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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 15, 2007 Le 15 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 15, 2007 Le 15 octobre 2007
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
RESUMED: DALE HATFIELD 1240 / 8618
RESUMED: IAN PATTINSON
RESUMED: DAVID WATT
RESUMED: SUZANNE BLACKWELL
RESUMED: ROGER WARE
Cross-examination by The Companies (Cont'd) 1240 / 8619
Cross-examination by TELUS 1363 / 9517
Cross-examination by MTS Allstream 1466 /10133
Cross-examination by Primus 1475 /10233
Cross-examination by PIAC 1482 /10281
Cross-examination by Cybersurf 1503 /10399
Cross-examination by Xittel 1536 /10633
- v -
EXHIBITS / PIÈCES JUSTIFICATIVES
No. PAGE / PARA
BUREAU-3 Response to CRTC undertaking - 02 1239 / 8613
to provide the Commission with a
rewrite of the Bureau's test for
an essential facility from a
restrospective perspective
CRTC-6 CRTC Undertakings register 1335 / 9316
CRTC version 2007-15-15
COMPANIES-5 Joint Center report dated 1361 / 9506
June 2006, "Broadband and
Unbundling Regulations in OECD
Countries
COMPANIES-6 LECG Report dated September 2007 1361 / 9507
COMPANIES-7 "Watt's New" clipping - Winter 1361 / 9508
2006 entitled, "Net Optiks/Rogers
partnership provides innovative
network for Catholic schools
COMPANIES-8 Globe and Mail clipping - 1362 / 9509
"Solutions for the little guy" -
Sept.10,2007
COMPANIES-9 Clipping dated 7 October 2007 1362 / 9510
with photo and EASY IP title
COMPANIES-10 Clipping from Rogers.com - 1362 / 9511
"Ethernet Services"
TELUS-1 Rogers Cable letter dated 1465 /10127
Aug. 17, 2007 re: Application by
Rogers Cable Communications Inc.
to Amend Class 1 Regional Licence
for Cable Broadcasting
Distribution Undertakings in
Ontario
TELUS-2 Rogers letter dated July 5, 2006 1465 /10128
re: Application to Review and
Varyu Telecom Decision
CRTC 2006-9 - Disposition of
Funds in the Deferral Accounts
- vi -
EXHIBITS / PIÈCES JUSTIFICATIVES
No. PAGE / PARA
TELUS-3 Competition Bureau - Speaking 1466 /10129
Notes for Sheiradan Scott -
June 13, 2007
CRTC-7 "Abuse of Dominance under the 1475 /10227
1986 Canadian Competition Act"
COMPANIES-11 The Companies - Survey of 1475 /10228
buildings in Ottawa Downtown Core
CYBERSURF-2 "Consequences of 1519 /10516
Uncompetitiveness", Wednesday,
March 1, 2006
CYBERSURF-3 "Canadian Boradband Growth Ranks 1519 /10516
29th out of 30 OECD Countries"
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon resuming on Monday, October 15, 2007
at 0831 / L'audience reprend le lundi
15 octobre 2007 à 0831
LISTNUM 1 \l 1 \s 86078607 THE CHAIRPERSON: Good morning.
LISTNUM 1 \l 18608 Mr. Daniels, I believe you were in full flight, so please continue.
LISTNUM 1 \l 18609 MR. DANIELS: Thank you very much, Mr. Chairman.
LISTNUM 1 \l 18610 THE SECRETARY: Mr. Chair, if you will allow me.
LISTNUM 1 \l 18611 THE CHAIRPERSON: Yes, sure.
LISTNUM 1 \l 18612 THE SECRETARY: There were some filings with me this morning.
LISTNUM 1 \l 18613 I am acknowledging reception of the Bureau Exhibit No. 3 in response to an undertaking from the CRTC to a rewrite of the Bureau's proposed test for whether a service or facility is essential.
EXHIBIT BUREAU‑3: Response to CRTC undertaking - 02 to provide the Commission with a rewrite of the Bureau's test for an essential facility from a restrospective perspective
LISTNUM 1 \l 18614 MS PALUMBO: Mr. Chair ‑‑
LISTNUM 1 \l 18615 THE CHAIRPERSON: Yes.
LISTNUM 1 \l 18616 MS PALUMBO: ‑‑ we have provided the secretary with copies of the undertaking. This was in relation to the rewrite of the Bureau's proposed test for whether a service or facility is essential from a retrospective rather than a prospective perspective and that is what that undertaking is satisfying.
LISTNUM 1 \l 18617 THE CHAIRPERSON: Thank you very much, Ms Palumbo. I appreciate your doing this in a timely manner because then we can use your retrospective definition now as we hear the other submissions.
LISTNUM 1 \l 18618 Thank you.
RESUMED: DALE HATFIELD
RESUMED: IAN PATTINSON
RESUMED: DAVID WATT
RESUMED: SUZANNE BLACKWELL
RESUMED: ROGER WARE
EXAMINATION (CONT'D) / INTERROGATOIRE (SUITE)
LISTNUM 1 \l 18619 MR. DANIELS: Thank you, and good morning, Mr. Chairman and panel.
LISTNUM 1 \l 18620 When last we left off ‑‑
LISTNUM 1 \l 18621 MR. WATT: I am sorry to interrupt but we had taken a couple of undertakings on Friday to go and check on some matters and I think probably it would be best if I just reported on those while you are still at the cross‑examining table and then if you would like to follow up you will have an opportunity to do that.
LISTNUM 1 \l 18622 MR. DANIELS: Go right ahead.
LISTNUM 1 \l 18623 MR. WATT: At Volume 4 of the Transcript at paragraphs 8333 to 8369 Rogers undertook to review the FCC's dedicated transport rulings regarding the necessary number of fiber‑based co‑located competitors. This was the question as to whether the number was 4 or 3, if you recall that, on Friday.
LISTNUM 1 \l 18624 We can confirm that with respect to transport facilities at the capacities of DS‑3s and dark fiber the FCC applied a threshold of fewer than 3 fiber‑based co‑located competitors as the standard for impairment and not 4, as stated in Rogers' submissions in this proceeding.
LISTNUM 1 \l 18625 Specifically, for those facilities the FCC found that competitors would not be impaired without mandated access at DS‑3 or dark fiber facilities where the wire centres at both ends of the transport facility had either at least 3 fiber‑based co‑locators or more than 24,000 business lines.
LISTNUM 1 \l 18626 You will recall in the context of the discussion on DNA we discussed the importance of having those conditions met at both ends of the route, at both wire centres, in order to be forborne.
LISTNUM 1 \l 18627 Just to complete the table, we confirm that the top three rows in our table with respect to DS‑1 at the access level and then DS‑1 transport remain at the 4 fiber‑based co‑locator level.
LISTNUM 1 \l 18628 THE CHAIRPERSON: If you go to your opening statement, page IV ‑‑
LISTNUM 1 \l 18629 MR. WATT: Right.
LISTNUM 1 \l 18630 THE CHAIRPERSON: ‑‑ the table there, so for dark fiber for transport I should insert "3" instead of "4"?
LISTNUM 1 \l 18631 MR. WATT: Exactly.
LISTNUM 1 \l 18632 THE CHAIRPERSON: And the rest stays the same?
LISTNUM 1 \l 18633 MR. WATT: The rest stays the same.
LISTNUM 1 \l 18634 THE CHAIRPERSON: Okay, thank you.
LISTNUM 1 \l 18635 MR. WATT: As I say, both wire centres on that route have to have 3 in order to be let go.
LISTNUM 1 \l 18636 So that is the first matter.
LISTNUM 1 \l 18637 Then the second matter was further on on Friday afternoon and this is now at Transcript paragraphs 8455 and 8505.
LISTNUM 1 \l 18638 Rogers undertook to review the per building and per route caps that the FCC imposed on competitor use of mandated access at transport facilities where the FCC general criteria for mandated wholesale was met.
LISTNUM 1 \l 18639 Briefly, the CRTC limits a competitor to 10 DS‑1 unbundled loops to any single building or 1 DS‑3 to that single building, and then similar rules apply on the transport level as well, again, on a per route basis.
LISTNUM 1 \l 18640 In our view, this is a very granular approach to the issue of market unbundling. We do see some merits to it in the sense that it does very precisely identify what the revenue opportunities are to a competitor to a particular building or a particular route and grant them access up to certain levels with those conditions.
LISTNUM 1 \l 18641 However, at this time we think while the Commission certainly should be aware of this and consider it in its assessment of our proxy model, we would place the emphasis on the proxy model that we put before you and still wish that to be used as a starting point for the Rogers position.
LISTNUM 1 \l 18642 And then you can adapt it as you see fit given the data information that you have, and again, that rests on the revenue opportunity, i.e. the number of lines, et cetera, and then the alternative supply by the facilities‑based fiber co‑locators.
LISTNUM 1 \l 18643 That concludes my undertakings. Thank you.
LISTNUM 1 \l 18644 THE CHAIRPERSON: Are you going to file something in accordance with what you just said or does the record speak for itself?
LISTNUM 1 \l 18645 MR. WATT: I thought the record could probably speak for itself and I will save the paper.
LISTNUM 1 \l 18646 THE CHAIRPERSON: Okay, fine. I wanted to understand how you intend to proceed. Thank you.
LISTNUM 1 \l 18647 MR. WATT: Although I might ‑‑ what we probably should re‑file are ‑‑ I think there are three or four places in the record where we have the table.
LISTNUM 1 \l 18648 THE CHAIRPERSON: Yes.
LISTNUM 1 \l 18649 MR. WATT: And so we will just replace those 4s with 3s.
LISTNUM 1 \l 18650 THE CHAIRPERSON: Okay, thank you.
LISTNUM 1 \l 18651 Mr. Daniels.
LISTNUM 1 \l 18652 MR. DANIELS: Thank you.
LISTNUM 1 \l 18653 When last we left off we had been talking about ‑‑ well, besides just the FCC test, we had been talking generally about the second exception. In your testimony with the Competition Bureau you had pointed out that there was one exception of an unbundled loop in the residential market which was the one case where despite getting retail forbearance on the basis of facilities‑based competition that you still sought an exception. And then we talked about a second possible exception, the CDN test and the DNA.
LISTNUM 1 \l 18654 So I would like to begin this morning by talking about two other exceptions that I think are in your proposal. Let's just see if we can get agreement on them and we can, at least for one of them, move on very quickly.
LISTNUM 1 \l 18655 You have proposed, as I understand it, that Ethernet be regulated at the wholesale level everywhere except bands A and B.
LISTNUM 1 \l 18656 Am I correctly characterizing your proposal in that sense?
LISTNUM 1 \l 18657 MR. WATT: Yes, you are.
LISTNUM 1 \l 18658 MR. DANIELS: Okay. And so can we agree then ‑‑ and as I say, just move on from that ‑‑ that in terms of at the retail level, Ethernet is forborne or the IP‑VPN service upon which it is generally provided in the market, those are forborne at the retail level; can we agree on that?
LISTNUM 1 \l 18659 MR. WATT: Frankly, I am not aware of that and the rationale, obviously, for our proposal is that we think it is unlikely if you are going to have the necessary fiber facilities into those smaller locations but we will check on the retail treatment of Ethernet.
LISTNUM 1 \l 18660 MR. DANIELS: Well, are you familiar with that ‑‑ and to be fair, I haven't given you this in terms of an exhibit because I really don't want to get into the details.
LISTNUM 1 \l 18661 But are you familiar with the Wide Area Network, the WAN, forbearance that was issued in 2000? Are you familiar with that decision in terms of generally providing for forbearance for wide area networks which has generally been used?
LISTNUM 1 \l 18662 MR. WATT: No, actually I can't say that I am. I'm surprised to hear the date 2000. But we will go and check.
LISTNUM 1 \l 18663 MR. DANIELS: All right. So subject to check, you will check to see on the basis that retail forbearance has been granted in Ethernet and IP VPN services, that being a third exception.
LISTNUM 1 \l 18664 So let me move on, then, to the fourth exception which I would like to present to you. That has to deal with your proposal regarding our GAS and HSA service, which is high‑speed internet service.
LISTNUM 1 \l 18665 MR. WATT: Maybe just before we do move on, I just had a note passed to me, however, that there certainly are Ethernet tariffs that do exist.
LISTNUM 1 \l 18666 MR. DANIELS: Okay. Well, as I say, in terms of the vast majority of services I'm putting to you ‑‑ and you can subject to check in terms of the retail Ethernet as service, as well as falling under an IP VPN which generally upon which the wholesale input Ethernet could be in the retail market ‑‑ I'm putting to you that is forborne under the wide area network forbearance, just for your reference.
LISTNUM 1 \l 18667 MR. WATT: Okay, fair enough. We will check.
LISTNUM 1 \l 18668 MR. DANIELS: Yes, Order CRTC 2000‑553, just to make it a little easier for your reference.
LISTNUM 1 \l 18669 Moving, then, onto the fourth exception which I would like to put to you, and that is your proposal regarding GAS, HSA, which is our wholesale DSL product.
LISTNUM 1 \l 18670 So I assume we can agree that there has been retail internet forbearance since 1999 in Canada?
LISTNUM 1 \l 18671 MR. WATT: Yes, there has.
LISTNUM 1 \l 18672 MR. DANIELS: I don't really want to take you through the whole logic or all the arguments, so I just want to see if we can move through this a little quickly.
LISTNUM 1 \l 18673 But as I understand it, you have said in your evidence that the internet market is competitive and specifically you raised at one point a distinction between the local market and the internet market. I don't want to get into the differences here at this point of our discussion, but in terms of that discussion, specifically when we ask you in an interrogatory, which can be found at Tab Z of our material ‑‑
LISTNUM 1 \l 18674 COMMISSIONER CRAM: Which tab again? I'm sorry?
LISTNUM 1 \l 18675 MR. DANIELS: This is Tab Z.
LISTNUM 1 \l 18676 For those of you who don't have our material tabs, that is Rogers/The Companies 12 April 07‑31.
LISTNUM 1 \l 18677 Do you have that there?
LISTNUM 1 \l 18678 MR. WATT: Yes, I do.
LISTNUM 1 \l 18679 MR. DANIELS: When we, The Companies, asked you to explain the basis for the conclusion that there are more facilities‑based alternatives in the internet market than there are in the local telephony market, you said "In the internet market" ‑‑ I'm reading your answer from (a), just the first sentence:
"... there are a number of widely deployed mobile and fixed wireless satellite‑based and wireline‑based competitors." (As read)
LISTNUM 1 \l 18680 Just so we can agree, your proposition is that on the internet market there is facilities‑based alternatives?
LISTNUM 1 \l 18681 Is that correct?
LISTNUM 1 \l 18682 MR. WATT: I think our position is, consistent with our request, that outside Bands A and B there are very limited facilities, hence our request for access to GAS in those areas.
LISTNUM 1 \l 18683 MR. DANIELS: Mr. Watt, are we confusing ‑‑ I think we may be confusing your Ethernet proposal and your GAS proposal. Because as I understood your GAS proposal, it is not based on banding, it is based on the remote issue, which we are going to get into.
LISTNUM 1 \l 18684 MR. WATT: It is the remote issue, that is correct.
LISTNUM 1 \l 18685 MR. DANIELS: So it's not ‑‑
LISTNUM 1 \l 18686 MR. WATT: No, it is the remote. That's what I had in mind. My apologies
LISTNUM 1 \l 18687 MR. DANIELS: All right. So your position, then again, so let me just understand ‑‑ I was just putting a general proposition before you that in the internet market there are facilities‑based alternatives.
LISTNUM 1 \l 18688 We can agree on that? I'm just reading your sentence right here, the first sentence in line (a), you have listed them there.
LISTNUM 1 \l 18689 MR. WATT: There are alternatives. We don't think that they are perfect alternatives in certain areas and not at the same cost structure certainly in the business market.
LISTNUM 1 \l 18690 MR. DANIELS: With that in mind I'm going to ask you to turn back ‑‑ because we will talk a little bit about that in a minute.
LISTNUM 1 \l 18691 But I'm going to ask you to turn back to your opening statement where I think you have articulated your test for an essential facilities.
LISTNUM 1 \l 18692 So this is in our binder that we gave you for ease of reference. It is Tab D as in David or Daniels.
LISTNUM 1 \l 18693 Just to be clear, I think we have given you two binders so it's the Jonathan Daniels binder, because my colleague, Mr. Hofley, has a separate binder.
LISTNUM 1 \l 18694 I'm looking at page 2 of your opening statement.
LISTNUM 1 \l 18695 MR. WATT: Yes, I have it.
LISTNUM 1 \l 18696 MR. DANIELS: I'm just going to give a minute for other people to find it.
‑‑‑ Pause
LISTNUM 1 \l 18697 MR. DANIELS: So if I look at page 2, your second bullet is your proposed definition for an essential facilities.
LISTNUM 1 \l 18698 So I would just like to go through this.
"An essential facility means an input used by competitors to provide services in the downstream market." (As read)
LISTNUM 1 \l 18699 So that's strictly an input. We won't spend time on that.
LISTNUM 1 \l 18700 The second one:
"Where an 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 lesson, in a non‑trivial manner, competition in the relevant downstream markets." (As read)
LISTNUM 1 \l 18701 Then your third part is:
"It's not feasible to duplicate the input or an input equivalent functionality having regard to economic or technical factors." (As read)
LISTNUM 1 \l 18702 Now, I want to focus for a moment on the residential internet market.
LISTNUM 1 \l 18703 Can we agree that the cable companies ‑‑ I assume we can agree that you have the capability of providing high‑speed internet service in the residential cable market?
LISTNUM 1 \l 18704 MR. WATT: Yes.
LISTNUM 1 \l 18705 MR. DANIELS: All right.
LISTNUM 1 \l 18706 In fact ‑‑ and if we want we can turn to it, it's in Tab AA, but in the CRTC's Monitoring Report ‑‑ actually, maybe we should just so that we are all in agreement.
LISTNUM 1 \l 18707 So this is Tab AA. This is a reference in binder ‑‑ this is a reference in the second page of that tab that says "Page 55 of 97" in the printout we have, but I actually think it is page ‑‑
LISTNUM 1 \l 18708 THE SECRETARY: Mr. Daniels, I'm sorry.
LISTNUM 1 \l 18709 MR. DANIELS: Yes?
LISTNUM 1 \l 18710 THE SECRETARY: You are filing this as an exhibit?
LISTNUM 1 \l 18711 MR. DANIELS: No, I believe, Madam Secretary, that this is the CRTC's Telecommunication Monitoring Report 2007 which has been filed already as a CRTC exhibit.
LISTNUM 1 \l 18712 THE SECRETARY: Thank you.
LISTNUM 1 \l 18713 MR. DANIELS: I'm simply using this to make it easier for the Commission and the panel to follow along.
LISTNUM 1 \l 18714 So what is written in my copy is "Page 55 of 97", because I think this is an internet copy, but for those who have the actual version of the Monitoring Report I believe it is page 71.
LISTNUM 1 \l 18715 This is figure 4.4.2 and if we look at this figure we can see in the most recent year 2006 that cable of all internet represents, in the residential market, 47 per cent of accesses.
LISTNUM 1 \l 18716 So can we agree here that here we are referring ‑‑ in this page we are referring to coaxial cable network? This isn't counting the figure beforehand would do ‑‑ this is a technology description so their cable is referring to coaxial or fibre.
LISTNUM 1 \l 18717 Is that correct? That's your understanding?
LISTNUM 1 \l 18718 MR. WATT: In the residential market it will be coaxial cable.
LISTNUM 1 \l 18719 MR. DANIELS: I just wanted to be clear, we are not, this isn't going to include Rogers using unbundled loops to provide ‑‑ in this chart here ‑‑ because this is done on, if you read it, "residential internet access technology mix". The page before would have the market share number.
LISTNUM 1 \l 18720 MR. WATT: I think that's probably correct.
LISTNUM 1 \l 18721 MR. DANIELS: All right.
LISTNUM 1 \l 18722 MR. WATT: I believe our use of DSL is combined almost entirely, if not entirely, to serving the business market.
LISTNUM 1 \l 18723 MR. DANIELS: So just looking at this, in the residential market, just looking at this in our general understanding, can we agree that in terms of high‑speed internet services that the facility is clearly duplicable?
LISTNUM 1 \l 18724 We see a large amount of DSL, we see an even larger amount of cable across the country. As a general proposition the facility is duplicable?
LISTNUM 1 \l 18725 MR. WATT: I think that's fair to say in the residential market in territories where cable companies are present and operating.
LISTNUM 1 \l 18726 MR. DANIELS: So then can we also agree then, going back to your test that, at least let us talk residential market, that as an essential facilities they don't meet the third prong of your test in the residential market? Is that a fair statement?
LISTNUM 1 \l 18727 MR. WATT: I think it is a fair statement for the cable company that is operating in that particular territory. I think for Rogers to go outside its cable footprint area it would be a fair statement.
LISTNUM 1 \l 18728 MR. DANIELS: Just so we are clear, in your test, all right, just going back to your test, when you say:
"It is not feasible to duplicate the input or an input equivalent function not having regard to economic or technical factors." (As Read)
Now, I have taken that to mean that we are looking at generally whether it can be duplicated. We are not looking at whether any one individual company can duplicate it.
LISTNUM 1 \l 18729 MR. WATT: I think, in a general sense, that is correct. But I think our view is that this facility cable is able to provide access into a home because it has a wire, it is leveraging off its video service that places its wire in there. To us, it is a very open question as to whether any additional party will be able to place a third wire into that home.
LISTNUM 1 \l 18730 THE CHAIRPERSON: But surely that is not the issue. It can't be the issue according to your definition. Your definition just says whether it is feasible. Somebody has already done it, so it is clearly feasible.
LISTNUM 1 \l 18731 MR. WATT: That is true. I was just trying to make it clear that we think that it is only the cable company that has that feasibility.
LISTNUM 1 \l 18732 THE CHAIRPERSON: Yes, but whether that cable company is Rogers or whether it is Shaw or somebody else's is irrelevant for the purpose of your test.
LISTNUM 1 \l 18733 MR. WATT: Fair enough.
LISTNUM 1 \l 18734 DR. WARE: If I could just, Mr. Chair, clarify one point. Is that duplicable, at least in my view, is an economic test not a technological test. And so, of course, it is true that a cable company has already done it, as you said. But at the margin, of course, the question might be the next entrant could do it and that is an economic test and it depends on economies of scale and it depends on barriers to entry over a variety of kinds.
LISTNUM 1 \l 18735 So, you know, I don't think it is quite as simple as saying that somebody has already done it so it can be done. It depends on economies of scale relative to the size of the market and what additional barriers there might be to another.
LISTNUM 1 \l 18736 THE CHAIRPERSON: You will have to help me out here. I thought these were sequential. I thought we were going to, first of all, look at market power. And surely, if there is a telco and a cable into one building then it is very hard to say that one of them has market power. So we don't even get to duplicability.
LISTNUM 1 \l 18737 DR. WARE: You are saying that with two firms there will be no market power?
LISTNUM 1 \l 18738 THE CHAIRPERSON: Well, I mean, it is obviously a question of facts in that situation. But using your favourite economic phrase, all other things being equal, if there are two people going into the same building you would assume that neither one of them has market power.
LISTNUM 1 \l 18739 DR. WARE: Well, with respect, I wouldn't assume that, because I ‑‑
LISTNUM 1 \l 18740 THE CHAIRPERSON: Well, that is why I said help me out here.
LISTNUM 1 \l 18741 DR. WARE: Well, I mean, my view is if we look at, you know, what we have learned from competition policy, competition authorities around the world would not endorse a merger from three firms to two firms. Why not? Because they would expect a substantial lessening of competition. In other words, the result would be market power.
LISTNUM 1 \l 18742 So, you know, I would generally think that, of course the particular circumstances matter a great deal, but generally speaking when we see two firms we expect there to be market power.
LISTNUM 1 \l 18743 THE CHAIRPERSON: Yes sure, because you are worried about coordinated behaviour or price leadership or incentive. But I understood the definition put forward by Rogers to be sequential, that you first of all look at one and two before you come to three. Am I wrong there?
LISTNUM 1 \l 18744 DR. WARE: Well no, I don't have a problem with that. And I can't speak for Rogers of course on the definition that they put forward, but I just wanted to make I guess two points really; that it is really an economic issue, duplication; and secondly, that two to three could be a lot different from one to two.
LISTNUM 1 \l 18745 THE CHAIRPERSON: Okay.
LISTNUM 1 \l 18746 MR DANIELS: Just so I understand Rogers' position, because I understand Dr. Ware saying he can't speak for Rogers, can I get you to turn back again to the Rogers‑Companies‑31, which is at tab Z? As I understand your position, and I just want to confirm this, again, you said:
"There are a number of widely deployed mobile and fixed wireless satellite and wireline competitors in the internet market." (As Read)
LISTNUM 1 \l 18747 And then if you look at the very last line, on page 2, your last statement you said in answer to a question:
"The ILECs are not dominant in the residential internet market and might be dominant in the business retail market." (As Read)
That is your position.
LISTNUM 1 \l 18748 So we can agree then that the ILECs are not dominant in the residential retail internet market?
LISTNUM 1 \l 18749 MR. WATT: Not dominant, yes, I would agree with that. But as we say, in the business market we feel in a majority of locations there is not a second wire into that business. We have asked for access to unbundled local loops ‑‑
LISTNUM 1 \l 18750 MR. DANIELS: Okay, I understand that. But, Mr. Watt, I mean I am just being upfront in terms of the beginning and in terms of what I am focused on here. I am focused on your exceptions and I am trying to understand your exceptions and that is why I'm focusing on the residential market, because I understand your position, whether I agree or not, about us dominant in the business market.
LISTNUM 1 \l 18751 But as long as we are agreed that the ILECs are not dominant in the residential market, I am trying to understand this exception about the GAS and the HSA. Because I am reading your test here and I am trying to put it together, so that is why I am ‑‑
LISTNUM 1 \l 18752 MR. WATT: I think Ms Blackwell will try and clarify for you that the primary purpose of our request for GAS, for most, is in order to serve the business market. And then Ms Blackwell will clarify with respect to voice.
LISTNUM 1 \l 18753 MS BLACKWELL: Mr. Daniels, I will just take you to paragraph 172 of the March evidence filed by Rogers. What was clearly set out at the start of that paragraph right above it, there are two instances where wholesale access to services should be maintained on the same terms and conditions as currently established. We described these as exceptions. This is in the section discussing the business market. So with respect to DSL and GAS and so forth the issue is with respect to the remotes in the business market, this is where this exception arises.
LISTNUM 1 \l 18754 In the residential market the discussion with respect to remotes starts at paragraph 203 of the Rogers' March evidence and that is really with respect to the voice market. And if you look at the context of the discussion that continues through to paragraph 212 of that section, it is with respect to where Rogers has had difficulty obtaining loops and as with respect to the voice market and particularly with respect to the outside of the Rogers' Cable footprint.
LISTNUM 1 \l 18755 So I understand your discussion with Mr. Watt has been with respect to the high‑speed internet market in the residential services segment, but I don't think that that is particularly relevant to the exceptions that we have discussed in the March evidence.
LISTNUM 1 \l 18756 MR. DANIELS: So, if I understand your clarification, your position is that your request GAS and HSA is strictly limited to the business market and that it would not be available in the residential market under your proposal?
LISTNUM 1 \l 18757 MS BLACKWELL: Just wait for Mr. Watt to catch up with us here.
LISTNUM 1 \l 18758 MR. WATT: The issue in the residential market is outside our serving territory where we do not have our cable facility and we would use the unbundled local loop to provide both voice service and data service. But by virtue of the fact that the telephone companies have deployed remotes in those areas, we cannot get the copper connectivity all the way through from the customer back to the central office.
LISTNUM 1 \l 18759 We are unable, without some additional technical work, deployment of additional technologies, to provide high‑speed internet service together with our voice service that we are providing on the unbundled loop. And, in that case, we would like to have access to the wholesale facility of the telephone company in order to be able to provide both voice and data services in those circumstances.
LISTNUM 1 \l 18760 THE CHAIRPERSON: Can you repeat the opening? Where would this apply?
LISTNUM 1 \l 18761 MR. WATT: This would apply in locations where Rogers is using an unbundled local loop to provide voice service.
LISTNUM 1 \l 18762 Let's say Calgary. We have the unbundled local loop, and we can provide our voice service, but if the telephone company has deployed technology involving a remote, fibre, and then copper doesn't go all the way back to the central office, there are technologies that allow ‑‑ there is some spare copper that could come back, and we could get that. But in the absence of that, without access to the wholesale DSL tariff, we couldn't provide data service. We would be limited. Our loop is only useful for the voice purpose.
LISTNUM 1 \l 18763 Mr. Pattison, would you like to add to that?
LISTNUM 1 \l 18764 MR. PATTISON: Yes. The loop that we end up receiving in the central office is incapable of providing hi‑speed service because it goes through the remote technology.
LISTNUM 1 \l 18765 THE CHAIRPERSON: So you are missing the piece that would go from the office to the remote.
LISTNUM 1 \l 18766 MR. WATT: Yes, that's correct, we are missing that copper piece.
LISTNUM 1 \l 18767 MR. DANIELS: Just so we are clear ‑‑ because, quite frankly, I just heard two different things from Ms Blackwell and Mr. Watt ‑‑ is it your position ‑‑
LISTNUM 1 \l 18768 I heard you say: We would like it.
LISTNUM 1 \l 18769 Is it your position that GAS, in that situation, in the residential market, should be provided ‑‑ be mandated by this Commission?
LISTNUM 1 \l 18770 MR. WATT: Yes.
LISTNUM 1 \l 18771 MR. DANIELS: All right. So, then, we are back to, with all due respect, the conversation about it only being in business. We can put that aside. In fact, you are looking for it in the residential market.
LISTNUM 1 \l 18772 Now that we have confirmed that, and we have also confirmed that the ILECs are not dominant in the residential market, and we can confirm that there are cable alternatives in the residential market for internet, you have also confirmed that there are many other facility‑based alternatives, so we are not going to get into all of these other issues about only two.
LISTNUM 1 \l 18773 Quite frankly, I am trying to understand, when I look at your definition of essential facilities, how it meets the definition of essential facilities.
LISTNUM 1 \l 18774 Let me be clear. Does it meet your definition of essential facilities, or does it not meet your definition of essential facilities?
LISTNUM 1 \l 18775 And is it an exception to your definition of an essential facility?
LISTNUM 1 \l 18776 MR. WATT: I think we believe that, without the mandated supply, subject to (ii) in the bullet, the supplier could use the market power that it has.
LISTNUM 1 \l 18777 We are not saying that it's dominant in that market, but it could use the market power that it has to lessen, in a non‑trivial fashion, us competing in the downstream market.
LISTNUM 1 \l 18778 Mr. Daniels, as you are aware, there have been a lot of examples where Bell has refused to provide the facilities in remotes and we have lost customers.
LISTNUM 1 \l 18779 I know there are debates about the costs that making the technology available to us impose upon you and so on and so forth, but it is a very serious situation.
LISTNUM 1 \l 18780 MR. DANIELS: Mr. Watt, just so we are clear, when you say remotes here, you are talking about a situation where you can get access to voice. The fact is that you are co‑located and you can get access to voice, but you are saying: I can't get access to DSL.
LISTNUM 1 \l 18781 That is the situation we are talking about here, right?
LISTNUM 1 \l 18782 MR. WATT: Yes, that is correct.
LISTNUM 1 \l 18783 MR. DANIELS: All right. And GAS is available.
LISTNUM 1 \l 18784 MR. WATT: Correct.
LISTNUM 1 \l 18785 MR. DANIELS: All right. So there is no situation where you have been refused access to GAS.
LISTNUM 1 \l 18786 MR. WATT: Not that we are aware of, no. And we would like to see that situation persist.
LISTNUM 1 \l 18787 MR. DANIELS: Just as a finer point on this, just so I understand it, the places that you are talking about, the areas where you face this problem, are the areas outside your territory where you are co‑located and you can't get an unbundled loop that is pure copper, but you can put voice over it, and you can't put DSL.
LISTNUM 1 \l 18788 In that situation, the homes may have, and likely do have, both cable and a phone wire. Correct?
LISTNUM 1 \l 18789 MR. WATT: I would think that the vast majority would, yes.
LISTNUM 1 \l 18790 MR. DANIELS: Okay. I am trying to understand. Why in that situation wouldn't wholesale cable internet be mandated?
LISTNUM 1 \l 18791 Why is it only the ILECs who are being mandated in your so‑called situation of this problem here?
LISTNUM 1 \l 18792 Why is it one and not the other?
LISTNUM 1 \l 18793 MR. WATT: Why is it one and not the other?
‑‑‑ Pause
LISTNUM 1 \l 18794 MR. PATTISON: Sir, as the product owner, I can tell you that we would much prefer to be using DSL, because we manage the quality of service across that service.
LISTNUM 1 \l 18795 MR. DANIELS: I am not sure that that is an explanation.
LISTNUM 1 \l 18796 Is it just a preference issue?
LISTNUM 1 \l 18797 I am asking about it more as a policy matter, Mr. Watt, in terms of ‑‑ why is it one over the other?
LISTNUM 1 \l 18798 MR. WATT: I think that, principally, as I say, our interest lies in extending our service in the business market. In the residential market we would like to have it because we feel that it goes along with our unbundled loop offer in residential markets, which, in turn, makes economics better for unbundled loops in business, but I can see the inconsistency that you are pointing out.
LISTNUM 1 \l 18799 In this case, it is simply that we are not required to provide the unbundled facility for voice purposes, but if the telephone companies are, we are going to expend money to get that facility, and we think we should be able to provide a broader suite of services to those customers in those locations.
LISTNUM 1 \l 18800 THE CHAIRPERSON: Mr. Watt, I wonder if you could rephrase it in terms of what this is about. I mean whether we should mandate or not.
LISTNUM 1 \l 18801 You say "We would like," and I have trouble with what that means.
LISTNUM 1 \l 18802 Could you rephrase it? Should the CRTC mandate or not mandate these things?
LISTNUM 1 \l 18803 MR. WATT: We think they should mandate those things. Otherwise, we think there will be a non‑trivial reduction in competition.
LISTNUM 1 \l 18804 MR. DANIELS: Mr. Watt, could I get you to turn to Tab FF of the material?
LISTNUM 1 \l 18805 This is the response to Interrogatory Rogers‑CRTC‑12 April 07‑204.
LISTNUM 1 \l 18806 I am looking at the second page of that interrogatory.
LISTNUM 1 \l 18807 Have you found it?
LISTNUM 1 \l 18808 I would like to point out your answer to (b):
"The appropriate wholesale regulatory treatment for ILEC and cable company service should be determined by assessing each of the respective services ‑‑ "
LISTNUM 1 \l 18809 COMMISSIONER CRAM: Excuse me, Mr. Daniels. Did you say "FF", as in "Father Father"?
LISTNUM 1 \l 18810 MR. DANIELS: I did.
LISTNUM 1 \l 18811 It is right at the back.
LISTNUM 1 \l 18812 COMMISSIONER CRAM: All right.
LISTNUM 1 \l 18813 THE CHAIRPERSON: There is another bunch of tabs.
LISTNUM 1 \l 18814 COMMISSIONER CRAM: There is another bunch of tabs. Thank you.
‑‑‑ Pause
LISTNUM 1 \l 18815 THE CHAIRPERSON: Commissioner Cram is missing the second page.
LISTNUM 1 \l 18816 MR. DANIELS: I strongly apologize for that.
LISTNUM 1 \l 18817 We have two binders, which may be causing some of the confusion.
‑‑‑ Pause
LISTNUM 1 \l 18818 THE CHAIRPERSON: Okay. I think we are there.
LISTNUM 1 \l 18819 MR. DANIELS: Great.
"The appropriate wholesale regulatory treatment for ILEC and cable company services should be determined by assessing each of the respective services against the same essential service definition and associated criteria. This procedure provides for regulatory symmetry." (As read)
LISTNUM 1 \l 18820 Do you see that there, Mr. Watt?
LISTNUM 1 \l 18821 MR. WATT: I do.
LISTNUM 1 \l 18822 MR. DANIELS: Can we agree that what you have just proposed violates the principle of what I have just read?
LISTNUM 1 \l 18823 MR. WATT: I think in the residential market it well might.
LISTNUM 1 \l 18824 MR. DANIELS: Thank you.
LISTNUM 1 \l 18825 Mr. Chairman, I am going to turn my questions over now to my colleague, Mr. Hofley. Thank you.
LISTNUM 1 \l 18826 MR. HOFLEY: Mr. Chairman, that means a switch of binders. There is another binder. You will be very pleased to know that I spent my weekend determining that I didn't need ‑‑ did not need ‑‑ to take you to all of those tabs; in fact, did not need to take you to many of those tabs.
LISTNUM 1 \l 18827 THE CHAIRPERSON: Thank you, Mr. Hofley. I expect you and others not to ask questions that have already been answered, and I am sure, as usual, you were assiduous in your preparation, but a lot of these things have been answered by others.
LISTNUM 1 \l 18828 MR. HOFLEY: And that is why it has been cut back, Mr. Chairman.
LISTNUM 1 \l 18829 MR. HOFLEY: Good morning, all. My name is Randall Hofley. I am co‑counsel here with Jonathan Daniels for The Companies, and I will have a few questions for you this morning. If I go too fast, please don't hesitate to slow me down, but I am trying to expedite things, given our time constraints.
LISTNUM 1 \l 18830 I hope the binders ‑‑ we have provided you with five as opposed to one ‑‑ will help you expedite matters.
LISTNUM 1 \l 18831 I would like to begin with you, Mr. Hatfield, since you have come a very long way, and I feel you have been left out so far. But I only really have one area that I wanted to ask you questions about.
LISTNUM 1 \l 18832 In reading your report, Mr. Hatfield, I had the sense that you believe that a regulator's focus should be on the physical layer or the lowest layer of your protocol stack model. Would you agree with that?
LISTNUM 1 \l 18833 MR. HATFIELD: I don't think that completely characterized it.
LISTNUM 1 \l 18834 I think my comment was that the market power tends to be in the lower part of the protocol stack, not necessarily always at the physical level. The example that we were just discussing where you have fibre to a remote, then copper beyond that, would be an example where you couldn't get to the wires, therefore, you couldn't put on your own ADSL.
LISTNUM 1 \l 18835 So, that might be a situation where we are quite a bit above the pure physical layer.
LISTNUM 1 \l 18836 MR. HOFLEY: But, generally speaking, you would agree with me that the focus ‑‑ I mean, if you look at tab MM, there is an interrogatory response from The Companies and they quote you when you talk about your focus being on the challenges that reside at the physical layer or the lower layers of the protocol stack. Do you recall that?
LISTNUM 1 \l 18837 MR. HATFIELD: Yes. I just don't want to be sort of held to just the physical layer, because there can be situations where the market power lies higher in the stack.
LISTNUM 1 \l 18838 MR. HOFLEY: I will just quote it to you to help you. It is tab MM, and you don't need to turn it up. It is at page 3 of 7 where they are quoting you, and it says:
"This analysis focuses on the challenges that reside at the lower layers of the protocol stack; that is, the physical network layer." (As read)
LISTNUM 1 \l 18839 Do you recall saying that?
LISTNUM 1 \l 18840 MS SONG: Could counsel please refer, for the benefit of the rest of us in the room, which interrog response he is referring to.
LISTNUM 1 \l 18841 MR. HOFLEY: I have done that again. I am very sorry.
LISTNUM 1 \l 18842 It is Rogers/CRTC 12 April 07‑101. It is at tab MM of the binder. It is at page 3. There is a quote there from Mr. Hatfield about midway down the page. It is at the end of the quote.
LISTNUM 1 \l 18843 MR. HATFIELD: Okay. I am looking at, then, the ‑‑
LISTNUM 1 \l 18844 MR. HOFLEY: It begins "In light of these considerations."
LISTNUM 1 \l 18845 MR. HATFIELD: Oh yes, I see. The very last sentence in that paragraph?
LISTNUM 1 \l 18846 MR. HOFLEY: Right, the very last sentence.
LISTNUM 1 \l 18847 MR. HATFIELD: Okay.
LISTNUM 1 \l 18848 MR. HOFLEY: Okay? So, your testimony is the same as was there. Correct, Mr. Hatfield?
LISTNUM 1 \l 18849 MR. HATFIELD: No, my testimony is what is in quotes above.
LISTNUM 1 \l 18850 MR. HOFLEY: Would you agree with that statement?
LISTNUM 1 \l 18851 MR. HATFIELD: The last sentence?
LISTNUM 1 \l 18852 MR. HOFLEY: Yes.
LISTNUM 1 \l 18853 MR. HATFIELD: No. I say above here, it is in the lower layers, not just in the physical layer.
LISTNUM 1 \l 18854 MR. HOFLEY: Okay. So, the lower layers of the protocol stack?
LISTNUM 1 \l 18855 MR. HATFIELD: That is my testimony.
LISTNUM 1 \l 18856 MR. HOFLEY: Would your principal focus be on the physical layer, the network structure?
LISTNUM 1 \l 18857 MR. HATFIELD: As I said before, not in all cases.
LISTNUM 1 \l 18858 MR. HOFLEY: In the context of the protocol stack model, Mr. Hatfield, at the physical layer, what is the difference between DS‑3 private line and Ethernet? Is there any difference?
LISTNUM 1 \l 18859 MR. HATFIELD: DS‑3 private line, I believe DS‑3 is TDM architecture. In other words, it uses a different way of organizing the bits on a TDM stream than you would on an Ethernet layer.
LISTNUM 1 \l 18860 MR. HOFLEY: But Ethernet is a layer 2 service. Correct? It either rides over a layer 1 private line network or over equipment that provides both the layer 1 connectivity ‑‑
LISTNUM 1 \l 18861 MR. HATFIELD: That was a little quick. If we could go back.
LISTNUM 1 \l 18862 MR. HOFLEY: Ethernet ‑‑ I am talking about your protocol stack model.
LISTNUM 1 \l 18863 MR. HATFIELD: Yes.
LISTNUM 1 \l 18864 MR. HOFLEY: Ethernet is a layer 2. Correct? It is not the physical layer?
LISTNUM 1 \l 18865 MR. HATFIELD: Yes, meaning it is riding on copper of whatever other facility, that is correct.
LISTNUM 1 \l 18866 MR. HOFLEY: Right. So, it either rides over a layer 1 private line network ‑‑
LISTNUM 1 \l 18867 MR. HATFIELD: I am a little confused by your term "private line."
LISTNUM 1 \l 18868 MR. HOFLEY: A physical private line connection.
LISTNUM 1 \l 18869 MR. HATFIELD: Dedicated?
LISTNUM 1 \l 18870 MR. HOFLEY: Yes.
LISTNUM 1 \l 18871 MR. HATFIELD: Yes, okay.
LISTNUM 1 \l 18872 MR. HOFLEY: Or over equipment that provides both the layer 1 connectivity, as well as layer 2 Ethernet over the same physical fibre.
LISTNUM 1 \l 18873 MR. HATFIELD: I believe that is correct, yes.
LISTNUM 1 \l 18874 MR. HOFLEY: In the context of your barrier discussion, if problems at the physical layer required access, required mandated access from the Commission to CDN, and Ethernet services are effectively the same, how can they both be essential, Mr. Hatfield?
LISTNUM 1 \l 18875 MR. HATFIELD: My testimony is if the upper layer, in other words, the service that is riding on it can both get access to the same pairs of copper wires or the same fibre, then I would say there is no difference.
LISTNUM 1 \l 18876 There might be some co‑location issues about making sure you can get your equipment in in both cases.
LISTNUM 1 \l 18877 MR. HOFLEY: Thank you, Mr. Hatfield.
LISTNUM 1 \l 18878 Professor Ware, I would like to move to you, if I could. Professor Ware, just a quick question about the title of your report.
LISTNUM 1 \l 18879 The title of your report is "The Proper Application of the Essential Facility Concept in Canadian Telecommunications." I was struck by that, "The Proper Application." Have you reviewed all of the services listed by each company as essential under their definition or under yours or Rogers' definition and applied that definition to the services?
LISTNUM 1 \l 18880 I am confused about the words "the proper application" of the essential facility concept.
LISTNUM 1 \l 18881 MR. WARE: No, Mr. Hofley. I haven't reviewed each individual service in terms of its applicability or eligibility.
LISTNUM 1 \l 18882 When I say "the proper application," the meaning of those words is intended to be a methodological discussion. It's not intended to produce an outcome and, in fact, neither do I at the end of that report where I find individual services to be essential or non‑essential.
LISTNUM 1 \l 18883 MR. HOFLEY: When you say "a methodological discussion," you mean simply about the appropriate definition of essential facilities. Is that what you mean?
LISTNUM 1 \l 18884 MR. WARE: I mean, definition and application, yes. What it means ‑‑ I mean, obviously definitions can be a single line or they can be ‑‑ there are a lot of conceptual issues here, as you know. So, it is a discussion of the methodological issues.
LISTNUM 1 \l 18885 MR. HOFLEY: And that was your mandate; that was what Rogers requested that you do?
LISTNUM 1 \l 18886 MR. WARE: Yes, it was, as I understood it anyway.
LISTNUM 1 \l 18887 MR. HOFLEY: But would you agree with me that you went beyond that mandate in parts of your report, and let's take one, for example. You have a section of your report which is called "Mandatory Access and Investment: The Empirical Evidence." Do you recall that? It begins at paragraph 34 of your report, Dr. Ware.
LISTNUM 1 \l 18888 MR. WARE: Yes, I do recall that.
LISTNUM 1 \l 18889 MR. HOFLEY: Can you tell me how that was related to your mandate to discuss the essential facilities definition and the methodology associated with the essential facilities definition?
LISTNUM 1 \l 18890 MR. WARE: That was an additional mandate.
LISTNUM 1 \l 18891 MR. HOFLEY: So, one you didn't ‑‑ you then just mention a new one?
LISTNUM 1 \l 18892 MR. WARE: Right.
LISTNUM 1 \l 18893 MR. HOFLEY: In this section, you ‑‑
LISTNUM 1 \l 18894 MS BLACKWELL: Mr. Hofley, I don't want to interrupt, but part of the discussion, as it says at the beginning of Dr. Ware's evidence, has been, first paragraph of that, "to assess the evidence filed by other parties in this proceeding with respect to the proper application of essential facilities."
LISTNUM 1 \l 18895 I believe a number of parties have, in their evidence, discussed the impact on investment as a result of whether you define essential facilities too broadly or too narrowly, which was something that Rogers itself addressed in its March evidence of trying to find a proper balance and, as we proposed, a nuanced approach between the hard extreme of too broad and too narrow.
LISTNUM 1 \l 18896 So, in that context, Dr. Ware took a few paragraphs in his submission, in the supplementary evidence filed on behalf of Rogers in July, to look at the issue of is there empirical evidence of the impact on investment with respect to how other countries and other academics have assessed the impact on investment where you have a broad or not so broad scope of mandated access.
LISTNUM 1 \l 18897 MR. HOFLEY: Thank you, Ms Blackwell. I am happy to understand that from you.
LISTNUM 1 \l 18898 I am really most concerned with what Dr. Ware understood to be his mandate, not what you understood to be Dr. Ware's mandate.
LISTNUM 1 \l 18899 So, if we could just turn to the report, Dr. Ware, again, this section, paragraph 34. You say actually beginning at paragraph 38, when you discuss this issue of mandatory access and investment, you say that you have conducted ‑‑ and I am quoting ‑‑ "a balanced review of the evidence." Do you recall that?
LISTNUM 1 \l 18900 MR. WARE: Can you point me to that, please?
LISTNUM 1 \l 18901 MR. HOFLEY: Paragraph 38.
LISTNUM 1 \l 18902 MR. WARE: Yes, I have it. Thanks.
LISTNUM 1 \l 18903 MR. HOFLEY: Do you recall saying that?
LISTNUM 1 \l 18904 MR. WARE: Yes, I do.
LISTNUM 1 \l 18905 MR. HOFLEY: What is the evidence that you looked at? Is it the evidence that you cite in your report, Dr. Ware?
LISTNUM 1 \l 18906 MR. WARE: Yes, it is.
LISTNUM 1 \l 18907 MR. HOFLEY: And the balanced review is your review. Correct? That is what you are referring to?
LISTNUM 1 \l 18908 MR. WARE: Yes.
LISTNUM 1 \l 18909 MR. HOFLEY: Here in this section you are disputing the point that mandatory access regimes create disincentives for investments. Correct?
LISTNUM 1 \l 18910 MR. WARE: That is correct, yes.
LISTNUM 1 \l 18911 MR. HOFLEY: And you refer to some studies. Correct?
LISTNUM 1 \l 18912 MR. WARE: Yes, I do.
LISTNUM 1 \l 18913 MR. HOFLEY: You say ‑‑ the first study you refer to is the Willig Report. Do you recall that?
LISTNUM 1 \l 18914 MR. WARE: Yes, I do.
LISTNUM 1 \l 18915 MR. HOFLEY: And you say:
"With respect to Willig et al in a report filed..."
This is at the beginning of paragraph 39:
"...in a report filed for AT&T concluded that access by CLECs at cost‑based rates had caused ILEC capital expenditures to increase and increase with decreasing access prices." (As read)
LISTNUM 1 \l 18916 Do you recall that?
LISTNUM 1 \l 18917 MR. WARE: Yes, I do.
LISTNUM 1 \l 18918 MR. HOFLEY: Are you familiar with the Willig Study, Professor Ware?
LISTNUM 1 \l 18919 MR. WARE: Yes, I am.
LISTNUM 1 \l 18920 MR. HOFLEY: Is the punch line of the article that the level of ILEC investment in the U.S. is positively related to the level of UNE pricing? Is that the punch line of the article, Dr. Ware?
LISTNUM 1 \l 18921 MR. WARE: Well, I don't know if it is the punch line of the article or not. It is a conclusion of the article.
LISTNUM 1 \l 18922 MR. HOFLEY: Would you agree, Dr. Ware, that if an ILEC has to provide unbundled network elements, they are required to provide unbundled network elements, that ILEC would have to also make investments in certain wholesale infrastructure? Would you agree with that?
LISTNUM 1 \l 18923 MR. WARE: Well, it is perfectly possible, yes.
LISTNUM 1 \l 18924 MR. HOFLEY: Do you know if the Willig Study separated ILEC investment between UNE‑based investment; in other words, the investment they had to undertake to support providing of unbundled local loops and other ILEC investment? In other words, do you know whether the study separated out the investment that they undertook to comply with the mandated access and that they undertook otherwise?
LISTNUM 1 \l 18925 MR. WARE: No, I don't.
LISTNUM 1 \l 18926 MR. HOFLEY: Isn't it possible, Dr. Ware, that the correlation between the ILEC investment and the lower UNE prices is driven by the ILEC investment to support UNE competition? In other words, to comply with the mandated access?
LISTNUM 1 \l 18927 MR. WARE: I think we ought to look at the document, but as I recall from reading Willig's paper, the hypothesis that he was testing was whether, as a result of mandated access, the ILEC would engage in I think what he calls defensive investment, which is investment that is designed to increase their competitiveness with respect to the entry under mandated access of the CLEC, of the competitor.
LISTNUM 1 \l 18928 He concludes that that hypothesis is supported by the data.
LISTNUM 1 \l 18929 Now, in response to ‑‑
LISTNUM 1 \l 18930 MR. HOFLEY: But, Dr. Ware, he does not separate out the investment that is made by ILECs as a result of meeting the FCC's requirement to provide UNE‑P from the investments they made otherwise. So, would you agree with me that unless you do that, the correlation is nothing but a correlation?
LISTNUM 1 \l 18931 MR. WARE: Well, no, I wouldn't. But in order to seriously debate Dr. Willig's paper, I think we would have to look at it, but I am willing to stand by the statement I just made, which is that he tests the hypothesis and he finds support for it.
LISTNUM 1 \l 18932 MR. HOFLEY: The next report you refer to, Dr. Ware, is that of Mr. Crandall. Do you recall that?
LISTNUM 1 \l 18933 MR. WARE: Yes, I do.
LISTNUM 1 \l 18934 MR. HOFLEY: You say:
"Crandall 2005 reviewed all the empirical studies to date and concluded that when carefully analyzed, none of the studies supported the view that mandatory access rates had influenced the level of capital spending by Bell companies." (As read)
LISTNUM 1 \l 18935 Do you recall that?
LISTNUM 1 \l 18936 MR. WARE: Yes, I do.
LISTNUM 1 \l 18937 MR. HOFLEY: There you are referring, I believe we had confirmed in an interrogatory, you are referring to Robert Crandall's "Competition and Chaos: U.S. Telecommunications Since the 1996 Telecom Act." Correct?
LISTNUM 1 \l 18938 MR. WARE: Yes.
LISTNUM 1 \l 18939 MR. HOFLEY: Dr. Ware, you don't, in making this statement, cite to any portion of this piece, and I can tell you that we have had a look and we can't find in the Crandall piece any support for the statement that I just quoted you.
LISTNUM 1 \l 18940 So, can you take us to where in Crandall's "Competition and Chaos: U.S. Telecommunications Since 1996" you base that statement on?
LISTNUM 1 \l 18941 MR. WARE: First I would have to have the document.
LISTNUM 1 \l 18942 MR. HOFLEY: It is your report, Dr. Ware, and you have cited that ‑‑
LISTNUM 1 \l 18943 MR. WARE: Yes, but if you want me to take you to it right now, I would have to have the document.
LISTNUM 1 \l 18944 I think it was submitted as an exhibit by, was this by you or by someone else?
LISTNUM 1 \l 18945 MR. HOFLEY: We provided you with an excerpt, but I am asking you where in the Crandall report you base this statement on?
LISTNUM 1 \l 18946 MR. WARE: I would be willing to take an undertaking to do that.
LISTNUM 1 \l 18947 MR. HOFLEY: That would be fine. Thank you, Mr. Chairman.
LISTNUM 1 \l 18948 Just by the by, are you aware that in this monograph by Mr. Crandall ‑‑ and he will be here, Mr. Chairman, so I won't belabour this, he will be here on behalf of TELUS, I believe ‑‑ are you aware that Dr. Crandall is critical of the Willig Study that you cited?
LISTNUM 1 \l 18949 MR. WARE: Yes, I read a couple of quotes from it last night, from this excerpt, and he says the proposition put forward by Dr. Willig is unlikely.
LISTNUM 1 \l 18950 MR. HOFLEY: Right, and doesn't he say ‑‑ I am quoting:
"Furthermore, one cannot assume that investment responds to UNE‑P rates. If those rates are measured for a period after the capital expenditures take place, one would have to show that subsequent investment expenditures fall or rise with differences in UNE‑P rates." (As read)
LISTNUM 1 \l 18951 Do you recall that, reading that last night?
LISTNUM 1 \l 18952 MR. WARE: You would have to point me to that in the document.
LISTNUM 1 \l 18953 MR. HOFLEY: Well, the document is there, Mr. Chairman. Maybe we can move on. And plus, Mr. Crandall will be here.
LISTNUM 1 \l 18954 Now, are you aware, Dr. Ware, that there are some more recent studies than "Competition in Chaos" by Mr. Crandall which support the proposition that investment levels fall with mandated access?
LISTNUM 1 \l 18955 Were you here, for example, for the testimony of the Bell panel?
LISTNUM 1 \l 18956 DR. WARE: Most of it, yes.
LISTNUM 1 \l 18957 MR. HOFLEY: So are you aware that there have been other more recent studies since 2005 which suggest that ‑‑ and suggest strongly, I would say to you ‑‑ that investment levels fall with mandated access?
LISTNUM 1 \l 18958 MR. WARE: The only study that I have seen is one that I have found, more recently than my report, which is ‑‑ there is a manuscript by Waverman and some colleagues which was under the LECG brand name, which was published in ‑‑ well no, it hasn't been published rather, I am sorry, but it has a date of September 2007, which I have looked at.
LISTNUM 1 \l 18959 MR. HOFLEY: I think that is fair and you are right, it was after your report was filed, Dr. Ware.
LISTNUM 1 \l 18960 I would like to take you to Tab RR, which is an exhibit which is entitled "Broadband and Unbundling Regulations in OECD Countries" by Scott Wallsten. This was provided to you last Wednesday, I believe, Dr. Ware.
LISTNUM 1 \l 18961 MR. WARE: Yes, I have it.
LISTNUM 1 \l 18962 MR. HOFLEY: And would you agree with me that this report is dated June 2006?
LISTNUM 1 \l 18963 MR. WARE: Yes.
LISTNUM 1 \l 18964 MR. HOFLEY: And that it is an OECD ‑‑ it takes OECD data from 30 countries over five years, from 1999 to 2003?
LISTNUM 1 \l 18965 MR. WARE: Okay.
LISTNUM 1 \l 18966 MR. HOFLEY: Now, if I could take you to ‑‑ well, would you agree with me ‑‑ I think you have had an opportunity to look at this because, as I said, I gave it to your counsel last Wednesday.
LISTNUM 1 \l 18967 Would you agree with me that this report finds, using ITU data, that more extensive sub‑loop unbundling is negatively correlated with broadband penetration because of the negative effect on incumbents' investment incentives?
LISTNUM 1 \l 18968 MR. WARE: I would agree with you up to the last phrase. I don't recall the qualifier about that, because of the negative effect on the incumbents' investment incentives. If you can point me towards that conclusion.
LISTNUM 1 \l 18969 MR. HOFLEY: Well perhaps we can take you to the key findings, Professor Ware, at page 1 of Tab MM, the Wallsten Report.
LISTNUM 1 \l 18970 It is about three pages in, Mr. Commissioner ‑‑ Mr. Chairman.
LISTNUM 1 \l 18971 MR. WARE: What page are you on?
LISTNUM 1 \l 18972 MR. HOFLEY: Page 1.
LISTNUM 1 \l 18973 You see, about ‑‑ towards the bottom of the page, you will see I have actually highlighted, commissioners, the sections in the margins.
"The most extensive form of mandatory unbundling included here, so‑called sub‑loop unbundling, appears to slow penetration growth." (As read)
LISTNUM 1 \l 18974 Do you see that?
LISTNUM 1 \l 18975 MR. WARE: Yes, I do but we are talking about broadband penetration here, not investment. I don't believe Mr. Wallsten had any investment data in this study.
LISTNUM 1 \l 18976 MR. HOFLEY: So penetration growth does not require investment, Dr. Ware?
LISTNUM 1 \l 18977 MR. WARE: Well, of course it does but this study is largely about laying cable on the ground. It is largely about the rollout of cable in countries which for the most part ‑‑ of course, not true of Canada ‑‑ started from very low levels of cable footprints.
LISTNUM 1 \l 18978 MS BLACKWELL: Mr. Hofley, if I could just add.
LISTNUM 1 \l 18979 When you said sub‑loop unbundling, I believe the same report says that ‑‑ an example that is UNE‑P, where you have the loop and the switching, an access regime that Canada has not had.
LISTNUM 1 \l 18980 MR. HOFLEY: And I understand that but we are testing the fundamental proposal.
LISTNUM 1 \l 18981 Let's turn to page 6, Dr. Ware, bottom of the page.
"In sum, there is still a debate about the effects of unbundling policies. Most economists and most studies conclude that unbundling in the U.S. reduce incentives to invest..." (As read)
LISTNUM 1 \l 18982 There is the incentives to invest piece.
"...in hi‑speed internet infrastructure." (As read)
LISTNUM 1 \l 18983 Do you see that?
LISTNUM 1 \l 18984 MR. WARE: I do.
LISTNUM 1 \l 18985 MR. HOFLEY: So you would disagree with most studies and most economists; correct?
LISTNUM 1 \l 18986 MR. WARE: No, I would just point to the fact ‑‑ well, two points actually.
LISTNUM 1 \l 18987 One is I note that Mr. Wallsten does not cite anybody there at all.
LISTNUM 1 \l 18988 And secondly, that, as I just said a few minutes ago, the investment in hi‑speed cable footprint has already taken place in Canada, which puts it in a very different position than these countries.
LISTNUM 1 \l 18989 MS BLACKWELL: Mr. Hofley, I could also point to ‑‑ the OECD's Communications Outlook for 2007 has a statement:
"Quite clearly, competition from new entrants over unbundled lines has also helped spur investment in several markets." (As read)
LISTNUM 1 \l 18990 So I think what we are seeing is depending on which study you are looking at, how the equations that the econometric analyses are specified, which is very, very important if you ask economists and econometricians, you can get different answers.
LISTNUM 1 \l 18991 I think in the context of this proceeding, as the Chair said earlier last week, this is a review process. So in Canada we have the benefit of saying we have had an access regime that included certain components, some of which Rogers has proposed be kept, some not.
LISTNUM 1 \l 18992 You can actually look back in time and see the impact on investment as a result of that access regime. You don't necessarily have to go to these conflicting reports depending on how the equation was specified, whether investment was part of it, how it was reflected.
LISTNUM 1 \l 18993 You can look at the Canadian experience and say has ICT investment increased, have competitors in the telecommunications market in Canada increased their investment, the Telecommunications Monitoring Report, reports on ‑‑
LISTNUM 1 \l 18994 MR. HOFLEY: Ms Blackwell, did you write this report?
LISTNUM 1 \l 18995 MS BLACKWELL: No, sir, I did not write this report ‑‑
LISTNUM 1 \l 18996 MR. HOFLEY: Okay.
LISTNUM 1 \l 18997 MS BLACKWELL: ‑‑ but I am trying to be helpful.
LISTNUM 1 \l 18998 MR. HOFLEY: Now, Ms Blackwell, I am asking Dr. Ware about his report. I haven't asked about Rogers' evidence. I am asking Dr. Ware about his report ‑‑
LISTNUM 1 \l 18999 MS BLACKWELL: Right.
LISTNUM 1 \l 19000 MR. HOFLEY: ‑‑ and I am testing what Dr. Ware says and that is that he conducted a balanced review of the evidence.
LISTNUM 1 \l 19001 MS BLACKWELL: I appreciate that, Mr. Hofley. I am also just trying to provide the commissioners and the staff with some understanding of the context of where all these studies rest within the key issue in this proceeding, one of which is if they increase or decrease the access regime, is there going to be an impact on investment, and I am saying they can look at the Canadian evidence at hand.
LISTNUM 1 \l 19002 THE CHAIRPERSON: Ms Blackwell, this is very helpful but really, the proceedings will go faster if you let counsel conduct their cross‑examination the way they want to.
LISTNUM 1 \l 19003 Mr. Hofley.
LISTNUM 1 \l 19004 MR. HOFLEY: Thank you.
LISTNUM 1 \l 19005 Can we now turn to the Waverman study you appropriately referred to, Dr. Ware. And that, again, is September 2007, LECG. It is at Tab SS of the binder I provided both the panel and the Commission.
‑‑‑ Pause
LISTNUM 1 \l 19006 MR. HOFLEY: Now, you have had an opportunity to look at this. It was mentioned last week, Dr. Ware.
LISTNUM 1 \l 19007 DR. WARE: Yes, I have.
LISTNUM 1 \l 19008 MR. HOFLEY: And this is the study that you quite fairly pointed out came in after your report was written?
LISTNUM 1 \l 19009 MR. WARE: Yes, it is.
LISTNUM 1 \l 19010 MR. HOFLEY: Now, would you agree with me that this study looks at 12 countries over a five‑year period, 2002 to 2006?
LISTNUM 1 \l 19011 MR. WARE: Yes.
LISTNUM 1 \l 19012 MR. HOFLEY: And can you agree with me that this study, unlike perhaps others, utilizes econometric methods to test the impacts of specific aspects of access regulation embodied in the price of unbundled local loops on investment in alternative access platforms, also called last mile access infrastructures?
LISTNUM 1 \l 19013 MR. WARE: Well, it does, but the conclusion relating to investment is in fact a simulation. It's not a study of investment data. What Professor Waverman does here is, his dependent variable in this study is actually broadband penetration and then what he does is he estimates a set of structural equations based on broadband penetration. Then he says, "Let's suppose that there is 100 Euros of investment associated with an additional household, additional connection, and let's use our estimated equations to simulate the effect of different access regimes. Then he says, with 100 Euro assumption this is how much more investment we would have got." So that is not really a study of investment.
LISTNUM 1 \l 19014 MR. HOFLEY: Have you conducted any econometric studies in this area, Dr. Ware?
LISTNUM 1 \l 19015 MR. WARE: No, I haven't.
LISTNUM 1 \l 19016 MR. HOFLEY: Or a simulation?
LISTNUM 1 \l 19017 MR. WARE: No.
LISTNUM 1 \l 19018 MR. HOFLEY: Can we go to what he concluded, Dr. Ware? If we go to "Key Findings", page 3, it is paragraph 1.11. Would you agree there that at least he says in 1.12 that:
"Our econometric analysis shows that all else equal a reduction of 10 per cent in the LLU price causes an 18 per cent fall in the subscriber share of alternative infrastructure." (As read)
LISTNUM 1 \l 19019 Do you see that?
LISTNUM 1 \l 19020 MR. WARE: Yes, I do.
LISTNUM 1 \l 19021 MR. HOFLEY: That is one of his key findings.
LISTNUM 1 \l 19022 I think for non‑economists like me the next sentence is the one that I think I start to understand, Mr. Chairman, and that is where he says:
"This 18 per cent fall in subscriber share results in hundreds of thousands less broadband subscriber lines that utilize alternative access technologies." (As read)
LISTNUM 1 \l 19023 So that would be speaking, depending on whether you agree with this methodology or not, Dr. Ware, to investment, wouldn't it?
LISTNUM 1 \l 19024 MR. WARE: Well, with the qualification that I just made.
LISTNUM 1 \l 19025 MR. HOFLEY: Yes.
LISTNUM 1 \l 19026 MR. WARE: Really the investment part is a kind of an add‑on. As I said, there are no investment data in this study.
LISTNUM 1 \l 19027 MR. HOFLEY: No.
LISTNUM 1 \l 19028 Then he goes on to say:
"Thus intense access regulation. as measured through the LLU price, weakens facilities‑based competition and the benefits that such competition delivers." (As read)
LISTNUM 1 \l 19029 Next:
"This fall in subscriber levels has the impact of reducing investment in alternative access platforms in both the short‑term and the long‑term." (As read)
LISTNUM 1 \l 19030 Do you see that?
LISTNUM 1 \l 19031 MR. WARE: Yes, I do.
LISTNUM 1 \l 19032 MR. HOFLEY: Now, would you agree with me that a balanced review of the literature would have, had you had it at the time, included the Waverman study?
LISTNUM 1 \l 19033 MR. WARE: Oh certainly, yes. Absolutely.
LISTNUM 1 \l 19034 MR. HATFIELD: Could I add a point here?
LISTNUM 1 \l 19035 We are focused here on increasing the investment in the access part of the network but, as my testimony goes to, there is an awful lot of investment and innovation that is occurring up the protocol stack. So by mandating access at the lower levels you may be very well promoting lots of investment at higher levels in the protocol stack that is not addressed in these studies.
LISTNUM 1 \l 19036 MR. HOFLEY: Thank you for that. I do agree we are focusing, although we did have the debate I believe on Friday about innovation at the lower levels of the protocol stack on Friday. But I take your point about the upper levels.
LISTNUM 1 \l 19037 COMMISSIONER del VAL: Mr. Hofley, may I just ask one point of clarification?
LISTNUM 1 \l 19038 On that paragraph 1.12 it says:
"Our econometric analysis shows that all else being equal..." (As read)
LISTNUM 1 \l 19039 I'm wondering if Dr. Ware or Mr. Hatfield could give me an example of what else would have to be equal?
LISTNUM 1 \l 19040 MR. WARE: Madam Commissioner, we would have to look at his ‑‑ the way this is done is by writing down a series of structural equations and then looking at the estimated coefficients and then identifying those as partial derivatives in a mathematical sense, in the sense that what it means is suppose we hold everything else constant, so essentially that means the price of everything else and it means whatever else he has on the right‑hand side in his equations.
LISTNUM 1 \l 19041 And if we just change ‑‑ I'm sorry, I'm just going back. I have lost the paragraph now.
LISTNUM 1 \l 19042 If I just change the LLU price what happens to the variable on the left‑hand side, which actually is the share of broadband penetration by alternative access technology?
LISTNUM 1 \l 19043 COMMISSIONER del VAL: I think I understand that, but I was just wondering what was on the right‑hand side.
LISTNUM 1 \l 19044 MR. WARE: Well, I would have to go and look. I honestly can't remember exactly.
LISTNUM 1 \l 19045 MS BLACKWELL: Commissioner del Val, I think at a very basic level what you are trying to do is, you try to gather all the variables that you think will explain this broadband penetration and some of the other variables in the equation may account for a larger share of the movement in what you are trying to figure out what makes that move.
LISTNUM 1 \l 19046 In the Waverman report if you look just at what is the impact of the LLU pricing, that relationship, but recognizing there are other things like population density might have a factor, as I think the Wallsten report actually speaks to.
LISTNUM 1 \l 19047 COMMISSIONER del VAL: Thank you.
LISTNUM 1 \l 19048 MR. WARE: Madam Commissioner, on page 20 for example he has one of his equations anyway, 20 of the report. For example he has things like HHI, which is the Herfindahl‑Hirschman Index of concentration, and GDP on the right‑hand side. So he is trying to allow for things like differences in income levels for example.
‑‑‑ Pause
LISTNUM 1 \l 19049 THE CHAIRPERSON: Go ahead, Mr. Hofley.
LISTNUM 1 \l 19050 MR. HOFLEY: Mr. Chairman, thank you.
LISTNUM 1 \l 19051 I would like to turn to whomever I guess now, the Rogers panel.
LISTNUM 1 \l 19052 Thank you, Dr. Ware.
LISTNUM 1 \l 19053 I would like to begin by taking you to paragraphs 88 and 89 of your March 15th evidence. This is the section of your evidence in which you are discussing economic barriers. You will see the heading starts at paragraph 84, which is page 22 of 61, but what I want to take you to is that page 23 of 61. You are talking about the economic barriers that face competitors to the ILECs.
LISTNUM 1 \l 19054 Do you recall this section of your evidence, Mr. Watt?
LISTNUM 1 \l 19055 MR. WATT: Yes, I do.
LISTNUM 1 \l 19056 MR. HOFLEY: I would like to do a bit of an experiment and ask you if you would agree with me.
LISTNUM 1 \l 19057 Let's start at paragraph 88 and I'm going to replace the word "ILECs" with "cable cos". So I'm going to read you these and I will ask you your views.
"The cable cos of course already have ubiquitous facilities at the lowest layers of the protocol stack and can rely on these facilities to offer customers comprehensive service packages at higher layers." (As read)
LISTNUM 1 \l 19058 Would you agree with me with that?
LISTNUM 1 \l 19059 MR. WATT: No, I wouldn't. I would reword that sentence, following upon your proposal:
"The cable companies of course already have almost ubiquitous facilities to residential premises at the lowest levels of the protocol stack and can rely on these facilities to offer customers comprehensive service packages in the residential market at the higher level." (As read)
LISTNUM 1 \l 19060 MR. HOFLEY: So this is back to the lateral connection issue.
LISTNUM 1 \l 19061 Is that a fair statement?
LISTNUM 1 \l 19062 MR. WATT: I'm not quite ‑‑
LISTNUM 1 \l 19063 MR. HOFLEY: The last mile.
LISTNUM 1 \l 19064 MR. WATT: The last mile is better.
LISTNUM 1 \l 19065 MR. HOFLEY: I'm sorry.
LISTNUM 1 \l 19066 MR. WATT: Generally I think the ILECs preferred that the lateral connection to be a fibre‑based facility. It is the last mile, co‑ax and fibre.
LISTNUM 1 \l 19067 MR. HOFLEY: The last mile. I apologize.
LISTNUM 1 \l 19068 MR. WATT: Into those 95 per cent of locations we don't have a facility today. Yes.
LISTNUM 1 \l 19069 MR. HOFLEY: Now, let's go to the next sentence.
"The cable cos facilities..."
LISTNUM 1 \l 19070 We will agree to disagree on that:
"The cable cos facilities were built and paid for while the cable cos operated monopolies and the investments have been recovered so as to ensure a reasonable rate of return on the investments." (As read)
LISTNUM 1 \l 19071 MR. WATT: I would again disagree with that sentence, the reason being that cable companies were granted exclusive franchises in a territory. So you could say it was, in that sense, a monopoly over the provision of television signals over wires in that franchise area.
LISTNUM 1 \l 19072 There were other alternatives for radio signals so, in that sense, they were not a monopoly supplier of signals. With respect to investments have been recovered through rates set so as to ensure a reasonable rate of return on investments, that is not true. The rates were regulated, but there was no guaranteed rate of return in the sense. Television services are not viewed as an essential service. In fact, our penetration peaked out in the order of 84 per cent of homes.
LISTNUM 1 \l 19073 There was no guaranteed rate of return. We set our rates and then we realized the return that we did. But no rate base was established with a guaranteed rate of return on that rate base. Those investments were entirely at risk.
LISTNUM 1 \l 19074 MR. HOFLEY: More like a price cap model?
LISTNUM 1 \l 19075 MR. WATT: For basic rates, when we at one time had 12, 14 channels and then subsequently grew up to 60, 72, there was a cap after a period of time. You will have to recall, in the early 1970s when cable started out there was zero penetration, so there was much less regulation. When penetration reached higher levels there were caps eventually placed on basic rates, yes, and then they were related to capital investment, et cetera.
LISTNUM 1 \l 19076 MR. HOFLEY: And CAPEX increases were allowed?
LISTNUM 1 \l 19077 MR. WATT: When you say CAPEX increases were allowed, we were always allowed to spend as much as money as we possibly could and Rogers did.
LISTNUM 1 \l 19078 MR. HOFLEY: I apologize, there was specific provision to allow for rate increases for CAPEX?
LISTNUM 1 \l 19079 MR. WATT: In the late 1980s, early 1990s there were specific provisions. But that time I think the Commission felt that they needed to pay some attention to the economics of the cable industry because it was penetrating fairly widely at that point. So there was put in place a mechanism whereby the rates for basic service was related to the capital expenditure in that system. And if you spent a certain amount of money, you could increase your rate up to a certain level. And there is a long history to what happened to this after. It was supposed to sunset after a period of years and so on and so forth, but that is not worth getting into now.
LISTNUM 1 \l 19080 MR. HOFLEY: That is your qualification, on that sentence?
LISTNUM 1 \l 19081 MR. WATT: That is my qualification, exactly, came from zero to fully penetrated in 45 years with no guaranteed rate of return, residential market.
LISTNUM 1 \l 19082 MR. HOFLEY: Now, the last sentence:
"These facilities,"
with the qualifications you have given,
"afford cable companies substantially lower risks than new entrants encounter in making similar investments." (As Read)
LISTNUM 1 \l 19083 Would you agree with that? Entrants who don't have facilities, for example.
LISTNUM 1 \l 19084 MR. WATT: This one doesn't fit quite so neatly. These arrangements ‑‑
LISTNUM 1 \l 19085 MR. HOFLEY: The arrangements are referred to above.
LISTNUM 1 \l 19086 MR. WATT: Right, the fact that we have almost ubiquitous facilities in residential locations, et cetera, afford the cable companies substantially lower risks than new entrants encounter in making similar investments. Now, I take it the lower risks in reference here are with respect to ‑‑ well, I am having trouble now. Lower risks in making similar investments into ‑‑
LISTNUM 1 \l 19087 MR. HOFLEY: What did you mean when you ‑‑
LISTNUM 1 \l 19088 MR. WATT: ‑‑ to the telecom market.
LISTNUM 1 \l 19089 MR. HOFLEY: What did you mean when you said the ILECs face substantially lower risks?
LISTNUM 1 \l 19090 MR. WATT: The ILECs face substantially lower risks because they already have the facilities in place and the guaranteed rate of return. So I guess we would take the context in the historical sense, that the risks were lower historically. Maybe to move this along, there is no doubt that new entrants today face greater risk, absolutely.
LISTNUM 1 \l 19091 MR. HOFLEY: Than the cable companies?
LISTNUM 1 \l 19092 MR. WATT: They face greater risks than cable companies and ILECs in the residential market, absolutely correct.
LISTNUM 1 \l 19093 MR. HOFLEY: Okay, thank you. Can I move on just to try and understand, since your focus has been, at least even in your answers in the last five minutes, on the business side? I would like to just try and clarify and understand your evidence with respect to Rogers' share of the business market.
LISTNUM 1 \l 19094 And I provided you with a number of exhibits in the tabs and I am hoping this won't take very long, Mr. Chairman, but I think it is actually important for the Commission to understand what is on the record.
LISTNUM 1 \l 19095 Now, in paragraph 5 of March 15 evidence you state, you will recall, that your share of the business market is less than 3 per cent. Do you recall that?
LISTNUM 1 \l 19096 MR. WATT: Yes, I do.
LISTNUM 1 \l 19097 MR. HOFLEY: Now, how was that calculated?
LISTNUM 1 \l 19098 MR. WATT: Ms Blackwell has the detailed calculations on her computer here and she will find the reference in the record.
LISTNUM 1 \l 19099 MR. HOFLEY: You might want to go to tab F of our binder, Ms Blackwell, it is a response of yours to Rogers‑Primus‑12‑April‑07‑2.
LISTNUM 1 \l 19100 MS BLACKWELL: Okay, yes, we have those documents.
LISTNUM 1 \l 19101 MR. HOFLEY: Now, maybe to expedite this along, would you agree with me that this calculation was based on total business NAS for all of Canada, correct?
LISTNUM 1 \l 19102 MS BLACKWELL: That is correct.
LISTNUM 1 \l 19103 MR. HOFLEY: So that is in and outside of Rogers' operating territory, correct?
LISTNUM 1 \l 19104 MS BLACKWELL: I mean, the other issue here of course is the Rogers' business lines that we are doing ex post the Call‑Net acquisition, so of course we would have the Rogers' lines that are also served through the leased facilities that the company relies on outside of its cable footprint.
LISTNUM 1 \l 19105 MR. WATT: Yes, you would have to say outside the cable footprint, because Rogers' operating territory for business solutions spans the entire country.
LISTNUM 1 \l 19106 MR. HOFLEY: So inside your cable footprint, Mr. Watt, what would you estimate that market share to be? If it is 3 per cent nationally, what do you think it would be in your cable footprint? A rough number, like would it go up to 8 or 9 or what would it be?
LISTNUM 1 \l 19107 MR. WATT: Rather than guess, we should probably go back and try and provide you with an educated calculation on that.
LISTNUM 1 \l 19108 MR. HOFLEY: That would be fine, thank you.
LISTNUM 1 \l 19109 MS BLACKWELL: Just recognizing that the denominator, if you will, is from the telecom monitoring report and I don't recall seeing footprints, for the business market, lines broken out by province, which would be probably the starting point in order to isolate the denominator for the equivalent of the Rogers' footprint. So it may not be possible to actually calculate an accurate ‑‑
LISTNUM 1 \l 19110 MR. HOFLEY: Well, do your best, but I would be interested in knowing what if we just looked at in your territory as opposed to across the country. You can only do what you can do, Ms Blackwell, and I appreciate that.
LISTNUM 1 \l 19111 Now, you would agree with me though that these are lines in which Rogers' provides service, so it doesn't include the number of premises past, correct, that is another figure that we go to?
LISTNUM 1 \l 19112 MR. WATT: It is indeed another figure that we go to.
LISTNUM 1 \l 19113 MR. HOFLEY: Right. Now, I would like to talk to you about that other figure. And you will recall that that is an estimate that you made in response to an interrogatory from the Competition Bureau, it is 12‑April‑07 interrogatory 8, it is at tab G, Mr. Chairman, members of the Commission.
LISTNUM 1 \l 19114 You will recall there that your estimate was 5 per cent. You estimated that Rogers' supplies 5 per cent of business premises in its cable footprint with cable television services. Do you recall that?
LISTNUM 1 \l 19115 MR. WATT: Yes, I do.
LISTNUM 1 \l 19116 MR. HOFLEY: Now, that doesn't tell us how many businesses would be within a premise, correct? Like, if it was a multiunit building this would just tell us the premise, correct, the address?
LISTNUM 1 \l 19117 MR. WATT: The calculation actually was with respect to the number of customers with cable TV. So if, for example, there were 50 customers of ours within say First Canadian Place, that would have counted as 50, so in a sense it would have over‑counted in that case, we would have counted as 50 when really it is only one building.
LISTNUM 1 \l 19118 We don't have an accurate count. We do not know precisely how many buildings out of the 400 ‑‑ and again, I should say we have estimated from Dunn & Bradsteet material and Stats Canada information roughly 400,000 business locations within our cable operating footprint. That is an estimate. We do not know precisely how many of those business we have physical coax into. We do know that we have roughly 20,000 cable TV subscribers in business premises.
LISTNUM 1 \l 19119 So that is the estimate of the 5 per cent. You could probably consider ‑‑ we would have to see the condition of the plant, but it could be 6 or 7 percent with people who, at one time, took cable TV for business and internet and then cancelled. So there would be remaining facilities into those locations.
LISTNUM 1 \l 19120 But we are quite convinced that we have facilities in the 5 to 7 percent range for coax, and with fibre ‑‑ we have approximately 1,850 fibre connections into buildings. That is not all entirely within our cable footprint. We have ‑‑
LISTNUM 1 \l 19121 MR. HOFLEY: I'm sorry to interrupt, Mr. Watt, but so that I can understand ‑‑
LISTNUM 1 \l 19122 I am looking at your answer ‑‑
LISTNUM 1 \l 19123 MR. WATT: Yes.
LISTNUM 1 \l 19124 MR. HOFLEY: ‑‑ and it says ‑‑ the first April answer said:
"Rogers estimates that it supplies 5 percent of business premises in its cable footprint with cable television services."
LISTNUM 1 \l 19125 Right?
LISTNUM 1 \l 19126 MR. WATT: Correct.
LISTNUM 1 \l 19127 MR. HOFLEY: So that's how you estimate it, by the cable television services.
LISTNUM 1 \l 19128 MR. WATT: That 5 percent, and I just went on to say that there will probably be, maybe, a percent or 2 more where legacy facilities ‑‑ where people at one time took cable television in a business location and have now cancelled.
LISTNUM 1 \l 19129 I don't know that number. My estimate may be too high, but I just want you to understand that the 5 percent is not precise to 2 decimal points.
LISTNUM 1 \l 19130 MR. HOFLEY: I didn't think it was, and your answers were fairly stated in the interrogatory responses.
LISTNUM 1 \l 19131 If we go over to ‑‑
LISTNUM 1 \l 19132 THE CHAIRPERSON: Excuse me. You have totally confused me with your answer. I just want to understand this.
LISTNUM 1 \l 19133 The 5 percent refers to 5 percent of 400,000?
LISTNUM 1 \l 19134 MR. WATT: That's correct. That's how many buildings that we have coaxial cable in.
LISTNUM 1 \l 19135 THE CHAIRPERSON: You just explained to me a moment ago that it's not buildings, it is business premises in buildings.
LISTNUM 1 \l 19136 You used the example of First Canadian Place.
LISTNUM 1 \l 19137 So I presume what you are saying is that there are 500,000 business premises, whether in one building or multiple buildings, and you serve 5 percent of those.
LISTNUM 1 \l 19138 MR. WATT: I'm sorry, I am not only confusing you, I am confusing myself.
LISTNUM 1 \l 19139 This 20,000 into business ‑‑
LISTNUM 1 \l 19140 I think I see the confusion.
LISTNUM 1 \l 19141 We have translated or inferred that each one of those would be one business, one building, in making this statement.
LISTNUM 1 \l 19142 THE CHAIRPERSON: You assumed that.
LISTNUM 1 \l 19143 MR. WATT: We assumed that.
LISTNUM 1 \l 19144 THE CHAIRPERSON: But you may be over‑counting, because there may be more than one business in a building.
LISTNUM 1 \l 19145 MR. WATT: That's correct. There may be over‑counting on that side, but I may be slightly under‑counting, in the sense that people who took the service historically, and now have cancelled, that wire is still in that location, but it wouldn't have shown up on this count.
LISTNUM 1 \l 19146 THE CHAIRPERSON: So I should read 400,000 business premises, really, as 400,000 buildings.
LISTNUM 1 \l 19147 MR. WATT: Four hundred thousand buildings.
LISTNUM 1 \l 19148 THE CHAIRPERSON: Yes. Okay. Thank you.
LISTNUM 1 \l 19149 MR. HOFLEY: I thought I understood it, and now I am confused.
LISTNUM 1 \l 19150 It is the premises, the building. It could have many businesses in it, or it could have one. Correct?
LISTNUM 1 \l 19151 MR. WATT: Correct.
LISTNUM 1 \l 19152 MR. HOFLEY: Thank you.
LISTNUM 1 \l 19153 If I take you over to another one of your answers on the same issue ‑‑ it is Rogers‑MTS Allstream‑12 April 07‑107.
LISTNUM 1 \l 19154 It can be found at Tab I of the compendium.
LISTNUM 1 \l 19155 I note that there, again, you say the same thing in the first paragraph: "approximately 5 percent of business locations to provide cable television services."
LISTNUM 1 \l 19156 It says:
"In many cases where cable facilities are in a building they are suitable for video services only and not for telecommunications services." (As read)
LISTNUM 1 \l 19157 Do you see that?
LISTNUM 1 \l 19158 MR. WATT: Yes, I do.
LISTNUM 1 \l 19159 MR. HOFLEY: That was your evidence at that time.
LISTNUM 1 \l 19160 Then you were asked some further questions about this. At Tab J, which is Rogers‑The Companies‑19 July 07‑11, you were asked a follow‑up question on this, and you will see there that the answer has changed somewhat. It says:
"Rogers identified the number of business premises that subscribe to cable television and hi‑speed internet services from Rogers in its cable operating territory." (As read)
LISTNUM 1 \l 19161 Do you see that?
LISTNUM 1 \l 19162 MR. WATT: I do.
LISTNUM 1 \l 19163 MR. HOFLEY: So now we have said that it's not just cable television service any more, it includes hi‑speed internet services.
LISTNUM 1 \l 19164 I am a bit confused, though, as to the previous reference that I read to you, where it said that these locations don't, or cannot, or many of them cannot provide telecommunications services.
LISTNUM 1 \l 19165 Would you agree with me that, at least, many of them can, or is that where the 5 percent ‑‑
LISTNUM 1 \l 19166 MR. WATT: Oh, absolutely. We are just clarifying that in not all cases in business premises is the plant capable of providing hi‑speed internet, in the sense that there are certain building owners, believe it or not, who would not allow us to upgrade the plant to provide the two‑way capability, for whatever reason. Principally, they were ‑‑
LISTNUM 1 \l 19167 Well, I will leave it at that.
LISTNUM 1 \l 19168 MR. HOFLEY: I was curious, because 5 percent doesn't change, even though between April and July you have added services.
LISTNUM 1 \l 19169 In April you were saying that the 5 percent was with cable television, and in July you said that it now includes hi‑speed internet.
LISTNUM 1 \l 19170 The 5 percent number stayed the same.
LISTNUM 1 \l 19171 MR. WATT: I was clarifying the earlier answer, that's all.
LISTNUM 1 \l 19172 MR. HOFLEY: The original answer.
LISTNUM 1 \l 19173 MR. WATT: The original answer.
LISTNUM 1 \l 19174 MR. HOFLEY: I see.
LISTNUM 1 \l 19175 MR. WATT: I thought that we should.
LISTNUM 1 \l 19176 MR. HOFLEY: Okay. Now, I want to talk to you about the statement that you are not connected in a number of these buildings.
LISTNUM 1 \l 19177 Were you here for Mr. Bibic's testimony on October 10th, which was last Tuesday, Mr. Watt?
LISTNUM 1 \l 19178 MR. WATT: Yes, I was.
LISTNUM 1 \l 19179 MR. HOFLEY: Mr. Bibic stated at page 511 of the transcript:
"Just in the downtown Ottawa core, for example, out of about 200 large buildings that we have looked at, Rogers is in close to 90 percent of those buildings in Ottawa in the downtown core with either its coaxial cable network or fibre."
LISTNUM 1 \l 19180 Do you recall hearing that?
LISTNUM 1 \l 19181 MR. WATT: I do.
LISTNUM 1 \l 19182 MR. HOFLEY: Given the 5 percent, and given this statement, do you disagree with what Mr. Bibic has said about the large buildings in downtown Ottawa?
LISTNUM 1 \l 19183 MR. WATT: This is absolutely one of the key items in this proceeding: to what extent do we have access into buildings.
LISTNUM 1 \l 19184 Bell says that we go up and down the road near 90 percent of them. We say that ‑‑
LISTNUM 1 \l 19185 MR. HOFLEY: I'm sorry, Mr. Watt, let's be careful. He did not say that you went down the road past 90 percent of them, he said that Rogers is in close to 90 percent of those buildings in Ottawa in the downtown core, according to their survey of the 200 large buildings.
LISTNUM 1 \l 19186 What I am asking is, do you disagree with that?
LISTNUM 1 \l 19187 MR. WATT: I do disagree with that.
LISTNUM 1 \l 19188 MR. HOFLEY: Could you, then, undertake to look at the downtown core of Ottawa and provide us with the number that you think is right?
LISTNUM 1 \l 19189 MR. WATT: Yes, if he would provide us with the list of the 200 buildings.
LISTNUM 1 \l 19190 MR. HOFLEY: I would be happy to do that, if that is agreeable to the Commission, Mr. Chairman.
LISTNUM 1 \l 19191 THE CHAIRPERSON: By all means, let's have a clarification on that.
LISTNUM 1 \l 19192 MR. HOFLEY: I would like to turn to a different topic now, Mr. Watt.
LISTNUM 1 \l 19193 MR. WATT: To speed things along, I can tell you that we counted, and we have 53 buildings in the greater Ottawa region connected with fibre.
LISTNUM 1 \l 19194 MR. HOFLEY: We will give you our list, and you can have a look at that ‑‑
LISTNUM 1 \l 19195 Oh, fibre. I apologize. With fibre. Okay.
LISTNUM 1 \l 19196 MR. WATT: We provided that list to the Commission in our response to Bureau No. 8(b).
LISTNUM 1 \l 19197 MR. HOFLEY: Just to be fair, Mr. Bibic's testimony, when he said "is in", is fibre or cable. So what we are going to be asking you is whether you are in the building with fibre or cable.
LISTNUM 1 \l 19198 MR. WATT: Or coaxial cable, as well.
LISTNUM 1 \l 19199 MR. HOFLEY: Correct.
LISTNUM 1 \l 19200 Ninety percent of 200 large buildings was his testimony, and I think you have just agreed that you will take that list and you will look at it and tell us whether you think that list is right.
LISTNUM 1 \l 19201 MR. WATT: That's correct. We will have to track through whether there is coaxial cable in those buildings.
LISTNUM 1 \l 19202 MR. HOFLEY: I just wanted to make sure that you understood what he said.
‑‑‑ Pause
LISTNUM 1 \l 19203 MR. HOFLEY: My friend here wants to make sure that we are clear. It is either/or fibre or coaxial cable. I think you understood that. Right?
LISTNUM 1 \l 19204 MR. WATT: I do, and you of course understand the limitations of coax.
LISTNUM 1 \l 19205 MR. HOFLEY: I do.
LISTNUM 1 \l 19206 I would like to talk about Rogers voice service to business or lack thereof, Mr. Watt.
LISTNUM 1 \l 19207 If I can take you to Rogers/Bureau 12 April 07‑37, it is at tab K, I believe, of the compendium in front of the Commission. If you turn the page over to page 2, you will see that you have stated that:
"Rogers notes that at the current time it does not offer any business voice services using cable facilities." (As read)
LISTNUM 1 \l 19208 Do you see that?
LISTNUM 1 \l 19209 MR. WATT: I do.
LISTNUM 1 \l 19210 MR. HOFLEY: That is even single line or two‑line services. Is that right?
LISTNUM 1 \l 19211 MR. WATT: I am going to ask Mr. Pattinson, who owns this product, to speak to that.
LISTNUM 1 \l 19212 MR. HOFLEY: Thank you. Sorry, Mr. Pattinson.
LISTNUM 1 \l 19213 MR. PATTINSON: Yes, that is correct. We do not provide business telephony service on the coax network today.
LISTNUM 1 \l 19214 MR. HOFLEY: Are you aware of what other cable companies are offering in terms of business voice solutions over their network, Mr. Pattinson?
LISTNUM 1 \l 19215 MR. PATTINSON: I am aware that other cable companies are starting the process of entering into business telephony starting with extremely small businesses, but do not have the complete host and suite of business telephony products that we would provide today under CDNS.
LISTNUM 1 \l 19216 MR. HOFLEY: Are you aware that QMI offers business voice services over coaxial cable, Mr. Pattinson?
LISTNUM 1 \l 19217 MR. PATTINSON: I am aware that there are several cable companies that are starting to offer business telephony services.
LISTNUM 1 \l 19218 MR. HOFLEY: So, would several include EastLink and Shaw as well, to your knowledge?
LISTNUM 1 \l 19219 MR. PATTINSON: Yes. Again, just to confirm, they are starting with services that only service extremely small businesses and not large businesses, which are where we use services from CDNS.
LISTNUM 1 \l 19220 MR. HOFLEY: Let me see if I can try and understand how you service small business customers today, given that you don't provide voice services using cable facilities, Mr. Pattinson.
LISTNUM 1 \l 19221 I would like you to assume the following example. Rogers cable plant passes a small business in a geographic location served by an ILEC central office where Rogers is co‑located. If you need to take down notes, please do. I am really not trying to mislead you here.
LISTNUM 1 \l 19222 So, Rogers cable plant passes a small business in a geographic location served by an ILEC CO where Rogers is co‑located. The small business requests a single telephone service, as well as digital cable TV and hi‑speed from Rogers.
LISTNUM 1 \l 19223 Can you describe the approach Rogers would take to provide service to this customer? For example, will Rogers automatically request an unbundled loop from Bell or the ILEC, depending on what the territory is?
LISTNUM 1 \l 19224 MR. PATTINSON: So, if I understand your question, the customer in this example is ordering three products from Rogers: A television service, an internet service and a telephony service.
LISTNUM 1 \l 19225 MR. HOFLEY: Yes, a small business customer.
LISTNUM 1 \l 19226 MR. PATTINSON: Small business customer. We would potentially be able to provide internet and television service through our coax network and an order would be placed for that, and I can describe how we would evaluate whether the customer was serviceable or not.
LISTNUM 1 \l 19227 Then for the business service, at the moment we do not have the ability even to provide a single line or a two‑line business customer on the coax network. So, an order would be placed and the appropriate serviceability checks for an unbundled loop to that location.
LISTNUM 1 \l 19228 MR. HOFLEY: How is a single line business service any different than the residential voice service that you provide over the coaxial cable, Mr. Pattinson?
LISTNUM 1 \l 19229 MR. PATTINSON: A business service requires a business 911 record, as well as a business directory listing record, which is a completely different system from the residential system.
LISTNUM 1 \l 19230 Then eventually as that business grows and they need more than one line, they will require multi‑line hunting, which is a feature that is not yet available.
LISTNUM 1 \l 19231 MR. HOFLEY: You are going beyond my hypothetical now. We are talking about a small business who wants a single line or perhaps two lines, and you have said that there are some back office problems with providing that single line. Correct?
LISTNUM 1 \l 19232 MR. PATTINSON: There are back office OSS, as well as technology constraints, that exist inside the soft switch today that would prevent us from being able to provide that second line.
LISTNUM 1 \l 19233 MR. HOFLEY: Have you determined when you can start serving these kind of customers using your cable facilities, Mr. Pattinson? If you can't serve them today, like, when?
LISTNUM 1 \l 19234 MR. PATTINSON: It is something that we are starting to work on. We are evaluating what the changes are that will need to be made to the OSS, as well as when we will receive software upgrades from third party suppliers, which are still yet to be determined.
LISTNUM 1 \l 19235 MR. HOFLEY: So, QMI and Shaw and EastLink have solved these problems, at least to the point where they can provide the service that they are providing, but you are going to take some more time?
LISTNUM 1 \l 19236 MR. PATTINSON: I think in your example of EastLink, they are using a different switching technology they deployed many years ago using circuit switch. We have not. But we recognize there is opportunity there and we would like to develop it.
LISTNUM 1 \l 19237 MR. HOFLEY: Could I turn you to ‑‑ every once in a while I have to make sure I am doing this right; my colleague here.
LISTNUM 1 \l 19238 Could I turn you to a recent article that is at tab S of the compendium. For those listening it is called "Watt's New," catchy title. It is published by Brantford Power and Brantford Hydro in the winter of 2006. Do you see that, Mr. Pattinson or Mr. Watt, whoever is appropriate?
LISTNUM 1 \l 19239 MR. PATTINSON: Yes, I do.
LISTNUM 1 \l 19240 MR. HOFLEY: This announces that NetOptiks, a division of Brantford Hydro Inc., and Rogers Cable Communications completed an innovative, award‑winning solution using a fibre coaxial hybrid network that delivers hi‑speed internet access to 35 schools. So, you are familiar with this. Correct?
LISTNUM 1 \l 19241 MR. PATTINSON: Yes, I am.
LISTNUM 1 \l 19242 MR. HOFLEY: The article describes the customized network combines the facilities of NetOptiks fibre assets and the coaxial ADSL facilities of Rogers to provide hi‑speed internet access and other IT applications to all of the board's schools using MPLS. Do you see that?
LISTNUM 1 \l 19243 MR. PATTINSON: Yes, I do.
LISTNUM 1 \l 19244 MR. HOFLEY: And it says that:
"Educators and students are now able to layer voice, video and other applications on top of data all over a single network." (As read)
LISTNUM 1 \l 19245 Do you see that?
LISTNUM 1 \l 19246 MR. PATTINSON: I think I see that they say that there is a platform of possibilities, of which they have not layered those applications over the network, but I do see that.
LISTNUM 1 \l 19247 MR. HOFLEY: Right, it is a possibility. So, it is possible to offer voice over the MPLS network. Is that a fair statement?
LISTNUM 1 \l 19248 MR. PATTINSON: That is not voice being provided by Rogers. In this case ‑‑ and this is not a Rogers press release, nor is it a partnership or a GV. In this case, NetOptiks is a customer of Rogers, where Rogers is only providing the underlying MPLS network.
LISTNUM 1 \l 19249 Any type of services referred to in here are not being provided by Rogers in any way.
LISTNUM 1 \l 19250 MR. HOFLEY: But it is still being provided over your network. Correct?
LISTNUM 1 \l 19251 MR. PATTINSON: Not in all cases. They have their own sites.
LISTNUM 1 \l 19252 MR. HOFLEY: In some cases ‑‑
LISTNUM 1 \l 19253 MR. PATTINSON: You will notice a black box where they are providing their own fibre drops, but ‑‑
LISTNUM 1 \l 19254 MR. HOFLEY: In some cases it is being provided over your network?
LISTNUM 1 \l 19255 MR. PATTINSON: In some cases it is being provided over the MPLS data network.
LISTNUM 1 \l 19256 MR. HOFLEY: Thank you.
LISTNUM 1 \l 19257 I would like you to turn in your compendium to the next tab, it is tab T. It is an article called "Solutions for the Little Guy." I think the little guy here is small‑ and medium‑sized business or maybe just small business. It is a 10 September, 2007 article.
LISTNUM 1 \l 19258 It quotes Sarah Bryant, your Vice‑President of Small Business Marketing as talking about your new product called Easy IP, which is described as a hosted integrated communication solution that delivers converged voice and data network access, and you will see I have highlighted, Ms Bryant says:
"The suite spot for us for that solution is anywhere between five and 49 employees, which is really ideal in terms of the combinations it offers." (As read)
LISTNUM 1 \l 19259 I take it you are familiar with Easy IP, Mr. Pattinson or Mr. Watt?
LISTNUM 1 \l 19260 MR. PATTINSON: Yes, I am quite familiar with this product. It is one of many in a suite of our business products that we provide to customers today.
LISTNUM 1 \l 19261 MR. HOFLEY: If I go over to the next tab, which is excerpts from ‑‑
LISTNUM 1 \l 19262 MR. PATTINSON: If I could just add, then, sir, I would like to say that to date ‑‑
LISTNUM 1 \l 19263 MR. HOFLEY: I am not finished with Easy IP, sorry, but go ahead.
LISTNUM 1 \l 19264 MR. PATTINSON: You are, okay?
LISTNUM 1 \l 19265 MR. HOFLEY: No, I am not finished, sir, just so you know.
LISTNUM 1 \l 19266 If I go over to the next page, there is the website for Easy IP. I want to make sure I gave you a chance to talk about it.
LISTNUM 1 \l 19267 MR. PATTINSON: Sorry, you are at what tab now, please?
LISTNUM 1 \l 19268 MR. HOFLEY: It is tab U.
LISTNUM 1 \l 19269 MR. PATTINSON: Yes.
LISTNUM 1 \l 19270 MR. HOFLEY: I don't actually think there is an exhibit number that has been given to these. Maybe I am going through these too quickly.
LISTNUM 1 \l 19271 THE SECRETARY: Actually, I was going to resume all the exhibits you filed before the break.
LISTNUM 1 \l 19272 MR. HOFLEY: Thank you. I am just trying to move this along.
LISTNUM 1 \l 19273 You will see there that this exhibit describes your Easy IP communication solution, Mr. Pattinson, and it talks about there the features that it provides, correct, right at the beginning of the website?
LISTNUM 1 \l 19274 MR. PATTINSON: That is correct.
LISTNUM 1 \l 19275 MR. HOFLEY: So it talks about local land line service and long distance minutes, hi‑speed internet access and e‑mail, exciting new productivity features, network upgrade, easy to use web IP, web‑based administration tools, and it refers to the new Mitel 5224 IP phones.
LISTNUM 1 \l 19276 These are the services, you would agree with me, that are provided over Easy IP?
LISTNUM 1 \l 19277 MR. PATTINSON: Yes, they are.
LISTNUM 1 \l 19278 MR. HOFLEY: If I go down further, I believe it says ‑‑ well, let me ask you this. So, is Easy IP a way to deliver voice to business customers?
LISTNUM 1 \l 19279 MR. PATTINSON: Yes, it is.
LISTNUM 1 \l 19280 MR. HOFLEY: I am looking at a quote, if I turn the page over ‑‑
LISTNUM 1 \l 19281 MR. PATTINSON: You are in which exhibit now, please?
LISTNUM 1 \l 19282 MR. HOFLEY: Still in U, just turn the page over one. You will see there it says:
"Unlike consumer voice‑over‑IP services that run on the public internet, with Easy IP, your voice and data traffic run over our private IP network for the security and call quality you need." (As read)
LISTNUM 1 \l 19283 Do you see that?
LISTNUM 1 \l 19284 MR. PATTINSON: Yes, I do.
LISTNUM 1 \l 19285 MR. HOFLEY: Is this a private IP network not unlike the one we referred to in the NetOptiks example that we just discussed?
LISTNUM 1 \l 19286 MR. PATTINSON: That is correct. Then I will add, sir, that this product was built on the former CallNet network. It is 100 per cent built on that former network using unbundled loops. We would love to be able to bring this product to the cable network, but we cannot, at this point, due to many upgrades that I have referred to earlier on that need to be made on the voice soft switches, as well as our doc sys network.
LISTNUM 1 \l 19287 MR. HOFLEY: But you are not suggesting that it can't be done over fibre or coax, are you, Mr. Pattinson?
LISTNUM 1 \l 19288 MR. PATTINSON: At the moment there are large technology hurdles that are preventing it being delivered over the coax network.
LISTNUM 1 \l 19289 MR. HOFLEY: Doesn't the Mitel system that you referred to actually provide for delivery of voice services over coaxial cable or over fibre?
LISTNUM 1 \l 19290 MR. WATT: If I could interject, because the point may have been missed, one would have to have that coax network or the fibre network into the physical location. That is the key item. This service runs off the mandated facilities that are the ‑‑
LISTNUM 1 \l 19291 MR. HOFLEY: Right, but it could be over coax if it was in the building, or over fibre if it was in the building. Is that is your point, Mr. Watt?
LISTNUM 1 \l 19292 MR. PATTINSON: If I could refer to the quote that you referred to at the bottom of the fifth paragraph that talked about the suite spot between five and 49, the cable network at this point is not capable of providing that service to greater than about eight customers due to congestion issues in the upstream doc sys channel.
LISTNUM 1 \l 19293 MR. HOFLEY: But, again, it can be provided over fibre or coax? You are not saying that is not technically possible. Correct?
LISTNUM 1 \l 19294 MR. PATTINSON: I would love to be able to provide this product on the coax network to recover margin from very expensive T‑1 resale that we buy from you today.
LISTNUM 1 \l 19295 MR. HOFLEY: I will just leave that.
LISTNUM 1 \l 19296 THE CHAIRPERSON: Can you come to the punch line here? I don't quite understand. I am lost here.
LISTNUM 1 \l 19297 You are trying to establish if they can establish phone over coaxial or not?
LISTNUM 1 \l 19298 MR. HOFLEY: Yes.
LISTNUM 1 \l 19299 THE CHAIRPERSON: Does this IP document, Easy IP that you have just introduced, does that demonstrate yes, they can, or no?
LISTNUM 1 \l 19300 MR. HOFLEY: It seems to be, with the testimony, it demonstrates that they are not, but that it is technically possible to do so.
LISTNUM 1 \l 19301 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 19302 MR. HOFLEY: I think that is what I just heard.
LISTNUM 1 \l 19303 MR. PATTINSON: It is technically possible at the smallest level. So, up to eight customers, and that is still several years away. That is the Pandion multiple technologies from third parties, as well as a lot of heavy lifting inside of our own OSS back end that we intend to do.
LISTNUM 1 \l 19304 It is my mandate, at the direction of Ted Rogers, to always build our products on our network, where we can deliver that quality of service.
LISTNUM 1 \l 19305 MR. HOFLEY: Let's talk about building those products, then, Mr. Chairman, and move on to the seat to the business side.
LISTNUM 1 \l 19306 THE CHAIRPERSON: I would like to make a general comment for you and for other counsel.
LISTNUM 1 \l 19307 We, as a panel here, would find it very useful, when you go through a line of questioning and you get the answers you want, before you move on you sort of deliver the conclusion of what this was all about. It would help us put it in context because very often we sit here and follow the exchange and say, okay, what did you prove or disprove by this exchange. Rather than having us guess or waiting for a submission a month from now, it would be helpful if you just shortly summarized it. Thank you.
LISTNUM 1 \l 19308 MR. HOFLEY: Was that sufficient, my last one, Mr. Chairman?
LISTNUM 1 \l 19309 THE CHAIRPERSON: That was perfect.
LISTNUM 1 \l 19310 MR. HOFLEY: I apologize, I should have done that.
LISTNUM 1 \l 19311 I am now going to move on to my last set of questions, Mr. Chairman, and this relates to Rogers' position in respect of CDN at DS‑3 above and Ethernet. So, these are the more hi‑speed business services.
LISTNUM 1 \l 19312 THE CHAIRPERSON: Before you do that, I notice it is 10:30. I think we should take a ten‑minute break. Thank you.
‑‑‑ Upon recessing at 1030 / Suspension à 1030
‑‑‑ Upon resuming at 1042 / Reprise à 1042
LISTNUM 1 \l 19313 THE CHAIRPERSON: Madam Secretary, you have an announcement?
LISTNUM 1 \l 19314 THE SECRETARY: Yes, thank you, Mr. Chairman.
LISTNUM 1 \l 19315 Please be seated.
LISTNUM 1 \l 19316 I am presenting at this moment the next CRTC exhibit, which is the undertakings requested by all the parties involved since last week. It is dated 15 October 2007 and it is logged as Exhibit No. 6. It has already been distributed on everybody's table.
EXHIBIT CRTC‑6: CRTC Undertakings register CRTC version 2007-15-15
LISTNUM 1 \l 19317 THE SECRETARY: As for all the exhibits filed by the Companies this morning, after their cross‑examination, I will summarize everything that was filed before the Commission.
LISTNUM 1 \l 19318 Thank you.
LISTNUM 1 \l 19319 THE CHAIRPERSON: Okay, Mr. Hofley, proceed.
LISTNUM 1 \l 19320 MR. HOFLEY: Thank you. I won't be long. I had hoped to finish before the break but unfortunately I didn't, so I apologize for that.
LISTNUM 1 \l 19321 THE CHAIRPERSON: Our bladders can only take two hours.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 19322 MR. HOFLEY: Mr. Chairman, as I said, my last area of questions for this panel deals with CDN at DS‑3 above and Ethernet.
LISTNUM 1 \l 19323 Should I be directing my questions to you on this, Mr. Pattinson, or to you, Mr. Watt, or both? I will tell you what, you answer when you ‑‑
LISTNUM 1 \l 19324 I just want to situate your services on Ethernet for the purposes of the Commission and so what I have done is I have provided the Commission at Tab BB an excerpt from Rogers website. It is Tab BB of the compendium.
LISTNUM 1 \l 19325 I just want to get you to have a look at that and then just highlight for me the services you provide and then I have a few questions to do with those and we will be done.
LISTNUM 1 \l 19326 Do you have that?
LISTNUM 1 \l 19327 MR. PATTINSON: We do.
LISTNUM 1 \l 19328 MR. HOFLEY: Thanks.
LISTNUM 1 \l 19329 Now, here it says that:
"Rogers offers transport land solutions to Canadian businesses of all sizes, connecting local or national lands via traditional copper accesses such as DSL T1 and T3, as well as next generation broadband Ethernet accesses such as ET‑1, E‑10, E‑100 and OCX." (As read)
LISTNUM 1 \l 19330 Do you see that?
LISTNUM 1 \l 19331 MR. PATTINSON: Yes, I do.
LISTNUM 1 \l 19332 MR. HOFLEY: It is a combination of both traditional copper accesses as well as next generation broadband accesses; correct?
LISTNUM 1 \l 19333 MR. PATTINSON: Correct.
LISTNUM 1 \l 19334 MR. HOFLEY: Is that what that means? Okay.
LISTNUM 1 \l 19335 I am not a technical person, Mr. Pattinson, so forgive me if I ask silly questions.
LISTNUM 1 \l 19336 Then you go on and you talk about your fiber to the premises footprint and you say:
"That covers all primary metropolitan centres and many secondary business centres across the country." (As read)
LISTNUM 1 \l 19337 What do you mean by secondary business centres there?
LISTNUM 1 \l 19338 MR. PATTINSON: Small cities, places that we do not have network running into.
LISTNUM 1 \l 19339 MR. HOFLEY: Okay. And ‑‑
LISTNUM 1 \l 19340 MR. WATT: I can add here when it says our fiber to the premise footprint, it is 850 (sic) buildings. They are all in eastern Canada. The large cities are obviously Toronto, Montreal, Ottawa. Secondary would be the smaller locations, the GT fiber assets in Fredericton and Saint‑John.
LISTNUM 1 \l 19341 That is our fiber to the premise footprint to that, nothing aside from a few fiber facilities in Vancouver that Mr. Pattinson will speak to.
LISTNUM 1 \l 19342 MR. HOFLEY: I just want to make sure, Mr. Watt. Did you just say 850 or 1,850?
LISTNUM 1 \l 19343 MR. WATT: One thousand eight hundred and fifty.
LISTNUM 1 \l 19344 MR. HOFLEY: That is what I thought.
LISTNUM 1 \l 19345 MR. WATT: And as I say, that is provided ‑‑ each street address provided to the Commission in confidence in response to the Bureau 8(b), the attachment.
LISTNUM 1 \l 19346 MR. HOFLEY: Then you go on to talk about the larger metropolitan areas and I think ‑‑ and again, I hope I have my terminology right ‑‑ are fiber, and I think it is the metro area network footprint covers Toronto, Montreal, Ottawa, Calgary, Edmonton and Vancouver.
LISTNUM 1 \l 19347 Am I right on that, metro area networks ‑‑
LISTNUM 1 \l 19348 MR. PATTINSON: That is correct.
LISTNUM 1 \l 19349 MR. HOFLEY: ‑‑ offering Ethernet services?
LISTNUM 1 \l 19350 MR. PATTINSON: Yes. This is the former Call‑Net network and I agree that it is a fabulous inner‑city and metro network but it doesn't go into those buildings.
LISTNUM 1 \l 19351 MR. HOFLEY: Okay. And then you talk about your international partnerships and these are agreements that you enter into to provide your customers with services for their various locations, just like the ILECs do out‑of‑territory; correct?
LISTNUM 1 \l 19352 MR. PATTINSON: I am sorry, could you repeat that?
LISTNUM 1 \l 19353 MR. HOFLEY: The reference to the international partnerships, that is just simply a reference to the fact that you enter into agreements with other TSPs in other locations so that your customers can get access in other locations; correct ‑‑
LISTNUM 1 \l 19354 MR. PATTINSON: That is correct.
LISTNUM 1 \l 19355 MR. HOFLEY: ‑‑ just like the ILECs do?
LISTNUM 1 \l 19356 MR. PATTINSON: So that we can provide service to customers outside of ‑‑
LISTNUM 1 \l 19357 MR. HOFLEY: Outside of your territory?
LISTNUM 1 \l 19358 MR. PATTINSON: ‑‑ and that is into the metropolitan area network, which in most cases, sir, only has three or four nodes.
LISTNUM 1 \l 19359 MR. HOFLEY: Okay.
LISTNUM 1 \l 19360 MR. PATTINSON: It is nice but it is very small.
LISTNUM 1 \l 19361 MR. HOFLEY: And finally, it says under the detail section that:
"Rogers was ranked by business analysts as the number three Ethernet provider in Canada." (As read)
LISTNUM 1 \l 19362 Do you see that?
LISTNUM 1 \l 19363 MR. PATTINSON: Yes, I do.
LISTNUM 1 \l 19364 MR. HOFLEY: Okay. You have both cable and telephony network; correct? That is what you just said, I think; right, Call‑Net?
LISTNUM 1 \l 19365 MR. PATTINSON: We have cable networks and we have TDM networks.
LISTNUM 1 \l 19366 MR. HOFLEY: Right. And that is similar to QMI, to Vidéotron?
LISTNUM 1 \l 19367 MR. PATTINSON: I would suggest they are more limited to ‑‑ Vidéotron, as an example, would be more cable‑ and DocSys‑oriented.
LISTNUM 1 \l 19368 MR. HOFLEY: But they do have telephony as well, just like you, correct?
LISTNUM 1 \l 19369 MR. PATTINSON: They have some telephony services.
LISTNUM 1 \l 19370 MR. HOFLEY: Right.
LISTNUM 1 \l 19371 Now, I would like you to turn if I could ‑‑ I would like to take you to and ask you questions about your fellow cable companies and why they can do things that you are not yet doing.
LISTNUM 1 \l 19372 So if we turn ‑‑ I hope that I am helping where we are going there, Mr. Chairman, although it is against every instinct I have as a cross‑examiner.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 19373 MR. HOFLEY: I can feel my stomach turning as I speak.
LISTNUM 1 \l 19374 THE CHAIRPERSON: Life is a trade‑off, Mr. Hofley.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 19375 MR. HOFLEY: Mr. Pattinson, so if I could take you to Tab DD, which is QMI‑Bureau 12Apr07‑1.
LISTNUM 1 \l 19376 You will see there that QMI says that they provide:
"...local telephone service and internet access service over a hybrid optical fiber coaxial cable network to residential customers and small business customers, up to two local phone lines." (As read)
LISTNUM 1 \l 19377 But they also provide:
"...advanced business telephony data and internet access services over fiber to the premises to medium and large businesses." (As read)
LISTNUM 1 \l 19378 Do you see that?
LISTNUM 1 \l 19379 MR. PATTINSON: Yes, I do.
LISTNUM 1 \l 19380 MR. HOFLEY: And then if you turn to Tab EE, which is QMI‑Bureau 12Apr07‑23, we see there down under (e) and (g) that QMI says:
"With limited exceptions all of QMI's CDN‑equivalent services are self‑supplied." (As read)
LISTNUM 1 \l 19381 Were you aware of that?
LISTNUM 1 \l 19382 MR. PATTINSON: No, I'm not.
LISTNUM 1 \l 19383 MR. HOFLEY: But you don't have any basis for disputing that, do you?
LISTNUM 1 \l 19384 MR. PATTINSON: I see what is written here, but I'm not ‑‑
LISTNUM 1 \l 19385 MR. HOFLEY: If I go over to the next tab, which is QMI 12 April 2007‑24, you will see again under (e) and (g) ‑‑
LISTNUM 1 \l 19386 MR. PATTINSON: I'm sorry, you are in FF now?
LISTNUM 1 \l 19387 MR. HOFLEY: I believe I am. I apologize. FF.
LISTNUM 1 \l 19388 You will see there it says:
"With limited exceptions all of QMI's Ethernet services are self‑supplied." (As read)
LISTNUM 1 \l 19389 So QMI can do this, but Rogers can't. Is that what you are saying? They can self‑supply, they can provide CDN‑equivalent services and Ethernet services through self‑supply, but you are saying that you cannot?
LISTNUM 1 \l 19390 MR. PATTINSON: I think what it's saying here is in the buildings for which they have access they are providing those services. I don't think they are commenting on their entire territory.
LISTNUM 1 \l 19391 MR. HOFLEY: I'm just reading what they are saying. So you just said you don't know what they are saying, but ‑‑ you have just said you can read the words, but you are not sure what the extent is. So are you just speculating as to whether that is what they are saying?
LISTNUM 1 \l 19392 MR. PATTINSON: No.
LISTNUM 1 \l 19393 MR. HOFLEY: Because I read it and it says:
"With limited exceptions all of QMI's Ethernet services are self‑supplied." (As read)
LISTNUM 1 \l 19394 MR. WATT: I think actually your question was why can QMI do this ‑‑ why can Rogers not do it when QMI can do it?
LISTNUM 1 \l 19395 The fact is that we do provide sophisticated data services over our own facilities where we have those facilities. In other cases obviously we use the telephone companies.
LISTNUM 1 \l 19396 QMI provides the services where they have the fibre connections into the buildings as well. Their emphasis is different historically than Rogers Call‑Net because Call‑Net operated right across the country and had a grander ambition in terms of providing service.
LISTNUM 1 \l 19397 QMI has started small within its cable footprint in Montréal ‑‑ and you can speak to them about this ‑‑ and they have taken a different strategic approach.
LISTNUM 1 \l 19398 They also note, though, that there are instances where they do require telephone company unbundled facilities and presumably that is for accounts that are multi‑location businesses where you require, in order to bid at all, to serve all the locations and their network doesn't go everywhere so they have to use ‑‑ even though it is not their strategic focus, they have to use telco facilities to couple with their own.
LISTNUM 1 \l 19399 MR. HOFLEY: You would agree with me that they haven't asked for that to be regulated, though.
LISTNUM 1 \l 19400 You would agree with me that they haven't asked for CDN or Ethernet services to be regulated, wouldn't you ‑‑ be mandated?
LISTNUM 1 \l 19401 MR. WATT: You mean in the context of this proceeding?
LISTNUM 1 \l 19402 MR. HOFLEY: Yes. Yes.
LISTNUM 1 \l 19403 MR. WATT: I believe that is the case. They are certainly presumably availing themselves of the tariffs that exist today.
LISTNUM 1 \l 19404 MR. HOFLEY: QMI also provides wholesale services in this area.
LISTNUM 1 \l 19405 Were you aware of that? Wholesale high‑speed internet services?
LISTNUM 1 \l 19406 MR. PATTINSON: Yes.
LISTNUM 1 \l 19407 MR. HOFLEY: CDN service or wholesale private line services, wholesale Ethernet services?
LISTNUM 1 \l 19408 Have you talked with QMI about using their wholesale services?
LISTNUM 1 \l 19409 MR. PATTINSON: We do buy some services today from QMI.
LISTNUM 1 \l 19410 MR. HOFLEY: I think you said earlier, mr. Pattinson, that you were aware of EastLink's different strategy with respect to providing business services than Rogers.
LISTNUM 1 \l 19411 Perhaps just to make things go faster, would you agree with me that EastLink provides CDN and Ethernet services to business using their own facilities?
LISTNUM 1 \l 19412 MR. PATTINSON: I don't know about CDN, but I do know that they provide services on their own network to residences and businesses.
LISTNUM 1 \l 19413 MR. HOFLEY: In fact there is a response to an interrogatory from you that sets that out. That's why I'm trying to expedite this. That, by the way, is EastLink/Rogers 12 April 07‑04.
LISTNUM 1 \l 19414 Were you aware that EastLink is also providing wholesale internet private line and Ethernet services?
LISTNUM 1 \l 19415 MR. PATTINSON: Yes, I am.
LISTNUM 1 \l 19416 MR. HOFLEY: If I take you to Tab JJ, which is EastLink/TELUS 12 April 07‑3, you will see there again, like QMI, that EastLink says that it:
"... offers the majority of its services ..."
LISTNUM 1 \l 19417 It is the second paragraph:
"... via it's own facilities and attempts to rely minimally on third parties." (As read)
LISTNUM 1 \l 19418 Do you see that?
LISTNUM 1 \l 19419 Mr. Watt, does EastLink have a different business strategy than Rogers? Again, just like QMI has a business strategy, does EastLink have a different business strategy?
LISTNUM 1 \l 19420 MR. WATT: EastLink has had a different business strategy. As you are aware, EastLink was the first cable company to provide telephony services. They started in, I think, about the 1997‑98 timeframe using circuit switch technology. That circuit switch was used for residential and then they have evolved it into business.
LISTNUM 1 \l 19421 None of the other cable companies chose to use circuit switch technology in the provision of their cable telephony service so they have a history of pursuing a different technology path and a different strategy than ‑‑
LISTNUM 1 \l 19422 MR. HOFLEY: Arguably they made some risky investments. Correct? They innovated?
LISTNUM 1 \l 19423 MR. WATT: We don't think actually they did innovate using circuit switch technology. We think we innovated using IP packet cable standards and we are happy with our strategic choice.
LISTNUM 1 \l 19424 MR. HOFLEY: With every strategic choice comes consequences. Correct, Mr. Watt?
LISTNUM 1 \l 19425 MR. WATT: Yes.
LISTNUM 1 \l 19426 MR. HOFLEY: Just out of curiosity, have you made wholesale services EastLink? Have you made any arrangements to use any of their wholesale services?
LISTNUM 1 \l 19427 MR. PATTINSON: I think we buy a small amount.
LISTNUM 1 \l 19428 MR. HOFLEY: Would you agree with me that these companies, EastLink and QMI, you are as equally well capitalized as these companies? You have similar or greater means to invest.
LISTNUM 1 \l 19429 Would that be a fair statement, Mr. Watt? You are a big company.
LISTNUM 1 \l 19430 MR. WATT: We are a big company. Well, I think to put it into perspective, EastLink, QMI, other cable companies, they provide their business services directly to businesses where they have facilities into those businesses. We do the same.
LISTNUM 1 \l 19431 We chose to go farther and have more expansive offerings so that we tie more locations together using more telco facilities.
LISTNUM 1 \l 19432 Certainly our plan is to grow scale in that fashion and then finance additional capital expenditures. As is quite evident, Rogers definitely wants to expend the money, it wants to have the end‑to‑end control, and that is the plan we are laying out.
LISTNUM 1 \l 19433 If we can't get there and build a viable business by coupling both our own facility to leased facilities we will not be able to go forward and increase our investment and reach the self‑supply stage.
LISTNUM 1 \l 19434 MR. HOFLEY: Mr. Watt, these are my last questions.
LISTNUM 1 \l 19435 Were you here on Friday morning when The Companies were testifying?
LISTNUM 1 \l 19436 MR. WATT: I was here for a portion Friday morning.
LISTNUM 1 \l 19437 MR. HOFLEY: Well, you may recall during that testimony that Mr. Ruby characterized The Companies' position as the "trust me" theme. He didn't give them an opportunity to respond. I'm sure they would have said their theme is "trust the market".
LISTNUM 1 \l 19438 But I am seeing a theme emerge from your submissions here and I do want to give you, in fairness, an opportunity to respond.
LISTNUM 1 \l 19439 The theme that I see emerging is that your position before the CRTC is really "Don't rush me". That is really your position here before the CRTC, is "Don't rush me."
LISTNUM 1 \l 19440 Is that a fair description, albeit short?
LISTNUM 1 \l 19441 MR. WATT: No, I don't think it is fair at all.
LISTNUM 1 \l 19442 Our position here before the CRTC is we are looking to them to establish the proper regulatory rules such that competition can develop on an economic basis. We are asking for terms, economic terms that allow us to proceed in this market. Without those economic terms we can't proceed.
LISTNUM 1 \l 19443 So it is not a question of saying "Don't rush me", we are saying "Please, put in place a regime that makes it economic for us to develop and grow into using our own facilities over time."
LISTNUM 1 \l 19444 MR. HOFLEY: Is your five‑year transition period you proposed enough time for that?
LISTNUM 1 \l 19445 MR. WATT: Well, I think it might be worthwhile having Mr. Pattinson explain the obstacles that companies do face in placing facilities into buildings on a widespread basis. Just leaving aside the issue of the simple economics, we are a big company but with a billion business locations across the country. And you have seen the numbers in terms of fibre, the numbers are large, a million times, even a hundred thousand, you are looking at significant amounts of money.
LISTNUM 1 \l 19446 But more than that, it is not just the absolute amount of the money, the issue is can you make any money by having invested that money? Because we have to realize, we have got a certain market share, say it is 3 or 4 per cent, but we have to get customers to switch to us from the incumbents in order to provide us the revenue to pay for those investments. If that is not the case, then we simply will not make those investments.
LISTNUM 1 \l 19447 MR. HOFLEY: I understand, Mr. Watt, and I understand your are in the business of making money. Did you say a billion businesses?
LISTNUM 1 \l 19448 MR. WATT: I may have said a billion, I didn't think I did, I thought I said a million.
LISTNUM 1 \l 19449 MR. HOFLEY: Okay, no, I am sorry, I just wanted to make sure.
LISTNUM 1 \l 19450 So the answer is your five‑year transition period may not be enough, depending on the situation, is that fair?
LISTNUM 1 \l 19451 MR. WATT: Well absolutely, yes, because the five‑year transition period, are we seriously going to contemplate putting in coax into every one of those million business locations? That is putting facilities into all the businesses that the telephone companies have put facilities into as they have grown up over a 100 years. I just don't think that that is very likely to be the case, hence our request to have unbundled local loops be deemed an essential facility. And we don't think that that would go away after a five‑year transition period.
LISTNUM 1 \l 19452 MR. HOFLEY: So in other words, that kind of mandated access won't incent your investment in these areas and will have regulation in perpetuity in this area?
LISTNUM 1 \l 19453 MR. WATT: It depends upon the economics in those locations. And if it doesn't make economic sense, then ‑‑
LISTNUM 1 \l 19454 MR. HOFLEY: You have regulation in perpetuity?
LISTNUM 1 \l 19455 MR. WATT: ‑‑ then you might insert some of those locations. However, what you are probably more likely to find, and this will be over time, as we grew out, that there would be a subset of customers where we didn't put the facilities in, but you would be satisfied that it is a small enough number that we can let the market go.
LISTNUM 1 \l 19456 And if there is any attempted abuse that, because it would be small, the cable companies having grown out to a fair extent, it would be able to go into those buildings and discipline.
LISTNUM 1 \l 19457 MR. HOFLEY: Mr. Watt, I asked a simple question. Does this mean regulation in perpetuity?
LISTNUM 1 \l 19458 MR. WATT: It could be, but you always have the option available to apply for forbearance if you think the conditions change. But it could be the case ‑‑
LISTNUM 1 \l 19459 MR. HOFLEY: Those are my questions.
LISTNUM 1 \l 19460 THE CHAIRPERSON: Presumably rather than in perpetuity, you mean until the next wholesale review?
‑‑‑ LAUGHTER / RIRES
LISTNUM 1 \l 19461 MR. HOFLEY: Well, you will see that our position, Mr. Chairman, is there shouldn't be another wholesale review, but obviously that is an option.
LISTNUM 1 \l 19462 I don't have any further questions. I would like to thank the panel for their attention and for their answers.
LISTNUM 1 \l 19463 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 19464 Madam Secretary, who is next? Oh, do you have a question? Sorry, Commissioner Cram had a question.
QUESTIONS BY THE COMMISSION
LISTNUM 1 \l 19465 COMMISSIONER CRAM: Mr. Watt, I am sitting here and I think twice, once with the Bureau and now with Bell, you talked about more than a duopoly. I read the direction or the variation in our forbearance order and why is it that I can't read into that that the government thinks we have met our mandate of sustainable competition if there is a duopoly only in the wireline market?
LISTNUM 1 \l 19466 In other words, should we hope for more when the government, under the variation, has said, you are doing a great job if you have got two on wireline?
LISTNUM 1 \l 19467 MR. WATT: Bearing in mind that that it is premised on mandated wholesale facilities in the business market in order to achieve that second player, our principal concern in this proceeding is that but for those facilities you would be down to simply one competitor in much of the business market.
LISTNUM 1 \l 19468 As to whether two should be the goal or three should be the goal, possibly I should ask Roger Ware to speak to the generally recognized benefits that more diverse competition brings than just two.
LISTNUM 1 \l 19469 DR. WARE: Excuse me, Commissioner Cram, if I could just very briefly speak to that, and I did have an exchange with the Chair about this. But certainly, among competition agencies a three to two merger would not be permitted unless there were extraordinary efficiency gains.
LISTNUM 1 \l 19470 You know, based on the standards used by competition agencies around the world, we would normally expect a duopoly to involve some market power. And so two to three is something that is worth having. And in terms of the, for example, the Commission has revised definition of an essential facility, would generally involve a substantial increase in competition.
LISTNUM 1 \l 19471 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 19472 And in the residential market, what about the duopoly issue, Mr. Watt?
LISTNUM 1 \l 19473 MR. WATT: Well, again, that is why we have asked for access to unbundled local loops so that we can, outside our cable footprint territory, bring in a third player into that particular market and we think, say there are benefits through that, and that removal of access to those loops would cause us to exit that market. And there are 180,000 customers currently in just three metropolitan areas that take our service, they would not longer be taking service from us and we think that would be a lessening of competition.
LISTNUM 1 \l 19474 COMMISSIONER CRAM: And what would be the impact on your Call‑Net business and residential market on a scale of 1 to 10, 10 being exiting the business, 1 being trivial? What will be the impact on that Call‑Net sector if we increased the mark‑up to 20 per cent and then subsequently in a year or two later increased it to 25 per cent?
LISTNUM 1 \l 19475 MR. WATT: So if I took an average cost of an unbundled local residential loop at say $12 and the mark‑up today is 15 per cent, we would have to do the inverse ‑‑ the mark‑up say $1.50, about $2.00 of that is ‑‑ I think maybe at $1.50 of that is mark‑up and you are going to increase the mark‑up from 15 to 20, so 25 per cent you would be adding 50 cents to the cost of a loop.
LISTNUM 1 \l 19476 That would deteriorate our economics. Would we exit the market at that point given the, you know, if we are going to retain access to the loop for business purposes, they are going to be co‑located there, get those synergies, would deteriorate our economics. I could not make the categorical statement that we would withdraw I don't believe.
LISTNUM 1 \l 19477 Mr. Pattinson, would you like to ‑‑
LISTNUM 1 \l 19478 MR. PATTINSON: Commissioner Cram, I would also add that in the likelihood that those loops were unregulated, I believe that it is fair to estimate that the QoS requirements would dissolve. And from a product perspective, we would not be able to rely on services being available to the residential market in a quick manner. And we have spent a great deal of time with the Commission over the last five years trying to get those QoS indicators enforced and I would be very very concerned. And it would limit my ability to be able to react quickly to a customer and say that I can actually provide service.
LISTNUM 1 \l 19479 COMMISSIONER CRAM: You mean, if something is not declared to be essential or mandated the QoS would dissolve? I mean, the QoS is always there, wouldn't it always be there?
LISTNUM 1 \l 19480 DR. WARE: If the loops were completely unregulated, that was the example I was bringing.
LISTNUM 1 \l 19481 COMMISSIONER CRAM: Oh, if it is a forborne ‑‑
LISTNUM 1 \l 19482 DR. WARE: If it was completely forborne.
LISTNUM 1 \l 19483 COMMISSIONER CRAM: All right. I understand.
LISTNUM 1 \l 19484 My final question is on the Willing Report and the issue of investment.
LISTNUM 1 \l 19485 In that wholesale regime, did the FCC require the ILECs to sell loops if they were available, or to build loops for the demand?
LISTNUM 1 \l 19486 Are you aware?
LISTNUM 1 \l 19487 MS BLACKWELL: I am trying to think of it in the context of the second decision in 2005, and even the previous one.
LISTNUM 1 \l 19488 The impression I have is that it certainly acknowledged the fact that, for the most part, those loops are in place.
LISTNUM 1 \l 19489 Even in Rogers' own evidence, when we talk about Greenfield builds, assuming all potential entrants to a new subdivision had equal access to the opportunity to put facilities in the conduits as the subdivision was being built, then that may not be a circumstance where you would have an essential facility.
LISTNUM 1 \l 19490 So, from that perspective, in the Rogers' context, you might want to take a look at that Greenfield build.
LISTNUM 1 \l 19491 I can't recall off the top of my head exactly which interrogatory response it was.
LISTNUM 1 \l 19492 In the U.S. market, though, with respect to forcing the incumbent local exchange company to put in place a copper loop, in particular, I would have to check, but I don't think they were mandating access where it was not already built.
LISTNUM 1 \l 19493 Certainly, that is something, I think, in the expert evidence that Mr. Hatfield talked about. There is a totally different issue in terms of incentives ‑‑ that you might be impacting the incentives to invest of the incumbent when you are talking about facilities that are in place.
LISTNUM 1 \l 19494 COMMISSIONER CRAM: In other words, even if we were dividing the capital for provisioning between UNEP and other capital, they would probably be building the UNEP for their own purposes in terms of investment.
LISTNUM 1 \l 19495 MS BLACKWELL: UNEP is the loop plus the switch.
LISTNUM 1 \l 19496 COMMISSIONER CRAM: The access, yes.
LISTNUM 1 \l 19497 MS BLACKWELL: Right. And I think the FCC recognized in the 2005 decision that switching, in particular, had become something that most competitors could readily put in place.
LISTNUM 1 \l 19498 In the context of the protocol stack, it is higher up in the layers of the stack; whereas, the actual transmission path, the physical network and some of the other parts that reside lower in the stack, that's where you have issues.
LISTNUM 1 \l 19499 So when they took away UNEP, they really just took away the switching part of it.
LISTNUM 1 \l 19500 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 19501 Thank you, Mr. Chair.
LISTNUM 1 \l 19502 THE CHAIRPERSON: Thank you very much.
LISTNUM 1 \l 19503 Let's have the next cross‑examiner, Madam Secretary.
LISTNUM 1 \l 19504 THE SECRETARY: Thank you, Mr. Chairman.
LISTNUM 1 \l 19505 I would now ask TELUS to come forward while I summarize the exhibits filed by The Companies.
LISTNUM 1 \l 19506 The Companies Exhibit No. 5 will be the Joint Centre report by Scott Wallsten of June 2006.
EXHIBIT COMPANIES‑5: Joint Center report dated June 2006, "Broadband and Unbundling Regulations in OECD Countries"
LISTNUM 1 \l 19507 THE SECRETARY: Exhibit No. 6 will be the LECG Expert Report, dated September 2007.
EXHIBIT COMPANIES‑6: LECG Report dated September 2007
LISTNUM 1 \l 19508 THE SECRETARY: Exhibit No. 7 will be the "Watt's New" newsletter clipping.
EXHIBIT COMPANIES‑7: "Watt's New" clipping - Winter 2006 entitled "Net Optiks/Rogers partnership provides innovative network for Catholic schools"
LISTNUM 1 \l 19509 THE SECRETARY: Exhibit No. 8 will be the Globe and Mail September 10, 2007 clipping, entitled "Solutions for the Little Guy".
EXHIBIT COMPANIES‑8: Globe and Mail clipping - "Solutions for the Little Guy" - Sept. 10, 2007
LISTNUM 1 \l 19510 THE SECRETARY: Exhibit No. 9 will be the clipping with a picture of the EASY IP, dated 7 October 2007
EXHIBIT COMPANIES‑9: Clipping dated 7 October 2007 with photo and EASY IP title
LISTNUM 1 \l 19511 THE SECRETARY: The last exhibit will be The Companies Exhibit No. 10, a clipping entitled "Ethernet Services".
EXHIBIT COMPANIES‑10: Clipping from Rogers.com - "Ethernet Services"
LISTNUM 1 \l 19512 Counsel Rogers, when you are ready, you may proceed.
LISTNUM 1 \l 19513 THE CHAIRPERSON: Mr. Rogers, welcome again.
LISTNUM 1 \l 19514 I would appreciate it if, like Mr. Hofley, you would not ask questions that have been asked before.
LISTNUM 1 \l 19515 Also, sir, give some guidance to the panel as to where you are going and what you have concluded once you have finished your questioning.
LISTNUM 1 \l 19516 Thank you.
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 19517 MR. ROGERS: I will endeavour to do so, Mr. Chairman. Thank you.
LISTNUM 1 \l 19518 Mr. Chairman and members of the panel, good morning. To facilitate the whole process, in terms of documentation, it will go much more smoothly if everyone has certain documents in front of them.
LISTNUM 1 \l 19519 We have provided a black duotang folder, which I hope has reached the Commission panel members. It should also be in the hands of all of the witness panels. That will make things much easier in terms of access to documents.
LISTNUM 1 \l 19520 The other documents which you will want to have readily at hand are the Rogers March 15 evidence and your supplemental evidence of July.
LISTNUM 1 \l 19521 THE CHAIRPERSON: For the benefit of your co‑counsel, you will still have to read out some of the references, because they don't have this duotang in front of them.
LISTNUM 1 \l 19522 MR. ROGERS: I will do so, Mr. Chairman.
LISTNUM 1 \l 19523 In terms of the record, a number of the documents in the folder are actually already exhibits in the proceeding, so they don't need to be made exhibits in a formal sense.
LISTNUM 1 \l 19524 Other documents are to be introduced, and I trust that the Secretary will, at the conclusion, do the customary assignment of numbers.
LISTNUM 1 \l 19525 Mr. Watt, I will begin with you. You can obviously handle this yourself or with anybody else.
LISTNUM 1 \l 19526 I would like to begin by asking you to turn to the attachment to the Commission's letter of October 3rd, which sets out the six‑part framework that the Commission asked all of us to consider.
LISTNUM 1 \l 19527 I expect that you have had a chance to consider that, Mr. Watt.
LISTNUM 1 \l 19528 MR. WATT: Yes, we have.
LISTNUM 1 \l 19529 MR. ROGERS: I would like to begin by seeing if there are any elements of that Commission framework on which there may be, possibly, some convergence, if I could use that term.
LISTNUM 1 \l 19530 For example, you would agree, I believe, that there are some services that are essential, and without getting into the definition of what "essential" means, you would agree that there are some, and that they should continue to be mandated at the conclusion of this proceeding.
LISTNUM 1 \l 19531 MR. WATT: Yes.
LISTNUM 1 \l 19532 MR. ROGERS: For the services or facilities determined by the Commission in this proceeding to be non‑essential, you would agree that there should be a phase‑out over some transition period.
LISTNUM 1 \l 19533 MR. WATT: Yes.
LISTNUM 1 \l 19534 MR. ROGERS: And your proposed transition period is five years.
LISTNUM 1 \l 19535 MR. WATT: Yes.
LISTNUM 1 \l 19536 MR. ROGERS: And you are aware that the TELUS proposal is three to five years, depending on the facility.
LISTNUM 1 \l 19537 MR. WATT: Yes, I am aware of that.
LISTNUM 1 \l 19538 MR. ROGERS: Do you see any merit ‑‑ this came up in a discussion with the Chairman on an earlier day ‑‑ to considering the possibility of different transition periods for different facilities?
LISTNUM 1 \l 19539 Do you think that's worth further consideration?
LISTNUM 1 \l 19540 MR. WATT: Yes, I think it's worth consideration.
LISTNUM 1 \l 19541 MR. ROGERS: If you were to assume that the Commission will, during the transition period, continue to set regulated tariff rates for these non‑essential facilities, subject to the phase‑out, would you have any objection if the Commission also permitted the incumbent and the CLEC during that period to negotiate mutually agreeable terms different from the tariff, provided the tariff always remains in place as a backstop?
LISTNUM 1 \l 19542 MR. WATT: Yes.
LISTNUM 1 \l 19543 MR. ROGERS: Could you elaborate?
LISTNUM 1 \l 19544 MR. WATT: Yes. We think that the incumbent and the purchaser or the current leaser of the facility should be able to negotiate during the five‑year period for non‑essential services that are going to be ‑‑
LISTNUM 1 \l 19545 MR. ROGERS: I misunderstood you. I said "Would you have any objection," and I think your answer is, you have no objection.
LISTNUM 1 \l 19546 MR. WATT: That's right, we have no objection.
LISTNUM 1 \l 19547 MR. ROGERS: All right. That's fine.
LISTNUM 1 \l 19548 MR. WATT: Just to confirm, for the non‑essential services.
LISTNUM 1 \l 19549 MR. ROGERS: Right.
LISTNUM 1 \l 19550 MR. WATT: Yes.
LISTNUM 1 \l 19551 MR. ROGERS: Provided the tariff remains in place over that period.
LISTNUM 1 \l 19552 With regard to the Commission's Category 5, the public good, you would agree, I take it, that the current arrangements for 9‑1‑1, message relay service, and so on, should continue, more or less, as they are?
LISTNUM 1 \l 19553 MR. WATT: Yes.
LISTNUM 1 \l 19554 MR. ROGERS: And the last of the categories, which is interconnection, that is, Category 6, whether one labels this as an essential service or not ‑‑ there are different views on the point ‑‑ you would also agree that interconnection should be mandated for all service providers?
LISTNUM 1 \l 19555 It is necessary?
LISTNUM 1 \l 19556 MR. WATT: Yes, we do. We just were nervous when we saw the attachment, the comment in parenthesis, "such as direct connection."
LISTNUM 1 \l 19557 There was a lengthy discussion about the importance of access tandem, and some parties think that should not be maintained as a regulated service. We believe it should.
LISTNUM 1 \l 19558 But, yes, we agree that the current interconnection arrangements should continue in place. So there is agreement there.
LISTNUM 1 \l 19559 MR. ROGERS: On that, as well.
LISTNUM 1 \l 19560 Mr. Watt, this has gone very smoothly so far. We could save an enormous amount of time if you were to simply deem to agree to all of my subsequent proposals.
LISTNUM 1 \l 19561 The Chairman, I think, would be ready to agree with that, if you would. I take that is a no. All right.
LISTNUM 1 \l 19562 Given that we have a six‑part framework to consider as presented by the Commission, that framework or any variation of it, of course, assumes that there will be a definition of essential facility. It is a critical part of establishing that framework and, of course, a central issue in this proceeding.
LISTNUM 1 \l 19563 I would like now to turn to your definition of a central facility as you have proposed it. That, of course, is found in your evidence, and I am turning, for the sake of convenience, to your paragraph E‑22, which is the Executive Summary of your March 15 evidence, if you would like to turn that up.
LISTNUM 1 \l 19564 Do you have that, Mr. Watt?
LISTNUM 1 \l 19565 MR. WATT: I will in just one moment.
LISTNUM 1 \l 19566 MR. ROGERS: It is your three‑part definition.
LISTNUM 1 \l 19567 MR. WATT: Yes, we have it.
LISTNUM 1 \l 19568 MR. ROGERS: For the purposes of this discussion, I am going to focus on the third element.
LISTNUM 1 \l 19569 Before we get to that, though, I think you have said earlier that all three elements are necessary. I will wait until you get to it, Mr. Watt.
LISTNUM 1 \l 19570 MR. WATT: Yes, I have it.
LISTNUM 1 \l 19571 MR. ROGERS: And all three elements of the test are necessary. Correct?
LISTNUM 1 \l 19572 MR. WATT: Correct.
LISTNUM 1 \l 19573 MR. ROGERS: The third element reads:
"It is not feasible to duplicate the input, having regard to economic and/or technical factors." (As read)
LISTNUM 1 \l 19574 Correct?
LISTNUM 1 \l 19575 MR. WATT: Yes.
LISTNUM 1 \l 19576 MR. ROGERS: I would like to understand the third element a little more clearly when you refer to an input that may or may not be feasible to duplicate. Do you mean duplication of exactly the same physical facility or duplication of the particular functionality provided over that facility?
LISTNUM 1 \l 19577 MR. WATT: Actually, if you look to our opening statement, I think you have drawn my attention to the three bullets in the March 15th evidence.
LISTNUM 1 \l 19578 MR. ROGERS: Right.
LISTNUM 1 \l 19579 MR. WATT: There we did say, in the March 15th evidence:
"It is not feasible to duplicate the input, having regard to economic and/or technical factors." (As read)
LISTNUM 1 \l 19580 Then there was subsequent discussion from various parties as to whether it really should read "or an input of equivalent functionality."
LISTNUM 1 \l 19581 So, we have ‑‑
LISTNUM 1 \l 19582 MR. ROGERS: You have revised the test?
LISTNUM 1 \l 19583 MR. WATT: We have revised that test, so for us it now reads:
"It is not feasible to duplicate the input or an input of equivalent functionality..."
Which was your question, I believe.
"...having regard to economic and/or technical factors." (As read)
LISTNUM 1 \l 19584 That is in our opening statement on page 2.
LISTNUM 1 \l 19585 MR. ROGERS: I thought that was the case. In fact, you had used that language earlier in your March 15 evidence in paragraph 213. So you have updated the test.
LISTNUM 1 \l 19586 Duplication can mean in this context either self‑supply or supply obtained from a third party. Correct?
LISTNUM 1 \l 19587 MR. WATT: Yes.
LISTNUM 1 \l 19588 MR. ROGERS: I would like you to refer to another part of your March 15 evidence, and this is at paragraph 213, the one I just referred to a moment ago. I will give you a moment to turn that up.
LISTNUM 1 \l 19589 Do you have that, Mr. Watt?
LISTNUM 1 \l 19590 MR. WATT: I do.
LISTNUM 1 \l 19591 MR. ROGERS: What I would like you to look at in that paragraph, and I will read the relevant lines:
"Based on a foregoing analysis, Rogers submits that it is not economically feasible to duplicate the ILEC loops used to serve residential customers in areas where the company does not already have a coaxial cable network." (As read)
LISTNUM 1 \l 19592 Do you see that line?
LISTNUM 1 \l 19593 MR. WATT: I do.
LISTNUM 1 \l 19594 MR. ROGERS: Mr. Watt, you are no doubt aware, as other members of the panel are, that in mid‑August Rogers filed an application with the CRTC to build out its existing cable service footprint west of Toronto into the areas Oakville and Burlington. You're aware of that?
LISTNUM 1 \l 19595 MR. WATT: Yes, I am aware of the application.
LISTNUM 1 \l 19596 MR. ROGERS: And also north into Aurora?
LISTNUM 1 \l 19597 MR. WATT: Yes.
LISTNUM 1 \l 19598 MR. ROGERS: In those particular areas there are already both a cable system in the west side of Toronto, it would be Cogeco, as well as a telephone company network, and such plans proposed by Rogers in this case are sometimes referred to as an overbuild. You have heard the term?
LISTNUM 1 \l 19599 MR. WATT: I have heard the term.
LISTNUM 1 \l 19600 MR. ROGERS: The new cable plant that you intend to put in, it will be, I am asking you, the advanced digital capability that you have in most other parts of Toronto to provide digital video services and telecom and telephone services; that is what you intend?
LISTNUM 1 \l 19601 MR. WATT: Yes, where we build plant in these locations it will be the advanced network, and I can explain further what our intentions are.
LISTNUM 1 \l 19602 MR. ROGERS: I am fine with what you said so far.
LISTNUM 1 \l 19603 Subject to the Commission approving your application to extend into these territories, it is feasible to duplicate the equivalent of the ILEC loops, the loop access service in these areas?
LISTNUM 1 \l 19604 MR. WATT: Well, what Rogers is proposing to do is, as you know the cable companies are adjacent. We are running into a situation in the rapidly growing areas in these rapidly developing new subdivisions in these high‑growth areas, there are subdivisions going up that are just over the line into Cogeco or Aurora Cable territory. There are Greenfield sites.
LISTNUM 1 \l 19605 We intend to go in with the trenching and provide service to those subdivisions. Those are our intentions in these areas.
LISTNUM 1 \l 19606 In fact, some of these subdivisions actually sit on either side of the line, so that some would partially be in Cogeco, some in Rogers. So we are proposing to go into those Greenfield sites and extend our cable operations to grow.
LISTNUM 1 \l 19607 MR. ROGERS: So you have an existing cable footprint now, the existing licensed area. You see the prospect of expanding and growing into it and building out facilities into a residential market?
LISTNUM 1 \l 19608 MR. WATT: As I say, the current plan is to grow into Greenfield residential developments. There are no plans to overwire the downtown core of Oakville in the existing locations.
LISTNUM 1 \l 19609 MR. ROGERS: The plant that you put in, of course, will be Rogers cable plant, but there will likely be a telephone company plant, likely Bell, put into those areas as well?
LISTNUM 1 \l 19610 MR. WATT: In most cases there generally would be, but as you are probably aware, there are a number of subdivisions where Bell, for reasons of their own, have decided not to put their facilities into certain new home subdivisions.
LISTNUM 1 \l 19611 MR. ROGERS: Where there is a Bell facility or a network either in place already or one which will go in at the same time, what I am suggesting to you is that in those circumstances you will be building out new plant or capacity into a residential market and, in the process of doing so, duplicating the functionality which otherwise could be delivered, the loop functionality that otherwise would be delivered over the telephone company plant?
LISTNUM 1 \l 19612 MR. WATT: Yes, that is correct. Where they enter, we would both go into the trench, to the new home, and we would each be duplicating a functionality of the other in that regard.
LISTNUM 1 \l 19613 MR. ROGERS: When you extend your network west, as you propose to do, you will be installing the same mix of fibre and coax digital system. We talked about that earlier.
LISTNUM 1 \l 19614 Regarding your planned expansion into Oakville and Burlington, you would agree with me that there are businesses in Oakville and Burlington, aren't there?
LISTNUM 1 \l 19615 MR. WATT: Yes.
LISTNUM 1 \l 19616 MR. ROGERS: And if there are neighbourhoods that you plan to go into which are mixed business and residential use, do you plan to deliberately avoid those neighbourhoods and not construct plant there?
LISTNUM 1 \l 19617 MR. WATT: No, we don't plan to deliberately avoid those neighbourhoods. As they go up in the neighbouring adjacent territory we are going to put our plant in. With respect to, say, any new ‑‑ what is the word I am looking for ‑‑ industrial malls in those areas, and I would confirm that, but I expect we will be putting our facilities nearby. Again, the issue, and Mr. Pattinson can add to this possibly, is whether we would put the coax into each of those units at the current time as we build. I am not sure.
LISTNUM 1 \l 19618 MR. ROGERS: All right. We don't need to get into particularly the nature of the technology, but what we have established is that you are going to go into new areas where you don't have plant today. There will, in most cases, be some telephone company plant, maybe not everywhere, and you will be duplicating by the new build a functionality which the telephone company will also have through its plant?
LISTNUM 1 \l 19619 MR. WATT: We will be doing that in the new territories if the application is approved, where new development is going forward where it is near our existing plant, just as we do within our licenced territory today where there is a new subdivision. Bell and ourselves, in the vast majority of cases, both go into the trench at the same time and duplicate each other's functionality.
LISTNUM 1 \l 19620 I do want to just clarify, though, that if there is a new subdivision, other than the far side of Oakville that is no where near our plant, that will have to be looked at on a case‑by‑case basis. The ones we are interested in are the ones that are near the neighbouring border.
LISTNUM 1 \l 19621 MR. ROGERS: Fine. We talked earlier about the presence of mixed use business and residents in those neighbourhoods, and you are prepared to build out into the neighbourhoods which are also commercial or business?
LISTNUM 1 \l 19622 MR. WATT: There are two points there.
LISTNUM 1 \l 19623 We are certainly prepared to build out into the mixed use locations. Into the business locations I believe we will be as well. Those are our aspirations.
LISTNUM 1 \l 19624 MR. ROGERS: Right. It would seem rather foolish to embark on a new build and just leave all the businesses out?
LISTNUM 1 \l 19625 MR. WATT: That it would. You really need to be in the trench at the outset to improve the economics.
LISTNUM 1 \l 19626 MR. ROGERS: I would ask you to turn to paragraph 93 of your March 15 evidence. I will give you a moment.
‑‑‑ Pause
LISTNUM 1 \l 19627 MR. ROGERS: Do you have that?
LISTNUM 1 \l 19628 MR. WATT: I do.
LISTNUM 1 \l 19629 MR. ROGERS: I am looking at the second sentence in that paragraph which reads:
"This is a discussion of the economics of constructing facilities." (As read)
LISTNUM 1 \l 19630 The second sentence reads:
"The average cost per customer is lower where there is higher density and shorter loop lengths. Business customer locations are often clustered within a small geographic area. This can reduce the cost per customer where traffic can be aggregated." (As read)
LISTNUM 1 \l 19631 Do you see that?
LISTNUM 1 \l 19632 MR. WATT: Yes, I do.
LISTNUM 1 \l 19633 MR. ROGERS: You make very similar statements to almost the same effect, if you want to check, in paragraph 153. There is a further discussion of the same kind of analysis of business markets. You talk about concentrated dense urban areas, shorter loop lengths, and you go on to say:
"These factors can produce higher average revenues for a business customer." (As read)
LISTNUM 1 \l 19634 MR. WATT: Yes.
LISTNUM 1 \l 19635 MR. ROGERS: All of which seems to make perfectly good sense.
LISTNUM 1 \l 19636 In most cases, let's take the flip side of that analysis, the residential markets, by definition, are less dense, they are longer loops lengths, and they have lower average revenue per customer. It is the converse of what you just submitted.
LISTNUM 1 \l 19637 We have just discussed a case in which you plan to build out into new residential markets. These are the markets of Oakville, Burlington and so on. If the economics of serving these new residential service areas by your analytical test, comparing economics, justify Rogers building new facilities, in spite of the lower density and longer loops, wouldn't it make sense that the economics of serving the business community are even better? It follows logically from your own analysis.
LISTNUM 1 \l 19638 MR. WATT: I am not sure that it does follow logically because I am not sure we are talking about the same thing.
LISTNUM 1 \l 19639 We are talking about going into a Greenfield residential location, Greenfield business location, the plant is nearby. It may be that the economics are better because of the factors you identified.
LISTNUM 1 \l 19640 It is certainly not the case that one can compare building in to a Greenfield residential development with building into an existing industrial mall where the construction is already completed. Two very different things.
LISTNUM 1 \l 19641 The other comment I would make with respect to businesses is that ‑‑ well, there are also some additional costs in terms of gear as well, as you know. The coax needs pieces of equipment attached on the end. So, it is not simply the coax. It is the cost of providing the business service.
LISTNUM 1 \l 19642 MR. ROGERS: I understand that, Mr. Watt, but it is your analysis. You are the ones that cited the words "the higher density, the shorter loop lengths, the lower costs and the higher revenue per customer," all of which seems to make perfectly good sense in network economics.
LISTNUM 1 \l 19643 It seems to me that if you are prepared to build out into the residential areas, then surely, you would be prepared, given that economic structure and the possibilities, to overcome those costs, nothing is free, and to take advantage of the economics in the business community which you have just described.
LISTNUM 1 \l 19644 MR. WATT: Now, are you making that comment with respect to a Greenfield residential development and a Greenfield business development, or are you trying to say that the economics of building out to business locations in an existing location are the same as building to a Greenfield residential location? Because I am saying they are absolutely not. It is immensely more extensive to build in after the fact, after the industrial mall, the buildings, are in place as compared to building into a Greenfield location.
LISTNUM 1 \l 19645 MR. ROGERS: Mr. Watt, my questions are really derived based on your evidence. You are the ones that said serving the business community is generally, all other things equal, a better proposition because the costs are lower, the average revenue is higher, the density is greater.
LISTNUM 1 \l 19646 You can answer this question whether you are prepared to discuss a new business park or a new business building going up or going into an existing area. We are well aware of what you have said of how difficult that is. But it seems to me that you cannot ignore the fundamental economics which you put into your own evidence. You have the prospect of a 30‑ or 40‑storey building or, as you said earlier today, First Canadian Place, with huge revenue opportunities. Of course it is going to cost you to put facilities in. That is given; that is true of every business. But you have such enormous potential in such great density. This is your analysis.
LISTNUM 1 \l 19647 MR. WATT: I am going to ask Mr. Pattinson to explain what the economics would be to provide a facility after the fact into a building such as the Portage Buildings here in Gatineau, and I think that could help everyone's understanding.
LISTNUM 1 \l 19648 MR. ROGERS: Sure.
LISTNUM 1 \l 19649 MR. PATTINSON: Certainly. So, I think using an example of this very building, and let's presume that in this case Rogers fibre is running down the street ‑‑ that is a phrase that I have heard repeatedly during these proceedings.
LISTNUM 1 \l 19650 So, if we use the example of the coffee shop that is literally outside the hall here, and they have placed an order with Rogers for, let's say, for example, $59 cable internet service, the first thing that we would learn after placing the order is that the closest FOSC, which is a fibre optic service capsule, is actually located about one kilometre away. Dissimilar from the cable and coax network, where we could simply splice, we cannot splice that fibre right outside the building. We need to go back one kilometre and then start pulling that towards this building.
LISTNUM 1 \l 19651 We then discover that the entrance facility to Phrase IV is full and in cases is full with copper as well as blue fibre, or sometimes it is considered to soon be full. So, in this case, our alternative access or entrance facility is actually located at the Phase I building, which is down the street. So, we reroute four kilometres of fibre, and after great negotiation with the landlord and the building superintendent, we finally gain access to the ducts in Phase I.
LISTNUM 1 \l 19652 We then have to go aerial across the roof, with about 1800 metres of conduit, down into the telecom room, and then back up to that coffee shop.
LISTNUM 1 \l 19653 On a good day, this costs us about $25,000 and takes about four months. That is if all the moons and stars align. On a bad day, this can cost us $120,000 and take eight to 12 months, if at all.
LISTNUM 1 \l 19654 And unfortunately, in both my good day and bad day example, that $59 internet service has no financial return. It is very difficult to run that service into this building.
LISTNUM 1 \l 19655 MR. ROGERS: I am not going to belabour the point. You are going to come back with further confirmation on an undertaking this morning in terms of access into certain buildings in Ottawa.
LISTNUM 1 \l 19656 I think we have established what you have to say about new greenfield operations. I take it that you can't argue that building access is full in a building that isn't built yet?
LISTNUM 1 \l 19657 In a greenfield place, you are going to go in, as you just indicated to me, that where there is a new business or a new business park, of course you would want to be there and you would do the best you can to anticipate the future revenues that will occur and build accordingly.
LISTNUM 1 \l 19658 So we will leave the speech that we just heard and we will hear more on that but I think we have established our point with regard to new builds.
LISTNUM 1 \l 19659 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 19660 Mr. Watt, maybe you can clarify for me something. I understand the economics of feasibility but when you say technically feasible and we are talking about functionality, what are we talking principally, is it access to the building that is the main impediment?
LISTNUM 1 \l 19661 MR. WATT: What is the main impediment to getting into an existing building?
LISTNUM 1 \l 19662 THE CHAIRPERSON: In your definition ‑‑
LISTNUM 1 \l 19663 MR. WATT: Mm‑hmm.
LISTNUM 1 \l 19664 THE CHAIRPERSON: ‑‑ you say it is not feasible to duplicate the input on input of equivalent functionality having regard to the economic and/or technical factors.
LISTNUM 1 \l 19665 I understand the economics, no question. We have just gone through this.
LISTNUM 1 \l 19666 What would be the technical factors that you cannot duplicate?
LISTNUM 1 \l 19667 MR. WATT: The technical ‑‑ I think I will ask Mr. Pattinson to speak about the issue as to whether you could technically run T1s on coaxial cable. There is a technical limitation as to what can be done at higher speeds for business services on the coaxial cable and that would be the technical issue we have in mind.
LISTNUM 1 \l 19668 MR. PATTINSON: I am sorry, Mr. Chair, if you could please ‑‑
LISTNUM 1 \l 19669 THE CHAIRPERSON: Keep it really dumb.
LISTNUM 1 \l 19670 MR. PATTINSON: ‑‑ repeat your question again and I will ‑‑
LISTNUM 1 \l 19671 THE CHAIRPERSON: I want to know what kind of technical barriers you are talking about. The economic barriers I understand.
LISTNUM 1 \l 19672 But the technically not feasible to duplicate, I guess what you are telling me is there is a limited capacity of what you can do on a coaxial and you would need to lay another cable, if I understand you, to provide the service?
LISTNUM 1 \l 19673 MR. PATTINSON: That is correct. The coax network was designed and has been over the last 40 years designed primarily for residential use, starting, of course, with television and then a best‑efforts internet service with significant technological constraints for upstream bandwidth.
LISTNUM 1 \l 19674 That is less of an issue for residential but it is of great need by businesses because they often are serving a lot of content through their internet service upstream to other people on the internet and so then that means we need to move towards fiber‑based services.
LISTNUM 1 \l 19675 And then, in this last example that I just provided, bringing that fiber into the building and providing that coax service takes a great deal of time, is extremely expensive and has very limited return.
LISTNUM 1 \l 19676 THE CHAIRPERSON: But that is still an economic issue at that point in time. So there are no technical barriers, they are all economic at the end of the day?
LISTNUM 1 \l 19677 MR. WATT: If I could try maybe. I have the benefit of not knowing as much of the technical issues.
LISTNUM 1 \l 19678 So our coaxial plant, if it provides ‑‑ you have heard the term 850 megahertz of capacity. Of that 850 megahertz, the technical constraint is that 800 megahertz of it sends traffic downstream, broadcasts out from a location to a home or a business. There is only about 25 megahertz of capacity that can send traffic upstream, coming back from a home or a business.
LISTNUM 1 \l 19679 Businesses typically want symmetrical data flows. So with a T1 they get 1.54 megabits per second both ways guaranteed quality of service.
LISTNUM 1 \l 19680 When we come to offer that type of service through the T1 emulation, we have to go and look at our upstream capacity. At only 25 megahertz, it is all full currently. We have to hive off a piece of that and typically if we were to take 3.5 megahertz, it will give us 8 megabits per second upstream. That is it.
LISTNUM 1 \l 19681 A business customer wants about the 1.54. With the protocols on top, it takes up about 2 megabits. So a coax could only give us four T1s upstream and we might get ‑‑ it is a combination of technical and economic at this point.
LISTNUM 1 \l 19682 We could do that but the economic return is in the order of, say, maybe $800 for the four T1s to the business. We can use that same capacity to serve 250 residential customers who pay us $40 a month. So the economics are significantly better.
LISTNUM 1 \l 19683 So there is a technical constraint limitation in the upstream bandwidth, upstream capacity, that then makes it a poor alternative.
LISTNUM 1 \l 19684 Now ‑‑
LISTNUM 1 \l 19685 THE CHAIRPERSON: Again, it may be a poor alternative but the bottom line is it is always an economic decision. You haven't pointed out to me yet one technical barrier that you can't overcome.
LISTNUM 1 \l 19686 MR. WATT: Well, I think you have to run ‑‑ the technical barrier is the amount of bandwidth you can derive on that upstream and it is limited, it is constrained. So you would have to put in a second coax.
LISTNUM 1 \l 19687 THE CHAIRPERSON: Precisely, and that is too expensive and therefore it is not economic.
LISTNUM 1 \l 19688 I just wondered because you used the word "technical." You always say technical in conjunction with the cost of supplying that technology, I gather. There is nothing that is inherently technical, it is not just economics, it is just technically you can't do it. That is what I was wondering about.
LISTNUM 1 \l 19689 MR. PATTINSON: If I could use an example of a 50 megabit per second symmetrical IP‑VPN service that a business would offer, we cannot technically provide that service today on the cable network because of constraints moving upstream.
LISTNUM 1 \l 19690 There are promises of technology that are coming but it is a significant technical hurdle.
LISTNUM 1 \l 19691 THE CHAIRPERSON: Okay. So if you take your cable network as a base, then there actually are technical barriers, that is what you are telling me, you would have to build a whole new network?
LISTNUM 1 \l 19692 MR. PATTINSON: Correct.
LISTNUM 1 \l 19693 THE CHAIRPERSON: Okay, thank you.
LISTNUM 1 \l 19694 MR. PATTINSON: We would have to build fiber.
LISTNUM 1 \l 19695 MR. WATT: Maybe just ‑‑ I don't want to beat the point into the ground but Mr. Hatfield, would you like to comment on this issue?
LISTNUM 1 \l 19696 MR. HATFIELD: No, I think the point is made. The technical limitations stem from the existing architecture, the existing network, and if one would replace it, obviously one could ‑‑ at great economic cost, one could then remove those constraints.
LISTNUM 1 \l 19697 I think you are right, ultimately all technical constraints come down to economics but in this case it becomes infeasible.
LISTNUM 1 \l 19698 THE CHAIRPERSON: So your given assumption is the existing network, using the existing network for the services and what are the technical limitations to that? That is the reference for technical limitations.
LISTNUM 1 \l 19699 MR. HATFIELD: Another example we indicated was the difficulty in splicing into fiber without going back. That is a technical limitation today one could imagine but it is just not technically feasible to splice it right outside the building like you would like to.
LISTNUM 1 \l 19700 THE CHAIRPERSON: Sorry for the digression. Back to you, Mr. Rogers.
LISTNUM 1 \l 19701 MR. ROGERS: I think it helped to clarify things, Mr. Chairman.
LISTNUM 1 \l 19702 I have one supplemental on the discussion that you just had. It is a technical question and you may want to respond either now or through an undertaking.
LISTNUM 1 \l 19703 Can you confirm that the cable DocSys 3 standards currently permit both T1 emulation and VPN service? Does the standard exist today?
LISTNUM 1 \l 19704 MR. PATTINSON: There is a DocSys 3 standard that has been developed that has great promises of increased downstream as well as upstream and my understanding is that it is just beginning the testing and certification process. So there are certainly great promises and we hope that they materialize.
LISTNUM 1 \l 19705 MR. ROGERS: But can you confirm that it is a standard that is available for the cable industry to use today and that it is in use?
LISTNUM 1 \l 19706 MR. PATTINSON: There is a documented standard that exists that has been published by CableLabs but CableLabs has just begun the process actually in the last two weeks of the first of three phases of certification and testing that will be completed in Q4 of 2008, Q1 of 2009 at the latest because there are three different testing phases.
LISTNUM 1 \l 19707 MR. ROGERS: Fine.
LISTNUM 1 \l 19708 I think I would like to, before we take a break, finish off on this application which you filed for the extension of service territory into Oakville. I provided in the bound black volume, at Tab 1, a copy of that application and I would ask you to turn to that.
LISTNUM 1 \l 19709 MR. WATT: Yes, I have it.
LISTNUM 1 \l 19710 MR. ROGERS: Mr. Watt, I would ask you to turn to paragraph 12.
LISTNUM 1 \l 19711 Do you have that?
LISTNUM 1 \l 19712 MR. WATT: Yes, I do.
LISTNUM 1 \l 19713 MR. ROGERS: Mr. Watt, in this section of the application to the Commission Rogers is discussing competing technologies which are now starting to have an effect on Rogers' business and competing with its business.
LISTNUM 1 \l 19714 I will start with the sentence that begins "However".
"However, several technologies are beginning to impact the way in which our services are delivered. These technologies include: broadband, IP‑based voice, data and video delivery services, the mass market deployment of optical fibre technologies to the residential and business markets and the deployment of broadband wireless access." (As read)
LISTNUM 1 \l 19715 Do you see that language?
LISTNUM 1 \l 19716 MR. WATT: I do see it.
LISTNUM 1 \l 19717 MR. ROGERS: I would like to focus in particular on the words:
"...the mass market deployment of optical fibre technologies to the residential and business markets..." (As read)
LISTNUM 1 \l 19718 When you use that language, what service providers, either existing or potential, was Rogers referring to?
LISTNUM 1 \l 19719 MR. WATT: Actually, in part we were referring to our own plans to expand fibre optics to business locations.
LISTNUM 1 \l 19720 We say several times "beginning to impact the way in which our services are delivered".
LISTNUM 1 \l 19721 Principally the other item that we have in mind there is the ‑‑ and I forget the name that Bell gave to their plan, but their plan announced, in either late 2004‑2005, to drive fibre deeper into residential neighbourhoods. You will recall this. I think it's a $1.7 billion plan to drive fibre deeper into neighbourhoods, enabling Bell's DSL throughput to increase from 8 megabits per second, I believe, to 26 megabits per second, and I think in certain circumstances even higher with bonding, and so on and so forth.
LISTNUM 1 \l 19722 So that in our understanding this not only will increase the speed of their high‑speed internet services, but provide the ability to offer their IPTV service that we anticipate shortly.
LISTNUM 1 \l 19723 MR. ROGERS: I understand that. I thought you would probably refer to telephone company plant expansion. I thought you also, in that reference I drew your attention, might be referring to the hydro utilities and their affiliates, because you specifically refer to such companies in paragraph 14 of this application.
LISTNUM 1 \l 19724 If you turn to the next page, you indicate there that "They are entering".
LISTNUM 1 \l 19725 Do you see that reference?
LISTNUM 1 \l 19726 MR. WATT: Yes, I do.
LISTNUM 1 \l 19727 MR. ROGERS: And they are beginning to provide services similar to those provided by Rogers, such as telecom and internet service in competition?
LISTNUM 1 \l 19728 MR. WATT: Yes, they do provide service to certain customers.
LISTNUM 1 \l 19729 MR. ROGERS: So that would represent yet another form of physical network facilities' alternatives, duplication in other words of the underlying functionality as these types of plants build out, the ones you were referring to in your application?
LISTNUM 1 \l 19730 MR. WATT: Yes, there would be increasing ‑‑ well, there would be facilities. As you know, they are fairly limited. The municipal electrical utilities are now providing voice services, but in terms of the physical plant they do have some physical plant in the ground of fibre optics.
LISTNUM 1 \l 19731 MR. ROGERS: But much of this proceeding, as you appreciate, Mr. Watt, we are looking for evidence of duplicability and Rogers put this in the application to amend your cable licence to show that duplicability is occurring.
LISTNUM 1 \l 19732 Correct?
LISTNUM 1 \l 19733 MR. WATT: In certain circumstances there is duplicability occurring, but into the vast majority of buildings and locations the economics do not permit the duplicability.
LISTNUM 1 \l 19734 MR. ROGERS: Well, I think by your last comment you mean your economics, but you are not suggesting that duplicability of that network facility by others is impossible, because if that was your belief you wouldn't have put it in the application.
LISTNUM 1 \l 19735 MR. WATT: No, it's not our belief. It may not turn out well for some companies, but hopefully it will turn out well for others, but it will have been a wise decision.
LISTNUM 1 \l 19736 MR. ROGERS: From the market's point of view, all the market cares about is whether or not there are alternatives.
LISTNUM 1 \l 19737 Correct? That's the way a market functions?
LISTNUM 1 \l 19738 MR. WATT: Yes.
LISTNUM 1 \l 19739 MR. ROGERS: In this regard I would like you to turn to Tab 2 of the binder that we provided, the Compendium of Documents.
LISTNUM 1 \l 19740 For those who are following in the room, this document is part of the record of the proceeding already. It is an Interrogatory Response Telecom Ottawa/Cogeco 12 April 07 No. 1. I will be referring you mostly to the first page.
LISTNUM 1 \l 19741 Mr. Watt, you have a copy of that with you?
LISTNUM 1 \l 19742 MR. WATT: Yes, we do.
LISTNUM 1 \l 19743 MR. ROGERS: Again for the room, this company that answered this is Telecom Ottawa, an affiliate of Ottawa Hydro, and they indicate, on the first page of this response, that they have a fibre‑based network constructed across Ottawa. Their language is:
"It connects 950 buildings in Ottawa with self‑supplied fibre." (As read)
LISTNUM 1 \l 19744 Do you see that language at the bottom of the first page?
LISTNUM 1 \l 19745 MR. WATT: Yes, I do.
LISTNUM 1 \l 19746 MR. ROGERS: Many of the electric utility telecom operators that have sprung up, aren't they often quite interested in serving or leasing capacity to large business or other telecom providers?
LISTNUM 1 \l 19747 Isn't that typically the approach?
LISTNUM 1 \l 19748 MR. WATT: I'm going to ask Mr. Pattinson to address this issue. He has direct experience in dealing with these entities.
LISTNUM 1 \l 19749 MR. ROGERS: What I'm asking is: Is it often the case they are trying to get into the wholesale market?
LISTNUM 1 \l 19750 MR. PATTINSON: Well, today Rogers does buy some services from Telecom Ottawa and it's our understanding that greater than a third of those 950 sites are into the schools for which they have a very, very large contract.
LISTNUM 1 \l 19751 So in some cases where there are facilities available we will buy them and they are exclusively Ethernet and dark fibre services.
LISTNUM 1 \l 19752 MR. ROGERS: Right. In fact, the answer provided by Telecom Ottawa on the second page confirms that you are currently a customer of Telecom Ottawa. They indicated that.
LISTNUM 1 \l 19753 MR. PATTINSON: Correct.
LISTNUM 1 \l 19754 I also understand on page 3 that they go on to say that they do not provide other types of CDNA‑like services and do not provide any services into collocation sites because of the restriction of use.
LISTNUM 1 \l 19755 I would like to be able to buy more facilities from them in collocation sites if it was not for that restriction of use restriction.
LISTNUM 1 \l 19756 MR. ROGERS: Their evidence is they have a fibre network that covers a large part of Ottawa into 950 buildings.
LISTNUM 1 \l 19757 You deal with companies like this. We can probably assume that they didn't ‑‑ Telecom Ottawa wouldn't build a fibre facility into a 7‑11 or barbershop, they are going to build it into larger buildings, aren't they?
LISTNUM 1 \l 19758 MR. PATTINSON: Well, I don't have detailed knowledge of their entire network as they did say here that they had filed those addresses in confidence, but we do know that a great proportion of them, as I mentioned, are running into schools, which would not be sites that we would be using them for.
LISTNUM 1 \l 19759 MR. ROGERS: I see. All right.
LISTNUM 1 \l 19760 MR. PATTINSON: The only other thing I would add is that the territory that they are providing these 600 sites is, you know, greater than just Ottawa of course, it's into Kingston and Cornwall. So those sites are spread across fairly large territories.
LISTNUM 1 \l 19761 Just to conclude on this ‑‑ and I am wrapping this up, Mr. Chairman, at this point ‑‑ a third of them apparently are school boards, but out of 950 buildings that's still, if my math is correct, we are looking at 600 locations around Ottawa where Telecom Ottawa has a fibre facility self‑supplied into the building and obviously they are willing to do business with people like you.
LISTNUM 1 \l 19762 If you look at a city like Ottawa, which is not the largest city in Canada, if you put fibre into 600 buildings you have covered an awful lot of the major buildings in Ottawa, wouldn't you guess?
LISTNUM 1 \l 19763 MR. PATTINSON: Well, it isn't 600 buildings in Ottawa, as I mentioned earlier on, it is across Kingston and Cornwall.
LISTNUM 1 \l 19764 And yes, we do do business with them today and I can say that in about 40 per cent of cases where we do request services from them they do not have facilities. That is even in these three direct areas where we thought there would be a high probability of service being available.
LISTNUM 1 \l 19765 Again, that would only be for Ethernet and dark fibre services. All of the other types of telecommunications services that we use CDNAs for we still cannot provide over these facilities.
LISTNUM 1 \l 19766 MR. ROGERS: Right. So if in 40 per cent of the cases it is not available, then it follows that in 60 per cent of the cases when you ask them it is available.
LISTNUM 1 \l 19767 MR. PATTINSON: Yes, for a small subset of products.
LISTNUM 1 \l 19768 MR. ROGERS: Fine.
LISTNUM 1 \l 19769 Mr. Chairman, that sort of reaches a natural break point if you would like to consider an adjournment for lunch.
LISTNUM 1 \l 19770 THE CHAIRPERSON: All right. Your timing is impeccable. Let's do that.
LISTNUM 1 \l 19771 We will resume at 1 o'clock.
LISTNUM 1 \l 19772 Thank you.
‑‑‑ Upon recessing at 1201 / Suspension à 1201
‑‑‑ Upon resuming at 1302 / Reprise à 1302
LISTNUM 1 \l 19773 THE CHAIRPERSON: Okay, Mr. Rogers, we are all yours.
LISTNUM 1 \l 19774 Madam Secretary, you have an announcement? No, okay, let's go.
LISTNUM 1 \l 19775 MR. ROGERS: Thank you, Mr. Chairman, just procedurally at the outset I neglected to introduce my colleague who is assisting me throughout this and that is Mr. Ted Woodhead of TELUS.
LISTNUM 1 \l 19776 Members of the panel, I would like to pickup very quickly on a point that we discussed just prior to the break. And Mr. Pattison and Mr. Watt, I think you will recall that we were discussing Telecom Hydro or Telecom Ottawa, you will recall that discussion. And I don't think we need to get back into the details, but we were hearing from Mr. Pattison about what I understand to be some of the difficulties with obtaining services.
LISTNUM 1 \l 19777 I think you acknowledged that they have fibre facilities in 950 buildings, there maybe a third of them might be school boards, so there is 600 and some odd locations where they have fibre in. And I wanted to be very clear about what they can provide to you and how you might use it. And I will leave this to either Mr. Pattison or Mr. Watt, whoever wishes to respond.
LISTNUM 1 \l 19778 I thought I heard you say that they are capable of providing dark fibre to you. They may not be providing fully managed services and BLS services or something like that, which might be useful to you, but they will provide dark fibre, is that correct?
LISTNUM 1 \l 19779 MR. PATTISON: Yes, and I also mentioned Ethernet.
LISTNUM 1 \l 19780 MR. ROGERS: And you mentioned that in the sense that they will or they won't provide it?
LISTNUM 1 \l 19781 MR. PATTISON: That they will provide it to us.
LISTNUM 1 \l 19782 MR. ROGERS: Right. Where they are prepared to give you dark fibre I would suggest to you, and you are the technical person, it seems to me that if you end up with a long‑term contract for dark fibre it puts you in control of that facility, you become the manager of the facility in the sense that you put the electronics on, you manage the service, you manage the quality of service to your customer just as you want to do with all your on‑net customers. You are not dependant on a mandated wholesale service from an incumbent telephone company with all of its QoS issues, now you are in charge.
LISTNUM 1 \l 19783 So I would have thought that the dark fibre prospect, when available to you, you put your own electronics in, you determine the services that you want, it gives you exactly what you want, doesn't it?
LISTNUM 1 \l 19784 MR. PATTISON: We like to be able to provision services on fibre. However, for an individual customer it is often not economic to buy dark fibre.
LISTNUM 1 \l 19785 MR. ROGERS: But dark fibre can be used for many customers for many things, correct?
LISTNUM 1 \l 19786 MR. PATTISON: Correct, it can be used for many things, but that first customer is extremely expensive and, in many cases, we can't see the potential return in a particular building because of that.
LISTNUM 1 \l 19787 MR. ROGERS: So what we are left with I think I am hearing you say is that it is cheaper to buy unbundled wholesale services under the existing tariffs as mandated by the Commission than to start making the investments even when an alternative network operator holds out the prospect to you where they will give you long‑term facilities on which you can do anything you like, but because of the wholesale structure that is available today under the current mandated services it is simply cheaper and more economical to use the ILEC facilities?
LISTNUM 1 \l 19788 MR. PATTINSON: We are constantly looking for ways to migrate our customers from CDNS services onto our own network. We have done that with about 100,000 residential customers that we inherited from the Call‑Net acquisition inside cable territory and we have done that in the last two years while aggressively growing our residential business. And we are also in the midst of migrating about 15,000 data customers from leased facilities onto our own network or dark fibre that we have leased. I mean, we are the steppingstone in action.
LISTNUM 1 \l 19789 MR. ROGERS: Well, Mr. Pattison, I am not sure that there is a great deal to be gained by going over this. All I wanted to suggest to you is that it appears that, at least for the scope and extent of the Telecom Ottawa network, there are 600 and some odd buildings, which is a huge number of buildings for a city like Ottawa. They have facilities, they are prepared to offer it to you.
LISTNUM 1 \l 19790 And you are continuing your entry into the business market relying, apparently quite heavily, on incumbent unbundled services. But you have the prospects of alternatives. They are there, you can add electronics, you can manage and control the service. That is what you say you want to do. It is probably just a question of money, it is cheaper. This is the point that the Chairman brought up earlier. It is cheaper to get it from the incumbent.
LISTNUM 1 \l 19791 MR. PATTISON: Well, not to reiterate the points but, again, it is not that number of buildings just in Ottawa, they go into Kingston and they go into Cornwall, as well, in terms of the density.
LISTNUM 1 \l 19792 But the issue is: economics always come into play, and if a customer is only wanting a couple of DS‑1s in a building, it generally will not be economic to lease fibre.
LISTNUM 1 \l 19793 MR. HATFIELD: Could I comment also on that?
LISTNUM 1 \l 19794 I think what we are doing here is, essentially, making Rogers' case.
LISTNUM 1 \l 19795 There are areas, there are routes and there are buildings that will support multiple competitors, and there are routes and buildings that don't have enough business to make it economically feasible.
LISTNUM 1 \l 19796 All this is saying is that there are economies of scale, and that is the point, and the Rogers proposal says: Let's divide the world into those areas, those buildings and routes where competition is possible, and those areas, buildings and routes where competition is not feasible because the economics won't support it.
LISTNUM 1 \l 19797 All we are doing here, really, is making Rogers' case that you need to divide the world up into those two parts.
LISTNUM 1 \l 19798 THE CHAIRPERSON: We have one problem. It's not only Rogers that we have to look at, we have to look at all competitors, and we have to be fair.
LISTNUM 1 \l 19799 We have to look at the economic case for all competitors ‑‑
LISTNUM 1 \l 19800 MR. HATFIELD: That's fair. The fundamental point, though, is that there are still economies of scale. De‑regulating doesn't repeal the economic loss of economies of scale, and therefore there will continue to be areas and places where you just cannot support ‑‑
LISTNUM 1 \l 19801 As much as we all would love to have three or four competitors, that is just not in the prospect, and perhaps not more than one in some areas.
LISTNUM 1 \l 19802 MR. ROGERS: To divide up the world as you suggest, Mr. Hatfield, requires a definition, and that is really core to this proceeding, and I am going to go back to the question of the definition.
LISTNUM 1 \l 19803 This is a point that we talked about ‑‑ I discussed it with you, Mr. Watt, earlier. It is paragraph E‑22. I turn to that for a reference because it is a handy source of your definition. It is all over your evidence, but E‑22 has, for anyone looking for it, the three‑part test from Rogers.
LISTNUM 1 \l 19804 THE CHAIRPERSON: Mr. Rogers, I think the real test is in his opening statement. There are some differences between E‑22 and the opening statement.
LISTNUM 1 \l 19805 If this is the final decision, we should probably refer to that.
LISTNUM 1 \l 19806 MR. ROGERS: That's correct.
LISTNUM 1 \l 19807 THE CHAIRPERSON: It's on page ii of the opening statement.
LISTNUM 1 \l 19808 MR. ROGERS: We can use that. It is more up to date, and we will use it.
LISTNUM 1 \l 19809 THE CHAIRPERSON: The word "non‑trivial", for instance, doesn't appear in the definition that you referred to.
LISTNUM 1 \l 19810 MR. ROGERS: The part of the definition that I am focusing on, Mr. Watt, is the third category, which is the ability to duplicate that.
LISTNUM 1 \l 19811 I will read the revised version that appears in the opening statement:
"It is not feasible to duplicate the input or an input of equivalent functionality having regard to economic and/or technical factors." (As read)
LISTNUM 1 \l 19812 I would like to focus, again, on how you interpret the word "duplicate", and what that means in the context of this proceeding, and how you use it and put it into practice.
LISTNUM 1 \l 19813 In that regard, I would ask you to turn to the tabbed binder which we provided to you earlier, and I would ask you to go to Tab 3.
LISTNUM 1 \l 19814 For the record, I will identify it for those in the room. Tab 3 is an interrogatory response, which is Rogers‑CRTC‑12 April 07‑105.
LISTNUM 1 \l 19815 Do you have that interrogatory?
LISTNUM 1 \l 19816 MR. WATT: We do.
LISTNUM 1 \l 19817 MR. ROGERS: I would ask you to turn to the last page of that interrogatory response. In the last paragraph, beginning with the second sentence, Rogers says:
"For example, the mere presence of one or two fibre‑based co‑locators within a wire centre, while signalling that duplication is possible, is not sufficient to declassify eligible DS‑1 and DS‑3 access and transport facilities as essential facilities in that wire centre." (As read)
LISTNUM 1 \l 19818 Do you see that statement?
LISTNUM 1 \l 19819 MS BLACKWELL: Yes, I see that, and perhaps I might be able to help you with this one. We will see where the questions take us.
LISTNUM 1 \l 19820 MR. ROGERS: The words I am focusing on in the sentence I just read are the words: "while signalling that duplication is possible."
LISTNUM 1 \l 19821 Most people use the term "duplication" to mean the creation of another, like the first one. That is the ordinary dictionary meaning of the word, and that is the sense in which I take it that you are using the term in the parenthetic phrase that I just read, and those words are: "while signalling that duplication is possible."
LISTNUM 1 \l 19822 You are using the term in the ordinary English‑language sense of the word, aren't you, in that passage?
LISTNUM 1 \l 19823 MS BLACKWELL: I think it is within the context of even the whole paragraph. There is a sentence before the "For example," and there has been some discussion, I would say almost debate ‑‑ a fair amount of debate on the record of the proceeding in terms of: Is it duplication or dominance? Do you get an essential facility if there is already somebody else in that relevant market with that same facility or functionality?
LISTNUM 1 \l 19824 Does it have to be a 100 percent monopoly, with no other suppliers or potential suppliers of the same facility or not?
LISTNUM 1 \l 19825 I think what we are saying in this paragraph, with reference to the Bureau's weaker interpretation, which is that you would have the possibility for a facility to be considered essential even if there were another facility in that market ‑‑
LISTNUM 1 \l 19826 And that is the purpose of the proxy thresholds.
LISTNUM 1 \l 19827 Going back to the entire issue of this proceeding, where do you want to mandate essential facilities in order to create the conditions for effective competition?
LISTNUM 1 \l 19828 Really, the proposal that Rogers has, both with respect to the DS‑1s and DS‑3s, and the unbundled mass market loops, is not that startling when you look at other jurisdictions and how other countries have approached the issue of how much essential facilities should one mandate in order to get the conditions for competition.
LISTNUM 1 \l 19829 MR. ROGERS: I appreciate that, Ms Blackwell. I think you are trying to answer seven questions at once, and it is probably better if we go through them.
LISTNUM 1 \l 19830 What I am focusing on is the third part of your test, the three‑part test. As you know, the amended language is: feasible or not feasible to duplicate the input, or an input of equivalent functionality.
LISTNUM 1 \l 19831 We are trying to figure out, in the context of your definition, what do you mean by "duplicate"?
LISTNUM 1 \l 19832 I am not talking about market power, I am just looking at the third criterion.
LISTNUM 1 \l 19833 I would suggest to you that the phrase I just pulled out of an interrogatory response a moment ago, which is "signalling that duplication is possible," is a perfectly normal meaning of the word "duplicate". It's the way anyone would understand that phrase.
LISTNUM 1 \l 19834 In fact, it is very similar to the way other parties in this proceeding are using the word "duplicate".
LISTNUM 1 \l 19835 We have similar language, a "duplicability test," coming from ‑‑ apart from you, we have Bell, the Bureau, TELUS ‑‑ it was even in the original essential facilities definition back in 97‑8.
LISTNUM 1 \l 19836 So we have language around duplication that has been around a long time and continues to be in this proceeding, and it is clearly one of the criteria which most people are using ‑‑ duplicate.
LISTNUM 1 \l 19837 MS BLACKWELL: Yes, and the reason why you are looking to that issue of duplication is: Will you get duplication sufficient to discipline the exercise of market power.
LISTNUM 1 \l 19838 You may wish to divorce it from the question of market power, but I don't think you can, rightfully.
LISTNUM 1 \l 19839 MR. ROGERS: Most parties are using the term "duplicate" in the ordinary sense of the word. Let's have a look at some specific language that is in the Rogers evidence, where you provide a further illustration of what you mean, in practice, when you operationalize this test.
LISTNUM 1 \l 19840 I would ask you to turn to paragraph 163 of your March 15 evidence.
LISTNUM 1 \l 19841 If you have that in front of you, I am just going to focus on the first sentence, which reads:
"Rogers submits that where there are fewer than four co‑located fibre‑based competitors offering services using their own facilities, a competitor that requires access to a facility is likely to face difficulty obtaining it on reasonable and non‑discriminatory terms absent regulatory intervention." (As read)
LISTNUM 1 \l 19842 So you have that statement there. Other parties indicate that "duplicate" normally means two at least of the facility or service in question. You have chosen to say the threshold is at four.
LISTNUM 1 \l 19843 What I'm really wondering, and we have heard the background to your proxy analysis test, was it the FCC that persuaded you that to duplicate really means four? Two means four?
LISTNUM 1 \l 19844 MS BLACKWELL: Well, that is how you are doing the simplistic ‑‑ the math.
LISTNUM 1 \l 19845 MR. ROGERS: That is the math.
LISTNUM 1 \l 19846 MS BLACKWELL: It is the math in terms of if you see "two" you say, "Well there is ‑‑ obviously this is duplicated".
LISTNUM 1 \l 19847 I think the purpose, though, in terms of why you look into that duplication is to provide sufficient competition in the marketplace to control the exercise of market power.
LISTNUM 1 \l 19848 So the objective of the FCC's impairment standard and the objective of why we think the Commission should have an essential facilities regime is we consider quite similar. In that context, with respect to the CDN facilities that we are talking about here, the purpose of duplication is to ‑‑ the four collocated fibre‑based competitors serves two purposes, both a demonstration that there is sufficient revenue opportunities in the marketplace for others to have duplicated and provided the self‑supply, as well as demonstrating that there are alternatives to a new entrant supplying the facility themselves.
LISTNUM 1 \l 19849 So notwithstanding that you would like us to say duplication means as soon as you get the second one in it's over, you don't need to worry, I think the evidence that we have, both from the FCC and from the Canadian marketplace, is that two may in fact not be sufficient to control the exercise of market power, and I think that is the position that Rogers has taken in this proceeding.
LISTNUM 1 \l 19850 MR. ROGERS: We are going to get into the basis or lack thereof for that proxy analysis that you are proposing, but let me ask you this: You describe your proposal in your evidence, and it is repeated again in the opening statement, as a "nuanced approach". That is your general description.
LISTNUM 1 \l 19851 So a nuanced approach allows you to take two and make it into four. This is an illustration of the nuanced approach.
LISTNUM 1 \l 19852 MS BLACKWELL: Well, when you say "nuanced approach" and you would like us to say "Well, four is too many", but I think we just keep coming back to the same general premise of why we are having those kind of thresholds.
LISTNUM 1 \l 19853 This is a policy‑making ‑‑ policy basis for the proceeding in order to have sufficient competition and we looked at this duplication exercise as you have to look at a granular level the economic and technical situations on the ground in the markets. With respect to CDN we believe the relevant geographic market is wire centre and the evidence I think the Commission will look at will say to them whether or not three or four is the right number.
LISTNUM 1 \l 19854 With respect to transport I might just add, the reason why the number is three or four is so that they would make sure that the transport facility actually has a matched pair, so it's the same collocated Company in each wire centre at each end of that route.
LISTNUM 1 \l 19855 MR. ROGERS: I'm glad you brought up the FCC's granular analysis because I wanted to raise that with you.
LISTNUM 1 \l 19856 You have quite correctly said that the FCC arrived at this conclusion through, their term, "a granular analysis", a very detailed analysis of detailed markets. You are here I expect when the Bureau was on, and the Bureau's own evidence said ‑‑ and we can check the record ‑‑ the Bureau is not in a position to determine if the development of ex ante proxy rules is possible. They don't have the data.
LISTNUM 1 \l 19857 They indicated that to do that kind of analysis, if it could be done it would have to be done through a very detailed, their term, fact‑intensive analysis for Canada.
LISTNUM 1 \l 19858 You haven't done a fact‑intensive analysis for Canada, have you? You have borrowed the FCC rules and then jigged them a bit.
LISTNUM 1 \l 19859 MS BLACKWELL: I think we also have seen on the record, both from bell as well as from the Telecom Policy Review Panel Report, a statement that says there are lessons to be learned from the U.S. experience. We would normally expect the U.S., given the strong similarities in the market, the geographic circumstances, paragraph 119 of the TPRP report which we quote in response to Rogers/Bureau 12 April‑36, if memory serves that there are a strong basis for looking at the U.S. experience.
LISTNUM 1 \l 19860 So to your point, no, we did not have access to the kind of granular details the FCC was able to go through. We propose these as starting points. I believe, as we discussed on Friday with previous counsel, that the Commission has sufficient information, we believe, through its annual monitoring process, as well as his own availability to seek information, to develop the proxy.
LISTNUM 1 \l 19861 The Bureau itself but said "If one could get accurate information" ‑‑ they said this I believe at paragraph 52 of their supplementary evidence of July: "If you could get accurate information" ‑‑ which we believe the Commission has authority to collect ‑‑ "a proxy would be the best way". I'm paraphrasing, certainly a desirable approach to conduct in the granular analysis to say "This is where economically one can duplicate and one can get sufficient competition to control the exercise of market power."
LISTNUM 1 \l 19862 MR. ROGERS: It seems to me you are running ahead of what the Bureau was prepared to say. They know a thing or two about defining relevant markets geographically and product wise. They said that they weren't prepared to say that it was even possible to do this yet and, in any event, if someone was going to do it you have to do it through a very detailed analysis for Canada.
LISTNUM 1 \l 19863 You are proposing that this could be done, and I think you are looking to the Commission to do the job, to do this sort of analysis. The level of analysis that you are proposing is wire centre. That's what you just indicated.
LISTNUM 1 \l 19864 We have over 3,000 wire centres in Canada, so what you are proposing is that this Commission undertake an analysis at a wire centre‑basis, all 3,000 of them, to determine whether or not the data will support the proxy model imported from the U.S.
LISTNUM 1 \l 19865 That is essentially what you are proposing.
LISTNUM 1 \l 19866 MR. ROGERS: I think we have seen the Commission do exactly that kind of proxy analysis and is prepared to do so with respect to the retail DNA market at the wire centre level, studying building‑by‑building evidence of whether or not there are facilities‑based competitors.
LISTNUM 1 \l 19867 This is very objective data. The ILECs themselves would have business line counts by wire centre. They would have the data at hand as to the collocation.
LISTNUM 1 \l 19868 So these things are not subjective, they are quantified and whether the right number is 24,000 or 23,850, as I indicated in discussions with counsel last week, the answer at the end of the process has to be when we apply certain thresholds are we getting what we think is a reasonable outcome, which I believe the FCC did.
LISTNUM 1 \l 19869 When they applied those thresholds they found 67 per cent of the wire centres would meet those thresholds sufficient to make a finding of non‑impairment. Whether the Commission wishes to use 67 per cent as the pass/fail point or a different percentage, that is their choice.
LISTNUM 1 \l 19870 MR. ROGERS: Ms Blackwell, what I think I'm hearing you say is this Commission should undertake the kind of building‑by‑building analysis, wire‑by‑wire analysis that the FCC did. It was an exhaustive analysis. That of course is a regulatory commission with vastly more resources in Washington that this Commission has in Ottawa‑Hull. You think that is a practical way ‑‑ I suggest to you that sort of analysis a statistical battle will inevitably resulted and it will take years to resolve those issues, which may be exactly the point you are trying to achieve.
LISTNUM 1 \l 19871 MR. WATT: No, I certainly wouldn't go that far.
LISTNUM 1 \l 19872 I would just draw people's attention to the series of answers that were provided by companies to ‑‑ by other companies to The Companies interrogatories, I think it is 4, 5, 6, 7, 8, 9. They are companies who were asked to identify the collocation sites that they were present in, so the wire centres. So that is actually already on the record.
LISTNUM 1 \l 19873 Frankly, you talk about I think 3,000 wire centres, I will hazard a guess at 2,700 of them there are no competitor fibre‑based competitors, it is a fairly simple calculation.
LISTNUM 1 \l 19874 But, in any event, we have gone through, that information has already been provided on the record. As Ms Blackwell says, the telephone companies can easily provide the number of business line counts per wire centre.
LISTNUM 1 \l 19875 And in terms of the economics you certainly can draw, we would suggest, from the experience in the United States. We don't see a ‑‑ maybe it's a sweeping generalization, but we don't really see why the economics of Philadelphia would be all that much different than the economics in Toronto for competitive providers.
LISTNUM 1 \l 19876 MR. ROGERS: Mr. Watt, your test, your proxy test as you propose it based on the U.S. approach, would suggest at least a priori to this Commission, and pending the statistical analysis that you describe, that four fibre‑based collocated competitors are required before a particular function, or at the band or service that you require would longer be essential.
LISTNUM 1 \l 19877 This Commission has prior experience of course in determining when a number of facilities is sufficient to declare the market to be functionally competitive. Let's consider a couple of examples.
LISTNUM 1 \l 19878 The interexchange digital private line market has been forborne by the Commission for 10 years essentially on the basis of two, two stand‑alone facilities‑based competitors. The Commission determined that that was adequate to deal with it. So apparently having looked at the Canadian market the Commission was satisfied in that case that two was sufficient.
LISTNUM 1 \l 19879 MR. WATT: That's right. That was on a route‑by‑route, route‑specific basis.
LISTNUM 1 \l 19880 I think Mr. Hatfield was discussing this with us the other night in terms of the long‑haul nature of this particular test and he may wish to add a comment.
LISTNUM 1 \l 19881 MR. HATFIELD: Yes. I mean in the report that I submitted, I divided sort of the market up into those different categories and obviously you get traffic aggregation as you go up in that hierarchy where the inner city market you have a lot of traffic to support multiple competitors.
LISTNUM 1 \l 19882 MR. ROGERS: Mr. Watt, can I ask you this question: If it is your view that at least in respect of this set of services, this kind of services that carriers use, you need four suppliers before it can no longer be essential? Three facilities‑based providers is not enough to ensure that there is an adequate competitive supply?
LISTNUM 1 \l 19883 In the wireless market in Canada we have three facilities‑based providers. Would you say that is a market that is not adequately competitive?
LISTNUM 1 \l 19884 MR. WATT: You have three national facilities‑based providers, you also then have SaskTel MTS and a variety of MB&Os. In that case, those companies are ubiquitously competing. By that I mean across 90, 94, 95, 97 per cent of the population.
LISTNUM 1 \l 19885 In the case we are dealing with here on a building‑by‑building basis, we are looking for four facilities‑based fibre‑based collocators because the prospects are that one of those four might go to an individual building, the other one of the four might go to another building, one of them might go from fibre between Adelaide and Eglington wire centres, but it is another one that has the fibre from Eglington to Asquith. So by having the multiplicity we are hoping to get ‑‑ there will be cases where we won't get any actual fibre alternative, but we are hoping in this way to get more widespread choice.
LISTNUM 1 \l 19886 MS BLACKWELL: If I could just add, certainly with the case of the wireless or retail DNA versus what we are looking at in this proceeding, I think the frame of the question is the difference that we are looking at dealing with retail markets. Really the goal there is to protect consumers from anti‑competitive pricing.
LISTNUM 1 \l 19887 I think in the case of wholesale you have different objectives and in that case what you are trying to do is make sure that you have competitive entry at that level.
LISTNUM 1 \l 19888 So there are different objectives between how you are going to deal with how many is enough in the retail market.
LISTNUM 1 \l 19889 MR. ROGERS: Well, Ms Blackwell, all markets have structure whether their retail or wholesale markets and what I'm hearing from you is a kind of inherent doubt or bias against any wholesale market that doesn't have four suppliers in it. That's the gist of your proposal.
LISTNUM 1 \l 19890 We seem to be fine with markets in the rest of the communications sector that function without four. You are not objecting to them, but for this particular DS‑1, DS‑3, you think four is the minimum?
LISTNUM 1 \l 19891 MS BLACKWELL: The number four with respect to DS‑1, DS‑3 loops and DS‑1 transport is part of the Rogers proposal. The logic is based on the economics, the revenue opportunities, the costs associated with serving and, as Mr. Hatfield alluded to, the ability to aggregate traffic at those different capacity levels.
LISTNUM 1 \l 19892 So I think we are following the logic that the FCC went through, we found it compelling. We find as well the statements by the Telecom Policy Review Panel report, and as others, including an expert filed by Bell in its submissions, that the U.S. market has beneficial lessons for Canada to learn in terms of how to apply an access regime in this country.
LISTNUM 1 \l 19893 MR. ROGERS: Fine. I will leave it on that basis and I think, Mr. Chairman, our doubts and concerns about the basis of that entire proxy model are evident from my questions. I will leave it at that and we will move on now to another matter.
LISTNUM 1 \l 19894 THE CHAIRPERSON: Before you go on, maybe on this point I have the same concerns that you have, Mr. Rogers.
LISTNUM 1 \l 19895 I mean, you say two and not enough because there is a likelihood of a duopoly developing. I can understand that. But why do you jump to four? Why wouldn't you peg it at three? That's what I can quite understand.
LISTNUM 1 \l 19896 Clearly you want to ensure that there are opportunities for competitive entry, et cetera, but if you had three ‑‑ I have heard nothing from you saying why it has to be four. I understand why two is not enough, I don't know where you get from two to four.
LISTNUM 1 \l 19897 MS BLACKWELL: I think what I would suggest that the Commission do ‑‑ I really don't think that this exercise of gathering the data is particularly onerous. As Mr. Watt said, it is readily at hand. Frankly, it is because it is so objective and quantitative that it is a quick data check, that if the Commission were to find that: Gosh, you know, if we use three instead of four we think we get a more reasonable answer in terms of where these facilities should be essential, then that is the Commission's prerogative to do so.
LISTNUM 1 \l 19898 But the analysis that the FCC went through said: Well, if we applied a different number they get a different set of wire centres where these facilities would be essential and they felt, based on the evidence that they had in front of them, that the set they got at those thresholds worked for there market.
LISTNUM 1 \l 19899 Based on broad indications about the similarities between the Canadian and U.S. markets we say the starting point, the number four with respect to where the FCC found four, is a good place to start. If your analysis takes you to three and you are comfortable with what that says in terms of where these facilities will be essential, then that is the Commission's decision.
LISTNUM 1 \l 19900 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 19901 COMMISSIONER CRAM: Now I don't understand.
LISTNUM 1 \l 19902 I'm looking at your test in your opening argument and I have changed it in the transport, DS‑3 transport and dark fibre transport, to fewer than three, but for everybody else it is fewer than four, and that means three to me, doesn't it?
LISTNUM 1 \l 19903 Am I totally out to lunch?
LISTNUM 1 \l 19904 MR. WATT: This is a tricky table actually because these are setting out the criteria where mandated access ‑‑
LISTNUM 1 \l 19905 COMMISSIONER CRAM: Ceases.
LISTNUM 1 \l 19906 MR. WATT: ‑‑ is required.
LISTNUM 1 \l 19907 COMMISSIONER CRAM: Is required?
LISTNUM 1 \l 19908 MR. WATT: Is required.
LISTNUM 1 \l 19909 COMMISSIONER CRAM: So it's the reverse. I have it.
LISTNUM 1 \l 19910 MR. WATT: It confused me a lot.
LISTNUM 1 \l 19911 THE CHAIRPERSON: Back to you, Mr. Rogers.
LISTNUM 1 \l 19912 MR. ROGERS: Mr. Watt, I would like to ask you to turn to paragraph 216 of your March evidence.
LISTNUM 1 \l 19913 MR. WATT: Yes, I have it.
LISTNUM 1 \l 19914 MR. ROGERS: In this paragraph, towards the end of that paragraph you are discussing why residential loops are, in your view, essential. The very last sentence says, and I will quote:
"There is also no risk to the investment incentives for the ILECs because the underlying facilities for residential loops are fully deployed and the costs have been recovered." (As read)
LISTNUM 1 \l 19915 Do you see that?
LISTNUM 1 \l 19916 MR. WATT: Yes, I do.
LISTNUM 1 \l 19917 MR. ROGERS: I can basically describe that as the theory that the investments have been made, the plant is there, it was paid for under CRTC rates, so there can be no effect on the ILEC investment incentives in respect of that particular network.
LISTNUM 1 \l 19918 MR. WATT: That is correct. And of course, there is a rate for the unbundled local loop, so the ILECs do receive compensation.
LISTNUM 1 \l 19919 MR. ROGERS: Bearing that in mind, I would like to ask you to turn to the Executive Summary of the same document ‑‑ that is the March 15 evidence ‑‑ at paragraph E‑4.
‑‑‑ Pause
LISTNUM 1 \l 19920 MR. WATT: I have it.
LISTNUM 1 \l 19921 MR. ROGERS: All right. I would like to quote just the beginning of that. It is the first sentence:
"Cable companies have been at the forefront of this new wave and have invested extensively in new technologies that enable them to adapt facilities designed and built for another purpose, namely, the distribution of television signals, to deliver voice communications." (As read)
LISTNUM 1 \l 19922 I am particularly focused on the words "adapt facilities designed and built for another purpose, namely, distribution of television signals, to deliver voice communications."
LISTNUM 1 \l 19923 Members of the panel, some of you have been with the cable industry for quite a while and there was a bit of discussion of this, this morning. Over the years, up until sometime in the mid to late nineties, you will recall that the CRTC approved cap X rate increases ‑‑ there was a brief mention of that in this morning's discussion ‑‑ and those cap X rate increases were there in order to allow the cable companies to expand their capacity; correct?
LISTNUM 1 \l 19924 MR. WATT: They were there. They were in place until, I believe ‑‑ and this would be subject to check ‑‑ around 1993, and then the mechanics changed thereafter. This is for the basic rate component, cap X rate increase, and this was in order to increase the megahertz to allow you to carry instead of 48 television signals, 60 or 72 at that time.
LISTNUM 1 \l 19925 MR. ROGERS: Right.
LISTNUM 1 \l 19926 MR. WATT: I think probably the largest system at that time was a 550 megahertz system.
LISTNUM 1 \l 19927 MR. ROGERS: So it was an effort to increase the digital capacity of the system to be able to carry more television signals under cap X?
LISTNUM 1 \l 19928 MR. WATT: Rogers did not digitize its television system until 1999. This would have been analog capacity ‑‑
LISTNUM 1 \l 19929 MR. ROGERS: All right.
LISTNUM 1 \l 19930 MR. WATT: ‑‑ one‑way analog capacity expansion.
LISTNUM 1 \l 19931 MR. ROGERS: Right. So you ended up getting cap X increases to enlarge the capacity to distribute television signals?
LISTNUM 1 \l 19932 MR. WATT: Cap X rate increases on the basic rate schedule, yes?
LISTNUM 1 \l 19933 MR. ROGERS: And that is why I turn in that context to the language that you use in E‑4 of your Executive Summary. Basically, your evidence says you have invested extensively in new technologies and they have enabled you to adapt facilities designed and built for another purpose, namely, television, to be useable in telecom.
LISTNUM 1 \l 19934 So what I conclude from that, I think what you are saying is by making those investments for television purposes, you essentially got a collateral benefit, a collateral benefit in that you had a platform at that point which was available and useable for the entry into telecom services?
LISTNUM 1 \l 19935 MR. WATT: No, I don't think that is actually ‑‑ we had a platform. What was key was the coaxial cable into the home, that we built into every home as we have gone along with new home subdivisions. So that is the collateral benefit.
LISTNUM 1 \l 19936 In terms of what was the benefit to telephony, what we had to do then was increase our amplifier size so that we would go from 450 megahertz up to currently today in most Rogers systems 860 megahertz. It was done in a couple of phases.
LISTNUM 1 \l 19937 The first phase was to introduce to digital TV and to provide downstream capacity for hi‑speed internet. And when internet became a possibility for us, it involved us having to go and put in two‑way amplifiers so traffic could go in both directions.
LISTNUM 1 \l 19938 So having made that incremental step of making the network two‑way so that we can now use the upstream, we could then, through incremental cap X layered on top of that platform, provide cable telephony services.
LISTNUM 1 \l 19939 In other words, we had a two‑way and then we had, through the late nineties‑early 2000s, increased the number of megahertz so we had a downstream channel available to us in the digital spectrum, so above 450, and then we were able to provide voice service once the packet‑cable specifications were finalized.
LISTNUM 1 \l 19940 MR. ROGERS: Right. I am not going to dispute the details of the cable rollout that you have just described.
LISTNUM 1 \l 19941 What I wanted to understand and confirm is that at least during the period when the Commission was approving rate increases under the cap X formula, you were able, through that financing approved by the Commission, to enlarge the capacity, the throughput capacity of your cable system and that was the whole point of doing it, and now it turns out you have done a lot of other things as well, which you just described, and out of that, you were able to create a platform that can produce telecom services?
LISTNUM 1 \l 19942 MR. WATT: It is the direct linking to the cap X rate increases in the early nineties ‑‑ I don't like to tie the benefit of those rate increases from the 1990 period.
LISTNUM 1 \l 19943 When we introduced telephony in 2005, we spent literally billions of dollars. Rogers Cable spent approximately $7 billion between '97 and 2005 and that allows us to provide the whole suite of digital television services, internet and telephony.
LISTNUM 1 \l 19944 We indicated to you in the local forbearance decision, to service in the order of 300,000 residential telephony customers, our upfront capital expenditures were in the order of $250‑300 million and the incremental costs per customer were about $350‑360 on top of that expense.
LISTNUM 1 \l 19945 MR. ROGERS: I understand and I won't contest that you spent billions of dollars post‑1997 or whenever it was that you said that it began.
LISTNUM 1 \l 19946 You would agree that during the same period the ILECs were also spending billions of dollars to improve their networks and post‑'97, post‑'98, they were no longer under a rate of return? If there had ever been a guarantee, as you said this morning, those guarantees left with the price cap.
LISTNUM 1 \l 19947 So they were into basic market economics with no assurance of rate of return or rate increases. They were basically under the same regime that you were operating under, you invest your money and you take your risk?
LISTNUM 1 \l 19948 MR. WATT: Well, I think for the unbundled ‑‑ it is not unbundled at this point. But for the copper loop, if we have had household growth of a percent and a half a year over the last 10 years, you can do the math but for 80‑85 percent of the locations, the copper loop went into those locations under a rate‑based rate of return to a guaranteed return scenario.
LISTNUM 1 \l 19949 That wasn't the case in the cable industry. That is my point this morning.
LISTNUM 1 \l 19950 MR. ROGERS: I wasn't going to go back to this, Mr. Watt, but it strikes me that that is the theory that the copper is there and nothing ever happens to it, no one touches it, no one upgrades it, no one maintains it, it requires no capital expenditure, it was paid for 30 years ago, so it is a zero‑cost asset; isn't that what you are saying?
LISTNUM 1 \l 19951 MR. WATT: No, that is not what I am saying. I understand that it requires maintenance, et cetera, and that is in fact why people who take unbundled local loops pay $10 in Band A and $12 in B and $16 in C, et cetera.
LISTNUM 1 \l 19952 MR. ROGERS: All right. Well, let's look at this from a slightly different perspective, from a third party.
LISTNUM 1 \l 19953 There are a number of parties in this proceeding ‑‑ Cybersurf would be one ‑‑ that propose to continue mandated access, TPIA, to your system and in fact they want to expand it to include more of the functionality of the cable companies.
LISTNUM 1 \l 19954 Bearing in mind what you said in paragraph 216 about no adverse effect on ILEC investments, no risk to their incentives, if the Commission was to as a result of this proceeding mandate even broader access to the functionality of the cablecos, would you also say that there would be no risk to the cable company investment incentives?
LISTNUM 1 \l 19955 MR. WATT: Rogers has never made the arguments that it was reducing its investment in high speed Internet, given the prospect of having third party Internet access mandated for it.
LISTNUM 1 \l 19956 MR. ROGERS: You describe the service as a commercial failure. So of course it would have an effect.
LISTNUM 1 \l 19957 MR. WATT: No. I'm not making myself clear.
LISTNUM 1 \l 19958 I'm saying that we did not decrease our level of investment in providing high speed Internet service to customers. The investment required to do that, one cent in view of the prospect of having third party access mandated, it simply did not diminish our investment incentives. This was a growing market. There was an opportunity for us to take the lead and we indeed are proud to have that lead.
LISTNUM 1 \l 19959 MR. ROGERS: My question wasn't what historically happened. My question was a hypothetical going forward.
LISTNUM 1 \l 19960 You said in your evidence that we read a moment ago that if the Commission continues to mandate access to ILEC loops and that sort of thing, there will be no adverse effect on the incumbents' investment incentives.
LISTNUM 1 \l 19961 I asked you the hypothetical: If the Cybersurf view of the world was to prevail with the Commission and what they have asked for is not just TPIA but even broader access, if they were to get broader access to your functionality generally on your cable platform, would it or would it not have any effect on the investment incentives of Rogers?
LISTNUM 1 \l 19962 MR. WATT: Given the broader competitive environment in the industries in which Rogers operates, no, I don't think it would have a significant negative impact on our investment incentives.
LISTNUM 1 \l 19963 We face intense competition for ‑‑ well, you know the story ‑‑ intense competition for television, for Internet, for telephony, wireless, every service we offer.
LISTNUM 1 \l 19964 So we are going to invest.
LISTNUM 1 \l 19965 THE CHAIRPERSON: Mr. Rogers, I don't believe there is any indication or notice that we are going to expand the essential facilities, so I don't know why you are pursuing this line of questioning.
LISTNUM 1 \l 19966 This is a review hearing of existing essential facilities mandating. I don't believe there is anything in our notice that suggests that we are going to expand the existing essential facilities.
LISTNUM 1 \l 19967 MR. ROGERS: I take that and I understand, Mr. Chairman. It was raised by some of the parties I was referring to, but I am content to leave the subject and move on.
LISTNUM 1 \l 19968 Mr. Watt, in this proceeding Rogers is seeking mandated access ‑‑ and just to enumerate the incumbent facilities: ILEC loops, wholesale DS‑1 on any loops served by remotes, or wholesale ADSL and high capacity Ethernet, outside bands A and B. Correct?
LISTNUM 1 \l 19969 MR. WATT: Correct.
LISTNUM 1 \l 19970 MR. ROGERS: And Rogers' view on this is that it is not possible to economically duplicate this functionality even if Rogers was given say a three‑to‑five year transition plan. It must be made available on a mandated basis.
LISTNUM 1 \l 19971 MR. WATT: That is correct, subject to our proxy model criteria being satisfied, in which case we understand those services would no longer be mandated.
LISTNUM 1 \l 19972 MR. ROGERS: You know that independent ISPs in this proceeding are certainly interested in continuing to have mandated access to your facilities. Your position for independent ISP seeking mandated access to cable broadband is they have lots of alternatives.
LISTNUM 1 \l 19973 I will ask you at this point to turn to Tab 4 in the materials that I have provided to you.
LISTNUM 1 \l 19974 Do you have that?
LISTNUM 1 \l 19975 MR. WATT: I do have it.
LISTNUM 1 \l 19976 MR. ROGERS: At the bottom of the first page of that ‑‑ and the interrog, just for the record for everyone else, is Rogers‑CRTC12April07‑204.
LISTNUM 1 \l 19977 The answer at the bottom of the page given by Rogers is ‑‑ this is Part (a):
"Service providers are using a number of alternatives to ILEC and cable company wholesale services to provide broadband services. These alternatives are a variety of wireless technologies, fibre networks, satellite networks and copper based networks." (As read)
LISTNUM 1 \l 19978 And then you go on further to refer to the Cogeco appendix which has a further discussion of these topics.
LISTNUM 1 \l 19979 So you say that they have lots of alternatives.
LISTNUM 1 \l 19980 I would suggest to you that Rogers' view on this point has actually been very consistent across a number of proceedings.
LISTNUM 1 \l 19981 I would ask you to turn next to Tab 5 in the compendium of documents that I gave you.
LISTNUM 1 \l 19982 MR. WATT: Yes, I have it.
LISTNUM 1 \l 19983 MR. ROGERS: And just for the record of those trying to follow along, this is the Rogers comments filed in respect of the application by Barrett Explorer seeking to review and vary parts of the deferral account decision.
LISTNUM 1 \l 19984 That comment was filed on July 5. So it's in another proceeding.
LISTNUM 1 \l 19985 I would ask you, Mr. Watt, to turn to page 4 of that.
LISTNUM 1 \l 19986 MR. WATT: Yes, I have it.
LISTNUM 1 \l 19987 MR. ROGERS: At page 4, the text begins:
"With up to $620 million in subsidies being made available solely to the ILECs to support only their network expansion, the Commission is ignoring the fact that many other network providers are financing their own broadband networks in many of these same rural and remote areas."
LISTNUM 1 \l 19988 MR. WATT: Excuse me.
LISTNUM 1 \l 19989 COMMISSIONER CRAM: Paragraph 4, not page 4.
LISTNUM 1 \l 19990 MR. ROGERS: Paragraph 4, excuse me.
LISTNUM 1 \l 19991 I will give you time to turn that up.
LISTNUM 1 \l 19992 MR. WATT: I have paragraph 4, yes.
LISTNUM 1 \l 19993 MR. ROGERS: I will just go back to the point that I was reading.
LISTNUM 1 \l 19994 It's the first sentence:
"With up to $620 million in subsidies being made available solely to the ILECs to support only their network expansion, the Commission is ignoring the fact that many other network providers are financing their own broadband networks in many of these same rural and remote areas."
(As read)
LISTNUM 1 \l 19995 Do you see that?
LISTNUM 1 \l 19996 And then immediately after that Rogers goes on to describe its Inukshuk investments.
LISTNUM 1 \l 19997 I would ask you to recall from our discussion earlier about the economics of serving dense versus less dense, concentrated or unconcentrated, longer loop lengths and so on, it would seem to me that providing network services, particularly broadband, in remote and rural areas is likely to be not as good as providing broadband in more urban areas.
LISTNUM 1 \l 19998 Would you agree?
LISTNUM 1 \l 19999 MR. WATT: Yes, I would agree with that.
LISTNUM 1 \l 110000 MR. ROGERS: So when you have the submission coming in which addresses remote and rural, which is the point of the Barrett Explorer review in Barrie, and when you respond to the independent ISPs looking for access to your network, your answer is there is lots of choice out there. There is broadband being built by all kinds of independent parties other than the ILECs. There are lots of choices and actual networks being built.
LISTNUM 1 \l 110001 But when you are looking for access in certain urban markets ‑‑ and I'm thinking of the business market, DS‑1s and DS‑3s ‑‑ you are saying you can't afford to build. You can't afford to buy it from third parties.
LISTNUM 1 \l 110002 Rogers, with its market cap of in excess of $30 billion, can't afford to build or buy or arrange for these facilities, the kinds we talked about earlier, local loops, DS‑1s, DS‑3s, Ethernet, notwithstanding your decision to build out a greenfield operation in Oakville and Burlington, notwithstanding your position with the ISPs ‑‑ you can say they don't need cable; they can go elsewhere and they can build their own.
LISTNUM 1 \l 110003 But when you need access, you want it mandated at CRTC prices in some of the best areas by your own economics: shortest loop lengths, highest customer density. You need the subsidy and you need the intervention. Nobody else does.
LISTNUM 1 \l 110004 MR. WATT: I will try and remember the question there.
LISTNUM 1 \l 110005 What I would say is we are looking at third party Internet access. There are two ubiquitous suppliers that a third party can come and deal with; that being the telcos and the ILECs in the residential market.
LISTNUM 1 \l 110006 In contrast, when we look at the business market, while there are pockets and growing pockets of alternative supply, there are many areas where there is not the alternative supply. Very simply, in the absence of telco mandated facilities, there will be a monopoly.
LISTNUM 1 \l 110007 And even as those alternative facilities grow, and we hope they will, there will be for a long time the requirement to have access to the mandated facilities if a competitor hopes to provide any type of multi‑location enterprise companies, if you want to serve that type of company.
LISTNUM 1 \l 110008 So we think the circumstances are very different. You know, there is a bit of problem actually for access, for high‑speed internet, for independent providers when it comes to the business market, in that where they have a choice and can use the telcos or Rogers or a cable company in the residential market they really don't have the same opportunity in the business market because we simply are, as we have discussed at length, not into very many buildings.
LISTNUM 1 \l 110009 MR. ROGERS: I will just wrap it up by saying, it strikes me as odd, Mr. Watt, that given all the success that you evidently have had, and it is repeated in your opening statement, and admirable success over these many years, that your company probably more than any is in a position to manage this transition.
LISTNUM 1 \l 110010 Everyone is talking about a transition period of three years or five years. You have the deepest pockets and the greatest resources to figure out how to get into these markets and when you talk about remote and rural you say, they are fine, there is lots of stuff going in there. When you talk to the ISPs you say they don't need access to cable, but you apparently do. And I am just troubled by your apparent inability to come to grips with that even if given a three to five‑year notice.
LISTNUM 1 \l 110011 MR. WATT: Well actually, if I could go back to and maybe address directly the Barrett Xplore issue. I think it is not fair to those people who are investing their money that the ILECs are being given $620 million solely to themselves in order to expand their networks. Certainly, going to make their opportunity to expand their alternative networks much much more difficult. That was the simple point there.
LISTNUM 1 \l 110012 We have to talk about these people providing the alternative services. Those alternative services, in some cases, are maybe approaching the equivalent to what the telephone companies will be able to provide with the $620 million. But the satellite‑based internet services are not generally equivalent to what the telcos will be able to provide with the fibre‑fed copper networks that will be subsidized by the $620 million, so it is a serious issue.
LISTNUM 1 \l 110013 DR. WARE: Counsel, could I just add something to what you just said?
LISTNUM 1 \l 110014 It is really not a question of how deep the pocket of Rogers or any other company is or whether the transition period is three to five years. Just to echo what Mr. Hatfield at the other end of the table said a few minutes ago, the logic of economies of scale are really about whether it is economically feasible to enter these individual markets and that is not a function of how deep your pocket is or whether it is three years or five years or seven years. It is simply a function of whether it is economic.
LISTNUM 1 \l 110015 MR. ROGERS: I think we have probably exhausted that topic, Mr. Chairman. I am prepared to move on. I think our differences are evident.
LISTNUM 1 \l 110016 Mr. Watt, I would ask you to go back to the opening statement that you have circulated. And ask you to turn to the very last page, that is Roman numeral V, and have a look at the bullet at the bottom of the page, this is the very last item in the entire statement.
LISTNUM 1 \l 110017 You have got that?
LISTNUM 1 \l 110018 MR. WATT: I do.
LISTNUM 1 \l 110019 MR. ROGERS: In that bullet you say:
"The ILECs should be subject to a most favoured nation obligation that ensures the competitors can access the same services the of the ILECs' own customers on non‑discriminatory terms and conditions." (As Read)
LISTNUM 1 \l 110020 Just to understand the context of that, this would be after the end of a transition period and it would apply with respect to nonessential services including those that are forborne, is that your proposal?
LISTNUM 1 \l 110021 MR. WATT: Yes, that is correct.
LISTNUM 1 \l 110022 MR. ROGERS: So there will, as we talked about in the very beginning of our dialogue, that there will be some services which are declared to be nonessential and will become forborne, you are proposing to add this MFN or most favoured nation clause as an obligation that would carryon after that.
LISTNUM 1 \l 110023 We have had, Mr. Watt, I think you would agree, a lot of forbearance decisions over the years by the Commission. You can go back to the very early ones on terminal equipment ages ago, we have had switch long distance in 1997, we had inter‑exchange digital private lines also in 1997 and then, more recently, a number of others.
LISTNUM 1 \l 110024 The Commission has often required resale to be mandatory as a condition of the forbearance order. It is sometimes applied a section 27(2) non‑discrimination provision. But, to your knowledge, has the Commission ever imposed an express MFN obligation on a forbearance service?
LISTNUM 1 \l 110025 MR. WATT: Well, what comes to mind, and really the similar type protection we are looking for is the case of long distance forbearance where the existing basic toll schedule remained in place as protection for people who just didn't want to subscribe to a plan, et cetera. And so they were protected from the prospect of there being rate increases in that schedule, so they always have that option.
LISTNUM 1 \l 110026 Our concern here is that we want to, if we needed a piece of a facility or service, we would like to get the same rate as provided to the Royal Bank if we are taking the same volume under the same terms and conditions. We don't want to, by virtue of the fact that we are a competitor, face a premium on the services that we take from the telephone companies.
LISTNUM 1 \l 110027 MR. ROGERS: Well, I think we may be talking about two different things. You started off by saying or referring back to the retention of the basic toll schedule in the 1997 forbearance order. As you know, that is really a set of posted rates, which is distinguished by its non‑use. So it is there available if anyone wants to use it. But, in fact, the business is not done off the standard schedule, it is done off negotiated rates, isn't that correct?
LISTNUM 1 \l 110028 MR. WATT: Yes, that is absolutely correct. But the end effect we are looking for is to try and prevent, in the long‑distance case, exploitation of people who use the basic toll schedule and, in our case, the exploitation of competitors who wish to take at retail rates the services offered by the telephone companies to their largest customers when we meet the same volume and terms conditions.
LISTNUM 1 \l 110029 MR. ROGERS: I think you agreed with me that there is no express MFN obligation that has been imposed on the ILECs on any of their forbearance services to date. This is the detailed clause by clause, the Royal Bank provision that you were talking about, there is no such obligation in the orders today, is there?
LISTNUM 1 \l 110030 MR. WATT: No, I don't believe there is.
LISTNUM 1 \l 110031 MR. ROGERS: And we have been, the Commission and the telecom world, has been living with forbearance for the years that we have talked about, certainly 1997 were landmark decisions, and the world seems to have unfolded as it should, people are getting by pretty well on IXPL and switch long‑distance services. At what point did it occur to you that the Commission was fundamentally failing to implement forbearance the way it should?
LISTNUM 1 \l 110032 MR. WATT: Well, we don't think that they are, but you say that the maintenance of the long‑distance toll schedule is distinguished mostly by its non‑use. But of course, that is exactly what you would want to occur. By its mere presence it is doing the job that it has intended to do.
LISTNUM 1 \l 110033 MR. ROGERS: Well, we are on common ground that this is a new measure which you think is required. And you want to bring it forward on all forborne services. Let me ask, would it apply to the forborne services that had been forborne since 1997? Do you want to add that as a new provision?
LISTNUM 1 \l 110034 MR. WATT: No, we wouldn't do that.
LISTNUM 1 \l 110035 MR. ROGERS: You would do it with respect to all newly forborne services?
LISTNUM 1 \l 110036 MR. WATT: Yes, the competitor services.
LISTNUM 1 \l 110037 MR. ROGERS: The competitor services. So this is a new regulatory measure which we haven't seen the Commission use before, and I would ask you to consider the provisions of the policy direction, which I know you would be quite familiar with. They require all of us to move forward in a new framework that relies on market forces to the maximum extent possible, and to interfere with market forces when regulation is applied to the minimum extent possible.
LISTNUM 1 \l 110038 I am not sure that I understand how the introduction of a new regulatory measure, which would be a contractual constraint, which we have gotten by with quite well not using ‑‑ how does this fit with the policy direction that I just read to you?
LISTNUM 1 \l 110039 MS BLACKWELL: If I could perhaps add to this discussion ‑‑ and I will try to be brief.
LISTNUM 1 \l 110040 As you mentioned, we have a section 27(2) non‑discrimination clause, and the MFN process is to provide transparency. While you may say that Canada and the CRTC have not used it, it is not something that is unknown within the telecom regulatory purview.
LISTNUM 1 \l 110041 Section 252 of the U.S. Telecom Act has a clause that says: A local exchange carrier may make available various things, including network elements, provided under agreement, approved under this section, to any other requesting telecommunications carrier upon the same terms and conditions as those provided in the agreement.
LISTNUM 1 \l 110042 Ofcom, in getting an undertaking from British Telecom, also has a clause at 8.3 of that undertaking, given on the 22nd of September 2005, that: In such circumstances, BT shall ensure that other communications providers shall be able, in dealing with the upstream division, in relation to the purchase of products, to purchase them on exactly the same terms and conditions, including price, as offered by the downstream divisions, saving where differences are trivial and where there are material differences between the products.
LISTNUM 1 \l 110043 In terms of what does an MFN provision do, I think it is really, essentially, just that.
LISTNUM 1 \l 110044 MR. ROGERS: Ms Blackwell, I think, if anything, for me, your response simply illustrated the problem rather than solved it. What you did is, you quoted from a number of decisions under a section of the U.S. Communications Act in which there were either regulatory obligations or undertakings accepted to provide the same terms and conditions.
LISTNUM 1 \l 110045 I think that was the language, under exactly the same terms and conditions.
LISTNUM 1 \l 110046 That precisely illustrates the difficulty with this notion.
LISTNUM 1 \l 110047 I would ask you to consider whether or not ‑‑ and, Mr. Watt, you have some experience as well as Ms Blackwell in this area. When the Commission does say that section 27(2), non‑discrimination, applies, it has always been my recollection that what they mean is: No unjust discrimination.
LISTNUM 1 \l 110048 That is the language from the statute.
LISTNUM 1 \l 110049 It doesn't require you to have exactly the same terms and conditions and prices for all customers to be compliant.
LISTNUM 1 \l 110050 So what, it seems to me, you are proposing is actually contrary to the language of our statute.
LISTNUM 1 \l 110051 You may want to think about it.
LISTNUM 1 \l 110052 MS BLACKWELL: I am just thinking about the fact that I am not a lawyer, and this is really branching into legal issues.
LISTNUM 1 \l 110053 MR. ROGERS: That's fine. I accept that, and I am not going to ask you for a legal answer.
LISTNUM 1 \l 110054 In fact, I am prepared to move on beyond that question to something else.
LISTNUM 1 \l 110055 THE CHAIRPERSON: I have a follow‑up.
LISTNUM 1 \l 110056 The principle of MFN I understand well as a former trade negotiator; I just don't understand how you would apply it here.
LISTNUM 1 \l 110057 The ILECs don't sell unbundled loops to any of their customers. You are talking about retail prices. Are you suggesting the retail price for the whole package that they sell, and then divide and take out the proportion which represents the cost of the unbundled loops?
LISTNUM 1 \l 110058 If you got this, how would you actually apply it? How would you operationalize it?
LISTNUM 1 \l 110059 MR. WATT: Say, for example, for the retail DNA service, if we ultimately ended up needing it to fill out a multi‑location offer, we would want to get that service at the same rates and terms for the similar volume, so that we would not be discriminated against.
LISTNUM 1 \l 110060 Otherwise, you would, effectively, be cutting us out from the market, unless we were incredibly efficient, where we had our own facilities. If we are paying a premium on the other side, we are not going to be able to bid on that type of contract.
LISTNUM 1 \l 110061 THE CHAIRPERSON: You are not talking about unbundled loops, then, you are talking, actually, retail.
LISTNUM 1 \l 110062 MR. WATT: Retail, yes.
LISTNUM 1 \l 110063 THE CHAIRPERSON: For the whole thing.
LISTNUM 1 \l 110064 You might be buying a lot of surplus stuff that you don't need, but you would have the ability of a guaranteed supply. That's what you would ‑‑
LISTNUM 1 \l 110065 MR. WATT: Yes.
LISTNUM 1 \l 110066 THE CHAIRPERSON: All right. Thank you.
LISTNUM 1 \l 110067 MR. ROGERS: Mr. Watt, this intervention actually anticipates where I was going.
LISTNUM 1 \l 110068 It seems to me that the operationalization of the proposal you are making raises a number of very practical problems.
LISTNUM 1 \l 110069 Tell me, you are not suggesting that all contracts, by all ILECs, for any of these services, with any customer, be filed with the Commission for review or approval, or just for checking?
LISTNUM 1 \l 110070 You are not suggesting that, are you?
LISTNUM 1 \l 110071 MR. WATT: No, I am not suggesting that.
LISTNUM 1 \l 110072 MR. ROGERS: So we are in a practical situation where, let's say, the Royal Bank has struck a deal, which, of course, will be a confidential deal, in respect of those services. How, in practical terms, does anyone make this operational?
LISTNUM 1 \l 110073 Are you going to demand from the ILEC, "I want to see a copy of all your bank contracts, and I want to cherry‑pick the clauses I like"?
LISTNUM 1 \l 110074 Is that the way it works?
LISTNUM 1 \l 110075 MR. WATT: No, we are not going to cherry‑pick. I think what we would be looking for has been done in other circumstances, where there is an affidavit from an officer of the company that would verify that we were not being discriminated against.
LISTNUM 1 \l 110076 MR. ROGERS: The difficulty with this type of comparing contracts ‑‑ and it's inherent to the issue of most favoured nation ‑‑ is that no one deal is identical to another. There could well be service terms or rates which are actually different, but they are taken into account by the fact that there may be a major investment by the ILEC to serve that customer on a very long‑term commitment, and some other contractual benefits that would flow, which, in the aggregate, would justify those particular terms.
LISTNUM 1 \l 110077 If you look at only the elements that are interesting to you, you are ignoring the rest of the deal. It just doesn't seem that you could find anything that would be precisely comparable to your needs.
LISTNUM 1 \l 110078 MR. WATT: We understand that it wouldn't be simple or easy, but if it's reasonably comparable to our needs, we think we should get the same terms and conditions.
LISTNUM 1 \l 110079 MR. ROGERS: So, in your view, forbearance as we have been doing it for the last 15 years has sort of missed out on this fundamental point. The Commission needs to be involved in more supervision of these freely negotiated contracts.
LISTNUM 1 \l 110080 MS BLACKWELL: Mr. Rogers, I think it might be helpful to go back to paragraph 183 of Rogers' March evidence, where we first talk about this. We said that ILECs should be subject to a most favoured nation obligation that ensures competitors can access the same services as the ILEC's own customers on non‑discriminatory terms and conditions.
LISTNUM 1 \l 110081 That is really the objective of this provision.
LISTNUM 1 \l 110082 And it is something that we see on the broadcasting side, so it is not something that doesn't exist at all in the Canadian environment, either.
LISTNUM 1 \l 110083 We have talked about why we have this proposal and what we are hoping to achieve through it.
LISTNUM 1 \l 110084 MR. ROGERS: That's fine. I think we will probably leave it. We are on common ground that this is a new measure. I thought we were involved in an exercise of scaling back the degree of involvement of the Commission to only what is necessary, but you would like to push it out a little further and get them involved.
LISTNUM 1 \l 110085 I understand your position. We will leave it at that and we will go on to something else.
LISTNUM 1 \l 110086 MR. WATT: We want to ensure vibrant, sustainable competition.
LISTNUM 1 \l 110087 MR. ROGERS: Evidently.
LISTNUM 1 \l 110088 I have a question for you, Dr. Ware. I would like you to turn to your July 5 statement, which is the supplemental evidence of Rogers.
LISTNUM 1 \l 110089 DR. WARE: Yes, I have that.
LISTNUM 1 \l 110090 MR. ROGERS: In particular, I would ask you to turn to paragraph 17 of your statement of July 5.
LISTNUM 1 \l 110091 DR. WARE: Yes, I have that.
LISTNUM 1 \l 110092 MR. ROGERS: Looking at the opening words of the paragraph, this is your discussion of your concerns about market structure, and, in support of your views, you quote from a speech given by the Commissioner of Competition on June 13 at the Telecom Summit, and the quote immediately follows on that page.
LISTNUM 1 \l 110093 I would like you to look at the quote from that speech that you used in paragraph 17. Right at the end of the quote, still on the same page, it ends with a sentence in which some of the words are italicized. Those italicized words are, and I quote:
"Naturally there are serious questions as to whether a duopoly itself is adequately competitive, especially given the large market shares of some of the participants." (As read)
LISTNUM 1 \l 110094 MR. WARE: Yes, that's correct.
LISTNUM 1 \l 110095 MR. ROGERS: I would like you, Dr. Ware, to turn now to the full text of the Commissioner's speech. I provided a copy of the full text to you and your counsel. It should also be included in the compendium of materials at the very back that I provided to the Commissioners and others.
LISTNUM 1 \l 110096 MR. WARE: I have a copy of it.
LISTNUM 1 \l 110097 MR. ROGERS: You have it. I just wanted to make sure that the Commissioners have it as well.
LISTNUM 1 \l 110098 That is the full text of the remarks of Commissioner Sheridan Scott. I'm going to the bottom of page 2 of her speech and I would like to examine what the Commissioner said.
LISTNUM 1 \l 110099 In the words that you quoted we had a look at the quote and you used italicized. We read that earlier. I would like to look at the words immediately following the words that you quoted.
LISTNUM 1 \l 110100 The Commissioner answers the question that she raised regarding duopoly. She says that whether duopoly is adequately competitive:
"... depends on the circumstances."
LISTNUM 1 \l 110101 She then explains that duopolies can be extremely competitive. I will read a few lines from what she said.
"The number of competitors in a market is not by itself the sole determining factor in assessing competitiveness. One does not have to look any further than to look at the Coke‑Pepsi rivalry to understand that even duopolies can be extremely competitive under certain conditions, for example: Do the competitors have similar or lower costs? Is bundling a feature of the market? Is the market static or continuing to grow..." (As read)
LISTNUM 1 \l 110102 And so on.
LISTNUM 1 \l 110103 Do you see that language from her text.
LISTNUM 1 \l 110104 MR. WARE: Yes, I do.
LISTNUM 1 \l 110105 MR. ROGERS: Your quote from the Commissioner's speech includes the sentence where she raised the question of duopoly. She identified it as an issue. But you left out the part that immediately follows where the Commissioner answers the question.
LISTNUM 1 \l 110106 MR. WARE: Well ‑‑
LISTNUM 1 \l 110107 MR. ROGERS: Her example illustrates how duopolies can in fact be extremely competitive.
LISTNUM 1 \l 110108 MR. WARE: Well, she doesn't answer the question, with respect, counsel. Her answer is a clear maybe. That's her answer.
LISTNUM 1 \l 110109 I'm quite sure if the Commissioner of Competition were here she would not suggest that Coke and Pepsi do not have market power. It may be a competitive market, but I'm sure that she would concede that they have market power.
LISTNUM 1 \l 110110 MR. ROGERS: Well, Dr. Ware, my concern is that you have simply quoted the words at the beginning which raise the question of ‑‑ these are literally her words ‑‑ of whether or not duopoly is a question. And she raises that and then what she does is she goes on to give her analysis of how to deal with the problem and the considerations that bear upon that analysis.
LISTNUM 1 \l 110111 Of course it is understood that the Commissioner is not going to answer a hypothetical case that may come before her where there are no facts, but what she will do is give you the parameters and considerations that she considers to be relevant to the problem and you left that out. What I suggest to you is that your selective quotation, which fails to include her analytical framework, will leave the reader with an incorrect understanding of what the Commissioner actually thinks about the problem.
LISTNUM 1 \l 110112 MR. WARE: I don't agree with that, counsel. As I say, she does raise the question, but she doesn't answer the question. I don't think there is anything in the paragraph that you are saying I left out which suggests that she regards a duopoly as being competitive, as being competitive in the sense of not ‑‑ where there is no significant market power.
LISTNUM 1 \l 110113 MR. ROGERS: She states pretty clearly that duopolies can be competitive and then she tells you the analytical framework and circumstances under which that can be the case.
LISTNUM 1 \l 110114 It seems to me that if you leave out that analysis you are leaving the reader with the impression that the Commissioner is totally opposed to monopolies, that they cannot be competitive.
LISTNUM 1 \l 110115 MR. WARE: Well, I'm ‑‑
LISTNUM 1 \l 110116 MR. ROGERS: Duopolies. I said duopolies, I meant monopolies ‑‑ I meant duopolies.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 110117 MR. WARE: I'm happy that you have drawn my attention and the Commission's attention to this additional paragraph. I mean, I have no problem embracing that paragraph with the rest of the quote. If you think it adds something, I don't have any objection to that.
LISTNUM 1 \l 110118 Personally, what I was trying to do here is to simply put it on the record that the Commissioner has, as I put it, she raises a serious question about whether a duopoly itself is adequately competitive.
LISTNUM 1 \l 110119 As I said earlier today, I mean it certainly is the case that with respect to mergers competition authorities around the world do not allow three‑to‑two mergers to proceed without extraordinary increases in efficiency.
LISTNUM 1 \l 110120 MR. ROGERS: Well, I'm not asking you for your background commentary. What I am suggesting to you is that in the context of this proceeding that we are in you introduced the quote from the Commissioner's speech and the Commissioner was speaking to the telecom industry about the very circumstances that are relevant, or could be relevant to this industry, and we are suggesting to you that in order to get a complete understanding of what the Commissioner said you need a complete reading of what the Commissioner said on that point. To simply select one or two lines out and leave her analytical framework and approach out is just not enough.
LISTNUM 1 \l 110121 THE CHAIRPERSON: Mr. Rogers, I think you have made your point. Let's move on.
LISTNUM 1 \l 110122 MR. ROGERS: Mr. Chairman, that does complete my questions. I have no further questions for this panel.
LISTNUM 1 \l 110123 THE CHAIRPERSON: All right. Thank you very much.
LISTNUM 1 \l 110124 Who do we have next, Madam Secretary?
LISTNUM 1 \l 110125 THE SECRETARY: We have next the panel of MTS. I am asking Counsel Koch to move forward.
LISTNUM 1 \l 110126 In the meantime, we will receive exhibits from Mr. Rogers:
LISTNUM 1 \l 110127 Exhibit No. TELUS‑1 is the August 17th letter regarding the application by Rogers Cable Communication to amend Class 1 original licence for cable broadcasting.
EXHIBIT TELUS‑1: Rogers Cable letter dated Aug.17,2007 re: Application by Rogers Cable Communications Inc. to Amend Class 1 Regional Licence for Cable Broadcasting Distribution Undertakings in Ontario
LISTNUM 1 \l 110128 THE SECRETARY: Exhibit No. TELUS‑2, letter July 5th, application to review and vary telecom Decision CRTC 2006‑9.
EXHIBIT TELUS‑2: Rogers letter dated July 5, 2006 re: Application to Review and Varyu Telecom Decision CRTC 2006-9 - Disposition of Funds in the Deferral Accounts
LISTNUM 1 \l 110129 THE SECRETARY: Exhibit No. TELUS‑3, the Speaking Notes from the Competition Bureau for Sheridan Scott dated June 13, 2007.
EXHIBIT TELUS‑3: Competition Bureau - Speaking Notes for Sheridan Scott - June 13, 2007
LISTNUM 1 \l 110130 THE SECRETARY: Thank you.
LISTNUM 1 \l 110131 THE CHAIRPERSON: Mr. Koch, the same goes for you as everybody else, please don't repeat yourself and tell us where you are going and don't spare us a punch line.
LISTNUM 1 \l 110132 MR. KOCH: All right. I will be quick, Mr. Chairman. I have two areas to examine an.
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 110133 MR. KOCH: The first is for you, Mr. Hatfield, and it deals with Ethernet.
LISTNUM 1 \l 110134 If I could ask you to turn to page 3 of your report, which is Appendix 2 to Rogers March 15 evidence.
LISTNUM 1 \l 110135 Do you have that, sir?
LISTNUM 1 \l 110136 MR. HATFIELD: Page 3?
LISTNUM 1 \l 110137 MR. KOCH: It is page 3, yes.
LISTNUM 1 \l 110138 MR. HATFIELD: I have it.
LISTNUM 1 \l 110139 MR. KOCH: I will just take a moment to let the Commissioners turn up the page there.
‑‑‑ Pause
LISTNUM 1 \l 110140 MR. KOCH: Here you have graphically set out, Mr. Hatfield, your protocol stack.
LISTNUM 1 \l 110141 Is that correct?
LISTNUM 1 \l 110142 MR. HATFIELD: Yes, sir.
LISTNUM 1 \l 110143 MR. KOCH: Second from the bottom you have the physical layer and then right above that you have the datalink layer.
LISTNUM 1 \l 110144 Correct?
LISTNUM 1 \l 110145 MR. HATFIELD: That is correct.
LISTNUM 1 \l 110146 MR. KOCH: All right. At the bottom of the page you provide as an example of the datalink layer ‑‑ well, Ethernet is one of the examples you provide.
LISTNUM 1 \l 110147 Correct?
LISTNUM 1 \l 110148 MR. HATFIELD: That's correct.
LISTNUM 1 \l 110149 MR. KOCH: Would it be fair to say, Mr. Hatfield, that today Ethernet has become a bit of a leading standard for service to large business and enterprise customers?
LISTNUM 1 \l 110150 MR. HATFIELD: Yes, I think that is accurate.
LISTNUM 1 \l 110151 MR. KOCH: All right. You wouldn't want to be in the enterprise market without being able to offer Ethernet service, would you?
LISTNUM 1 \l 110152 MR. HATFIELD: Yes. The only reason I'm hesitating, I have not done a detailed study but I think that is certainly consistent with my impressions.
LISTNUM 1 \l 110153 MR. KOCH: All right. Now, this morning you discussed with Mr. Hofley provisioning Ethernet using ‑‑ I think it was DS‑3 private lines.
LISTNUM 1 \l 110154 Do you recall the discussion?
LISTNUM 1 \l 110155 MR. HATFIELD: Yes.
LISTNUM 1 \l 110156 MR. KOCH: Just to be clear, the DS‑3 private line, that would also have a datalink layer, would it not?
LISTNUM 1 \l 110157 MR. HATFIELD: Yes, sir.
LISTNUM 1 \l 110158 MR. KOCH: Can you tell the Panel a little bit about how the DS‑3 and the Ethernet map onto each other. In other words, are the DS‑3s ‑‑ let's first talk about the speed of the DS‑3s.
LISTNUM 1 \l 110159 What is the speed of a DS‑3?
LISTNUM 1 \l 110160 MR. HATFIELD: Roughly 45 megabits per second.
LISTNUM 1 \l 110161 MR. KOCH: The increments in which the Ethernet is available are what?
LISTNUM 1 \l 110162 MR. HATFIELD: The common ones that I'm familiar with, 10 and 100.
LISTNUM 1 \l 110163 MR. KOCH: If one had to provision for example 10 over a DS‑3, 10 megabits, you would be leaving 35 megabits unused.
LISTNUM 1 \l 110164 Correct?
LISTNUM 1 \l 110165 MR. HATFIELD: Yes.
LISTNUM 1 \l 110166 MR. KOCH: Likewise, if you wanted to offer 100 megabit service you would need two DS‑3s and you would still be leaving 10 megabits unused.
LISTNUM 1 \l 110167 Correct?
LISTNUM 1 \l 110168 MR. HATFIELD: Yes.
LISTNUM 1 \l 110169 MR. KOCH: In terms of the datalink layer still being present in the DS‑3, would you agree with me using DS‑3s in that way to provide Ethernet involves some inefficiencies?
LISTNUM 1 \l 110170 MR. HATFIELD: Yes.
LISTNUM 1 \l 110171 MR. KOCH: Could you explain what those are?
LISTNUM 1 \l 110172 MR. HATFIELD: I thought you were essentially repeating what you just said. There is some ‑‑ I'm searching for the word. You have a little bit of capacity left over. It doesn't fit exactly into that data stream.
LISTNUM 1 \l 110173 MR. KOCH: In the case of the 10 megabits, you may have a lot of capacity left over?
LISTNUM 1 \l 110174 MR. HATFIELD: Yes, that is correct.
LISTNUM 1 \l 110175 THE CHAIRPERSON: I'm sorry, you lost me here completely.
LISTNUM 1 \l 110176 You are showing me a graphic showing the various layers and you are now talking about speeds and capacity.
LISTNUM 1 \l 110177 MR. KOCH: Yes.
LISTNUM 1 \l 110178 THE CHAIRPERSON: How does speed and capacity correlate to these layers?
LISTNUM 1 \l 110179 MR. KOCH: There are two separate points, sir.
LISTNUM 1 \l 110180 So there was your initial point, which was that the DS‑3 itself has a datalink layer so that it is not simply layering the Ethernet datalink layer on a physical layer by using the DS‑3s.
LISTNUM 1 \l 110181 The second point is the way that the speeds of the two services map imperfectly onto each other, sir.
LISTNUM 1 \l 110182 THE CHAIRPERSON: Sorry. I hate to expose my ignorance here, but I can't follow you.
LISTNUM 1 \l 110183 I thought these layers applied regardless of what speed you have. Why are we talking about ‑‑
LISTNUM 1 \l 110184 MR. KOCH: They do, and that's why I say there are two points, sir.
LISTNUM 1 \l 110185 So the first point is that it's not the case that by layering the Ethernet on top of physical layer ‑‑ sorry, Ethernet on top of the DS‑3 you are layering it on top of something that doesn't itself have a datalink layer.
LISTNUM 1 \l 110186 THE CHAIRPERSON: Yes.
LISTNUM 1 \l 110187 MR. KOCH: The second point is a separate point, which is the speed point that I covered with Mr. Hatfield.
LISTNUM 1 \l 110188 THE CHAIRPERSON: All right.
LISTNUM 1 \l 110189 MR. KOCH: Thank you, sir.
LISTNUM 1 \l 110190 Dr. Ware, I would like to turn to you for a moment now, if I could.
LISTNUM 1 \l 110191 Mr. Abugov was asking you about an article that you wrote in 1998 with Dr. Church.
LISTNUM 1 \l 110192 Do you recall those questions?
LISTNUM 1 \l 110193 MR. WARE: Yes, I do.
LISTNUM 1 \l 110194 MR. KOCH: All right.
LISTNUM 1 \l 110195 I don't know, Madam Secretary, whether the article entitled "Abuse of Dominance under the 1986 Canadian Competition Act" was given an exhibit number? It was introduced by Mr. Abugov who acts for the Competition Bureau.
LISTNUM 1 \l 110196 MS PALUMBO: Mr. Chairman, it is actually within the Bureau's on the record within the supplemental evidence.
LISTNUM 1 \l 110197 MR. KOCH: All right. Thank you.
LISTNUM 1 \l 110198 Mr. Abugov led you to only one place in your article, sir, which was page 125 where he asked you about your comment as one of the authors.
LISTNUM 1 \l 110199 MR. WARE: I'm sorry, we are still searching for a copy.
LISTNUM 1 \l 110200 MR. KOCH: I'm sorry. All right. I think it would be helpful if you had one.
LISTNUM 1 \l 110201 THE CHAIRPERSON: You mean you don't recall it by memory, Dr. Ware?
LISTNUM 1 \l 110202 MS BLACKWELL: Perhaps if counsel for the Bureau could ‑‑ you said it was a reference to ‑‑
LISTNUM 1 \l 110203 MS PALUMBO: It was cited actually by Dr. Ware in his report.
LISTNUM 1 \l 110204 MR. WARE: All right.
LISTNUM 1 \l 110205 MR. KOCH: Maybe I will try to make do without the witness having a copy, sir.
LISTNUM 1 \l 110206 Dr. Ware, do you recall whether those comments were made in the part of the paper dealing with the Interac case?
LISTNUM 1 \l 110207 MR. WARE: You mean the comments referred to on Friday?
LISTNUM 1 \l 110208 MR. KOCH: I'm sorry? Yes.
LISTNUM 1 \l 110209 MR. WARE: I believe they were, yes.
LISTNUM 1 \l 110210 MR. KOCH: In discussing the Interact case, at page 123 of the paper, if you look at the last paragraph on that page it says:
"The theory of Interac case is centrally concerned with forcing access to network joint ventures, a topic of much recent debate in the antitrust courts and literature. The generic model of a network joint venture involves several firms cooperating to create a network with a common standard, allowing each member to benefit from the existence of the other members." (As read)
LISTNUM 1 \l 110211 Those were the circumstances in the Interac case. Correct?
LISTNUM 1 \l 110212 MR. WARE: Yes, I think ‑‑ yes.
LISTNUM 1 \l 110213 MR. KOCH: Am I correct to observe that at page 125 when you are talking about network joint ventures and essential facilities, particularly those in dynamic network industries involving an initial risky investment by those firms willing to bet on a new standard or idea taking hold, that was the context that those types of network models such as Interac where a number of parties got together and took the risk of creating a new standard, is that the context in which you made this case about ‑‑ or this argument about the down side of allowing later entrants to free ride on those investments?
LISTNUM 1 \l 110214 MR. WARE: Yes, it is.
LISTNUM 1 \l 110215 MR. KOCH: Thank you.
LISTNUM 1 \l 110216 Those are my questions, Mr. Chairman.
LISTNUM 1 \l 110217 THE CHAIRPERSON: Do you have any questions?
LISTNUM 1 \l 110218 Then I think this is a logical time to take a break. Let's take a 10‑minute break.
LISTNUM 1 \l 110219 Thank you.
‑‑‑ Upon recessing at 1440 / Suspension à 1440
‑‑‑ Upon resuming at 1451 / Reprise à 1451
LISTNUM 1 \l 110220 THE CHAIRPERSON: Okay, we seem to have a full panel, so proceed.
LISTNUM 1 \l 110221 MR. RUBY: Mr. Chair.
LISTNUM 1 \l 110222 THE CHAIRPERSON: Yes, go ahead.
LISTNUM 1 \l 110223 MR. RUBY: Mr. Chair, the article by Jeffrey Church and Roger Ware has been referred to by a number of parties but it hasn't actually been received as an exhibit. So I think for the convenience of all, if we could make this a CRTC exhibit.
LISTNUM 1 \l 110224 Number 7, I think, Madam Secretary?
LISTNUM 1 \l 110225 THE SECRETARY: That is correct.
LISTNUM 1 \l 110226 THE CHAIRPERSON: Okay.
LISTNUM 1 \l 110227 MR. RUBY: Thank you.
EXHIBIT CRTC‑7: "Abuse of Dominance under the 1986 Canadian Competition Act"
LISTNUM 1 \l 110228 THE SECRETARY: I also have another exhibit to register. The Companies has just provided me with a survey of buildings in Ottawa downtown core to show if they own fiber or coaxial cable. So that will be Exhibit No. 11 for the Companies.
EXHIBIT COMPANIES‑11: The Companies - Survey of buildings in Ottawa Downtown Core
LISTNUM 1 \l 110229 THE SECRETARY: That is all. I am sorry.
LISTNUM 1 \l 110230 MR. RUBY: Thank you, Mr. Chairman. You have instilled a sense of competition between counsel, so I am going to try and be quicker than Mr. Koch.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 110231 THE CHAIRPERSON: I am delighted to hear that.
LISTNUM 1 \l 110232 MR. RUBY: I thought you might be.
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 110233 MR. RUBY: Mr. Watt, maybe I will start with you and you can tell me if there is someone else on your panel who can help me with this.
LISTNUM 1 \l 110234 You have heard both in the written evidence and Bell in oral testimony has said repeatedly that it is going to have unmandated wholesale offerings if the Commission does not continue to mandate the type of essential services or your essential services that we have now.
LISTNUM 1 \l 110235 On the Rogers side, can you tell me, with respect to things like the equivalent of an unbundled local loop, TPIA, that sort of access technology on the residential side, I haven't seen anywhere in the evidence that Rogers has said, that it made the sort of declaration that we are going to provide unmandated wholesale services, that we are sort of in that business.
LISTNUM 1 \l 110236 Is Rogers willing to make a similar commitment to Bell that in the near future that it is going to be offering unmandated wholesale residential services?
LISTNUM 1 \l 110237 MR. WATT: So you have confined it to residential, because we do provide wholesale business services through Rogers Business Solutions.
LISTNUM 1 \l 110238 So you are really focusing on our Third Party Internet Access service and would we provide that on an unmandated wholesale basis after five years?
LISTNUM 1 \l 110239 MR. RUBY: Do you have that plan? I mean Bell told us they had that plan. Does Rogers have that plan?
LISTNUM 1 \l 110240 MR. WATT: That plan?
LISTNUM 1 \l 110241 MR. RUBY: And by the way, it is not just TPIA, because you have asked the Commission to get rid of TPIA as a mandated service; right? So it is that sort of access facility. I am not concerned so much with the details but you understand what I mean, wholesale residential access on your system.
LISTNUM 1 \l 110242 MR. WATT: Well, the service that we would like to continue on a wholesale basis is the only one we provide today, which is the Third Party Internet Access service.
LISTNUM 1 \l 110243 We would hope, though, at the end of the five years to ‑‑ either that it would have grown to be a more economical service or we would then try and adapt it into a slightly different format, as we have tried with some negotiations over the last couple of years to offer on a non‑regulated, non‑mandated basis, a slightly different form of Third Party Internet Access.
LISTNUM 1 \l 110244 We have had fits and starts at that but that is what ‑‑ we have it in place currently and as long as it was economic, we would continue it after the five years.
LISTNUM 1 \l 110245 MR. RUBY: I am not sure I quite understood your answer, so if I could just make sure I do.
LISTNUM 1 \l 110246 It sounded like you don't have a business plan to offer wholesale access but maybe in five years you would continue; is that it?
LISTNUM 1 \l 110247 MR. WATT: No, we don't have a business ‑‑ we have not prepared a business plan five years out that looks at the specific terms that we might think improve Third Party Internet Access because it is five years out. We are not sure if our proposal is going to be accepted in this proceeding or not
LISTNUM 1 \l 110248 MR. RUBY: Okay.
LISTNUM 1 \l 110249 MR. WATT: So we haven't done that. We are committing to offering the service as it is now for the next five years and ‑‑
LISTNUM 1 \l 110250 MR. RUBY: Right. As a mandated service?
LISTNUM 1 \l 110251 MR. WATT: As a mandated service.
LISTNUM 1 \l 110252 MR. RUBY: Okay.
LISTNUM 1 \l 110253 MR. WATT: And then we will have ample time to decide thereafter if the five‑year time frame is accepted once this decision comes out early next year.
LISTNUM 1 \l 110254 MR. RUBY: Okay, thank you.
LISTNUM 1 \l 110255 I just have one more area and it is more a clarification on something that went before that I am hoping for your help with.
LISTNUM 1 \l 110256 You remember, there have been a number of discussions, first with Bell and I think it came up a couple of times today, we talked about greenfields residential developments. Do you remember that?
LISTNUM 1 \l 110257 MR. WATT: Yes, I do.
LISTNUM 1 \l 110258 MR. RUBY: Okay. And I think it was Commissioner Noël who asked if with respect to new residential developments wires were put in underground conduits and Bell answered yes and this was part of their position that they can go into residential developments relatively easily later if they haven't done it initially.
LISTNUM 1 \l 110259 Do you remember all that evidence?
LISTNUM 1 \l 110260 MR. WATT: I remember the discussion, yes.
LISTNUM 1 \l 110261 MR. RUBY: Okay. I gather Rogers has a lot of experience in building in greenfield situations; right?
LISTNUM 1 \l 110262 MR. WATT: Yes, we do.
LISTNUM 1 \l 110263 MR. RUBY: Okay. I am concerned that the Commission may have been left with an incorrect impression by some of the earlier testimony.
LISTNUM 1 \l 110264 Can I ask you to confirm that the way greenfield construction is done is that the power company, the cable company and the ILEC all go into a joint trench together at roughly the same time? Start with that.
LISTNUM 1 \l 110265 MR. WATT: Yes, that is the way it is done. That is the most economical way.
LISTNUM 1 \l 110266 MR. RUBY: And the way the construction takes place ‑‑ and this is all residential I am talking about ‑‑ is that everybody puts their wire right into the trench and they put concrete or cement and then dirt on top of it; is that right?
LISTNUM 1 \l 110267 MR. WATT: Yes.
LISTNUM 1 \l 110268 MR. RUBY: So it is quite rare to actually use conduits in residential developments, maybe at some road crossings, but generally speaking, you use what I think is called direct‑buried; is that right?
LISTNUM 1 \l 110269 MR. WATT: That is correct. It would be very, very rare to have a conduit used.
LISTNUM 1 \l 110270 MR. RUBY: So would it be fair to say that it would be much, much more expensive for anyone to go and build in a residential development a new wire to the home after the trench is closed and the roads are laid and so on?
LISTNUM 1 \l 110271 MR. WATT: Absolutely, yes, and that was the basis of much of my discussion with Mr. Rogers earlier today, that in greenfields when you are going in at the time of construction, you can very economically place your wire. When it comes to overwiring after the fact, it is virtually impossible.
LISTNUM 1 \l 110272 MR. RUBY: Right. It is because of this joint trenching and direct‑burying idea; right?
LISTNUM 1 \l 110273 MR. WATT: Absolutely.
LISTNUM 1 \l 110274 MR. RUBY: Okay.
LISTNUM 1 \l 110275 MR. WATT: The economics are much worse. I overstated the case a bit before. You can go in after the fact but it is very expensive. You would have to be guaranteed a very good revenue opportunity.
LISTNUM 1 \l 110276 MR. RUBY: All right. Thank you, panel, commissioners. Those are my questions.
LISTNUM 1 \l 110277 THE CHAIRPERSON: Thank you, Mr. Ruby.
LISTNUM 1 \l 110278 Madam Secretary, who is next?
LISTNUM 1 \l 110279 THE SECRETARY: Thank you, sir.
LISTNUM 1 \l 110280 I am now calling Mr. Janigan, please, to come forward on behalf of PIAC.
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 110281 MR. JANIGAN: Thank you, Madam Secretary.
LISTNUM 1 \l 110282 Mr. Chair, as well, I am able to considerably pare down my original estimate of cross‑examination as a result of the efforts of my friends over the last few days.
LISTNUM 1 \l 110283 I plan primarily to deal with this panel on the basis of looking at the matrix of benefits or decrements that are associated with the particular models of essential services that are being presented before the Commission by the various parties.
LISTNUM 1 \l 110284 The first thing I would like to look at is your evidence concerning the potential benefits from a competitive standpoint that are associated with the adoption of your definition of essential services with all the features.
LISTNUM 1 \l 110285 As I understand it, Rogers agrees to some extent with the concept that there may well be at some juncture no incentive to build and innovate facilities if the definition of regulatory services and its application is overly broad. Do I understand that to be correct?
LISTNUM 1 \l 110286 MR. WATT: Could you repeat the last sentence again, please?
LISTNUM 1 \l 110287 MR. JANIGAN: My understanding is that Rogers agrees that there may well be no incentive for a player to innovate or develop facilities, new facilities, if the definition of essential services and its application is overly broad.
LISTNUM 1 \l 110288 MS BLACKWELL: Mr. Janigan, I think if you refer to paragraph 12 of the Rogers March evidence, it says:
"On the other hand, pursuing an overly broad framework for essential facilities may discourage network investment and innovation by competitors and over reliance on the incumbent facilities and this form of competition will be highly dependent on the regulated margins between retail and wholesale prices." (As read)
LISTNUM 1 \l 110289 This issue was also discussed by Mr. Hatfield in Appendix 2 of the March evidence.
LISTNUM 1 \l 110290 MR. JANIGAN: Okay.
LISTNUM 1 \l 110291 MR. WATT: If I could just interject, actually the reason I was looking puzzled before is that the proposition you laid out was our "on the other hand". We have the paragraph before that lays out the first instance, which is pursuing an overly narrow framework.
LISTNUM 1 \l 110292 MR. JANIGAN: What I was trying to get at is: Does Rogers anywhere in the evidence define any kind of bright line where we have gone from something that is too narrow or just right into something that is overly broad?
LISTNUM 1 \l 110293 What are the characteristics of something overly broad, in your analysis?
‑‑‑ Pause
LISTNUM 1 \l 110294 MS BLACKWELL: I think on this point, Mr. Janigan, as I referred to Mr. Hatfield's evidence ‑‑ and perhaps he would like to participate in this discussion as well ‑‑ if you put in the framework of that protocol stack and the higher layers where the economic barriers to self‑supply at those levels are much less than at the lower levels, then I think a regime that provided a mandate access throughout that spectrum of that stack may be one of those places that we could describe as overly broad.
LISTNUM 1 \l 110295 Mr. Hatfield perhaps would like to offer his thoughts on this as well.
LISTNUM 1 \l 110296 MR. HATFIELD: Yes. Overly broad for me would be mandating access to facilities that are not essential or services that are not essential, and generally that is associated with being up in the protocol stack where you have plenty of choices.
LISTNUM 1 \l 110297 MR. JANIGAN: So there is no economic deterrence to choosing a number of options. Is that effectively what you are saying?
LISTNUM 1 \l 110298 MR. HATFIELD: I don't think I understood your question.
LISTNUM 1 \l 110299 I think the Rogers proposal was to draw a line between those situations where competitive supply would be possible and conversely those areas where competitive supply would not be feasible.
LISTNUM 1 \l 110300 MR. JANIGAN: And where competitive supply is feasible, it means that there are choices available and the economics of choosing those facilities is possible.
LISTNUM 1 \l 110301 MR. HATFIELD: Yes. The example that I used in my paper would be somebody that is providing an Internet service, web‑based service, for example, where they only have to invest at the edge of the network and don't have to do anything else. You can go out and buy the necessary routers and storage devices, and so forth, and put it in without requiring anything from the carrier other than just the pipe itself.
LISTNUM 1 \l 110302 MR. JANIGAN: We have also heard in the context of this proceeding ‑‑ and I believe Rogers has agreed with this proposition ‑‑ that there are singular benefits to having facilities‑based competition rather than competition based on mandated access.
LISTNUM 1 \l 110303 MR. WATT: Yes, we think that is the preferable end state.
LISTNUM 1 \l 110304 MR. JANIGAN: Am I to understand that primarily those benefits are a matter of control, or is there something else that I'm missing?
LISTNUM 1 \l 110305 MR. WATT: Well, control we think manifests itself in the ability to provide customers with service level agreements, a guaranteed quality of service. It also allows you to hopefully capture the economic return on the physical investment rather than have the other party realize that.
LISTNUM 1 \l 110306 It is not only the control over the technical quality of the transmission, but there is also an elimination of the operational interface between the underlying service provider and the intermediary which is between the customer.
LISTNUM 1 \l 110307 So it is a more complex state of affairs. And you hope to minimize that as you build out your facilities.
LISTNUM 1 \l 110308 MR. JANIGAN: Is it the cost consequences of that operational interface or simply the control, for lack of a better word, the control aspects that you are primarily concerned with?
LISTNUM 1 \l 110309 MR. WATT: I think we are going to say both. I don't think we can prioritize them.
LISTNUM 1 \l 110310 MR. JANIGAN: Okay.
LISTNUM 1 \l 110311 THE CHAIRPERSON: Presumably complexity is also an issue.
LISTNUM 1 \l 110312 MR. JANIGAN: Is it also assumed that a facilities build will generally be innovative and more efficient in relation to that being offered by the incumbents?
LISTNUM 1 \l 110313 MR. WATT: I would say not necessarily.
LISTNUM 1 \l 110314 More efficient ‑‑ it depends on the economics of that particular build: the distance from the network, et cetera.
LISTNUM 1 \l 110315 I'm not sure I'm fully understanding your point.
LISTNUM 1 \l 110316 MR. JANIGAN: Well, one of the points I think that was brought up in Bell's evidence and/or cross‑examination was that it is assumed that when a competitor enters the market, he will look to new technologies and new techniques to try to deliver the product and not simply turn to a duplication of existing facilities.
LISTNUM 1 \l 110317 Is that built into your assessment of the superiority of facilities‑based competition?
LISTNUM 1 \l 110318 MR. WATT: I will ask Mr. Hatfield to address this as well.
LISTNUM 1 \l 110319 In the first instance, at the lowest levels you are looking at very fundamental items of support structures, conduit, et cetera, and then you go up to the actual physical medium that is connecting the locations. And there may or may not be innovation technological advances. A piece of fibre remains a piece of fibre. The electronics on the end tend to be what evolve over time.
LISTNUM 1 \l 110320 MR. HATFIELD: That is exactly what my answer was going to be. Often times the technology as the fibre itself is changing fairly slowly, but what you hook on to each end can be evolving, and that makes it easier. If you have access to the dark fibre, then you can go up one protocol stack and add the electronics at each end and get whatever advantage there is.
LISTNUM 1 \l 110321 MR. WARE: If I could just add a word to that, I would say that facilities‑based competition is a very dynamic innovative form of competition with very little potential for let's say any competitive strategic behaviour by the parties, and that's why everyone likes it. That's why it is very desirable from a public policy point of view.
LISTNUM 1 \l 110322 But that doesn't mean that it is necessarily efficient at any given point in time or in any given market configuration. I think it's a bit of a problem in the commentary in this area that yes, it's ideal to have facilities‑based competition as a long‑run goal, but at a particular point in time it simply may not be the efficient form of competition. Something based on access to one or more shared facility may be the efficient form of competition.
LISTNUM 1 \l 110323 MR. JANIGAN: Is there a danger, if in fact the only competition may be provided by constructing your own facilities, that in fact investment in needlessly duplicative facilities may be promoted by such a policy?
LISTNUM 1 \l 110324 MR. WARE: I would say yes, there is.
LISTNUM 1 \l 110325 If you recall the Competition Bureau's Type 1 and Type 2 areas of taxonomy, then it is certainly possible that a facility will not be mandated when it is essential.
LISTNUM 1 \l 110326 I can't remember if that is their Type 1 or Type 2, and it doesn't really matter.
LISTNUM 1 \l 110327 In that case, it is also true that an entrant might be encouraged to build when that was not the efficient outcome.
LISTNUM 1 \l 110328 MR. JANIGAN: I refer to the testimony of Dr. Church in his cross‑examination. You don't have to turn it up, but it was in Volume 2, page 359, where he cited the fact that investments in the telecom industry that were made for the purpose of competition back in the late 1990s and the early part of this century had been largely devalued.
LISTNUM 1 \l 110329 In fact, he indicated that there $60 billion of investment had been reduced to $5 billion by virtue of the fact that they had not been able to successfully sustain competition.
LISTNUM 1 \l 110330 Is that kind of result totally costless for consumers? I mean, I realize investors must bear the cost of the calamitous decrease, but from a public policy's standpoint is that kind of investment completely costless for consumers or users of telecom services, Dr. Ware?
LISTNUM 1 \l 110331 DR. WARE: That is a question that you could answer on several levels I think. But I think the best answer is that it is always better or almost always better to have private investors risk their own money and lose it than it is, for example, to have the taxpayer drawn into risking their money and lose it.
LISTNUM 1 \l 110332 Now, in a kind of a deeper sense, there are resources that are lost to society from all that and so it is perfectly true that there is some loss to everyone from investments that don't pan out. But, generally speaking, most economists would agree they are better if those are private wealth holders than if they are public wealth holders.
LISTNUM 1 \l 110333 MR. JANIGAN: From a public policy standpoint I guess it is trite to say, but I guess it is the kind of result that a regulator or governments would like to avoid?
LISTNUM 1 \l 110334 DR. WARE: I would say that was fair.
LISTNUM 1 \l 110335 MR. JANIGAN: Now, I would like to deal with the situation of Rogers itself. Essentially, I think you have indicated in the context of this proceeding, that effective competition on local service did not arrive until the cable companies implemented their recent initiatives over the last couple of years. Is that a correct summary of your evidence?
LISTNUM 1 \l 110336 MR. WATT: Yes it is, recognizing that Eastlink did a good job with an earlier technology, but we believe PacketCable IP started about 2004, 2005.
LISTNUM 1 \l 110337 MR. JANIGAN: And what effect did mandated access, pursuant to the Commission orders, have on the development of that technology and the implementation of your business plan?
LISTNUM 1 \l 110338 MR. WATT: I think it had no impact whatsoever. Prior to my current position, I worked as Vice‑President of Business Economics in the Strategic Planning Group at RCI, 2000 to 2005, and sat in on virtually all of the meetings with respect to major initiatives and I would be hard‑pressed to remember any mention of unbundled local loops in any of those discussions.
LISTNUM 1 \l 110339 I think it was best put actually by a Shaw executive and it was simply, we don't think it is possible to beat the telephone companies at their own game using their own technology. Therefore, we waited until the IP technology had stabilized and standards had been put in place and certified equipment available. And then we launched the service of Rogers in July of 2005 and gone forward since then.
LISTNUM 1 \l 110340 But no, we did not slow down any investment or delay our cable telephony entry as a result of having had unbundled local loops available to us during that time.
LISTNUM 1 \l 110341 Now, that is not to say, as I have said earlier, we do believe that Call‑Net, now part of Rogers with their residential offering, is bringing benefit to consumers, bringing choice. But it is a different model, we think it is a complimentary model for us and we do have a large number of customers on that platform.
LISTNUM 1 \l 110342 MR. JANIGAN: I want to deal with the area which you touched upon this morning and the questions asked by my friend, Mr. Rogers. And that is effectively whether mandated access depresses investment and productivity in a general sense. And I was interested particularly in the comments interjected I believe by Mr. Hatfield with respect to the potential productivity that may come about as a result of mandated access and the applications that are developed pursuant to mandated access.
LISTNUM 1 \l 110343 I wonder if you could expand upon that, Mr. Hatfield, and indicate whether or not there have been any studies on that aspect in productivity or investment that have been done in the telecom market?
LISTNUM 1 \l 110344 MR. HATFIELD: Let me answer the second part of your question first. I am not aware of any studies that goes directly to that point. But to go to the first part of your question, the way I have been thinking about it, using the Type 1 and the Type 2 model, is that if you declare a lot of facilities or services that are not essential then our concern is that you discourage facilities‑based competition. That is what we were talking about earlier.
LISTNUM 1 \l 110345 On the other hand, if you don't declare things that are essential, then you discourage investment up the protocol stack that I talked about. So that is the dichotomy. You have a line drawing problem here and which way do you tilt? And I tend to tilt a little bit more towards the requiring access because of this investment that encourages investment up the protocol stack.
LISTNUM 1 \l 110346 I am not saying this very clearly, let me backup. What I am saying is, I don't have as much confidence that we are going to have a lot of competition because of economies of scale. In other words, it is going to be very difficult to get from the two to three or whatever. And because it is difficult to get more competition, then I would err more on the side of mandating access. If you really felt that there is going to be proliferation of facilities‑based competition then you might lean the other way.
LISTNUM 1 \l 110347 But personally, having done an awful lot of economic modelling in my life I am somewhat sceptical that we are going to see sort of robust competition in the last mile.
LISTNUM 1 \l 110348 MR. JANIGAN: Now, I want to deal with the statements that were contained in your evidence to the effect that there is a great deal of similarity between the Rogers' position and the position of the Competition Bureau. And, in particular, I want to deal with aspects of the market power test that is effectively used by the Competition Bureau and the one that is used by Rogers.
LISTNUM 1 \l 110349 My understanding, and correct me, the focus of that test us different for the Bureau than it is for Rogers. In the Bureau's test they look at the effect of the competition itself, what effect it is going to have on the market, whether or not it will substantially increase competition.
LISTNUM 1 \l 110350 Rogers looks to the position of the incumbent or the party with market power to see whether of not it can influence the market or exercise market power associated with the market by effectively being able to enforce a price increase. My understanding is that is the difference between the two positions.
LISTNUM 1 \l 110351 Am I correct on that?
LISTNUM 1 \l 110352 DR. WARE: I am going to have a shot at this, my panel members may want to also. But I am not sure I understand the distinction that you are making. Actually, it sounds to me like the Commissioner of Competition has introduced the concept of a substantial increase in competition. And there was some discussion with some of the Bureau witnesses last Wednesday, I think, about whether a substantial increase in competition is the inverse of a substantial lessening of competition, to which they said it was.
LISTNUM 1 \l 110353 I am not sure that I see where the distinction is that you are suggesting.
LISTNUM 1 \l 110354 MR. JANIGAN: My understanding is that the Competition Bureau believes that you look to see what kind of competition is going to be provided by the new entrant. If it is not substantial, and if it does not bring a substantial increase in competition ‑‑
LISTNUM 1 \l 110355 In fact, I think, in order to understand it, you have to go back to their initial definition, which was that it was competition that would eventually lead to forbearance.
LISTNUM 1 \l 110356 So they look to see whether or not this competition is going to be substantial before they believe access should be mandated.
LISTNUM 1 \l 110357 Rogers, on the other hand, looks to see what kind of power the incumbent exerts on that market, and whether or not it is going to be able to keep out competitors, regardless of whether or not the competition, at the end of the day, will be substantial or not substantial.
LISTNUM 1 \l 110358 MR. WATT: Yes, I think that is a fair description.
LISTNUM 1 \l 110359 MR. JANIGAN: I would like to touch upon an area that was dealt with earlier this morning, and touched upon by Commissioner Cram and, I believe, the Chair, and it deals with the interplay or the logic associated with the standards for forbearance for retail deregulation and the standards that may be put in place for wholesale deregulation, or regulation, or, in fact, extrapolating from that, the standard associated with essential services.
LISTNUM 1 \l 110360 I guess this would be a question for Dr. Ware.
LISTNUM 1 \l 110361 Does it make sense to have a more expansive regime for wholesale services, insofar as a regime which has a threshold that is higher, in terms of the numbers of competitors, than exists for forbearance for retail deregulation?
LISTNUM 1 \l 110362 Have I made myself clear?
LISTNUM 1 \l 110363 DR. WARE: Yes, I think so. I think I understand what you are asking.
LISTNUM 1 \l 110364 In other words, should the criteria for defining an essential facility mesh perfectly with the criteria for retail forbearance.
LISTNUM 1 \l 110365 I think the answer to that is no, at least not necessarily, anyway.
LISTNUM 1 \l 110366 As I said in my evidence ‑‑ and I think the Commissioner of Competition now agrees with me ‑‑ I think the standard for an essential facility should be a standard based on a change in competition, not a level of competition.
LISTNUM 1 \l 110367 In other words, it should say: If we were to mandate access to Input X, are we going to get a substantial increase in competition?
LISTNUM 1 \l 110368 But it doesn't say anything about how competitive that market is.
LISTNUM 1 \l 110369 In other words, I am not saying that the market is sufficiently competitive for forbearance, I am just saying that we are getting enough out of it that it's worth doing. That's what I am saying.
LISTNUM 1 \l 110370 So I think it is perfectly reasonable that the forbearance standard should be somewhat distinct.
LISTNUM 1 \l 110371 MS BLACKWELL: Mr. Janigan, if I could add ‑‑ as you said, we alluded to this point earlier, but the FCC was asked to look specifically at this very issue with respect to special access versus ‑‑ which is equivalent to kind of a DNA retail high‑capacity service versus the CDN equivalent, and again they very specifically looked at this issue and said, with respect to the retail pricing of that service, that the goal was to protect consumers from anti‑competitive pricing, a goal that I am sure you and the people you represent are most interested in.
LISTNUM 1 \l 110372 This is at paragraph 192 of the FCC's TRRO decision of 2005:
"The Impairment Inquiry evaluates prospects for economic duplication of the facilities at issue, or use of alternatives, i.e., non‑incumbent LEC offerings. As described above, the Pricing Flexibility Inquiry assessed entirely different considerations." (As read)
LISTNUM 1 \l 110373 It goes on, and they conclude that "the presence of a single competitive LEC co‑located transport facility as a trigger, for the purposes of our pricing flexibility rules, is not sufficient evidence that facilities‑based competitive entry into a market at the local loop level is economically feasible."
LISTNUM 1 \l 110374 Perhaps that helps to highlight for you the differences that one might look at from a public policy perspective, in terms of forbearance in a retail setting versus whether or not you mandate an access.
LISTNUM 1 \l 110375 MR. JANIGAN: So, effectively, with retail deregulation, you may have circumstances where a regulator may be satisfied, in fact, that the retail market doesn't need to be regulated, but there still may be the necessity to ensure that, when a competitor comes along who can substantially increase competition, they can get access to facilities that are being delivered right now in the circumstance of market power.
LISTNUM 1 \l 110376 MS BLACKWELL: I think, to a certain extent, we see that recognized in the government's order‑in‑council that amended the forbearance decision, 2006‑15, where they actually allow for the Competitor Presence Test to be met by a competitor using leased facilities.
LISTNUM 1 \l 110377 MR. JANIGAN: Finally, I want to deal with the wireless experience in the United States, and I would ask either Dr. Ware or Mr. Hatfield whether they are aware of studies that have shown that price discounts for consumers were highly correlated with circumstances where there were three or more competitors in a given market.
LISTNUM 1 \l 110378 DR. WARE: I really can't claim any familiarity with those studies.
LISTNUM 1 \l 110379 MR. JANIGAN: Thank you, Dr. Ware.
LISTNUM 1 \l 110380 Mr. Hatfield?
LISTNUM 1 \l 110381 MR. HATFIELD: That is consistent with my reading, but, off the top of my head, I can't point you to a particular paper or Commission decision.
LISTNUM 1 \l 110382 MR. JANIGAN: Are there any other similar studies or reports in the telecommunications industry that you are aware of with similar sorts of conclusions in relation to three or more competitors providing substantially better competition from a price and choice standpoint than two?
LISTNUM 1 \l 110383 DR. WARE: I think that's an excellent question, and I wish I could point you to a study, because I think there is a real need for it. This is a very critical question, I think.
LISTNUM 1 \l 110384 There is a study that was cited last week at sometime, which is called something like "Is Two Enough?" It is a Dutch study, but it really, very much, leans toward the theoretical. There is not a lot of empirical analysis in that study.
LISTNUM 1 \l 110385 I wish we had more.
LISTNUM 1 \l 110386 MR. JANIGAN: Thank you.
LISTNUM 1 \l 110387 Mr. Chairman, the practice that is sometimes adopted in the Energy Board is to make counsel buy the drinks, whoever has exceeded their estimates of cross‑examination by the most part. I can assure the panel that I have not done so, and will not be liable for a round of drinks today.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 110388 MR. JANIGAN: Thank you. Those are my questions.
LISTNUM 1 \l 110389 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 110390 Mr. Hatfield, just by way of follow‑up, in answer to Mr. Janigan you said that, really, you want to get it totally right between Type 1 and Type 2 errors. You want to avoid both, but you would rather err on the side of Type 2 errors, i.e., over‑mandate rather than under‑mandate, to put it in my words.
LISTNUM 1 \l 110391 If I understood you, that's what you were saying.
LISTNUM 1 \l 110392 MR. HATFIELD: Yes, that's correct.
LISTNUM 1 \l 110393 THE CHAIRPERSON: Is the reason for that basically because we are dealing here with wholesale markets and the consequence that errors are greater in the wholesale market than they are in the retail market?
LISTNUM 1 \l 110394 Or, is it based purely on other factors that you didn't mention?
LISTNUM 1 \l 110395 MR. HATFIELD: I think, to answer, it is primarily on the wholesale side, where I feel that the economies of scale, the sunk costs, the first mover advantages, are so substantial that we are unlikely to see much additional entry.
LISTNUM 1 \l 110396 THE CHAIRPERSON: All right. If there are no other questions, Madam Secretary, who is next?
LISTNUM 1 \l 110397 THE SECRETARY: Cybersurf.
LISTNUM 1 \l 110398 Would you please come forward, Counsel Tacit?
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 110399 MR. TACIT: Thank you.
LISTNUM 1 \l 110400 Good afternoon, Mr. Chairman, Commissioners and Panel Members. My name is Chris Tacit. I represent Cybersurf Corporation.
LISTNUM 1 \l 110401 Seated to my right is Mr. Marcel Mercia, who is the Chief Operations Officer of Cybersurf.
LISTNUM 1 \l 110402 Dr. Ware, I would like to start this afternoon by just getting a clarification regarding a certain portion of your testimony in response to Mr. Abugov's questioning yesterday ‑‑ or I guess last week. It's all a blur now.
LISTNUM 1 \l 110403 Anyway, I think you may recall that Mr. Abugov took you to a particular paragraph in your evidence and contrasted it with the third branch of the Competition Bureau's test.
LISTNUM 1 \l 110404 Do you recall that?
LISTNUM 1 \l 110405 MR. WARE: I'm sorry. Yes, I do.
LISTNUM 1 \l 110406 MR. TACIT: All right. I want to avoid going there unless I have to, just in the interest of time.
LISTNUM 1 \l 110407 MR. TACIT: All right.
LISTNUM 1 \l 110408 MR. TACIT: But if you feel that you need to ‑‑
LISTNUM 1 \l 110409 MR. WARE: I don't know yet. It depends on the question.
LISTNUM 1 \l 110410 MR. TACIT: All right.
LISTNUM 1 \l 110411 I believe that what you said was ‑‑ just to refresh your memory, I believe that the operative line in the Competition Bureau's test that you were asked about was:
"If the owner of the facility is not dominant downstream then the facility cannot be essential." (As read)
LISTNUM 1 \l 110412 That was a sentence you were asked to comment on and contrast to your evidence.
LISTNUM 1 \l 110413 Do you recall that?
LISTNUM 1 \l 110414 MR. WARE: Yes, I do.
LISTNUM 1 \l 110415 MR. TACIT: I think what you said is that if the Bureau was willing to rewrite that sentence to say:
"If there was no significant market power in the end product market, then the facility cannot be essential." (As read)
LISTNUM 1 \l 110416 That would have the same meaning as what you said in your paragraph of the evidence.
LISTNUM 1 \l 110417 Do I have that right?
LISTNUM 1 \l 110418 MR. WARE: Yes. To testify as to my testimony from last Friday, I really want to have the transcript in front of me ‑‑
LISTNUM 1 \l 110419 MR. TACIT: All right. Fair enough.
LISTNUM 1 \l 110420 MR. WARE: ‑‑ which I don't at the moment.
LISTNUM 1 \l 110421 But it was very close to that, yes.
LISTNUM 1 \l 110422 MR. TACIT: If you feel the need take a moment to grab it. I don't want you at a disadvantage on this.
LISTNUM 1 \l 110423 It is a paragraph 7880.
‑‑‑ Pause
LISTNUM 1 \l 110424 MR. WARE: We have that now. Thank you.
LISTNUM 1 \l 110425 MR. TACIT: Regardless of what I guess you said then, what I'm really trying to understand is: Were you saying that changed sentence which I just gave you is equivalent to what you said in your testimony at paragraph 5 of your supplementary evidence, which is ‑‑
‑‑‑ Pause
LISTNUM 1 \l 110426 MR. TACIT:
"Since demand for 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 110427 Were you equating that sentence with your revised articulation of that sentence?
LISTNUM 1 \l 110428 MR. WARE: Yes. Essentially, yes.
LISTNUM 1 \l 110429 MR. TACIT: The first thing I'm after here is to try to get clarification on one thing, and that is when you talked about restating the Bureau's test, if you look at that paragraph 7880, you said "if there were no significant market power". You used the word "significant".
LISTNUM 1 \l 110430 MR. WARE: Yes.
LISTNUM 1 \l 110431 MR. TACIT: And in your evidence in your paragraph you didn't use the word "significant", you just said "market power".
LISTNUM 1 \l 110432 So what I'm trying to get at is: Did you mean anything by the distinction or not?
LISTNUM 1 \l 110433 MR. WARE: No. When I say "significant market power" I used that term in the sense that Rogers uses the term "non‑trivial". I use it because negligible market power is not of any interest to us from a public policy point of view or from a regulation point of view.
LISTNUM 1 \l 110434 So no, I didn't mean anything by that distinction.
LISTNUM 1 \l 110435 MR. TACIT: All right. So is it your evidence, then, that there has to be a requirement for the exercise of some sort of non‑trivial market power in the end markets in order for wholesale regulation to be justified at all?
LISTNUM 1 \l 110436 MR. WARE: Yes.
LISTNUM 1 \l 110437 If I could just explain that with a couple of sentences. I know this point has been made by a few people in this proceeding and I'm not sure that anybody, including myself, has stated it completely clearly yet.
LISTNUM 1 \l 110438 What this is about is that if there is an alternative input, not ‑‑ and it's alternative to the essential input that allows competitive production of the end product or service, then there is competition downstream, or perfect competition downstream, or a lack of significant market power in the end product, and then it is just, as a matter of economic theory, impossible for the owner of the essential input to exercise market power over that essential input.
LISTNUM 1 \l 110439 And the reason is that the price of the end product is given, as it is in a textbook perfectly competitive market. Their end product price is in fact fixed by the perfect competition in the alternative platform if you like.
LISTNUM 1 \l 110440 So whatever the owner of the essential input would like to do, they can't exercise market power because they can't influence the price of the end product.
LISTNUM 1 \l 110441 MR. TACIT: On the other hand, though, could you envision a scenario where in the absence of wholesale regulation of some sort of function or element a new end use would just not come about? In other words, we are looking at non‑price effects of competition.
LISTNUM 1 \l 110442 MR. WARE: So you mean when we are maintaining the assumption of competition in the downstream, in the end product market?
LISTNUM 1 \l 110443 MR. TACIT: No. What I am suggesting to you is a scenario where if you have no wholesale regulation then certain end services may just never develop.
LISTNUM 1 \l 110444 MR. WARE: Yes, but I just want to be ‑‑
LISTNUM 1 \l 110445 MR. TACIT: There may be market ‑‑
LISTNUM 1 \l 110446 MR. WARE: ‑‑ no wholesale regulation and competition in the end product or not competition in the end product?
LISTNUM 1 \l 110447 MR. TACIT: Well, there is no end product. That's what I'm trying to say.
LISTNUM 1 \l 110448 MR. WARE: Oh, okay. So you are talking about a new end product?
LISTNUM 1 \l 110449 MR. TACIT: Yes. It doesn't arise. So there is market power, but it is not observable because in the absence of regulation there is no ‑‑
LISTNUM 1 \l 110450 MR. WARE: Right. Right.
LISTNUM 1 \l 110451 MR. TACIT: So what I'm concerned about is whether requiring this element of observable market power could be too stringent and it could actually dampen innovation?
LISTNUM 1 \l 110452 MR. WARE: Well, I can see what you are driving at. You are driving at the possibility that an entrant who can utilize the essential input may also be an innovator.
LISTNUM 1 \l 110453 Yes, that is a possibility, but it's ‑‑ I'm just really not sure how important a possibility it is. I think it is a reasonable check as kind of a competition policy prescription that you require some degree of market power in the end product before intervention can be justified.
LISTNUM 1 \l 110454 So I wouldn't want to kind of withdraw from that.
LISTNUM 1 \l 110455 MR. TACIT: Mr. Watt, do you agree?
LISTNUM 1 \l 110456 MR. WATT: Yes, I would.
LISTNUM 1 \l 110457 MR. TACIT: So you would not be concerned about the potential loss of innovation of non‑observable market power in the absence of mandated wholesale regulation?
LISTNUM 1 \l 110458 MR. WATT: I think you worry about it, but you are not sure that it is going to come about.
LISTNUM 1 \l 110459 Dr. Ware has indicated that you ‑‑ well, there is always a risk, there could be something that someone has not thought of that would only be possible through the access, but we don't know.
LISTNUM 1 \l 110460 MR. TACIT: Now, I had understood Rogers; evidence, at least up until now, to be ‑‑
LISTNUM 1 \l 110461 MR. WATT: I'm sorry to interrupt.
LISTNUM 1 \l 110462 Again, I think that's why, at least in our proposal, we are providing access ‑‑ or we are arguing for access at the lower levels of the protocol stack and our hope is that then allows complete freedom of people higher up in the stack to innovate with completely new and different devices, new technologies, and so on, because that is what we are trying to accomplish with our proposal.
LISTNUM 1 \l 110463 MR. TACIT: Understood. But I had thought that Rogers' evidence was that you shouldn't have a requirement of double dominance.
LISTNUM 1 \l 110464 Is that correct or have you changed your testimony?
LISTNUM 1 \l 110465 MR. WATT: No, that remains our testimony.
LISTNUM 1 \l 110466 MR. TACIT: What I understood Dr. Ware to say Friday was that dominance, in his view, was more or less the same as market power. So we are back to are we requiring dominance downstream or are we not requiring dominance downstream?
LISTNUM 1 \l 110467 I'm trying to figure out whether (a) Dr. Ware agrees with Rogers' position and (b) to make sure I understand Rogers' position fully on this point.
LISTNUM 1 \l 110468 MR. WARE: Just before we go to my colleague, I don't believe I said that dominance is more or less the same as market power.
LISTNUM 1 \l 110469 I prefer the term market power. I don't really know what people mean when they talk about dominance. It has a long history in competition policy, but unfortunately its history is a little different in Canada and the United States, and in Europe the usage is different.
LISTNUM 1 \l 110470 Usually it is a term that is referred to a firm that has a near monopoly and that is certainly not what I mean by "market power".
LISTNUM 1 \l 110471 MR. TACIT: Do you agree with that, Mr. Watt?
LISTNUM 1 \l 110472 MR. WATT: Yes, I do.
LISTNUM 1 \l 110473 MR. TACIT: I think that clarifies that, then.
LISTNUM 1 \l 110474 Now, in your evidence I believe you say ‑‑ and again, I'm not going to take you unless you really need to go there, but you say something like:
"The use of mandated access to essential inputs as an instrument to regulate market power is significantly more important where the alternative is unregulated dominant firms or highly concentrated oligopolies." (As read)
LISTNUM 1 \l 110475 Do you recollect that?
LISTNUM 1 \l 110476 MR. WARE: This is in the transcript or this is in my ‑‑
LISTNUM 1 \l 110477 MR. TACIT: It's in your evidence. It's in paragraph (d) of your evidence, D as in Donald.
‑‑‑ Pause
LISTNUM 1 \l 110478 MR. WARE: Yes, I have it.
LISTNUM 1 \l 110479 MR. TACIT: What I'm curious about is: What is your view of the number of players in a market that would meet the test of highly concentrated oligopoly for the purpose of this passage?
LISTNUM 1 \l 110480 MR. WARE: Well, one, two or three are highly concentrated. Certainly one and two are.
LISTNUM 1 \l 110481 I guess, yes, I think a monopoly or duopoly there would be little disagreement among any trust economist that is a highly concentrated oligopoly.
LISTNUM 1 \l 110482 MR. TACIT: Three might be as well.
LISTNUM 1 \l 110483 Correct?
LISTNUM 1 \l 110484 MR. WARE: It might be.
LISTNUM 1 \l 110485 MR. TACIT: But when you are getting to four now it is less likely.
LISTNUM 1 \l 110486 Correct?
LISTNUM 1 \l 110487 MR. WARE: Correct.
LISTNUM 1 \l 110488 MR. TACIT: So could that be a rational basis on which Rogers for fibre‑based collocated competitor test could be founded as a matter of economics?
LISTNUM 1 \l 110489 MR. WARE: It could be. I had no part in designing that test.
LISTNUM 1 \l 110490 MR. TACIT: No, and I'm not suggesting you did.
LISTNUM 1 \l 110491 MR. WARE: It could be.
LISTNUM 1 \l 110492 It's my understanding that test derives from the FCC, but it is, in a broad sense, clearly derived from small number oligopoly theory, yes.
LISTNUM 1 \l 110493 MR. TACIT: That's what I'm getting at. I'm not suggesting that was the basis of it, but I'm simply asking as a matter of happy coincidence four also appears to be the number at which we step out of this highly concentrated oligopoly and therefore it might make some sense to use that as the test.
LISTNUM 1 \l 110494 MR. TACIT: Yes, it might, but I'm certainly not going to suggest that as a general proposition with oligopolies when you move from three to four suddenly the market becomes competitive. I wouldn't argue that.
LISTNUM 1 \l 110495 But it is fair to say that if you look at ‑‑ again, merger guidelines and the way in which competition agencies enforce their statutes against anti‑competitive mergers, it is fair to say that mergers from four to three in most jurisdictions might have a shot at getting through, whereas three to two is quite unlikely.
LISTNUM 1 \l 110496 THE CHAIRPERSON: I seem to recall that the evidence from Ms Blackwell to exactly that question was that the FCC's number four had absolutely nothing to do with economic theory, it was based on the statistical and empirical sampling of market‑by‑market.
LISTNUM 1 \l 110497 MS BLACKWELL: I don't want to belabour the point, Mr. Chairman, but I think actually in just the paragraph that I was quoting from the FCC's decision it is really the impairment inquiry was what led them to the number four rather than ‑‑ and that turned on the issue of economic duplication which I think is exactly the issue that we looked at here as well.
LISTNUM 1 \l 110498 THE CHAIRPERSON: As counsel says, it is a happy coincidence, but the FCC was not based on economic theory, as Dr. Ware has now explained, but on the basis of the empirical data that they studied.
LISTNUM 1 \l 110499 MS BLACKWELL: It is based on the economics of duplication.
LISTNUM 1 \l 110500 MR. TACIT: Thank you.
LISTNUM 1 \l 110501 I guess the next question I have for you, Dr. Ware, is of you are of the view that cable companies enjoy significant market power in the market for high‑speed internet services?
LISTNUM 1 \l 110502 MR. WARE: I have not expressed that view and I don't think that is the case, but I haven't studied that question.
LISTNUM 1 \l 110503 MR. TACIT: Mr. Watt, are you of the view that cable companies such as Rogers enjoy significant market power in that market?
LISTNUM 1 \l 110504 MR. WATT: Well, it's a market in Canada where for high‑speed internet you have two major players, I think each of which has ‑‑ obviously with that number we both have some market power. I don't think there's any question of that, but we don't feel that's anything to be ashamed of given the performance of that industry or that market in Canada with the highest penetration of the G‑8.
LISTNUM 1 \l 110505 MR. TACIT: How significant is it, though? Do you believe that the cable companies and the ILECs together can maintain prices that are above competitive rates for the provision of Internet services?
LISTNUM 1 \l 110506 MR. WATT: Well, I think if you look at that particular market, as I said, our prices are at a level which has let us have the highest penetration of that service of all the G‑8 countries.
LISTNUM 1 \l 110507 When we look at our prices and you look at the OECD numbers you will find that we are very competitive. When you look at those prices, particularly in relation to the services provided, both the upstream and downstream speed, we think ‑‑ we can't speak to the costs in the other countries, but what we do know is that our prices are very competitive. So we don't think we are reaping supernormal profits.
LISTNUM 1 \l 110508 Bell Canada for a number of years used to report the EBITDA associated with its DSL product and it was many years actually before that EBITDA level crossed over into the profitable category to say nothing of the immense capital expenditures that are being incurred to provide the service.
LISTNUM 1 \l 110509 MR. TACIT: I understand all that, but my question is much more straightforward: Do you think that today for example Rogers and Bell can maintain prices for high‑speed internet that are above what would be competitive rates?
LISTNUM 1 \l 110510 I mean, it's a yes or no question.
LISTNUM 1 \l 110511 MR. WATT: I would say no. I don't think we are priced at supernormal levels. I think when you see our price going up or down, you know the story. We introduced with one product at a certain price, we went up, we went down. Now we have segmented into four different residential categories based on differing levels of speed, et cetera, and the prices again go up, they go down, promotions come into play, promotions go away, et cetera.
LISTNUM 1 \l 110512 MR. TACIT: I would like to explore this briefly with you with reference to a couple of exhibits which were provided to you through counsel last Thursday. I hope you have them. They are two short articles from Michael Geist's website.
LISTNUM 1 \l 110513 Do you have those?
LISTNUM 1 \l 110514 MR. WATT: Yes, I have them.
LISTNUM 1 \l 110515 MR. TACIT: Okay. And could they please be passed out too?
LISTNUM 1 \l 110516 THE SECRETARY: For the record, Mr. Tacit, the one entitled, Consequences of Uncompetitiveness, will be Exhibit 2. And the other one, Canadian Broadband Growth, Exhibit 3.
EXHIBIT CYBERSURF‑2: "Consequences of Uncompetitiveness", Wednesday, March 1, 2006
EXHIBIT CYBERSURF‑3: "Canadian Broadband Growth Ranks 29th out of 30 OECD Countries"
LISTNUM 1 \l 110517 MR. TACIT: Thank you, Madam Secretary.
LISTNUM 1 \l 110518 Are there any members of the panel who need that or do you all..?
LISTNUM 1 \l 110519 So, Mr. Watt, let me just start with you to save some time. The first one, Consequences of Uncompetitiveness, there is a quote that John Gossling, then Rogers' VP of Finance, apparently made at an investor conference in which he says:
"The good news, I think, on both is that there is actually some pricing power. Unlike the competitive situation in the U.S., the prices on internet and TV have been actually moving up quite nicely for Rogers. We don't seem to have the competitive pressure to take these decent margin products and move their prices down, so we are seeing good lift there." (As Read)
LISTNUM 1 \l 110520 First of all, do you know if that is an accurate quote?
LISTNUM 1 \l 110521 MR. WATT: I believe this quote comes from a Bears Stern investor conference in Florida I believe in March of this year. I actually wasn't there. I am going to assume that it was an accurate quote.
LISTNUM 1 \l 110522 MR. TACIT: Okay. Do you have any comment as to whether the reference to the fact that, unlike the competitive situation in the U.S., the prices on internet and TV have actually been moving up might suggest that Rogers does enjoy market power in the market for internet services?
LISTNUM 1 \l 110523 MR. WATT: Okay, what I would say is that Mr. Gossling was addressing a conference of American investors and what he was attempting to do was draw the distinction between the circumstances in the Canadian market from the American market.
LISTNUM 1 \l 110524 In the United States there has been a vicious price war with certain of the ILECs offering high‑speed internet service for as low as $14 a month. This has not been sustained. I have a Bank of America investor analyst report actually from a few months ago and the quote there is:
"The Bell companies reversed deep‑discount DSL promotions in the second quarter of 2007." (As Read)
LISTNUM 1 \l 110525 Mr. Gossling was trying to tell the American investors don't not invest in Rogers because you have fears that we are going to engage in a harmful below‑cost price war.
LISTNUM 1 \l 110526 In terms of our prices it is, as I said previously, we have introduced price increases for certain of our four product ranges now of internet. Generally, we do that when we increase the speed. The one statistic I will share with you is that over the past year while our number of subscribers has grown 15 per cent, the usage has grown by slightly over 50 per cent, so a three times greater rate.
LISTNUM 1 \l 110527 These are people who are now using the internet more intensely which of course places strain on our infrastructure causing expenses to be incurred. They are actually reaping the benefits of the applications that are being developed in this network and driving more video down and internet. We adjust our prices accordingly. We then, as I say, introduce different levels with different speed options and we have also introduced at times ‑‑
LISTNUM 1 \l 110528 MR. TACIT: Okay, I think we are kind of going far afield from the price issue though here.
LISTNUM 1 \l 110529 MR. WATT: Well, I was answering the question as to whether our prices ‑‑
LISTNUM 1 \l 110530 THE CHAIRPERSON: May I remind you, we are under time pressures, so please do keep your answers short.
LISTNUM 1 \l 110531 MR. TACIT: Dr. Ware, if you saw a quote like this, would this raise any concerns or alarm bells in your mind about the possibility of market power?
LISTNUM 1 \l 110532 DR. WARE: Well, as a matter of economic theory, anytime that a firm, a company, faces a demand curve that is downward sloping they have some degree of market power. So that what I believe the executive is saying there is that there is some slope in his demand curve, that is what he is saying.
LISTNUM 1 \l 110533 And as opposed to a perfectly competitive firm in the economics textbook where, when it raises its price, it loses all its business. So what he is saying is we are not in a world like that, we are in a world where our demand curve has some elasticity.
LISTNUM 1 \l 110534 Yes, I mean, I think there is some market power there. But, as Mr. Watt said, but that is not surprising, you know, in concentrated markets. That doesn't mean there is an abuse of dominant position, for example.
LISTNUM 1 \l 110535 MR. TACIT: But that is not the test we are considering today.
LISTNUM 1 \l 110536 DR. WARE: No.
LISTNUM 1 \l 110537 MR. TACIT: But thank you for your answer.
LISTNUM 1 \l 110538 Now, I would like to take you ‑‑ and there is a package of interrogatory responses from the record that I would appreciate if it could be passed around as well. And in order to save time, maybe you folks could just turn to it, the first one is Rogers‑TheBureau‑40 of 12 of April, because I think you have ‑‑
LISTNUM 1 \l 110539 THE SECRETARY: It is on its way, Mr. Tacit.
LISTNUM 1 \l 110540 MR. TACIT: Yes.
‑‑‑ Pause
LISTNUM 1 \l 110541 MR. WATT: Yes, I have it.
LISTNUM 1 \l 110542 MR. TACIT: There is a statement, page 12 of the compendium, you will see there are little numbers at the bottom of the package.
LISTNUM 1 \l 110543 MS BLACKWELL: I have that, Mr. Tacit.
LISTNUM 1 \l 110544 MR. TACIT: And at page 12, the middle paragraph, the first sentence says:
"The assumptions that would apply under the Bertrand model include a number of factors that are not likely to hold true in the specific case of telecommunications markets." (As Read)
LISTNUM 1 \l 110545 Do you see that, Dr. Ware?
LISTNUM 1 \l 110546 DR. WARE: Yes, I do.
LISTNUM 1 \l 110547 MR. TACIT: Okay, now correct me if I am wrong, but I am going to give you my one‑line summary of what I understand to be the Bertrand model and you, as an economist, can correct my lack of knowledge.
LISTNUM 1 \l 110548 DR. WARE: Be happy to.
LISTNUM 1 \l 110549 MR. TACIT: But my understanding is that the Bertrand model is a model of duopolistic behaviour in which firms behave more or less like they would in a fully competitive market. Is that a fair summary?
LISTNUM 1 \l 110550 DR. WARE: That is one of the results, yes. That doesn't really describe them all.
LISTNUM 1 \l 110551 MR. TACIT: No, correct.
LISTNUM 1 \l 110552 DR. WARE: But if you kind of think of the whole spectrum of oligopoly models, believe me there are lots of them, the Bertrand model is at the very competitive end of the set of outcomes.
LISTNUM 1 \l 110553 MR. TACIT: Right. And I guess the other one that competes with it most frequently is known as the Cournot model, is that correct?
LISTNUM 1 \l 110554 DR. WARE: That is correct, yes.
LISTNUM 1 \l 110555 MR. TACIT: Economists tend to pick between the Bertrand and the Cournot and there is an ongoing debate about whether a particular market is in one basket or the other, would that be a fair characterization?
LISTNUM 1 \l 110556 DR. WARE: Well, actually I don't think that is a fair characterization, because it is very rare to find a market which has the characteristics of a pure Bertrand model in what economists call homogeneous products where their firms produce essentially an identical product. It is very rare.
LISTNUM 1 \l 110557 I think, for example, in the days when Whistler and Blackcomb Mountains were independent companies and their ski resorts right next to each other, that might have been an example where they are both setting ski‑lift prices everyday.
LISTNUM 1 \l 110558 The consensus among industrial organization economists is that the Cournot model really has a lot more applicability, and I could go on at some length why that is, but you probably don't want me to.
LISTNUM 1 \l 110559 MR. TACIT: That is fair. And again, to summarize it in a non‑economist's language, the effect, the net result of a Cournot model of duopolistic competition is that prices are below monopoly levels but above competitive levels, and that quantities are restricted relative to competitive outcomes.
LISTNUM 1 \l 110560 Is that correct?
LISTNUM 1 \l 110561 DR. WARE: That's exactly correct.
LISTNUM 1 \l 110562 MR. TACIT: Would you agree with me, then, that the market for internet services tends to exhibit characteristics that are more closely aligned with the Cournot model than the Bertrand model of duopoly?
LISTNUM 1 \l 110563 DR. WARE: Again, I haven't studied this market, so I can't say this from the perspective of having done research on this market, but from my earlier observation that most markets tend to be closer to Cournot behaviour than they are to Bertrand, and also the fact that there are probably some frictions in the system ‑‑
LISTNUM 1 \l 110564 If there are any supply restrictions at all, it would tend to make the Bertrand outcome unlikely ‑‑ a pure Bertrand outcome.
LISTNUM 1 \l 110565 MR. TACIT: Thank you.
LISTNUM 1 \l 110566 When you consider all of those factors, would it be unreasonable to suggest that the inputs required by competitors for the provision of broadband internet services of the cable companies should continue to be provided on a wholesale basis?
LISTNUM 1 \l 110567 DR. WARE: That's a big jump.
LISTNUM 1 \l 110568 Can I correct something, or qualify something that I just said?
LISTNUM 1 \l 110569 I was going to go on and say that the Bertrand model is also much more widely applied to a situation where firms produce differentiated products, and it actually is a much better model in that case, where products are not identical but they are somewhat differentiated, which, in fact, is more accurate in real world markets.
LISTNUM 1 \l 110570 Having said that, let me go back to your question. What you are saying to me is, if I assume that there is market power downstream, does that make the input upstream essential.
LISTNUM 1 \l 110571 I guess my question would be, then: Let's go through the test to see whether there is also market power upstream, and look at duplicability and barriers to entry.
LISTNUM 1 \l 110572 If we satisfy those parts of the test, then it would be, by definition, essential.
LISTNUM 1 \l 110573 MR. TACIT: You are not aware of any other facilities‑based sources of broadband internet, other than the ILECs and the cable companies, are you, on a wide‑scale basis?
LISTNUM 1 \l 110574 DR. WARE: Not that have significant market share at the moment, although I believe that there are wireless possibilities emerging.
LISTNUM 1 \l 110575 MR. TACIT: Looking at that factor, as well, would you say it is more reasonable to suggest that wholesale services should continue to be provided than not ‑‑ looking at all of those factors together?
LISTNUM 1 \l 110576 DR. WARE: I wouldn't disagree with that.
LISTNUM 1 \l 110577 MR. TACIT: Thank you.
LISTNUM 1 \l 110578 Mr. Hatfield, I would like to turn to you briefly.
LISTNUM 1 \l 110579 We have been through the essence of your model, so I don't want to take you through all of that again. However, I would like you, if you wouldn't mind, to turn to paragraph 24 of your evidence, briefly.
LISTNUM 1 \l 110580 MR. HATFIELD: Yes, I have it.
LISTNUM 1 \l 110581 MR. TACIT: Halfway down the paragraph you say:
"Given the clear benefits of competition, the public policy goal should be to:
(a) encourage efficient competition in all areas of the protocol stack and in all network segments; and
(b) where such efficient competition is not economically and operationally feasible, to ensure that the facilities/services provided at the non‑competitive protocol layer are available at wholesale rates and under reasonable terms and conditions from upstream suppliers.
The latter portion of the goal is necessary to ensure that competition that is economically and operationally feasible at higher layers in the protocol stack is not foreclosed." (As read)
LISTNUM 1 \l 110582 You have given your evidence, more or less, in the context of the business services environment. Correct?
LISTNUM 1 \l 110583 MR. HATFIELD: Yes, that's what I focused on.
LISTNUM 1 \l 110584 MR. TACIT: Okay. I would like to apply your reasoning, but apply it to residential markets for a moment, if you would bear with me.
LISTNUM 1 \l 110585 Based on the discussion you have just heard and the probability that there might be market power in the facilities and services associated with broadband internet services provided by the cable companies and the ILECs, would it be consistent with your model to require mandated access of those services on a wholesale basis?
LISTNUM 1 \l 110586 MR. HATFIELD: Let me make sure that I understand the premise of your question.
LISTNUM 1 \l 110587 You are suggesting that the retail market, then, is not competitive.
LISTNUM 1 \l 110588 MR. TACIT: I am suggesting that there is some market power there, and I am also suggesting to you that the wholesale market is, by and large, a duopoly and there is market power there.
LISTNUM 1 \l 110589 Would it make sense, from the point of view of your model, to require mandated wholesale access to the broadband infrastructure of the ILECs and cable companies, so that parties can use them to provide competition at the application layer ‑‑ provide e‑mail and web access, local telephony, their own internet services and so on?
LISTNUM 1 \l 110590 MR. HATFIELD: Yes. My testimony is that, generally speaking, one should lean toward requiring access under those conditions.
LISTNUM 1 \l 110591 There may be different technical issues in having such access between the two technologies and so forth, but just as a general comment, you are correct.
LISTNUM 1 \l 110592 MR. TACIT: Thank you.
LISTNUM 1 \l 110593 One of the things we heard in testimony ‑‑ and it came up a few times, including today ‑‑ was that one of the benefits of controlling your network is that you can control the quality of the services you offer.
LISTNUM 1 \l 110594 For example, I gather that one of the things that means is that you are able to do better at providing applications that are sensitive to latency or that require some sort of bandwidth reservation and so on.
LISTNUM 1 \l 110595 Is that correct?
LISTNUM 1 \l 110596 MR. HATFIELD: That would be an example, yes.
LISTNUM 1 \l 110597 MR. TACIT: Those would be reasons why competitors would, generally, strive to build facilities in order to gain that control and provide those services. Correct?
LISTNUM 1 \l 110598 MR. HATFIELD: Yes, in order to respond to their business customers, who would have a need for a higher quality ‑‑ a higher QOS.
LISTNUM 1 \l 110599 MR. TACIT: Then, if they are able to do that in their own portions of the networks, it is reasonable for the end pieces that may be required from the ILEC or the cable company to be provided to them, so that they can complete that service and provide that offering at the higher application layer. Correct?
LISTNUM 1 \l 110600 MR. HATFIELD: I'm sorry, that was a little long and I lost myself in ‑‑
LISTNUM 1 \l 110601 MR. TACIT: Let's assume that there is an incentive for competitors to put together as much of this network as they can in order to control for some of these factors.
LISTNUM 1 \l 110602 What I am asking you is, if the only way to do this, end‑to‑end ‑‑ to have the latency sensitivity control, to have the bandwidth reservation control and so on ‑‑ is to mandate access to ILEC or cable facilities, then that piece should be made available on that basis, as well.
LISTNUM 1 \l 110603 MR. HATFIELD: There are a lot of, like I say, technical factors and stuff that one needs to take into account in responding to specific situations, but the general direction of your comment is correct.
LISTNUM 1 \l 110604 MR. TACIT: I want to follow up very quickly on a couple of points flowing from Mr. Ruby's examination. I think he was asking the panel whether TPIA, if it was forborne, would continue to be provided, but I think that whole discussion was in the context of a five‑year timeframe.
LISTNUM 1 \l 110605 Of course, Rogers' position is that non‑essential services should not be phased out sooner than five years. Correct?
LISTNUM 1 \l 110606 MR. WATT: That's correct.
LISTNUM 1 \l 110607 MR. TACIT: Let's assume that the Commission disagrees with Cybersurf and Rogers and decides to put in a much shorter period for phasing out those services. Let's say it's a year or three years. Does Rogers have a view as to whether it would continue to provide TPIA services beyond that one‑year or three‑year period?
LISTNUM 1 \l 110608 MR. WATT: My answer would be the same as to Mr. Ruby. We haven't conducted a business plan to see how the rates or terms might need to be accommodated.
LISTNUM 1 \l 110609 We spent the investment to put the service in place. If it can make money for us, we will continue that service.
LISTNUM 1 \l 110610 MR. TACIT: The other thing you said is that you have made a TPIA, a non‑tariff TPIA‑like offering to competitors.
LISTNUM 1 \l 110611 Did I hear that correctly?
LISTNUM 1 \l 110612 MR. WATT: What I was trying to say is that we commenced negotiations with a group of ISPs under the umbrella of the Canadian Association of Internet Service Providers, CAIP, about two years ago, and we have had a series of meetings over that time with offers and counteroffers exchanged. We haven't completed an arrangement yet.
LISTNUM 1 \l 110613 MR. TACIT: Understood. I guess what I would like to get clarification on is it wasn't really a TPIA‑like service. It was resale. Correct?
LISTNUM 1 \l 110614 MR. WATT: No, it wasn't. I'm not quite sure how you define "resale". If you are defining it as simple resale, it certainly was not simple resale in terms of rebilling. I would say it was something in between resale and the current third party Internet access offering.
LISTNUM 1 \l 110615 MR. TACIT: But it wouldn't have involved physical interconnections between constructed interconnections like TPIA does, does it?
LISTNUM 1 \l 110616 MR. WATT: As I say, there were various offers back and forth. Some of the offers contemplated I think what you are suggesting; others didn't.
LISTNUM 1 \l 110617 MR. TACIT: The ones from Rogers, would they have or not?
LISTNUM 1 \l 110618 MR. WATT: We made a variety of offers.
LISTNUM 1 \l 110619 MR. TACIT: Just a second.
‑‑‑ Pause
LISTNUM 1 \l 110620 MR. TACIT: I would like to understand again, in terms of competitive supply of wholesale services, what Rogers' current strategy is regarding the provision of unregulated wholesale services.
LISTNUM 1 \l 110621 As I'm sure you are aware, Call‑Net, before it was bought out by Rogers, had an extensive ‑‑
LISTNUM 1 \l 110622 THE CHAIRPERSON: What is the relevance of unregulated services? We are looking into whether stop mandating. Now you are introducing a subject that is not at all part of it. Unregulated services are not before us, so I don't see why we should waste time on questions on that.
LISTNUM 1 \l 110623 MR. TACIT: Okay, Mr. Chairman; thank you.
LISTNUM 1 \l 110624 Those are all my questions then.
LISTNUM 1 \l 110625 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 110626 Madam Secretary, who is next?
LISTNUM 1 \l 110627 THE SECRETARY: Thank you.
LISTNUM 1 \l 110628 I'm calling Mr. Timothy Denton on behalf of Telecommunications Xittel.
LISTNUM 1 \l 110629 THE CHAIRPERSON: Mr. Denton, you have 15 minutes. Can you do it?
LISTNUM 1 \l 110630 MR. DENTON: Give me seven.
LISTNUM 1 \l 110631 THE CHAIRPERSON: Good.
LISTNUM 1 \l 110632 MR. DENTON: It depends how fast Dave Watt is.
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 110633 MR. DENTON: Good afternoon, gentlemen. We have just a brief wake‑up period before we leave for today.
LISTNUM 1 \l 110634 I wanted to ask the Rogers panel if you assume that the Commission in its due course eliminates provision for access to wholesale services, are you of the view that your company should be under similar or comparable obligations to allow access to your facilities as those which in principle burden the telephone companies?
LISTNUM 1 \l 110635 MR. WATT: With respect to the high speed Internet market, our position is that we would be treated equivalently.
LISTNUM 1 \l 110636 MR. DENTON: That you would be treated equivalently.
LISTNUM 1 \l 110637 MR. WATT: Yes.
LISTNUM 1 \l 110638 MR. DENTON: Thank you.
LISTNUM 1 \l 110639 This is a question of fact which you may be able to supply.
LISTNUM 1 \l 110640 In those geographic markets where residential telephony services are now forborne, are you able to supply the percentage of all your customers in those markets who now take a triple play bundle from your company?
LISTNUM 1 \l 110641 MR. WATT: I can't do it today. We would only do it in confidence through the Commission.
LISTNUM 1 \l 110642 That would be a lot of work. Our systems aren't set up to collect information on the basis of forborne residential markets based on the wire centre structure, the exchange structure of the telephone companies. In fact, I'm not sure we could do it.
LISTNUM 1 \l 110643 MR. DENTON: I'm going to leave that one for the moment and consult with my client whether it needs to be pursued.
LISTNUM 1 \l 110644 Do you have something further?
LISTNUM 1 \l 110645 MR. WATT: I was just going to say that I can confirm that we cannot do it by telephone exchange.
LISTNUM 1 \l 110646 MR. DENTON: No, this is just over the whole market for which there is forborne telephony service.
LISTNUM 1 \l 110647 MR. WATT: I'm going to say that I do not believe we can collect that information.
LISTNUM 1 \l 110648 MS BLACKWELL: Mr. Denton, because the forborne exchange is by its nature only available by exchange, to be able to map the Rogers information to that on an exchange basis I think is something that in one of the interrogatory responses from the companies Rogers was already asked to provide information by exchange and it was not available.
LISTNUM 1 \l 110649 MR. DENTON: Thank you.
LISTNUM 1 \l 110650 Mr. Watt, or anyone on the panel, given the nature of the hybrid fibre coaxial network with which you now work, and supposing it's upgraded to supply broadband and local telephony, do you have a cost structure that is substantially different from the cost structure of the incumbent telephone networks?
LISTNUM 1 \l 110651 Have you described these differences in some source that we can have access to?
LISTNUM 1 \l 110652 MR. WATT: This is on the residential side. We don't have a comparison of our costs to the telephone company costs. We don't precisely know what they are for telephony services, let alone for their impending IPTV services. I don't think I can answer that.
LISTNUM 1 \l 110653 MR. DENTON: The next question goes to the question of where the evolution of the industry will go.
LISTNUM 1 \l 110654 In your view, will higher speed access to the Internet, as it were, allow for the provision of what we now call television programming? And in what timeframe do you reasonably expect this phenomenon to take place?
LISTNUM 1 \l 110655 THE CHAIRPERSON: What is the relevance to what we are looking into?
LISTNUM 1 \l 110656 MR. DENTON: The relevance goes to the issue, sir, of whether in the absence of mandated access to facilities, what are the chances of ISPs of building something that is comparable and therefore what is the comparability between what services are going to have to be for ISPs to survive?
LISTNUM 1 \l 110657 THE CHAIRPERSON: It must be the lateness of the day, but I don't see any connection.
LISTNUM 1 \l 110658 MR. DENTON: I will go to the next question.
LISTNUM 1 \l 110659 Given your position regarding the unbundling of ILEC facilities, do you believe that the market power held by the incumbent cable companies and the incumbent telephone companies is sufficient to support a claim by ISPs that access should be mandated to higher speed Internet services, for the same reasons you were requesting the unbundling in the business market?
LISTNUM 1 \l 110660 MR. WATT: Our position is that there is widespread choice of the two platforms, certainly in the residential market. So access after five years does not have to be mandated.
LISTNUM 1 \l 110661 That stands in contrast to our request for access principally to unbundled loop, unbundled facilities in the business market where we feel there would be a monopoly absent the mandated access.
LISTNUM 1 \l 110662 MR. DENTON: Thank you.
LISTNUM 1 \l 110663 Thank you, panel; thank you, Mr. Chairman. That completes my questions.
LISTNUM 1 \l 110664 THE CHAIRPERSON: Thank you very much, Mr. Denton.
LISTNUM 1 \l 110665 That finishes the cross‑examination of Rogers.
LISTNUM 1 \l 110666 Tomorrow Commissioner Noël has an appointment where she is giving a public speech, so we will have to finish at 3:30, I believe, rather than 4:30. In return for that, I will ask you to start at 8 o'clock tomorrow rather than 8:30. So we will at least make up one half hour of the hour that we are losing.
LISTNUM 1 \l 110667 I believe, counsel, you had some announcement to make?
LISTNUM 1 \l 110668 MR. McCALLUM: Yes. I wonder if counsel could come up and we can discuss revised estimates of time, please.
LISTNUM 1 \l 110669 THE CHAIRPERSON: Madam Secretary, if that is all, we will meet tomorrow morning at 8 o'clock.
LISTNUM 1 \l 110670 Thank you.
LISTNUM 1 \l 110671 THE SECRETARY: Thank you, Mr. Chair.
‑‑‑ Whereupon the hearing adjourned at 1620, to resume
on Tuesday, October 16, 2007 at 0800 /
L'audience est ajournée à 1620, pour reprendre le
mardi 16 octobre 2007 à 0800
REPORTERS
______________________ ______________________
Marc Bolduc Jean Desaulniers
______________________ ______________________
Sue Villeneuve Jennifer Cheslock
______________________ ______________________
Barbara Neuberger Monique Mahoney
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