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              TRANSCRIPT OF PROCEEDINGS BEFORE

             THE CANADIAN RADIO‑TELEVISION AND

               TELECOMMUNICATIONS COMMISSION

 

 

 

 

             TRANSCRIPTION DES AUDIENCES AVANT

                CONSEIL DE LA RADIODIFFUSION

           ET DES TÉLÉCOMMUNICATIONS CANADIENNES

 

 

                          SUBJECT:

 

 

 

  FORBEARANCE FROM REGULATION OF LOCAL EXCHANGE SERVICES /

    ABSTENTION DE LA 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 30, 2005                    Le 30 septembre 2005

 

 

 

 

 

Transcripts

 

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

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

and staff attending the public hearings, and the Table of

Contents.

 

However, the aforementioned publication is the recorded

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

either of the official languages, depending on the language

spoken by the participant at the public hearing.

 

 

 

 

Transcription

 

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès‑verbaux pour le Conseil seront

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

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

 

Toutefois, la publication susmentionnée est un compte rendu

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

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

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

               Canadian Radio‑television and

               Telecommunications Commission

 

            Conseil de la radiodiffusion et des

               télécommunications canadiennes

 

 

                 Transcript / Transcription

 

 

                             

  FORBEARANCE FROM REGULATION OF LOCAL EXCHANGE SERVICES /

    ABSTENTION DE LA 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

                                  consultation

 

James Wilson                      Legal Counsel /

Shelly Cruise                     Conseillers juridiques

 

Chris Seidl                       Project Manager /

                                  Gestionnaire des projets

 

 

HELD AT:                          TENUE À:

 

Conference Centre                 Centre de conférences

Outaouais Room                    Salle Outaouais

Portage IV                        Portage IV

140 Promenade du Portage          140, promenade du Portage

Gatineau, Quebec                  Gatineau (Québec)

 

September 30, 2005                Le 30 septembre 2005

           TABLE DES MATIÈRES / TABLE OF CONTENTS

 

 

                                                 PAGE / PARA

 

 

PRESENTATION BY / PRÉSENTATION PAR

 

Shaw Cablestystems                               1384 / 7490

 

Rogers Communications Inc.                       1389 / 7511

 

Canadian Cable Telecommhnications Association    1393 / 7533

 

Consumer Groups                                  1398 / 7565

 

Cybersurf                                        1407 / 7617

 

Competition Bureau                               1413 / 7647

 

Telus Communications Inc.                        1419 / 7684

 

Saskatchewan Telecommunications                  1438 / 7779

 

The Companies                                    1444 / 7814

 

Aliant Telecom Inc.                              1458 / 7919

                 ERRATA/ADDENDA - Volume 3

 

All references to "Marcia" should be "Mercia"

 

ERROR / CORRECTION                               PAGE / PARA

 

"and" those more limited geographic areas        747 / 4050

"in" those more limited geographic areas

 

"includes" VoIP, high‑speed internet and other    750 / 4063

"include" VoIP, high‑speed internet and other

 

$25 online sign-up credit                         752 / 4072

"a" $25 online sign-up credit

 

"Cybersurg"                                       753 / 4077

"Cybersurf"

 

"Mcab"                                             753/ 4080

"IMCAIP"

 

enforce framework                                 755 / 4088

enforce "a" framework

 

wireline "in this"                                766 / 4152

wireline "service"

 

any different.                                    771 / 4179

any different "now".

 

they are going                                    773 / 4191

they are "not" going

 

"has" been applications against                   776 / 4206

"have" been applications against

 

MRS accessibility                                 779 / 4222

MRS, accessibility

 

ILEC or "a" incumbent                             780 / 4224

ILEC or "an" incumbent

 

"callings", some community of interest.           787 / 4278

"calling", some community of interest.

 

Calgary "Heral"                                   789 / 4284

Calgary "Herald"

 

to bundled                                        797 / 4330

to "be" bundled

 

resale market now                                 799 / 4338

resale market "than" now

 

            ERRATA / ADDENDA - Volume 3 (Cont'd)

 

All references to "Marcia" should be "Mercia"

 

ERROR / CORRECTION                               PAGE / PARA

 

Make them "unbundled" before they                 799 / 4339

Make them "unbundle" before they

 

"in" our own capability                           800 / 4342

"and" our own capability

 

becoming a "DSL SP".                              802 / 4355

becoming a "DSLSP".

                  Gatineau Quebec / Gatineau (Québec)

‑‑‑ Upon resuming on Friday, September 30, 2005

    at 0930 / L'audience reprend le jeudi

    30 septembre 2005 à 0930

seq level0 \h \r7483 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 7484             THE CHAIRPERSON:  Order, please.   À l'ordre, s'il vous plaît.

7485             Madame la secrétaire...?

7486             LA SECRÉTAIRE:  Merci, Monsieur le président.  Bonjour tout le monde.  Nous allons maintenant amorcer la phase finale de cette consultation et entendre les plaidoiries finales avec les parties intéressées.

7487             For the record, Panel Nos. 18, 17 and 16, respectively EastLink, QMI, Vidéotron and Cogeco Cable Canada, have informed the Commission that they will not make a closing statement.

7488             Therefore, I am calling on Shaw Cable Systems to proceed with their five minutes presentation.

7489             Thank you.

PRESENTATION / PRÉSENTATION 

7490             MR. STEIN:  Good morning, Mr. Chairman, Commissioners, Vice‑Chairman.  My name is Ken Stein, Senior Vice‑President, Corporate and regulatory Affairs for Shaw Communications.

7491             You heard yesterday from Jim Shaw and our panel who described our experience and expectations with Shaw's entry into the local telephone business.  We hope it gave the Commission an appreciation of both the opportunity as well as the challenges we face.

7492             As we indicated, our focus has always been on providing our customers with the best products and level of service, whether it is television, internet or telephony.  That is why we insisted from the beginning that the Shaw digital phone be designed and offered as a full and totally reliable service with all the features and qualities of a primary line service.  Ours is not a secondary line offer and it is designed to match or better the service offered by the incumbents, Telus, MTS or SaskTel.

7493             You also heard Jim Shaw say that he and other Vice‑Presidents, including Peter Bissonnette and Michael D'Avella, make time every week to phone customers to get a firsthand understanding of the customer's likes and complaints.  Unfortunately, ILEC delays and number porting, interconnection issues and providing the essential access to support structures undermine Shaw's ability to provide the quality service that our customers expect.  It also affects our ability to sell other services which are attractive to our customers.

7494             Delaying services to our customers is not the way we do business at Shaw.  The failures in the system must be fixed.  We all have a stake in this, the CRTC, the incumbents and Shaw.  We all need to demonstrate that a competitive telephone system can work.

7495             As we indicated, we have launched new products and services over the past number of years and the lessons learned have been put into practice in the launch of the Shaw digital phone.  This is, without a doubt, the largest challenge we have faced today.  Our customer responses are so far positive, but it is early days.

7496             We expected the Shaw digital phone service would be well received by the early adopters and others discontented with incumbents, but it is still too early to tell how customers will react over the next months and years.  Continued growth will require us to deal with the systemic problems as well as to educate our current and potential customers about the Shaw digital phone service.

7497             As time progresses, it will take more resources, both financial and people, to meet our growth targets, but given the inertia that exists beyond the early adopters, this will require extensive marketing and promotion activities.  It will take a large effort to inform and educate the public and we must use every means available to do this.

7498             We indicated to you that a local exchange market of 20 percent is required to recovered the relevant costs of telephony entry into the major markets.  This does not mean that 20 percent becomes the magic number for forbearance.

7499             We agree with the CCTA's recommendation for 30 percent as a threshold, because only then will the market be truly competitive.  As well, we indicated a number of significant changes must be made to improve the overall system, LNP, interconnection support structures and rights of way.  These must be fixed before forbearance is even considered.

7500             We also believe that it is essential that the CRTC keep the winback rules in place until the market threshold is reached.

7501             Finally, we must also consider the smaller markets, Shaw's entry into smaller communities like Red Deer, Canmore, Cranbrook, Moosejaw, and many others.  It is unlikely that customers will see the benefits of facilities‑based local telephone service competition for many years, if at all.

7502             We see our Shaw digital phone service as the only competitive alternative to incumbents in the small and medium size communities of Western Canada and Northwestern Ontario.  If the Commission doesn't retain and enforce the existing regulatory requirements on the incumbents, then these communities will not enjoy the benefits of competition because no one else will be there.

7503             The continuing roll out of the Shaw digital phone service is dependent on the Commission ensuring that the competitive safeguards are in place.  Shaw is not asking for protection from the incumbents.  We ask only that the Commission enforce the current regime; notably, number porting requirements, support structure access and winbacks.

7504             As we commented in our remarks yesterday, Shaw's culture has always emphasized growth ‑‑ I'm sorry, I skipped a paragraph that is important.

7505             An eight month roll out does not create a competitive market, despite what Telus and SaskTel may say.  Any consideration of forbearance at this time is premature.

7506             As we commented in our remarks yesterday, 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.

7507             Thank you, Mr. Chairman, Commissioners.  I will deal with any questions you might have.

7508             THE CHAIRPERSON:  Thank you very much, Mr. Stein.

7509             Madam Secretary?

7510             THE SECRETARY:  I am calling on Rogers Communications Inc., Panel No. 14.

‑‑‑ Pause

PRESENTATION / PRÉSENTATION

7511             MR. ENGELHART:  Mr. Chairman and Commissioners, Rogers would like to thank you for conducting a valuable process for identifying the issues associated with local forbearance.

7512             Of great concern to Rogers are the ILEC proposals that prior to meeting any criteria for forbearance they be handed the keys to a transitional regime under which they will have both the incentive and the ability to engage in anti‑competitive conduct to target customers and undermine competition.  With only minimal competitive entry, the incumbent has an incentive to engage in this form of conduct in order to remove the new entrants as a competitive threat and retain a valuable monopoly.

7513             Implementing rate deaveraging and allowing winback prior to forbearance becoming justified would be illogical and counterproductive to the goal of introducing competition into the local market.  Rather than accelerating competition in the local market, it would risk stopping in its tracks whatever modest competition is finally coming onstream, at the same time as the ILECs continue to enjoy a 97 percent residential market share.

7514             Now we would like to turn to two specific comments in rely to the testimony you heard this week.

7515             First, in Rogers' evidence at paragraph 11 we stated as follows:

                      "Although these ILECs tout greater reliance on competition law principles, no Competition law authority would consider a market in which a former monopolist retains 95% of the market as workably competitive."

7516             The Bell panel was asked about this statement.  Dr. Ergas claimed that in a case in Italy the competition authorities found that the market was competitive, even though Telecom Italia had 100 percent of the market.

7517             The market consisted of a series of RFPs issued by large government customers.  Bell undertook to provide the citation for this case so that Rogers could respond to it.  The information from Bell will not be available until next week, nevertheless, we found the case on the internet.

7518             What happened is this:  The competition authorities found Telecom Italia guilty of abuse of dominance and fined the company 150 million Euros.  That decision was overturned in court, because the court found that the competition authority failed to consider the monopsony power of the customers.

7519             So this case does not stand for the proposition that a share greater than 95 percent is not dominance, it simply means that the court found that they may not have abused that dominance because of the specific nature of this market segment.

7520             It is interesting that a bidding market was the only case that Dr. Ergas could come up with.  Canada's residential telephone market is not a bidding market.

7521             Rogers has consulted with competition lawyers and economists.  Competition authorities around the world would not allow two firms to merge if the combined firm had a 95 percent market share, absent extraordinary circumstances such as a failing firm.

7522             In this proceeding, at transcript page 674, the Commissioner of Competition stated that it was conceivable but unlikely that a firm with 80 percent market share would not be found to be dominant.  Rogers submits that a finding of dominance would be almost a foregone conclusion at 95 percent.

7523             The second area we would like to comment on is the frequent statement by Telus and Bell that narrow geographic price discrimination is completely normal in a competitive market.  It is not.

7524             Rogers, for example, has launched its local telephone service at the same price everywhere it is offered.  In fact, the Rogers Cable local telephone service and Rogers Telecom's unbundled loop service are offered at exactly the same price all across Canada.

7525             In our wireless and high‑speed internet businesses we typically offer the same price throughout a province.  You can, I'm sure, find counter‑examples where little price skirmishes will break out in a city occasionally, but for the most part there is provincial wide pricing.

7526             So this idea that in the communications industry service providers will naturally charge different prices in different cities or different prices to different residential customers is farfetched.

7527             It is only the ILECs who want to price this way, because that is how a monopoly engages in anti‑competitive conduct.  Once the ILECs have lost a significant market share and they no longer have an incentive to act anticompetitively, they will no longer want to target their prices in this way.

7528             We would be happy to answer any questions that you have.

7529             THE CHAIRPERSON:  Thank you.  Thank you very much.

7530             Madam Secretary.

7531             THE SECRETARY:  Thank you, Mr. Chairman.

7532             We will now proceed with Panel No. 13, Canadian Cable Telecommunications Association.

‑‑‑ Pause

PRESENTATION / PRÉSENTATION

7533             MR. HENNESSY:  Thank you.  Bonjour monsieur le président, conseilliers.

7534             This proceeding comes at a critical point in the evolution of telecommunications markets in Canada.  Eight years after the Commission established the framework for local telephone competition we are only finally getting a glimpse of what a competitive market might look likE.  but let's not lose sight of reality.  These are still early days.

7535             As you have heard repeatedly throughout this week, new entrants continue to face significant hurdles in launching and delivering a competitive product.  If consumers cannot enjoy the full benefits of competition, as the telephone company suggests, it's not because the telephone companies are shackled.  It is because the market has not evolved to a point that demands a competitive response rather than a targeted response.  It is because the local telephone market remains by any measure a monopoly.

7536             that is why this proceeding is so important.  The framework established by the Commission will determine whether competition can mature and eventually take hold in a real and sustained fashion.  The stakes are high and the risks of failure very real.

7537             So with this in mind, we submit that the CCTA approach is the only one that results in a framework with the three following essential elements.

7538             It can be applied consistently across the country.

7539             It is administratively efficient to implement for both industry and the regulator.

7540             Most importantly, it is the only framework that meets the national telecom policy objectives set out in sections 7 and 34 of the Telecom Act.

7541             There has been much debate this past week about the question of appropriate geographic market definition and we have heard a variety of proposals put forward from the Competition Bureau's "amoeba test" to Telus' "shifting sands" proposal.

7542             In our view, these approaches suffer from a fundamental flaw.  They simply identify a particular competitor.  For a market definition to make sense, it can't change depending on who you look at and at what time you look at them, with one exception.  The Commission has always forborne on the basis of the ILECs operating territory, which is typically a province of group of provinces.

7543             So why did we go smaller?  Well, in our view, the LIR makes the most sense in this context for three reasons.

7544             First, it reflects a true community of interest.

7545             Second, it matches the area where competitors will be supplying their services.

7546             Third, it supports competition on a sufficient scale to discourage targeted pricing.

7547             So the key is to get the framework right from the outset.

7548             If the geographic market is defined too narrowly or if the market share threshold is set too low, the incumbent telephone companies will have the incentive and opportunity to target and predate and the consequences for competitors and competition as it is becoming established are serious and may even be irreparable.

7549             The testimonies of Dr. Ross and Gillen on this point is clear and compelling.  They explained how a targeted pricing strategy is profitable and rational in theory and in reality.  So if we don't get the framework right the first time, there will be no second chances.  Instead, we will be back here in this room five years from now doing the post‑mortem and trying to figure out why the theory didn't translate into practice again.

7550             Meanwhile, consumer will have lost their faith in the market and be reluctant to give competition another chance.

7551             You know, in Telus' opening remarks this week there was a warning that competition was becoming a "chaperoned dance" and that this is not what "Canadians expect and deserve from competition."  We disagree.

7552             As long as competition remains in a state of early adolescence, chaperoning the development of competition is the function that Parliament has said the Commission is required to undertake, and this is precisely what Canadians expect and deserve.

7553             In fact, you might say the ILECs are a lot like teenagers, asking to be left alone in the house for the weekend.  They will promise anything to get what they want.  They like to exaggerate that "all the other countries are doing it" ‑‑

‑‑‑ Laughter / Rires

7554             MR. HENNESSY:  ‑‑ and they tend to break the rules when no one is looking.

7555             The Commission is the chaperone.  This is the role that it was designed to play to ensure that competition is sufficiently mature before market forces are relied upon to protect consumers.

7556             We ask that you continue to play this role until the companies have lost at least 30 percent of the market and until the evidence demonstrates that competition has actually taken hold.

7557             Thank you.

7558             THE CHAIRPERSON:  Thank you.

7559             MR. LANGFORD:  Are we to be the Clearasil Commission dealing with certain party's spotty records?

‑‑‑ Laughter / Rires

7560             THE CHAIRPERSON:  That was your question.

7561             MR. LANGFORD:  That is rhetorical.

‑‑‑ Laughter / Rires

7562             THE CHAIRPERSON:  Madam Secretary.

7563             LA SECRÉTAIRE:  Merci, monsieur le président.

7564             Nous allons maintenant poursuivre avec le panel numéro 12, Consumer Groups, please.

‑‑‑ Pause

PRESENTATION / PRÉSENTATION

7565             MR. LAWFORD:  Mr. Chairman and Commissioners, my name is John Lawford.  I am counsel at PIAC, and today with me this morning is Chris Taylor.

7566             This morning I am going to address five issues in the time allotted to us, and we will, of course, address additional issues in our written reply.

7567             First, attached to the oral reply are the market share calculation formula, Appendix A, and an expanded schematic of our proposal, Appendix B, which we undertook to provide to the Commission.  We will also attach copies of these to our written reply.

7568             Second, with respect to Commissioner Langford's question about the adequacy of the price ceiling, it is our view that a frozen rate ceiling is simple and easy to administer and provides a reasonable protection to consumers.  However, a ceiling which would periodically be adjusted downwards would be better if the Commission were to consider it appropriate.

7569             For example, the current price cap formula could be used to adjust the price ceiling downwards on an annual basis.  We would not, however, like to see the price ceiling rise.

7570             Third, on the issue of the geographic component, our overall proposal is not tied to any specific geographic area.  We believe it could work well with any area of a reasonable size which reflects a recognized community of interest and where competitive conditions could be expected to be reasonably homogeneous.

7571             In some regions of the country, this might be the LIR, in others it may be a group of local exchanges or, if it is administratively practical, a local calling area.

7572             With respect to the Competition Bureau's amoeba diagram, the geographic area in that diagram is not based on a community of interest.  So we do not find it attractive on that basis.

7573             We note that there are unserved pockets in the amoeba and, in our view, there are likely to be pockets in any size of geographic area.  That is why we propose a price ceiling as a safeguard.

7574             We note that the Commissioner of Competition also proposed a price ceiling as a safeguard at paragraph 23 of her oral remarks.  Obviously we would agree with her on this point.

7575             However, we do not take much comfort from the Commissioner's idea at paragraph 24 that a competitor such as a cable company could use leased loops to serve areas beyond the footprint of its facilities.  The cable companies aren't doing this now and there is no reason to believe they will do so in the future.

7576             Fourth, on the issue of a third facilities‑based competitor, we remain very uneasy about duopoly.  It is worth noting that Dr. Khan for Telus and Dr. Ross for the CCTA have both expressed concerns about the possible duopolistic behaviour.  If the economic experts of the ILECs and the cable industry are worried, we think it is reasonable for the consumer groups also to be worried.

7577             That being said, we are of the view that if a situation were to develop where an ILEC had lost a significant market share, 30 percent or greater, in a market where there were only two facilities‑based suppliers, it would not be unreasonable for the Commission to examine whether a non‑facilities‑based competitor with a 5 percent or more market share would be able to constrain duopolistic behaviour.  This would require a more detailed examination of factors such as evidence of rivalrous behaviour, competitor churn rates, and especially the opportunity for margin squeezing, the diminishment of operational efficiency and comparable issues arising from the dependence of the third competitor on the facilities and services of one of the network operators.

7578             If the Commission were to conclude that the non‑facilities‑based competitor could provide the necessary competitive discipline, it may be appropriate to forbear.  However, we believe that in such circumstances the Commission may wish to consider including additional safeguards such as periodic monitoring of market conditions for rivalrous behaviour, including price benchmarking to ensure vigorous competition had truly developed.

7579             Finally, I would like to briefly discuss the issue of price discrimination.  Aliant, Bell Canada and Telus have dedicated a lot of time and resources to making the argument that price discrimination is a good thing and the Commission should give the ILECs the freedom to discriminate between customers as they choose.  According to the ILECs, the Competition Bureau can look after any predatory pricing issues and there are no other possible issues.  We do not agree.

7580             According to Bell Canada's expert, Dr. McFetridge:

                      "Perfect price discrimination requires the seller charge each buyer the maximum amount that each buyer is willing to pay..."

7581             Dr. McFetridge goes on to state that perfect price discrimination, while unattainable in practice:

                      "... retains relevance as a concept because it is a benchmark that other forms of differential pricing attempt to emulate."

7582             Finally, when questioned about who gains in this situation, Dr. McFetridge stated:

                      "If there is perfect competition among sellers the entire surplus (gain from exchange) accrues to customers.  If there is perfect price discrimination, the entire surplus (gain from exchange) accrues to the seller."

7583             To be clear, what Bell Canada and these other ILECs want is the freedom to price discriminate so they can charge each customer the maximum that that customer is willing to pay and thereby ensure the entire economic surplus is captured by the ILEC.  Everything for them, and nothing for consumers.

7584             I'm sure the Commission can understand why we are not comfortable with this situation.

7585             In our submission, all consumers should benefit from competition, not only high‑end consumers who can take advantage of bundles and those consumers who are willing to play the churn games, repeatedly switching service providers, or those who are lucky enough to be located in an area where a competitor is especially aggressive.

7586             The plain fact is that targeted pricing does not serve customers very well as a group.  On the other hand, generally available price reductions, temporary or permanent, do.

7587             In our submission, the regulatory framework should be designed to benefit consumers and not satisfy the ILECs' desire for perfect price discrimination.

7588             Consumer Groups are pleased to have had this opportunity to make submissions to the Commission and we hope that the submissions have been of assistance to you in your deliberations.

7589             Thank you.

7590             THE CHAIRPERSON:  Gentlemen, you have provided us with a number of documents and obviously we haven't had enough time to review them.  Presumably you have circulated those to be parties who will be able to address them in their written reply.

7591             I'm just looking again at the diagram, Figure 1, that you submitted today.  I haven't checked it against your original, but I assume that as with the original you provide for in the transition marketing flexibility prior to pricing flexibility.  In other words, ILEC share has to go down further for pricing flexibility than for marketing flexibility.

7592             Is that correct?

7593             MR. LAWFORD:  That's correct, yes.

7594             THE CHAIRPERSON:  By "marketing flexibility", you mean exactly what?

7595             MR. LAWFORD:  The very first transitional step is the elimination of the no contact rule under the winback.

7596             I would like to, in light of some of the things ‑‑ if you don't mind?

7597             THE CHAIRPERSON:  Is there anything else, because I am going to ask you to comment on one of the positions of the parties.

7598             What else would you include in that?

7599             MR. LAWFORD:  That is simply the elimination of the no contact.  It does not permit unique bundles to be offered which have not been approved by the Commission or anything of that sort.  There is no additional pricing or packaging flexibility associated with that.

7600             THE CHAIRPERSON:  So below price promotions would not be included in the marketing flexibility in your position?

7601             MR. LAWFORD:  Not at the ‑‑ no.

7602             THE CHAIRPERSON:  Those would fall under the marketing and pricing flexibility in the next phase?

7603             MR. LAWFORD:  The second phase is the range of prices and that doesn't permit below cost pricing either.

7604             The third phase is the ability to have promotions that would not be available across an entire band, but would be available to all consumers within a specific forborne ‑‑ you know, within the forborne geographic area.

7605             So if Toronto is forborne, you know, Toronto being band A, they would not have to offer the promotion in all band A regions ‑‑ thinking of Bell Canada ‑‑ but they would have to offer the promotion to everybody.  It would have to be available to everybody in band A, not simply winback customers.

7606             Whether or not everybody finds out about it is another question of course, but in that way we are attempting to ensure that the wealth is spread a bit in terms of ‑‑

7607             THE CHAIRPERSON:  To summarize, under "marketing flexibility" is there anything other than the no contact rule that you would put in that category?

7608             MR. LAWFORD:  No, not in our proposal.

7609             THE CHAIRPERSON:  Then I don't have to ask any further questions.  Thank you.

7610             Thanks very much.

7611             Madam Secretary...?

7612             LA SECRÉTAIRE:  Merci, monsieur le président.

7613             Panels No. 11 and 10, UTC Canada and Xit Telecom, will not present a final statement.

7614             We will now move on to Panel No. 9, Cybersurf.

7615             I will remind everyone, please, to introduce yourself to assist our court reporter.

7616             Thank you.

PRESENTATION / PRÉSENTATION

7617             MR. TACIT:  Good day.  My name is Chris Tacit.

7618             I would like to start by clearing up three possible areas of confusion from our oral presentation.

7619             First of all, at paragraphs 4128 to 4130 of the transcript there was a discussion relating to the profitability of Cybersurf.  The intent was to state that Cybersurf's high‑speed internet and dial‑up services are both profitable on a per‑customer basis where those services can presently be provided.

7620             In terms of the company's overall financial position, the company did post a profit last quarter and this is set out in the company's financial report for that quarter.

7621             We can't provide any more recent information publicly at this point as our fourth‑quarter financial statements have not yet been released and we are publicly traded.

7622             The second clarification relates to paragraphs 4257 to 4261.  In that section we discuss the broad coverage that Call‑Net, now Rogers Telecom, has as a facilities‑based carrier.

7623             Mr. Mercia's use of the words "last mile facilities" was intended to refer to carrier facilities near customers and not local loops per se.  His point was that through extensive collocation with the ILECs the Rogers Telecom Network has the broadest coverage of such facilities among various competitor networks in the cities named.

7624             The point was that Rogers Telecom is able to build such an extensive network of interexchange and intraexchange facilities because of the critical mass that it had developed as a reseller.

7625             Finally, in paragraph 4381 Mr. Mercia said we pay 80 to 90 percent for delivery of our services to a LEC or an incumbent.  He meant to insert the words "of our costs".  In other words, 80 or 90 percent of Cybersurf's costs go towards the delivery.

7626             We hope that clears up any confusion on those points.

7627             I want to now turn very quickly to a few other matters.

7628             First, no party in this proceeding has indicated with certainty that a duopolistic market structure could confer the same benefits on consumers as a market structure featuring multiple competitors.  In our view, the Commission should not risk the perpetuation of duopolistic markets.

7629             Our recommendation is for the Commission to maximize the chances of avoiding such a scenario by adopting the wholesale regime that we have proposed.

7630             Concerns have been expressed about the further development of a wholesale regime because costs are suspect.  There is no doubt that a competitive market for wholesale services is preferable to regulation of wholesale services.  However, the evidence is clear that even where two facilities‑based suppliers are present, a wholesale regime will not develop in the absence of Commission intervention.

7631             Regulation of wholesale services, even if imperfect due to the challenges associated with costing, is necessary.  Even the cable carriers, which are much less dependent on ILEC facilities than we are, recommended tweaking such arrangements in order to get access to the limited arrangements that they need from the ILECs for their businesses.

7632             In our written argument we have described ways to make cost‑based rate setting for wholesale services operate with reasonable accuracy.  If such a regime based on straightforward principles is adopted, we believe that the ability of parties to game the system, or attempt to game it, will be severely curtailed.

7633             We would also discourage the Commission from incorporating sunset provisions if establishing such a regime.  Any elimination of mandatory access in resale arrangements should only be based on actual evidence that such changes are appropriate in the marketplace following a review of the regime and not on an arbitrarily preset deadline before the relevant facts are known.

7634             The wholesale regime proposed by Cybersurf will not discourage the construction of facilities.  Instead, it will enable resellers to develop the critical mass necessary to invest in facilities, as was the case with Rogers Telecom.

7635             I note in this respect that Cybersurf itself has been actively investing in facilities as it interconnects with Rogers, Shaw and Vidéotron using TPIA, and Cybersurf recently made a similar request of EastLink.  We are also building out our own long distance network.

7636             We do object to having a one‑time forbearance decision based on any kind of costing exercise, however.  Whereas wholesale service rates can be adjusted from time to time as costing information becomes more current and experience is gained, a forbearance decision based on a broad and somewhat vague costing exercise is very dangerous, particularly since cost structures in the telecommunications industry are dynamic.

7637             A forbearance decision based on a static cost estimate that turns out to be wrong would be extremely damaging to competition and very hard to reverse.  A proper forbearance analysis should follow the methodology set out in Telecom Decision CRTC 94‑19.

7638             While our dial‑up market is profitable on a per‑customer basis, that market is shrinking and we are losing a lot of dial‑up customers.

7639             In order to grow the high‑speed internet segment rapidly enough to offset those losses, we will have to be able to bundle high‑speed internet with other services such as local services.  This is why we are now in the process of planning a roll out of local services.

7640             If Cybersurf and other competitors are to provide such services and service bundles and extend their reach to Regina, Halifax, Charlottetown and other even smaller centres in Canada, Commission intervention is required now before the market develops into an entrenched duopoly.  This is particularly the case with respect to ILEC DSL services and cable company services required by competitors to provide local VoIP and related bundles.

7641             Thank you very much.

7642             THE CHAIRPERSON:  Thank you.

7643             Madam Secretary.

7644             LA SECRÉTAIRE:  Merci, monsieur le président.

7645             Panels No. 8 and 7, Yak CommunicationS and ARCH, informed the Commission that they will not appear for their final statement.

7646             We will then proceed with Panel No. 6, the Competition Bureau.

PRESENTATION / PRÉSENTATION

7647             MR. TAYLOR:  Thank you, Mr. Chair, Members of the Commission.

7648             I have with me again today Pat Hughes, Senior Economist of the Competition Bureau.  I am Richard Taylor, Deputy Commissioner of Civil Matters Branch, Competition Bureau.

7649             On behalf of the Commissioner of Competition, I would like to thank the Commission for this opportunity to elaborate on certain aspects of the Bureau's evidence and to reply to other parties.

7650             First, I would like to comment on the costs associated with regulation and the costs associated with the forbearance process.

7651             The Bureau does not dispute that regulation is costly, not just the process itself but the delaying of innovation and the creation of dynamic markets.  Therefore, we believe regulation should be efficient and effective and, where necessary, removed whenever possible.

7652             Thus, it is well worth a few extra regulatory hurdles and resources in the short run when examining forbearance applications if the prize is a deregulated local telephone market that benefits consumers and the Canadian economy with lower prices and innovative technologies and products.  This will ensure the Commission will not require ongoing regulation or re‑regulation at a later date.

7653             As the Commission becomes more familiar with the forbearance process itself, we would expect it to arrive at its decisions more rapidly and on a broader basis.  Hence, the forbearance process itself will become more timely and efficient as it evolves.

7654             Second, with respect to the collection of variable cost data, several parties raised the spectre that it will be a very complex, difficult and time‑consuming, if not impossible, task for the Commission to obtain these data from the industry.  The Bureau would respectfully disagree.

7655             This is not a Phase 2 or Phase 3 costing exercise.  As we mention in our response to the questions posed by Vice‑Chair French, the Bureau routinely obtains this information in the course of its examination of numerous industries under the Competition Act.  Where appropriate, the Bureau retains economic and accounting experts to assist in the gathering and the analysis of these data.  We have found this information, either in raw or massaged form, to be readily available from data created in the ordinary course of business.

7656             Moreover, absent this kind of cost information, companies would not be able to set prices on a daily basis or measure the profitability of their products and services.

7657             We would further note that competition agencies around the world regularly collect and analyze these data and competition tribunals and courts are required to weigh and make determination on the costing evidence.

7658             Third, there was a discussion between Vice‑Chair French and our panel as to the significance of the variable or incremental cost test in our streamlined approach and whether the cost determination should be balanced against other factors in our model should the entrant have higher costs.

7659             In the Commissioner's opening statement, at paragraph 71 of the transcript, we stated that our cost test was a necessary condition.  Later, in response to a question, we said that the Commission could weigh the cost test against other factors.

7660             It is the latter statement that is consistent with the Bureau's final argument at paragraphs 29 and 65; specifically:

                      "The cost test should be weighed against other rivalry factors, including competitive advantages the entrant may have vis‑à‑vis the ILEC."  (As read)

7661             Fourth, paragraphs 507 to 512 of the Commission's transcript relate to questions regarding the different costs associated with alternative technologies used by different entrants and whether these entrants' cost differentials should be taken into account in the Commission's examination.

7662             Additionally, there is the question of whether EastLink should be entitled to recover its capital costs.

7663             At line 512 I responded that under our test the Commission would have to look at the different costs of these technologies.

7664             I wish to make it clear that I was not agreeing that EastLink is entitled to recover its capital costs.  Entrants should not be guaranteed cost recovery when entering new markets.

7665             Fifth, there appears to be some misconception that the Bureau has defined separate relevant markets for primary and secondary line telephone service.

7666             I wish to make it clear that the Bureau has not come to any conclusions with regard to relevant product market definition in this proceeding. The task of defining the relevant product market we are leaving to the Commission.

7667             Finally, the Bureau would urge the Commission not to adopt any ex ante rules or define relevant geographic markets on the base of the mere possibility of anticompetitive pricing.  Regulating for the mere possibility of anticompetitive conduct such as predation based on theoretical cost structure raises the very real possibility that consumers will be unnecessarily denied the significant benefits of price competition.

7668             The Bureau recognizes that the cable industry and others have raised concerns that the ILECs will have the ability and incentive to engage in predatory pricing and targeted pricing in order to stall or eliminate competition before it has a chance to take hold.

7669             This is a very important issue for the Commission and the Bureau will address it fully in its reply argument.

7670             Thank you very much for this opportunity to comment on these matters.

7671             THE CHAIRPERSON:  Thank you.  We have a few questions for you.

7672             Commissioner Cram...?

7673             COMMISSIONER CRAM:  Don't leave yet.

7674             I was listening to you on the variable cost issue and just before you was Mr. Tacit talking about the fact that technology is changing so rapidly, and costs are going down or up or whatever, that any cost analysis we would make would almost be out of date by the time we made it.  If I understand you, you are looking at the costs from last year's financial statement or something like that.

7675             So how do we deal with that issue?  Do we use a proxy or something?

7676             MR. TAYLOR:  We would also look towards the best estimation of future costs.  We would look in other jurisdictions where those new technologies had been implemented.  We are not just looking at a static model.

7677             Obviously in our merger model we are looking at future impacts, future effects of the merger.  So we would try to estimate where those costs are going based upon all available information at the present time.

7678             COMMISSIONER CRAM:  Thank you.

7679             THE CHAIRPERSON:  Thank you very much.

7680             Madam Secretary.

7681             THE SECRETARY:  Thank you, Mr. Chairman.

7682             Panel No. 5, MTS Allstream, will not appear before the Commission to present its final statement.

7683             I am calling on Panel No. 4, Telus Communications Inc.

‑‑‑ Pause

PRESENTATION / PRÉSENTATION

7684             MR. GRIEVE:  Good morning, Mr. Chairman and Members of the Commission.

7685             My name is Willy Grieve.  I am Vice‑President, Telecom Policy and Regulatory Affairs at Telus.

7686             With me is Janet Yale, Executive Vice‑President, Corporate Affairs; and Ted Woodhead, Director, Regulatory Matters.

7687             Telus is pleased to have this opportunity to make its closing statement in this very important proceeding.

7688             I have listened very carefully to all of the presentations made this week and to all of the questions you have posed and the responses given.

7689             In the time allotted I would like to address four issues that we believe are vitally important for you to consider in your deliberations.  These four issues have been central themes of this consultation and are the issues that have proven to be the most contentious.  They are the relevant geographic market, market share thresholds, allegations of predation and marketing restrictions.

7690             Geographic area.  Telus' bright‑line test limits the granting of forbearance only to those areas where customers have a choice between services provided by two alternative full facilities‑based carriers.  All of the other proposals would leave pockets of customers, in many cases very large pockets for whom there would be no alternative provider.

7691             You have heard a lot this week about defining the relevant geographic area as the local interconnection region.  Frankly, the reasons given for proposing LIRs are all irrelevant to any known market power test.

7692             The ability of a customer to make a local call in an exchange or a local calling area or an aggregation of exchanges to form an LIR or a collection of LIRs has nothing to do with whether customers have a choice of service provider.  The Grade A contour of the local CBC affiliate in a given locality would have as much relevance to your task as the adoption of an LIR or a group of LIRs.

7693             There have been suggestions that using our proposed geographic areas would be administratively burdensome.  Many of these assertions have been based on hypotheticals that bear no relationship to how the cable companies actually roll out their telephone service.

7694             An area defined by the overlap of the full facility‑based provider's network with the network of the ILEC is the correct approach and the approach that will create the fewest administrative issues for the Commission in the future. This will be evident in our undertaking response.

7695             Market share.  Our 5 percent test is not a market share loss test.  It is an assurance for you that customers consider the service of the full facilities‑based competitor as a substitute for the ILEC service.  Our test is conservative because losses to loop resellers such as MTS Allstream or Rogers Telecom are not counted in our numerator.  Similarly, neither are losses to access‑independent VoIP providers or mobile wireless competitors.

7696             The Competition Bureau understands this.  The Bureau, the party without a dog in this fight, told you that two facilities‑based competitors are sufficient for competition in a local exchange market.  The Bureau and Professor Weisman have told you that market share is not a good indicator of market power in the provision of local exchange service.  However, if you want a market share measure, Professor Weisman and the Bureau told you that it should be based on capacity and not the number of subscribers.  Market shares based on capacity are a better indicator of market power and, in the case of cable entry, the Competition Bureau says they are 50:50.

7697             Predatory pricing.  We have heard various assertions about the potential incentive and opportunity for predatory behaviour.  Mr. Shaw gave you the full answer when he responded that Shaw was committed to providing local telephone services regardless of any ILEC behaviour.  It would be fruitless and completely irrational for us to embark on such a course in the face of a fully committed, full facilities‑based competitor, especially one with lower costs.

7698             The cable companies like Shaw have lower variable costs than the ILECs for providing voice telephony and have broadband networks that are fully capable of expanding supply in response to demand.

7699             Dr. Crandall's written evidence in this proceeding explains this.  Their investments are sunk and they are committed competitors.  Dr. Crandall stated here that cable companies will not be deterred or dislodged by the ILECs or anyone else.  Mr. Shaw candidly and convincingly confirmed Dr. Crandall's assessment here yesterday.

7700             Just as an aside, Shaw's interconnection issues, by the way, are with their CLEC provider, not us.

7701             Marketing restrictions.  You have also heard a great deal about the desperate and urgent need of the cable companies and other competitors to have you maintain the various marketing restrictions on ILECs that the Commission has imposed over the years.  You really must assess whether these various constraints are necessary in the face of full facilities‑based competition or whether they are simply an artifice urged by competitors seeking to be protected from competition.

7702             You really must also ask yourselves whether consumers and businesses are well served by these artificial constraints.  Competition is supposed to be about the benefits to consumers after all.

7703             Those who called for an extension of those restrictions, some in perpetuity, and who have asked you to wait for a substantial market share loss before forbearing, are really inviting you to manage competition rather than rely on it.

7704             In response to the CCTA, it reminds me of the Wizard of Oz imploring Dorothy, "Pay no attention to that man behind the curtain", the well‑financed cable company with a full network cable service, high‑speed internet access and lots of visibility and experience in the market.

7705             In conclusion, as you embark upon the task of weighing and assessing the evidence in this proceeding, I would urge you to keep in mind the sea change that has occurred in this industry in Canada.  Cable entry, the presence of a ubiquitous, full facilities‑based competitor, is an incredibly significant event.  It came later than most of us, including the Commission, envisioned in 1997, but it is delivering the benefits today of an alternative for consumers and businesses.

7706             We support the Commission's objective of having a bright‑line test.  If our test is satisfied, the Commission can be assured that the 94‑19 market power criteria have been met, as well as the streamlined test criteria proposed by the Competition Bureau.

7707             As you deliberate, I urge you to remember and acknowledge that cable changes everything in this industry.

7708             Thank you for this opportunity to make our closing statement.

7709             THE CHAIRPERSON:  Thank you.  Vice‑Chair French.

7710             COMMISSIONER FRENCH:  Mr. Grieve, do I take it that the only thing that Telus has to say with respect to the testimony of Shaw and the problems they are having porting numbers is that this is a problem it should take up with the CLEC?

7711             Is that the only thing you have to say?

7712             MS YALE:  No, it's not the only thing.  We only had five minutes.

7713             I can indicate to you with respect to the number porting issue that the issue we have is a problem related to our labour dispute.  There was no backlog with respect to number ports, but prior to the work stoppage of Telus.

7714             So what we are doing is rationing scarce resources, both with respect to our own retail customers as well as our competitors in a non‑discriminatory way.  That goes with respect to number ports as well as all installations.

7715             Our priority has been to keep existing customers in service when it comes to field work and we have been able to do that for competitors and retail customers alike.

7716             With respect to new customers, which is what the porting situation is about, Shaw is in the same situation as our other competitors, as our retail customers, and we are doing that on a non‑discriminatory basis.  So that is number ports.

7717             With respect to interconnection issues, I am going to let Willie address it.

7718             I just want to say at the outset that one of the things the Commission has to keep in mind is that Shaw has not chosen to deal with Telus as a CLEC.  Shaw interfaces with Telus through Bell, who is a CLEC with whom we interact.  They are not our customer.  They are not our customer.  That is a decision they made, in part because, as the Commission may be aware, they weren't in compliance as a CLEC for sometime and had to deal with BellWest to meet their CLEC obligations.

7719             My understanding is they may now have addressed that.  They have a choice as to who to deal with.  They continue to choose to deal through Bell with Telus rather than directly and that has implications for their intersection issues, and Willie will address that.

7720             MR. GRIEVE:  I could go through each one of the locations they mentioned yesterday.  My understanding ‑‑ and we checked on this yesterday after we heard Mr. Shaw speak, I'm not sure if it was Mr. Shaw or Mr. Stein who addressed this.

7721             But in Vancouver this is an issue of where BellWest and how BellWest ‑‑ Bell I guess they are called now ‑‑ has chosen to interconnect in Vancouver, because Shaw goes through Bell.  If Bell chooses not to interconnect in a particular location at a time, then Shaw has the same issue.

7722             In Edmonton they started off wanting to be a CLEC.  They contacted us, we had meetings.  Then we were supposed to have further meetings.  We were waiting for them to get back.  The next thing we heard was that they were going to go through BellWest.  Now they are asking for interconnection through Bell.  They are asking for interconnection in the Edmonton LIR local interconnection region that would also include the Sherwood Park region, because BellWest doesn't have an interconnection in the Sherwood Park local interconnection region.

7723             So all of these issues, we have given them alternatives in Airdrie and Okotoks.  They chose not to take them.  Instead they are relying and they are waiting for BellWest.

7724             COMMISSIONER FRENCH:  So as a general point, would it be your contention that the competitor quality of service issues which have been raised before us ought not to weigh in our decision with respect to issues such as forbearance because they are solely based on your current labour difficulties?

7725             MS YALE:  I would with your premise that whatever allegations have been made with respect to competitor quality of service are not anti‑competitive behaviour on the part of Telus.  They are either a function of the labour dispute, which affects us hugely on the retail side of our business.

7726             The same challenges that Mr. Shaw spoke of yesterday face us with our retail customers, who have the exact same problem with new housing divisions, subdivisions and so on.  It is a work‑stoppage related issue for the most part.

7727             The other piece of it, which I think Willie has addressed, is the way in which Shaw has chosen to enter the market through Bell as their CLEC, and decisions that Bell has made with respect to the interconnection they have chosen.  It is not a function of any kind of behavioral choices on the part of Telus to try and slow Shaw's entry into the market.

7728             We have actually had many discussions with Shaw about choosing to deal directly with us rather than through Bell and they have, for whatever reason, chosen not to do that.  There are, as Willie described, choices that Bell has made about the way to offer interconnection.

7729             So the bottom line is, we think competition is a good thing.  As Mr. Shaw noted yesterday, competition is here to stay and it is our desire to make sure that happens.

7730             THE CHAIRPERSON:  Commissioner Cram.

7731             COMMISSIONER CRAM:  It seems to me when you are talking about cable competition the sunk costs argument doesn't fly.  They can just use that bandwidth for something else.  They can get totally out of telephony.  That bandwidth is still worth money and they can sell me a new pay‑per‑view couple of channels.

7732             So I guess I need another reason why predation wouldn't happen or I need to you address the sunk cost issue.

7733             MS YALE:  Let me start by saying I thought Jim Shaw was pretty candid about saying they are not going anywhere.  They are in this business to stay.  If Fred Di Blasio were still here he would put it this way, which is that at the end of the day with respect to residential customers the triple play is very significant, so from a Shaw perspective they need telephony in the bundle just as we need television service in our bundle.

7734             So whether you consider it a defensive manoeuvre to protect your customer base or an offensive manoeuvre, how can I grow market share or grow revenues from my existing market share, I think the reality is you have to do both.

7735             We are launching into the television business.  It is, relatively speaking, more expensive to add the BDU business to our structure than it is for Shaw to enter local telephony, and yet we have to do it.  The other telephone companies, MTS and SaskTel have already entered.

7736             Having that relationship with the customer is critical, because if you lose them ‑‑ once we are in the television business, if Shaw loses them, they lose them for everything.  So having a full bundle is critical when you are talking about a relationship with customers over a pipe that is capable of delivering the full suite of services.

7737             So the advantage of sunk costs, if you will, is that the incremental costs of adding the third element to the triple play is less than if you didn't have that in place.  That is the reality of competing for customers in the marketplace:  Once you lose the relationship with the customer you have nothing.

7738             COMMISSIONER CRAM:  It was Mr. Bragg, though, that said he wouldn't hesitate to just use that bandwidth for something else.

7739             I know Telus thinks about Shaw only, but let's take EastLink.  If they shut down their phone and use their bandwidth for something else, that is virtually the end of competition in Halifax.

7740             MS YALE:  Well, EastLink has a different business model.  They are a circuit switch, so their costs of entry have been substantially different than those of IP‑based entrants and so I think from a cost perspective it's quite a different story.

7741             Having said that, I think the facts speak for themselves.  Customer inertia, as Mr. Shaw indicated, is not an issue.  That has been EastLink's experience.  It is an attractive bundle of services.  People like it.  They want it.  They enjoy one‑stop shopping.

7742             The competition for offering bundled services to competitors is finally here with respect to the telephone companies finally being able to deliver television service over copper and the cable companies finally being able to deliver IP telephony over their infrastructure.

7743             I think that competition is here to stay and I think Mr. Shaw couldn't have put it better.  He agreed with that himself.

7744             COMMISSIONER CRAM:  Thank you.

7745             THE CHAIRPERSON:  Commissioner Langford.

7746             COMMISSIONER LANGFORD:  I know this is only supposed to be five minutes, but you raised some interesting questions and this is the last chance.

7747             If I can encapsulate it this way, it seems that Mr. Shaw suspected some kind of preferential treatment coming out of the labour dispute.  He put it at the feet of your labour dispute that you were giving your own customers preferential treatment and that they were suffering, and you say that's not true.

7748             MS YALE:  Could I just stop you there?  I'm sorry.  He did not say that we were giving a preference.  He said that they were having trouble with ports.  He did not and has not, in front of the Commission or otherwise, indicated that we were behaving in a discriminatory fashion on the wholesale relative to the retail side.

7749             He is bemoaning the fact that there is a problem with number ports in the context of a work stoppage, but he has been assured by Darren personally that we are treating our retail and wholesale arms in a non‑discriminatory fashion, which is what is required by law, and that is what we are doing.

7750             COMMISSIONER LANGFORD:  I will have to check the transcript, but my recollection is that he did pile that allegation on on top.  But that's fine, it will be in the transcript and we will find it.

7751             Anyway, for whatever reason he puts the blame at your door and you put some of the blame at the CLEC's door, or put some of the blame on the fact that you have a labour shortage and you just can't perform the way you would like to perform.

7752             But no matter where the blame lies, isn't this situation an interesting example that there is market power, that you folks do have power?  That in the end, you are the people they have got to come to to get those numbers ported.  Whether it is because you are doing it for insidious reasons or whether it is because you are not doing it because you can't, the fact of the matter is they still have to come to you.  Even if we follow your suggestion that we rely more on pure competition theory, doesn't the kind of fact that you are the key to their success give you that power?

7753             MS YALE:  A couple of things.

7754             First of all, there was no backlog prior to the work stoppage.  We were meeting all ‑‑ all requests for ports from Shaw and every other competitor, as well as our retail customers in the prescribed intervals.  Mr. Shaw admitted that.  This is an issue that relates to the work stoppage, period.

7755             I can't be more emphatic about that.  There was no backlog prior to the work stoppage.  So that is point number one.

7756             COMMISSIONER LANGFORD:  I will have to check the transcript on that.  That is not my recollection.

7757             MS YALE:  He admitted that.  This issue has only arisen since the work stoppage.  They have been in the market already.  There was no backlog prior to the work stoppage.  That is point number one.

7758             Point number two:  Just as long distance competition and equal access required the line for a customer to be switched from a particular long distance provider, say Telus, to the new entrant, the fact is the line has to be transferred from the incumbent to the entrant.  I was talking about long distance.  Willie is arguing with me.

7759             THE CHAIRPERSON:  Just turn both your microphones on.

‑‑‑ Laughter / Rires

7760             MS YALE:  With respect to numbers, Shaw doesn't need the line, they just need the numbers.  So the only transfer that has to take place, unlike a CLEC, traditional CLEC entrant where we transfer the line from being a retail line to a wholesale line, we provide the loop on a wholesale basis as well as the number, it is a loop plus a port.  With respect to Shaw it is a port only transfer.

7761             In either case, in order to ensure seamless transition for the customer, you have to interface on a carrier‑to‑carrier basis to make sure that it happens in a seamless point in time so the customer isn't without service.  Right.  Which is why if you are an incumbent ‑‑ it is not a new market.  If you are an incumbent and all the customers have to switch from you to the entrant, at some point you have to interface with the other carrier in order to effect that switch, whether it is a port or the loop or both.

7762             COMMISSIONER LANGFORD:  And that is power, that is real power.

7763             MS YALE:  It is not required under the terms of the Commission's rules and the care process to maintain the confidentiality of that customer information and to do it with prescribed intervals that have been worked out through the CISC process in order to ensure that it is not done in a way that interferes with the emergence of competition, whether that is long distance or local competition.

7764             As I said, that process works incredibly well and did work incredibly well until the work stoppage.  What is a problem now is the backlog we have both at a retail and wholesale level, and that backlog is a non‑discriminatory backlog that has our own customers as upset as our wholesale customers.

7765             COMMISSIONER LANGFORD:  That is an interesting theory and I'm aware of regulatory obligations too, but I think one would have had to have been in a coma for the last couple of days to miss the point that one of the major frustration levels among the new entrants here is that the system isn't working for them.  We will all review the transcripts to see exactly what Mr. Shaw said, but he wasn't alone in pointing the finger repeatedly, repeatedly ‑‑ and I'm not pointing it only at Telus, but in the sense of ILECs, that seems to be where there is major power and where there is major frustration.  But we will all review the transcripts.

7766             Thank you very much.  That was my question, Mr. Chairman.

7767             THE CHAIRPERSON:  Counsel.

7768             MR. WILSON:  Thank you, Mr. Chairman.

7769             Just quickly with respect to the undertaking response, Mr. Grieve, you mentioned in your remarks, can you just give a sense of timing when you will be able to file that with the Commission?

7770             MR. GRIEVE:  I'm being given some advice, but we are having an argument too.

7771             I would like to get it done as quickly as possible because I realize the parties will want to see it before they do their reply argument, so we will try for Tuesday.  We will try for the end of Monday, but probably Tuesday.

7772             MR. WILSON:  Thank you very much.

7773             Mr. Chair...?

7774             THE CHAIRPERSON:  Thank you.  Those are our questions.

7775             Madam Secretary.

7776             LA SECRÉTAIRE:  Merci, Monsieur le président.

7777               We will now proceed with the appearance No. 3, Saskatchewan Telecommunications.

7778             Mr. Schurr, are you online?

PRESENTATION / PRÉSENTATION

7779             MR. MELDRUM:  Thank you.  This is John Meldrum, and I wish to express my appreciation for taking the extra efforts to accommodate our request to present via conference call.

7780             Firstly, we continue to be of the view that what is relevant in this proceeding are the various submissions and discussions with respect to the conditions under which the ILECs would be granted forbearance; characteristics of the relevant market in terms of geography and services; how to measure competition in terms of lines, services or households; whether forbearance should be phased in over time; and what, if any, restrictions should be applied to the ILECs following forbearance.

7781             What we do not consider to be relevant are the opinions and contentions of the ILECs' current market share and market power, their potential ability to engage in anticompetitive conduct, or the allegations of operational issues that are characterized by the cablecos as barriers to entry.  We maintain those matters are not relevant to the task that the Commission has set for itself.

7782             It would not be possible to address all of the issues in the limited amount of time provided today for closing statements.  Instead, I will concentrate our comments on the winback restrictions, including the asymmetrical aspects of same.

7783             Various experts have commented on the fact that winbacks are simply evidence of a rivalrous competitive market and should not be constrained.  On the other side of the argument are the cablecos, who essentially are saying don't let the incumbents try to win back our customers as we are just small start‑up companies.  They will crush competition before we even have a chance to achieve a beachhead.

7784             Let me tell you about our experience with aggressive, targeted, cableco winbacks as an entrant in the broadcast industry.  SaskTel was the first telephone company in North America to offer broadcast services over DSL.  As a pioneer, we faced many challenges.

7785             Max, our DSL broadcast offering, has been very successful, despite the fact that we have been the subject of aggressive targeted winback activities by both Shaw and Access Communications.

7786             These activities have created a lot of churn in the marketplace.  The cablecos and others entering the local services market will try to convince you that customer churn has nothing but deleterious consequences.  Our experience has been quite the opposite.  We have done a number of things to combat churn that have benefited our customers and SaskTel in various ways.

7787             In terms of innovation, we developed a service that allows Max customers to receive call display on their television sets.  We enhanced the program guide so that it can be accessed while viewing a program, and we developed a subscription Video‑on‑Demand product.

7788             In terms of the service itself, we have taken steps to reduce our costs.  We have added new channels.  We aggressively pursued content for our world‑class Video‑on‑Demand offering.  We focused on providing better levels of service, improved our installation booking times and focused on improving our provisioning methods.  We even added batteries to our cabinets to reduce service outages.

7789             In terms of price, we have developed our own promotions to attract people to the experience, such as the opportunity to view all of our 200 channels for the price of basic cable for four months.  We have created more bundles and we have reduced prices.

7790             In terms of customer retention activities, we have developed a bimonthly newsletter which provides programming news, helpful tips, what is new and coming soon and we have offered free channel previews and contests for customers.

7791             Winbacks for us certainly created churn.  They increased our costs and ultimately impacted our market share, but the winbacks caused us to be a better competitor, to focus on the problems that existed with Max and to differentiate our product from the cablecos.

7792             The bottom line is that the aggressive winback attacks from Shaw and Access forced us to offer a better broadcast product at a better price, with the consumer being the ultimate winner in this equation.

7793             Our experience as an entrant in the broadcast market convinces us further that there is no need for the asymmetric winback regulation that exists between cable and telecommunications.  When Shaw loses a cable customer to SaskTel, they can try to win back the customer that very same day, with the exception of customers in multi‑dwelling units, which in Saskatchewan is about 25 percent of our market.

7794             If SaskTel were to lose a residential local exchange customer to Shaw, we could not contact the customer for a full 12 months with respect to any SaskTel services, including our Max service.  We don't consider these differences to meet the fairness test.  The incumbent cable companies do not need protection from SaskTel, especially not Shaw.

7795             Just to size Shaw, as they indicated yesterday they have 1.1 million high‑speed customers.  We have about 120,000.

7796             This may seem like a strange response from a crown corporation tucked away in Saskatchewan.  To put it into perspective in the 1990s, we successfully built and operated a Bragg‑like cable and local telephone company from scratch in both England and New Zealand.  In New Zealand there was no formal regulator to even consider the kind of assistance being requested by the new entrants at this hearing.

7797             Again, thank you for accommodating us by conference call today.

7798             THE SECRETARY:  It was our pleasure.

7799             If you have any questions ‑‑ sorry.

7800             THE CHAIRPERSON:  No, Mr. Meldrum, we don't have any questions.

7801             Thank you very much.

7802             MR. MELDRUM:  Thank you.

7803             THE CHAIRPERSON:  Sorry, counsel has a question for you.

7804             MR. WILSON:  There were a couple of undertakings in response to some questions from Commissioner Cram.

7805             Can you indicate when you will be able to file those with the Commission?

7806             MR. SCHURR:  This is Bryce Schurr.

7807             We will be filing them at the first of the week.

7808             MR. WILSON:  Thank you very much.

7809             MR. SCHURR:  You are welcome.

7810             THE CHAIRPERSON:  Thank you, Mr. Schurr.

7811             Madam Secretary.

7812             LA SECRÉTAIRE:  Merci, monsieur le président.

7813             I am now calling on panel No. 2, The Companies.

PRESENTATION / PRÉSENTATION

7814             MR. BIBIC:   Good morning.  My name is Mirko Bibic.  With me is Bob Farmer, both of Bell Canada.

7815             Time is limited so I will only address three issues.

7816             The first is the geographic market.

7817             The experts agree that the geographic market chosen must have similar competitive conditions throughout that area.  Based on the evidence we have seen and hear, only the exchange and cable serving areas meet this test, as acknowledged by the Competition Bureau in their opening remarks from the other day.

7818             Interestingly, on Monday of this week the Public Service Commission of Missouri granted the application of SBC for forbearance from price regulation at the exchange level on the basis of competition from two facilities‑based competitors, including as one of those two a wireless carrier.  In fact, this test is enshrined in their law.

7819             Now the LIR.  It does not pass the test of similar competitive conditions throughout the LIR.  There is, for example, no community of interest, I would submit, between Merrickville and Kazabazua in Quebec, both of which are in the Ottawa‑Hull LIR.  The evidence shows that those competitors who have entered the local telephony market have not done so throughout an LIR.

7820             I would refer back to the Burlington LIR example that I gave on Monday.

7821             The second issue is targeting.

7822             The cablecos admit their geographic market definition does not pass economic muster.  Instead, it is designed to prevent an ILEC strategy of targeted pricing.  I will not repeat our views, well supported on the record, that under the classical theory of predation this won't occur.

7823             The cablecos' theories instead are based on the notion of deep pockets and reputational effects.  For it to work, one would need competitors who will be scared off or be unable to secure additional funding, as Dr. Ross put it.

7824             The argument ignores the following.

7825             We face competition throughout our territory from a multitude of providers ‑‑ not just one, a multitude ‑‑ and those include three large committed cablecos who have each already entered the most lucrative portions of their serving areas.  That can't be overlooked.

7826             In our other businesses or geographic areas we would continue to be constrained by the other cablecos and other competitors or by price caps where we are regulated, or by vigorous competition where we are not regulated; for example, internet, TV and wireless segments.

7827             Let's take the evidence of two cablecos: Shaw ‑‑ and Mr. Shaw in particular spoke with refreshing candour yesterday.  He acknowledged that he needs to provide a voice service to compete.  He said there is no question cable telephony is economically viable and technically sound.  He also said that his company will reach positive EBITDA in telephony at 10 percent penetration levels, and that will occur in the next year or two.

7828             He also said that what he has deployed won't ever go away ‑‑ and that is a quote.

7829             EastLink for its part, Mr. Bragg indicated that he has low incremental costs of serving customers once the network is in place and the customer can be reached with the wire.

7830             To eliminate all the cablecos throughout our entire territory would not be possible.  The cablecos have not met their burden of proving their theory of predation.

7831             The Commission should not adopt economically unsound proposals to forestall a highly unlikely ILEC strategy.  To do so would lead to three regulatory mistakes.

7832             One, it will lead to orphan customers, again the Burlington LIR example.

7833             Two, it would cause the Commission, at competitors' urging, to redress that mistake by imposing further regulatory band‑aids in the form of price caps.

7834             Three, it would delay forbearance where there is vigorous competition.

7835             The third issue is regulatory flexibility.

7836             There has been discussion as to whether the ILECs have done enough under the current regime to keep their customers.  In other words, how hamstrung, really, are the ILECs under the current regime?

7837             This is not the test to justify continued regulation.  The test is whether market forces are sufficient to protect the interests of users.  The evidence demonstrates that they are.

7838             Another aspect is whether forbearance would be likely to unduly impair the establishment or continuance of a competitive market for that service.  Again, on the evidence, that is unlikely to occur.  We now have in Canada full facilities‑based competition, exactly what has been sought.

7839             The ubiquitous nature of parallel cable networks in Canada makes us the envy of the world.  Yes, we are doing what we can under the current environment to compete and succeed, but that ought not to be where we set the bar.  The real issue is not what we as ILECs can do under the current regime, but what all competitors could do for consumers if market forces were permitted to operate freely.

7840             And a final word on winbacks.

7841             Canada is the only jurisdiction to have winback restrictions of this length and breadth.

7842             Two, the cablecos have justified the winbacks on the basis that Bell ExpressVu has benefited from winback restrictions even after cable rate deregulation.  What they failed to point out is that they do not have, and never have had, promotion restrictions, bundling restrictions, pricing de‑averaging prohibitions and imputation tests, and their discretionary tiers have never been regulated.

7843             The comparisons on winbacks are not valid.

7844             I have one last word.  I didn't come here this morning expecting Bell in the west to be blamed for not reporting issues in western Canada.  I think I have run out of time, but I would be happy to deal with that in a general fashion, if you wish.

7845             THE CHAIRPERSON:  If you like, go ahead.

7846             MR. BIBIC:  Thank you.

7847             I think it is, frankly, objectionable for Telus to state that if Shaw dealt with Telus directly, they wouldn't be having these problems because the issue ought to be equal and non‑discriminatory treatment.  We are not causing the non reporting problem in western Canada now.

7848             I would point out that in our territory ‑‑ actually, I dug out some facts because I thought this might come up in our territory.

7849             In our territory in terms of interconnection, there are no issues that we are aware of, no problems.  There is one area we are discussing with Rogers bilaterally relating to a point of interconnection in Ontario, but we are working it out with them.  In fact, there are many things that we work out with our competitors that the Commission never ever sees.

7850             In terms of access to support structures, I spoke to my people and they advised me that there is not one issue that they are aware of.

7851             In terms of reporting numbers, mistakes do happen from time to time and we work those out.  There was one issue in the past raised by Cogeco in July, and that has been worked out.

7852             The fact of the matter is Cogeco uses Telus as its CLEC in the east, yet Cogeco doesn't have these problems.

7853             Thank you.

7854             THE CHAIRPERSON:  Mr. Bibic, thank you.

7855             On the winback point, I have your point about the differential situation as between ExpressVu and the cable companies in that environment.  I don't know if you were here when Rogers made its opening presentation or whether you have seen the quotation from the Bell ExpressVu official toward the end of their presentation.

7856             Have you had a chance to see it?

7857             MR. BIBIC:  I have seen it.

7858             THE CHAIRPERSON:  I take it you disagree with him on the statement that the revised winback rule is another measure that the Commission has put in place to give competition an opportunity to get established?

7859             MR. BIBIC:  I do disagree, Mr. Chairman.  The regulatory buck stops with me for Bell ExpressVu as well.  And that is an unfortunate interview.  I do not agree with that.  It is not our position.

7860             This is the problem we have, where you have the folks at ‑‑ I am not making excuses, but you have the folks at Bell ExpressVu who are doing their best each and every day to advance Bell ExpressVu's interest.  They see what is going on in the telephony side and they say let's do the same thing here.

7861             I disagree.  You know our position quite clearly on the winback rules, and I think those apply on broadcasting as well.  It is up to the cablecos to advance their arguments as to why there should not be winback rules on the broadcasting side.

7862             I would also point out ‑‑ and I am not here, unless you want to, to spend too much time or any time at all talking about our charter argument.  I would just point out that we have made it an issue in this proceeding, in our opening June 22nd submission.

7863             I would ask the Commission to deal with the charter argument in this decision should it not be dealt with earlier in other proceedings.

7864             THE CHAIRPERSON:  Commissioner Cram.

7865             COMMISSIONER CRAM:  Cable really isn't ubiquitous, is it, when there is 53 percent penetration in Cogeco country in Quebec?  That is not ubiquitous, is it?

7866             MR. BIBIC:  Is that percentage a reflection of customers or homes passed?

7867             COMMISSIONER CRAM:  That is the penetration of their basic.

7868             MR. BIBIC:  Of their homes passed.

7869             COMMISSIONER CRAM:  Is it homes passed?  Yes.  That is what they said yesterday.

7870             MR. BIBIC:  The market for those types of services is comprised, as I mentioned on Monday, of those who choose to subscribe to cable TV services or DTH services.  It does not include those homes who choose not to subscribe to those types of services whatsoever.

7871             So I think that would be a better measure of the penetration of television services across the country.

7872             COMMISSIONER CRAM:  Now I am missing you.

7873             The people who don't choose to have cable ‑‑

7874             MR. BIBIC:  Or DTH.

7875             COMMISSIONER CRAM:  Yes.

7876             MR. BIBIC:  I would submit are not in that particular market.

7877             COMMISSIONER CRAM:  But cable is ubiquitous?

7878             MR. BIBIC:  Cables pass 98 percent of homes in Canada.  So in that sense, the reach of their networks is ubiquitous.

7879             COMMISSIONER CRAM:  Fifty‑three percent of the people in Cogeco country take it.  So it sort of lessens their ability to reach people if they don't even want one of their services.

7880             MR. BIBIC:  It is up to them to market their service.

7881             THE CHAIRPERSON:  Commissioner French?

7882             COMMISSIONER FRENCH:  Mr. Bibic, I have listened carefully about what you had to say about the situation in the former Bell west, and I take your point.

7883             I think it would not be unfair to say that the Quebec‑based companies do not raise issues of competitor quality of service.  I am a little concerned that you have not responded adequately to the issues which are raised with respect to competitor quality of service with the Rogers group.

7884             Do you have anything further to add on that subject?

7885             MR. BIBIC:  Which specific issues?  Is it the access to support structures or other service issues?

7886             COMMISSIONER FRENCH:  From the Commission's point of view, I won't swear to this but I have the impression that virtually of them were issues from Rogers.  They certainly felt that given the amount of time in their intervention that they spend on those issues, they regarded the situation as ‑‑ I am trying to choose my words carefully ‑‑ unsatisfactory and not conducive to a lively competitive market.

7887             I may be putting words in their mouth, but I don't think so.  I am wondering whether you had anything else to say about that.

7888             MR. BIBIC:  I do.  Again on the number reporting, interconnection and access to support structure issues, I have dealt with those.  As far as I am aware ‑‑

7889             COMMISSIONER FRENCH:  You have told us that from your side of the coin, as far as your people are concerned, there is no problem.

7890             MR. BIBIC:  On those three issues there are none, as far as I am told now.

7891             Mr. Linton did mention the issue of access at ILEC remotes.  I would point out that Rogers has filed a Part VII on that issue.  It is a complicated practical, financial and legal issue, which is going to be dealt with by the Commission at some point.

7892             COMMISSIONER FRENCH:  I wouldn't ask you to comment on an issue like that, and no one is claiming, I think, that access to remotes is a fundamental issue, or at least so fundamental that the Commission ought to take it into account in a forbearance hearing.

7893             The broader question of ILEC responsiveness to competitors is clearly an issue which has been placed on the table by the competitors in a way that I think doesn't allow too much ambiguity.

7894             If what you have to say is that you haven't heard from Rogers with respect to the problems that they perceive, that is what you have to say.

7895             MR. BIBIC:  I have a general comment on it.

7896             To the extent there are access issues ‑‑ and there could be several of them; some have been alleged in this proceeding ‑‑ then the Commission may want to examine those issues specifically on their own merits.

7897             With respect to the impact of that on forbearance, what I would say is that where the test that we have proposed is met, it is because all or any access issues which may have been there have been overcome.

7898             The competitors have entered.  They are competing and they are succeeding.  On that basis, retail forbearance ought to be granted.

7899             To the extent the access issues get in the way of a competitor entering and competing, then those tests that we have proposed won't be met at the retail level and there won't be forbearance.  In the meantime, the Commission may wish to address whatever issues get brought up on their own merits.

7900             COMMISSIONER FRENCH:  So if there is a degree of competitor success, this is evidence that competitor quality of service on the part of ILECs is not a systemic issue or a structural barrier.  It is something that one has to work through day after day, given the unique problems that arise as competitors try to expand their markets.

7901             MR. FARMER:  I think that is a fair way to put it.  I certainly hope we are not delivering a message here that says don't worry about it if you are passing the forbearance test, whatever that test would be.

7902             There may well be continuing issues that have to be resolved.  The point that Mirko made ‑‑ and I certainly agree with him ‑‑ is that they have to be handled, I believe, on a separate track.

7903             THE CHAIRPERSON:  Thank you.

7904             Commissioner Cram.

7905             COMMISSIONER CRAM:  How many Part VIIs have been filed, based on this card from Mr. Blouin?

7906             MR. BIBIC:  I am aware of one.

7907             COMMISSIONER CRAM:  Thank you.

7908             THE CHAIRPERSON:  Counsel.

7909             MR. WILSON:  I just want to check with respect to the timing when you will be able to file your undertaking response with the Commission.

7910             MR. BIBIC:  I was advised by one of my colleagues, as I was walking up, that it was going to be in ten minutes.  So I suspect it is probably in five or two or three minutes.

7911             MR. WILSON:  That sounds acceptable to me.

7912             Thank you, Mr. Chairman.

7913             THE CHAIRPERSON:  Thank you.

7914             Those are our questions.

7915             MR. BIBIC:  Thank you very much.

7916             THE CHAIRPERSON:  Madam Secretary.

7917             THE SECRETARY:  Thank you, Mr. Chairman.

7918             I am now calling on our last appearance of today, Aliant Telecom Inc.

PRESENTATION / PRÉSENTATION

7919             MR. ROBERTS:  Good morning, Mr. Chairman and Commissioners.  My name is Mike Roberts, Vice‑President of Regulatory and Government Affairs for Aliant.

7920             With me here today is Margaret Sanderson, Vice‑President of CRA International; and Dan Campbell, counsel to Aliant.

7921             The test for forbearance under section 34(2) is whether competition is sufficient to protect the interests of users.  The evidence on this is uncontradicted.  Nobody considered it likely that Aliant would raise prices to uncompetitive levels after forbearance.

7922             The burden is on those who invoke the exception under section 34(3) to prove that competition is not likely to be sustained.  This must be a finding of fact on evidence ‑‑ not suspicion, not scepticism and fears.  It has not even been asserted, let alone proved, in the 32 exchanges.

7923             With respect to the fears that have been expressed, the competitive reality has been in Nova Scotia for several years and the results are clear: the competitive market works.  Competition is sustainable.

7924             EastLink began a couple of years before the marketing restrictions on ILECs were increased.  Nevertheless, EastLink did just fine.  Their market penetration in those early years is shown in our confidential filing, and of course it has continued to grow.

7925             Let me assure you that EastLink did not slip in under anybody's radar.

7926             Mr. Chairman, the Nova Scotia experience is evidence, not speculation.  Any finding under section 34(3) must be based on evidence.

7927             In any case, do not believe it for a moment that the cablecos will abandon telephone service, because it's all about the bundle.  Heather Tulk said it.  Jim Shaw said it and Lee Bragg said it.

7928             The bundle is key, and both television and telephone are key components of the bundle.  EastLink will no more abandon this key element of its bundling strategy than Aliant will give up on its entry into the broadcast distribution business, despite the barriers to entry and the high costs.

7929             Jim Shaw said that where they have deployed service, they would not go away.

7930             EastLink's competitive presence is sustainable in residential services because it has a powerful advantage in including television in its bundles.

7931             We have demonstrated the need for forbearance in the 32 exchanges under the comprehensive 94‑19 test, but you need not repeat this analysis with respect to future exchanges.  From the factual record in this proceeding, you will know a great deal about EastLink's operations and customers' acceptance of them.  You will know that EastLink's investment in local telephony makes it a committed market participant.

7932             With that established, it is not necessary for EastLink to have 30 percent of wireline customers for several years to prove that competition exists in other areas.

7933             In Sydney, where EastLink is just beginning to offer local service, it is effectively competitive now.  If you were to forbear in Sydney, Aliant would have no ability to price above competitive levels.

7934             In this context, a 5 percent test is conservative.

7935             With respect to churn, we have filed in confidence the actual number of customers repatriated by Aliant.  A glance at those numbers will dispose of any argument that competition is in peril.

7936             EastLink has one‑third of the market in 32 exchanges, including the largest and most lucrative in each of these provinces.  That is some beachhead.

7937             If it needs more than that to be sustainable, of which there is no evidence, its business plans are unreasonable.

7938             With respect to the theory of targeted predation to inhibit entry elsewhere, as Ms Sanderson said, that horse left the barn long ago.  EastLink is broadly established and the sort of targeted predation that has been suggested is out of the question.

7939             Do not accept without evidence any suggestion that Aliant's deep pockets and reputation for toughness will scare Rogers out of New Brunswick and Newfoundland.

7940             The Bureau panel indicated that there can still be workable competition in a market even if one firm has higher costs than another.  You have to look at the facts on the ground, but if any cost comparisons are to be considered there are huge issues.

7941             There is no agreed methodology for assigning costs between the television, internet and telephone operations of the incumbent cable provider to ensure comparable cost information.

7942             Please base your test on proper economic analysis, as you did in 94‑19.  Many, if not most, of the tests that are proposed here are built around gerrymandering the geographic market to produce a desired result, or incorporate concepts of market handicapping that are completely foreign to competition analysis.

7943             I would like to thank the Commission for its attention to these lengthy presentations and Godspeed your deliberations.

7944             THE CHAIRPERSON:  This would be a good place to end now, wouldn't it.

7945             However, counsel does have one question.

7946             MR. WILSON:  When ‑‑

7947             MR. ROBERTS:  Wednesday.

‑‑‑ Laughter / Rires

7948             MR. WILSON:  Thank you.

7949             THE CHAIRPERSON:  Thank you very much for that presentation.  I think your position is very clear.

7950             Madam Secretary.

7951             THE SECRETARY:  Mr. Chairman, I believe this does complete the agenda for this consultation.

7952             THE CHAIRPERSON:  Thank you.  This consultation is adjourned.

‑‑‑ Whereupon the hearing adjourned at 1106 /

    L'audience est ajournée à 1106

 

  

 

                      REPORTERS

 

 

 

 

 

____________________      ____________________

Richard Johansson         Kristin Johansson

 

 

 

 

____________________      ____________________

Jean Desaulniers          Fiona Potvin

 

 

 

 

____________________

Shari Bakalar