?
6138 I know you have high penetration in your internet, but it is just it would be ‑‑
6139 MR. SHAW: Do you want us to file all the systems? It is just as easy to file them all.
6140 COMMISSIONER CRAM: Is it? If it is just as easy ‑‑
6141 MR. SHAW: All the bigger ones or all the Class 1's.
6142 COMMISSIONER CRAM: The bigger ones.
6143 MR. SHAW: How about all Class 1's?
6144 COMMISSIONER CRAM: Sure.
6145 MR. SHAW: Okay.
6146 COMMISSIONER CRAM: Thank you.
6147 Thank you, Mr. Chair.
6148 THE CHAIRPERSON: Thank you.
6149 Commissioner Langford...?
6150 COMMISSIONER LANGFORD: Thank you, Mr. Chairman. I don't have many questions.
6151 Welcome, folks, to beautiful downtown Gatineau.
6152 I was wondering what your plans are for competing in the central business core of some of these large cities you talk about. I'm not really up to speed on your cable footprint in some of the western cities, but I know that in some of the eastern cities it is not as strong right in the central business core.
6153 I wonder if you could just bring me up to speed on where you are on that?
6154 MR. SHAW: I guess that is certainly a longer term picture.
6155 Short‑term cable's main strength is in the fact that it is a residential provider and that it has very good extensive fibre optics throughout almost all residential areas in Canada to a large degree, all the bigger ones for sure, and that it has always resisted a bit going downtown because you have had a lot of costs and certainly not as many subscribers and some people frown on the idea of having a TV in their office. I certainly don't, but some other people do.
6156 So gradually, as we wire in what I will call our high-speed SO/HO, small-office/home-office, we start to penetrate these areas around the edge, mainly the industrial areas and stuff. So it is a growing factor.
6157 I think once we have reached competition on the local side or in what I call the residential side you would see the next move would be some more competition come into probably the small and medium business side, with some creative type offerings for probably businesses with under 10 employees, maybe under 20 and work from there.
6158 I wouldn't see cable as being a great provider of the large enterprise units at this time. But, you know, if you would have asked me five years ago if we were going to go head-to-head in local with the local incumbent I would have probably told you no also.
6159 COMMISSIONER LANGFORD: What would it take to get in to some of these large officer towers now? Would you have to work some kind of agreement with someone else, one of the other CLECs, or how would you do it if you did decide to do it?
6160 MR. D'AVELLA: Access is certainly part of it. As Jim said, we do have fairly extensive fibre networks throughout our major centres.
6161 But the bigger issue for us is selling a large business is a completely different undertaking. We don't really have the culture and the resources to do it. We would obviously have to staff up to do it and hire the right expertise.
6162 The switch that we bought, the softswitch platform that we have for our residential customers, will probably do some of the small business type applications up to a certain number of lines, but if you are going to provide services like IP Centrex and start dealing with more complicated enterprise offerings, it is another investment in a switch.
6163 COMMISSIONER LANGFORD: So who would be the competitors for that sort of business in the big cities where you are doing residential?
6164 MR. D'AVELLA: Well, it is the incumbents. In our territory, it is obviously BellWest. I believe SaskTel has a venture out there called Navigata that competes against us.
6165 We do some business through our Big Pipe division that essentially provides bacall fibre but that is a large pipe business, it is not really a very sophisticated switching type business.
6166 COMMISSIONER LANGFORD: Another question totally unrelated, but when you get down the food chain on the questioning it is pretty hard to get them coherent.
6167 You have been talking about selling VoIP to people who are interested in doing long distance. You talk about your customers who are Newfoundland families.
6168 How many service request have you gotten for area codes that are not the area codes in which the phone is located? In other words, perhaps for Newfoundland's area code or for something somewhere else in the world or in Canada.
6169 MR. D'AVELLA: I don't think we have had any, Peter, or very few.
6170 We have been very very careful in our marketing message that this is a primary line service that replaces your local line. So I think we finally got it through most peoples' heads that this is not Vonage or any VoIP offering or anything like that where you can port a different area code.
6171 We could certainly do that. It is an offering that we could provide if we wanted to, but as Jim and Peter have said that is not where we thought our customers' hearts were at initially. All of this stuff is certainly going to evolve and there will come a time when we can certainly provide that offer if we think there is a market for it.
6172 COMMISSIONER LANGFORD: So you are not providing it now, though you could?
6173 MR. D'AVELLA: No. It is tied to a specific address, it is a land line, it is a fixed land line.
6174 COMMISSIONER LANGFORD: Now for kind of a complicated and vague question, but at least it will be the last, mercifully.
6175 When the kind folks from the Competition Bureau came in the other day to give us some insights into how they operate they talked about one of the aspects or one of the negative fallouts from possible forbearance that they thought we should look at or would be one of the things they would look at if they were in our shoes.
6176 What they talked about was the notion that if we forbore too early it was conceivable that the incumbents could drive one or more competitors right out of the market. But they thought that might be countered in the case of the cableco competitors in the sense that you and the other cable companies have so much of your invested infrastructure utilized already for other products. You named them today, internet and television and whatever.
6177 So I guess my first question would be can you imagine a scenario ‑‑ you have only been at this for eight months I know, but you have some customer base ‑‑ can you imagine a scenario under forbearance where you would look at this new business venture of yours, look at your 600-and-some new employees and just say "This is no longer worth it" and go back to your core businesses which are television and internet providing?
6178 MR. SHAW: Only one example comes to mind, it was back in the early days. We talked Michael here into moving out to Edmonton and we were going to start‑up what was called MetroNet, which later became a different kind of company. We created this company and in turn it was going to deliver wireless internet, wireless phone and wireless video. Well, after about a year of torturing ourselves, or maybe it was two years, we finally turned it off.
6179 Also, we were a big component in GT Telecom, which was a bypass provider in the large arena. It also failed, costing us multimillions of dollars. Basically the pricing model just couldn't work. As I look through that model, I don't see any of those guys around any more. The only people who seem to buy them are the guys who want their tax losses because they have lost so much money that it helps MTS' balance sheet to buy Allstream or otherwise no one would even buy them.
6180 I think you would have to ask Bill about Sprint, but certainly a lot of damage was done in that arena.
6181 So I would think that you need to give the incumbent, no different probably than the satellite guys, enough time to just have enough inertia that the business can grow and then gradually just pull away.
6182 COMMISSIONER LANGFORD: That is what you would like but it hasn't quite, with respect, answered my question. Perhaps you can't. If you can't, that's fine.
6183 Can you imagine a scenario at this point ‑‑ you must have sat around kind of blue‑skying when you got into this and I assume when you do that you look at all the pluses and you look at all the negatives. Assuming, just for the sake of argument, forbearance today, you go back to your headquarters in the west, what could happen that might ‑‑ and if nothing, I mean if you are in forever that's fine.
6184 MR. SHAW: No, no.
6185 COMMISSIONER LANGFORD: What might happen that could drive you out of this aspect of the business?
6186 MR. SHAW: I think what would happen is that you would probably maintain your existing base and work with that, but it might preclude future investment so you would have to ‑‑ I and Peter and the boys sit in front of the Board and we have to justify to our shareholders our investment and hurdle rates and things like that. So what it will do is probably it will limit expansion more than it would pull back the initial investment.
6187 I would think that initially we are already deployed. We have the work services up and running. I tend to think that we would either slow it down so it was a lot slower deployment and/or we wouldn't deploy markets and then we would have to make a decision on which markets, was it economical and which markets wasn't. Saskatoon might be, but Moose Jaw might not or Red Deer might not.
6188 So we would start making market-to-market choices, depending on how close you are ‑‑ a whole bunch of technical things like how close you are to the fibre, what the switch can handle, can the Calgary call centre handle it, how do we hook you up? So it will just force a different level of decisions.
6189 I think what we have initially deployed here won't ever go away.
6190 COMMISSIONER LANGFORD: Thank you very much.
6191 THE CHAIRPERSON: Thank you.
6192 Commissioner Pennefather...?
6193 COMMISSIONER PENNEFATHER: Thank you, Mr. Chairman.
6194 Good morning, gentlemen. I have a somewhat related question. I thought at first it was the same question, but it is the timeframe again. You proposed on page 10 of today's presentation:
"We can't see this happening for at least another three to five years."
6195 I am assuming the "this" is a point at which we could forbear. Correct?
6196 MR. SHAW: Yes.
6197 COMMISSIONER PENNEFATHER: Was that the meaning?
6198 MR. SHAW: Yes.
6199 COMMISSIONER PENNEFATHER: In your discussion with Commissioner Langford I think what you were describing, Mr. Shaw, is a point of sustainable competition.
6200 Is that correct?
6201 On what basis do you choose the three to five‑year timeframe
6202 MR. D'AVELLA: The three to five‑year timeframe is really a collection of things that essentially says, "Look, we have still have to build this out, we still have to deploy some of our larger systems, we have real issues in terms of interconnection."
6203 Those of you who are familiar with Edmonton, not being able to serve Sherwood Park, which is a very, very large component of Edmonton, is a real deficiency in terms of our ability to provide service in that city. So we have got to get these problems solved.
6204 Quite frankly, we have been at this interconnection issue with both our partner and with Telus for well over a year and we still have no date as to when Sherwood Park is going to get interconnected.
6205 That is just one example. We have a series of holes in Vancouver that have to be filled before we can provide service in the entire city. We have yet to deploy our largest system in Vancouver.
6206 So there is a lot of work that has to take place over the next call it 12 to 24 months before we can confidently say, "Yes, we have got a functioning system here, we have the interconnection agreements in place. LNP actually works, or it works better than it does now, and we are confident this business is going to build out and grow.
6207 COMMISSIONER PENNEFATHER: Would you describe that period of three to five years as a transition regime and, if so, would you see any other safeguards or any other steps the Commission could take?
6208 I think, Mr. Stein, you were saying that we have it right. The panel is saying we have it right, but that all the rules don't mean very much, as I heard you say.
6209 Could you just clarify that for me and if that would be steps in a ‑‑ as you know, a transition regime has been proposed.
6210 MR. STEIN: Right. Well, I think that for us part of this is the fact that the ILECs over 120 years really have come to the point where in terms of dealing with municipalities and rights of ways and their own structures that they do manage that system and that what we have to make sure of, with the help of the Commission, that we get into a position where that system is being managed for the benefit of all and that it is being managed for the benefit of competition. In our view, there are a lot of issues that we are going to have to go through that are going to take the time to be able to sort that out. That is not going to happen in the next two years, it seems to us, it is going to take a period of time.
6211 Second, it is the same thing with dealing with municipalities. The Commission has been an immense help in dealing with municipalities, but when it comes down to it you still have to negotiate with the mayor and the city council, and you still have to deal with their lawyers and you still have to work it out.
6212 When it works, it works really, really well on that basis. That is what we mean. That is the kind of working relationship we want to get to.
6213 COMMISSIONER PENNEFATHER: One last point.
6214 There has been considerable discussion about market share as an indicator or a trigger for either steps in a transition period or a point of forbearance.
6215 Do you have any comment on market share?
6216 Mr. Shaw, I heard you say 20 percent penetration after three years of service being deployed would be considered to be a sustainable position, as I heard you.
6217 Generally speaking, is that a step we can take?
6218 MR. SHAW: I think a market share penetration step is a better step than a date picking one, because the date picking one is always open to so much manipulation, maybe even on both sides. I don't know that.
6219 I think market share argument worked well in the satellite cable thing. I think with such dominance in local and wanting to bring competition in so much the number needs to be quite a bit higher than that number, the old 5 percent deregulation rule, but I would think 20 percent would be a pretty fair number.
6220 COMMISSIONER PENNEFATHER: Thank you very much.
6221 Thank you, Mr. Chairman.
6222 THE CHAIRPERSON: Thank you.
6223 Commissioner Duncan.
6224 COMMISSIONER DUNCAN: Good morning. I just have three quick questions.
6225 I was interested, following the discussion over the last few days, to just get your reaction on whether a duopoly is going to be sufficient to ensure the degree of competition in the market that we need or whether it is going to take more than two facilities‑based competitors.
6226 I was told that in the cellular market it actually took the entry of a third competitor to really ensure that the prices got to the best level ‑‑ prices and service, I'm sure.
6227 MR. SHAW: I guess we are kind of viewing it as we have to walk before we run. Certainly in video, as we were talking about in Winnipeg, there are two illegal competitors, two legal satellite competitors, a telco competitor, and a cableco competitor, over the air and sky.
6228 As I said, that is a lot. So I don't know how many actually we need and I do not know the perfect model, but I do know that this is a very, very positive step and all the responses that we have received from consumers have suggested that it is a positive response.
6229 So whether a third one would help bring even more? Possibly. I don't know. But I think let's get one started well and then if the third one could come in I guess that would be a good move, too.
6230 COMMISSIONER DUNCAN: All right, great. Thank you.
6231 With respect to the Competition Bureau, as I understand it they are suggesting that we would have to give careful consideration to the variable costs of the competitors, the facilities‑based competitors. I'm curious to know whether you think that we will confidently be able to arrive at numbers, or get numbers that we can rely on that would prove that your variable costs were less, for example, than the Bell, assuming that was the right answer.
6232 But are we going to be able to get numbers that can be relied on that would be comparable?
6233 MR. McKOEWN: I think there is a great concern about any new costing methodology. The Commission has had lots of experience with introducing costing methodologies. Phase 2 and Phase 3, you know, come to mind. The Commission has spent a lot of time looking at those, and not only after implementation but examining whether or not they are doing the proper job.
6234 I think you need to take that as an indication of the difficulty it is in determining the costs. It is not a precise art. There is no precise number. I think the best you can do is get a feel for the relative costs for companies, but that may not be enough for the type of thing that the Competition Bureau is doing.
6235 So we don't think that is the right criteria to examine the market.
6236 COMMISSIONER DUNCAN: I appreciate that. Thank you.
6237 One last question. The resellers suggested yesterday that they should have access to your video service in order for them to be able to bundle and offer a truly competitive service.
6238 I understand there would be lots of hoops to go through to get to that point, but I'm just sort of wondering your initial reaction to that.
6239 MR. SHAW: One, it would be pretty hard to decouple that, just in the nature of the distribution network, but there is lots of ability for them to partner up with a video partner.
6240 Bell ExpressVu partners up all the time. I'm sure StarChoice would partner with them as the video provider to complement their signal. Some of the wireless guys. I don't see any reason why the telco would not do it as part if they wanted. I think there is lots of opportunity for them to bundle.
6241 They can also go to a form of delivery on their own where they lease a line and deliver their own product. So I think they have some options there.
6242 We don't tend to feel that resellers will be sustainable over a longer period of time just because as the market gets more competitive we feel that margins are going to squeeze down and there won't be enough margin for someone to incrementally resell your service. So we think that down the road it is going to just be based on the facility‑based.
6243 They also can build facilities, too. We saw lots of people do it in the old days with MetroNet in the City Vancouver and lots of people getting in. There are lots of new wireless technologies with all the WiFi and that that they can look at.
6244 So I think they have lots of opportunities, Commissioner.
6245 COMMISSIONER DUNCAN: I appreciate that. Thank you very much.
6246 THE CHAIRPERSON: Thank you.
6247 Gentlemen, just a few questions or maybe comments. Mostly these questions are on Mr. Stein's portion of the presentation.
6248 Included in there, particularly in respect of winbacks and interconnection, it is difficult to know how to calibrate these points. On the one level they are general statements, aggressive winback campaigns, and so on.
6249 I guess I am not inviting more precision here because this really is not a fact‑gathering dispute settlement process, and yet we do have those processes at the Commission where if you do have specific concerns about the rules being violated you can go to. We have the good offices ever Mr. Godin and company to try to minimize the formality of that, to try to work out as much as we can on an ongoing basis. I know from your feedback on other occasions that has been helpful.
6250 So I guess what I'm really saying is, I'm just not sure how in this proceeding we can deal with those points. If they are meant to be a general description of the difficulties in the marketplace, I understand. If they are meant to be allegations that there have been violation of the rules I'm not sure this is the proper forum. So I don't know.
6251 Naturally the ILECs whom you interface with will have an opportunity to comment in the next phase, but I don't want to dwell on that for both those reasons, the comments are general and because this isn't probably the appropriate forum.
6252 I would just like you to address that to perhaps clarify what this presentation was really intended to do.
6253 MR. STEIN: Okay. We have tried to resolve these issues, with respect. We have had discussions with both MTS and with Telus with respect to the particular issues. They come up on a daily basis. They vary.
6254 At the beginning of the MTS there was quite a bit of misinformation and after some discussion with the Commission and with MTS that stopped and then it sort of came back again. So it is an ongoing type of issue.
6255 The difficulty is. when you get into the market your processes necessarily have to take time and effort and filings to deal with. So what we have tried to do is deal directly with the companies. After this session ‑‑ Mr. Peirce, for example, the other day announced that we had in place a process to deal with the porting issue with respect to internet and television services.
6256 I think MTS did agree in our discussions with them that this was probably an oversight on their part and it was their responsibility.
6257 But what I'm saying is, all the rules and regulations, even though the CRTC had very clearly laid out that that was not to be a barrier to number porting, and even though Allstream itself had made filings in that regard over the past years, still that day of launch it was an issue.
6258 So I think it is more that we are not raising it, we recognize this is a consultation and we are basically saying that these are ongoing issues that indicate that rather than the incumbents saying here is how the system can work best so that we can do this, they are going the opposite way. That has been a bit of a shock to us in terms of how it operates.
6259 MR. SHAW: So they were just really to give a general parameter of just what is happening in the marketplace. We wanted to come really from a consumer and a functional point of view rather than brought up as a specific problem with something we wanted to file on them or anything.
6260 THE CHAIRPERSON: I guess if you have specific complaints about violations ‑‑
6261 MR. SHAW: We will deal with that.
6262 THE CHAIRPERSON: ‑‑ of the winback rules then you should be dealing with us separately and raising those and giving an opportunity for parties to comment.
6263 MR. SHAW: Right.
6264 THE CHAIRPERSON: We set up the expedite process and I think that has worked rather well. Below that, the good offices process that helps to skate a lot of these disputes in to the boards, which I hope works also.
6265 So I am basically taking the bulk of your material, Mr. Stein, as basically saying: Quite apart from the rules and the criteria this is what it is like in the trenches and you should know that so that as a background to what you are doing, we still will face a lot of these problems that may not be caught on the radar screen of rule violation in the letter, but may well go to the spirit of it and you should know that.
6266 Is that a fair summary?
6267 MR. STEIN: Yes, it is. If I could just make a general point on the winback rules, et cetera, that in the broadcasting side we were not removed from the winback conditions as cable companies until the DTH had about two million subscribers.
6268 So it wasn't like when we had thousands or right at the beginning of the market entry. I think what we were trying to point out is that these specific examples are examples of things that happened in the early days in the trenches, as you say, but they are indicators that it takes time to sort these things out and come to a balance in terms of how it works.
6269 THE CHAIRPERSON: Thank you. I have that point.
6270 Zeroing in in particular on the interconnection point on page 12, Airdrie and Okotoks and so on ‑‑ Okotoks, I am informed by Commissioner Cram ‑‑ that is all within the Calgary LIR and that was your point. You are saying that notwithstanding that it is within the Calgary LIR that interconnection isn't complete and so accessibility to all points in that zone is not available.
6271 MR. STEIN: Yes, exactly.
6272 THE CHAIRPERSON: Okay. I guess turning that on its head, does this raise a question as to the suitability of the LIR as the geographic area for market forbearance?
6273 MR. STEIN: No, we still ‑‑
6274 THE CHAIRPERSON: ‑‑ indeed in addition to the cost of rolling out your network, which we have established yesterday you have, you don't even have interconnection at this point.
6275 So supply conditions in that LIR are really not equal. That is the other side, the flip side of the same coin of what you are saying, is it not?
6276 MR. STEIN: We think the LIR is the best because it is the one that we have experience with for administrative reasons, et cetera. There are going to be issues, obviously, within that, but we felt that the LIR, combined with a commitment to make the system work and to make the interconnection arrangements work properly, whether with BellWest or as a CLEC, would be the way to go.
6277 Sure, it is going to take time to do that, but you are not going to forbear immediately anyway, so hopefully we will have it sorted out by the time you do that.
6278 THE CHAIRPERSON: Okay. Good to hear that.
6279 One of the parties ‑‑ and I can't recall who it was now, I can't put my finger on it ‑‑ suggested that one of the reasons for not adopting the LIR was that Shaw, for example, was only serving the city of ‑‑ I think it was Calgary, if my memory serves me.
6280 Your answer would be that "We can't get interconnection in the balance of the LIR"?
6281 Would that be fair?
6282 MR. D'AVELLA: The only reason why we launched it in Calgary is that is the only place the telco would actually allow us to launch. They would not do an interconnection in Airdrie or Okotoks.
6283 We did raise the issue of what about this LIR concept that the Commission has come up with? Shouldn't we be fine with the interconnect in Calgary?
6284 Well, they are not buying it. They are insisting on interconnects in both Airdrie and Okotoks. Those are like suburbs of Calgary. It is not like we are going, you know, 50 miles out of the city.
6285 THE CHAIRPERSON: Thank you.
6286 My final question is on your page 14, Mr. Bissonnette, where you reference the LNP mechanism.
6287 I take your point about the difficulties in porting. You acknowledged also in the case of Telus at least labour issues were part of the problem.
6288 But you make a more general point, that you say that:
"We believe that the telcos need to be removed at arbiters and gatekeepers of the LNP process." (As read)
6289 Of course at one level the number is assigned to a telco customer and therefore it has to be ported, so they have to be involved in the process.
6290 What else do you mean and would you elaborate on that particular point?
6291 MR. BISSONNETTE: I think if we think in the ideal world where LNP-ing is not a difficult process and where in fact there is a neutrality to that process so that it does'nt become an opportunity for some other behaviour, aside from just transferring a customer from one provider to the other provider.
6292 So if we remove all of what we will call Machiavellian behaviour from it, if we could feel comfortable that when a customer says "I want to move from provider A to provider B", that number portability is absolutely not an issue. When we feel comfortable that is taking place, as we do when a customer moves from one video provider to the other, we have dealt with any of the issues that may be barriers. This one is a huge barrier.
6293 There are ways of doing this. We have made a proposal to the incumbent that would really smooth out, if you will, some of that behaviour and it essentially becomes just a pro forma process.
6294 We go to the Numbering Association, "This customer wants to move". There is a confirmation a that the customer wants to move and the number is reassigned through the Canadian Numbering Association from the incumbent to ourselves. There is no opportunity for the other kind of behaviour that we are seeing now.
6295 THE CHAIRPERSON: I see. So the Numbering Association is now not involved is what you are saying?
6296 MR. BISSONNETTE: They are involved, but through our CLEC partnership. They could be involved directly with ourselves. All that has to happen is that the incumbent has to say "We endorse that process."
6297 MR. D'AVELLA: They are involved, but they are not the final arbiters. It is the incumbent who says, "Yes, I see this local service request that you have made. Peter Bissonnette is now moving to Shaw Digital Phone. He lives at this particular address." They actually send back information saying "We confirm that two of three of the pieces of information are correct. It's good."
6298 What we suggested is, "Well, there is no need for you to confirm that. We already know where Mr. Bissonnette lives and we will take responsibility for the data, because the issue is, when you inform the PSAPs of Mr. Bissonnette he still has to be at that particular address. We are responsible for that, "we" Shaw and "we" Bell ‑‑ "we" Bell our partner that is.
6299 So we suggested to them, "Look, you guys don't even need to be involved in this process. As long as NPAC has effectively announced that that number now resides on the Shaw switch versus the Telus switch, it should work, provided we take responsibility for the data.
6300 They are just not there yet, although we are trying.
6301 THE CHAIRPERSON: Okay. Well, hopefully this information will prove useful for the staff of the Commission to examine further. Telus will obviously have an opportunity to comment as well.
6302 I think those are my questions.
6304 MR. WILSON: Just two quick questions, if I may.
6305 First, to follow up on your discussion with Commissioner Langford where there was some discussion in terms of the business market. I think I understood from that discussion that while there may be some opportunities for your type of service in the sort of smaller businesses, the SOHO market, as we have heard, or that small business market, the larger business market just really isn't feasible for the type of service that you offer.
6306 For the Commission's purposes in looking at the service market for businesses, does that argue that rather than treating the business market as one market we should be looking to divide it between that smaller business customer segment and the larger business customers segment?
6307 MR. SHAW: I don't know if we have done enough work to really answer that question for you totally, whether it should be segmented or not.
6308 Certainly, at initial blush, we will easily move into the small and possibly medium, but the large ones, there are just so much more complex in their requirements.
6309 We certainly right now are designing the system as residential-base services, meaning that the softswitch we picked and some of that stuff is more geared for a residential type of customer so we would have to start reconfiguring the network.
6310 I'm not saying we won't go there. I'm saying I don't know if we have done enough work to give you the right answer.
6311 MR. WILSON: My final question, just to follow up with respect to the information that you have undertaken to file in response to Commissioner Cram's question, can you just indicate when you will be able to file that information with the Commission?
6312 MR. SHAW: In a week. Within a week, yes.
6313 MR. WILSON: Mr. Chairman, those are my questions.
6314 THE CHAIRPERSON: Thank you.
6315 Commissionaire Cram?
6316 COMMISSIONER CRAM: Thank you.
6317 I don't know if you were here the other day when Yak was here, but they were discussing what the British Telecom regulator is doing, and that was doing a process to ensure implementation of an effective wholesale and interconnection before considering forbearing.
6318 Would you agree with me that what you have written on pages 12 and 13 seems to be precisely the reasons why we should do the same?
6319 MR. STEIN: I'm always a bit reluctant to use the British examples only because it is such a different structure and their attempts to get at competition have had different rates of success than ours. So I'm not sure I would --
6320 COMMISSIONER CRAM: We have been a sterling success, for sure.
--- Laughter / Rires
6321 MR. STEIN: Well, we have in areas. They have different issues. I always find these structural comparisons between ourselves -- you know, comparisons were made between Canadian cable and U.S. cable, which does make sense in some ways, but it is not always the best comparison to make. So it is difficult.
6322 We would look more at that model in terms of how it fits with this, but I wouldn't be willing to buy into it right off the top.
6323 COMMISSIONER CRAM: The question is, though: Should we be looking at the effectiveness of our rules on the wholesale business and interconnection and ensuring its effectiveness before we even look at forbearing, given what you have here?
6324 MR. STEIN: I'm not exactly sure I understand what you mean in terms of wholesale?
6325 COMMISSIONER CRAM: Resale.
6326 MR. STEIN: Resale?
6327 COMMISSIONER CRAM: Yes.
6328 MR. STEIN: I would think more to what our point is that we are more concerned about how the system operates from our point of view of being able to offer it at a retail level and how we can work out the interconnection arrangements and the system arrangements more than resale options.
6329 COMMISSIONER CRAM: Yes. That is why I was talking about effective interconnection and then also the wholesale side too.
6330 MR. STEIN: Yes. But we would look at it more from the interconnection point of view than from a resale point of view.
6331 COMMISSIONER CRAM: So my question then is: Do you think we should be looking at ensuring adherence to our interconnection requirements and perhaps tweaking some of the rules and ensuring that works before we get into forbearance?
6332 MR. STEIN: Absolutely.
6333 COMMISSIONER CRAM: Thank you.
6334 THE CHAIRPERSON: Thank you.
6335 We will take our lunch break now and resume at 1:10. Nous reprendrons à 1 h 10.
--- Upon recessing at 1206 / Suspension à 1206
‑‑‑ Upon resuming at 1313 / Reprise à 1313
6336 THE CHAIRPERSON: While we are waiting for the rest of the panel to join us, the Secretary asks that I request of parties who do not wish to make a final statement tomorrow to let her know so she can do some planning.
6337 So if you do not intend to make a statement tomorrow ‑‑ we will assume you do unless you let her know. Thank you very kindly.
6338 Order, please. À l'ordre, s'il vous plaît.
6339 Madame la secrétaire.
6340 THE SECRETARY: We will now proceed with Rogers Communication Inc. Thank you.
PRESENTATION / PRÉSENTATION
6341 MR. ENGELHART: Mr. Chairman, Commissioners, my name is Ken Engelhart with Rogers Communications.
6342 I am happy to have with me today Bill Linton, at my right; Dave Watt beside Bill; Jean Brazeau to my left; Don Bowles to his left.
6343 I am going to ask Bill to speak first about the experience of a CLEC operating in a Canadian market, and then I will address the important public policy issues at stake in this proceeding.
6344 MR. LINTON: Mr. Chairman, Commissioners, as you know, I was the President of Call‑Net, which is now Rogers Telecom.
6345 Consistent with the local competition framework established by you, Call‑Net uses ILEC local loops to provide service. Now that we are part of the Rogers family, we have started to provide service over cable facilities where they are available.
6346 However, it is our intention to be a national service provider, and therefore we will continue to use ILEC local loops for the foreseeable future.
6347 This afternoon I am going to describe both a good day and a bad day as a local service competitor. By a good day, I mean a day when the networks and the systems are all working and the ILECs are providing essential services and facilities in line with the quality of service standards that you have established.
6348 On this good day I sign up in the neighbourhood of a thousand customers, and that costs over $200,000. Of these customers, about 100 do not get switched over correctly or on time by the ILEC. This requires us to recontact these customers and face their ire.
6349 I also discover that about 20 of these customers are served by what is called ILEC remotes, and that we will either not be able to serve them at all or, if we can, it will take several months for the ILEC to install the required equipment.
6350 Also on this good day, out of my total base I have about 750 existing customers who are completely out of service for various reasons, but mostly because of loop problems. Of these 750, about 150 have been without service for greater than 24 hours. These people are mad and they are phoning us constantly.
6351 That is a good day. Now let me tell you a little bit about a bad day ‑‑ and there have been a lot more bad days lately than good days.
6352 On a bad day I have had to scale back my marketing activities because of the difficulties I am experiencing in obtaining loops importing customers. So I am signing up fewer customers to begin with.
6353 As many as 50 percent of the people I am signing up and that I have persuaded to take my service do not get transferred because the ILEC systems are not working properly. So that is 50 percent.
6354 Today I have a backlog of about 5,000 customers that are waiting to get transferred, and the backlog is growing daily. I can't even tell these customers when they will get transferred, so a good number of them lose patience and they cancel our service even before it has commenced.
6355 I have customers who have been without service for over a week and are so mad that they are going to cancel not only their phone service but also any other service they receive from Rogers.
6356 This description doesn't even begin to deal with the ILEC's aggressive winback campaigns. We often lose as many as 500 customers a day for this reason alone.
6357 Some before you are going to argue that our experience reflects the operation of a normal competitive marketplace. Others will argue that cable telephony will change everything. I disagree.
6358 First, in a normal competitive marketplace there is no incumbent provider that starts with all of the customers while we have to win them from him one at a time. Because they started with all of the customers, the ILECs know who they are, they know where they live and they know what they value in telecommunications services.
6359 In a normal competitive marketplace it is not difficult to use a better deal to pry a customer loose; yet in the local telephone market the ILECs have customer inertia working for them. There is a segment of customers who are price sensitive and open to switching. However, local phone service is an essential service. The substantial majority of customers are not looking to switch, which means we must work harder to open their minds to competitive alternatives.
6360 In a normal competitive marketplace, one so‑called competitor does not control essential inputs to another's business. The ILECs are increasingly using remote switching technology in many areas.
6361 This means that our customers have to wait months for the ILEC to install the necessary equipment to use our service. That is where the ILEC co‑operates. Where it refuses to co-operate, we are simply unable to serve those customers.
6362 Cable companies are not immune from this dependence on ILECs. With all of the customers, the ILECs start with all of the phone numbers.
6363 When a number must be ported, it must be ported from an ILEC, and that is where the normal competitive process can become abnormally slow and unreliable.
6364 In a normal competitive marketplace, one so-called competitor is not able to hold on to virtually all of the customers simply by targeting its marketing campaigns at the very few customers that have left the monopoly.
6365 The Commission has found many of the ILEC winback tactics to be anti-competitive, and has put in place a number of safeguards.
6366 Unfortunately, on many occasions the ILECs have been found wanting in their adherence to these rules. At last count, there are at least six formal applications which have been brought before the Commission to deal with this problem.
6367 There is an attachment to our remarks today that you will see, which is this card. This is the latest example of an ILEC winback activity. It is a little card that Bell Canada is sending to those customers who have switched to a competitor, and they are not waiting any length of time to send this card.
6368 I am not sure whether this is onside the rules or offside the rules, but it does demonstrate the lengths to which the ILECs will go to retain each and every last customer they lose.
6369 Before I turn you over to Ken, I would like to relate a recent incident.
6370 One of our customers called to cancel his local service with us. As is our practice, we asked why. The reason he gave is one we are used to hearing. He was given an irresistible offer by Bell.
6371 But this offer even caught us off guard. Bell offered to waive his activation fee and provide a $75 credit and three months of local service for only $40.
6372 We are pretty sure that they aren't supposed to do that, but we, of course, lost that customer.
6373 When confronted, the ILECs like to put these excesses down to the existence of what is called rogue agents within the ranks of their customer service agents. Given how often we are encountering this behaviour, they must be employing more rogue agents than they are normal agents. This is not a normal competitive behaviour.
6374 From where I sit, this market is not ready for transitional measures, let alone forbearance. While the ILECs have a variety of proposals, all of them would result in deregulation, in a situation where they maintain an overwhelming incentive and ability to maintain their market share.
6375 I want you to think of what my day would be like if the ILECs in an unregulated environment could target customers immediately and offer them any sort of incentive not to switch. The high level of customer churn that would result would be disastrous for all competitors and for competition.
6376 MR. ENGELHART: We have had a lot of discussion in this proceeding about anti-competitive conduct, and a lot of economic analysis on whether anti‑competitive conduct makes sense. You have heard a lot of information from the ILECs and from the Bureau, saying that anti-competitive conduct doesn't make sense. The theory as to why it doesn't make sense is that it costs a lot of money to drive a competitor to exit the business, and then afterwards you have to raise your prices, or, in other words, recoup the money you have lost, and you can never recoup, because if you do try to raise prices, the people who exited will come back in or they will sell their assets to someone else.
6377 That is the theory you have been presented with.
6378 We feel that this argument is flawed for five reasons, as I will explain.
6379 The first flaw in the theory that you have been presented is that most of the models -- all of the models that this is based on start in a world where there are, in the words of economists, no economic rents, no super-normal profits. Companies are just making a normal profit.
6380 Then they predate. Now they are making less than a normal profit.
6381 After they finish that, the company exists, but they can't just go back to the pre-predation level. If they go back to that level, they are just making a normal profit again. They have to raise prices above the pre-predation level in order to recoup those losses.
6382 That is the theory. That is why the Bureau even said in their remarks that you could cure predation for all time by just passing a rule that would say that you can't ever price above the pre-predation level.
6383 But all of those models are not the situation we are dealing with. The situation we are dealing with involves phone companies that have 97 percent of the residential market, and 94 percent overall. They are sitting on $4 billion a year of EBITDA.
6384 The last time we had a look at what that profit level represented was at the end of the first price cap hearing, and then it was over 16 percent return on equity.
6385 We no longer keep a split rate base of competitive and utility, so nobody knows if it has gone up or down. But if it has stayed the same, that is an economic rent. That is a juicy $4 billion block of EBITDA, and all they need to do, all they want to do, all they are trying to do is hang onto it.
6386 There is no need ever to raise prices above the pre-predation level. That is not what you are trying to do. You are trying to hang onto that $4 billion of profit for another year, another month, another day. You are trying to hang onto that monopoly.
6387 A numerical example. Say that you spent $25 million on an anti-competitive pricing campaign, and that delayed the decrease in the profit level by 10 points. That $25 million investment would get you $400 million in profits each year. So it can be a very productive strategy.
6388 The second point. This strategy really only works at the outset of competition. It really is true, as the ILECs' economists and as the Bureau say to you, that once the competitor is established in the market, it is really expensive to dislodge them. It takes a lot of money and a lot of effort, and it is probably never going to work.
6389 The time to do it is now. The time to do it is at the outset of competition. That's when you have an opportunity to persuade a few entrants to exit, or even just to not expand, just to stay where they are and retrench their efforts.
6390 Three. The theory that all of our costs are sunk is really not true. People have talked to you about, "Ted Rogers said that this didn't cost very much." Our public statements are that we spent $200 million on the initial capital to get started. Believe it or not, in our world that isn't a lot of money. We spend, in many years, $1 billion on network.
6391 So it is true that the initial going‑in cost, which needs a refresh at some point as you get more subscribers, is not a huge amount of money, but the variable costs are quite high with our architecture. You have to spend incremental variable capital with each subscriber you add. Our public statements put that at $300, including the truck roll.
6392 Another point, as was raised the other day, is that every new entrant has those variable costs of sales and marketing. You have to spend $100, $200, $300 per additional customer.
6393 That is something the incumbent doesn't have. The incumbent already has all of the customers. They have to spend a little money to get the switchers back, but it is not that $300, $200, or what have you, of variable sales and marketing costs.
6394 Then we have normal variable costs ‑‑ cost of sales, technical support, maintenance, engineering, operations and billing.
6395 I haven't sat down and done the comparison between us and them -- and that comparison of variable costs is very important in the Bureau's methodology -- but if you look at Aliant/Bureau-36 in this proceeding, it says that their prices are 70 percent above their short-run marginal costs.
6396 So the ILEC's variable costs appear to be fairly modest.
6397 The fourth point is a very important point. This is something that Professor Ross talked about yesterday. It probably really is true that if you had to predate by lowering all of your prices everywhere by 30 percent, it probably would be so horrifically expensive for the incumbents that it never would work. That is why targeting is so critical. Targeting is the key to make this thing work. You don't lower everyone's prices, you just go after the areas where the new entrant has gone and, most importantly, you just go after the people who have already left. That's called winback.
6398 This is precisely why the Commission's rules are designed to avoid this type of conduct. You have rules against de-averaging which prevent geographic targeting, and you have rules against winback which prevent them from going after each and every customer that leaves.
6399 If you are spending $300 on variable cost, and half of your customers are captured in a winback campaign, that means $600 per net add. Now your business plan really starts to go down the drain.
6400 This is why we see the ILECs talking about really nothing other than getting rid of the winback rules and getting rid of the rule against de‑averaging. They talk about it in this proceeding, in the telecom policy review, there are court applications, and there are speeches in other proceedings. This is precisely why they are so fixated on this issue.
6401 Fifth. The idea that we are going to keep our network lying fallow, in case prices go up, having exited the business, is something that economists say in textbooks. It is not the way the real world works. Once you have shut down a business, you have shut down a business, and you put that channel into some other application or service.
6402 The idea that we are going to sell a channel on our cable network, again, this is not the real world. That is not the way it works.
6403 I want to leave you with the position of Bell ExpressVu on winback, because that is the part of the Bell organization that has acted like a new entrant.
6404 Unlike the part of the Bell organization that is here, they are enthusiastic supporters of the winback rules.
6405 It was Stentor that asked for them in 1998. Bell ExpressVu supported them in 2003. They have asked for an extension to 12 months. They have asked for rules against promotions.
6406 Here is a description from this year's Canadian Communications Reports from a Bell ExpressVu official:
"You invest a lot of money in a building to put a facility in there, to market to the building, and so on. When you make that investment, you have to count on a certain penetration just to break even. It really doesn't matter if it's a TV service or anything else. When you're selling to a building, you have to count on a certain penetration level just to break even. If you open a donut store or something in the lobby, you have to assume a certain volume of sales to make your presence worthwhile. And if the donut store next door came along and suddenly said, 'Don't buy donuts from him. I'll give them to you for half price,' you have no opportunity then to make a business.
So are you going to go into another building and lose money there too? The cable company can chase you all over town until you run out of money. (The revised winback rule) is another measure that the Commission has put in place to give competition an opportunity to get established."
6407 THE CHAIRPERSON: I take it that you are available for questions at this point.
--- Laughter / Rires
6408 MR. ENGELHART: Yes, we are.
6409 THE CHAIRPERSON: Thank you.
6410 Commissioner del Val.
6411 COMMISSIONER del VAL: Thank you.
6412 I will direct most of my questions to the panel, and then you can decide who amongst you is best to answer.
6413 You have the benefit of having heard many parties go before you, so I think I will probably organize my questions in dealing with the questions arising from the parties' different responses in the oral part of the hearing first.
6414 Yesterday Chairman Dalfen asked questions of the CCTA, and I see that in many of your written submissions you support the CCTA's position. I want to know whether you agree with CCTA's responses yesterday to Mr. Dalfen's questions, generally. Would you have answered any of those questions differently, or would you like to add to any of those answers?
6415 MR. ENGELHART: Absolutely, we agree with all of their responses. I would not have anything substantive to add.
6416 It is a small point, but I would emphasize the point they made that our 30 percent test, based on households, is administratively really simple. If you are just saying, "How many houses no longer have the ILEC service," it is much simpler than having to get everybody in the business to file monthly or quarterly reports, which is really complicated.
6417 We really think it measures the thing you are looking at, which is how many people have exercised a choice.
6418 COMMISSIONER del VAL: On that note, I want to understand a little bit more about your business, following up on what you said about households.
6419 Do you find that the customers you acquire on local service are mostly your existing customers for cable service?
6420 MR. ENGELHART: Yes. The service is available to any home that our plant passes. So you might not take any service from us other than telephony, but typically, yes, it is people who get cable from us.
6421 MR. WATT: I would like to add one thing. In this situation, as you know, Rogers Communications acquired Call-Net at the beginning of July, so we really have a two-pronged approach to the local telephone market. We have a large operation outside the cable footprint territory making use of unbundled local loops, which Bill can speak to.
6422 Then, as Ken has said, within the cable franchise area we have begun to roll out in the Toronto/Mississauga/York region, and the Oshawa area.
6423 COMMISSIONER del VAL: Yes. Thank you. That's a good point.
6424 On the switches -- you are taking over the Call-Net part of the service, and your own, Rogers. Are most of the customers that you are acquiring switching from the ILEC, or are they new?
6425 MR. LINTON: The vast majority of customers are switching from the ILEC. There are some moves who are new numbers, but the majority are migrates from the ILEC.
6426 MR. ENGELHART: To add to that, if you see someone porting their number, that is a pretty good sign that they have migrated from the ILEC, and it is 75, 80 percent or more that are porting their number, so that is a pretty good indication.
6427 COMMISSIONER del VAL: That was exactly my next question.
6428 The percentage of churn in the local service, how does that compare to, say, the percentage of churn in cable?
6429 MR. LINTON: Traditionally -- and we have been in the local business for a couple of years now, unlike some of the other cable companies -- our churn is somewhat higher than normal cable churn.
6430 Normal cable churn is between 1.5 to 2 percent, and telephone churn has been 2 and sometimes as high as 3 percent per month.
6431 COMMISSIONER del VAL: I suspect that I know the answer to the next question, but I will ask it anyway.
6432 Why do you think the churn is higher?
6433 MR. LINTON: One of the major reasons is coverage. Because the facilities for local service are mostly in urban areas, as people move out to the suburbs, sometimes we don't cover those areas. So we lose a percentage because of move out of an area that we can service.
6434 Secondly, whenever you get into a new market like this, you get very price conscious customers first, and some of those price conscious customers are so price conscious that they decide not to pay you. We probably have a slightly higher churn in that area than the traditional cable base or the telephone base.
6435 COMMISSIONER del VAL: I am trying to break it down in terms of the takers of your local service. What percentage of those would be taking it on as a standalone and what proportion would be as part of your cable packaging?
6436 MR. LINTON: On the Call-Net or Sprint Canada side, where the largest base is, there are over 350,000 local lines. That was the main product. So the people who originally signed up for that service were taking local and long distance, and a few of them were taking a wireless offering from Fido.
6437 Now, on the cable side we are finding the vast majority of them are just bundling it into their existing services with Rogers. I don't think, because it is early in the market, we have a lot of statistics on whether it is just cable only or people with Rogers cable and Rogers wireless. So I think that would come out and in the future we would have better information.
6438 COMMISSIONER del VAL: Thank you.
6439 Following up on your oral presentation, I grouped the problems into three areas: the local number portability, violation of winback rules and loop problems.
6440 Could you comment on of the three what is your biggest problem or are they equally big?
6441 MR. LINTON: The problems we have vary based on almost the month. It is not so much ‑‑ I think you have hit the nail on the head. These are issues that for the most part there are rules in place now. If those rules and the quality of service standards were being followed, then we wouldn't really have a problem with any of these things. As Jim Shaw said, we would be able to work around them.
6442 So our difficulty with each one of those things is where the ILECs are not following the established rules of service, whether it is winbacks, whether it is loop available, LSRs, et cetera, et cetera.
6443 COMMISSIONER del VAL: Okay. Also, then, would you agree with Mr. Shaw that as a computer operator for you the biggest problem ‑‑ inertia is not really a problem, it is just retaining?
6444 MR. LINTON: No, inertia is a problem. Remember that it is an enormous market. Every Canadian household has a phone. I think there have been statistics provided to you in this hearing that says based on work that Bell has done there are over 50 percent who really don't have any intention of looking at an alternative. So we are really looking at the other 50 percent.
6445 So inertia is a big issue and to get over inertia we have to differentiate ourselves. We do it right now through bundling with other products. We do it certainly through promotions and pricing. In the future we are going to have to do it with differentiated features.
6446 COMMISSIONER del VAL: How did you ‑‑ sorry.
6447 MR. ENGELHART: Sorry. If I could just add to that?
6448 I think Mr. Shaw said they haven't seen it as a problem yet and that is probably fair.
6449 When you first launch these things you see a different profile of customers. When the phone lines first open you always get a few hundred calls from your competitors and the consultants and then the next wave is ‑‑ you do get, bless them, a small proportion of the people who just hate your competitor and have been dying for that choice. But once you get through that fairly small group you get into a group that are very, very price sensitive and they just want the deal. They are the people who are really susceptible to winback campaigns, too, because they are just after the deal.
6450 Then, after you get through those price‑sensitive people, you start to hit that sort of inert group of customers that are just very reluctant to switch. To some extent it is a credit to the incumbents that they have managed to build up this reputation and this brand name that people do not want to switch their phone service from them.
6451 COMMISSIONER del VAL: Thank you.
6452 Back to Mr. Linton.
6453 You mentioned 50 percent, I am wondering what that number is based on.
6454 MR. LINTON: Bill was speaking first from Call‑Net experience, but with respect to the record in this proceeding I believe that Bell filed the Decima survey result. I believe it was in response to a Bureau question. They went out in a fairly large sampling and asked people how interested they were in voice over IP.
6455 That is a little bit different than what Bill has been selling with the unbundled local loops.
6456 I won't have these numbers absolutely precise, but I believe the numbers were in the order of 10 percent of the people were very interested, 25 percent of the people were somewhat interested and then the remainder were either indifferent, to not interested, to absolutely opposed to the idea. That is the source of the information so it is on the record.
6457 COMMISSIONER del VAL: Great. Thank you.
6458 The competitor's footprints. Back to the Telus model. I just wanted to explore that with you.
6459 The competitor's footprint, if you were in a development like Concord Pacific, Pacific Place in Vancouver, the old EXPO site, and you had wired the buildings for cable, and you are getting the buildings, building by building, despite the fact that you have wired every building, what would you consider your footprint? The fact that you have wired them all or would you see your footprint as just one building on the site if you just got that building?
6460 This is also following up on Commissioner's Langford's own question.
6461 MR. ENGELHART: It does get sort of philosophical at some point. How many angels can dance on the head of a drop wire?
6462 Having announced that we are going to provide service throughout all of those buildings and having wired them, you could really say at that point that is your footprint, or you could say, as your question suggested, it is only as you flip on the switch building by building that it really becomes part of your footprint because it is only at that moment that you have customers and sales.
6463 You could take it back a step and say, just the fact that it is in your serving territory makes it part of your footprint before you have launched it.
6464 So I would say that if you are going to do that Telus model I think it has to be the place where you are actually able to sell is your footprint. I think for the purposes of what they are talking about that makes the most sense.
6465 COMMISSIONER del VAL: I think it was MTS in their oral presentation sort of said, "We wouldn't want to provide that type of information" about competitor's footprint and all.
6466 What would your response be to that?
6467 MR. ENGELHART: I guess just stepping back a bit, for our Ontario systems it doesn't make as much difference as it does for a lot of other people. The most dramatic example is Metro Toronto. It is an exchange. ot is an LIR and it is an overlapping area, and it is an amoeba, too.
‑‑‑ Laughter / Rires
6468 MR. ENGELHART: So no matter what test you were using, Metro Toronto would be part of the market.
6469 In a lot of our areas because our cable systems are so heavily clustered we sort of cover most of the LIR. For us in Ontario it doesn't make that much difference. In New Brunswick and Newfoundland we get some of those big host remote maps like EastLink have where the question gets a little bit more dicey.
6470 But in Ontario, I think the way we have looked at it is, as the CCTA said, you have to start by defining what the market really is. What really is the market? People don't launch phone service in an exchange. Although Metro Toronto is one exchange, there are five exchanges in Mississauga. Nobody would launch a phone service in the Clarkson exchange.
6471 So a market in the sense of where are buyers and sellers interacting to exchange products and services, typically you would think of a very big community or a local calling area or something like that. There are problems with local calling area. So it seemed to us that the LIR was the best, crispest way of doing it, certainly in our Ontario systems.
6472 So I have stepped back a bit and I'm not sure if I have answered your question, but if I haven't please repeat it and I will drill down.
6473 COMMISSIONER del VAL: I was asking could you comment on MTS' position on if the criteria was the footprint, that the cable companies may be reluctant in providing that type of information and how would you feel about that?
6474 MR. ENGELHART: Regulators are pretty good at getting information out of regulated companies and we provide a lot. I don't think that would be an overwhelming problem.
6475 As I did say in response to your first question, with all of these methodologies it does get extremely messy and extremely awkward and a lot of people are giving a lot of information. That is why in our view saying 30 percent of the households that the ILEC passes but no longer serves is way easier, but could we get you that information, I'm sure we could.
6476 COMMISSIONER del VAL: Thank you.
6477 Still on the issue of the footprint, I think Ms Blackwell of CCTA yesterday was talking about the shifting sands of the footprint and said the member companies would be able to sort of elaborate on the problem.
6478 Could you please?
6479 MR. WATT: What I think Ms Blackwell was referring to was the expansion of our roll out. For example, a comment was made on Monday that in the case of Rogers with the information we filed it looked like we were serving 55 percent of the exchanges in the LIRs that we had identified.
6480 We went back and looked at that number that evening and what we found was that with respect to the four LIRs that we launched on July 1st ‑‑ the four I have named already, one of them York region ‑‑ showed us in 15 exchanges out of 26 exchanges in that LIR.
6481 However, on September 1st we filed plans to expand to another eight exchanges in that LIR and the only two we are not going to serve are places where we don't have cable plant. Uxbridge is owned by another cable company, et cetera.
6482 So certainly for the next two to three years I think the Commission is going to be faced with expansion, probably on a monthly even bi‑weekly basis, with exchanges being added to fill holes in as we expand.
6483 So I think that was really what Ms Blackwell was getting at, that this would be an ever‑changing geographic territory over the next ‑‑ it could be longer than three years. Mr. Shaw this morning said it might take him five to get to some of the smaller locations in British Columbia, et cetera.
6484 COMMISSIONER del VAL: On that issue of the shifting sands and expansion of the footprint ‑‑ and I believe Mr. Dalfen on Monday was having a discussion with Telus, using the Telus test, still on that issue if you have reached 5 percent ‑‑ then if you expanded your footprint a little bit you would no longer reach the 5 percent. So this is the whole fear of gaming issue.
6485 Why don't you comment on that, first, the fear of gaming?
6486 MR. ENGELHART: I guess if the test is 5 percent the game might be over anyway.
6487 But, in general terms, these ideas that the regulatory department tells the marketing people how to sell their product and when to flip off their efforts. It is a myth. It is not the way the real world works.
6488 So no, if you are in a business to get customers you are trying to get more and more. I find this whole notion that people are going to game the system this way and that way to be doubtful. Never say never, people can do things, but I don't think it is that big a concern.
6489 I do think that you do have these constantly‑shifting sands and it does get to be a bit of a mess, but I am doubtful that people are going to be gaming it.
6490 COMMISSIONER del VAL: While we are still on the issue of geographic market, on your comments just earlier: Do you think we are looking at a situation where the geographic area for ‑‑ we couldn't have the same sort of definition of geographic market for the entire country? Do you think maybe, say for Nova Scotia, we are going to have to use something different from an LIR but we could for Ontario or parts of Ontario?
6491 MR. ENGELHART: Let me use New Brunswick so the EastLink people don't get mad at me, but I think you are looking at kind of a big extended community area. To me, that is the market for local phone service.
6492 If you are going to provide local phone service in the Toronto area you would provide it in the GTA. That's what you would do. You wouldn't launch in Clarkson and then have to advertise in the Toronto Star. Your ads would be going all around the city just to serve that little small area.
6493 You would never build up any kind of reasonable scale if you were just doing it in an exchange. It would be kind of a non‑starter.
6494 The area that people would enter, the kind of areas where I think economists would say the local market likely is taking place, is some sort of big community and sort of the surrounding areas.
6495 Toll free calling area, if it didn't have the sort of administrative problems, would work and LIR I think works in places like Ontario.
6496 In New Brunswick, if you want to stick with that idea of an extended community, then because of their host‑remote architecture and what that has done to the LIRs, the LIR probably won't work.
6497 COMMISSIONER del VAL: Okay. Still on the issue of geographic market, I think by now you have heard everyone's views on each of the proposals and their weaknesses and strengths.
6498 Firstly, I wonder whether you, one, have anything different to add to what has been said already.
6499 Second, which is more important for me, can you think of any fixes for any of the proposals, you know from footprint to be in a province, because we have heard all of the problems from the unserved pockets to the administrative problems.
6500 Do you have any fixes for any of the proposals?
6501 MR. ENGELHART: First of all, I agree with the comments that the CCTA made that you have got to start with some notion of what a market really is. You don't start with the economic players in the market because that is the second part of the test.
6502 So you really have to first ask yourself what the market is and, as I described it, it would be some sort of a large community.
6503 In New Brunswick, where that doesn't work, I would go to toll‑free calling area and just pick the big city as the home base and use toll‑free calling area for my test.
6504 The problem with the holes I think is something you address in Oart 2 of the CCTA test. Part 1 is: Are we at 30 percent? If we are, you go to Part 2.
6505 Part 2 is you look at the situation. Is this working? Is this something we really could say we should forbear? It is in Part 2 of that test that you would look at the holes and you would go, "What is going on in these holes?"
6506 Some of the parties in this proceeding say, "Well, in a year or two mobile wireless substitution is going to be huge and access‑independent VoIP is going to be huge". I am not one of those people, but I could be wrong. Those things might be huge in a couple of years and you might be able to look at the holes and say, "Well, there is enough competition from those other sources that we don't have to worry about it" and lest I not forget the unbundled loop providers that are also going to be serving those holes.
6507 So you might be able to conclude, "Well, we don't think the holes are a big problem". If you conclude that they are, the only fix that I have heard in this proceeding that would work is some sort of a cap, some sort of a price cap.
6508 I think it is a reasonably practical solution. It seems like cheating, sort of, to say we are forbearing but we are putting in a cap. It seems something less than ideologically pure but I think it would solve the problem.
6509 COMMISSIONER del VAL: Okay.
6510 Going back to the Telus two-facilities and the 5 percent test, if we were to adopt that test where in your jurisdictions, the jurisdictions served, the markets served by Rogers, would you already be there already?
6511 MR. ENGELHART: So that would be 5 percent of the customers have migrated to our facilities‑based platform?
6512 COMMISSIONER del VAL: Lines, 5 percent have lines.
6513 MR. ENGELHART: Oh, well no where. I mean, we just launched on July 1, so it wouldn't be ‑‑
6514 MR. LINTON: Well, facilities‑based. Nowhere on the cable plant and quite a few places on the unbundled loop plant, if you call it that.
6515 For instance, in Brampton, which is the place that we have the highest penetration, we are in excess of 10 percent penetration, but there is less inertia in Brampton than there is in Forest Hill.
6516 COMMISSIONER del VAL: Okay.
6517 MR. ENGELHART: Bill, like any good salesman, likes to brag about his product, but I think in terms of the Telus test it does not include those unbundled loop vendors.
6518 COMMISSIONER del VAL: Yes.
6519 MR. ENGELHART: So in terms of the Telus test it would only include those customers that are on our cable plant.
6520 COMMISSIONER del VAL: Yes, exactly.
6521 Based on the full facilities‑based, that part of the test you are saying that none of your markets have reached that threshold yet?
6522 MR. ENGELHART: Not at all, no.
6523 COMMISSIONER del VAL: Okay.
6524 MR. WATT: No but, frankly, actually at the current time, having just started July 1st, the majority of our customers are employees on our cable plant telephony service. We are just getting going and there have been the usual start‑up problems and issues and we are working through those and are progressing, but we have minimal penetration.
6525 COMMISSIONER del VAL: Are there any ‑‑ a lot of winbacks happening with your employees?
‑‑‑ Laughter / Rires
6526 MR. ENGELHART: Actually, it's interesting you should mention that, because Edward Rogers did bring in a brochure that he had gotten a week later and asked me if this was allowed and I said, no. So we have contacted our employees and asked them to send us any material that they have received and so we are working on that.
6527 COMMISSIONER del VAL: I have to give credit where credit is due, that was Mr. Williams' humour.
6528 I believe it was Cybersurf, in their presentation, that said that your Call‑Net does own some access, that have the last mile of that?
6529 MR. LINTON: The only last mile we have is in the business market, the commercial areas. It is not in residential areas.
6530 COMMISSIONER del VAL: Okay. Then, on the business side, I guess this is not ‑‑
6531 Just thinking of the cable, would you be using the cable plant? Is that part of your strategy in terms of attacking the business market?
6532 MR. ENGELHART: Yes, it is. Commissioner Langford the other day alluded to Willie Sutton saying that you rob banks because that is where the money is. The cable industry is strange in that it mostly targets its efforts on residential areas, even though there is a lot of money in the business areas. So historically, we have had a very poor footprint into the business areas.
6533 Because you don't bill to all those business locations when you first roll out your service it can be very expensive to hit those areas. You know, you have a couple of customers who want a couple of circuits in a strip mall and the engineers tell you, "Well, it will cost us $20,000.00 to tunnel down and build across". It is just crazy sometimes. Sometimes it is very cheap.
6534 So we are moving into industrial parks and we are moving into the commercial areas that interlace the residential areas, but it is very slow. The footprint is still very poor.
6535 Of course, bringing the Call‑Net, now Rogers Telecom Group, into it with the facilities that Bill mentioned and their business sales force and their expertise and their systems we think will help accelerate that process, but it is very much still a work-in-progress.
6536 COMMISSIONER del VAL: Thank you.
6537 On the business market I think Aliant had proposed four product markets, the basic business service, which is single‑line, multi‑line and then small Centrex, 30 or less.
6538 Are you familiar with the four groups?
6539 MR. ENGELHART: Yes.
6540 COMMISSIONER del VAL: Yes. Aliant submitted that the relevant market determination must be based on the market structure in the area under consideration and that this may not be the same in all markets.
6541 First, do you agree with Aliant's proposed segmentation of the four product markets?
6542 That is the first question.
6543 Did you want to answer that first?
6544 MR. ENGELHART: Yes. Dave?
6545 It makes sense to me. I don't know if you have anything to add, Dave.
6546 MR. WATT: We supported the CCTA proposal in our proposal, which was a simple breakdown between residential and business.
6547 We didn't feel we had a deep enough understanding of the business market, Bill certainly has a deep understanding of it. But our belief was that there is some flexibility granted at the current time in the enterprise market area and we were concerned about actually making the product market so small that again targeting would be easier for the telephone companies to accommodate from a financial perspective.
6548 MR. ENGELHART: If I could just add one comment to Dave's on the subject of Centrex. I may be a question or two ahead, I;m not sure, but I worry about Centrex resale being counted as part of the market share loss, especially when Centrex is its own market definition.
6549 Centrex resale has always seemed to me to be not really competition, in the sense that it is not something that was allowed in the local competition decision. It is something that has been allowed since 1987. It doesn't really involve much other than an arbitrage opportunity.
6550 I think the Centrex resale is a big part of the 12 percent of the market that is registered in the Commission's annual report to the Governor in Council on competition in the business sector. It is probably 25 percent of the business loss that you see.
6551 As I say, it is more just some bookkeeper in an office ordering a bunch of lines and parcelling them out than it is a real form of competition. So I worry about that.
6552 COMMISSIONER del VAL: That sort of makes me think more that the just business local exchange service category seems very large. The segmentation of the different services with products within that market, the competition for those may not be the same from ‑‑ period may not be the same ‑‑ and then they may also vary from jurisdiction to jurisdiction.
6553 MR. ENGELHART: In the sort of business world it is not unusual to have in a telecom company a senior vice‑president of consumer services, a senior vice‑president of enterprise and a senior vice‑president of small and medium business. Those are very often seen as very different segments.
6554 You have a different type of sales force, you have a different marketing channel to go after small and medium business. For the enterprise segment it tends to be a lot of RFPs, it tends to be a lot of personal contact.
6555 For the small and medium business segment it is very hard to have the channels to reach them if you are a new entrant. You can do telemarketing and you can do different things, but it is an awkward segment to reach. So in that sense I take your point that the entire business segment in one fell swoop may be a bit big for what we would call a market.
6556 MR. WATT: One thing that would have probably helped us in starting this is if we did have more information with respect to what the market losses have been in differentiated business markets. There are something like 800,000 lines being served by competitors in total, a couple hundred thousand resold Centrex included in that 800,000.
6557 We don't really know whether that 600,000 or that 800,000 is principally located in the large business, which would indicate that there is a greater degree of competition, or whether it is spread more uniformly across the small and medium sized business.
6558 You may well have that information, so you would have more insight into that. I think as you think about this the break point, picking up on Ken's point, probably would be from a single product market down to a two‑product market differentiated by size.
6559 COMMISSIONER del VAL: Okay. I think on your final argument you propose breaking the market down into Centrex and digital trunk services.
6560 Is that a change? I just want to clarify what your proposal is.
6561 MR. WATT: We suggested that you would want to look at that.
6562 COMMISSIONER del VAL: Okay. I see.
6563 MR. WATT: Our position that still stands is to keep it simple and have it residential and business, a two‑product market, but having regard to our imperfect knowledge about the business market we thought we should leave it open to you.
6564 COMMISSIONER del VAL: Thank you.
6565 MR. BRAZEAU: Just to add a little bit on the Centrex issue. of you look at Centrex, Centrex has very similar characteristics as a local line. So if you look at product characteristics you would probably want to include Centrex as part of your local line.
6566 That is sort of why we thought that you would include them in that category.
6567 COMMISSIONER del VAL: Thank you.
6568 In Shaw's oral presentation this morning they suggested three to five years before they ‑‑ in a nutshell, how I read it was that they need three to five years at least.
6569 How much time do you think you need?
6570 MR. ENGELHART: I think Jim Shaw said really a market share test would be better. I think it would be better than a timeframe.
6571 So the market share does two things really. It tells you that that percentage of customers in that market have exercised a choice. It is not a theoretical thing. They have said, "Yes, I like this alternative better than that alternative." So it gives you some confidence as a regulator that consumers are protected, because what could be better evidence that consumers have choices than that they have exercised those choices?
6572 COMMISSIONER del VAL: Yes. I am just referring to Mr. Shaw's presentation on page 10 that says:
"In our view, the Commission must ensure that local competition is firmly established, vibrant and sustainable before the telcos are forborne in the provision of local telephone service. We can't see this happening for at least another three to five years."
6573 My question was: How long do you think? Do you see also three to five years or do you think it is longer or do you think it is shorter?
6574 MR. ENGELHART: It is very hard to predict how well our services will be received, but to get to the 30 percent level that we think is appropriate I think Jim has about the right timeframe. It could be more, it could be less, but he is certainly in the ballpark.
6575 COMMISSIONER del VAL: Yes.
6576 MR. WATT: Just bearing in mind, of course, with regard to our test that it includes not just our market share, but wireless, people who only use wireless in the home, VoIP providers, et cetera. It is a combination of all the substitution.
6577 COMMISSIONER del VAL: Thank you.
6578 MR. ENGELHART: I will give you the reference in your final submission if you need it, but your proposal was that 30 percent should be the threshold if the relevant market is the LIR and that if the geographic market is smaller, for example, in exchange a higher share threshold would be needed.
6579 So if the geographic market was the exchange, what do you propose would be your threshold?
6580 Would 30 be still appropriate?
6581 MR. ENGELHART: Bear in mind that Ms Yale on behalf of Telus said that across their operating territory they are already 10 percent of the homes that they have passed that are not served by Telus lines. So they appear to already be at 10.
6582 So we thought 30 was appropriate for the LIR. If we went down to an exchange, as we said, it would be something higher than that, so I would say something like 35.
6583 COMMISSIONER del VAL: Thank you.
6584 MR. WATT: One of the considerations you are going to have to deal with here with respect to LIRs is, you you do have, as Ken mentioned earlier, a LIR like Toronto which is one exchange which is over a million households. In that case, the exchange and the LIR, the market share, the 30 percent is going to be the same in a territory of that size.
6585 The concern is, with exchange, that in a small exchange it would be relatively painless for the telephone company to target in that exchange. So you want to have a fairly sizeable population base so that there is some discipline imposed there.
6586 COMMISSIONER del VAL: Thank you.
6587 Where you have rolled out local exchange service, have you used the same local calling area as the ILECs?
6588 MR. WATT: Yes, we have.
6589 COMMISSIONER del VAL: Was EastLink's proposal was that it was so as to lessen the burden arising from interconnection arrangements.
6590 Was that also your reason?
6591 MR. WATT: Excuse me. I answered from the cable telephony perspective. We are using the same local calling areas. Bill has pointed out that Rogers Telecom uses different local calling areas and he can elaborate.
6592 MR. LINTON: For example, when we launched Barrie we made it a local calling area with Toronto, so our differentiation was that you could make a local call to Toronto from Barrie and that was how we promoted the service and attracted customers.
6593 COMMISSIONER del VAL: I see, okay.
6594 MR. ENGELHART: So in answer to your last question, the interconnection decision and the definition of the local calling area are probably independent decisions. So you interconnect where you are going to interconnect and then what you define as your local calling area is really how you program your billing software.
6595 COMMISSIONER del VAL: Okay. I wasn't referring to the interconnection decision, but I have your answer anyway. Thank you.
6596 On the first day, The Companies, when Mr. Bibic in his presentation ‑‑ this was again talking about the 5 percent. At that time I think we said perhaps you would like to comment on this. I will read you what was said:
"And in terms of an example where regulatory authority ‑‑ mind you, it is not a competition authority, but a regulatory authority finding a market workably competitive at 95 percent, I would say that the Commission itself has found markets to be workably competitive at 95 percent and I will give you two quick examples."
6597 I will just quote the first example here.
"The cable deregulation test, the Commission has found time and again since 1998, including twice last year, that cablecos are dominant in the cable BDU market, yet that customers nevertheless have competitive alternatives sufficient to allow for cable basic rate deregulation."
6598 Can you comment on that? Did you want the reference to the transcript?
6599 MR. ENGELHART: No, no. I remember.
6600 I don't like to say anything disparaging about our brother in the broadcasting sector, but when they use the word "dominant" in those proceedings they are not using it in the sense of market dominance as it is used in the telecom sector. I think what they generally mean is "big". They are big.
6601 There is no question cable is big, so I don't think that the fact that the broadcasting decisions have used the word "dominant" a few times is really that relevant of a question.
6602 I think the issue, as we have discussed in our evidence, is that when that test was passed there were already 20‑25 percent of the homes that were not served by cable and that 5 percent brought us up to 25 percent.
6603 I believe Mr. Bibic's comment was that this was a clever argument that had been invented after the fact, but Mr. Watt was at that hearing so he can tell you what he said at the time.
6604 MR. WATT: Yes. You can go back and check the transcript. I will give you the reference.
6605 Basically, the Commission was well informed as to what the market share coverage of homes passed was by the cable industry at that time.
6606 It was October 9, 1996. It is page 700 of the transcript, and I will quote myself.
"We currently only have a 76 percent market share of television homes. So for whatever reason, 24 percent of the homes in Canada choose to use an alternative to the cable network. Many people think that we have 100 percent market share."
6607 So certainly the Commission at that time understood the market position that we were in. We are not presenting revisionist history in our argument to you here today.
6608 THE CHAIRPERSON: Mr. Watt, nobody on the Panel was here at that time. Can you refresh my memory as to whether the Commission picked up those words of wisdom in its decision.
6609 MR. WATT: I would have to go and check to be absolutely certain.
6610 THE CHAIRPERSON: You only checked the transcript.
6611 MR. WATT: Absolutely. That is what I had with me.
6612 You should never speculate when you are testifying, but I would speculate that specific reference wasn't made to that. I believe it was pretty much just the decision as to what the test would be, which is fairly typical of many of the broadcasting decisions, and then it goes on to the rule-making phase.
6613 COMMISSIONER del VAL: In the Competition Bureau's proposal that the residential market be divided into first-line market and then another market that includes second lines, mobile wireless services and VoIP, what do you think of that proposal?
6614 MR. ENGELHART: I think they are bringing a degree of scientific rigour to what is sort of disappearing as a relevant group of customers, which is the second lines. So second lines really spiked up when fax machines got popular and when dial-up internet got popular. Now, as those two technologies are waning, the second line market is crashing.
6615 It doesn't seem to me to be that important.
6616 It does, however, reinforce just how messy things are when you are working in lines and how it is a little bit cleaner when you are working, as we propose, with homes.
6617 MR. WATT: I think the Aliant panel said the second lines are only 2 percent penetration in their territory. I believe Bell and Telus at one time were up around 8 or 9 percent but that has declined to 5 or 6 percent. It is not a large enough market to make an economic business plan on.
6618 COMMISSIONER del VAL: The Competition Bureau also proposed that it may be appropriate to compare the incumbents' and the entrant's operation cost in a forbearance determination.
6619 Can you comment on that, please.
6620 MR. ENGELHART: They seem to be very focused on variable costs. That seemed to be what they said was the thing that they worried about the most.
6621 As I indicated in our presentation, just because of the nature of our network architecture and the fact that we are a new entrant, our variable cost is fairly high. It is just the way the cable telephony works.
6622 You harden the plant and introduce various components and back-up power, but then you have to add incremental capital as you sign up each customer. So the variable costs are significant there.
6623 The other thing that you cannot overlook is that any new entrant in the communications business has these big variable sales and marketing costs. It is something that just can't be ignored, that you are in a very different position when you are the incumbent and you start with all those customers.
6624 Do you need to do the full‑blown thing that the Bureau does, where they get all of your business plans and all of your financial statements and everything, and you sit down with your accountants and all that?
6625 I am not sure you need to do that. It probably is worth you having some understanding of the differential underlying costs of an incumbent twisted pair provider and a new entrant cable telephony provider.
6626 COMMISSIONER del VAL: What do you think of the proposal by the Consumers Group of that transitional regime?
6627 MR. ENGELHART: It troubles us quite a bit. In cable we saw that after we were forborne the winback rules still continued on. In the MDU market we still have those rules. Then last year, or this year, a brand new rule was added. A brand new winback rule was added in the cable MDU market, which prohibits us from talking to any customer in a building, whether they were ever our customer or not, for 90 days after ExpressVu signs an access agreement. And that is in addition to the 90-day winback rule that exists in those buildings.
6628 We are still living with those rules. As Mr. Stein said this morning, that was in an environment where satellite had some real advantages over cable. They were allowed to offer time-shifted signals; we were not. They, because they were digital, could provide theme packs; we couldn't.
6629 They had a lot of regulatory and technology based advantages to their service, and despite that, after forbearance we continued to have these winback rules.
6630 I am troubled by the idea that you would get rid of the winback rules or the rule against de‑averaging before forbearance takes place.
6631 Market power is market power. If the phone companies have market power --
6632 COMMISSIONER del VAL: Yes -- I'm sorry.
6633 MR. ENGELHART: I was rambling on.
6634 COMMISSIONER del VAL: No. I was referring to the Consumers Group's proposal on the transitional regime where you have the two thresholds: below a certain threshold, don't even come here; and then above. That regime.
6635 I don't know whether we got a bit sidetracked there.
6636 MR. ENGELHART: You are right. I was thinking you were referring to their stepped regime for elimination of the rules.
6637 I will let Mr. Watt respond.
6638 MR. WATT: Actually, I do believe that the stepped approach is sort of a transitional approach leading through to the end game at 10, 15 and 20 percent removing certain tests along the way.
6639 We think the problem with that is that you won't actually get to the end game. So we don't agree with the Consumer Group's transitional proposal.
6640 COMMISSIONER del VAL: I think we heard the flip side of the coin earlier from the ILECs, and I think there was also a discussion regarding why EastLink has made inroads and no one else has. And one of the responses was that is a business decision that the other cablecos chose to make.
6641 What would you say to a suggestion that the continued sort of status quo and forbearance for an indeterminate period of time with no end in sight could actually be a disincentive for the cablecos to invest in telephony?
6642 You can wait for as long as you stay under a threshold. You have time.
6643 MR. ENGELHART: Like I said before, I think this idea that the regulatory department is going to gain the system by telling the marketing department what to do is a myth. They are going to go out and sell as much as they can, as fast as they can, and they are not going to worry about it.
6644 If we get to the forbearance threshold, that is where we get.
6645 I certainly believe that when it is appropriate, forbearance is the thing to do. Let market forces operate.
6646 We had transitional rules in the wireless market to prevent the incumbents from exercising market power, the no head-start rule, the no joint marketing, the structural separation rule. Once we got to a certain critical size, those rules were gotten rid of and competition has worked well. I think it can do the same here.
6647 MR. WATT: The one thing I would add with respect to the EastLink experience is we must always remember that they have achieved this success with the safeguards that have been in place. We can't assume that that type of success would be achieved in the absence of those safeguards.
6648 COMMISSIONER del VAL: How is it that they have been able to achieve that success with so much more speed than elsewhere in the country? Why is it not happening here?
6649 MR. ENGELHART: The technology that they use is circuit switched. The way it works is that the telephone switches the telephone companies have are looking for twisted pairs coming into them. So using the Nortel cornerstone product, you can convert a coaxial plant to look to a Class 5 switch as though it is a bunch of twisted pairs.
6650 So they have entered using that circuit switch technology, as has Cox in the United States. Both Cox and EastLink feel they made the right technology choice and are happy with it.
6651 Every business case that we put together looking at that technology ended up looking really bad, and we felt we simply had to wait for IP as our entry point. With IP we were able to leverage on the internet platform that we had already built for our high speed internet business, and we were able to use soft switches instead of traditional telephone switches.
6652 So it seemed to us, and to most cable operators, to be the appropriate thing to wait for that technology.
6653 That is how EastLink has got out ahead of everyone else.
6654 MR. WATT: EastLink, as Ken said, was not alone. A very large corporation in the States, Cox, took the same route, the same path. As Ken said, we looked at the market from our perspective over the last ten years, and we have entered when we did.
6655 I know Lee Bragg is testifying later this afternoon. I think he would be able to explain why.
6656 COMMISSIONER del VAL: Thank you.
6657 What do you say about switching from retail to wholesale regulation of local services?
6658 MR. ENGELHART: Well, it doesn't really make any sense. The Commission's regulatory plan has facilities-based competition at its core. We think that the work that Bill is doing and Jean is doing and the work that Rogers Telecom is doing is very important. We intend to keep using those unbundled loops all across Canada, and we are going to keep that platform in place; so not to take away at all from the importance of wholesale regulation.
6659 If I could draw a strange analogy, I would say that wholesale regulation is the icing on the Competition cake. You still need facilities-based competition as the bulk of that cake.
6660 If competition is going to work, it has to have at its core facilities-based competition. Wholesale regulation does nothing to protect a facilities-based entrant that is being confronted with anti-competitive conduct, nothing at all. It probably doesn't do anything for the vast bulk of customers who, let's face it, only 3 or 4 percent have taken advantage of the unbundled loop offers that they have received.
6661 COMMISSIONER del VAL: Thank you.
6662 When we are talking about market entry, do you think the nature of the entrant, whether it is a cableco, a standalone non-facilities-based provider, should they be treated differently?
6663 MR. ENGELHART: To me, when you are talking about safeguards against anti-competitive conduct, what counts is the incentive and ability of the incumbent. I don't think the Commission looked at Bell ExpressVu and examined their characteristics when they put in the cable winback rule. I don't think the safeguards depend really on what the entrant looks like. It depends on what the incumbent's abilities and incentives are.
6664 COMMISSIONER del VAL: On the safeguards, do you think the safeguards should be the same in all forborne markets? Do you think they can be identical across all markets?
6665 MR. ENGELHART: I would think so, yes.
6666 COMMISSIONER del VAL: In a forborne environment, do you foresee selling basic local service on a standalone basis?
6667 MR. ENGELHART: Absolutely. If somebody calls up today and wants a local phone from us and doesn't want cable or internet or anything else, we will provide it. And we would always do so.
6668 COMMISSIONER del VAL: On consumer protection, I think it was Aliant's Ms Tulk who said all providers should share in the obligation of providing services to the less abled, the less fortunate of our society, for example, phone bills in braille.
6669 What would Rogers say about assuming that obligation?
6670 MR. ENGELHART: I believe we already do that for our able customers. I agree with Aliant that social obligations should apply to all market participants.
6671 COMMISSIONER del VAL: So in a forborne market you would have no problem in having exactly the same sort of social obligations as an ILEC would.
6672 MR. ENGELHART: That is correct. We see that even after forbearance there is a role that remains for the Commission to enforce those social obligations.
6673 COMMISSIONER del VAL: Good.
6674 MR. WATT: Actually, you could look at our response to ARCH, No. 3, where we describe what we do for Rogers wireless now.
6675 I don't believe that these are mandated by regulation, but I could be wrong on that. There is a good description as to what alternatives we do provide there.
6676 COMMISSIONER del VAL: I think those are my questions.
6677 Thank you very much, Mr. Chairman.
6678 THE CHAIRPERSON: Commissioner Langford.
6679 COMMISSIONER LANGFORD: Thank you very much.
6680 I have just a couple of areas. You have been very patient with us, and we are grateful, but there are a couple of areas I want to touch on.
6681 I have a couple of clarifications first.
6682 Mr. Engelhart, in talking about the footprint problem with my colleague, struggling with the sort of Telus notion and where it might fit in, and she brought up the example of Pacific Place, if you roll out to one tower or if you roll out to two towers, you used an expression I didn't understand and I would be grateful if you could clarify it.
6683 You said it has to be the area where you are actually able to sell. I don't think I quite understand that.
6684 MR. ENGELHART: If you take the three layers I talked about with Commissioner del Val, you could talk about where you are going to enter, where you have plant and where you have actually flipped the switch and turned on that building.
6685 It is that latter group where you could actually sell. It is when you have live circuits going into that building that you could actually sell to those customers.
6686 COMMISSIONER LANGFORD: So simply having a network, fibre and coaxial, or whatever rolled out, wouldn't be enough. You would actually have to have sold one or be almost on the cusp of selling to your first customer?
6687 MR. ENGELHART: I am interpreting what I think Ms Yale means, because we are talking about the Telus test.
6688 COMMISSIONER LANGFORD: Yes. We interpreted it differently. That is why I am interested.
6689 MR. ENGELHART: I think what Telus means is that the reason they are promoting their version is that it is in that place that a customer actually can choose between A or B, where supplier A and supplier B are both selling to that customer.
6690 That is why I believe that the Telus test would imply or would mean that you are actually live and selling to that customer.
6691 COMMISSIONER LANGFORD: All right. We will find out. They will be back tomorrow and maybe they will clarify that point. It could also be, of course, that everyone else in this room understands it but you and me -- and that wouldn't be unprecedented either, probably.
6692 I have another question on the notion of this footprint, and really the confusion only arises with your company. That is not your company's fault. It is just the way it is made up.
6693 I am not quite sure how it would work, in the sense that they are talking about a footprint of a facilities-based producer. I don't have any problem with that with your cable footprint and where it is actually functioning, but I don't quite know -- and maybe you don't either -- what would happen as you tag on the Call‑Net parts of it, which are facilities-based for some places, particularly in the business sector, but only facilities-based up to the last mile in other places.
6694 I don't know whether you could give me any idea, with a specific example, of where it might be possible, using the Telus test, to take your normal cable footprint and then add on a piece that would come from the traditional CLEC side.
6695 MR. ENGELHART: I think the Telus panel was fairly candid that their test probably wouldn't operate in the business market, that it really was there for the residential market.
6696 So I am not sure that the presence of those facilities that Rogers Telecom has in the business market would mess up the Telus test.
6697 In the residential market they really are an unbundled loop provider, and as I understand the Telus test, we would just ignore that part of Rogers Telecom in mapping the geographic market that Telus has proposed.
6698 COMMISSIONER LANGFORD: But there are some buildings that you would have that are business, even though it is "probably". I didn't feel that in answering Commissioner Noël's question on business versus residential that Ms Yale was categorical, and I think there was a sense of "probably" as well.
6699 Are there buildings, for example ‑‑ whole buildings -- where Call-Net, if I can call it that for the sake of this discussion, has a facilities base and more than 5 percent of the customers?
6700 MR. ENGELHART: Yes.
6701 COMMISSIONER LANGFORD: There are.
6702 So conceivably, then, that could be an area, as they call it, in which an application for forbearance could be made.
6703 MR. ENGELHART: Yes.
6704 COMMISSIONER LANGFORD: Thank you.
6705 I have one last question which is totally unrelated to the last discussion. I put this question to the CCTA yesterday, and I think that Mr. Hennessy suggested, having valiantly tried to answer it, that I put it to you, so I will.
6706 There has been much discussion, both by learned and distinguished economists and by mere mortals such as ourselves, about the whole notion of the mischief of predatory pricing in forbearance situations, where the big guy eats the little guy, or tries to, and you spoke about it at length today.
6707 One of the examples of forbearance that I can think of -- and, I suspect, after yesterday's discussion that you can too -- is the forbearance in the cable market, where, in fact, prices didn't go down, they went up, and the big consumer benefit -- unless it is going to be defined in some way that you brought comfort and succour to them through new offerings or something, but in terms of cash in their pockets, the consumer benefit never happened. The big fight never happened, and prices went up.
6708 One, is there some way you can explain that to me? Two, explain why it isn't a relevant precedent for the proceedings we are dealing with today.
6709 MR. ENGELHART: I suspect that Mr. Watt will probably want to add a bit, and maybe I can't give you a complete answer, but let me identify some of the factors that you would want to consider.
6710 One which Dr. Crandall pointed out to you was, you really probably can't look at just the price of the service, you have to look at it on a per‑channel basis. So you add TVA and APTN and OMNI 1 and a couple of other local channels, and if you have 20 channels and you have added five -- it is a bandwidth business. We are selling bandwidth, so you have just increased the cost considerably. That is one factor.
6711 Another factor, I think, which came out in questioning from Commissioner Williams, is that when you have, as we had, the rate regulation applying only to basic and not to the other parts of the service, you would expect that when the cap came off, basic might float up a bit to get more in line with costs. I think that the ultimate package and things like that have not gone up in price nearly as much as basic.
6712 I think the third thing is, when markets operate, the pricing looks more like what markets look like than what regulated prices look like.
6713 So you have things like bundle discounts and other discounts that have come in, which are more market-type rate reductions than they are ones that regulators would put on.
6714 Those are three factors. I am not sure it is a complete answer to your question. I don't know if Dave has any other points.
6715 MR. WATT: I would probably add two other points for consideration.
6716 One is that basic subscribers, on a standalone basis, are only about 20 percent of our cable base. The other 80 percent subscribe to one or more tiers, so they are in a package of a sort.
6717 As Ken mentioned, the prices of those packages -- sometimes they went up, sometimes they stayed the same. So there wasn't a uniform increase.
6718 The other point I would make is that we have standardized a lot of our basic rates. We had a great many systems, with widely divergent rates, based on the CAPEX regime of earlier years and the number of channels being carried, et cetera. So we tend to pretty much now standardize all of Ontario at one rate.
6719 New Brunswick and Newfoundland are at different rates.
6720 COMMISSIONER LANGFORD: Did anybody see their rates go down in that standardization process?
6721 MR. WATT: I can't say for sure.
6722 COMMISSIONER LANGFORD: What is your best guess?
6723 MR. WATT: My best guess is that there might be one or two systems, and that would have been the extent of it.
6724 COMMISSIONER LANGFORD: There was no profit in this. It was all just necessary because of things like OMNI being foisted on you, and just because you needed to be administratively a little more nimble.
6725 MR. WATT: You would be familiar with the Rogers' financial statements, and bottom line profit has been a fleeting item over the years.
--- Laughter / Rires
6726 COMMISSIONER LANGFORD: Yes, I know. Maybe you should do less baseball and more cable.
6727 Is there anything to learn from this? In the proceeding we are doing now, will this be bad news for people who don't have a bundle down the road, for people who only want local service? Are they going to find things, to use the term of Mr. Engelhart, floating up because they have been constrained?
6728 MR. ENGELHART: If you want a lesson, I would say, certainly, when you are going to forbear you should be comfortable. That is why we proposed the 30 percent share test, followed by the second part of the test, where you take a look at it.
6729 We are not big fans, just like the ILECs are not big fans, of re-regulation. I think when you do it, you should be confident that this is the right thing to do, and market forces will protect people.
6730 COMMISSIONER LANGFORD: So that is a yes, things could go up for the equivalent of the basic subscriber.
6731 MR. ENGELHART: Oh, yes. I disagree with the phone companies when they say, "Oh, those cable guys. This whole thing is about rates going down."
6732 I could see the ILECs raising their rates if they were forborne today, and using winback to come after us. That wouldn't surprise me.
6733 COMMISSIONER LANGFORD: Could you see big discrepancies between low income subscribers who really can only afford basic and people who can go for the platinum package in some big bundle?
6734 MR. ENGELHART: Cable is a bit different from a lot of businesses, because all of the channels come to your home whether you buy them or not. So cable operators have a kind of natural economic incentive to get you to buy the big package.
6735 Now, people often don't want to, and they hate you, so you have to, obviously, make a bunch of smaller packages available if you are going to be a responsive supplier. But there is that kind of natural tendency to want to sell more rather than less.
6736 Telephone is a bit of a different architecture. When you talk about bundles of totally different services on different architecture, I am not sure that the same kind of incentives exist. But when markets operate, they don't operate like regulators operate, they operate like markets operate, and the pricing will be different.
6737 COMMISSIONER LANGFORD: Thank you very much.
6738 Those are my questions, Mr. Chair.
6739 THE CHAIRPERSON: Thank you.
6740 Commissioner Noël.
6741 COMMISSIONER NOËL: I have a short question for Mr. Linton.
6742 Mr. Linton, Mr. Engelhart mentioned in answer to a question by Commissioner del Val that the footprint of cable in the geographic business centres, in downtown locations, was not very wide, but could expand.
6743 Do you foresee that the more CLEC‑type footprint of the former Call-Net would be the vehicle of choice to compete in the business market, as opposed to increasing the cable footprint in the downtown core of business activities?
6744 MR. LINTON: The plan is to use both.
6745 We have acquired all of Group Telecom‑sold assets in eastern Canada through a very complicated transaction that gives us thousands and thousands of miles of fibre and access to, I think, 1,800 buildings in the urban areas in the cities in the east.
6746 So we will use our facilities to get into most industrial buildings.
6747 For small business, we will use the cable plant, wherever it is available, as the last mile access for those types of customers.
6748 COMMISSIONER NOËL: Thank you.
6749 THE CHAIRPERSON: Thank you.
6750 Commissioner Cram.
6751 COMMISSIONER CRAM: Thank you.
6752 Footprints. I don't think anybody has talked about this. What is the footprint of Inukshuk?
6753 I saw that it was going to cover 40 cities and 50 towns, one of which, I hope, is Indian Head.
6754 Would you like to give that information on a confidential basis?
6755 I would just like to know what the footprint is going to be.
6756 MR. ENGELHART: We certainly can identify it on a confidential basis. I can tell you that there is a very aggressive roll-out schedule in place that is going to cover a lot of places.
6757 COMMISSIONER CRAM: And it would be a facilities-based fixed to mobile?
6758 MR. ENGELHART: That is correct.
6759 COMMISSIONER CRAM: Fixed to wireless.
6760 MR. ENGELHART: Yes, thank you. Fixed to wireless, yes.
6761 COMMISSIONER CRAM: It is Thursday already.
--- Laughter / Rires
6762 COMMISSIONER CRAM: Are you giving access-independent VoIP? Are you selling that, or is it access-dependent VoIP, your own internet and VoIP?
6763 MR. ENGELHART: On the Rogers' cable platform it is access-dependent. There is nothing access‑independent.
6764 In fact, it is not being sold or marketed as a VoIP service at all. It uses VoIP underlying technology. It does not use the internet in any way.
6765 There will come a later phase where we will start adding things like an area code from Vancouver or Montreal or Hong Kong.
6766 So we will start doing those things in a later phase.
6767 I will let Bill address the Call‑Net platform.
6768 MR. LINTON: Last year we launched a VoIP product, which we haven't put much marketing behind, but it is access-independent, similar to Vonage.
6769 COMMISSIONER CRAM: On the cable side, can you also give me your basic cable penetration and your high-speed penetration as a percentage of your basic on a confidential basis in the top 10 markets?
6770 Is that possible?
6771 MR. LINTON: Yes, we could do that.
6772 Basic cable is about 69 percent overall, and then internet high-speed is about 43 or 44 percent of our basic penetration. But we will give it to you by the 10 top systems.
6773 COMMISSIONER CRAM: Thank you.
6774 MR. ENGELHART: We can sell telephony to someone who is not buying the high-speed internet. It runs on a similar IP platform, but you don't have to be an internet customer to get our telephone service.
6775 COMMISSIONER CRAM: The issue, then, is just bandwidth, the amount of bandwidth you have to have for it.
6776 MR. ENGELHART: That's right, but in our case, as a matter of fact, the telephone channel is a separate 6 Mhz channel. But even if they shared a channel, you could provide someone with telephone service without necessarily selling them internet service.
6777 In fact, as I indicated before, you could buy no cable, no internet from us, and we could, and would, sell you telephony.
6778 COMMISSIONER CRAM: Thank you.
6779 On the household versus second lines ‑‑ or lines ‑‑ another penny dropped when you were talking, Mr. Engelhart, about second lines crashing.
6780 If the number of second lines are decreasing because people don't need them for their fax or their dial-up, any model that is predicated upon a loss of share of lines, that loss of share could easily be somebody dropping their second line.
6781 MR. ENGELHART: Yes. If you move away from households and work with lines, it is messier for you as a regulator to calculate the share loss.
6782 COMMISSIONER CRAM: Because a person simply not wanting a line would be a loss to the ILEC, and if that is how we count it --
6783 MR. ENGELHART: That's right.
6784 Putting words in my colleague's mouth at the ILEC, they might say: If someone does disconnect their second line because their teenagers don't need a teenager line because they are all using their cellphones, that is substitution and it should count.
6785 We are saying: No, it shouldn't count, because that house still has a phone line from the ILEC.
6786 So in terms of making a competitive choice, they haven't made it. They haven't made it until that house is no longer served on a wireline basis by the ILEC.
6787 COMMISSIONER CRAM: Before, with Commissioner del Val, I think you said that if all of the rules were in place, and if you had quality of service in accordance with the standards, life would be wonderful.
6788 Are you asserting, as MTS Allstream is, that there should be a record of good quality of service, and there should be a record of being a good boy, or girl, in the sense of no complaints being filed and approved for a certain period of time?
6789 MR. LINTON: I believe ‑‑ and someone will tell me that I am right or wrong -- that there are records right now. The quality of service standards that we get from the ILECs are measured on a monthly basis, or a quarterly basis, and are provided to the Commission.
6790 COMMISSIONER CRAM: No, what I mean is, are you saying that, as a precondition to us forbearing ‑‑ that is what MTS Allstream is saying ‑‑ as a precondition, there has to be a good record of adherence to quality of service standards, and there has to be a record of complaints, or no complaints, for a certain period of time before we would consider forbearance?
6791 MR. ENGELHART: I think what we said was that that is one of the package of things you would look at in the second part of the test.
6792 Having passed the 30 percent threshold, you would look at those things.
6793 Dave is pointing me to paragraph 85 of our argument, which talks about this.
6794 Yes, it says that that is a bunch of the things you would look at in the second part of the test that you would want to be satisfied on.
6795 COMMISSIONER CRAM: What would satisfy us, then?
6796 Two years of good quality of service? Up to standard? No complaints in a year? Or no substantiated complaints in a year?
6797 MR. ENGELHART: We didn't specify a rule like that. I think it is a question of looking at it and saying, "Is this part of the market working," so that we are satisfied that this is an appropriate thing to do, to do forbearance.
6798 COMMISSIONER CRAM: Thank you very much.
6799 Thank you, Mr. Chair.
6800 THE CHAIRPERSON: Mr. Engelhart, I am wondering if I have heard your answer to Commissioner Cram right.
6801 If I have two Bell lines in my house, one for a phone and for a fax, and I decide to take off the second line because I don't use fax much anymore and switch to Rogers' service, that still gets counted as an ILEC household and the fact that I now have Rogers' second line service gets zero in the competitor's column?
6802 MR. ENGELHART: That's absolutely correct, but I think that if you had made that choice ‑‑ you know, there aren't very many people who are doing that. I just think that's an extraordinarily small sub‑set and not worth worrying about.&nbs