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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TELECOMMUNICATIONS COMMISSION
TRANSCRIPTION DES AUDIENCES DEVANT
LE CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT / SUJET:
Review of regulatory framework for wholesale
services and definition of essential service /
Examen du cadre de réglementation concernant les services
de gros et la définition de service essentiel
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
October 12, 2007 Le 12 octobre 2007
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
Review of regulatory framework for wholesale
services and definition of essential service /
Examen du cadre de réglementation concernant les services
de gros et la définition de service essentiel
BEFORE / DEVANT:
Konrad von Finckenstein Chairperson / Président
Barbara Cram Commissioner / Conseillère
Andrée Noël Commissioner / Conseillère
Elizabeth Duncan Commissioner / Conseillère
Helen del Val Commissioner / Conseillère
ALSO PRESENT / AUSSI PRÉSENTS:
Marielle Giroux-Girard Secretary / Secrétaire
Robert Martin Staff Team Leader /
Chef d'équipe du personnel
Peter McCallum Legal Counsel /
Amy Hanley Conseillers juridiques
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
October 12, 2007 Le 12 octobre 2007
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
RESUMED: SALVATORE IACONO 936 / 6408
RESUMED: WILLIAM TAYLOR
RESUMED: PAUL ANDERSON
RESUMED: DENIS HENRY
RESUMED: MIRKO BIBIC
RESUMED: SERGE BABIN
RESUMED: MARGARET SANDERSON
RESUMED: PETER WATERS
Cross-examination by Primus (Cont'd) 936 / 6411
Cross-examination by Cybersurf 1006 / 6922
Cross-examination by Xittel 1060 / 7341
AFFIRMED: DALE HATFIELD 1109 / 7721
AFFIRMED: IAN PATTINSON
AFFIRMED: DAVID WATT
AFFIRMED: SUZANNE BLACKWELL
AFFIRMED: ROGER WARE
Examination-in-chief by Rogers 1109 / 7726
Cross-examination by The Competition Bureau 1111 / 7740
Cross-examination by The Companies 1171 / 8137
- v -
EXHIBITS / PIÈCES JUSTIFICATIVES
No. PAGE / PARA
PRIMUS-4 Bell Tariff CRTC 75-16 985 / 6750
XITTEL-1 Bell Canada document dated 1067 / 7388
July 5, 2007
XITTEL-1 Bell Canada document dated 1067 / 7389
October 18, 2007
BUREAU-2 Rogers' submissions in TPRP 1160 / 8076
proceeding
COMPANIES-2 Excerpt of FCC Decision 1188 / 8260
COMPANIES-3 Appendix "J", FCC Decision, 1221 / 8522
Order on Remand, adopted
December 15, 2004
COMPANIES-4 Appendix "L", Telecom Decision 1221 / 8522
CRTC 2007-35
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon resuming on Friday, October 12, 2007
at 0832 / L'audience reprend le vendredi
12 octobre 2007 à 0832
RESUMED: SALVATORE IACONO
RESUMED: WILLIAM TAYLOR
RESUMED: PAUL ANDERSON
RESUMED: DENIS HENRY
RESUMED: MIRKO BIBIC
RESUMED: SERGE BATIN
RESUMED: MARGARET SANDERSON
RESUMED: PETER WATERS
LISTNUM 1 \l 1 \s 64086408 THE CHAIRPERSON: Good morning.
LISTNUM 1 \l 16409 Mr. Ruby, you will then first try to pick up where you left off yesterday.
LISTNUM 1 \l 16410 MR. RUBY: Thank you, Mr. Chairman.
EXAMINATION (CONT'D) / INTERROGATOIRE (SUITE)
LISTNUM 1 \l 16411 MR. RUBY: Panel, you will recall that where we left off yesterday we were looking at page 56 of Bell's March 15 evidence, the first sentence of paragraph 110.
LISTNUM 1 \l 16412 We had been talking about the continuing availability of ILEC retail services on a resale basis is a factor that must be considered by the Commission and I think we adequately covered the ILECs' views of resale in the future.
LISTNUM 1 \l 16413 I take it, Mr. Bibic, that you would agree with me that another important factor in determining essentiality in the residential market is the availability of cable retail access services on a resale basis, so the flip side.
LISTNUM 1 \l 16414 You say we are going to do wholesale essentially. Will you agree with me that the cable companies also doing wholesale is an important factor in determining essentiality?
LISTNUM 1 \l 16415 MR. BIBIC: We say it is a factor that you would look at to determine the state of competition downstream. Remember, that is the first screen of our test.
LISTNUM 1 \l 16416 If the Commission determines that there is a significant market power downstream or is concerned, generally, without making a finding of significant market power such that it wishes to go to the other elements of the test, then we get into the but for now system, duplicability, and don't think that resale plays a role in those aspects, those prongs of our test.
LISTNUM 1 \l 16417 MR. RUBY: I am only asking because you say that your, that is the ILECs', provision of retail services, effectively a wholesale service, is a factor that this Commission should consider.
LISTNUM 1 \l 16418 I just want to know if you feel the same about the cable companies, that in order to make this work, they have to also provide wholesale services.
LISTNUM 1 \l 16419 MR. BIBIC: No. The fact that they do may make the upstream market competitive. It may also add to competition downstream. If a service is not essential, I don't think it is essential for the incumbents or from the incumbent's point of view or the cable point of view.
LISTNUM 1 \l 16420 MR. RUBY: I have to admit you have confused me then. Then why is it a factor at all?
LISTNUM 1 \l 16421 MR. BIBIC: I think we covered that yesterday, Mr. Ruby, and the day before.
LISTNUM 1 \l 16422 It is, again, the Indian head example. There are resale opportunities there for others to come in and compete in the downstream market. You can't ignore that fact is what we are saying. It is a factor.
LISTNUM 1 \l 16423 We are not linking it specifically to any specific element of our three‑part essential facilities definition but it exists and will continue to exist and it is therefore a factor that can't be ignored.
LISTNUM 1 \l 16424 MR. RUBY: Okay. But you think you can ignore the cable side of it?
LISTNUM 1 \l 16425 MR. BIBIC: I didn't say that. I said to the extent that cable is providing wholesale services or third parties can resale cable services ‑‑ and when I say cable, I mean services offered over a cable platform ‑‑ then obviously, that is a factor you look at ‑‑
LISTNUM 1 \l 16426 MR. RUBY: Okay.
LISTNUM 1 \l 16427 MR. BIBIC: ‑‑ and that may speak to more vigorous competition downstream ‑‑
LISTNUM 1 \l 16428 MR. RUBY: All right.
LISTNUM 1 \l 16429 MR. BIBIC: ‑‑ and even makes the point stronger that there are no essential facilities.
LISTNUM 1 \l 16430 MR. RUBY: All right, thank you.
LISTNUM 1 \l 16431 I can't remember if we handed out my compendium yesterday. I don't think we got to it, so perhaps ‑‑ these are all pre‑filed materials, Mr. Chairman.
‑‑‑ Pause
LISTNUM 1 \l 16432 MR. RUBY: If you can turn to Tab 12, please. This is Companies/Primus 12 April, number 7.
LISTNUM 1 \l 16433 THE CHAIRPERSON: Which tab are you on?
LISTNUM 1 \l 16434 MR. RUBY: Tab number 12, sir.
LISTNUM 1 \l 16435 THE CHAIRPERSON: Thank you.
‑‑‑ Pause
LISTNUM 1 \l 16436 MR. RUBY: All right, if everybody has it, I would like to focus on question (b) where Bell was asked to essentially provide in a way its opening position with respect to the services that are on the Category 1 or 2 lists and now according to Bell's test for essentiality it feels would not be, and the answer was:
"The Companies' opening position..." (As read)
LISTNUM 1 \l 16437 This is at (b) at the bottom:
"The Companies' opening position regarding prices for those services subject to negotiation has not been determined." (As read)
LISTNUM 1 \l 16438 And you go on to list a bunch of factors.
LISTNUM 1 \l 16439 Mr. Anderson, maybe I should put this to you since you are on the wholesale side, as I understand it.
LISTNUM 1 \l 16440 I gather what you are telling me is sitting here today you can't tell me, for example, what Bell will charge for a local loop in Ottawa, for example, to my client Globility that is a CLEC, if you get what you want and it is not listed as an essential service; is that right?
LISTNUM 1 \l 16441 MR. ANDERSON: First of all, good morning, Mr. Ruby.
LISTNUM 1 \l 16442 MR. RUBY: Good morning.
LISTNUM 1 \l 16443 MR. ANDERSON: Absolutely, as we discussed yesterday, our approach is to sit down, two parties sit down and negotiate an arrangement based on your requirements and move forward from there.
LISTNUM 1 \l 16444 MR. RUBY: Okay. I am just trying to get an idea of, frankly, how much to expect prices for something like an unbundled loop will go up if your handcuffs come off. I am just looking for some help with this.
LISTNUM 1 \l 16445 So for example, you know how many unbundled local loops Globility has in Ottawa, right? So you know the volume they consume at the moment, right?
LISTNUM 1 \l 16446 MR. ANDERSON: I don't know personally but that is easy to find out.
LISTNUM 1 \l 16447 MR. RUBY: But Bell would know?
LISTNUM 1 \l 16448 MR. ANDERSON: Absolutely.
LISTNUM 1 \l 16449 MR. RUBY: Right. And you know their payment history, right?
LISTNUM 1 \l 16450 MR. ANDERSON: Absolutely, we would know that.
LISTNUM 1 \l 16451 MR. RUBY: You know the relationship that you have with them, so you know all those sort of soft factors that go into making a deal, right?
LISTNUM 1 \l 16452 MR. ANDERSON: Sure.
LISTNUM 1 \l 16453 MR. RUBY: Okay. So can't you give me some guidance? Are you going to increase prices on unbundled local loops 10 percent, 100 percent, 200 percent? Can you give the Commission a feel for what the intention is here?
LISTNUM 1 \l 16454 MR. ANDERSON: Well, I think what you have to look at is that each customer situation is different.
LISTNUM 1 \l 16455 MR. RUBY: Okay.
LISTNUM 1 \l 16456 MR. ANDERSON: For example, with Globility/Primus we have ‑‑ obviously, we do a lot of business with you as a customer, an important customer. There are a number of different factors that we talk about every single day and depending on what you were looking for, depending on what your requirements were, depending on the broader scope of the business that we do with you, then that would dictate in terms of where we would land on a price.
LISTNUM 1 \l 16457 MR. RUBY: Okay.
LISTNUM 1 \l 16458 MR. ANDERSON: You know, would it go up, would it go down? I don't believe that we are in a position right now ‑‑ depending on the individual circumstances, I don't believe that we can articulate that at this point.
LISTNUM 1 \l 16459 MR. RUBY: That's why I'm asking you about this one company that you already deal with. So you would know all the factors that you just talked about.
LISTNUM 1 \l 16460 has this not been thought through, sort of where prices are going to go in the key unbundled local loop service?
LISTNUM 1 \l 16461 MR. ANDERSON: I think the other factor involved here is we have to have a full understanding of what your future business is. I can tell you exactly what we do today, no problem, but what I don't completely understand is perhaps where the future is going.
LISTNUM 1 \l 16462 MR. RUBY: All right.
LISTNUM 1 \l 16463 MR. ANDERSON: I know in fact Bell and Primus executives are meeting today to talk about a number of different items. We meet regularly.
LISTNUM 1 \l 16464 MR. RUBY: Right.
LISTNUM 1 \l 16465 MR. ANDERSON: So those are the kinds of dialogues, that is the kind of environment ‑‑ frankly, that is the kind of relationship that we want to try and foster so that we can work through these kinds of arrangements.
LISTNUM 1 \l 16466 MR. RUBY: All right. But sitting here today knowing what you know about the present ‑‑ I'm not asking you to speculate ‑‑ I gather from your answer that you just can't help the Commission today on this point.
LISTNUM 1 \l 16467 MR. ANDERSON: I'm being as helpful as I can. At this point we don't have clear‑cut prices on every single product.
LISTNUM 1 \l 16468 THE CHAIRPERSON: Just a second. You keep saying all the time that the present regime is a disincentive for you to invest, which presumably means either to build them for your own but also that on resale you don't get returns that you would expect.
LISTNUM 1 \l 16469 So presumably if the mandating terminates we can assume that prices will rise.
LISTNUM 1 \l 16470 MR. ANDERSON: I'm sorry, we can assume that prices will rise?
LISTNUM 1 \l 16471 THE CHAIRPERSON: Yes. If not, correct me. If it's right now a disincentive to invest even only partially because the returns that you are on from mandated services are not sufficient. So wouldn't it then follow the logical corollary that there at least will be some increases in prices? The size of the increase may be subject to individual negotiations.
LISTNUM 1 \l 16472 MR. IACONO: Mr. Chairman, if I may offer a comment to your question, I think it is a very, very good question.
LISTNUM 1 \l 16473 One of the things that we need to consider here is, for example, today the way the pricing is structured ‑‑ and this is a general comment not just in relation to unbundled loops, but the way pricing is structured, if you are a wholesale customer buying one loop you pay whatever the tariff price is. If you are buying 10,000 loops you are paying the same per unit price.
LISTNUM 1 \l 16474 An environment that we are looking towards it seems to me only sort of normal and natural that a market would allow for pricing based on volume differentials. So it is not inconceivable that for some very large buyers of unbundled local loops today, it is not inconceivable that the price might get more advantageous with certain other elements.
LISTNUM 1 \l 16475 You know, contract terms, today you buy a loop, there is no contract term, there is no volume discount, et cetera, et cetera. So it's really difficult to generalize, but I would think that the same kind of pricing principles would apply for those services going forward as the pricing is structured today for retail services volume and contract and term, and so on.
LISTNUM 1 \l 16476 MR. TAYLOR: If I could toss in on other idea, I think, Mr. Chairman, your suggestion goes to what the supply curve looks like. It will be unconstrained, but remember that the price that ends up here between Primus and Bell is determined by the intersection of the supply and demand curve and we don't know what Primus is willing to pay and how many loops they would buy at a given price. That is also going to come into effect in determining what the price is going to be.
LISTNUM 1 \l 16477 THE CHAIRPERSON: Back to you, Mr. Ruby.
LISTNUM 1 \l 16478 MR. RUBY: Thank you, Mr. Chairman.
LISTNUM 1 \l 16479 Just to follow up, Dr. Taylor, on something you said, Mr. Anderson, when you negotiate with a customer, Mr. Iacono, they don't tell you their plan. Right? The two sides never know what each other are thinking in these negotiations. Right?
LISTNUM 1 \l 16480 MR. ANDERSON: I think it's all a matter of detail. I think in any relationship where you are sitting down and negotiating arrangements, I think good practice is to ask as much as you can about what the customer direction is, where they are headed, what their plans are, to the extent that they can share. Because how else can you put together a recommendation or a solution or whatever the point of discussion is?
LISTNUM 1 \l 16481 MR. RUBY: I couldn't agree more, which is why I asked you just about your opening position, not the end of the negotiations, what the price list will say.
LISTNUM 1 \l 16482 But I have your answer I guess, as best as you can give the Commission.
LISTNUM 1 \l 16483 MR. IACONO: Mr. Ruby, there are two sides there. One is ‑‑ actually, let me just cut to the chase.
LISTNUM 1 \l 16484 There is more to a good deal than price alone, there are all types of other factors, there is service, there are service levels, and so on.
LISTNUM 1 \l 16485 So it's really hard to generalize in any broad way.
LISTNUM 1 \l 16486 MR. RUBY: I appreciate that. I don't want to debate this point with you. That is why I asked you today, knowing everything you know about Globility ‑‑ because you know all the facts that you are ever going to know in a negotiation ‑‑ and you can't give me an answer and I'm happy to move on.
LISTNUM 1 \l 16487 MR. IACONO: Again, I personally don't know the facts because I am not involved in carrier services, but your point is a broad one so I would like to address it.
LISTNUM 1 \l 16488 THE CHAIRPERSON: Mr. Iacono, if he wants to move on, it's his privilege.
LISTNUM 1 \l 16489 MR. IACONO: All right.
LISTNUM 1 \l 16490 THE CHAIRPERSON: He is asking the questions, so let's move on.
LISTNUM 1 \l 16491 MR. RUBY: Thank you, Mr. Chairman.
LISTNUM 1 \l 16492 Of course, while we are debating this my computer decided to turn itself off, so with your indulgence for a moment ...
‑‑‑ Pause
LISTNUM 1 \l 16493 MR. RUBY: I will give you a chance, Mr. Iacono, since you wanted to jump in here.
LISTNUM 1 \l 16494 Do you recall Mr. Hariton from the Bureau mentioning new residential construction? I think he called it Greenfields.
LISTNUM 1 \l 16495 Do you remember that from the first day of the hearing?
LISTNUM 1 \l 16496 MR. IACONO: Yes.
LISTNUM 1 \l 16497 MR. RUBY: All right. I would like to explore a little bit that Greenfields competition.
LISTNUM 1 \l 16498 First of all, just so we are all using the same term, Greenfields, is it fair to say, are things like new subdivisions where there are, well, no houses, never mind no competitors.
LISTNUM 1 \l 16499 Right?
LISTNUM 1 \l 16500 MR. IACONO: That's my understanding, yes.
LISTNUM 1 \l 16501 MR. RUBY: All right. Can you, please turn ‑‑ I will have to ask the Hearing Secretary, please, to hand out Rogers/Primus 12 April No. 14, please.
LISTNUM 1 \l 16502 MR. BIBIC: Mr. Ruby, is it in your compendium?
LISTNUM 1 \l 16503 MR. RUBY: It is not in the book. You will be glad to hear, Mr. Chairman, that I will probably not use most of the tabs in the book, that material has been covered by others before me, but I have a few additional things.
‑‑‑ Pause
LISTNUM 1 \l 16504 MR. RUBY: If I can focus on 14(c), please, about two‑thirds of the way down the page, the question was to describe new residential housing developments, and so on. It's the Greenfields question.
LISTNUM 1 \l 16505 The answer was:
"In general the developer/builder pre‑buys services from Rogers for a set period of time and then in turn offers the package of services that it has purchased from Rogers to a new home buyer as a free option for the set period of time." (As read)
LISTNUM 1 \l 16506 First of all, Mr. Iacono, are you the right person I should be asking questions about this?
LISTNUM 1 \l 16507 MR. IACONO: It depends on your question.
LISTNUM 1 \l 16508 MR. RUBY: All right. Dealing with Greenfields development and retail offerings and building new construction, is that a mix? I just want to make sure.
LISTNUM 1 \l 16509 MR. BIBIC: It would be a mix between Iacono and myself and maybe Mr. Babin.
LISTNUM 1 \l 16510 MR. RUBY: All right. Fair enough.
LISTNUM 1 \l 16511 So is the idea here that what happens sometimes with these Greenfields developments, the subdivisions, is that Rogers comes in ‑‑ just to pick one cable company ‑‑ and makes an offer to the developer or the builder to pre‑buy services from Rogers. So here is a package of high‑speed internet, video and telephone for a set period of time, maybe a year, and then the home builder takes that package, incorporates it into the price of a house and that goes to the ultimate homeowner.
LISTNUM 1 \l 16512 Is that the situation you face?
LISTNUM 1 \l 16513 MR. BIBIC: Without speaking to the specifics ‑‑ you can ask Rogers ‑‑ that is my general understanding.
LISTNUM 1 \l 16514 MR. RUBY: All right. Well, this is their answer, that's why I put it to you. So it's not ‑‑
LISTNUM 1 \l 16515 MR. BIBIC: And that was my general understanding before this answer and it is confirmed here.
LISTNUM 1 \l 16516 MR. RUBY: All right. Terrific.
LISTNUM 1 \l 16517 If you can then turn up, please ‑‑ again, Madam Secretary, if you could hand this out ‑‑ Bell Canada/Rogers 12 April 46.
LISTNUM 1 \l 16518 Rogers seemed to have tried to deal with the same subject with Bell Canada so let's see if we can put the two answers together.
‑‑‑ Pause
LISTNUM 1 \l 16519 MR. RUBY: You will see sort of at the (a) and (b) at the bottom of page 1 Bell Canada starts to say it performs the business case analysis, sort of the general answers we have been hearing a lot of.
LISTNUM 1 \l 16520 Then there is all kinds of information that, at least in the copy I have, has been redacted, all the key details.
LISTNUM 1 \l 16521 Then in the last sentence before part (c) ‑‑ this is on page 2 ‑‑ it says:
"In some cases, where the developer has signed an exclusive marketing arrangement with the service provider..."
‑‑ and that would be, just to pause there, Mr. Bibic, the prebuy type arrangement we just talked about or some other kind of exclusive marketing arrangement?
LISTNUM 1 \l 16522 MR. BIBIC: It could be a prebuy, not necessarily a prebuy.
LISTNUM 1 \l 16523 MR. RUBY: That's one of the types?
LISTNUM 1 \l 16524 MR. BIBIC: Yes.
LISTNUM 1 \l 16525 MR. RUBY: All right. So that where there's been an exclusive marketing arrangement with the service provider:
"...the penetration rates required to have a positive business case cannot be achieved, and, consequently, Bell has elected not to install its facilities to serve these subdivisions or buildings in circumstances where its obligation to serve, under the Bell Canada Act, is not applicable." (As read)
LISTNUM 1 \l 16526 Let's just deal very briefly with that last bit about the Bell Canada Act. I gather your
position is if you are further than, I think it's 66 or 67 metres from an existing line, you have no obligation to serve, right, something like that?
LISTNUM 1 \l 16527 MR. BIBIC: Yes, 62 or 65 metres.
LISTNUM 1 \l 16528 MR. RUBY: Okay, thank you. Whatever it is in the act, that's fine.
LISTNUM 1 \l 16529 So what we are to take from this is that, if Rogers makes a prebuy deal, as an example of an exclusive marketing arrangement with a developer, in that development there is not going to be two wires to the home, there's going to be just one, the Rogers' wire, right? You don't build.
LISTNUM 1 \l 16530 MR. BIBIC: In some cases.
LISTNUM 1 \l 16531 MR. RUBY: In some cases, okay.
LISTNUM 1 \l 16532 I'm just trying to figure out. That means that, from a wireline perspective, the duopoly actually becomes a monopoly again, right?
LISTNUM 1 \l 16533 MR. BIBIC: There will be one wire to the home.
LISTNUM 1 \l 16534 MR. RUBY: Right. Do you think it's fair to say that, if the economics of residential access are such that Bell won't build because of a competitor's marketing agreement, there's nobody else who's going to build another wire into a residential development?
LISTNUM 1 \l 16535 MR. BIBIC: Well, it depends on ‑‑ for now we won't build, but you never know how things go. Customers have ‑‑
LISTNUM 1 \l 16536 MR. RUBY: So you might build after the streets have been closed and the houses have gone up and...?
LISTNUM 1 \l 16537 MR. BIBIC: Or we might find a different way to get to the customer.
LISTNUM 1 \l 16538 MR. RUBY: Wireless.
LISTNUM 1 \l 16539 MR. BIBIC: The point is we make our business decision ‑‑
LISTNUM 1 \l 16540 MR. RUBY: Okay.
LISTNUM 1 \l 16541 MR. BIBIC: ‑‑ and, based on our business case, in some cases where we feel, because of these exclusive marketing arrangements, there's no point to lay down the wire right away doesn't mean that we are giving up on that area. We will find ways to compete. Basically, we don't have much of a choice.
LISTNUM 1 \l 16542 MR. TAYLOR: Mr. Ruby, think of it in two stages. There's competition for the residential centre at the beginning, and Bell and Rogers and whoever else competes to get the contract, and then when you are under the contract there is only one wire, I grant you, but customers in that subdivision are still protected in the sense that if Rogers, at the end of the contract, or whatever the deal is, says, "They have got one wire, I can raise price", no, because Bell can always come back in.
LISTNUM 1 \l 16543 I mean, Bell decides that at the current price it's not feasible to build a wire, but how about at a higher price. That's a different economic circumstance.
LISTNUM 1 \l 16544 MR. RUBY: All right, I understand. You are saying, despite the fact that your previous evidence was that rebuilding new facilities is hugely more expensive, I take it as. It's much more expensive to go in later than it is when construction, joint trenching is going on, all that good stuff, right?
LISTNUM 1 \l 16545 MR. TAYLOR: Oh, I agree. That's the cost side.
LISTNUM 1 \l 16546 MR. RUBY: All right.
LISTNUM 1 \l 16547 MR. TAYLOR: But the revenue side would be different if Rogers decided to exert significant market power.
LISTNUM 1 \l 16548 MR. RUBY: All right. Thank you, Dr. Taylor.
LISTNUM 1 \l 16549 MR. BIBIC: Mr. Ruby, I'm also advised that we do say "in some cases". In some cases we haven't, in many other cases we do build. And we do have a group that deals with developers, where we actively try to get the contract that ‑‑ in this situation, you have posited to us, Rogers has happened to earn the contract.
LISTNUM 1 \l 16550 MR. RUBY: Right. So sometimes you try to be the only one there, is that right?
LISTNUM 1 \l 16551 MR. BIBIC: No. Sometimes we just want access, so we try to negotiate access.
LISTNUM 1 \l 16552 MR. RUBY: Right. Do you try and get marketing arrangements with developers?
LISTNUM 1 \l 16553 MR. BIBIC: Nope.
LISTNUM 1 \l 16554 MR. RUBY: All right. It just seems like an awful fragile vision of competition, but let's move on.
LISTNUM 1 \l 16555 Let's change the subject a little bit and talk about traffic now moving from a central office to elsewhere in the network, okay? So we are not talking about residential access to the customer more, we are starting at the next step, central office back into the network. Are you with me?
LISTNUM 1 \l 16556 MR. BABIN: Who's? Our central office?
LISTNUM 1 \l 16557 MR. RUBY: Your central office.
LISTNUM 1 \l 16558 MR. BABIN: Okay.
LISTNUM 1 \l 16559 MR. RUBY: Okay?
LISTNUM 1 \l 16560 MR. BABIN: I'm with you.
LISTNUM 1 \l 16561 MR. RUBY: Now, I won't take you to it unless it's necessary, but I gather that Bell's position is that CLECs cannot aggregate traffic in a central office or traffic ‑‑
LISTNUM 1 \l 16562 MR. BABIN: My understanding is they can.
LISTNUM 1 \l 16563 MR. RUBY: Let me finish the question, then I'm happy to take your answer.
LISTNUM 1 \l 16564 That you can't aggregate traffic in a central office or coming out of a wire centre unless the CLEC meets the primary purpose rule. Right?
LISTNUM 1 \l 16565 MR. BABIN: That is correct.
LISTNUM 1 \l 16566 MR. RUBY: Just to make sure we are all on the same page, why don't you explain what the primary purpose rule is.
LISTNUM 1 \l 16567 MR. ANDERSON: So the primary purpose rule is, first of all, you need to be a collocator, in other words you have colloed in the central office, and so the traffic ‑‑ so the primary purpose of a collo is to connect to the local circuits, right, the loops or, if you are a DSL provider, the DSL. So once you have got that location, then you need to take that traffic somewhere else, typically back to a point of presence.
LISTNUM 1 \l 16568 So, really, there are three options. Number one, you can build your own fibre, which many of the collocators do; secondly, you can lease CDN from Bell Canada, which many do; or, alternatively, you can use another collocator that has fibre if you don't have fibre. So it's just using the other ‑‑ taking advantage of the other collocator.
LISTNUM 1 \l 16569 So what the primary purpose rule says is that, and I will try and make this as ‑‑ you might have trouble explaining it, but, basically, it says that most of the traffic ‑‑ and this is in the tariff ‑‑ most of the traffic has to be Bell originating. So, in other words, you can't just simply collocate them, move all your traffic out through another collocator. I think that's essentially it.
LISTNUM 1 \l 16570 MR. RUBY: So if we can take a minute and just explore some of the consequences of the physical idea that there's a collocator in a central office and this primary purpose rule that you have drawn our attention to, does that mean ‑‑ or I take it that it means that a third party, so somebody who built fibre but is not a collocator, cannot act as the conduit to take traffic from a CLEC out of a central office?
LISTNUM 1 \l 16571 MR. BIBIC: This was a rule that was ‑‑ it's in a tariff approved by the Commission and it stems from the view back in 1997‑15, in the collocation decision ‑‑
LISTNUM 1 \l 16572 MR. RUBY: Mr. Bibic, I'm sure the Commission's familiar with the rule. I want to know about the consequences of the rule in the real world.
LISTNUM 1 \l 16573 MR. BIBIC: Then, it's correct.
LISTNUM 1 \l 16574 MR. RUBY: Okay, thank you. See isn't that easy. Okay.
LISTNUM 1 \l 16575 So second, if you have got a collocator ‑‑ or two or three of them and they want to aggregate their traffic to try and get it out of your central office, the primary purpose rule could prevent that, right?
LISTNUM 1 \l 16576 MR. BIBIC: It might not.
LISTNUM 1 \l 16577 MR. RUBY: It might not, but let's say there are three collocators in an office, they each have an equal amount of traffic, they want to put their traffic together on a single line and send it out because that's more efficient, the primary purpose rule would prevent that from happening, right?
LISTNUM 1 \l 16578 MR. BIBIC: I think the primary purpose rule would state that the party who owns the fibre, at least 50 percent of the capacity travelling over that fibre must be traffic of the party who owns the fibre. So the other 49 percent, it could aggregate traffic from others.
LISTNUM 1 \l 16579 MR. RUBY: Okay. Well, let's try this again. I don't want to end up where Mr. Engelhart was with the numbers, but let me try and see if I can do this briefly.
LISTNUM 1 \l 16580 THE CHAIRPERSON: Before you do that, is the primary purpose rule part of these proceedings?
LISTNUM 1 \l 16581 MR. RUBY: Pardon me?
LISTNUM 1 \l 16582 THE CHAIRPERSON: Is the primary purpose rule part of these proceedings?
LISTNUM 1 \l 16583 MR. RUBY: The consequence of the primary purpose rule, sir, is that ‑‑
LISTNUM 1 \l 16584 THE CHAIRPERSON: Oh, I understand the consequence, you are just laying it out. I have just asked you very specific question. Is it part of these proceedings? I thought we were looking at mandated services.
LISTNUM 1 \l 16585 MR. RUBY: We are, sir. I am not questioning the primary purpose rule, but my submission will be, in final argument, that because of the primary purpose rule and the essentiality findings that Bell is proposing to you, we are going to have a massive number of circuits required to do what they say should be done. So we are going to end up with inefficient transitting network.
LISTNUM 1 \l 16586 THE CHAIRPERSON: You are saying if we adopt Bell's proposal, then, because of the primary purpose rule, it will result in inefficient traffic?
LISTNUM 1 \l 16587 MR. RUBY: That's one of the parts that will lead to that consequence.
LISTNUM 1 \l 16588 THE CHAIRPERSON: Okay, continue.
LISTNUM 1 \l 16589 MR. RUBY: Thank you, sir.
LISTNUM 1 \l 16590 So let's just keep this really simple. If you have CLEC A that has 33 units of traffic, CLEC B has 33 units of traffic and CLEC C has 33 units of traffic in an ILEC, or let us make it easier, a Bell central office, right ‑‑
LISTNUM 1 \l 16591 MR. BIBIC: Are they all co‑located?
LISTNUM 1 \l 16592 MR. RUBY: And they are all co‑located. We could not have one circuit coming out of your end office carrying all three of those co‑located CLECs full traffic, right? Because no one of them would be over 50 per cent, right?
LISTNUM 1 \l 16593 MR. BIBIC: That is correct. Some of that traffic could be aggregated and some couldn't. And the basic point is that purpose of co‑location wasn't to turn our central offices into carrier hotels, but there are options.
LISTNUM 1 \l 16594 MR. RUBY: Right, one of which is to get a circuit from Bell, right, at CDN?
LISTNUM 1 \l 16595 MR. BIBIC: Yes, at CDN rates today or build.
LISTNUM 1 \l 16596 MR. RUBY: Or build.
LISTNUM 1 \l 16597 MR. BIBIC: Or there might be CLEC D that would be willing to take that traffic.
LISTNUM 1 \l 16598 MR. RUBY: Right, right. So we have got to do a lot of building there to match‑up all of the exits from all of the COs?
LISTNUM 1 \l 16599 MR. BIBIC: No, it might already be there.
LISTNUM 1 \l 16600 MR. RUBY: Sorry?
LISTNUM 1 \l 16601 MR. BIBIC: There might be a fourth co‑locator there.
LISTNUM 1 \l 16602 MR. RUBY: There might be a fourth co‑locator there who couldn't aggregate the traffic either, right, because now you are down to 25 per cent shares?
LISTNUM 1 \l 16603 MR. BIBIC: No, it could, at least half of the traffic that it carries has to be its own, 49 per cent can be others.
LISTNUM 1 \l 16604 MR. RUBY: I see. If we have got one relatively large one it can carry some of other traffic, right?
LISTNUM 1 \l 16605 MR. BIBIC: As long as 51 per cent is its own traffic.
LISTNUM 1 \l 16606 MR. RUBY: All right, thank you. I understand your position.
LISTNUM 1 \l 16607 Can you turn up please, in my compendium, tab 9? And if I could take you to the second page. This is a question dealing with CDN and it is Companies Bureau, 12‑April No. 35.
LISTNUM 1 \l 16608 Now, you say in the first full ‑‑
LISTNUM 1 \l 16609 COMMISSIONER del VAL: Mr. Ruby, I am sorry, I didn't get the reference here, sorry.
LISTNUM 1 \l 16610 MR. RUBY: Oh sorry, pardon me. Well, first of all, tab 9 of my compendium, it is Companies Bureau, 12‑April‑07 No. 35, and page 2 please, the second paragraph that starts, "Furthermore."
"Further more, The Companies note that CDN service is a relatively insignificant input in the residential and business retail markets for toll services. Since CDN services are not available between metropolitan areas, even more telling is the fact that the Commission granted retail toll and internet forbearance before CDN services were even created. Thus, The Companies submit that the state of competition in the residential retail markets would not be impacted if CDN were no longer to be mandated." (As Read)
LISTNUM 1 \l 16611 Okay, let us take a minute and unpack this a bit, because you are talking about, in one paragraph, toll and local and internet. So let us start with toll if we can.
LISTNUM 1 \l 16612 First of all, I think we can all agree that CDN is not available between metropolitan areas, right, that is the key to toll, is between metro areas, right? And that is what it says, I am just trying this as a starting point.
LISTNUM 1 \l 16613 MR. BIBIC: Yes.
LISTNUM 1 \l 16614 MR. RUBY: Okay. But the CDN circuits that bring the traffic to the point where it is then sent out of a metropolitan area or I should say those circuits, those could be CDN, right?
LISTNUM 1 \l 16615 MR. BIBIC: Would you repeat that?
LISTNUM 1 \l 16616 MR. RUBY: Okay, let me try that again.
LISTNUM 1 \l 16617 Before you send traffic between Toronto and Ottawa you bring it to a central point and then you send it long haul, right, that is the way it works?
LISTNUM 1 \l 16618 MR. BIBIC: Yes.
LISTNUM 1 \l 16619 MR. RUBY: Okay. The circuits that bring it to a central point in Ottawa, for example, those can be CDN circuits, right, it is the long haul inter‑city stuff that is not CDN, right?
LISTNUM 1 \l 16620 MR. BIBIC: Yes.
LISTNUM 1 \l 16621 MR. RUBY: Okay. And also, CDN allow CLECs to move traffic between your central office and a CLEC POP or switch, right?
LISTNUM 1 \l 16622 MR. BIBIC: Yes.
LISTNUM 1 \l 16623 MR. RUBY: And you need one circuit to do that for each central office, usually a DS‑3 or an OC‑3, right?
LISTNUM 1 \l 16624 MR. BIBIC: Yes.
LISTNUM 1 \l 16625 MR. RUBY: Okay. So isn't this sort of an example of the steppingstone theory possibility, that once a CLEC accumulates sufficient traffic on these pieces coming out of the CO sufficient traffic and revenue gets amassed to justify a new facility, that is when the CLEC, the new entrant, can build the new facility and enjoy the benefits of increased control that you have talked about is important in having your own facilities. It is the way it works, isn't it?
LISTNUM 1 \l 16626 MR. BIBIC: It depends if the pricing of the CDN service is such that it provides an incentive to you to build even after you have amassed that traffic you are suggesting in your question.
LISTNUM 1 \l 16627 MR. RUBY: I understand. But the ability to do it, as opposed to the motivation, is that you can do it when enough traffic is available to come into that line to make it worth building, right? That is how you described how you work. You would expect at the residential transiting level it would work exactly the same way, right?
LISTNUM 1 \l 16628 MR. BIBIC: Well, one would look at whether or not there is enough traffic to justify the build or look at other options. There might be another supplier out there that is willing to give you an attractive price. Ultimately, those decisions are affected by the regulated prices of similar services from the incumbent.
LISTNUM 1 \l 16629 MR. RUBY: And I think you told us yesterday that building your own facilities from a controlled perspective is a good thing, it is what the companies generally want, right?
LISTNUM 1 \l 16630 MR. BIBIC: In the medium to long‑term, yes, that was my answer to the Chair's question, right.
LISTNUM 1 \l 16631 MR. RUBY: Then you would expect it would be the same for PRIMUS or Globility or anybody else who is in that space, right?
LISTNUM 1 \l 16632 MR. BIBIC: Right, and that is the way the market would work if it weren't otherwise distorted.
LISTNUM 1 \l 16633 MR. RUBY: All right. Let us talk about transition for a moment please. If you can again go back to my compendium. No, sorry, pardon me.
‑‑‑ Pause
LISTNUM 1 \l 16634 MR. RUBY: Pardon me, it is the compendium, tab 14 please. Companies CRTC, 12‑April No. 401. And I am going to ask you to look at both 401 and 403, which are under the same tab. They refer back and forth to each other, so we will take them together.
LISTNUM 1 \l 16635 And the Commission asked about Cogeco had proposed some objectives for transition and The Companies' answer was, in the middle of the page:
"The Companies support the objective that the transition period creates incentives for wholesale customers of regulated products to promptly negotiate new arrangements with the ILECs or encourage these competitors to build their own facilities quickly." (As Read)
LISTNUM 1 \l 16636 So I gather that one of the objectives of the transition period, according to The Companies, Mr. Bibic, is that everybody should have time to make alternative arrangements for facilities, right, that is one?
LISTNUM 1 \l 16637 MR. BIBIC: Correct.
LISTNUM 1 \l 16638 MR. RUBY: And the second is you have to have time to build alternative facilities, that is the bit at the end of that paragraph I just read?
LISTNUM 1 \l 16639 MR. BIBIC: Well, it actually says, "encourage these competitors to build their own facilities quickly," it doesn't necessarily mean that we are saying that all competitors need to build all facilities within a one‑year period of time of course.
LISTNUM 1 \l 16640 MR. RUBY: Okay. I mean, this isn't a shock, your answer. If you turn over the page to No. 403, there is another question from the Commission about exactly that:
"..support Bells underlying assumption that competitors can build facilities required in one year, including a discussion that identifies any facilities, services for which a one‑year transition period may not be appropriate." (As Read)
LISTNUM 1 \l 16641 Starting at the end, it is not really answered here, but I gather you think that there are no facilities that should have a more than one‑year transition period?
LISTNUM 1 \l 16642 MR. BIBIC: In our proposal, that is correct.
LISTNUM 1 \l 16643 MR. RUBY: You say:
"The Companies do not assume that competitors can or would build facilities during the one‑year transition period." (As read)
LISTNUM 1 \l 16644 I have to admit I have a hard time getting my head around this. We heard a discussion that it has taken Bell somewhere between 30 and 20 years to put in all that fibre, and you don't think that it can be done in a year; you have told us that. You have also told us that part of the reason for a transition is to have time to build some facilities.
LISTNUM 1 \l 16645 How much do you think is going to get built in a year?
LISTNUM 1 \l 16646 MR. BIBIC: Frankly, Mr. Ruby, I am not going to waste everyone's time commenting on your 20 to 30 years, so I will cut to the chase.
LISTNUM 1 \l 16647 Take Bell West. What we will do is we will sit down and we will say we have all these facilities that we are not using. We are going to migrate traffic over those facilities. In other cases we are going to sit down with Shaw, Big Pipe or TELUS, we will reach arrangements. In other cases we will sit down and we will say, let's re‑ignite the build program in the west, I suspect, or look at it, at least, and where it makes sense we will start building. It will be a mix of things.
LISTNUM 1 \l 16648 That is what we suspect everyone would do.
LISTNUM 1 \l 16649 MR. RUBY: So, not even for Bell West do you expect to get what you need built in a year?
LISTNUM 1 \l 16650 MR. BIBIC: Pardon me?
LISTNUM 1 \l 16651 MR. RUBY: Within a year, even for Bell West, you can't get built what you need in a year.
LISTNUM 1 \l 16652 MR. BIBIC: In some cases I am sure we can build some lateral connections in less than a year. In other cases, no. In other cases, we will use what we have. In other cases, I am sure Mr. Grieve over there and his colleagues will be happy to sell us services.
LISTNUM 1 \l 16653 MR. RUBY: We will ask Mr. Grieve how happy he will be about it.
LISTNUM 1 \l 16654 I take it, though, we can agree that certainly within the year nobody is going to be building a third wire line into homes in Canada. So, in the residential market, you don't expect any construction to take place?
LISTNUM 1 \l 16655 MR. BIBIC: Are you talking about access?
LISTNUM 1 \l 16656 MR. RUBY: Access. The wire from the central office or a cable head end, or whatever we call it, to the home.
LISTNUM 1 \l 16657 MR. BIBIC: Over time, technology may be such that providers will wirelessly connect to the home. In the meantime, again, there are options if you want access. We talk about out west in this particular case to the home and sit down with one of the two wire line providers and see what can be done.
LISTNUM 1 \l 16658 MR. RUBY: But I want to make this clear because this is important to my client.
LISTNUM 1 \l 16659 You have a transition period starting when the Commission makes its decision, let's say, roughly in six months. So, in 18 months we cannot expect collectively that there will be anybody who will have built on any significant basis residential access connections, and that is wireless, wire line, that is everything, right; that is not happening in the next 18 months?
LISTNUM 1 \l 16660 MR. BIBIC: Mr. Ruby, I don't think you and I disagree at all on this issue. I looked at your opening statement, and with respect to access you say:
"Wholesale regulation plays no role in innovation and investment decisions with respect to access." (As read)
LISTNUM 1 \l 16661 Wholesale regulation isn't causing people to build. You and I seem to agree it is great.
LISTNUM 1 \l 16662 MR. RUBY: Okay.
LISTNUM 1 \l 16663 MR. BIBIC: You also say:
"Only the advent of disruptive technologies leads to the construction of new access facilities, e.g. cable planned for telecom purposes." (As read)
LISTNUM 1 \l 16664 Again, you and I seem to agree, it is great. So, technology may change.
LISTNUM 1 \l 16665 At the end of the day, if we are a provider out west who wants to reach the residential home ‑‑ we happen not to be, but if we were ‑‑ well, maybe technology would allow us to or maybe it wouldn't. That would be for us to figure out.
LISTNUM 1 \l 16666 At the end of the day, from a policy perspective, the consumer is well served. They have the cable company; they have the incumbent out west; they have wireless; they have the resellers; the resellers can wholesale from the incumbents. There are lots of choice.
LISTNUM 1 \l 16667 Bell and Primus really seem to agree, based on your opening statement.
LISTNUM 1 \l 16668 MR. RUBY: All right. Well, I was happy to hear we agree. The rest of the speech I think I will just pass on and keep going.
LISTNUM 1 \l 16669 We have another document I would like you to turn to, please. It is Companies/Bureau 12 April, number 34. The Secretary is handing out copies.
LISTNUM 1 \l 16670 I would like to ask you about sub‑question (d) as in David.
LISTNUM 1 \l 16671 This is a question about interexchange carriers. The Bureau asked:
"If there is effective competition in the local exchange, is denial of interconnection of an IXC likely to result in a loss of consumer welfare? If so, why not?" (As read)
LISTNUM 1 \l 16672 And so on. And then asks:
"Does it matter if interconnection is for the purposes of termination or origination of traffic?" (As read)
LISTNUM 1 \l 16673 The answer you gave is:
"If there is effective competition in a local market, denial of IXC interconnection may not result in a loss of consumer welfare. Competition in the retail market may be unaffected because end customers generally obtain access to toll services through one of a number of competing integrated providers of local toll and service." (As read)
LISTNUM 1 \l 16674 Just so we understand, "competing integrated providers of local toll and service," those can only be ILECs and cable companies in the residential market. Right?
LISTNUM 1 \l 16675 I am asking ‑‑ who was responsible for this answer on your panel? I just want to make sure I ask the right person.
LISTNUM 1 \l 16676 MR. BIBIC: All of us.
LISTNUM 1 \l 16677 MR. RUBY: Okay. As I think you might have been called the Chairman of the panel, I will ask you, Mr. Bibic.
LISTNUM 1 \l 16678 So, "competing integrated providers of local and toll service," who is that code for?
LISTNUM 1 \l 16679 MR. BIBIC: Local exchange carriers and cable companies, I believe, who actually are local exchange carriers, CLECs, cable companies, ILECs.
LISTNUM 1 \l 16680 MR. RUBY: When you say "competing integrated providers," you are including CLECs?
LISTNUM 1 \l 16681 MR. BIBIC: Yes.
LISTNUM 1 \l 16682 MR. RUBY: Thank you. That clarifies it and I can move on.
LISTNUM 1 \l 16683 Ms Sanderson, I can't quite see you back there.
LISTNUM 1 \l 16684 MS SANDERSON: Yes.
LISTNUM 1 \l 16685 MR. RUBY: I have a very brief question for you.
LISTNUM 1 \l 16686 I seem to recall that yesterday you told Mr. Koch that CRA's analysis showed that, I think what you call EFC, end‑to‑end facilities‑based competition, leads to more broadband competition. Right?
LISTNUM 1 \l 16687 MS SANDERSON: Yes. That was one of the conclusions of our study. We have a number of conclusions from the study, but one of them was that the greater amount that you have of end‑to‑end facilities‑based competition, the greater broadband penetration you will get, and the effect of the end‑to‑end facilities‑based competition gives you greater broadband penetration and better pricing than if you rely on access‑based competition.
LISTNUM 1 \l 16688 MR. RUBY: Right. So one leads to the other was the gist of I think what I took from yesterday?
LISTNUM 1 \l 16689 MS SANDERSON: There are three hypotheses that we test in the study.
LISTNUM 1 \l 16690 MR. RUBY: I don't want to take you out of your materials. Can we turn up your report, and I have provided a copy of the page I want to refer to to the Secretary.
LISTNUM 1 \l 16691 This is the CRA report. It is page 2 of the report, pages 2 and 3. It is appendix 3 to Bell's March 15 evidence. While we are there, Madam Secretary, next I am going to go to page 21 of the same report, so maybe we can do them together.
LISTNUM 1 \l 16692 THE CHAIRPERSON: Don't we have the CRA report in front of us? Can't you just point us to the page?
LISTNUM 1 \l 16693 MR. RUBY: I can. If you have it in front of you, it is page 2.
LISTNUM 1 \l 16694 COMMISSIONER del VAL: Page 2 is the index.
LISTNUM 1 \l 16695 MR. RUBY: Sorry, it is page 8 at the top and page 2 at the bottom.
LISTNUM 1 \l 16696 THE CHAIRPERSON: Page 2 at the bottom, okay.
LISTNUM 1 \l 16697 COMMISSIONER del VAL: I think my numbering got renumbered.
LISTNUM 1 \l 16698 MR. RUBY: It is paragraph 10. How is that?
LISTNUM 1 \l 16699 COMMISSIONER del VAL: Thank you.
LISTNUM 1 \l 16700 THE CHAIRPERSON: Okay.
LISTNUM 1 \l 16701 MR. RUBY: These, Ms Sanderson, are the three hypotheses you just started to talk about?
LISTNUM 1 \l 16702 MS SANDERSON: Yes, they are.
LISTNUM 1 \l 16703 MR. RUBY: And 11 is your sort of summary conclusion, right?
"Our results on broadband concentration outcomes were clearly consistent with all three of these hypotheses." (As read)
LISTNUM 1 \l 16704 MS SANDERSON: Our results on broadband penetration, not concentration.
LISTNUM 1 \l 16705 MR. RUBY: Pardon me, I misspoke. Thank you for correcting me.
LISTNUM 1 \l 16706 If I can ask you to flip over to, you see there is a footnote 3, but footnote 3 actually appears on the next page, where it says:
"Note that our empirical work represents correlations rather than proof of causality." (As read)
LISTNUM 1 \l 16707 And then you go on to say but it supports what we are saying anyways. I take it that the CRA analysis, just to put this in a nutshell, does not prove that the level of wholesale regulation causes the level of end‑to‑end facilities‑based competition. That is what footnote 3 means. Right?
LISTNUM 1 \l 16708 MS SANDERSON: Even if one did a regression analysis, which we report in the study, other people's work in relation to regression analysis, there is this debate about sort of what causes what.
LISTNUM 1 \l 16709 Typically in economics, the way we think about these things is that when there is a very high correlation in the sense that we always find greater broadband penetration with more end‑to‑end facilities‑based competition or we tend to get lower prices on a performance‑adjusted basis when we have more end‑to‑end facilities competition, and if we control for other things that are happening ‑‑ differences in population density, differences in income, what actually is going on in the wholesale regulatory regime ‑‑ when we do all of that and we find this strong correlation, we, as economists, tend to think of it as causality or, in general terms, one causes the other.
LISTNUM 1 \l 16710 But from a pure statistical point of view, statisticians will think about it as a correlation.
LISTNUM 1 \l 16711 MR. RUBY: Thank you, Ms Sanderson.
LISTNUM 1 \l 16712 Only because you sort of talked about a number of other factors, I would just like to take you to one of them.
LISTNUM 1 \l 16713 One of your two key aspects of broadband you examined was price. Right?
LISTNUM 1 \l 16714 MS SANDERSON: Performance‑adjusted price.
LISTNUM 1 \l 16715 MR. RUBY: If we can flip to page 27 of the same report, which is 17 of 113, paragraph 69, I just want to take you to the first sentence, where you say:
"Broadband price is also a key outcome, but is less easily compared than penetration." (As read)
LISTNUM 1 \l 16716 Then you give a reason for that.
LISTNUM 1 \l 16717 I take it from your study, as far as I can see, in assessing price you included for Canada the effective pricing by non‑end‑to‑end facilities‑based competitors. Right? So the effect that companies like Primus' low prices affect the overall price in the market, that was taken into account in your study for Canada?
LISTNUM 1 \l 16718 MS SANDERSON: The price comparisons are actually not the average price across the market, but instead they are the prices that the ILEC is charging in each of the different countries on a per 100 kilobyte per second basis.
LISTNUM 1 \l 16719 To the extent obviously that there is competition in that market, so that Primus' prices and Rogers' prices and Vidéotron's prices and so on are affecting what the ILEC is charging, then that will be captured in the ILEC's price. The data that is in here is not an average price across all providers. It is a price for each ILEC in that territory.
LISTNUM 1 \l 16720 MR. RUBY: Thank you for that clarification. That is helpful.
LISTNUM 1 \l 16721 If I can ask you for one other clarification.
LISTNUM 1 \l 16722 I think you told Mr. Koch yesterday that countries with more competitors had higher penetration rates for broadband. Is that right?
LISTNUM 1 \l 16723 MS SANDERSON: We had three key findings.
LISTNUM 1 \l 16724 One was that the more end‑to‑end facilities‑based competition that you have, the greater your broadband penetration rates.
LISTNUM 1 \l 16725 The second conclusion was that when you then have both a lot of access‑based competition in addition to, so you have two things going on at once, you have end‑to‑end facilities‑based competition and you have access‑based competition through the wholesale regulatory regime, that the driver of either broadband penetration or the driver of low prices when you have both things going on is the end‑to‑end facilities‑based competition. That is a more important driver of those better market outcomes than the access.
LISTNUM 1 \l 16726 Then the last thing we concluded was that when you have a lot of end‑to‑end facilities‑based competition already and you add on top of that additional wholesale regulatory structures, you don't get a lot of additional benefits from adding that extra wholesale regulatory regime. Basically back to the main point that the thing that drives these better outcomes is the end‑to‑end facilities‑based competition.
LISTNUM 1 \l 16727 MR. RUBY: Thank you. I think your second point was actually the answer to my question.
LISTNUM 1 \l 16728 I take it, then, that all the competitors for your second point you are dealing with, those are retail competitors you are talking about?
LISTNUM 1 \l 16729 MS SANDERSON: These are end‑to‑end facilities‑based competitors, that is right, in retail broadband.
LISTNUM 1 \l 16730 MR. RUBY: Thank you.
LISTNUM 1 \l 16731 Mr. Bibic, maybe we can take a very few minutes and talk about Bell's position that access tandem connections are not essential. I have the position right. Right?
LISTNUM 1 \l 16732 MR. BIBIC: You will have to direct those questions to Mr. Henry.
LISTNUM 1 \l 16733 MR. RUBY: To?
LISTNUM 1 \l 16734 MR. BIBIC: Mr. Henry to my left.
LISTNUM 1 \l 16735 MR. RUBY: All right, Mr. Henry.
LISTNUM 1 \l 16736 MR. HENRY: Yes.
LISTNUM 1 \l 16737 MR. RUBY: Have I got the position right?
LISTNUM 1 \l 16738 MR. HENRY: Yes.
LISTNUM 1 \l 16739 MR. RUBY: Can you just take hopefully ten seconds and just make sure the Commission understands what an access tandem connection is.
LISTNUM 1 \l 16740 MR. HENRY: It is, in our view, transport from one switch to the local switch, or traffic that is destined from a long‑distance carrier to a local switch, for example, can be dropped off at an intermediate stage at an access tandem switch. So, it is the transport function to take it down to the local switch.
LISTNUM 1 \l 16741 Our view is that the mandated part of toll interconnection should really be at the local switch. Happy to have people connect at the higher level and the network, but that is transport.
LISTNUM 1 \l 16742 MR. RUBY: That is fine. I just wanted to make sure we were all on the page with which piece of technology we were talking about.
LISTNUM 1 \l 16743 So, let's focus on IXC origination connections as opposed to termination. All right, Mr. Henry?
LISTNUM 1 \l 16744 MR. HENRY: Okay.
LISTNUM 1 \l 16745 MR. RUBY: I take it you would agree with me that the routing of originating 800 or 888 calls is only done through an access tandem?
LISTNUM 1 \l 16746 MR. HENRY: Yes.
LISTNUM 1 \l 16747 MR. RUBY: Therefore, if we want to have competitive use of access tandems, so if a competitor, for whatever reason, because it was denied or the price was too high or whatever, couldn't use an access tandem, there would be no competitive 800 or 888 service. Do those two go together?
LISTNUM 1 \l 16748 If it helps you, Mr. Henry, I have provided to your counsel a few days ago a copy of Bell Tariff CRTC 75‑16. At item 40, sub (1), sub (d) ‑‑ and this would be an exhibit, Mr. Chairman ‑‑ that deals with this. So if that helps Mr. Henry answer the question, I am happy to have him look at it.
LISTNUM 1 \l 16749 THE SECRETARY: I note that exhibit to be Primus/Globility Exhibit No. 4.
LISTNUM 1 \l 16750 MR. RUBY: Thank you.
EXHIBIT PRIMUS‑4: Bell Tariff CRTC 75‑16
LISTNUM 1 \l 16751 MR. RUBY: So, the reference, Mr. Chairman, was item 40 ‑‑ this is the first page of the package ‑‑ 40(1)(d). It is the second to last bit on the first page. It talks about 800 calls and then says:
"This arrangement is available for AT connections only ..." (As read)
LISTNUM 1 \l 16752 MR. HENRY: I think the confusion is ‑‑ and I may have caused it ‑‑ I think we are saying for 800 it would be mandated for 800 service.
LISTNUM 1 \l 16753 MR. RUBY: Sorry, you think ‑‑ so, originating calls that are 800 calls could go through your access tandem on an essential basis, but no other type of call?
LISTNUM 1 \l 16754 MR. HENRY: On a mandated basis.
LISTNUM 1 \l 16755 It would be mandated interconnection, in the interconnection part of our ‑‑
LISTNUM 1 \l 16756 MR. RUBY: Could I ask you: Which one of the Commission's six buckets does that fit into?
LISTNUM 1 \l 16757 MR. BIBIC: What is the "it"?
LISTNUM 1 \l 16758 MR. RUBY: What Mr. Henry just described, 800 origination ‑‑
LISTNUM 1 \l 16759 MR. HENRY: It would be in either 5 or 6. I think 6 is interconnection.
LISTNUM 1 \l 16760 It would be in the interconnection bucket.
LISTNUM 1 \l 16761 MR. RUBY: Okay. Thank you.
LISTNUM 1 \l 16762 Let's stick with access tandems for a moment and originating traffic.
LISTNUM 1 \l 16763 I take it, Mr. Henry, you would agree with me that 1‑plus dialling gives an interexchange ‑‑ or the capability of offering subscribers access to the network. Right?
LISTNUM 1 \l 16764 That's what it does?
LISTNUM 1 \l 16765 MR. HENRY: That's one way, yes.
LISTNUM 1 \l 16766 MR. RUBY: That is certainly the way the customers like it ‑‑ right ‑‑ 1‑plus dialling?
LISTNUM 1 \l 16767 MR. HENRY: That is one way, but there is dial‑around, 10‑10 dialling, et cetera.
LISTNUM 1 \l 16768 MR. RUBY: All right. That's fine.
LISTNUM 1 \l 16769 Today, sitting here, the 1‑plus dialling feature can be connected either ‑‑ originating traffic I am talking about ‑‑ can be connected either at an access tandem or an end office. Right?
LISTNUM 1 \l 16770 And we call the end office connection a direct connection?
LISTNUM 1 \l 16771 MR. HENRY: That's right.
LISTNUM 1 \l 16772 MR. RUBY: I take it that you don't want to get rid of direct connections. That's not part of your plan?
LISTNUM 1 \l 16773 MR. HENRY: So long as there is 1‑plus equal access mandated, yes, you would have to mandate toll interconnection at the local office, which is, as you say, direct connect.
LISTNUM 1 \l 16774 MR. RUBY: Let's explore a couple of consequences of that, then.
LISTNUM 1 \l 16775 If we have direct connection mandated, but not access tandem, which, as I understand it, you have said is Bell's proposal, that means, I take it, that ‑‑
LISTNUM 1 \l 16776 Let me put it this way. You would agree with me that direct connection circuits have a fixed capacity. There is no ability for them to overflow into other circuits. Right?
LISTNUM 1 \l 16777 That's the way they work?
LISTNUM 1 \l 16778 MR. HENRY: Now you are getting into a level of technical knowledge that is certainly beyond my knowledge.
LISTNUM 1 \l 16779 I am told by my experts that there is an overflow portion for the interconnecting circuits. There is an overflow option.
LISTNUM 1 \l 16780 MR. RUBY: That is with access tandem. Right?
LISTNUM 1 \l 16781 With access tandem there is a network, so things can overflow.
LISTNUM 1 \l 16782 MR. HENRY: No, I'm told that the option exists for direct connect, as well.
LISTNUM 1 \l 16783 MR. RUBY: Okay. Let me look at this a different way.
LISTNUM 1 \l 16784 If a CLEC builds a direct connection, its traffic flows over its circuit ‑‑ right ‑‑ all of it. If it has too much traffic to go over that circuit, Bell doesn't automatically pick up the excess. Right?
LISTNUM 1 \l 16785 MR. HENRY: You can order extra circuits on an overflow basis.
LISTNUM 1 \l 16786 MR. RUBY: Okay. So you say that I can buy it from you, but there is no automatic overflow system for direct connections like there is for an access tandem. Right?
LISTNUM 1 \l 16787 MR. HENRY: No.
LISTNUM 1 \l 16788 MR. RUBY: That means, doesn't it, that a CLEC who is building a circuit has to build each circuit to accommodate the maximum amount of traffic that may flow through it?
LISTNUM 1 \l 16789 Otherwise, you are going to risk dropped calls.
LISTNUM 1 \l 16790 And that is different from an access tandem, where there is an overflow mechanism. Right?
LISTNUM 1 \l 16791 MR. BABIN: Maybe I could add, Mr. Ruby, that, obviously, in traffic engineering you have to design how many circuits you would need based on your assumptions, or on your client's assumptions of the number of customers that are going to be using those types of facilities.
LISTNUM 1 \l 16792 It is traffic engineering.
LISTNUM 1 \l 16793 MR. RUBY: Okay. Let me ask you this. When you do your traffic engineering, if you don't have an overflow capability, you need to either put in more circuits or bigger capacity circuits to deal with the high‑end traffic that comes along once in a while. Right?
LISTNUM 1 \l 16794 That's the way it works?
LISTNUM 1 \l 16795 MR. BABIN: Generally, companies are growing, traffic is growing, you would probably add more circuits. Absolutely.
LISTNUM 1 \l 16796 MR. RUBY: And that costs more. Right?
LISTNUM 1 \l 16797 MR. BABIN: More customers, more infrastructure, more cost.
LISTNUM 1 \l 16798 MR. RUBY: Would you agree with me that it is less efficient to have all of these competitors building these circuits that are bigger and better instead of using an access tandem system where there is overflow and the opportunity to balance traffic?
LISTNUM 1 \l 16799 MR. BABIN: The interconnection we are offering is at the DC, at the COs, and those are the technical services that we have.
LISTNUM 1 \l 16800 MR. RUBY: Right, but you were talking about planning the network. It is more efficient to use access tandem ‑‑ that system, that network ‑‑ as a whole for the system. Right?
LISTNUM 1 \l 16801 It's indisputable.
LISTNUM 1 \l 16802 Or, maybe you do dispute it.
LISTNUM 1 \l 16803 MR. BIBIC: There are network efficiencies, and those can be derived through parties sitting together and figuring out if they could take advantage of efficiencies by banding together and coming to a solution together.
LISTNUM 1 \l 16804 MR. RUBY: I think we have talked a little bit about that already.
LISTNUM 1 \l 16805 Staying with direct connections and interexchange carriers ‑‑ and I will make some, hopefully, easy assumptions to do this.
LISTNUM 1 \l 16806 If there are 30 interexchange carriers in Canada that operate nationally ‑‑
LISTNUM 1 \l 16807 By the way, is that a reasonable assumption?
LISTNUM 1 \l 16808 I have to admit that I looked on the Commission's website and I can't find a list any more for IXCs. The lists seem to be divided a different way, but the Commission certainly knows how many IXCs there are.
LISTNUM 1 \l 16809 Maybe not right this minute, but ‑‑
LISTNUM 1 \l 16810 MR. BIBIC: We can't comment one way or another.
LISTNUM 1 \l 16811 THE CHAIRPERSON: In any event, it's not relevant. There is more than one, and we all know that.
LISTNUM 1 \l 16812 MR. RUBY: Right.
LISTNUM 1 \l 16813 Just for number purposes, I am telling you it's 30. The Commission may figure out that it's different, but if you could assume with me for the moment that it's 30, that's my best guess from a review of the information available.
LISTNUM 1 \l 16814 Is it fair to say that there are at least 3,000 end offices in Canada?
LISTNUM 1 \l 16815 MR. HENRY: Again, I will take that subject to check.
LISTNUM 1 \l 16816 MR. RUBY: It's closer to 4, right? So 3 is a pretty reasonable assumption, do you think?
LISTNUM 1 \l 16817 MR. HENRY: I will take it subject to check. I have no idea.
LISTNUM 1 \l 16818 MR. RUBY: All right. So if we have 30 IXCs and 3,000 end offices in Canada, it is not difficult math to know that you would need 90,000 direct connection circuits to provide the same service as access tandems do today.
LISTNUM 1 \l 16819 That is just 30 times 3,000.
LISTNUM 1 \l 16820 MR. BABIN: Those connections are in place today, Mr. Ruby. You are assuming that access tandem facilities no longer exist.
LISTNUM 1 \l 16821 MR. RUBY: No, I am assuming that you have either refused people the right to use them, or priced them above the cost that you can construct your own network.
LISTNUM 1 \l 16822 If you want us to use your facilities, then let's make them essential and have mandated pricing, and off we go. But, as I understand it, that's not your proposal. You want to take access tandem out of the mandated box.
LISTNUM 1 \l 16823 MR. BIBIC: Yes, and that doesn't mean that we don't want customers to use them.
LISTNUM 1 \l 16824 COMMISSIONER CRAM: Excuse me. I would like an answer to the question that was asked: If there were 3,000 end offices and 30 IXCs, you would need 90,000 DC circuits instead of an AT.
LISTNUM 1 \l 16825 MR. BIBIC: Ms Cram, if all incumbents across the country were to deny use of their facilities ‑‑
LISTNUM 1 \l 16826 COMMISSIONER CRAM: Mr. Bibic, I just want the answer to that.
LISTNUM 1 \l 16827 MR. BIBIC: I am giving you the answer, Ms Cram.
LISTNUM 1 \l 16828 ‑‑ and all of the interexchange carriers had to build their own, and the Commission didn't come in and find them to be essential, then, yes.
LISTNUM 1 \l 16829 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 16830 MR. BABIN: Could I also add, Mr. Ruby, that there is no incentive for the ILECs to deny access to those facilities because their end customers are going to suffer.
LISTNUM 1 \l 16831 As you know, if an IXC customer is calling an ILEC end customer, and there is no ability to get to that customer, there is no incentive for us to deny that access, because our customers are going to request it.
LISTNUM 1 \l 16832 MR. RUBY: I am not going to argue about this with you, sir.
LISTNUM 1 \l 16833 THE CHAIRPERSON: But, presumably, your main point is, if your wholesale dropped dead, business would surely suffer ‑‑ if you denied access to all of these people.
LISTNUM 1 \l 16834 That is what I seem to have heard over the last two days.
LISTNUM 1 \l 16835 MR. BIBIC: Yes, the wholesale business would suffer, and so would our retail business, because the customers wouldn't be able to make calls.
LISTNUM 1 \l 16836 MR. RUBY: You could certainly raise the prices, though, because you are the only ones who have it. Right?
LISTNUM 1 \l 16837 MR. BIBIC: Then, if we were to do that, the customer would be kind of annoyed and might go to the cable company provider to get their toll and local and everything else, or any other number of providers.
LISTNUM 1 \l 16838 MR. RUBY: Don't the cable companies want to use your access tandems, too?
LISTNUM 1 \l 16839 MR. BIBIC: They have a lot of customers. Again, if we prevent the ability of customers to contact each other, that's not very good business.
LISTNUM 1 \l 16840 MR. RUBY: That's fair enough. This is part of your "Trust us" message.
LISTNUM 1 \l 16841 If we contrast the situation with access tandems, how many access tandems, roughly, are there in Canada?
LISTNUM 1 \l 16842 I am guessing 30, but you would have a better idea than I would.
LISTNUM 1 \l 16843 MR. HENRY: I don't know in Canada. I think there are 12 in Ontario and Quebec.
LISTNUM 1 \l 16844 MR. RUBY: All right. So let's take 30 subject to check. We could always redo the math.
LISTNUM 1 \l 16845 If we have 3,000 end offices, 30 access tandems, and 30 interexchange providers, that means, for access tandem architecture, that we would only need 3,900 circuits ‑‑ right ‑‑ as opposed to 90,000 for direct connect?
LISTNUM 1 \l 16846 That is, relatively, the kind of construction or new facility difference we are talking about.
‑‑‑ Pause
LISTNUM 1 \l 16847 COMMISSIONER CRAM: Could I have those numbers again, Mr. Ruby?
LISTNUM 1 \l 16848 MR. RUBY: If there were 3,000 end offices, the same ‑‑
LISTNUM 1 \l 16849 COMMISSIONER CRAM: Yes.
LISTNUM 1 \l 16850 MR. RUBY: ‑‑ assumption as last time, 30 IXEs, the same assumption as last time, and 30 access tandems ‑‑
LISTNUM 1 \l 16851 COMMISSIONER CRAM: Yes.
LISTNUM 1 \l 16852 MR. RUBY: ‑‑ which we are making a jump from 12 in Ontario to Quebec to make it 30 for the whole country, that adds up to me to 3,900, 30 times 30 plus 3,000.
LISTNUM 1 \l 16853 COMMISSIONER CRAM: Thirty‑nine hundred circuits?
LISTNUM 1 \l 16854 MR. RUBY: Thirty‑nine hundred circuits. So that is all you need compared to the 90,000.
LISTNUM 1 \l 16855 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 16856 MR. RUBY: But I don't think I got an answer from the Bell panel.
‑‑‑ Pause
LISTNUM 1 \l 16857 MR. HENRY: The reason I am struggling, Mr. Ruby, is because you are assuming that they couldn't connect, make arrangements with other carriers to connect and transport some of that traffic. So it wouldn't follow that you would have to do all of those routes.
LISTNUM 1 \l 16858 MR. RUBY: All right. I am just getting out the magnitude. If they couldn't make common arrangements, it would be 90,000 versus roughly 4,000. If there was a whole lot of connection, we would bring it down to 45,000 new circuits.
LISTNUM 1 \l 16859 You can't disagree with me about this, right
LISTNUM 1 \l 16860 MR. HENRY: Under your assumptions, if you assume that nobody is going to connect with anybody else and that they had to build on every route, then I guess your match is correct.
LISTNUM 1 \l 16861 MR. RUBY: Okay. And I take it if they did do that ‑‑ so you stuck with my assumptions and we had ‑‑
LISTNUM 1 \l 16862 MR. HENRY: If I can just give you an example, I think, on the record ‑‑
LISTNUM 1 \l 16863 MR. RUBY: No, Mr. Henry, I am fine, I am moving on to the next question.
LISTNUM 1 \l 16864 MR. HENRY: Well, I am going to give you an example why perhaps yours is unrealistic.
LISTNUM 1 \l 16865 Cogeco connects without even connecting through Bell in Ontario and they connect through TELUS. So again, they haven't any problem transporting their traffic or getting transmitted.
LISTNUM 1 \l 16866 MR. RUBY: I am not saying that it will have to be a full 90,000. Sure, there would be cooperation.
LISTNUM 1 \l 16867 But you will agree with me that the magnitude of the difference is huge, right?
LISTNUM 1 \l 16868 You know, I am not even going to ask you to answer the question, I will move on.
LISTNUM 1 \l 16869 THE CHAIRPERSON: I think it is time to move on. You have made your point. We will draw whatever conclusion we want from it.
LISTNUM 1 \l 16870 MR. RUBY: Let me, if I may, ask one last question.
LISTNUM 1 \l 16871 I take it that whether the number is 90,000 or 50,000 or 40,000 new direct connection circuits, the customer gets no advantage from all these new circuits; right? These are just transport, extra fiber. The customer doesn't benefit if there is no new services coming. If anything, the prices have to go up.
LISTNUM 1 \l 16872 MR. HENRY: Well, that is like saying the customer doesn't benefit from any kind of transport that is being built by other carriers. I mean we have had all kinds of evidence this week about incentives to build, why we need them, the innovation that comes from that, et cetera, et cetera.
LISTNUM 1 \l 16873 To say, well, why don't we just have one carrier and the customer is not going to get any more benefit if he has different facilities in the ground, I am not sure ‑‑
LISTNUM 1 \l 16874 MR. RUBY: But what we are talking about is these new circuits to just get us to where we are today. This isn't expanding the network, right? We are just comparing what exists today for access tandem to what it would take if we had to build out direct connections instead.
LISTNUM 1 \l 16875 MR. HENRY: That is all we are talking about with any kind of local competition, is customers getting to call the same people.
LISTNUM 1 \l 16876 MR. RUBY: Well, I am not sure that is ‑‑
LISTNUM 1 \l 16877 MR. HENRY: I mean I really don't follow your point, Mr. Ruby.
LISTNUM 1 \l 16878 MR. RUBY: All right. Well, I am not sure that is what I read in your materials but thank you, panel, and thank you, Mr. Chairman, those are my questions.
LISTNUM 1 \l 16879 THE CHAIRPERSON: Thank you very much.
LISTNUM 1 \l 16880 Commissioner Noël, you had a question?
LISTNUM 1 \l 16881 COMMISSIONER NOEL: I guess I forgot what it was.
LISTNUM 1 \l 16882 THE CHAIRPERSON: Okay.
LISTNUM 1 \l 16883 Commissioner Cram.
LISTNUM 1 \l 16884 COMMISSIONER CRAM: I am sorry, there is one issue that I forgot yesterday.
LISTNUM 1 \l 16885 Dr. Taylor, when you were being asked about 1123 in your Price Cap II testimony, I am not sure ‑‑ 1123.
LISTNUM 1 \l 16886 MR. TAYLOR: I am there.
LISTNUM 1 \l 16887 COMMISSIONER CRAM: And you said to Mr. Koch when he was referring to access at the ILEC's costs, you changed it and said at the ILEC's economic cost.
LISTNUM 1 \l 16888 Now, are you really talking Phase II plus a mark‑up; is that what you are talking about?
LISTNUM 1 \l 16889 MR. TAYLOR: Well, let me put my head around 2001 again.
LISTNUM 1 \l 16890 COMMISSIONER CRAM: Sure. Yes.
LISTNUM 1 \l 16891 MR. TAYLOR: You are referring specifically to the first sentence:
"The Commission's framework encourages efficient interconnection arrangements by making network elements available to competitors at the incumbent's cost." (As read)
LISTNUM 1 \l 16892 Yes, by that, I would mean Phase II plus a mark‑up. I said economic because I am talking about assuming that you guys got the numbers right and these were supposedly the economic costs. People disagree as to whether the numbers are right, of course, and I don't take a position on that.
LISTNUM 1 \l 16893 COMMISSIONER CRAM: Okay, thank you very much.
LISTNUM 1 \l 16894 MR. TAYLOR: Sure.
LISTNUM 1 \l 16895 THE CHAIRPERSON: Commissioner Noël.
LISTNUM 1 \l 16896 COMMISSIONER NOEL: A very short question about the construction in greenfields, dans les nouveaux développements.
LISTNUM 1 \l 16897 In new developments, is it your experience that the facilities are built underground in conduits or are they above ground over posts?
LISTNUM 1 \l 16898 MR. BABIN: Generally, they are underground in conduits, yes.
LISTNUM 1 \l 16899 COMMISSIONER NOEL: In conduits under the streets.
LISTNUM 1 \l 16900 And if you wanted to go after a ‑‑ Rogers, for example, had exclusive arrangements with the developer, once the streets and the infrastructures are turned over to the city and not to the developer anymore, you could piggyback on Rogers' support structure to get your wire in?
LISTNUM 1 \l 16901 MR. BABIN: If there are structures there, yes.
LISTNUM 1 \l 16902 COMMISSIONER NOEL: Without ripping the street. Thank you.
LISTNUM 1 \l 16903 THE CHAIRPERSON: Mrs. Sanderson, I have a question for you. I gather you are not going to be with us after the break because you have other ‑‑
LISTNUM 1 \l 16904 MS. SANDERSON: I actually have made arrangements, I can stay.
LISTNUM 1 \l 16905 THE CHAIRPERSON: Oh! Wonderful.
LISTNUM 1 \l 16906 Nonetheless, I just ‑‑
‑‑‑ Laughter / Rires
LISTNUM 1 \l 16907 THE CHAIRPERSON: Help me here because the last point that Mr. Ruby raised was basically saying, you know, take his example of access tandem, basically, we are going to build more redundancy in the system. It works right now building if they have to because they find the pricing from the ILECs unacceptable but it will result in extra facilities which we don't need at this present time.
LISTNUM 1 \l 16908 How do I square that with your conclusion number 1 that says that more end‑to‑end facilities‑based competition results in superior market outcomes? I would have thought redundancies by definition means inefficiencies and therefore can't be a more superior market outcome. What am I missing here?
LISTNUM 1 \l 16909 MS SANDERSON: I think what Mr. Ruby was talking about was quite a different situation than what we, in fact, are measuring.
LISTNUM 1 \l 16910 But at a more general level, we are not going to expect ‑‑ when people build these facilities out, as I think was mentioned earlier in the discussion yesterday or perhaps the day before as well, they have greater control over the cost structure to which they are then providing those services and they then have the ability to provide additional services over whatever the structures are that they have put forward.
LISTNUM 1 \l 16911 Now, Mr. Ruby was speaking about transport and I guess just ‑‑ I am not a technical expert. He was basically speaking about something quite specific but we would expect that in the context of building out these networks that the fiber is going to be used to provide any number of additional services, as it has been over time.
LISTNUM 1 \l 16912 So what we were measuring in our study was the extent to which end‑to‑end facilities‑based competition, the fact that you have got two wires into the home then allows each of those competitors that owns those wires to provide a multitude of services and have greater control over their cost structures in terms of them providing those services.
LISTNUM 1 \l 16913 And what we find through that, which is a very consistent finding across a lot of studies involving many countries ‑‑ some of them have 30 in them, some of them are just Europe, ours is a combination of things that has Canada in it ‑‑ is that we always get better market outcomes when we have greater end‑to‑end facilities‑based competition compared to having a situation where the competition is over one wire and everybody is trying to get access to that one wire, because in those circumstances, the other competitors don't have the same control over their cost structure in offering those services.
LISTNUM 1 \l 16914 I may not have answered it fully.
LISTNUM 1 \l 16915 THE CHAIRPERSON: You answered it. I'm sure that was your finding overall, but don't you have to make them market‑specific? Don't you have to take into account whether it is a market with a population density, et cetera, that actually allows you to have this end‑to‑end competition? There has to be a minimum mass of users and beneficiaries before all of those principles apply.
LISTNUM 1 \l 16916 MS SANDERSON: Those things have been controlled for in these studies and in preparing for this hearing I also ran regressions to then control for population density, GDP per capita and some of these other things that might reflect those differences. Even when you control for those things, either in the work that I have done or in the studies that are cited in our report, you always come out with the same result, which is that you get greater broadband penetration, better pricing in terms of a performance‑adjusted price when you have greater facilities‑based competition and that if you add sort of a very extensive wholesale access regime on top of good facilities‑based competition you don't get much additional benefit, so that what really ultimately is driving the good market outcomes in terms of penetration and pricing is the facilities‑based competition.
‑‑‑ Pause
LISTNUM 1 \l 16917 THE CHAIRPERSON: I see it is nearly 10 o'clock, let's take a 10‑minute break before we start with the next witness.
‑‑‑ Upon recessing at 0952 / Suspension à 0952
‑‑‑ Upon resuming at 1005 / Reprise à 1005
LISTNUM 1 \l 16918 THE SECRETARY: Please be seated.
LISTNUM 1 \l 16919 As noted on the Order of Appearance, PIAC withdrew its intention to cross‑examine The Companies.
LISTNUM 1 \l 16920 We are now moving on with Counsel Tacit on behalf of Cybersurf Corporation.
LISTNUM 1 \l 16921 Mr. Tacit.
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 16922 MR. TACIT: Thank you.
LISTNUM 1 \l 16923 I would like to discuss with you the possibility of facilities arrangements post the kind of regime that The Companies envision, and specifically I understand it's The Companies evidence that there is nothing to prevent them from entering into resale arrangements of all sizes with all kinds of wholesale customers if indeed mandated access is withdrawn and that they indeed would have the motivation to do so.
LISTNUM 1 \l 16924 Is that correct?
LISTNUM 1 \l 16925 MR. BIBIC: Yes.
LISTNUM 1 \l 16926 MR. TACIT: In that vein, is it possible that one or more of the companies could enter into reciprocal sharing arrangements with another ILEC, such as TELUS for example, giving each other access to each other's facilities on a customer‑specific basis?
‑‑‑ Pause
LISTNUM 1 \l 16927 MR. ANDERSON: Could you repeat the question please, to make sure I understand it?
LISTNUM 1 \l 16928 MR. TACIT: Yes. Is it possible that Bell Canada, for example ‑‑ let's just use that example, keep it simple ‑‑ could decide that it should enter into a reciprocal resale arrangement with TELUS so that each of the two companies would have the ability to obtain access to each other's facilities in its territory, in it's in‑home ILEC territory?
LISTNUM 1 \l 16929 MR. ANDERSON: We currently have relationships with TELUS on different product lines.
LISTNUM 1 \l 16930 MR. TACIT: But that's not my question.
LISTNUM 1 \l 16931 MR. ANDERSON: All right. Sorry, then I misunderstood it.
LISTNUM 1 \l 16932 MR. TACIT: Under this regime would it be easier to do that?
‑‑‑ Pause
LISTNUM 1 \l 16933 MR. BIBIC: We would be able to enter into wholesale arrangements with TELUS, but I have a feeling you are getting into something very specific that I'm not understanding, just kind of you ride on my network whenever you want and I will ride on your network whenever I want.
LISTNUM 1 \l 16934 Is that what you ‑‑
LISTNUM 1 \l 16935 MR. TACIT: Well, maybe not whenever you want, but it could be a specific arrangement where there is a pretty broad scope for reciprocal access. Is that not an arrangement that could conceivably occur?
LISTNUM 1 \l 16936 MR. BIBIC: Yes.
LISTNUM 1 \l 16937 MR. TACIT: All right.
LISTNUM 1 \l 16938 Are such arrangements in place today in fact? Any such arrangements in place between any of The Companies and TELUS or any of the Bell companies and SaskTel, and so on?
LISTNUM 1 \l 16939 MR. BIBIC: Certainly we have roaming and resale arrangements with TELUS for example on the wireless side.
LISTNUM 1 \l 16940 MR. TACIT: Are there any wireline arrangements like that?
LISTNUM 1 \l 16941 MR. BIBIC: We buy services from them and they buy from us.
LISTNUM 1 \l 16942 Do you mean one global arrangement?
LISTNUM 1 \l 16943 MR. TACIT: Not necessarily global, but I'm talking about non‑tariffed reciprocal access arrangements.
LISTNUM 1 \l 16944 MR. BIBIC: Oh, I see.
LISTNUM 1 \l 16945 MR. ANDERSON: So I would define it as a bilateral agreement, a swap.
LISTNUM 1 \l 16946 MR. TACIT: Yes. Are there such arrangements now?
LISTNUM 1 \l 16947 MR. ANDERSON: Subject to check, I expect there could be. I would have to double check that.
LISTNUM 1 \l 16948 MR. TACIT: All right. Well, I would be interested in knowing if there are such arrangements and the scope of them, if you could provide that information.
LISTNUM 1 \l 16949 MR. BIBIC: We will double check and then I will have to determine the confidentiality of that information and we can file with the Commission with the appropriate confidentiality claims if required.
LISTNUM 1 \l 16950 MR. TACIT: Fair enough.
LISTNUM 1 \l 16951 Now what I would like you to do, just so we are clear on what the question is, is check this not only as between Bell and TELUS, but any of the Bell companies and any other ILEC, and SaskTel and any of the other ILECs.
LISTNUM 1 \l 16952 What I'm trying to get at is, are there any bilateral or multilateral facility‑sharing agreements of that sort of expanded scope that go beyond tariff arrangements?
LISTNUM 1 \l 16953 MR. BIBIC: For Bell and TELUS, Bell Aliant and TELUS, SaskTel and TELUS.
LISTNUM 1 \l 16954 Correct?
LISTNUM 1 \l 16955 MR. TACIT: Yes. And Bell and SaskTel. Any combinations that you can find like that, bilateral or multilateral.
LISTNUM 1 \l 16956 MR. BIBIC: All right.
LISTNUM 1 \l 16957 MR. TACIT: The reason, just to get it on the record. The relevance of this, of course, is that should those kind of arrangements either exist now or come to fruition in the future, it may well be the case that there would be interest in the ILECs riding on those agreements, but not necessarily being so generous with other potential competitors.
LISTNUM 1 \l 16958 MR. BIBIC: Okay, well, you will have your opportunity to make ‑‑
LISTNUM 1 \l 16959 MR. TACIT: Yes.
LISTNUM 1 \l 16960 MR. BIBIC: ‑‑ your submission which you started to do.
LISTNUM 1 \l 16961 MR. TACIT: Fair enough. I'm just establishing the relevance of that. Okay.
LISTNUM 1 \l 16962 Are there, in fact, any such negotiations taking place now for any of these kinds of agreements or arrangements?
LISTNUM 1 \l 16963 MR. BIBIC: Are we talking forborne services now?
LISTNUM 1 \l 16964 MR. TACIT: Yes.
LISTNUM 1 \l 16965 MR. BIBIC: Don't know.
LISTNUM 1 \l 16966 MR. TACIT: Okay. Can you check?
LISTNUM 1 \l 16967 MR. BIBIC: Yes, under the same provisos as before.
LISTNUM 1 \l 16968 MR. TACIT: Okay. Thank you.
LISTNUM 1 \l 16969 Now, under that sort of arrangement ‑‑ I just want to complete that thought ‑‑ could it be the case that there would be motivation, for example, for a Bell Canada and a TELUS to save costs by entering into such an arrangement? Because both are well capitalized, well funded firms, both are large competitors and both know that if they don't cooperate, ultimately, the other company will come in and build facilities. So let's just avoid that whole cost and give each other some preferred access, but we won't necessarily facilitate other competitors, as well.
LISTNUM 1 \l 16970 MR. BIBIC: Like, I mean, that's a broad question. Is it possible? Sure it's possible.
LISTNUM 1 \l 16971 MR. TACIT: Okay.
LISTNUM 1 \l 16972 MR. BIBIC: Showing network builds are sometime ‑‑ in any industry, network industries, are sometimes efficiency enhancing. I think Inukshuk, the Inukshuk wireless platform is an example of an efficiency enhancing joint network build, in my view, at the network infrastructure level.
LISTNUM 1 \l 16973 MR. TACIT: Okay. So when we look at, you know, CDN costs declining as being a deterrent to facilities' build, there may be other reasons why The Companies would want to avoid building facilities and they might find means to do so anyway. Correct?
LISTNUM 1 \l 16974 MR. BIBIC: In a competitive market, we will make our determinations. As I said before, we will build where it makes sense for us, we will lease at market rates where it makes sense for us and we will use the facilities we already have where it makes sense for us. Yes, there's all those possibilities.
LISTNUM 1 \l 16975 MR. TACIT: Thank you.
LISTNUM 1 \l 16976 MR. HENRY: Mr. Tacit, it happens with competitors, as well. I mean, the Government of Newfoundland just partnered with Allstream and Rogers, I think it was. There was a consortium of competitors that got together to do a new build. We were not one of them.
LISTNUM 1 \l 16977 MR. TACIT: That may well be, but they are not subject to this proceeding, so...
LISTNUM 1 \l 16978 On the CDN issue, I know you have that Appendix 9 in your evidence, which goes into the details of how The Companies view the reduction in CDN rates has served as a deterrent to facilities builds, but let me ask you this question.
LISTNUM 1 \l 16979 Could it be the case that, in fact, one of the reasons there was an incentive for carriers to build under the prior rates was because the rates were, in fact, too high. In other words, those builds would not have necessarily been economically efficient. Is that a possibility?
LISTNUM 1 \l 16980 MR. TAYLOR: Well, I assume it's a logical possibility. I'm not familiar with the level of CDN rates. So, yes, it's logic ‑‑ it could be it could have happened. But the main point is just that a reduction in those rates will surely stimulate demand. Demand curves slope downward. That much you can take.
LISTNUM 1 \l 16981 MR. TACIT: Thank you.
LISTNUM 1 \l 16982 Ms Sanderson, I have a follow‑up question for you.
LISTNUM 1 \l 16983 Oh, she's gone. Okay. All right, then I guess I don't. Sorry about that.
LISTNUM 1 \l 16984 Okay, I would like to just confirm that the double dominance requirement is a part of The Companies' test for what constitutes essential wholesale facilities, as well. Is that right? You have been adopting the competition test. You have adopted the double dominance requirement.
LISTNUM 1 \l 16985 MR. BIBIC: Just so we are using the same language, look at dominance downstream, dominance upstream, is that what you mean by "double dominance"?
LISTNUM 1 \l 16986 MR. TACIT: Yes.
LISTNUM 1 \l 16987 MR. BIBIC: Then, yes.
LISTNUM 1 \l 16988 MR. TACIT: Thank you.
LISTNUM 1 \l 16989 Okay, so I would like to explore just a little bit around the effect of wholesale on retail, based on the characteristics of the retail market. I would just like to take you through that for a few minutes.
LISTNUM 1 \l 16990 MR. BIBIC: Sure.
LISTNUM 1 \l 16991 MR. TACIT: Would you agree with me that ILEC and cable company residential local exchange services in a particular local exchange are generally in the same product market and they are substitutable?
LISTNUM 1 \l 16992 MR. BIBIC: Yes.
LISTNUM 1 \l 16993 MR. TACIT: Would you agree that's also true with respect to hi‑speed Internet services in the same geographic areas?
LISTNUM 1 \l 16994 I know you might argue that you can do it over bigger areas, but let's just stick to this local exchange. In a particular local exchange, would you agree with me that if an ILEC and a cable company are offering hi‑speed Internet, they are generally in the same product market and substitutable?
LISTNUM 1 \l 16995 MR. BIBIC: Yes.
LISTNUM 1 \l 16996 MR. TACIT: And the same for long distance services?
LISTNUM 1 \l 16997 MR. BIBIC: I'm not going to argue with you on geographic definitions now. Yes.
LISTNUM 1 \l 16998 MR. TACIT: Okay. And following that logic, if you had a bundle of all of those three, would you agree that those are also in the same product markets and substitutable?
LISTNUM 1 \l 16999 MR. BIBIC: Well, now, I would have to go into the world of "it depends", but certainly I think some have argued and submitted that there might come a time where it may be appropriate to consider bundles as being in a product market. But I haven't done that analysis and I'm not sure there's been any findings to that level.
LISTNUM 1 \l 17000 MR. TACIT: Well, my question isn't ‑‑
LISTNUM 1 \l 17001 MR. BIBIC: It's conceivable, certainly.
LISTNUM 1 \l 17002 MR. TACIT: ‑‑ about theoretical studies. When you go and compete with a cable company in a local exchange, are you trying to win the bundle or aren't you?
LISTNUM 1 \l 17003 MR. BIBIC: Sure.
LISTNUM 1 \l 17004 MR. TACIT: So you would say they are in the same product market, wouldn't you?
LISTNUM 1 \l 17005 MR. BIBIC: Well, the two competing bundles would be in the same product market. I'm not limiting the product market to just those two bundles, though, that's what I'm trying to say.
LISTNUM 1 \l 17006 MR. TACIT: Okay, fair enough.
LISTNUM 1 \l 17007 MR. BIBIC: I just want to be clear, that's all.
LISTNUM 1 \l 17008 MR. TACIT: But those bundles are in the same product?
LISTNUM 1 \l 17009 MR. BIBIC: Correct.
LISTNUM 1 \l 17010 MR. TACIT: Okay. And if you add video to that, would the test be the same?
LISTNUM 1 \l 17011 MR. BIBIC: Two identical ‑‑
LISTNUM 1 \l 17012 MR. TACIT: Would the outcome be the same?
LISTNUM 1 \l 17013 MR. BIBIC: So two identical ‑‑
LISTNUM 1 \l 17014 MR. TACIT: So we are going from ‑‑
LISTNUM 1 \l 17015 MR. BIBIC: ‑‑ bundles offered by a cable company in an that scenario?
LISTNUM 1 \l 17016 MR. TACIT: Well, they are not necessarily identical in every respect, but, generally speaking, would you see the bundles as being in the same product market?
LISTNUM 1 \l 17017 MR. BIBIC: I will be frank with you, I don't think you are going to pin me down on saying absolutely they will be. It's going to be "it depends". If you are taking video out of one and video's in the other, I would have to look it and come to a judgment.
LISTNUM 1 \l 17018 MR. TACIT: I'm assuming video are in both.
LISTNUM 1 \l 17019 MR. BIBIC: Then, if it's the same bundles, the same geographic market, cable company, ILEC, sure.
LISTNUM 1 \l 17020 MR. TACIT: Okay. Now, would you agree with me that when you look at the overall market demand for bundles of such services, there are many, many consumer transactions taking place in the marketplace on the residential side, and those transactions are each, individually, pretty small compared to the overall demand for those services? Would you agree with the proposition?
LISTNUM 1 \l 17021 MR. TAYLOR: Yes, for mass market services, it's certainly correct that mass market residential services, customers ‑‑ there are many transactions which take place. Of course, some at contracts, that is if you want the bundle, you sign up ‑‑ speaking for the U.S., you would sign up for a year or two years to get a good price. But, yes, there are bundles. Many transactions take place.
LISTNUM 1 \l 17022 MR. TACIT: Okay. And the price of those transactions is low relative to the overall demand in the marketplace. Is that correct? In other words, any one transaction represents a small percentage of the overall demand.
LISTNUM 1 \l 17023 MR. TAYLOR: Because there are many transactions ‑‑
LISTNUM 1 \l 17024 MR. TACIT: Right.
LISTNUM 1 \l 17025 MR. TAYLOR: ‑‑ it follows by arithmetic, yes.
LISTNUM 1 \l 17026 MR. TACIT: Okay. And is it The Companies' evidence that information is readily available in the marketplace about the various local exchange, long distance, Internet and video prices that both the ILECs and the cable companies provide, and the bundles for those? Is that information readily available in the marketplace?
LISTNUM 1 \l 17027 MR. TAYLOR: Well, I think offered prices are, that is you can go to anyone's website and see what the offer is. I can't speak for Canada, but in the U.S. you often get a different price when you call up and ask for service, particularly if you call up the ILEC and say, "I'm leaving if that's the best you can do". Often you get a different price.
LISTNUM 1 \l 17028 MR. TACIT: But Mr. Bibic, you can confirm that the offered prices are readily available and advertised publicly?
LISTNUM 1 \l 17029 MR. BIBIC: Yes, they are. I will confirm it ‑‑ in a variety of sources, Internet, TV advertising, media advertising, et cetera.
LISTNUM 1 \l 17030 MR. TACIT: Okay. And it's also the case that the ILECs ‑‑ and let's now stick to some of the larger cable companies, let's talk about the largest four, five or six ‑‑ that they, in fact, offer these services in bundles of services over geographic areas that cover multiple local exchanges. Is that right?
LISTNUM 1 \l 17031 MR. BIBIC: The cable companies?
LISTNUM 1 \l 17032 MR. TACIT: Yes.
LISTNUM 1 \l 17033 MR. BIBIC: That's correct.
LISTNUM 1 \l 17034 MR. TACIT: And ILECs, too.
LISTNUM 1 \l 17035 MR. IACONO: Yes.
LISTNUM 1 \l 17036 MR. TACIT: Okay. And would you also agree with me that the ILECs and the cable companies account collectively for the largest proportion of output of all of these services and service bundles in the areas in which they are offered?
LISTNUM 1 \l 17037 MR. BIBIC: And here you are talking about ‑‑
LISTNUM 1 \l 17038 MR. TACIT: Largest market share total.
LISTNUM 1 \l 17039 MR. BIBIC: Okay, residential telephony, internet, video?
LISTNUM 1 \l 17040 MR. TACIT: Yes, if you take the amount that ILECs and the cable companies jointly offer in a particular area would you agree that they account for the vast majority of those services ‑‑
LISTNUM 1 \l 17041 MR. BIBIC: Nationally you are speaking now?
LISTNUM 1 \l 17042 MR. TACIT: I am talking about wherever they are offered, whether it is in an exchange or in a city.
LISTNUM 1 \l 17043 MR. BIBIC: I can't speak to a particular exchange, but as a general proposition, nationally yes.
LISTNUM 1 \l 17044 MR. TACIT: Okay. Now, The Companies have claimed that there are a number of new technologies such as Wi‑Max, Wi‑Fi broadband over power lines being used to provide high‑speed internet services. Without getting into that detailed evidence, can you confirm with me that so far those technologies account for less than 1 per cent of the internet access technology mix?
LISTNUM 1 \l 17045 MR. IACONO: I can't confirm the per cent that it covers, but I can certainly confirm that there are quite a few providers out there providing service across the country in various locations.
LISTNUM 1 \l 17046 MR. TACIT: Okay. Perhaps I could draw your attention to Figure 4.4.2 of the monitoring report, which is a CRTC exhibit in this proceeding.
LISTNUM 1 \l 17047 MR. IACONO: Which page?
LISTNUM 1 \l 17048 MR. TACIT: It is on page 71.
LISTNUM 1 \l 17049 MR. IACONO: Seventy‑one?
LISTNUM 1 \l 17050 MR. TACIT: Yes.
LISTNUM 1 \l 17051 MR. IACONO: Thank you.
LISTNUM 1 \l 17052 MR. TACIT: Do you have that?
LISTNUM 1 \l 17053 MR. IACONO: Yes, I do, thank you.
LISTNUM 1 \l 17054 MR. TACIT: Okay. So if you look at the pie chart for 2006 this is a figure that represents the residential internet access technology mix. You will see that dial‑up, cable and DSL together account for more than 99 per cent. Is it not logical then that all the other technologies that you referenced would account for something less than 1 per cent?
LISTNUM 1 \l 17055 MR. IACONO: Yes, obviously. Based on this information, I will accept the 1 per cent. But one important point to note is that technology is evolving very quickly and the marketing activities of the firms offering these technologies are increasingly becoming more intense. So I imagine that over time it will grow.
LISTNUM 1 \l 17056 MR. TACIT: Okay, well we will see how the market evolves and what the Commission makes of that, but we are talking about today.
LISTNUM 1 \l 17057 Now, in Cybersurf/The Companies 12‑April‑07‑2, and by the way, I don't if the package has been distributed of interrogatory responses, if it could be. I put together just a small stapled compendium of selected interrogatory responses and I believe that this was also actually given to your counsel.
LISTNUM 1 \l 17058 MR. BIBIC: We have them all.
LISTNUM 1 \l 17059 MR. TACIT: Thank you.
LISTNUM 1 \l 17060 MR. BIBIC: Which page is it, Mr. Tacit?
LISTNUM 1 \l 17061 MR. TACIT: So you will see I have added numbered pages at the bottom right‑hand corner. So on page 4 of the document, which is page 1 of Cybersurf/The Companies 12‑April‑07‑2. And I want to draw your attention to a statement made right near the end of that first long paragraph of the response where The Companies say:
"The Companies note that the question suggests that without regulation there would be no business case for The Companies to provide wholesale DSL services. The Companies do not agree with such a suggestion, especially given that wholesale revenues provide an important part of The Companies' business and that, as illustrated in Bell Canada/Primus 12‑April‑07‑4, wholesale DSL gateway access service constitutes the third largest revenue source of wholesale regulated service." (As Read)
LISTNUM 1 \l 17062 Now, that is still The Companies' evidence, correct?
LISTNUM 1 \l 17063 MR. BIBIC: Yes.
LISTNUM 1 \l 17064 MR. TACIT: Okay. And then if we actually flip over to attachment 2, to Bell Canada/Primus‑4, which is at page 16 of that same package, we can indeed see that GAS is the third on the list, correct?
LISTNUM 1 \l 17065 MR. BIBIC: Yes.
LISTNUM 1 \l 17066 MR. TACIT: But the heading of that attachment deals with Bell Canada and Bell Aliant, Ontario and Quebec.
LISTNUM 1 \l 17067 MR. BIBIC: Yes.
LISTNUM 1 \l 17068 MR. TACIT: Now, can you tell me where a GAS‑like service would stand if this chart related to Bell Aliant Atlantic provinces, where would it be on that list?
LISTNUM 1 \l 17069 MR. BIBIC: We don't know.
LISTNUM 1 \l 17070 MR. TACIT: Well, let me ask a simpler question. Is a GAS‑like service being offered by Bell Aliant in the Atlantic provinces?
LISTNUM 1 \l 17071 MR. HENRY: Yes, it is.
LISTNUM 1 \l 17072 MR. TACIT: Okay. And can you find out for me how significant it is in terms of this 1 to 10 ranking or if it is lower than 10?
LISTNUM 1 \l 17073 MR. HENRY: Sure.
LISTNUM 1 \l 17074 MR. HOFLEY: Mr. Chairman, there was an interrogatory process for this. This is a 12‑April‑07 response, there was a second round subsequent to this, and these questions were not asked. That is what the interrogatory process is for. So obviously I am in your hands, but this is what the interrogatory process is for.
LISTNUM 1 \l 17075 THE CHAIRPERSON: Well maybe you tell me what is the relevance of this information to you?
LISTNUM 1 \l 17076 MR. TACIT: Well, the relevance is this and this has become apparent through responses to both rounds of interrogatories in evidence in this proceeding, and that is that it may be well and good for The Companies to say that they have an incentive to keep providing a service that they have already been providing where it has been mandated. But where the service either hardly exists or isn't even off the ground the situation may in fact be quite a bit different.
LISTNUM 1 \l 17077 And so I am going to be pursuing that line of questioning a bit and it would certainly be helpful to know if there is any kind of a vibrant wholesale market right now for DSL services in a Bell Aliant Atlantic province or a SaskTel territory. And I am not looking for specific numbers here.
LISTNUM 1 \l 17078 THE CHAIRPERSON: Let us just understand, you basically want the same shot but only for Bell Aliant, so to know where ‑‑
LISTNUM 1 \l 17079 MR. TACIT: I don't even need the chart, I just need to know where it ranks, where it ranks in terms of wholesale offerings for the Atlantic provinces, and for SaskTel was my next question as well.
LISTNUM 1 \l 17080 THE CHAIRPERSON: Okay, I think it is obviously relevant so I will allow it. But I think Mr. Hofley's intervention is quite right. You should try to restrict yourself to issues that have been dealt with by interrogatories.
LISTNUM 1 \l 17081 MR. TACIT: Thank you, Mr. Chairman.
LISTNUM 1 \l 17082 MR. HENRY: And I can clarify, you did put the interrogatory to us ‑‑
LISTNUM 1 \l 17083 MR. BIBIC: Primus did.
LISTNUM 1 \l 17084 MR. HENRY: ‑‑ or Primus did rather, in Bell Aliant/Primus 12‑April‑07‑4 and the listing of the top 10 wholesale services are there and that is not among them.
LISTNUM 1 \l 17085 MR. TACIT: Okay, thank you. And is there one for SaskTel as well, do you know, because we can just dispose ‑‑ anyway I will look. But if there isn't, if you could respond to the question?
LISTNUM 1 \l 17086 MR. BIBIC: Okay, well I will consider the undertaking with respect to Bell Aliant to have been discharged?
LISTNUM 1 \l 17087 MR. TACIT: Yes, thank you. And I did not find that interrogatory, so I must apologize.
LISTNUM 1 \l 17088 MR. BIBIC: With SaskTel, I will take that undertaking. If we can come up with an answer before we get off the stand, we will give it ‑‑
LISTNUM 1 \l 17089 MR. TACIT: Absolutely, that is fine.
LISTNUM 1 \l 17090 Let me ask this question. To what extent have Bell and Bell Aliant been willing to introduce new wholesale speeds for ADSL services as new speeds are added for retail internet services?
LISTNUM 1 \l 17091 MR. ANDERSON: We are obviously looking at enhancing the product. We have just recently launched new volume discounts on GAS, so that is one thing, and we will be introducing, on a wholesale basis, upgraded speeds and there will be more details to follow in the coming weeks.
LISTNUM 1 \l 17092 MR. TACIT: But you will agree that certainly you have resisted providing it on a mandated basis?
LISTNUM 1 \l 17093 MR. ANDERSON: It is not a matter of resistance, it is a matter of working through the product. One of the unique elements of wholesale, I think you would agree, is that versus the retail market there are other implications when you are dealing with other providers, there is interface activities, there is back office process, those kinds of things are all part of the process. So it is not a matter of resisting, it is a matter of how quickly we can get the product to market.
LISTNUM 1 \l 17094 MR. BIBIC: The answer is we don't believe that these services should be provided on a regulated mandated basis, that is quite clear from our evidence.
LISTNUM 1 \l 17095 MR. TACIT: And it is quite clear from the successful review and vary of the ADSL orders. Because the whole issue there was whether additional speeds should be offered or not, right.
LISTNUM 1 \l 17096 MR. BIBIC: Well, the issue there, Mr. Tacit, is ‑‑
LISTNUM 1 \l 17097 MR. TACIT: Well, I am talking about that issue.
LISTNUM 1 \l 17098 MR. BIBIC: No, I am not going to get into details.
LISTNUM 1 \l 17099 The issue is not the willingness of The Companies to provide those services. The issue is how they are categorized in the regulatory environment, whether it is category 1, category 2 and the pricing. That is what the fundamental issues are behind the proceedings you refer to.
LISTNUM 1 \l 17100 MR. TACIT: I don't know if we were at the same proceedings, but my understanding is that ADSL services are priced as category 2. So I don't know what the complaint is, if that is the case.
LISTNUM 1 \l 17101 MR. BIBIC: The issue, the fundamental issue is whether or not these services should be mandated in the fashion that they are. Our position is no.
LISTNUM 1 \l 17102 MR. TACIT: Would it be correct for me to suggest that when Bell Canada does offer a new retail speed, if a wholesaler wants that same speed in a completely forborne environment, it would only be after they notice that there is a retail offering that they would come to Bell and Bell would have the discussion with the wholesaler to determine if there is demand, if there is sufficient demand to offer this service and under what terms and conditions. Is that the mechanism as you have described it so far through this proceeding?
LISTNUM 1 \l 17103 MR. ANDERSON: If there isn't a wholesale product, so for example ‑‑ let me just make sure I understand the question clearly.
LISTNUM 1 \l 17104 What you are describing is there is a new retail product that is out in the market currently not available at wholesale. Is that the scenario?
LISTNUM 1 \l 17105 So then absolutely we would sit down ‑‑ if that is the case, I am trying to think of an example where that might be, but if this is the case, then certainly we would sit down, obviously evaluate, do we have a wholesale product for the wholesale market. I think that is part of the undertaking, what is the overall demand, what are the requirements of the customer. Then we would proceed from there.
LISTNUM 1 \l 17106 MR. TACIT: If you came out with a 10 meg service tomorrow, just hypothetically, you wouldn't tell all your wholesale customers ahead of time, we are going to come out with ‑‑ let's say in three months, we intend to come out with a retail offering in three months, can you let us know if you want a wholesale offering that is going to be available around the same time? Would you do that?
LISTNUM 1 \l 17107 MR. ANDERSON: We haven't typically done it to date. That is a matter of timing, demand. So, I think anything is open for consideration.
LISTNUM 1 \l 17108 MR. IACONO: Mr. Tacit, if I may, the market is clearly competitive at the retail level. Given that it is clearly competitive at the retail level, I am not sure why we would, as a company, from a retail point of view, pre‑announce with long periods of time our marketing strategies to competitors. I just don't understand, just like your company wouldn't announce to us what you are planning on doing three or six months from now.
LISTNUM 1 \l 17109 It is not a category 1 service. The market is sufficiently competitive. That has been concluded many times.
LISTNUM 1 \l 17110 MR. TACIT: I understand your motivation, but thank you for clarifying the response, and the response is no, you wouldn't typically do that. Is that right?
LISTNUM 1 \l 17111 MR. IACONO: That is correct.
LISTNUM 1 \l 17112 MR. TACIT: Thank you.
LISTNUM 1 \l 17113 Is there a risk that a voluntary approach to the provision of these kind of services will result in no services being provided by those companies that haven't been required to provide it yet?
LISTNUM 1 \l 17114 MR. BIBIC: It may be a possible outcome in this scenario, but, again, from the end customer's perspective and a policy perspective, if the retail market is competitive, then the end customer is well served.
LISTNUM 1 \l 17115 However, as I mentioned to the Chair yesterday in response to a question, if we are facing vigorous competition from the cable company, we have 10 meg speed downstream and the cable company beats us to 20 and we have to catch up and go to 25, if we are going to lose customers and we have capacity there, I see no reason why we would rather not lose the customer to a competitor that is riding on our network rather than to the cable company. That is how retail and wholesale markets tend to work.
LISTNUM 1 \l 17116 MR. TACIT: That brings me exactly to the point of the difference between losing customers where you have an established base and the motivation might be different for an ILEC that simply doesn't have a wholesale base of any significance in the ADSL area. They might be less motivated to go after that business because they don't have it to begin with.
LISTNUM 1 \l 17117 MR. BIBIC: Well, no, it is the same principle. You are talking about an ILEC here, so clearly in your hypothetical, the company has a network, the ILEC has a network.
LISTNUM 1 \l 17118 Whether or not it has a wholesale business, if it is going to lose the retail customer because the customer service is no good or the speed is no good or for whatever reason, if that ILEC is going to not gain a customer it doesn't have or lose a customer it has to a cable company, it may instead prefer to lose that customer or not gain that customer at the expense of a wholesale competitor who is riding on that network.
LISTNUM 1 \l 17119 I think the principle applies whether or not the company in question has a large wholesale base today or doesn't.
LISTNUM 1 \l 17120 MR. TACIT: Yet it has taken a very long time for these services to develop, wouldn't you agree?
LISTNUM 1 \l 17121 MR. BIBIC: Which services?
LISTNUM 1 \l 17122 MR. TACIT: The ADSL broadband services offered by ILECs. So that would suggest that what you are saying isn't entirely borne out.
LISTNUM 1 \l 17123 MR. BIBIC: I disagree with you.
LISTNUM 1 \l 17124 MR. TACIT: I guess we will have to disagree.
LISTNUM 1 \l 17125 Is there also a risk that a voluntary approach to the provision of these kind of services might result in pricing that is not sustainable for competitors? Is there such a risk?
LISTNUM 1 \l 17126 MR. BIBIC: Could prices change for these services? It is possible. It depends on what the wholesale customer, as Mr. Anderson said this morning, brings to bear, how long the commitment is for, what the breadth of services are they are acquiring from the ILEC. It all depends.
LISTNUM 1 \l 17127 At the end of the day, is the end customer served, yes, in the retail internet market, absolutely. There is a lot of vigorous competition, Mr. Tacit, as you know. You operate in that market.
LISTNUM 1 \l 17128 MR. TACIT: Could it also be the case that an ILEC would attempt to leverage the ability or the fact that it is one of the one or two only sources of these kinds of services, and try to get its competitors to buy other services at the same time as a condition of buying the ADSL service?
LISTNUM 1 \l 17129 They may be related services, for example, transport services, but basically if you want to get this price, this really good price, you are also going to have to buy transport from us or something else. Is that a possibility?
LISTNUM 1 \l 17130 MR. BIBIC: It is a possibility that a competitor may get a better arrangement if they buy more services, and all this subject to tied selling provisions in the Competition Act.
LISTNUM 1 \l 17131 MR. TACIT: If we were to look at the wireless market the way it has developed as a proxy for the kind of suggestions that you are making as to how this might develop in the future, is it your evidence that the wireless market is pretty competitive at the retail end right now?
LISTNUM 1 \l 17132 MR. BIBIC: Yes.
LISTNUM 1 \l 17133 MR. TACIT: Do you consider that the wholesale market in the wireless side is well developed, vibrant?
LISTNUM 1 \l 17134 MR. BIBIC: Well, it is developing, and there are many, many wholesale channels that have been developed in Canada in wireless since 2004, the entry of Virgin and there are a whole bunch of other providers who have reached wholesale arrangements with either TELUS or Rogers.
LISTNUM 1 \l 17135 MR. TACIT: Could I just ask you to turn again to the monitoring report, figure 4.6.7.
LISTNUM 1 \l 17136 MR. BIBIC: What page, Mr. Tacit?
LISTNUM 1 \l 17137 MR. TACIT: Sorry, it is at page 101. Do you have that?
LISTNUM 1 \l 17138 MR. BIBIC: Yes, Mr. Tacit. I am just looking for something else at the same time.
LISTNUM 1 \l 17139 MR. TACIT: Okay, let me know when you are ready.
LISTNUM 1 \l 17140 MR. BIBIC: I am now ready.
LISTNUM 1 \l 17141 MR. TACIT: So, figure 4.6.7 shows the retail and wholesale revenue split. It looks like, based on this, the retail split appears to be somewhere in the excess of $12 billion ‑‑ sorry, the retail portion of that.
LISTNUM 1 \l 17142 It is harder to read what the wholesale is, but maybe it is around somewhere between $100 and $200 million, I am not quite sure.
LISTNUM 1 \l 17143 MR. BIBIC: Maybe I can help you. Turn to page 25. You see table 4.1.1.
LISTNUM 1 \l 17144 MR. TACIT: Right.
LISTNUM 1 \l 17145 MR. BIBIC: Look at wireless.
LISTNUM 1 \l 17146 MR. TACIT: Right.
LISTNUM 1 \l 17147 MR. BIBIC: Look at wholesale.
LISTNUM 1 \l 17148 MR. TACIT: Right.
LISTNUM 1 \l 17149 MR. BIBIC: It has gone from nothing in 2002, nothing in 2003, and then $100 million in 2004, $100 million in 2005 and 2006.
LISTNUM 1 \l 17150 So, wholesale wireless revenues are growing rather fast.
LISTNUM 1 \l 17151 MR. TACIT: If you could go to page 100 for a second.
LISTNUM 1 \l 17152 MR. BIBIC: Yes.
LISTNUM 1 \l 17153 MR. TACIT: You will see that the definition of wholesale revenues includes two elements. It includes roaming revenues the company received for processing calls from wireless subscribers of other companies roaming within its territory.
LISTNUM 1 \l 17154 MR. BABIC: Yes.
LISTNUM 1 \l 17155 MR. TACIT: And revenues derived from the sale of wireless minutes to MVNOs.
LISTNUM 1 \l 17156 MR. BIBIC: That is correct.
LISTNUM 1 \l 17157 MR. TACIT: Would it be your expectation that roaming revenues have increased steeply in the last two or three years?
LISTNUM 1 \l 17158 MR. BIBIC: I don't know.
LISTNUM 1 \l 17159 MR. TACIT: Can you find out?
LISTNUM 1 \l 17160 MR. BIBIC: Whose roaming revenues?
LISTNUM 1 \l 17161 MR. TACIT: Well, I guess, you are right, those companies aren't before us here, so forget that.
LISTNUM 1 \l 17162 But I guess what I am suggesting to you is that, in fact, the MVNO part of this business is still pretty small. The growth is predominantly in the roaming revenue section. Even if I am wrong in that assumption, it still appears that overall the wholesale market is pretty small compared to the retail market. It doesn't suggest to me a vibrant wholesale market.
LISTNUM 1 \l 17163 MR. BIBIC: I will leave your submission alone, but clearly the wholesale segment of the market is smaller than the retail segment.
LISTNUM 1 \l 17164 When I refer to wholesale arrangements in wireless, I don't limit those to MVNOs. There can be resale agreements; there can be distribution arrangements where ‑‑ and I am not sure of the specifics ‑‑ East Link or Vidéotron, as the case may be is offering a Rogers wireless service. I mean, those are wholesale arrangements and shouldn't be foreclosed in the lexicon of wholesale.
LISTNUM 1 \l 17165 MR. TACIT: And you don't think those are captured here?
LISTNUM 1 \l 17166 MR. BIBIC: I don't know.
LISTNUM 1 \l 17167 THE CHAIRPERSON: Did you ask Bell to find out something about roaming?
LISTNUM 1 \l 17168 MR. TACIT: No, it was fine, thank you.
LISTNUM 1 \l 17169 Is it The Companies' evidence that if wholesale access is mandated for certain services, the Commission should not require the ILECs to offer monthly rated options for those services? In other words, it should allow the ILECs to only offer longer‑term contracts?
LISTNUM 1 \l 17170 It is not a trick question. If you are having trouble with that, you can turn to page 158 of your first round evidence ‑‑ or, sorry, paragraph 158 on page 72.
LISTNUM 1 \l 17171 THE CHAIRPERSON: What is that page number again?
LISTNUM 1 \l 17172 MR. TACIT: Page, I think it is 72, yes, paragraph 158.
LISTNUM 1 \l 17173 MR. BIBIC: Thank you for pointing me to this because I was trying to recall what ‑‑
LISTNUM 1 \l 17174 MR. TACIT: That is fine. I didn't refer you ‑‑ it was a matter of just expediting the process, not to trip you up.
LISTNUM 1 \l 17175 MR. BIBIC: Thank you.
LISTNUM 1 \l 17176 We refer here to kind of specific difficulties we have had with the mandated requirement to have monthly options with respect to the obligation to provide loops because, of course, what has been happening there ‑‑
LISTNUM 1 \l 17177 MR. TACIT: Excuse me, but I am not asking for the reasons right now. I am just asking whether it is The Companies' evidence that it doesn't want to have monthly rated options mandated even if wholesale services are mandated. That is the question.
LISTNUM 1 \l 17178 MR. BIBIC: That is the position.
LISTNUM 1 \l 17179 MR. TACIT: So, if that is true, I guess what I am curious about is how does locking in customers to longer‑term commitments for wholesale services create an incentive for those customers to build facilities and move to their own facilities as soon as possible?
LISTNUM 1 \l 17180 MR. BIBIC: Mr. Tacit, I mean, each company will come to its own judgment. We are not saying that these long‑term commitments have to be 20 years. They could be one year, two years, three years, four years, five years. It will be up to each provider to make their own choices. Now I am repeating myself, so I won't proceed.
LISTNUM 1 \l 17181 MR. TACIT: But I guess I am just looking at the economic incentive. I mean, as I understand it, The Companies' evidence is based on its theories of what sound economics are.
LISTNUM 1 \l 17182 I am just wondering ‑‑ it is a simple question ‑‑ how locking customers in is going to create the necessary incentive for them to build out and move to their own facilities as quickly as possible.
LISTNUM 1 \l 17183 MR. BIBIC: Our proposition is quite simple. It is that the regulatory regime is not what should be determining what providers do in terms of building or leasing. It is the market that should be determining that.
LISTNUM 1 \l 17184 A provider may have an incentive to build and will make its judgments. We may have an incentive to have them buy as much as we possibly can get them to buy from us and the market will sort that out. Somewhere in between in some places you will build, and in some places you will buy from us, et cetera. So, the regulation shouldn't force these outcomes. The market should force these outcomes.
LISTNUM 1 \l 17185 MR. TACIT: But could it be the case that if that happened, the incentive to build would be dampened or at least delayed?
LISTNUM 1 \l 17186 MR. BIBIC: Regulation wouldn't be causing disincentives and wouldn't be trying to force incentives with asymmetrical information.
LISTNUM 1 \l 17187 Again, the market will sort that out and policy direction says rely on market forces to the maximum extent feasible, and market forces don't foreclose the possibility that companies will buy from others.
LISTNUM 1 \l 17188 MR. TACIT: Thank you. I think I have your evidence on this point.
LISTNUM 1 \l 17189 At paragraph S‑4 of appendix 1 of their first round evidence, if you could just turn to that.
LISTNUM 1 \l 17190 MR. BIBIC: Whose evidence, sir?
LISTNUM 1 \l 17191 MR. TACIT: The Companies' evidence. Paragraph S‑4 of appendix 1.
LISTNUM 1 \l 17192 MR. BIBIC: We are with you.
LISTNUM 1 \l 17193 MR. TACIT: I am not with me, so bear with me for a sec.
LISTNUM 1 \l 17194 It is page 1 of 54. The Companies state, starting at the very bottom of the paragraph, the very last sentence:
"Based on recent experience, the cable companies are able to quickly capture a significant share of any local access market they choose to enter." (As read)
LISTNUM 1 \l 17195 Just skipping the next sentence.
"Furthermore, by providing telephony service, cable companies have been able to reverse the erosion of their basic cable subscribers, re‑assert their leadership in high speed internet access, reduce customer return and significantly improve their revenue and profitability performance. Cable companies are committed to the provision of telephony and are, or in some cases, beginning the process of expanding their capability in business markets to stimulate even faster growth." (As read)
LISTNUM 1 \l 17196 Now, that is still The Companies' evidence. Correct?
LISTNUM 1 \l 17197 MR. BIBIC: Yes.
LISTNUM 1 \l 17198 MR. TACIT: I am interested in your choice of the word "leadership" in that passage. Could another word for leadership also be dominance?
LISTNUM 1 \l 17199 MR. BIBIC: No.
LISTNUM 1 \l 17200 MR. TACIT: Can you explain the difference?
LISTNUM 1 \l 17201 MR. BIBIC: We use the term "leadership" in the sense that ‑‑ of course, this is kind of a gross generalization because we are not talking about specific geographic markets, but generally across the country, I believe the share of retail subscribers that are on a cable internet platform rather than an ILEC internet platform is greater, hence leadership.
LISTNUM 1 \l 17202 MR. TACIT: Has that always been the case?
LISTNUM 1 \l 17203 MR. BIBIC: Yes.
LISTNUM 1 \l 17204 MR. TACIT: Is the process accelerating in favour of the cable BDUs, as far as you are concerned?
LISTNUM 1 \l 17205 MR. BIBIC: What do you mean by that?
LISTNUM 1 \l 17206 MR. TACIT: You say that they are re‑asserting their leadership. So, presumably there must have been a time when there was no leadership. I am curious as to what you view as the changes that have taken place in the last few years.
LISTNUM 1 \l 17207 MR. IACONO: Well, there is lots going on, Mr. Tacit. They are obviously positioning with faster speeds, broader services, more bundle choice, obviously broader range of services, including in some instances wireless, which they are making arrangements through others, there are home phone services. So, they are basically continuing to very, very aggressively make incursions into the market, if you will. That is how competitive markets work.
LISTNUM 1 \l 17208 We are dealing as best we can with the different cable companies that we compete with.
LISTNUM 1 \l 17209 MR. TACIT: Let me take you perhaps one last time, then, to the CRTC monitoring report. This time I would like you to look at table 4.4.3 on page 66. Let me know when you have that.
LISTNUM 1 \l 17210 MR. BIBIC: I have it, thank you.
LISTNUM 1 \l 17211 MR. IACONO: I have it too.
LISTNUM 1 \l 17212 MR. TACIT: So, if we look at the first two rows, incumbent TSPs and then cable BDUs, we see that in fact up until 2005 the incumbent TSPs were actually ahead of the cable BDUs in terms of internet retail access service revenue market share. Would you agree with me?
LISTNUM 1 \l 17213 MR. BIBIC: Yes.
LISTNUM 1 \l 17214 MR. TACIT: Then in 2006 the cable BDUs exceeded that.
LISTNUM 1 \l 17215 MR. BIBIC: I guess that is why we used "re‑assert."
LISTNUM 1 \l 17216 MR. TACIT: I ask you again: Is there a concern about the BDUs perhaps becoming dominant in this market over time?
LISTNUM 1 \l 17217 MR. BIBIC: No.
LISTNUM 1 \l 17218 MR. TACIT: On what do you base that?
LISTNUM 1 \l 17219 MR. BIBIC: On the fact that we will do whatever we possibly can to gain as many retail internet subscribers as we can, and the cable companies will do the same, and other providers, who either have their networks, wireless internet, or wholesalers who ride on the cable platform or ILEC platform, will continue to compete, and customers will be well served.
LISTNUM 1 \l 17220 MR. IACONO: Mr. Tacit, if I may add, companies like the company you are representing are obviously aggressively competing in various markets.
LISTNUM 1 \l 17221 Just looking at some of the offers that Cybersurf provides, the bundle involving home phone service, et cetera, where internet is provided on a free basis, that, presumably, is intended to gain share from either the cable companies or from the DSL providers.
LISTNUM 1 \l 17222 It is happening all over the place, big and small.
LISTNUM 1 \l 17223 MR. TACIT: Thanks for the free advertising, Mr. Iacono, I appreciate it.
LISTNUM 1 \l 17224 If I could go to page 24 of that interrogatory response package that we handed out, this is a response to Companies‑CRTC‑204, 12th of April `07. Right at the bottom of the Companies' answers to parts (a) to (d), the Companies state:
"Nevertheless, if the Commission proceeds to mandate access to ILEC facilities in these circumstances..."
‑‑ and we are talking here about DSL. I think that is the context:
"...which the Companies vigorously oppose for the reasons set out above, it must also proceed symmetrically by mandating access to the cable facilities." (As read)
LISTNUM 1 \l 17225 Can you explain to me what the basis is of that position?
LISTNUM 1 \l 17226 MR. BIBIC: The circumstances here are internet?
LISTNUM 1 \l 17227 MR. TACIT: Yes.
LISTNUM 1 \l 17228 MR. BIBIC: Broadband.
LISTNUM 1 \l 17229 Frankly, we don't believe that there should be mandated access to either platform. That's our position.
LISTNUM 1 \l 17230 MR. TACIT: That's a given. Understood.
LISTNUM 1 \l 17231 MR. BIBIC: But if access is going to be mandated to something which is not essential in any manner, shape or form, to us, it wouldn't make sense that access be mandated to one but not the other. That would be, frankly, an unprincipled outcome.
LISTNUM 1 \l 17232 But I don't see why access should be mandated to our network and not the cable networks, or vice versa, in this particular case, where it is clear that there is no question of essentiality.
LISTNUM 1 \l 17233 MR. TACIT: Is one possible explanation that it might make it easier for the cable companies to exhibit even greater leadership in that market?
LISTNUM 1 \l 17234 MR. BIBIC: I don't get your point.
LISTNUM 1 \l 17235 MR. TACIT: Become more dominant in that market?
LISTNUM 1 \l 17236 MR. BIBIC: Are you suggesting that we wrote that to make the point that you just made?
LISTNUM 1 \l 17237 Absolutely not.
LISTNUM 1 \l 17238 MR. TACIT: I am not suggesting why you wrote anything, I am just asking the question.
LISTNUM 1 \l 17239 If there is, as you call it, asymmetrical regulation, would that make it easier for the cable companies to become more dominant in the internet market?
LISTNUM 1 \l 17240 MR. BIBIC: I am not tying this sentence to that point at all.
LISTNUM 1 \l 17241 MR. TACIT: Would you feel that the ILECs' hands are being tied to such an extent that it would make it easier ‑‑ by regulation, that it would make it easier for the cable companies to run away with that market?
LISTNUM 1 \l 17242 MR. BIBIC: I am just saying, if we are going to have an unprincipled essentiality regime, then we might as well grant access to both. Otherwise, it makes no sense.
LISTNUM 1 \l 17243 MR. TACIT: Could you focus on the question I asked?
LISTNUM 1 \l 17244 MR. BIBIC: Honestly, I don't understand it.
LISTNUM 1 \l 17245 MR. TACIT: Okay. Let me try to parse it out.
LISTNUM 1 \l 17246 Assume a scenario where the ILECs are regulated, in terms of DSL access, but TPIA is forborne and disappears.
LISTNUM 1 \l 17247 MR. BIBIC: Okay.
LISTNUM 1 \l 17248 MR. TACIT: Let's assume that scenario.
LISTNUM 1 \l 17249 MR. BIBIC: Yes.
LISTNUM 1 \l 17250 MR. TACIT: Would the ILECs feel hamstrung by that in the marketplace, and do they perceive a greater risk that the cable companies would become more dominant in the internet broadband markets as a result of that?
LISTNUM 1 \l 17251 MR. BIBIC: If somebody on the panel disagrees with me they will jump in, but I don't. I just don't think that makes any sense.
LISTNUM 1 \l 17252 MR. TACIT: Okay. Why doesn't it make sense?
LISTNUM 1 \l 17253 If it is no threat to you, then why do you care one way or the other?
LISTNUM 1 \l 17254 MR. BIBIC: Because it is completely unprincipled.
LISTNUM 1 \l 17255 MR. TACIT: I see.
LISTNUM 1 \l 17256 MR. BIBIC: There are no economics involved, but it's unprincipled.
LISTNUM 1 \l 17257 DR. TAYLOR: There are economics ‑‑
LISTNUM 1 \l 17258 COMMISSIONER del VAL: Mr. Tacit, I am not following where you want to go with this. The relevance of it isn't immediately apparent to me.
LISTNUM 1 \l 17259 MR. TACIT: Commissioner del Val, the issue is ‑‑ one of our concerns is that there could be either joint dominance or, also, dominance by the cable companies, and that forbearing in the wholesale market could increase the likelihood of dominance by either the ILECs or the cable companies, or some form of joint dominance increasing.
LISTNUM 1 \l 17260 What I am trying to explore with the panel is what the effects are of removing one or another component of the wholesale market, in the likelihood that that sort of dominance in the retail end might develop.
LISTNUM 1 \l 17261 That is what I am exploring with the panel.
LISTNUM 1 \l 17262 THE CHAIRPERSON: Mr. Taylor, you said that there were some economic points that you wanted to make.
LISTNUM 1 \l 17263 DR. TAYLOR: Yes. As I understand the issue, it is whether or not there should be an asymmetric regulatory rule that applies to one competitor in a market and not to another.
LISTNUM 1 \l 17264 Now, one would think, a priori, that a result of such a rule would be sort of unpredictable. We don't know exactly what the nature of mandated access at a particular price is going to be, but one thing we can say is that it is probably going to distort the market outcome in one way or another.
LISTNUM 1 \l 17265 I can't say, necessarily, that it is going to end up with cable dominance. There are, after all, other competitors playing this game, as well. But it is an unnecessary, unprincipled even, regulatory stick in the pot where it doesn't belong.
LISTNUM 1 \l 17266 MR. TACIT: But could it, in fact, strengthen the cable companies' position?
LISTNUM 1 \l 17267 DR. TAYLOR: That is one possible outcome, yes.
LISTNUM 1 \l 17268 MR. TACIT: Thank you.
LISTNUM 1 \l 17269 THE CHAIRPERSON: I suggest you go back to Mr. Bibic's fundamental assumption that we make principled regulation.
LISTNUM 1 \l 17270 MR. TACIT: Yes.
LISTNUM 1 \l 17271 THE CHAIRPERSON: Don't go any further with this example of unprincipled regulation.
LISTNUM 1 \l 17272 MR. TACIT: No ‑‑
LISTNUM 1 \l 17273 THE CHAIRPERSON: If it's asymmetric, it is obviously to cure some sort of perceived evil, not just asymmetric for the sake of being asymmetric.
LISTNUM 1 \l 17274 MR. TACIT: We understand that, and there was no intent to characterize the Commission's regulation as being unprincipled.
LISTNUM 1 \l 17275 I would like to move on to another topic.
LISTNUM 1 \l 17276 At page 25 of that same package, at the bottom of Page 1 of 2 of the Companies‑CRTC‑1007, the Companies state:
"As outlined in section 6(2) of the Companies' 15 March 2007 evidence, the Companies are strongly opposed to the concept of overlapping regulation. Overlapping regulation refers to the application of regulation to individual unbundled components, as well as to one or more wholesale services involving the combinations of unbundled components, where each of the regulatory measures is intended to address the same demonstrated market failure. The Companies also believe that the Commission should adopt the remedy that least interferes with market forces.
In light of all of the above, if the Commission determines that only the subcomponent of a service is an essential facility, then the Commission should only mandate the unbundling of that subcomponent." (As read)
LISTNUM 1 \l 17277 My question is, if it turned out that an end‑to‑end service was comprised of a whole bunch of essential services, I gather that the Commission ‑‑ if the Commission was not persuaded that the individual elements ought to be forborne ‑‑
LISTNUM 1 \l 17278 In other words, if the Commission were to continue regulating the unbundled elements, I suppose that the Commission would still prefer if the end‑to‑end service were no longer regulated, as well.
LISTNUM 1 \l 17279 Is that correct?
LISTNUM 1 \l 17280 Is that a logical outcome of that passage?
LISTNUM 1 \l 17281 THE CHAIRPERSON: You mean the Companies, not the Commission.
LISTNUM 1 \l 17282 MR. TACIT: I'm sorry, the Companies.
LISTNUM 1 \l 17283 MR. BIBIC: Could you repeat the question, Mr. Tacit, just so I'm sure I have it right before I answer?
LISTNUM 1 \l 17284 MR. TACIT: Yes.
LISTNUM 1 \l 17285 You have a service, end‑to‑end, that is currently characterized as mandated and is tariffed.
LISTNUM 1 \l 17286 MR. BIBIC: Okay.
LISTNUM 1 \l 17287 MR. TACIT: The underlying components are also essential, and the Commission, for whatever reason, decides that they are not going to forbear from requiring you to provide the elements.
LISTNUM 1 \l 17288 I am suggesting to you that a logical outcome of the evidence you have given in this passage, or that the Companies have given in this passage, is that the Companies would still prefer to see the end‑to‑end service forborne in that scenario.
LISTNUM 1 \l 17289 MR. BIBIC: Yes, and I think that the premise in your question is that all of the different subcomponents are deemed to be essential. I think it might be one logical conclusion that we might as well mandate the end‑to‑end service.
LISTNUM 1 \l 17290 MR. TACIT: I'm sorry ‑‑
LISTNUM 1 \l 17291 MR. BIBIC: If every single subcomponent of that end‑to‑end service were deemed essential, then I think it's not too much of a stretch to suggest that the actual end‑to‑end service might be deemed by the Commission to be essential.
LISTNUM 1 \l 17292 MR. TACIT: Actually, my question was the opposite. It might not be necessary to mandate the end‑to‑end service.
LISTNUM 1 \l 17293 MR. BIBIC: In that case, if that were the Commission's judgment, then they would mandate the subcomponents.
LISTNUM 1 \l 17294 MR. TACIT: Okay. But what I was getting at was, is it a logical extension of what is here ‑‑ you are saying you don't want overlapping regulation, right? You are saying you don't want both components and end‑to‑end services to be regulated? That is the way I read this.
LISTNUM 1 \l 17295 MR. BIBIC: The overlapping regulation point is slightly different, I think.
LISTNUM 1 \l 17296 What we are getting at here is when the Commission mandates access to a facility as being essential, it should focus on the smallest sub‑component possible.
LISTNUM 1 \l 17297 To the extent that it is not possible to uncouple the smallest sub‑component from the end‑to‑end facility, then it might be the case that the Commission would order access to the end‑to‑end facility. There is no hard and fast rule, as we say here.
LISTNUM 1 \l 17298 When I think of overlapping regulation, and the way that I think we have put it in our submission, it is the point I was going through with Ms Song yesterday, the Commission should not have multiple ‑‑ for example, unbundled loops, CDNA, GAS/HSA, Ethernet access service, those are all access methods that competitors or all providers use and choose.
LISTNUM 1 \l 17299 So the Commission should determine if there is a problem downstream, do we actually need to give access to each and every one of these or is unbundled loops enough?
LISTNUM 1 \l 17300 MR. TACIT: Okay. So basically what I am getting at is then it is the Companies' position that unbundling at the lowest level is the best way to go, if you are going to mandate something at all, rather than mandating end‑to‑end service, mandate all of the pieces that are essential and let the competitors use those pieces?
LISTNUM 1 \l 17301 MR. BIBIC: To address a particular problem downstream.
LISTNUM 1 \l 17302 MR. TACIT: Okay, thank you.
LISTNUM 1 \l 17303 THE CHAIRPERSON: But, Mr. Bibic, his initial question presupposed that all the elements are deemed essential and he asked would it be your preference then still not to designate the end‑to‑end service.
LISTNUM 1 \l 17304 Are you saying it is indifferent if you designate all the components, you might as well designate the whole thing?
LISTNUM 1 \l 17305 MR. BIBIC: I think I would have a hard time quarrelling with the Commission if they said there are four components to an end‑to‑end service and we need to give access to remedy a problem instead of forcing everyone to buy four separate pieces, let's give them the whole ‑‑ that seems to be logical to me.
LISTNUM 1 \l 17306 MR. TACIT: Mr. Chairman, thank you very much, I am completed here.
LISTNUM 1 \l 17307 THE CHAIRPERSON: Thank you very much.
LISTNUM 1 \l 17308 Madame Girard‑Giroux, who do we have now ‑‑ oh! sorry, I looked around, I didn't see ‑‑
LISTNUM 1 \l 17309 Go ahead, Commissioner Cram.
LISTNUM 1 \l 17310 COMMISSIONER CRAM: Mr. Bibic, a couple of questions.
LISTNUM 1 \l 17311 The symmetry of DSL TPA, and I am just doing it in reference to the Direction, would this be regulation of an economic nature or not?
LISTNUM 1 \l 17312 MR. BIBIC: Yes, it would be.
LISTNUM 1 \l 17313 COMMISSIONER CRAM: It would be, okay. So then we are not bound by 1(b)(3) in the symmetrical part?
LISTNUM 1 \l 17314 MR. BIBIC: I don't understand the question. I think you would be.
LISTNUM 1 \l 17315 COMMISSIONER CRAM: Okay, I am at the Direction.
LISTNUM 1 \l 17316 MR. BIBIC: I am too.
LISTNUM 1 \l 17317 COMMISSIONER CRAM: And I am at 1(b)(3). And maybe I ‑‑
LISTNUM 1 \l 17318 MR. BIBIC: Oh! I misunderstood your question.
LISTNUM 1 \l 17319 COMMISSIONER CRAM: Maybe we have doubled or not, so we don't know which ‑‑
LISTNUM 1 \l 17320 The symmetrical internet access would be a regulation of an economic nature, in which case (2) applies, or not of an economic nature, in which case (3) would apply?
LISTNUM 1 \l 17321 MR. BIBIC: I apologize, I misunderstood you.
LISTNUM 1 \l 17322 Correct, 1(b)(3) would not ‑‑
LISTNUM 1 \l 17323 COMMISSIONER CRAM: Apply.
LISTNUM 1 \l 17324 MR. BIBIC: ‑‑ apply.
LISTNUM 1 \l 17325 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 17326 My other question is: It seems to me as I read your evidence that your problem with the monthly offering, the requirement to offer monthly, was really the issue of: (a) your provisioning problems because it is an issue for you because it is a cost to only have somebody buy in for a month or two; but (b) the fact that it appears that maybe some competitors are using those services for a temporary period of time in order to transition themselves into their own facilities. Is that the issue?
LISTNUM 1 \l 17327 MR. BIBIC: That highlights the problem, yes.
LISTNUM 1 \l 17328 COMMISSIONER CRAM: Yes.
LISTNUM 1 \l 17329 What if we did something along the idea of saying you are required to do it monthly but that the margins or the costs are higher because of your costs of acquisition and the ordering and that sort of thing, would that seem to be ‑‑ I mean that would seem to solve the two issues and make more efficient sort of ‑‑
LISTNUM 1 \l 17330 MR. BIBIC: Yes, certainly if we are talking about what is an essential facility, I ‑‑
LISTNUM 1 \l 17331 COMMISSIONER CRAM: Yes.
LISTNUM 1 \l 17332 MR. BIBIC: That might work.
LISTNUM 1 \l 17333 COMMISSIONER CRAM: Mm‑hmm. Okay, thank you.
LISTNUM 1 \l 17334 THE CHAIRPERSON: Okay, Madame Girard‑Giroux, do we have somebody else?
LISTNUM 1 \l 17335 THE SECRETARY: Yes, please.
LISTNUM 1 \l 17336 I would like to call forward Mr. Denton on behalf of Xittel.
‑‑‑ Pause
LISTNUM 1 \l 17337 THE CHAIRPERSON: Mr. Denton, just so we make efficient use of time, how long do you expect to be?
LISTNUM 1 \l 17338 MR. DENTON: Well, I want to be finished before lunch.
LISTNUM 1 \l 17339 THE CHAIRPERSON: Good, let's go.
LISTNUM 1 \l 17340 MR. HENRY: So do we.
‑‑‑ Laughter / Rires
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 17341 MR. DENTON: Mr. Chairman, if I may be permitted, I haven't sat here cross‑examining Bell for 16 years and apart from the fact that some of us are older, greyer, fatter or balder, you might wonder what the differences are. So I would like just two things to let me know that I have woken up in a different universe.
LISTNUM 1 \l 17342 One was the very pleasant words to hear from a CRTC Commissioner talking about innovation at the applications layer, which was not something we might have heard back before the widespread popularity of the internet.
LISTNUM 1 \l 17343 And the second one, I will say this to Mr. Bibic before we start wrangling over stuff, was to hear him declare that in a competitive economy, in a competitive market, that prices ultimately determine costs.
LISTNUM 1 \l 17344 I remember we scandalized the faithful in 1991 by being less than wholly concerned with the cost structure of the incumbents. So there has been change in the 16 years.
LISTNUM 1 \l 17345 So onward.
LISTNUM 1 \l 17346 Mr. Taylor, I would like to start with a good little ideological tussle with you this morning just to keep us all a little amused and sharp.
LISTNUM 1 \l 17347 Can you go to your paragraph 51 of your declaration and there are statements there that I thought that would be interesting and might elucidate some of your thinking.
LISTNUM 1 \l 17348 MR. TAYLOR: Yes.
LISTNUM 1 \l 17349 MR. DENTON: You had strong language for ‑‑ it concerned the use of CLECs of unbundled loops to provide access to the internet rather than voice services.
LISTNUM 1 \l 17350 MR. TAYLOR: Correct.
LISTNUM 1 \l 17351 MR. DENTON: And you asked whether CLECs should be able to use the loop to provide something other than voice services, and rhetorically you said no and you flatly declared that to do otherwise was wrong.
LISTNUM 1 \l 17352 Now, as we know, my clients are ISPs rather than CLECs but I thought we might just sort of look at what the purpose was of getting unbundled loops.
LISTNUM 1 \l 17353 I think you would agree with me that the interest in getting access to the internet probable started around 1994, the widespread use of web browsers started about that time?
LISTNUM 1 \l 17354 MR. TAYLOR: No argument.
LISTNUM 1 \l 17355 MR. DENTON: Okay.
LISTNUM 1 \l 17356 MR. TAYLOR: That is roughly right.
LISTNUM 1 \l 17357 MR. DENTON: And I think you would also agree with me that the internet, the TCP protocol was inadequate for the transmission or use of voice services before, say, the early years of this century; would you agree with that?
LISTNUM 1 \l 17358 MR. TAYLOR: Yes.
LISTNUM 1 \l 17359 MR. DENTON: Okay. So I am kind of interested in your ‑‑ I am very much interested in your concept of essentiality in this context.
LISTNUM 1 \l 17360 Would you accept that the market power with which we may be concerned in this context is that which can be exercised through the control of facilities?
LISTNUM 1 \l 17361 MR. TAYLOR: That is a possibility, sure.
LISTNUM 1 \l 17362 MR. DENTON: Well, I am looking at your paragraph. It seems that ‑‑ I was trying to figure out the right word for your reasoning here and the best I could come up with was possibly anachronistic in the sense that the ISP industry grew up with the intention of getting access to the internet, which was then not useful for voice, and yet ‑‑ in other words, it was just a plain entrepreneurial response to the possibilities of satisfying consumer demand by getting access to the Internet.
LISTNUM 1 \l 17363 It seems to me in this paragraph are you are not arguing backward from the service definitions that are available into what can or shouldn't be done by entrepreneurs?
LISTNUM 1 \l 17364 In other words, regulated service definition seems to be influencing your idea of what can and should be done.
LISTNUM 1 \l 17365 MR. TAYLOR: No. On the contrary, what justifies paragraph 51 is what's going on in the market, that is the assumption in paragraph 51 is that Canadian consumers can get internet access, that the market is fully competitive, and that by mandating access to loops over which additional access could be provided, for example by your company, has no effect, or no additional effect in the downstream market, that that is competitive as it is.
LISTNUM 1 \l 17366 So if we go back to the definition for example that the Competition Bureau was throwing around, we don't gain anything in that market, or don't gain much. We don't gain a substantial increase in competition from forcing this access and distorting the market by declaring that the loop could be used for internet access.
LISTNUM 1 \l 17367 MR. DENTON: So are we not in a situation, then, that a regulatory permission is determining whether distortion is or is not taking place, in other words, regulatory permission to use it for other then strictly a voice service is in fact a distortion, in your view?
LISTNUM 1 \l 17368 MR. TAYLOR: That's correct.
LISTNUM 1 \l 17369 Look at the markets involved. We have a market for internet access, which by assumption is essentially competitive, and what the effect of declaring ‑‑ and finding loops which supposedly could be found to be essential for voice service, different service, have to be provided for voice service is regulatory intervention, has its costs, it has its benefits for voice, on the assumption that it is an essential facility for voice. We get, by assumption, significant increase in competition downstream.
LISTNUM 1 \l 17370 We don't get that in the market for internet access, so why would you want to distort that market when there is no benefit. You have a cost but no benefit, that seems to violate the principle of least intrusive regulation.
LISTNUM 1 \l 17371 MR. DENTON: All right. I see your point. I don't agree, but I take what you mean.
LISTNUM 1 \l 17372 I would suggest for your consideration, and ask you to respond, that in fact you are seeking that the CRTC maintain a rule about the uses to which an unbundled loop might be put on the theory that there is already sufficient competition in internet access.
LISTNUM 1 \l 17373 Is that correct?
LISTNUM 1 \l 17374 MR. TAYLOR: That there would be no benefit from permitting this exception, this essential facility exception, to be used for a market in which there is no gain as far as significant increase in competition.
LISTNUM 1 \l 17375 MR. DENTON: Thank you.
LISTNUM 1 \l 17376 Madam Secretary, is it possible that now we could distribute those tariff documents, please?
LISTNUM 1 \l 17377 THE SECRETARY: Sure.
LISTNUM 1 \l 17378 MR. DENTON: If you can just bear with me, we are going to have a distribution of documents.
‑‑‑ Pause
LISTNUM 1 \l 17379 MR. DENTON: I have my own, thank you.
LISTNUM 1 \l 17380 I won't be going to them immediately, but you will have them before you. You have seen them, you have written them.
‑‑‑ Pause
LISTNUM 1 \l 17381 MR. DENTON: Mr. Taylor, just to establish the obvious, you have said in paragraph 12 of your declaration of March 15 that:
"The ILECs are required to provide Category 2 wholesale Internet services on the basis of a cost‑plus Commission‑determined mark‑up." (As read)
LISTNUM 1 \l 17382 MR. TAYLOR: Yes. Yes, that is my understanding.
LISTNUM 1 \l 17383 THE SECRETARY: I'm sorry, I have to rectify something.
LISTNUM 1 \l 17384 MR. DENTON: I'm sorry.
LISTNUM 1 \l 17385 THE SECRETARY: You did file these documents as exhibits. Right?
LISTNUM 1 \l 17386 MR. DENTON: Yes.
LISTNUM 1 \l 17387 THE SECRETARY: All right.
LISTNUM 1 \l 17388 Please note that the Bell Canada one dated 5 July will be Exhibit No. 1.
EXHIBIT XITTEL‑1: Bell Canada document dated July 5, 2007
LISTNUM 1 \l 17389 THE SECRETARY: The other one dated October 18, Exhibit No. 2.
EXHIBIT XITTEL‑2: Bell Canada document dated October 18, 2007
LISTNUM 1 \l 17390 THE SECRETARY: Thank you.
‑‑‑ Pause
LISTNUM 1 \l 17391 MR. DENTON: I guess this question may be for Mr. Bibic or other members of the panel.
LISTNUM 1 \l 17392 Can you provide the decision in which the Commission has actually mandated a mark‑up on Bell's Gateway Access Service, the GAS, which, as we know, is the main service that ISPs use from Bell.
‑‑‑ Pause
LISTNUM 1 \l 17393 MR. BIBIC: I can't remember offhand.
LISTNUM 1 \l 17394 Do you want the decision number approving these tariff applications?
LISTNUM 1 \l 17395 Is that it?
LISTNUM 1 \l 17396 MR. DENTON: There is a decision that approves these tariff applications, but I think the issue is whether the Commission has put a limit on the mark‑up that you may charge for these wholesale services if they are not found to be essential.
LISTNUM 1 \l 17397 MR. BIBIC: They are Category 2 services.
LISTNUM 1 \l 17398 MR. DENTON: All right.
LISTNUM 1 \l 17399 In truth in relation to a series of services that I shall read I would ask you to agree with me that there is not a cap on the mark‑up established. There is HSA, support structures, ethernet access, dark fibre, interexchange private line.
LISTNUM 1 \l 17400 MR. BIBIC: Could we go through each one?
LISTNUM 1 \l 17401 So GAS, HSA ‑‑
LISTNUM 1 \l 17402 MR. DENTON: Yes.
LISTNUM 1 \l 17403 MR. BIBIC: Correct.
LISTNUM 1 \l 17404 MR. DENTON: Support structures?
LISTNUM 1 \l 17405 MR. BIBIC: I don't know.
LISTNUM 1 \l 17406 MR. DENTON: Ethernet access and transport?
LISTNUM 1 \l 17407 MR. BIBIC: No. I think there is a fixed mark‑up on Ethernet Access Service, EAS transport. It was a service deemed to be near essential and hence Category 1.
LISTNUM 1 \l 17408 MR. DENTON: Dark fibre?
LISTNUM 1 \l 17409 MR. BIBIC: I don't know.
LISTNUM 1 \l 17410 MR. DENTON: Interexchange private line?
LISTNUM 1 \l 17411 MR. ANDERSON: It would be both. There are both tariffed and a forborne versions.
LISTNUM 1 \l 17412 COMMISSIONER CRAM: I'm sorry, I missed that.
LISTNUM 1 \l 17413 MR. ANDERSON: I'm sorry. Just a minute.
‑‑‑ Pause
LISTNUM 1 \l 17414 THE CHAIRPERSON: Why are you trying to get this out of Bell? Isn't this an issue of public record? I mean, it is just a question of checking the tariffs as published by the CRTC.
LISTNUM 1 \l 17415 MR. DENTON: Yes, sir, my purpose is rhetorical, to point out B.C. has not mandated the caps on these matters. We can proceed.
LISTNUM 1 \l 17416 MR. BIBIC: I can agree on that.
LISTNUM 1 \l 17417 THE CHAIRPERSON: Okay, thank you.
LISTNUM 1 \l 17418 MR. DENTON: So my question I guess to you, Mr. Bibic, is that what services do you provide today on a wholesale and mandated basis that, in your view, provide reasonable incentives for competitors to self‑supply at least a portion of their required facilities?
LISTNUM 1 \l 17419 MR. BIBIC: So you are asking me which services Bell provides on a wholesale mandated basis which creates incentives for competitors to build their own networks?
LISTNUM 1 \l 17420 MR. DENTON: At least a portion of their required facilities, yes.
LISTNUM 1 \l 17421 MR. BIBIC: I am not sure, if sitting here, I can point to any specific one.
LISTNUM 1 \l 17422 MR. DENTON: Fair enough. And therefore, the next question I have for you is in relation to Bell. What services do The Companies expect to provide on a wholesale, but not mandated basis, that provide incentives to competitors to self‑supply at least a portion of their required facilities?
LISTNUM 1 \l 17423 MR. BIBIC: I think you are getting at the same kind of point that was being made before, and that is if we were to enter into market arrangements competitors would make their choices and they may buy from us during a period of time sufficient to allow them to build. So if their build‑out in a particular location is one year, then I think the transition period under our proposal would cover that.
LISTNUM 1 \l 17424 If the build‑out will take longer, then presumably a competitor would come to us and ask for service in the interim period while they are building or, in a particular location, it may just not make sense for a competitor to build at all, in which case presumably the wholesale arrangements would last longer.
LISTNUM 1 \l 17425 MR. DENTON: Fair enough. I would like to turn to the Exhibit 1, the GAS and the HSA, which is Tariff Notice 5410. And just as a question of fact, can we agree that these Tariffs 5410 and 5420 comport several components; one is a loop between the home and the central office, and the other is the interoffice transporters included in these tariffs?
LISTNUM 1 \l 17426 MR. BIBIC: Which one are you referring to?
LISTNUM 1 \l 17427 MR. DENTON: I am referring to 5410, Gateway Access Service.
LISTNUM 1 \l 17428 THE CHAIRPERSON: Is this another rhetorical question?
LISTNUM 1 \l 17429 MR. DENTON: Sorry, sir?
LISTNUM 1 \l 17430 THE CHAIRPERSON: Is this another rhetorical question?
LISTNUM 1 \l 17431 MR. DENTON: Its purposes will become clear. I think it is quite directed towards the incentive to build facilities.
LISTNUM 1 \l 17432 THE CHAIRPERSON: You know, I understand that. It is just you are asking about a tariff which is existing and in effect. So are you asking the witness for an interpretation of what the tariff covers?
LISTNUM 1 \l 17433 MR. DENTON: Yes, sir.
LISTNUM 1 \l 17434 THE CHAIRPERSON: Okay.
LISTNUM 1 \l 17435 MR. BIBIC: Okay, try that again.
LISTNUM 1 \l 17436 MR. DENTON: Would you agree with me that the Tariffs 5410 GAS and 5420 HSA comport two essential components; one, a loop between the home and the central office and, two, interoffice transport?
LISTNUM 1 \l 17437 MR. BIBIC: Yes.
LISTNUM 1 \l 17438 MR. DENTON: Thank you. I refer you to the economic studies that were filed in support of them. Would you agree with me that the term of their study periods are coming to an end in the year 2008? And here I stand to be corrected if you have the correct facts.
‑‑‑ Pause
LISTNUM 1 \l 17439 MR. BIBIC: We are looking for it, Mr. Denton. What are you looking at? It might make it go quickly.
LISTNUM 1 \l 17440 MR. DENTON: Well, I am looking at the economic evaluation.
LISTNUM 1 \l 17441 MR. BIBIC: For which one?
LISTNUM 1 \l 17442 MR. DENTON: For GAS and HSA, which was filed on 5 July, 2004.
LISTNUM 1 \l 17443 MR. BIBIC: Okay.
LISTNUM 1 \l 17444 MR. DENTON: And I was informed, but I do not know, that the study period comes to an end in 2008.
LISTNUM 1 \l 17445 MR. IACONO: Mr. Denton, perhaps I can help. I won't be very long. I mentioned this the other day when we filed and got approval for the GAS and HSA tariffs which was, I believe they were effective January 1, 2005. We filed them in November of 2004. They were filed as 6767D and the information is available in the public record. And there was no economic study required for the final rates that were approved by the CRTC.
LISTNUM 1 \l 17446 So the studies that you are looking at here were earlier vintages of economic studies that were not actually used to support the tariff filing that was finally approved.
LISTNUM 1 \l 17447 MR. DENTON: Mr. Iacono, are there in fact economic studies that support the tariff filings such as they are now?
LISTNUM 1 \l 17448 MR. IACONO: To my knowledge, I don't think they were required.
LISTNUM 1 \l 17449 MR. DENTON: Okay, thank you.
LISTNUM 1 \l 17450 Now, Mr. Bibic, supposing for instance that these services were continued in the future, whether essential or not, is it likely that their prices would be subject to considerable reduction as time goes on?
LISTNUM 1 \l 17451 MR. BIBIC: I don't know that.
LISTNUM 1 \l 17452 MR. DENTON: I am going to ‑‑
LISTNUM 1 \l 17453 COMMISSIONER CRAM: I am sorry, I didn't hear the answer.
LISTNUM 1 \l 17454 MR. BIBIC: I said, I don't know that.
LISTNUM 1 \l 17455 MR. DENTON: I am going to change now to some questions concerning definitional issues so we can have some further clarity of the discussion we are going to have.
LISTNUM 1 \l 17456 I would just like to ask you whether you would agree with me that a loop is the access network between the home and a central office or between a business and a central office? Is that an acceptable rough and ready definition?
LISTNUM 1 \l 17457 MR. BIBIC: Yes.
LISTNUM 1 \l 17458 MR. DENTON: Now, when a home or office is served from a remote, let us just use that as a term of art, or a digital subscriber line access multiplier, a DSLAM, or an outside plant interface or a joint working interconnect cabinet ‑‑ sorry for all the techno babble ‑‑ could we call that, the wire between them and the remote, a sub‑loop, again as a rough and ready?
LISTNUM 1 \l 17459 MR. BIBIC: Yes.
LISTNUM 1 \l 17460 MR. DENTON: So is there any general tariff item by which access to sub‑loops is made available today as an unbundled service?
LISTNUM 1 \l 17461 MR. BABIC: No.
LISTNUM 1 \l 17462 MR. DENTON: Thank you. Now, Mr. Serge Babin spoke on day three of the general tendency to move next generation services closer to the customer.
LISTNUM 1 \l 17463 MR. BABIN: Correct.
LISTNUM 1 \l 17464 MR. DENTON: Correct. And you spoke then of moving fibre out to sub‑loops, I take it in order to deal with a problem, like copper is an inadequate transport mechanism for high‑speed services you want to offer in the future?
LISTNUM 1 \l 17465 MR. BABIN: That is one of the reasons. There is also just to provide more capacity, whether we are running out of loops perhaps or the network is deteriorating, so high‑speed services definitely.
LISTNUM 1 \l 17466 MR. DENTON: So defects of copper, more bandwidth, what were the other reasons for just moving again?
LISTNUM 1 \l 17467 MR. BABIN: More growth, customers that are having multiple lines need to relieve the network for congestion, capacity.
LISTNUM 1 \l 17468 MR. DENTON: Right. So essentially the superior carrying capacities of fibre are being moved closer to the customer?
LISTNUM 1 \l 17469 MR. BABIN: Correct.
LISTNUM 1 \l 17470 MR. DENTON: Thank you.
LISTNUM 1 \l 17471 Also, I believe you said that co‑locations in remotes were deemed impractical in the deliberations of the CISC.
LISTNUM 1 \l 17472 MR. BABIN: Correct.
LISTNUM 1 \l 17473 MR. DENTON: Were there any particular few reasons for that?
LISTNUM 1 \l 17474 MR. BABIN: Cost would be one. Municipality rights‑of‑way, or municipal access. Multiple cabinets on street corners.
LISTNUM 1 \l 17475 Those would be some of the reasons.
LISTNUM 1 \l 17476 MR. DENTON: Insofar as competitive services need to be currently supplied through central office connections, is it not reasonable to infer from the movement of technology that these opportunities to compete are being affected, if not hindered by the fact that services are essentially being moved in closer toward the customer in the form of remotes and sub‑loops?
LISTNUM 1 \l 17477 MR. BIBIC: Which retail market are you talking about where there would be this inability to compete or competition would be hindered?
LISTNUM 1 \l 17478 MR. DENTON: As the delivery of services gets to be more and more closely associated with moving fibre closer to the customer, and your lease ‑‑ let's put it this way ‑‑ your lease competitors, those who lease equipment, are required to work through central offices, and the point of delivery for most of your new and interesting services is in remotes, would this not have a negative effect on their ability to compete?
LISTNUM 1 \l 17479 MR. BIBIC: I don't believe so.
LISTNUM 1 \l 17480 If you are talking about the internet market and the technological advances, or the network infrastructure, the way we deploy DSLAMs is allowing for further and better customer experience and competition with others.
LISTNUM 1 \l 17481 As I have said many times, we don't believe there is a downstream market problem in retail internet.
LISTNUM 1 \l 17482 If you want to focus, instead, on the voice market, the fact that Bell Canada deploys DSLAMs, these remotes, closer to the neighbourhoods does not foreclose the possibility of a competitor gaining access to a copper loop for the purposes of providing voice.
LISTNUM 1 \l 17483 In fact, Mr. Babin mentioned that the copper isn't ripped out, it's still there.
LISTNUM 1 \l 17484 MR. DENTON: Thank you.
LISTNUM 1 \l 17485 I would like to move our discussion, if you please, to a discussion of Tariff 5400, the ADSL, just as a general preface to the next few questions.
LISTNUM 1 \l 17486 To you, Dr. Taylor ‑‑ at paragraph 20 of your evidence I notice that you speak of the inevitable errors in the regulation of wholesale that have a compounding distortionary effect.
LISTNUM 1 \l 17487 You state, "When services are used in different combinations to provide different retail services," and you cite as examples the cases where (a) unbundled loops can be used by competitors to provide broadband access services, whereas competitors who can use ILEC wholesale DSL services do not have incentives to use unbundled loops.
LISTNUM 1 \l 17488 DR. TAYLOR: Yes, you are reading paragraph 20.
LISTNUM 1 \l 17489 MR. DENTON: Can you expand on that, just briefly, to improve my understanding of what you are saying there, please?
LISTNUM 1 \l 17490 DR. TAYLOR: The theory here is similar to what Mr. Bibic was talking about earlier, where you have regulation at multiple levels in the network ‑‑ different unbundling requirements and different offerings, which end up opening the ability for arbitrage, for inadvertent choices being made between competitors choosing to provide different services.
LISTNUM 1 \l 17491 You are essentially regulating the same function in two different ways. That's the idea.
LISTNUM 1 \l 17492 MR. DENTON: I am sorry for bearing down on this, but what is being distorted here, then?
LISTNUM 1 \l 17493 DR. TAYLOR: The choice that ‑‑ if you got either one of the requirements absolutely correct, which, of course, is another question, the fact that there is another layer placed on it has the effect of distorting the choice that you made the first time.
LISTNUM 1 \l 17494 If you think making a loop available for voice is the correct thing to do to have advantages in a voice market, because it's an essential facility there, that can give rise, then, if you have to open the same loop, for use for data services.
LISTNUM 1 \l 17495 MR. DENTON: I know your answer, but I am going to ask it anyway.
LISTNUM 1 \l 17496 Would you agree, or not, that the distortionary situation would be avoided if sub‑loop unbundling were mandated as an essential service?
LISTNUM 1 \l 17497 DR. TAYLOR: No, I don't think it would; and, of course, sub‑loop unbundling, by itself, entails all sorts of other problems.
LISTNUM 1 \l 17498 As I listen to your description, sub‑loop unbundling could conceivably ‑‑ if it worked and if it were costless, could eliminate or alleviate some problems that we will have as networks ‑‑ end‑to‑end networks ‑‑ the ILEC network today and the cable network today and broadband wireless today. As those evolve, making access available to competitors in various parts of that network may enable, essentially, resellers to stay in those markets. But at what cost. That is the issue.
LISTNUM 1 \l 17499 Downstream, where we care, where we find what alternatives customers have ‑‑ and they apparently have lots of alternatives today ‑‑ why should we place these possibly uneconomic and costly requirements to unbundle networks, where it is expensive to unbundle them, for no gain in the downstream market?
LISTNUM 1 \l 17500 MR. DENTON: The supposition that there is no gain depends on the exercise, or not, of significant market power.
LISTNUM 1 \l 17501 Would you agree?
LISTNUM 1 \l 17502 DR. TAYLOR: Yes.
LISTNUM 1 \l 17503 MR. DENTON: Okay. We are on the same planet there.
LISTNUM 1 \l 17504 Again, I would refer you to Tariff 5400. I want to establish that you would agree that Tariff 5400 for ADSL comports a component of access between the home or business and a central office, but no transport between central offices.
LISTNUM 1 \l 17505 The transport function is not present.
LISTNUM 1 \l 17506 MR. BIBIC: It is not present.
LISTNUM 1 \l 17507 MR. DENTON: Thank you.
LISTNUM 1 \l 17508 In essence, then, if ISPs relied on 5400, they would have a greater incentive to build their own facilities for transport between central offices.
LISTNUM 1 \l 17509 MR. BIBIC: That's correct.
LISTNUM 1 \l 17510 Or, of course, they would lease from third parties, or lease transport from Bell, or build their own.
LISTNUM 1 \l 17511 MR. DENTON: Right, or build their own. But, at least, self‑supplying becomes an obvious possibility under this scenario.
LISTNUM 1 \l 17512 Are you aware of whether any ISP has, in fact, used General Tariff 5400?
LISTNUM 1 \l 17513 MR. ANDERSON: Initially we did have a number of wholesale customers that did use it. Today there are a few. I don't know the exact number.
LISTNUM 1 \l 17514 MR. DENTON: Thank you.
LISTNUM 1 \l 17515 I don't believe there are any, but if you want to contradict me, I invite you to supply a further and later answer.
LISTNUM 1 \l 17516 MR. BIBIC: They all moved to GAS, Mr. Denton. There might be one or two stragglers, I don't know. We will check, and if you are incorrect, we will let you know.
LISTNUM 1 \l 17517 MR. DENTON: I believe that they all moved to GAS because, in one tariff, they have interoffice transport supplied by you folks at a price which is reasonable and affordable.
LISTNUM 1 \l 17518 MR. BIBIC: Hence, they are not building.
LISTNUM 1 \l 17519 MR. DENTON: Exactly. Therefore, it might be inferred that Bell has provided a very handy tariff which provides a disincentive for ISPs to build facilities.
LISTNUM 1 \l 17520 MR. BIBIC: Or it might equally be inferred that regulation has handed them a handy tariff.
LISTNUM 1 \l 17521 MR. DENTON: And the control of significant market power, possibly.
LISTNUM 1 \l 17522 MR. BIBIC: With that, we will have to agree to disagree.
LISTNUM 1 \l 17523 MR. WATERS: That's why, Mr. Denton, in most other jurisdictions, GAS is actually either not regulated or it is regulated at a retail‑minus price and not on a cost‑base price. Otherwise, it would produce exactly the effect which has happened here, where people slide down the ladder of investment rather than climb up it.
LISTNUM 1 \l 17524 MR. DENTON: Your point is perfectly well taken. What I am addressing here is the fact that something has occurred which is willingly supplied by the Companies, and which provides no incentive for investment in transport facilities by itself.
LISTNUM 1 \l 17525 And given the choice between 5410 and 5400, the rational person would choose 5410.
LISTNUM 1 \l 17526 MR. IACONO: Mr. Denton, again, I am stretching my memory here, but to the best of my recollection ‑‑ and we can certainly verify this and confirm ‑‑ when we filed what turned out to be the approved tariff, if I recall correctly, several elements of 5400 were actually taken away. There were amendments made.
LISTNUM 1 \l 17527 We can verify that and confirm later.
LISTNUM 1 \l 17528 MR. DENTON: Mr. Iacono, I am less involved than you. Can you tell me what components might have been taken away?
LISTNUM 1 \l 17529 MR. IACONO: As I said, I am just recalling the process, and there were some changes made at the time of the filing.
LISTNUM 1 \l 17530 And I have no material with me, I am just going from memory.
LISTNUM 1 \l 17531 So we will verify and we will confirm.
LISTNUM 1 \l 17532 MR. DENTON: Who took them away? Was it the CRTC asking you to take them out ‑‑
LISTNUM 1 \l 17533 MR. IACONO: No, it was part of the whole tariff restructuring process, because the tariff ended up to be a little different in terms of structure and components. It had volume discounts. It had a separation between business and residence.
LISTNUM 1 \l 17534 We can summarize that all for you in a neat way and provide the differences between what was previously in place, but never approved, and what was finally approved in the Tariff Notice.
LISTNUM 1 \l 17535 And it was 367.67(d), filed, I believe, in November of 2004.
LISTNUM 1 \l 17536 But we can confirm that and provide it.
LISTNUM 1 \l 17537 MR. DENTON: Mr. Iacono, thank you very much.
LISTNUM 1 \l 17538 In any case, Mr. Bibic, I assume that we would conclude that 5400 is both commercially available and contains less functionality than 5410. So my question to you would be: Do you supply 5410, in a sense, at the prices you have decided, willingly and without a requirement from the CRTC to do so?
LISTNUM 1 \l 17539 It's approved, but were you forced to come to this by the Commission ‑‑ to make this offering by the Commission?
LISTNUM 1 \l 17540 MR. IACONO: The tariff itself I explained the other day, so we can go back to the record at some appropriate time and read it, but it was done through a negotiation process.
LISTNUM 1 \l 17541 There obviously had been a lot of discussion with Commission Staff over the previous years, and we ended up, through a negotiation process, with a tariff that was approved.
LISTNUM 1 \l 17542 MR. DENTON: And negotiation occurred between CRTC Staff, your various customers and yourselves?
LISTNUM 1 \l 17543 MR. IACONO: No, there were no CRTC Staff present, to the best of my recollection, during the negotiations.
LISTNUM 1 \l 17544 MR. DENTON: So this was a negotiation between you and customers to arrive at a mutually satisfactory result.
LISTNUM 1 \l 17545 MR. IACONO: Correct, and it obviously wasn't all customers. There were seven or eight different parties involved.
LISTNUM 1 \l 17546 MR. DENTON: Thank you, Mr. Iacono.
LISTNUM 1 \l 17547 This is a question to the panel. In other words, whoever wants to answer may do so.
LISTNUM 1 \l 17548 Would you agree that 5400 is an essential service?
LISTNUM 1 \l 17549 MR. BIBIC: No.
LISTNUM 1 \l 17550 MR. DENTON: Or supplies an essential service?
LISTNUM 1 \l 17551 MR. BIBIC: No.
LISTNUM 1 \l 17552 MR. DENTON: Why not?
LISTNUM 1 \l 17553 MR. BIBIC: Do you mean as ruled on by the Commission, or what we believe it should be?
LISTNUM 1 \l 17554 MR. DENTON: As ruled upon by the Commission, and then as what you believe it should be.
LISTNUM 1 \l 17555 MR. BIBIC: Okay. My quick "No" was what we believe it should be.
LISTNUM 1 \l 17556 MR. DENTON: Your beliefs are crystal clear and admirable.
LISTNUM 1 \l 17557 MR. BIBIC: Thank you.
LISTNUM 1 \l 17558 MR. DENTON: Whether we can live with them is another issue.
LISTNUM 1 \l 17559 MR. BIBIC: The answer is a little bit more complicated, and I can absorb from behind the table.
LISTNUM 1 \l 17560 MR. DENTON: The backfield?
LISTNUM 1 \l 17561 MR. BIBIC: Yes.
LISTNUM 1 \l 17562 If you would give me a moment, I will get the answer.
LISTNUM 1 \l 17563 MR. DENTON: Please.
‑‑‑ Pause
LISTNUM 1 \l 17564 MR. BIBIC: I am advised that there is a component of this, which is admin loop and support, that has been deemed to be Category 1, and the other elements have not been deemed Category 1.
LISTNUM 1 \l 17565 If that is wrong, then we will fix the record.
LISTNUM 1 \l 17566 MR. DENTON: Admin loop and support, is that the actual loop between the customer's premises and yourselves?
LISTNUM 1 \l 17567 I'm sorry, I genuinely don't know the answer to this.
LISTNUM 1 \l 17568 MR. BIBIC: Neither do I.
LISTNUM 1 \l 17569 MR. BABIN: I think the loop admin and support is to actually allow the loop to split off. It's for a splitter in the central office to hand the loop off.
LISTNUM 1 \l 17570 So it is just that one element.
LISTNUM 1 \l 17571 MR. HENRY: It's to split the data from the voice.
LISTNUM 1 \l 17572 MR. DENTON: Okay. So it's a splitter, but not the actual physical wire that connects the premises to the ‑‑
LISTNUM 1 \l 17573 MR. BABIN: It was a separate element of the tariff, I believe.
LISTNUM 1 \l 17574 THE CHAIRPERSON: Mr. Denton, I am going to assert the Chairman's prerogative. I suggest that the witnesses inform themselves on this, and we will deal with it after lunch. Okay?
LISTNUM 1 \l 17575 MR. DENTON: Excellent.
LISTNUM 1 \l 17576 THE CHAIRPERSON: It is now quarter to 12. We will resume at 1 o'clock. Thank you.
‑‑‑ Upon recessing at 1145 / Suspension à 1145
‑‑‑ Upon resuming at 1310 / Reprise à 1310
LISTNUM 1 \l 17577 THE CHAIRPERSON: I am sorry for the delay, some of my colleagues had trouble getting their bill at the restaurant.
LISTNUM 1 \l 17578 So let's go.
LISTNUM 1 \l 17579 THE SECRETARY: Counsel Denton, are you ready to proceed?
LISTNUM 1 \l 17580 MR. DENTON: Just give me a moment, Mrs. Secretary.
‑‑‑ Pause
LISTNUM 1 \l 17581 MR. DENTON: Welcome back, gentlemen.
LISTNUM 1 \l 17582 A question that I failed to pursue to ground is to inquire of the panel whether services under Tariff 5400 are, in fact, commercially available.
LISTNUM 1 \l 17583 MR. BIBIC: Some components of Tariff 5400 are, in fact, being used by customers.
LISTNUM 1 \l 17584 MR. DENTON: So that if my clients wish to avail themselves of the services offered under 5400 they would be able to do so in a commercially reasonable time frame?
LISTNUM 1 \l 17585 MR. BIBIC: Well, I know of a customer who has collocated DSLAMs in our central offices that uses the loop admin and support function that is in that tariff.
LISTNUM 1 \l 17586 MR. DENTON: Yes, but what about using all of it, all of the services offered under 5400?
LISTNUM 1 \l 17587 MR. BIBIC: Well, if the tariff is applicable, until it is withdrawn it is in effect.
LISTNUM 1 \l 17588 MR. DENTON: Since it is in effect, it is therefore, in your view, commercially available?
LISTNUM 1 \l 17589 MR. BIBIC: Correct.
LISTNUM 1 \l 17590 MR. DENTON: Thank you.
‑‑‑ Pause
LISTNUM 1 \l 17591 MR. DENTON: I'm going to switch my line of questioning now to services available under broadband broadcasting distribution undertaking licenses.
LISTNUM 1 \l 17592 I gather that The Companies will be offering IPTV over DSL lines at some point in the future?
LISTNUM 1 \l 17593 MR. BIBIC: Correct.
LISTNUM 1 \l 17594 MR. DENTON: Do you know what anticipated proportion of those customers availing themselves of IPTV will be served from central offices?
LISTNUM 1 \l 17595 MR. BIBIC: We don't.
LISTNUM 1 \l 17596 MR. DENTON: Is this because you don't know or you haven't made that prediction?
LISTNUM 1 \l 17597 MR. BIBIC: Both.
LISTNUM 1 \l 17598 MR. DENTON: Thank you.
LISTNUM 1 \l 17599 Given that cable companies do not purchase wholesale services from the ILECs, the incumbents, is it fair to say that the specific form of leased facilities, leased facilities competition which the ILECs are trying to foreclose, is coming from ISPs?
LISTNUM 1 \l 17600 MR. BIBIC: Could you repeat that question, please?
LISTNUM 1 \l 17601 MR. DENTON: Yes.
LISTNUM 1 \l 17602 MR. BIBIC: Recognizing that cable companies do purchase wholesale services from The Companies.
LISTNUM 1 \l 17603 MR. DENTON: You say as a premise that they do or that they do not?
LISTNUM 1 \l 17604 MR. BIBIC: They do.
LISTNUM 1 \l 17605 MR. DENTON: All right.
LISTNUM 1 \l 17606 Would you say that on the whole the form of leased facilities competition that the incumbents would be seeking to minimize or foreclose is coming from ISPs?
‑‑‑ Pause
LISTNUM 1 \l 17607 MR. BIBIC: I'm not sure. You are suggesting that we are trying to foreclose some kind of competition.
LISTNUM 1 \l 17608 MR. DENTON: Yes. Would that be an accurate statement in terms of moving services from essential and mandated to non‑essential and non‑mandated?
LISTNUM 1 \l 17609 MR. BIBIC: No.
LISTNUM 1 \l 17610 MR. DENTON: Why not?
LISTNUM 1 \l 17611 MR. BIBIC: The issue that we have brought to bear in this proceeding is whether or not the wholesale services we provide should be provided on a mandated basis, recognizing that we are not saying we are not going to supply wholesale services.
LISTNUM 1 \l 17612 MR. DENTON: Thank you.
LISTNUM 1 \l 17613 I would like to raise a set of questions related to voice and its relationship to other services.
LISTNUM 1 \l 17614 Do you see the question of essentiality as being confined to the voice telephony market or does it relate to all services that can be provided by an IP connection?
LISTNUM 1 \l 17615 MR. BIBIC: The scope of this proceeding we readily agree relates to telecommunications services subject to the jurisdiction of the Telecom Act and whether or not they are essential to the continued competition downstream or to minimize any issues of significant market power.
LISTNUM 1 \l 17616 MR. DENTON: So then in effect something might be essential, considered an essential facility in principle, that would be available to be used for other than voice service?
LISTNUM 1 \l 17617 MR. BIBIC: Sure. It could be used for data services.
LISTNUM 1 \l 17618 MR. DENTON: Yes, exactly.
LISTNUM 1 \l 17619 So in that sense, then, essentiality is not related necessarily to the service, but to the question of whether the infrastructure is easily reproduced or replaceable by others?
LISTNUM 1 \l 17620 MR. BIBIC: I disagree with that. It relates to the state of competition in a particular downstream market that is subject to the jurisdiction of the CRTC under the Telecom Act.
LISTNUM 1 \l 17621 MR. DENTON: My next question refers to Inukshuk Wi‑Max.
LISTNUM 1 \l 17622 Have you filed a tariff in relation to the provision of wholesale Wi‑Max services through Inukshuk?
LISTNUM 1 \l 17623 MR. BIBIC: No.
LISTNUM 1 \l 17624 MR. DENTON: Are you going to?
LISTNUM 1 \l 17625 MR. BIBIC: Don't know.
LISTNUM 1 \l 17626 MR. DENTON: Is not such a filing a condition of your licence?
LISTNUM 1 \l 17627 MR. BIBIC: It is not.
LISTNUM 1 \l 17628 MR. DENTON: Are you certain?
LISTNUM 1 \l 17629 MR. BIBIC: I am.
LISTNUM 1 \l 17630 MR. DENTON: Okay.
‑‑‑ Pause
LISTNUM 1 \l 17631 MR. DENTON: Another topic.
LISTNUM 1 \l 17632 Do The Companies have a tariff in which next generation wide area transport services are being made available without also the buyer being required to purchase Ethernet or ADSL access services?
LISTNUM 1 \l 17633 MR. BIBIC: Ethernet transport service is not available without also acquiring Ethernet access.
LISTNUM 1 \l 17634 MR. DENTON: Yes. Do you have such a thing available whereby one might go to The Companies for instance and get a wide area transport service without at the same time being obliged to get Ethernet or ADSL access service?
LISTNUM 1 \l 17635 MR. BIBIC: Ethernet transport is not available unbundled from Ethernet access.
LISTNUM 1 \l 17636 MR. DENTON: So one can't. It's not available.
LISTNUM 1 \l 17637 MR. BIBIC: Correct.
LISTNUM 1 \l 17638 MR. DENTON: That is the answer. Thank you.
LISTNUM 1 \l 17639 Would The Companies consider allowing competitors to supply a portion of the end‑to‑end circuit without themselves being ‑‑ without the competitors being forced to purchase legacy CDN or IXPL, interexchange private line services?
LISTNUM 1 \l 17640 MR. BIBIC: You will have to run that by me again.
LISTNUM 1 \l 17641 MR. DENTON: Okay. Assuming no action is taken by the Commission on this subject and you are not required to do so ‑‑
LISTNUM 1 \l 17642 MR. BIBIC: Okay...?
LISTNUM 1 \l 17643 MR. DENTON: ‑‑ would you be ready, or soon ready to agree to allow competitors who invest in their facilities to supply at least a portion of the end‑to‑end circuit without at the same time being required to purchase legacy CDN or interexchange private line services?
LISTNUM 1 \l 17644 MR. BIBIC: I guess I don't really know the answer to that. I would have to ‑‑
LISTNUM 1 \l 17645 I'm not sure I'm completely following you, and even if I did I suspect that I would have to discuss with the folks who make business and operational decisions before I committed The Company to provide a particular service.
LISTNUM 1 \l 17646 MR. DENTON: Mr. Bibic, for us of course the question of whether, speaking as ISPs, we self‑provision or how much we buy from you people is a question of how much it makes rational economic sense to.
LISTNUM 1 \l 17647 Now, for us, if we have to buy services in certain packages whereby we cannot say separate transport from access has an impact on whether we are able to self‑provision and those conditions. So, therefore, it is important for us to know whether The Company would consider ISPs for instance being able to purchase for themselves certain portions of your services rather than others. That bears on the question then of whether ‑‑
LISTNUM 1 \l 17648 MR. BIBIC: I'm following you.
LISTNUM 1 \l 17649 I mean, it depends on what portions you are talking about.
LISTNUM 1 \l 17650 The technical feasibility, I don't think I can sit here and foreclose that possibility, nor confirm in actual fact that it would happen without understanding exactly what your client, or the customer in this case, would need and ultimately in terms of how that would be provisioned, the terms et cetera, it is not my final decision to make.
LISTNUM 1 \l 17651 MR. DENTON: I understand.
LISTNUM 1 \l 17652 MR. BIBIC: So it is difficult on the stand to make that kind of commitment one way or the other.
LISTNUM 1 \l 17653 MR. DENTON: I understand what you are saying.
LISTNUM 1 \l 17654 But it is not repugnant to The Companies to allow that separation of transport and access, is it?
LISTNUM 1 \l 17655 MR. BIBIC: You mean kind of through commercial negotiations one party to another trying to figure out what makes sense? That notion is not repugnant.
LISTNUM 1 \l 17656 MR. DENTON: Thank you.
‑‑‑ Pause
LISTNUM 1 \l 17657 MR. DENTON: Now, last question as far as I can see, is: If competitors, if your competitors such the ISPs or your customers and competitors such as ISPs, wish to avoid having to use slower legacy services, are they required to over built interoffice transport or self‑supply them themselves?
‑‑‑ Pause
LISTNUM 1 \l 17658 MR. BIBIC: Or they could buy interoffice transport from third parties who have such transport.
LISTNUM 1 \l 17659 MR. DENTON: Yes. So either we have to buy it, provide it, and so that the avoidance of a slower legacy service necessarily involves either overbuilding your stuff of self‑supplying it in some other way. Correct?
LISTNUM 1 \l 17660 MR. BIBIC: I think so. I guess I got bogged down in your term. Self‑supply and building, to me, are the same thing, sourcing from a third party. Right?
LISTNUM 1 \l 17661 MR. DENTON: Thank you.
LISTNUM 1 \l 17662 Mr. Chairman, thank you very much. That completes my questions.
LISTNUM 1 \l 17663 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 17664 I guess this is the end of Bell, so, in closing, Dr. Taylor, maybe you can help me.
LISTNUM 1 \l 17665 I have been listening now to you and your colleagues for two days and you are always talking about end‑to‑end facility‑based competition. You made a long case if this was a preference it would lead to the best efficient outcome, et cetera. Yet, there is no end‑to‑end facilities' competition in Canada and there's not a single carrier who services all its customers end to end.
LISTNUM 1 \l 17666 The government has directed us to use, as definition for facility‑based, companies that have both: they have their own facilities and lease some others, et cetera.
LISTNUM 1 \l 17667 So I appreciate it's just a conceptual model that you are using, that you will never have an end to end, it's like we will never have perfect competition with your competitor, but for our purposes, when there's somebody, they stop being a CLEC and it become an end‑to‑end competition with, what is the measurement you seek to do it? More than 51 percent of the traffic goes over build networks? Or how do you look at it, as an economist trying to get the most efficient outcome?
LISTNUM 1 \l 17668 MR. TAYLOR: Well, first, I guess, I recognize, as Justice Breyer said in the U.S. Supreme Court, that competition, true competition, takes place in the unshared portion of the network, not the shared portion.
LISTNUM 1 \l 17669 So however you set it up, largely end to end with few dependent competitors or many dependent competitors and few end to end, it doesn't matter ‑‑ well, it does matter, but the competition that you want to see takes place in the portions of the network that are unshared.
LISTNUM 1 \l 17670 Let me take you back to the stepping‑stone view that I had in 2001, possibly, and that we, frankly, had in the Telecom Act of '96, in the United States. The story there was we would begin local competition with resale ‑‑ resale at a discount, is what we had.
LISTNUM 1 \l 17671 So carriers could come in with no facilities whatsoever, a business plan, customers, but no facilities. That would bring them in. Then, they would begin to provide some of their own facilities, getting the rest through unbundled elements, and then, ultimately, in this 1996 view of progress, advance to, what the United States thought, as well, was end‑to‑end, facilities‑based competition.
LISTNUM 1 \l 17672 The advantage is ‑‑ think of resale ‑‑ where does the competition take place? It's not down at the network. Everyone is using the same network.
LISTNUM 1 \l 17673 So there is still competition. I mean, you can put bells and whistles and you can have better customer service, worse customer service, bundle differently, all of that stuff, but, when it comes to fundamental changes in the technology or in the network, this competition isn't going to produce that, or at least it's not going to enhance that, as compared with, for example, the competition that we see between the two close to end‑to‑end networks today in Canada, the cable network and the telephone network. From that we see high‑end, fast services, Internet services, lots of new broadband services, video services, great stuff, that is network‑based down at the bottom.
LISTNUM 1 \l 17674 That's the best I can give you as to where the line should be drawn, in some sense. I mean, we can see ‑‑ I can see large advantages in end to end, where ‑‑ end to end is roughly where we are today. Granted, the ILECs aren't end to end. I mean, Bell Canada doesn't terminate calls to its own customers in Alberta and cable companies surely are not end to end, in that sense, as well. No telephone company is.
LISTNUM 1 \l 17675 THE CHAIRPERSON: Yes. Well, I guess I will put it a different way. When do we declare victory, you know? That's what I'm trying to figure out here.
LISTNUM 1 \l 17676 You consider, I assume, Bell and Rogers and TELUS end‑to‑end facility‑based competition, although we both know they aren't, et cetera. That's why I wanted to know what is the sort of demarcation point or what do I look at in order to find the demarcation point?
LISTNUM 1 \l 17677 MR. TAYLOR: Well, it seems to me that the correct answer is to go back to the essential facility. Why does Bell Canada not provide terminating access on its own facilities to residential customers in Alberta? Because it doesn't pay. It would not pass an non‑essential facilities test. It is essential for them to purchase access, switched access, in this case, from the ILEC in Alberta.
LISTNUM 1 \l 17678 So for that, sharing of facilities is optimal, is economic, and I think go back to the essential facilities test to tell you when that is. When it is not is when the service could be provided by anyone or by several, where there's competition in providing the service.
LISTNUM 1 \l 17679 THE CHAIRPERSON: Okay. Thank you.
LISTNUM 1 \l 17680 MR. WATERS: Mr. Chairman ‑‑
LISTNUM 1 \l 17681 THE CHAIRPERSON: Yes.
LISTNUM 1 \l 17682 MR. WATERS: ‑‑ if I could just add a comment that I think that the concept of declaring victory isn't quite the right way to look at it, because that immediately gets ‑‑
LISTNUM 1 \l 17683 THE CHAIRPERSON: That was my shorthand there.
LISTNUM 1 \l 17684 MR. WATERS: Well, but I think it has made some regulators uncomfortable, because they feel that if they take their foot off the peddle, off the accelerator, when there's two, then they are declaring that a duopoly is victory.
LISTNUM 1 \l 17685 That's not the question. The question is: when on the pathway to a better, more competitive market is it appropriate for me to change gears, as a regulator? And so the question: is two enough? is not actually the right question to be asking. It's how do I get more than two? And if I change gears, in a regulatory sense, from ex ante to ex post at some point in time, having got the market to at least two, if I change gears is that how I'm going to get more than two?
LISTNUM 1 \l 17686 So I think it's not a case of declaring victory, but it's: is it time to move to a different regulatory paradigm, where I still have regulation, in an ex post sense, I still have interim powers, but I have shifted onto a different paradigm to move the market further along?
LISTNUM 1 \l 17687 To me that's where you are in a very different position. The rest of us outside North America suffer from what I call "cable envy". You know, if you read the beginning of every regulatory report, it says, "If we had as much cable as North America has, I wouldn't write the rest of this report. I would stop right here in the introductory paragraph".
LISTNUM 1 \l 17688 The rest of us are using a ladder of investment to climb to where you are. So I must admit it's a little strange when I come here and I see one of the world's most complete ladders of investment in a market that actually already has where the rest of us are struggling to get to.
LISTNUM 1 \l 17689 So I think your question is: how do we make what we have got work harder, faster and better? I think that's the essential question.
LISTNUM 1 \l 17690 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 17691 Madam Giroux‑Girard, do we need to break to let the next panel set up?
LISTNUM 1 \l 17692 THE SECRETARY: Yes.
LISTNUM 1 \l 17693 THE CHAIRPERSON: Okay, we will take a five‑minute break ‑‑
LISTNUM 1 \l 17694 MR. McCALLUM: Mr. Chair?
LISTNUM 1 \l 17695 THE CHAIRPERSON: ‑‑ while Bell sets itself up.
LISTNUM 1 \l 17696 MR. McCALLUM: Mr. Chair, two things ‑‑
LISTNUM 1 \l 17697 THE CHAIRPERSON: We would not complete if there wasn't an interjection from your counsel.
LISTNUM 1 \l 17698 Go ahead.
LISTNUM 1 \l 17699 MR. McCALLUM: ‑‑ rather than have the Secretary read the exhibits log into the record, it's quite lengthy, the number of exhibits ‑‑
LISTNUM 1 \l 17700 THE CHAIRPERSON: Yes.
LISTNUM 1 \l 17701 MR. McCALLUM: ‑‑ and secondly, the number of undertakings, we would propose to file them as exhibits Monday morning and make an advanced copy available to the Bell people et al over the weekend so that they can double‑check that. So if that's all right?
LISTNUM 1 \l 17702 THE CHAIRPERSON: Okay, let's do that. Yes.
LISTNUM 1 \l 17703 MR. McCALLUM: And secondly, I was asked about Exhibit 4 and what the source of the various services that are list that people have been asked to fill out. And just, you know, for clarity, the source of the services is as follows:
LISTNUM 1 \l 17704 Number one, it was Bell et al's Schedules 7 and 8, from their original March 15th submission, they were asked to provide a list of services; secondly, TELUS, Appendix D, from their March 15th submission; thirdly, MTS Allstream's attachment to their separate letter of March 15, and they, too, have a list of services.
LISTNUM 1 \l 17705 And the list of services prepared by staff has, in some cases, generic terms because in some cases there's a specific term for a specific phone company, but the staff made it as generic as possible.
LISTNUM 1 \l 17706 I trust that helps for all. Thank you, Mr. Chair.
LISTNUM 1 \l 17707 THE CHAIRPERSON: Okay, we will take a five‑minute break while Rogers sets itself up.
LISTNUM 1 \l 17708 Thank you.
‑‑‑ Upon recessing at 1330 / Suspension à 1330
‑‑‑ Upon resuming at 1335 / Reprise à 1335
LISTNUM 1 \l 17709 THE CHAIRPERSON: Okay, would you take your seats please?
LISTNUM 1 \l 17710 Okay, before we start I would like to make a couple of general remarks. I have been listening now to four days of cross‑examination and, frankly, I think we have wasted an awful lot of time.
LISTNUM 1 \l 17711 You know, this is cross‑examination, you can ask leading questions, you can go right to the point and then point to the document and point out where the witness has contradicted himself. Everybody has been very gingerly going forward, trying to walk the witnesses through documents and documents, trying to get them to confirm basic facts first of all before asking the leading question.
LISTNUM 1 \l 17712 We are not going to finish on time this way and I don't think it is going to make for a better hearing. I would really appreciate if counsel would try to address the key issue which is before us. And we have told you very clearly that we think at the end of the day the six buckets that we have to deal with and what goes in, we tell you what are the services and which go there and try to answer the questions in such a way that help us leave meaning in that decision at the end of the day.
LISTNUM 1 \l 17713 The other question, of course, or the preliminary question in the underlying principles that we apply and the pricing principles and I would gladly see questioning there. But I think we should all try to, now that we have had four days under our belts and we pretty well have gone through the basic underpinnings. Just ask questions of refinement on those and then, the rest of it, let us go straight to the heart of the matter. Thank you.
LISTNUM 1 \l 17714 Madam Giroux‑Girard.
LISTNUM 1 \l 17715 THE SECRETARY: Thank you, Mr. Chairman.
LISTNUM 1 \l 17716 Counsel Dunbar, please proceed presenting your witnesses.
LISTNUM 1 \l 17717 MR. DUNBAR: Thank you, Madam Secretary.
LISTNUM 1 \l 17718 Mr. Chairman, it is my pleasure to introduce the panel of witnesses appearing on behalf of Rogers Communications Inc. I will begin with the introductions from left to right, starting nearest me. Dr. Roger Ware, Professor of Economics at Queen's University; next to Dr. Ware is Suzanne Blackwell, President of Giganomics Consulting Inc.; beside her is David Watt, Vice‑President, Regulatory Economics, Rogers Communications Inc.; beside Mr. Watt is Ian Pattinson, Vice‑President, Product Development, Rogers Cable Inc.; beside Mr. Pattinson is Andy Striggler, Vice‑President, Customer Networks, Rogers Cable Inc. who is not a witness, but will be assisting the panel; and beside Mr. Striggler is Dale Hatfield, Telecommunications Consultant and Adjunct Professor at the University of Colorado at Boulder.
LISTNUM 1 \l 17719 Mr. Pattinson, Mr. Watt and Ms Blackwell will jointly address the main evidence of Rogers in this proceeding and the responses to interrogatories addressed to the company on April 12 and July 19, exclusive of those responses to interrogatories prepared by Mr. Hatfield and Dr. Ware, and Mr. Watt will quarterback the panel.
LISTNUM 1 \l 17720 Mr. Hatfield will address the evidence he prepared that was filed by Rogers on March 15 as Appendix 2 and the related interrogatory responses. Dr. Ware will address the evidence he prepared filed by Rogers on July 5 and he will address the related interrogatories to that evidence.
LISTNUM 1 \l 17721 Madam Secretary, the panel is ready to be sworn.
AFFIRMED: DALE HATFIELD
AFFIRMED: IAN PATTINSON
AFFIRMED: DAVID WATT
AFFIRMED: SUZANNE BLACKWELL
AFFIRMED: ROGER WARE
LISTNUM 1 \l 17722 THE SECRETARY: Now we will proceed with Counsel Abugov, on behalf of the Competition Bureau.
LISTNUM 1 \l 17723 Thank you.
LISTNUM 1 \l 17724 MR. DUNBAR: Actually, Madam Secretary, I'm just going to ask the panel to swear to their evidence.
LISTNUM 1 \l 17725 THE SECRETARY: Yes, all right.
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 17726 MR. DUNBAR: First, I would like to ask Mr. Watt, Mr. Pattinson and Ms Blackwell, can you confirm that the evidence filed under the name of Rogers Communications Inc., on March 15, 2007, exclusive of the evidence of Mr. Hatfield, including related interrogatory responses, were prepared either by you or under your direction?
LISTNUM 1 \l 17727 MR. WATT: I do.
LISTNUM 1 \l 17728 MR. PATTINSON: I do.
LISTNUM 1 \l 17729 MS BLACKWELL: I do.
LISTNUM 1 \l 17730 MR. DUNBAR: And Mr. Hatfield, can you confirm that the evidence filed as Appendix 2 to the Rogers' evidence, and the related interrogatory responses, were prepared by you or under your direction?
LISTNUM 1 \l 17731 MR. HATFIELD: Yes, it was.
LISTNUM 1 \l 17732 MR. DUNBAR: And can you affirm that this evidence is accurate, to the best of your knowledge and belief?
LISTNUM 1 \l 17733 MR. HATFIELD: Yes.
LISTNUM 1 \l 17734 MR. DUNBAR: And Dr. Ware, can you confirm that the evidence filed on July 5th bearing your name, and related interrogatory responses, were prepared by you or under your direction?
LISTNUM 1 \l 17735 MR. WARE: Yes, I can confirm that.
LISTNUM 1 \l 17736 MR. DUNBAR: And can you also confirm that it's true, to the best of your knowledge and belief?
LISTNUM 1 \l 17737 MR. WARE: Yes, I can.
LISTNUM 1 \l 17738 MR. DUNBAR: The panel is now ready for cross‑examination.
LISTNUM 1 \l 17739 THE SECRETARY: Thank you, Counsel Dunbar.
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 17740 MR. ABUGOV: Thank you, Madam Secretary.
LISTNUM 1 \l 17741 Good afternoon, Mr. Chairman, Commissioners, members of the Rogers panel.
LISTNUM 1 \l 17742 My name is Lorne Abugov. With the assistance of Mr. Hariton, to my right, I will be seeking to obtain some clarifications on several issues that Rogers has addressed in its evidence. I will try to be as succinct as I can.
LISTNUM 1 \l 17743 Dr. Ware, I'm going to begin my questions with you, however, Mr. Watt, you may wish to come in and voice any views The Company has, as appropriate.
LISTNUM 1 \l 17744 To save time, please have two documents in front of you to begin. The first is Rogers' opening statement, dated October 2nd, 2007, and the second is Rogers' interrogatory response to MTS Allstream 101. That's dated July 19th.
LISTNUM 1 \l 17745 We have provided a copy of the interrogatory response to the hearing Secretary and it will be distributed to you and the commissioners now. We are also giving copies to your counsel.
LISTNUM 1 \l 17746 MR. WARE: Yes, I have those documents, Counsel, thank you.
LISTNUM 1 \l 17747 MR. ABUGOV: Good.
LISTNUM 1 \l 17748 Mr. Watt, you have both of the documents?
LISTNUM 1 \l 17749 MR. WATT: Yes, I do.
LISTNUM 1 \l 17750 MR. ABUGOV: Good.
LISTNUM 1 \l 17751 I will ask both of you to look first at Rogers' opening statement, please.
LISTNUM 1 \l 17752 Some of the parties to this proceeding have taken the Commission up on their invitation to file revised opening statements, pursuant to the Commission's letter of October 3rd, which proposed a structure and approach for essential facilities.
LISTNUM 1 \l 17753 I'm not aware, myself, that Rogers has filed any revised statement. Could we just confirm whether my understanding's correct?
LISTNUM 1 \l 17754 MR. WATT: I confirm your understanding is correct.
LISTNUM 1 \l 17755 MR. ABUGOV: Thank you.
LISTNUM 1 \l 17756 Dr. Ware, I assume you have read the Rogers' opening statement and you are familiar with its contents. Is that correct?
LISTNUM 1 \l 17757 MR. WARE: Yes, I have.
LISTNUM 1 \l 17758 MR. ABUGOV: Thank you.
LISTNUM 1 \l 17759 If we look specifically at the new definition proposed by Rogers, at page 2 of its opening statement, you will see the definition is found at page Roman numeral ii ‑‑ sorry, at Roman numeral ii, that's right, and I'm actually looking at the definition, Roman numeral ii, the second paragraph of your definition.
LISTNUM 1 \l 17760 You see that, Dr. Ware?
LISTNUM 1 \l 17761 MR. WARE: Is that the little ii, I mean the ‑‑
LISTNUM 1 \l 17762 MR. ABUGOV: No, it's ‑‑ I'm at page Roman numeral ii, right under the heading "Rogers' Definition of Essential Facilities" ‑‑
LISTNUM 1 \l 17763 MR. WARE: Yes, subsection ii.
LISTNUM 1 \l 17764 MR. ABUGOV: ‑‑ first bullet, subsection ii ‑‑
LISTNUM 1 \l 17765 MR. WARE: Yes.
LISTNUM 1 \l 17766 MR. ABUGOV: ‑‑ Roman numeral ii, that's correct.
LISTNUM 1 \l 17767 MR. WARE: Yes, got it.
LISTNUM 1 \l 17768 MR. ABUGOV: Okay. You see that Rogers has added to its definition the words, quote, "in a non‑trivial manner", between the word "lessen" and the word "competition". You see that?
LISTNUM 1 \l 17769 MR. WARE: Yes, I do.
LISTNUM 1 \l 17770 MR. ABUGOV: Okay. So this branch of the Rogers' definition, as it's been revised, now reads:
"Where the input is controlled by a supplier that possesses market power in respect of its supply, such that, absent mandated supply of the input on regulated terms, the supplier could use its market power in the relevant upstream market to prevent or lessen in a non‑trivial manner competition in the relevant downstream markets." (As read)
LISTNUM 1 \l 17771 That's correct?
LISTNUM 1 \l 17772 MR. WARE: Yes.
LISTNUM 1 \l 17773 MR. ABUGOV: Thank you.
LISTNUM 1 \l 17774 Now, as I read the record of this proceeding, Dr. Ware, I think, in fact, it was you that first recommended the change that now is found in Rogers' definition. I think it was to address concerns you expressed regarding a trivial or de minimis lessening of competition. Is that correct?
LISTNUM 1 \l 17775 MR. WARE: I don't think that ‑‑ I don't think it's true to say that I recommended a change. I used the phrase "substantial lessening of competition" in my evidence.
LISTNUM 1 \l 17776 MR. ABUGOV: Yes, that's correct, I think. In fact, it was the interrogatory I put in front of you, MTS Allstream 101. So let's take a look at that, please.
LISTNUM 1 \l 17777 In this question, MTS Allstream excerpted what was, at the time, Rogers' definition, and they asked you, Dr. Ware, if you supported the definition, in whole or in part. And you responded by stating, just as you said to me, that you are in broad agreement with Rogers' definition.
LISTNUM 1 \l 17778 You note, I would change the ‑‑ that's the first sentence, "I'm broadly in agreement with the definition proposed by Rogers"?
LISTNUM 1 \l 17779 MR. WARE: Yes.
LISTNUM 1 \l 17780 MR. ABUGOV: But you responded that ‑‑ you added rather, or said you would prefer to add, and I quote, the following:
"I would change the phrase 'lessen competition' to 'substantially lessen competition' in part two of the Rogers' definition." (As read)
LISTNUM 1 \l 17781 You then explained your rationale for proposing that change or suggesting that change, which is, and I quote again from that paragraph:
"...simply to require that the lessening of competition be non‑trivial and significant enough to warrant regulatory intervention." (As read)
LISTNUM 1 \l 17782 Is that correct?
LISTNUM 1 \l 17783 MR. WARE: Yes, it is.
LISTNUM 1 \l 17784 MR. ABUGOV: And we have already looked at the revised definition. It's clear that it was, in fact, revised, and it seems to me that it was done to address your concern that the lessening of competition must be non‑trivial in scope.
LISTNUM 1 \l 17785 So I can only assume that you and your client worked together in the process of revising at least this portion of the definition. Is that correct?
LISTNUM 1 \l 17786 MR. WARE: I think I saw this in draft, but I don't remember being a contributor to this document at all, at any stage.
LISTNUM 1 \l 17787 MR. ABUGOV: Okay, that's fair enough. Thank you.
LISTNUM 1 \l 17788 MR. WATT: Mr. Abugov, I think I can ‑‑
LISTNUM 1 \l 17789 MR. ABUGOV: Yes.
LISTNUM 1 \l 17790 MR. WATT: ‑‑ probably help here.
LISTNUM 1 \l 17791 MR. ABUGOV: Sure.
LISTNUM 1 \l 17792 MR. WATT: When we received the interrogatory from MTS Allstream, we obviously had to address the issue. We also, at the same time, received the interrogatory from the CRTC, on the 19th of July, 2001, and that interrogatory the CRTC put forward a proposed definition. In item two, the Commission referred to "...the carrier could prevent or substantially lessen the competition in the relevant downstream market".
LISTNUM 1 \l 17793 So with having to answer that interrogatory and the MTS one, we did have discussions with Dr. Ware on this matter. The question you put to Dr. Ware just a moment ago was with reference to the opening statement, and Dr. Ware did not see the opening statement until he arrived here. I guess earlier this week would have been the first time that he would have seen that.
LISTNUM 1 \l 17794 MR. ABUGOV: Right. Thank you very much.
LISTNUM 1 \l 17795 THE CHAIRPERSON: But surely all of this is beside the point. The question is: does Dr. Ware agree with the proposition put forward by Rogers or not?
LISTNUM 1 \l 17796 MR. ABUGOV: Well, that's very close to my question, Mr. Chairman.
LISTNUM 1 \l 17797 And thank you, Mr. Watt, for that clarification.
LISTNUM 1 \l 17798 My point is that it appears that Rogers made the change regarding "in a non‑trivial manner", but they stopped short of addressing the latter part of your rationale in Interrogatory 101, which is in front of you, which is, and I quote:
"The lessening of competition must be significant enough to warrant regulatory intervention." (As read)
That's what I would like to ask you about.
LISTNUM 1 \l 17799 Dr. Ware, are you able to tell me ‑‑ and it sounds like you might not be able to tell me, and perhaps Mr. Watt has to tell me, but can someone tell me why Rogers, in revising the definition to include, quote, "in a non‑trivial manner", chose not to include the second half of your suggested qualified, which is that the "lessening be significant enough to warrant regulatory intervention"?
LISTNUM 1 \l 17800 Why was this not also included in the revised definition, Mr. Watt?
LISTNUM 1 \l 17801 MR. WATT: Well, I think, actually, if I read Dr. Ware's sentence, he wrote:
"It is perfectly possible, however, that the lessening of competition required to warrant intervention by a regulator such as the CRTC is different from that required for a finding under the Competition Act." (As read)
LISTNUM 1 \l 17802 Now, when we came to answer the question, as we say, in 2002, our proposal is that the word "substantially" should be read to denote "non‑trivial lessening of competition". If the word is used in that context, Rogers does not disagree with it's inclusion. However, with respect to Competition Act purposes, the term may be used by competition law authority to set a threshold akin to market failure, and we don't think that is the appropriate test in this case.
LISTNUM 1 \l 17803 MR. ABUGOV: Thank you, Mr. Watt. I understand that, and that's a good answer for why you chose not to use the word "substantial" and instead used the term "in a non‑trivial manner", but what I wanted to know is why no one considered Dr. Ware's additional qualifier beyond in a "non‑trivial manner", which happens to be "significant enough to warrant regulatory intervention".
LISTNUM 1 \l 17804 So I will ask you, Dr. Ware, what do those words mean and why did you include that in your response to 101?
LISTNUM 1 \l 17805 MR. WARE: Thank you, Counsel.
LISTNUM 1 \l 17806 My thinking here, and my reasoning here, is very much the same as a competition policy intervention, which is simply what do we mean by "a lessening of competition"? Do we think that any time that some device or contract is entered into which causes an infinitesimal increase in price, do we think that warrants regulatory intervention? No, we don't because regulatory intervention is costly.
LISTNUM 1 \l 17807 So what I am articulating here is simply the idea that there needs to be a threshold. If we think that there is a lessening of competition, we have to quantify it. We have to quantify it. It can't be negligible. It can't be something that's so small that it would be far more costly to try to correct it than it would be to just ignore it.
LISTNUM 1 \l 17808 MR. ABUGOV: Again, thank you, Dr. Ware, but now you have given me an explanation of why you wanted "non‑trivial manner", what I'm really trying to get at ‑‑ and I'm trying to adhere to the chairman's requirements ‑‑ I'm trying to understand whether the words "significant enough to warrant regulatory intervention" that you chose to use in your response to MTS 101, whether they mean anything.
LISTNUM 1 \l 17809 Is that above and beyond "in a non‑trivial manner" or is it just a modification of those words? I'm trying to understand if it's a stand‑alone element of your suggested revision, that's all I'm trying to understand.
LISTNUM 1 \l 17810 MR. WARE: I can't speak to the revision, but I can try to explain.
LISTNUM 1 \l 17811 What I am doing in that sentence that you are quoting me is to explain what "substantial lessening of competition" means. That's what I'm trying to do.
LISTNUM 1 \l 17812 MR. ABUGOV: So, then, my last question to you on this point, and I will move on, you now see what Rogers has chosen to do, and the revised definition in front of you, it does not include the words "significant enough to warrant regulatory intervention".
LISTNUM 1 \l 17813 Do you agree with the Rogers' definition, as revised, or should it also include the words "significant enough to warrant regulatory intervention", in your view, Dr. Ware?
LISTNUM 1 \l 17814 MR. WARE: No, because for the same reason that, whenever you read the phase "substantial lessening of competition" in the Competition Act, it also doesn't include those words or in the Merger Guidelines, for example.
LISTNUM 1 \l 17815 So I view the Rogers' revised definition with the non‑trivial as being essentially the same as mine.
LISTNUM 1 \l 17816 MR. ABUGOV: As being essentially ‑‑
LISTNUM 1 \l 17817 MR. WARE: Essentially the same as ‑‑ a "non‑trivial lessening of competition" is essentially the same as "a substantial lessening of competition".
LISTNUM 1 \l 17818 MR. ABUGOV: All right.
LISTNUM 1 \l 17819 Let's stick with MTS 101, for a minute, Dr. Ware. I want to clarify a different aspect of your answer, please.
LISTNUM 1 \l 17820 So the Commission agrees with your answer to this interrogatory, let's say they have accepted the proposed revised definition that you had suggested, and they wanted to try to operationalize it. Those are the assumptions of my question.
LISTNUM 1 \l 17821 So is it your suggestion that the Commission should look to the jurisprudence from competition law when they try to operationalize this revised definition or Rogers'? And specifically, when they are trying to deal with the threshold for substantial lessening of competition that you are recommending in your interrogatory response, or even the revised "in a non‑trivial manner" in the Rogers' revised definition, do you expect the Commission should look to competition law jurisprudence in interpreting and operationalizing the Rogers' definition? Is that what you would expect?
LISTNUM 1 \l 17822 MR. WARE: Well, if I may, maybe I can just qualify ‑‑ or rather change that a little bit. It seems to me the issue really is suppose the Commission were to adopt a definition that incorporates the phrase "substantial lessening of competition", or some concept that's similar, which actually could be the Rogers', could be a "non‑trivial lessening of competition", and then ‑‑
LISTNUM 1 \l 17823 MR. ABUGOV: It could also be the Bureau's third bullet. Correct?
LISTNUM 1 \l 17824 MR. WARE: And most certainly it certainly could be the Bureau's, as well, which also uses the expression "substantial lessening of competition".
LISTNUM 1 \l 17825 My expectation would be, certainly, yes, they would look at competition law for guidance as to what those phrases mean because competition law is the area where those phrases have been most explored and used and, essentially, kind of clarified.
LISTNUM 1 \l 17826 Now, that's not the same as saying that the answer will be identical. It's saying that it would be obvious that the Commission would look to competition jurisprudence for clarification.
LISTNUM 1 \l 17827 MR. ABUGOV: Thank you, and that's essentially what I was asking you. Thank you.
LISTNUM 1 \l 17828 So still with you, Dr. Ware, I'm going to ask you to turn next to Rogers' supplementary evidence, which is, in fact ‑‑
LISTNUM 1 \l 17829 THE CHAIRPERSON: Just a second.
LISTNUM 1 \l 17830 MR. ABUGOV: Yes, sir, sorry.
LISTNUM 1 \l 17831 THE CHAIRPERSON: I just didn't understand this last answer, so let me ‑‑ I like your question because it's the key value.
LISTNUM 1 \l 17832 As the decision‑maker, I have to apply a test. If you use the wording "substantially lessen", I would say, yes, these are magic words, the competition law has a long history of jurisprudence, I know how to apply it, et cetera.
LISTNUM 1 \l 17833 I look at the Rogers' tests and it says "in a non‑trivial manner". You chose different words. It's a basic presumption in interpretation, you use different words, you mean different things. So what have you done? Have you lowered or raised the standard? That's what I'm trying to figure out.
LISTNUM 1 \l 17834 I assume, I must say, at first blush, when I read that, you actually meant to take it a notch down below the "substantial lessening" that is required for abuse of dominance, for instance, et cetera.
LISTNUM 1 \l 17835 Am I wrong there, Dr. Ware or not? Please tell how you see this thing.
LISTNUM 1 \l 17836 MR. WARE: Mr. Chair, I think I should qualify my answer by saying that of course those are not my words, those are Rogers' words. But would I advocate a standard that was a notch down? Possibly, because I think in a regulatory arena or in a regulatory jurisdiction where you have a system in place for ‑‑ you have good information monitoring, you have knowledge of the industry, you have a framework for administering, let's say, access pricing, all of these costs that I think we heard quite a lot of, seen quite a bit in the Bureau's evidence, the administrative costs, are somewhat lower than they are in a competition law framework, where you have to ‑‑ you know, if you can't persuade the parties, you are going to have to litigate to find out exactly what the standard is, which is very expensive.
LISTNUM 1 \l 17837 So, yes, I would say perhaps the standard should be somewhat lower.
LISTNUM 1 \l 17838 THE CHAIRPERSON: Sorry, Mr. Abugov. Back to you.
LISTNUM 1 \l 17839 MR. ABUGOV: It's not a problem. Thank you, Mr. Chairman.
LISTNUM 1 \l 17840 So, Dr. Ware, if you could turn to Rogers' supplementary evidence, that's, in fact, a report that you have prepared, as I understand it, dated July 3, 2007, filed by Rogers on July 5, 2007. Do you have that evidence?
LISTNUM 1 \l 17841 MR. WARE: Yes, I have that, thank you.
LISTNUM 1 \l 17842 MR. ABUGOV: I will just wait for the commissioners to get the evidence.
LISTNUM 1 \l 17843 THE CHAIRPERSON: We do have it, Mr. Abugov.
LISTNUM 1 \l 17844 MR. ABUGOV: Thank you, Mr. Chairman.
LISTNUM 1 \l 17845 So let's please turn to page 3, Dr. Ware. I'm specifically looking at paragraph 5. That is at the bottom of page 3, and it carries on to the top of page 4.
LISTNUM 1 \l 17846 Are you there?
LISTNUM 1 \l 17847 DR. WARE: Yes.
LISTNUM 1 \l 17848 MR. ABUGOV: Thank you.
LISTNUM 1 \l 17849 You might as well, before we begin, just to speed things up, pull up the Bureau's Supplementary Evidence in this proceeding, which was also filed on July 5th.
LISTNUM 1 \l 17850 DR. WARE: Yes, I have that, too, counsel.
LISTNUM 1 \l 17851 MR. ABUGOV: Thank you.
LISTNUM 1 \l 17852 Your section of the paper is called "Essential Facilities ‑ First Principles". I said that we would look at paragraph 5. There is a sentence six or seven lines down, as I have it, that reads:
"Since demand for the input is a derived demand..."
LISTNUM 1 \l 17853 Do you see that section?
LISTNUM 1 \l 17854 DR. WARE: Yes, I do.
LISTNUM 1 \l 17855 MR. ABUGOV: I would like to read that.
"Since demand for the input is a derived demand, there must be market power downstream in the retail market as a necessary but not sufficient condition for there to be market power upstream over this input." (As read)
LISTNUM 1 \l 17856 That is your evidence, sir. That remains your position in this proceeding?
LISTNUM 1 \l 17857 DR. WARE: Yes, it is.
LISTNUM 1 \l 17858 Perhaps I could clarify what I mean by "market power downstream". What I mean is market power in the end product.
LISTNUM 1 \l 17859 In other words, for example, if the end product is voice telephony, and if there are ‑‑ and this example has been used before, I know, but it's a good example.
LISTNUM 1 \l 17860 If there are providers using two technologies, one cable, one using the wireline voice telephony, and if, hypothetically, the downstream market was perfectly competitive, then that would mean that it would be impossible to have an essential input into the voice telephony market, even though there might be the possibility of entrants and other providers who were prevented from entering by the non‑availability of the input.
LISTNUM 1 \l 17861 As I say, this point has been made by others, but it's an important point.
LISTNUM 1 \l 17862 MR. ABUGOV: Thank you. I understand that.
LISTNUM 1 \l 17863 But you are not proposing any way to change your statement or your evidence. That is correct, subject to your comment about the dominance in the downstream market?
LISTNUM 1 \l 17864 That sentence is still correct?
LISTNUM 1 \l 17865 DR. WARE: Yes. If I were to write it today, instead of writing "market power downstream in the retail market," I would write "market power downstream in the end product market."
LISTNUM 1 \l 17866 MR. ABUGOV: All right. Thank you.
LISTNUM 1 \l 17867 I want you to look at the Bureau's Supplementary Evidence now, which I asked you to pull out. Please go to page 9, paragraph 26. Paragraph 26 carries over onto page 10. There is a sentence right at the end of the paragraph on page 10 that I am going to read to you now.
"However, for the purpose of identifying an essential facility, starting the analysis by inquiring as to whether the owner of the essential facility is dominant downstream is a useful screen. If the owner of the facility is not dominant downstream, then the facility cannot be essential." (As read)
LISTNUM 1 \l 17868 Do you see that?
LISTNUM 1 \l 17869 DR. WARE: Yes, I do.
LISTNUM 1 \l 17870 MR. ABUGOV: Dr. Ware, my question is: When I look at the evidence on the Bureau's position that I have just read to you and I compare it to your statement that we just looked at in the Rogers' Supplementary Evidence at pages 3 and 4, paragraph 5, I see, and I think the Bureau sees, a strong similarity of views.
LISTNUM 1 \l 17871 The Bureau says that if the owner is not dominant downstream, then the facility can't be essential, and you say that there has to be market power downstream as a necessary condition for there to be market power upstream over that input.
LISTNUM 1 \l 17872 It seems to me, at least, and to the Bureau, to be pretty much the same. Do you agree with that or not?
LISTNUM 1 \l 17873 DR. WARE: We are not far apart, but I would qualify ‑‑ the problem I have is with the use of the word "dominant".
LISTNUM 1 \l 17874 As you just correctly said, my statement is about market power downstream, and I find the word "dominant" rather vague. If dominance means that someone has market power, then we are saying exactly the same thing.
LISTNUM 1 \l 17875 But if dominance ‑‑ I don't really know what the Bureau means by dominance there, but if it simply means that you are large, then it is not what I am saying. What I am saying is that you have market power in the end product market, or there is market power in the end product market.
LISTNUM 1 \l 17876 It's a necessary condition.
LISTNUM 1 \l 17877 And that might mean ‑‑ we don't know, you might have two phones with a 50 percent market share, for example. If that were true, by some definitions neither of them would be dominant, but they would, in my opinion, most likely both have market power.
LISTNUM 1 \l 17878 MR. ABUGOV: Just to see if we can move off this point, Dr. Ware, if instead of using the word "dominance" or "dominant" we used the words "significant market power", would you then say that the views are similar?
LISTNUM 1 \l 17879 Would it address your difficulty with the Bureau's statement, or would you still have an issue or a concern?
LISTNUM 1 \l 17880 DR. WARE: Again, if I were writing the Bureau's statement for them, if they were willing to change it to: If there were no significant market power in the end product market, then the facility cannot be essential.
LISTNUM 1 \l 17881 That is, essentially, what I said, of course.
LISTNUM 1 \l 17882 MR. ABUGOV: Thank you.
LISTNUM 1 \l 17883 Let me ask Mr. Watt: Do you have any comments on the two sentences that compare or contrast, Mr. Watt? Do you agree with Dr. Ware?
LISTNUM 1 \l 17884 MR. WATT: Yes, I think I do agree with Dr. Ware.
LISTNUM 1 \l 17885 Our test did not include dominance in the downstream market. Our test was whether the supplier could use his market power to prevent or lessen, and then we added "in a non‑trivial manner in the downstream market."
LISTNUM 1 \l 17886 MR. ABUGOV: Thank you, Mr. Watt.
LISTNUM 1 \l 17887 I want to move on, and I would like to start by asking you, Mr. Watt ‑‑ I want to discuss the carriers' networks next, for the next section of my cross, and I will start by asking you a couple of questions, and then I would like to move on to Mr. Hatfield. He has been waiting patiently.
LISTNUM 1 \l 17888 Why don't we turn first to the evidence that was filed by Rogers on March 15, 2007. I want to look specifically at the Executive Summary.
LISTNUM 1 \l 17889 Do you have that?
LISTNUM 1 \l 17890 MR. WATT: I do.
LISTNUM 1 \l 17891 MR. ABUGOV: I want you, please, to turn to page vi. You will see the heading "Criteria for Applying the Definition."
LISTNUM 1 \l 17892 Do you see that?
LISTNUM 1 \l 17893 MR. WATT: I do.
LISTNUM 1 \l 17894 MR. ABUGOV: In this paragraph, Mr. Watt, you see Rogers referring to Mr. Hatfield's evidence in both paragraphs E‑27 and E‑28.
LISTNUM 1 \l 17895 Do you see that?
LISTNUM 1 \l 17896 MR. WATT: I do.
LISTNUM 1 \l 17897 MR. ABUGOV: Rogers is discussing at this point in your evidence ‑‑ the discussion relates, really, to the purpose for Mr. Hatfield's evidence in Appendix 2.
LISTNUM 1 \l 17898 We will look at Appendix 2 in a moment, but Rogers says here that the purpose of Mr. Hatfield's evidence, at least as I read it, in essence, is, essentially, to examine the evolution of the underlying architecture of telecom networks of the carriers, and some of the issues and challenges that result from these technological changes that Mr. Hatfield describes in his evidence.
LISTNUM 1 \l 17899 Is that, more or less, a fair summation of the thrust of these paragraphs?
LISTNUM 1 \l 17900 MR. WATT: Yes, I think it is.
LISTNUM 1 \l 17901 MR. ABUGOV: Okay. And it seems to me at least that Rogers appears to be agreeing with the purpose and the thrust of Mr. Hatfield's evidence as it in fact relates to technological change in the carrier networks; is that correct?
LISTNUM 1 \l 17902 MR. WATT: Yes, that is correct.
LISTNUM 1 \l 17903 MR. ABUGOV: Okay. And I assume that you have read Mr. Hatfield's evidence; that is correct?
LISTNUM 1 \l 17904 MR. WATT: Yes, I have.
LISTNUM 1 \l 17905 MR. ABUGOV: And you are familiar with it then?
LISTNUM 1 \l 17906 MR. WATT: I am.
LISTNUM 1 \l 17907 MR. ABUGOV: Okay. So can you confirm for me, Mr. Watt, that the statements that Rogers makes at these two paragraphs regarding this transition that Mr. Hatfield suggests is underway in the carrier network architectures and the changing market conditions, can you confirm that Mr. Hatfield's evidence on this technological change underway in telecom networks reflects Rogers' understanding of the current telecom industry developments?
LISTNUM 1 \l 17908 MR. WATT: Could you point me to a specific ‑‑
LISTNUM 1 \l 17909 MR. ABUGOV: Yes. You state at paragraph E.27 and I quote:
"There is a transition underway in the technological architecture of telecom networks." (As read)
LISTNUM 1 \l 17910 Do you see that?
LISTNUM 1 \l 17911 MR. WATT: Yes, I do.
LISTNUM 1 \l 17912 MR. ABUGOV:
"This transition impacts the barriers encountered by facilities‑based competitors in duplicating the incumbents' services and facilities. The technological changes and the implications these changes have for the issues in this proceeding are discussed in more detail in the evidence prepared by Dale N. Hatfield and is attached as Appendix 2 of this submission." (As read)
LISTNUM 1 \l 17913 So what I am just trying to establish is that Rogers from these words seems to agree with Mr. Hatfield's evidence that there is indeed a transition underway in the technological architecture of telecom networks. That is what I am trying to establish. Would you agree with that?
LISTNUM 1 \l 17914 MR. WATT: Yes, I agree with that.
LISTNUM 1 \l 17915 MR. ABUGOV: Thank you.
LISTNUM 1 \l 17916 Mr. Watt, is there anyone else on your panel aside from your experts that you have put forward to speak to the state of changes in the underlying network architectures and technologies of the carriers or would you be the person in charge of this?
LISTNUM 1 \l 17917 MR. WATT: Mr. Pattinson and I would be the people in charge of this.
LISTNUM 1 \l 17918 MR. ABUGOV: Okay. Then I will ask Mr. Pattinson as well for Rogers.
LISTNUM 1 \l 17919 Do you agree with the statements I just read in E.27, that there is a transition underway in the technological architectures of the networks?
LISTNUM 1 \l 17920 MR. PATTINSON: Yes, I do.
LISTNUM 1 \l 17921 MR. ABUGOV: Thank you.
LISTNUM 1 \l 17922 Thank you, Mr. Watt.
LISTNUM 1 \l 17923 I am just going to turn to Mr. Hatfield now.
LISTNUM 1 \l 17924 Mr. Hatfield, good afternoon. Mr. Watt and Mr. Pattinson seem to endorse your evidence. That is always a good way to begin.
LISTNUM 1 \l 17925 Could you turn to your written evidence which is dated March 15, 2007. That is at Appendix 2 to Rogers' evidence which was filed on March 15th.
LISTNUM 1 \l 17926 MR. HATFIELD: Yes, I have it.
LISTNUM 1 \l 17927 MR. ABUGOV: Right at the outset of your evidence, in your introductory paragraph number 1, you provide the purpose of your evidence and without getting into it, essentially it is one sentence, so I will just read it quickly.
"The purpose of this report is to discuss in general terms how the architectures of telecom networks are evolving and to relate that evolution to the economic and operational, including technical challenges, faced by facilities‑based competitors in expanding the reach of their respective networks." (As read)
LISTNUM 1 \l 17928 So you would agree with me that is the purpose of your report; correct?
LISTNUM 1 \l 17929 Yes, and you have a ‑‑ sorry, I didn't mean to cut you off.
LISTNUM 1 \l 17930 MR. HATFIELD: I hadn't pushed the button. Yes.
LISTNUM 1 \l 17931 MR. ABUGOV: Okay, thank you.
LISTNUM 1 \l 17932 And right at the bottom of that page, there is a section called "Technological Developments and Issues." You see that?
LISTNUM 1 \l 17933 MR. HATFIELD: Yes, sir.
LISTNUM 1 \l 17934 MR. ABUGOV: And over onto page 2 and the bottom of page 1, again, you indicate the purpose of that section and I will just read it:
"The purpose of this section is to provide a brief high‑level view of the technological changes currently taking place in telecom networks." (As read)
LISTNUM 1 \l 17935 So you would agree that is the purpose of this section; correct?
LISTNUM 1 \l 17936 MR. HATFIELD: Yes, sir.
LISTNUM 1 \l 17937 MR. ABUGOV: Okay. And then on to page 2 and this is the part I am interested in, and I am sorry about the build‑up here, it was not intended to do anything other than to introduce my question.
LISTNUM 1 \l 17938 You list or you offer five interesting developments that speak to the specific changes or evolutions in the carrier networks.
LISTNUM 1 \l 17939 I am not going to read them out but would it be possible just to give me a very quick summary of the five developments and changes that you have addressed?
LISTNUM 1 \l 17940 MR. HATFIELD: Certainly.
LISTNUM 1 \l 17941 I started ‑‑ of course, the most fundamental change we hear about is the shift from analog to digital, both digital switching and transmission, and I comment that that has pretty much occurred, with the exception, of course, of the local loop, which is often still analog.
LISTNUM 1 \l 17942 Second, there is the trend towards pushing broadband closer to the subscriber. For example, the hybrid fiber/coax architecture of the cable company puts the broadband fiber out there close to the customer but not clear to the end, and the types of fiber to the curb, fiber to the hub type architecture of the telephone company, the same thing, get fiber out in the neighbourhood and then go copper or coax the rest of the way. So those look similar.
LISTNUM 1 \l 17943 And you look at, of course, wireless, the same sort of thing. So broadband closer to the subscriber.
LISTNUM 1 \l 17944 The other big change, without getting too technical, is going from the old circuit switch time‑division multiplexing world to the packet‑switching statistical multiplexing world. That is one of the most fundamental changes.
LISTNUM 1 \l 17945 And then by making these changes, one can now carry all different types of traffic. Traffic that was carried on separate networks before can now be carried on a single network, both voice data, image and video, or combinations can be carried on a common network.
LISTNUM 1 \l 17946 And then the actual protocols that are being used, the fifth point that I made, that all the protocols are based upon the internet protocol suite TCPIP, and that is clearly another ‑‑ I mean that is how you ‑‑ the protocols are, of course, the rules of the road, how you communicate with each other and everybody is moving towards TCPIP.
LISTNUM 1 \l 17947 MR. ABUGOV: Thank you. Thank you very much, Mr. Hatfield.
LISTNUM 1 \l 17948 And I think you also in your evidence indicate that these changes, in your view, are not just taking place in the wireline telephony market, you are indicating that all the carriers are evolving or transitioning their network architecture along these lines?
LISTNUM 1 \l 17949 MR. HATFIELD: Yes, even wireless and so forth, that is correct.
LISTNUM 1 \l 17950 MR. ABUGOV: And I think you say ‑‑ you have already said for the analog to digital that this process is virtually complete.
LISTNUM 1 \l 17951 But of the five changes you have indicated, some of these are still ongoing; is that correct?
LISTNUM 1 \l 17952 MR. HATFIELD: Yes, there are still large legacy circuit switch time‑division multiplexing facilities left in the telephone network.
LISTNUM 1 \l 17953 MR. ABUGOV: Okay. And you also, in the case of at least one of them, possibly two, use the phrase ‑‑ and I hope I am not misquoting you ‑‑ "the most fundamental change" or "this one may be the most fundamental change."
LISTNUM 1 \l 17954 I was going to ask you, in your view, these five changes that you refer to, would you consider them to be fundamental changes in network architecture or are they simply progressions of existing technologies in the networks?
LISTNUM 1 \l 17955 MR. HATFIELD: I would like to think about that for a moment.
LISTNUM 1 \l 17956 I think you could argue in some ways that moving the broadband closer to the subscriber is sort of going along in an evolutionary stage as the demand and technology allow.
LISTNUM 1 \l 17957 I think the circuit‑switching and time‑division multiplexing to packet‑switching statistical multiplexing is a fundamental change.
LISTNUM 1 \l 17958 MR. ABUGOV: Thank you.
LISTNUM 1 \l 17959 And others ‑‑ I guess when you talk about the conversion to TCPIP this is what you are in fact referring to, is the change from circuit switch to packet switch?
LISTNUM 1 \l 17960 MR. HATFIELD: Not quite.
LISTNUM 1 \l 17961 MR. ABUGOV: Okay.
LISTNUM 1 \l 17962 MR. HATFIELD: In packet‑switching and statistical multiplexing you have to have rules of the road. For example, I am sending packets towards you and I am overwhelming you, you need to send a message back to me to say slow down. That is an example of the protocol. So I am using packet‑switching statistical multiplexing. That is a fundamental technology.
LISTNUM 1 \l 17963 MR. ABUGOV: Right.
LISTNUM 1 \l 17964 MR. HATFIELD: But the rules of the road that you and I ‑‑
LISTNUM 1 \l 17965 MR. ABUGOV: I see.
LISTNUM 1 \l 17966 MR. HATFIELD: ‑‑ so we don't talk by each other and so forth is the protocols.
LISTNUM 1 \l 17967 MR. ABUGOV: I see. And the protocols, the adoption of TCPIP protocols, this, you would say, is a relatively fundamental change?
LISTNUM 1 \l 17968 MR. HATFIELD: Yes, as ‑‑ yes. Yes, sir.
LISTNUM 1 \l 17969 MR. ABUGOV: Okay, thank you very much.
LISTNUM 1 \l 17970 So then just very briefly, Mr. Hatfield. I don't want you to take me to your CV, which is very impressive. I just want you to explain to me how you particularly have gained your expertise in network technology and some of the changes in that technology that are currently underway.
LISTNUM 1 \l 17971 Just how do you come by this experience and expertise in network technology and the changes that you have described in your evidence?
LISTNUM 1 \l 17972 Have you built networks?
LISTNUM 1 \l 17973 MR. HATFIELD: I was chief technologist at the FCC. I have been an engineer of course all my life. I was the chief technologist at the FCC and of course, just as at this hearing, there are people coming in wanting to teach you about the latest technological developments, and so forth. So obviously that is a way I learned some of it.
LISTNUM 1 \l 17974 Probably most fundamentally I have always taught ‑‑ in my 30, 40 years of experience in the industry I have always been a teacher on the side, I have always had an academic appointment, and so I have also interacted with my peers in the engineering school, and so forth, and teaching it, and then of course going out and consulting to firms that are confronting these issues of how fast to update and those sort of things. Obviously I have to keep up with the technology that way as well.
LISTNUM 1 \l 17975 MR. ABUGOV: Thank you, Mr. Hatfield, I appreciate that.
LISTNUM 1 \l 17976 Mr. Watt, just to conclude here I want to ask you if these ongoing changes in the underlying carrier network architecture Mr. Hatfield describes in his evidence, do you agree with him that some of them at least are fairly fundamental in nature?
LISTNUM 1 \l 17977 MR. WATT: Yes, I do.
LISTNUM 1 \l 17978 MR. ABUGOV: And you would agree with him that some of them are still ongoing as we speak in the networks for the carriers including cable and telephony networks?
LISTNUM 1 \l 17979 MR. WATT: Absolutely, yes. A good example is Rogers Wireless just last May finally turned off its last analog TDM customers and transferred them onto the digital platform.
LISTNUM 1 \l 17980 MR. ABUGOV: Okay. Thank you.
LISTNUM 1 \l 17981 So just to characterize or summarize, you both seem to agree that the networks are undergoing fundamental dynamic change in their underlying technologies.
LISTNUM 1 \l 17982 Correct?
LISTNUM 1 \l 17983 MR. HATFIELD: Yes, sir.
LISTNUM 1 \l 17984 MR. WATT: Yes.
LISTNUM 1 \l 17985 MR. ABUGOV: Okay. Thank you very much.
LISTNUM 1 \l 17986 Dr. Ware, can I ask you to look once again at your supplementary evidence for Rogers? That is dated July 3, 2007. We have already looked at that.
LISTNUM 1 \l 17987 MR. WARE: Yes, I have it.
LISTNUM 1 \l 17988 MR. ABUGOV: Thank you. Just one moment.
‑‑‑ Pause
LISTNUM 1 \l 17989 MR. ABUGOV: If you could look at paragraph 4, please? At lines three to five of that paragraph or you state, and I quote:
"If a dominant ILEC quote has control of an input that makes entry and competition on reasonably level terms impossible, then from a public policy perspective it is desirable to mandate access to the input and encourage competition to flourish." (As read)
LISTNUM 1 \l 17990 Do you see that?
LISTNUM 1 \l 17991 MR. WARE: Yes, I do.
LISTNUM 1 \l 17992 MR. ABUGOV: Is that still your position in the proceeding?
LISTNUM 1 \l 17993 MR. WARE: Yes. I mean that is a broad generalization so it's a summary of a position that could be made more precise, and which I do make more precise later in the report.
LISTNUM 1 \l 17994 MR. ABUGOV: Thank you.
LISTNUM 1 \l 17995 We will be looking later on in your report in my questioning, thank you.
LISTNUM 1 \l 17996 When I look at that statement, it appears to me that you are making the statement, sir, in the context of "a mature industry with relatively stable technologies" because that phrase is right at the start of the quote that I just read to in paragraph 4. It is, in fact, the preamble to your conclusion. The sentence is:
"In a mature industry with a relatively stable technology..."
And then it carries on as I have read it to you.
LISTNUM 1 \l 17997 Is that correct?
LISTNUM 1 \l 17998 MR. WARE: Yes, it is.
LISTNUM 1 \l 17999 MR. ABUGOV: Dr. Ware, we are obviously here today to discuss essential facilities in the context of the Canadian telecom industry in 2007 and I guess, in light of the questioning I have just had with your client and with Mr. Hatfield, I'm wondering if it is your contention, sir, that the Canadian telecom industry in 2007 is in fact characterized, in your view, as a mature industry with a relatively stable technology.
LISTNUM 1 \l 18000 Would you agree with that?
LISTNUM 1 \l 18001 MR. WARE: Well, if you take the industry as a whole, no.
LISTNUM 1 \l 18002 But I think what is important here is the access to the last mile, that if you are looking at how do the signals get into the termination point and origination point, that technology in a sense is stable because, as has been discussed at great length, there are really only two platforms that are competing, there is the wireline platform and then there is a cable‑based platform. If there were new innovations every month, say coming out with new ways of delivering service, then I don't think we would be here.
LISTNUM 1 \l 18003 MR. ABUGOV: I just want to make it really clear here. So you do not feel that this industry has dynamic, changing, evolving technology in respect of this portion of the network.
LISTNUM 1 \l 18004 That is what you are saying? In other words, it is very mature and it is very stable?
LISTNUM 1 \l 18005 MR. WARE: In respect to the relevance of an essential input. All are still essential inputs. It is to the extent that we can identify essential inputs.
LISTNUM 1 \l 18006 MR. ABUGOV: Dr. Ware, I don't mean to cut you off.
LISTNUM 1 \l 18007 For instance, are you familiar with Inukshuk fixed wireless? Are you familiar with satellite delivery to the home? Are you familiar with Verizon's technology shift of bringing broadband closer to the customer? Are you familiar with packet switching DSL, which is a last mile technology? None of these are new, dynamic technologies.
LISTNUM 1 \l 18008 What you are saying is we have a very stable technology in the telecom industry in the access component? That's what you are saying?
LISTNUM 1 \l 18009 MR. WARE: I'm sorry, that sounds like two questions.
LISTNUM 1 \l 18010 MR. ABUGOV: I apologize, it may be six or seven.
LISTNUM 1 \l 18011 MR. WARE: Am I familiar with those technologies? Not very. Some of them I am, some of them I'm not. I have heard of them all of course.
LISTNUM 1 \l 18012 MR. ABUGOV: Right. In fairness to you, you are not Rogers' technology expert so I think we probably don't need to pursue this overly, but suffice to say that it appears to me that certainly the Bureau does not agree that this is an industry characterized by stable technology and it doesn't appear to me that Rogers or Mr. Hatfield do.
LISTNUM 1 \l 18013 But, in fairness, I might as well as Mr. Watt, what you think about all this?
LISTNUM 1 \l 18014 MR. WATT: I think actually I would. I think Dr. Ware put it quite well actually in his opening remarks to your question, and that is that the dynamic change that we have spoken about to Mr. Hatfield's evidence and that we see in the industry is dependent upon the physical layer being in place. Dr. Ware said that is really the issue here today in terms of the essential facility and that certainly is the component of facilities that Rogers has focused on in its evidence.
LISTNUM 1 \l 18015 You mentioned Inukshuk and fixed wireless as being dynamic new development. As you are well aware, fixed wireless has been around for a very long time, AT&T attempted in the late ir mid‑1990s to place voice traffic over that facility. Unfortunately, it hasn't come to commercial fruition at the current time.
LISTNUM 1 \l 18016 So in terms of access into the end‑user premise the developments are not as dynamic in other areas of the network.
LISTNUM 1 \l 18017 MR. ABUGOV: Okay.
LISTNUM 1 \l 18018 MR. WATT: Mr. Hatfield?
LISTNUM 1 \l 18019 MR. ABUGOV: I'm sorry.
LISTNUM 1 \l 18020 Mr. Hatfield...?
LISTNUM 1 \l 18021 MR. HATFIELD: I think we have to be clear again about what layer the protocol stack that we are talking about.
LISTNUM 1 \l 18022 The upper layers is where all these developments are happening very rapidly, but the fact of the matter is that the physical facility that it is riding on is that still the pair of wires largely, or that piece of co‑ax largely into the home. I think that is may be a little bit of a disconnect here.
LISTNUM 1 \l 18023 MR. ABUGOV: Okay.
LISTNUM 1 \l 18024 Mr. Hatfield, you are from the United States, you know more about Verizon than I do.
LISTNUM 1 \l 18025 Is that transformational change in technology occurring at the applications level or the physical layer?
LISTNUM 1 \l 18026 MR. HATFIELD: No, that is the sort of last step in moving that fibre closer and closer to the home. There are disagreements about the economics of that. Verizon has been particularly aggressive and has gone the farthest, but by and large we are still reliant upon that piece of co‑ax or the twisted pair for that last "X" number of metres.
LISTNUM 1 \l 18027 MR. ABUGOV: All right. Last question, then.
LISTNUM 1 \l 18028 Can anyone point to me ‑‑ Mr. Watt or Mr. Hatfield, can any of you point to me anything on the record of this proceeding filed by Rogers that suggests that the technology in the telecom industry is evolving any way other than quickly, dynamically and in an ongoing and fundamental way? Can you produce anything on the record in your evidence that suggests that we are in a mature and relatively stable technology environment in Canada in 2007 in this industry? If you can, I would ask you to produce it, please.
LISTNUM 1 \l 18029 MR. WATT: Well, we could direct you to, I think, a large number of interrogatory responses and portions of our evidence where we describe the key question that we confront here, in terms of the industry, and that is the last‑mile technology, and that that last‑mile technology still, for the most part, involves digging and trenching and running wires into locations.
LISTNUM 1 \l 18030 While there are some improvements in that technology, for the most part, it is basic nuts and bolts work. On top of that, there lies an immense change in dynamism, but at that level there's not been that same dynamism.
LISTNUM 1 \l 18031 MR. ABUGOV: Okay. Well, I won't belabour it, but if you don't think bringing broadband closer to the customer or else Rogers' own investment in Inukshuk reflects some change in the technology at the network level, then I will move on.
LISTNUM 1 \l 18032 If we could go back, Dr. Ware, to your statement which got me started, which is paragraph 4 of your evidence, where you say, one more time:
"In a mature industry, with a relatively stable technology..."
‑‑ and you carry on ‑‑ I wonder if you could rewrite that sentence for me by, instead, changing the opening words as follows. If your sentence began, "In a dynamic network industry with relatively unstable technology...", what would the rest of that sentence say, Dr. Ware?
LISTNUM 1 \l 18033 MR. WARE: Could you just repeat that?
LISTNUM 1 \l 18034 MR. ABUGOV: "In a dynamic network industry with relatively unstable technology...", how would you end that sentence?
LISTNUM 1 \l 18035 MR. WARE: It would preserve the meaning, my own meaning, what I was intending there. If I would just delete that offensive phrase at the beginning, and if we started the sentence with, "If a dominant incumbent has control of an input that makes entry and competition on reasonably level terms impossible...", I don't think that would lose very much from the sentence.
LISTNUM 1 \l 18036 MR. ABUGOV: Well, I guess that remains to be seen.
LISTNUM 1 \l 18037 I want to, in fact, take you to your own writings in the past, Dr. Ware. You have, in fact, already considered, I think, the merits of mandating access to essential facilities in industries that are characterized by dynamic and evolving network technologies. I'm going to refer you now to the article you coauthored with Dr. Church entitled, "Abuse of Dominance Under the 1986 Canadian Competition Act".
LISTNUM 1 \l 18038 We have given that to the Secretary prior to the start of our cross‑examination. You coauthored that paper with Dr. Church, who is our economics expert in this proceeding. Do you have that paper, sir?
LISTNUM 1 \l 18039 MR. WARE: Not yet, no.
LISTNUM 1 \l 18040 MR. ABUGOV: Okay.
LISTNUM 1 \l 18041 MR. WARE: Now I do. Thanks.
LISTNUM 1 \l 18042 MR. ABUGOV: Okay. So if you go to the top of page 125, please...do you have it? Do you have that, sir?
LISTNUM 1 \l 18043 MR. WARE: Yes, I do.
LISTNUM 1 \l 18044 MR. ABUGOV: Okay. The first full paragraph reads:
"Although the Quinn and Leslie criteria are well thought through, it is still difficult to reconcile them completely with the critical elements of risky investment and free riding. Every network joint venture and essential facility, particularly those in dynamic network industries, involves an initial risky investment by those firms willing to bet on a new standard or idea taking hold. If later entrants can wait to see which investments are successful then free ride on them, the incentives for initial investment are seriously reduced and many innovative networks or other joint ventures may not be produced." (As read)
LISTNUM 1 \l 18045 Have I read your paper correctly?
LISTNUM 1 \l 18046 MR. WARE: You have read a couple of sentences correctly, yes.
LISTNUM 1 \l 18047 MR. ABUGOV: Correct.
LISTNUM 1 \l 18048 MR. WARE: Yes.
LISTNUM 1 \l 18049 MR. ABUGOV: Okay, thank you.
LISTNUM 1 \l 18050 So to underscore the point I'm making, I want to look particularly at the words in the quote, quote "particularly those in dynamic network industries".
LISTNUM 1 \l 18051 So, at least as I read the paper, and Dr. Church has read the paper, and he wrote it along with you, that's the context in which you were discussing mandated access to essential facilities in this paper, at least at that point in the paper, isn't that correct?
LISTNUM 1 \l 18052 MR. WARE: Uh...to be ‑‑
LISTNUM 1 \l 18053 MR. ABUGOV: It's not a difficult question, sir, I ‑‑
LISTNUM 1 \l 18054 MR. WARE: Well, I'm not sure ‑‑
LISTNUM 1 \l 18055 MR. ABUGOV: ‑‑ and perhaps I can rephrase it.
LISTNUM 1 \l 18056 MR. WARE: Yes, I think that's a fair statement, yes.
LISTNUM 1 \l 18057 MR. ABUGOV: Thank you.
LISTNUM 1 \l 18058 So it seems to me that in this paper, in that paragraph that I just read to you, that you and Dr. Church are pointing out some fairly significant concerns about, first of all, risky investment, secondly, free riding, and you are doing in the context of dynamic network industries. In fact, you say that every essential facility in a dynamic network industry involves a risky investment, isn't that the case?
LISTNUM 1 \l 18059 MR. WARE: Yes, that's the sentence you just read, yes.
LISTNUM 1 \l 18060 MR. ABUGOV: And you still hold those views, Dr. Ware?
LISTNUM 1 \l 18061 MR. WARE: Sorry, could you point me to that sentence, again?
LISTNUM 1 \l 18062 MR. ABUGOV: Yes. It's the sentence that starts:
"Every network joint venture and essential facility, particularly those in dynamic network industries, involves an initial risky investment by those firms willing to bet on a new standard or idea taking hold. If later entrants can wait to see which investments are successful and then free ride on them, the incentives for initial investment are seriously reduced and many innovative networks or other joint ventures may not be produced." (As read)
LISTNUM 1 \l 18063 MR. WARE: Yes, I mean, I have no problem with that. I mean, as we were just discussing, I think the important point here, of course, is that the part of this network that we are focusing on here is not dynamic, and I think that's the point that was just being made by my colleagues here.
LISTNUM 1 \l 18064 MR. ABUGOV: Well, again, in fairness, I understand your point. I'm not certain, for instance, our party agrees with you that portion of the network is not dynamic, but, in any event, we understand your position.
LISTNUM 1 \l 18065 I would ask you if you wouldn't mind to turn to your evidence in the supplementary evidence, and I want to look at paragraph 36, which is on page 16 of your report. So this is the Rogers supplementary evidence.
LISTNUM 1 \l 18066 MR. WARE: Yes, I have that.
LISTNUM 1 \l 18067 MR. ABUGOV: This where I see what appears to me to be a discussion of these very same points that you raised at some length in the paragraph I just read in your earlier paper, perhaps with a little more alarm in your earlier paper than you deal with them in this paper, about risky investment and free riding.
LISTNUM 1 \l 18068 The paragraph says:
"An even simpler version of the theoretical argument is that entrants who are granting mandatory access are free riding on the incumbent's risky investment in network elements and any such free riding will diminish the incentive of all incumbents to make either similar investments or risky new investments in uncertain technologies." (As read)
LISTNUM 1 \l 18069 So you refer to this as a "simple version of a theoretical argument". Is that correct?
LISTNUM 1 \l 18070 MR. WARE: Well, what I'm doing there, paragraph 36 is intended to be a version closer to the English language of my quote that I reproduced from a paper by Hausman and Sidack, which is in the previous paragraph. So this is really a ‑‑ it's an attempt to articulate in what I consider a little bit more simple language what they are saying. That's what paragraph 36 is. It's not a statement about anything that I believe or have proposed, it's simply an attempt to clarify.
LISTNUM 1 \l 18071 MR. ABUGOV: Well, I understand that. I understand what you are trying to do in 36, and I will take your word that you are indeed trying to summarize Hausman and Sidack, but this paragraph is essentially pointing to the same concerns in the paper that you wrote that we addressed at page 125, is it not?
LISTNUM 1 \l 18072 MR. WARE: Yes, that's fair.
LISTNUM 1 \l 18073 MR. ABUGOV: Okay. Okay, thank you.
LISTNUM 1 \l 18074 I want to conclude, finally, with some questions for you, Mr. Watt, questions to Rogers, and my final questions relate to the submission that Rogers made to the TPRP, which was in August 15, of 2005.
LISTNUM 1 \l 18075 I think we provided a link to the Rogers' submission yesterday to Mr. Englehart and I think we also provided that to the hearing secretary this morning. You have the Rogers submissions. So maybe we could give that document an exhibit number, it is not on the record of this proceeding.
LISTNUM 1 \l 18076 THE SECRETARY: No. It will be registered as Competition Bureau Exhibit No. 2.
EXHIBIT BUREAU‑2: Rogers' submissions in TPRP proceeding
LISTNUM 1 \l 18077 MR. ABUGOV: Thank you. I will just wait while it is handed out.
‑‑‑ PAUSE
LISTNUM 1 \l 18078 MR. ABUGOV: All right, do you have that, Mr. Watt?
LISTNUM 1 \l 18079 MR. WATT: Yes, I do.
LISTNUM 1 \l 18080 MR. ABUGOV: Okay. If you could turn, Mr. Watt, please to Rogers' response to question B‑8. That is between paragraphs 130 and 131, there is no page numbers on this document. Do you have B‑8?
LISTNUM 1 \l 18081 MR. WATT: I do have B‑8.
LISTNUM 1 \l 18082 MR. ABUGOV: And the question that was put to Rogers by the review panel was:
"If a service is sufficiently competitive at the retail level (i.e. in the market for end users to warrant deregulation) is there a continuing need to regulate the wholesale services and facilities underlying the service? If so, under what circumstances would such regulation be required and what form should it take?" (As Read)
LISTNUM 1 \l 18083 So this was the question put to you. And I want you to look at paragraph 132 of your response. The first and the last sentence is what I will read to you.
"If on the other hand there is sufficient facilities‑based competition to warrant retail price deregulation, then it is inappropriate to regulate the price of wholesale services and facilities." (As Read)
And then the last sentence says:
"If a market is sufficiently competitive to permit retail deregulation based on facilities‑based competition, then there is no public policy or economic rationale to impose a new regime of wholesale price regulation." (As Read)
LISTNUM 1 \l 18084 So that was Rogers' position in the TPRP proceeding, Mr. Watt, back in August 2005, that is correct?
LISTNUM 1 \l 18085 MR. WATT: That is correct.
LISTNUM 1 \l 18086 MR. ABUGOV: And does that remain Rogers' position in this proceeding and, if it is not, could you tell me why it is not?
LISTNUM 1 \l 18087 MR. WATT: This still remains Rogers' position in this proceeding. And you will see, with one exception, that it is consistent with the proposal that we have put forward for essential services. We have asked to have unbundled residential loops be deemed as essential and the variance order has deemed that that market is sufficiently competitive to be forborne at the retail level.
LISTNUM 1 \l 18088 In the forbearance proceeding Rogers actually proposed a 30 per cent competitor market share test for forbearance. We would be approaching that in many markets today, so you could say that Rogers' position today in requesting access to unbundled residential loops is inconsistent with its position expressed here in paragraph 132.
LISTNUM 1 \l 18089 I think all other aspects of our submission are entirely consistent. The residential business market could not be forborne in the absence of access to wholesale facilities and we have put forward a criteria‑based test for DS‑1s and DS‑3s. Our rationale in requesting access to the residential unbundled loops is that we do think that three competitors would be better than two.
LISTNUM 1 \l 18090 Not all cable companies have launched across all territories in this country. We believe that being able to enjoy the synergies of using our co‑location sites that would be used for unbundled local business loops together with unbundled local residential loops makes the economics of our continued presence in the business market using unbundled loops more economic.
LISTNUM 1 \l 18091 We don't think that our presence in the residential market using unbundled local loops is nontrivial. We sat here a few days ago and heard it described as such. We have 180,000 unbundled local loops in residential markets in only three markets in this country; Vancouver, Calgary and Montreal. The Commission has the numbers in confidence if we just assume split it by three ‑‑
LISTNUM 1 \l 18092 MR. ABUGOV: Mr. Watt, I just wanted to say that I have my answer. I thank you, but if you feel you want to continue on, that is fine.
LISTNUM 1 \l 18093 MR. WATT: I will just finish, it is only two more sentences I think.
LISTNUM 1 \l 18094 MR. ABUGOV: Okay.
LISTNUM 1 \l 18095 MR. WATT: The 60,000 subscribers using unbundled local residential loops in Vancouver would be approaching 10 per cent of the actual market available to us in those co‑location sites. We think not having access to unbundled residential loops would diminish competition in that circumstance. And as we recognize that it is inconsistent with our view here, that where forbearance is warranted at the retail level there should be no regulation at the wholesale level, but that is a circumstance and which we have made that change.
LISTNUM 1 \l 18096 MR. ABUGOV: Thank you. Let us look at question B‑9, and that is between paragraph 132 and 133. Again, I will read the question.
"If a service is not sufficiently competitive at the retail level to warrant deregulation, to what extent can regulation of the underlying wholesale services and facilities be relied upon as a substitute for direct regulation of the retail service?" (As Read)
LISTNUM 1 \l 18097 And I am going to just point you to four sentences in your response and then I will ask you if that remains your position in this proceeding and, if not, why not? Paragraph 133, first sentence:
"Rogers notes that regulation of underlying wholesale services has been unsuccessful as a means of providing true competition." (As Read)
LISTNUM 1 \l 18098 I will stop there. Is that your position today, yes or no and, if not, why not?
LISTNUM 1 \l 18099 MR. WATT: Yes, that remains our position today. We do believe that you need facilities‑based competition to bring the full benefits of competition to the marketplace.
LISTNUM 1 \l 18100 MR. ABUGOV: Amen. Paragraph 134, last sentence:
"Other countries have elaborate wholesale regulatory regimes, none of which have lead to sustainable local telephone competition." (As Read)
LISTNUM 1 \l 18101 Do you agree with that statement? This is your evidence from 2005.
LISTNUM 1 \l 18102 MR. WATT: Yes, I am just trying to think what has changed in the last two years since writing this.
LISTNUM 1 \l 18103 I think we would generally agree with that still.
LISTNUM 1 \l 18104 MR. ABUGOV: Thank you. First sentence, paragraph 135:
"Retail price competition in contrast to wholesale service regulation has proven to be remarkably successful." (As Read)
LISTNUM 1 \l 18105 Do you agree with that?
LISTNUM 1 \l 18106 MR. WATT: Yes, we do agree with that. Of course, it is premised on the fact that there is effective competition being provided by a facilities‑based competitors, such that you can have retail price competition.
LISTNUM 1 \l 18107 MR. ABUGOV: Okay, thank you. And the last sentence of paragraph 136:
"The regulation of the wholesale services and facilities is therefore important, but cannot be relied upon as a substitute for direct regulation of the retail service." (As Read)
LISTNUM 1 \l 18108 Do you continue to believe that is the case and, if not, why not?
LISTNUM 1 \l 18109 MR. WATT: This sentence was written in the context of the time and that was when Rogers had just launched its cable telephony service for six weeks. We took no comfort from the fact that there would be a mandated wholesale regulation if that was coupled with retail forbearance. I don't think there is any question but that retail forbearance would have seen severe price targeting to the extent that Rogers believes that it would have been unsuccessful in providing facilities‑based competition in the residential market.
LISTNUM 1 \l 18110 In which case, then we write the second part of the sentence, "Therefore, it is not a substitute for direct regulation of the retail market." Well, if there had to be regulation of the retail market, wholesale regime would not be good enough.
LISTNUM 1 \l 18111 MR. ABUGOV: So you are essentially saying that you would continue to agree with this sentence. You gave a context as to why you wrote it back then, but you wouldn't change it now, is that the idea?
LISTNUM 1 \l 18112 MR. WATT: Now, we wouldn't change it now. We think there should not be retail forbearance until the market conditions are correct, such that there is competition in the retail market, that you cannot forbear the retail market, regulate the wholesale market and think that there will then be effective sustainable competition.
LISTNUM 1 \l 18113 MR. ABUGOV: Good, thank you, Mr. Watt, members of the panel.
LISTNUM 1 \l 18114 Thank you, Mr. Chairman, commissioners. We have no more questions.
LISTNUM 1 \l 18115 THE CHAIRPERSON: Just a follow‑up to that last question. You do have forbearance now on the basis of a competitor presence sense test rather than on a market share test. So in light of those new circumstances, what about your last statement, do you still stand by it?
LISTNUM 1 \l 18116 MR. WATT: We do stand by it. We think it is the wrong model being followed, certainly in the business market. We think the residential market, with the presence of widespread cable and the ILECs, that you have reached a circumstance where retail forbearance is acceptable, but we view a major problem in the business market.
LISTNUM 1 \l 18117 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 18118 I notice it is 2:55, let us take 10‑minute break and then we will go on with the next interrogatory.
‑‑‑ Upon recessing at 1455 / Suspension à 1455
‑‑‑ Upon resuming at 1506 / Reprise à 1506
LISTNUM 1 \l 18119 THE CHAIRPERSON: Madam Giroux‑Girard, who do we have next?
LISTNUM 1 \l 18120 THE SECRETARY: Counsel for The Companies will be cross‑examining Rogers.
LISTNUM 1 \l 18121 I have a question, Mr. Daniels. Did you provide an advance copy to Rogers' counsel of all the documents you plan to present?
LISTNUM 1 \l 18122 MR. DANIELS: I did.
LISTNUM 1 \l 18123 THE SECRETARY: Thank you.
LISTNUM 1 \l 18124 MR. DANIELS: Good afternoon, Mr. Chairman. At this point I would ask, in order to make this thing go as smooth as possible, I believe we have some material that is in the binder. Has that been provided to you yet, our binder? Could I ask that that be passed around, the binders for the material.
LISTNUM 1 \l 18125 My name is Jonathan Daniels, I should begin with that. I am counsel for The Companies. I am joined up here today by Mr. Shawn Griffin. I suspect I will be for the rest of today and my co‑counsel I suspect, based on the time. Mr. Hofley will continue the cross‑examination probably Monday.
LISTNUM 1 \l 18126 THE CHAIRPERSON: Okay. Does the panel have your binder?
LISTNUM 1 \l 18127 COMMISSIONER CRAM: Yes, right here.
LISTNUM 1 \l 18128 THE CHAIRPERSON: Okay.
LISTNUM 1 \l 18129 MR. DANIELS: Do you have my binders?
LISTNUM 1 \l 18130 MR. WATT: I think we got the confusion between panels here. I think the commissioner panel ‑‑
LISTNUM 1 \l 18131 THE SECRETARY: We gave the binders to our panel. But what I will do, I have the extra copies, so I will give them to you as soon as possible.
LISTNUM 1 \l 18132 MR. DANIELS: Thank you. I think they are just coming around.
LISTNUM 1 \l 18133 THE CHAIRPERSON: Christmas is coming early.
LISTNUM 1 \l 18134 MR. DANIELS: Okay. Give me a second. I am sorry, I thought this was taken care of.
‑‑‑ PAUSE
LISTNUM 1 \l 18135 THE CHAIRPERSON: Okay, we seem to have one binder. While they are looking for the others why don't you start, Mr. Daniels?
LISTNUM 1 \l 18136 MR. DANIELS: Thank you. Sorry about that.
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 18137 MR. DANIELS: Good afternoon, panel.
LISTNUM 1 \l 18138 I would like to begin today by just clarifying. I take it you are familiar with The Companies' proposal on restriction on use?
LISTNUM 1 \l 18139 MR. WATT: Yes, I am.
LISTNUM 1 \l 18140 MR. DANIELS: And just to be specific, the companies are proposing, for example, that if a certain service is found to be essential facility in one market, for example, unbundled loops in the residential market, the competitor who is leasing that unbundled loop should not be able to use that facility to provide a service in a competitive market such as video, at least not without the ILEC's consent under some commercial arrangement. Is that your understanding of our restriction on use proposal?
LISTNUM 1 \l 18141 MR. WATT: Yes, it is.
LISTNUM 1 \l 18142 MR. DANIELS: But as I understand it, you are opposed to that position, is that correct?
LISTNUM 1 \l 18143 MR. WATT: Yes, it is, with respect to unbundled local loops.
LISTNUM 1 \l 18144 MR. DANIELS: So your opposition is restricted strictly to unbundled local loops?
LISTNUM 1 \l 18145 MR. WATT: No, it also extends to our criterion‑based DS‑1, DS‑3 test as well.
LISTNUM 1 \l 18146 MR. DANIELS: So it is in those specific circumstances that you are opposed to it?
LISTNUM 1 \l 18147 MR. WATT: Well, those are the facilities and services that we deem to be essential.
LISTNUM 1 \l 18148 MR. DANIELS: So it is the facilities you deem to be essential are the ones that you are opposed to the restriction on use?
LISTNUM 1 \l 18149 MR. WATT: In the context of this proceeding, yes.
LISTNUM 1 \l 18150 MR. DANIELS: And is are you only opposed to it if it is an essential facility? Let me be a little bit more clear. What about a non‑essential service that is subject to a transition period, something that would fall into the Category 3 of the Commission's proposal that they laid out in their letter?
LISTNUM 1 \l 18151 MR. WATT: No, we do not believe that a restriction of use should apply in that circumstance. We don't think there should be restriction of use during the transition period.
LISTNUM 1 \l 18152 MR. DANIELS: And what about if something falls into Category 4, so it is nonessential, but it is being mandated as a result of the fact that retail forbearance was given on the basis of that. In that situation, do you think that a restriction on use is appropriate or inappropriate?
LISTNUM 1 \l 18153 MR. WATT: We think it is inappropriate.
LISTNUM 1 \l 18154 MR. DANIELS: So basically it is just restrictions on use are generally inappropriate then when we are talking about a mandated service?
LISTNUM 1 \l 18155 MR. WATT: Yes.
LISTNUM 1 \l 18156 DR. WARE: Counsel, I wonder if I could just add a comment on this. It seems to me that if an input is declared to be or found to be rather essential for one particular product market and geographic market, then that is fine. What seems to be argued here is that if a purchaser of that input at the mandated price should not be able to use it in some other product market where it has not been found to be essential.
LISTNUM 1 \l 18157 Now, I don't really see why that would be a problem. If the input is priced at a competitive level it is not going to cause a distortion in whatever market it is used in. It is just a competitive input. I thought I heard Dr. Taylor this morning, I think, say there would be a distortion, but I don't really see where he is getting that from.
LISTNUM 1 \l 18158 MR. DANIELS: Dr. Ware, just so that I can understand. When you say priced at a competitive level, do you mean priced using long‑run incremental, basically Phase II?
LISTNUM 1 \l 18159 DR. WARE: Yes, something like that, yes.
LISTNUM 1 \l 18160 MR. DANIELS: That is your definition of a competitive level, is the Phase II plus an appropriate mark‑up?
LISTNUM 1 \l 18161 DR. WARE: Well, long‑run incremental cost would be my definition of a competitive level.
LISTNUM 1 \l 18162 MR. DANIELS: Mr. Watt, with wholesale cable internet, which is referred to as third‑party internet access or TPIA, there are restriction on use for that service are there not?
LISTNUM 1 \l 18163 MR. WATT: Yes, at the current time there are restrictions against using the service for multicasting, virtual private network and LAN extension. Prior to the VoIP regulation decision in 2005 there was also a prohibition against using the service to provide internet protocol voice service. Those conditions were put forward in decision or order, might have been an order, 2789 in August 2000
LISTNUM 1 \l 18164 MR. DANIELS: And those restrictions are in force through tariffs?
LISTNUM 1 \l 18165 MR. WATT: Yes, those restrictions are in the tariff.
LISTNUM 1 \l 18166 MR. DANIELS: That is your tariff that we are talking about here, right?
LISTNUM 1 \l 18167 MR. WATT: That is correct.
LISTNUM 1 \l 18168 MR. DANIELS: And prior to the VoIP decision ‑‑ I am sorry, actually you have said that already, that the VoIP was in there, that there was also a restriction on VoIP. But we can agree that the restriction has since been removed by this Commission on VoIP on the TPIA service, the wholesale internet from cable?
LISTNUM 1 \l 18169 MR. WATT: That is correct. At the time in 2000 restriction against voice was put I because we were not an ILEC, so we were not required to provide the voice functionality. The Commission was looking at providing access to retail high‑speed internet services, access to the world wide web and email and, consistent with its decision in 97‑8 new entrants into voice markets did not have to unbundle their networks for the purposes of providing voice service.
LISTNUM 1 \l 18170 When you came to 2005 though there was a problem. And that is with the advent of companies like Vonage, etc. over‑the‑top access independent voice providers, those companies could make use of either cable or ILEC high‑speed internet service to provide their service.
LISTNUM 1 \l 18171 In contrast, companies who subscribe to cable third‑party internet access service, even though they were riding over the same facility, they were unable to provide voice service. So I think the Commission rightly deemed that that was an inconsistency that wasn't appropriate and so they removed the restriction against voice‑over‑internet protocol riding on third‑party internet access.
LISTNUM 1 \l 18172 MR. DANIELS: And so there wasn't a technical reason, can we agree with that, that there was no technical reason that there was a restriction on use on VoIP originally placed?
LISTNUM 1 \l 18173 MR. WATT: Not with respect to simple straight‑up VoIP. I am not sure with respect to LAN extension and multicasting, I don't know.
LISTNUM 1 \l 18174 MR. DANIELS: But we can agree that for VoIP the restriction was removed, the service works, that it is ‑‑
LISTNUM 1 \l 18175 MR. WATT: Absolutely, yes.
LISTNUM 1 \l 18176 MR. DANIELS: So it wasn't put in for technical reasons then?
LISTNUM 1 \l 18177 MR. WATT: That is correct.
LISTNUM 1 \l 18178 MR. DANIELS: Now, you mentioned that in 2004 the Commission "rightly" I believe was the word you used, removed this restriction. But is my understanding correct, that you actually opposed the removal in 2004?
LISTNUM 1 \l 18179 MR. WATT: The proceeding took place in 2004, the decision was 2005. We were opposed for a number of reasons, but in the end, when we heard all the positions, certainly with respect to the voice‑over‑internet, it just didn't make sense that a company could come to us, get third‑party internet access, carry data. Yet, if they hadn't come to us, they could use our internet service to provide voice service. So at the end of the day we understood why the Commission made that decision.
LISTNUM 1 \l 18180 MR. DANIELS: When you say " the end of the day," just to be clear, what day are you talking about, during the proceeding or once the decision came out?
LISTNUM 1 \l 18181 MR. WATT: Once the decision came out.
LISTNUM 1 \l 18182 MR. DANIELS: Right, okay.
LISTNUM 1 \l 18183 MR. WATT: Just to be complete, the other concern we had in that exercise was the prospect of then going back and redoing all our costing studies to develop what we thought would have necessarily been a higher rate because we are now carrying more traffic. For the ISPs we would be carrying voice traffic as well as the data traffic. In the end, revised studies did come forward in another context a couple of years later.
LISTNUM 1 \l 18184 MR. DANIELS: Now, Mr. Watt, you have proposed a forbearance test for CDN access and transport based on the FCC's test. And I am wondering, for ease of reference, if we can note that the test can be found at table 5 on page 43 of your initial evidence. I am going to be referring back to that a few times, so I am wondering if we could just let everyone grab hold of that for a moment.
LISTNUM 1 \l 18185 COMMISSIONER CRAM: Did you say table 5?
LISTNUM 1 \l 18186 MR. DANIEL: Table 5 of Rogers' initial March 15 evidence, it is page 43 of their evidence.
LISTNUM 1 \l 18187 MR. WATT: If we have just a moment. Are there going to be additional binders of the Bell package?
LISTNUM 1 \l 18188 MR. DANIELS: I was just looking back to see.
LISTNUM 1 \l 18189 THE SECRETARY: No, but I will make sure I serve you first, as soon as we serve an exhibit, I will give it to you right away. They are all loose copies now.
‑‑‑ PAUSE
LISTNUM 1 \l 18190 COMMISSIONER CRAM: Mr. Daniels, I am sorry, I have appendices 1 and 2, but where is table 5?
LISTNUM 1 \l 18191 MR. DANIELS: It is in the initial evidence.
LISTNUM 1 \l 18192 MR. McCALLUM: Sorry, is it table 5 at page 43?
LISTNUM 1 \l 18193 MR. DANIELS: Yes, table 5 at page 43 of the initial evidence.
LISTNUM 1 \l 18194 COMMISSIONER CRAM: Thank you.
‑‑‑ PAUSE
LISTNUM 1 \l 18195 MR. DANIELS: Now, do you have that page available?
LISTNUM 1 \l 18196 MR. WATT: Yes, we do.
LISTNUM 1 \l 18197 MR. DANIELS: When we look at this test ‑‑ and I will summarize it very briefly. As I understand it, what this test is looking at is the number of business lines in a market and the number of fibre‑based co‑locators in a particular market ‑‑ actually, I should be more specific ‑‑ in a wire centre ‑‑ in terms of determining whether there should be wholesale forbearance for CDN.
LISTNUM 1 \l 18198 Is that characterization correct?
LISTNUM 1 \l 18199 MR. WATT: That's correct.
LISTNUM 1 \l 18200 MR. DANIELS: In a minute we will look at your specific proposal, but, for now, could we agree that this is largely based on the criteria ‑‑ not just the criteria, but actually the thresholds adopted by the FCC?
LISTNUM 1 \l 18201 MR. WATT: Yes, I think that's fair.
LISTNUM 1 \l 18202 MR. DANIELS: As I understand it, you have proposed a five‑year transition period in your evidence.
LISTNUM 1 \l 18203 MR. WATT: That transition period would apply to services that are deemed to be non‑essential as a result of this proceeding.
LISTNUM 1 \l 18204 MR. DANIELS: So once a determination is made that something is non‑essential, there is a five‑year transition period.
LISTNUM 1 \l 18205 Is my understanding correct?
LISTNUM 1 \l 18206 MR. WATT: I think that, probably, the question is, "Is there a five‑year transition period after the criteria in Table 5 are met," and that is not our position.
LISTNUM 1 \l 18207 MR. DANIELS: Could you explain your position, then?
LISTNUM 1 \l 18208 MR. WATT: Our position is, once a facility passes the criteria, then they are no longer essential and forbearance applies to that service.
LISTNUM 1 \l 18209 Now, I understand that in the United States there is a transition period after the criteria are met, and you could argue that our proposal is ‑‑ it is somewhat odd that a service that is deemed to be non‑essential at the outset gets a five‑year transition period, yet a service that is deemed as essential at the start of the time period, and then evolves into non‑essentiality, possibly, in two years, doesn't have a transition period. But that's because, if you meet these thresholds ‑‑
LISTNUM 1 \l 18210 In other words, there is a sufficient revenue opportunity as proxied by the number of lines. There are a lot of business lines and there is a large amount of revenue. Therefore, there is business opportunity to incur some costs, and have them recouped, and there are four alternative providers who think there is a supply of facilities, such that when the mandated tariffs were removed, there wouldn't be a need for a transition period.
LISTNUM 1 \l 18211 MR. DANIELS: Could I get you to turn to Tab D of the compendium that I have pulled out?
LISTNUM 1 \l 18212 This is your Opening Statement, and I would ask you to turn to page 5.
LISTNUM 1 \l 18213 If I am right in what I think I just heard you say, then we could make a little bit of a correction to what I read there.
LISTNUM 1 \l 18214 Do you have it there?
LISTNUM 1 \l 18215 MR. WATT: I have page 5 of the Opening Statement, yes.
LISTNUM 1 \l 18216 MR. DANIELS: Under "Transition Period for Non‑essential Facilities" you say that Rogers also proposed a transition period of five years for the phasing out of non‑essential facilities.
LISTNUM 1 \l 18217 If I take what you just said, then we could modify that by adding: In the case of CDN, when it is found to be non‑essential under your test, there is no transition period.
LISTNUM 1 \l 18218 Is that correct?
LISTNUM 1 \l 18219 MR. WATT: I believe that is the case.
LISTNUM 1 \l 18220 You are looking so puzzled by this that I think I had better check with my fellow panellists here, though.
‑‑‑ Pause
LISTNUM 1 \l 18221 THE CHAIRPERSON: Mr. Daniels, I think it would help this panel if you would make reference to the six buckets that we set out in our letter, so we could find out which bucket this would be placed in ‑‑ the various services you are talking about.
LISTNUM 1 \l 18222 MR. DANIELS: I will do that next, Mr. Chairman. I think that's a good suggestion.
LISTNUM 1 \l 18223 MR. WATT: I have confirmed that my understanding of our position is correct.
LISTNUM 1 \l 18224 And we believe they would be in "conditional essential", the second category.
LISTNUM 1 \l 18225 THE CHAIRPERSON: But once the condition is met, there is no phase‑out period. It's game over, basically.
LISTNUM 1 \l 18226 MR. WATT: Yes. We feel, with these conditions, then that would be appropriate.
LISTNUM 1 \l 18227 MR. DANIELS: Just while we are looking at this provision ‑‑ this bullet here ‑‑ it says in the second sentence of the same bullet that I was reading ‑‑ after you say that there should be a transition of five years, you say: "Price increases ‑‑ "
LISTNUM 1 \l 18228 Now, I take it, based on our discussion here, that we are now talking about the transition period for other services that would fall into Category 3, and we have just, if I am correct, understood that CDN is "conditional essential" on Category 2, and then it is rate forborne, so it never moves to 3 under your proposal.
LISTNUM 1 \l 18229 Is that correct?
LISTNUM 1 \l 18230 MR. WATT: That is correct.
LISTNUM 1 \l 18231 MR. DANIELS: Okay. We are talking about services that fall into No. 3 here. You say:
"Price increases should not be permitted, particularly during the first three years, to minimize negative impacts on competitors and their customers." (As read)
LISTNUM 1 \l 18232 I would just like to understand, what about years 4 and 5? Should price increases be permitted?
LISTNUM 1 \l 18233 MR. WATT: If you go to our response to CRTC‑1005 in July ‑‑
‑‑‑ Pause
LISTNUM 1 \l 18234 MS BLACKWELL: Good afternoon, Mr. Daniels.
LISTNUM 1 \l 18235 I am looking, in particular, at Page 3 of 3 of the response to Rogers‑CRTC, 19 July, 1005.
LISTNUM 1 \l 18236 MR. DANIELS: Could you just give me one moment to get caught up with you?
LISTNUM 1 \l 18237 MS BLACKWELL: Sure.
‑‑‑ Pause
LISTNUM 1 \l 18238 MS BLACKWELL: If I could start with the top of the page ‑‑
LISTNUM 1 \l 18239 Just to give it a bit of context, the opening remarks, as parties to this proceeding know ‑‑ you have five pages to make your summary, so some of the nuances might not always get picked up, but it says at the top of page 3:
"Rogers does not support annual price increases during the transition period."
LISTNUM 1 \l 18240 Then it goes on to explain the reason for that:
"If price increases were permitted, particularly during the first three years of the transition period, it would impact both competitors and their customers."
LISTNUM 1 \l 18241 Then we refer to paragraph 182 of the Rogers Evidence of March 15, 2007.
LISTNUM 1 \l 18242 We go on to talk about the price cap mechanism, but I think, in terms of price increases, three years or not three years, what is in the opening remarks is simply a reflection of what is stated here in this interrogatory response.
LISTNUM 1 \l 18243 MR. DANIELS: I am still not clear whether I got my answer as to whether, in years 4 and 5, you would be in support of or opposed to price increases.
LISTNUM 1 \l 18244 MS BLACKWELL: The very first sentence at the top states:
"Rogers does not support annual price increases during the transition period."
LISTNUM 1 \l 18245 As we have been talking about a transition period of five years, as you discussed with Mr. Watt, we would prefer that five‑year transition period.
LISTNUM 1 \l 18246 Is that sufficient?
LISTNUM 1 \l 18247 MR. DANIELS: Yes, it is. Thank you, that answers my question.
LISTNUM 1 \l 18248 Is that the same, no matter ‑‑ I am going to take the exception now about CDN. For all services that fall into bucket No. 3 at the end of this proceeding, is that the same for all services, regardless of what service it is?
LISTNUM 1 \l 18249 MR. WATT: Yes, that is our proposal.
LISTNUM 1 \l 18250 MR. DANIELS: I note ‑‑ and I don't think we need to turn to this ‑‑ that in paragraph 179 of your evidence you state that the FCC gave a three‑year transition period for line sharing.
LISTNUM 1 \l 18251 Do you recall that?
LISTNUM 1 \l 18252 MS BLACKWELL: Yes, I see that.
LISTNUM 1 \l 18253 MR. DANIELS: Are you familiar ‑‑ and, again, I am hoping that we don't need to turn to the decision, but we can, if necessary. It is part of our material.
LISTNUM 1 \l 18254 In the first year of the transition period, as I understand it, the FCC set the rate at 25 percent of the unbundled loop rate.
LISTNUM 1 \l 18255 So if you are only getting the upper portion of the line for the purposes of providing hi‑speed internet, you only have to pay 25 percent of the loop rate.
LISTNUM 1 \l 18256 Are you familiar with that?
LISTNUM 1 \l 18257 MS BLACKWELL: No, I'm not.
LISTNUM 1 \l 18258 MR. DANIELS: Okay. To be fair, then, I think I had better turn you to the decision.
LISTNUM 1 \l 18259 In that regard, if we could turn to Tab E of the material, this is an excerpt of a document that you were referring to in your submission.
LISTNUM 1 \l 18260 THE SECRETARY: This will be registered as Exhibit Companies No. 2.
EXHIBIT COMPANIES‑2: Excerpt from FCC Decision
LISTNUM 1 \l 18261 MS BLACKWELL: Right, and you are at the paragraph, as we cited in the footnote to that paragraph from the Rogers evidence?
LISTNUM 1 \l 18262 MR. DANIELS: No, actually, I am going to ask you to turn in that same decision ‑‑ I would ask you to turn the page to paragraph 265.
LISTNUM 1 \l 18263 MS BLACKWELL: That is from the decision that is in this binder.
LISTNUM 1 \l 18264 MR. DANIELS: That's right. It's the decision you cited.
LISTNUM 1 \l 18265 MS BLACKWELL: Okay. I just need to look at these two paragraphs.
LISTNUM 1 \l 18266 MR. DANIELS: That's right, which you cited.
LISTNUM 1 \l 18267 This is the decision, could we agree, where the FCC set the rule about line sharing ‑‑ the removal of line sharing?
LISTNUM 1 \l 18268 Could we agree on that?
LISTNUM 1 \l 18269 MS BLACKWELL: I see what it says there about the rates.
LISTNUM 1 \l 18270 MR. DANIELS: What we can see there ‑‑ and I am going to summarize it quickly ‑‑ it is 25 percent in year 1, the rate goes up to 50 percent in the second year, and in the third year the rate goes up to 75 percent.
LISTNUM 1 \l 18271 Do you see that?
LISTNUM 1 \l 18272 MS BLACKWELL: Yes. I see that the FCC, in its three‑year transition period, did allow for price increases, and that is with respect to line sharing.
LISTNUM 1 \l 18273 I don't know if it is helpful for the panel to understand what line sharing means, but it is in the context of where a competitor would lease the high frequency portion of the loop. They would lease it just for the person with broadband internet access services.
LISTNUM 1 \l 18274 The question there is, they are leasing just that upper part of the loop, and what kind of rate should they be paying during the transition period.
LISTNUM 1 \l 18275 MR. DANIELS: Ms Blackwell, are you aware that wholesale DSL was regulated by the FCC in the United States, but the FCC also eliminated the requirement for the wholesale broadband order?
LISTNUM 1 \l 18276 MS BLACKWELL: I am aware that one of the documents that counsel provided to us, or referred us to, is an order that would be described as that, with respect to the incumbent local exchange companies in the United States.
LISTNUM 1 \l 18277 MR. DANIELS: In that case the transition period was only set for one year.
LISTNUM 1 \l 18278 Are you aware of that?
LISTNUM 1 \l 18279 MS BLACKWELL: I am aware that the FCC has set different transition periods at different times.
LISTNUM 1 \l 18280 In the context of the unbundled network elements, or the UNEs, as we have often referred to them during the course of this proceeding, some of those decisions that took away access to some of the UNEs followed after a number of decisions and processes, both before the FCC and before the courts.
LISTNUM 1 \l 18281 So, in a number of situations, there were years of signalling and trials and they would say, "Okay, we will try this," and various battles ensued, and interim orders.
LISTNUM 1 \l 18282 So, yes, there were some cases where the transition period was only 12 months, there were some cases where the transition period was only 18 months.
LISTNUM 1 \l 18283 MR. DANIELS: That is the case for wholesale DSL, which would be, roughly, the equivalent of our GAS service.
LISTNUM 1 \l 18284 Is that correct?
LISTNUM 1 \l 18285 MS BLACKWELL: I am not familiar enough with the specific services that were referenced in that wireline broadband order to say "Yes, it's exactly like it," but, if you say it is, I will take that subject to check.
LISTNUM 1 \l 18286 MR. DANIELS: Fair enough.
LISTNUM 1 \l 18287 You also mentioned that the FCC has eliminated other ones. So you would agree with me that ‑‑
LISTNUM 1 \l 18288 You are familiar with the unbundled network element platform, which is basically the wholesale/resale of a complete service in the U.S.?
LISTNUM 1 \l 18289 MS BLACKWELL: I understand that it is also referred to as UNEP, and sometimes in FCC discussions it refers to it as mass market switching or ‑‑ the switching part of it, in particular.
LISTNUM 1 \l 18290 So it provided both the copper loop that we have had available as part of the access regime here in Canada, as well as switching.
LISTNUM 1 \l 18291 My sense of reading the FCC documents ‑‑ there are many folks at this hearing who are far more versed in the U.S. system, but there seems to be an awful lot of excitement about the fact that the FCC removed UNEP as one of the mandated access elements, almost to the point where they characterized it as taking away all mandated elements.
LISTNUM 1 \l 18292 But, as we have said in our submissions, unbundled loops themselves still remain available through the FCC's regime, as they do in pretty much every OECD country.
LISTNUM 1 \l 18293 MR. DANIELS: Is it fair to say that UNEP was extensively deployed in the U.S.?
LISTNUM 1 \l 18294 Is that your understanding?
LISTNUM 1 \l 18295 MS BLACKWELL: I really would not have the evidence in front of me to say that it was extensively deployed or not extensively deployed.
LISTNUM 1 \l 18296 MR. DANIELS: At this time, again, when they removed it, the transition period was set at only one year.
LISTNUM 1 \l 18297 Are you aware of that fact?
LISTNUM 1 \l 18298 MS BLACKWELL: That was in the second TRO‑2005 decision, as we sometimes refer to it in our evidence. I am aware of that.
LISTNUM 1 \l 18299 MR. DANIELS: We could agree that there are some differences between your FCC test ‑‑ and here I am referring back to Table 5, the test for CDN ‑‑ and your proposed CDN forbearance test.
LISTNUM 1 \l 18300 I believe we asked you in an interrogatory, which I have put in, for convenience, at Tab H of our material ‑‑
LISTNUM 1 \l 18301 It is just a short interrogatory.
LISTNUM 1 \l 18302 We asked you to point out the differences between your proposal and the FCC's test proposal.
LISTNUM 1 \l 18303 I am wondering if we could turn to that for a second.
LISTNUM 1 \l 18304 Do you have that?
LISTNUM 1 \l 18305 MR. KOCH: Mr. Chairman, for those of us who don't have the binder, it would be helpful if the name and number of the interrogatory were read into the record.
LISTNUM 1 \l 18306 Thank you.
LISTNUM 1 \l 18307 THE CHAIRPERSON: Mr. Daniels, would you do that please?
LISTNUM 1 \l 18308 MR. DANIELS: Yes.
LISTNUM 1 \l 18309 I completely apologize to my friends.
LISTNUM 1 \l 18310 I am referring to Rogers‑The Companies 19 July 07‑4.
LISTNUM 1 \l 18311 I apologize.
LISTNUM 1 \l 18312 MS BLACKWELL: Because I have the lettered tabs, I already have it in front of me. Thank you.
LISTNUM 1 \l 18313 MR. DANIELS: In looking at this, we see that the first difference is that you have rounded up to the nearest 5,000 of lines.
LISTNUM 1 \l 18314 Is that a fair description of what you have done in your proposed thresholds?
LISTNUM 1 \l 18315 MS BLACKWELL: With respect to business line density and some others, yes.
LISTNUM 1 \l 18316 With respect to business line density and all but the high‑capacity DS1 loops.
LISTNUM 1 \l 18317 We rounded from 38,000 to 40,000, and from 24,000, by the FCC, to 25,000 in our case.
LISTNUM 1 \l 18318 MR. DANIELS: Is there a logical reason for this?
LISTNUM 1 \l 18319 MS BLACKWELL: The FCC had before it detailed evidence by the RBOCs, the ILECs in the U.S., and, as we said in Rogers' evidence, this has given us starting points, and we had hoped, through the interrogatory process, to have gathered additional information to try and refine these thresholds, both with respect to business lines and fibre‑based co‑located competitors.
LISTNUM 1 \l 18320 Certainly, through that process, some information was filed in confidence, and some wasn't. My sense is that, certainly, the annual telecom monitoring process that the Commission goes through provides it with access to very granular detail, not unlike what the FCC gets through what they call their ARMIS process, which would allow them to examine whether or not these thresholds, whether it's 60,000, 65,000, 62,382, would be the right number.
LISTNUM 1 \l 18321 My sense from the FCC is that they were looking at the revenue opportunities, as represented by business line density, and they also looked at what those various thresholds would mean, in terms of which markets would or would not be applicable under these thresholds.
LISTNUM 1 \l 18322 I would expect that the CRTC would have the same ability, in terms of how to develop its own proxy, by looking at these thresholds applied to the Canadian market and saying: Okay, does it make sense when I look at which wire centres would or would not qualify under these thresholds?
LISTNUM 1 \l 18323 If the answer is, "No, it doesn't make sense," then, using the granular data that they have, they can try to adjust them appropriately to get a set of outcomes.
LISTNUM 1 \l 18324 The idea of the Commission using the data that it has in front of it, often in confidence, to develop a proxy is not an unusual thing. Even, most recently, in the decision respecting DNA forbearance ‑‑ I believe it was Decision 2007‑35 ‑‑ the Commission did that, taking some of the granular and often very confidential information to develop a proxy which they felt made sense for them.
LISTNUM 1 \l 18325 MR. DANIELS: Is that a "no"?
LISTNUM 1 \l 18326 At the end of the day, was there a logical reason?
LISTNUM 1 \l 18327 I hear you saying that the CRTC can come up with a bunch of other reasons, but was there any reason ‑‑
LISTNUM 1 \l 18328 THE CHAIRPERSON: What depends on this?
LISTNUM 1 \l 18329 The changes between the FCC numbers and Rogers' numbers are so minuscule, does it really make a difference why they made those small variations?
LISTNUM 1 \l 18330 MR. DANIELS: No, I suppose it doesn't, so I will move on.
LISTNUM 1 \l 18331 But I would like to point out another difference and ‑‑
LISTNUM 1 \l 18332 MS BLACKWELL: Can I just ‑‑ okay, go ahead.
LISTNUM 1 \l 18333 MR. DANIELS: If we turn to ‑‑ you know, I actually think, and I could be wrong, but this just may be an error, so I am just going to try to show you a couple of things in your own evidence to see if we can just quickly establish that.
LISTNUM 1 \l 18334 So rather than do cross‑examination, I am just going to point this out and we will see if we can figure out that this is an error. When I was preparing for my cross‑examination, I noticed this.
LISTNUM 1 \l 18335 If you turn to page 19, Table 3, of your evidence, you have put in ‑‑ I will give you a second to find it. Do you have it there?
LISTNUM 1 \l 18336 MR. WATT: Yes.
LISTNUM 1 \l 18337 MR. DANIELS: Okay. You have put in a summary of the FCC regime there basically and I am focused on not the top part but the dedicated transport.
LISTNUM 1 \l 18338 You are just summarizing the FCC test, the same thing we just looked at; is that correct?
LISTNUM 1 \l 18339 MS BLACKWELL: Well, I think what could be a source of potential confusion is the FCC, the way that their test was stated is they were stating where is there not impairment without access.
LISTNUM 1 \l 18340 MR. DANIELS: I am not going there.
LISTNUM 1 \l 18341 MS BLACKWELL: Okay.
LISTNUM 1 \l 18342 MR. DANIELS: I am not going there.
LISTNUM 1 \l 18343 MS BLACKWELL: That is fine.
LISTNUM 1 \l 18344 MR. DANIELS: Really, I am just going to take you through. I am just going to show you that I think you have a numerical error here.
LISTNUM 1 \l 18345 Quite simply, in DS‑3 you say that it is 24,000 business lines and fewer than 4 fiber‑based co‑locators.
LISTNUM 1 \l 18346 Do you see that ‑‑
LISTNUM 1 \l 18347 MS BLACKWELL: Yes.
LISTNUM 1 \l 18348 MR. DANIELS: ‑‑ under dedicated transport?
LISTNUM 1 \l 18349 When I looked at the test, I read it in the FCC as 3. When I looked at your evidence ‑‑ and so I am going to take you to ‑‑ let me just get it here.
‑‑‑ Pause
LISTNUM 1 \l 18350 MR. DANIELS: It is in Tab I of our document, and for those who don't have the compendium, I am looking at Rogers CRTC from the first round, 102. So if you could turn there for a moment.
LISTNUM 1 \l 18351 MS BLACKWELL: So that is Rogers CRTC 12 April 102?
LISTNUM 1 \l 18352 MR. DANIELS: That is correct.
LISTNUM 1 \l 18353 MS BLACKWELL: Correct.
LISTNUM 1 \l 18354 MR. DANIELS: If you could just turn to page 6 of your material. I am just going to skip down to the last paragraph there:
"The FCC classified wire centres into one of three tiers, with Tier 1 having at least 38,000 business lines and 4 fiber‑based co‑located competitors, Tier 2 as having at least 24,000 business lines and 3 fiber‑based co‑located competitors..." (As read)
LISTNUM 1 \l 18355 So I think you have ‑‑ and that is correct, that is my understanding as well. So I think actually your Table 3 has an error in it when it says 4 fiber‑based co‑locators and it should be 3.
LISTNUM 1 \l 18356 I will give you a minute to confirm that because you know what my next logical question is going to be.
‑‑‑ Pause
LISTNUM 1 \l 18357 MS BLACKWELL: Mr. Daniels, just in the interest of time, my recollection is that when the FCC developed Tier 1, Tier 2 and Tier 3, that how those applied in their impairment test varied depending on loops and transport and the different capacities, and recognizing very much the time pressures here, would it be satisfactory if you left this with us over the weekend?
LISTNUM 1 \l 18358 MR. DANIELS: Absolutely. Just take an undertaking.
LISTNUM 1 \l 18359 MS BLACKWELL: Okay.
LISTNUM 1 \l 18360 MR. DANIELS: And then the logical ‑‑ just so we are clear on the undertaking, the logical question is not just to confirm the fact but if it is confirmed, if my ‑‑
LISTNUM 1 \l 18361 MS BLACKWELL: Right.
LISTNUM 1 \l 18362 MR. DANIELS: ‑‑ if I am correct, does that change your proposed test? That is ‑‑
LISTNUM 1 \l 18363 MS BLACKWELL: So the question is if the FCC used Tier 2 for some of these capacities rather than Tier 1, then does that mean that we should have in all of our tables used fewer than 3 rather than fewer than 4? Is that the question?
LISTNUM 1 \l 18364 MR. DANIELS: I will leave it with you to decide how you want to change it. I am just asking when I look at your proposed test on Table 5 ‑‑
LISTNUM 1 \l 18365 MS BLACKWELL: Okay.
LISTNUM 1 \l 18366 MR. DANIELS: ‑‑ and you say fewer than 25,000 or fewer than 4, are you going to revise that to fewer than 3?
LISTNUM 1 \l 18367 MS BLACKWELL: Yes.
LISTNUM 1 \l 18368 MR. DANIELS: Your logic will be up to you.
LISTNUM 1 \l 18369 MS BLACKWELL: Fine, I had nothing else planned for the weekend.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 18370 MR. DANIELS: Now, I would like to turn to some other differences between the FCC's proposal and your proposed test as I understand it but don't relate at all to the transition period.
LISTNUM 1 \l 18371 So just so we are clear, we are talking about when you continue to be regulated there is an impairment standard, in the U.S. term, but an obligation to provide, what we would say in Canada, CDN and I want to understand about the restriction on use.
LISTNUM 1 \l 18372 Now, is it your understanding that the FCC denies access altogether to enterprise loops and dedicated transport by use of CLECs of these circuits for the exclusive provision of mobile wireless services and long distance services? Are you aware of this restriction?
LISTNUM 1 \l 18373 MS BLACKWELL: I am aware that restriction was part of the TRRO decision of 2005.
LISTNUM 1 \l 18374 MR. DANIELS: Do you agree with that for Canada?
‑‑‑ Pause
LISTNUM 1 \l 18375 MR. WATT: I don't think we have a problem with that.
LISTNUM 1 \l 18376 MR. DANIELS: Okay, that is fine. So that takes out a good fair amount of my cross, which is good on that point.
LISTNUM 1 \l 18377 So we can agree that there will be a restriction on use for CDN not to be ‑‑
LISTNUM 1 \l 18378 MR. WATT: No. Read that to me one more time, please.
LISTNUM 1 \l 18379 MR. DANIELS: Okay. My question is really: Earlier, we established at the beginning of this cross that you were opposed to a restriction on use.
LISTNUM 1 \l 18380 Now, what I have pointed out here is that ‑‑ and I am not talking transition period ‑‑ when regulated, the FCC established a restriction on use. They said CDN cannot be used exclusively to provide ‑‑ I am using CDN, it is enterprise loops and dedicated transport in the U.S. but our equivalent to CDN ‑‑ cannot be used ‑‑
LISTNUM 1 \l 18381 MR. WATT: So you are taking the American rules and applying the Canadian terminology to them. Okay, carry on.
LISTNUM 1 \l 18382 MR. DANIELS: Right. So when I was asking would you agree with that for Canada, I was asking you do you support a restriction on use for CDN in Canada when it would be regulated but it could not be available for wireless, pure wireless use or pure toll use? Do you support that restriction like they have in the U.S.?
‑‑‑ Pause
LISTNUM 1 \l 18383 MR. WATT: I haven't looked at the U.S., that aspect of it in detail. I would say that the same restrictions, the same rules that apply to CDN today in Canada should continue to apply should CDN be deemed as an essential facility.
LISTNUM 1 \l 18384 MR. DANIELS: Okay. So you oppose the adoption of that restriction?
LISTNUM 1 \l 18385 MR. WATT: I think I would, yes.
LISTNUM 1 \l 18386 MR. DANIELS: Okay.
LISTNUM 1 \l 18387 I am sorry, Mr. Chair, I do have to do the rest of this next section.
LISTNUM 1 \l 18388 So when you order a circuit that runs from one of your Rogers wireless towers to your point of presence, which we refer to in the telecom industry as a POP, but from ‑‑ that is there you would be purchasing ‑‑ if you purchase CDN from us, lease CDN, that circuit from the wireless tower back to our central office, we can agree that that is actually called ‑‑ that you would buy it off our CDN access tariff; is that correct?
LISTNUM 1 \l 18389 MR. WATT: Yes, I believe that is correct to the extent that we purchased it from you.
LISTNUM 1 \l 18390 MR. DANIELS: Right. And to the extent that ‑‑ I just want to have a clear understanding ‑‑ that if you then go from that wire centre to another wire centre, that would be ‑‑ you would purchase CDN transport from us in that situation?
LISTNUM 1 \l 18391 MR. WATT: Yes, that would be correct, again, where we are purchasing it from you.
LISTNUM 1 \l 18392 MR. DANIELS: When you are purchasing it from us but it is an essential facility under your test. So why wouldn't you be purchasing it from us if it is an essential facility?
LISTNUM 1 \l 18393 MR. WATT: We may not have the facility in that location, the various different geographic markets.
LISTNUM 1 \l 18394 MR. DANIELS: Okay. In other words, you are saying that you may be able to self‑supply, is that my understanding, or are you referring to another ILEC? To be quite honest, I am just not clear.
LISTNUM 1 \l 18395 MR. WATT: I would have to check to see what exactly our situation is with respect to self‑supply. In that situation I am referring as well to other ILECs.
LISTNUM 1 \l 18396 MR. DANIELS: So let's just keep this in Bell's territory, because you do operate in Bell's territory as a Rogers Wireless and you would have towers there.
LISTNUM 1 \l 18397 Is that correct?
LISTNUM 1 \l 18398 MR. WATT: If you could repeat that question, please? I apologize.
LISTNUM 1 \l 18399 MR. DANIELS: I think I'm just stating the obvious, but you do have Rogers Wireless in Bell territory where the ILEC, and you do have wireless towers in our territory?
LISTNUM 1 \l 18400 MR. WATT: Yes. Yes, I didn't need to have that repeated I guess.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 18401 MR. DANIELS: No, that' fair. You were talking and I didn't stop, so I apologize.
LISTNUM 1 \l 18402 So in that situation you may self‑supply or you may get from someone else or you may buy from us. And if you buy from us it would be the CDN access tariffs.
LISTNUM 1 \l 18403 MR. WATT: That is right.
LISTNUM 1 \l 18404 MR. DANIELS: Right. So I'm just going to accept that it is essential without getting into an argument with you whether you can self‑supply and whether that makes it essential. That's not my purpose. I'm just trying to understand something about the restriction on use.
LISTNUM 1 \l 18405 So can we agree that the wireless market is competitive?
LISTNUM 1 \l 18406 MR. WATT: We can certainly agree that the wireless retail market is competitive, absolutely.
LISTNUM 1 \l 18407 MR. DANIELS: And the wireless retail market was competitive in 2005.
LISTNUM 1 \l 18408 Can we agree to that?
LISTNUM 1 \l 18409 MR. WATT: Yes, I agree the wireless market was competitive in 2005.
LISTNUM 1 \l 18410 MR. DANIELS: While we are at it, how the 2002?
LISTNUM 1 \l 18411 MR. WATT: Yes.
LISTNUM 1 \l 18412 MR. DANIELS: So we can agree, then, that it was competitive even before the existence of CDN?
LISTNUM 1 \l 18413 MR. WATT: It was competitive. Certainly I guess the distinction between 2002 ‑‑ an important one for us at least ‑‑ from 2005 is that in 2002 we were, hard as it is to believe today, unprofitable, whereas today we are in a better situation as the market has grown.
LISTNUM 1 \l 18414 But it is definitely a competitive market in both cases.
LISTNUM 1 \l 18415 MR. DANIELS: I understand. So we can agree it was competitive in 2002, 2005. The big difference is that when CDN was created in 2002 you were unprofitable and now CDN is there so now you are profitable?
LISTNUM 1 \l 18416 MR. WATT: No, no.
LISTNUM 1 \l 18417 MR. DANIELS: Is that what you are suggesting?
LISTNUM 1 \l 18418 MR. WATT: I'm not trying to tie any link to between CDNA and profitability. That's not the reason why we are profitable
LISTNUM 1 \l 18419 MR. DANIELS: Right. So then let me ask my question again: We can agree that it is competitive despite the existence of CDN, the retail wireless market?
LISTNUM 1 \l 18420 MR. WATT: Yes.
LISTNUM 1 \l 18421 MR. DANIELS: When you are using CDN access for serving your wireless customers, you are doing that to compete in the wireless market and this includes a large amount of residential customers, doesn't it?
LISTNUM 1 \l 18422 MR. WATT: Yes, it does.
LISTNUM 1 \l 18423 MR. DANIELS: Yes. Would you say more residential than business customers or roughly equal?
LISTNUM 1 \l 18424 MR. WATT: I would say more.
LISTNUM 1 \l 18425 MR. DANIELS: And yet your criteria here states that the number of business lines ‑‑ I'm talking about when I say the "criteria" here, I'm referring back to your tests for CDN forbearance, this essential facility test ‑‑ that the criteria here is the number of wireline business lines.
LISTNUM 1 \l 18426 Let me just check something here. Can we agree ‑‑ I actually put in the word "wireline" so let me just check that with you.
LISTNUM 1 \l 18427 The 60,000 or the 40,000 or the 25,000, is that referring to wireline business customers?
LISTNUM 1 \l 18428 MR. WATT: Yes.
LISTNUM 1 \l 18429 MR. DANIELS: Yes, okay. So we can agree to that.
LISTNUM 1 \l 18430 Then your criteria here states that the number of wireline business lines needs to be a certain threshold to determine whether Rogers Wireless can justify building access facilities to wireless tower to serve the residential market.
LISTNUM 1 \l 18431 Do I have that down correct?
LISTNUM 1 \l 18432 MR. WATT: Would you repeat that one more time, please?
LISTNUM 1 \l 18433 MR. DANIELS: We can agree your criteria here state that the number of wireline business lines needs to be a certain threshold, 60,000 or 40,000 depending what we are talking about here ‑‑ but for DS‑3 40,000 ‑‑ that you need 40,000 wireline business lines to determine whether Rogers Wireless can justify building access facilities to a wireless tower to serve the residential market?
LISTNUM 1 \l 18434 Am I correct?
LISTNUM 1 \l 18435 MR. WATT: You are tying the two separate items together. That's not the reason why we are proposing these thresholds.
LISTNUM 1 \l 18436 MR. DANIELS: Well, actually I'm not sure I'm tying them together, I think you are tying the forbearance threshold for us to be able to ‑‑ for us to be forborne for you to be able to provide wireless CDN service ‑‑ excuse me, us to be forborne from providing wireless CDN service based on 60,000 business lines.
LISTNUM 1 \l 18437 I'm actually asking what's your connection. I agree with you, I don't see a connection.
LISTNUM 1 \l 18438 MR. WATT: Well, our connection is that we don't have facilities of our own between these wire centres so we are faced with the prospect of either building them ourselves or leasing them. We find that ‑‑ we believe that when the density in a wire centre is as we have described here, there will be revenue opportunities and where there are a number of alternative suppliers we would have reasonable access to alternatives.
LISTNUM 1 \l 18439 Therefore, once the pass these tests, then we would no longer have that mandated facility. We use that mandated facility for a wide variety of traffic between the wire centres.
LISTNUM 1 \l 18440 MR. DANIELS: Mr. Watt, what am I missing here? You are talking about the density of 60,000 ‑‑ or 40,000 I should say, because I think you would build a DS‑3 ‑‑ business lines. What does that have to do with the business case for building out to a wireless tower to serve the residential ‑‑ well, the entire wireless market which is primarily residential?
LISTNUM 1 \l 18441 What is logical connection here?
LISTNUM 1 \l 18442 MR. WATT: Again, I focused on the transport because I'm thinking that we were ‑‑ it's transport in a general sense, transport between the two wire centres. CDNA also includes access.
LISTNUM 1 \l 18443 Same analysis. I want a density to make it economic to build. I think what you will find if you look back to the FCC, I believe the restriction on use is when the facility is used exclusively for a particular type of traffic, and we think the wireless market is carrying also business traffic and residential traffic. It is a combination of the traffic.
LISTNUM 1 \l 18444 MR. DANIELS: Sorry. Are you suggesting the FCC restriction about exclusively for wireless means that when you put business traffic on residential traffic over a mobile phone that it is not wireless in that circumstance?
LISTNUM 1 \l 18445 MR. WATT: I thought the access to the facility was restricted when it was used only for wireless traffic. You said wireless and long distance, did you not, right at the outset.
LISTNUM 1 \l 18446 MR. DANIELS: No, no, that's correct.
LISTNUM 1 \l 18447 MR. WATT: Yes.
LISTNUM 1 \l 18448 MR. DANIELS: But I'm talking about the facility from your wireless tower back to your serving location. So that would be ‑‑ I assume and you can correct me ‑‑ from the wireless tower, that's going to be exclusively for wireless purposes. That is what you are connecting to your wireless tower for.
LISTNUM 1 \l 18449 MR. WATT: That would be correct.
LISTNUM 1 \l 18450 MR. DANIELS: Okay. I think I have covered it and made my point so I think I will move onto another restriction here.
LISTNUM 1 \l 18451 THE CHAIRPERSON: You may be, but now I am totally confused so maybe I can see whether I understood you correctly.
LISTNUM 1 \l 18452 You are tying it to population density or using business line density on the assumption that when the thresholds ‑‑ you will be either in a position to sell supply or else somebody else will have entered into the market and you will be able to acquire supply from them? I assume that is why you are tying it to these densities?
LISTNUM 1 \l 18453 MR. WATT: Yes, that is correct.
LISTNUM 1 \l 18454 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 18455 MR. DANIELS: Another restriction that the FCC has about ‑‑ again I'm using the Canadian term CDN ‑‑ is that for transport group where there is forbearance for DS‑3s but not for DS‑1s ‑‑ so if we meet the test in your transport route, we meet the one for DS‑3, but we don't meet the one for DS‑1. In those situations there is a limit that for any one carrier on a route for DS‑1s to be limited to 10 circuits.
LISTNUM 1 \l 18456 Are you familiar with that restriction?
LISTNUM 1 \l 18457 MS BLACKWELL: I was generally aware that they had that kind of a limit.
LISTNUM 1 \l 18458 MR. DANIELS: And for CDN access ‑‑ again I'm using the Canadian term ‑‑ there is a limit of only 10 DS‑1s as well.
LISTNUM 1 \l 18459 Are you aware of that restriction as well on a particular route?
LISTNUM 1 \l 18460 MR. WATT: We will agree with that, subject to check. None of us on this panel are actually aware of that.
LISTNUM 1 \l 18461 MR. DANIELS: Okay. That's fine. If you want I will show you after the material, but I'm trying to move things along.
LISTNUM 1 \l 18462 COMMISSIONER CRAM: Excuse me, Mr. Daniels. That is 10 DS‑1s in any given exchange or in the whole country or per CLEC?
LISTNUM 1 \l 18463 MR. DANIELS: No, I believe it's on a route‑specific basis.
LISTNUM 1 \l 18464 COMMISSIONER CRAM: Okay.
LISTNUM 1 \l 18465 MR. DANIELS: So in a particular route, one competitor, so if it's transport you are connecting between different wire centres, you are limited to 10 DS‑1s. If you are going to a particular building, the maximum you can order is 10 DS‑1s.
LISTNUM 1 \l 18466 COMMISSIONER CRAM: So it's just transport, or it's both transport and access?
LISTNUM 1 \l 18467 MR. DANIELS: No, no, it's transport and access.
LISTNUM 1 \l 18468 COMMISSIONER CRAM: All right.
LISTNUM 1 \l 18469 MR. DANIELS: I'm just making the distinction that it is route for the transport and it is to a particular building for access.
LISTNUM 1 \l 18470 Now, there is also a limit of 1 ‑‑ when there is impairment for DS‑3 ‑‑ I will wait.
‑‑‑ Pause
LISTNUM 1 \l 18471 MR. DANIELS: Are you also aware that in the FCC rules there is a limit of one DS‑3. So there is regulation mandated for DS‑3 in the access side, so CDN access, that it is limited for any one building that a CLEC can only order one DS‑.
LISTNUM 1 \l 18472 Are you aware that restriction?
LISTNUM 1 \l 18473 MS BLACKWELL: I recall seeing something like that.
LISTNUM 1 \l 18474 These are voluminous decisions, so I will take your word, yes.
LISTNUM 1 \l 18475 MR. DANIELS: Is it fair to say, again subject to check, that the general philosophy here is that if you have two DS‑3s to a particular building then therefore the FCC establishes, notwithstanding this test here, we expect you to be able to build or self‑supply or make other arrangements? That's why they limit it to only one DS‑3 to a particular building?
LISTNUM 1 \l 18476 MS BLACKWELL: My general recollection is that it was based very much on the economic characteristics and if there was sufficient revenue opportunities to build the DS‑3s, that did not necessarily mean you had ‑‑ the amount of traffic that would justify a DS‑3 did not mean that would justify a different capacity.
LISTNUM 1 \l 18477 So there was a lot of interplay in terms of the relationships between the revenue opportunities and what that would allow a competitor to have an opportunity to recover the costs. We discussed that in some detail in excerpts from the FCC Decision in the response to CRTC 102.
LISTNUM 1 \l 18478 MR. DANIELS: So again I would like to ask you: Given what I have just described ‑‑ and I did them all together so ‑‑ these restrictions in terms of the number of circuits you can order, 10 DS‑1s for a transport, 10 DS‑1s for a CDN access, and one DS‑3 for CDN access, do you support those restrictions for Canada?
LISTNUM 1 \l 18479 MR. WATT: Possibly one thing. If you could provide us with the reference to that so we could actually see those pages, please.
LISTNUM 1 \l 18480 MR. DANIELS: Sure. If I can get you to turn ‑‑ let's go back. The first one would be in the Order that you referred to in your evidence which is the TRRO. That is at Appendix "J". I guess we should submit this as an exhibit.
‑‑‑ Pause
LISTNUM 1 \l 18481 MR. DANIELS: Madam Secretary, it is listed "J" in my document, but in your Order on Remand it is adopted December 15, 2004. It is an FCC Decision.
LISTNUM 1 \l 18482 While she finds the exhibit maybe I can just go and show you what I'm talking about.
LISTNUM 1 \l 18483 If you turn in the Compendium to page ‑‑ I will start with pages 73 and 74, paragraph 128.
‑‑‑ Pause
LISTNUM 1 \l 18484 MR. DANIELS: You see there it says:
"On routes for which we determine that there is no unbundling obligation for DS‑3 transport but for which impairment exists for DS‑1 transport, we limit the number of DS‑1 transport circuits that each carrier may obtain on that route to 10 circuits." (As read)
LISTNUM 1 \l 18485 Do you see that?
LISTNUM 1 \l 18486 MS BLACKWELL: We have that, yes.
LISTNUM 1 \l 18487 MR. DANIELS: So that's the first one I said, which is the transport.
LISTNUM 1 \l 18488 For the access, if you turn to paragraph 181 on page 101, which I believe is the last page of the document I have ‑‑ sorry, the last page of the Appendix "J" there, you will see paragraph 181.
LISTNUM 1 \l 18489 Do you see that there?
LISTNUM 1 \l 18490 MS BLACKWELL: Yes, I see that.
LISTNUM 1 \l 18491 MR. DANIELS: Okay. It says there:
"As with DS‑3 loops we establish a capacity based on limitation of DS‑1 loop unbundling to apply where we have otherwise found impairment without access to such loops. Specifically we establish a cap of 10 DS‑1 loops that each carrier may obtain to a building." (As read)
LISTNUM 1 \l 18492 Do you see that?
LISTNUM 1 \l 18493 MS BLACKWELL: Yes, we do.
LISTNUM 1 \l 18494 MR. DANIELS: Okay. Tell me when you are ready and I will move onto the last one that I just said.
‑‑‑ Pause
LISTNUM 1 \l 18495 MS BLACKWELL: Okay, let's go.
LISTNUM 1 \l 18496 MR. DANIELS: Just back one page ‑‑ because I have excerpted just the relevant pages ‑‑ page 99, paragraph 177, the last sentence of that paragraph says "Therefore..."
LISTNUM 1 \l 18497 Do you see it, "Therefore"?
LISTNUM 1 \l 18498 MS BLACKWELL: Yes.
LISTNUM 1 \l 18499 MR. DANIELS:
"... even where our test requires DS‑3 loop unbundling we limit the number of unbundled DS‑3s that a competitive LEC can obtain at each building to a single DS‑3 to encourage facility‑based deployment when such competitive deployment is economic." (As read)
LISTNUM 1 \l 18500 So that is the references to what we have just discussed, Mr. Watt.
LISTNUM 1 \l 18501 Now let me ask you again: Do you agree that those restrictions should apply to CDN in Canada?
LISTNUM 1 \l 18502 MR. WATT: I think what we would like to do is think about that.
LISTNUM 1 \l 18503 At the current time we would like to have the current rules apply and we would think they would be appropriate, but we will consider this.
LISTNUM 1 \l 18504 MR. DANIELS: So do I have an undertaking that you will go away and think about this and come back with your position?
LISTNUM 1 \l 18505 MR. WATT: Yes, we will do that.
‑‑‑ Pause
LISTNUM 1 \l 18506 MR. DANIELS: I'm done for a moment talking about the differences between the FCC model and your proposal. Now I would like to ask you a few questions about the logic of the FCC model on your proposal or how it would work in a certain circumstance.
LISTNUM 1 \l 18507 I take it you are aware of the CRTC forbearance test for retail DNA at the DS‑3 level and above?
LISTNUM 1 \l 18508 MS BLACKWELL: Yes.
LISTNUM 1 \l 18509 MR. DANIELS: In that decision the CRTC basically stated that the ILECs are forborne when competitors have built accesses to 30 per cent of the buildings in a wire centre.
LISTNUM 1 \l 18510 Is that a fair characterization of the test?
LISTNUM 1 \l 18511 MS BLACKWELL: I would agree with that summary.
LISTNUM 1 \l 18512 There are some nuances, but yes.
LISTNUM 1 \l 18513 MR. DANIELS: And you would agree with me that in such a case the CRTC had found the downstream market to be competitive
LISTNUM 1 \l 18514 MS BLACKWELL: That being the retail DNA, yes.
LISTNUM 1 \l 18515 MR. DANIELS: That is based on what we will term, using The Companies term, end‑to‑end facilities‑based competition.
LISTNUM 1 \l 18516 Is that a fair characterization?
LISTNUM 1 \l 18517 MS BLACKWELL: I would agree with that characterization.
LISTNUM 1 \l 18518 MR. DANIELS: We can agree that wholesale CDN is not part of that test at all?
‑‑‑ Pause
LISTNUM 1 \l 18519 MS BLACKWELL: To the extent that the competitor presence as you have described it is 30 per cent, that is end‑to‑end facilities so one would expect the end‑to‑end facilities‑based competitors as defined would not be those relying on CDN. I agree.
LISTNUM 1 \l 18520 MR. DANIELS: Actually what I'm saying is that there is no forbearance on the basis of CDN, no retail forbearance on the basis of CDN in that decision at all.
LISTNUM 1 \l 18521 Maybe I can help you here. If you turn, therefore ‑‑ and I'm going to have to introduce another exhibit. I don't know if we got a last exhibit number, but this would be in my material Appendix "L". This is Telecom Decision CRTC 2007‑35. This is the forbearance for high‑speed DNA.
LISTNUM 1 \l 18522 THE SECRETARY: This will be Exhibit No. 4 and the previous one No. 3.
EXHIBIT COMPANIES‑3: Appendix "J", FCC Decision, Order on Remand, adopted December 15, 2004
EXHIBIT COMPANIES‑4: Appendix "L", Telecom Decision CRTC 2007‑35
LISTNUM 1 \l 18523 MR. DANIELS: So if I could just get you to turn ‑‑ I have only excerpted the cover page and the next page. If you would go to paragraph 100 of that Decision, which is on the ‑‑
LISTNUM 1 \l 18524 MS BLACKWELL: Yes, I see that.
LISTNUM 1 \l 18525 MR. DANIELS: You can see there in the second line it says:
"The Commission is also of the view that forbearance for high‑speed DNA service should not be predicated on the availability of ILEC CDN services within a wire centre. The Commission considers that ILEC‑supplied CDN service would not contribute towards the sustainability of high‑speed DNA market because it would perpetuate competitor's dependency on ILEC high‑speed DNA facilities and continued regulation of underlying facilities for the provision of high‑speed DNA services." (As read)
LISTNUM 1 \l 18526 So I'm just taking you there just so you can confirm that CDN had nothing to do with retail DNA forbearance.
LISTNUM 1 \l 18527 MS BLACKWELL: It's probably just semantics as to how you are phrasing the question.
LISTNUM 1 \l 18528 I agree that as you have read this Commission's decision the test for retail DNA forbearance is based on end‑to‑end facilities‑based competitors.
LISTNUM 1 \l 18529 MR. DANIELS: I would like to just posit a scenario with you for a moment. I don't think this is actually too hypothetical, which I will show you in a minute.
LISTNUM 1 \l 18530 I want you to imagine that there is a wire centre, and going back to your test, because I'm going to talk about CDN access here. So we have a high‑capacity loop providing DS‑3 capacity and it is a wire centre that has fewer than 40,000 business lines or it has fewer than four fibre‑based collocators so o CDN forbearance would not apply.
LISTNUM 1 \l 18531 Is that correct?
LISTNUM 1 \l 18532 MS BLACKWELL: Yes.
LISTNUM 1 \l 18533 MR. DANIELS: Okay. Now that same wire centre turns out ‑‑
LISTNUM 1 \l 18534 MS BLACKWELL: Well, I mean, the way you would phrase it, CDN would not be considered a conditional essential service, as we discussed earlier.
LISTNUM 1 \l 18535 MR. DANIELS: It would be completely forborne ‑‑ sorry, it would be a conditional essential in that situation ‑‑
LISTNUM 1 \l 18536 MS BLACKWELL: That's right.
LISTNUM 1 \l 18537 MR. DANIELS: ‑‑ as opposed to being forborne, so it would be conditional essential Category 2?
LISTNUM 1 \l 18538 MS BLACKWELL: Correct. I just wanted to get our terminologies.
LISTNUM 1 \l 18539 MR. DANIELS: Right, right. I'm sorry.
LISTNUM 1 \l 18540 So now, under that scenario, I want you to imagine, though, that a competitor has built to 30 percent of the buildings in that wire centre, so retail forbearance would be appropriate. We can agree with that, right?
LISTNUM 1 \l 18541 MS BLACKWELL: It would meet the Commission's test as set out in that decision we were talking about.
LISTNUM 1 \l 18542 MR. DANIELS: Right. But the wire centre wouldn't be ‑‑ so it would be forborne from DNA regulation, but would it be still subject to CDN regulation, that's...?
LISTNUM 1 \l 18543 MS BLACKWELL: The hypotheticals you set out, we could see that kind of hypotheticals. You have applied the test and so forth appropriately.
LISTNUM 1 \l 18544 MR. DANIELS: Right. So it's possible we can get retail forbearance, but still have wholesale ‑‑ retail forbearance, on the basis of end‑to‑end facilities‑based competition, but still have wholesale regulation using your two tests ‑‑ putting the two tests, the one you are putting here?
LISTNUM 1 \l 18545 MS BLACKWELL: Yes. You have a proxy that the Commission has applied here in this Decision 2007‑35 and, as the Rogers' proposal would have it, we would prefer this kind of proxy, as we have set out in the evidence, to be used with respect to whether or not CDN is mandated essential or not.
LISTNUM 1 \l 18546 MR. DANIELS: And you are familiar that in the DNA decision that there was a number of wire centres where the CRTC gave Bell Canada retail forbearance?
LISTNUM 1 \l 18547 MS BLACKWELL: I'm aware of that. It's not listed here in the excerpt from the decision that is in the tab, but I am aware that there is a list.
LISTNUM 1 \l 18548 MR. DANIELS: Right. And you also were here ‑‑ or maybe you weren't, I don't know. Were you here when you heard Mr. Bibic say that there would be very, very few wire centres that would meet your wholesale ‑‑ your proposed FCC forbearance test?
LISTNUM 1 \l 18549 MS BLACKWELL: I recall Mr. Bibic making that remark. And he may very well, obviously, being the ILEC, have that information. Just to say, I mean, one of the valued parts of this criteria or proxy, whether it's these thresholds or, you know, adjusted thresholds, is that the ILEC does have the ability to apply it and to go forth to the regulator and say this should no longer be essential, and make their case.
LISTNUM 1 \l 18550 Just in the case of the FCC, that was very much one of the things that the FCC pointed to in picking things like fibre‑based collocators and business line density, is that it was an objective test that the ILECs themselves could test.
LISTNUM 1 \l 18551 Also, competitors in the market would have a general sense of whether or not a wire centre is getting close to those thresholds and would be able to guide their business plans accordingly.
LISTNUM 1 \l 18552 MR. WATT: Part of the problem, from a competitor's perspective, in terms of certainty of planning, is that, under the DNA test, you have got to count the buildings to meet that test. So there's a filing, so we wouldn't really have very good information as to how close you were getting in that wire centre to getting forbearance.
LISTNUM 1 \l 18553 Under this test, the FCC test, in our version of it, it's very easy to count how many collocators there are in a central office and, presumably, we are going to know how many business lines there are, whether you are over that or not.
LISTNUM 1 \l 18554 In terms of this decision, it came out in May, so it came out after our evidence and after our proposal of the FCC proxy model. This is another type of model that could be applied for forbearance in these markets.
LISTNUM 1 \l 18555 One thing, when we think about it, should the Commission believe that this model is an appropriate test, in terms of if a particular wire centre passed the test, the 30 percent competitor presence test in the building, that, with respect to CDNA transport, if the competitor is using CDNA from that wire centre that has been forborne from DNA but is going to a wire centre that has not been forborne for DNA, that transport would still qualify for DNA.
LISTNUM 1 \l 18556 If it's going between two wire centres, each of which has been granted forbearance in DNA, then, presumably, because there's 30 percent presence in buildings, there's probably enough facilities between those two wire centres, as well. So that it would, in that circumstance, where both exchanges are ‑‑ wire centres, rather, are forborne, then the CDNA transport would go away, but where you are going from one to another that's not forborne, it would remain.
LISTNUM 1 \l 18557 MR. DANIELS: Mr. Watt, you have actually said a couple of things that are of interest to me.
LISTNUM 1 \l 18558 The first thing, you are now talking about CDN transport, you are talking about when ‑‑ you are saying now that, if we have two wire centres that are connected, and each one of them meets your test, then the CDN transport between those two wire centres would be forborne. Is that what you just said?
LISTNUM 1 \l 18559 MR. WATT: That is indeed what I just said.
LISTNUM 1 \l 18560 Again, as I say, there are two sets of tests here. You brought forward a different test that has been applied to a particular service in Canada, and you are contrasting it to our FCC test. We are saying the FCC test, again, it's a proxy, we are looking for more information that can be refined as appropriate, nothing turns on the 38,000 lines versus 40,000 lines, but there are other proxy tests that could be applied.
LISTNUM 1 \l 18561 Obviously, one is the approach that came out in the DNA forbearance decision. So when we think about that, and think if the Commission prefers to apply that, how does that tie together with the FCC approach going to 30 percent of the buildings, again, we are hoping that there is enough density of supply there, alternative source, so that's covering that entire wire centre, but if you are connecting over to another wire centre, where maybe there's only 2 percent competitor supply into buildings, then we don't think there is, necessarily, the alternative facility supply; therefore, we would think that the CDNA transport would remain subject to regulation.
LISTNUM 1 \l 18562 MR. DANIELS: Okay, but, again, just so we are clear, because I got a little bit confused, that's why I was asking if you were talking about transport, my question was ‑‑ and I think what you have established ‑‑ is that I was asking about access not transport, and I was saying in the access we are forborne in the wire centre at retail based on 30 percent of the buildings, but we can agree that wholesale CDN access ‑‑ I'm not talking transport ‑‑ would still be regulated under your test. And I was checking with you to see whether you were going change your test as a result of this decision, and I thought the answer was no, I will give you another opportunity, but I just want to make sure that...
LISTNUM 1 \l 18563 MS BLACKWELL: Mr. Watt may want to add what he'S been telling you, but just to give it a bit of context, in the U.S. there are circumstances where special access, which is what I understand is a reasonably logical equivalent to retail DNA, has complete pricing flexibility for the RBOC, yet you still would have wire centres that would meet the FCC's criteria as ones where competitors would have access due to an impairment standard, as set out in the FCC's proxy.
LISTNUM 1 \l 18564 So they do have the same ‑‑
LISTNUM 1 \l 18565 MR. DANIELS: Right, so what you are saying is in the U.S. you can have situations where special access, which is, you said, the equivalent of retail regulation, could continue even though you have wholesale forbearance? I understand ‑‑
LISTNUM 1 \l 18566 MS BLACKWELL: No, no, but you also can have the situation where the ILECs have complete pricing flexibility with respect to their retail service. Within wire centres, the hypotheticals could still work because the tests for special access pricing flexibility, as I understand it, is not the same test as the FCC's thresholds for DS‑1, DS‑2 access and DS‑1, DS ‑‑ I mean, so they have, as well, a different set of thresholds and tests. And the FCC was specifically asked to consider applying the same test for pricing flexibility for special access to the circumstance of DS‑1, DS‑3 access and transport, and they rejected it.
LISTNUM 1 \l 18567 MR. DANIELS: Right. So what you are saying is in the U.S. something similar could happen, in terms of regulation, because they use different proxies for those here. Here in Canada, though, just keeping it in Canada for a moment ‑‑ and I'm fine with this, I'm expecting this ‑‑ if there's retail forbearance, there still can be wholesale regulation. I'm talking CDN access within the wire centre. I think your answer was yes, and I just want to confirm it because I got a little confused there.
LISTNUM 1 \l 18568 MR. WATT: Yes, we are still maintaining our proxy proposal, even after the issuance of the DNA forbearance decision.
LISTNUM 1 \l 18569 MR. DANIELS: So, then, we can ‑‑
LISTNUM 1 \l 18570 MR. WATT: I went on to my explanation, recognizing that the Commission may not agree with us. And should it choose to go down another route, we think that there is some important considerations that they should take into account if they were to apply an alternative test.
LISTNUM 1 \l 18571 MR. DANIELS: Well, I guess I am here hoping to try to show why they shouldn't agree with you.
LISTNUM 1 \l 18572 So can we agree then that before, just earlier, you had testimony were you said to Mr. Abugov earlier that there was only one exception to your rule of retail forbearance not leading to wholesale forbearance when there has been a finding, in the downstream market, that it is end‑to‑end facilities‑based competition should remove retail regulation, and you said there is only one exception, unbundled loops, and you said that is the only exception.
LISTNUM 1 \l 18573 Can we agree now that we have a second exception?
LISTNUM 1 \l 18574 MR. WATT: We can agree. I apologize for that, I am still working from a pre‑May 25 mindset on that score.
LISTNUM 1 \l 18575 MR. DANIELS: I would like to turn to tab M of our material. And for those of you who don't have my compendium, I am referring here to Rogers‑CRTC‑12‑April‑07‑202.
LISTNUM 1 \l 18576 And I am just going to summarize this so I can show you the specific sentence I am interested. This is an interrogatory when the CRTC was asking you questions about the cable technology and ability to replicate a DS‑0 or a DS‑1 over your cable facilities. You described the technologies, but you said even with this technology it will likely be 24 months before Rogers is in a position to commercial offer CDN‑type services on coaxial cable. If you want, I can show you exactly where that sentence is, otherwise we can ‑‑
LISTNUM 1 \l 18577 MR. WATT: Yes, we have it.
LISTNUM 1 \l 18578 MR. DANIELS: Okay. So let us assume for a moment that you are correct, that cable networks are not able to offer the alternative to ILEC DS‑1 and DS‑3 services today. But let us say in two years' time you are able to offer DS‑1 equivalence over your cable network. At that point in time, should the ILECs still be mandated to offer wholesale CDN access for DS‑1s?
LISTNUM 1 \l 18579 MR. WATT: I am going to ask Mr. Pattinson to speak to the issue of the answer here in interrogatory response 202.
LISTNUM 1 \l 18580 MR. PATTINSON: I think what you are referring to is T1 emulation over DOCSIS in this example, is that correct?
LISTNUM 1 \l 18581 MR. DANIELS: Yes.
LISTNUM 1 \l 18582 MR. PATTINSON: We believe that that technology is in its infancy. We recognize that a vendor exists, which you did provide to us. But we don't believe in the long run that it is a sustainable product over the DOCSIS Network. It is inherently inefficient in its use of bandwidth in the upstream and it is also a very leading‑edge and non‑standard technology. So it has not been certified by CableLabs. Of course, CableLabs being the standards‑based organization that the entire cable industry worldwide bases ‑‑
LISTNUM 1 \l 18583 MR. DANIELS: Sorry, can I interrupt you for a second?
LISTNUM 1 \l 18584 Mr. Chair, I am really sorry to interrupt you in the middle. My point here is not to ask you about does it work, will it work, whatever. I am back to just a factual question. What I want to understand, if it does work and it is launched and offered in the market, just asking you, does that change your position as to whether this is the forbearance test? So if you were to launch this service on your cable network, presumably available throughout the wire centre, do we still have this test here? That is what I want to know.
LISTNUM 1 \l 18585 MR. WATTS: Yes, you would still have that test. The reason being that, even taking your assumption that the T1 emulation gear worked and made economic sense, we only have the coaxial facilities into somewhere in the order of 5 per cent of business locations today. Therefore, we couldn't actually get to businesses using our own facilities over which we would apply the T1 emulation.
LISTNUM 1 \l 18586 And Mr. Pattinson was going to make abundantly clear that we don't view that technology as being a very promising one. But the answer would be yes, our test would still remain.
LISTNUM 1 \l 18587 MR. DANIELS: And I am sorry to cut you off, but we only have four minutes left and I would like to finish this part so that we can stop at 4:30.
LISTNUM 1 \l 18588 So your position is that even if a cable company is using its own network that doesn't count unless the cable company, I suppose, is co‑located. If the cable company is co‑located, then the cable company network would count for one, is that correct? One of the four at least that you need?
LISTNUM 1 \l 18589 MR. WATT: I am not sure that I follow that question. But with respect to the last part of the question, yes. If the cable companies are co‑located in the ILEC's wire centre then they do count as one of the four competitive suppliers, yes.
LISTNUM 1 \l 18590 MR. DANIELS: So now, can we agree that if you do provide the service you wouldn't need to co‑locate in an ILEC wire centre to be able to provide T1 emulation as Mr. Pattinson referred to it?
LISTNUM 1 \l 18591 MR. WATT: We would need to be co‑located in the ILECs' wire centre in order to serve the 95 per cent of business locations to which we do not have facilities currently.
LISTNUM 1 \l 18592 MR. DANIELS: Okay, but I think the answer to my question, and I want to make sure I got it, so can we agree that you don't need to co‑locate in order to provide the service over your own network. In terms of if you are going to provide T1 emulation you don't need to co‑locate at our wire centre?
LISTNUM 1 \l 18593 MR. WATT: I would agree with that. If we are going to use our cable facilities, yes, we do not need to co‑locate for that plant. To make use of that plant we don't have to co‑locate in your central office.
LISTNUM 1 \l 18594 MR. DANIELS: So we can agree that if a cable company isn't co‑locating it is not gong to count? And can we also agree then that that is the reality, I mean, in some areas? For example, Cogeco and QMI Vidéotron both state that they have no co‑locations in any ILEC wire centres. Are you aware of that fact?
LISTNUM 1 \l 18595 MR. WATT: No, I wasn't.
LISTNUM 1 \l 18596 MR. DANIELS: Do you want to take my word or should I turn you to more appendices in here?
LISTNUM 1 \l 18597 MR. WATT: No, I will take your word subject to check. And they are going to be appearing here later and they can contradict that if it is not correct.
LISTNUM 1 \l 18598 MR. DANIELS: Oh actually, you can just look at N and O where it is ‑‑ just to be specific, Cogeco‑Companies‑12‑April‑07‑5 and QMI‑Companies‑12‑April‑07‑5, and you can find that at letter N and O of the compendium where they make those statements.
LISTNUM 1 \l 18599 Now, is it also true for major telcos that they don't co‑locate either? And again, if you would like, I will give you the sites for Blink, NMAX, ABCOR, Hamilton Hydro, Hydro One, Telecom, Atria, FCDN, Telecom Ottawa and Toronto Hydro. But maybe we can just, subject to you checking, can we agree that they don't co‑locate at ILEC wire centres as well?
LISTNUM 1 \l 18600 MR. WATT: Yes, I would agree with your statement, and those companies do not have access to the unbundled loop.
LISTNUM 1 \l 18601 MR. DANIEL: Now ‑‑
LISTNUM 1 \l 18602 THE CHAIRPERSON: I am waiting for the punch line.
LISTNUM 1 \l 18603 MR. DANIEL: Oh, it is just a question. Basically, what I am establishing here, Mr. Chair, is that they are not part of their test, so we have all of these alternative facilities‑based carriers out there that, because they don't co‑locate, are not part of the test despite the fact that they have fibre or cable in the wire centre. It is not part of their criteria on the test. So I am sorry, I was trying to move things along rather than to ‑‑
LISTNUM 1 \l 18604 THE CHAIRPERSON: Well, thank you.
LISTNUM 1 \l 18605 I think we have reached 4:30 and we will call it a day for that time.
LISTNUM 1 \l 18606 Thank you very much. We will see you at 8:30 Monday morning, thank you.
‑‑‑ Whereupon the hearing adjourned at 1630, to resume
on Monday, October 15, 2007 at 0830 / L'audience
est ajournée à 1630, pour reprendre le
lundi 15 octobre 2007 à 0830
REPORTERS
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Jean‑Marc Bolduc Jean Desaulniers
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Sue Villeneuve Jennifer Cheslock
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Sharon Millett Monique Mahoney
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