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                      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 26, 2007                      Le 26 octobre 2007








In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

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

and staff attending the public hearings, and the Table of



However, the aforementioned publication is the recorded

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

either of the official languages, depending on the language

spoken by the participant at the public hearing.







Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès‑verbaux pour le Conseil seront

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

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.


Toutefois, la publication susmentionnée est un compte rendu

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

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

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

               Canadian Radio‑television and

               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







Konrad von Finckenstein           Chairperson / Président

Barbara Cram                      Commissioner / Conseillère

Andrée Noël                       Commissioner / Conseillère

Elizabeth Duncan                  Commissioner / Conseillère

Helen del Val                     Commissioner / Conseillère







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 26, 2007                  Le 26 octobre 2007


- iv -





                                                 PAGE / PARA


RESUMED:  WILLIE GRIEVE                          2053 /14653




Cross-examination by PIAC                        2054 /14656

Cross-examination by Cybersurf                   2102 /14956

Cross-examination by Xittel                      2143 /15234



AFFIRMED:  BRENT MOONEY                          2188 /15554








Cross-examination by The Companies               2188 /15558



- v -





No.                                              PAGE / PARA


PIAC-1        Excerpt from Canadian Gazette of  2071 /14759

              The first iteration under

              Section 8, dated June 17, 2006


PIAC-2        Excerpt from Canadian Gazette of  2071 /14759

              the final version of the order

              of December 14, 2006, dated

              December 27, 2006


CYBERSURF‑4   Paragraph 232 of Decision 2002‑34 2124 /15113


XITTEL‑3      Xittel Tariffs                    2157 /15344


CRTC‑9        CRTC 2006 Monitoring Report       2181 /15524


COMPANIES‑16  Toronto Hydro map of Toronto,     2270 /16084

              Tab BB



                 Gatineau, Quebec / Gatineau (Québec)

‑‑‑ Upon resuming on Friday, October 26, 2007

    at 0832 / L'audience reprend le vendredi

    26 octobre 2007 à 0832

1listnum "WP List 3" \l 12189            THE SECRETARY:  Please be seated.

1listnum "WP List 3" \l 12190            THE CHAIRPERSON:  Mr. Rogers, are you on?

1listnum "WP List 3" \l 12191            MR. ROGERS:  I guess.  Thank you, Mr. Chairman.  Good morning.

1listnum "WP List 3" \l 12192            We are ready to resume with the TELUS panel.  As per the discussions last week, we have a slightly reduced panel.

1listnum "WP List 3" \l 12193            The members today are Mr. Willie Grieve, Mr. Rob Tasker and Mr. Dave McMahon, all of whom were on the panel when the group last appeared.  They are ready to resume cross‑examination.

1listnum "WP List 3" \l 12194            THE SECRETARY:  I am sorry, Mr. Chair, I will remind our witnesses that they are still under oath.




1listnum "WP List 3" \l 12195            THE CHAIRPERSON:  Okay, Mr. Janigan, go.

1listnum "WP List 3" \l 12196            MR. JANIGAN:  Thank you, Mr. Chair.


1listnum "WP List 3" \l 12197            MR. JANIGAN:  Panel, I would like to take you through the essentials of your position, then attempt to try to true it up with the interests of the residential consumer constituency that we are trying to represent and the likely net effect on that market if the Commission chose to adopt your views.

1listnum "WP List 3" \l 12198            Now, first of all, as I understand your definition of essential services ‑‑ which appears, I believe, in your July the 5th evidence on page 25 and paragraph 60 ‑‑ that the definition of essential facilities, there must be three criteria met in order for a facility to be declared essential:  first of all, that it is monopoly controlled, secondly, that competitors require it as an input, and thirdly, that competitors can't duplicate it economically or technically.

1listnum "WP List 3" \l 12199            Am I correct on that?

1listnum "WP List 3" \l 12200            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12201            MR. JANIGAN:  Okay.  Now, in terms of looking at what these criteria mean, I understand that in your test, TELUS indicates that using concepts of market power dominance or lessening of competition in an essential facilities test is wrong, and I point out page 17 of your evidence.

1listnum "WP List 3" \l 12202            Your supplementary evidence of July the 5th at paragraph 40 seems to give a fairly definitive statement of that in that it is indicated:

                      "As such, the essential facilities test is entirely focused on whether competition is prevented without access to the facility.  Thus, whether competition is lessened substantially or otherwise is irrelevant to the question of whether a facility is essential.  Therefore, any test for essential facilities that is predicated on a firm's ability to lessen competition or affirms dominance or market power in the upstream or downstream market is simply incorrect." (As read)

1listnum "WP List 3" \l 12203            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12204            MR. JANIGAN:  Okay.  And with respect to the qualification of the input, I understand that on page 13 of your supplementary evidence, the test is whether every competitor requires it to compete and as soon as cable enters a market somewhere with the same cost structure of another market where there is mandated access to unbundled loops that these facilities cease to be essential in that market.

1listnum "WP List 3" \l 12205            Am I correct on that?

1listnum "WP List 3" \l 12206            MR. GRIEVE:  Just about.  Where there is entry in one geographic market, then other similar geographic markets based on this proxy test, similar to what the Competition Bureau talked about, would make those facilities non essential in all of those similar geographic markets and we use the bands to locate or identify those.

1listnum "WP List 3" \l 12207            MR. JANIGAN:  So if every competitor doesn't need it to compete, then the facility can't be essential?

1listnum "WP List 3" \l 12208            MR. GRIEVE:  That is right.

1listnum "WP List 3" \l 12209            MR. JANIGAN:  Okay.  Now, I take it this may be the case even if cable hasn't hindered the particular geographic market?

1listnum "WP List 3" \l 12210            MR. GRIEVE:  That is right.  That is why we have a five‑year transition period ‑‑

1listnum "WP List 3" \l 12211            MR. JANIGAN:  Okay.

1listnum "WP List 3" \l 12212            MR. GRIEVE:  ‑‑ for the access portion.

1listnum "WP List 3" \l 12213            MR. JANIGAN:  Just a collateral question here.  Would that mean that you could possibly have forbearance in the wholesale market but no forbearance in a retail market?

1listnum "WP List 3" \l 12214            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12215            MR. JANIGAN:  Okay.  Now, there are other qualifications on page 25 and para 61 of your July the 5th evidence and some of these other qualifications ‑‑

1listnum "WP List 3" \l 12216            MR. GRIEVE:  I am sorry ‑‑

1listnum "WP List 3" \l 12217            MR. JANIGAN:  I am sorry, could you turn it up?

1listnum "WP List 3" \l 12218            MR. GRIEVE:  What paragraph?

1listnum "WP List 3" \l 12219            MR. JANIGAN:  It is paragraph 61 of page 25 ‑‑

1listnum "WP List 3" \l 12220            MR. GRIEVE:  Thank you.

1listnum "WP List 3" \l 12221            MR. JANIGAN:  ‑‑ of the July 5th evidence.

1listnum "WP List 3" \l 12222            MR. GRIEVE:  Okay, thanks.

1listnum "WP List 3" \l 12223            MR. JANIGAN:  These are sort of additional sort of qualifications or considerations that the facilities must meet or that the test is sort of expanded to include these kind of qualifications and the first is just because competitors lack scale and scope enough to duplicate doesn't mean that they should have mandated access.

1listnum "WP List 3" \l 12224            MR. GRIEVE:  That is right.

1listnum "WP List 3" \l 12225            MR. JANIGAN:  Okay.  So a small new entrant, I take it, better become large before he gets access ‑‑ it gets access, I should say?

1listnum "WP List 3" \l 12226            MR. GRIEVE:  Well, what we are ‑‑ can you point me exactly to the sentence you are talking about?  I just want to make sure.

1listnum "WP List 3" \l 12227            MR. JANIGAN:  Okay.  It is in 61 ‑‑

1listnum "WP List 3" \l 12228            MR. GRIEVE:  Right.

1listnum "WP List 3" \l 12229            MR. JANIGAN:  ‑‑ and it is actually the first sentence, that:

                      "In addition to satisfying these three criteria, the competitor's need for the facility and inability to economically duplicate it..." (As read)

1listnum "WP List 3" \l 12230            MR. GRIEVE:  Right.  Right.

1listnum "WP List 3" \l 12231            MR. JANIGAN:

                      "...should not be the result of a lack of reasonable scale or scope." (As read)

1listnum "WP List 3" \l 12232            MR. GRIEVE:  Right.  The idea of the essential facilities doctrine is not to say that something is an essential facility for one competitor in a market but not another competitor.  The idea of an essential facility is it is essential for competition and if competition cannot ‑‑ competition and not individual competitors but competition cannot arise without access to it, then it is an essential facility.

1listnum "WP List 3" \l 12233            MR. JANIGAN:  But I take it a small new entrant might fail to meet these conditions simply because it is small?

1listnum "WP List 3" \l 12234            MR. GRIEVE:  I don't ‑‑ the question here is whether it can be duplicated and the way we look at it, we look across the country in the different areas and we find evidence of duplication in all the major areas so that to the extent that there is duplication, we know it is duplicable under the test.  Whether it has been duplicated by a small or a large carrier is not a consideration of ours.

1listnum "WP List 3" \l 12235            MR. JANIGAN:  But a new entrant, for example, a small new entrant may require these facilities in order to expand and get larger.  I mean isn't your test a bit like the old whine that the banks won't lend you money until you prove that you don't need it?

1listnum "WP List 3" \l 12236            MR. GRIEVE:  Well, Mr. Janigan, you know, in every market, small new entrants try to enter and they have various ways of entering.

1listnum "WP List 3" \l 12237            You can use the idea of a small professional firm like an accounting firm or a dentist or something like that.  They go, they start their business, they lease a building, they finance their equipment possibly through a lease and they start their business and they grow their business.  Eventually, they might buy the building, get more dentists or accountants in the building.  That is the way these things work.

1listnum "WP List 3" \l 12238            Our concern with adopting a test for essential facilities that is not an essential facilities test, which is basically a test for what you are going to unbundle and when, is that you end up in a situation where you don't allow competition to arise on the wholesale level.

1listnum "WP List 3" \l 12239            So using the dentistry firm or accounting firm, they never get an opportunity to go to the marketplace to look for something to lease because there are no alternate suppliers of the things that they need.

1listnum "WP List 3" \l 12240            MR. JANIGAN:  But in your example, for example, obviously, the scale and the scope of the accounting firm when it came in to lease the office is a lot different from the scale and the scope of the accounting firm when it bought the building?

1listnum "WP List 3" \l 12241            MR. GRIEVE:  Right.  And the accounting firm could do that because the accounting firm was operating in or was entering into a market or was acquiring assets in a market that it needed to conduct its business, assets that were provided in a competitive market.

1listnum "WP List 3" \l 12242            Our concern about the Commission's approach, the way the Commission has approached unbundling, is that it has unbundled non‑essential facilities and we believe that its policies, as we have said many times, have actually stifled or reduced the opportunities for competition to arise in the facilities market.

1listnum "WP List 3" \l 12243            MR. JANIGAN:  But taking your example again, this only works if the accounting firm, for example, had access to small office space to begin with?

‑‑‑ Pause

1listnum "WP List 3" \l 12244            MR. GRIEVE:  Well, that is right but you are making the assumption, Mr. Janigan, that if the Commission doesn't order unbundling and doesn't order mandated access that there would never be any access provided to our facilities or other ILECs' facilities and our position is that is simply not the case and it is less and less the case the more you have other suppliers of those facilities in the market.

1listnum "WP List 3" \l 12245            The purpose of our proposal here and the purpose of our transition period is to make sure that the right incentives are created for everyone in the market to build or to lease or to negotiate but that the market determine it, not the regulator, and what you are asking for is a regulated solution that will actually, in our view, stifle the development of that competitive wholesale market.

1listnum "WP List 3" \l 12246            MR. JANIGAN:  Okay.  But back to your example again, if there are only one or two buildings in the city, presumably, the price that is going to be obtained by the building owner is going to be somewhat higher than what one would anticipate in a competitive market?

1listnum "WP List 3" \l 12247            MR. GRIEVE:  Not if that market is open to competition and anybody else can come in and build other buildings.

1listnum "WP List 3" \l 12248            MR. JANIGAN:  The other qualification I believe you put, and it is at the tail end of that sentence, is that the rates have to be compensatory as well, that they are being charged for the essential facilities.

1listnum "WP List 3" \l 12249            MR. GRIEVE:  Yes.  You know, we have used the expression "fully compensatory" since that time but that is our belief, that you have to allow the rates for essential facilities to be at compensatory levels, fully compensatory levels, which I described to the Chair last week.

1listnum "WP List 3" \l 12250            MR. JANIGAN:  And that test presumably will be met in a future proceeding which decides upon what will be compensatory rates?

1listnum "WP List 3" \l 12251            MR. GRIEVE:  That is right.  The Commission in this proceeding has put in scope the question not of what the rates will be but the important first question, which is what are the pricing principles that it should adopt, and we have said that the prices should be based on company‑specific actual long‑run incremental costs or phase II costs plus a mark‑up for fixed common costs and to recover your proportionate share of the embedded cost differential and that should be the pricing principle for ‑‑ the main pricing principle for essential facilities.

1listnum "WP List 3" \l 12252            Dr. Aron can speak in more detail to those.

1listnum "WP List 3" \l 12253            MR. JANIGAN:  So after the Commission concludes that proceeding, this particular qualification, I assume, would not be relevant?  I mean we are not going to endlessly have to parse or to examine whether or not the rates for facilities are compensatory in your analysis?

1listnum "WP List 3" \l 12254            MR. GRIEVE:  Well, if the Commission ‑‑ well, the Commission will make a determination of what the principles are in this proceeding and then I am sure we are going to be into a very interesting proceeding on how to apply those principles.

1listnum "WP List 3" \l 12255            MR. JANIGAN:  And after that proceeding is concluded, that will be the end of that test, right?

1listnum "WP List 3" \l 12256            MR. GRIEVE:  Whether the rates are compensatory?

1listnum "WP List 3" \l 12257            MR. JANIGAN:  Yes.

1listnum "WP List 3" \l 12258            MR. GRIEVE:  Yes, if the Commission decided they are going to do compensatory, fully compensatory rates, that will be the end of it.

1listnum "WP List 3" \l 12259            MR. JANIGAN:  Okay.

1listnum "WP List 3" \l 12260            THE CHAIRPERSON:  Can I just interject?

1listnum "WP List 3" \l 12261            I gather from this you feel that the present rates are not fully compensatory?

1listnum "WP List 3" \l 12262            MR. GRIEVE:  That is right.

1listnum "WP List 3" \l 12263            THE CHAIRPERSON:  Just in 50 seconds, tell me why you feel they are not compensatory.

1listnum "WP List 3" \l 12264            MR. GRIEVE:  I have 50 seconds?

‑‑‑ Laughter / Rires

1listnum "WP List 3" \l 12265            MR. GRIEVE:  The Commission over the last, I would say, decade has gone through a process of changing what we believe, and our submission has been consistently changing, phase II costing from being a company‑specific kind of costing mechanism to being one where the Commission has increasingly used proxies or adjusted key parts of the costing elements so that every time one of those is adjusted, the costs go down or the reported costs go down.

1listnum "WP List 3" \l 12266            That doesn't mean the costs of the companies have gone down, it just means that the costs that the Commission has allowed have gone down.

1listnum "WP List 3" \l 12267            Then on top of that, the Commission has changed its test for the mark‑up from a mark‑up that, although different words have been used over time, from a mark‑up that was supposed to allow for an opportunity to recover the proportionate share for each service of the fixed common costs plus what has come to be known the embedded cost differential, the Commission changed that in their price cap, well, actually changed it in a contribution decision and then later changed it for everything in the second price cap decision.

1listnum "WP List 3" \l 12268            It is not clear exactly to us what all the reasons for that were but they have changed those policies.  So now the rates are not company‑specific and the mark‑ups are not sufficient, in our view, for essential services or essential facilities.

1listnum "WP List 3" \l 12269            THE CHAIRPERSON:  Isn't it a bit of a contradiction that when you talk about whether something is duplicable or not, you say don't be company‑specific, don't look at this for size but take a reasonable approach, i.e., sort of an average normative approach, but when it comes to determining rates, you say go company‑specific?

1listnum "WP List 3" \l 12270            Shouldn't it be one way or the other for both, both for determining its duplicability and for determining what is an appropriate rate?  Either you have company‑specific or you take an average of the industry.

1listnum "WP List 3" \l 12271            MR. GRIEVE:  Well, I think if you take the company‑specific costs, the way we talk about similar geographic markets is we define them by band.  The bands are defined uniformly for costs that are similar as amongst or between companies across the country.

1listnum "WP List 3" \l 12272            So if, for example, you had one company who had higher costs than another company, then the possibility is that those higher costs would result in ‑‑ the likelihood, if they were significantly higher, is that company's services in that geographic area would be in a different band than another company.

1listnum "WP List 3" \l 12273            So, you know, I think that the banding structure itself is supposed to look at the individual costs or the specific costs of the companies and then say, okay, every place that you have costs between, say, $5 and $15, or something like that, we will put that in one band.

1listnum "WP List 3" \l 12274            And so one company might have $5 to $15 in one kind of geographic area and the other in another kind of geographic area, but the costs across those bands would be similar, but you would still be using company‑specific costs to figure out what the costs are in that individual ILEC's territory.

1listnum "WP List 3" \l 12275            THE CHAIRPERSON:  Back to you, Mr. Janigan.

1listnum "WP List 3" \l 12276            MR. JANIGAN:  Thank you, Mr. Chair.

1listnum "WP List 3" \l 12277            Now, as I understand it, there's one final hurdle that has to be jumped in order for a facility to be essential, and that's on paragraph 62 of your evidence, on page 26.  It's noted:

                      "...however, the Commission should only require mandatory unbundling of an essential facility when it finds such unbundling is in the public interest."  (As read)

And it's indicated there that some of the interests, the public interests that would be promoted are things like investment in innovation...

1listnum "WP List 3" \l 12278            MR. GRIEVE:  Right.

1listnum "WP List 3" \l 12279            You know, this would be a very good question to ask Dr. Weisman because this really comes out of his evidence.  I can give you a little bit of an answer, but it wouldn't go beyond what's in this paragraph.

1listnum "WP List 3" \l 12280            I mean, there are some times when you want to make sure that innovation is not stifled by saying to someone, "If you innovate so well that you find yourself in a position where you really are going to be able to reap a lot of benefits from it, well, then, we are just not going to let you reap those benefits".

1listnum "WP List 3" \l 12281            That puts a chill on innovation.

1listnum "WP List 3" \l 12282            MR. JANIGAN:  How do you construct the test on this, in terms of you have already gone through, you know, the first part, your three criteria, then we have got a few more.

1listnum "WP List 3" \l 12283            Now this test, how does the Commission administer this test?

1listnum "WP List 3" \l 12284            MR. GRIEVE:  Well, I think Dr. Weisman answered an interrogatory on this.  I don't have it in front of me, but, you know, perhaps you could ask him.

1listnum "WP List 3" \l 12285            MR. JANIGAN:  Okay.

1listnum "WP List 3" \l 12286            Is it TELUS's position that the converse is also true, that, should the Commission require mandatory unbundling, even if it doesn't meet your test, if it's in the public interest?

1listnum "WP List 3" \l 12287            MR. GRIEVE:  Well, I suppose the Commission always has the opportunity to determine that it's in the public interest to mandate the unbundling of non‑essential facilities.  Our position is that it's not in the public interest to do that because the evidence has show that it actually stifles investment in facilities.

1listnum "WP List 3" \l 12288            Now, I suppose you could say that the Commission, as they did in 97‑8, could use a transition period, and that's exactly what we have said here is that we need a transition period to go from where we are today and create the right incentives for us to have to move out of the unbundling of non‑essential facilities.

1listnum "WP List 3" \l 12289            But, in theory, certainly the Commission could unbundle non‑essential facilities, at the end of five years we just think it's the wrong policy choice.

1listnum "WP List 3" \l 12290            MR. JANIGAN:  Yes.  Now, in paragraph 64, on page 27 of your evidence, you concede that nearly all facilities will fail to satisfy one of the three elements of the definition and the analysis will rarely move beyond step one.

1listnum "WP List 3" \l 12291            MR. GRIEVE:  Right.

1listnum "WP List 3" \l 12292            MR. JANIGAN:  So, effectively, we are dealing with a very, very small group of facilities that will be declared essential?

1listnum "WP List 3" \l 12293            MR. GRIEVE:  Right.  And not coincidentally, because the test is the same, it is almost identical to the list of facilities the Commission found to be essential in Decision 97‑8

1listnum "WP List 3" \l 12294            MR. JANIGAN:  Okay.

1listnum "WP List 3" \l 12295            I would like to deal with your evidence dealing with the effect of the policy direction, and to assist I have taken two excerpts from the Canada Gazette, the first being the first iteration of the order under section 8 of June 17th, 2006, which is being distributed.  I think you have a copy of that.

1listnum "WP List 3" \l 12296            MR. GRIEVE:  Yes, I do, thank you.

1listnum "WP List 3" \l 12297            MR. JANIGAN:  And the second being the final version of December 27th, being the order of December the 14th, 2006.

1listnum "WP List 3" \l 12298            MR. GRIEVE:  Yes, I have that.

1listnum "WP List 3" \l 12299            MR. JANIGAN:  Okay.

1listnum "WP List 3" \l 12300            THE SECRETARY:  Those will be registered as Exhibit Nos. 1 and 2, respectively.

                      EXHIBIT PIAC‑1:  Excerpt from Canadian Gazette of the first iteration under section 8, dated June 17, 2006

                      EXHIBIT PIAC‑2:  Excerpt from Canada Gazette of the final version of the order of December 14,2006, dated December 27, 2006

1listnum "WP List 3" \l 12301            MR. JANIGAN:  Now, the TELUS evidence makes it quite clear what it believes the impact of the policy direction of f December 2006 is on the outcome of this proceeding, and I ask you to turn up page 4 and paragraph 7 of your evidence...of your supplementary evidence of July 5th.

1listnum "WP List 3" \l 12302            MR. GRIEVE:  Thanks.  Hang on a second.

‑‑‑ Pause

1listnum "WP List 3" \l 12303            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12304            MR. JANIGAN:  And actually, I'm looking at a quote from the bottom of the page, the previous page, page 3:

                      "But it is important to focus on the language of the policy direction because it provides further context for the Commission's current proceeding and also because the policy direction is, as a matter of law, binding on the Commission.  In other words, the language of the policy direction must be interpreted as legally binding and subject to the same rules of statutory interpretation as would imply to any other law, regulation or statutory instrument."  (As read)

1listnum "WP List 3" \l 12305            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12306            MR. JANIGAN:  That's the position of TELUS.

1listnum "WP List 3" \l 12307            And as it is binding, as I understand the TELUS position is that the only permissible interpretation of the language of the policy direction is that the issue that the Commission is to determine is solely the extent of the phasing out of mandatory access.  The Commission cannot expand the regime of access or keep it the same.

1listnum "WP List 3" \l 12308            MR. GRIEVE:  That's what we believe it says.

1listnum "WP List 3" \l 12309            MR. JANIGAN:  Okay.  And is it your position that even if the Commission found that the objectives of the act would be better met by broadening the terms of the mandated access, the policy direction would not let them do so?

1listnum "WP List 3" \l 12310            MR. GRIEVE:  I think that's what the intention of the policy direction is, that the government has found that it is not in the public interest to expand access.

1listnum "WP List 3" \l 12311            MR. JANIGAN:  So even if the Commission found that the objectives of the act would be better met by broadening the terms, this policy direction would prevent them from doing so?

1listnum "WP List 3" \l 12312            MR. GRIEVE:  I think the policy direction is clear.  It says a reliance on market forces and improving incentives to innovate and invest.  That's the clear objective of it and I think that the policy direction is clear that expanding mandated access would not be in the public interest so defined.

1listnum "WP List 3" \l 12313            MR. JANIGAN:  And TELUS has come to that conclusion that this result follows primarily from the rules of statutory interpretation, that words must be presumed to have a meaning and must be given their ordinary meaning?

1listnum "WP List 3" \l 12314            MR. GRIEVE:  Yes.  And also, you know, you have to interpret these things in the context of the Telecom Policy Review, which was referred to in the Canada Gazette, as well.

1listnum "WP List 3" \l 12315            MR. JANIGAN:  Okay.

1listnum "WP List 3" \l 12316            Now, if we turn up Exhibit 1, which is the first ‑‑

1listnum "WP List 3" \l 12317            MR. GRIEVE:  It's the June 17th one?

1listnum "WP List 3" \l 12318            MR. JANIGAN:  The June 17th one, that's Exhibit 1, June 17th, and we compare it with Exhibit No. 2, looking at section 1(c)(ii), and that's page 4 ‑‑

1listnum "WP List 3" \l 12319            MR. GRIEVE:  Yes, I have it.

1listnum "WP List 3" \l 12320            MR. JANIGAN:  ‑‑ of the first exhibit ‑‑

1listnum "WP List 3" \l 12321            MR. GRIEVE:  Yes, I have them both.

1listnum "WP List 3" \l 12322            MR. JANIGAN:  ‑‑ and page 2 of the second exhibit.

1listnum "WP List 3" \l 12323            MR. GRIEVE:  Right.

1listnum "WP List 3" \l 12324            MR. JANIGAN:  In the first iteration, it simply says that they will

                      "...conduct a review of its regulatory framework regarding mandated access to wholesale services, in order to determine the extent to which mandated access to wholesale services that are not essential services should be phased out and the appropriate pricing of mandated services to encourage investment and innovation in network infrastructure."

1listnum "WP List 3" \l 12325            Now we note ‑‑ that's in June ‑‑

1listnum "WP List 3" \l 12326            MR. GRIEVE:  Right.

1listnum "WP List 3" \l 12327            MR. JANIGAN:  ‑‑ in December, we have, at the end of mandated services, determine the appropriate pricing to mandated services, we have the phrase:

                      "...which review should take into account the principles of technological and competitive neutrality, the potential for incumbents to exercise market power in the wholesale and retail markets for the service in the absence of mandated access to wholesale services, and the impediments faced by new and existing carriers seeking to develop competing network facilities."  (As read)

1listnum "WP List 3" \l 12328            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12329            MR. JANIGAN:  If you turn to the Regulatory Impact Analysis Statement, which follows that ‑‑

1listnum "WP List 3" \l 12330            MR. GRIEVE:  Page?

1listnum "WP List 3" \l 12331            MR. JANIGAN:  Page 5 of that statement ‑‑

1listnum "WP List 3" \l 12332            MR. GRIEVE:  Okay.

1listnum "WP List 3" \l 12333            MR. JANIGAN:  ‑‑ about three‑quarters of the way down, it says:

                      "However, in particular, a large number of interested parties suggested changes to subparagraph 1(c)(ii),..."

‑‑ which is the one we have just been dealing with ‑‑

                      "...a policy direction which proposes a review of the regulatory framework surrounding mandated access to wholesale services to increase innovation, investment and infrastructure‑based competition in the telecommunications industry."  (As read)

1listnum "WP List 3" \l 12334            And if you flip over the page, to page 6, it says:

                      "The Government has taken note of the significant questions raised concerning the implications of subparagraph 1(c)(ii) and the potential market impact of the CRTC's review of its framework governing wholesale services. In particular, amendments to subparagraph 1(c)(ii) in the definitive version of the Order respond to concerns with the review of mandated access to wholesale services.

1listnum "WP List 3" \l 12335            MR. GRIEVE:  Right.

1listnum "WP List 3" \l 12336            MR. JANIGAN:  So, as you indicated, that in looking at the intent we often look at the legislative evolution of a particular statutory provision, is that correct?

1listnum "WP List 3" \l 12337            MR. GRIEVE:  Right.

1listnum "WP List 3" \l 12338            MR. JANIGAN:  In this case, the government responded to, in its consultation to comments it has received in this consultation phase, and put in this particular section, which governs the way in which or what the Commission is supposed to take into account upon its review.  Would you agree with that?

1listnum "WP List 3" \l 12339            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12340            MR. JANIGAN:  Now, in fact, in page 18 of your evidence, paragraph 42, you indicate:

                      "For these reasons, parties who continue to rely on the definition of essential facilities provided in the draft bulletin or who have included notions of market power, dominance or lessening of competition in the respective definitions have proposed definitions of essential facilities that cannot be supported." (As Read)

My question is ‑‑

1listnum "WP List 3" \l 12341            MR. GRIEVE:  Right, right.

1listnum "WP List 3" \l 12342            MR. JANIGAN:  ‑‑ if the Commission here is telling us to take into account a market power ‑‑

1listnum "WP List 3" \l 12343            MR. GRIEVE:  You mean the Governor in Council?

1listnum "WP List 3" \l 12344            MR. JANIGAN:  The Governor in Council.  Sorry, what did I say, the Commission?

1listnum "WP List 3" \l 12345            MR. GRIEVE:  Yeah.


1listnum "WP List 3" \l 12346            MR. JANIGAN:  The Governor in Council is telling us to take into account market power, and this policy direction is binding on the Commission.  How can you tell the Commission to disregard it in relation to your analysis of essential facilities?

1listnum "WP List 3" \l 12347            MR. GRIEVE:  Thanks for that question.

1listnum "WP List 3" \l 12348            First of all, let us be clear of what the direction says.  It says:

                      "To complete a review of its regulatory framework regarding mandated access to determine the extent to which mandated access to wholesales services that are not essential services should be phased out and to determine the appropriate pricing standard." (As Read)

1listnum "WP List 3" \l 12349            So it is a review about mandated access and to phase out and the pricing, okay?

1listnum "WP List 3" \l 12350            MR. JANIGAN:  M'hmm.

1listnum "WP List 3" \l 12351            MR. GRIEVE:  Normal statutory interpretation would say that ‑‑ then it goes on to say, when you are doing that review that does these three things, take into account the principles of technological and competitive neutrality.  In TELUS' proposal we have done that, because we say it is not the facility itself, it is the functionality of the facility that could be provided by any particular technology.

1listnum "WP List 3" \l 12352            The next one, the potential for incumbents to exercise market power in the wholesale and retail markets for the service in the absence of mandated access to wholesale services.  The way we took into account the market power, the potential for the exercise of market power in wholesale and retail markets, is we looked at how long the transition period needed to be to create the right incentives to actually have competition in the wholesale market.

1listnum "WP List 3" \l 12353            Then, and the last one, and the impediments faced by new and exiting carriers seeking to develop competing network facilities, and just look on the next page, which I actually thought had ‑‑ anyway, those kinds of impediments, my recollection from the record of that, was things like access to rights of way and that kind of stuff and we have actually dealt with that.  The Commission has, you know, quite a sophisticated and well‑tested method of regulating that.

1listnum "WP List 3" \l 12354            So the question that is addressed in the evidence about using market power or market power concepts in the definition of essential facility is a different question and how the Commission takes into account the potential exercise of market power.  And we, ourselves as a SILEC, had a concern about making sure the right incentives were created.

1listnum "WP List 3" \l 12355            At the end of the day, you have to remember that the number one purpose for this review is with a view to increasing incentives for innovation and investment in and construction of competing telecommunications network facilities.

1listnum "WP List 3" \l 12356            As you heard us say last week, if you have a loose definition of an essential facility and you've heard that even the strict market power definition, the way the Bureau uses it, has been used by all sorts of parties in various ways.  If you have a loose definition of essential facility, then people are going to be able to argue that just about everything is essential.

1listnum "WP List 3" \l 12357            So with a view to increasing incentives for innovation and investment, we looked at what is the correct definition of an essential facility based on the jurisprudence and based on Canadian experience.  And how do you take into account this market power concern?  We did it through the vehicle of the transition period.

1listnum "WP List 3" \l 12358            MR. JANIGAN:  Okay, let us get back to this particular phrase.  As I understand it, TELUS' position is that market power is taken into consideration in your evidence by a lengthy transition period.

1listnum "WP List 3" \l 12359            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12360            MR. JANIGAN:  But you also criticize other parties for taking it into account in the context of their essential facilities test.

1listnum "WP List 3" \l 12361            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12362            MR. JANIGAN:  Surely, that is what the Governor in Council is calling for with respect to this particular view, that market power is taken into account?

1listnum "WP List 3" \l 12363            MR. GRIEVE:  Yes, and we took it into account.  And you have to remember that the principal purpose of this proceeding is with a view to increasing incentives for innovation and investment.  And our position is, and has been for 12 years, that ordering mandated access to non‑essential facilities, and especially if prices are too low, we will end up stifling incentives for investment in construction of facilities.

1listnum "WP List 3" \l 12364            MR. JANIGAN:  But if the Commission takes your earlier view, that the words of this policy direction are binding, and the plain and ordinary meaning of this is that market power has to be a part of the analysis, surely that means that all of your expert evidence is directed to overturning the plain wording of this direction.

1listnum "WP List 3" \l 12365            MR. GRIEVE:  Absolutely not.  In fact, the plain wording of this direction does not ask the CRTC to reconsider its definition of essential facilities at all.

1listnum "WP List 3" \l 12366            No, no, the plain wording of this direction says look at how to phase out the ‑‑ sorry, I am going to read the exact words:

                      "...the extent to which mandated access to wholesale services that are not essential services should be phased out." (As Read)

1listnum "WP List 3" \l 12367            It doesn't say go and redefine essential services.

1listnum "WP List 3" \l 12368            MR. JANIGAN:  Let us accept, for the purpose of this discussion, your initial point about the only thing we can do is phase it out.  Okay, let us accept that, okay?

1listnum "WP List 3" \l 12369            MR. GRIEVE:  All right.

1listnum "WP List 3" \l 12370            MR. JANIGAN:  But the process of phasing it out has to be based on a process that takes into account the exercise of market power.  Now you have it into account ‑‑

1listnum "WP List 3" \l 12371            MR. GRIEVE:  Exactly.  No, no.

1listnum "WP List 3" \l 12372            MR. JANIGAN:  ‑‑ by way of your transition period.

1listnum "WP List 3" \l 12373            MR. GRIEVE:  Right.

1listnum "WP List 3" \l 12374            MR. JANIGAN:  Other people have taken it into account by way of their definition of essential facilities.  But you can't tell us that what those other parties have done is contrary to the direction that has been given to us by the Governor in Council.

1listnum "WP List 3" \l 12375            MR. GRIEVE:  Well, I mean, that is your view.  We can argue about it all day, Mr. Janigan.  But my view is that an essential facility is an essential facility.  The Commission had a definition going into this.  And this direction, if you want to really be plain language about this, this direction does not instruct the Commission to redefine essential services or essential facilities.  But it does instruct the Commission to take into account the potential for incumbents to exercise market power in the wholesale and retail markets.

1listnum "WP List 3" \l 12376            MR. JANIGAN:  Can we agree that it is likely that the Governor in Council is aware of the difference between market power and monopoly power?

1listnum "WP List 3" \l 12377            MR. GRIEVE:  I wouldn't suppose to know what the discussions were at the Governor in Council around this issue.  I wouldn't know.  But if they wanted a definition that ‑‑ no, you can't speculate, I can't speculate.

1listnum "WP List 3" \l 12378            MR. JANIGAN:  Well, presumably it would have been as easy for them to specify that they exercise monopoly power not market power and met your definition, would it not?

1listnum "WP List 3" \l 12379            MR. GRIEVE:  But you are assuming that this phrase tacked onto the end that says that while you are doing this review, which is the main thing to increase incentive for innovation and investment in the construction of competing facilities, while you are doing that review, which includes a phase out period or a transition period, have regard to these three things; technological and competitive neutrality, the market power issues and, the third, the impediments.

1listnum "WP List 3" \l 12380            So it is my view that we have fully taken that into account.  It may not be your view, but it is certainly my view that we have fully taken it into account and it is a secondary list of considerations, and the first consideration is creating the incentives for innovation and investment.

1listnum "WP List 3" \l 12381            MR. JANIGAN:  Well, Mr. Grieve, though, this was a big deal.  I mean, obviously, the regulatory impact statement shows that they were responding to comments and made an amendment to their own policy directive to include these principles upon which the Commission would have a review.

1listnum "WP List 3" \l 12382            I mean, I think it is a big deal. We asked them to change a lot of this policy direction and we didn't get a thing changed.  So obviously, when they looked at this they thought that this was a significant change.

1listnum "WP List 3" \l 12383            MR. GRIEVE:  Well, I think it is a significant change, in that it tells the Commission what specifically, what to take into account in its review.  And its review is about determining the extent to which mandated access for wholesales services that are not essential services should be phased out.

1listnum "WP List 3" \l 12384            MR. JANIGAN:  Let me ‑‑

1listnum "WP List 3" \l 12385            MR. GRIEVE:  Like, I don't know..

1listnum "WP List 3" \l 12386            MR. JANIGAN:  Let me push onto the third element of this change, and it uses the term what the Commission has to take into consideration, the impediments faced by new and existing carriers seeking to develop competing network facilities.

1listnum "WP List 3" \l 12387            How does your formulation that if any competitor can duplicate the services not essential, how does that square with the rather expansive phase here, "the impediments faced by new and existing carriers seeking to develop competing network facilities?"

1listnum "WP List 3" \l 12388            MR. GRIEVE:  Well, my view of that third one is that it was really focused on things like access to rights‑of‑way and buildings and support structures like conduit and poles and those things.  But, you know, other impediments, you mean ‑‑ like, I don't know what other kinds of impediments they might have meant there.

1listnum "WP List 3" \l 12389            MR. JANIGAN:  On a regime that might produce more effective competitors.

1listnum "WP List 3" \l 12390            MR. GRIEVE:  Well, you know, we have said, as I said, since 1993 ‑‑ you have to remember, Mr. Janigan, that there is one consistent theme that TELUS has been on from the beginning and you have to remember that it was actually TELUS in 1993, not one of the competitors, but TELUS in the reg framework proceeding that proposed opening all the other markets to competition.

1listnum "WP List 3" \l 12391            Long distance had been opened.  TELUS got on the stand and said open the local market for competition.

1listnum "WP List 3" \l 12392            The reason was at the time that we knew that competition was coming and it was time to open the market, for technological change was making it possible.  And we knew that there would be opportunities for us to expand and opportunities for us to become a better company in a competitive market.

1listnum "WP List 3" \l 12393            We also knew there was no turning back to monopoly even if we wanted to go there.

1listnum "WP List 3" \l 12394            I know you are trying to say well, everyone in this proceeding is coming into this proceeding with their best interests at heart.  Certainly it is in our best interest to have a competitive market.

1listnum "WP List 3" \l 12395            Some people have said that we are not acting in our own best interest, but that is a short‑term look.  We look at these things in the longer term: how to adapt our company, how to become stronger and better in a competitive market.

1listnum "WP List 3" \l 12396            MR. JANIGAN:  In a competitive market wouldn't it be more likely that TELUS would be urging a strategy to minimize competitor strength or to maximize prices for desirable facilities rental?

1listnum "WP List 3" \l 12397            MR. GRIEVE:  I'm sorry, say that again.

1listnum "WP List 3" \l 12398            MR. JANIGAN:  Wouldn't it be more likely that TELUS would urge a strategy to minimize competitor strength or maximize prices for desirable facilities rental?

1listnum "WP List 3" \l 12399            MR. GRIEVE:  You know, it's not in TELUS' best interest to ask for a policy that doesn't get a competitive market and the competitive market that constrains the market power of everyone, or the potential market power of everyone in the market.

1listnum "WP List 3" \l 12400            You know, as an ILEC you might think we have one strategy, as a CLEC another.  But we have had one consistent strategy from the beginning and that is creating a healthy competitive market at both the retail and the wholesale level.

1listnum "WP List 3" \l 12401            MR. JANIGAN:  There is some agreement that cable has provided the most effective, or maybe the only really effective competition to local service, but it wasn't enabled by mandated access and it doesn't seem to have been deterred by mandated access.

1listnum "WP List 3" \l 12402            Why does it matter if smaller entrants can access facilities if the competition is not strong enough to affect ILEC pricing?

1listnum "WP List 3" \l 12403            MR. GRIEVE:  Strong enough to affect ILEC pricing of what?

1listnum "WP List 3" \l 12404            MR. JANIGAN:  Of local service, for example.

1listnum "WP List 3" \l 12405            MR. GRIEVE:  Of local residential service?

1listnum "WP List 3" \l 12406            MR. JANIGAN:  Yes.

1listnum "WP List 3" \l 12407            MR. GRIEVE:  We just don't want to be in a position of having access to our facilities mandated in a way that is one‑off month‑to‑month low prices.  You can get on the service one month, off the service the next month.

1listnum "WP List 3" \l 12408            It is very difficult for us to administer.  It's costly to administer that kind of a process.  And it's inefficient for us.

1listnum "WP List 3" \l 12409            So we are looking for a way to get to a competitive market where we can negotiate in the market for people getting access to our facilities.  We believe that it will be better if people build their own facilities.

1listnum "WP List 3" \l 12410            MR. JANIGAN:  The Commission in your example presumably has to be satisfied that there will be a competitive market for access to the facilities without mandated access, I would assume.

1listnum "WP List 3" \l 12411            MR. GRIEVE:  A competitive market?  I'm not sure what you mean.

1listnum "WP List 3" \l 12412            MR. JANIGAN:  You indicated that you wanted to get to a place where you can negotiate competitively for these facilities rather than have them provided on the basis of a mandate.

1listnum "WP List 3" \l 12413            MR. GRIEVE:  Right.

1listnum "WP List 3" \l 12414            MR. JANIGAN:  Presumably the Commission has to be satisfied that such a competitive market exists before they depart from the mandate.

1listnum "WP List 3" \l 12415            MR. GRIEVE:  No.  I think that the Commission needs to trust the market.  The direction does say rely on market forces, and the Commission needs to trust the market.

1listnum "WP List 3" \l 12416            We have provided for a five‑year transition period.  We do see alternate facilities in the case of cable, but we also see other alternate facilities out there.  We believe wireless is a substitute for local wireline fixed line telephone service, and we believe that there are other wireless ‑‑ well, we know that there are other wireless services coming available as we get more and more of that competition from other technologies, including Wi‑Max, which could be used in the residential market, and other wireless providers that we have in Alberta, Alberta MBC, for example, now; that there will be pressure on us and that we will respond in the marketplace.

1listnum "WP List 3" \l 12417            MR. JANIGAN:  So your five‑year horizon you believe will take care of any concerns that a competitive market for facilities won't exist?

1listnum "WP List 3" \l 12418            MR. GRIEVE:  Yes.  We believe that it will create the right incentives over that period to allow competition to arise or allow the right incentives to be created for the ILECs to negotiate contracts with other market participants.

1listnum "WP List 3" \l 12419            MR. JANIGAN:  Let me deal with a real world problem here, which was more or less presented by Yak in their evidence.

1listnum "WP List 3" \l 12420            What do you tell Yak customers who have made use of this service that is enabled by mandated access that may be shut out under your proposed access regime?

1listnum "WP List 3" \l 12421            Surely an admonition that this kind of competition is not good for you is probably not going to be effective.

1listnum "WP List 3" \l 12422            MR. GRIEVE:  Well, the particular Yak service in question, the 10‑10 service and equal access and those things, in our evidence we have said that those are interconnection arrangements and should be grandfathered.

1listnum "WP List 3" \l 12423            We actually believe that the market is going to make those kinds of services moot in time, but it may not.

1listnum "WP List 3" \l 12424            Dial‑around service, once everyone goes to flat rate calling, what is there to dial around?

1listnum "WP List 3" \l 12425            So we just said those are interconnection services.  If that continues, that's great for Yak.  They provide a service that is used by specific kinds of customers.  It's obviously needed.  But over time those customers may be getting flat rate local and toll calling, and then there's nothing to dial around, as I said.

1listnum "WP List 3" \l 12426            MR. JANIGAN:  And new entrants presumably then will be taken care of within your five‑year horizon by having new facilities being brought aboard.

1listnum "WP List 3" \l 12427            MR. GRIEVE:  Yes, and any new entrants that want to enter during those five years would still have access to the tariffs during that five‑year period, or they could negotiate, or both.

1listnum "WP List 3" \l 12428            MR. JANIGAN:  Now, if you are wrong about this dynamics of competition, I take it we are likely stuck with what we have now.  Right?

1listnum "WP List 3" \l 12429            MR. GRIEVE:  Well, five years is an awfully long time.  I don't know why you would say "stuck with what we have now".  Consumers are in the best position they have been in, in terms of competitive supply and the potential for competitive supply, ever in the history of telecom in Canada.  So I don't know why you would use the word "stuck".

1listnum "WP List 3" \l 12430            MR. JANIGAN:  I don't want to debate that with you at the moment.

1listnum "WP List 3" \l 12431            All I'm concerned with is that effectively we would have a duopoly that would effectively be entrenched in the local services market.

1listnum "WP List 3" \l 12432            MR. GRIEVE:  I absolutely don't agree that there is a duopoly today in the local services market or that there will be going forward.  I know that a lot of people don't believe that wireless service is a substitute, but increasingly more and more all the time, especially in Vancouver and Calgary, we see people who have no home phone.

1listnum "WP List 3" \l 12433            We know that 70 percent of people who have wireless phones ‑‑ I think this was the data ‑‑ use them to make calls from home.  They are substitutes.

1listnum "WP List 3" \l 12434            We also have other services coming, as we have said before, and in place now, things like Wi‑Max.  So there are other kinds of services out there.  Just because it's wireline doesn't mean it's not ‑‑ just because things aren't wireline doesn't mean they are not in the same market.

1listnum "WP List 3" \l 12435            MR. JANIGAN:  Mr. Grieve, I'm getting flashbacks to last year, so I think I will conclude my questioning of the panel.

1listnum "WP List 3" \l 12436            Thank you very much, panel.  Thank you very much, Mr. Chair.

1listnum "WP List 3" \l 12437            THE CHAIRPERSON:  Mr. Grieve, two points of clarification.

1listnum "WP List 3" \l 12438            On Yak, did I understand you correctly that you thought that the 10‑10 service would fall under interconnection and would remain mandated?

1listnum "WP List 3" \l 12439            MR. GRIEVE:  Yes, I ‑‑

1listnum "WP List 3" \l 12440            THE CHAIRPERSON:  I thought I heard before, last week, that it was your company's suggestion that they would have to be renegotiated; that a negotiated arrangement should replace the mandated service.

1listnum "WP List 3" \l 12441            MR. GRIEVE:  That was just the billing and collection portion of it.

1listnum "WP List 3" \l 12442            THE CHAIRPERSON:  I see.  The billing and collection should be negotiated but the interconnection would remain mandated?

1listnum "WP List 3" \l 12443            MR. GRIEVE:  Correct.

1listnum "WP List 3" \l 12444            THE CHAIRPERSON:  Okay.  Secondly, Mr. Janigan, just talked to you shortly about Order‑in‑Council and, if I understand it, it is your contention that under the wording as it reads right now we can shrink the amount of services mandated but we can't expand it, we couldn't designate something new as being mandated, being essential, et cetera?

1listnum "WP List 3" \l 12445            MR. GRIEVE:  That's what I understand, yes.

1listnum "WP List 3" \l 12446            THE CHAIRPERSON:  I understand that, but are you referring to this proceeding, or are you referring generally, because the Order‑in‑Council says, "Continue this proceeding...".

1listnum "WP List 3" \l 12447            So, I assumed you were referring to this proceeding, but please correct me if I am wrong.

1listnum "WP List 3" \l 12448            MR. GRIEVE:  Yes, I was referring to this proceeding.

1listnum "WP List 3" \l 12449            THE CHAIRPERSON:  Okay, thank you.

1listnum "WP List 3" \l 12450            Commissioner Cram.

1listnum "WP List 3" \l 12451            COMMISSIONER CRAM:  And I heard you talking about the direction and saying that the added parts were really secondary concerns, so I want to go to what you call your primary concern, Mr. Grieve, and that is:

                      "...with a view to increasing incentives for innovation and investment."  (As read)

1listnum "WP List 3" \l 12452            I don't know any way that we can empirically decide what will increase innovation.  I mean, there is no data we can look at saying this increased innovation, this didn't.

1listnum "WP List 3" \l 12453            I mean, we can hear all the doctors of economics, and we are going to, and as we have ‑‑ I have for the last nine years ‑‑ but I am asking for numbers.

1listnum "WP List 3" \l 12454            MR. GRIEVE:  Me too.

1listnum "WP List 3" \l 12455            COMMISSIONER CRAM:  You know, show me what I can do to increase or decrease innovation.

1listnum "WP List 3" \l 12456            MR. GRIEVE:  You know, I'd like you to ask that question of Dr. Wiseman.

1listnum "WP List 3" \l 12457            COMMISSIONER CRAM:  Oh, yeah, sure, get me back to the doctor of economics.

1listnum "WP List 3" \l 12458            Thank you.

1listnum "WP List 3" \l 12459            MR. GRIEVE:  That's why we have him.

1listnum "WP List 3" \l 12460            COMMISSIONER CRAM:  Now, my question one is though, when we are talking about increasing incentives for investment, so, I look at one regulatory regime in the States and you would agree with me that it is far more restricted on access, mandated essential services?

1listnum "WP List 3" \l 12461            MR. GRIEVE:  Or liberal, depending on which side of the coin you're coming from.  There was a lot more mandated access ‑‑

1listnum "WP List 3" \l 12462            COMMISSIONER CRAM:  But then with the ‑‑

1listnum "WP List 3" \l 12463            MR. GRIEVE:  ‑‑ but then it has been pulled back, yeah.

1listnum "WP List 3" \l 12464            COMMISSIONER CRAM:  Yeah.  And if I said to you the only data we have available, which is ILEC spending, shows a reduction in ILEC investment since that has happened, if you were our consultant, what would you tell us then?

1listnum "WP List 3" \l 12465            MR. GRIEVE:  You know, I'm not the one to ask this question, I think Bob Crandall would be the one to ask this question.

1listnum "WP List 3" \l 12466            COMMISSIONER CRAM:  But if we are looking at empirical data and we are looking at ILEC spending, which is the only data available to us, that would clearly give us a result of one particular type of regulation.

1listnum "WP List 3" \l 12467            And if I looked at ILEC spending in the U.K., would that also give me an indication of your primary purpose of this whole thing, increasing incentives for investment?

1listnum "WP List 3" \l 12468            MR. GRIEVE:  You know, you'd have to understand the data itself and I don't know that just looking at that data alone helps you without understanding what else is in there, and that's why, you know, I've suggested that you talk to Drs. Crandall and Wiseman.

1listnum "WP List 3" \l 12469            But, you know, I think you also have to ‑‑ you'd have to look at what the investment was overall in the industry, the investment by CLECs and things like that.

1listnum "WP List 3" \l 12470            That's really what you're looking for, is incentives for innovation and investment in construction of competing telecommunications networks.

1listnum "WP List 3" \l 12471            COMMISSIONER CRAM:  So, if I looked at our own system and I look at a doubling of self provisioning in a year in our system now, wouldn't that tell me something about the success of CLEC investment?

1listnum "WP List 3" \l 12472            MR. GRIEVE:  Well, you know, we've had some time to try to get to the bottom of that number and, as you know, there was a minor change because of our reporting.

1listnum "WP List 3" \l 12473            And we went back to our wholesale group in Calgary and asked them to tell us whether these numbers in those reports made any sense given their experience in Alberta and British Columbia and they said were not reflective of our experience in Alberta and British Columbia.

1listnum "WP List 3" \l 12474            So, if that's the case, then using the number, that 27 to 41 per cent, and it doesn't matter if the numbers change because it still represents 172,000 self provisioned lines ‑‑ new self provisioned lines in 2006, and we look at that and we go, "tsssk", and we didn't see enough people out there digging trenches in Ontario and Quebec, which is pretty well where it would have had to be.

1listnum "WP List 3" \l 12475            So, we don't know.  We think there might be a data issue there, but even if there is no data issue there it certainly proves one thing and that is that there are ‑‑ that these accesses are not essential facilities.

1listnum "WP List 3" \l 12476            And so, you know, it's kind of a two‑edged sword, but we don't see in Alberta and B.C. that transformation from leased to self supplied that that particular piece of information would suggest.

1listnum "WP List 3" \l 12477            And, you know, we don't have access to Bell's information in that we don't know what's gone on in Bell's territory, but it certainly hasn't happened in ‑‑ there's some, you know, some migration from re‑sold like Centrex where people migrate and that's Bell on its Government accounts we think, but then other kinds of competitors, we just don't see those numbers.

1listnum "WP List 3" \l 12478            COMMISSIONER CRAM:  They may be digging in Indian Head, I don't know, but...

1listnum "WP List 3" \l 12479            So, what you are really saying though is at the end of the day there is no empirical way by looking at data that we can philosophically drive essentiality to show us ‑‑

1listnum "WP List 3" \l 12480            MR. GRIEVE:  You mean mandating it?

1listnum "WP List 3" \l 12481            COMMISSIONER CRAM:  ‑‑ absolutely that we can increase innovation or we can increase investment?

1listnum "WP List 3" \l 12482            MR. GRIEVE:  I wouldn't ‑‑

1listnum "WP List 3" \l 12483            COMMISSIONER CRAM:  The primary...

1listnum "WP List 3" \l 12484            MR. GRIEVE:  I wouldn't know that, you'd have to ask the good doctors.

1listnum "WP List 3" \l 12485            COMMISSIONER CRAM:  I don't think we'd get a yes or no from them either.  Thank you.

1listnum "WP List 3" \l 12486            THE CHAIRPERSON:  Okay.  If there are no other questions, Madam Secretary, who's next?

1listnum "WP List 3" \l 12487            THE SECRETARY:  The next company to cross Cybersurf Corp., counsel Tacit.

1listnum "WP List 3" \l 12488            MR. TACIT:  Thank you.  I have a package of documents which I'd ask to be distributed, please.

1listnum "WP List 3" \l 12489            MR. GRIEVE:  Are these the same ones you gave us last night, or before?

1listnum "WP List 3" \l 12490            MR. TACIT:  And the ones you got two days ago ‑‑

1listnum "WP List 3" \l 12491            MR. GRIEVE:  Yeah.

1listnum "WP List 3" \l 12492            MR. TACIT:  ‑‑ until the end.  There are also some portions from the record in accordance with the Commission's instructions.

1listnum "WP List 3" \l 12493            MR. GRIEVE:  Okay.

1listnum "WP List 3" \l 12494            Thank you.

1listnum "WP List 3" \l 12495            THE CHAIRPERSON:  Okay, Mr. Tacit, proceed.

1listnum "WP List 3" \l 12496            MR. TACIT:  Thank you, Mr. Chairman.


1listnum "WP List 3" \l 12497            MR. TACIT:  Mr. Grieve, would you agree with me that today the main sources of high‑speed Internet services are the ILECs and the cable companies?

1listnum "WP List 3" \l 12498            MR. GRIEVE:  To residential customers ‑‑ well, just generally, yes.  I think so, yes.

1listnum "WP List 3" \l 12499            MR. TACIT:  Thank you.  And would you also agree with me that more and more residential consumers are choosing broad band Internet services over dial‑up?

1listnum "WP List 3" \l 12500            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12501            MR. TASKER:  That's correct.

1listnum "WP List 3" \l 12502            MR. TACIT:  And is one of the reasons that broad band Internet services are finding favour with consumers that it's possible to do tasks a lot more quickly than it is with dial‑up, for example, downloading software, watching video and so on?

1listnum "WP List 3" \l 12503            MR. TASKER:  Yes, of course.

1listnum "WP List 3" \l 12504            MR. TACIT:  So, another reason is that broad band Internet connections can also support other services such as VoIP, long distance services, broad band video services such as TELUS IPTV; correct?

1listnum "WP List 3" \l 12505            MR. TASKER:  That's correct.

1listnum "WP List 3" \l 12506            MR. TACIT:  So, would you agree with me that the bundle is becoming more and more important for consumers today than it used to be, the bundle of services and that that's being enabled by broad band technology?

1listnum "WP List 3" \l 12507            MR. TASKER:  I think you're seeing many, many players in the market address the market in very interesting ways in terms of bundling various applications.  So, the scope of competition is increasing incredibly in terms of who the players are as a result.

1listnum "WP List 3" \l 12508            MR. TACIT:  Okay.  But my specific question was:  Are bundles increasing significantly as a means ‑‑

1listnum "WP List 3" \l 12509            MR. TASKER:  I think my answer was consistent with that, that yes, if what you call bundles, I guess we would term them to be more innovative value add applications of different varieties and they would certainly include things like voice access and Internet access and video and so on and so forth.

1listnum "WP List 3" \l 12510            MR. TACIT:  Okay.  If I could ask you in that package that I gave you to turn to the page that has the number 6 at the bottom of the page, and this is an interrogatory response from the Companies to a Cybersurf interrogatory that addressed the significance of bundles.

1listnum "WP List 3" \l 12511            And I'd like to focus your attention specifically on the last sentence of the second paragraph which says:

                      "Investment firm UBS estimated that 90 per cent of households in Bell Canada's traditional territory of Ontario and Quebec will subscribe to bundles by the end of 2008."  (As read)

1listnum "WP List 3" \l 12512            MR. GRIEVE:  Yes, I see that.  Just a little housekeeping for the benefit of those listening.

1listnum "WP List 3" \l 12513            We've been calling out the interrogatory name, so it's the Companies/Cybersurf 12 April, 07‑6.

1listnum "WP List 3" \l 12514            MR. TACIT:  Yes, thank you very much.

1listnum "WP List 3" \l 12515            MR. GRIEVE:  Okay.

1listnum "WP List 3" \l 12516            MR. TACIT:  I appreciate that.

1listnum "WP List 3" \l 12517            MR. GRIEVE:  It was also for the benefit of the people behind me.

1listnum "WP List 3" \l 12518            MR. TACIT:  No, absolutely, absolutely.  Thank you.

1listnum "WP List 3" \l 12519            Would you expect that TELUS' experience is going to be similar to this in 2008?

1listnum "WP List 3" \l 12520            MR. TASKER:  I think in a general nature, yes.

1listnum "WP List 3" \l 12521            MR. TACIT:  Now, we've already discussed that the Telus test isn't concerned directly with market power but rather the prevention of competition; is that right?

1listnum "WP List 3" \l 12522            MR. GRIEVE:  Market power is not part of the test for the essential facilities test that TELUS has proposed in this proceeding and that the Commission has adopted in the past.

1listnum "WP List 3" \l 12523            MR. TACIT:  Okay.  Now, can you also confirm with me that if a competitor provides DSL service through its own combination of unbundled local ILEC loops, for example, its own DSLAMs co‑located on ILEC premises, that the ability of the competitor to distinguish its DSL service from the ILEC's DSL service is greater with respect to such matters as speed, quality of service and so on?  Is that factually true?

1listnum "WP List 3" \l 12524            MR. TASKER:  Are you suggesting that they would ‑‑ I am sorry, say that question again, just quickly.

1listnum "WP List 3" \l 12525            MR. TACIT:  You have a competitor that leases ILEC unbundled loops ‑‑

1listnum "WP List 3" \l 12526            MR. TASKER:  Yes.

1listnum "WP List 3" \l 12527            MR. TACIT:  ‑‑ co‑locates its own equipment ‑‑

1listnum "WP List 3" \l 12528            MR. TASKER:  Yes.

1listnum "WP List 3" \l 12529            MR. TACIT:  ‑‑ and provides its own DSL service over that loop.  Is it able to distinguish its service to a greater degree from the ILEC's own DSL service by using that form of competition than simply buying a GAS‑type service or ‑‑

1listnum "WP List 3" \l 12530            MR. TASKER:  Oh! I see.  There are certainly opportunities for that, albeit minimal.  I believe when you compare that to, for example, a cable access and their ability to differentiate, it is an order of magnitude different.

1listnum "WP List 3" \l 12531            MR. TACIT:  Well, I didn't ask you to compare it to cable.  I am just saying could a competitor have the ability to set its own quality of service for its services, set its own DSL speeds and so on?

1listnum "WP List 3" \l 12532            MR. TASKER:  They are limited by ‑‑

1listnum "WP List 3" \l 12533            MR. TACIT:  Limited in what way?

1listnum "WP List 3" \l 12534            MR. TASKER:  For example, in terms of whatever SLA service level agreement we offer on our unbundled loop, in terms of our ability to restore that in a certain period of time.  That is consistent between retail and wholesale but it is a single quality of service that we offer on that.

1listnum "WP List 3" \l 12535            So if, for example, the line is cut, then we offer, for example, maybe a 24‑hour mean time to repair and whether you are a retail customer or service to a wholesale customer, it is the same guaranteed repair time.

1listnum "WP List 3" \l 12536            MR. TACIT:  Well, fair enough but we are not talking about the line being cut.

1listnum "WP List 3" \l 12537            I am talking about when the line is operating, would the competitor be in a better position to distinguish his services?

1listnum "WP List 3" \l 12538            MR. TASKER:  A better position than...?

1listnum "WP List 3" \l 12539            MR. TACIT:  Than if it were buying a GAS‑type service.  Would it be in a position ‑‑

1listnum "WP List 3" \l 12540            MR. TASKER:  It would have an opportunity.

1listnum "WP List 3" \l 12541            MR. TACIT:  ‑‑ to determine its own broadband speeds, its own quality of service?

1listnum "WP List 3" \l 12542            MR. TASKER:  It would have the ability to differentiate.  I would suggest it may also be behind what we are doing on our GAS‑type service.

1listnum "WP List 3" \l 12543            MR. TACIT:  Behind in what way?

1listnum "WP List 3" \l 12544            MR. TASKER:  In terms of whatever facilities we are offering on our ‑‑ sorry, just hang on a second.

‑‑‑ Pause

1listnum "WP List 3" \l 12545            MR. TASKER:  Just a clarification here.  The limitation is based on the DSLAM equipment that you are using.

1listnum "WP List 3" \l 12546            MR. TACIT:  Right.

1listnum "WP List 3" \l 12547            MR. TASKER:  And so, for example, if our GAS service is offering ‑‑ is using one type of DSLAM that may be superior, for example, then what ‑‑

1listnum "WP List 3" \l 12548            MR. TACIT:  But it could be inferior too compared to what the competitor chooses?

1listnum "WP List 3" \l 12549            MR. TASKER:  It could be.

1listnum "WP List 3" \l 12550            MR. TACIT:  Okay.  And the competitor would be also in a position in that scenario to provide its own bundle of services, correct, including VoIP and IPTV?

1listnum "WP List 3" \l 12551            MR. TASKER:  Yes, of course.

1listnum "WP List 3" \l 12552            MR. TACIT:  Okay.  Would you agree with me that the ILECs and cable companies appear to be in a constant race to increase broadband speeds on their networks in order to provide new services in bundles?

1listnum "WP List 3" \l 12553            MR. TASKER:  Yes, no question, we are in quite a competitive race with the cable companies.

1listnum "WP List 3" \l 12554            MR. TACIT:  Okay, thank you.

1listnum "WP List 3" \l 12555            Now, I would like to switch topics for a minute and look at how the TELUS test for essential facilities could be operationalized and I am looking specifically now at paragraphs 72 and 73 of the TELUS supplementary evidence, the main supplementary evidence of July 5th.  This is at pages 30 and 31.  If you could turn there with me, please.

‑‑‑ Pause

1listnum "WP List 3" \l 12556            MR. TASKER:  Okay, we have them here.

1listnum "WP List 3" \l 12557            MR. TACIT:  Now, what TELUS is doing here, as I understand it, is providing an example of how it would apply its test to certain residential exchange loops in rural areas and then concludes that they are not essential.

1listnum "WP List 3" \l 12558            I would like to just read paragraphs 72 and 73 quickly here.

1listnum "WP List 3" \l 12559            Paragraph 72 says:

^^"Furthermore, independent internet service offers service in bands E to G, making available to customers in bands E to G access independent voice services which also duplicate TELUS' residential exchange loop functionality." (As read)

1listnum "WP List 3" \l 12560            Now, just stopping there for a minute, you would agree with me that in order to have an access independent voice service it is necessary first to have a broadband platform; correct?

1listnum "WP List 3" \l 12561            MR. GRIEVE:  That is right.

1listnum "WP List 3" \l 12562            MR. TACIT:  Okay.  And then paragraph 73 says:

^^"The fact that local loop facilities are supplied by cable carriers in bands E and F and that the same functionality can be obtained from wireless carriers in bands E to G or access independent VoIP service providers in bands E to G demonstrates that residential exchange local loops or their functionality have been economically and technically duplicated.  Therefore, TELUS residential exchange local loops in rural areas are not essential and the analysis is concluded." (As read)

1listnum "WP List 3" \l 12563            Do you ‑‑

1listnum "WP List 3" \l 12564            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12565            MR. TACIT:  That is TELUS' evidence; correct?

1listnum "WP List 3" \l 12566            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12567            MR. TACIT:  Would you agree with me that nowhere in this analysis is TELUS looking at the residential service bundle as whole, you are just looking at local service; correct?

1listnum "WP List 3" \l 12568            MR. GRIEVE:  Yes, that is right.  If the facility can be duplicated or the functionality of the facility can be duplicated for one or two services, it can certainly have ‑‑ you know, there is potential for it to be used for other services as well.  But yes, we are just looking at basically voice service here.

1listnum "WP List 3" \l 12569            MR. TACIT:  And we can agree that right now the wireless platform isn't being used in any kind of broad way as a substitute for the residential service bundle, is it?

1listnum "WP List 3" \l 12570            MR. GRIEVE:  Residential service bundle?  Well, there is internet access with wireless.

1listnum "WP List 3" \l 12571            MR. TACIT:  Yes, but if I am at home, if I want to download and browse, I am not likely to pull out my ‑‑ if I have my computer and I have my wireless, I am not likely to sit there ‑‑

1listnum "WP List 3" \l 12572            MR. TASKER:  Well, for example, I have a close friend of mine whose parents live on a rural farm in Alberta and if they want to surf the internet, right now the only way they have to do that is through a wireless ISP.

1listnum "WP List 3" \l 12573            MR. TACIT:  But for most consumers, that is not the experience?

1listnum "WP List 3" \l 12574            MR. TASKER:  No, but that is a huge geography and if they can do it there, they can certainly have that option anywhere in the province or in the country, for that matter.

1listnum "WP List 3" \l 12575            MR. TACIT:  So according to the duplicability test of TELUS, you are saying because certain people in certain areas may have to do it that way and are able to do it that way, then it is a non‑essential facility ‑‑

1listnum "WP List 3" \l 12576            MR. TASKER:  Well, I think it has been shown that as a result of the ILECs and the cablecos not having the ability to get there soon enough, the innovation and the incentive for other players to step up to the plate was proven to take effect.

1listnum "WP List 3" \l 12577            MR. TACIT:  Well, we have seen the earlier testimony confirming the figures in the CRTC Monitoring Report that the incumbents, the ILECs and cable BDUs account for 95.6 percent of all high‑speed internet services as of ‑‑

1listnum "WP List 3" \l 12578            MR. TASKER:  What is interesting is if you look at the percentage of cable companies' voice access three years ago, what percentage would that be and we are looking at a five‑year transition plan.  So the fact that wireless is a very small percentage at this point, I don't think it is fair to say that it is not material in terms of the effectiveness of that type of competition.

1listnum "WP List 3" \l 12579            MR. TACIT:  So what you are really asking the Commission then to do is to bet on the development of wireless in making its decision?

1listnum "WP List 3" \l 12580            MR. TASKER:  Not only wireless, that is for sure, but I am using that as a great example.

1listnum "WP List 3" \l 12581            MR. GRIEVE:  Well, the other important point ‑‑

1listnum "WP List 3" \l 12582            THE CHAIRPERSON:  Mr. Tacit, where are you going with this?  I am sorry, I don't follow your line of questioning at all.

1listnum "WP List 3" \l 12583            MR. TACIT:  Okay.

1listnum "WP List 3" \l 12584            THE CHAIRPERSON:  Are you trying to establish that bundles is a separate market?

1listnum "WP List 3" \l 12585            MR. TACIT:  Yes.

1listnum "WP List 3" \l 12586            THE CHAIRPERSON:  Okay.

1listnum "WP List 3" \l 12587            MR. TACIT:  And you give the same example for residential local loops; is that correct?

1listnum "WP List 3" \l 12588            MR. GRIEVE:  I am sorry ‑‑

1listnum "WP List 3" \l 12589            MR. TACIT:  I am sorry.  At paragraphs 61 and 62 of that same evidence, you have a similar ‑‑ you reach a similar conclusion in the case of urban residential local loops, is that right, based on pretty much similar considerations?

1listnum "WP List 3" \l 12590            MR. GRIEVE:  I am sorry, Mr. Tacit, I am just going to look at the evidence.

1listnum "WP List 3" \l 12591            MR. TACIT:  Absolutely.

1listnum "WP List 3" \l 12592            MR. GRIEVE:  Sixty‑one and 62 of the...?

1listnum "WP List 3" \l 12593            MR. TACIT:  Supplementary evidence ‑‑

1listnum "WP List 3" \l 12594            MR. GRIEVE:  Okay.

1listnum "WP List 3" \l 12595            MR. TACIT:  ‑‑ pages 25 and 26.

1listnum "WP List 3" \l 12596            MR. GRIEVE:  And your ‑‑

1listnum "WP List 3" \l 12597            MR. TACIT:  Oh! Sorry, I am in the wrong place here.  Anyway, just forget that.

1listnum "WP List 3" \l 12598            But what I am trying to get at here is that the analysis that you did here did not really take into account bundles, is that right, it was based solely on local services?

1listnum "WP List 3" \l 12599            In fact, you haven't really considered bundles that much in your evidence and yet that is the main form of competition going forward.  I find that rather curious.

1listnum "WP List 3" \l 12600            MR. GRIEVE:  Well, it is the main form of competition going forward but not everyone can offer the same bundles.  TELUS is not in a position today to offer IPTV.  We are trying to get there as fast as we can but it is very expensive for us.  Other carriers like Shaw, they don't yet have a wireless service.

1listnum "WP List 3" \l 12601            So just the fact that people don't happen to have those doesn't mean that bundles aren't going to be important in the future and people are going to be trying to get what they need to provide those bundles going forward if indeed it turns out that that is what consumers want but that appears to be where they are going.

1listnum "WP List 3" \l 12602            MR. TASKER:  I would consider also that what Google offers today and what they are offering now would be a type of bundle as well and they don't require any access to facilities directly but they are able to compete very effectively.

1listnum "WP List 3" \l 12603            MR. TACIT:  Okay.  But I am talking about, let's say, a bundle of high speed, local and long distance, perhaps video.  You would agree with me that right now it looks like the choices for offering that platform are pretty much restricted to the ILECs and the cable companies?

1listnum "WP List 3" \l 12604            MR. GRIEVE:  ­Well, in ‑‑

1listnum "WP List 3" \l 12605            MR. TACIT:  ­By and large.  I mean, we saw the figure that, you know, less than 1 percent of technology accesses other technologies.

1listnum "WP List 3" \l 12606            MR. GRIEVE:  I'm not trying to be difficult, Mr. Tacit, it's just that TELUS is just in its infancy in offering a television service in some places in Alberta, so to suggest that we can offer that full bundle somehow in a broad way across our serving territory is just not right.

1listnum "WP List 3" \l 12607            MR. TACIT:  ­So you are disadvantaged relative to the cable company in that market?

1listnum "WP List 3" \l 12608            MR. GRIEVE:  In that particular bundling, yes, and any satellite provider.

1listnum "WP List 3" \l 12609            MR. TACIT:  So you haven't been able to duplicate facilities to do that yet, is that what you are saying?

1listnum "WP List 3" \l 12610            MR. GRIEVE:  Not yet ‑‑

1listnum "WP List 3" \l 12611            MR. TACIT:  ­Okay.

1listnum "WP List 3" \l 12612            MR. GRIEVE:  ‑‑ but we are working on it.

1listnum "WP List 3" \l 12613            MR. TACIT:  ­Right.

1listnum "WP List 3" \l 12614            Let's look at the three elements of the TELUS essential facilities test for a moment and ‑‑ well, sorry, we know what they are, but I'm curious, specifically, that branches two and three of the test talk ­only about CLECs.  For example, it says:

                      "CLECs require the facility function or services and input to provide services."  (As read)

And condition three is:

                      "CLECs cannot duplicate it economically or technically."  (As read)

1listnum "WP List 3" \l 12615            I guess my question to you is:  in light of the increasing significance of bundles, what happens if other types of carriers who aren't CLECs require access?  Why are they not included in the test, especially if bundles are becoming so important?

1listnum "WP List 3" \l 12616            MR. GRIEVE:  Mr. Tacit, thanks for asking this, because we wrote CLEC in the test because that's what the original test had been back in 1997, the Commission's test.  But I think it's fair to say that the essential facilities test would apply to all competitors.

1listnum "WP List 3" \l 12617            MR. TACIT:  ­Okay, well, thank you.  That's a very important clarification.

1listnum "WP List 3" \l 12618            But would you also agree with me that, you know, as Mr. Janigan also explored, these three elements aren't the whole test.  You have to look at the public interest, the reason why things aren't duplicated.  And when you look at those factors, the test is not quite as cut and dry as just the first three branches would lead one to believe.  Correct?

1listnum "WP List 3" \l 12619            MR. GRIEVE:  That's right, but we really haven't had to spend a lot of time on the other parts that you mentioned because, you know, we have looked ‑‑ you know, we said, What's a practical way to apply this test?  Well, let's go out and see if stuff has actually been duplicated, if these functionalities have been duplicated.  So that was what our approach was.

1listnum "WP List 3" \l 12620            MR. TACIT:  ­Okay, but we are still left with the problems that Commissioner Cram pointed out, about how do you determine if something is going to be innovated or built going forward?

1listnum "WP List 3" \l 12621            If you add those requirements to your tests rather than just sticking to the tests of the main three branches, you make it a more subjective and difficult test to apply, don't you?

1listnum "WP List 3" \l 12622            MR. GRIEVE:  Well, I think those other pieces ‑‑ and you could talk to Dr. Weisman about it ‑‑ but those other pieces are meant to be sort of a ‑‑ you know, if you did find that you had a monopoly facility that couldn't be duplicated, is it really worth the effort to unbundle it or to provide it to someone else, or are you going to then send a clear signal to someone who just spent a fortune developing something that was brand new, that was really important?

1listnum "WP List 3" \l 12623            And this is where we get into intellectual property law.  I mean, there are all sorts of tests there about it.  But those are the kinds of considerations.  The essential facilities doctrine is not a test that says if you find these three elements, then, automatically you provide access.

1listnum "WP List 3" \l 12624            You know, you heard the Competition Bureau, Mr. Hughes and Dr. Church, when they were up, talking about section 79, the abuse of dominance section of the act, having a whole range of activities that could be considered an abuse of dominance, and then a whole range of remedies to apply to that.  This is just an example of that.

1listnum "WP List 3" \l 12625            So what you would ask yourself is:  in that whole range of activities by a dominant carrier that could be an abuse of dominance, in what circumstances and what particular ‑‑ which one of those would you say that mandated access to an upstream facility is the remedy that you would apply?

1listnum "WP List 3" \l 12626            And you remember Mr. Abugov asked Rogers if they would accept the jurisprudence.  We will accept it.  And the jurisprudence says that, if it's a monopoly‑supplied, non‑duplicable facility in the upstream market in that whole range of things that can be an abuse of dominance, then the remedy that you may apply in the downstream market is forcing shared access.  And that's what our test is about.

1listnum "WP List 3" \l 12627            MR. TACIT:  ­And I understand that and I'm not trying to get you to repeat the elements of test.  My point is a different one, and it is that if you start layering on top of that test, whether one likes it or not, accepts it or not, if you start layering other requirements which are more subjective, you are kind of undermining the basic thrust of the tests, the benefit of the test of being simple and objective, aren't you?

1listnum "WP List 3" \l 12628            MR. GRIEVE:  Well...

1listnum "WP List 3" \l 12629            MR. TACIT:  ­I mean, you have said yourself you can't really apply the test without the benefit of experts in every case, so, I mean, basically ‑‑

1listnum "WP List 3" \l 12630            MR. GRIEVE:  Well, you can apply it if you can ‑‑ it's easy to apply here because you can see just from observing that these facilities are duplicable, but I agree with you it becomes a more subjective portion of the test.  I just don't think we need to go there in our analysis here.

1listnum "WP List 3" \l 12631            MR. TACIT:  ­Okay.  So I will take the rest of that line of questioning with the joint panel of you and your experts.  It may provide a more interesting conversation.

1listnum "WP List 3" \l 12632            MR. GRIEVE:  I think they will be answering the questions.

‑‑‑ Laughter / Rires

1listnum "WP List 3" \l 12633            MR. TACIT:  ­Okay.

1listnum "WP List 3" \l 12634            I would like to turn for a minute now to discuss your approach to pricing both essential services and non‑essential services during the transition period.  This is an area that I don't think has been explored that much yet.

1listnum "WP List 3" \l 12635            Now, as I understand it, TELUS wants the pricing of essential services to recover costs that allow an ILEC a reasonable opportunity to recover all forward‑looking incremental costs incurred to provide the service, which includes a normal return to invested capital, as well as a reasonable share of the fixed common costs and other residual costs, such as the embedded cost differential.  Is that right?

1listnum "WP List 3" \l 12636            MR. GRIEVE:  Yes, it's what I was referring to this morning ‑‑ or earlier this morning with the chair.  That's what we would call a fully compensatory rate, and it's really a regulatory construct of a fully compensatory rate.

1listnum "WP List 3" \l 12637            MR. TACIT:  ­Okay.  And I'm going to explore that a bit with you, but before I do, I just want to get on the record that TELUS believes that the current 15 percent mark up on competitor one services is too low to achieve these objectives.  Is that right?

1listnum "WP List 3" \l 12638            MR. GRIEVE:  Yes, that's right.

1listnum "WP List 3" \l 12639            MR. TACIT:  ­Okay.

1listnum "WP List 3" \l 12640            I would like to take you now to page 59 of your supplementary material, and it's part way into paragraph 137, if you could turn there with me, please?

1listnum "WP List 3" \l 12641            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12642            MR. TACIT:  ­Now, starting at the very bottom of the paragraph, not in the footnote portion but in the paragraph itself, right at the end ‑‑

1listnum "WP List 3" \l 12643            MR. GRIEVE:  Paragraph 137?

1listnum "WP List 3" \l 12644            MR. TACIT:  ­Yes.  ­It says:

                      "If prices were to continue to be compensatory every time the Commission removed some costs from Phase II it would have had to raise the mark up, yet that is not what the Commission has done.  It has simultaneously removed costs from Phase II and lowered the mark up.  In Decision 2007‑45, and again in Telecom Decision CRTC 2002‑‑34, it abandoned the pricing principle of fully compensatory prices by omitting costs it had previously included in the mark up."  (As read)

1listnum "WP List 3" \l 12645            MR. GRIEVE:  Correct.

1listnum "WP List 3" \l 12646            MR. TACIT:  ­Now, first of all, can you confirm for me that in Decision 2007‑45, the Commission wasn't setting rates for individual competitor services, but rather quantifying the total subsidy requirement for the new contribution regime?

1listnum "WP List 3" \l 12647            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12648            MR. TACIT:  ­Okay.  Second, can you confirm that in paragraph 232 of Telecom Decision 2002‑34, which did involve a review of the methodology for setting rates for competitor services ‑‑

1listnum "WP List 3" \l 12649            MR. GRIEVE:  Which paragraph again?

1listnum "WP List 3" \l 12650            MR. TACIT:  ­Paragraph 232 of Telecom Decision 2002‑34, and that's at page 21 of the package I gave you, if you want to look at that.

1listnum "WP List 3" \l 12651            THE SECRETARY:  That would be an exhibit, Mr. Tacit.

1listnum "WP List 3" \l 12652            MR. TACIT:  ­That will be an exhibit.

1listnum "WP List 3" \l 12653            THE SECRETARY:  And it will be Cybersurf Exhibit No. 4.

1listnum "WP List 3" \l 12654            MR. TACIT:  ­Thank you.

                      EXHIBIT CYBERSURF‑4:  Paragraph 232 of Decision 2002‑34

1listnum "WP List 3" \l 12655            MR. GRIEVE:  Two thirty...?

1listnum "WP List 3" \l 12656            MR. TACIT:  ­Paragraph 232.

1listnum "WP List 3" \l 12657            MR. GRIEVE:  ­Thank you.

1listnum "WP List 3" \l 12658            MR. TACIT:  ­Now, you see it says there:

                      "The Commission considers that a mark up of 15 percent on each ILEC's Phase II costs for Category 1 competitor services, subject to mandated cost‑based pricing, will provide sufficient contribution towards the recovery of each ILEC's fixed common expenses and the embedded cost differential."  (As read)

1listnum "WP List 3" \l 12659            Do you see that?

1listnum "WP List 3" \l 12660            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12661            MR. TACIT:  ­Okay.  So the Commission wasn't ignoring these cost categories.  What there is is simply a difference of opinion between TELUS and the Commission as to whether the 15 percent mark up is enough of a contribution.

1listnum "WP List 3" \l 12662            MR. GRIEVE:  Yes, that's right.  In fact, it was when I read this portion of the price cap decision, I said, Well, at least they have backed away from throwing out our embedded costs, but now it's just a question of how much of the embedded cost differential is the Commission allowing us.

1listnum "WP List 3" \l 12663            What's interesting about this particular decision is that by adopting a uniform 15 percent mark up in the analysis the Commission did in this decision, it really started with saying, okay, we are going to start with the 15 percent mark up and see if it covers fixed common costs, it does for all of the ILECs, and, well, whatever's left over, that will be enough for the embedded cost differential.

1listnum "WP List 3" \l 12664            So we don't actually see any analysis in here about how the Commission determines whether the amount of percentage left over was actually sufficient for any company to recover any proportional share.

1listnum "WP List 3" \l 12665            What we had asked for was what the Commission had done in the past, which was compared Phase II to Phase III, which was the old revenue requirement analysis and say, what is the average mark up needed over Phase II costs across all of the services to get to that notional revenue requirement?

1listnum "WP List 3" \l 12666            Now, we don't have Phase III any more, but that was the notion.  The Commission had backed away from that analysis and sort of done this backward ‑‑ you know, sort of looking back analysis, starting with 15 percent saying, will that recover fixed common costs?  Yes, it will.  Whatever's left over, which is a different percentage amount for each company, will be a contribution to the embedded cost differential.

1listnum "WP List 3" \l 12667            So there's nothing in this decision that actually explains how the Commission determined that for each of those individual companies this would be sufficient for them because it's different for each one.

1listnum "WP List 3" \l 12668            MR. TACIT:  Nevertheless, all I am getting at here, the point is the Commission didn't ignore these cost categories, there is simply a difference of opinion between TELUS as to whether the market..  So, in a sense, what you are really trying to do is get a review and variance of this.

1listnum "WP List 3" \l 12669            I am not suggesting there is anything improper, because pricing is part of this proceeding.  But you are really trying to change the Commission's mind about the quantum of the mark‑up, right?

1listnum "WP List 3" \l 12670            MR. GRIEVE:  The Commission asked us, in this proceeding, to talk about pricing principles.  We welcomed the opportunity, as I am sure you can imagine, to go back and remind the Commission of the costs that it has pulled out of Phase 2 since 1999, the kinds of proxies it has put in Phase 2 studies, the way that Phase 2 costs have dropped, not because the costs of the companies have dropped, but because of the things that were pulled out, and to re‑look at the mark‑up and the principle of what the mark‑up should be.

1listnum "WP List 3" \l 12671            And here, the principle that the Commission seems to be talking about is to cover fixed common costs, which is good, we are good with that.  And then they say a sufficient contribution towards the recovery of each ILEC's fixed common expenses which ends up being, by the evidence in that proceeding, a different percentage for each ILEC, but no analysis about whether each ILEC is actually getting a sufficient amount.

1listnum "WP List 3" \l 12672            MR. TACIT:  Yes, I think you have made your point there.

1listnum "WP List 3" \l 12673            THE CHAIRPERSON:  Just so that I understood it, Mr. Grieve.  If I understand you correctly, then that you don't really have a problem with the principle that we applied, you just don't like the methodology and the evidence that we used in the outcome?

1listnum "WP List 3" \l 12674            MR. GRIEVE:  The principle, partial yes.  The principle that you applied was Phase 2 plus fixed common costs.  And if we assume that Phase 2 costs are, you know, company specific, then the mark‑up should cover fixed common costs plus, in our view, a proportionate share of the embedded cost differential.  There is no analysis by the Commission in this decision of a proportionate share.

1listnum "WP List 3" \l 12675            THE CHAIRPERSON:  I got that.

1listnum "WP List 3" \l 12676            MR. GRIEVE:  Okay.

1listnum "WP List 3" \l 12677            THE CHAIRPERSON:  Thanks.

1listnum "WP List 3" \l 12678            MR. TACIT:  So, just moving on from that point, as I understand it TELUS then wants to increase prices to what it considers fully compensatory levels over the three to five‑year transition period for non‑essential services, correct?

1listnum "WP List 3" \l 12679            MR. GRIEVE:  Actually, our proposal would be that when the costing is redone, and actually we have a Phase 2 costing review going on at the same time or it is a partial Phase 2 costing review because some things are not in it, but once we get a costing review done and the principles established here, which we would hope would include proportionate share of the embedded cost differential, then we would know what that rate for each of these Category 1 competitor services would be.

1listnum "WP List 3" \l 12680            Then, what the Commission would do is allow prices to move toward that level during the transition period, but it doesn't mean that the ILEC must raise them to those levels, because at some point during the transition we actually expect that the market is not going to allow us to get there.

1listnum "WP List 3" \l 12681            MR. TACIT:  Just for clarity on the record, you agree with me that mark‑ups is not part of that other Phase 2 proceeding?

1listnum "WP List 3" \l 12682            MR. GRIEVE:  That is right.  The quantum of the mark‑up would have to be in the proceeding that follows.  This proceeding is about pricing principles and mark‑up is an important part of pricing.  The other one is just the Phase 2 costs, yes.

1listnum "WP List 3" \l 12683            MR. TACIT:  Thank you.  Okay, now in considering what TELUS considers to be fully compensatory costs, I believe one of TELUS' complaints about the current situation is that there are two types of costs that are not identifiable in a Phase 2 cost study.  The first, is the cost of assets that have not been fully depreciated due to regulatory depreciation rules, the fact that they are no longer producing revenue, and the costs that TELUS incurs as a carrier of last resort.  Is that correct?

1listnum "WP List 3" \l 12684            MR. GRIEVE:  Yes, well, the first one is included in the embedded cost differential. The second one, the Commission has said in the past that the carrier of last resort costs are included in Phase 2.  We found that quite startling, not when the Commission said it, but when Bell said it, because it is only true if you get the fill factors right and the fill factors is a measure of the percentage of your network that you are actually using.  And the Commission, in our view, did not get the fill factors right because they are not using company‑specific fill factors, so they can't possibly be accounting for that.

1listnum "WP List 3" \l 12685            MR. TACIT:  But if we look at paragraph 65 of Decision 2000‑745 ‑‑ and that is another exhibit, Madam Secretary ‑‑ which is at page 17 of that package.  The excerpt starts at page 15, but I am looking at page 17.  The Commission is of the view there that the ILEC's Phase 2 costs includes the obligation to serve, correct?

1listnum "WP List 3" \l 12686            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12687            MR. TACIT:  Now, I know so what we ‑‑

1listnum "WP List 3" \l 12688            MR. GRIEVE:  That is what they say, yes.

1listnum "WP List 3" \l 12689            MR. TACIT:  ‑‑ have here again is a difference on the interpretation of the right quantum, but not whether conceptually the Commission did what you are asking.  It is in the application of the principle that you have a disagreement with the Commission?

1listnum "WP List 3" \l 12690            MR. GRIEVE:  Yes, I would say that.

1listnum "WP List 3" \l 12691            MR. TACIT:  Okay.  Now, going back to the depreciation issue for a minute.  That complaint would seem to suggest that TELUS has some sort of a stranded investment problem.  Does TELUS believe it has such a problem?

1listnum "WP List 3" \l 12692            MR. GRIEVE:  I actually haven't looked at that, Mr. Tacit.  What we were trying to do is get all the principles down that the Commission would have to consider in that.  What is interesting is all of those factors that we articulated in there, if you got a mark‑up that covered the difference between Phase 2 and Phase 3, all of that stuff is automatically taken care of.

1listnum "WP List 3" \l 12693            MR. TACIT:  No, I understand that that is your prescription, but I am not talking about the prescription.  I am trying to figure out whether we have a problem and to quantify it a bit.

1listnum "WP List 3" \l 12694            MR. GRIEVE:  I haven't tried to quantify.

1listnum "WP List 3" \l 12695            MR. TACIT:  Okay, so you don't really know if you have a problem?

1listnum "WP List 3" \l 12696            MR. GRIEVE:  That is right.

1listnum "WP List 3" \l 12697            MR. TACIT:  Okay.  Well, let me help you a bit with that.

1listnum "WP List 3" \l 12698            MR. GRIEVE:  Well, we have stranded assets, but I don't know ‑‑

1listnum "WP List 3" \l 12699            MR. TACIT:  But not through the regulatory ‑‑

1listnum "WP List 3" \l 12700            MR. GRIEVE:  I don't know.

1listnum "WP List 3" \l 12701            MR. TACIT:  Okay.  Specifically, would you expect that if you had such a problem and it was material it would be disclosed in the company's financial reports?

1listnum "WP List 3" \l 12702            MR. GRIEVE:  Certainly, if it were material it would likely be there.

1listnum "WP List 3" \l 12703            MR. TACIT:  Now, I have looked at TELUS' 2006 annual financial statements and MD&A in preparation for this cross‑examination and I certainly couldn't find anything that would suggest that.  Are you aware of anything I those documents that would suggest that?

1listnum "WP List 3" \l 12704            MR. GRIEVE:  No, but I could undertake to see if we have made reference to that for you.

1listnum "WP List 3" \l 12705            MR. TACIT:  Okay.  I do want to take you through a couple of things in there that would suggest there is no such problem.

1listnum "WP List 3" \l 12706            THE SECRETARY:  Sorry, Mr. Tacit, which document, this one?

1listnum "WP List 3" \l 12707            MR. TACIT:  Yes, it starts at page 23 of the package, the 2006 financial review.

1listnum "WP List 3" \l 12708            And if we look at page 25 for a minute, which sets out segmented statistics for TELUS' wireline and wireless business.  We see, for example, a fairly healthy EBITDA for the wireline segment, correct?

1listnum "WP List 3" \l 12709            MR. GRIEVE:  Just hang on a second.  Yes, I see it.

1listnum "WP List 3" \l 12710            MR. TACIT:  All right.  Now, I have reproduced pages 31 to 32.  In pages 31 to 32 the section that deals with depreciation and amortization of company assets, tangible and intangible.  And again, I haven't seen any mention in there of any stranded investment problem due to regulatory issues.

1listnum "WP List 3" \l 12711            MR. GRIEVE:  No, I said I wasn't aware of any.  But I could check to see if there are places where we have talked about it.

1listnum "WP List 3" \l 12712            MR. TACIT:  Okay.

1listnum "WP List 3" \l 12713            MR. GRIEVE:  So would you like me to undertake to do that?

1listnum "WP List 3" \l 12714            MR. TACIT:  Yes, please go ahead and do that.

1listnum "WP List 3" \l 12715            MR. GRIEVE:  Okay.

1listnum "WP List 3" \l 12716            MR. TACIT:  And the other undertaking I would like from you is if you could tell me what instances there are where the Commission has required TELUS to depreciate assets over longer periods than what TELUS has requested.

1listnum "WP List 3" \l 12717            MR. GRIEVE:  Okay, we can do that.

1listnum "WP List 3" \l 12718            MR. TACIT:  And, if so, if you could quantify the impact, in a global way, I don't want you to quantify it by decision.  But if you have some sort of a global estimate of any impact as of today.

1listnum "WP List 3" \l 12719            MR. GRIEVE:  We can try that.

1listnum "WP List 3" \l 12720            MR. TACIT:  Okay.

1listnum "WP List 3" \l 12721            MR. GRIEVE:  Without getting too granular, we can..

1listnum "WP List 3" \l 12722            MR. TACIT:  Yes, of course, I understand that.

1listnum "WP List 3" \l 12723            MR. GRIEVE:  Okay, thanks.

1listnum "WP List 3" \l 12724            MR. TACIT:  Now, I guess what I would like to suggest to you is that if we go too far afield with increasing the mark‑ups to recover more of this embedded cost differential, what it is really going to amount to is a guaranteed income source for TELUS that is going to provide it some shelter from competition at the retail level.

1listnum "WP List 3" \l 12725            And the reason I say that is because, of course, you are only going to be able to increase the mark‑ups on those services because the demand for those wholesale services is inelastic.  Otherwise, presumably, if you felt you had a problem and you could recover it from other services TELUS would already be doing that, wouldn't it?

1listnum "WP List 3" \l 12726            MR. GRIEVE:  Well, first of all, those service are not inelastic, they are not essential facilities and we have a five‑year transition period over which the incentives for people to build and the opportunities for a competitive market and wholesale facilities will develop.  I said to you before, I actually don't expect to get there, but it has be a reliance on market forces to decide where we end up with those prices during the transition period.

1listnum "WP List 3" \l 12727            Now, on essential facilities themselves, to the extent there are any, we would be looking to go there.  But that is not, for the small number of essential facilities, that doesn't give you any degree of comfort on recovering revenues that you might otherwise.  And all we are asking for is a proportionate share of the embedded cost differential from those services, not in excess of the proportional share.

1listnum "WP List 3" \l 12728            MR. TACIT:  Well, but since the exercise of market power in wholesale isn't really relevant under the TELUS essential facilities test, except where you get the extreme case of a monopoly supply, I suggest to you that it is entirely possible that you could have significant market power and, therefore, relatively inelastic demand with respect to some wholesale services.  What allowing this kind of increase in margins would mean is that it would be a sheltered source of revenue for the company, a subsidy in effect.

1listnum "WP List 3" \l 12729            MR. GRIEVE:  Well, it is certainly not a subsidy.  From my perspective, I just don't accept that you are going to have a situation at the end of this transition period where there is going to be the ability of an ILEC to abuse market power in wholesale services.  There are all sorts of reasons why that is just not going to make any sense for us to try to do that, the most obvious of which is the duplicability of the service.

1listnum "WP List 3" \l 12730            That is what reliance on market forces means.  The Commission has a choice:  rely on market forces or rely on regulation.

1listnum "WP List 3" \l 12731            We are saying that you have a golden opportunity now over the next five years, or three to five years, to transition out of this when prices start to rise, find their market levels and rely on market forces.

1listnum "WP List 3" \l 12732            MR. TACIT:  So, as I understand it, you are giving a two‑part response.

1listnum "WP List 3" \l 12733            You are saying with regard to non‑essential services, it is unlikely that they are going to be relatively inelastic.

1listnum "WP List 3" \l 12734            Is that what your claim is?

1listnum "WP List 3" \l 12735            MR. GRIEVE:  Right.

1listnum "WP List 3" \l 12736            MR. TACIT:  Okay.  With regard to essential services, there are so few that we don't really need to worry about it that much anyway.

1listnum "WP List 3" \l 12737            MR. GRIEVE:  But it wouldn't be a subsidy anyway, to use your words, Mr. Tacit, because they would be paying no more than their proportionate share of the imbedded cost differential, which would be a small amount.

1listnum "WP List 3" \l 12738            MR. TACIT:  What if it turned out that the number of essential services is significantly greater than what TELUS is asking for, though?  Could there not be a significant benefit to TELUS of getting that increased amount?

1listnum "WP List 3" \l 12739            MR. GRIEVE:  Well, it's the same answer.  There aren't a lot being sold.  And if these things really are essential facilities, then there is no reason why the company shouldn't have regulated rates for those things that are essential facilities, and no reason why they shouldn't recover their proportionate share.

1listnum "WP List 3" \l 12740            MR. TACIT:  Again, because if there is market power, there is market power; too bad.

1listnum "WP List 3" \l 12741            MR. GRIEVE:  Well, if they are not essential facilities, they can be duplicated.

1listnum "WP List 3" \l 12742            You said if they are essential facilities.

1listnum "WP List 3" \l 12743            MR. TACIT:  Right.

1listnum "WP List 3" \l 12744            MR. GRIEVE:  And I say if they are essential facilities, then they can't be duplicated.  In that case, there is no reason why regulation shouldn't allow them to be responsible for a proportionate share of the imbedded cost differential, plus the fixed common costs, a proportionate share of that as well.

1listnum "WP List 3" \l 12745            MR. TACIT:  I guess what I would like to ask you then is:  Is it efficient economically in terms of trying to encourage facilities builds by other parties to make their threshold, the costs that they have to overcome in order to make it financially viable for them to build, is it reasonable for them to be saddled with a significant portion of TELUS' past regulatory problems?

1listnum "WP List 3" \l 12746            Is that an efficient way of allocating resources in the marketplace?

1listnum "WP List 3" \l 12747            MR. GRIEVE:  Well, that's probably a question better left to the economists, but let me just make this comment:  that one of the purposes of opening the market to competition in 1992 to facilities‑based competition in the long distance market and later the local market, as TELUS requested in 1993, one of the purposes of that was to replace regulation with competition, regulation with market forces, because the market forces would determine how much of that kind of imbedded cost differential you would actually be allowed to recover.

1listnum "WP List 3" \l 12748            We accepted the risk of going into a competitive market.  We accepted the risk that we might not be able to recover that.

1listnum "WP List 3" \l 12749            But to the extent that we have monopoly supplied facilities, which is what essential facilities are, then those have to be continued to be regulated under a just and reasonable rate standard.  And a just and reasonable rate standard calls for the recovery of costs.

1listnum "WP List 3" \l 12750            MR. TACIT:  Okay.  But I guess my question is slightly different.

1listnum "WP List 3" \l 12751            You said you wanted the Commission to follow the policy direction.  You say the policy direction is concerned with encouraging the construction of facilities and facilities builds.  What I'm asking you is:  Where is the balance?

1listnum "WP List 3" \l 12752            To the extent that the Commission has discretion as to how much recovery to allow you of the imbedded cost differential, what I understand TELUS' position to be is it should be 100 per cent.  It doesn't matter what the impact on construction of facilities is.

1listnum "WP List 3" \l 12753            MR. GRIEVE:  Well, Mr. Tacit, I mean, the idea is that you are supposed to be competing against the company that you see in the market, the ILEC in the market, not some hypothetical company.  But we are talking here about essential facilities.  So they are by definition not duplicable.  Right?

1listnum "WP List 3" \l 12754            MR. TACIT:  Well, according to your test.

1listnum "WP List 3" \l 12755            MR. GRIEVE:  Well, according to the test for essential facilities, non‑duplicability.  And it's just in about everyone else's test in this room.  That's the test.

1listnum "WP List 3" \l 12756            So if it's not duplicable and it's monopoly supplied, which it would be if it's not duplicable, then you charge a fully compensatory rate.  That's our position.

1listnum "WP List 3" \l 12757            MR. TACIT:  And no matter what the impact is on facilities incentives for others.

1listnum "WP List 3" \l 12758            You have said yourself that what ‑‑

1listnum "WP List 3" \l 12759            THE CHAIRPERSON:  I think you have made your point.  You are making submissions now.

1listnum "WP List 3" \l 12760            Why don't you move on.

1listnum "WP List 3" \l 12761            MR. TACIT:  Thank you.  Those are my questions, Mr. Chairman.

1listnum "WP List 3" \l 12762            THE CHAIRPERSON:  Go ahead.

1listnum "WP List 3" \l 12763            COMMISSIONER CRAM:  So, if I understand you correctly, let's just say ‑‑ I forget who said we should make the local loop in the higher bounds essential.

1listnum "WP List 3" \l 12764            For the purposes of essentiality, we would cost it ILEC‑specific with the appropriate working fill factors and everything else.  But for the purposes of contribution, the rebanding decision would still apply?

1listnum "WP List 3" \l 12765            MR. GRIEVE:  You would have to ‑‑ the short answer is yes, it still applies.

1listnum "WP List 3" \l 12766            COMMISSIONER CRAM:  Okay.

1listnum "WP List 3" \l 12767            MR. GRIEVE:  The longer answer is it's scheduled for review I think either in 2008 or 2009, the contribution mechanism.

1listnum "WP List 3" \l 12768            COMMISSIONER CRAM:  Darn, I won't be around to do it again.  Thank you.

1listnum "WP List 3" \l 12769            Thank you, Mr. Chair.

1listnum "WP List 3" \l 12770            THE CHAIRPERSON:  I think we will take a ten‑minute break now.  Thank you.

‑‑‑ Upon recessing at 1019 / Suspension à 1019

‑‑‑ Upon resuming at 1034 / Reprise à 1034

1listnum "WP List 3" \l 12771            THE CHAIRPERSON:  Madam Secretary, who is next?

1listnum "WP List 3" \l 12772            THE SECRETARY:  I'm calling on Xittel Inc.

1listnum "WP List 3" \l 12773            Mr. Denton, please step forward.

‑‑‑ Pause

1listnum "WP List 3" \l 12774            THE CHAIRPERSON:  Mr. Denton, the floor is yours.


1listnum "WP List 3" \l 12775            MR. DENTON:  Good morning, Mr. Chairman, Commissioners.

1listnum "WP List 3" \l 12776            I think, like me, you like to know where questions are going and where we are coming from, because it helps to frame one's understanding of these obscure little points of factor doctrine that we are getting at.

1listnum "WP List 3" \l 12777            I basically think that what we are dealing with here is some basic narratives.  What is the story?

1listnum "WP List 3" \l 12778            The story that we are dealing with from our learned friends from TELUS is that essential facilities need to be cut back; that an error has been made; and that investments can only properly be made, and should be made, when this excessive expansion of essential facilities is cut back.

1listnum "WP List 3" \l 12779            So it's basically give us the tools and we'll do the job.  It's a common theme we have heard from regulated companies.

1listnum "WP List 3" \l 12780            The narrative that the Internet service providers will take is equally simple, which is to say that if this hearing only concerns rearrangements of income among players in this room, it is not finally of terribly great significance, though it may be unfortunate for some of us; and that the real issue here always will remain:  What effect will all of this have on Canadians in terms of their access to services through and by the Internet and what will be the power position of carriers vis‑à‑vis service suppliers and consumers through Internet delivered services?

1listnum "WP List 3" \l 12781            And we say the outcome could possibly be quite negative.

1listnum "WP List 3" \l 12782            So that's our story and we're sticking to it.

1listnum "WP List 3" \l 12783            Our questions will be framed in relation to the notion of addressing the questions of incentives to invest and what has actually happened.

1listnum "WP List 3" \l 12784            So my first set of questions for TELUS is based on the Telecommunications Monitoring Report of 2006, which will take you a little while to open up, and looking at Table 4.1.2.

1listnum "WP List 3" \l 12785            So take your time.  It is just a matter of fact.

‑‑‑ Pause

1listnum "WP List 3" \l 12786            MR. TASKER:  Yes, we have it here.

1listnum "WP List 3" \l 12787            MR. DENTON:  If we look at Table 4.1.2, we see in terms of the long distance a decline of 7.9 per cent, the CAGR between 2002 and 2005.

1listnum "WP List 3" \l 12788            MR. TASKER:  Sorry, the table doesn't show percentages, but I see the decline.

1listnum "WP List 3" \l 12789            Table 4.1.2?

1listnum "WP List 3" \l 12790            MR. DENTON:  Table 4.1.2, Segmented Telecommunications Service Revenues.

1listnum "WP List 3" \l 12791            MR. TASKER:  My mistake.  I was looking at the Figure.

1listnum "WP List 3" \l 12792            MR. DENTON:  I do that all the time.

1listnum "WP List 3" \l 12793            MR. TASKER:  Okay; thank you.

1listnum "WP List 3" \l 12794            MR. DENTON:  So we see that it has declined 7.9 per cent, and we see immediately below it that Internet based revenues have climbed in the same period, on average, 11.3 per cent.

1listnum "WP List 3" \l 12795            MR. TASKER:  I see that.

1listnum "WP List 3" \l 12796            MR. DENTON:  I'm asking you to reflect on the significance of this and say:  Does this indicate a long‑term shift of revenue away from PSTN‑based sources toward Internet access?

1listnum "WP List 3" \l 12797            MR. TASKER:  I believe that is a fair statement.

1listnum "WP List 3" \l 12798            MR. DENTON:  Thank you.

1listnum "WP List 3" \l 12799            I'm going to shift you again to the 2007 Telecom Monitoring Report, at the same Table 4.1.2.

1listnum "WP List 3" \l 12800            MR. TASKER:  Yes.

1listnum "WP List 3" \l 12801            MR. DENTON:  And we look again at the long distance and we see that it has declined by 8.2 per cent CAGR in the studied period.

1listnum "WP List 3" \l 12802            MR. TASKER:  I see that.

1listnum "WP List 3" \l 12803            MR. DENTON:  And we also see an 11.3 per cent increase in the Internet.

1listnum "WP List 3" \l 12804            MR. TASKER:  Yes.

1listnum "WP List 3" \l 12805            MR. DENTON:  And interestingly, a new category is added, dear to our hearts, called Legacy Data and Private Line.

1listnum "WP List 3" \l 12806            Do you see that one farther down?

1listnum "WP List 3" \l 12807            MR. TASKER:  Yes.

1listnum "WP List 3" \l 12808            MR. DENTON:  And Newer Data Protocols.

1listnum "WP List 3" \l 12809            Again, I invite you to observe the same pattern:  that newer data protocols are going up 29 per cent in the study period and legacy and private line are declining 7.8 in the same period.

1listnum "WP List 3" \l 12810            MR. TASKER:  Yes.

1listnum "WP List 3" \l 12811            MR. DENTON:  Would you agree with me that these newer data protocols are based on the Internet protocol, by and large?

1listnum "WP List 3" \l 12812            MR. TASKER:  I think by and large, but I think there is also another pack of protocols in there.

1listnum "WP List 3" \l 12813            MR. DENTON:  Yes.

1listnum "WP List 3" \l 12814            MR. TASKER:  But yes, essentially there is a lot of IP involved in that number.

1listnum "WP List 3" \l 12815            MR. DENTON:  Okay.  I invite you to ponder the following question, which is:  Is it true that we are moving to an all IP‑based infrastructure where the previous protocol, Time‑Division Multiplexing, the circuit switching, is an increasingly obsolescent legacy architecture?

1listnum "WP List 3" \l 12816            MR. TASKER:  It is true that is the direction we are moving.  You may question how long it's going to take us to get there for sure.  People predicted the end of private line ten years ago.

1listnum "WP List 3" \l 12817            But yes, it's a fair statement that that is the direction we are going.

1listnum "WP List 3" \l 12818            MR. DENTON:  I understand these questions may provide us with our pensions for the rest of our career, but they may not.

1listnum "WP List 3" \l 12819            In any case, we have agreed then the general thrust of the technology and that it's moving to a more increased IP platform.

1listnum "WP List 3" \l 12820            Mr. Grieve, did you have any wisdom to add to this observation?

1listnum "WP List 3" \l 12821            MR. GRIEVE:  No.

1listnum "WP List 3" \l 12822            MR. DENTON:  I would like us to move, if we can, to Table 4.5.5 of the 2007 Monitoring Report ‑‑ for which, by the way, I just can't say enough to the CRTC for collecting and showing this data.

1listnum "WP List 3" \l 12823            MR. TASKER:  Table 4.5.5?

1listnum "WP List 3" \l 12824            MR. DENTON:  Yes.

1listnum "WP List 3" \l 12825            MR. TASKER:  Yes, we see that.

1listnum "WP List 3" \l 12826            MR. DENTON:  This is the private line market.  It says Private Line Service Retail and Wholesale Revenues by Service Category.  These are the ones to which competitors have mandated access.

1listnum "WP List 3" \l 12827            You will notice the point I'm going to address here is differences between retail and wholesale.

1listnum "WP List 3" \l 12828            I draw your attention to the decline in short haul wholesale from 2002 to 2006.  I see a decline here of 16.2 per cent.

1listnum "WP List 3" \l 12829            If we look for the retail figures for the same category of service in the same years, we see a decline of 4.9 per cent.

1listnum "WP List 3" \l 12830            MR. TASKER:  Yes.

1listnum "WP List 3" \l 12831            MR. DENTON:  So, likewise, when we look at the long haul market, we see the same disparities between changes in the retail and changes in the wholesale.

1listnum "WP List 3" \l 12832            For instance, we notice in the retail the drop was 5.6 per cent, whereas in the wholesale the drop was more significant, at 13.7 per cent.

1listnum "WP List 3" \l 12833            We did our arithmetic and the rate of decrease is 3.3 times greater in the wholesale short haul than in the retail short haul.

1listnum "WP List 3" \l 12834            My question for you is:  How do you explain the relatively greater drop of revenue in the wholesale than in the retail markets?

1listnum "WP List 3" \l 12835            MR. TASKER:  I see that is a very simple answer.  Those are revenues that are being measured in this table and with the CDN and the CDNA pricing changes, that brought about a significant drop in the wholesale revenues but not equivalently on the retail side.

1listnum "WP List 3" \l 12836            It wasn't actually a reflection of the number of circuits, I don't believe.

1listnum "WP List 3" \l 12837            MR. DENTON:  Can I have that again, please.

1listnum "WP List 3" \l 12838            I'm sorry, I'm just processing your information.

1listnum "WP List 3" \l 12839            MR. TASKER:  Sure.  This is showing revenues.

1listnum "WP List 3" \l 12840            MR. DENTON:  Yes.

1listnum "WP List 3" \l 12841            MR. TASKER:  There was the introduction of the CDN tariffs, both CDN access and CDN, the IX portion of that, and that resulted in a significant reduction in the price that we charge for wholesale services.

1listnum "WP List 3" \l 12842            Therefore, the revenues have declined significantly compared to the retail side where there wasn't the same sort of tariffed reduction.

1listnum "WP List 3" \l 12843            MR. DENTON:  Right.

1listnum "WP List 3" \l 12844            So then on the whole the private line represents the older generation of TDM and other protocols from which we are evolving?

1listnum "WP List 3" \l 12845            MR. TASKER:  That's correct.

1listnum "WP List 3" \l 12846            MR. DENTON:  Thank you.

1listnum "WP List 3" \l 12847            MR. TASKER:  It is probably worth clarifying that as a result of the CDN and CDNA tariff, those same private line circuits have been used for a lot of IP‑based services because of the cheaper form of access.

1listnum "WP List 3" \l 12848            MR. DENTON:  All right.

1listnum "WP List 3" \l 12849            Continuing on the theme of technological transformation ‑‑ and this may be one for Mr. Grieve; I don't know ‑‑ are you still buying any switches based on TDM architecture, or have you moved to an all IP‑based?

1listnum "WP List 3" \l 12850            MR. TASKER:  There are certainly still assets that we need to purchase on both TDM side and the IP side.

1listnum "WP List 3" \l 12851            MR. DENTON:  What kind of assets are you buying on the TDM side?

1listnum "WP List 3" \l 12852            MR. TASKER:  Well, as I said, we continue to provision quite aggressively ‑‑ aggressively is not the right word.

1listnum "WP List 3" \l 12853            But on the wholesale side there is a much higher volume of TDM access circuits now than there was prior to the CDN decision.

1listnum "WP List 3" \l 12854            For example, we are provisioning DS3 circuits in order for competitors to provide E10 services, their Ethernet services.  So that requires things like cards, new cards on our CL gear.

1listnum "WP List 3" \l 12855            MR. DENTON:  In terms of net direction of where you want to go, I think you said before that you are moving to IP.

1listnum "WP List 3" \l 12856            MR. TASKER:  Our strategic investments are certainly more based on IP technology, for sure.

1listnum "WP List 3" \l 12857            MR. DENTON:  Thank you.

1listnum "WP List 3" \l 12858            I notice at page 5, paragraph 11, of your main evidence, TELUS wrote that:

                      "Technological change has allowed cable companies to bypass dependence on the framework of forced sharing and artificially low prices by adapting their own existing networks to provide telephone service."

1listnum "WP List 3" \l 12859            MR. TASKER:  Yes.

1listnum "WP List 3" \l 12860            MR. DENTON:  So would you agree with me that the technological change in question was the increased functionality that cable companies could get out of their systems by the use of Internet protocols, which had the effect of rendering their facilities more flexible and multi purpose?

1listnum "WP List 3" \l 12861            MR. TASKER:  Certainly the cable companies have exploited the benefits of IP.

1listnum "WP List 3" \l 12862            MR. DENTON:  You say at several points in your evidence that the Commission departed from the true path of competition by incremental decisions, extending the range of services which could be unbundled.

1listnum "WP List 3" \l 12863            For instance, you call for a "return to the pursuit of its original vision" of facilities‑based competition in paragraph 5, and later make reference to Commission decisions of 1979 and 1997.

1listnum "WP List 3" \l 12864            Would you agree with me that there was a policy fashion in the mid‑1990s for unbundling and access to network elements?

1listnum "WP List 3" \l 12865            MR. GRIEVE:  Yes, it was a fad.

1listnum "WP List 3" \l 12866            MR. DENTON:  Would you agree with me that the 1996 U.S. Telecommunications Act was predicated on the notion that significant competition, that is more than Telco cable duopoly, could arise from the unbundling of network elements?

1listnum "WP List 3" \l 12867            MR. GRIEVE:  That's what it says, that's what the news releases said, but interestingly when Reid Hunt was here in the summer of 2005 speaking at the Telecom Policy Review Forum he said, "Look, the practical purpose of the Telecom Act of 1996 was to transfer customers and revenues from the RBOCs, about 40 per cent to the IXCs and customers and revenues from the IXCs, about 40 per cent to the RBOCs and let them dosey doe in the market."

1listnum "WP List 3" \l 12868            And his advice was, after that that the more ‑‑ first of all he said, "We forgot to factor in the Internet and we forgot to factor in wireless".  And then he went on to say, "If you make your regulatory framework and you're trying to micro manage these kinds of things it's too complex and it won't work."

1listnum "WP List 3" \l 12869            So, the purpose of the Act, the way it's stated is competition, the reality was market management.

1listnum "WP List 3" \l 12870            MR. DENTON:  Mr. Grieve, thank you very much for that point, that we forgot to factor in the Internet, that's a fundamental concern to us all whatever side we take on this essential services proceedings, and I quite agree with you that competition came in from a wholly different direction than that which was foreseen and that competition and PSE and services is competition and buggy whips.

1listnum "WP List 3" \l 12871            So, would you say that Telecom decision 97‑8 was also predicated on the same assumption that it would lead more to a cable Telco duopoly?

1listnum "WP List 3" \l 12872            MR. GRIEVE:  I think decision 97‑8 contemplated cable entry but the regime was set up and the expectation that after the five‑year transition period, or during that five‑year transition period people would be allowed to get started and get going in the market and then the mandated unbundling of non‑essential facilities, which was everything but loops in the high‑cost areas, would fall away.

1listnum "WP List 3" \l 12873            So, I guess the short answer is, it was the same general idea but far less extensive.

1listnum "WP List 3" \l 12874            MR. DENTON:  Thank you.  So, how would you explain the rise of the policy fashion for unbundled network elements?

1listnum "WP List 3" \l 12875            MR. GRIEVE:  Well, I think, you know, the source of it was the U.S. frustration I think with the failure of divestiture to do what it was supposed to do.  So, you'd have to ‑‑ I think it would be best to ask Dr. Wiseman or Dr. Crandall about where the fad started.

1listnum "WP List 3" \l 12876            MR. DENTON:  And so, how would you characterize the market experiment in unbundled network access which we've had for the past 10 years:  success, failure, interesting, useful?

1listnum "WP List 3" \l 12877            MR. GRIEVE:  You know, Mr. Denton, you've heard our evidence in this proceeding which is that the way the Commission proceeded has resulted in too much unbundling and, as a result of that too much unbundling, we ourselves, especially after CDNA and CDN, have invested less in facilities than we otherwise would have.

1listnum "WP List 3" \l 12878            But I think the very fact of opening up the local market and the fact that the cable companies have come in and the fact that there are other kinds of technologies being developed that are competing in that market means that the opening up of the market has been a success; the unbundling I don't think has been the success that people expected or hoped it would be.

1listnum "WP List 3" \l 12879            MR. DENTON:  Would you agree with me perhaps that the unbundling strategy of the Telecommunications Act in the United States of 1996 was successfully litigated by the incumbent telephone companies into complete ‑‑

1listnum "WP List 3" \l 12880            MR. GRIEVE:  After a couple of things that happened in 2002, I stopped paying attention to the United States unbundling regime because it was getting far more complex than it was worth my time to spend on it, but you should ask Dr. Crandall about it.

1listnum "WP List 3" \l 12881            MR. DENTON:  I appreciate the economy of your mental effort on U.S. regulatory policy.

‑‑‑ Laughter / Rires

1listnum "WP List 3" \l 12882            MR. GRIEVE:  Believe me, you're not the only one.

1listnum "WP List 3" \l 12883            MR. DENTON:  We'd now like to move to the discussion of your tariffs which I believe should have been distributed to you.

1listnum "WP List 3" \l 12884            These are asymmetrical digital subscriber line, ADSL services, access services, item 214.

1listnum "WP List 3" \l 12885            THE SECRETARY:  That will be Exhibit XITTEL No. 3.

                      EXHIBIT XITTEL‑3:  XITTEL Tariffs.

1listnum "WP List 3" \l 12886            MR. DENTON:  And 226.

1listnum "WP List 3" \l 12887            MR. GRIEVE:  Do you have an extra copy?  Sorry.

1listnum "WP List 3" \l 12888            THE CHAIRPERSON:  Madam Secretary, have you distributed those?

1listnum "WP List 3" \l 12889            MR. TASKER:  We have them here.

1listnum "WP List 3" \l 12890            MR. DENTON:  So, you'll recognize them, at least they purport to be from your company.

1listnum "WP List 3" \l 12891            And so, my first question is:  Are the services under tariff 214 commercially available?

1listnum "WP List 3" \l 12892            MR. TASKER:  Yes, they are.

1listnum "WP List 3" \l 12893            MR. DENTON:  Are you aware of whether any ISP has in fact used tariff item 214?

1listnum "WP List 3" \l 12894            MR. TASKER:  Yes, they have.

1listnum "WP List 3" \l 12895            MR. DENTON:  Do you know what size of numbers have availed themselves of 214?

1listnum "WP List 3" \l 12896            MR. TASKER:  Are you looking for a dollar value or number of suppliers ‑‑ number of customers?

1listnum "WP List 3" \l 12897            MR. DENTON:  Number of customers.

1listnum "WP List 3" \l 12898            MR. TASKER:  I think that would be considered confidential information.

1listnum "WP List 3" \l 12899            MR. DENTON:  All right.

‑‑‑ Pause

1listnum "WP List 3" \l 12900            MR. TASKER:  I think we can answer you that it's more than a dozen.

1listnum "WP List 3" \l 12901            MR. DENTON:  Thank you.  If ISPs relied on 214, which I believe does not have a transport component between the COs, would they have a greater incentive to build their own facilities for transport between central offices?

1listnum "WP List 3" \l 12902            MR. TASKER:  Yeah, I believe that's true, or have that provided by another supplier because there's many inter‑exchange suppliers of transport services.

1listnum "WP List 3" \l 12903            MR. DENTON:  If an ISP or someone who does not have access to sub‑loops, would you agree that the services identified in tariff 214 are the only way to reach the customer available from TELUS?

1listnum "WP List 3" \l 12904            MR. TASKER:  From TELUS, yes, that's true today.

1listnum "WP List 3" \l 12905            MR. DENTON:  All right.  In previous testimony Bell indicated that its gateway access service is not a mandated service.

1listnum "WP List 3" \l 12906            Is the same true in the case of TELUS' wholesale Internet ADSL service tariff item 226, switching tariffs on you.  The question is whether 226 is mandated?

1listnum "WP List 3" \l 12907            MR. TASKER:  Well, it is a tariffed item, so I believe...

1listnum "WP List 3" \l 12908            MR. DENTON:  It is certainly a tariff item, but nothing requires you to tariff it in that sense.  There was no decision I believe of the CRTC ‑‑

1listnum "WP List 3" \l 12909            MR. TASKER:  Oh, I see.

1listnum "WP List 3" \l 12910            MR. DENTON:  ‑‑ mandating you to supply it.

1listnum "WP List 3" \l 12911            MR. GRIEVE:  I think it was mandated.  Let me check.

1listnum "WP List 3" \l 12912            MR. DENTON:  That's a very interesting question, Mr. Grieve.  It's our information that it was never ‑‑ it was the subject of commercial negotiation.

1listnum "WP List 3" \l 12913            MR. GRIEVE:  226?

1listnum "WP List 3" \l 12914            MR. DENTON:  Yeah.

1listnum "WP List 3" \l 12915            MR. GRIEVE:  We'll have to check.  I know there was negotiation.

1listnum "WP List 3" \l 12916            MR. DENTON:  I believe that a service can be ‑‑ sorry.

1listnum "WP List 3" \l 12917            MR. GRIEVE:  Oh yeah.  This is the classic Canadian story in telecom.  Bell negotiated it and then we were mandated to provide it.

1listnum "WP List 3" \l 12918            MR. DENTON:  And you were mandated to provide it by a Telecommunication decision, order or...?

1listnum "WP List 3" \l 12919            MR. GRIEVE:  I think ‑‑ I'll take an undertaking, but it may have been a phone call.

1listnum "WP List 3" \l 12920            MR. DENTON:  Well, thank you for this exposé of how things really work in this country.

‑‑‑ Laughter / Rires

1listnum "WP List 3" \l 12921            MR. DENTON:  I wish I had that power.

‑‑‑ Off microphone / Hors microphone

1listnum "WP List 3" \l 12922            MR. DENTON:  Thank you, Mr. Chairman, I shall take that under advisement.

1listnum "WP List 3" \l 12923            MR. GRIEVE:  We'll take an undertaking to see if there was an order or decision, Mr. Denton.

1listnum "WP List 3" \l 12924            MR. DENTON:  I think that's ‑‑ thank you very much, Mr. Grieve.

1listnum "WP List 3" \l 12925            MR. GRIEVE:  Okay.

1listnum "WP List 3" \l 12926            MR. DENTON:  But your answer is wonderful.

1listnum "WP List 3" \l 12927            MR. GRIEVE:  I thought you'd like it.

1listnum "WP List 3" \l 12928            MR. DENTON:  No, it's delicious.

‑‑‑ Laughter / Rires

1listnum "WP List 3" \l 12929            MR. DENTON:  Would you agree with me that the rates for tariff 226 have been set at fully compensatory levels by a company TSI, an unregulated affiliate of TELUS free from any obligation to do so by the Commission?

1listnum "WP List 3" \l 12930            MR. GRIEVE:  Are you talking about this tariff?

1listnum "WP List 3" \l 12931            MR. DENTON:  226, yeah.

1listnum "WP List 3" \l 12932            MR. GRIEVE:  And what was your question again?

1listnum "WP List 3" \l 12933            MR. DENTON:  That in fact the rates established in 226 were set by an unregulated affiliate of TELUS?

1listnum "WP List 3" \l 12934            MR. GRIEVE:  This is a TELUS Communications Company tariff.

1listnum "WP List 3" \l 12935            MR. DENTON:  Yes.

1listnum "WP List 3" \l 12936            MR. GRIEVE:  It's not a ‑‑

1listnum "WP List 3" \l 12937            MR. DENTON:  The prices were decided upon by TELUS?

1listnum "WP List 3" \l 12938            MR. GRIEVE:  I just don't know.  I mean, I could take an undertaking to look at how these prices were ‑‑ maybe that should be part of the same undertaking, how we arrived at the prices in here.

1listnum "WP List 3" \l 12939            MR. DENTON:  It's an important question for us of course because, you know, sticking with our thesis is that you have, in fact, freely negotiated these services and they have been taken up freely in the market without regulatory compulsion.

1listnum "WP List 3" \l 12940            MR. GRIEVE:  Yeah, so, there are many services that we provide on a wholesale basis that have been freely negotiated that we've offered in the marketplace.

1listnum "WP List 3" \l 12941            MR. DENTON:  Thank you.

1listnum "WP List 3" \l 12942            Now, switching slightly but not greatly, in earlier testimony the Companies revealed that they are moving fibre closer to the home to enable the provision of next generation network services, NGN services.

1listnum "WP List 3" \l 12943            Is TELUS currently moving optical fibre closer to the home in order to provide NGN services?

1listnum "WP List 3" \l 12944            MR. TASKER:  Yes, we are in isolated circumstances.  Right now we're doing pilots.

1listnum "WP List 3" \l 12945            MR. DENTON:  Yeah.  Is this a general tendency you intend to pursue?

1listnum "WP List 3" \l 12946            MR. TASKER:  Yes.  Sorry, I think the clarification was, right now we're extending fibre to the curb.

1listnum "WP List 3" \l 12947            MR. DENTON:  Mm‑hmm.

1listnum "WP List 3" \l 12948            MR. TASKER:  Not actually directly to the home, that's in a pilot phase.

1listnum "WP List 3" \l 12949            MR. DENTON:  Yes.  No, we're talking about moving it closer to the home but not ‑‑

1listnum "WP List 3" \l 12950            MR. TASKER:  Just moving closer to the home.  Absolutely it's a technology that gives us benefits that way.

1listnum "WP List 3" \l 12951            MR. DENTON:  Is TELUS' IPTV offering one of those nice generation services that would be part of the thrust to get fibre closer to the home?

1listnum "WP List 3" \l 12952            MR. TASKER:  It is certainly one of the factors.  TV can be offered over copper today, though.

1listnum "WP List 3" \l 12953            MR. DENTON:  Yes, but copper is an inherently unsuitable medium for transmission above certain distances; is it not?

1listnum "WP List 3" \l 12954            MR. TASKER:  There are certainly restrictions that copper provides or that copper has in terms of offering hi‑speed services.

1listnum "WP List 3" \l 12955            MR. DENTON:  Yes.  So closer to the home really in some sense means closer to the home than the central office?

1listnum "WP List 3" \l 12956            MR. TASKER:  Yes.

1listnum "WP List 3" \l 12957            MR. DENTON:  Thank you.  Is there any general tariff item offered by TELUS by which access to sub‑loops is made available today as an unbundled service?

1listnum "WP List 3" \l 12958            MR. TASKER:  Can you define sub‑loop?

1listnum "WP List 3" \l 12959            MR. DENTON:  Yes.  A sub‑loop is ‑‑ good question.  A sub‑loop is any connection between the home, shall we say, and any point in the TELUS network short of a central office.

1listnum "WP List 3" \l 12960            MR. TASKER:  No, we do not offer that as a service.

1listnum "WP List 3" \l 12961            MR. DENTON:  Thank you.

1listnum "WP List 3" \l 12962            MR. GRIEVE:  Just to be clear, Mr. Denton, this would be at a pedestal or something like that ‑‑

1listnum "WP List 3" \l 12963            MR. DENTON:  In a junction box or whatever they call them?

1listnum "WP List 3" \l 12964            MR. GRIEVE:  Yes, what the municipalities call street furniture.

1listnum "WP List 3" \l 12965            MR. DENTON:  Street furniture, thank you.  I shall recall that.

1listnum "WP List 3" \l 12966            So then can we take it for a fact that competitive services supplied by ISPs need to be supplied through central office connections, connections in the central office?

1listnum "WP List 3" \l 12967            MR. TASKER:  If they are using the ILEC unbundled loop facility as the means to get there ‑‑ of course, there are other means, as we have mentioned before, but if they are using that technology, then yes, it is from the central office.

1listnum "WP List 3" \l 12968            MR. DENTON:  Okay.  So is it reasonable to infer that the opportunities to compete are being hindered by the movement of service provision from COs to remotes and sub‑loops?

1listnum "WP List 3" \l 12969            MR. GRIEVE:  The ability to compete by whom?

1listnum "WP List 3" \l 12970            MR. DENTON:  By non‑incumbent operators such as ISPs.

1listnum "WP List 3" \l 12971            MR. GRIEVE:  So you are suggesting that by the ILEC seeking to move closer ‑‑ move fiber closer to the home in order to compete with the cable companies and provide a better service that somehow competition is being diminished?

1listnum "WP List 3" \l 12972            MR. DENTON:  I am suggesting that the ability to compete for other forms of carrier than the cable and the telco is being diminished, yes.

1listnum "WP List 3" \l 12973            MR. GRIEVE:  Over that particular line, yes, but there are other technologies that they can avail themselves of to compete.

1listnum "WP List 3" \l 12974            MR. DENTON:  Thank you.

1listnum "WP List 3" \l 12975            So the question I would now pose to you is:  What services do you provide today on a wholesale and mandated basis that in your view provide reasonable incentives for competitors to supply for themselves at least a portion of the required facilities?

1listnum "WP List 3" \l 12976            MR. TASKER:  I am not sure how we are supposed to answer that question.

1listnum "WP List 3" \l 12977            MR. GRIEVE:  We don't understand it.

1listnum "WP List 3" \l 12978            MR. TASKER:  There are a lot of, I think, embedded assumptions there.

1listnum "WP List 3" \l 12979            MR. DENTON:  Embedded assumptions.  Let me see if I can parse it out.

‑‑‑ Pause

1listnum "WP List 3" \l 12980            MR. DENTON:  I will pass on it.

1listnum "WP List 3" \l 12981            Now, I gather that TELUS is concerned with investment and that you are concerned with making investments and one of the investments you are making is for IPTV over DSL lines; is that correct?

1listnum "WP List 3" \l 12982            MR. TASKER:  That is a development we are taking on, yes.

1listnum "WP List 3" \l 12983            MR. DENTON:  And I take it you are doing it to provide the kinds of services that your competitors, either Bell via satellite or Shaw, are able to offer in your service areas?

1listnum "WP List 3" \l 12984            MR. TASKER:  That is correct.

1listnum "WP List 3" \l 12985            MR. DENTON:  So is it proper to say that you are investing in broadcasting distribution?

1listnum "WP List 3" \l 12986            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 12987            MR. DENTON:  Okay.  And will you be providing the opportunity on a wholesale basis for ISPs to allow them higher speed delivery to do the same thing?

1listnum "WP List 3" \l 12988            MR. TASKER:  I think the question is whether we do that on a mandated basis.  I think the answer is we would definitely be opposed to that.

1listnum "WP List 3" \l 12989            I think whether or not we would set up partnership arrangements with players who come to the table with significant value add, I think we will definitely be interested in setting up arrangements where other players bring valuable components of some sort of ‑‑ whether it is a bundle or a service to the consumers and to the extent that there is significant value they can add that they are in a better position to do, we would obviously be interested in partnership arrangements.

1listnum "WP List 3" \l 12990            MR. DENTON:  Okay.  So if I understand the thrust of the TELUS argument, which has been perfectly clear, the argument has been that the requirement of the forced sharing, as it is called, has been a disincentive to investment, and yet, we observe that TELUS is making investment in the ability to broadcast television programming entirely without regard to the essential services problem.

1listnum "WP List 3" \l 12991            So what does essentiality really have to do with your real incentives to invest?

1listnum "WP List 3" \l 12992            MR. GRIEVE:  Well, our incentives to invest in ‑‑ well, first of all, the incentives to invest that we were talking about primarily were our incentives to invest in Ontario and Quebec mostly, in the telecom market there.  You heard the evidence about us holding back after CDNA and CDN.

1listnum "WP List 3" \l 12993            The incentives in our ILEC territory to invest in facilities that are going to make it possible for us to be in the broadcast distribution business are driven by the intense competition from the competitor Shaw.  It is competition that is driving it.  Competition trumps that.

1listnum "WP List 3" \l 12994            Then you ask but in the face of essential facilities ‑‑ that part of your question I don't understand.

1listnum "WP List 3" \l 12995            MR. DENTON:  Well, I am trying to say what I think is perfectly evident.  The essential facilities doctrine or any interpretation thereof has nothing really to do with your desire and ability to invest.

1listnum "WP List 3" \l 12996            MR. GRIEVE:  Well, first of all, in the ILEC territory, what we are investing in is not an essential facility and we don't expect that it would be unbundled.  Our big concern in ILEC territory would be the possibility of us starting to invest in things and the Commission just turning around, as a matter of course, and unbundling it because somebody asked for it on a mandated basis.

1listnum "WP List 3" \l 12997            MR. DENTON:  So then you are making these investments on the basis of your real perception of competition unaffected by the need to or the lack of need to unbundle and offer them to competitors?

1listnum "WP List 3" \l 12998            MR. GRIEVE:  Well, I don't really understand what you are looking for here in terms of how to answer the question but I will tell you that one of the biggest concerns that I am confronted with by the company often is, well, if we build this, are they going to force us to unbundle it.

1listnum "WP List 3" \l 12999            And our response has been, the broadcasting stuff, that is highly unlikely because the Commission has never done that before.

1listnum "WP List 3" \l 13000            The rest of it, we will fight tooth and nail to prevent that from happening because we don't think it is right, that we are the ones making an investment in these new facilities out in the field to try to compete with the cable companies, for us to be mandated to provide it at some regulated rate.

1listnum "WP List 3" \l 13001            But as you heard Mr. Tasker say, our principal competitor in the broadcast distribution business is Shaw in the wireline side and ExpressVu.  If there is a way that we can better utilize our networking and get it utilized through the use of other service providers that bring something to the table that help us and prevent customers from going to Bell or Shaw and make sure they are our customers, then we are open to talking to them.

1listnum "WP List 3" \l 13002            MR. DENTON:  Okay.  So that segues into the sort of question I would really like to ask.

1listnum "WP List 3" \l 13003            We are going to assume that you get everything you want and three to five years out, TELUS has got it everything it wants out of this proceeding.  What is the world going to look like is sort of the theme for my next set of questions.

1listnum "WP List 3" \l 13004            Is the pathway to the home or business going to be run on the basis rather more like cable television tiers where you pay different rates of ‑‑ different amounts of money per month for a tiered access to the internet or do you expect that the access to the internet would be on the same basis as it is now, that is to say that one has access to all of it?

1listnum "WP List 3" \l 13005            MR. TASKER:  I think it is very difficult to predict.  If we could predict the future and we had a crystal ball, then I think we would be all in better shape in terms of what exactly it is going to look like.  So I am not sure it is worth giving my commentary of what I think the world is going to look like in terms of the structure of our services.

1listnum "WP List 3" \l 13006            But we do know for sure that the players involved in this market are not the players that we think about today, like, for example, what we call the TSPs.  The players are expanding rapidly in terms of players like Microsoft, and as I mentioned before, Google.  These are the players that are going to define the future in many ways.

1listnum "WP List 3" \l 13007            And so I think defining how it is going to look in terms of tiered access of the way we structure service today, I think is a very narrow, narrow focus on looking at what the future will look like.

1listnum "WP List 3" \l 13008            MR. DENTON:  Well, I would suggest for your consideration that is a very important point for consumers because right now they pay a monthly fee to get access to all of it and if in the future they are paying various access like we do for cable television, that is a fundamental change that we might be interested in knowing about and whether your plans encompass this.

1listnum "WP List 3" \l 13009            MR. GRIEVE:  I don't understand how ‑‑ perhaps you could skip to the point of this.  I don't understand what the point is for this particular portion of the hearing or for this hearing.

1listnum "WP List 3" \l 13010            MR. DENTON:  Well, that is interesting.  Well, for instance ‑‑

1listnum "WP List 3" \l 13011            MR. GRIEVE:  We are talking here about access to facilities, right, and you are asking us about retail pricing plans.

1listnum "WP List 3" \l 13012            MR. DENTON:  No, I'm not asking you about retail pricing plans, I'm talking about, fundamentally, something very important that we have gained since 1994.

1listnum "WP List 3" \l 13013            Supposing I'm some Tim Burners‑Lee of the future and I have come up with a World Wide Web equivalent and I want to launch it, now, Burners‑Lee, when he launched the World Wide Web in 1991, he just put up a website and people came to it.

1listnum "WP List 3" \l 13014            Now, in the ideal future of TELUS are the Burners‑Lees of the future going to be negotiating with TELUS in commercial negotiation to be able to launch a product or service across your networks?

1listnum "WP List 3" \l 13015            MR. TASKER:  I think they will be negotiating with a number of different players, so it's not just ‑‑ I mean, if it's deemed to be ‑‑ if we are talking about access, once again, to an essential facility, then I think the definition is pretty clear about what that is.  Otherwise, by definition, there will be alternatives to either other suppliers or other players building various accesses.

1listnum "WP List 3" \l 13016            So, first of all, if you look at the forborne market today ‑‑ over half of our wholesale business today is forborne ‑‑ there's hundreds of small players who buy services from TELUS in a commercially negotiated arrangement, and there's ‑‑ then there are customized relationships, in terms of the partnership and what value they bring to the table.

1listnum "WP List 3" \l 13017            I don't see that changing.  And certainly as we start to move away from the tariffed and mandated regime of some of these underlying elements, I don't see anything different taking place there, in terms of TELUS being very willing and eager to negotiate with many, many different players, small and large, in terms of leveraging our facilities to make sure that as much as possible of the business overall is going across TELUS facilities versus the numerous alternatives that there will be out there, so...

1listnum "WP List 3" \l 13018            I mean, the sense I get is there's a fear that TELUS will just stop negotiating and stop offering services, and, like I said, if you look at the forborne market today that's just not the case.

1listnum "WP List 3" \l 13019            MR. DENTON:  I agree with what you are saying.  My concern is actually that right now, when I get a monthly subscription to the Internet, I get every website available to me that's not otherwise censored.

1listnum "WP List 3" \l 13020            Now, when I subscribe to cable television, I get a distinctly different kind of plan.  I get tiers, rates and packages, whereby I get access to some of it.

1listnum "WP List 3" \l 13021            MR. TASKER:  Yes.

1listnum "WP List 3" \l 13022            MR. DENTON:  So where do you want to drive this?  Do you want to drive the Internet to, basically, a tiered package solution?

1listnum "WP List 3" \l 13023            MR. TASKER:  No.  I would say the world is looking more like what the Internet is looking like, as opposed to anyone that has ‑‑ I mean, the cable companies, of course, are coming from a monopoly environment for cable television service, so...that's what monopolies result in, and we don't have a monopoly here for the Internet access.

1listnum "WP List 3" \l 13024            THE CHAIRPERSON:  Mr. Denton, I think you have gone far enough.  This is wholesale prices, we are not talking retail Internet.  I mean, you got your question in, I think, but it should return to the main thrust of this inquiry.

1listnum "WP List 3" \l 13025            MR. DENTON:  Actually, that completed my questioning, sir.

1listnum "WP List 3" \l 13026            Thank you.

1listnum "WP List 3" \l 13027            THE CHAIRPERSON:  Thank you.

                 Mr. Grieve, I just want to get back to one of the questions Mr. Denton raised here with the whole issue of disincentive.  I asked the same question to Bell, and maybe I have misinterpreted it, but my answer was that ‑‑ I said, why is this a disincentive if you have one input price, which is actually lower than market price surely?  I find it strange that you call this a disincentive.

1listnum "WP List 3" \l 13028            And after a bit of back and forth, essentially, it came out to control.  He said, you know, we want to build the access, we want to control it and we want to give access to those people whom we have on terms that we negotiate, rather than having that.  And that's really what, at the bottom line, was their main concern rather than having to build out a network and being mandated to share it with others.

1listnum "WP List 3" \l 13029            Is that at the bottom of your thrust, as well?

1listnum "WP List 3" \l 13030            MR. GRIEVE:  I'm just trying to remember that exchange with Bell.  Maybe you could help me.

1listnum "WP List 3" \l 13031            THE CHAIRPERSON:  It was Mr. Bibic, and I really basically said, I mean, where is the disincentive?  You are getting an input price cheaper than you would normally get it.

1listnum "WP List 3" \l 13032            MR. GRIEVE:  Right.

1listnum "WP List 3" \l 13033            THE CHAIRPERSON:  Why is that so ‑‑ I mean I can understand from a public good point of view ‑‑

1listnum "WP List 3" \l 13034            MR. GRIEVE:  Okay.

1listnum "WP List 3" \l 13035            THE CHAIRPERSON:  ‑‑ from an efficiency, sir ‑‑

1listnum "WP List 3" \l 13036            MR. GRIEVE:  Yes.

1listnum "WP List 3" \l 13037            THE CHAIRPERSON:  ‑‑ a competition, sir, yes, this is suboptimum, I understand, but why is it suboptimum for Bell?  And he said, Well, it's ‑‑ you know, you have to look at it in terms of running your network ‑‑

1listnum "WP List 3" \l 13038            MR. GRIEVE:  Right.

1listnum "WP List 3" \l 13039            THE CHAIRPERSON:  ‑‑ controlling, your network and determining where you are going, and that's really what, if I understood him correctly, was the main driver.

1listnum "WP List 3" \l 13040            MR. GRIEVE:  Yes.  And thanks, I remember the discussion now.

1listnum "WP List 3" \l 13041            For us, in our non‑ILEC territory, our original plan, as Mr. Fleiger mentioned last Wednesday, was to roll out the services and roll out the, you know, access and transport, and all of those things, and then we got slowed down in that because of CDNA and CDN.

1listnum "WP List 3" \l 13042            And as I explained to counsel for MTS Allstream, it didn't make much sense for us to continue building, because that was more expensive, because our competitors, like MTS Allstream, were now going to be getting the advantage of that.  So in order to stay competitive, at least in the short term, we had to do that.

1listnum "WP List 3" \l 13043            So it does, in the final analysis, come down to control over the customer experience, as Mr. Fleiger said.  And from that perspective, it's interesting that we have invested a lot of capital investment in collocations, which then kind of gets you stuck in the central office of the other carrier.

1listnum "WP List 3" \l 13044            And, you know, I have also been told that, once you lease a facility and you get that in there, it's very difficult to pull yourself off it because you have to make a whole bunch of other investments to do that.

1listnum "WP List 3" \l 13045            So, really, for us, it's having control over the customer experience, and it's also not being dependent on another carrier and basically being in their footprint all the time.

1listnum "WP List 3" \l 13046            THE CHAIRPERSON:  Yes, that leads me to another question which Mr. Denton tried to ask, but differently.

1listnum "WP List 3" \l 13047            Assuming you get everything, we accept your spin and you get a five‑year freeze of that, what will TELUS in that new environment do that it doesn't do right now?

1listnum "WP List 3" \l 13048            MR. TASKER:  Well, there's a number of differences.  One is it makes our freedom to invest in innovative and growth networks less hampered because we have less to worry about, in terms of precedent setting, in terms of offering other customers the same thing.  It makes negotiations a lot more free‑flowing, in terms of partnerships that we can build, in terms of ‑‑ once again, not having to worry about whether this partnership is going to then be mandated to offer to everybody.  And those are very, very key business issues that get in the way right now of our business.

1listnum "WP List 3" \l 13049            I mean, we don't ever believe we will build an entire network that's for sure.  We will always be dependent on other suppliers.  The intent is to be less dependent on Bell, more dependent on players like the telcos or more dependent on other technologies.

1listnum "WP List 3" \l 13050            And, once again, we believe, we will be fine negotiating those in commercial terms with those players.

1listnum "WP List 3" \l 13051            MR. GRIEVE:  I will just add one thing, Mr. Chairman.  What will be different in many ways, it will be more of the same, because we already ‑‑ one of our most successful wholesale services is one that was never mandated, it was one that we developed ourselves, and that's operator services.

1listnum "WP List 3" \l 13052            This is kind of a crucial thing for a competitor to be able to provide.  We provide our wholesale operator services to many competitors now and we are quite proud of the service, in fact we are providing it overseas, as well.

1listnum "WP List 3" \l 13053            So our wholesale group looks for wholesale opportunities on the forborne services area today, and I don't see that changing.

1listnum "WP List 3" \l 13054