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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 17, 2007 Le 17 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 17, 2007 Le 17 octobre 2007
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
AFFIRMED: STEWART THOMPSON 1744 /12430
Examination-in-chief by Yak Communications 1744 /12431
Cross-examination by Bell Canada 1745 /12438
Cross-examination by TELUS 1785 /12752
AFFIRMED: WILLIE GRIEVE 1811 /12956
AFFIRMED: JANET YALE
AFFIRMED: JOHN FLEIGER
AFFIRMED: ROBERT TASKER
AFFIRMED: DAVE McMAHON
Examination-in-chief by TELUS 1812 /12957
Cross-examination by Rogers 1819 /13018
Cross-examination by Shaw 1889 /13452
Cross-examination by MTS Allstream 1899 /13534
Cross-examination by Primus 1993 /14184
- v -
EXHIBITS / PIÈCES JUSTIFICATIVES
No. PAGE / PARA
COMPANIES-12 Summary of certain Yak dial 1768 /12628
around and selected prepaid long
distance calling card per-minute
toll rates
CRTC-8 Telus' letter dated 1898 /13530
October 12, 2007 subject: CRTC
Telecommunications Monitoring
Report: Status of Competition in
Canadian Telecommunications
Markets and Deployment
Accessibility of Advanced
Telecommunications Infrastructures
and Services, July 2007
MTS-14 TELUS Wireline Revenues, 1915 /13669
Profitability and Capital
Expenditures. Tables 1,2 and 3
BUREAU-4 Response to undertaking to comment 1991 /14174
on U.S. data related to total
plant additions aggregated for all
reporting ILECs for the period
1996-2006
BUREAU-5 Response to undertaking to provide 1991 /14174
MTS Allstream and the Commission a
summary of the timelines on the
public record in the Canada Pipe
case
PRIMUS-5 String of emails exchanged between 1995 /14201
TELUS and Primus Globility re:DS3
CDN Digital Access orders for
Vancouver co-locations
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon resuming on Wednesday, October 17, 2007
at 0830 / L'audience reprend le mercredi
17 octobre 2007 à 0830
1LISTNUM 1 \l 1 \s 24232423 THE SECRETARY: Please be seated.
1LISTNUM 1 \l 12424 Today we are starting the day fresh with the witness of Yak. I am asking Mr. Lockie to introduce his witness.
1LISTNUM 1 \l 12425 MR. LOCKIE: Thank you.
1LISTNUM 1 \l 12426 Mr. Chairman, I would like to introduce Mr. Stewart Thompson as Yak's panel. Mr. Thompson is Yak's Vice‑President of Carrier Relations, and he is ready to be sworn in. His resume has been previously submitted.
1LISTNUM 1 \l 12427 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 12428 Do you want to swear the witness in?
1LISTNUM 1 \l 12429 THE SECRETARY: Yes. Mr. Thompson, I will affirm you.
AFFIRMED: STEWART THOMPSON
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 12430 MR. LOCKIE: Mr. Thompson, I would like to refer you to Yak's evidence dated March 15th, as well as Yak's responses to the interrogatory dated May 10th and subsequent response to interrogatory dated August 9th.
1LISTNUM 1 \l 12431 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12432 MR. LOCKIE: Can you confirm that these materials were prepared by you or under your direction and are accurate?
1LISTNUM 1 \l 12433 MR. THOMPSON: Yes, they were.
1LISTNUM 1 \l 12434 MR. LOCKIE: Thank you. He is ready for cross.
1LISTNUM 1 \l 12435 THE SECRETARY: Counsel Blakey, on behalf of The Companies, please proceed.
1LISTNUM 1 \l 12436 MR. BLAKEY: Thank you, Madam Secretary.
1LISTNUM 1 \l 12437 Good morning, everyone, I am John Blakey, assistant general counsel for Bell Canada. I will be cross‑examining Mr. Thompson this morning.
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 12438 MR. BLAKEY: Welcome, Mr. Thompson.
1LISTNUM 1 \l 12439 Can I ask that you distribute the materials, Madam Secretary? Mr. Thompson, you will be pleased to know I am mostly going to restrict my questions to your dial‑around service this morning.
1LISTNUM 1 \l 12440 Am I correct that Yak has two main long distance offerings in Canada, Mr. Thompson?
1LISTNUM 1 \l 12441 MR. THOMPSON: That is correct. We have a subscriber‑based offering and we have a dial‑around ‑‑ a number of dial‑around offerings actually.
1LISTNUM 1 \l 12442 MR. BLAKEY: In terms of the subscriber, this would be your one‑plus dialling service, where people pre‑subscribe and then they are PIC'd to your service. Is that right?
1LISTNUM 1 \l 12443 MR. THOMPSON: That is correct.
1LISTNUM 1 \l 12444 MR. BLAKEY: Then the other service, the casual calling, I take it this is the service where a subscriber is with a local service provider, be it Bell Canada or a cable company, they can casually pick up their phone and make a 10‑10 call using your service?
1LISTNUM 1 \l 12445 MR. THOMPSON: That is correct.
1LISTNUM 1 \l 12446 MR. BLAKEY: I take it that it is the 10‑10 dial‑around service in respect of Bell Canada and the other LECGs provide billing and collection service to you?
1LISTNUM 1 \l 12447 MR. THOMPSON: Yes, that is right.
1LISTNUM 1 \l 12448 COMMISSIONER del VAL: Counsel, would you mind moving your mic closer?
1LISTNUM 1 \l 12449 MR. BLAKEY: Not at all. How is this?
1LISTNUM 1 \l 12450 Before we go on, I would like to run us all through briefly the mechanics of the 10‑10 call, just so we are all familiar with what goes on and that there is really no magic associated with this, so, if you will just bear with me.
1LISTNUM 1 \l 12451 Can we just imagine that a Bell subscriber here in Ottawa decides to make a casual Yak call with the 10‑10 service. I take it the first thing that the subscriber would do is pick up their phone and dial your ‑‑ it is almost like a commercial for Yak.
1LISTNUM 1 \l 12452 MR. THOMPSON: Please continue.
1LISTNUM 1 \l 12453 MR. BLAKEY: Dial 10‑10 and your 925 number and then the area code and the destination number of the call, and let's assume it is a call to Vancouver. Is that right?
1LISTNUM 1 \l 12454 MR. THOMPSON: That is correct.
1LISTNUM 1 \l 12455 MR. BLAKEY: Then the subscriber makes that call, engages in that phone conversation. I take it that your system picks up the originating telephone number that makes the call, the destination number of the call, the length of time of the call, the date and duration of the call?
1LISTNUM 1 \l 12456 MR. THOMPSON: Right.
1LISTNUM 1 \l 12457 MR. BLAKEY: Your systems pick all that up?
1LISTNUM 1 \l 12458 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12459 MR. BLAKEY: Then you rate the call according to however many cents per minute you charge for that particular type of call?
1LISTNUM 1 \l 12460 MR. THOMPSON: Also correct, yes.
1LISTNUM 1 \l 12461 MR. BLAKEY: Then you send that information, in our case, to Bell Canada, and then Bell Canada places information about that call on the monthly phone bill of their subscriber. Right?
1LISTNUM 1 \l 12462 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12463 MR. BLAKEY: Then we deal with any follow‑up questions and make any corrections if there needs to be. Right?
1LISTNUM 1 \l 12464 MR. THOMPSON: More or less. If there is a call that someone has, they may call into Bell Canada, they may call Yak directly if there is a question about the bill.
1LISTNUM 1 \l 12465 MR. BLAKEY: At the end of it all, there is a fee that is paid to you and, as I understand it, we kind of take over your accounts receivable, and as a result of all that, we are paid and you are paid. Right?
1LISTNUM 1 \l 12466 MR. THOMPSON: Yes, you collect money on our behalf. We pay you a fee for accounts receivable management and for placing the charge on the bill.
1LISTNUM 1 \l 12467 COMMISSIONER DUNCAN: Excuse me, could I just ask a question?
1LISTNUM 1 \l 12468 MR. BLAKEY: Sure.
1LISTNUM 1 \l 12469 COMMISSIONER DUNCAN: I am just wondering, how do you communicate that information to Bell that you want them to bill for these casual calls?
1LISTNUM 1 \l 12470 MR. THOMPSON: We send them records basically on a daily basis.
1LISTNUM 1 \l 12471 COMMISSIONER DUNCAN: Electronically?
1LISTNUM 1 \l 12472 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12473 COMMISSIONER DUNCAN: Thank you.
1LISTNUM 1 \l 12474 THE CHAIRPERSON: If I understand it, then, you have no interaction at all with the customer? As far as the customer is concerned, you are just a 10‑10 number, but all his dealings are with Bell?
1LISTNUM 1 \l 12475 MR. THOMPSON: Their dealings from a billing perspective are with Bell. They pay Bell. They have chosen to use Yak's service on a casual basis, so they are not a subscriber to a Yak offering, but we view them as our customer as well.
1LISTNUM 1 \l 12476 THE CHAIRPERSON: I know, but there is no interaction between you and the casual customer really? He never touches any part of Yak's system. He just uses Bell and you get the money essentially.
1LISTNUM 1 \l 12477 MR. THOMPSON: Actually, we do the switching. We have all of the interconnection into Bell's network. So, I would say we do substantially more to provide service to the customer.
1LISTNUM 1 \l 12478 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 12479 MR. BLAKEY: Thank you, Mr. Chairman.
1LISTNUM 1 \l 12480 Just a point of clarification following from the Chair's question. Going back to what we talked about at the beginning, you do have this other side of your house where you do have a pre‑established relationship and you do send bills to those people who are PIC'd to you.
1LISTNUM 1 \l 12481 MR. THOMPSON: Absolutely.
1LISTNUM 1 \l 12482 MR. BLAKEY: Who make the one‑plus calls?
1LISTNUM 1 \l 12483 MR. THOMPSON: Absolutely.
1LISTNUM 1 \l 12484 MR. BLAKEY: Two sides of the house. One is the direct dial folks who pre‑subscribe to you, and the other side of the house, which is mostly what we are going to be talking about here today, is the 10‑10, the casual calling side. Right?
1LISTNUM 1 \l 12485 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12486 MR. BLAKEY: To summarize in terms of what Bell does on the 10‑10 side of the house for you, and this is all basically coming from our tariff, and I don't think we need to go there, would you agree with me that essentially what we do in terms of billing and collection is we prepare and send the bill, we collect payment and charges for the calls made by your customers, we answer customer questions regarding the charges, and we apply any credits or adjustments as are needed. Is that a fair summary in terms of the billing and collection services?
1LISTNUM 1 \l 12487 MR. THOMPSON: More or less. I would say that you don't answer questions about our charges unless there is a dispute or something like that. Typically they would have our customer service number and would contact us directly.
1LISTNUM 1 \l 12488 MR. BLAKEY: Fair enough.
1LISTNUM 1 \l 12489 So, having gone through, if I could call it the 10‑10 101 course, why don't we next move into the evidence that you have filed in support of your assertion that billing and collection is an essential facility.
1LISTNUM 1 \l 12490 As I understand it from your March 15th evidence, you take the position that the billing and collection service is essential. Is that correct?
1LISTNUM 1 \l 12491 MR. THOMPSON: Yes, that is correct.
1LISTNUM 1 \l 12492 MR. BLAKEY: In paragraph 8 of that, if I could get you to turn to that ‑‑
1LISTNUM 1 \l 12493 MR. THOMPSON: Is that in the binder you provided as well?
1LISTNUM 1 \l 12494 MR. BLAKEY: Yes, although I am not sure it is actually in that binder because it is your March 15th evidence.
1LISTNUM 1 \l 12495 Do you have that in front of you, paragraph 8?
1LISTNUM 1 \l 12496 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12497 MR. BLAKEY: You say there that it is important to examine evidence of substitutable services for your 10‑10 dial‑around service. Do you see that? I could read it if you like.
1LISTNUM 1 \l 12498 MR. THOMPSON: Sure.
1LISTNUM 1 \l 12499 MR. BLAKEY: You say:
"With respect to the analysis of the downstream market, the Competition Bureau indicated that it may use the test that it proposed in Telecom Public Notice 2005‑2, including..."
1LISTNUM 1 \l 12500 And then you underlined this part here:
... "evidence of customer views on the substitutability of the products offered by alternative service providers, e.g. surveys, views on pricing and quality of service." (As read)
1LISTNUM 1 \l 12501 MR. THOMPSON: Uh‑hmm.
1LISTNUM 1 \l 12502 MR. BLAKEY: That is still your view? You think it is important in terms of understanding the definition of the market to look at consumer's views about substitutability. Right?
1LISTNUM 1 \l 12503 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12504 MR. BLAKEY: So, your evidence about substitutability, I take it, is found in the January 2007 Polaris Survey, which you filed along with your March 15th evidence. Right?
1LISTNUM 1 \l 12505 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12506 MR. BLAKEY: Why don't we turn to that now because that is what I think we will be spending a little bit of time on. That is at tab A of the compendium that I provided to you. Pardon me, that is tab B.
1LISTNUM 1 \l 12507 First off, I want to talk a little bit about your sample. If we turn to slide 4 of your deck ‑‑ do you have that in front of you?
1LISTNUM 1 \l 12508 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12509 MR. BLAKEY: You say that this is a nationally representative survey. Right?
1LISTNUM 1 \l 12510 MR. THOMPSON: I don't say that. Polaris says that.
1LISTNUM 1 \l 12511 MR. BLAKEY: Sorry, Polaris says that. Do you consider this to be a nationally representative survey?
1LISTNUM 1 \l 12512 MR. THOMPSON: I respect their expertise in the field.
1LISTNUM 1 \l 12513 MR. BLAKEY: But if I understand it correctly, this actually isn't a survey of a national slice of all toll subscribers, is it?
1LISTNUM 1 \l 12514 MR. THOMPSON: No, it isn't.
1LISTNUM 1 \l 12515 MR. BLAKEY: Would it be fair to say that this is a sample just of your customers on the 10‑10 side of the house; people who made recently a 10‑10 call, they were the people who were sort of the eligible pool for the survey?
1LISTNUM 1 \l 12516 MR. THOMPSON: Yes. We provided a database of 10,000 users who had used one of our dial‑around services over a recent period of time.
1LISTNUM 1 \l 12517 MR. BLAKEY: But if it is only your customers, isn't that a little bit like, say, General Motors surveying General Motors' drivers and then getting results and saying, and this is representative of the automobile market in Canada?
1LISTNUM 1 \l 12518 MR. THOMPSON: We are saying this is representative of the dial‑around market. We are not saying this is representative of the overall market.
1LISTNUM 1 \l 12519 What we are talking about is whether billing and collection should be mandated associated with billing and collection and equal ease of access. This is what we are talking about.
1LISTNUM 1 \l 12520 MR. BLAKEY: But again, though, I think you said it is representative of our customers, but I take it people who used other 10‑10 dial‑around services, they weren't surveyed, were they?
1LISTNUM 1 \l 12521 MR. THOMPSON: No, for expediency, given the time frame to file data and the simplicity of collecting the data, it was much simpler to take a sample from our existing customer base, which includes a number of different offerings.
1LISTNUM 1 \l 12522 MR. BLAKEY: To the extent that it is nationally representative, it is nationally representative of your customers and only your 10‑10 customers and not all 10‑10 customers and certainly not all long distance users. Right?
1LISTNUM 1 \l 12523 MR. THOMPSON: You might to able to draw conclusions, given that we make up a large component of the dial‑around market with our various offerings that it could be representative of other dial‑around customers.
1LISTNUM 1 \l 12524 MR. BLAKEY: Just so that I understand what slice of the overall toll market we are dealing with here, do you have a sense as to the proportion of all toll usage residential, because I assume your customers are primarily residential?
1LISTNUM 1 \l 12525 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12526 MR. BLAKEY: So, let's focus on residential.
1LISTNUM 1 \l 12527 If we were to look at the overall residential Canadian toll market, would you be able to give us a sense as to what proportion 10‑10 comprises of that overall market?
1LISTNUM 1 \l 12528 MR. THOMPSON: It would be a relatively low number, but what we think we do is we represent a significant number of customers as opposed to minutes or calls.
1LISTNUM 1 \l 12529 We know, for example, that we have approximately two million customers who have used our dial‑around services over the last couple of years. So I would say that is a significant customer base.
1LISTNUM 1 \l 12530 MR. BLAKEY: I understand in terms of customers, but if we thought of it in terms of overall minutes of calling, for example, or even proportion of calls, would you have a sense, if the denominator was overall calls or minutes of residential toll usage by Canadians, would you be able to tell us what the numerator would be which is representing 10‑10 usage?
1LISTNUM 1 \l 12531 MR. THOMPSON: It would be a relatively small percentage, but I will go back to we think that the relevant measure here for the public interest is how many people use our service.
1LISTNUM 1 \l 12532 MR. BLAKEY: Fair enough.
1LISTNUM 1 \l 12533 How recently did someone have to make a Yak 10‑10 dial‑around call to be eligible to be surveyed or in the pool of respondents. Do you know?
1LISTNUM 1 \l 12534 MR. THOMPSON: I am not sure if I have that data here. I believe it was a period of six months, within six months.
1LISTNUM 1 \l 12535 MR. BLAKEY: But if you want to show that there would be a substantial lessening of competition, wouldn't you have to show that there would be impacts on the overall toll market and not just for your customers?
1LISTNUM 1 \l 12536 MR. THOMPSON: We are looking at this from a couple of perspectives, one being the policy goal of providing affordable and accessible telecom services, and given that dial‑around is a choice that you make on a per call or per route basis, it is the ultimate flexibility for consumers.
1LISTNUM 1 \l 12537 There is a sub‑segment of the market that uses only dial‑around and their only option really is to subscribe to a plan which doesn't meet their needs, clearly as evidenced by our consumer survey.
1LISTNUM 1 \l 12538 So, that is what we think is relevant.
1LISTNUM 1 \l 12539 MR. BLAKEY: So, are you taking the position that your dial‑around customers are actually kind of a market unto themselves?
1LISTNUM 1 \l 12540 MR. THOMPSON: No, dial‑around is not a market unto itself, but we do believe that the existence of dial‑around, if it was not there, there may be a substantial lessening of competition.
1LISTNUM 1 \l 12541 MR. BLAKEY: Sorry, could you just repeat that last sentence?
1LISTNUM 1 \l 12542 MR. THOMPSON: We do believe that there could be a substantial lessening of competition with the removal of dial‑around for a significant number of consumers.
1LISTNUM 1 \l 12543 MR. BLAKEY: Notwithstanding what you said a moment ago, that it is a relatively small percentage?
1LISTNUM 1 \l 12544 MR. THOMPSON: I think I said that as a percentage of the minutes, but if you look at it from a consumer perspective, it is a significant number of consumers.
1LISTNUM 1 \l 12545 MR. BLAKEY: Let's now turn to the questions that you asked in your survey and assume that it was more representative than just your customers.
1LISTNUM 1 \l 12546 Could we go to slide 7 of the survey, please? I take it this is the slide where Polaris asked people about their calls in the prior 30 days and what percentages were dial‑around as opposed to others. Is that right?
1LISTNUM 1 \l 12547 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12548 MR. BLAKEY: I take it that the red shows in various demographic groupings, but why don't we just focus on the overall bar at the top.
1LISTNUM 1 \l 12549 I take it that the red indicates that 89 per cent of the toll calls made by your customers in that 30‑day period leading up to the survey were dial‑around. Is that right?
1LISTNUM 1 \l 12550 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12551 MR. BLAKEY: And the yellow, that is the 9 per cent, that is labelled regular long distance. I take it that that is some kind of one‑plus or other type of subscribed toll plan?
1LISTNUM 1 \l 12552 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12553 MR. BLAKEY: And the green, the 1 per cent there, that is the pre‑paid calling card proportion of calling?
1LISTNUM 1 \l 12554 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12555 MR. BLAKEY: Okay.
1LISTNUM 1 \l 12556 As I read your evidence, you place a fair bit of emphasis on this. You say, actually, in paragraph 11 of your evidence, that because only 1 percent indicated that they used prepaid calling cards, this demonstrates to you that dial‑around users are loath to consider prepaid calling to be a substitute for dial‑around.
1LISTNUM 1 \l 12557 Is that fair?
1LISTNUM 1 \l 12558 MR. THOMPSON: That is one reference that would be suitable. There are others, as well.
1LISTNUM 1 \l 12559 MR. BLAKEY: All right. But do you agree with that characterization?
1LISTNUM 1 \l 12560 Among other things, what this slide tells you is that your customers don't consider prepaid calling cards to be much of a substitute for their dial‑around calling.
1LISTNUM 1 \l 12561 Is that fair?
1LISTNUM 1 \l 12562 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12563 MR. BLAKEY: Again, I am going to go back to my car analogy. Isn't that a little bit like phoning up a bunch of GM owners and saying to them: How much time have you spent lately driving around in Fords?
1LISTNUM 1 \l 12564 They are not going to tell you that they are driving Fords much, because the car they are with right now is a GM.
1LISTNUM 1 \l 12565 It doesn't really tell you what they might do when it comes to their next car purchase, does it?
1LISTNUM 1 \l 12566 MR. THOMPSON: Again, I think that is one question in the survey that points to the limited substitution of prepaid cards, but there are others within the survey.
1LISTNUM 1 \l 12567 MR. BLAKEY: Fair enough.
1LISTNUM 1 \l 12568 I take it that you didn't actually get Pollara or ‑‑ I'm not sure. Did you work with Pollara in designing the survey?
1LISTNUM 1 \l 12569 How did that work?
1LISTNUM 1 \l 12570 MR. THOMPSON: We came up with a preliminary draft, and then they finished the questions.
1LISTNUM 1 \l 12571 MR. BLAKEY: I don't see any questions in the survey, unless I am wrong, where the survey asks respondents for their attitudes toward specific substitutes for dial‑around. Does it?
1LISTNUM 1 \l 12572 MR. THOMPSON: Not directly. However, if you went to page 11, it indicates the importance of having the 10‑10 alternative, where 93 percent overall, and 93 percent who earn less than $25,000, view the 10‑10 alternative as important.
1LISTNUM 1 \l 12573 So we don't think there is a lot of substitutability. If there was, then we would expect to get a much lower score there.
1LISTNUM 1 \l 12574 MR. BLAKEY: Mr. Thompson, are you familiar with the notion of a significant non‑transitory price increase?
1LISTNUM 1 \l 12575 MR. THOMPSON: Absolutely not.
1LISTNUM 1 \l 12576 MR. BLAKEY: Mr. Chair, where I am going to go with the witness is, I will briefly explain that concept to him, and explore his views on that, and whether or not he thinks that would have been relevant to ask.
1LISTNUM 1 \l 12577 Mr. Thompson, in competition law, economists, when they set out to define markets ‑‑ and the Competition Bureau does this, and the Commission has done this since its landmark decision in the mid‑nineties.
1LISTNUM 1 \l 12578 In terms of defining markets, what we imagine is, we assume that there might be a market somewhere, and we ask ourselves: What would consumers of the product in this possible market do if they were faced with what is called a significant non‑transitory price increase.
1LISTNUM 1 \l 12579 In layperson's terms, it is a 5 or more percent increase in the price of that good or service over a prolonged period of time.
1LISTNUM 1 \l 12580 If the providers of that service tried to impose such an increase, what would the consumers of that product do. If sufficient consumers of that product bail and choose other products or services, we can assume ‑‑ economists assume ‑‑ that those other things that people choose are also substitutable and, therefore, it is part of a broader market as opposed to a distinct market.
1LISTNUM 1 \l 12581 On the other hand, if they just stick with what they were with, notwithstanding the price increase, there is confidence that that is a market onto itself.
1LISTNUM 1 \l 12582 Do you follow me?
1LISTNUM 1 \l 12583 MR. THOMPSON: Sure.
1LISTNUM 1 \l 12584 MR. BLAKEY: That's basically what it is.
1LISTNUM 1 \l 12585 I take it that the survey doesn't ask what 10‑10 dial‑around users would do if they were faced with such a significant price increase in their product, if they would switch to prepaid calling cards or other substitutes?
1LISTNUM 1 \l 12586 MR. THOMPSON: No, it does not.
1LISTNUM 1 \l 12587 MR. BLAKEY: So we really don't know, to be fair. While it is true what you said about Slide 11, they might be upset if it disappeared ‑‑ and we will talk about whether or not it necessarily would disappear, but we simply don't know what dial‑around users would do, from your survey, if they were faced with a price increase, do we?
1LISTNUM 1 \l 12588 MR. THOMPSON: What we do know is that millions of consumers choose dial‑around as a viable alternative today, and it's their preferred alternative.
1LISTNUM 1 \l 12589 MR. BLAKEY: But we don't know tomorrow, if you and the other 10‑10 dial‑around service providers raised your prices, if they would stick with you or if they would choose something else, do we?
1LISTNUM 1 \l 12590 MR. THOMPSON: Let me tell you, if our costs go up and we don't have mandated access and mandated pricing, our belief is that the cost to provide the service will be too high.
1LISTNUM 1 \l 12591 In fact, over one‑third of our calls are given away free today because of the cost of LEC‑based billing. We are providing a service to customers who are making short‑duration calls.
1LISTNUM 1 \l 12592 THE CHAIRPERSON: Why are one‑third of your calls given away free?
1LISTNUM 1 \l 12593 MR. THOMPSON: Our minimum billing fee can be as high as ‑‑ I think it's 25 cents in Saskatchewan. If it costs us 25 cents to bill a call, we are not going to bill that call, because the billing fee is more than the value of a 5‑minute call.
1LISTNUM 1 \l 12594 MR. BLAKEY: Let's turn to some of the things that you did ask.
1LISTNUM 1 \l 12595 Could we go to Slide 13 of your deck?
1LISTNUM 1 \l 12596 Do you have that in front of you?
1LISTNUM 1 \l 12597 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12598 MR. BLAKEY: At the bottom, I see that the question is put: "Some Canadian telephone companies have suggested that the dial‑around services in Canada should be eliminated. Would you..."
1LISTNUM 1 \l 12599 Then, I take it that the options that were put to the respondents were "Strongly oppose" or "Oppose", et cetera, "the elimination of dial‑around services."
1LISTNUM 1 \l 12600 Is that a fair representation of that particular question?
1LISTNUM 1 \l 12601 MR. THOMPSON: Yes, it is.
1LISTNUM 1 \l 12602 Elimination in that, if there is not mandated access and mandated pricing, we do not believe it will be a viable alternative for providers like us to provide that to our customers.
1LISTNUM 1 \l 12603 MR. BLAKEY: But there is a big difference, Mr. Thompson, wouldn't you agree, between eliminating the service and simply declassifying it and saying that it is no longer mandated and no longer essential?
1LISTNUM 1 \l 12604 It doesn't necessarily follow, does it, if the service is no longer mandated, that it would just be eliminated?
1LISTNUM 1 \l 12605 MR. THOMPSON: If we go into an environment where there is uncertainty ‑‑ and who knows what that environment may look like? We don't know what it is going to be.
1LISTNUM 1 \l 12606 We are comfortable with cost‑based. As I indicated, we are giving away one‑third of our calls free today. If costs go up, if access isn't mandated by not just the incumbent LECs, but CLECs, where we are already having challenges and had to file a Part 70 against Shaw, just to negotiate so they can provide the service, I just don't see how it could be a viable product.
1LISTNUM 1 \l 12607 MR. BLAKEY: There were a lot of "ifs", though, in that last statement of yours ‑‑ if this and if that.
1LISTNUM 1 \l 12608 I am putting it to you that it doesn't necessarily follow, does it?
1LISTNUM 1 \l 12609 In fact, can you tell me ‑‑
1LISTNUM 1 \l 12610 MR. THOMPSON: We are building our business plans accordingly. That's why we are building our subscriber base.
1LISTNUM 1 \l 12611 Absolutely.
1LISTNUM 1 \l 12612 MR. BLAKEY: Okay. Can you show me anywhere in the record where Bell Canada has actually advocated the elimination and the discontinuance of its billing and collection services?
1LISTNUM 1 \l 12613 MR. THOMPSON: No. It would be by reference to no longer providing mandated services.
1LISTNUM 1 \l 12614 MR. BLAKEY: Okay. Let's look at a couple of the other questions that you asked in your survey.
1LISTNUM 1 \l 12615 Could you go to page 9, please?
1LISTNUM 1 \l 12616 I take it that this is where you asked your customers to rank the factors that are important to them in choosing their long distance service.
1LISTNUM 1 \l 12617 Is that right?
1LISTNUM 1 \l 12618 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12619 MR. BLAKEY: The one which they indicated was the most important, it would seem, is lower rates. Eighty percent ranked that as a very important factor in making their long distance choices.
1LISTNUM 1 \l 12620 Is that fair?
1LISTNUM 1 \l 12621 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12622 MR. BLAKEY: I did a quick price comparison ‑‑ some people have hobbies on a Saturday morning; I go to the website and I compare prices of your service and prepaid calling card services.
1LISTNUM 1 \l 12623 Could I ask you to turn to Tab C of the compendium, please?
1LISTNUM 1 \l 12624 I provided that to your counsel yesterday afternoon.
1LISTNUM 1 \l 12625 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12626 THE CHAIRPERSON: Are you making this an exhibit?
1LISTNUM 1 \l 12627 MR. BLAKEY: Yes, please, Mr. Chair.
1LISTNUM 1 \l 12628 THE SECRETARY: It will be Exhibit The Companies No. 12.
EXHIBIT COMPANIES‑12: Summary of certain Yak around selected prepaid long distance calling card per‑minute toll rates
1LISTNUM 1 \l 12629 MR. BLAKEY: Thank you, Madam Secretary.
1LISTNUM 1 \l 12630 Mr. Thompson, I don't purport this to be very, very scientific. I basically went to your website, I went to Bell Canada's prepaid calling card website, the VOX and the Loblaw's President's Choice and I selected Canada to Canada and Canada to U.S. calling, and given that there are a number of different rates that apply on different international destinations, I chose three randomly ‑‑ France, the U.K. and Australia.
1LISTNUM 1 \l 12631 MR. THOMPSON: Sure.
1LISTNUM 1 \l 12632 MR. BLAKEY: Would you agree with me that from this table ‑‑ and I don't think we need to go through it item‑by‑item. Would you agree with me that at least some, and, in this case, more than half of the rates associated with prepaid calling cards are actually lower than the 10‑10 Yak rates shown on your website?
1LISTNUM 1 \l 12633 MR. THOMPSON: I fail to see the relevance of that.
1LISTNUM 1 \l 12634 MR. BLAKEY: We will get to the relevance in a moment, but would you agree that, at least in some cases in the three I have chosen here ‑‑ as I say, it's not scientific, but they are out there, among others ‑‑ would it be fair to say that at least some of the rates associated with prepaid calling cards are as low, if not lower than the 10‑10 rates?
1LISTNUM 1 \l 12635 MR. THOMPSON: First of all, you are looking at one of our 10‑10 rate plans. We have multiple rate plans. We have LooneyCall, we have LuckyCall, we have 10‑10‑580. So we provide a number of competitive options, some of which would be certainly more competitive than the rates provided here.
1LISTNUM 1 \l 12636 MR. BLAKEY: Fair enough, but ‑‑
1LISTNUM 1 \l 12637 MR. THOMPSON: This is a sample of one dial‑around provider, this is not representative of the dial‑around industry.
1LISTNUM 1 \l 12638 MR. BLAKEY: But going back to your survey, and going back to the factor ‑‑ the No. 1 factor, lower rates ‑‑ would you agree with me that if the survey had actually put real rates associated with dial‑around in comparison to prepaid calling cards, or perhaps other plans, and some of those rates turned out to be lower than your rates, when presented with those actual real world examples of choices, given the importance of price which your survey seems to indicate, do you think it's possible that some of the survey respondents might have indicated a willingness to go with those lower priced alternatives?
1LISTNUM 1 \l 12639 Is that possible?
1LISTNUM 1 \l 12640 MR. THOMPSON: We don't think it is really likely, and I will tell you why.
1LISTNUM 1 \l 12641 When we conducted the survey, we were actually surprised. We acquired Yak ‑‑ Globalive Communications acquired Yak in November of last year. When we conducted the survey, we thought that the products were substitutes, in effect. When we found out and surveyed our customers and realized they weren't, we said: We should get into the prepaid calling market as well.
1LISTNUM 1 \l 12642 This month we will be in the prepaid calling market and we will have prices more aggressive than any price on this table, because we don't view it as a substitute for casual calling, where the customer has the ultimate choice to make a decision on a call‑by‑call basis, and does not have to buy a block of minutes, and does not have, potentially, minutes that are unused at the end of a three or six‑month period.
1LISTNUM 1 \l 12643 We view prepaid as another viable alternative for consumers. We do not view it as relevant to the dial‑around market.
1LISTNUM 1 \l 12644 MR. BLAKEY: Let's look quickly at your second factor that respondents cited. Seventy‑one percent said no upfront fees or service plan contracts.
1LISTNUM 1 \l 12645 Is that right?
1LISTNUM 1 \l 12646 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12647 MR. BLAKEY: Would you agree with me that there are some prepaid calling card options out there ‑‑ and these are three ‑‑ that don't have upfront fees or service plan contracts?
1LISTNUM 1 \l 12648 MR. THOMPSON: I haven't looked at the terms and conditions of all of those, but I do know that you are going to have to buy in $5, $10 or $20 increments, and you cannot make a decision to make one call, and make a decision on a call‑by‑call basis, which is valued by millions of customers today.
1LISTNUM 1 \l 12649 MR. BLAKEY: Okay. Fair enough.
1LISTNUM 1 \l 12650 The last area that I want to explore with you, Mr. Thompson, is the whole notion of practicality and feasibility of substitutes.
1LISTNUM 1 \l 12651 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12652 MR. BLAKEY: Could I ask you to turn to Tab D of the compendium, please, and look at the bottom of page 2?
1LISTNUM 1 \l 12653 It is the response to Interrogatory Yak‑CRTC‑19 July 07‑2003.
1LISTNUM 1 \l 12654 I am at the bottom of the page.
1LISTNUM 1 \l 12655 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12656 MR. BLAKEY: This is where the CRTC asked you to comment on some of the alternative billing arrangements that Bell and TELUS had mentioned in the earlier round of interrogs, and at the bottom of the page ‑‑ and I will read it to you ‑‑ you say:
"If billing and collection services were not available at mandated prices, Yak believes it would have great difficulty negotiating reasonable prices for such services from the ILECs and, as a result, Yak's only option would be to fundamentally change the service provided to a pre‑established relationship service between the service provider and the customer to be billed. Yak does not believe this is feasible." (As read)
1LISTNUM 1 \l 12657 Is that still your position, Mr. Thompson?
1LISTNUM 1 \l 12658 MR. THOMPSON: Yes. We are actually working to see if our customers are interested in migrating from casual calling to a subscriber‑based service.
1LISTNUM 1 \l 12659 The truth is, many of them are not. We have had limited success with that.
1LISTNUM 1 \l 12660 MR. BLAKEY: Okay. But you would agree with me that if the Commission were to find a billing and collection service non‑essential, that wouldn't necessarily mean that the billing and collection service would disappear from the face of the earth, and with it dial‑around calling, would it?
1LISTNUM 1 \l 12661 MR. THOMPSON: We don't expect that it is going to be easy to negotiate. We are already paying, we believe, significantly inflated rates, based on the fact that a cost study has not been filed in 12 years.
1LISTNUM 1 \l 12662 We are having difficulty negotiating access to billing and collection with Shaw.
1LISTNUM 1 \l 12663 There is enough evidence out there, from our perspective, that it is already a challenge. We are giving away one‑third of our calls free. We think that the billing fee should be less than a penny, and we have contributed $30 million to the LECs, in terms of billing and network infrastructure build associated just with our billing fee, let alone our accounts receivable and management fees.
1LISTNUM 1 \l 12664 We already think it is difficult.
1LISTNUM 1 \l 12665 MR. BLAKEY: It is difficult, but you don't necessarily know what the outcome of those negotiations would be, do you?
1LISTNUM 1 \l 12666 MR. THOMPSON: We couldn't possibly know.
1LISTNUM 1 \l 12667 MR. BLAKEY: I take it from looking at your c.v. that you have been with Globalive ‑‑
1LISTNUM 1 \l 12668 Am I right that you have been with its Canadian predecessor since 2005, as well?
1LISTNUM 1 \l 12669 MR. THOMPSON: I have been with Globalive or affiliated companies since 2002.
1LISTNUM 1 \l 12670 MR. BLAKEY: Did you have an association with Yak when it was still a sister company of the U.S. company, Yak America?
1LISTNUM 1 \l 12671 MR. THOMPSON: During the transitionary period.
1LISTNUM 1 \l 12672 One of our first objectives was to focus on the Canadian market, and we focused immediately on trying to sell that part of the business.
1LISTNUM 1 \l 12673 MR. BLAKEY: Are you aware that during that period the U.S. affiliate of Yak in the American market was engaged in the same type of 10‑10 service in a completely deregulated market?
1LISTNUM 1 \l 12674 MR. THOMPSON: Yes, and doing miserably.
1LISTNUM 1 \l 12675 MR. BLAKEY: Are you aware, as well, that billing and collection services have actually been deregulated in the United States since the mid‑1980s, completely?
1LISTNUM 1 \l 12676 MR. THOMPSON: Of course, there is vibrant local competitive business there. It is not uncommon to have to establish a relationship with thousands of local CLECs. How could you possibly deal with those? So you have to deal with clearing houses down there.
1LISTNUM 1 \l 12677 TELUS deals with a clearing house down there, as well.
1LISTNUM 1 \l 12678 MR. BLAKEY: So aren't clearing houses a possibility?
1LISTNUM 1 \l 12679 MR. THOMPSON: Clearing houses are a possibility, but they need access to rates that make sense in the industry. They have to have mandated access.
1LISTNUM 1 \l 12680 MR. BLAKEY: But don't the clearing houses negotiate privately in the United States, given that the FCC has completely deregulated that area?
1LISTNUM 1 \l 12681 MR. THOMPSON: I guess they are.
1LISTNUM 1 \l 12682 MR. BLAKEY: With a deregulated market in the United States, doesn't that suggest to you that commercial alternatives are out there?
1LISTNUM 1 \l 12683 MR. THOMPSON: They are completely different markets. I can tell you from our own experience that the markets are not similar at all.
1LISTNUM 1 \l 12684 The bad debt, the complexity, the thriving local competition makes it a completely different business.
1LISTNUM 1 \l 12685 MR. BLAKEY: Okay.
1LISTNUM 1 \l 12686 Can I get you to turn back to Tab D?
1LISTNUM 1 \l 12687 It is the same interrogatory, CRTC‑2003.
1LISTNUM 1 \l 12688 You say there ‑‑ well, let's assume billing and collection is classified as non‑essential and it is no longer mandated. I take it your view is, it is neither practical or feasible for you or anybody else to duplicate that service?
1LISTNUM 1 \l 12689 Fair enough?
1LISTNUM 1 \l 12690 MR. THOMPSON: It's not practical; correct.
1LISTNUM 1 \l 12691 MR. BLAKEY: And let's assume your worst fears come true and you can't reach a deal with an ILEC and let's further assume, flying in the face of the U.S. evidence, that in a deregulated market commercial alternatives wouldn't happen either.
1LISTNUM 1 \l 12692 When I look at your response to ‑‑
1LISTNUM 1 \l 12693 MR. THOMPSON: And I will just point to the fact that we do believe that dial‑around is not a viable business in the United States.
1LISTNUM 1 \l 12694 MR. BLAKEY: To your knowledge, are there still dial‑around companies in the United States?
1LISTNUM 1 \l 12695 MR. THOMPSON: There are probably a couple. But if you look at their plans, they are not attractive and they are not thriving in the marketplace.
1LISTNUM 1 \l 12696 MR. BLAKEY: I'll tell you, Mr. Thompson, it flies in the face ‑‑ I don't have it with me, but it flies in the face of the FCC materials that I have read where it indicates 10‑10 and prepaid calling cards is a thriving business in the United States.
1LISTNUM 1 \l 12697 MR. THOMPSON: I didn't mention prepaid calling cards.
1LISTNUM 1 \l 12698 MR. BLAKEY: Right. I guess what I'm interested in hearing from you is: In light of your statement on page 1 of that interrogatory, you say:
"Yak does in fact offer registration for casual callers, not to be confused with PIC‑based long distance services which Yak also offers."
1LISTNUM 1 \l 12699 Let's just stop there for a second. This takes us back to the beginning of our discussion.
1LISTNUM 1 \l 12700 You said that there was a subscribed PIC‑based one‑plus dialling service, and then we agreed that there was another side of the house, which was the 10‑10 dialling.
1LISTNUM 1 \l 12701 I take it from what you are saying here that you actually have a 10‑10 service where you do get free enrolled information, name, address, from your customers?
1LISTNUM 1 \l 12702 MR. THOMPSON: We had it and we withdrew it because it bombed.
1LISTNUM 1 \l 12703 MR. BLAKEY: So this is no longer accurate?
1LISTNUM 1 \l 12704 MR. THOMPSON: No.
1LISTNUM 1 \l 12705 MR. BLAKEY: All right. Well, those are all of my questions; thank you.
1LISTNUM 1 \l 12706 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 12707 Go ahead, Commissioner del Val.
1LISTNUM 1 \l 12708 COMMISSIONER del VAL: Mr. Thompson, I just have one question.
1LISTNUM 1 \l 12709 Earlier you were talking about switching and your subscribed base of the long distance callers. What facilities does Yak own?
1LISTNUM 1 \l 12710 MR. THOMPSON: We are a reseller facility, so we lease interconnection facilities, Feature Group D, access based on CDN rights to connect our switches to the telcos, things like that.
1LISTNUM 1 \l 12711 COMMISSIONER del VAL: So it's completely 100 per cent leased. You do not own any facilities. Is that correct?
1LISTNUM 1 \l 12712 MR. THOMPSON: We own switching equipment. We do not own facilities per se.
1LISTNUM 1 \l 12713 COMMISSIONER del VAL: Thank you.
1LISTNUM 1 \l 12714 THE CHAIRPERSON: You have heard probably the evidence on the Internet. You weren't here but you have heard this week and last week about the idea being that facilities‑based competition is the best kind of competition. In the long run, it provides the greatest efficiency for the nation. People use the image of a ladder and you step up the ladder, et cetera.
1LISTNUM 1 \l 12715 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12716 THE CHAIRPERSON: From what you said this morning, it seems to me that this whole notion just doesn't apply to your business. Your business is based primarily on mandated resale and you have obviously made a very successful business on it. But take the mandated resale away and you are going to get squeezed to death.
1LISTNUM 1 \l 12717 That was your testimony, if I understood it correctly.
1LISTNUM 1 \l 12718 So there is no future for you without mandated resale, at least in terms of billing and collection that we are talking about here.
1LISTNUM 1 \l 12719 MR. THOMPSON: What we think is it takes away an important option for millions of consumers who have selected the ability to make a selection on a per‑call basis.
1LISTNUM 1 \l 12720 We do not think that what we are talking about conflicts with any of the policy directions. It's not going to result in any more investment in alternate billing methodologies. It's not going to result in any more innovation if this is removed. In fact, we view this as negative innovation if you are removing dial‑around from the market. It's not going to lead to any further investment in network infrastructure.
1LISTNUM 1 \l 12721 We fail to see any benefit associated with removal of billing and collection as an essential facility.
1LISTNUM 1 \l 12722 And we haven't even talked about collect calls as well.
1LISTNUM 1 \l 12723 THE CHAIRPERSON: I understand that part. I was actually looking at you, at Yak, and the evolution of Yak. According to the theory of the letter, et cetera, you would be progressively investing more into more infrastructure and therefore grow into primarily a facilities‑based competitor.
1LISTNUM 1 \l 12724 If I understand you, your business doesn't lend itself to that. That is not part of your long‑term plan. Or if it is, then explain it to me, please.
1LISTNUM 1 \l 12725 MR. THOMPSON: Okay; thank you.
1LISTNUM 1 \l 12726 If we have access to cost‑effective unbundled services, yes, the direction that we are trying to take Yak in is to provide a full suite of telecom services. We provide not only dial‑around, we provide long distance, we are providing local through resale today. We are providing DSL through resale today.
1LISTNUM 1 \l 12727 We have looked at making investments in collocation and equipment associated with the unbundled loop as recently as a couple of quarters ago, or even this quarter. But given the state of this proceeding, we are obviously taking a second look at that.
1LISTNUM 1 \l 12728 We have seen that Primus has invested tens of millions of dollars in collocation and in equipment to access the unbundled loop, and it looks like it may have been the wrong bet. And we think that's unfortunate because we do think that maybe the step approach isn't working as quickly as possible.
1LISTNUM 1 \l 12729 If you are going to build a subscriber base, you really do need a combination of resale and access to unbundled facilities, in our view. We don't see any other viable alternative.
1LISTNUM 1 \l 12730 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 12731 Commissioner Cram.
1LISTNUM 1 \l 12732 COMMISSIONER CRAM: Thank you.
1LISTNUM 1 \l 12733 Mr. Thompson, did I understand you correctly to say that you are building your PIC‑based sub‑base on the premise that 10‑10 would not exist?
1LISTNUM 1 \l 12734 MR. THOMPSON: No. We would be building that anyway. There is no question we are committed to moving to a subscriber‑based service. We believe it is the right solution for Yak in the long term, as we try to offer bundled services with local and DSL and long distance.
1LISTNUM 1 \l 12735 So that's the direction we have been moving in.
1LISTNUM 1 \l 12736 COMMISSIONER CRAM: Right now, and let's say revenue‑wise, is your dial‑around 10‑10 a far larger portion of your business?
1LISTNUM 1 \l 12737 MR. THOMPSON: Yes, it is today.
1LISTNUM 1 \l 12738 COMMISSIONER CRAM: Have you noticed any difference in your uptake on minutes of revenue since things like Skype came into the market?
1LISTNUM 1 \l 12739 MR. THOMPSON: We can't really assess the impact of that. Again, based on our survey, the people who use dial‑around today, less than 1 per cent indicated that they use VoIP alternatives. That's the only reference point we have.
1LISTNUM 1 \l 12740 COMMISSIONER CRAM: Prepaid cards, while they make look cheaper than you, there is the issue that you can't use up the last 30 seconds or whatever.
1LISTNUM 1 \l 12741 Do they round up?
1LISTNUM 1 \l 12742 MR. THOMPSON: Well, they are all different. I think that's one of the issues. There is a consumer trust issue. They are just not sure what they are getting and it's not clear.
1LISTNUM 1 \l 12743 And they have to buy, in effect, a bundle of minutes anyway.
1LISTNUM 1 \l 12744 COMMISSIONER CRAM: Yes. Is there a commission on top of that on the cards normally?
1LISTNUM 1 \l 12745 MR. THOMPSON: Yes, usually, unless you are selling direct.
1LISTNUM 1 \l 12746 COMMISSIONER CRAM: Thank you very much.
1LISTNUM 1 \l 12747 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 12748 Madam Secretary, who is next?
1LISTNUM 1 \l 12749 THE SECRETARY: Thank you, gentlemen.
1LISTNUM 1 \l 12750 I will now call counsel for TELUS Communications, please.
‑‑‑ Pause
1LISTNUM 1 \l 12751 THE SECRETARY: Counsel Lowe, you may proceed.
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 12752 MR. LOWE: Thank you.
1LISTNUM 1 \l 12753 Good morning, Mr. Chairman. My name is John Lowe, counsel for TELUS. In this era of substitutability of counsel, I'm the next up.
1LISTNUM 1 \l 12754 Good morning, Mr. Thompson.
1LISTNUM 1 \l 12755 MR. THOMPSON: Good morning.
1LISTNUM 1 \l 12756 MR. LOWE: There is a package of material that is taken from the record. There are handwritten page numbers on the upper right‑hand corner.
1LISTNUM 1 \l 12757 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12758 MR. LOWE: So we can talk about that.
1LISTNUM 1 \l 12759 I would like to circle back for a moment to your qualifications, if I could, sir.
1LISTNUM 1 \l 12760 MR. THOMPSON: Sure.
1LISTNUM 1 \l 12761 MR. LOWE: You were with MTS Allstream and its predecessors from 1997 to 2001. Is that right?
1LISTNUM 1 \l 12762 MR. THOMPSON: Yes, actually from 1993 to 2001.
1LISTNUM 1 \l 12763 MR. LOWE: Okay. I noticed on your biography on the corporate website of Globalive that you headed initiatives that resulted in $200 million in savings over four years. I was just wondering what that was.
1LISTNUM 1 \l 12764 MR. THOMPSON: Well, it's really associated with network optimization. I was responsible for access management, so all about how do you optimize your network and work with the regulatory group to achieve savings to make your company more viable.
1LISTNUM 1 \l 12765 MR. LOWE: And you are Vice‑President of Corporate Development for both Yak and Globalive now?
1LISTNUM 1 \l 12766 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12767 MR. LOWE: And you have the function of network optimization, regulatory and carrier negotiation. Does that cover the waterfront?
1LISTNUM 1 \l 12768 MR. THOMPSON: Not directly regulatory. Simon Lockie does have responsibility for regulatory. But I'm actively involved in the files.
1LISTNUM 1 \l 12769 MR. LOWE: Out in Calgary in the oil and gas business when you want to know how long someone has been around, you say "how many booms have you been through?" I guess here it's "how many sunsets have you been through?"
1LISTNUM 1 \l 12770 And it's been two, I guess.
1LISTNUM 1 \l 12771 MR. THOMPSON: Two anyway.
1LISTNUM 1 \l 12772 MR. LOWE: Turning to Yak's business, I think you confirmed that Yak is not a CLEC; it's a reseller.
1LISTNUM 1 \l 12773 MR. THOMPSON: That's correct. Actually, we are a Canadian carrier now too.
1LISTNUM 1 \l 12774 MR. LOWE: Because you own transmission facilities.
1LISTNUM 1 \l 12775 MR. THOMPSON: No, not because we own transmission facilities.
1LISTNUM 1 \l 12776 MR. LOWE: Do you own transmission facilities?
1LISTNUM 1 \l 12777 MR. THOMPSON: No.
1LISTNUM 1 \l 12778 MR. LOWE: Do you operate transmission facilities?
1LISTNUM 1 \l 12779 MR. THOMPSON: No.
1LISTNUM 1 \l 12780 MR. LOWE: And you are not registered as a CLEC.
1LISTNUM 1 \l 12781 MR. THOMPSON: No.
1LISTNUM 1 \l 12782 MR. LOWE: And you have about $100 million in revenues. Is that about right, in Yak?
1LISTNUM 1 \l 12783 MR. THOMPSON: More or less.
1LISTNUM 1 \l 12784 MR. LOWE: What percentage of that, roughly ‑‑ I'm not asking for an exact number. What percentage of that would be in respect of 10‑10 revenues?
1LISTNUM 1 \l 12785 MR. THOMPSON: I would rather not disclose that, but it's a significant portion.
1LISTNUM 1 \l 12786 MR. LOWE: It's a significant amount; okay.
1LISTNUM 1 \l 12787 MR. THOMPSON: More than 50 per cent.
1LISTNUM 1 \l 12788 MR. LOWE: Also on your website it says that Globalive, Yak's parent, offers billing and collection services.
1LISTNUM 1 \l 12789 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12790 MR. LOWE: Thank you.
1LISTNUM 1 \l 12791 MR. THOMPSON: It's really clearinghouse services. We are not CLEC, so we don't offer billing and collection per the definition that some people might be familiar with here.
1LISTNUM 1 \l 12792 MR. LOWE: Right. And then you mentioned to Commissioner Cram that you were looking into expanding into billing customers.
1LISTNUM 1 \l 12793 MR. THOMPSON: We are today.
1LISTNUM 1 \l 12794 MR. LOWE: On the consumer experience for 10‑10 and your relationship with casual callers, I take it they know about your prices based on your advertising in media and what they post on your website, and that's how they kind of know what they are going to get from 10‑10 when they use Yak.
1LISTNUM 1 \l 12795 Is that right?
1LISTNUM 1 \l 12796 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12797 MR. LOWE: Then in the U.S. at least there was some consumer issue surrounding surprise prices and fees that weren't disclosed and jumps in rates in minutes after certain usages, and the customers who used that service ended up not getting the savings they thought they would get.
1LISTNUM 1 \l 12798 I take it from your website that you say there are no hidden fees, there are no monthly charges. And that's in response to kind of the customer perception out there that they might get dinged for more charges than they otherwise would.
1LISTNUM 1 \l 12799 Is that kind of where the market is and you have to kind of provide people with an assurance that they are only going to pay 5 cents a minute and it's not going to increase down the road; there are no extra service charges?
1LISTNUM 1 \l 12800 MR. THOMPSON: Well, again, we have a number of different dial‑around offerings. Our Yak 10‑10‑925 is a simple offer where customers pay by the minute. There are no fees; there is no commitment.
1LISTNUM 1 \l 12801 MR. LOWE: And you can change the fees when you want. Is that right?
1LISTNUM 1 \l 12802 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12803 MR. LOWE: I hope you will agree that billing and collection services is not an essential service for CLECs in general. What you are saying is this is a special case for 10‑10 casual calling and you say it should be an essential service just for your 10‑10 casual calling business.
1LISTNUM 1 \l 12804 Do I have that right?
1LISTNUM 1 \l 12805 MR. THOMPSON: We haven't look at it from the CLEC perspective. We have looked at it from a perspective that billing and collection is an ancillary service to equal ease of access and 10‑10 dialling is indeed an essential service.
1LISTNUM 1 \l 12806 MR. LOWE: Okay. But certainly there is a lot of CLECs out there who can provide their own billing service and do quite well at it. Right?
1LISTNUM 1 \l 12807 There are lots of CLECs out there that can do it themselves. Right?
1LISTNUM 1 \l 12808 MR. THOMPSON: Yes, they can provide service to their own customers. Today they are mandated and in some cases comply with the fact that they should provide billing and collection to competitors.
1LISTNUM 1 \l 12809 MR. LOWE: But CLECs don't require billing and collection services from the ILEC to be provided on a mandated basis in general.
1LISTNUM 1 \l 12810 MR. THOMPSON: I fail to see the relevance.
1LISTNUM 1 \l 12811 They can choose to offer a dial‑around offer if they wish. They can choose to offer a collect service.
1LISTNUM 1 \l 12812 I'm not getting it.
1LISTNUM 1 \l 12813 MR. LOWE: So if CLEC was not providing 10‑10 service and was perfectly capable of providing its own billing service to customers without any help from the ILEC, do you think that it nevertheless should be an essential service and provided on a mandated basis for that CLEC?
1LISTNUM 1 \l 12814 MR. THOMPSON: Equally ease of access should be mandated. It is mandated. We wouldn't have forbearance without equal ease of access. That's the basis for our view as to equal ease of access being an essential service, as well as 10‑10 service, which is also part of equal ease of access and the ancillary service of billing and collection.
1LISTNUM 1 \l 12815 MR. LOWE: Perhaps we could turn to the package. The first document is your response to CRTC‑1002, and that's where you comment on ‑‑
1LISTNUM 1 \l 12816 MR. THOMPSON: Which page?
1LISTNUM 1 \l 12817 MR. LOWE: It's page 1 of the package.
1LISTNUM 1 \l 12818 MR. THOMPSON: Okay.
1LISTNUM 1 \l 12819 MR. LOWE: That's where you comment on the Bureau's definition of an essential facility.
1LISTNUM 1 \l 12820 Do you see that?
1LISTNUM 1 \l 12821 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12822 MR. LOWE: In the last line of the document you say:
"Thus the term 'same or similar' requires a liberal interpretation if Criterion 2 is to remain."
1LISTNUM 1 \l 12823 Do you see that?
1LISTNUM 1 \l 12824 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12825 MR. LOWE: What did you mean by a liberal interpretation of Criterion 2?
1LISTNUM 1 \l 12826 MR. THOMPSON: Well, it requires a liberal interpretation because, as an example, TELUS may not offer dial‑around services. They are in the long distance market. But whether they offer dial‑around really is not that relevant.
1LISTNUM 1 \l 12827 MR. LOWE: So you say that the words "same or similar" should mean only dial‑around services when we are looking at the issue of whether billing and collection services should be provided on a mandated basis?
1LISTNUM 1 \l 12828 MR. THOMPSON: No, we are not saying that. We are saying billing and collection should be provided.
1LISTNUM 1 \l 12829 MR. LOWE: This liberal interpretation of "same or similar" where you say:
"Thus the term 'same or similar' requires a liberal interpretation..."
1LISTNUM 1 \l 12830 I'm just wondering if liberal interpretation of "same or similar" means a broader interpretation of the words "same or similar"?
1LISTNUM 1 \l 12831 MR. THOMPSON: A broader interpretation of the relevant downstream market.
1LISTNUM 1 \l 12832 MR. LOWE: Okay. So you would say the downstream market should just be long distance service then.
1LISTNUM 1 \l 12833 MR. THOMPSON: We have never said anything to the contrary.
1LISTNUM 1 \l 12834 MR. LOWE: Thank you.
1LISTNUM 1 \l 12835 Then turning to page 9 of the package ‑‑ and this is your response to CRTC‑1003, page 2 of 2 ‑‑ the last full sentence says:
"As a result, to the extent billing and collection services might not need a narrow essential facilities test, access to LECG billing and collection services should continue to be mandated at cost‑based prices because it is fundamental to preserving customer choice in the long distance market on a call‑by‑call basis." (As read)
1LISTNUM 1 \l 12836 I take it what you are saying is we can quibble about definitions of essential facility and you say, well, irrespective of that, it is important to have billing and collection services provided on a mandated basis for the principle of preserving customer choice, and so it should be continued to be provided on a mandated basis?
1LISTNUM 1 \l 12837 MR. THOMPSON: Absolutely. We have millions of customers who have made that choice and it is the ultimate in flexibility, and to remove it would be the removal of an innovation in providing valued services to customers in the public interest.
1LISTNUM 1 \l 12838 MR. LOWE: So you are saying the CRTC can maintain a rigorous definition of essential facilities, and there is no need to import a casual definition just to protect 10‑10 service. I mean, as long as you get access to billing and collection services on a mandated basis, whether it falls within the definition strictly of an essential facilities doesn't really matter to you?
1LISTNUM 1 \l 12839 MR. THOMPSON: We think it does fall within the definition of essential facility, but if it is deemed that it is not, we think that it could be a special service or an interconnection service associated with equal ease of access.
1LISTNUM 1 \l 12840 We think it fits multiple criteria. The importance is preserving that choice for consumers.
1LISTNUM 1 \l 12841 MR. LOWE: We talked about the prices of, I think you talked about a 25 cent per bill charge that SaskTel charges. Do you recall that?
1LISTNUM 1 \l 12842 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12843 MR. LOWE: In TELUS territory, is the rate 10 cents a record?
1LISTNUM 1 \l 12844 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12845 MR. LOWE: Ten cents a record works for you? You can ‑‑
1LISTNUM 1 \l 12846 MR. THOMPSON: No, it doesn't really work for us. As I indicated, we are giving away a third of our calls for free. They may be short duration, but we are still giving them away for free.
1LISTNUM 1 \l 12847 If we had cost‑based rates ‑‑ again, a cost study has not been filed in 12 years. We filed a Part 7 late last year as soon as we took control of Yak, because we did see that that was a gap. We think the rates based on the costs Bell indicated in their own submission in ‑‑ I don't have reference to it here, but it is in our Part 7, that it costs them less than a tenth of a cent to put a line item on a bill. We think that is a relevant benchmark.
1LISTNUM 1 \l 12848 MR. LOWE: We will get to cost‑based rates, but you are saying as long as the rates reflect the true costs of the ILEC, you don't mind paying those costs?
1LISTNUM 1 \l 12849 MR. THOMPSON: That is correct. It should be cost plus.
1LISTNUM 1 \l 12850 MR. LOWE: Right. Cost plus a mark up?
1LISTNUM 1 \l 12851 MR. THOMPSON: Cost plus a 15 per cent mark up we are comfortable with.
1LISTNUM 1 \l 12852 MR. LOWE: When this was first ordered, the mark up was 25 per cent, wasn't it?
1LISTNUM 1 \l 12853 MR. THOMPSON: Yes. When this was first ordered, there was no such thing as a dial‑around competitor either. So, there were demand volumes that were picked out of the air, and we are convinced that the market has grown significantly since then and the costs are way too high.
1LISTNUM 1 \l 12854 MR. LOWE: A penny, where do you get a penny from? Is that what it could cost you if you did it yourself?
1LISTNUM 1 \l 12855 MR. THOMPSON: No. Bell has gone on record indicating if they had to do itemized billing it would cost them 1.6 cents to put the 20 line items on their bill, which comes into well under a tenth of a penny. So, we have extrapolated from that. Even with a 15 per cent mark up you are still going to be less than a tenth of a cent.
1LISTNUM 1 \l 12856 MR. LOWE: If you did do the billing yourself, the rates would depend on your customer base and what platforms you decide to use and when you roll out the billing service and so on. Is that right?
1LISTNUM 1 \l 12857 MR. THOMPSON: Yes, and when we have subscriber services, we are putting more charges on the bill. It is not on a per‑call basis. So, it is significantly different.
1LISTNUM 1 \l 12858 MR. LOWE: Thank you.
1LISTNUM 1 \l 12859 I would like to turn to the survey that you filed for a moment.
1LISTNUM 1 \l 12860 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12861 MR. LOWE: Yours is the only survey filed in the hearing to your knowledge?
1LISTNUM 1 \l 12862 MR. THOMPSON: I have no idea.
1LISTNUM 1 \l 12863 MR. LOWE: You had customer contact information to pursue that survey; you knew who to call?
1LISTNUM 1 \l 12864 MR. THOMPSON: We have the telephone numbers, yes.
1LISTNUM 1 \l 12865 MR. LOWE: So, you could have called these customers and said, look, we would like a commitment from you to continue to provide service and some of them could say, well, all right, we will give you a commitment and we will sign up with you. That is possible, isn't it?
1LISTNUM 1 \l 12866 MR. THOMPSON: Yes, it is. In fact, our subscriber PIC'd service, our one‑plus service, has a lower rate than dial‑around service. You can view them as different products. They do not overlap. We have a different customer base that is interested in dial‑around than one‑plus.
1LISTNUM 1 \l 12867 Most of our one‑plus customers are coming from other one‑plus customer bases because we don't charge any network access fees and plan fees. So, customers aren't paying $8 or $9 before they even make a call, like happens with many of the LECGs. They are paying three and a half cents a minute, no sneaky fees.
1LISTNUM 1 \l 12868 MR. LOWE: Okay. On the transition period, if we can talk about that for a moment, and perhaps turn to pages 10 and 11 of the package.
1LISTNUM 1 \l 12869 MR. THOMPSON: 10 and 11 of, sorry?
1LISTNUM 1 \l 12870 MR. LOWE: Of this package of information.
1LISTNUM 1 \l 12871 MR. THOMPSON: Okay.
1LISTNUM 1 \l 12872 MR. LOWE: It was your response on page 2 of 2, which is page 11 in the package that I was interested in.
1LISTNUM 1 \l 12873 You say:
"Any transitional regime must allow for at least three years of transition with respect to non‑essential services and perhaps longer, up to five years, for certain services, depending on the competitor's reliance on the service." (As read)
1LISTNUM 1 \l 12874 Do you see that?
1LISTNUM 1 \l 12875 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12876 MR. LOWE: The consideration for the length of the transition period, in your view, is driven by how long it would take the competitor to make arrangements to bring on line a substitute service; is that what you have in mind?
1LISTNUM 1 \l 12877 MR. THOMPSON: That is one aspect of it. There needs to be recognition that competitors in the marketplace have also made significant investments. Primus Globility in terms of building out in co‑lo's; Global Live, even as an example, in making an investment in Yak. We need time to look at recovering the investment, as well as what is the alternative, and we don't see a viable alternative, I will state again, associated with billing and collection and dial‑around.
1LISTNUM 1 \l 12878 MR. LOWE: How would that work, then? Would you file evidence or somehow provide an indication of how long you need before you get pay back of your investment to provide 10‑10 service? I am just trying to wrap my head around this.
1LISTNUM 1 \l 12879 MR. THOMPSON: Common sense may prevail in that typically people bill businesses and make investments on three‑ to five‑year horizons. That is why we went ‑‑
1LISTNUM 1 \l 12880 MR. LOWE: I am with you now. You just say three years is probably in line with the expectation of ‑‑
1LISTNUM 1 \l 12881 MR. THOMPSON: Three years would be the minimum, and that is with price protection. We are not talking about step price increase. That is under the same conditions that exist today.
1LISTNUM 1 \l 12882 MR. LOWE: Then during the transition, would you also try to negotiate with the ILECs to get access to service on an unbundled, free market basis?
1LISTNUM 1 \l 12883 MR. THOMPSON: I think we have indicated that there should be tariffs, no question, for mandated and where they are currently mandated but may become non‑essential services. But if you can negotiate a better deal based on business terms, we are not opposed to that.
1LISTNUM 1 \l 12884 MR. LOWE: This is on page 12. This is your response to 1006.
1LISTNUM 1 \l 12885 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12886 MR. LOWE: You say, look, during the transition period it is okay to negotiate within a range, and you are comfortable with that as a concept?
1LISTNUM 1 \l 12887 MR. THOMPSON: Yes, as long as there are stated tariffs that are reasonable.
1LISTNUM 1 \l 12888 MR. LOWE: You want to make sure the upper boundary isn't 25 cents or something like that?
1LISTNUM 1 \l 12889 MR. THOMPSON: Exactly.
1LISTNUM 1 \l 12890 MR. LOWE: Which it is now.
1LISTNUM 1 \l 12891 MR. THOMPSON: 25 cents for what?
1LISTNUM 1 \l 12892 MR. LOWE: Isn't it 25 cents a bill in SaskTel territory; isn't that what you testified?
1LISTNUM 1 \l 12893 MR. THOMPSON: Right. If I can go back to that, that is one of the problems with dial‑around. We do not really focus and advertise dial‑around, so it is a less efficient market in Saskatchewan than it is in B.C. and Alberta, because what we are doing is we are paying you more and we are driving more customer satisfaction and it is a win‑win situation.
1LISTNUM 1 \l 12894 When the rates are too high, what happens? Well, you don't really have a viable market.
1LISTNUM 1 \l 12895 MR. LOWE: Back to the previous page, page 11 of the package, when you talk in the context of the transition, that there needs to be a CRTC review prior to the sunset date to evaluate the state of any transitions and the need for possible extensions, do you see that?
1LISTNUM 1 \l 12896 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12897 MR. LOWE: I think you said the idea of that is to fend off emergency Part 7 responses that the Commission would likely see if it didn't pre‑schedule a final sunset hearing. Was that the thinking?
1LISTNUM 1 \l 12898 MR. THOMPSON: That is part of it, but you really have to look at the state of competition at that point in time. Is it working; is there a viable alternative? If there is not a viable alternative, maybe the regime should continue as is for a longer period of time. I am just trying to make a practical business approach to it.
1LISTNUM 1 \l 12899 MR. LOWE: And if it was a Part 7, the usual test for Part 7, drawing on your regulatory experience, it is substantial doubt as to the correctness of the original decision. Is that what you would see the focus of this final sunset proceeding to be, or do you think it would be one of these everything‑on‑the‑table kind of proceedings where we have a free range of discussions of the possible models and options?
1LISTNUM 1 \l 12900 MR. THOMPSON: I haven't really given that a lot of thought, to be honest.
1LISTNUM 1 \l 12901 MR. LOWE: It is up to the Commission, I suppose, to decide if we have had enough sunsets and hearings like this, isn't it?
1LISTNUM 1 \l 12902 MR. THOMPSON: Well, it is their job to do a lot of things, including protecting viable competition and services that consumers have voted for with their pocket books. So, it is all in the public interest.
1LISTNUM 1 \l 12903 MR. LOWE: Thank you, sir. Those are my questions.
1LISTNUM 1 \l 12904 THE CHAIRPERSON: Thank you. Who is next, Madam Secretary?
1LISTNUM 1 \l 12905 THE SECRETARY: This concludes the examination of the Yak witness.
1LISTNUM 1 \l 12906 We will now move to ‑‑
1LISTNUM 1 \l 12907 THE CHAIRPERSON: You mean there are no other examiners of this witness?
1LISTNUM 1 \l 12908 THE SECRETARY: No.
1LISTNUM 1 \l 12909 THE CHAIRPERSON: Then I have one more question for you.
1LISTNUM 1 \l 12910 You sort of suggested that the existence of 10‑10 call‑around acts as a discipline on pricing for the ILECs and the CLECs in the long distance market.
1LISTNUM 1 \l 12911 Do you have any evidence of that at all? I mean, you are clearly making it a business because there are margins there between what you offer on a resale basis and what they offer themselves. But I have no idea of how significant you are in the marketplace, to what extent you are actually acting as a discipline for the prices that the ILECs or CLECs can set or not.
1LISTNUM 1 \l 12912 Have you done any price elasticity studies or any empirical evidence or on what basis do you base your assumption that you act as a disciplining factor?
1LISTNUM 1 \l 12913 MR. THOMPSON: We think we act as a disciplining factor due to the fact that dial‑around, permitted through billing and collection, permits users to make calls on a call‑by‑call basis. We think that is a very viable option.
1LISTNUM 1 \l 12914 The default option provided by the telcos is, as an example, if you didn't subscribe to one of their plans where you are going to have $8 or $9 a month if you are not subscribing to other services, you are going to pay $3.19 a minute to China. We don't think that is good for consumers who aren't subscribing to plans. We think it is good for consumers to be able to make that call on our dial‑around service for five cents.
1LISTNUM 1 \l 12915 So, if you take away that protection for the couple million users of dial‑around service today, there really isn't a discipline. What is going to persist is that customers who can least afford it are going to pay an extreme amount for calls or they are going to have to look for some kind of bundled option, buy a calling card, five, ten bucks, whatever the case may be.
1LISTNUM 1 \l 12916 So, in terms of discipline, I don't think we have any evidence other than the fact that customers have selected our service, and there are millions of them who have selected dial‑around, and it is a choice that they have opted for.
1LISTNUM 1 \l 12917 THE CHAIRPERSON: Would I be overstating your testimony and saying that effectively if we say it is not essential, we provide a phase‑out period, whether it is three or five years or whatever, you would use that phrase‑out period to negotiate a price with your suppliers. Failure to agree on a price basically means that you are out of the 10‑10 business?
1LISTNUM 1 \l 12918 MR. THOMPSON: That is it. We are comfortable with the fact that we have a balanced negotiated ability to offer services at competitive rates if the service is not mandated.
1LISTNUM 1 \l 12919 THE CHAIRPERSON: But there is no practical alternative other than buying the billing and collection services from ‑‑
1LISTNUM 1 \l 12920 MR. THOMPSON: There is no viable alternative.
1LISTNUM 1 \l 12921 THE CHAIRPERSON: I have understood you correctly. Okay, thank you.
1LISTNUM 1 \l 12922 MR. THOMPSON: Thank you.
1LISTNUM 1 \l 12923 THE CHAIRPERSON: Madam Secretary.
1LISTNUM 1 \l 12924 THE SECRETARY: Thank you very much. We will now be moving with the TELUS witness panel.
1LISTNUM 1 \l 12925 THE CHAIRPERSON: Let's take a break while they set themselves up for five minutes.
‑‑‑ Recessed at 0946 / Suspension à 0946
‑‑‑ Resumed at 0956 / Reprise à 0956
1LISTNUM 1 \l 12926 THE SECRETARY: Please be seated.
1LISTNUM 1 \l 12927 THE CHAIRPERSON: Madam Secretary, before we proceed, I have one more question for Mr. Thompson.
1LISTNUM 1 \l 12928 While you were testifying I went on the computer and looked up your website, and I looked at your 10‑10 and it shows that you re‑sell both wireline and wireless 10‑10 services. My colleague, Commissioner Cram, said: How do you do it on a wireless basis, given that there is no mandating and, therefore, collection and billing, et cetera.
1LISTNUM 1 \l 12929 Maybe you could answer that question.
1LISTNUM 1 \l 12930 MR. THOMPSON: It isn't exactly 10‑10 that we offer. We offer something called YakCell, which is a pre‑subscribed offering.
1LISTNUM 1 \l 12931 What typically happens is, when a customer signs up for our 1 plus wireline‑based subscriber service, we ask them if they would like to sign up for our YakCell offering, whereby we register their cell phone number, and when they make a long distance call dialling one of our access numbers, we recognize their cell phone number and we put that charge on a bill, which is typically also on the same bill for 1 plus.
1LISTNUM 1 \l 12932 Most customers have YakCell and 1 plus.
1LISTNUM 1 \l 12933 THE CHAIRPERSON: But if I just took my cell phone and dialled 10‑10‑952, it wouldn't work, because I am not pre‑registered with you.
1LISTNUM 1 \l 12934 MR. THOMPSON: That's correct. We are now working with Fido. We are working on a billing and collection arrangement, and because they are a CLEC, they need to provide that service, and we are looking forward to offering 10‑10 on the Fido network.
1LISTNUM 1 \l 12935 THE CHAIRPERSON: All right. Thank you.
1LISTNUM 1 \l 12936 Madam Secretary, over to you.
1LISTNUM 1 \l 12937 THE SECRETARY: I would ask Counsel Rogers, please, to come forward and introduce the TELUS panel.
1LISTNUM 1 \l 12938 MR. ROGERS: Good morning, Mr. Chairman. For the record, my name is Phil Rogers, counsel for TELUS, and with me assisting today is Steven Schmidt.
1LISTNUM 1 \l 12939 Further to discussions this week and last regarding the scheduling of witnesses, we have in attendance today the TELUS Business and Policy witnesses.
1LISTNUM 1 \l 12940 I note that the remaining TELUS witnesses not in attendance today are the four TELUS expert witnesses, Drs. Weisman, Aron, Crandall and Professor Robinson. They will be able to attend when the hearing resumes later in October.
1LISTNUM 1 \l 12941 I will introduce the Business and Policy witnesses appearing today, starting on my left, with the witness farthest from the Commission.
1LISTNUM 1 \l 12942 First, Mr. Willie Grieve is TELUS' Vice President, Telecom Policy and Regulatory Affairs. Mr. Grieve is responsible for the development and implementation of TELUS' regulatory policies.
1LISTNUM 1 \l 12943 Sitting next to Mr. Grieve is Ms Janet Yale, Executive Vice President, Corporate Affairs, for TELUS. Ms Yale is the senior officer representing TELUS at this proceeding.
1LISTNUM 1 \l 12944 Next to Ms Yale is Mr. John Fleiger, Vice President, Global Sourcing Solutions, for TELUS Partner Solutions and Business Unit. Mr. Fleiger is responsible for managing supplier relationships and has overall responsibility for TELUS relationships with other carriers.
1LISTNUM 1 \l 12945 Sitting next to Mr. Fleiger is Mr. Rob Tasker. Mr. Tasker is the Senior Vice President, National Service Operations, for TELUS Network.
1LISTNUM 1 \l 12946 Beside Mr. Tasker is Mr. Dave McMahon, Vice President, National Service Fulfilment, which is part of TELUS Network Operations Business Unit. Mr. McMahon is responsible for Service Delivery Support, Fulfilment Management Centre, Data and IP Service Design, TELUS Network Infrastructure and National Service Fulfilment.
1LISTNUM 1 \l 12947 Moving to the second row, there are several people who are assisting but not witnesses. Immediately behind Mr. Grieve is Mr. Eric Adora. Mr. Adora is Senior Regulatory Advisor with TELUS Telecom Policy and Regulatory Affairs Group, and is assisting the TELUS panel.
1LISTNUM 1 \l 12948 Beside Mr. Adora is Mr. Mark Murikami, a TELUS Director in Partner Solutions. He will be assisting the TELUS panel today.
1LISTNUM 1 \l 12949 Finally, beside Mr. Murikami is Mr. Andy Brauer, Marketing Director with TELUS Business Networks. Mr. Brauer will also be assisting the TELUS panel.
1LISTNUM 1 \l 12950 The c.v.'s of all of these witnesses have been previously filed on the record.
1LISTNUM 1 \l 12951 I would like to take a minute, Mr. Chairman, to define the roles of the panel members for you.
1LISTNUM 1 \l 12952 Ms Yale is responsible for the overall design of TELUS' proposal and will act as Chair of the panel.
1LISTNUM 1 \l 12953 Ms Yale and Mr. Grieve will generally address all regulatory policy issues on behalf of TELUS.
1LISTNUM 1 \l 12954 Within the TELUS Business Group, Mr. Tasker will generally speak to retail business issues, Mr. Fleiger will speak to carrier issues, and Mr. McMahon will speak to operations issues.
1LISTNUM 1 \l 12955 I should note, however, that all three gentlemen have had some overlapping Business Unit experience within TELUS, and so it may be that these panel members may provide support to other members of the Business Panel.
1LISTNUM 1 \l 12956 Madam Secretary, at this point I would ask that the witnesses be affirmed.
AFFIRMED: WILLIE GRIEVE
AFFIRMED: JANET YALE
AFFIRMED: JOHN FLEIGER
AFFIRMED: ROBERT TASKER
AFFIRMED: DAVE McMAHON
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 12957 MR. ROGERS: Thank you.
1LISTNUM 1 \l 12958 Members of the panel, could I ask each of you to affirm, individually, that your qualifications are correctly set out in TELUS' letter to the Commission dated October 2.
1LISTNUM 1 \l 12959 MR. GRIEVE: They are.
1LISTNUM 1 \l 12960 MS YALE: They are.
1LISTNUM 1 \l 12961 MR. FLEIGER: They are.
1LISTNUM 1 \l 12962 MR. TASKER: Yes, they are.
1LISTNUM 1 \l 12963 MR. McMAHON: Yes, they are.
1LISTNUM 1 \l 12964 MR. ROGERS: Ms Yale and Mr. Grieve, were the company's overall evidence and interrogatory responses prepared by you or under your direction?
1LISTNUM 1 \l 12965 MR. GRIEVE: Yes.
1LISTNUM 1 \l 12966 MS YALE: Yes.
1LISTNUM 1 \l 12967 MR. ROGERS: Are they true, to the best of your knowledge and belief?
1LISTNUM 1 \l 12968 MS YALE: Yes, they are.
1LISTNUM 1 \l 12969 MR. GRIEVE: Yes.
1LISTNUM 1 \l 12970 MR. ROGERS: Are there any corrections that you wish to make at this time to any part of your evidence or interrogatory responses?
1LISTNUM 1 \l 12971 MS YALE: No.
1LISTNUM 1 \l 12972 MR. GRIEVE: No.
1LISTNUM 1 \l 12973 MR. ROGERS: Mr. Chairman, before proceeding, I would note that we provided parties with guidance as to the areas of TELUS' case that each of our witnesses is prepared to address in a letter dated September 5, 2007, as directed by the Commission in a Staff letter dated August 21. That September 5 letter provided a list of all TELUS witnesses, the subject matter of each witness' testimony, and the evidence and specific interrogatory responses for which each witness is responsible.
1LISTNUM 1 \l 12974 For ease of reference for all parties and the Commission, we have additional copies available of the TELUS letter of September 5 outlining the assignment of responsibilities.
1LISTNUM 1 \l 12975 Mr. Chairman, the witnesses are now available for cross‑examination.
1LISTNUM 1 \l 12976 THE CHAIRPERSON: Thank you very much.
1LISTNUM 1 \l 12977 MR. KOCH: Mr. Chairman, if I could raise one concern that I have, and hopefully a practical solution to deal with it rapidly thereafter.
1LISTNUM 1 \l 12978 As a consequence of the way the hearing has been scheduled and has transpired, the TELUS Business Panel is going to appear, followed by the MTS panel, as I understand it, next Friday, which will be followed, then, on the following Monday, by the TELUS Expert Panel.
1LISTNUM 1 \l 12979 That is fine as far as it goes, sir.
1LISTNUM 1 \l 12980 Mr. Rogers indicated to me this morning that he may wish to have ‑‑ I don't know whether it was one or more members of the Business Panel re‑sit together with the Expert Panel, and that gives me cause for concern, because I don't think we want a situation, which would be quite unfair, of them being able to split their case by articulating a response or a position on behalf of TELUS, hearing my client's response or position on that same issue, and then having another kick at the can.
1LISTNUM 1 \l 12981 If my understanding is correct that the reason Mr. Rogers wants to have ‑‑ and he can speak for himself ‑‑ someone from the Business Panel re‑attend with the experts is in the event that a question comes up that is solely restricted to TELUS' business, and directly on that which the experts cannot answer, I am content with that.
1LISTNUM 1 \l 12982 So my solution is to make sure it is everyone's understanding that, if anyone from the Business Panel is to re‑appear with the Expert Panel, it would be only for the purpose of giving evidence in response to a direct question regarding TELUS' business which the experts are unable to answer.
1LISTNUM 1 \l 12983 THE CHAIRPERSON: Mr. Rogers?
1LISTNUM 1 \l 12984 MR. ROGERS: Mr. Chairman, our case, as was the case, I am sure, with all the parties, was prepared on an integrated basis, given the Commission's directive in its organization and conduct letter of October 2nd to prepare an entire panel to appear together, and we have done so.
1LISTNUM 1 \l 12985 As indicated in the letter of September 5 ‑‑ that letter indicates very clearly that there are joint matters of joint responsibility in which there is an inevitable overlap between what the experts testify to and what the Business and Policy witnesses testify to.
1LISTNUM 1 \l 12986 We are going to do our best today to respond to any questions that come to this panel. It is almost inevitable, when the experts appear on the Monday of the following session, that there will be a degree of overlap between what they have to say and the practical effect for the company.
1LISTNUM 1 \l 12987 Those external experts are all from the United States. They have separate expertise, but they cannot speak about the affairs of TELUS, nor are they familiar with the practices of the Commission.
1LISTNUM 1 \l 12988 So we would propose, when they appear, that the company be represented with them, with two individuals who are members of this panel. One would be Mr. Grieve, and another would be one of the Network Operations or Business Operations people.
1LISTNUM 1 \l 12989 That would help to round out the testimony, so that questions that are put when our experts appear would be fully responded to, and there would be no problem of overlap or failure to respond fully for TELUS.
1LISTNUM 1 \l 12990 THE CHAIRPERSON: The long and the short of it is, do you agree with Mr. Koch's proposal or not?
1LISTNUM 1 \l 12991 MR. ROGERS: Mr. Chairman, I think Mr. Koch is saying that we should be restricted to having witnesses only speak to issues on specific interrogatories, and I don't think it is proper, either to this Commission or to those posing questions to the expert witnesses, to confine them to that.
1LISTNUM 1 \l 12992 THE CHAIRPERSON: That's not what I heard.
1LISTNUM 1 \l 12993 MR. KOCH: No, and that's not my submission, sir.
1LISTNUM 1 \l 12994 THE CHAIRPERSON: Let me put it in my words, to make sure I understood it correctly.
1LISTNUM 1 \l 12995 He said that we are going to hear the experts, and if, as a result of the expert testimony, questions arise as to the applicability of that expert evidence to the TELUS situation, then a TELUS business person could answer the question.
1LISTNUM 1 \l 12996 That seems to me a practical way of splitting the baby.
1LISTNUM 1 \l 12997 MR. ROGERS: Mr. Chairman, if the proposal is that those TELUS experts can speak to the impact of the expert testimony on TELUS, then we are fine with that.
1LISTNUM 1 \l 12998 THE CHAIRPERSON: Mr. Koch, is that what you said, in so many words?
1LISTNUM 1 \l 12999 MR. KOCH: I think my concept was where it was a direct question about TELUS' business.
1LISTNUM 1 \l 13000 THE CHAIRPERSON: Okay. Let's proceed on this basis. Today we will hear the Business Panel. When the Expert Panel comes up, you will have your two representatives, but they will be restricted in their testimony in terms of putting the expert testimony in the context of TELUS' operation, if that is required.
1LISTNUM 1 \l 13001 MR. TACIT: Mr. Chairman, if I may, there is only one slight gloss that I would like to put on that, just so we are all clear; that is, it may be the case that, in the course of eliciting testimony from the experts, it may be necessary to ask TELUS business people whether they agree or disagree with some of that testimony.
1LISTNUM 1 \l 13002 That isn't directly related to their business, but it certainly is related to the theoretical constructs of this case and the framework for developing essential services.
1LISTNUM 1 \l 13003 I wouldn't want to feel restricted from being able to ask those sorts of questions when the time comes.
1LISTNUM 1 \l 13004 THE CHAIRPERSON: Isn't that implicit, Mr. Tacit? After all, these are TELUS' witnesses. They are hardly going to put forward witnesses whose testimony they disagree with.
1LISTNUM 1 \l 13005 MR. TACIT: Occasionally the experts don't agree 100 percent with the logical consequences of their client's testimony.
1LISTNUM 1 \l 13006 THE CHAIRPERSON: Should that arise, let's deal with it on a case‑by‑case basis on Monday or Tuesday, as the case may be.
1LISTNUM 1 \l 13007 MR. TACIT: Fair enough. Thank you.
1LISTNUM 1 \l 13008 MR. KOCH: Thank you, Mr. Chairman.
1LISTNUM 1 \l 13009 THE CHAIRPERSON: On that basis, let's proceed.
1LISTNUM 1 \l 13010 I believe you are first, Mr. Dunbar.
1LISTNUM 1 \l 13011 THE SECRETARY: I'm sorry, Mr. Chairman. For our webcast listeners' benefit, the Competition Bureau withdrew its intention to cross‑examine the TELUS panel, and we will now proceed with Rogers.
1LISTNUM 1 \l 13012 Mr. Dunbar, please.
1LISTNUM 1 \l 13013 MS PALUMBO: Sorry. We did withdraw for purposes, however, of engaging in a cross‑examination exercise in the next phase of the hearing.
1LISTNUM 1 \l 13014 THE CHAIRPERSON: So you are going to cross‑examine the experts.
1LISTNUM 1 \l 13015 MS PALUMBO: The experts along with the two representatives of The Companies.
1LISTNUM 1 \l 13016 THE CHAIRPERSON: All right.
1LISTNUM 1 \l 13017 Please proceed.
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 13018 MR. DUNBAR: Thank you very much, Mr. Chairman. And good morning, Ms Yale and gentlemen on the panel.
1LISTNUM 1 \l 13019 As discussed or disclosed in a number of places on the record of this proceeding, there seems to be a difference of opinion between the Bureau and TELUS over the issue of whether it is a necessary condition for the supplier of an input to have a monopoly control over an input as opposed to being dominant in its supply in order for the input to be considered eligible for classification as an essential facility.
1LISTNUM 1 \l 13020 A week ago Tuesday during Mr. Rogers' cross‑examination of the Bureau's panel this question came up again.
1LISTNUM 1 \l 13021 There is some confusion over whether TELUS means 100 per cent monopoly in this situation or something else.
1LISTNUM 1 \l 13022 Can you elaborate on that?
1LISTNUM 1 \l 13023 MR. GRIEVE: Sure. It would mean 100 per cent monopoly although there would be, as we stated in the Primus‑1 interrogatory response in the second round, that in a situation where there was a de minimis kind of construction of facilities or supply of facilities in a particular area, then if we wanted to proceed to the Commission to say that something was no longer an essential facility, that would be our call to do that.
1LISTNUM 1 \l 13024 We probably wouldn't proceed to the Commission and say that we no longer have a monopoly if we were in a situation where there was a de minimis amount of build because the Commission has to really determine in a situation like that whether or not that is an economic build or whether it was for a special case or something like that.
1LISTNUM 1 \l 13025 So it is monopoly supply, but there are always these minor exceptions that are possible.
1LISTNUM 1 \l 13026 THE CHAIRPERSON: Could you move your microphone closer, please.
1LISTNUM 1 \l 13027 MR. GRIEVE: Yes, certainly.
1LISTNUM 1 \l 13028 MR. DUNBAR: Let's take a hypothetical. Let's say there is a supplier in one exchange who has built a facility to one or two buildings and is not otherwise serving the market.
1LISTNUM 1 \l 13029 Would you consider that facility to be eligible for classification as an essential facility or not?
1LISTNUM 1 \l 13030 MR. GRIEVE: Well, the classification ‑‑ the answer in that likely case or that case, if it were to occur ‑‑ because I'm not sure that these are going to be realistic examples but I understand the purpose of your questions.
1LISTNUM 1 \l 13031 In a case like that, if we found in a geographic market that someone had come in and built one or two facilities and there were no other geographic markets similar to it ‑‑ as the Bureau explained, you could use one geographic market as a proxy for others ‑‑ then it would be pretty difficult for us to go to the Commission and say that in those geographic markets we were no longer a monopoly provider.
1LISTNUM 1 \l 13032 MR. DUNBAR: I'm just wondering, once you back off 100 per cent, how much difference is that from describing it as a dominant position in the market?
1LISTNUM 1 \l 13033 MR. GRIEVE: I will tell you that our biggest concern with the Bureau's definition is that it can be, will be and has been proposed to be misapplied in this proceeding.
1LISTNUM 1 \l 13034 The Bureau's definition, the way we see it, is very close to monopoly supply, although Dr. Church did say at one point that it was a little less than close to monopoly supply.
1LISTNUM 1 \l 13035 Those weren't his words but that is our interpretation.
1LISTNUM 1 \l 13036 The difficulty we have is, as we've heard certain cross‑examiners say, if you have market power, then you have to unbundle everything. That's the danger. It will mean endless applications to the Commission if the definition of an essential facility isn't a definition that is meant to be what its purpose is, which is to only mandate sharing in an exceptional circumstance because mandated sharing is not a normal remedy in competitive markets in a market economy.
1LISTNUM 1 \l 13037 MR. DUNBAR: In paragraph 62 of your March 15th evidence, you state that:
"Because the essential facility doctrine requires monopolization of an essential facility, the proper test of essentiality concerns whether lack of access to the facility function or service prevents competition. In other words, the essential facilities doctrine is concerned exclusively with the prevention of competition in a downstream market and not a mere lessening of competition."
1LISTNUM 1 \l 13038 I'm wondering, does prevention of competition in this context mean no competition whatsoever in a given product market and geographic market?
1LISTNUM 1 \l 13039 MR. GRIEVE: Yes, except for those de minimis cases you were talking about.
1LISTNUM 1 \l 13040 MR. DUNBAR: I'm still a little confused about the de minimis cases, because once you back off your 100 per cent criteria and you go to something less and you are not using the dominance test which people understand, how does the Commission make that kind of a call, something between dominance and monopoly?
1LISTNUM 1 \l 13041 MR. GRIEVE: First of all, the only way the Commission would make the call is if we were to go to the Commission and say this facility that you said is an essential facility or this facility that you ruled was an essential facility is no longer an essential facility, is if we went forward to the Commission and said we no longer have monopoly control.
1LISTNUM 1 \l 13042 What we have said in Primus‑1 is that if there is a de minimis supply of this facility some one place in the country ‑‑ and I can imagine, by the way, a situation where somebody decides I'm going to build one facility out to a gas plant because that particular gas company wants it. But there is no one else anywhere using that kind of a facility in that geographic area.
1LISTNUM 1 \l 13043 In a case like that, we just wouldn't go to the Commission and ask for recalibration of the essential facilities test or a reassignment.
1LISTNUM 1 \l 13044 But we don't have any situations like that here. All of the facilities that we say are non essential, we can demonstrate that there is economic supply of the facility or functionality in all of the places that we have stated. So we don't even have the situation that you are talking about in reality.
1LISTNUM 1 \l 13045 MR. DUNBAR: I would like to explore that a little further with you.
1LISTNUM 1 \l 13046 Perhaps you could turn to paragraph 68 of your July 5th evidence.
1LISTNUM 1 \l 13047 MS YALE: We have it.
1LISTNUM 1 \l 13048 MR. DUNBAR: Thank you.
1LISTNUM 1 \l 13049 I would like to read to you one sentence out of that:
"Because duplication of facilities has occurred in certain exchanges in Bands A to D, this is an indication that entry is feasible elsewhere in these bands in TELUS' ILEC serving territory."
1LISTNUM 1 \l 13050 Are you saying there that if you have duplication of a facility or functionality in a community, that facility should be non essential in all communities in that band?
1LISTNUM 1 \l 13051 Is that a presumption or is that something you want the Commission to apply?
1LISTNUM 1 \l 13052 MR. GRIEVE: No. We want the Commission to apply that, just as the Commission applied it in 1997 in Decision 97‑8.
1LISTNUM 1 \l 13053 The Commission said ‑‑ and it is completely consistent with what Dr. Church said in this proceeding, or I think Mr. Hughes, or the two of them together when they talked about using the correct market definition, geographic and product market definition. Then when the Chairman asked them are we going to have to go through market by market by market by market, they said no, you could use those as proxies.
1LISTNUM 1 \l 13054 Well, what better proxy than the bands the Commission has already set up that are based on costs? They do reflect similar population densities and things like that that are relevant for the delivery of telecommunications services and for the economic viability of supplying them.
1LISTNUM 1 \l 13055 The answer is that if you see in one market that there is entry by a facilities‑based carrier and it is building facilities of its own and is self‑supplying and making a business of it, well then it makes sense that it is duplicable in other exchanges.
1LISTNUM 1 \l 13056 Of course, we are not proposing that the Commission overnight say that all non essential facilities be forborne. We are saying that there is a three‑to‑five‑year transition period during which competitors can get their house in order.
1LISTNUM 1 \l 13057 We think very definitely if it is in one part of a band, because the bands are defined by common characteristics, then it should be in all parts of the band that is declared non‑essential. But that doesn't mean no unbundling right away.
1LISTNUM 1 \l 13058 MR. DUNBAR: So it is the feasibility, it is the hypothetical feasibility of reproducing the functionality that you are looking at, regardless of whether there in fact is any entry in the other market?
1LISTNUM 1 \l 13059 MR. GRIEVE: It is absolutely not hypothetical, Mr. Dunbar. It has been done in your example. It has already been done in one geographic market in one area, in one part of that band. That means it can be done in other parts of the band, and indeed we see that consistently across the country.
1LISTNUM 1 \l 13060 MR. DUNBAR: What I'm meaning there is you are saying it is the feasibility as tested in one market. You can apply that to another market regardless of whether in fact there is any entry into the second market?
1LISTNUM 1 \l 13061 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13062 MR. DUNBAR: What if the entry in one market is by a cable company who has decided to upgrade its facilities and offer telephone service and the other market is one where the cable company has not undertaken that investment and is not offering services?
1LISTNUM 1 \l 13063 According to your example, the facilities there would still not qualify in the second market as essential inputs. Is that correct?
1LISTNUM 1 \l 13064 MR. GRIEVE: That's correct.
1LISTNUM 1 \l 13065 MR. DUNBAR: So that market is left without any competition due to the decision of the cable company in that market not to enter the market.
1LISTNUM 1 \l 13066 MR. GRIEVE: If the cable company is not going to make good business decisions, we have a three‑to‑five‑year transition period and for access we have said it is likely five, the loop portion of it.
1LISTNUM 1 \l 13067 MR. DUNBAR: But by applying that kind of a test, you are essentially precluding entry on an unbundled basis by another type of carrier.
1LISTNUM 1 \l 13068 MR. GRIEVE: I'm sorry, I missed the question.
1LISTNUM 1 \l 13069 MR. DUNBAR: By applying the test in the way you are proposing, you are basically limiting the ability of other non cable companies to enter that market using unbundled facilities.
1LISTNUM 1 \l 13070 In other words, you are denying consumers in the second market competitive services.
1LISTNUM 1 \l 13071 MR. GRIEVE: You are assuming that we would deny access to our unbundled loops in that second exchange or second market, and there is no evidence that we would deny that.
1LISTNUM 1 \l 13072 Mr. Fleiger can speak to that portion of the business.
1LISTNUM 1 \l 13073 There are lots of other technologies out there, and over the next three to five years if it is a population area that has a cable company ‑‑ and you know the cable companies have very assiduously cherry‑picked the areas of the country that have good population density. And good on them.
1LISTNUM 1 \l 13074 So if they are in there offering services, you can bet that some of these wireless services like Wi‑Max and Inukshuk and those things will be there certainly within the next three‑to‑five years.
1LISTNUM 1 \l 13075 MR. DUNBAR: Getting back to my question: Essentially, you are saying that you might not deny access to facilities but your proposals may not be classified as essential and therefore you would have more pricing flexibility.
1LISTNUM 1 \l 13076 Is that correct?
1LISTNUM 1 \l 13077 MR. GRIEVE: They would not be classified as essential, and at the end of five years, after a period of tariffing, they would be forborne.
1LISTNUM 1 \l 13078 MR. DUNBAR: Thank you.
1LISTNUM 1 \l 13079 As you just mentioned, in your evidence you have indicated that local loop functionality can be replicated from wireless services ‑‑ and you have mentioned specifically in your evidence Bands E to G ‑‑ or access independent VoIP services in Bands E to G.
1LISTNUM 1 \l 13080 I'm wondering, in your view is it relevant in this context to consider whether wireless or VoIP services are considered by consumers to be appropriate substitutes for conventional telephone service, or do you limit your investigation to technical functionality?
1LISTNUM 1 \l 13081 MR. GRIEVE: I think it is relevant if consumers consider them to be substitutes. And I think that consumers do consider them to be substitutes in growing numbers every day.
1LISTNUM 1 \l 13082 MR. DUNBAR: Let me at least put this hypothetical. If wireless connection is not considered cost‑effective by consumers or is not considered to be a reliable substitute for their conventional home phone service in a given geographic market, would you say that the local loop is duplicable and hence not eligible for treatment as an essential service under those circumstances? Or is it relevant to consider whether consumers in fact consider them to be substitutes?
1LISTNUM 1 \l 13083 MR. GRIEVE: I think I already said it is relevant whether consumers consider these services to be substitutes.
1LISTNUM 1 \l 13084 What is interesting, of course, is that throughout Alberta and British Columbia we have lots and lots of wireless service providers using the public spectrum to provide high speed Internet access, and over that they offer Vonage and Primus and other over the top or access independent facilities.
1LISTNUM 1 \l 13085 Just to finish, one of the reasons that we have a three‑to‑five‑year transition period with a hard stop is that we believe that the Commission's policies have actually slowed down people looking for new technologies to serve these areas because they can just easily go and order off the shelf an unbundled loop.
1LISTNUM 1 \l 13086 We think that if you are going to rely on market forces and you are going to promote investment and innovation in network facilities, this is the way to do it, is to have a hard stop at the end of the period.
1LISTNUM 1 \l 13087 We know that there are substitutes out there today and we know that there will be better substitutes over the next three to five years.
1LISTNUM 1 \l 13088 MR. DUNBAR: What you are saying, though, is your proposed test is similar to the competition allowed test for substitutability of products?
1LISTNUM 1 \l 13089 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13090 MR. DUNBAR: Thank you.
1LISTNUM 1 \l 13091 I would like to turn next to your March 15th evidence, at paragraph 73.
1LISTNUM 1 \l 13092 MS YALE: We have it.
1LISTNUM 1 \l 13093 MR. DUNBAR: Here you have identified two services as being eligible for treatment as essential facilities under your proposed definition. These are Basic Listing Interexchange File service, or BLIF, and the Directory File Service.
1LISTNUM 1 \l 13094 Is that correct?
1LISTNUM 1 \l 13095 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13096 MR. DUNBAR: Can you briefly describe the functionality of those services.
1LISTNUM 1 \l 13097 MR. McMAHON: Sure, I can do that.
1LISTNUM 1 \l 13098 The BLIF records are used basically for updating White Pages, for instance. So our view would be that we are in the best place to generate a BLIF record. Our view would be that would be an essential service, because no one else could build that record better than us.
1LISTNUM 1 \l 13099 The second is more of a file transfer. So you can buy more than one line at once and we would file it to you rather than an individual BLIF.
1LISTNUM 1 \l 13100 So our view would be that the ILEC is in the best spot to do that, and it is a re‑acquirement for any company that wants their customers in the White Pages so they know they can phone other people.
1LISTNUM 1 \l 13101 MR. DUNBAR: And the Directory File Service, that is what, briefly?
1LISTNUM 1 \l 13102 Or did you just say that?
1LISTNUM 1 \l 13103 MR. FLEIGER: The Directory File Service is an amalgamated directory listing with all of the company listings from the residential and business customers. It is provided to alternate directory service companies so that they can also publish the directory.
1LISTNUM 1 \l 13104 MR. DUNBAR: Thank you very much.
1LISTNUM 1 \l 13105 So under your proposed definition, there would not be a single loop, a single transport facility or other facility that would be classified as essential?
1LISTNUM 1 \l 13106 MR. GRIEVE: That's right.
1LISTNUM 1 \l 13107 MR. DUNBAR: That seems to be an incredibly short list to me.
1LISTNUM 1 \l 13108 Do you know of any other jurisdiction among industrialized countries that only mandates the wholesale provision of those two services?
1LISTNUM 1 \l 13109 MR. GRIEVE: No. But I know that if you ask the Bureau, they would have the same list.
1LISTNUM 1 \l 13110 MR. DUNBAR: Well, they don't seem to have the same test.
1LISTNUM 1 \l 13111 MR. GRIEVE: But they have the same list, Mr. Dunbar.
1LISTNUM 1 \l 13112 The problem, as I said before, with the Bureau's test is that the Bureau interprets it strictly as it should. No one else in this room has chosen to do that, even though they say they rely on the Bureau's test. To us, it is just a recipe for endless trips to the Commissioners' office doors knocking on the door.
1LISTNUM 1 \l 13113 THE CHAIRPERSON: That's the second time you have said that. Maybe you can explain it to me.
1LISTNUM 1 \l 13114 I didn't understand you the first time. Maybe you can explain it to me.
1LISTNUM 1 \l 13115 This is a review proceeding. That's how I look at it. At the end of the day we are going to the various mandated services and put them in one of the six buckets which we shared with you, or five, whatever, depending what we come up with.
1LISTNUM 1 \l 13116 Then people know this is not essential any more, and either when this condition arrives it is going to be unmandated, or if it is not a conditional one, it is just a question of transition period.
1LISTNUM 1 \l 13117 The transition period, we have three‑to‑five years. Where do you come in with all these applications knocking on the door?
1LISTNUM 1 \l 13118 MR. GRIEVE: Well, that's what I heard the last few ‑‑ I guess it is the last couple of weeks. I've lost track of time.
1LISTNUM 1 \l 13119 You asked Dr. Church the same kind of question. It was a question there with Dr. Church about market by market by market, assessing whether there are essential facilities in those markets, those geographic markets. And then they sort of receded a little bit for a proxy test that was reasonable to do at the beginning. I think what they meant was at the beginning of the period after you had looked at a couple of markets.
1LISTNUM 1 \l 13120 The Bell approach, which also relies on the Bureau's test, would have you looking at individual facilities and whether those individual facilities were essential facilities in individual markets, and having various kinds of tests for whether there were restrictions on use when it was used as an essential facility and not.
1LISTNUM 1 \l 13121 So, that is what I am getting at, those kinds of detailed requirements.
1LISTNUM 1 \l 13122 But if you made the decisions up front and made a commitment to people that said these are the non‑essential facilities, then I think that unless you were pre‑disposed to accepting people filing applications to have you change your categorizations, I think through a transition period you would be all right.
1LISTNUM 1 \l 13123 I was reacting to the things I heard from the Bureau and Bell on the constant reviews.
1LISTNUM 1 \l 13124 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 13125 MR. DUNBAR: As you mentioned, you proposed that the Commission establish a transition period for facilities that are currently classified as essential and that in your hopes they are declassified as essential as a result of this proceeding.
1LISTNUM 1 \l 13126 MR. GRIEVE: I want to get this really clear because what we would say is that the transition period is to remove the mandating of facilities that the Commission has mandated that we would say are non‑essential facilities.
1LISTNUM 1 \l 13127 Now, the vast majority of what the Commission has mandated, the Commission itself has said are not essential facilities.
1LISTNUM 1 \l 13128 So, just to be clear, we are not talking about changing of very many classifications at all. I would say loops in urban areas might be the only thing.
1LISTNUM 1 \l 13129 MR. DUNBAR: I would like to just go into your proposal for transition, if I might, for a minute.
1LISTNUM 1 \l 13130 In your evidence you have indicated that in general the length of the transition period should be three years.
"However, longer periods, up to five years, may be warranted depending on the nature of the facility and the time required for competitors to arrange for alternative facilities." (As read)
1LISTNUM 1 \l 13131 In paragraph 108 you say:
"For example, access‑type facilities generally require the longest planning period. As a result, TELUS recommends a transition period of no more than five years for those services. For other services, the shorter transition period of three years is generally warranted." (As read)
1LISTNUM 1 \l 13132 What are the other types of facilities that you are referring to there?
1LISTNUM 1 \l 13133 MR. GRIEVE: Other than access?
1LISTNUM 1 \l 13134 MR. DUNBAR: Yes.
1LISTNUM 1 \l 13135 MR. GRIEVE: Things like CDN as opposed to CDNA, transitting any intra‑exchange services, anything other than local ‑‑ local loops would be five years, CDNA would be five years, but other kinds of services would be three generally.
1LISTNUM 1 \l 13136 If you want specifics, I think we actually have something on the record or we can make something available to you.
1LISTNUM 1 \l 13137 MR. DUNBAR: Why are you proposing the five‑year period for access facilities?
1LISTNUM 1 \l 13138 MR. GRIEVE: Back before the telecom policy review, Mr. Fleiger and I had a discussion about what kind of a transition period we were going to propose there, and we proposed five years in the telecom policy review. We put on our non‑ILEC hat and we said, knowing how dependent we have become because of CDN and CDNA on Bell's network in Ontario, as a non‑ILEC in that area, or a CLEC in that area, what kind of time, John, would you need to build enough facilities and negotiate enough arrangements with enough different parties to make sure that we were self‑supplying enough so that Bell had an incentive, not a trust me, but an incentive, to negotiate with us in order to make maximum use of their network.
1LISTNUM 1 \l 13139 John went away and thought about it and came back and told me five years, that, yes, we would need five years. I tried to push him to three, and I will tell you why. Because the longer the transition period, the less likely it is that people are going to respond to the incentives.
1LISTNUM 1 \l 13140 So, you might ask Mr. Fleiger about the five years as well.
1LISTNUM 1 \l 13141 MR. DUNBAR: I would like to. Mr. Fleiger, why is five years necessary?
1LISTNUM 1 \l 13142 MR. FLEIGER: It is interesting what I have experienced and what TELUS has experienced in the last five or six years since it has really ramped up its non‑ILEC business.
1LISTNUM 1 \l 13143 Clearly at the outset we were quite interested in building our own facilities end‑to‑end, which is very important to us. I heard last week that it was important from a network operations and cost perspective. It is more important from a customer experience perspective. So, the more you rely on, say, a third party to provide you with the facilities, the less control you have over the actual end‑to‑end customer experience.
1LISTNUM 1 \l 13144 So, we were fairly aggressive in starting to move and put facilities in the ground. I think it is on the public record that we were building facilities under the city streets of Toronto and we had negotiated a rights‑away agreement with the city of Toronto, and we had negotiated building access arrangements with building owners, and knowing that we needed to do that, we put the resources in our organizations to do that on a continuous basis.
1LISTNUM 1 \l 13145 Along came CDNA, along came CDN, and that certainly reduced our incentives, let's put it that way, to continue to spend capital in the access portion of our network.
1LISTNUM 1 \l 13146 That is not to say that we didn't spend capital to build out our footprint to put in co‑lo's, et cetera, and to do some transport that made total economic sense for us to do, but it did take sort of our reliance to a higher degree on the incumbent, and I would admit that.
1LISTNUM 1 \l 13147 What we have done since that time is worked very, very hard with a number of alternate service providers, of which we have 20 and growing in our non‑ILEC territory, predominantly in Ontario and Quebec, and we believe that we are in a much better position today, even though we haven't invested significantly on the access side of our network, but we have good leverage with the incumbent in regard to access facilities.
1LISTNUM 1 \l 13148 They come to the table and they are paying attention when we sit down and negotiate. We believe that we did grow that even further with alternate supply, and we would augment that with strategic builds.
1LISTNUM 1 \l 13149 When you acquire a customer, I think there has been a bit of a misconception through this proceeding that a provider has to have a ubiquitous network everywhere in Canada at every location. That is totally unrealistic. You can't do that and stay in business.
1LISTNUM 1 \l 13150 We do not have our own network capability in the U.S. We use third party providers in the U.S. in a very competitive marketplace. We continue to strive to have additional third party supply here in Canada in our non‑ILEC region. We believe that putting the right transition in place will incent us to spend more, to build those access facilities, it will incent others to do the same, and will allow us to get to an even higher level of alternate supply.
1LISTNUM 1 \l 13151 MR. DUNBAR: The five year, then, relates back to TELUS' own experience, as I understand what you have said, and what you project is needed in order to either replicate the facilities yourself or to enter into other types of arrangements to extend your network with third parties, is that basically it?
1LISTNUM 1 \l 13152 MR. FLEIGER: Yes.
1LISTNUM 1 \l 13153 MR. DUNBAR: You anticipate it is going to take TELUS five years to do it?
1LISTNUM 1 \l 13154 MR. FLEIGER: We anticipate it is going to take a period of time, and it is not realistic to think that you can go out, say, in the next 30, 60, 90 days or a year, as per the Bell proposal, and negotiate these arrangements. Some of them are complex; some of them take time to get the right terms and conditions and to bring the right leverage to the table to conclude.
1LISTNUM 1 \l 13155 So, we believe a longer period of time, you know, three years on some components, five years on access is realistic in that context.
1LISTNUM 1 \l 13156 MR. GRIEVE: Mr. Dunbar, I might just add that when we came to this proceeding, we had had five years as our proposal for everything in the telecom policy review. When we came to this proceeding we went to three and five on the elements that I explained to you.
1LISTNUM 1 \l 13157 But one of the things that we considered wasn't just our own situation. It was whether there would be enough of an opportunity for not only us, but us in combination with other carriers, to jointly build and give other carriers an opportunity to build enough and get access facilities or other facilities from third parties so that, in combination, those carriers could be in a position to be a credible competitive factor in the market.
1LISTNUM 1 \l 13158 THE CHAIRPERSON: Those three or five years, are they with or without price increases?
1LISTNUM 1 \l 13159 MR. GRIEVE: In our proposal, we would seek to start to move prices up toward ‑‑ I say up toward ‑‑ fully compensatory rates over that time. We expect that in a market like this, for non‑essential facilities, we probably wouldn't get all the way there, but we would like an opportunity to move those prices up and then we believe in our territory that with the number of facilities that Bell has in the ground that they have said they are not using, that we might not get very far, but we would at least like the opportunity to try.
1LISTNUM 1 \l 13160 THE CHAIRPERSON: Fully compensatory is a euphemism for ‑‑ what do you mean by "fully compensatory?"
1LISTNUM 1 \l 13161 MR. GRIEVE: It is in the evidence of Dr. Aron, where the mark up ‑‑ I will go back a little bit.
1LISTNUM 1 \l 13162 The Commission has what it calls its phase 2 costing. Phase 2 costs include some costs but not all the costs, long‑run incremental costs of the company, current and long‑run incremental costs. The Commission has allowed a mark up for fixed common costs, which is an incremental cost measure and what the Commission calls the embedded cost differential, which is basically all the other costs that aren't included.
1LISTNUM 1 \l 13163 A fully compensatory rate would have to allow for the opportunity to recover all of those costs that have been omitted from phase 2 and left out of the mark up.
1LISTNUM 1 \l 13164 MR. DUNBAR: Mr. Fleiger, I believe you stated that even at the end of the five‑year period you would still anticipate having to use other carriers' facilities for various parts of your network in areas where you don't have a large network presence. Would that include access facilities? You still anticipate obtaining access facilities from third parties even after the end of five years?
1LISTNUM 1 \l 13165 MR. FLEIGER: Yes, on a negotiated basis.
1LISTNUM 1 \l 13166 MR. DUNBAR: So, your proposal is that at the end of the period, though, there would be no particular obligation on TELUS to provide facilities to third parties; it would be a matter of negotiation and market forces only?
1LISTNUM 1 \l 13167 MR. FLEIGER: Yes, that would be right.
1LISTNUM 1 \l 13168 MR. DUNBAR: Isn't there a danger here, at least from third parties' points of view, that Bell and TELUS might see fit to want to deal with each other in each other's territories because they have such extensive access facilities and to give each other preferential arrangements?
1LISTNUM 1 \l 13169 MR. FLEIGER: TELUS doesn't believe so.
1LISTNUM 1 \l 13170 Just to give you a little sense on the history of the wholesale business, we call it partner solutions because we firmly believe that we are partnering with people, not just providing raw commodity inputs.
1LISTNUM 1 \l 13171 We have put a lot of attention and focus on that business in the last six to seven years. We have grown it from traditionally an ILEC mandated service perspective to something that is much beyond that. A full third of our revenues are now generated out of territory, out of our ILEC incumbency region. A full 50 per cent of our revenues are on non‑mandated services that we freely negotiate with our carrier partners and provide to them.
1LISTNUM 1 \l 13172 We have a significant investment with these customers, and we provide access services of all types, some mandated, of course, by the Commission in the current regulatory regime, and others not. These are important revenue streams to TELUS and we would be very open to negotiated agreements.
1LISTNUM 1 \l 13173 MR. TASKER: It is probably worth mentioning that it is very much in our interest to keep as much business as possible at our own facilities. We are certainly quite concerned about the growing amount of facility options in the market, and so we certainly intend to keep as much business as possible on our own network.
1LISTNUM 1 \l 13174 MR. DUNBAR: Thank you.
1LISTNUM 1 \l 13175 I would like to turn next to paragraph 109 of your March 15th evidence.
1LISTNUM 1 \l 13176 MS YALE: We have it.
1LISTNUM 1 \l 13177 MR. DUNBAR: Here you state that:
"The Commission should not be mandating access to new technologies because to do so would seriously dampen the incentives for any supplier, whether an incumbent or an entrant to invest in such technologies. This was the conclusion reached by the FCC in the United States in 2003, where it found that unbundling of new technologies would undermine the incentives for both incumbents and competitors to invest in broadband services." (As read)
1LISTNUM 1 \l 13178 So, in this instance, you are proposing that the CRTC adopt a similar approach to the FCC with respect to new technologies?
1LISTNUM 1 \l 13179 MS YALE: Our position is that the Commission should not be mandating access to new technologies.
1LISTNUM 1 \l 13180 MR. DUNBAR: And you reference the FCC as a precedent for that?
1LISTNUM 1 \l 13181 MR. GRIEVE: We reference their conclusions about why it would dampen incentives.
1LISTNUM 1 \l 13182 MR. DUNBAR: I note you have also relied on American authorities in support of your proposed definition of essential facilities. Is that correct?
1LISTNUM 1 \l 13183 MR. GRIEVE: Actually, the proposed definition of an essential facility is the definition of an essential facility adopted by the Commission in 1979, adopted by it again in 1997, and we have just happily discovered that it actually dates back to a Canadian case in 1910 that even pre‑dates Terminal Railroad in the United States. So, we don't actually think it is an American test. It is a Canadian test.
1LISTNUM 1 \l 13184 MR. DUNBAR: It seems to me you filed extensive evidence about the American essential facilities doctrine in this case. You are saying you are not relying on that?
1LISTNUM 1 \l 13185 MR. GRIEVE: Of course we are relying on it because the United States has spent years and years and years in private litigation actually honing what the competition law policy is around the mandating of the sharing of facilities.
1LISTNUM 1 \l 13186 One of the concerns ‑‑ you can ask Dr. Robinson ‑‑ but one of the concerns is that mandated sharing is not something that is normally done in free market economies.
1LISTNUM 1 \l 13187 MR. DUNBAR: I would characterize TELUS's approach in this proceeding as having a very strict definition of essential facilities with a somewhat generous transition period. Would you agree with that characterization?
1LISTNUM 1 \l 13188 MR. GRIEVE: Yes, I think in comparison to others, I would.
1LISTNUM 1 \l 13189 MR. DUNBAR: You have stated in your evidence in a number of places that TELUS's out of territory cap ex, capital expenditures, has decreased as a result of the CRTC's direction to provide competitor digital network access services and other types of unbundled services.
1LISTNUM 1 \l 13190 I wonder, was the cap ex decrease primarily with respect to fibre‑based facilities or copper loops?
1LISTNUM 1 \l 13191 MR. FLEIGER: Primarily fibre.
1LISTNUM 1 \l 13192 MR. DUNBAR: I would like to refer you to your response to TELUS/MTS Allstream 12 April 07‑101, Part C. That is the second document I have distributed.
1LISTNUM 1 \l 13193 MR. FLEIGER: Yes, I have it.
1LISTNUM 1 \l 13194 MR. DUNBAR: In Part C you have indicated what TELUS's annual capital expenditures for its out of incumbent territory operations from 2000 to 2006 are. So, this is your operations in Ontario, Quebec and elsewhere in the country?
1LISTNUM 1 \l 13195 MR. FLEIGER: Yes, it is.
1LISTNUM 1 \l 13196 MR. DUNBAR: Outside of Alberta ‑‑
1LISTNUM 1 \l 13197 MR. FLEIGER: Outside of B.C. and Alberta.
1LISTNUM 1 \l 13198 MR. DUNBAR: Yes, thank you, sir.
1LISTNUM 1 \l 13199 MR. GRIEVE: And outside of our incumbent territory in Quebec as well.
1LISTNUM 1 \l 13200 MR. FLEIGER: Yes.
1LISTNUM 1 \l 13201 MR. DUNBAR: Yes. This shows that your investments peaked, out‑of‑territory investments peaked in 2001, declined in 2002, and then it looks like sort of levelled out for the next four years. Is that a fair description?
1LISTNUM 1 \l 13202 MR. FLEIGER: Yes, it would be.
1LISTNUM 1 \l 13203 MR. DUNBAR: I would like to explore with you the reasons why TELUS's investment fluctuated in these years, and I would like to refer you to the excerpts of the TELUS annual report, which I have also distributed and you have it in front of you.
1LISTNUM 1 \l 13204 MR. FLEIGER: Yes, I have it here.
1LISTNUM 1 \l 13205 MR. DUNBAR: Mr. Chairman, I would note that TELUS furnished a web link to its annual reports for these years in response to TELUS/Bureau 12 April 07‑14, and I have prepared a compendium of certain excerpts from those annual reports which are put in this document that you have before you now.
1LISTNUM 1 \l 13206 I would like to turn first to the third page of the handout, which is page 11 of the 2002 annual report. I would like to refer you to the paragraph at the bottom left‑hand side of the page entitled "Capital expenditure declines as national expansion and internet rollout near completion."
1LISTNUM 1 \l 13207 Here you indicate, you say that:
"Our capital expenditures declined by $500 million in 2002. This reduction reflects that the major investments in our core business, which we require to underpin future growth, are now nearing completion. Projects include national wireless and the data network facilities and western Canadian hi‑speed ADSL, internet coverage expansion. This facilitates a tapered capital investment profile going forward which strengthens our free cash flow position." (As read)
1LISTNUM 1 \l 13208 I wonder, can you explain what you mean by "tapered capital investment profile?"
1LISTNUM 1 \l 13209 MR. TASKER: I think that refers to a step function in terms of the type of investment on an ongoing basis.
1LISTNUM 1 \l 13210 MR. DUNBAR: So, you have made an initial investment which enables you to expand facilities or whatever with less investment in future years?
1LISTNUM 1 \l 13211 MR. TASKER: In this particular example, yes, of internet.
1LISTNUM 1 \l 13212 MR. DUNBAR: I would like to refer next to the following page, which is page 22 of the 2002 annual financial review. The paragraph I am interested in is the bottom left‑hand paragraph at the very bottom which says:
"TELUS Communications capital expenditure decreased for the year ended December 31, 2002 when compared with the same period in 2001. Non‑ILEC expenditures decreased by $88.4 million to $214.3 million, when compared to 2001 mainly due to the completion of the national optical carrier network and IP backbone in 2002 and expenditures on an intelligent internet data centre in Toronto in 2001." (As read)
1LISTNUM 1 \l 13213 Do you see that?
1LISTNUM 1 \l 13214 MR. TASKER: I do.
1LISTNUM 1 \l 13215 MR. DUNBAR: There is no mention there yet of CDNA or anything like that; that hasn't happened yet?
1LISTNUM 1 \l 13216 MR. TASKER: It doesn't mention it there, no.
1LISTNUM 1 \l 13217 MR. DUNBAR: Next I would like to turn to the 2003 annual report, page 31, which is the second page of that handout, of that document.
1LISTNUM 1 \l 13218 I would like to look on the right‑hand column, the first full paragraph after the chart on the right‑hand side of the page, where it says:
"Communication segment capital expenditures decreased significantly in 2003 when compared with 2002, a result of operational efficiency program initiatives and completion of several national expansion initiatives in 2002. Non‑ILEC expenditures decreased by $91.6 million to $122.8 million, as the company concentrated on its deployment activity of meeting growth demands through the use of assets in place." (As read)
1LISTNUM 1 \l 13219 Again, there is no CDNA influence there?
1LISTNUM 1 \l 13220 MR. TASKER: It doesn't mention it specifically, but that is the time period that we absolutely were making decisions about the trade offs between facilities investment and access and the opportunities we had on the CDNA side.
1LISTNUM 1 \l 13221 MR. DUNBAR: If we go to the next page, on page 15, again on the right column, under the heading "Improving Profitability in Central Canada," and there is a sentence in the middle of that paragraph that says:
"Operating performance improved because of cost containment efforts and increasing services provided on TELUS facilities (on net)." (As read)
1LISTNUM 1 \l 13222 Do you see that?
1LISTNUM 1 \l 13223 MR. TASKER: Yes.
1LISTNUM 1 \l 13224 MR. DUNBAR: So, you are improving your cost through your building of ‑‑ you are reducing your costs or your operating expenses as a result of having built the facilities?
1LISTNUM 1 \l 13225 MR. FLEIGER: I would just like to interject here for a moment because I was intimately involved in this during this time period, and I can attest to the fact that when the Commission were making their decisions, and even leading up to the decisions, because we weren't sure what the ultimate outcome of the CDN and CDNA decisions would be, but we were actively planning and modelling various scenarios in regard to building our own access facilities in certain situations, not all situations, and what the economics would be if we availed ourselves of the leased rates associated with CDN and CDNA.
1LISTNUM 1 \l 13226 There was absolutely no doubt to us that it made little, if any, economic sense to build any access facilities unless they were for very strategic purposes.
1LISTNUM 1 \l 13227 There may be an instance where you have acquired a customer, it could be a national customer, who has a large headquarters in a city in eastern Canada. It could have a critical data centre that is fundamental to its operations, and if that was the case, we would build access facilities.
1LISTNUM 1 \l 13228 But I can assure the Commission that our costs, our capital expenditures for building these types of facilities, decreased substantially during that period.
1LISTNUM 1 \l 13229 THE CHAIRPERSON: If I understand you correctly, now you are asking us to terminate the mandating, which means that some of these investments that you decided not to go with at that point in time which you were just talking about because you made the economic choice that leasing was better, those have now been reviewed and, in effect, if we phase it out, let's say, with a five‑year period that you suggest, we will in effect spur considerable building and investment by you in some of these facilities?
1LISTNUM 1 \l 13230 MR. FLEIGER: Certainly we would have to see what the rules are that the Commission determines as a result of this proceeding with regard to increases over the transition period, price increases over the transition period, and we will take that into account in the studies that we do.
1LISTNUM 1 \l 13231 I just want to point out one, which is a relevant point. To the extent now that the rates that are in place for the lease facilities from the ILEC in their incumbency territory are so low and we have built out a significant co‑location footprint, we have over 100 co‑locations in Bell's central offices in Ontario and Quebec, we consider that if we can get a local loop from the customer prem to our co‑lo, we actually consider that to be on our network. So, we consider that on net in the context of looking at customer opportunities.
1LISTNUM 1 \l 13232 That is sort of what has happened in the industry, is we are almost considering that Bell's facilities are our facilities now, which is, to me, fairly warped from an economic point of view.
1LISTNUM 1 \l 13233 THE CHAIRPERSON: Back to you, Mr. Dunbar.
1LISTNUM 1 \l 13234 MR. DUNBAR: Thank you.
1LISTNUM 1 \l 13235 I would just like to go through a couple more of these passages.
1LISTNUM 1 \l 13236 Again, if we turn to the next page, which is page 28 of the 2003 report, on the left‑hand side of the page, just above the little chart, you note again that:
"Included in total segment expenses discussed above are non‑ILEC operations expenses for 2003 of $580 million as compared with $634.5 million in 2002. Again, this represented a decrease of $54.5 million or 8.6 per cent..."
1LISTNUM 1 \l 13237 And it says:
"...as a result of increasing the proportion of on net traffic, increased competitive data network access discounts and other operating efficiencies, including a lower bad debt expense." (As read)
1LISTNUM 1 \l 13238 Again, if CDNA and CDN was such a big factor, why isn't it being mentioned in these reports?
1LISTNUM 1 \l 13239 MR. GRIEVE: It is being mentioned right there, Mr. Dunbar, "increased competitive data network access discounts." Maybe the people who write the annual report got data instead of digital network access discounts. That is what that is.
1LISTNUM 1 \l 13240 MR. DUNBAR: I would like to turn next to your 2006 report, the last page of the document. In this paragraph, which is second from the top you say:
"The wireline capital budget for 2007 also entails success‑based capital expenditures in central Canada, as we continue to win additional business such as our five‑year contract with the Government of Ontario to provide fully managed network access services. This contract includes building out new infrastructure in the first few years." (As read)
1LISTNUM 1 \l 13241 Does that project include building out access facilities?
1LISTNUM 1 \l 13242 MR. FLEIGER: Pardon me?
1LISTNUM 1 \l 13243 MR. DUNBAR: Does that project with the Ontario government, which you are mentioning there as a major capital expenditure, does that include building out access?
1LISTNUM 1 \l 13244 MR. FLEIGER: Yes, it does, primarily co‑lo's and a small portion of access facilities.
1LISTNUM 1 \l 13245 MR. DUNBAR: Next, I would like to refer to another document which has been distributed to the panel, item 3.
1LISTNUM 1 \l 13246 Mr. Grieve, this is a revised version of a figure that was prepared, I believe, by Dr. Crandall, which was filed on October 5, 2007. The figure in question shows capital expenditures per line over the period 1998 to 2006 for three groups of local exchange carriers. There is an aggregate for four U.S.‑based ILECs, which were BellSouth, SPC, Verizon and QWest, an aggregate for ten major incumbent carriers in the U.K. and Europe, and the third one being TELUS.
1LISTNUM 1 \l 13247 Is that correct?
1LISTNUM 1 \l 13248 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13249 MR. DUNBAR: The information shown in Revised Figure 4 appears to indicate that investment on a per‑line basis for TELUS is higher than the average in both Europe and the average in the United States, for those large carriers that I mentioned, in almost every year, except 1998 and 2000.
1LISTNUM 1 \l 13250 Is that correct?
1LISTNUM 1 \l 13251 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13252 MR. DUNBAR: In 2006 there was a significant increase over 2005.
1LISTNUM 1 \l 13253 MR. GRIEVE: Yes, that's what it shows. This is for the entire wireline business. Not just out‑of‑territory, but the entire wireline business.
1LISTNUM 1 \l 13254 MR. DUNBAR: This doesn't suggest that you are under‑investing; in fact, quite the opposite.
1LISTNUM 1 \l 13255 MR. GRIEVE: I am actually not ‑‑ I think this is the whole ‑‑
1LISTNUM 1 \l 13256 I think this is TELUS as a whole. I am not sure where Dr. Crandall got this information.
1LISTNUM 1 \l 13257 It would include wireless and ‑‑
1LISTNUM 1 \l 13258 MR. ROGERS: Mr. Chairman, this is actually a piece of evidence prepared by Dr. Crandall, and he will be here to speak to the basis of these calculations.
1LISTNUM 1 \l 13259 THE CHAIRPERSON: Yes. I just note that it says "Fixed Line Network", and it doesn't say anything about wireless.
1LISTNUM 1 \l 13260 But we will get an explanation on Monday, I presume.
1LISTNUM 1 \l 13261 MR. DUNBAR: We can get that clarified, but I certainly took Dr. Crandall at his word ‑‑
1LISTNUM 1 \l 13262 MR. GRIEVE: I'm sorry, I missed that, Mr. Dunbar. My eyes aren't what they used to be.
1LISTNUM 1 \l 13263 MR. DUNBAR: Just to put the question again, if Dr. Crandall's chart is correct, this certainly doesn't show that you are under‑investing in fixed‑line services. In fact, it shows that you are investing more per line than those other major carriers in North America and Europe.
1LISTNUM 1 \l 13264 MS YALE: The issue isn't how much we are investing; the issue is the choices about which investments we make. I think our evidence is pretty clear that the choices we make about where to spend our capital dollars are impacted by decisions that we have to confront in relation to the unbundling regime that is currently in place.
1LISTNUM 1 \l 13265 I think you have heard from the Business Panel that we clearly take into account in our modelling exercises and our capital investment choices the price signals in the market associated with the current unbundling regime.
1LISTNUM 1 \l 13266 MR. DUNBAR: I would like to refer you to another statement by Dr. Crandall in his evidence, just to see whether you agree with his statement.
1LISTNUM 1 \l 13267 I would like to refer you to your evidence of July 5, 2007, Appendix D, page 14.
1LISTNUM 1 \l 13268 MR. GRIEVE: This wasn't in your compendium.
1LISTNUM 1 \l 13269 MR. DUNBAR: No, this is in your evidence.
1LISTNUM 1 \l 13270 MS YALE: I'm sorry, what paragraph?
1LISTNUM 1 \l 13271 MR. DUNBAR: The last paragraph, paragraph 30, on page 14.
1LISTNUM 1 \l 13272 THE CHAIRPERSON: Which appendix, Mr. Dunbar?
1LISTNUM 1 \l 13273 MR. DUNBAR: Appendix D.
1LISTNUM 1 \l 13274 THE CHAIRPERSON: "D" as in "Donald"?
1LISTNUM 1 \l 13275 MR. DUNBAR: Yes. It is the supplementary material, Appendix D.
‑‑‑ Pause
1LISTNUM 1 \l 13276 MR. DUNBAR: I am interested in the very last sentence, which is, as I understand it, the conclusion of Dr. Crandall's piece where he has looked at investment in Europe, the United States and TELUS, and he says that there can be little doubt that the Canadian and U.S. regulatory policies have created a more robust investment environment than the one now present in the EU‑15, in general, and potentially in the U.K., in particular.
1LISTNUM 1 \l 13277 Do you see that?
1LISTNUM 1 \l 13278 MR. GRIEVE: Are you asking if we agree with that?
1LISTNUM 1 \l 13279 MR. DUNBAR: Yes, I am.
1LISTNUM 1 \l 13280 MR. GRIEVE: I have no idea.
1LISTNUM 1 \l 13281 MR. DUNBAR: Thank you.
1LISTNUM 1 \l 13282 Next I would like to turn to Handout 4, which I presented to you, which is a compendium of certain charts out of the Commission's July 2007 Telecommunications Monitoring Report, which is Exhibit 5 in this proceeding.
1LISTNUM 1 \l 13283 In my handout I have included several pages from the Monitoring Report, for ease of reference.
1LISTNUM 1 \l 13284 The first chart that I would like to turn your attention to is on page 31. It is Table 4.1.4. This shows total capital expenditures in Canada within the Canadian telecom industry for each of the years 2002 to 2006, and it indicates that the amount of Cap‑ex has remained relatively the same since 2002, dipping once or twice, but then coming back in 2006 to approximately the same level as in 2002 for incumbent carriers, but almost doubling in 2006 for alternative TSPs.
1LISTNUM 1 \l 13285 Do you see that?
1LISTNUM 1 \l 13286 MR. FLEIGER: Yes, I do.
1LISTNUM 1 \l 13287 MR. DUNBAR: In 2006, subject to check, would you agree that, for all wireline carriers, if we look at the wireline total, we see it increasing in 2006 from $4.2 billion to $5.3 billion, an increase, according to my calculation, of approximately 25 percent?
1LISTNUM 1 \l 13288 Would you agree with that?
1LISTNUM 1 \l 13289 MR. FLEIGER: Yes, I would.
1LISTNUM 1 \l 13290 MR. DUNBAR: Subject to check on my math, anyway.
1LISTNUM 1 \l 13291 MR. FLEIGER: Yes, subject to check.
1LISTNUM 1 \l 13292 MR. DUNBAR: If you look down page 31, you will see that there is a reference to capital intensity, and halfway down the paragraph it states:
"Wireline incumbent TSPs remain relatively constant, in the 19 percent to 22 percent range, whereas the wireline facilities‑based non‑incumbent TSPs initially reduced their capital expenditures as a percentage of revenues in 2003..."
‑‑ and I am reading in ‑‑ but by 2006 they increased it more than threefold, from 11 percent in 2003 to 38 percent in 2006.
1LISTNUM 1 \l 13293 This is for non‑incumbent TSPs, and it is showing a significant increase in investment.
1LISTNUM 1 \l 13294 Do you agree with that?
1LISTNUM 1 \l 13295 MR. FLEIGER: I would. However, subject to check, there doesn't seem to me to be enough data points in here to really draw a conclusion. There are only two data points for non‑incumbent facilities‑based alternative TSPs, 2005 and 2006, so I wouldn't draw very many conclusions or any significant conclusions from that data.
1LISTNUM 1 \l 13296 MR. DUNBAR: Perhaps you could look at the next page, page 32, Figure 4.1.5.
1LISTNUM 1 \l 13297 MR. FLEIGER: Yes, I have that.
1LISTNUM 1 \l 13298 MR. DUNBAR: As I see that, we have data points for each of those years, and we show a drop in 2003 up to 2004, and then a real spike from 2004 to 2006.
1LISTNUM 1 \l 13299 Do you see that?
1LISTNUM 1 \l 13300 The line I am looking at is entitled "Non‑Incumbent Facilities‑Based Alternative TSPs".
1LISTNUM 1 \l 13301 MR. TASKER: Yes, I see that information.
1LISTNUM 1 \l 13302 My assumption on this data ‑‑ although it is the first time I have taken a close look at it ‑‑ is that it represents the significant investment of the cable companies in their access facilities, which is what has happened over the last couple of years.
1LISTNUM 1 \l 13303 MR. DUNBAR: I would like to turn next to Figure 4.2.1 on the next page.
1LISTNUM 1 \l 13304 It is on page 45 of the Monitoring Report, but it is the next page in my handout.
1LISTNUM 1 \l 13305 This shows the total number of alternative TSP local retail lines by type of facility for 2005 and 2006, and the grey‑shaded area is owned, the dark area is leased, and the white area is re‑sold.
1LISTNUM 1 \l 13306 This shows a very significant increase in retail lines owned by carriers, does it not, in 2005 over 2006?
1LISTNUM 1 \l 13307 MR. TASKER: Once again, I believe that is driven almost entirely by the investment by the cable companies, which do not use CDNA services.
1LISTNUM 1 \l 13308 MR. DUNBAR: What we are seeing here is a very significant transition, though, from leased facilities to owned facilities in this period.
1LISTNUM 1 \l 13309 MR. TASKER: Yes, we believe the cable companies do own their own facilities.
1LISTNUM 1 \l 13310 MR. GRIEVE: I wouldn't say that it's a transition, Mr. Dunbar. Cable companies weren't leasing facilities and then went to build.
1LISTNUM 1 \l 13311 MR. DUNBAR: Perhaps we will look at the business market, as well, on the next page, 4.2.2.
1LISTNUM 1 \l 13312 It is Figure 4.2.2 on page 46.
1LISTNUM 1 \l 13313 Here we have residential and business lines. For business lines, this chart indicates that, in 2006, 41 percent of business lines provided by alternative TSP local business lines were owned by carriers.
1LISTNUM 1 \l 13314 So, in the business market, we were up to 41 percent in 2006.
1LISTNUM 1 \l 13315 MR. FLEIGER: Yes, that is what this chart describes.
1LISTNUM 1 \l 13316 MR. DUNBAR: If we look at my final handout, which is No. 5, I have the same figure for 2005.
1LISTNUM 1 \l 13317 This is a one‑page excerpt from the 2006 CRTC Telecommunications Monitoring Report.
1LISTNUM 1 \l 13318 MR. FLEIGER: Yes, I see that.
1LISTNUM 1 \l 13319 MR. DUNBAR: These figures show that in 2005 the number of business lines owned by alternative TSPs stood at 27 percent.
1LISTNUM 1 \l 13320 MR. FLEIGER: I see that.
1LISTNUM 1 \l 13321 MR. DUNBAR: Would you agree that there has been a 50 percent increase in those lines owned by alternative TSPs in the last year?
1LISTNUM 1 \l 13322 If you compare the two charts, we go from 27 percent in 2005 to 41 percent in 2006.
1LISTNUM 1 \l 13323 MR. TASKER: I would suggest that you would need to see a lot of the underlying ‑‑
1LISTNUM 1 \l 13324 These are just percentages, so I would be remiss in concluding that it would be a 50 percent increase without the right information.
1LISTNUM 1 \l 13325 MR. DUNBAR: But you would agree that that's what these charts show, on their face anyway.
1LISTNUM 1 \l 13326 MR. TASKER: I agree that there is a percentage change. I don't agree with what you said, which was the conclusion that they have increased their owned facilities by 50 percent. I think that is a wrong conclusion based on the data we have in front of us.
1LISTNUM 1 \l 13327 MR. DUNBAR: Would you undertake to look at those numbers ‑‑ the underlying data is available ‑‑ to see whether you disagree?
1LISTNUM 1 \l 13328 Are you suggesting that the number of business lines has decreased dramatically?
1LISTNUM 1 \l 13329 MR. FLEIGER: The numbers that are provided in the Monitoring Report, unless I have it wrong, are an aggregate of information that is sent to the Commission by all market participants, so I am not sure how TELUS could engage in an undertaking to dissect this information, because it wouldn't have this information.
1LISTNUM 1 \l 13330 MR. DUNBAR: The data that feeds into these charts is available on the Commission's website, and these are the results of applying that data.
1LISTNUM 1 \l 13331 But if you don't want to agree with that, that's fine.
1LISTNUM 1 \l 13332 MR. FLEIGER: If the information is available, then I can't see any reason why we wouldn't give that undertaking.
1LISTNUM 1 \l 13333 MR. DUNBAR: If you come back and say that you agree, that's fine, but if you disagree, I would like to know what you think the answer is.
1LISTNUM 1 \l 13334 THE CHAIRPERSON: If I understand the undertaking, it is to look at the 2005 Monitoring Report and then advise ‑‑
1LISTNUM 1 \l 13335 MR. DUNBAR: Yes, it would be 2005 and 2006, to see the change.
1LISTNUM 1 \l 13336 Thank you, Mr. Chair, those are my questions.
1LISTNUM 1 \l 13337 THE CHAIRPERSON: One of the questions from Mr. Dunbar was about the role of the Commission in an unmandated period, and you basically suggested that it should just be commercial negotiations.
1LISTNUM 1 \l 13338 Some of the intervenors who appeared before us have suggested that there might be a role for the Commission, at that point, in terms of mediation or arbitration, should those commercial negotiations prove fruitless.
1LISTNUM 1 \l 13339 What is your view on that?
1LISTNUM 1 \l 13340 MR. FLEIGER: What I would like to suggest to the Commission ‑‑ first of all, I have heard many of the parties talk about a hard stop to the transition, whatever that transition is defined to be, and I think that is something that TELUS would very much support. I know others may not support that, but TELUS very much supports the need for there to be direct signals in the marketplace that incent all of the parties to get together and negotiate agreements.
1LISTNUM 1 \l 13341 What I have experienced ‑‑ I can only tell you what I have experienced, on both sides of the table ‑‑ is that, if you go to the bargaining table with a clear desire to reach a conclusion, in 99 percent of cases you will reach that conclusion. You may have to compromise on certain things that you are looking for in order to reach it, but, at the same time, the other party is usually compromising also.
1LISTNUM 1 \l 13342 What I have found in the current environment is that there is not what I would call an equal willingness to reach a conclusion. Parties come to the table and they will put down their terms and conditions in regard to, say, TELUS being an ILEC, and here is what I want, and it has to be these ten things, and if you don't give me one of those, I am going to go to the Commission and I am going to get them to arbitrate this thing, because I know that I will likely get a better outcome there than I will at the negotiating table.
1LISTNUM 1 \l 13343 I would stress to the Commission that it needs to create an environment that fosters negotiations and successful conclusions, and, quite frankly, not make it easy for the parties to come back and always get something arbitrated.
1LISTNUM 1 \l 13344 My fear is that you will have endless cases being brought toward you to reach middle ground on things where the middle ground wasn't even there to begin with, because people were frozen in their position coming to the table in the first place.
1LISTNUM 1 \l 13345 MS YALE: Mr. Chairman, if I could add, I think that another way to put that, just from a public policy perspective, is that, if we are going to move toward reliance on free market forces, we have to let the market work. If parties know that every time there is a dispute the Commission is willing to intervene, then you can bet that there are going to be a lot of interventions, as opposed to saying "This is a market. We are going to allow prices to move to market‑based rates, and we are going to let the market work," and assume the market works, instead of assuming that there is a case of market failure that requires constant intervention.
1LISTNUM 1 \l 13346 Otherwise, I think it will be a self‑fulfilling prophesy that the Commission will be wading in constantly.
1LISTNUM 1 \l 13347 THE CHAIRPERSON: I know that Mr. Dunbar posited that there would be probably no problem with you reaching an agreement with Bell, et cetera, but when you are not both incumbents who have a big territory as a bargaining chip, the negotiations might be different.
1LISTNUM 1 \l 13348 I agree with you, I don't want to see the Commission arbitrating each and every case. We certainly don't need to look for work. But, at the same time, several intervenors have said ‑‑ and you immediately go to the extreme and say in each and every case.
1LISTNUM 1 \l 13349 I was wondering, is there any room anywhere for a safety valve or a halfway house or something so as to give some of the intervenors who appeared before us ‑‑ they seem to be seriously concerned that once you let market forces work, in effect, for whatever reason, they will be totally squeezed out.
1LISTNUM 1 \l 13350 MS YALE: First of all, during the transition, the rates will be tariffed, albeit they will be moving toward compensatory levels.
1LISTNUM 1 \l 13351 So while we advocate that there be negotiations on a discretionary basis during the transition, during the transition the tariffs are the protection.
1LISTNUM 1 \l 13352 After the transition period is over, these facilities, by definition, have been declared non‑essential because there are alternative suppliers, which means that the only game in town isn't the ILEC in question.
1LISTNUM 1 \l 13353 So it seems to me that is why you can rely on market forces because there isn't a single source of supply for the facilities in question.
1LISTNUM 1 \l 13354 CONSEILLERE NOËL : Madame Yale, au sujet des requêtes au CRTC pour déterminer le juste prix, isn't it right that the expedite process has been very active at the onset and then I think people learned from what the CRTC was deciding and we have had much less in the later years?
1LISTNUM 1 \l 13355 And would it be the same if people were coming to the Commission for determination?
1LISTNUM 1 \l 13356 MS YALE: Let me frame my answer in two parts.
1LISTNUM 1 \l 13357 Absolutely yes, that the expedited dispute resolution process works and works well. No quarrel there.
1LISTNUM 1 \l 13358 COMMISSIONER NOËL: I call it the fear of God.
1LISTNUM 1 \l 13359 MS YALE: I guess the issue is that if you have confidence based on the definition that we have proposed, there is more than one supplier of the facility in question, which must be definitionally true in order to deem that facility non essential. Then somebody who is looking for that facility, by definition, has more than one choice of supplier.
1LISTNUM 1 \l 13360 So it is hard to understand why the outcome won't be sufficient protection in that circumstance. If there is only one supplier, then it is essential and there is a tariff in place and it is not forborne.
1LISTNUM 1 \l 13361 So while I agree with you that the process works, what we are saying is that if you don't let the market work, our concern is that the market won't work. If in fact what we are trying to do is create a market for these facilities so that you create the proper incentives to invest in infrastructure in terms of that build/buy decision, the price signals won't work properly if in fact the Commission is setting the prices rather than the market.
1LISTNUM 1 \l 13362 THE CHAIRPERSON: Commissioner Cram.
1LISTNUM 1 \l 13363 COMMISSIONER CRAM: Mr. Grieve, I'm thinking about your test of replicating. It runs in my mind that simply the fact that somebody has built a facility in Indian Head, they would build another facility in Balgonie, where your wife lives or her parents live. And I ask myself ‑‑ we're from Saskatchewan.
1LISTNUM 1 \l 13364 I ask myself if just because somebody was stupid enough to build in Indian Head, no business sense, imprudent, the "build it and they will come" approach, simply because one person was imprudent enough to build it in Indian Head, I don't think that's a good enough reason for me to say that same person would be as imprudent to do it again or another person would be imprudent.
1LISTNUM 1 \l 13365 I'm taking you back to the business case issue that I discussed with Dr. Church on the first day.
1LISTNUM 1 \l 13366 Don't we have to look at that?
1LISTNUM 1 \l 13367 MR. GRIEVE: I think that's what ‑‑ if you look at the way this would operate if the Commission were to say something is an essential facility and then we came and said it is no longer an essential facility because somebody built in Indian Head and therefore they can build in Pense, then it is up to us to go in and make that application. Then people can bring up the question of the whacko businessman in Indian Head.
1LISTNUM 1 \l 13368 I think the fact of the matter here is we don't find that kind of thing. When we look through the facilities that we are mandated to provide today, we actually find people offering alternatives. For example, an Indian Head persona is in Indian Head; it is also in Pense. They are there as cable companies.
1LISTNUM 1 \l 13369 In Alberta in many communities persona is there as well, other cable companies other than Shaw in some of the rural areas. Then we have lots and lots of wireless ISP providers throughout Alberta and now in B.C. as well, serving rural areas that we won't even serve because their technology is so ‑‑ the way they are doing it is more cost‑efficient.
1LISTNUM 1 \l 13370 So while theoretically I can understand what your concern is, in reality I just don't see it.
1LISTNUM 1 \l 13371 COMMISSIONER CRAM: Not to say that anybody in Indian Head is whacko or that GT Telecom was whacko, but they did build it on the premise that "if you build it, they will come". And at the end of the day their business plan was not sustainable.
1LISTNUM 1 \l 13372 So it has happened in telecom.
1LISTNUM 1 \l 13373 MR. GRIEVE: One of the interesting things about the CLEC business, as with any other new business, is that it takes a while for people to figure out what business plan works.
1LISTNUM 1 \l 13374 I know that when Joe Natale arrived at TELUS to run the Business Solutions Group and had to come up with a plan for central Canada ‑‑ Ontario and parts of Quebec ‑‑ that business plan was very carefully thought out on getting very detailed information about where Enterprise customers were, where their branch offices were, how we were going to get there. It wasn't a "build it, they will come". We will build it as we need it.
1LISTNUM 1 \l 13375 It was a different kind of approach than Group Telecom took. It doesn't mean that Group Telecom was whacko; it just meant that that particular business case failed. So nobody is going to try that. Now let's try something else. That's the way these things work.
1LISTNUM 1 \l 13376 COMMISSIONER CRAM: But if we had applied your test in 2001, if this was 2001 and we had GT out there building it, hoping that they would come, and if we did precisely as you suggested to us we do in 2001, we would be in deep trouble.
1LISTNUM 1 \l 13377 MR. GRIEVE: I don't know that you would be in deep trouble because there are lots of other people ‑‑ first of all, Group Telecom's assets are still there in the hands of Rogers ‑‑
1LISTNUM 1 \l 13378 COMMISSIONER CRAM: Yes, they are still on the ground but are they replicable?
1LISTNUM 1 \l 13379 MR. GRIEVE: I believe that they are replicable ‑‑ duplicable. I find that word easier than the word you used.
1LISTNUM 1 \l 13380 We are doing it in places as well. Sometimes we go out to one business in an area, a bank branch or something like that, knowing that having done all of our homework about what each of these communities looks like. So it is possible for us to do it.
1LISTNUM 1 \l 13381 The difficulty we have, though, is that it is hard ‑‑ the very interesting thing is that if people actually have done it today, given the prices that we have for CDN and CDNA, which are really the ones we are talking about here mostly, if they have done it at those prices, you can bet that they will do it at higher prices.
1LISTNUM 1 \l 13382 I'm amazed actually.
1LISTNUM 1 \l 13383 COMMISSIONER CRAM: That then gets me to the CDN and its prices, which only came out in January of '05.
1LISTNUM 1 \l 13384 MR. GRIEVE: The warning was fired in January of 2002 ‑‑
1LISTNUM 1 \l 13385 COMMISSIONER CRAM: You mean June of 2002 with price cap.
1LISTNUM 1 \l 13386 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13387 COMMISSIONER CRAM: So TELUS immediately thought the worst and took a position from there. Is that what you are saying?
1LISTNUM 1 \l 13388 MR. GRIEVE: Well, we saw what the Commission had decided in CDNA in the price cap decision. We saw what the Commission had done to Phase 2 and it had done to the mark‑up, and we had filed our initial rates and based on what they said, it was no surprise to us that they had chopped a bunch of costs out of Phase 2.
1LISTNUM 1 \l 13389 Then when Call‑Net I think was asked let's expand this and the Commission said okay, let's go ahead and expand it, well, we weren't exactly sitting in Toronto going oh, well, the Commission will do something entirely different now on CDN as opposed to CDNA.
1LISTNUM 1 \l 13390 So there was a chill in the company about investing at that time, and the CDNA decision sort of forced us to start building co‑lo's because co‑lo's weren't a big part of the original plan.
1LISTNUM 1 \l 13391 COMMISSIONER CRAM: Then unlike Bell, the issue was not the lower margin pricing that changed the way the plan worked, the January '05 decision. The issue really was when we reduced the initial DNA prices with price cap, although we made them interim and we subsequently reduced them somewhat but not below the 25 per cent mark‑up ‑‑
1LISTNUM 1 \l 13392 MR. GRIEVE: It was a 15 per cent mark‑up that was put in CDNA.
1LISTNUM 1 \l 13393 COMMISSIONER CRAM: In '05, though.
1LISTNUM 1 \l 13394 MR. GRIEVE: In '05 on CDN, which is not the access, there were a variety of mark‑ups. And I think the variety of mark‑ups were there because the Commission realized there were already people out in the market providing those things, which is one of the reasons that we were surprised the Commission actually did it at that time.
1LISTNUM 1 \l 13395 COMMISSIONER CRAM: I may be wrong, but my recollection is that in the years after the burst of the bubble, 2002‑2003 into 2004, that CAPEX for all ILECs was down.
1LISTNUM 1 \l 13396 I'm asking you to ‑‑ you will be able to compare from the monitoring reports for the years ‑‑ I guess I'll start with the monitoring report starting in 2001 up to the most recent report to state what Bell West's proportion is of the CAPEX in the non incumbent TSPs and file it in confidence.
1LISTNUM 1 \l 13397 MR. GRIEVE: What Bell West's proportion of the CAPEX is?
1LISTNUM 1 \l 13398 COMMISSIONER CRAM: Yes.
1LISTNUM 1 \l 13399 MR. GRIEVE: I don't know how we would know what Bell West's proportion is.
1LISTNUM 1 \l 13400 COMMISSIONER CRAM: Well, the non incumbent out of territory?
1LISTNUM 1 \l 13401 MR. GRIEVE: Okay.
1LISTNUM 1 \l 13402 COMMISSIONER CRAM: Not Bell West; I'm sorry. TELUS ‑‑ TELUS east.
1LISTNUM 1 \l 13403 MR. GRIEVE: We can try to do that.
1LISTNUM 1 \l 13404 MR. FLEIGER: It's on the record in confidence.
1LISTNUM 1 \l 13405 MR. GRIEVE: Oh, it is on the record?
1LISTNUM 1 \l 13406 COMMISSIONER CRAM: It has been filed in confidence?
1LISTNUM 1 \l 13407 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13408 MR. FLEIGER: Yes, it has.
1LISTNUM 1 \l 13409 COMMISSIONER CRAM: Thank you.
1LISTNUM 1 \l 13410 COMMISSIONER del VAL: Thank you, panel.
1LISTNUM 1 \l 13411 I just have a question on the six buckets. I'm interested in your comment, particularly about Bucket 2, which is conditional essential and Bucket 4, which is conditional mandated non‑essential.
1LISTNUM 1 \l 13412 Just going on Bucket 2, which is conditional essential, your comment that it is really not necessary because a facility is either essential or it is not.
1LISTNUM 1 \l 13413 I'm wondering if you can help me with an example and play it out for me.
1LISTNUM 1 \l 13414 The example in the Commission's letter which we used as an example of a conditional essential was such as unbundled local loop in exchanges where wireline competitors are not yet present.
1LISTNUM 1 \l 13415 What in your mind is the practical difference between if we call it Bucket 2, and it is conditional essential, and the condition that wireline competitors are not yet present, if that has changed ‑‑ what in your mind in the real world happens if we do have the two separate buckets and what happens if there were only one bucket of essential?
1LISTNUM 1 \l 13416 MS YALE: Let me go back and start with the reason why we think it is unnecessary is that if you have a definition of essential, it is because it is monopoly supplied. It can't be duplicated technically or economically and so on.
1LISTNUM 1 \l 13417 So by definition, those are conditions.
1LISTNUM 1 \l 13418 In other words, if for some reason it turns out that at some point in time it can be duplicated or it is duplicated, then the condition that rendered it essential no longer exists and it becomes non‑essential and should be phased out.
1LISTNUM 1 \l 13419 So why do you have to say something is conditionally essential? By definition, the things that are essential are conditionally essential. They are essential because of certain conditions that make them monopoly supplied and impractical to duplicate.
1LISTNUM 1 \l 13420 If those conditions changed, then someone can say they are no longer essential.
1LISTNUM 1 \l 13421 So it just seems to create unnecessary confusion to have things that are both essential and conditionally essential. Either they are essential or they are not.
1LISTNUM 1 \l 13422 THE CHAIRPERSON: Well, that is a very purist view of looking at it. We were much more pragmatic.
1LISTNUM 1 \l 13423 We said if you take the period from now to the next review, whenever it would be, during those five years, as far as we can see on the state of affairs right now this is clearly essential. These ones are essential because there is nobody there yet, but there may very well be. So when that happens, then it triggers it.
1LISTNUM 1 \l 13424 And that's why we wanted to group them separately.
1LISTNUM 1 \l 13425 We can do it the way you are doing it, but I just thought taking a snapshot as of today, looking at everything that has been mandated, they would fall logically into one or the other, taking a reasonable foreseeable future for what you are looking at.
1LISTNUM 1 \l 13426 MS YALE: I just think that at the end of the day it is sort of a distinction without a difference, in the sense that what we should start with is the definition of essential and the conditions under which something is considered essential.
1LISTNUM 1 \l 13427 Practically speaking, obviously we have our list of what meets that definition.
1LISTNUM 1 \l 13428 If for some reason the Commission disagrees and says that there are other things that properly defined meet that test, then for all intents and purposes they would be essential unless and until the conditions that caused you to define them as essential go away.
1LISTNUM 1 \l 13429 Our view as well in that regard is you shouldn't have reviews because the problem with reviews is that you create uncertainty. What we are advocating here is a test that is very simple, very easy to administer, very clear and sends very strong signals to the marketplace to wean, if you will, all of us from mandated unbundling at non‑economic prices.
1LISTNUM 1 \l 13430 So we really want to see a hard stop and an end to the transition so that in fact the market prices can send the right signals around investment decisions.
1LISTNUM 1 \l 13431 The problem with conditional essential coupled with periodic reviews is that we believe that will really impede the very market outcomes that we think should be in place.
1LISTNUM 1 \l 13432 THE CHAIRPERSON: It depends to some extend on the span between the reviews, you know, how long the period is between reviews.
1LISTNUM 1 \l 13433 Let's say if you said the next review is in ten years, then you certainly would get your certainty or something, especially in a dynamic business like this. It depends on what the span is.
1LISTNUM 1 \l 13434 MS YALE: Say you call it a ten‑year review and you have services that are conditionally essential, then by definition they are not going to become unessential during that period because you have created a set of incentives that make it virtually certain that no one is going to invest in those services while you said that for that period.
1LISTNUM 1 \l 13435 To take your example, if you take unbundled local loops in exchanges where wireline competitors are not yet present, to take your example, and you say those are conditionally essential for the next ten years ‑‑
1LISTNUM 1 \l 13436 THE CHAIRPERSON: No, no, they are conditionally essential until the condition arrives.
1LISTNUM 1 \l 13437 MS YALE: But how is the condition ever going to arrive if by definition you have said they are essential?
1LISTNUM 1 \l 13438 You are going to have mandated unbundling at discounted rates. There is absolutely no incentive for anyone then to build infrastructure, because when you face that build/buy decision for the next five years or ten years, or however long that transition period is before your next review, as the business witnesses have said, when we model whether or not to build rather than buy, we will always make the decision to buy because it is cheaper.
1LISTNUM 1 \l 13439 So you won't create the very incentives that allow the condition to disappear. If you want to incent the market, you have to let the market operate.
1LISTNUM 1 \l 13440 THE CHAIRPERSON: It depends obviously on factors that go into a decision whether to buy or to build and the technology, the costing data, et cetera.
1LISTNUM 1 \l 13441 I think it is time for a five‑minute break before you go on.
1LISTNUM 1 \l 13442 Sorry, go ahead.
1LISTNUM 1 \l 13443 MS YALE: I'm sorry, you were in the middle of your question until I got sidetracked.
1LISTNUM 1 \l 13444 COMMISSIONER del VAL: I just want to be clear.
1LISTNUM 1 \l 13445 If you have an essential services definition that had conditions, the elements A, B, C, just say you are in a market power duplicability required input, and when you create a bucket called conditional, then you have really added a fourth condition for that bucket. Right?
1LISTNUM 1 \l 13446 MS YALE: Effectively.
1LISTNUM 1 \l 13447 COMMISSIONER del VAL: Thank you.
1LISTNUM 1 \l 13448 THE CHAIRPERSON: Let's take a five‑minute break.
‑‑‑ Recessed at 1140 / Suspension à 1140
‑‑‑ Resumed at 1150 / Reprise à 1150
1LISTNUM 1 \l 13449 THE SECRETARY: Please be seated, everyone.
1LISTNUM 1 \l 13450 We will now pursue our cross‑examination with Shaw Communications.
1LISTNUM 1 \l 13451 Counsel Milton, please proceed.
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 13452 MS MILTON: Good morning, Commissioners and Panel Members. My name is Leslie Milton and I am accompanied this morning by Jean Brazeau, Vice‑President Telecommunications, Regulatory Affairs at Shaw Communications Inc.
1LISTNUM 1 \l 13453 Given the territory that has already been covered this morning, my questions will be very brief. I'm going to focus on one issue, and that is the regulatory framework applicable to the sixth basket of services identified in the Commission's letter of October 3rd, and that is interconnection services.
1LISTNUM 1 \l 13454 I understand from your evidence that TELUS' position is that the regulatory regime should promote facilities‑based competition.
1LISTNUM 1 \l 13455 Is that correct?
1LISTNUM 1 \l 13456 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13457 MS MILTON: And that is the so‑called end‑to‑end facilities‑based competition that we have been discussing over the last few days?
1LISTNUM 1 \l 13458 MR. GRIEVE: One of the things that has startled me a little bit is that people use as a test for when we have facilities‑based competition somehow a model in their head that every place will have two lines into it.
1LISTNUM 1 \l 13459 Our view is that really what we are looking for is developing a competitive market in the facilities market, and that is created by people building facilities and putting competitive pressure or market pressure on people who already have facilities to negotiate access to those facilities.
1LISTNUM 1 \l 13460 MS MILTON: But it is your position that the greatest scope for competition exists when there is competition and facilities end‑to‑end?
1LISTNUM 1 \l 13461 MR. GRIEVE: Yes, but you can arrange for end‑to‑end facilities, not just by building your own but buying from other parties as well. If you can control the facilities that you are buying, you can get that kind of access that gives you the kind of service that you need.
1LISTNUM 1 \l 13462 MS MILTON: All right.
1LISTNUM 1 \l 13463 I understand from your evidence that TELUS agrees that interconnection is a prerequisite to facilities‑based competition.
1LISTNUM 1 \l 13464 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13465 MS MILTON: Would you agree with me that it is important that interconnection arrangements be efficient?
1LISTNUM 1 \l 13466 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13467 MS MILTON: And within the notion of efficiency, you would include the technological manner of interconnection as well as price, timeliness?
1LISTNUM 1 \l 13468 MR. GRIEVE: Yes. One of the reasons that CISC has been so busy on interconnection matters is that as technology changes we have to find ways to accommodate new technologies in the interconnection regime, the most obvious being IP interconnection: IP to IP and IP to TDM.
1LISTNUM 1 \l 13469 MS MILTON: As I understand it, there are four steps in the implementation of facilities‑based interconnection between a CLEC like my client Shaw and TELUS.
1LISTNUM 1 \l 13470 Those steps would be, first, agreement to a route plan; second, construction of interconnecting facilities by both the ILEC and the CLEC; third, the provision of interconnecting trunks by the ILEC; and fourth, the testing of those trunks.
1LISTNUM 1 \l 13471 Would you agree with this description as being the typical process for a joint build?
1LISTNUM 1 \l 13472 MR. FLEIGER: Yes, I would.
1LISTNUM 1 \l 13473 MS MILTON: For a carrier like my client Shaw, you would agree that these steps have to be completed a number of times, given that they have a large coverage area. So they will be doing that in each LIR.
1LISTNUM 1 \l 13474 MR. FLEIGER: Yes, depending on the size of the geographic area, it could encompass more than one LIR. And those steps would have to be followed for each one.
1LISTNUM 1 \l 13475 MS MILTON: Can you give me some sense for how long completion of these steps usually takes? Is it weeks, months?
1LISTNUM 1 \l 13476 MR. FLEIGER: Typically, I would say it does take months. It is quite a complicated process. It is one that has been prescribed, at least at a high level, by the Commission. Then a number of the technical steps along the way have been derived out of the interconnection sub‑committees, which are attended by all parties, CLECs and ILECs. They go through that process and agree to what are the detailed steps that need to be followed in order to complete this successfully.
1LISTNUM 1 \l 13477 MS MILTON: Would you agree with me that in each individual case there is a negotiation as to the timeline for completion of the steps?
1LISTNUM 1 \l 13478 MR. FLEIGER: I think the timelines are, at least at a high level, in place in regard to sort of what the industry standards are for that.
1LISTNUM 1 \l 13479 When you say negotiation, I believe there are certainly steps that need to be followed in regard to negotiating how you would do a joint build facility, if that is what is going to be implemented as part of the interconnection.
1LISTNUM 1 \l 13480 But that is not the only options that are available to the CLEC and the ILEC.
1LISTNUM 1 \l 13481 Is there some negotiation? Yes, I believe there is some negotiation.
1LISTNUM 1 \l 13482 MS MILTON: Just to go back to your comment, you said there were timelines in place.
1LISTNUM 1 \l 13483 Could you point me to, for example, what would the timeline be that is in place for reaching agreement on a route plan, for example, or for construction of the facilities?
1LISTNUM 1 \l 13484 MR. FLEIGER: I don't have that detail at my fingertips.
1LISTNUM 1 \l 13485 MS MILTON: But you believe that there is some kind of industry timeline in place?
1LISTNUM 1 \l 13486 MR. FLEIGER: I think there is an industry standard and an industry average. I don't know if there is any prescribed exact timeline as to whether that is 30 days, 60 days, 90 days.
1LISTNUM 1 \l 13487 MS MILTON: Could you undertake to get back to me on providing any industry standards that you can find that would establish the timeline?
1LISTNUM 1 \l 13488 MR. FLEIGER: Certainly.
1LISTNUM 1 \l 13489 MS MILTON: You don't disagree with me, though, that there are certainly some negotiations involved in meeting these timelines?
1LISTNUM 1 \l 13490 MR. FLEIGER: Yes, I would agree that there are negotiations. As I said, when the CLEC and the ILEC are looking at the possibility of a jointly constructed interconnection facility, then in a lot of cases there are several options and they need to sit down, identify those options and then from each of their perspectives look at what the economics of that are.
1LISTNUM 1 \l 13491 Theoretically, it is supposed to be a shared cost facility, 50:50 if you will. But that is not always the case.
1LISTNUM 1 \l 13492 MS MILTON: So if we have some negotiated timelines that the parties have agreed to, what happens if the ILEC doesn't meet those timelines that have been negotiated?
1LISTNUM 1 \l 13493 MR. FLEIGER: I'm not sure, to tell you the truth.
1LISTNUM 1 \l 13494 MS MILTON: You are not sure.
1LISTNUM 1 \l 13495 Are there any regulatory sanctions, that you are aware of?
1LISTNUM 1 \l 13496 MR. FLEIGER: I don't believe so.
1LISTNUM 1 \l 13497 MS MILTON: All right.
1LISTNUM 1 \l 13498 Thank you, Mr. Chairman. Those are all of my questions.
1LISTNUM 1 \l 13499 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 13500 Are there any questions from the Panel?
1LISTNUM 1 \l 13501 This is actually very opportune because I have to take a phone call in 15 minutes. So let's break now and we will resume at 1:15.
1LISTNUM 1 \l 13502 Thank you.
‑‑‑ Recessed at 1155 / Suspension à 1155
‑‑‑ Resumed at 1315 / Reprise à 1315
1LISTNUM 1 \l 13503 THE CHAIRPERSON: Let's resume, please.
1LISTNUM 1 \l 13504 Barbara, do you want to do it now?
1LISTNUM 1 \l 13505 COMMISSIONER CRAM: Yes.
1LISTNUM 1 \l 13506 THE CHAIRPERSON: Commissioner Cram has some questions for the panel.
1LISTNUM 1 \l 13507 COMMISSIONER CRAM: Thank you.
1LISTNUM 1 \l 13508 Mr. Grieve, I have your letter of October 12 of this year, a copy of which was forwarded to all interested parties about the number of self supply by TELUS East, if I can call it that, saying in part that you inadvertently filed incorrect line information, and that is Figure 4.2.2 that has been referred to by many parties, including Rogers in their questioning.
1LISTNUM 1 \l 13509 You say you're working to rectify the matter and will be filing it. When will you be filing this new information?
1LISTNUM 1 \l 13510 MR. GRIEVE: It will be this week, yes.
1LISTNUM 1 \l 13511 COMMISSIONER CRAM: And is it going to be a material change?
1LISTNUM 1 \l 13512 MR. GRIEVE: I don't think it will be a material change to that number.
1LISTNUM 1 \l 13513 COMMISSIONER CRAM: Okay. And so, in other words, it will be useless for anybody to ask you questions on this issue until we get that information?
1LISTNUM 1 \l 13514 MR. GRIEVE: No, I don't think so.
1LISTNUM 1 \l 13515 I said, I don't think it will be material.
1LISTNUM 1 \l 13516 COMMISSIONER CRAM: Okay.
1LISTNUM 1 \l 13517 I guess then maybe we would have to do something if it is more than a factor of, say, one or two per cent.
1LISTNUM 1 \l 13518 You would be willing to come back so you could be questioned on that, if that were the case?
1LISTNUM 1 \l 13519 MR. GRIEVE: Sure, yeah.
1LISTNUM 1 \l 13520 COMMISSIONER CRAM: And is it throughout the whole monitoring years?
1LISTNUM 1 \l 13521 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13522 COMMISSIONER CRAM: It says for the year 2006 and for prior years.
1LISTNUM 1 \l 13523 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13524 COMMISSIONER CRAM: And it will be the same scale; do I have it ‑‑ like, the increase would be sort of the same, it would just be of a lower magnitude?
1LISTNUM 1 \l 13525 MR. GRIEVE: I just want to make sure I understand this.
1LISTNUM 1 \l 13526 Yes, it would be a shift from the owned to the leased in about the same proportions each year.
1LISTNUM 1 \l 13527 THE CHAIRPERSON: If I understand you, this is a marginal, insignificant change?
1LISTNUM 1 \l 13528 MR. GRIEVE: That's what I believe, yeah.
1LISTNUM 1 \l 13529 THE CHAIRPERSON: Okay.
1LISTNUM 1 \l 13530 MR. McCALLUM: Mr. Chair, for the purpose of the record, could we introduce the letter as CRTC Exhibit 8?
EXHIBIT CRTC‑8: Telus' letter dated October 12, 2007 subject: CRTC Telecommunications Monitoring Report: Status of Competition in Canadian Telecommunications Markets and Deployment Accessibility of Advanced Telecommunications Infrastructures and Services, July 2007
1LISTNUM 1 \l 13531 THE CHAIRPERSON: Okay. MTS, you're on.
1LISTNUM 1 \l 13532 MS SONG: Good afternoon, Commissioners.
1LISTNUM 1 \l 13533 My name is Monica Song, I am appearing on behalf of MTS Allstream Inc. this afternoon once again and at my side is Ms Theresa Griffen Muir, Vice‑President, Regulatory Affairs of the company.
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 13534 MS SONG: I'd like to start by asking Mr. McMahon just a follow‑up question to his comment with respect to basic listing interchange file service.
1LISTNUM 1 \l 13535 I believe I heard correctly when you said that you believe that this is, well virtually the only service other than directory file service that would be essential under TELUS' proposal because the ILEC is in the position to provide this service.
1LISTNUM 1 \l 13536 So, I'd like to understand from you why you say that the ILEC is in the best position.
1LISTNUM 1 \l 13537 MR. McMAHON: I just think in this case because we have access to customer names and numbers and I believe that ILECs or CLECs in the industry know that, you know, that people need to know who they're going to phone.
1LISTNUM 1 \l 13538 So, we can't have a phone book that just has TELUS customers or a phone book that just has Rogers customers, that it just seems like a practical thing to do for one company to have that data and share it.
1LISTNUM 1 \l 13539 MS SONG: Right. So, from a practical point of view, what you're saying is that the ILEC, TELUS, in your operating territory does have access to the names and numbers of practically ‑‑ or the greatest quantity of customers in your serving territory?
1LISTNUM 1 \l 13540 MR. McMAHON: History would say yes.
1LISTNUM 1 \l 13541 MS SONG: Yeah.
1LISTNUM 1 \l 13542 MR. GRIEVE: And that's because the CLECs are mandated to provide it.
1LISTNUM 1 \l 13543 MS SONG: Moving on now, I'd like to focus my discussion this afternoon on primarily TELUS' out‑of‑territory operations and primarily in the business enterprise segment of that market.
1LISTNUM 1 \l 13544 So, I'll just say that by way of introduction. I may stray somewhat when we're dealing with more general issues, but that will be the focus of our discussion this afternoon, just to place you.
1LISTNUM 1 \l 13545 And the starting point ‑‑ and this is not a question for the panel but merely an indication of where I'll be taking you and the Commissioners this afternoon ‑‑ it's my understanding that TELUS' out‑of‑territory operations is a growing and important part of your operations and one would expect that if TELUS' proposal in this proceeding were to be implemented that would have an impact on your out‑of‑territory operations.
1LISTNUM 1 \l 13546 So, given this, I'd like to discuss why you are taking the positions that you're taking in this proceeding.
1LISTNUM 1 \l 13547 So, I'll turn more pointedly then to the issue of your out‑of‑territory operations.
1LISTNUM 1 \l 13548 So, TELUS, as I understand it, is registered as a CLEC in other ILEC territories; correct?
1LISTNUM 1 \l 13549 MR. FLEIGER: Yes, that is true.
1LISTNUM 1 \l 13550 MS SONG: And how long has TELUS been an out‑of‑territory competitor?
1LISTNUM 1 \l 13551 MR. FLEIGER: I would say we started in around 2000, 2001.
1LISTNUM 1 \l 13552 MS SONG: So, about seven years?
1LISTNUM 1 \l 13553 MR. FLEIGER: Yes.
1LISTNUM 1 \l 13554 MS SONG: And in what territories does TELUS compete as a non‑incumbent provider?
1LISTNUM 1 \l 13555 MR. FLEIGER: TELUS competes nationally.
1LISTNUM 1 \l 13556 MS SONG: So, you're present in the Atlantic provinces, in Ontario and Quebec?
1LISTNUM 1 \l 13557 MR. FLEIGER: We provide services nationally out of our ILEC region.
1LISTNUM 1 \l 13558 MS SONG: And in which product markets does TELUS compete as a non‑incumbent provider; business and res?
1LISTNUM 1 \l 13559 MR. FLEIGER: No, just business.
1LISTNUM 1 \l 13560 MS SONG: Just business.
1LISTNUM 1 \l 13561 MR. TASKER: And mobility.
1LISTNUM 1 \l 13562 MR. FLEIGER: I was going to say wireless.
1LISTNUM 1 \l 13563 MR. TASKER: Yeah.
1LISTNUM 1 \l 13564 MS SONG: Sorry, I didn't catch that.
1LISTNUM 1 \l 13565 MR. TASKER: Sorry. We also compete in the consumer market on the mobile telephony side.
1LISTNUM 1 \l 13566 MS SONG: Right. But as a wire line non‑incumbent provider, you're in the business market exclusively?
1LISTNUM 1 \l 13567 MR. FLEIGER: Yes, that's true.
1LISTNUM 1 \l 13568 MR. TASKER: Business and wholesale.
1LISTNUM 1 \l 13569 MS SONG: Right. And you provide voice and data services?
1LISTNUM 1 \l 13570 MR. TASKER: That's correct.
1LISTNUM 1 \l 13571 MS SONG: And does TELUS compete as a non‑incumbent wire line provider predominantly in the enterprise, the medium or small business market?
1LISTNUM 1 \l 13572 MR. TASKER: We actually compete across all those segments.
1LISTNUM 1 \l 13573 MS SONG: Would you be able to say whether you're predominantly in one segment or the other; enterprise, medium or small?
1LISTNUM 1 \l 13574 MR. TASKER: We've probably been most successful in the enterprise and medium market to this point.
1LISTNUM 1 \l 13575 MS SONG: And does TELUS intend to maintain and grow its out‑of‑territory operations?
1LISTNUM 1 \l 13576 MR. TASKER: Absolutely.
1LISTNUM 1 \l 13577 MS SONG: Regardless of the outcome of this proceeding, I assume?
1LISTNUM 1 \l 13578 MR. TASKER: Absolutely we intend to grow our business.
1LISTNUM 1 \l 13579 MS SONG: In fact, and if you'll turn up an interrogatory that I've provided to the Hearing Secretary, TELUS/MTS Allstream, 12 April, '07, 106.
1LISTNUM 1 \l 13580 MR. TASKER: I'm not sure how to identify these, sorry. Can you say that again?
1LISTNUM 1 \l 13581 MS SONG: If you look in the top right‑hand corner.
1LISTNUM 1 \l 13582 MR. TASKER: Yeah. This one?
1LISTNUM 1 \l 13583 MR. FLEIGER: Yeah.
1LISTNUM 1 \l 13584 MR. TASKER: Okay.
1LISTNUM 1 \l 13585 MS SONG: Okay. So, if you turn to page 2, the top of page 2 in the first paragraph there's a reference to TELUS ‑‑ you're talking about yourself and the decisions that you were making in and around the time frame of decision 2002‑34 and you refer to yourself as a growing CLEC.
1LISTNUM 1 \l 13586 And I'm assuming that holds true today; correct?
1LISTNUM 1 \l 13587 MS YALE: Are you talkig ‑‑ TELUS/CRTC 106?
1LISTNUM 1 \l 13588 MS SONG: No, I'm at TELUS/MTS Allstream.
1LISTNUM 1 \l 13589 MS YALE: TELUS/MTS. Oh, sorry, we have the wrong one.
1LISTNUM 1 \l 13590 MR. TASKER: Is this the one here?
1LISTNUM 1 \l 13591 MR. FLEIGER: Yeah, you have the right one.
1LISTNUM 1 \l 13592 MS SONG: 106.
1LISTNUM 1 \l 13593 MR. TASKER: Yeah, I've got it.
1LISTNUM 1 \l 13594 MS YALE: Okay, now we've got it. Okay, sorry.
1LISTNUM 1 \l 13595 MS SONG: So, the question still holds.
1LISTNUM 1 \l 13596 MR. TASKER: What's the question?
1LISTNUM 1 \l 13597 MS SONG: Yes. The question is: You refer to yourself as a growing CLEC in and around, I believe that the discussion at the top of page 2 is in reference to your activities in and around the time frame of decision 2002‑34 and I'm assuming that statement still holds true today?
1LISTNUM 1 \l 13598 MR. TASKER: Yes, we are still ‑‑
1LISTNUM 1 \l 13599 MS SONG: You haven't finished growing?
1LISTNUM 1 \l 13600 MR. TASKER: No, of course not.
1LISTNUM 1 \l 13601 MS SONG: Now, it's also my understanding that TELUS, like the Bell et al companies, are opposed in this proceeding to the Commission's current CDN regime; correct?
1LISTNUM 1 \l 13602 MR. TASKER: That's correct.
1LISTNUM 1 \l 13603 MS SONG: All right. And last Thursday when the Bell et al panel were up, there was an opportunity for the Chair to address a question to the Bell et al panel which he said had been bothering him about the logic behind Bell et al's apparent opposition to the current CDN regime.
1LISTNUM 1 \l 13604 And I think it's probably best if I read to you the question, all right, as a prelude to my actual questioning in this regard.
1LISTNUM 1 \l 13605 So, the question from the Chair was:
"I've heard you talk all morning long about disincentives to investment beause CDN is so cheap, et cetera. While that may be something undesirable for us from a public service point of view, wanting to see a build up of network, et cetera, why, as a company, would it be a disincentive? I mean, isn't it a benefit for you? Doesn't it mean that you have an input cost that now has gone down and you could use the investment that you would have spent on laying out fibre, or whatever the case may be, and invest it in other areas of your business?" (As read)
1LISTNUM 1 \l 13606 So, I don't know if you were present last week, but that was the question.
1LISTNUM 1 \l 13607 Now, I believe I can paraphrase the question as: Doesn't it leave you more money to invest in other facilities?
1LISTNUM 1 \l 13608 And in this regard I'd like you to turn back to ‑‑
1LISTNUM 1 \l 13609 MS YALE: Sorry, sorry. There's a lot of assumptions you're posing on the way to a question that I disagree with and it's really hard, if you keep waiting to pose the question, for me to challenge some of the things you're assuming because you haven't actually stopped to ask a question.
1LISTNUM 1 \l 13610 MS SONG: Right.
1LISTNUM 1 \l 13611 MS YALE: So, I'm not quite sure how to deal with this.
1LISTNUM 1 \l 13612 MS SONG: Well, I am getting to the question, Ms Yale. So, if you will just turn back with me to MTS Allstream 12 April, '07 106.
1LISTNUM 1 \l 13613 MS YALE: I have it.
1LISTNUM 1 \l 13614 MS SONG: And if you look again at page 2 and the second paragraph, I'll give you a moment to read that paragraph.
1LISTNUM 1 \l 13615 MS YALE: Mm‑hmm.
1LISTNUM 1 \l 13616 MS SONG: All right. Now, as I read this response at the second paragraph on page 2, nowhere do I see here that TELUS actually states that it has ceased engaging in capital expenditures at any point after 2002.
1LISTNUM 1 \l 13617 Am I reading that paragraph correctly?
1LISTNUM 1 \l 13618 MS YALE: Absolutely. I think we made the point this morning that when it comes to our growth strategy, we have our non‑ILEC strategy to deal with, we also have capital expenditures that are required in order to upgrade our infrastructure to accommodate new services in our ILEC territory and our Cap‑ex budget, if you will, has to be allocated among all of those competing claims on our budget.
1LISTNUM 1 \l 13619 And, so, when we make those decisions we look, at least in part, at the build/buy decision with respect to our network expansion in non‑ILEC.
1LISTNUM 1 \l 13620 And so page 2 points out here the shift in strategy with respect to the way in which we expanded, not whether or not we expanded, in our non‑ILEC territory as a result of the introduction of CDNA.
1LISTNUM 1 \l 13621 MS SONG: I wanted to focus on your out‑of‑territory operations, but I don't think anything is lost in your more fulsome explanation of Cap‑ex both in territory and out of territory.
1LISTNUM 1 \l 13622 But this paragraph in fact states that post the CDN ‑‑ the 2002‑34 decision in June of 2002 TELUS kick started actually two different kinds of investments out of territory, the first being building out more co‑locations; and, secondly, focusing on building core network capabilities to link TELUS points of presences with the newly opened co‑location sites.
1LISTNUM 1 \l 13623 So, just to confirm what you are saying and what this paragraph says, in no way did the CDN decision change ‑‑ or, sorry, cause you to cease making network investments for your ILEC territory operations, it's simply that the nature of those investments changed?
1LISTNUM 1 \l 13624 MS YALE: Well, I mean, you're trying to confine this discussion to non‑ILEC. The fact of the matter is, we have to trade off on our Cap‑ex expenditures, ILEC and non‑ILEC, as well as within non‑ILEC what is the right way to build out our capacity to service our customers.
1LISTNUM 1 \l 13625 And what we're talking about here is that we were on one path in terms of how we were going to deal with the buy/build trade‑off that we always have to make when we face these decisions and, as you correctly note, we shifted our strategy in terms of how we support our customers in non‑ILEC to take advantage, in fact, of the CDNA capabilities.
1LISTNUM 1 \l 13626 MS SONG: Okay. So, if I understand you correctly, and I'm sure I'm not, but let me put it to you this way: Are you saying that your investment decisions out of territory are divorced from return on that out‑of‑territory investment and that you just take it ‑‑
1LISTNUM 1 \l 13627 MS YALE: No.
1LISTNUM 1 \l 13628 MS SONG: ‑‑ from a global company perspective, total wire line operating revenue and return on that investment?
1LISTNUM 1 \l 13629 MS YALE: I didn't say that at all.
1LISTNUM 1 \l 13630 MS SONG: Right. So, you are concerned with the return that you are going to be earning on your ILEC out‑of‑territory investment; correct, when you're trying to decide whether you're going to make an out‑of‑territory investment?
1LISTNUM 1 \l 13631 MR. TASKER: I think it's worth noting here that although there is a specific non‑ILEC investment that we've reported, in many cases we have customers which have sites across Canada, even medium and small sized customers as well, so the investment, we believe we made the decision to go in to pursue the business in non‑ILEC was based on our understanding that many customers buy nationally.
1LISTNUM 1 \l 13632 MS SONG: All right. And, Ms Yale, you would agree with me that there is nothing in the policy direction, for example, that says that it's only investment in access that is worthwhile pursuing as an objective of the Canadian Telecommunications framework?
1LISTNUM 1 \l 13633 MS YALE: Well, I mean, if you want to point me to something specific in the direction. I mean, we take the position that with respect to the direction that it is very clear that the Commission is to determine the extent to which mandated access to wholesale services that are not essential services should be phased out.
1LISTNUM 1 \l 13634 So, we take that direction to heart in the way in which we've approached our position in this proceeding.
1LISTNUM 1 \l 13635 MS SONG: Sorry, that wasn't my question, so perhaps I'll just give you my question again.
1LISTNUM 1 \l 13636 My question was: Is there anything in the policy direction that says that only investment in access facilities should be promoted in Canada?
1LISTNUM 1 \l 13637 MS YALE: Well, I think the policy ‑‑ I'm not sure the point of the question ‑‑ it talks about increasing incentives for innovation and investment broadly. One portion of that obviously is access facilities.
1LISTNUM 1 \l 13638 MS SONG: Right. So, maybe I'll put it the other way. I would say, and I'm hoping that it will not be difficult for you to agree, that the policy direction includes among its objectives promotion of investment in general.
1LISTNUM 1 \l 13639 MS YALE: Yeah.
1LISTNUM 1 \l 13640 MS SONG: Okay. So, now with that in mind could I ask you now to turn to the 2006 Telecom Monitoring Report which is Exhibit 5 to this proceeding, and I'd like to examine Table 4.2.9 with you.
1LISTNUM 1 \l 13641 MS YALE: Sorry, can you repeat the page again?
1LISTNUM 1 \l 13642 MS SONG: Yeah. It's on page 43, and it's Table 4.2.9.
1LISTNUM 1 \l 13643 MS YALE: We have it.
1LISTNUM 1 \l 13644 MS SONG: 2006. So, the year that it ‑‑ on the cover is July, 2007. I referred to it as 2006 because that's the period that it covers.
1LISTNUM 1 \l 13645 Okay, thank you.
1LISTNUM 1 \l 13646 Now, TELUS' share of business lines in its traditional serving territory would be included in the first category, incumbent TSPs; correct?
1LISTNUM 1 \l 13647 MS YALE: Can you say that again?
1LISTNUM 1 \l 13648 MS SONG: Mm‑hmm. This table describes shares of local business lines held by incumbents, non‑incumbents, alternate TSPs.
1LISTNUM 1 \l 13649 My question was: TELUS' share of business lines in its traditional serving territories would be included in the first category or line entitled incumbent TSPs; correct?
1LISTNUM 1 \l 13650 MR. FLEIGER: Yes, that would be correct.
1LISTNUM 1 \l 13651 MS SONG: Okay. And then to the extent that TELUS has any business lines out of territory, is it correct to assume that these would be included in the incumbent TSPs out of territory line?
1LISTNUM 1 \l 13652 MR. FLEIGER: Yes.
1LISTNUM 1 \l 13653 MS SONG: All right. And it's my understanding that the Commission would have gathered this information in a form, a particular form in its annual monitoring data gathering exercise, and it's my understanding that for 2006 ‑‑ so that would be the last column of this table, panel ‑‑ my client indicated that it had 506,000 business lines.
1LISTNUM 1 \l 13654 So, if you look at the second row, incumbent TSPs out of territory, MTS Allstream would have reported for the year 2006 506,000 business lines; right.
1LISTNUM 1 \l 13655 So, you'll agree with me that if the the total number of local business lines in 2006 was 614,000 lines and MTS' share of that was 506,000 lines, it's probably no secret to assume that the remainder or the difference would have been shared between Bell and TELUS; correct?
1LISTNUM 1 \l 13656 MS YALE: Well, we don't have the data.
1LISTNUM 1 \l 13657 MR. FLEIGER: We don't have data. Primarily I'm sure.
1LISTNUM 1 \l 13658 MS SONG: Right. But do you need the primary data to tell us here today that it would have been primarily taken up by Bell, TELUS, perhaps a small portion by SaskTel?
1LISTNUM 1 \l 13659 MR. TASKER: That would be a logical conclusion, but we don't have the information.
1LISTNUM 1 \l 13660 MS SONG: Right. And we just want to deal with this in a practical fashion.
1LISTNUM 1 \l 13661 So, I did some quick math yesterday evening and it would appear, based on Table 4.2.9 and what MTS Allstream knows is its share of total business lines, that MTS has over 82 per cent of the incumbent TSP out‑of‑territory business lines and that Bell and TELUS, perhaps SaskTel, between the three of them, have only 10.8 per cent of that number.
1LISTNUM 1 \l 13662 Does that sound like a reasonable conclusion?
1LISTNUM 1 \l 13663 MR. TASKER: That's fine.
1LISTNUM 1 \l 13664 MS SONG: Mm‑hmm, okay.
1LISTNUM 1 \l 13665 So, the conclusion that we can draw from this is that notwithstanding that TELUS is what, a $8‑billion a year in operating company, it has a relatively small piece of at least the ILEC out‑of‑territory business lines?
1LISTNUM 1 \l 13666 MR. TASKER: I think what is important to note here is that our focus in CLEC territory has been primarily on the data IP business. We do have some small amount of business lines, but we did not put a particular emphasis on building out or offering local access services to business ‑‑ voice, that is.
1LISTNUM 1 \l 13667 MS SONG: Now I would like to ask that you turn to a document which I provided to your counsel yesterday evening. It is entitled "TELUS Wireline Revenues Profitability and Capital Expenditures."
1LISTNUM 1 \l 13668 Madam Secretary, I would like to ask that this be marked as an exhibit.
1LISTNUM 1 \l 13669 THE SECRETARY: It will be Exhibit No. 14.
EXHIBIT MTS‑14: TELUS Wireline Revenues, Profitability and Capital Expenditures. Tables 1,2 and 3
1LISTNUM 1 \l 13670 MR. FLEIGER: Okay, we have it now.
1LISTNUM 1 \l 13671 MS SONG: Great.
1LISTNUM 1 \l 13672 Where I am going with this, just so you can follow me, is that I am trying to understand why you are against access, if I could put it that way. I am concluding that because of the list of essential facilities that would result from the application of your test, and I need not go back over that because Mr. Dunbar did that with you.
1LISTNUM 1 \l 13673 But I would like to take you through the tables that are contained in Exhibit 14. These tables were produced by my client based on publicly available information gleaned both from TELUS's annual financial reviews, as well as material placed on the record of this proceeding.
1LISTNUM 1 \l 13674 I believe that we have footnoted all relevant sources properly and that we have gotten the underlying data connect. We have done the math correctly.
1LISTNUM 1 \l 13675 But the first thing I would like to ask you to undertake, because that is the most efficient way to do this, is to let me know if, at some later point, TELUS notes any errors in this document. Can you do that for me?
1LISTNUM 1 \l 13676 MR. GRIEVE: We would have to do it subject to check, obviously. I am just looking here.
1LISTNUM 1 \l 13677 MS SONG: That is exactly what I am asking you to do, to check it and to let me know if there are any problems with the numbers in the document.
1LISTNUM 1 \l 13678 MR. GRIEVE: Can you hang on a second?
‑‑‑ Pause
1LISTNUM 1 \l 13679 MS SONG: Are you with me?
1LISTNUM 1 \l 13680 MS YALE: Yes.
1LISTNUM 1 \l 13681 THE CHAIRPERSON: She asked you for an undertaking. Was the answer yes or no?
1LISTNUM 1 \l 13682 MS YALE: Yes.
1LISTNUM 1 \l 13683 MS SONG: Table 1 sets out TELUS's total wireline operating revenues, profitability as measured by EBITDA, margins as measured by EBITDA as a percentage of operating revenues and capital expenditures. You will agree with me? Do you see that?
1LISTNUM 1 \l 13684 MR. FLEIGER: Yes.
1LISTNUM 1 \l 13685 MS SONG: We can see from table 1 that TELUS's margins for its total wireline operations hovers at around the 40 per cent mark, using the measure that is reflected in this table. Correct?
1LISTNUM 1 \l 13686 MR. TASKER: Correct.
1LISTNUM 1 \l 13687 MS SONG: I am going to skip table 2 for a moment, which deals with your out‑of‑territory figures, and ask you to flip first to table 3.
1LISTNUM 1 \l 13688 Table 3 sets out TELUS's in‑territory wireline operating revenues, profitability, margins and capital expenditures, using the same parameters as we have used in table 1. So, table 3 basically takes or factors out TELUS's out‑of‑territory operations, which I will get to. So, we see here that TELUS's margins improve somewhat once you take out the out‑of‑territory figures, and that its margins range from between a high of 47 per cent and 43 per cent in the period 2002 to 2006. Do you see that?
1LISTNUM 1 \l 13689 MR. TASKER: I see it.
1LISTNUM 1 \l 13690 MR. FLEIGER: You use the word "improve." This does not note to me improvement, although I would like to see better numbers than that.
1LISTNUM 1 \l 13691 MR. TASKER: She is saying compared to these numbers.
1LISTNUM 1 \l 13692 MR. FLEIGER: Oh, compared to the other numbers?
1LISTNUM 1 \l 13693 MR. TASKER: There's the combined numbers.
1LISTNUM 1 \l 13694 MS SONG: Yes.
1LISTNUM 1 \l 13695 MR. FLEIGER: Yes, okay, I would agree with that.
1LISTNUM 1 \l 13696 MS SONG: Thank you.
1LISTNUM 1 \l 13697 I will now ask you to turn back to table 2. Table 2 sets out data with respect to TELUS's out‑of‑territory operation. The first thing that strikes me is the sheer contrast between the magnitude of TELUS's in‑territory wireline operations and its out‑of‑territory wireline operations.
1LISTNUM 1 \l 13698 So, as one measure of that, if you look at just the revenue column, you see in table 2 that TELUS's out‑of‑territory operations accounted for, for 2006, approximately $650 million of revenue, as compared to total wireline operating revenues of about $4.9 billion, $5 billion. It has been pretty constant. Correct?
1LISTNUM 1 \l 13699 MS YALE: Correct.
1LISTNUM 1 \l 13700 MS SONG: The second thing I take from table 2 I would say is even more interesting. What this shows is that year over year, between 2002 and 2006, TELUS's out‑of‑territory revenues have shown steady increases. Correct?
1LISTNUM 1 \l 13701 MR. TASKER: Yes.
1LISTNUM 1 \l 13702 MS SONG: Its profitability, as measured by EBITDA has similarly improved from a loss of $107 million in 2002 to a profit figure of about $32 million in 2006. Correct?
1LISTNUM 1 \l 13703 MR. TASKER: Correct.
1LISTNUM 1 \l 13704 MS SONG: I also note that TELUS's capital expenditures in column D for its out‑of‑territory operations have held pretty constant. I think I am going ‑‑
1LISTNUM 1 \l 13705 MR. TASKER: I think you are just glossing by that one, possibly intentionally.
1LISTNUM 1 \l 13706 2002 there was about double the capital as post the CDNA decision.
1LISTNUM 1 \l 13707 MS SONG: Right. But that was an initial investment. You indicated that out‑of‑territory operations started in about 2001?
1LISTNUM 1 \l 13708 MR. TASKER: There are obviously many factors, but one of the considerable factors was our investment in access facilities.
1LISTNUM 1 \l 13709 MS SONG: Right. I take it from this that you can't help but note that over the period that TELUS had CDN under the current commission regime for CDN, that both revenues, profits, margins did improve.
1LISTNUM 1 \l 13710 MR. TASKER: For the non‑ILEC region?
1LISTNUM 1 \l 13711 MS SONG: Yes, I am still in table 2.
1LISTNUM 1 \l 13712 MR. TASKER: Yes, we are still growing the business. We started, as John Fleiger suggested, in about the year 2000 and 2001, and we have continued to invest and grow the business and you see the results there from our success.
1LISTNUM 1 \l 13713 MS SONG: Right. But I take it that you can't tell me here today that the CDN decision actually hurt TELUS in its out‑of‑territory operations, can you?
1LISTNUM 1 \l 13714 MR. TASKER: I don't think we ever said that.
1LISTNUM 1 \l 13715 MS YALE: We haven't ever said that. What we have said ‑‑
1LISTNUM 1 \l 13716 MS SONG: I am not saying that you have said that. I am just asking the question now.
1LISTNUM 1 \l 13717 MS YALE: But what we have said is that it changed our investment strategy in non‑ILEC, and that we said, notwithstanding the fact that it was cheaper to buy CDNA than to build our own access infrastructure, and you see the results of that, we would have preferred to continue on the path of facilities‑based competition and not lease rather than buy.
1LISTNUM 1 \l 13718 So, the financials you see in front of you reflect the obvious strategy decisions we took in the face of the CDN ruling.
1LISTNUM 1 \l 13719 MS SONG: We did discuss a short while ago, Ms Yale, the fact that your investment decisions are a function of the margins and the returns that you earn for these ILEC out‑of‑territory operations. I assume that you are going to agree with me that the increased profitability, again, did not hurt your ability to invest in your out‑of‑territory operations?
1LISTNUM 1 \l 13720 MS YALE: Actually, I don't agree with you at all. In fact, when we made our decision, as has been mentioned when Joe Natale was hired as President of Business Solutions for TELUS, one of the big decisions we had to make as a company, as Mr. Grieve has pointed out, is what was the right way to approach the enterprise space in Ontario and Quebec because we hadn't been successful to that point.
1LISTNUM 1 \l 13721 One of the bets we made was to make significant capital expenditures in order to be able to attract what we considered showcase accounts like the TD Bank and Co‑operators that we were successful in winning, even though we were making huge capital investments in order to service that one account, because when we did that, it would mean that we would have opened up our infrastructure, in the case of TD Bank, to all of the communities in which TD had branches, which would then allow us to service other customers.
1LISTNUM 1 \l 13722 When you actually think about the return on investment in this context, we didn't take a short‑term view of what that return looked like. We took a long‑term view. We are certainly prepared, as a company, to make significant capital investments, recognizing, and as you can see from the chart here, that there is negative EBITDA in the early years as a result of the strategy that we are using with respect to how to grow our business in Ontario and Quebec.
1LISTNUM 1 \l 13723 MS SONG: Since you raise a couple of specific examples ‑‑ TD Bank and Co‑operators ‑‑ you indicate that you made significant investment in facilities, I don't know in what kind, but you say you have. I am assuming that notwithstanding these investments, you aren't able to serve these customers out of territory wholly on your own facilities. You had to lease CDN or some other access facilities. Correct?
1LISTNUM 1 \l 13724 MS YALE: Absolutely.
1LISTNUM 1 \l 13725 MS SONG: So, I am trying to understand in that situation why it is that the company, TELUS, is opposed to a regime that would allow it to bid on and obtain business such as the ones that you just mentioned?
1LISTNUM 1 \l 13726 MS YALE: I think you have to look at the long‑term incentives associated with the current unbundling regime, where there are really disincentives to make major investments in infrastructure because it is cheaper to buy than to build.
1LISTNUM 1 \l 13727 At the end of the day, if we want vibrant facilities‑based competition, then as a matter of public policy we can't have mandated access to infrastructure discounted prices because it kills that very incentive. We believe at the end of the day that the long‑term interests of Canadians are better served by facilities‑based competition.
1LISTNUM 1 \l 13728 MR. TASKER: I think the other thing to build on on that, and I think that Janet has already mentioned it and I will mention it again, that our decisions and our positions on our regulatory positions are based on a national view. It is not an isolated decision based on the performance of our non‑ILEC business.
1LISTNUM 1 \l 13729 MS SONG: I think that is precisely the point because I don't want to leave these tables that I provided to you without driving home a point.
1LISTNUM 1 \l 13730 I would suggest to you, following up on Mr. Tasker's comment just now, that the reason why TELUS is opposed to the Commission's CDN regime is precisely because they have a greater economic interest, and the facts and the numbers speak for themselves, in protecting their franchise within their traditional operating territories than they see in an access regime such as the CDN regime.
1LISTNUM 1 \l 13731 MR. GRIEVE: Thank you so much for asking that because it is dead wrong.
1LISTNUM 1 \l 13732 We had a long series of meetings where we had people in the meetings who said, well, why don't we like the CDN stuff, why don't we do this? Well, the reason that we came down on later in the discussions was we can't compete on our own facilities out of territory, when your competitors like Allstream would be competing with subsidized CDNA and CDN. So, we are forced to go off our own facilities and rely on other people's facilities and to not be operating in a competitive market for facilities.
1LISTNUM 1 \l 13733 This was a decision that we made after many, many discussions that we have to stay the course on facilities‑based competition or we are going to find that we are in a world of regulation and perpetuity, not only out of territory, but in territory as well.
1LISTNUM 1 \l 13734 So that was a strategic decision, a long‑term decision, not a quarter‑to‑quarter decision made by accountants, but a longer‑term decision made by business planning personnel.
1LISTNUM 1 \l 13735 MS SONG: I have asked you thus far in your discussion this afternoon to try to put on your competitor out‑of‑territory hat, but just for a moment I am going to ask you to ‑‑
1LISTNUM 1 \l 13736 MR. GRIEVE: Well, we did.
1LISTNUM 1 \l 13737 MS SONG: ‑‑ put your ILEC hat back on, and I want to talk about the pricing of CDN.
1LISTNUM 1 \l 13738 My understanding is that prior to the implementation of the Commission's current CDN regime there were margins on CDNA, the access component of the ‑‑ sorry, DNA. There were margins of approximately 50 to 80 per cent. Do you have any reason to doubt that?
1LISTNUM 1 \l 13739 MR. GRIEVE: Sure.
1LISTNUM 1 \l 13740 MS SONG: I heard you speak earlier this morning ‑‑
1LISTNUM 1 \l 13741 COMMISSIONER CRAM: Sorry, the question was: Do you have any reason to doubt that, and you answered, Mr. Grieve, sure.
1LISTNUM 1 \l 13742 MR. GRIEVE: No, I mean, I will accept those margins.
1LISTNUM 1 \l 13743 MS SONG: Are we to understand that ‑‑ just stepping back a moment. This morning I heard you in your exchanges with Mr. Dunbar, I believe, mention fully compensatory rates, economic rates, that kind of language.
1LISTNUM 1 \l 13744 Am I to understand that by "fully compensatory rates" you would be looking at prices for CDN with these kinds of mark ups?
1LISTNUM 1 \l 13745 MR. GRIEVE: I don't know. You have to remember, and most people here would remember, that a lot of those CDN ‑‑ not CDN, a lot of those DNA rates were set at a time when the rate structure was designed to have some services at very high margins subsidizing other services with zero or negative margins. So, over time what we have been trying to do is everyone in the industry has tried to rationalize the rate structure.
1LISTNUM 1 \l 13746 So, would fully compensatory rates reach those levels? Well, you know, those kinds of mark ups, it depends if the CRTC puts less and less in phase 2. Then you would have to have greater and greater percentage mark ups, and I don't know where the CRTC is today on what is in there.
1LISTNUM 1 \l 13747 But you mentioned fully compensatory rates, and I have to make sure that I make it clear that we are asking to be able to move rates toward fully compensatory rates, but I also said that I didn't expect we would get there because I think that the market, that at a certain level we would say this is too much, the market is pulling us back, people are building facilities, we have to worry about how much facilities build people are doing.
1LISTNUM 1 \l 13748 But certainly as an ILEC, we are concerned about not getting fair compensation for our assets, but, at the same time, as an ILEC we are aware that we have to keep our rates at competitive levels which are determined by other people building, which they won't do under the current regime.
1LISTNUM 1 \l 13749 MS SONG: We don't know ‑‑ I guess you are telling me you can't give us a sense of whether you think they will rise back up to the levels they were at prior to the CDN decision, but one thing is for sure. If prices do increase, then the profitability of the out‑of‑territory operations that we have just finished looking at in table 2 would certainly be reduced.
1LISTNUM 1 \l 13750 MR. GRIEVE: The short‑term profitability probably would, but the longer‑term EBITDA results would be much, much better because you would be more on your own facilities, seeking to fill up those facilities as best you can and reap the economies of scale from those investments.
1LISTNUM 1 \l 13751 MS SONG: I would now like you to turn up TELUS/CRTC 12 April 07‑106.
1LISTNUM 1 \l 13752 MS YALE: We have it.
1LISTNUM 1 \l 13753 MS SONG: I would ask you to have that out with you by your side. Before I move on to the next topic of discussion, which will focus on the application of your test proposal, I am less interested in the definition for the time being and I would like to focus on how TELUS is proposing to apply it.
1LISTNUM 1 \l 13754 I understood from your revised opening statement, and I haven't provided you a copy of it ‑‑
1LISTNUM 1 \l 13755 MS YALE: That is okay, we have it.
1LISTNUM 1 \l 13756 MS SONG: But it is a very broad question.
1LISTNUM 1 \l 13757 With reference to your opening statement, I gather that it is your proposal that the Commission keep category 1 essential, category 3 non‑essential subject to transition, category 5 public good, and category 6 interconnection. Correct?
1LISTNUM 1 \l 13758 MS YALE: That is correct.
1LISTNUM 1 \l 13759 MS SONG: So, you are sublimating or eliminating categories 2 and 4. Correct?
1LISTNUM 1 \l 13760 MS YALE: We believe that category 2 is really part of category 1, and that category 4 is really part of category 3. So, we don't see the need for the distinction into those sub‑categories.
1LISTNUM 1 \l 13761 MS SONG: I would like to understand what you mean by there is no need for. I will put it to you that you say that there is no need for categories 2 and 4 because, under TELUS's proposal, it is irrelevant whether forbearance has been granted based on the degree of competition that exists in a retail market by virtue of competitors that participate in the retail market, at least in part, on the basis of access to mandated service and facilities. Correct?
1LISTNUM 1 \l 13762 MS YALE: I wouldn't put it that way.
1LISTNUM 1 \l 13763 What we say is that the test for essential facilities is as we have set out, which is that it is monopoly controlled and it is not duplicatable, to use that expression. If there are services that meet that test, they are essential, and if they aren't, they should be phased out.
1LISTNUM 1 \l 13764 MS SONG: I understand that, but I would like to understand what you mean by, as I say, no need for, no need for categories 2 and 4. There have been parties, and certainly the Commission's six baskets seem to put forward a scenario where the fact of forbearance, having been granted on the basis of competitors that are facilities based but that require access to mandated services and facilities, is a consideration that gives rise to a category.
1LISTNUM 1 \l 13765 So, my question is: Are you not saying in your proposal that that is irrelevant, that it is irrelevant to a determination of essentiality whether or not forbearance has been granted on that basis? So, that is my simple question.
1LISTNUM 1 \l 13766 MS YALE: We would say it is irrelevant, and the reason ‑‑ I mean, you have to look at the reason for that. Under our test unbundled local loops are not essential facilities. We think it is really important to get the test and the definition of essential facilities right rather than distort the definition in order to deal with the kind of situation that you are talking about here where forbearance is predicated on the existence of a competitor who relies on unbundled local loops.
1LISTNUM 1 \l 13767 Our approach is to not make those loops essential, but instead to say, let's, over the course of that transition period, phase them out as essential services and, at the end of the day, the better view would be if, at the end of the transition the conditions for forbearance at the retail level no longer apply, then the better answer is to look at the problems, if there are problems at the retail market level, rather than to distort the definition of essential facilities at the wholesale level to mandate the continued provision of those unbundled loops on a discounted basis.
1LISTNUM 1 \l 13768 MS SONG: I would like you to now turn to the interrog response that I had just referred to, so, TELUS/CRTC 12 April 07‑106.
1LISTNUM 1 \l 13769 If you turn to the ‑‑ well, first of all, this interrog from the Commission deals with dominance and the fact that dominance figures in MTS Allstream's essential facilities definition, and it asks TELUS for its views on that criteria. You will agree with me that that is what the interrog ‑‑
1LISTNUM 1 \l 13770 MS YALE: That is what it is all about.
1LISTNUM 1 \l 13771 MS SONG: If you turn over to page 2 of 3, again, the second paragraph, I am just going to read out that paragraph:
"MST Allstream's discussion of market power or dominance in the upstream and downstream markets, therefore, has no relevance for the determination of whether or not a facility is essential. Any abuse of market power in either market can be addressed by regulation and the absence of significant market power in either market should result in forbearance." (As read)
1LISTNUM 1 \l 13772 I take it from this, and I think your company's position has been clear throughout this proceeding to its credit, that dominance similarly in the upstream market is also irrelevant to the application of TELUS's essential facilities proposal. Correct?
1LISTNUM 1 \l 13773 MS YALE: Right. It is not about market power. It is about monopoly control over input facilities. I think we have been clear on that.
1LISTNUM 1 \l 13774 MS SONG: I am just trying to understand this from the perspective of the customer because, in my simple way of trying to understand your company's proposal, it seems to me that it all boils down to whether or not a facility has been duplicated by someone somewhere at some point in time. Correct?
1LISTNUM 1 \l 13775 MR. GRIEVE: Qualified, but, okay, go ahead.
1LISTNUM 1 \l 13776 MS SONG: I am trying to understand where that leaves the retail customer, not your wholesale competitor customers, but the retail customer, because we have just gone through the fact that under your proposal retail forbearance may be granted, notwithstanding ‑‑ sorry, we have just gone through that a facility that is currently essential and mandated and upon which a facilities‑based competitor relies in order to provide services in a retail market can be or is proposed to be withdrawn at the end of your appropriate transition period, and at the same time ‑‑
1LISTNUM 1 \l 13777 MS YALE: Sorry, you are having a lot of assumptions that I don't agree with along the way. So, it is really difficult because we didn't say it would be withdrawn. We are not talking about withdrawal of service. The issue was whether the service is offered on a mandated basis at a discount, not whether or not it is offered.
1LISTNUM 1 \l 13778 MS SONG: The tariffs would be withdrawn anyways.
1LISTNUM 1 \l 13779 MS YALE: No, it would be forborne because there is an alternative source of supply. You make it sound like it is not going to be available.
1LISTNUM 1 \l 13780 The issue is whether it is available on a mandated basis at a discount.
1LISTNUM 1 \l 13781 MS SONG: We will get to the authority under which the Commission would be doing all this, the de‑tariffing and the unmandating, and I apologize if my question was ‑‑ you weren't able to follow the question, but, really, the assumption that I am asking you or the scenario that I am asking you to consider is where does it leave the customer if the retail market is forborne, right, on the basis of the Order in Council varying that local ‑‑
1LISTNUM 1 \l 13782 MS YALE: So, the retail market is forborne because the test for forbearance has been met at the retail level?
1LISTNUM 1 \l 13783 MS SONG: That is right, and your proposal is accepted, so all currently mandated essential facilities are no longer mandated. What protection is there ‑‑
1LISTNUM 1 \l 13784 MS YALE: Well, over a transition period of five years.
1LISTNUM 1 \l 13785 MS SONG: Over a transition period of either three years or five years, correct?
1LISTNUM 1 \l 13786 MS YALE: In the case of access facilities, it is five years and the rates would be tariffed for the entire transition period.
1LISTNUM 1 \l 13787 MS SONG: Right. And at the end of the transition period, whatever it is ‑‑ whatever the Commission decides it is ‑‑ where does that leave the retail customer if there is no actual alternate source of supply?
1LISTNUM 1 \l 13788 MS YALE: It is hard to deal with your hypotheticals because, in the residential market ‑‑ in the consumer market ‑‑ it is very rarely the case that that is the basis for forbearance.
1LISTNUM 1 \l 13789 I think the real way to look at it is from the flip side, which is, if you bring in a market power test at the retail level to decide whether or not something has to be unbundled at the wholesale level, then it would require facilities to be treated as essential, and therefore offered on a mandated, unbundled basis, even if there is a demonstrated alternative supplier.
1LISTNUM 1 \l 13790 The problem with starting with the retail market instead of the conditions of supply in the wholesale market is that you miss the point, which is, is there an alternative source of supply in the wholesale market.
1LISTNUM 1 \l 13791 If there is, the facility in question is duplicable and it's hard to understand why it would continue or should continue to be treated as essential.
1LISTNUM 1 \l 13792 MS SONG: When you say "Is there an alternate source of supply," are you talking about an actual factual assessment of the extent and degree to which there is an alternate source of supply, or are you talking about the way that you would apply your essential facilities test ‑‑ one person/one place.
1LISTNUM 1 \l 13793 MR. GRIEVE: One person/one place is absolutely the wrong test.
1LISTNUM 1 \l 13794 You have to look at whether a facility is duplicable. It is duplicable if it's been duplicated in places that have a similar geographic market.
1LISTNUM 1 \l 13795 The fact that after five years people have chosen not to duplicate it for some reason is actually more likely to occur if we continue to mandate them at the prices they are, and on the terms that you can get it for one month at a time type of scenario.
1LISTNUM 1 \l 13796 Our proposal for duplicability is to look to see whether it has been duplicated, and, lo and behold, we see that these facilities have been duplicated, or the functionalities have been duplicated in other places.
1LISTNUM 1 \l 13797 At the end of five years, in that particular geographic market that you posit, where nobody else is there, we would know that it's duplicable, and we would know that if we were to withdraw access, assuming there was nothing else there in that particular exchange, which is the market, we would be re‑regulated.
1LISTNUM 1 \l 13798 So we have an incentive even over and above the other incentives to make sure it's still available.
1LISTNUM 1 \l 13799 MS SONG: I am not sure that I hear Ms Yale and Mr. Grieve saying the same thing, because I am not sure that when Ms Yale is referring to "Is there an alternate source of supply," that means the same thing as "Is the facility duplicable," in the way that TELUS applies that test.
1LISTNUM 1 \l 13800 So, perhaps, Ms Yale, you could clarify that.
1LISTNUM 1 \l 13801 MS YALE: I think I mean it in the way our evidence suggests.
1LISTNUM 1 \l 13802 MS SONG: All right. Let's not get hung up, then, on that. I am asking, as a practical matter, what do you do if there is no alternate source of supply?
1LISTNUM 1 \l 13803 Not in the sense that Mr. Grieve has just spoken about, but in the sense that there is no other supplier of the wholesale facility. There is no market for that, other than from the ILEC.
1LISTNUM 1 \l 13804 MS YALE: I am having a hard time, because we have gone through and looked at the various facilities in question, by band, and it is our position that they are duplicable, so we don't believe there is a problem.
1LISTNUM 1 \l 13805 MR. GRIEVE: It is always possible for MTS Allstream to actually build, because they are duplicable.
1LISTNUM 1 \l 13806 I know it would be novel, but ‑‑
1LISTNUM 1 \l 13807 MS SONG: I guess, next week, we will be hearing from MTS Allstream, but I think that the issue is not whether it has been duplicated once by somebody somewhere, it is whether it can be duplicated in sufficient scale and scope to actually provide a competitive discipline.
1LISTNUM 1 \l 13808 MS YALE: And we have made that clear. We are not talking about a de minimis kind of satisfaction of the test, and we have provided a table that goes through all of the alternative sources of supply and explains why we believe they are duplicable.
1LISTNUM 1 \l 13809 MS SONG: I am not sure that I actually understood your evidence in that way, but I will move on for the time being.
1LISTNUM 1 \l 13810 THE CHAIRPERSON: Before you do, I would like to interject, because I am missing something here.
1LISTNUM 1 \l 13811 I notice in your definition that you don't use the word "market" at all.
1LISTNUM 1 \l 13812 MS YALE: I'm sorry?
1LISTNUM 1 \l 13813 THE CHAIRPERSON: There is no reference to "market" in your definition.
1LISTNUM 1 \l 13814 I have been listening very carefully to the exchange for the last few minutes and ‑‑
1LISTNUM 1 \l 13815 MS YALE: We don't use the term "market power".
1LISTNUM 1 \l 13816 THE CHAIRPERSON: I know, but you also don't use the word "market".
1LISTNUM 1 \l 13817 You are talking about markets, right?
1LISTNUM 1 \l 13818 MS YALE: Yes.
1LISTNUM 1 \l 13819 THE CHAIRPERSON: The last discussion on duplicability, if it cannot be duplicated economically or technically, you mean, really, in that market.
1LISTNUM 1 \l 13820 MS YALE: Yes.
1LISTNUM 1 \l 13821 THE CHAIRPERSON: It's implicit in your ‑‑
1LISTNUM 1 \l 13822 MS YALE: Yes.
1LISTNUM 1 \l 13823 THE CHAIRPERSON: In the market in which you are now the wholesale provider.
1LISTNUM 1 \l 13824 MS YALE: Yes, and where there are comparable circumstances.
1LISTNUM 1 \l 13825 We have acknowledged that markets may be different in terms of their cost characteristics, for example, by band.
1LISTNUM 1 \l 13826 THE CHAIRPERSON: Yes, but Ms Song said, you know, if it has been duplicated anywhere ‑‑ that's not really the test that you are saying. You are saying: This is a market. Can it be economically and technically duplicated in that market.
1LISTNUM 1 \l 13827 MR. GRIEVE: That's right, and the evidence ‑‑ similar to what Mr. Hughes and Dr. Church were talking about, the evidence of duplicability, of whether it could be duplicated, could be a proxy test similar to what the Commission adopted in Decision 97‑8, which is to look at areas where it has been duplicated that have similar characteristics to the particular geographic market in which we are discussing the facility.
1LISTNUM 1 \l 13828 THE CHAIRPERSON: For me to understand it, if I edit your definition, it is monopoly controlled ‑‑ if I add the words "in the market in question."
1LISTNUM 1 \l 13829 Then, under 3, if CLECs cannot duplicate it economically or technically in that market.
1LISTNUM 1 \l 13830 That would correspond with how you mean me to read this definition?
1LISTNUM 1 \l 13831 MR. GRIEVE: Yes, I think so.
1LISTNUM 1 \l 13832 It's an evidentiary test about how you determine duplicability in any market.
1LISTNUM 1 \l 13833 THE CHAIRPERSON: Always. There is no question about that. What I am suggesting is, you would read 1 as saying, "It is monopoly controlled in the market in question," whatever that market happens to be.
1LISTNUM 1 \l 13834 Then you read: The CLECs required as an input to provide services.
1LISTNUM 1 \l 13835 And then, 3: The CLECs cannot duplicate it economically or technically in that market.
1LISTNUM 1 \l 13836 If I understood you correctly, that is what you have been saying in the last few minutes.
1LISTNUM 1 \l 13837 MR. FLEIGER: I don't think we would confine it to CLECs. There are others in the marketplace that aren't CLECs that may be duplicating that very same facility.
1LISTNUM 1 \l 13838 THE CHAIRPERSON: I didn't add CLECs, you did. It says CLECs there, in your present definition.
1LISTNUM 1 \l 13839 MR. GRIEVE: We said in Rogers‑101 that the concept of a relevant geographic market isn't applicable to the determination of duplicability, and what we meant by that was, we wanted to find areas that had similar cost structures.
1LISTNUM 1 \l 13840 So the traditional view of an economic market, from an anti‑trust perspective, wasn't really what we focused on. We were focusing on the costs ‑‑ similar costs ‑‑
1LISTNUM 1 \l 13841 THE CHAIRPERSON: In that market or similar markets.
1LISTNUM 1 \l 13842 MR. GRIEVE: Right.
1LISTNUM 1 \l 13843 THE CHAIRPERSON: To deal with that issue ‑‑
1LISTNUM 1 \l 13844 MR. GRIEVE: Right.
1LISTNUM 1 \l 13845 THE CHAIRPERSON: Okay. Thank you.
1LISTNUM 1 \l 13846 MS SONG: Mr. Grieve, just so I understand, you are saying that if, in a particular band ‑‑ following on the framework for banding that was developed in Decision 97‑8 ‑‑ if in that band someone has duplicated the facility, even once ‑‑ and I am using an extreme example just to illustrate your proposal ‑‑ even once, that, to you, would be evidence of duplicability. Correct?
1LISTNUM 1 \l 13847 MR. GRIEVE: We went over that with Mr. Dunbar earlier today. I don't think we would be going to the Commission and saying that this is not an essential facility if it were a de minimis kind of entry, a one‑off kind of situation. We would be looking for something that was a demonstration that someone was in the market making a business of it with that self‑supplied facility.
1LISTNUM 1 \l 13848 MS SONG: All right, but there is no bright line that you can give me today.
1LISTNUM 1 \l 13849 MR. GRIEVE: We think that the line is really bright, because we have looked and we have seen duplication of the functionalities pretty well everywhere we needed to find it.
1LISTNUM 1 \l 13850 MS SONG: So you are saying that it's not just one instance. Is it two instances?
1LISTNUM 1 \l 13851 MS YALE: I think the point is that it's not one loop. Is there somebody in the business of offering alternative access facilities.
1LISTNUM 1 \l 13852 And we believe that it's a simpler and more objective test than a test that starts with a definition of dominance and market power, which is subject to all kinds of subjective judgments, as opposed to an objective test, which is: Are there alternative sources of supply.
1LISTNUM 1 \l 13853 MR. GRIEVE: The Commission doesn't have to worry about whether it's one, two or five, until we bring an application to say to them: Something that you said is essential is no longer essential.
1LISTNUM 1 \l 13854 Then, they would have to look at it to see if somebody has actually entered, on a reasonable basis, and is making a business in that area, so that they can say: Yes, this is duplicable.
1LISTNUM 1 \l 13855 That's what I said this morning.
1LISTNUM 1 \l 13856 MS SONG: I'm sorry, I am not sure that I follow you, Mr. Grieve.
1LISTNUM 1 \l 13857 You are saying that the Commission doesn't need to worry because nothing is going to happen unless you bring an application?
1LISTNUM 1 \l 13858 That wasn't my understanding of your proposal.
1LISTNUM 1 \l 13859 MR. GRIEVE: If the Commission finds a monopoly supply somewhere, and non‑duplicability because they can't find anywhere else that anyone has duplicated, and the evidence isn't there to say that it is duplicable, then the Commission would find that it's an essential facility.
1LISTNUM 1 \l 13860 At a later date, in a geographic market, we might find someone entering, and it would be up to TELUS ‑‑ it would be basically TELUS' application to the Commission to say: Now we have evidence that this facility is duplicable.
1LISTNUM 1 \l 13861 That's why the Commission, having made the initial determination on duplicability and essentiality, doesn't have to worry about one person entering later on.
1LISTNUM 1 \l 13862 MS SONG: All right. Just to follow up on ‑‑
1LISTNUM 1 \l 13863 THE CHAIRPERSON: Where have we said that?
1LISTNUM 1 \l 13864 It is your supposition right now that something that we deem essential can, at any point in time, be made non‑essential by application from an ILEC?
1LISTNUM 1 \l 13865 MR. GRIEVE: That was part of our comments on the conditional essential, that all essential facility findings are conditional. They are conditional on the underlying facts changing, and, in that case, we would be the ones to come to the Commission.
1LISTNUM 1 \l 13866 THE CHAIRPERSON: How does that square with Ms Yale's expressed desire of predictability in knowing how to go forward?
1LISTNUM 1 \l 13867 MS YALE: Our position is that there are not loops that are essential.
1LISTNUM 1 \l 13868 What Mr. Grieve is positing is the situation where you disagree with us ‑‑
1LISTNUM 1 \l 13869 THE CHAIRPERSON: Assume that I do disagree with you. What follows then?
1LISTNUM 1 \l 13870 MS YALE: It depends. Say, in the scenario we are discussing, that you agree with the definition we have proposed for essential facilities, but you disagree with us about whether or not there is an alternative source of supply, just for argument's sake.
1LISTNUM 1 \l 13871 THE CHAIRPERSON: Yes.
1LISTNUM 1 \l 13872 MS YALE: Then, on the facts ‑‑ you said that the definition is that it has to be duplicable, but, on the facts, we find that it isn't in this particular area, wherever that is. Presumably ‑‑ and this is what Mr. Grieve is getting at ‑‑ that's not a forever determination.
1LISTNUM 1 \l 13873 In other words, if the facility is duplicated because there is an alternative supplier that enters that market, then we would be able to take that facility out from under the essential services regime and put it on a transition path.
1LISTNUM 1 \l 13874 Otherwise, it stays essential forever.
1LISTNUM 1 \l 13875 THE CHAIRPERSON: We have been through this before, how long and whether there are periodic reviews, et cetera.
1LISTNUM 1 \l 13876 Your automatic assumption is, after this hearing there will be no more reviews. There may be isolated applications to remove essential facilities.
1LISTNUM 1 \l 13877 MS YALE: Exactly. Our preference is ‑‑ and that was in my exchange with Commissioner del Val. It was the same point, which is that everything, effectively, is conditional, and when the conditions no longer apply, those facilities would no longer be essential, and whatever transition regime kicks in when those conditions change would cause the transition for that facility, which was formerly considered essential, to now be non‑essential and move on, so that you don't end up in this constant review cycle.
1LISTNUM 1 \l 13878 THE CHAIRPERSON: Back to you, Ms Song. I'm sorry, I am just trying to understand.
1LISTNUM 1 \l 13879 MS SONG: You are just asking all of my questions.
1LISTNUM 1 \l 13880 I want to pick up on a comment with respect to the supposed fallacy of assuming that the wholesale services currently mandated would no longer be available to competitors.
1LISTNUM 1 \l 13881 I want you to follow me in this example. I want to look at the business telecommunications market, and I want you to assume ‑‑ and I am going to ask you to assume a couple of things ‑‑ that there are no alternate facilities‑based sources of supply in this market.
1LISTNUM 1 \l 13882 I am not talking about your bands now, I am talking about a particular retail market.
1LISTNUM 1 \l 13883 I want you to imagine the situation where TELUS is prepared to offer the underlying wholesale facility, but at a price that, let's say, exceeds the price of the retail service.
1LISTNUM 1 \l 13884 From the perspective of a rationale competitor ‑‑ rationale and efficient competitor ‑‑ would you expect the competitor to continue providing services in those circumstances?
1LISTNUM 1 \l 13885 MS YALE: You are assuming that there is a competitor in the market, or not?
1LISTNUM 1 \l 13886 MS SONG: In the retail market.
1LISTNUM 1 \l 13887 MS YALE: There is a competitor in the business retail market ‑‑
1LISTNUM 1 \l 13888 MS SONG: Right.
1LISTNUM 1 \l 13889 MS YALE: ‑‑ that relies on our unbundled loops.
1LISTNUM 1 \l 13890 MS SONG: It doesn't have to be unbundled loops. It could be internet, it could be ‑‑
1LISTNUM 1 \l 13891 MS YALE: I am just saying, do they require our facilities to compete?
1LISTNUM 1 \l 13892 MS SONG: You are the only source of supply for that facility, yes.
1LISTNUM 1 \l 13893 MS YALE: But I am saying, are they using our facilities to compete against us, or not?
1LISTNUM 1 \l 13894 MS SONG: They were, but after the transition period you are saying: You can't have it at that rate any more. I want X dollars ‑‑ and it is ‑‑ I don't know ‑‑ a 100 percent markup, an 80 percent markup from what you were previously providing it at, and that price exceeds the price of the downstream retail market.
1LISTNUM 1 \l 13895 MS YALE: I am going to let our business people who are responsible for this speak to it, because, of course, we don't accept that that would ever happen.
1LISTNUM 1 \l 13896 MR. TASKER: I think there are a couple of considerations here. One is the transition period, of course.
1LISTNUM 1 \l 13897 First of all, there is an assumption that it is duplicable, or it wouldn't pass the essential facilities test. So there has to be an assumption that there is another alternate form of supply available.
1LISTNUM 1 \l 13898 What we are suggesting is that, over the five‑year period, these types of commercial arrangements be established.
1LISTNUM 1 \l 13899 MS SONG: I don't think that was exactly my question. I am actually trying to look at it not so much from the perspective of the competitor, but from the perspective of the customer.
1LISTNUM 1 \l 13900 I am saying that there is no alternate source of supply for the wholesale facility. In that circumstance, if you price it at a level, after the transition period, that exceeds ‑‑
1LISTNUM 1 \l 13901 MR. TASKER: I'm sorry, are you saying that there is no one that is able to duplicate the facility, either?
1LISTNUM 1 \l 13902 MS SONG: That's right. Notwithstanding ‑‑
1LISTNUM 1 \l 13903 MR. TASKER: Then it's an essential service.
1LISTNUM 1 \l 13904 MS SONG: Notwithstanding what you say is the incentive produced by higher prices, there just isn't the revenue available from the use of that facility to justify a competitor duplicating that facility.
1LISTNUM 1 \l 13905 MR. TASKER: I think we are debating a hypothetical situation, where we are suggesting that, in any given market where it is considered non‑essential, there is the ability for someone to duplicate, and there is a five‑year transition period for players to establish themselves in appropriate markets, where there is incentive to do so.
1LISTNUM 1 \l 13906 And certainly the incentive increases if the incumbent provider has been increasing their rates. That would certainly provide a greater incentive for an alternate supplier to be there.
1LISTNUM 1 \l 13907 MS SONG: Mr. Tasker, I don't want to argue with you, so I am going to close the loop by suggesting to you that whether you are simply refusing to provide a service to a wholesale competitor or customer or whether TELUS is agreeable, but at a price that will cause the competitor to lose money, the result is the same for the customer in the retail market. There will be no competitive discipline imposed by the presence of a competitor in that situation.
1LISTNUM 1 \l 13908 MR. TASKER: Are you talking for an individual location?
1LISTNUM 1 \l 13909 MS SONG: Yes.
1LISTNUM 1 \l 13910 MR. TASKER: I think the reality of what we see, not only happening today and what has happened for many years in the wholesale market, is we do not negotiate on an individual location basis. We negotiate across large quantities of accesses and networks. It is not a viable scenario that you are putting forward in terms of the individual location concern.
1LISTNUM 1 \l 13911 MS SONG: All right. I will just close off this section by just confirming that in TELUS' proposal, the geographic market that applies ‑‑ and I realize what you said in CRTC‑101 ‑‑ are the national bands.
1LISTNUM 1 \l 13912 Is that right?
1LISTNUM 1 \l 13913 MR. GRIEVE: I know the CRTC referred to the bands as markets for the determination of whether something was duplicable in 97‑8. I don't think they really fit with the definition of a band.
1LISTNUM 1 \l 13914 But I would accept the way it was characterized by Mr. Hughes and Dr. Church, I believe both, that if you found the same conditions in one geographic market as you did in another, you could use the first geographic market as a proxy for the second and third. And that is really what our test is equivalent to.
1LISTNUM 1 \l 13915 MS SONG: All right.
1LISTNUM 1 \l 13916 I now want to discuss briefly your transition period proposal with you.
1LISTNUM 1 \l 13917 As I understand it from your previous discussions today, you are advocating a hard break after the transition period.
1LISTNUM 1 \l 13918 Is that correct?
1LISTNUM 1 \l 13919 MS YALE: Correct.
1LISTNUM 1 \l 13920 MS SONG: What you mean by a hard break is that it should be made clear that parties, competitors, should not be able to approach the Commission with a case to establish that in fact something that is going to be transitioned out is in fact essential. Correct?
1LISTNUM 1 \l 13921 MS YALE: It is hard to answer that question because the way we come at the transition period is that there is a five‑year transition period during which prices move toward market‑based prices. The tariffs stay in effect.
1LISTNUM 1 \l 13922 Then at the end of that period there is a hard stop in the sense that at that point prices are forborne.
1LISTNUM 1 \l 13923 MS SONG: Right. But the answer to my question is yes. Hard stop means you shouldn't be entertaining applications for essentiality of things that are determined to be non‑essential at the close of this proceeding.
1LISTNUM 1 \l 13924 MS YALE: Right.
1LISTNUM 1 \l 13925 MS SONG: Notwithstanding that it is five years hence.
1LISTNUM 1 \l 13926 MS YALE: Well, it has already been determined to be ‑‑ the reason I'm having trouble is because it has been determined to be non‑essential.
1LISTNUM 1 \l 13927 If the Commission accepts our proposal, they have already made a determination that it's not essential. So I don't know in what context someone could be asking for it to be essential.
1LISTNUM 1 \l 13928 MS SONG: I think it is quite easy to imagine that circumstance, Ms Yale. It is precisely because in your proposal you are only looking at the theoretical duplicability of a facility rather than whether or not alternate sources of supplies exist, in my sense.
1LISTNUM 1 \l 13929 So I think that that circumstance could arise.
1LISTNUM 1 \l 13930 MS YALE: It is not a theoretical test, for the reasons we have explained. So we can go back into that or not.
1LISTNUM 1 \l 13931 It actually has to be duplicable.
1LISTNUM 1 \l 13932 MS SONG: Part of your rationale for the foregoing, as I understand it, is to send a message to competitors that after the transition period there will be no possibility of mandated access and that this will encourage the build‑out of access and transport facilities.
1LISTNUM 1 \l 13933 Is that correct?
1LISTNUM 1 \l 13934 MS YALE: The signal is sent when the decision comes, not at the end of the transition. What we are saying is that it is important to signal at the date of the decision that there is a five‑year period during which competitors have to prepare for the end of these facilities being considered essential.
1LISTNUM 1 \l 13935 MS SONG: Right. I'm just trying to understand ‑‑ not the rule because I think we understand the rule ‑‑ the rationale for the rule.
1LISTNUM 1 \l 13936 My question was: Is the rationale behind this rule that this will encourage competitors to build out during the transition period?
1LISTNUM 1 \l 13937 MS YALE: Well, it will definitely encourage ‑‑ it will create incentives to invest in infrastructure and the correct build/buy decision.
1LISTNUM 1 \l 13938 So it doesn't necessarily mean that you will build everywhere. It just means that if the price of the facilities moves toward market‑based prices, then as we look, for example, at expansion in Ontario and Quebec, we will make a decision as to whether or not to continue to lease facilities or whether to build facilities as we grow, but based on correct price signals.
1LISTNUM 1 \l 13939 As we said in our evidence, the situation we are in today is that it is cheaper to buy than to build, period. There is never a circumstance where it makes sense, with the mandated unbundling regime, to make that infrastructure investment at the access level.
1LISTNUM 1 \l 13940 MS SONG: What is it exactly that is going to tell competitors that they have to build? Is it the price increases or is it the fact that the Commission is not going to entertain any applications at the end of the transition period?
1LISTNUM 1 \l 13941 MS YALE: Both. It is a market. It is a market where buyers and sellers ‑‑
1LISTNUM 1 \l 13942 MR. TASKER: There is another key piece that you are not discussing here, which is that we don't expect competitors to build everywhere in the network. I think we have said many times that the expectation is that it will increase the incentive to build, combined with the incentive to negotiate comprehensive supply agreements.
1LISTNUM 1 \l 13943 MS SONG: So for those facilities that you don't expect people to build, I would assume then that there is no rationale to apply price increases during the transition period.
1LISTNUM 1 \l 13944 You are saying ‑‑ you told me and I think you told Mr. Buchan this morning as well: Look, as a rational economic actor you are simply not going to duplicate the ILEC's network in their territory.
1LISTNUM 1 \l 13945 So if the rationale behind the price increases is to encourage build‑out but you know today that you are not going to build out certain facilities ‑‑
1LISTNUM 1 \l 13946 MR. GRIEVE: We don't know which ones.
1LISTNUM 1 \l 13947 MS. SONG: Well, I'm just following up on Mr. Tasker's response.
1LISTNUM 1 \l 13948 MR. GRIEVE: That's not what he said.
1LISTNUM 1 \l 13949 MS SONG: You are saying that you know that there are certain facilities that simply won't be duplicated, probably access and transfer facilities.
1LISTNUM 1 \l 13950 What is the rationale for imposing those price increases?
1LISTNUM 1 \l 13951 MR. FLEIGER: I could agree with you that possibly in a place ‑‑ and pardon me, Commissioner Cram, but possibly building a facility to Indian Head wouldn't be at the top of our radar and priority list. But certainly as prices increased we would be redoing our modelling and we would strategically build out more access facilities.
1LISTNUM 1 \l 13952 I think that is a sound economic way to go about it.
1LISTNUM 1 \l 13953 And where we believe that it wasn't economic when we look at providing facilities to the T.D. Bank or the Department of National Defence, or what have you, then we would be negotiating supply agreements with a number of suppliers; not one, not two, but probably in the double digit numbers. We would be exploring that.
1LISTNUM 1 \l 13954 We would also be exploring the use of alternate technologies. We are already deploying technologies such as wireless to fulfil some of our solution needs and satellite services.
1LISTNUM 1 \l 13955 So a combination of all those things creates a much different environment than just going to the Commission and saying: Look, please just unbundle all this stuff and provide it because it's a lot easier. You don't have to do all these studies to determine where you need to invest and not invest, or you don't have to negotiate some tough agreements on the supply side.
1LISTNUM 1 \l 13956 But that's the market.
1LISTNUM 1 \l 13957 MS SONG: I'm not sure that I have a better understanding of how price increases over the transition period facilitates build‑out during the transition period, especially given the financial information that we reviewed together with respect to TELUS' out of territory operations.
1LISTNUM 1 \l 13958 MR. GRIEVE: Excuse me, Ms Song. I don't understand why you don't understand, because our evidence is that our access build in Toronto stopped when CDNA prices were set.
1LISTNUM 1 \l 13959 If those prices were higher, we would be in a much better position to build more and more. The same thing with CDN transport and those kinds of things. I believe the prices are too low. Lots of people believe the prices are too low. It was a heck of a deal, but it is not helping our long‑term profitability to be living month to month on CDNA rates where they are.
1LISTNUM 1 \l 13960 So I think the price increases are crucial to create those kinds of investment incentives, or remove the disincentives might be a better way to say it.
1LISTNUM 1 \l 13961 MS SONG: So you think that provides an additional incentive over the fact that the Commission is going to signal that they are really serious and that there is going to be no going back over the essentiality findings in this proceeding.
1LISTNUM 1 \l 13962 MR. GRIEVE: I think it is a combination of the two.
1LISTNUM 1 \l 13963 MS SONG: Pardon me?
1LISTNUM 1 \l 13964 MR. GRIEVE: It is a combination of the two.
1LISTNUM 1 \l 13965 MS SONG: I'm assuming that after the transition period, the Commission would be, to use inelegant phraseology, detariffing and unmandating all essential facilities.
1LISTNUM 1 \l 13966 Is that correct?
1LISTNUM 1 \l 13967 MR. GRIEVE: All non ‑‑
1LISTNUM 1 \l 13968 MS SONG: Other than BLIF and ‑‑ sorry.
1LISTNUM 1 \l 13969 MR. GRIEVE: No. They would be detariffing all non‑essential facilities.
1LISTNUM 1 \l 13970 MS SONG: Right. So detariffing all of the currently mandated or essential facilities. Correct?
1LISTNUM 1 \l 13971 MR. GRIEVE: The current facilities that are mandated have never been deemed or found by the Commission to be essential. It did not find loops, other than in bands E, F and G ‑‑ actually, it was band D at the time. But in the upper bands, that is where they found loops to be essential.
1LISTNUM 1 \l 13972 MS SONG: Right. And that's why I said essential or mandated.
1LISTNUM 1 \l 13973 MR. GRIEVE: But they didn't find them to be essential in bands A, B and C, or what is now A, B, C and D. They didn't find any of the other facilities that are unbundled today to be essential.
1LISTNUM 1 \l 13974 MS SONG: Right.
1LISTNUM 1 \l 13975 MR. GRIEVE: All they did was mandate ‑‑
1LISTNUM 1 \l 13976 MS SONG: But we are talking about the same thing, right, Mr. Grieve? We are talking about essential and we are talking about Cat 1 and Cat 2 services. Right?
1LISTNUM 1 \l 13977 MR. GRIEVE: I think it is important not to leave the impression with the Commission that it has ever found any of those things to be essential facilities, other than loops in high cost areas.
1LISTNUM 1 \l 13978 MS SONG: Thank you, Mr. Grieve.
1LISTNUM 1 \l 13979 My question, though, is: Under what statutory authority would the Commission be detariffing all of these currently mandated wholesale facilities and services and essential facilities and services?
1LISTNUM 1 \l 13980 MR. GRIEVE: I'm sure you have read our material. We've said that the Commission can forbear under section 34(1) of the Act in order to better achieve the objectives of the Telecommunications Act, which now include the Direction.
1LISTNUM 1 \l 13981 MS SONG: You are aware that there is a test set out at section 34 of the Telecommunications Act for forbearance, is there not?
1LISTNUM 1 \l 13982 MR. GRIEVE: There is one test in section 34(1) and a separate independent test in section 34(2).
1LISTNUM 1 \l 13983 MS SONG: Right.
1LISTNUM 1 \l 13984 MR. GRIEVE: Then section 34(3) applies to either of the two.
1LISTNUM 1 \l 13985 MS SONG: Right.
1LISTNUM 1 \l 13986 And under your proposal, you are saying that if one competitor in a band has duplicated a facility or a service, that facility therefore does not meet your test for essentiality.
1LISTNUM 1 \l 13987 I am trying to understand ‑‑ and I'm hoping you will help me as you have already this afternoon ‑‑ how this can possibly satisfy the test for forbearance.
1LISTNUM 1 \l 13988 MR. GRIEVE: First of all, which test?
1LISTNUM 1 \l 13989 We are going to refer to 34(1), and we believe that ‑‑ it says:
"Where the Commission finds as a question of fact to refrain would be consistent with the Canadian Telecommunications Policy objectives."
1LISTNUM 1 \l 13990 And we believe that refraining from the regulation of non‑essential facilities pursues or does a better job of pursuing the objectives as set out in section 7 and as interpreted in the Direction.
1LISTNUM 1 \l 13991 And then under section ‑‑ do you want me to do 34(3)?
1LISTNUM 1 \l 13992 MS SONG: Sure.
1LISTNUM 1 \l 13993 MR. GRIEVE: Okay. Then in 34(3) it says:
"The Commission shall not make a determination to refrain under this section in relation to telecommunications service or class of services if the Commission finds as a question of fact that to refrain would be likely to impair unduly the establishment or continuance of the competitive market for that service or class of services."
1LISTNUM 1 \l 13994 That service or class of services in this case is the non‑essential facilities. We believe that the fact of continuing regulation does indeed impair unduly the establishment or continuance of a competitive market for those unbundled services.
1LISTNUM 1 \l 13995 MS SONG: Right. You say that now, but at the same time you say that dominance and analysis of dominance, which typically is thought to have a potential to affect competition in a market, plays no part in your essential facilities test proposal.
1LISTNUM 1 \l 13996 MR. GRIEVE: That's right. This is a policy decision made by the Commission to forbear, because they know that by forbearing they will do a better job of preventing the undue impairment of the establishment or continuance of a market for that service, that unbundled element, those non‑essential facilities, because by continuing to regulate them they entrench regulation and discourage competitive entry.
1LISTNUM 1 \l 13997 MS SONG: Right. I'm not going to have an argument with you, Mr. Grieve, this afternoon about the interpretation of section 34. But certainly you are not telling me this afternoon that a facility that fails your test of essentiality will somehow meet the test in section 34(2), which is that:
"The Commission must find that the telecommunications service is or will be subject to competition sufficient to protect the interests of users."
1LISTNUM 1 \l 13998 MR. GRIEVE: Yes, I think that it does pass that test because we believe that regulation is preventing competition from arising in a facilities market.
1LISTNUM 1 \l 13999 It says here "is or will be subject to competition sufficient to protect the interests of users". The interests of users of the services. And the services in this particular question here, the users or the customers of these non‑essential unbundled facilities are the competitors.
1LISTNUM 1 \l 14000 So we think the market for those competitors is actually the facilities market is being impaired.
1LISTNUM 1 \l 14001 MS SONG: I will put it to you, Mr. Grieve, that in fact your financials for TELUS' out of territory operations in fact demonstrate the opposite. Your revenues have been increasing. Your profitability has been increasing. It is giving you more money to invest in the necessary network facilities that you need for your ILEC out of territory operations.
1LISTNUM 1 \l 14002 So I don't see the link anyways between your objection to the CDN regime of the Commission currently, for example, and this impairment that you speak of.
1LISTNUM 1 \l 14003 MR. GRIEVE: I know that has been the point you have been trying to make, and we disagree. We think this isn't a question of quarter‑to‑quarter analysis. This is the long‑range, long‑term planning to make sure that over time we can benefit from the economies of scale and the control of our own network and from the revenue opportunities, not only in the retail market, but in the wholesale market.
1LISTNUM 1 \l 14004 I know that is not everyone's strategy, but it is ours.
1LISTNUM 1 \l 14005 MS SONG: Right. I don't want to betray the fact that I always have to have the last word, but I don't think the financials that we looked at represent a quarter‑to‑quarter analysis. In fact, TELUS out of territory has been in operation longer than the transition period that you are proposing here.
1LISTNUM 1 \l 14006 MR. GRIEVE: Yes. And we ran into a situation partway through that where it was no longer economic to build the facilities.
1LISTNUM 1 \l 14007 Not to prolong this, I will let you have the last word.
1LISTNUM 1 \l 14008 MS SONG: All right.
1LISTNUM 1 \l 14009 THE CHAIRPERSON: Well, the Chair always has the last word anyway.
1LISTNUM 1 \l 14010 Can I just go back to your test when you talk monopoly, et cetera. I understand there is a certain clarity and purity in saying if there is somebody else, that's it, game over.
1LISTNUM 1 \l 14011 Surely you realize in competition one normally uses a dominance test, because you could have two players who are in a very cosy duopoly and really do not compete with each other and therefore foreclose the market for others.
1LISTNUM 1 \l 14012 If that was such a situation, I assume your answer is that the competition authority will look at and we shouldn't concern ourselves. Or what would be your answer?
1LISTNUM 1 \l 14013 MR. GRIEVE: Well, I think if you have two competitors who are colluding somehow, then the Competition Bureau has tests for that.
1LISTNUM 1 \l 14014 THE CHAIRPERSON: Collusion is fine. I said cosy duopoly. I was very careful.
1LISTNUM 1 \l 14015 MR. GRIEVE: I suppose if you found that, then yes, you can't deny that if you did find that, I think Dr. Church ran you through all the examples of why that was unlikely in the market the way it is today.
1LISTNUM 1 \l 14016 THE CHAIRPERSON: So you just think that that is not a likely scenario?
1LISTNUM 1 \l 14017 MR. GRIEVE: Not in our industry right now. But obviously if the Commission found that or the Bureau found that, then you would have to do something about it.
1LISTNUM 1 \l 14018 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 14019 Commissioner del Val.
1LISTNUM 1 \l 14020 COMMISSIONER del VAL: Just one question of clarification.
1LISTNUM 1 \l 14021 Let's take ‑‑ I just want to run a very simple example. Let's say that ‑‑ suppose that the service is unbundled local loops and exchanges where wire line competitors are not yet present and let's say the place is Indian Head where it is not foreborne yet, and let's say that once it is ‑‑forebearance comes to Indian Head because it's facilities based, then when would ‑‑ and then say forebearance goes there on April 1st, 2010, so according to your proposal for when ‑‑
1LISTNUM 1 \l 14022 MR. GRIEVE: Retail forebearance?
1LISTNUM 1 \l 14023 COMMISSIONER del VAL: Yes, retail, sorry.
1LISTNUM 1 \l 14024 MR. GRIEVE: Yeah, okay. Thank you.
1LISTNUM 1 \l 14025 COMMISSIONER del VAL: And according to your calculation the transition period will run from April 1st, 2010, that is the first day of the transition period?
1LISTNUM 1 \l 14026 MR. GRIEVE: No, we would actually ‑‑ we believe that Indian Head ‑‑ actually I'm not sure which band Indian Head is in, so I will just say that ‑‑
1LISTNUM 1 \l 14027 COMMISSIONER del VAL: Say it's "F".
1LISTNUM 1 \l 14028 MR. GRIEVE: It's in a band where facilities have been duplicated, not just the town, but in a band where facilities have been duplicated, then we would say that those facilities are not essential facilities everywhere in that band that has similar towns.
1LISTNUM 1 \l 14029 And that determination of non‑essentiality would be made at the beginning of the transition period and then the unbundled elements would continue to be mandated throughout the length of the transition period, in this case loops and then at the end of that foreborne to create the kinds of incentives for people to invest in Indian Head.
1LISTNUM 1 \l 14030 COMMISSIONER del VAL: Okay. But what is the first day of the transition period; when does the transition period start in your example?
1LISTNUM 1 \l 14031 MR. GRIEVE: It's not ‑‑ yeah, when it's found non‑essential.
1LISTNUM 1 \l 14032 COMMISSIONER del VAL: Okay. When it becomes non‑essential ‑‑
1LISTNUM 1 \l 14033 MR. GRIEVE: Right.
1LISTNUM 1 \l 14034 COMMISSIONER del VAL: The day that it becomes non‑essential is when the clock starts running?
1LISTNUM 1 \l 14035 MR. GRIEVE: And the way our proposal works and the evidence we found, all of those facilities would be declared non‑essential, except for directory listings would be non‑essential and very consistent with what the Commission has found before right on the very first day after the order, whenever the Commission said the order came into effect.
1LISTNUM 1 \l 14036 COMMISSIONER del VAL: Thank you.
1LISTNUM 1 \l 14037 MR. GRIEVE: Thank you.
1LISTNUM 1 \l 14038 COMMISSIONER CRAM: Okay, I have ‑‑ Ms Song, have you not finished or have you finished?
1LISTNUM 1 \l 14039 THE CHAIRPERSON: You were talking about the last word, sorry, so I assumed you‑‑
1LISTNUM 1 \l 14040 MS SONG: The last word on that last point.
‑‑‑ Laughter / Rires
1LISTNUM 1 \l 14041 THE CHAIRPERSON: Okay, go.
1LISTNUM 1 \l 14042 MS SONG: I had one area to cover, one remaining area. Would you like me to proceed at this time, or...
1LISTNUM 1 \l 14043 THE CHAIRPERSON: How long will this take?
1LISTNUM 1 \l 14044 MS SONG: Probably 10 minutes.
1LISTNUM 1 \l 14045 THE CHAIRPERSON: Okay. Go ahead.
1LISTNUM 1 \l 14046 MS SONG: Okay, thank you.
1LISTNUM 1 \l 14047 I just want to confirm before I get into this last area, what TELUS' proposal is with respect to support structures, because I did not see it in the table attached to MTS 12 April, '07 108.
1LISTNUM 1 \l 14048 So, could you just help me out with that?
1LISTNUM 1 \l 14049 MR. GRIEVE: Well, we said they're non‑essential, but we say that the non‑essentiality of it is really not the relevant point here.
1LISTNUM 1 \l 14050 These are facilities that we would just say keep the same regulatory framework that you have for them today, just keep that continually in perpetuity because support structures are kind of strange in that many of them are not owned by an ILEC or anyone else ‑‑ they're owned by someone ‑‑ they're not owend by an ILEC or anybody else in the industry, and some of them are owned by ILECs, some conduit is owned by ILECs, some of it's owned by electric utilities, municipalities, those things.
1LISTNUM 1 \l 14051 So, the same regulatory framework we have in place for those support structures today, we would suggest stay in place.
1LISTNUM 1 \l 14052 MS SONG: All right. So, the last area that I want to touch on is the different processes and perhaps equations that come into play when TELUS is deciding to build in territory next generation networks as opposed to out of territory.
1LISTNUM 1 \l 14053 And I hope I don't need to go back over some of the ground that I touched on with Bell et al in terms of the length of time that TELUS has been investing in next generation networks.
1LISTNUM 1 \l 14054 I assume that TELUS has been investing in fibre‑based networks for about as long as Bell has in its operating territories; correct?
1LISTNUM 1 \l 14055 MR. TASKER: Yeah. There's one clarification that we had in terms of the Bell testimony, and that was that although fibre has been something we've been investing in for close to 20 years, we have actually started to even replace some of that fibre as its lifetime has expired.
1LISTNUM 1 \l 14056 So, it's important to understand, as long as we've been doing it many years, it doesn't mean we haven't had to continually invest in the same spans.
1LISTNUM 1 \l 14057 MS SONG: Okay. All right.
1LISTNUM 1 \l 14058 And I assume that similar to MTS Allstream, TELUS has on its network the vast majority, if not the totality, of major commercial buildings in its operating territory; correct?
1LISTNUM 1 \l 14059 MR. GRIEVE: On fibre?
1LISTNUM 1 \l 14060 MS SONG: Not on fibre, I mean on your network.
1LISTNUM 1 \l 14061 MR. GRIEVE: Oh, okay. Sorry.
1LISTNUM 1 \l 14062 MR. FLEIGER: I think that's probably a fair assumption.
1LISTNUM 1 \l 14063 MS SONG: Yes. Okay. All right.
1LISTNUM 1 \l 14064 So, it's not a question of if you build, you have as a matter of course built to commercial sites within your territory; correct?
1LISTNUM 1 \l 14065 MR. FLEIGER: But it doesn't mean we don't need to continue to build to those sites.
1LISTNUM 1 \l 14066 MS SONG: Correct.
1LISTNUM 1 \l 14067 MR. FLEIGER: So, there's still capital investment.
1LISTNUM 1 \l 14068 MS SONG: Right. And the contrast I want to draw is between the processes and the equations that you enter, you consider when you're trying to decide whether to build in territory as opposed to out.
1LISTNUM 1 \l 14069 So, when you're building in territory, would it be correct to say that in the majority of cases you have established rights to support structures necessary to engage in those builds?
1LISTNUM 1 \l 14070 I'm talking in territory.
1LISTNUM 1 \l 14071 MR. TASKER: I think it's fair to say that we have processes in place and they vary by geography and certainly between Alberta and B.C., whereby we know how we need to engage with the right players to get access to the right facilities and support structures to access buildings.
1LISTNUM 1 \l 14072 MS SONG: Right. You don't need to sign a contract every time you need to gain access to a support structure in your home territories?
1LISTNUM 1 \l 14073 MR. TASKER: I think it depends on the circumstances.
1LISTNUM 1 \l 14074 MS SONG: Right. And what about access to municipalities in territory; so municipal rights‑of‑way in territory?
1LISTNUM 1 \l 14075 MR. GRIEVE: We have to enter into agreements with municipalities. Prior to competition, there were many municipalities that we had to have ongoing relationships with. I have a department that does nothing but that.
1LISTNUM 1 \l 14076 Increasingly we have to sign municipal access agreements with municipalities, more and more of them, not only in Alberta and British Columbia, but also in Ontario. Quebec is a little bit of a different story, seems to be a little bit easier to get rights‑of‑way in Quebec.
1LISTNUM 1 \l 14077 MS SONG: Mm‑hmm.
1LISTNUM 1 \l 14078 MR. GRIEVE: And it's a little bit more difficult in British Columbia because there are First Nations legislation and things like that and processes that we have to go through in addition.
1LISTNUM 1 \l 14079 MS SONG: Right. But the single most ‑‑ single biggest advantage that I guess you have in territory, at least, is the advantage that Mr. McMahon spoke about earlier which is that you have access to, again, the vast majority of customers within your territory; correct?
1LISTNUM 1 \l 14080 MR. McMAHON: I think you said buildings.
1LISTNUM 1 \l 14081 MS SONG: Oh. Actually this was the very first question I asked you this afternoon about BLIF.
1LISTNUM 1 \l 14082 MR. McMAHON: I think you're mixing up ‑‑ you're asking me if we have access to consumer customers through building processes?
1LISTNUM 1 \l 14083 The question you asked me I thought around BLIF was, why do we have the records of consumer customers.
1LISTNUM 1 \l 14084 So, I think you're mixing up a business building question and access with the consumer database question. So, I'm missing the point.
1LISTNUM 1 \l 14085 MS SONG: Yes. And I think that we probably are talking about the same thing, Mr. McMahon. I mean, the reason why you have that customer information is because they're your customers and that's simply what I'm pointing to.
1LISTNUM 1 \l 14086 MR. GRIEVE: We have our customer information, Shaw has its customer information on their names, phone numbers and addresses. We don't have that. We have to get it from Shaw, that's why they're required to provide it and that's how we put together our databases and other providers of retail services.
1LISTNUM 1 \l 14087 So, I don't think it fits exactly. I'm sorry if we left the impression earlier that we got all that information and knew who all the customers were, but there are many customers that have never been customers of ours that went straight to Shaw.
1LISTNUM 1 \l 14088 MS SONG: Right. And I'm not talking about residential so much as I'm talking about business premises within your serving territory.
1LISTNUM 1 \l 14089 And I would think that it's fair to say that any building that ‑‑ or most buildings that Shaw has access to in the business market, TELUS also has access to; correct?
1LISTNUM 1 \l 14090 MR. GRIEVE: Yes, I would say that. I just ‑‑
1LISTNUM 1 \l 14091 MR. McMAHON: I'd agree with that.
1LISTNUM 1 \l 14092 MS SONG: To the extent that Shaw is in the business market.
1LISTNUM 1 \l 14093 Now, I want to contrast this with the situation that you face out of territory. Out of territory I assume that you would have to negotiate access to support structures?
1LISTNUM 1 \l 14094 MR. FLEIGER: Yes, we do.
1LISTNUM 1 \l 14095 MS SONG: And that you have to enter into contracts typically...
1LISTNUM 1 \l 14096 MR. FLEIGER: Yes, we do.
1LISTNUM 1 \l 14097 MS SONG: Similarly, that you would have to negotiate access to municipalities?
1LISTNUM 1 \l 14098 MR. FLEIGER: Yes, we have.
1LISTNUM 1 \l 14099 MS SONG: Yes. And that you have to typically enter into written contracts in order to do so?
1LISTNUM 1 \l 14100 MR. FLEIGER: Yes, we do. I happen to be the individual that negotiated the municipal access agreement with the City of Toronto when we put the fibre under the City of Toronto streets.
1LISTNUM 1 \l 14101 MS SONG: Mm‑hmm. And out of territory, you've also got to negotiate access to buildings?
1LISTNUM 1 \l 14102 MR. FLEIGER: Yes, we do.
1LISTNUM 1 \l 14103 MS SONG: And typically you have to enter into contracts in order to do that?
1LISTNUM 1 \l 14104 MR. FLEIGER: Yes, we do and I would just qualify that a bit by saying that in some cases we're able to work with building owners that have multiple building dwellings that they own and control, and if we're faced with that situation, we try to negotiate an agreement that would cover all of the buildings not just a particular building.
1LISTNUM 1 \l 14105 MS SONG: Right. And I think it would be fair to say that out of territory you have to fight or compete for every customer that you win; correct?
1LISTNUM 1 \l 14106 MR. FLEIGER: Rigorously.
1LISTNUM 1 \l 14107 MS SONG: Right. And so I would imagine that the decision to build out of territory is not an automatic decision, even to large commercial buildings; correct?
1LISTNUM 1 \l 14108 MR. FLEIGER: You would be correct.
1LISTNUM 1 \l 14109 MS SONG: Right. And it's always a function of revenue and the amount of time it's going to take you to earn an acceptable return on your investment, those types of factors; correct?
1LISTNUM 1 \l 14110 MR. FLEIGER: Those factors would certainly come into play. Other factors such as the total customer solution, where we have a multiple number of locations would also come into play and there may be instances in those cases where there may be a certain percentage, or a number of the building customer locations that we strategically want to build to and we're prepared to make a long‑term investment based on the commitment that the customer is making to us to build those facilities end‑to‑end.
1LISTNUM 1 \l 14111 MS SONG: Right. So, out of territory, TELUS does not engage in a policy of simply building it and trusting that the customers will somehow come; does it?
1LISTNUM 1 \l 14112 MR. FLEIGER: That's true.
1LISTNUM 1 \l 14113 MS SONG: All right. And the reality is that in territory where you have an extensive, perhaps not the totality of the customer base, but the vast majority of the customer base who already take your services, your ability to build has been incremental; has it not, on your existing network in relationships with municipalities, support structure owers, building owners and customers; correct?
1LISTNUM 1 \l 14114 MR. TASKER: What do you refer to when you say incremental? I mean, certainly there's an existing investment that we build on, but we do not ‑‑ if I make the correlation to your last question, we build when we have need to service a customer need and this really is the same issue in the out of territory, albeit our infrastructure is more comprehensive, it's still we build to what we need and we sell to a customer.
1LISTNUM 1 \l 14115 MS SONG: All right. Thank you very much, panel. Thank you for your help this afternoon.
1LISTNUM 1 \l 14116 THE CHAIRPERSON: Commissioner Cram.
1LISTNUM 1 \l 14117 COMMISSIONER CRAM: Thank you.
1LISTNUM 1 \l 14118 THE CHAIRPERSON: I hope we're not going to Indian Head?
1LISTNUM 1 \l 14119 COMMISSIONER CRAM: No, no. I actually didn't have it written down here.
1LISTNUM 1 \l 14120 If I were a shareholder of TELUS and I'm looking at a new venture and I'm going to call it TELUS East for want of a better ‑‑ just TELUS out of territory, and in year one, and this is in TELUS/MTS Allstream 12 April, '07 question 101, in year one I'm presuming it's a partial year, you expend $110‑million, year two you spend $302‑million.
1LISTNUM 1 \l 14121 And I'm going to say based on this document Ms Song has, probably had a loss of $200‑million; 2002 Ms Song's document shows a loss of $107‑million.
1LISTNUM 1 \l 14122 It would make sense, I'd start saying, cut down the Cap‑ex, slow down your Cap‑ex. Don't you think a reasonable shareholder would do that?
1LISTNUM 1 \l 14123 MS YALE: Well, I mean it all depends on your business strategy and, as I was explaining before, you know, the strategy we embarked on to win showcase accounts was a very different strategy than the strategy we had been embarked on previously interms of the way we were approaching the business market in Ontario and Quebec.
1LISTNUM 1 \l 14124 Before the new strategy was in place, we were spending lots of money, winning some mid‑sized accounts and churning them kind of almost as fast as we got them, and as a long‑term strategy you can bleed a lot of money and spend a lot of investment dollars and never actually grow the business successfully.
1LISTNUM 1 \l 14125 So, what you see here was a deliberate bet that we took and it was a risky strategy and it's worked out, was a new approach. And the new approach said, let's start with the showcase accounts even though we know we're going to lose money in the early years.
1LISTNUM 1 \l 14126 COMMISSIONER CRAM: Okay. So ‑‑
1LISTNUM 1 \l 14127 MS YALE: And build out our infrastructure ‑‑ you know, we spent a lot of money trying to win those accounts, they're very costly to try and win and winning them is sort of a mixed blessing because you have to build out infrastructure to every TD Bank to be able to support them in every one of their locations.
1LISTNUM 1 \l 14128 And the theory was that the business strategy had to change for us to successfully compete in Ontario and Quebec and it was ‑‑
1LISTNUM 1 \l 14129 COMMISSIONER CRAM: Okay. So, I'm going to call it the old strategy and then I'm going to call it the showcase strategy.
1LISTNUM 1 \l 14130 So, when did you use the old strategy that you ended up with churn? Year one, two, three?
1LISTNUM 1 \l 14131 MR. FLEIGER: That was about the first two, maybe three years of our operation.
1LISTNUM 1 \l 14132 COMMISSIONER CRAM: Okay.
1LISTNUM 1 \l 14133 MS YALE: In Ontario and Quebec.
1LISTNUM 1 \l 14134 MR. FLEIGER: In Ontario and Quebec.
1LISTNUM 1 \l 14135 COMMISSIONER CRAM: Okay. And that was when your Cap‑ex was, and I'm back at that interrog, when your Cap was in 2000 $110‑million, 2001 $302‑million, 2002 $214‑million.
1LISTNUM 1 \l 14136 So, then you changed to the showcase strategy; is that right?
1LISTNUM 1 \l 14137 MS YALE: Well, I mean, it's not an all other things being equal because at the same time as we were changing business strategy there were significant changes in the CRTC rules around access to unbundled infrastructure.
1LISTNUM 1 \l 14138 So, the problem is, of course, it's not an all other things being equal kind of scenario and what we ‑‑ all I'm saying is that you can't just look at these Cap‑ex numbers in isolation and make judgments about what strategy we're pursuing and say, well, if Cap‑ex went down one year over another it's because of "X", "Y" and "Z". It's a much more complicated dynamic than that.
1LISTNUM 1 \l 14139 COMMISSIONER CRAM: Mm‑hmmm.
1LISTNUM 1 \l 14140 MS YALE: But you started with the assumption that if you're losing money you'd cut Cap‑ex. In fact, our strategy wasn't if you're losing money cut Cap‑ex, it was actually we increased our commitment but took a longer term view of a return, if you will, because we felt that we had to establish our credibility in the enterprise space by winning those showcase accounts, and that once we had that track record, that other customers would then have the confidence to turn to us for their business.
1LISTNUM 1 \l 14141 And that ability to grow the demand on that infrastructure we'd already put in the ground would be the ticket to the success. And that is, in fact, the grow strategy that we have successfully executed.
1LISTNUM 1 \l 14142 At the same time we've changed the way in which we support that infrastructure investment because of ‑‑ and the business witnesses here have talked to you at length about the extent to which the way in which we service those accounts changed in terms of the co‑locations rather than access builds as a result of the CDN rules.
1LISTNUM 1 \l 14143 COMMISSIONER CRAM: But clearly part of the dynamics as to the amount of Cap‑ex has to do with shareholder patience. I mean, surely that was one of the issues you considered when you considered Cap‑ex for TELUS East, especially, if my memory serves me correctly, this was like ‑‑ 2000 was like about one year after you had bought Clearnet, so you had a very ‑‑ and Mr. Grieve is nodding his head in an affirmative manner ‑‑ and you assumed a very heavy debt load.
1LISTNUM 1 \l 14144 So, clearly shareholder patience and ability to deal with losses had to have ‑‑ had to be a factor in reducing your Cap‑ex, especially if you were incurring losses in the hundreds of millions.
1LISTNUM 1 \l 14145 MR. McMAHON: I just want to be clear too. The piece that's not being brought out here in, you know, the chat we're having is, you know, we were a brand new CLEC in a brand new market and we needed to build operational processes and back‑end office buildings, people, because this game isn't just about network and local access. We had to build an organization and have the support structure to be a CLEC.
1LISTNUM 1 \l 14146 So, early days, regardless of our market strategy, we built out our next generation network. We put our co‑lo's in place. We started to go at different markets and, over time, we have learned a lot. We have only been a CLEC for seven years, so we have learned how to negotiate fibre deals; we have learned how to deal with the cities; we have learned how to do building access. It didn't take us 20 years to put fibre in the ground to build out our CLEC strategy or, I guess, by that rule it would take 100 years to put copper in.
1LISTNUM 1 \l 14147 But there are costs that need to go in early to get yourself set up, and then you focus your business on what market you want to do well in, and you spend your capital in those businesses where you get money back.
1LISTNUM 1 \l 14148 COMMISSIONER CRAM: Ms Song asked a question about if there was retail forbearance, wholesale forbearance in five years, and if there was no actual alternative source of supply. I didn't hear your answer.
1LISTNUM 1 \l 14149 It would have been retail forbearance based on competitive presence, not necessarily market power, the second test or the third test in a business market. Wholesale forbearance ‑‑ and, by the way, all business forbearances to date have been based on the competitive presence test based on leased loops. None have been facilities‑based competitors.
1LISTNUM 1 \l 14150 Then there is wholesale forbearance in five years.
1LISTNUM 1 \l 14151 Ms Song's question, then, was if there was no actual alternative source of supply of the loops in this case because they are based on ‑‑ I mean, you get forbearance at the retail market based on the fact that you have a competitor there who is using these loops, in order to be a competitor, the competitor, to get you the forbearance.
1LISTNUM 1 \l 14152 Then you turn around and say in five years, notwithstanding that nobody else is providing the loops, he is out of luck because in some other band A some loops are being provided by another competitor?
1LISTNUM 1 \l 14153 MR. TASKER: I think I responded to Ms Song's question. The assumption for us being forborne, as you put it, on the wholesale side is that it does pass the test of being duplicatable as far as the facilities. So, there is that five‑year transition period to either negotiate an alternate source of supply, or build it yourself.
1LISTNUM 1 \l 14154 So, if it doesn't pass the test of being duplicatable, then, yes, there is a problem.
1LISTNUM 1 \l 14155 COMMISSIONER CRAM: In that five years, you want the ability to apply and say, CRTC, you declared this essential, but they have duplicated this particular DS‑1 in Toronto, so I want it in band B all across Canada that it won't be essential.
1LISTNUM 1 \l 14156 Why can't a competitor come in and say, there is no actual competitive alternative, and the duplicatability test does not apply to me because I am different from the other band A people.
1LISTNUM 1 \l 14157 If you want to be able to apply on one side, why can't the other side apply?
1LISTNUM 1 \l 14158 Let me give you the second reason they could re‑apply. What if you bought Bell and if Edmonton is based on forbearance of Bell West?
1LISTNUM 1 \l 14159 MS YALE: We can posit a number of scenarios, but I think the key thing that Mr. Tasker has been trying to emphasize is that during that five‑year transition, you, as a competitor, so we facing that knowledge that there is a finite end to the period under which we can rely on mandated access to those loops at the current tariff rates, we have to try to negotiate with the current supplier of that infrastructure. If we can make a deal, great. If it looks like the price at which we would have to buy it doesn't make sense, we would have to build it ourselves or do a venture with someone or find someone else to build it.
1LISTNUM 1 \l 14160 So, the issue isn't that ‑‑ we are saying we shouldn't have to rely on the incumbent, say, Bell for us in Ontario and Quebec, that we know we have five years to figure it out, including self‑supply. Self‑supply can include partnering with someone to build that infrastructure if we can't do a deal.
1LISTNUM 1 \l 14161 What we are saying is that, and in those circumstances we know it is duplicatable because in a geographic territory with similar cost characteristics it does exist, and our evidence is that that is the case everywhere. So, we just don't contemplate circumstances where ‑‑ we are certainly prepared to operate in that market without those guarantees and to self‑supply where, on the build/buy basis, it makes more sense to build it ourselves rather than to buy it from the other supplier.
1LISTNUM 1 \l 14162 COMMISSIONER CRAM: And you agree with me that that is part of the problem in the U.S., the amalgamations, and there is no competitive supply left in a lot of the larger cities in DS‑1 and DS‑3s?
1LISTNUM 1 \l 14163 MS YALE: You can speak to one of our experts who is going to be here who can speak about the U.S. situation.
1LISTNUM 1 \l 14164 COMMISSIONER CRAM: You then talked about the same functionality. So, is access a function whether or not it is a copper loop, a DS‑1, a DS‑3, Ethernet? Is that what you mean by functionality?
1LISTNUM 1 \l 14165 MR. TASKER: I guess it could be, but my suggestion would be the important functionality is whether I can make a voice call or access the internet or access files in a centralized server, which is the data transfer. That is the important functionality that the consumer or businesses need to worry about.
1LISTNUM 1 \l 14166 A good example would be where we have not been able to supply broadband service in the rural areas of Alberta, I mean, we just haven't got there, it hasn't been a priority, and the amount of wireless ISPs that have stepped up to the plate to provide effectively business‑grade service, there are businesses throughout that need it, and that is what has happened as a result of not being ‑‑ not because we have withdrawn supply, but simply because we haven't made it available because it hasn't been a priority.
1LISTNUM 1 \l 14167 COMMISSIONER CRAM: It is a function of capacity, in addition to functionality?
1LISTNUM 1 \l 14168 MR. TASKER: Sorry, I am not sure I understand ‑‑
1LISTNUM 1 \l 14169 COMMISSIONER CRAM: When you say you can't provide broadband, that is an issue of capacity?
1LISTNUM 1 \l 14170 MR. TASKER: Yes, and issue of focus in terms of haven't had the ability and the investment to get out there yet.
1LISTNUM 1 \l 14171 COMMISSIONER CRAM: Thank you.
1LISTNUM 1 \l 14172 THE CHAIRPERSON: I think we need a ten‑minute break, but Madam Secretary, you wanted to announce something before the break?
1LISTNUM 1 \l 14173 THE SECRETARY: Yes, please.
1LISTNUM 1 \l 14174 I was provided with two new exhibits from the Bureau. That is Exhibit No. 4 in response to the Undertaking No. 1 of the CRTC, and the other one is Exhibit No. 5 from the Bureau and response to the Undertaking MTS No. 1. I will distribute them right before break.
EXHIBIT BUREAU‑4: Response to undertaking to comment on U.S. data related to total plant additions aggregated for all reporting ILECs for the period 1996‑2006
EXHIBIT BUREAU‑5: Response to undertaking to provide MTS Allstream and the Commission a summary of the timelines on the public record in the Canada Pipe case
1LISTNUM 1 \l 14175 MS PALUMBO: That is correct, Mr. Chair.
1LISTNUM 1 \l 14176 The first exhibit that the Secretary has referenced is a response to Commissioner Cram on comments on U.S. data related to total plant addition and total telephone plant addition aggregated for all reporting ILECs for the period 1996 to 2006.
1LISTNUM 1 \l 14177 The second undertaking related to the question during cross‑examination of MTS, the summary of the publicly available litigation time lines of the Canada Pipe case.
1LISTNUM 1 \l 14178 THE CHAIRPERSON: Thank you. Then let's take a ten‑minute break.
‑‑‑ Recessed at 1520 / Suspension à 1520
‑‑‑ Resumed at 1530 / Reprise à 1530
1LISTNUM 1 \l 14179 THE CHAIRPERSON: Okay, Madam Secretary, who is next? We have one hour. Let's make the most of it.
1LISTNUM 1 \l 14180 THE SECRETARY: Our next panel is Primus Globility.
1LISTNUM 1 \l 14181 THE CHAIRPERSON: Mr. Ruby, let's go.
1LISTNUM 1 \l 14182 MR. RUBY: Thank you, Mr. Chairman.
1LISTNUM 1 \l 14183 The good news is between Mr. Dunbar, Ms Song and the Commission's questions this afternoon, a lot of my material has been covered and I will not retread obviously the same ground.
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 14184 MR. RUBY: Good afternoon, panel. Take the time for that, at least.
1LISTNUM 1 \l 14185 MS YALE: Good afternoon.
1LISTNUM 1 \l 14186 MR. RUBY: For TELUS East, if we can continue to use that convention, when it identifies a customer opportunity or has a network need in its out‑of‑territory area, I take it it has to move quickly to put in place the facilities necessary to serve that need or seize that opportunity?
1LISTNUM 1 \l 14187 MR. FLEIGER: Yes, in most cases, with some of the larger opportunities that we have been successful on, the implementation of those opportunities can go over an extended period of time. Some people might think 12 months is an extended period, but from start to finish, it could go over 12 months or longer.
1LISTNUM 1 \l 14188 MR. RUBY: With small‑ and medium‑sized business, I take it the customers are not willing to wait a long time for service, so you need to move quickly. Is that fair?
1LISTNUM 1 \l 14189 MR. TASKER: Yes, we do, but one of the criteria we use for even bidding on customers is we have a database that we use to understand where the locations are, and we make sure there is enough percentage of those facilities on net before we will bid on the business.
1LISTNUM 1 \l 14190 MR. RUBY: Right. So that you can move quickly, you know before you put in the bid. Right? That is the idea?
1LISTNUM 1 \l 14191 MR. TASKER: Yes, that is the idea.
1LISTNUM 1 \l 14192 MR. RUBY: I would like to start by exploring with you just a couple of examples, because I am conscious of the time and the fact that there are a couple more people in the queue behind me today.
1LISTNUM 1 \l 14193 I would like to explore a couple of examples of how TELUS works with what I think Mr. Fleiger called TELUS's carrier partners; I think that was the word, "partners." Right?
1LISTNUM 1 \l 14194 MR. FLEIGER: Yes, that is the way I described them.
1LISTNUM 1 \l 14195 MR. RUBY: The example, and I have circulated an exhibit that is a series of e‑mails and sent it over to your counsel as well, that I am going to deal with, deal with some DS‑3 facilities that were ordered from TELUS by Globility for Edmonton and Vancouver.
1LISTNUM 1 \l 14196 Mr. Chair, I should say that the Secretary tells me that he has already circulated all of the documents I am going to refer to, with the exception, obviously, of TELUS's main and supplementary evidence.
1LISTNUM 1 \l 14197 So, if you can turn up, please, the package of e‑mails that hopefully is on top, in the top right‑hand corner it should start with e‑mail 2.
1LISTNUM 1 \l 14198 THE SECRETARY: Mr. Ruby, sorry, that is presented as an exhibit, the string of e‑mails?
1LISTNUM 1 \l 14199 MR. RUBY: Yes, if that hasn't been circulated, if we could do that now, that would be great.
1LISTNUM 1 \l 14200 THE SECRETARY: We will. It will be Exhibit No. 5.
1LISTNUM 1 \l 14201 MR. RUBY: Thank you.
EXHIBIT PRIMUS‑5: String of emails exchanged between TELUS and Primus Globility re:DS3 CDN Digital Access orders for Vancouver co‑locations
1LISTNUM 1 \l 14202 MR. RUBY: While that is being circulated, perhaps, panel, I can just ask you quickly to confirm that TELUS's stated standard provision time for a DS‑3 is 30 days. Is that right?
1LISTNUM 1 \l 14203 MR. McMAHON: Where we do have plant, that is right, but per decision 2006‑34, it is actually 35 business days.
1LISTNUM 1 \l 14204 MR. RUBY: Fair enough. But your company policy is 30 days where you have plant. Right?
1LISTNUM 1 \l 14205 You know what, don't bother. For my purposes, it doesn't matter whether it is 30 or 35 days.
1LISTNUM 1 \l 14206 I take it that can be compared to Bell, it is 20 days. Are you aware of that?
1LISTNUM 1 \l 14207 MR. McMAHON: I am not actually. John might be a better one to ask because he buys services from them.
1LISTNUM 1 \l 14208 MR. RUBY: Sure.
1LISTNUM 1 \l 14209 MR. FLEIGER: Yes, I am aware that theirs is somewhat less than ours.
1LISTNUM 1 \l 14210 MR. RUBY: If we can turn to Exhibit 1, starting with e‑mail 2, I would like to very quickly take you through some of this.
1LISTNUM 1 \l 14211 I take it you have had an opportunity or someone on your panel has had an opportunity to review this string of e‑mails?
1LISTNUM 1 \l 14212 MR. McMAHON: I am ready to answer my questions you have on the service issues.
1LISTNUM 1 \l 14213 MR. RUBY: Perfect, thank you. It makes it easier.
1LISTNUM 1 \l 14214 I take it we can agree that this is a string of e‑mails between Globility and TELUS employees. Right?
1LISTNUM 1 \l 14215 MR. McMAHON: Yes.
1LISTNUM 1 \l 14216 MR. RUBY: And that e‑mail number 2 and, in fact, e‑mail number 3, which is the one underneath it, those strings are about the provision of a DS‑3 in Edmonton that was ordered by Globility from TELUS on December 11, 2006. If it helps you, you can see a reference to that in the middle of page 3 of the e‑mail. You will see, Mr. Chairman, there is a small handwritten 3 three pages in, and in the middle there is a reference to the time period.
1LISTNUM 1 \l 14217 But do I have the date right? We are all on the same page, Mr. McMahon?
1LISTNUM 1 \l 14218 MR. McMAHON: Yes, that is when we received the order.
1LISTNUM 1 \l 14219 MR. RUBY: If you skip over to the top of page 4, we have a request by Globility for an update on February 16, to roughly two months later. Right?
1LISTNUM 1 \l 14220 MR. McMAHON: I have an order of events that says they happened. If you would like me to go through those instead of questioning one by one, I can go through the facts, if you want.
1LISTNUM 1 \l 14221 MR. RUBY: No, I would rather go through it my way, if you don't mind, because I am going to skip some parts so as not to waste the Commission's time.
1LISTNUM 1 \l 14222 MR. McMAHON: Okay.
1LISTNUM 1 \l 14223 MR. RUBY: If you think that I have left out anything material, you will be sure to jump up and say so.
1LISTNUM 1 \l 14224 MR. McMAHON: You can count on it.
1LISTNUM 1 \l 14225 MR. RUBY: Okay, and I will.
1LISTNUM 1 \l 14226 One thing that I don't think is apparent necessarily from reading these e‑mails, but you can clarify for me, is that on February 16, when Globility is asking for an update, it does not even have a confirmation on the due date for the facility to be delivered as opposed to knowing that the facility is actually going to be delivered, if you understand the difference. They don't even have a due date then. Right?
1LISTNUM 1 \l 14227 MR. McMAHON: By the electronic mail, you are right, that seems to point to that evidence.
1LISTNUM 1 \l 14228 MR. RUBY: Then following on, four days later TELUS replies, and this is at the bottom of page 3 of the package, TELUS takes four days to say we don't even have an update for you. Right?
1LISTNUM 1 \l 14229 MR. McMAHON: Yes, by the e‑mail, you are right.
1LISTNUM 1 \l 14230 MR. RUBY: On March 6th, and now I am at the top of page 3, Globility still doesn't have a due date confirmation and now we are three months in. Right?
1LISTNUM 1 \l 14231 MR. McMAHON: By your electronic mails, yes.
1LISTNUM 1 \l 14232 MR. RUBY: The bottom of page 1 of this package that says e‑mail 2, at the top we have got an e‑mail that starts:
"You were both copied on our original order for the DS‑3 in Edmonton. It's now three months later and we have not even received an order confirmation with due date. This is far from even coming close to the suggested time line for Alberta facilities of one month." (As read)
1LISTNUM 1 \l 14233 It goes on to talk about a few more.
1LISTNUM 1 \l 14234 To be fair, I gather eventually this was provisioned, this DS‑3?
1LISTNUM 1 \l 14235 MR. McMAHON: Yes.
1LISTNUM 1 \l 14236 MR. RUBY: But after March 6th, when that e‑mail, which looks a little like it is an expression of frustration after three months, then the top of page 1 is really just TELUS passing the buck internally twice. Right? That is what is going on. You have the wrong person. No, I am the wrong person; you have to go see someone else. Right? That is what is going on?
1LISTNUM 1 \l 14237 MR. McMAHON: By the electronic mails, yes.
1LISTNUM 1 \l 14238 MR. RUBY: Let's turn to e‑mail number 3, which is further down the package. The e‑mails are unfortunately, Mr. Chairman, numbered a bit funny, but in the top right‑hand corner ‑‑
1LISTNUM 1 \l 14239 THE CHAIRPERSON: What are you trying to establish? I see by the last page it was put in service in July, so obviously it took more than one month. It took eight months. I don't know why we have to go through all these e‑mails to establish that fact.
1LISTNUM 1 \l 14240 MR. RUBY: The only point, Mr. Chairman, is it is not just that it took a long time. It is how it took a long time. It is that nothing happens until e‑mails go, then there is passing the buck. There is not even interim steps of following through.
1LISTNUM 1 \l 14241 MR. McMAHON: That is where I would actually challenge you because I think the assumption you are making is these electronic mails were the only communication back to Primus and I don't believe that is the case.
1LISTNUM 1 \l 14242 MR. RUBY: I am not assuming that, but these are chains of e‑mails.
1LISTNUM 1 \l 14243 MR. McMAHON: Okay.
1LISTNUM 1 \l 14244 MR. RUBY: Mr. Chairman, if I can jump over very briefly to the Vancouver chain of e‑mails which is the one at the back marked e‑mail number 1, this is a different DS‑3 provision. This is the Vancouver circuit, Mr. McMahon. Right?
1LISTNUM 1 \l 14245 MR. McMAHON: Yes.
1LISTNUM 1 \l 14246 MR. RUBY: Here I will only refer you to the top e‑mail where, again, you have an e‑mail from Mr. Cooper to Heather Read. I gather Heather Read is at TELUS. Right?
1LISTNUM 1 \l 14247 MR. McMAHON: I believe she is the account manager at that time.
1LISTNUM 1 \l 14248 MR. RUBY: I won't read the whole thing to you, but it starts with:
"Unfortunately the common theme in our Primus/TELUS relationship continues. We've been trying to get a transit connection installed in Vancouver since November. We finally received the in service due date yesterday. It turns out to be July 31, 2007." (As read)
1LISTNUM 1 \l 14249 So, November 6 to July 31st, 2007. Will you just confirm to me that those are correct dates?
1LISTNUM 1 \l 14250 MR. McMAHON: In terms of the order of the events based on TELUS's review postmortem, I guess I would challenge some of those. When I get a chance, I will let you know.
1LISTNUM 1 \l 14251 MR. RUBY: There are two dates there. November 2006. Had Primus or Globility been trying to get a DS‑3 installed since November of 2006? Is that fair?
1LISTNUM 1 \l 14252 MR. McMAHON: On which one of the DS‑3s, because you are talking about four or five of them at the moment.
1LISTNUM 1 \l 14253 MR. RUBY: The Vancouver one.
1LISTNUM 1 \l 14254 MR. McMAHON: The order for Vancouver received from your company to ours was on, as you mentioned earlier, on some of the other DS‑3s. The order we got was on 2006/12/11. So, the 11th of December, 2006.
1LISTNUM 1 \l 14255 MR. RUBY: So you want to move it to December instead of November. That is fine.
1LISTNUM 1 \l 14256 Then it says:
"When we finally received the in service due date yesterday, it turned out to be July 31, 2007." (As read)
1LISTNUM 1 \l 14257 So, was July 31, 2007 the in service due date?
1LISTNUM 1 \l 14258 MR. McMAHON: TELUS's portion of the order was completed on May the 4th.
1LISTNUM 1 \l 14259 MR. RUBY: Pardon me?
1LISTNUM 1 \l 14260 MR. McMAHON: May the 4th, 2007.
1LISTNUM 1 \l 14261 MR. RUBY: I understand. You are saying you want to move it from December to May. I won't quibble ‑‑
1LISTNUM 1 \l 14262 MR. McMAHON: The reason why is probably pretty key though, but we can get into that.
1LISTNUM 1 \l 14263 MR. RUBY: I am not going to quibble with whether we are a month or two off. It is already four times the standard amount.
1LISTNUM 1 \l 14264 I am happy to move on, Mr. Chairman, unless the Commission wants to know more about this.
1LISTNUM 1 \l 14265 MR. McMAHON: I guess I would like to take a minute to explain how the process works on a DS‑3 service. I will do it very quickly.
1LISTNUM 1 \l 14266 I think it is important to understand that a significant amount of the time lag from the ordering of the service to TELUS handing a service off to your company was due to a lot of issues between your company and ours, and specifically issues around service addresses, billing addresses, co‑lo's that didn't have power or boxes.
1LISTNUM 1 \l 14267 So, to paint the picture that it took TELUS 60, 90 days to install a DS‑3 service I don't think is painting the right picture. I think our quality of service metrics speak for themselves, and we have a 35‑day interval for DS‑3 services. The first two days of that interval are based on do we have plant or not. The next 12 days of that process are if we do not have plant, is getting your design and costs to you ‑‑
1LISTNUM 1 \l 14268 THE CHAIRPERSON: All of this is absolutely irrelevant to essential services. The question is whether the service is essential or not, not whether ‑‑ service quality, as good or bad as it may be, is not the issue here.
1LISTNUM 1 \l 14269 So, let's move on to something that is relevant.
1LISTNUM 1 \l 14270 MR. RUBY: Thank you, Mr. Chairman.
1LISTNUM 1 \l 14271 If I may, I was only responding ‑‑ the punch line, that is, is that there was an implication that TELUS treats everybody as a partner and, therefore, can be trusted in a situation to deal with its wholesale customers if things are not mandated. But I will move on.
1LISTNUM 1 \l 14272 Can you take a look, please, at paragraph 136 of your main evidence, that is the March 15 evidence. If I can direct your attention to the last sentence of that paragraph, where it talks about:
"After all, when one provider is required to share with its competitors any and all of its basis for differentiated output, customers would be penalized because competing products start to look, function and cost the same." (As read)
1LISTNUM 1 \l 14273 For local residential telephony and broadband service ‑‑ so I am just dealing with residential for the moment ‑‑ I gather TELUS, your word is shares, but it is really provisions Globility with unbundled local loop. Right?
1LISTNUM 1 \l 14274 MR. TASKER: Sorry, can we just kind of catch up to what you are referring to. I haven't seen the passage.
1LISTNUM 1 \l 14275 MR. RUBY: Sorry, I will wait for you, then. The last sentence of paragraph 136.
1LISTNUM 1 \l 14276 MS YALE: In our main evidence?
1LISTNUM 1 \l 14277 MR. RUBY: In your March 15 evidence.
1LISTNUM 1 \l 14278 MR. TASKER: I must be looking at the wrong thing because I think what you said ‑‑
1LISTNUM 1 \l 14279 MR. RUBY: Sorry, 36. I keep saying 136.
1LISTNUM 1 \l 14280 MR. TASKER: Can you restate the question, please?
1LISTNUM 1 \l 14281 MR. RUBY: Let me pull it up at the same time.
1LISTNUM 1 \l 14282 You are quite right. It is paragraph 36. The question to start is: For local residential telephony and broadband service, TELUS provisions unbundled local loops to Globility. Right?
1LISTNUM 1 \l 14283 MR. TASKER: I believe so.
1LISTNUM 1 \l 14284 MR. RUBY: The CLEC, in this case Globility I am referring to, but it could be anybody, puts intelligent equipment on both ends of that copper wire. Right?
1LISTNUM 1 \l 14285 MR. FLEIGER: Well, we are not 100 per cent sure what Primus or Globility do, but some providers do do that, yes.
1LISTNUM 1 \l 14286 MR. RUBY: They put something on either end of the copper wire or it wouldn't work. Right?
1LISTNUM 1 \l 14287 MR. FLEIGER: I would agree.
1LISTNUM 1 \l 14288 MR. RUBY: It is that equipment that you put on either end of the unbundled local loop that determines the look, the function and in part the cost of the service you offer. Right?
1LISTNUM 1 \l 14289 MR. FLEIGER: I could agree with that.
1LISTNUM 1 \l 14290 MR. RUBY: We touched on this earlier with Bell, but I just want to confirm that you share the same understanding since you are the other large ILEC in the country.
1LISTNUM 1 \l 14291 One example of that is the DSLAM equipment that a competitor attaches to an unbundled local loop that may be able to provide a competitor's customer faster broadband service than the ILEC provides. Right?
1LISTNUM 1 \l 14292 MR. TASKER: Yes, that is one of the pieces of equipment. I recall the conversation where the manufacturers are providing a lot of the ‑‑
1LISTNUM 1 \l 14293 MR. RUBY: I just wanted to confirm that you share that understanding.
1LISTNUM 1 \l 14294 Again, I know, Mr. Chairman, I am moving quickly through this, but it is an attempt to get done by the end of the day.
1LISTNUM 1 \l 14295 Can I take you to TELUS/MTS 12 April 106, please? It should be in your package. The third paragraph, please, on the first page. I won't read the whole thing out because I think we touched on this earlier today.
1LISTNUM 1 \l 14296 This paragraph concerns your build out pre‑CDNA from 1998 to 2002. Right?
1LISTNUM 1 \l 14297 MR. TASKER: I am reading it very quickly, so maybe you could get to the question and then we can ‑‑
1LISTNUM 1 \l 14298 MR. RUBY: I just want to confirm ‑‑ I don't want to read you the whole thing. So, what I would like to know is this refers to a build out beginning in 1998 and extending until the decision in Telecom Decision CRTC‑2002‑34, and you say that that build out was well under way.
1LISTNUM 1 \l 14299 Roughly how many circuits or how many kilometres of build have you done in that time period, 1998 to 2002?
1LISTNUM 1 \l 14300 MR. TASKER: I'm sorry, we don't have that answer with us.
1LISTNUM 1 \l 14301 MR. RUBY: I take it that it is fair to say that you had a lot more to build to meet your construction plan?
1LISTNUM 1 \l 14302 MR. TASKER: It depends on what type of build you are talking about. We did continue to build, it was just a different type of build. There were a lot of transport facilities, for example, that we continued to build.
1LISTNUM 1 \l 14303 Usually, if you measure in kilometres, then that refers a lot to transport facilities.
1LISTNUM 1 \l 14304 MR. RUBY: I am looking at your evidence and asking about the facilities that are referred to in this interrogatory response.
1LISTNUM 1 \l 14305 MS YALE: I think we talked about that earlier this afternoon.
1LISTNUM 1 \l 14306 If you go on to page 2, what we talk about is that, as a result of that decision, we shifted our strategy from a capital investment perspective. It's not that we changed the amount of investment, but that the build dynamic changed and we shifted the focus of our capital investments.
1LISTNUM 1 \l 14307 MR. RUBY: Ms Yale, I heard that earlier, but I am asking a different question. I just would like to know, essentially ‑‑
1LISTNUM 1 \l 14308 You had a plan, presumably, in the late 1990s and early 2000s to build the facilities referred to in that interrogatory response. You said that it was well under way. I just want to know, is that roughly ‑‑ you got 50 percent of the way through, you got 90 percent of the way through?
1LISTNUM 1 \l 14309 Roughly. I don't need exact numbers.
1LISTNUM 1 \l 14310 MR. FLEIGER: I think, with the Commission's approval, we could take an undertaking on that.
1LISTNUM 1 \l 14311 None of the panel here has a number on the top of their head as to exactly where we were, and the construction worked in phases.
1LISTNUM 1 \l 14312 That was seven, eight, nine years ago.
1LISTNUM 1 \l 14313 MR. TASKER: It sounds like you are asking how long is a piece of string, and therefore how far did we get along that string.
1LISTNUM 1 \l 14314 We were down the path, and then we shifted our strategy. That is what we said.
1LISTNUM 1 \l 14315 MR. RUBY: I understand. I am not going to ask for the undertaking, I will do this a different way.
1LISTNUM 1 \l 14316 We heard today that ‑‑ again I will call it TELUS East ‑‑ thinks that it needs about five more years to construct and arrange for the facilities that it needs in Ontario.
1LISTNUM 1 \l 14317 Did I get that right?
1LISTNUM 1 \l 14318 MR. FLEIGER: No, I don't believe that is an accurate depiction of what we said.
1LISTNUM 1 \l 14319 MR. RUBY: How much more time do you need?
1LISTNUM 1 \l 14320 MR. FLEIGER: We said that we would use that period to either continue to build out our infrastructure in relation to the customers that we have now, and the ones we acquire over that period of time, and we will augment that with alternate supply and the use of alternate technologies in order to fulfil our footprint.
1LISTNUM 1 \l 14321 We never said that our dream was to build a ubiquitous Canadian network to every location that exists today. We never said that.
1LISTNUM 1 \l 14322 MR. RUBY: I am not suggesting that. My understanding, though ‑‑ and correct me if I am wrong ‑‑ is that one of the reasons you thought that five years for access transition was the right number was because, based on your out‑of‑territory experience, you thought it would take about five years for you either to build what you needed or make arrangements with others.
1LISTNUM 1 \l 14323 MS YALE: It wasn't just about us, it was about the industry.
1LISTNUM 1 \l 14324 What we were contemplating was a firm definition, with a longer transition, and we based it on our own experience, but it wasn't just about our own self‑interest that we were basing that on. I just want to be clear.
1LISTNUM 1 \l 14325 MR. RUBY: Let me ask you this. Is TELUS' experience consistent with the five years ‑‑
1LISTNUM 1 \l 14326 Forget the rest of the industry for the moment. You think it will take about five years for you?
1LISTNUM 1 \l 14327 MR. TASKER: I think you are asking if we will complete everything we have to do in five years, and that is why I think we are having a problem with that question, because this is an ongoing process. It's not static. We believe that period of time is a reasonable period of time to transition from where we are today to compete in the world in a new way, which is a forborne environment.
1LISTNUM 1 \l 14328 That doesn't mean that our build will be complete. I am not sure what you are asking.
1LISTNUM 1 \l 14329 THE CHAIRPERSON: Let me ask a question, because I think I know what Mr. Ruby is getting at.
1LISTNUM 1 \l 14330 You are saying that nothing is essential. Okay?
1LISTNUM 1 \l 14331 Assume we agree with the five‑year period, during which, of course, your competitors will, you expect, build. But you will not be sitting on your duff, you will do your own part.
1LISTNUM 1 \l 14332 His question is whether, at the end of that five years, you will have the necessary infrastructure in Ontario to serve those customers whom you want to serve by your own infrastructure.
1LISTNUM 1 \l 14333 Obviously some of them you will serve by leased infrastructure, but, also, you have made the decision to build, that it's better to buy. Will you be there in five years?
1LISTNUM 1 \l 14334 MS YALE: That will be enough time for us, if we choose to build or partner to build, to make the necessary arrangements, if that's what your question is.
1LISTNUM 1 \l 14335 MR. RUBY: Yes. Thank you, Mr. Chairman.
1LISTNUM 1 \l 14336 Starting from when you started, it will have taken about nine years for you to install what you think you need to the end of the transition period.
1LISTNUM 1 \l 14337 MS YALE: I think that's where we kind of go off the rails a bit.
1LISTNUM 1 \l 14338 MR. RUBY: I am just adding four years, 1998 to 2002, plus five.
1LISTNUM 1 \l 14339 Even lawyers can do that.
‑‑‑ Laughter / Rires
1LISTNUM 1 \l 14340 MS YALE: If you are asking a serious question about the fact that we continually get new customers ‑‑
1LISTNUM 1 \l 14341 It's not like the only customers we have at the end of five years are the ones we have today and it's over and done. That's the problem we are having.
1LISTNUM 1 \l 14342 We are constantly making investments. It's an ongoing process in the journey. And the incentives around build‑buy will change, if the Commission makes the decision that we are recommending, in terms of how we structure our capital investment program on an ongoing and going forward basis.
1LISTNUM 1 \l 14343 I can't agree that it's over.
1LISTNUM 1 \l 14344 MR. RUBY: Let's pull back to a higher view and look at this a different way.
1LISTNUM 1 \l 14345 Is it correct to say that time and money is really the key to making the TELUS essential facilities proposal work, and you are capping the time at five years, with a hard stop I think you said, and the financial documents we reviewed today show that it costs hundreds of millions of dollars and, at least for TELUS, that has resulted in a loss?
1LISTNUM 1 \l 14346 In that context, is it fair to say that what makes your entire proposal work is that you have to be right about how much time we need, and the amount of money this is all going to cost has to be doable for the industry?
1LISTNUM 1 \l 14347 Is that fair?
1LISTNUM 1 \l 14348 MR. GRIEVE: Yes, but it's not for everyone in Ontario, other than Bell, to have at the end of that period facilities into every building; it is about creating a critical mass of facilities that is self‑supplied by non‑ILECs, so that there is a market developing for wholesale services, and the incumbent in that market has more of an incentive to negotiate, knowing that there are credible competitors out there with facilities.
1LISTNUM 1 \l 14349 We believe that over five years, if people credibly go out and start to do this, there will be more and more pressure put on. That is the purpose of the ‑‑
1LISTNUM 1 \l 14350 MR. RUBY: Okay. I heard you say that before, and I am content to move on.
1LISTNUM 1 \l 14351 I think what I am hearing is, those are two critical elements ‑‑ time and money ‑‑ to making your proposal work. If you are wrong on those, we are going to have problems in this industry. Right?
1LISTNUM 1 \l 14352 MR. GRIEVE: I suppose, but it wasn't like it was over a cup of coffee, we gave it a lot of thought.
1LISTNUM 1 \l 14353 MR. RUBY: I appreciate that.
1LISTNUM 1 \l 14354 Let's move to a different subject.
1LISTNUM 1 \l 14355 COMMISSIONER DUNCAN: Mr. Ruby, if I could, could I ask a quick question?
1LISTNUM 1 \l 14356 You are focusing your question just on Ontario, and TELUS said earlier that they were a national supplier.
1LISTNUM 1 \l 14357 You mean broader than that in your question. Otherwise, we are going to have to decide what is the answer for the rest of the country.
1LISTNUM 1 \l 14358 MR. RUBY: My initial questions were just on Ontario, because that is the market that was addressed in the documents I took you to, but I take it ‑‑ and thank you, Commissioner Duncan ‑‑ I take it that the five years is the whole country. Right?
1LISTNUM 1 \l 14359 MR. GRIEVE: Yes.
1LISTNUM 1 \l 14360 COMMISSIONER DUNCAN: Thank you.
1LISTNUM 1 \l 14361 MR. RUBY: Thank you.
1LISTNUM 1 \l 14362 And the money you spent is for everywhere you have spent it, not just Ontario. It was Quebec, too, I think.
1LISTNUM 1 \l 14363 MR. GRIEVE: That's right.
1LISTNUM 1 \l 14364 MR. RUBY: I think I heard you say, although, frankly, I can't remember who said it, that the focus now, currently, of TELUS' out‑of‑territory business opportunities is on IP services.
1LISTNUM 1 \l 14365 Is that fair?
1LISTNUM 1 \l 14366 MR. TASKER: Data and IP, yes.
1LISTNUM 1 \l 14367 MR. RUBY: IP is sort of the new whiz‑bang thing that everybody is promoting on the data side. Right?
1LISTNUM 1 \l 14368 MR. TASKER: IP ends up being a significant element of most proposals.
1LISTNUM 1 \l 14369 MR. RUBY: For the small and medium‑size business market, is it fair to say that IP, in terms of services ‑‑ we end up talking about ethernets?
1LISTNUM 1 \l 14370 Is that the service ‑‑ the access side, let's call it.
1LISTNUM 1 \l 14371 MR. TASKER: That is a common service.
1LISTNUM 1 \l 14372 MR. RUBY: And 10 megabytes is probably the most common ethernet?
1LISTNUM 1 \l 14373 MR. TASKER: I am not sure I would say that it's the most common. It is quite a common service, I will give you that.
1LISTNUM 1 \l 14374 MR. RUBY: For small and medium‑size business ‑‑
1LISTNUM 1 \l 14375 MR. TASKER: It's a common access. It is definitely growing all the time.
1LISTNUM 1 \l 14376 MR. RUBY: All right. I take it that where TELUS East doesn't have its own facilities, you use Bell's DS‑3 CDN tariff or its retail ethernet access tariff to supply 10 megabyte ethernet?
1LISTNUM 1 \l 14377 MR. TASKER: We do that today, yes, that's correct.
1LISTNUM 1 \l 14378 MR. FLEIGER: I would just say that we also use a number of other service suppliers for the very same capability ‑‑
1LISTNUM 1 \l 14379 MR. RUBY: Other than Bell you mean.
1LISTNUM 1 \l 14380 MR. FLEIGER: ‑‑ in places where Bell could also provide it to us.
1LISTNUM 1 \l 14381 MR. RUBY: Let's stick with Bell.
1LISTNUM 1 \l 14382 You have said that CDN is an important element that prevents you from rolling out your facilities on an economic basis. Right?
1LISTNUM 1 \l 14383 MR. TASKER: It makes it less attractive to build.
1LISTNUM 1 \l 14384 MR. RUBY: Okay. Let's stick with those, then.
1LISTNUM 1 \l 14385 A DS‑3 is 45 megabytes per second speed. Right?
1LISTNUM 1 \l 14386 MR. TASKER: That's correct.
1LISTNUM 1 \l 14387 MR. RUBY: Okay. So you can service four customers with a 10 megabyte per second ethernet service on one DS‑3. Right?
1LISTNUM 1 \l 14388 MR. TASKER: If they are all in the same building.
1LISTNUM 1 \l 14389 MR. RUBY: Thank you, that's quite right.
1LISTNUM 1 \l 14390 MR. TASKER: Actually, I would have to check. There may be some other overhead issues that we have to be concerned with, but carry on with your question.
1LISTNUM 1 \l 14391 MR. RUBY: Okay. We are leaving aside 5 megabytes per second.
1LISTNUM 1 \l 14392 For a retail ethernet service, you get them in chunks of 10 megabytes per second at a time. Right?
1LISTNUM 1 \l 14393 It's not like a DS‑3, where you get 45 megabytes per second all at once.
1LISTNUM 1 \l 14394 Is that fair?
1LISTNUM 1 \l 14395 MR. TASKER: Yes, the service we are selling is a 10‑megabyte service.
1LISTNUM 1 \l 14396 MR. RUBY: Okay. Now, subject to check, my understanding is that Bell's CDN DS‑3 price is $1,435 a month.
1LISTNUM 1 \l 14397 You may know this, and you can correct me if I am wrong.
1LISTNUM 1 \l 14398 MR. FLEIGER: It sounds about right, but I would like to check it.
1LISTNUM 1 \l 14399 MR. RUBY: Okay. Subject to check, that's fine.
1LISTNUM 1 \l 14400 And that, over a five‑year period, would be about $85,000.
1LISTNUM 1 \l 14401 We are just multiplying it by 60, right?
1LISTNUM 1 \l 14402 Subject to check.
1LISTNUM 1 \l 14403 MR. TASKER: You did the math.
1LISTNUM 1 \l 14404 MR. RUBY: Well, I already mentioned that you shouldn't trust me on the math.
1LISTNUM 1 \l 14405 MR. TASKER: Okay. Then I don't agree with it, if I can't trust you.
‑‑‑ Laughter / Rires
1LISTNUM 1 \l 14406 MR. RUBY: I walked into that. Thank you.
1LISTNUM 1 \l 14407 Let's assume it's $85,000 over five years. And you can serve, we said, four customers. Right?
1LISTNUM 1 \l 14408 MR. FLEIGER: Typically we don't, no. Typically it is a single E‑10 over a DS‑3. That is typically what we do.
1LISTNUM 1 \l 14409 MR. RUBY: Okay. So you have some extra room to manoeuvre. That's fine.
1LISTNUM 1 \l 14410 On the retail ethernet, and, again, you can check this, but my understanding is that it's $660 a month for a 10‑megabyte service.
1LISTNUM 1 \l 14411 Does that sound, more or less, right?
1LISTNUM 1 \l 14412 MR. FLEIGER: I would have to check, but it does sound right.
1LISTNUM 1 \l 14413 MR. RUBY: Again, you would multiply by 60 to get what it would be after five years.
1LISTNUM 1 \l 14414 The exact math doesn't matter, but I take it that if you were going to serve a customer with IP services using ethernet, at some point you are going to receive enough revenue to pay for building your own facility, regardless of what the CDN tariff is. Right?
1LISTNUM 1 \l 14415 Ethernet is different from some of the other things you talked about.
1LISTNUM 1 \l 14416 I see a look of confusion, so let me try it a different way.
1LISTNUM 1 \l 14417 If it's $85,000 over five years, can you build a circuit into your average building in Toronto for $85,000?
1LISTNUM 1 \l 14418 MR. TASKER: I think it depends on the circumstances, but I am sure that in some situations we can.
1LISTNUM 1 \l 14419 MR. RUBY: Right, and if you had two customers in that building, you would be paying for two lines, you told me, so it would be $170,000 in CDN charges that you would be paying?
1LISTNUM 1 \l 14420 MR. TASKER: Like I said, if there are opportunities for getting efficiencies on that same line, then we would obviously want to take them.
1LISTNUM 1 \l 14421 MR. RUBY: What I am getting at is that, for IP services, the new whiz‑bang thing that you said was part of most proposals now, it seems that this illustrates that the CDN tariff allows you to acquire customers up until the point where you can build the facility, but it doesn't stop you from getting off the facility.
1LISTNUM 1 \l 14422 You pay on CDN as you go, in other words.
1LISTNUM 1 \l 14423 Is that fair?
1LISTNUM 1 \l 14424 MR. TASKER: I think it's fair to say that one of the reasons we don't typically build is because there is an incentive to leverage that tariff as the most efficient way of providing the service in the short term.
1LISTNUM 1 \l 14425 MR. RUBY: Right, but eventually ‑‑ and it may only be with two or three customers in a building ‑‑ you are paying more on CDN than it would cost you to install the facility, to put in a DS‑3 yourself. Right?
1LISTNUM 1 \l 14426 MR. TASKER: Twenty‑twenty hindsight is great. When you have had a customer for, let's say, ten years, you could say: Well, maybe I should have built. I could have built.
1LISTNUM 1 \l 14427 Of course, we often sign one or two or three‑year contracts, so it is not always a situation that we know ahead of time where we need to build.
1LISTNUM 1 \l 14428 Those are some of the gambles that, of course, you make. As a facilities‑based provider, you make those sorts of trade‑offs.
1LISTNUM 1 \l 14429 MR. RUBY: Right, but the CDN tariff enables you to get the customer and at least try. Right?
1LISTNUM 1 \l 14430 Ethernet ‑‑ the 10‑megabyte service is the stepping stone example, isn't it?
1LISTNUM 1 \l 14431 In my mind, it's the easiest one. You get CDN, you get one customer, you get two, and at some point it becomes more expensive to use the CDN tariffed service than it is to build your own. Right?
1LISTNUM 1 \l 14432 It is actually more expensive on CDN.
1LISTNUM 1 \l 14433 MS YALE: All you are saying is, under the current prices for CDN, there is a build‑buy equation and a calculus that gets made, and that that happens at some point.
1LISTNUM 1 \l 14434 So, if the CDN prices were market based, not mandated at a discount, the build‑buy calculus would happen differently and sooner.
1LISTNUM 1 \l 14435 MR. RUBY: You might never go into the building. Right?
1LISTNUM 1 \l 14436 Because if you only have one customer, you can't do it.
1LISTNUM 1 \l 14437 MS YALE: But everyone makes business plans and business decisions and they have to make a calculated risk about how to expand their business. The issue is: Should we be mandating the provision of unbundled facilities at a discount in order to incent entry.
1LISTNUM 1 \l 14438 We believe that, as a matter of public policy, that is not the right way to do it.
1LISTNUM 1 \l 14439 MR. RUBY: Ms Yale, we all know what the question is. I am happy to move on.
1LISTNUM 1 \l 14440 Can I take you back to your March 15 evidence, please, at paragraph 102.
1LISTNUM 1 \l 14441 You say there:
"Nevertheless, TELUS does not propose a change to the regimes for interconnection at this time."
1LISTNUM 1 \l 14442 Here I have more of a clarification question than anything, because I have read TELUS' main evidence, its interrog responses, its supplementary evidence, and I have to admit that I don't understand all of it, but there is one point which, in the interest of time, I would like to focus on, and I hope to get clarity on.
1LISTNUM 1 \l 14443 And I am hoping to do this without having to go through a lot of paper.
1LISTNUM 1 \l 14444 You have put, as I understand it, switching and aggregation in the Commission's interconnection category, No. 6, right?
1LISTNUM 1 \l 14445 MR. GRIEVE: Yes, we did.
1LISTNUM 1 \l 14446 MR. RUBY: So it would get mandated at current prices in that category.
1LISTNUM 1 \l 14447 MR. GRIEVE: I think what we have said is that the prices should be redone when the costing gets redone, and all of that, but it would still be tariffed, right.
1LISTNUM 1 \l 14448 MR. RUBY: Thank you.
1LISTNUM 1 \l 14449 I gather from TELUS' access tariff that access tandem connections are part of switching and aggregation.
1LISTNUM 1 \l 14450 MR. GRIEVE: Yes, they would be.
1LISTNUM 1 \l 14451 MR. RUBY: So, unlike Bell, you put access tandems in the interconnection basket.
1LISTNUM 1 \l 14452 MR. GRIEVE: Right. Would you like me to explain why?
1LISTNUM 1 \l 14453 MR. RUBY: No, the fact that you agree is enough, I think, for the moment.
1LISTNUM 1 \l 14454 MR. GRIEVE: It may be enough for you ‑‑
1LISTNUM 1 \l 14455 MR. RUBY: My question is done. If the Commission wants to hear more, it is the Commission's time.
1LISTNUM 1 \l 14456 THE CHAIRPERSON: You run the show, Mr. Ruby. You decide what you want to ask.
1LISTNUM 1 \l 14457 MR. RUBY: Thank you.
1LISTNUM 1 \l 14458 What I will ask you to explain to me, though, is ‑‑ I have a question on PIC processing. So, maybe, Mr. Grieve, you can ‑‑
1LISTNUM 1 \l 14459 MR. GRIEVE: I'm probably not the right guy.
1LISTNUM 1 \l 14460 MR. RUBY: Okay. You tell me who is.
1LISTNUM 1 \l 14461 The first question is, could you explain to us what it is?
1LISTNUM 1 \l 14462 MR. McMAHON: The PIC process?
1LISTNUM 1 \l 14463 MR. RUBY: Yes.
1LISTNUM 1 \l 14464 MR. McMAHON: It's when a customer changes from one long distance company to another, and we need to move their PIC from one carrier to another, so that when they dial we know where they are coming from and where they are going to.
1LISTNUM 1 \l 14465 It is tied into local number portability.
1LISTNUM 1 \l 14466 MR. RUBY: Right. So the 1 plus dialing, it's all part of the same thing. Right?
1LISTNUM 1 \l 14467 MR. McMAHON: Yes, but you don't need interconnection. As we have seen, if a CLEC interconnects with another CLEC in an ILEC's territory, interconnection is not required to do PIC/CARE process, because a number still needs to be PIC'd.
1LISTNUM 1 \l 14468 MR. RUBY: So let me understand this. You put access tandem, which is necessary for one‑plus dialing, right...right?
1LISTNUM 1 \l 14469 MR. McMAHON: Yes.
1LISTNUM 1 \l 14470 MR. RUBY: You put it in the interconnection basket, but are you telling me you don't put PIC/CARE processing in the interconnection basket?
1LISTNUM 1 \l 14471 MR. GRIEVE: Well, see, it's important for me to give ‑‑ I will give a short answer.
1LISTNUM 1 \l 14472 MR. RUBY: Okay.
1LISTNUM 1 \l 14473 MR. GRIEVE: The interconnection, the access tandem, which is the switching at a big regional central like northern Alberta, the carrying of the traffic to and from the local switch and the connection at the local switch for traffic origination, they are all actually unbundled elements, but we said put them all in interconnection because they are going to go away and get resolved over time, as technology changes.
1LISTNUM 1 \l 14474 So that's why they were included. We didn't say they were actual ‑‑ we included them in interconnection, but we have identified in our evidence that they are unbundled elements.
1LISTNUM 1 \l 14475 Now, perhaps Mr. McMahon can explain the pic processing, because I think I know where you are going about the non‑essentiality.
1LISTNUM 1 \l 14476 MR. RUBY: I just want to know which basket it goes in, for the beginning.
1LISTNUM 1 \l 14477 MR. GRIEVE: Okay.
1LISTNUM 1 \l 14478 MR. RUBY: I thought I heard that it goes in the interconnection basked, I hadn't ‑‑
1LISTNUM 1 \l 14479 MR. GRIEVE: Let me check.
1LISTNUM 1 \l 14480 MR. RUBY: ‑‑ understood that from the evidence, but it really wasn't very clear to me, and for an IXC, it's for an important feature.
1LISTNUM 1 \l 14481 MR. GRIEVE: Yes, it is in the interconnection basket.
1LISTNUM 1 \l 14482 MR. RUBY: Okay, thank you.
1LISTNUM 1 \l 14483 Given that it's 4:12, I will move onto another subject.
1LISTNUM 1 \l 14484 Intraexchange transport facilities are, for example, circuits from a central office to a CLEC's point of presence. Right? We are all on the same page?y
1LISTNUM 1 \l 14485 MR. McMAHON: Yes.
1LISTNUM 1 \l 14486 MR. RUBY: Okay. It seems to me that one implication of part of the discussion we had this morning is that, when revenues out of a CO supports construction of a CLEC's own circuit, it becomes feasible for them to construct it, but not before.
1LISTNUM 1 \l 14487 Am I right in thinking that's actually been TELUS East's experience, as well?
1LISTNUM 1 \l 14488 MR. FLEIGER: Could you just repeat that, please?
1LISTNUM 1 \l 14489 MR. RUBY: Sure. When revenues coming out of a central office ‑‑ so you have enough customers and they are doing enough stuff that you are charging for ‑‑ get aggregated, eventually there's sufficient financial support for constructing and interexchange transport facility out of the CO?
1LISTNUM 1 \l 14490 MR. FLEIGER: Yes, that would be true.
1LISTNUM 1 \l 14491 MR. RUBY: Okay. And that's been your experience out of territory, as well?
1LISTNUM 1 \l 14492 MR. FLEIGER: Yes, that would be true.
1LISTNUM 1 \l 14493 MR. RUBY: So, again, interexchange transport facilities are another good example of stepping‑stone facilities, right? Until you get enough traffic to justify building, enough customers, you can use something like CDN, but then eventually you get enough revenue so that you can build, right?
1LISTNUM 1 \l 14494 MR. FLEIGER: I'm not sure I totally agree with that, but if that's your depiction, that's fine.
1LISTNUM 1 \l 14495 MR. RUBY: Well, if you don't agree, tell me which bits you don't agree with.
1LISTNUM 1 \l 14496 MR. FLEIGER: Well, I don't want to maybe get on my little rant, but I had said, when we were viewing a bunch of this over the past two weeks, that a lot of the transit capabilities that the Commission had imposed on the ILECs were really tariffs of convenience.
1LISTNUM 1 \l 14497 Clearly, they are not essential. Any CLEC getting into the business understands the nature of the interconnection and the undertaking that they are doing. And it's convenient because most CLECs will interconnect with the ILEC at a single point in a geographic area that, okay, it's convenient for the ILEC to then take that traffic and transit it between all the CLECs or transit it from its access tandem to the local end offices.
1LISTNUM 1 \l 14498 Can a CLEC replicate that service? Yes, they can, quite easily. But I would not say that it's evidence that the stepping‑stone regime is robust and exists.
1LISTNUM 1 \l 14499 MR. RUBY: Okay. It can replicate it if there are revenues that justify replicating it. Right?
1LISTNUM 1 \l 14500 MR. McMAHON: I think you more build it out based on bits, and so there's revenues. I mean, I guess if you are saying the more revenue, the more bits, but it's a bandwidth issue, I agree.
1LISTNUM 1 \l 14501 MR. RUBY: And also it's not one circuit at a time, right? You know, maybe you build ‑‑ for simplicity, and I know this isn't the way it really works, you do a lot of building in Quebec, you are not investing your capital there, but you have customers because you can use existing ILEC facilities. Right? It's a system‑wide issue for a CLEC, it's not one circuit at a time. Is that fair?
1LISTNUM 1 \l 14502 MR. FLEIGER: Yes, I would agree with that.
1LISTNUM 1 \l 14503 MR. RUBY: Okay.
1LISTNUM 1 \l 14504 Can I take you back to your evidence again, the March 15 evidence, please, paragraph 110 this time?
1LISTNUM 1 \l 14505 And in the middle of that paragraph, you say:
"During the transition period, prices for non‑essential facilities would be permitted to rise to market levels." (As read)
1LISTNUM 1 \l 14506 Now, I'm not going to belabour the point because I think we have dealt with quite a lot of this earlier, but just to confirm, five years for access, three years, more or less, for everything else? Transition? You just have to say ‑‑
1LISTNUM 1 \l 14507 MS YALE: Yes.
1LISTNUM 1 \l 14508 MR. FLEIGER: Yes.
1LISTNUM 1 \l 14509 MR. RUBY: ‑‑ yes for that. Thank you.
1LISTNUM 1 \l 14510 And I take it it's longer for access, longer transition, that is, because of all the impediments there are in building new access facilities. That's fair?
1LISTNUM 1 \l 14511 MR. FLEIGER: Yes.
1LISTNUM 1 \l 14512 MR. RUBY: Okay. And I take it that you will agree with me that with respect to residential access facilities, it's extremely unlikely that anyone is going to be building a third wire to the home. That's fair?
1LISTNUM 1 \l 14513 MR. GRIEVE: Well, other than Rogers in Cogeco's territory.
‑‑‑ Laughter
1LISTNUM 1 \l 14514 MR. RUBY: Well, I think they explained that as Greenfield, so...and we have also got evidence that sometimes Rogers goes in and Bell doesn't, and there's only one. But ‑‑
1LISTNUM 1 \l 14515 MR. GRIEVE: Well, the thing you have to remember here is that over this three to five years, I know you like to focus on pieces of wire in the ground, but we believe that there are a lot of other things coming, like Wi‑Max. In fact, we are planning to use Wi‑Max in many situations.
1LISTNUM 1 \l 14516 We use lots of wireless applications today and we see lots of competitors out there, especially in Alberta, 80 or 81 of them, using a wireless kind of access, a wireless solution for access.
1LISTNUM 1 \l 14517 MR. RUBY: Right.
1LISTNUM 1 \l 14518 MR. GRIEVE: So, you know, part of the dynamics of the industry is that you can't just focus on copper wire or copper and fibre, you have to think about the other technologies that may be suppressed because you don't have the right prices.
1LISTNUM 1 \l 14519 MR. RUBY: Right. I have read your evidence on this point. You cover the same ‑‑
1LISTNUM 1 \l 14520 MR. GRIEVE: Thank you.
1LISTNUM 1 \l 14521 MR. RUBY: ‑‑ technologies as Bell, and I covered that in my cross‑examination with Bell, I don't propose to repeat it.
1LISTNUM 1 \l 14522 MR. GRIEVE: And Shaw, as well.
1LISTNUM 1 \l 14523 MR. RUBY: So I take it, then, and, Mr. Chairman, this is really more the nature, the punch line here is that for some facilities, like residential access, raising prices during the transition period, where nobody's going to be out there, you are not motivating or incenting anybody to build the third wire, it's just a wealth transfer from the competitors to the ILECs? They ‑‑
1LISTNUM 1 \l 14524 MR. GRIEVE: Well, it depends. If you thought that the rates today for unbundled access cover their costs and that you thought that somehow these rates were being raised above compensatory levels, or fully compensatory levels, then I would say yes, but they will still be regulated. The Commission's still going to do the costing, and it's going to do it according to how the Phase II is supposed to be done and according to the pricing principles.
1LISTNUM 1 \l 14525 So I don't think it's a wealth transfer to the ILECs, I think, to the extent that those rates aren't there, there's a wealth transfer going on today.
1LISTNUM 1 \l 14526 MR. RUBY: I understand your point. If the rates today are wrong, I see what you are saying. But the Commission sets the rates, so I will stick with that for now.
1LISTNUM 1 \l 14527 MR. GRIEVE: And we are very much on record about the considerable problems with Phase II.
1LISTNUM 1 \l 14528 MR. RUBY: I understand that.
1LISTNUM 1 \l 14529 Let's take another quick look at one other element of interconnection that you have discussed.
1LISTNUM 1 \l 14530 If you take a look at Interrogatory TELUS/Cogeco 12 April 2E, now here Cogeco asked you about a quote in your evidence about interconnection arrangements. The question was: if and when the Commission renders a determination ‑‑ so I gather this is the sort of arbitration or ADR‑type process ‑‑ should the determination be made public?, you say, "No...", and you go on to explain why in that brief answer.
1LISTNUM 1 \l 14531 Are you really saying that when the Commission resolves disputes between parties that it shouldn't reveal the outcome?
1LISTNUM 1 \l 14532 MR. GRIEVE: Yes, that's what we are saying.
1LISTNUM 1 \l 14533 MR. RUBY: I mean, can you point me to another example of the Commission ever issuing a decision that it keeps the decision secret?
1LISTNUM 1 \l 14534 MR. GRIEVE: As a matter of fact, we discovered a secret decision in a proceeding about three years ago that had been issued and never been made public, and I wish I could remember what on earth it was.
1LISTNUM 1 \l 14535 And also, there are some Commission decisions, I believe, where elements of it are kept in confidence.
1LISTNUM 1 \l 14536 MR. RUBY: Where elements of the decision are kept in confidence?
1LISTNUM 1 \l 14537 MR. GRIEVE: Because that's what you are looking for here.
1LISTNUM 1 \l 14538 MR. RUBY: Well, I'm looking for ‑‑ I have to admit, my understanding of the way sort of open justice in Canada operates is, generally, publicly made decisions: the decisions are public, even if the underlying information is held in confidence.
1LISTNUM 1 \l 14539 MR. GRIEVE: Not necessarily if it's an arbitration kind ‑‑ of a mediation kind of a decision between two parties.
1LISTNUM 1 \l 14540 MR. RUBY: Oh, okay, I understand that, but here the question was if the Commission renders a determination. I want to be clear on this point, you are saying the Commission should keep its decision secret?
1LISTNUM 1 \l 14541 And I'm dwelling on this because it seems a remarkable proposition to me.
1LISTNUM 1 \l 14542 MR. GRIEVE: The last sentence says:
"To the extent they cannot be negotiated, parties should be free to apply to the Commission for adjudication." (As read)
1LISTNUM 1 \l 14543 "Adjudication" to me meant mediation or arbitration, or something like that, and I don't think there's any need for an arbitration to be made public.
1LISTNUM 1 \l 14544 MR. RUBY: I see.
1LISTNUM 1 \l 14545 MR. GRIEVE: Yes.
1LISTNUM 1 \l 14546 MR. RUBY: Okay. So you are saying that if it's not the Commission that makes the decision, it's somebody else, that's okay.
1LISTNUM 1 \l 14547 MR. GRIEVE: Well, the Commission steps in often and mediates, mediates disputes or disagreements between parties today.
1LISTNUM 1 \l 14548 MR. RUBY: I appreciate that, but in mediation nobody makes a decision. Right? There's not third party who makes a decision, it's a facilitated negotiation, you will agree with me there.
1LISTNUM 1 \l 14549 MR. GRIEVE: We can quibble over that if you want, but...
1LISTNUM 1 \l 14550 MR. RUBY: I don't think it's a quibble, but I will ‑‑
1LISTNUM 1 \l 14551 MR. GRIEVE: All right.
1LISTNUM 1 \l 14552 MR. RUBY: ‑‑ leave it at that.
1LISTNUM 1 \l 14553 MR. GRIEVE: Okay.
1LISTNUM 1 \l 14554 MR. RUBY: Mr. Grieve, I may have not gotten this quote completely right, but I think you said today that, "You can bet that wireless services will be there within the next three to five years". I may not have copied down the end properly, but I know I got the beginning right. Is that fair?
1LISTNUM 1 \l 14555 MR. GRIEVE: We certainly believe that in the next ‑‑ well, first of all, I love to say this about Inukshuk, if they are not there in the next five years, then they shouldn't have the licence anymore.
1LISTNUM 1 \l 14556 But certainly we know that Wi‑Max is coming in a big way, we know that Wi‑Fi is there in a big way and we know that Inukshuk's coming, and I would be very surprised ‑‑ when I say "we know", with the speed of the technological development, it would be a very big surprise if they weren't there.
1LISTNUM 1 \l 14557 MR. RUBY: All right. So when you say "we know", you are really asking the Commission to sort of roll the dice, that in three to five years all these disruptive technologies that you see on the horizon are going to come along in the same way that, for 10 years, people talked about cable telephony was coming before it took 10 years to get here. It's the same bet, right?
1LISTNUM 1 \l 14558 MR. TASKER: I think there is a factor there, which is wireless technology is already being used in the marketplace today fairly comprehensively. Companies like TerraGo, as an example, offer fully business grade, broadband access in Alberta and Ontario.
1LISTNUM 1 \l 14559 So it's not a statement about it's going to come in the future, the question is how fast will it grow, not whether it will be there or not.
1LISTNUM 1 \l 14560 MR. RUBY: Okay. Do you have anything else to add to that that you haven't put in evidence already? I just want to make sure you have an opportunity to deal with this.
1LISTNUM 1 \l 14561 MR. GRIEVE: You are very kind.
‑‑‑ Laughter
1LISTNUM 1 \l 14562 MR. RUBY: But I'm not doing my job.
1LISTNUM 1 \l 14563 Okay, so let's go back to dispute resolution for a moment, because Mr. Fleiger made a comment earlier that I think has come up with a number of parties.
1LISTNUM 1 \l 14564 I think, Mr. Fleiger, you said earlier that TELUS is worried that if there is an arbitration option, competitors will go to the Commission if they are unsatisfied with one out of the 10 items that they have been negotiating, and when the Commission rules in their favour it will encourage them to go back to the Commission the next time, like, that was your experience?
1LISTNUM 1 \l 14565 MR. FLEIGER: Yes, that's the way I phrased that.
1LISTNUM 1 \l 14566 MR. RUBY: Yes. I have to admit that seemed a little surreal to me because in that example, isn't it the ILEC that's not learning from the Commission's decision? If a CLEC goes back and the Commission says, "Yes, you are right", and the ILECs continue to sort of push that issue, it's not the CLEC that's having a problem, isn't it the ILEC?
1LISTNUM 1 \l 14567 MR. FLEIGER: No, you are assuming that the CLEC is right.
1LISTNUM 1 \l 14568 MR. RUBY: Well, I thought that's what you assumed.
‑‑‑ Laughter
1LISTNUM 1 \l 14569 MR. FLEIGER: No, that's not what I assumed at all.
1LISTNUM 1 \l 14570 MR. RUBY: Okay, all right. Well, that's what I thought.
1LISTNUM 1 \l 14571 MR. FLEIGER: I just said that the environment created an incentive when a party sits down to negotiate with the ILEC and they can't get full agreement to everything that they want, that it is very easy for them to step out of the negotiating room and just go and make an application to this Commission.
1LISTNUM 1 \l 14572 MR. RUBY: Okay, well, let's ‑‑
1LISTNUM 1 \l 14573 THE CHAIRPERSON: Is that a supposition or is that your ‑‑
1LISTNUM 1 \l 14574 MR. FLEIGER: It's my experience, Mr. Chairman.
1LISTNUM 1 \l 14575 MR. RUBY: Sorry, it's experience what exactly?
1LISTNUM 1 \l 14576 MR. FLEIGER: It's my experience.
1LISTNUM 1 \l 14577 MR. RUBY: That...? All right, you know what, isn't it both ‑‑ and I will try and end on this note ‑‑ that it's both the ILECs and the competitors that have to learn, on a case‑by‑case basis, from the Commission's rulings and if there is no drop‑off in complaint, as one of the commissioners pointed out earlier, then the Commission can take a hard look and see who it is who is being difficult and not learning? Is that ‑‑
1LISTNUM 1 \l 14578 MR. FLEIGER: I would assume that that's what they would be doing through the adjudication.
1LISTNUM 1 \l 14579 MR. RUBY: Right.
1LISTNUM 1 \l 14580 And maybe, Mr. Chairman, this may be the halfway measure you were looking for earlier of how to deal with this, is that over time, if you don't see a drop‑off in these arbitration proceedings, the Commission can then look more intensely and say, "Why are the parties not learning to follow the implied rulings from the Commission for future circumstances?"
1LISTNUM 1 \l 14581 MR. GRIEVE: Mr. Ruby, I just might add one thing, this interrogatory is about interconnection arrangements, and one of the real success stories for the Commission on interconnection has been CISC, and how sometimes it takes a long time but the engineers get it right at the end of the day, so...and they are usually industry‑wide negotiations at CISC.
1LISTNUM 1 \l 14582 MR. RUBY: With respect to CISC interconnection, we can agree, and Mr. Chairman, I will end my questions there.
1LISTNUM 1 \l 14583 Thank you, panel and Commission.
1LISTNUM 1 \l 14584 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 14585 Just one correction. I'm not looking for a halfway house ‑‑
‑‑‑ Laughter
1LISTNUM 1 \l 14586 THE CHAIRPERSON: ‑‑ because you have suggested a halfway house.
1LISTNUM 1 \l 14587 But Mr. Fleiger, my staff tells me that, by and large, the last thing it's the last thing the industry wants to do is come to the Commission for arbitration or mediation, that they much prefer to work things out among themselves.
1LISTNUM 1 \l 14588 Even if there was an arbitration or mediation availability, is it likely that the industry would avail themselves of it, as you suggest, rather than working these things out?
1LISTNUM 1 \l 14589 MR. FLEIGER: If there was an arbitration process, I believe that human nature would suggest that the easier route to go to try to get what they want, if the Commission makes the determination that TELUS is proposing in regard to the essentially facilities and the transition period, it would be easier for them to just come to the Commission to reargue that this facility or service, that is non‑essential, is essential.
1LISTNUM 1 \l 14590 THE CHAIRPERSON: Oh, yes, but now you are changing the goal posts.
1LISTNUM 1 \l 14591 The way we started off was saying it has been deemed to be non‑essential, so that's not the issue. The issue there is you are trying to negotiate with a CLEC and you can't come to terms.
1LISTNUM 1 \l 14592 MR. FLEIGER: Right.
1LISTNUM 1 \l 14593 THE CHAIRPERSON: And there is a facility in the commissioners who come which will either mediate or arbitrate, or both, what everybody wants.
1LISTNUM 1 \l 14594 MR. FLEIGER: Right.
1LISTNUM 1 \l 14595 THE CHAIRPERSON: You are not going to re‑argue whether it's essential or non‑essential. That has been crossed. The question is to make sure that there is a way that this doesn't result. As I understood some of the intervention suggesting, there should be sort of an ability to quickly put a final resolution to a negotiation that can't come to a conclusion.
1LISTNUM 1 \l 14596 MR. FLEIGER: Right.
1LISTNUM 1 \l 14597 THE CHAIRPERSON: And you still think that would lead to abuses or people who feel they have been out‑negotiated coming to the Commission and asking for, in effect, a second look?
1LISTNUM 1 \l 14598 MR. FLEIGER: I do believe that.
1LISTNUM 1 \l 14599 THE CHAIRPERSON: I see. Okay.
1LISTNUM 1 \l 14600 MR. TASKER: Just I wanted to make a point relative to an example of some of the artificial negotiation that happens today, which is one of the things that typically negotiate on the wholesale side when it's not tariffed is volume agreements and term agreements. There seems to be an assumption in a lot of these negotiations of these services, when it's just a question of: are you going to provide this to me and at what price, and there is no commitments and there's no volume commitments.
1LISTNUM 1 \l 14601 That's an example of the artificial nature of the negotiations as they stand today. When you move to a commercial arrangement, you move much more to those sort of real business arrangements, which is what we are looking for.
1LISTNUM 1 \l 14602 THE CHAIRPERSON: Yes.
1LISTNUM 1 \l 14603 Commissioner Cram.
1LISTNUM 1 \l 14604 COMMISSIONER CRAM: Mr. Fleiger, I have been around a fairly long time and I'm unaware of us deciding any, the Commission, itself, making any decision whatsoever on any kind of agreement or between TELUS ‑‑ or non‑agreement between TELUS and a CLEC.
1LISTNUM 1 \l 14605 Is it the staff that make these decisions that help you mediate and arbitrate?
‑‑‑ Off microphone / Sans microphone
1LISTNUM 1 \l 14606 COMMISSIONER CRAM: Like, we set just and reasonable rates, We don't sort of decide negotiations, at least to my knowledge, I haven't known,,,
1LISTNUM 1 \l 14607 MR. GRIEVE: It's the staff that mediates.
1LISTNUM 1 \l 14608 THE CHAIRPERSON: The staff mediates.
1LISTNUM 1 \l 14609 COMMISSIONER CRAM: Yes.
1LISTNUM 1 \l 14610 So it could be that is not sufficient, and if we escalated it to the Commission and the Commission said no to a person a couple of times, be it either yourselves or a CLEC, that may be more effective.
1LISTNUM 1 \l 14611 MR. FLEIGER: Well, that could be more effective. And to the degree it was consistent over a period of time, yes, I think the message would get out to the parties, whichever party it may be.
1LISTNUM 1 \l 14612 THE CHAIRPERSON: Surely it's a truism every businessman would like to negotiate rather than litigate.
1LISTNUM 1 \l 14613 MR. FLEIGER: Yes, definitely.
1LISTNUM 1 \l 14614 COMMISSIONER CRAM: The other thing is, you don't want us looking at you as not negotiating fairly.
1LISTNUM 1 \l 14615 MR. FLEIGER: No.
1LISTNUM 1 \l 14616 COMMISSIONER CRAM: And so I think people would be more hesitant to come to us maybe. I don't.
1LISTNUM 1 \l 14617 MR. FLEIGER: We would never want you to look at us that way.
1LISTNUM 1 \l 14618 THE CHAIRPERSON: Mr. Rogers.
1LISTNUM 1 \l 14619 MR. ROGERS: I don't want to interrupt the dialogue unless it's finished.
1LISTNUM 1 \l 14620 THE CHAIRPERSON: No, no, it's finished. We are finished.
1LISTNUM 1 \l 14621 MR. ROGERS: All right. Just to confirm, Mr. Chairman, there are still three parties who have not had a chance to examine. They are PIAC, Cybersurf and the Quebec Coalition of Internet Service Providers.
1LISTNUM 1 \l 14622 I have spoken to their counsel, Mr. Janigan and Mr. Tacit and Mr. Denton, and with regard to the proposal that we discussed earlier this morning, when this panel arrived, with regard to TELUS' appearance on Monday, the 29th, we will have the four external expert witnesses and several of the business witnesses present, Mr. Grieve, Mr. Fleiger, and possibly one other senior witness. They will available, and, of course, those three parties that I mentioned that have not examined are free to examine.
1LISTNUM 1 \l 14623 The counsel for each of those parties has indicated to us that they are content with that arrangement.
1LISTNUM 1 \l 14624 THE CHAIRPERSON: Okay. If the three remaining counsel are content with that, then let's continue.
1LISTNUM 1 \l 14625 A revoke.
1LISTNUM 1 \l 14626 MR. KOCH: Sorry, I wasn't consulted and we are right back into my problem, only even larger, so...
1LISTNUM 1 \l 14627 THE CHAIRPERSON: Mr. Koch, just a second.
1LISTNUM 1 \l 14628 MR. KOCH: Yes.
1LISTNUM 1 \l 14629 THE CHAIRPERSON: Why are you being prejudiced by this? How does this amount to a splitting of the case? I would still be, presumably, those three counsel asking the business panel, first of all, then the business panel re ‑‑ and then we go to the expert witnesses.
1LISTNUM 1 \l 14630 MR. KOCH: In the meantime, though, between the panel's appearance today and the business panel being asked questions by those other three counsel, we will have had MTS Allstream's panel testifying and new cross‑examiners generally asking questions of the business panel will, unfortunately...and I precisely open up the opportunity that raised the concern this morning of responding to the MTS Allstream panel.
1LISTNUM 1 \l 14631 THE CHAIRPERSON: And how do you propose to square the circle?
1LISTNUM 1 \l 14632 MR. KOCH: This is the first I heard of it, sir. The logical way to square the circle is to have the other parties finish their cross‑examination of the TELUS business panel the first thing on the Friday morning, but I haven't, in fairness, consulted with my client.
1LISTNUM 1 \l 14633 THE CHAIRPERSON: Mr. Rogers.
1LISTNUM 1 \l 14634 MR. ROGERS: Mr. Chairman, we have gone to great length, in consultation with the staff and Commission and other counsel, to try to arrange a schedule. I thought from our discussions over the last several days that it has been agreed that we would appear on Monday, the 29th. We are prepared to stay with that commitment and bring our panel back, as we described this morning.
1LISTNUM 1 \l 14635 THE CHAIRPERSON: And besides MTS, who is there left to be examined? Counsel?
1LISTNUM 1 \l 14636 MR. McCALLUM: The three left to examine are PIAC, Cybersurf and the Quebec Coalition/Xittel.
1LISTNUM 1 \l 14637 THE CHAIRPERSON: And that's a full day?
1LISTNUM 1 \l 14638 MR. McCALLUM: Sorry, the time estimates for those three are, I think, just over two hours or so, Mr. Chair.
1LISTNUM 1 \l 14639 THE CHAIRPERSON: And your expert panel is not available on Friday?
1LISTNUM 1 \l 14640 MR. ROGERS: No, they are not.
1LISTNUM 1 \l 14641 THE CHAIRPERSON: Well, I suggest you meet with Mr. McCallum and work this out. If you can't work it out, we will make a ruling on it. But I would prefer that counsel find an amiable solution rather than us, here, at the end of the day, when I can't think straight any more, coming up with something that everybody will be unhappy.
1LISTNUM 1 \l 14642 So why don't you meet with Mr. McCallum and Mr. Koch and the other three counsel and see if you can work something out. Okay?
1LISTNUM 1 \l 14643 Thank you.
1LISTNUM 1 \l 14644 So we stand adjourned until next Friday, right?
1LISTNUM 1 \l 14645 MR. McCALLUM: Yes, Friday the 26th.
1LISTNUM 1 \l 14646 THE SECRETARY: I will remind everybody that we have to clear the room tonight, so please do not leave any material behind.
1LISTNUM 1 \l 14647 Thank you.
‑‑‑ Whereupon the hearing adjourned at 1607, to resume
on Friday, October 26, 2007 / L'audience est
ajournée à 1607, pour reprendre le vendredi
26 octobre 2007
REPORTERS
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Marc Bolduc Jean Desaulniers
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Sue Villeneuve Jennifer Cheslock
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Barbara Neuberger Monique Mahoney
- Date modified: