ARCHIVED - Transcript, Hearing 31 May 2010
This page has been archived on the Web
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.
Providing Content in Canada's Official Languages
Please note that the Official Languages Act requires that government publications be available in both official languages.
In order to meet some of the requirements under this Act, the Commission's transcripts will therefore be bilingual as to their covers, the listing of CRTC members and staff attending the hearings, and the table of contents.
However, the aforementioned publication is the recorded verbatim transcript and, as such, is transcribed in either of the official languages, depending on the language spoken by the participant at the hearing.
TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO-TELEVISION AND
Proceeding to consider the appropriateness of mandating certain wholesale high-speed access services
140 Promenade du Portage
May 31, 2010
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.
Canadian Radio-television and
Proceeding to consider the appropriateness of mandating certain wholesale high-speed access services
Konrad von Finckenstein Chairperson
Len Katz Commissioner
Michel Arpin Commissioner
Timothy Denton Commissioner
Elizabeth Duncan Commissioner
Candice Molnar Commissioner
Marc Patrone Commissioner
Stephen Simpson Commissioner
Lynda Roy Secretary
Alistair Stewart Legal Counsel
Tom Vilmansen Hearing Coordinator
140 Promenade du Portage
May 31, 2010
- iv -
TABLE OF CONTENTS
PAGE / PARA
Bell Aliant Regional Communications Partnership, Bell Canada and Télébec, Société en commandite 10 / 57
TekSavvy Solutions Inc. 143 / 893
Saskatchewan Telecommunications 207 / 1272
Primus Telecommunications Canada Inc. 255 / 1576
Execulink Telecom Inc. 274 / 1661
--- Upon commencing on Monday, May 31, 2010 at 0933
1 THE SECRETARY: Order, please.
2 À l'ordre, s'il vous plaît.
3 THE CHAIRPERSON: Good morning.
4 We seem to have a full house today.
5 Bonjour, mesdames et messieurs, et bienvenue à cette audience publique.
6 Je vous présente les membres du comité d'audition :
7 - Len Katz, vice-président des Télécommunications;
8 - Michel Arpin, vice-président de la Radiodiffusion;
9 - Tim Denton, conseiller national;
10 - Elizabeth Duncan, conseillère régionale de l'Atlantique et du Nunavut;
11 - Candice Molnar, conseillère régionale du Manitoba et de la Saskatchewan;
12 - Marc Patrone, conseiller national;
13 - Stephen Simpson, conseiller régional de la Colombie-Britannique et du Yukon; et
14 - moi-même, Konrad von Finckenstein, président. Je présiderai l'audience.
15 L'équipe du Conseil qui nous assiste comprend :
16 - Tom Vilmansen, coordonnateur de l'audience et gestionnaire des Méthodes d'établissement des coûts et tarifs;
17 - Alastair Stewart, conseiller juridique principal, et Anthony McIntyre, conseiller juridique; et
18 - Lynda Roy, notre secrétaire de l'audience.
19 Cette audience sera axée sur l'une des grandes fondations d'une économie numérique : les services Internet à large bande.
20 Les Canadiens peuvent accéder à Internet en ayant recours aux services des entreprises de téléphone et de câblodistribution titulaires, ou encore en faisant appel à divers petits fournisseurs de services Internet (FSI). Les FSI doivent acheter au gros l'accès aux réseaux des titulaires pour desservir leurs clients au détail.
21 In 2008, the Commission established a framework for wholesale telecommunications services. It was based on the definition of facilities-based service providers as set out in Order-in-Council 2007-0532, which varied our local forbearance decision. That is to say:
"A facilities-based telecommunications service provider is one that provides services in the relevant market either by using its own facilities and services or by using a combination of its own facilities and services together with those leased from other service providers."
22 In other words, a "facilities-based telecommunications service provider," either owns all of its facilities or owns one part and leases the other. In short, this definition excludes providers who only lease facilities.
23 The framework was further based on the principle that market forces should be allowed to shape as much as possible development of the industry.
24 It was designed to provide competitors with appropriate access to the incumbents' existing facilities, while encouraging them to invest in their own networks.
25 In May 2009, the Commission launched a follow-up proceeding to determine how new types of services should be classified within the wholesale services framework. In particular, we wanted to examine whether incumbent telephone and cable companies should be mandated to provide certain high-speed Internet access services to smaller ISPs on a wholesale basis.
26 In parallel to those decisions, the incumbent companies have been making greater investments in fibre optics to allow for even faster Internet access.
27 In 2008, the Commission decided that these companies must provide access to smaller ISPs, upon request, at the same speed as those offered to their own customers. This "matching-speeds" requirement was consistent with the obligations imposed on cable companies. We later clarified that it applied to legacy copper facilities as well as the newer networks which consist of a mix of fibre and copper.
28 On December 10th, 2009, the Governor-in-Council referred the matching-speeds decision back to the Commission for reconsideration. Among other things, the Governor-in-Council indicated that:
"It is critical that the regulatory regime provide a cohesive, forward looking framework that provides the proper incentives for continued investment in broadband infrastructure, encourages competition and innovation and leads to consumer choice."
29 Ainsi, le Conseil a élargi la portée de la présente instance afin de réexaminer l'exigence relative aux vitesses équivalentes, ainsi que la question de l'accès des concurrents aux nouveaux types d'infrastructure d'accès Internet.
30 Dans le cadre cette audience, nous évaluerons donc comment appliquer le cadre régissant les services de gros pour continuer d'encourager adéquatement les investissements dans l'infrastructure à large bande, favoriser la concurrence et l'innovation, et en arriver à offrir au consommateur un choix en matière de services à large bande.
31 The Committee will focus on the following questions:
32 1. Are the respective wholesale obligations imposed on incumbent telephone and cable companies equitable or do they represent a competitive disadvantage?
33 2. Should incumbent telephone companies be required to provide access to the high-speed asymmetrical digital subscriber line (ADSL) access services located at the central office?
34 3. Should incumbent cable companies be required to provide access to high-speed Internet access services located at the head-end?
35 4. Should the matching-speeds requirement apply to aggregated ADSL access services?
36 5. How should the Commission's essential services framework be applied to next-generation networks?
37 Finally, the Panel will of course take into consideration any ancillary issues raised in connection with these five questions.
38 I would now invite Madam Secretary, Lynda Roy, to explain the procedures which we will follow.
39 Madame la Secrétaire.
40 LA SECRÉTAIRE : Merci, Monsieur le Président, et bonjour à tous.
41 I would now like to go over a few housekeeping matters to ensure the proper conduct of the hearing.
42 There is extra seating in the Examination Room, situated outside of the hearing room on your right, where you can listen to hearing.
43 Please note that the Commission Members may ask questions in either English or French. Simultaneous interpretation is available during the hearing; the English interpretation is on channel 1 and you can obtain an interpretation receiver from the commissionaire at the entrance of the Conference Centre.
44 We would like to remind participants that during the oral presentation they should provide for a reasonable delay for the interpretation while respecting their allocated presentation time.
45 Veuillez noter que les membres du Conseil peuvent poser des questions en français et en anglais. Le service d'interprétation simultanée est disponible durant l'audience. L'interprétation française se trouve au canal 2. Vous pouvez vous procurer les récepteurs d'interprétation auprès du commissionnaire à l'entrée du Centre.
46 Nous désirons rappeler aux participants d'allouer un délai raisonnable pour la traduction lors de leur présentation à vive voix, tout en respectant le temps alloué pour leurs présentations.
47 When you are in the hearing room we would ask that you please turn off, and not only put on vibration mode, your cell phones and blackberries as they cause interference on the internal communication systems used by our translators and interpreters. We would appreciate your cooperation in this regard throughout the hearing.
48 The hearing is expected to last approximately five days with a possibility of continuing on June 10 and 11, if necessary.
49 We will begin each morning at 9:00 a.m. We will advise you of any scheduling changes as they occur. We invite participants to monitor the progress of the hearing in order to be ready to make their presentation on the day scheduled or, if necessary, the day before or after their scheduled date of appearance depending on the progress of the hearing.
50 Pendant toute la durée de l'audience, vous pourrez consulter les documents qui font partie du dossier public pour cette audience dans la salle d'examen qui se trouve dans la Salle Papineau, située à l'extérieur de la salle d'audience à votre droite. Le numéro de téléphone de la salle d'examen est le 819-953-3168.
51 There is a verbatim transcript of this hearing being taken by the court reporter sitting at the table to my right, which will be posted daily on the Commission's website. If you have any questions on how to obtain all or part of this transcript, please approach the court reporter during a break.
52 Please note that given that there will be no cross-examination, and that the hearing will be closer to the broadcasting model, there will be no swearing or affirming of witnesses, and no acknowledgment needed for the record that the evidence submitted was prepared by or under the supervision of the witnesses appearing for a particular panel.
53 Further, there will be no need to seek confirmation for the record that witnesses' CVs have been filed. Accordingly, parties should proceed with their presentations consistent with the Commission's broadcasting hearing model.
54 And now, Mr. Chairman, we will now proceed with the presentations in the order of appearance set out in the agenda.
55 And we will begin with the presentation by Bell Aliant Regional Communications, Bell Canada and Télébec, Société en commandite (the Companies).
56 Appearing for The Companies is Mr. Mirko Bibic. Please introduce your colleagues and you will then have 25 minutes to make your presentation.
57 MR. BIBIC: Thank you.
58 Good morning, Commissioners, Mr. Chairman.
59 I am Mirko Bibic, for the record, Senior Vice-President, Regulatory and Government Affairs Bell Canada.
60 You'll recognize to my left George Cope, the President and CEO of BCE Inc. and Bell Canada as well as Chairman of the Board of Bell Aliant.
61 To his left is Heather Tulk, Bell's Senior Vice-President of Residential Products. Heather joined Bell in January of 2010 and prior to that Heather was a Bell Aliant Senior Vice-President of Customer Solutions, so she can certainly speak knowledgeably for both companies this morning.
62 To my right is Jonathan Daniels, Vice-President of Regulatory Law of Bell. Next to him is Denis Henry, Vice-President of Legal and Regulatory Affairs of Bell Aliant.
63 To Denis' right is Sheldon MacDonald, Bell Aliant's Director of Network Strategy, and to the far right is Carl Condon, Bell Canada's Vice-President of Network Technology.
64 Fundamental issues will be discussed over the next week: The intense competition in our industry, wireless providers as ubiquitous high-speed broadband providers, the pace of Telco investments in fibre-based next-generation networks and our desire to deliver IPTV over these fibre networks so that we can offer consumers a competitive TV product in the urban cores dominated by cable.
65 For your consideration at this hearing, we have developed a constructive proposal reflective of the vigorous competition in broadband, a proposal in keeping with the Commission's essential facilities framework, as well as Cabinet's December, 2009 Order-in-Council.
66 As you mentioned in your opening remarks, Mr. Chairman, that Order-in-Council requests the Commission to reconsider prior mandated access rulings with particular emphasis on incentives to invest, competition, regulatory symmetry and the impacts on the offering of new converged services such as IPTV.
67 Our proposal can be summarized as follows:
68 First, Telcos do not have a next-generation network incumbency advantage which justifies mandated access. A Commission decision not to mandate access to our fibre networks is the most effective way to ensure accelerated investment.
69 Those who wish to build advanced fibre to the home networks can do so, in fact, it is being done by a number of competitors. However, to address concerns being raised by others and recognizing that our next-generation fibre-to-the-node networks utilize legacy copper loops, we are proposing today access to sub-loops.
70 Second, any obligations imposed on next-generation infrastructure must be meaningfully imposed on the networks of Cablecos. Given the extent of competition and our relative market shares, going forward, regulatory symmetry should be paramount in the Commission's thinking.
71 I now turn it over to Mr. Cope.
72 MR. COPE: Thanks, Mirko.
73 Thank you, Mirko.
74 Good morning, Mr. Chairman, Commissioners.
75 It's a pleasure to be here. I first want to thank you and your Staff for the contribution that you make to our industry. Clearly sometimes we don't all agree, but clearly we appreciate the Commission's hard work and integrity with which your team tackles these issues.
76 I also want to thank you for allowing -- slotting Bell in first at today's hearing. I had some scheduling issues and this is a very, very important hearing, I believe, for the industry and wanted to make sure our views were expressed. So, I appreciate you setting the schedule this way.
77 This week you are considering mandating access to our next-generation networks and I find it rather perplexing.
78 The monopoly legacy telephone network is truly a relic of the past. The traditional home segment, as we all know, is intensely competitive and so is the wireless industry of course, with numerous advanced wireless broadband networks now available.
79 And while we compete aggressively in the TV market, the TV distribution business remains dominant by the cable industries, particularly in the urban markets. In short, all providers battle every day to earn the business of Canadian subscribers.
80 I do not understand the rationale, therefore, for forcing wireless access to our new fibre networks.
81 In a competitive environment like this, we, as in Bell, must choose to whom we sell and distribute our products and at what price, just as would be the case in any other competitive industry.
82 Bell and Bell Aliant are building fibre networks to deliver the fastest Internet speeds to our customers in this extremely competitive marketplace. For over 10 years the Commission has consistently confirmed the competitiveness of the Internet market, yet the CRTC is considering mandating access to our next-generation networks, largely which we haven't even built yet.
83 Let me get to the heart of the matter.
84 We explain that regulation will undermine our investments by reducing the business case for advanced fibre networks in certain areas in Canada, and I'm told that the responses by some is that, well, you'll build it anyway to compete with cable.
85 And I think the case is rested on that because clearly, if the market wasn't competitive people wouldn't say we would build to compete.
86 So, clearly we're building our networks out in a competitive environment.
87 Then I'm told that perhaps two competitors are not enough and those who hold this view believe the CRTC should force network access to develop more options.
88 But, as everyone here knows, there are many more options today, significantly now with the new wireless broadband networks. In fact, some information just released in May in Stats Canada shows that 23 percent of Internet access in the homes now are not through either cable or the traditional telephone networks.
89 Everything has changed with wireless. With the new HSPA Plus networks, the vast majority of Canadians, including thousands of rural communities, have access to high-speed broadband speeds of up to 21 megabits.
90 With HSPA Plus wireless Internet sticks plugged in their computer provide access and true high-speed broadband. And HSPA Plus will get faster over the next 12 months again, and then after that we'll have LTE which will provide even faster services again to the market.
91 And, of course, wireless offers the convenience of mobility. Just look at the Apple iPad this weekend, that is truly in its most simplistic form an Internet access device in a competitive marketplace now with three different carriers offering that access and that device will clearly be used in homes across Canada.
92 There have already been significant product developments since our network launched only seven months ago. Rogers sells a home-based wireless Internet service which has allowed it to expand its footprint into Quebec to compete with Bell and Vidéotron.
93 Last week we launched nationally our own Bell turbo hub which offers in-home speeds of up to 7.2 megabits using our wireless network across the country. With the turbo hub, customers can connect up to 15 devices at one time in their home.
94 And we're pretty sure that Telus, being the competitor they are, will launch a similar product shortly in the marketplace.
95 The result is that the telephone monopolies no longer exist. To the contrary, we must fight every day to maintain our competitive position.
96 Since I became President and CEO in mid-'08, Bell's goal has been to be recognized by customers as Canada's leading communications company, and to achieve this goal we are guided by five strategic imperatives.
97 One of these is to invest in broadband networks and services. Where and when we make investments and how we exploit them should be left to us as we position ourselves to compete.
98 If there is one overriding reason why I'm here this morning it is to stress that regulation should not distort the pace and location of our investments.
99 And to give you an example of how competitive it is, it's hard to understand why we would be here actually talking about what we're going to do in a competitive marketplace ahead of doing it. The country had no idea we'd launch a wireless network at that speed that now leads the G-20 and, of course, we didn't announce it in advance. We're actually at a hearing because of the current regulatory framework, have to talk about future technology with our cable competitors in the room.
100 No one, Canadian Tire wouldn't have a conference with the regulator to tell Walmart what they're doing a year ahead in a competitive environment.
101 The environment has changed, changed that much and we have to address it.
102 So, allow me to discuss our broadband investments.
103 BCE is a major investor in the Canadian economy, in fact the largest in the country after the major players in the oil sands. Our capital expenditures were 3-billion in '09, 3-billion in '10, all during as we know the great recession.
104 We invest in a world-class HSPA Plus wireless network which offers wireless broadband to over 93 percent of the Canadian population. Ours is the world's largest privately funded advanced wireless network and just, it is worth mentioning that in the G-20, Canada now has the most advanced wireless networks in the G-20.
105 On the wireline side, we plan to invest well over a billion dollars to roll out fibre-to-the-node networks to more than 5-million homes by 2012. We have accelerated fibre-to-the-node since I took over as CEO.
106 In February we announced that every home in Quebec City will be connected by fibre. Fibre to the home will be built in all new neighbourhoods later this year beginning in Ontario and Quebec and as well as all new condominiums, apartment buildings going forward.
107 Bell Aliant, for its part, was the first company in Canada to announce the roll out of fibre to the home to entire cities such as in Fredericton and Saint John. By 2012 Bell Aliant plans to have fibre to the home available to over 600,000 homes and businesses.
108 With these fibre networks in place, Bell Aliant will expand its IPTV offering and Bell will launch IPTV this year starting first in Montreal and Toronto to compete with the cable companies in the dominated urban markets today.
109 We are doing this to be in the forefront of the competitive mix in the increasingly competitive three-screen or converged environment.
110 But our willingness to make these investments depends on the conditions that make it worthwhile, creating incentives to invest means that the Commission should not force access to the immense next-generation network investments we are making.
111 Wireless has always been competitive and there is no forced wholesale network access. There is roaming access for the new entrants and that should not be confused with wholesale access.
112 And there's no forced wholesale access in the video business and that's viewed as a competitive industry.
113 Twelve years ago BCE boldly launched satellite TV and has invested billions to compete using our own facilities. We will now do the same with wireline IPTV, but we need regulatory rules that favour investment and do not handicap those players willing to put significant capital into the ground to the benefit of our customers and the Canadian economy.
114 Now, there is an important distinction to be made between wholesale arrangements and allowing wholesale.
115 I am here to assure you that we will leverage as many distribution channels as possible to compete effectively. One of those channels may indeed be wholesale, which is simply a method to sell products.
116 Wholesale can make a valuable contribution to companies' overall business and access to our fibre networks is no different. Just as we have done in the video market where we have a wholesale arrangement with Telus, and in the wireless where we have a successful wholesale arrangement with President's Choice Mobile. We weren't regulated to do that, we do it as a matter of a channel distribution we want access to sell our products.
117 These are commercial arrangements that will allow us to increase the overall penetration of our gross services without undermining the business case which justified the fibre network investments in the first place.
118 But there is a material difference between reaching commercial arrangements with selected partners and providing regulated access to all competitors at subsidized rates.
119 Being forced to sell to everyone and being told the price prevents us from optimizing our returns on capital. Make no mistake, a decision to force access will affect the pace of our broadband build-out and, in some cases, the build-out will not happen.
120 Let me give you an example to try to draw this out for everyone.
121 Take a great Canadian company like Tim Hortons. Tomorrow morning if Tim Hortons was told it had to re-sell its coffee at a discount price to anybody who wanted it, provided it opened stores, well, the franchisee who bought that territory and paid for it, the next morning, a coffee shop could open it, re-name it and sell the quality product that Tim Hortons sells.
122 Tim Hortons wouldn't leave the coffee industry, but their business model would change dramatically, the pace of the model would change and they would not understand, as we don't understand in our industry now, why anyone would have a say over who's going to carry and access their products in the marketplace.
123 That's a competitive marketplace, that's the market we are in today; that's not the market we may have been in 10 years ago, that's the market that we compete in today and this Commission must understand that in this hearing, that this is now a fully competitive industry, no different than that industry I just made an example of, and no one would run their business that way.
124 And we're being asked to consider to run our business that way and putting billions of capital into the ground, and it's not the model that we need going forward.
125 Before I turn it over to Heather, I wish to raise regulatory symmetry, another aspect of this proceeding and of many of the CRTC's historical access that I find perplexing and, quite frankly, disappointing is the fixation on the activities of the telephone companies while cable is exempt from the micro-regulation applied to us.
126 In a competitive industry, if anything, your decisions have to have -- have to be symmetrical. There is no way to explain why a cable TV customer must call the cable company to cancel service, yet the cable company can call Bell to cancel Bell's subscriber's home phone service. It's ludicrous. Think about it.
127 If you want to cancel cable, right, the customer calls the cable company. If you want to cancel Bell's service, the cable company calls Bell. It's got to be the same.
128 THE CHAIRPERSON: Cable is not part of this core audience, Mr. Cope.
129 MR. COPE: Sorry?
130 THE CHAIRPERSON: Cable is not part of this --
131 MR. COPE: No, symmetry --
132 THE CHAIRPERSON: Cable company service symmetry is --
133 MR. COPE: Symmetry is.
134 THE CHAIRPERSON: Let's stick to that.
135 MR. COPE: Right. So, the example though is symmetry. I am puzzled by the requirement for Bell -- let's take one that's closer to this then.
136 Another example would be the wholesale usage-based billing decision that just came out.
137 I'm puzzled by the requirement for Bell to convert every single retail customer to a usage plan before wholesale usage billing can be implemented, but there's absolutely no explanation for why the same obligation is not imposed on cable.
138 I don't understand the decision. That's for a different time, but the lack of symmetry is unacceptable. I can't use -- unfortunately I can't use language. It's not that strong. It's just absolutely we cannot be in a situation. We have to expect symmetry in these decisions.
139 Mr. Chairman, as I close I must say that while it is difficult for me to understand why our fibre networks might be unbundled or, if you will, access to wholesale, I have faith that with a principled approach and with a full awareness of how intensely we compete, the Commission will conclude that no new wholesale access obligations should be imposed and should be left to the market to decide who is going to sell our products and how they are going to sell them, just like any other competitive industry in Canada.
140 Thank you for your time.
141 Heather, over to you.
142 MS TULK: Thank you, George.
143 Incentives to invest are a central issue in this proceeding and it is perhaps obvious to everyone that we invest in order to obtain positive financial returns.
144 With respect to next-generation network build-outs, these investments are high risk with long payback periods and to impose mandated access to these networks would create tremendous problems for the case to invest and cause us to rethink all of our plans.
145 In many cases mandated access would in fact cause the investment returns of investing to be worse than not investing at all. The reason for this is that the profitability of a fibre network investment is tied directly to providing internet, video and phone services to each broadband home which will be undermined with forced network access. Forced access also creates opportunities for regulatory arbitrage which disrupts normal competitive market outcomes in a competitive market such as this.
146 Given the importance of this issue I will first walk you through how we make investment decisions at Bell.
147 Obviously we examine any particular projects' expected returns and costs. We then evaluate all investment opportunities across Bell as a whole and we plan our investments according to where we can deliver the best available return. This is a necessary discipline in an environment of finite capital availability.
148 Within this construct, and given the high risk and long payback periods of next-generation networks, we must carefully select the markets where we can build them. There may be strategic arguments for making these investments, but even so they can only be justified up to a certain level of risk to the return.
149 The riskier the financial returns of an investment, the more likely it is to be cancelled in favour of other competing projects that we have in the company which brings me to the business case as we presented in our submissions. These business cases selected a number of communities in order to illustrate our point and they demonstrate the impacts of forced access on cities of various sizes and various stages of next-generation network.
150 These cities are all currently in Bell's fibre network build-out plans and these business cases reflect the upfront investment that would be required along with the demand, revenues and costs for the various retail and wholesale services at issue, as compared with how the world would likely unfold if we do not invest at all.
151 In all cases -- all cases -- the analysis tells us that without forced access investment is risky and has a long payback. But when the impacts of forced access are overlaid on the analysis, the models show we will be financially better off as a company not investing at all. This is directly contrary to Cabinet's request that incentives to invest not be unduly diminished by the Commission's regulations.
152 In cities where we already started rolling out fibre networks, there is also a risk as we are far from done in investing in these cities. Even in large urban centers where fibre to the node builds are largely completed, we expect there will be need in the future to do more and to push fibre even closer to the home, so these decisions will too be impacted by any outcome of this ruling.
153 Turning to IPTV, for consumers it is truly a game changer in television in Canada, the same way that wireless is changing the way consumers look at voice and broadband. For providers, IPTV and fibre networks are inextricably linked.
154 IPTV requires a fibre network in order to operate and, on the other hand, fibre network investments cannot be justified unless we are able to include IPTV in the revenue stream for the returns together with internet and phone service as we sell into total broadband homes. So these decisions of IPTV and fibre networks are completely co-dependent.
155 Mandated wholesale access to our next generation networks will lessen television competition in Canada, particularly in urban markets, an outcome again the Cabinet instructed the Commission to guard against. When an ISP sells internet to a household in a fibre to the node neighbourhood using our networks, we are unable to then sell IPTV on the same line. In simple terms, you can have either the ISP's modem on that line or you can have ours, but you can't have both.
156 This means that with mandated access we would have two choices, either forget about selling IPTV to a household which obtains internet service from a competitor over a network or incur the expense of installing a second line to the home using a second port on the DSLAM and setting up a second full inside wire configuration in the home. This would degrade the customer experience and significantly drive up our costs of delivering IPTV, again making the investment to build that IPTV in many cases unattractive.
157 We do not understand why we should be impaired in our ability to cost effectively use the networks that we are building to deliver services to customers. The Commission should not impose rules that would diminish our ability to compete as a television new entrant in the urban markets of Canada.
158 Mandated access would mean that telcos are less able to invest and both the TV and Internet markets in many regions of Canada would in fact have less competition if this access is mandated, not more.
160 MR. BIBIC: Thanks, Heather.
161 So George was rather emphatic in expressing our view that symmetry should be paramount in the Commissions thinking going forward and that was a key aspect of the Cabinet's Order in Council. I point you to paragraph 41 of our written text.
162 Two issues which are obviously germane to this hearing, are the time disparity in reviewing our usage-based billing application compared to how long it takes for the Commission to review a cable company -- a similar cable company usage-based billing filings.
163 We also have issues with the express prohibitions that were placed on Bell, for instance regarding promotional retail offers which are not imposed on the cable companies and that's why last week we filed a review and vary application seeking to correct certain errors in the decision.
164 To be fair, we do appreciate and understand that the Commission appears to have noticed this significant asymmetry and is now examining it. So I will leave it at that. I think obviously, Commission, you have heard us loud and clear, symmetry needs to be paramount.
165 So with that, Commissioners, let me address the broader policy contact as well as the application of your essential facilities framework to the issues under consideration in the hearing.
166 For the Commission to develop the appropriate regulatory framework for next-generation networks, the government's broader industrial and economic agenda must be examined. An important component of this agenda is tied to investment and innovation, as can be seen from a number of things.
167 There is the December Order in Council to which we have referred on wholesale speed matching and that encourages continues investment in broadband.
168 On the same day, Cabinet issued a companion Order in Council rejecting MTS Allstream's request for yet more unbundling of facilities the Commission found to be the duplicable.
169 There is the Broadband Canada Program designed to deliver high-speed to rural areas.
170 And then of course there is the recent consultation paper on a digital economy strategy for Canada with the goal of making Canada a global leader in a digital economy and a significant component of that is digital infrastructure.
171 The Commission itself is spearheading other initiatives to encourage broadband investment, for instance through the deferral account program and in the basic service objectives proceeding which you will hold this fall.
172 Commissioners, we are a world leader in broadband penetration in this country. We also do well on internet pricing, as can be seen from the Wall study that was placed by the Commission on the record on Friday, as well as your own navigating convergence report from February of this year.
173 We want to lead the pack as well for NGN, or next-generation network infrastructure. But it would be somewhat ironic, to say the least, for the Commission to impose mandated access rules slowing down or even stopping broadband investments at the same time as it and the government are actively exploring ways to keep Canada at the forefront of the digital economy. Yet the unfortunate outcome of pervasive access obligations could be a digital divide in Canada, where large urban markets where we have already built fibre will be well served and secondary urban and rural markets will have fewer options.
174 Within this context the Commission must find a way to promote fibre network investments in a manner respectful of the essential facilities framework. There is a way forward. You are of course familiar with the essential facilities definition established in Decision 2008-17. Summarizing, a facility is essential if:
175 (a) it is required by competitors generally;
176 (b) mandated access to it will substantially improve competition at retail; and
177 (c) it cannot be practically duplicated by competitors.
178 Our fibre investments are for an overlay network. New fibre is being built from the central office to the neighbourhood in the case of fibre to the node or to the home in the case of fibre to the home.
179 These are new networks to develop new services. This is not, as some have said, the mere replacing of copper with fibre in our networks. Any competitor can build these networks in areas they wished to serve, as TekSavvy and others are doing in various locations.
180 We have attached two diagrams to this opening statement which illustrate the network architecture and show competitors willing to make network investments of their own can do so.
181 If I could ask you to just turn to Figure 1, I will depart from the written text for a moment because I would like to walk quickly through these with you.
182 If you look at Figure 1, this is FTTN architecture and if you start at the far right, the blue box, that is a Bell Canada serving central office and below it would be a competitor's central office. If you follow the yellow line towards the left of the page, that is new Bell fibre being built and then the existing copper remains in place. The fibre connects to a node, which is the brown box that you see in the middle of the page.
183 You will notice there is a turquoise coloured contraption bolted onto the brown box. That would be the DSLAM that we would be installing for fibre to the node and then at that DSLAM, at that node we would be using existing copper loops to get to the home.
184 So now if you look at the bottom of the page, how would a competitor handle this? Well, they would have their location. They could get backhaul which would take the signals from their location to the right of the page deep into the internet. And the backhaul is available. It is non-essential; has been found to be by the Commission.
185 And then if you follow the yellow line to the left of the page towards the home, the competitor can build their own fibre. The CRTC is forborne from fibre access facilities in 2008-17. They could do so through use of mandated access to support structures.
186 They would get into the neighbourhood and can install their DSLAMs which are commercially available of course, and then that would leave the last thousand meters from that green box, the competitor DSLAM, to the home. That is what we have been calling a sub-loop. That is not currently available. That would be the last mile. What we are proposing at this hearing --
187 THE CHAIRPERSON: What is the sub-loop?
188 MR. BIBIC: The sub-loop would be the copper from the house to the green box.
189 THE CHAIRPERSON: But there is nothing going from the house to the green box. It goes from the house to the brown box here on my --
190 MR. BIBIC: And you can cross-connect the green box to the brown box, as you can see, the copper loop there.
191 THE CHAIRPERSON: So this is the sub-loop, okay.
192 MR. BIBIC: That is the sub-loop, that part from the DSLAM in the neighbourhood to the home.
193 THE CHAIRPERSON: Okay.
194 MR. BIBIC: You know, there is a view -- we don't believe that copper loops at this stage are essential and should be regulated. But let's leave that for another day and another hearing.
195 You mandate unbundled local loops today. What we are proposing -- no, we don't think it is strictly necessary -- is to provide access to that subgroup. Let the competitors build, like we are, into the neighbourhood, and then let them have access to legacy copper loops, just like we have access to our own legacy copper loops.
196 So this would bring competing networks closer to the home rather than farther away. That is real facilities-based competition and we feel is the appropriate regulatory measure. In our view, mandating any access to sub-loops eliminates any possible argument in favour of ADSLCO access or speed matching.
197 So I will leave this diagram and just quickly go through the next one with you.
198 This would be fibre to the home deployment and this time the central office is on the left-hand side and the home is on the right.
199 As you can see, a competitor with a central office again can build their own fibre. They can get access to conduit at mandated rates that would include telephone poles. They would need to install a central splitting point which is the blue box in the middle of the page.
200 THE CHAIRPERSON: Where is the competitor on this?
201 MR. BIBIC: On the left. That would be the CLEC central office. That is the competitor. That is where the competitor resides with the central office.
202 THE CHAIRPERSON: So this is the competitor and the blue in the middle is you?
203 MR. BIBIC: No. The blue in the middle would be this device that you have to install in the network. Your fibre goes from the central office to this cabinet. It's about this big --
204 THE CHAIRPERSON: Yes.
205 MR. BIBIC: It's a central splitting point and the fibre goes in there and then on the other end of the central splitting point you have multiple fibres going to all the residences in the area. It's simply a way to split one main fibre feeder from the central office into multiple fibre into each home.
206 So in other words, if you imagine, Mr. Chairman, another home on top of the one we have drawn there and another home below --
207 THE CHAIRPERSON: Yes.
208 MR. BIBIC: -- all the distribution fibre would split out from this blue box into every home in the neighbourhood. We have just shown one for the sake of simplicity.
209 THE CHAIRPERSON: I'm sorry. I may be dense here.
210 From the central splitting to the home it goes over your lines or over --
211 MR. BIBIC: No. This is all -- this is all competitors or it can all be us.
212 THE CHAIRPERSON: Where do you come in?
213 MR. BIBIC: Well, this would be -- so we would have a building here as well on the left --
214 THE CHAIRPERSON: Yes.
215 MR. BIBIC: We could have drawn two. We could have drawn a competitor's central office and ours, like we did on the previous page.
216 THE CHAIRPERSON: Right.
217 MR. BIBIC: The point is, if you have a central office you can build fibre to the home and here is how you would do it.
218 THE CHAIRPERSON: Oh, so this is basically just an illustration of technology?
219 MR. BIBIC: Exactly.
220 THE CHAIRPERSON: It has nothing to do with --
221 MR. BIBIC: That's right. It doesn't matter who it is that has a central office, us or them. You would do it the same way in either case.
222 MR. COPE: The copper becomes irrelevant in that case, Commissioner, from the previous diagram because obviously it is then fibre right to the home. So you don't need that sub access that Mirko had talked about on the page before.
223 MR. BIBIC: That's right. So what you do is you build fibre -- basically ignore the central splitting point, Mr. Chairman, just to make it simpler.
224 You build fibre all the way from the central office to the home and all that a competitor would need to do this is access to conduit and telephone poles which the Commission already mandates.
225 THE CHAIRPERSON: So this is basically addressing point "C" of the essential facilities doctrine and you are saying this is practically duplicable by competitors, therefore no need for --
226 MR. BIBIC: Correct. That's exactly what we are addressing here.
227 And on Figure 1 the point was everything is duplicable except, arguably, the copper sub-loop. So let's focus in on that which is the most narrow, proportionate regulatory measure possible.
228 So we tried to give you these two figures to show that in one case nothing is required except conduit, pulls, support structures which you mandate already and we are not here to debate, and then fibre to the node. You have the copper sub-loop. That is what these two diagrams are meant to establish.
229 So having covered those let me just then jump for the sake of time, to the conclusion, paragraph 55 of the written text.
230 Both Bell Canada and Bell Aliant plan huge investments in fibre infrastructure to maintain our respective positions in a competitive marketplace. To generate an acceptable return so that these investments are worthwhile, we must be able to choose our distribution channels and the price, just as we would in any other competitive industry, as George has mentioned.
231 The only basis upon which forced access can be justified is a finding that the retail broadband markets are not competitive. There is no basis to reach that conclusion.
232 Nevertheless, as we have just covered with Figures 1 and 2, if the Commission somehow determines that there is an issue to address, our proposal to provide sub-loops is an efficient and effective mechanism -- and this is important -- consistent with the essential facilities framework and responsive to the Cabinet's Order in Council.
233 Thank you.
234 THE CHAIRPERSON: Well, thank you for your presentation and the material that you filed, as always, you have been very extensive. I and my colleague Steve Simpson will try to clarify some of the points -- want you to clarify some of the points you made.
235 First of all, just procedurally, you just mentioned the UBB decision and that you filed a review and vary. In light of that, that is a separate proceeding so I'm not going to ask you any questions on that matter. We will deal with it in the review and vary.
236 The first point is the whole issue of regulatory symmetry. You point out, and Mr. Cope pointed out very eloquently, that you feel that we have been less than fair in the past and the regulatory symmetry is not there. We focused on telcos and not on cable.
237 Now, there are two things here in issue in terms of symmetries, obviously aggregated DSL and TPIA on the cable side. If I understand you, your first point is it is the degree of aggregation or the point of interconnection, whatever words you want to use, in TPIA is totally different than which you -- and you suggest it should be one per province in your written material. Is that what you offer?
238 MR. BIBIC: Our basic position actually is, before starting about what we would unbundle on the cable networks -- I do have to stress that -- neither one should be -- we have quite obviously said here today that access to our next generation infrastructure should not be mandated and we also feel that access should not be mandated to cable next generation infrastructure.
239 So that's our starting position.
240 THE CHAIRPERSON: I'm talking about symmetry at this point in time and what is there. I will come to next generation.
241 But I read your submission. I spent a lot of time on the weekend reading your stuff and you were quite precise. You say one per province. I understood telcos is actually just one point in your network that have to interconnect. There is not one per province.
242 So what you suggest is a variation. That is presumably based on the technological difference between your network and the TPIA and cable.
243 MR. BIBIC: Correct. As we understand it, not all cable companies offer the same number of points of interconnection. Some, I think one in particular, may offer one and others have a multiple number of points of interconnection.
244 We are not really the experts in this matter, but we were trying to put forward some detail the concept of how things can be implemented symmetrically.
245 THE CHAIRPERSON: Okay. The point I was trying to make, we both appreciated that because you have different networks they can't be completely the same. What you are trying to achieve is the rough equivalent presumably, taking into account technological differences.
246 MR. BIBIC: Correct. We would acknowledge that in some cases you can -- things can't be perfectly equal, but we ask the Commission to bring some expertise to bear and try to be as equitable and symmetrical as can be given technological differentiation.
247 MR. MacDONALD: I might just add, Mr. Chairman, there are really three things in symmetry to access to networks.
248 You have to look at the level of aggregation which is very different, so that should be symmetrical -- a number of different ways to do it. We have given you options, but that is a principle.
249 The second would be pricing principles. That should be symmetrical.
250 The third is restrictions on use and that should be symmetrical.
251 THE CHAIRPERSON: Yeah, I was coming to those. I did read your material. But I was struck by Mr. Mirko or whoever wrote the submissions, saying one per province, which is clearly different from what you -- I gather recognition of technological difference.
252 Then I guess I will ask the cable company this too. But why are there different restrictions on use? Why are there no LANs, no VPNs, no multicast on TPIA, only internet and it is allowed on aggregated ADSL?
253 MR. BIBIC: We have struggled, Mr. Chairman, with that for a long time.
254 So if we just take wholesale internet access, I mean because really that is what we are here to talk about, you have GAS on the telcos side, you have TPIA on the cable side. Obviously, both services are designed to provide competitors with Internet access. So that is symmetrical by definition.
255 When a competitor has access to GAS or has access to TPIA they can offer a voice over that service. That is symmetrical, fine. We understand that. It wasn't always symmetrical but that got corrected in 2008-17, which leaves video.
256 Competitors cannot provide video service over TPIA. To be symmetrical, if you choose in this hearing -- hopefully you do not -- but if you choose to grant access to our next generation infrastructure, we are asking that you put in a video restriction on the service because we can't be in a position where being the new entrant in wireline video, somehow now competitors could use our networks to compete against us in a marketplace video where we are entering and where we are certainly not dominant.
257 So symmetry would dictate that there ought to be a video restriction on any mandated access to our next-generation network if -- if you go there.
258 THE CHAIRPERSON: I'm trying to put it very straightforward to you. You want symmetry.
259 Assume for argument sake, yes, I buy your argument, and also realize that there is no symmetry between aggregated ADSL and TPIA. What should we do to TPIA to bring it on the same level as you, taking into account that there is technological differences between your networks?
260 MR. BIBIC: Well, more -- fewer points of interconnection would be one. That's on the technical side at a very simple level. And in terms of, you know, service restrictions, video restriction would be the other in order to address the symmetry.
261 Those would be the key points.
262 THE CHAIRPERSON: All right. What about in terms of interconnection speeds?
263 MR. BIBIC: Interconnection -- excuse me -- speeds?
264 THE CHAIRPERSON: Speeds.
265 MR. MacDONALD: Well, it would depend on what you do to our networks, again, the principle being symmetry. So whatever -- if you are doing access to next gen networks then it would be their next gen networks. If it's access to our legacy networks it would be their legacy networks and if it is no access at all it is no access at all.
266 And I think the dividing line between legacy and next gen in the cable world is DOCSIS 2 versus DOCSIS 3. The cable companies themselves have said that.
267 THE CHAIRPERSON: I get the strong feeling what you really would like me to do is lighten your burden rather than putting the same burden on the TPIA.
268 MR. BIBIC: Yes.
269 MR. COPE: Commissioner, you may have noticed that I didn't talk about this. I talked about clearly where the industry really is. But we obviously have to have a position that -- and it was a huge disappointment to us there was a decision made to stay in an area where someone believes this business should be regulated -- then we can live without symmetry.
270 I think that would be -- so in a regulated world we are living, we believe -- and there are some real live examples here and you have acknowledged them. We appreciate that -- there are some areas that don't have symmetry.
271 It's up to us to fight like crazy with the competitors if it is deregulated and that's a different world than the one that I have been talking about.
272 But Mirko's job and our regulatory job is to give you both directions if you come down in a different position. But we clearly would be disappointed.
273 THE CHAIRPERSON: Mr. Bibic, I would like you to go the reverse way on what you just said, okay? It's not a question of -- or at least not now if you want now or do it in written format. But I would like you to go through the ADSL on one side, "Here is our obligation".
274 Now if you wanted to make symmetry this is what you should do or what you could do on TPIA, taking into account technological differences and with regard to all the points that are there.
275 I realize you would like to do it the other way around, but for us to decide where to come out, et cetera, it would be very helpful if we had that input from you.
276 MR. BIBIC: We could do that in writing.
277 THE CHAIRPERSON: Now, I see this morning's presentation regarding the CO-based aggregated ADSL in the proposal by Cybersurf and others. I am not quite sure what would be the downside to you if we accepted the Cybersurf proposal and said that is a logical extension of what there is right now.
278 Wouldn't it basically put Cybersurf or whoever it is in the same position as you in order to serve the end customer? Where is your strong opposition to it other than that your principle that you want to share as little as possible, which I understand?
279 MR. BIBIC: This would be, just so I understand, Mr. Chairman, mandating access to the service we have been calling ADSLCO. Correct?
280 THE CHAIRPERSON: Yes.
281 MR. BIBIC: Yes, okay. What that would do, Mr. Chairman, just going back to Figure -- we could take Figure 1 really.
282 THE CHAIRPERSON: Yes.
283 MR. BIBIC: What that would do is they would be granting access to any competitor to -- and look at the top yellow line, the bell fibre --
284 THE CHAIRPERSON: Yes.
285 MR. BIBIC: So for one regulated price, which I will call subsidized -- it is subsidized certainly because TekSavvy or others wouldn't have to build that fibre themselves -- for one price set by the regulator, the competitor would have access to absolutely all the speed and capacity capable of being pushed through that fibre.
286 Now, we are making these hundreds of million dollar investments to put that fibre into the ground and all the associated --
287 THE CHAIRPERSON: Now you are talking matching speed.
288 MR. BIBIC: Pardon?
289 THE CHAIRPERSON: I understand matching speed.
290 MR. BIBIC: Well, except that ADSLCO is blind to speed, sir.
291 THE CHAIRPERSON: You can't separate the two. I guess I will put it that way.
292 MR. BIBIC: Yes.
293 THE CHAIRPERSON: When you talk one you automatically bring in matching speed, don't you?
294 MR. BIBIC: Correct. Correct.
295 With wholesale speed match -- so we have this fibre. We can assume it can even be fibre to the home if you will --
296 THE CHAIRPERSON: Yes.
297 MR. BIBIC: But say it's 25 megs per second maximum throughput on that fibre, for the sake of argument, so what we can do is offer a 5 meg service, 10 megs, 15 megs, 20 megs, 25 megs service over that fibre. It's up to us and we can tier our service packages to kind of target particular niches and through that tiering of our pricing generate as much revenue as we possibly can.
298 Now, if you were to grant access to ADSLCO, the competitor has access to all of that speed, the full 25 megs. With wholesale speed-matching, in contrast, if we offer 5 megs over the fibre, even though it is technically capable of offering 25, the competitor gets 5. If we offer 10, the competitor gets 10.
299 But with ADSLCO, it doesn't matter what we offer, the competitor has access to all of the speed and all of the capacity on that pipe, and now can significantly downprice the market. So if we are charging X for 25 megs, or for 10 megs, they can charge less than X for 25, and that fundamentally deteriorates the business case and our incentive to invest.
300 That is why we are so opposed to ADSLCO. It is giving access to the entire speed and capacity of that pipe for one low price.
301 THE CHAIRPERSON: Would it be wrong for me to say as a logical extrapolation of what you just said that you are opposed to the aggregated ADSL for fibre?
302 For your legacy networks, et cetera, it is for you --
303 MR. BIBIC: That's correct.
304 THE CHAIRPERSON: It is all the same issue, it's the risk that you take in laying fibre, and you feel you don't get your compensative reward because you have to share it at the end.
305 MR. COPE: Yes, and we feel that if we want to appoint people to wholesale onto that access, that new capital project, that should be our decision in the internet today, where there is TELUS competition in our footprint now, Rogers competition in our Quebec footprint, with home internet access through wireless, at 7 meg speeds.
306 It has changed. The Commission has to understand that it is not the industry we were in ten years ago. Everyone has choice. There is wireless choice.
307 So to give access to our shareholders' capital for someone else, without us having the decision in a competitive market, we don't understand it, and we are going to oppose it as long as we possibly can.
308 THE CHAIRPERSON: In your written submission you make a fairly eloquent statement. Laying fibre is different than what the cable companies do. You have to dig up the ground, obviously, and you have to lay new fibre. Also, you have to win an IPTV customer, which right now is being served by cable or satellite, and being served relatively well.
309 So you have to have a superior offering. Therefore, you feel that there is a large degree of risk and there would be a disincentive to investment if you had to share it.
310 But the problem I have here is, it assumes that sharing is at the present rates or a variation thereof. If we mandated it, but there was a formula which allowed you to recover some of that risk, wouldn't that change the equation?
311 Isn't this really a question of money?
312 You are going to do it anyway, because it is in your company's interest, and I see that.
313 And, obviously, you will do it slower if we don't mandate it, maybe significantly slower, in order to take this away.
314 Is it not possible to devise a formula which says: Well, this is a new investment. It is on this kind of new investment which is not by cable, who basically is calling to you -- and I will ask them that, too.
315 They have to reprogram their network, but the network is there. You are actually laying new fibre cable, et cetera. Therefore, there is a fairly high degree of risk, because if you don't catch the IPTV customer, you have really laid out something that may not get the necessary chance. Just getting internet access is not enough, if I understood you. Please, correct me if I am wrong.
316 That's how you said it.
317 Therefore, you have to promise your investor a fairly high rate of return. Could one not build that into the cost -- into the resale formula, or the mandated resale formula, rather than saying no absolutely?
318 MR. COPE: There are short answers and long answers to it, so let me try.
319 In the satellite TV business, as you know, we made a decision that there was a better way to get to market, so we appointed someone to resell that product.
320 So the answer to that is, clearly, we figured out how to do that.
321 In the wireless business, we thought that President's Choice -- it drives me nuts, our competitors are in the room -- but, anyway, President's Choice was a distribution channel that we wanted to have, so we resold wireless to them, and, as Commissioner Katz will know, it has never been done in the industry, actually, to resell wireless.
322 That happened not from regulation but from market opportunity.
323 So in a world where we will build fibre like this, it is possible -- probably highly likely that someone who has been excellent at creating access to customers, we might have an interest in them, because if we don't, probably cable will, and find commercial arrangements that work.
324 So the answer is, yes, I would not be surprised, in a completely deregulated environment, if there were people who remained in wholesale as a possible channel.
325 What you are asking us is -- in one sense it would be wrong to say to you: No, you couldn't do it. You could do what you are suggesting be done, just like, if you said to Tim Hortons tomorrow that they had to resell coffee to Bob's corner shop, they could do it. Tim Hortons wouldn't go out of business, Mr. Chairman. They wouldn't go out of business, but their business model wouldn't be optimized.
326 So the fundamental question, the core, core question -- and I know I keep coming back to it -- is: Is the industry now competitive?
327 If it is, then it answers your question. I think, with all due respect, that it helps to answer the question.
328 THE CHAIRPERSON: No, it doesn't, for two reasons. Tim Hortons is not part of a network. You are only part of a network industry. You have to be interconnected, you have to buy and sell from each other, and for that reason --
329 Also, if Tim Hortons went out of business, it wouldn't be a national tragedy. The country would continue to exist.
330 MR. COPE: I'm not sure about that, but anyway...
331 MR. COPE: We may both want to not say that in public.
332 THE CHAIRPERSON: You know what I'm getting at.
333 MR. COPE: Yes, and we are not pointing to other business, either.
334 THE CHAIRPERSON: And that's why you are being regulated.
335 MR. COPE: No, I understand the history as to why we are, and I am trying to draw out the conclusion for the analysis. Constantly people look at it that way.
336 So to answer your question, the simple answer is yes. The complexity of what you are asking us to do should no longer be required.
337 You could ask us to do the same for any of our deregulated industries today, and the answer would always be yes, but it's not the optimum answer for the country. You have knowledge of slower investment.
338 THE CHAIRPERSON: You are also treating the residential and business markets as being the same, and you have said categorically, several times, that it's a competitive industry, et cetera.
339 Lots of the other intervenors say (a) they don't buy it; or (b) if they buy it, then, at best, for the residential market, that in the business market cable is really not there. It is only there at the margins, and therefore you have to use a different approach for the business market and the residential market.
340 MS TULK: Mr. Commissioner, it's always difficult to compare the residential and business markets, because the metrics that you have to use to measure them are very different.
341 And I would disagree profoundly that cable is not present in the business market. Obviously, it is difficult in this public session, but certainly we would be more than happy to file with you a tremendous amount of evidence of the presence of cable in the business internet market.
342 I can give you that in terms of customers. I can give you that in terms of share. I can tell you that they have been very aggressive in many, many regions of the country. We fight them on a day-to-day basis.
343 So without getting into specific details, I would profoundly disagree that they are not.
344 The other point I would make to that is, if there are examples of cable companies who are not aggressively selling into the business market in certain regions, that is certainly not because of a technical limitation, that is not because of any market restriction, that is because of the business choice they may be making.
345 The market is certainly available for them to try and fight for it, and the market is available for them to try and compete for it, and they have the tools to do that.
346 You would have to ask the cable companies why they are choosing not to, if they are in fact choosing not to, but there is no network restriction that prevents it.
347 THE CHAIRPERSON: But they are not doing -- the motive is not the issue, the issue is, "Do we have a competitive business market or not," and I am hearing from lots of you that that is not the case, and that is something that would concern us greatly, because, clearly, we want to see a competitive business market as well as a residential market.
348 MR. BIBIC: Mr. Chairman, if I could take it another way -- actually, it's an interesting point that you raise about whether business is competitive, or more or less so than residential, but I would point out that in Decision 2008-17, the Commission found that building fibre, transport and fibre access, was duplicable in the business markets.
349 That is what we are really talking about here, we are talking about the building of fibre.
350 The Commission has already found that building fibre transport and fibre access is possible and duplicable in business markets. Therefore, those services were forborne. They will be forborne for three to five years, as you very well know.
351 The first forbearance kicks in in about six months.
352 It's the same thing here in the residential markets, which is really what this is principally about -- this hearing -- building fibre is duplicable, just like you found it to be so in business markets two years ago.
353 THE CHAIRPERSON: Mr. Cope, you keep saying that the market is competitive, et cetera, but the problem is, most people don't just buy internet access, they buy bundles, and you are one of the persons who can deliver the bundle, and so can cable.
354 I don't have to tell you the structure of our industry, et cetera. It seems to me that the cable companies will be able to -- all of them have the same bundle of products as you.
355 But that means that, essentially, we have two or three large competitors in this country. Right?
356 Anybody who has a single line, or a single product, who doesn't offer a bundle, is really not a competitor with you.
357 MR. COPE: No, there are -- first of all, your analysis of the industry, I think, is right. We both know that bundling is a big part of the industry.
358 We still have hundreds of thousands -- probably in the millions in some cases, depending on the segment, particularly in our case, because TV in the urban markets is going to grow with IPTV. We have done it in the suburban markets with satellite very well, and in the rural markets.
359 So we don't have all three in those portfolios.
360 We have a lot of people who have single access points to our technology, but you are right, the market is moving to a bundled market.
361 I think that if you take a look at Quebec --
362 THE CHAIRPERSON: Do you have any statistics that you can share with us as to what percentage of your customers are bundled or not?
363 MR. COPE: Yes, provided that they were --
364 MS TULK: In confidence, yes.
365 MR. COPE: As long as no one else ever saw them, yes, absolutely.
366 That's how competitive it is.
367 If you take a look at Quebec, Quebec internet access -- TELUS, Rogers, Bell, Videotron in the province of Quebec. That's four players. No one would argue that those aren't four hugely credible organizations, all offering internet access into the home today at 7 meg speeds or higher, be it wireless or wireline.
368 With the launch of the hub, this product has been launched by the industry. You put that in your house, you have high-speed internet access to the HSPA Plus networks across Canada, and that's a competitor.
369 And if you don't think it's a competitor, you should see the internal fight going on between Bell Consumer and Bell Mobility on how that product is priced. The complete view of the people on the landline side is that wireless is a competitor, and I can be certain, without knowing for sure that they are not in the room, obviously, that a Rogers and a TELUS -- all of those pieces are going on -- and with Videotron.
370 So you have four players in the province of Quebec. You have three -- with Shaw now announcing, you have four, actually, in western Canada. You have Shaw Cable, TELUS, you have us on the wireless side, and you have Rogers.
371 The Commission should understand that we are after the wireless -- the internet subs that use the internet either wireless or wireline in western Canada, just like we anticipate that now happening in eastern Canada with TELUS here.
372 And Rogers in Quebec now, for the last six or seven months, has had a product.
373 I don't think that people even know it, but that's why -- you know, you have a report that just came out from Stats Canada this month which says that 23 percent of people are accessing the internet in the home not from telephone or cable. Twenty-three percent. That is up from 13 just 12 months ago.
374 We all know, instinctively, that it is probably going to 35 or 40 percent of people who will just access it through these new devices.
375 So the answer to your question is, yes, there is lots of choice beyond two players.
376 And there wasn't -- we have to acknowledge that there was not that choice ten years ago.
377 THE CHAIRPERSON: Lastly, when I read your submission last night, the one that you filed in February, you said in paragraph 1 or 2:
"Thus, clearly, Commission determination to mandate a cost-based wholesale universal ADSLCO service would have far more negative implications for investment in network facilities in Canada than would a determination in favour of resale-based competition through a speed-matching requirement." (As read)
378 Explain that to me. Why would --
379 MR. BIBIC: That's the answer I was trying to get at when you first asked the question about the TekSavvy proposal. The point here is, for that one price -- one price -- call it X dollars a month -- the competitor will get access to the entire speed and capacity able to be delivered over that fibre.
380 Contrast that with wholesale speed-matching. The competitor has to pay X for 5 megs, Y for 10 megs, Z for 15 megs. Whatever we offer in the marketplace, wholesale speed, we would have to offer an equivalent service at wholesale.
381 ADSLCO is much more damaging to the business case because, for the one price, it gives access to all of the speed and capacity able to be delivered over the fibre.
382 THE CHAIRPERSON: But that, then, leads to -- you don't like either, but if you had to, you could live with speed-matching better than with the --
383 MR. BIBIC: You are negotiating with us again.
384 THE CHAIRPERSON: No, no, I am just trying to understand the --
385 MR. BIBIC: We certainly don't like either, and you are correct in that assessment.
386 THE CHAIRPERSON: Okay.
388 COMMISSIONER SIMPSON: Thank you very much.
389 Mr. Cope, you mentioned in your opening comments that the monopoly legacy telephone network is a relic of the past.
390 But ILECs have a burden that rests still on their shoulders of that incumbency, and my questioning initially is going to be on the whole area of network build-out and trying to get a little bit broader view from you as to what your capacity to keep growing your whole network is going to be encumbered by any mandating of your NGN, because obviously a company wants to plan to build, to put its capital to where it is going to achieve the greatest return.
391 My first question is: Is fibre to the home, fibre to the node, the best bang for the buck that you are going to see in the short term, giving you the capital that you need for the long term?
392 MR. COPE: One of the reasons I am here -- and it's not unusual, I think, historically for the CEO of BCE to be here -- is the importance of this decision on those types of investment decisions.
393 It has -- in as strong language as I can use -- many people don't understand how rapidly it has changed.
394 It is core to our investment future. We, obviously, are a big believer in broadband. It's one of our five strategic imperatives.
395 I think the pace -- there is absolutely no doubt that the pace will change, based on how these rules unfold, and the pressure for everyone is not only that it slows our market, it slows the country's access to these broadband services.
396 The best example I can give on how rapidly it has changed is that the entire -- Canada now leads the world in wireless broadband, and the question we actually, in fairness, get from the government is: Why didn't you tell us nine months before?
397 We say: Because you have what you wanted, which is a fully competitive industry that tells no one what we are doing until we do it.
398 So the competitive dynamic of even sitting here today to talk about our next-generation networks is absolutely beyond everything we are made of as a competitive company now. You would never talk in front of your cable operator about your next-generation network service rollout, and the pace it would take place at -- to try to give everyone an idea of how much it has changed.
399 So, yes, it's core to what we are going to do. Billions of dollars are going to go there. We can't offer IPTV at the competitive levels we want in the cities without these next-generation networks.
400 And I think Mirko makes a great point, and it shouldn't be lost, that if we allow access to our next-generation networks, that takes away one of our access points for our competitive positioning in TV, and I think -- I am sure that our cable friends wouldn't acknowledge this, but if there is one market that is still fairly well dominated in an urban market, it's not phone any more, it's not internet, it's urban TV.
401 So, with this investment, we are going to accelerate urban TV competition, as we have seen across North America now, and anything that impedes that, I would argue, is clearly against the competitive environment.
402 And any decision here will impede that, because, if anything else, every line that is taken takes away that access.
403 That's our point. Hopefully I have answered your question. Thank you.
404 COMMISSIONER SIMPSON: You have, thank you.
405 Part 2 of that question is, if something bad happened, in your view, and NGN -- ADSLCO was mandated, how profound or minimal would the government's objective of not just increased productivity within the existing framework, but pushing out the network to that last 5 or 10 percent of the country be hindered by such a mandate?
406 MR. COPE: It is not even the last 5 or 10 percent. For instance, I know that I will put London, Ontario, on the backburner if we get a decision. It will just go slower.
407 So London will wait longer for access to those services. We are not talking about pretty rural Canada, we are talking about London, Ontario, and those types of markets that we will look at.
408 But, in fairness to the Chair, it is all on the -- you know, you have to make a judgment call every time, depending on the decision.
409 But there is no doubt that we want to make this investment with us having the choice as to who sells, and it does not mean that there won't be people we approach to resell our services. We have done it in our deregulated industries. It's a history of both deregulated and regulated markets.
410 COMMISSIONER SIMPSON: With respect to competitive pressures that come about as a result of more competition in the marketplace, the Commission has looked at other nations around the world and the impact that has come about as a result of mandating certain services, and I was wondering if you could expand on, for me, why in countries like the United Kingdom and Australia you have seen a significant increase in the percentage of third party uptake by customers of third party product, but it hasn't resulted, from what I can see from the Wood study, in a betterment of pricing to the consumer.
411 So what mandated service in other countries seems to have done is increase business opportunities at the wholesale level, but it hasn't resulted in the betterment of consumer pricing.
412 Have you anything to add to that?
413 MR. COPE: Actually, I don't think I have a lot to add to it without the stats. The market that I would probably, in fairness, pay the most attention to is the U.S., because the similarity tends to -- it can give us an insight into what we might see next, given consumer behaviour.
414 And I think everyone in this room would know, of course, that in that case it is not mandated access, and as a result Verizon is building fibre to the homes, and AT&T is certainly well ahead of Bell in IPTV rollout. In fairness, we had a satellite business; they didn't. So there are differences there.
415 And I think the reports show that our broadband pricing in our market is competitive on a global basis.
416 I don't know if anyone has any comments on the other markets. Please feel free to...
417 MR. DANIELS: Commissioner, I think that your question is very apropos, because we looked at this and actually examined it.
418 When you look at the other countries -- and you specifically mentioned the U.K. and Australia. What both countries are facing right now is the question of how to make sure they are encouraging investing in the new facilities, the next-generation access. That is fundamentally what we are talking about.
419 Looking at it and saying, "How much is the progress," or, "What has happened in the market today," in terms of the rules they have had, is one question. You are looking at it, saying, "What's happening here, we are not seeing the same level of price competition, but we are seeing market share changes," which is a valid point.
420 But what both countries are really struggling with is really at the heart of the issue that we are here today to talk about, which is how to make sure that you have the incentives to invest.
421 Now, the dynamics are different in both countries. In the U.K., which doesn't have the same extension of cable competition that we have in Canada, although cable is a factor now in the U.K., the dynamics are quite different from what we have here in Canada. Yet, even there, with the regulator, which is associated with leading -- mandating wholesale access -- even there the regulator is now proposing -- dealing with this issue of how do they get out of their traditional approach to the wholesale regulation of next-generation access, because they are worried about the lack of incentive to invest that their rules have had on BT.
422 In fact, comments are due tomorrow specifically on that, where they are proposing not to regulate the rate of next-generation access, as they define it.
423 In Australia it's a different situation, where the government is undertaking and putting in -- you know, planning to spend over $40 billion to build its own next-generation network, because they think -- they are trying to figure out how they are going to get this to every Australian home, and having the whole issue about how to handle this with Telstra, as the incumbent there, and what that is going to do to the incentives to invest.
424 So there the solution that the government is looking at is, yes, they are looking at mandating access to a network that they build with public money. So the dynamics are completely different, but yet the issue that is central in both of the countries you cited, I think, comes back to what is happening here in Canada, which is that we are dealing with: What does regulation do to incentives to invest.
425 COMMISSIONER SIMPSON: In looking at the statistics in Canada over the last three to five years, there seems to be -- this is a continuation of third party access -- arguably, the incumbents have attempted, it seems, to make their networks accessible within competitive limitations, but it doesn't seem to have worked very well -- I am thinking again of consumer choice -- in that the third party seems to remain stuck at around 5 percent of the total.
426 I am also curious as to why the majority of the 5 percent are using ILEC as opposed to cable. Is that a technical issue or a market issue?
427 And what do you think is prohibiting the third party from growth within the existing framework?
428 MS TULK: There are a few different points in there. I really can't speak on behalf of why the ISPs have chosen to buy from the ILECs versus the cable companies. I would believe some of it is definitely that the ILECs -- to George's point -- are more in the wholesale business. So we are more, in many ways, open to -- and I think there are lots of examples of things in addition to what we have been mandated to sell.
429 We sell regularly to third parties through wholesale in many forborne areas of our business, so we have a whole wholesale business unit that is actively trying to market and sell to third party companies on a wholesale basis.
430 As George mentioned, we are very open to that, so I think that is probably part of it.
431 I also think, as George mentioned, that in the last number of months, certainly in the last 12 months, there has been a dramatic shift in Canada in competition in the internet business, with the advent, in a meaningful way, of the wireless carriers as internet providers.
432 The statistics are growing dramatically, as George pointed out, and the coverage is growing dramatically, and the capability is growing dramatically.
433 So that has certainly shifted the market dynamics monumentally.
434 In fact, I have been in the internet business since 1994, and I would say that the last 12 months probably would be up there with the conversion of dial-up to high-speed, in terms of how dramatic the shift is in the market, and that was through the introduction of sustained wireless bandwidth speeds and availability.
435 It is probably the second biggest shift that I have seen since 1994 in the internet business.
436 But prior to that, I think a lot of -- getting back to one of the points that the Chairman raised, customers in Canada do like to buy bundles. Clearly, the company that is most able to provide bundles in the urban centres of Canada, where the majority of the population lives, is the cable carrier.
437 We are trying very hard to put ourselves in the position to be able to invest in a network to allow consumers to have further choice on that full household bundle.
438 It gets to the crux of one of the discussions here, because I know that there is a concern underlying this proceeding about the ISPs, but the reality is, if the ILECs don't invest in these next-generation networks in the urban cores to bring viable video and TV competition to the urban cores of Canada, no one will, and any outcome of this proceeding that puts it in jeopardy for us to be in a position to build that investment pervasively and fast in the urban areas of Canada will diminish competition.
439 I don't think that it will change the statistic dramatically that you are asking about; what it will do is change the statistic that I am very concerned about, which is Canadians' availability to meaningful, total broadband home competition, including video.
440 It gets down to the fundamental point that if we are not incented to invest, no one will.
441 COMMISSIONER SIMPSON: Thank you.
442 I have two more questions. In your proposal, both the fibre to the node and fibre to the home proposals that you showed us, you state that these proposals would be viable to third parties, to competitors, but I am curious as to whether that includes their access to secondary infrastructure, pole access and so on.
443 We know that access is available to them, but is there a cost differential or an advantage to the ILECs versus a competitor to those services?
444 MR. BIBIC: No, the support structures that we own are mandated. They have been determined to be public good under the essential facilities framework.
445 You obviously need, in some cases, to get access to municipal rights-of-way and lands, and you just have to -- it can be tough to deal with the municipalities, that's for sure, but they can do it, just like we have to struggle through that at times.
446 It's an interesting question as to whether if there is -- I don't know if this is an issue, but if cable has access to condiments that shouldn't be mandated. That is really the issue that would need to be resolved and it is mandated and we are not here to quarrel with that.
447 MS TULK: I think, you know, we put a lot of time leading to the diagrams that you saw this morning, really trying to understand how we could bring forward a proposal that respects the underpinnings of the essential services framework.
448 As you can imagine, many of us have spent time in proceedings like this that are going against various parts of the framework so it was an interesting exercise to go through, but we really did try and do that.
449 When you see on that chart -- what those two charts show is that through sub-loop unbundling everything that was paid for in the ILEC, the incumbent advantage as I think someone described it earlier, in the legacy monopoly days that led to the essential services framework, is available in the next generation network here. And the sub-loop unbundling opens up anything that should have been covered in that essential services framework in the next generation network.
450 Every other piece that we are saying wouldn't be open to mandate at wholesale, is something that we are faced with a new build for and is completely duplicable. It is new money to us and will be new money to someone else on an equal basis. The only piece that we found through extensive examination of both the FTTN and the FTTH world -- the only piece that would be left that wouldn't be available up to this point would be the sub-loop.
451 So we are proposing to open that up, which now means that all pieces of the essential services framework are protected in the next generation network.
452 COMMISSIONER SIMPSON: I have to ask this question.
453 In the inverse scenario where there is a potential of some form of mandating of ADSLCO what do you approximate your start-up costs and what percentage of your total COs would require capital investment?
454 I guess the third question is what would your proposal be to recover those costs? Would it be up front or overtime?
455 MR. BIBIC: Well, the costs, the costs are -- we threw out a number, a kind of general number because of confidentiality, of over $1 billion for a fibre to the node.
456 If you are giving access -- just to put it into perspective, and your question is very similar to the Chair's question which was the last question the Chairman left me with, which is, "In the world of unpleasant outcomes is ADSLCO worse?" and the answer was "yes".
457 Just to put it in perspective we have about -- the significant majority of the COs that we would plan to build fibre out of competitors are already co-located. So what we are saying there is about 80 percent.
458 So automatically if we were to build this fibre and the COs would plan to go, 80 percent of competitors under ADSLCO would have access to all the speed and capacity available with fibre. We put in to the ground at one regulated price.
459 The question also is an opportunity to talk about costing issues and I don't think -- I don't think that adjusting the regulated price is the solution to solving the incentive to invest problem and it's a great time to talk about it because it is so rare that we have an opportunity where we have so many Commissioners and senior leadership to talk about the problems endemic in costing.
460 A Phase II cost model, which is what the Commission uses, that is also a relic of telephone monopolies. It assumes that its long-run incremental costs -- it assumes that you are going to build and you will get basically all the demand.
461 But that's not a competitive environment where we have no guarantee. We are not going to get anywhere near 100 percent of the homes subscribing to the service to whom we build the service too. So that's one thing, it ignores the cross impacts.
462 So regulate here. You are not going to get the demand on that one service. Plus it is going to affect your ability to generate subscribers. The mandated access will affect your ability to generate subscribers on all the other services so it ignores the cross impacts.
463 And then there is the markup issue. We like to say in the regulated business, it is cost plus 15 percent or cost plus some market rate. That markup is actually not a return on investment. People think it is. All it is -- is a contribution to fixed and common costs.
464 The markup is actually embedded in the cost study at the weighted average cost of capital, the WACC, and that weighted average cost of capital that the Commission has imposed on Bell is significantly -- significantly below the hurdle rate that our project assessments need to meet in order for us to invest that dollar of capital. So there is a lot of problem with Phase II costs.
465 The Commission -- as much integrity as Commission staff and Commissioners bring to this process, you can never have all the great information to be able to adjust the price in a way that is going to address the incentive to invest properly, not to mention the time it takes.
466 MS TULK: The other thing I would add to that, and perhaps I don't know, I wasn't around in the build-out of the original telephone networks, but certainly in the next generation networks -- I have spent the last four years of my life putting teams and teams of people through models around how we could build these, where we could build these -- and I can tell you, not only is every city different, every neighbourhood is different in terms of the costing.
467 The problem with anything that aggregates that up and sets prices, that means that when we then start to look at it there are going to be places where that may make sense for us still and other places where it is going to put us so far out of whack it immediately takes them off the list. And they are not, as we have illustrated in some of the examples we filed, intuitive.
468 Like it's not that necessarily the biggest cities stay on the list and the smallest cities fall off the list. It's because, you know, where the CO happens to be, the distance that we have to build out, how many DSLAMS we have to build out to get within 1.2 or 1 km of every home, how the homes are configured
469 So literally when we are making these decisions it's on a town by town basis and in many cases on a neighbourhood by neighbourhood basis. It makes it incredibly difficult for us who do marketing for a living because we start saying, okay, well, we are going to build that town out not from this location going this way, but this piece over here; then this piece over here, then this piece over here; difficult to market to, but the only way to effectively build to.
470 In my mind I am boggled by how in an ADSLCO world there would be any possible outcome where the price could be anywhere near or any way that it would not drive changes in the investment plan, communities falling completely off the list, other communities only being half built rather than fully built, order built rather than half built.
471 Like the ramifications are different community by community, area by area, and the outcome is going to be lower access to choice for both internet and particularly video services in Canada. It's the only outcome I see. It really is.
472 COMMISSIONER SIMPSON: My last question takes us right back to where we began which is the subject of regulatory symmetry.
473 For my own understanding, putting the technological differences between cable and the ILECs to one side, and not assuming that there is parity but there are technological differences that are challenges for you, my question is, in a perfect world of regulatory symmetry between the two, does that get you back to -- how close does that get you to being on balance with the cablecos before technological differences are taken into consideration?
474 How important is that symmetry, putting the technical issues aside?
475 MR. COPE: I never assumed when I took the roll on that symmetry wasn't a given. The complete astoundment to me is that symmetry is not there. I have no understanding as to the history. I haven't been in -- people know what my background was. You know I was in that forborne industry which has done pretty well by the way without regulation. It's leading the world for Canada.
476 So when this has come to my attention, as people know to me it is table stakes. It absolutely should not be one ounce of energy of Bell Canada on symmetry. We shouldn't be asked to write a piece of paper to prove it. We shouldn't have to do anything. It should be a complete given.
477 The symmetry is there. And the fact that it's not, I guess that's probably given you my statement that it doesn't matter what the rule is of symmetry.
478 I don't think the Commission would expect us -- I think probably the Commission wants to have symmetry. I'm sure of it given how hard this team works at the other side of the table here. We just have to not have decisions in our initiatives that are so complicated, miss a link that turns out not to create symmetry.
479 So I don't think it's -- I cannot believe it has been intentional because that would cause a whole other question for our company. But I think it has happened maybe for historical reasons and it has to be fixed because there is no doubt we compete with these guys every single day. Everybody knows that.
480 MR. DANIELS: I could just add that the one thing that you have to appreciate is our struggle with the notion of arguing for symmetry. You heard everything we say, but like if you take the example of the restriction on youths for example, it can't -- the reason why we are so focused on saying you have to -- symmetrical means you have to do it in a manner that treats us both equally.
481 But most importantly first and foremost, you have to make sure that you are not affecting our incentives to invest and that's what we are worried about. So to come here and say we don't want to be misinterpreted saying you absolutely have to get rid of this restriction on use on video on the cable platform, when if you mandate next generation access, which we are totally against, not to have that when we are the new entrant in the market, not to be able to say you can't use it for videos is crazy.
482 So that is where we are struggling here, is we answer this to say you can't treat us differently but first and foremost we have to start with the premise as to what you are going to do and how you are going to impede our incentives to invest.
483 So that's why I think where you are picking up on us that first and foremost is we have to make sure that you have the right rules going forward because we are focussed on making sure that our incentives to invest are correct.
484 THE CHAIRPERSON: Len, I believe you had a question?
485 COMMISSIONER KATZ: Yes, several questions. Thank you, Mr. Chairman. Good morning.
486 I'm going to start with wireless because, Mr. Cope, you are comfortable with it as well and you have given your background and so am I to some extent.
487 We know that the Cabinet three years ago decided that in order to stimulate wireless services there was going to be an option and they set some rules in place in regards to that option, would set aside tower access, mandatory roaming and the like. It was all done from the perspective that there wasn't enough competition. There wasn't enough end user consumer choice. And from their perspective they felt there was a need to create that opportunity as well.
488 You have come before us and this morning you mentioned the cable companies and some of the satellite companies as well saying there is choice out there, there is competition. It's not any more than what there was in wireless when the Government of Canada decided to create the auction process with the rules as well.
489 So when I asked you, help me square the circle because the government went from three wireless carriers to six and maybe seven in one market, depending on who goes up and when and, yet, in the facilities-based wired environment we are not seeing that.
490 MR. BIBIC: I will start and George can supplement.
491 First, with respect to Cabinet's decision three years ago in wireless, never did they mandate access to wireless networks. It was access to portion of spectrum. The model all the way along that Cabinet put forward was get access to spectrum, but the wireless provider has to build their own facilities.
492 In fact, they were required to build network before they have access to roaming, which isn't access to infrastructure the way we are discussing it here in relation to our wireline networks, so a fundamental difference.
493 The second point is, the very same Cabinet to which you refer which put forward the set aside, is also the Cabinet that sent this issue back to you for reconsideration on the basis that the mandated wholesale access rules to our fibre infrastructure was going to dampen our incentive to invest. So the same Cabinet is actually very worried about mandated access rules on the wireline side and saw fit to send it back.
494 The end, where I would reconcile the two decisions, is Cabinet on wireless wanted more facilities-based competition, which they are getting, and Cabinet on wireline wants first and foremost facilities-based fibre infrastructure built out to a greater extent.
495 That is how I would reconcile the two.
496 MR. COPE: Yes. And the points are valid. I think also adding to your question, if you look, it has changed, though, in the last seven months dramatically for home internet because now someone can choose beyond either the cable or the telco for their wireless internet -- for their internet access. It can be wireless, and we are seeing that.
497 We will definitely not give the number, but hundreds of thousands of people in Canada are now using the internet stick for access to the internet.
498 You know, the great thing, as we all know in the room, is we now have rural broadband coverage. We woke up one day and 93 percent of Canada had broadband coverage and therefore more competition because everyone and even those local markets who were doing dial-up, now have wireless competition. So I think it has changed radically.
499 We didn't even mention, simply because we compete so intensively, but you know with the new entrants I assume at some point we will see them with internet access products similar to this hub so you will have more. But you know the best -- you know, you take the province of Québec, Rogers, TELUS, Bell, Videotron, Cogeco and part of it outside of Montreal, so you take those competitors and you say if that doesn't get a check in a box that we have moved on to a deregulated industry, we are there.
500 MEMBER KATZ: But then what I hear you are saying -- and I'm looking at it from the consumer's perspective -- and it's either innovation or investments from your perspective because there was a thought process several years ago that in order to innovate without -- no disrespect to the facilities-based carriers -- the guys at the edges are the guys that are innovating and creating and unless they have access to the infrastructure they are not going to be able to create these leading-edge technologies and services.
501 Like I said, I'm not saying that the phone companies and the cable companies don't innovate, but there was always this notion that if you don't give them access then these players, the new entrants, there isn't going to be as much innovation as well.
502 So what I hear you saying now is although three years ago the government was saying investment over innovation, they are now saying -- or innovation over investment -- they are now saying the reverse. They are saying they would rather see investment by you folks in the cable companies at the expense of creating new players in the game at the edges.
503 MR. COPE: Well, it's funny. We are actually here because the next investment we are making is about the most significant innovation we can bring to our services is to put TV over what was a new service for us over the internet to focus on -- which does take a lot, millions and millions and millions of capital to launch IPTV in the urban markets.
504 So, you know, I do think we are actually here to drive the innovation, is what we are after. But it really is back -- you know I have said it. I will say it another dozen times I'm sure this morning. It's about the assessment of the competitiveness of the marketplace. I mean if we are not competitive at the access point.
505 THE CHAIRPERSON: I am getting a call of nature from some of my colleagues. We will take a 10-minute break now. Thanks.
506 MR. COPE: That's fair. Thank your colleagues.
--- Upon recessing at 1117
--- Upon resuming at 1129
507 THE SECRETARY: Order, please. À l'ordre, s'il vous plait.
508 THE CHAIRPERSON: Okay. Len, I believe you had some more questions?
509 COMMISSIONER KATZ: I do. Thank you, Mr. Chairman.
510 I want to take my analogy of roaming one step further and I want to focus on the business versus the residential market and specifically the business market.
511 I heard you, Ms Tulk, say that there is an opportunity for cable companies to offer business services as well.
512 But notwithstanding that, and let me ask the general question first; does Bell Canada lease facilities from other carriers in order to serve your national accounts in other markets outside of the territories you serve?
513 MR. BIBIC: Yes.
514 COMMISSIONER KATZ: Okay. So under that model how would you see, if we accepted your view that there shouldn't be any wholesale services required anymore and there shouldn't be any tariffs anymore for wholesale services, how do you see access to facilities that you might need in some areas evolving?
515 If someone simply says no, what happens then? Are you going to build it out?
516 MR. BIBIC: Well, two answers.
517 One is we are quite prepared to deal commercially with any facilities owner in other areas.
518 The second answer is an answer I have already given but I will expand on it. This Commission itself in the essential facilities decisions said this, and I quote:
"The Commission notes that the record indicates a high incidence of competitor self-supply or alternative supply of fibre-based access and transport facilities."
519 So that's already been determined by the Commission and we are saying that primarily was in the business arena by the way and now we are saying with respect to these networks it is the same principle. It is building out a fibre and anybody can do it if they so choose.
520 Sure it's riskier, but the payoff at the end of the day is much higher. They can build and we will give access to -- it comes down to this, competitors have options. They can build where they so choose. They can deal with us on a commercial basis, which is certainly a core message that Mr. Cope has communicated several times this morning, or they can get access to -- continue to get access to GAS services that are available today. We are not here to ask for a rollback of that regulation.
521 COMMISSIONER KATZ: I'm not --
522 MR. DANIELS: I'm sorry, if I could just add to that. If you look at it, I mean in the context of this proceeding here we are talking about DSL and when businesses would use DSL.
523 So what we have come to you with a proposal about, access to the sub-loop, is that you have already determined that you can build out -- competitors can build out in the business market fibre; can justify it going to buildings. And now what we are saying is that to the extent that we have and are able to use our legacy copper in an advantage in terms of building out fibre to the node, competitors would also be able to do that and it is consistent with your essential framework and it is consistent with your own factual determination about being able to build out on the business side.
524 To the extent that competitors today are using -- that it is the smaller and medium business that is using DSL as the technology to compete with us, or how we provide and compete in that market, that now, by adding the sub-loop, now we are making it --
525 THE CHAIRPERSON: Mr. Daniels, please, we are running out of time. Don't use this thing to freelance. There was a specific question and Mr. Bibic gave us the answer. You are now freelancing on the proposal of this morning which was not what my colleague asked for.
526 We have to get through this so, please, restrain yourself to the question.
527 COMMISSIONER KATZ: Okay. Let me go on to the next question.
528 Your business case for London and some of the other markets that you identified, I don't want to get into the assumptions in there specifically, but basically you are suggesting that if you had to make your infrastructure available to what you call resellers, what I would call value-added providers perhaps, you have a net loss of customers and that would retard your investment.
529 Can you just tell me in general terms what assumptions you have made with regard to the mix of customers? I mean I would see a scenario that says if you make your infrastructure available to value-added providers, resellers, however you call them, they would grow the market for you. They wouldn't reduce your market.
530 I mean there would be some people that might move from retail direct through a reseller, but if you structure it properly -- and again we are back into a distribution model -- you can probably create the incentives whereby some of these people would actually grow your pie for you and actually create a margin of the contribution rather than an erosion.
531 MR. COPE: Yes. I actually agree with you, and we will appoint those value-added people where we see the commercial -- it is exactly what we have done, you know, appointing President's Choice on wireless. We saw an opportunity to grow market share.
532 That's exactly what we did in appointing TELUS to distribute satellite TV in Western Canada because we saw an opportunity. We still have 300 stores in Western Canada that compete with them, but we saw an opportunity for us so we don't --
533 COMMISSIONER KATZ: So why does your model --
534 MR. COPE: But my point is; my point to answer your question is you don't pick them. We do. It is a competitive business and we picked a guy who is going to do exactly what you said, help us grow London's value-added service.
535 We choose someone to possibly distribute through value-added services such as wholesale. We do it in all the General Motors vehicles in Canada that have OnStar. We resell to hundreds and hundreds of thousands of people --
536 COMMISSIONER KATZ: Did you make your assumption --
537 MR. COPE: -- because it's in our best interest to do that. So we would do what you are saying.
538 COMMISSIONER KATZ: Okay. I have a follow-up question.
539 So when you get your model for London did you make the assumption 100 percent of the customers are going to be arbitrage, they are going to be coming out of your network and going into a reseller's network? Or did you make the assumption that there was going to be some growth in some opportunity for those resellers to actually increase your market share by taking customers away from the cable guys?
540 MS TULK: Well, in supplying the information that we supplied -- and I believe we also in a recent interrog supplied all the assumptions behind that -- you know, there are an infinite number of models. We picked three, no wholesale at all, and the two wholesale scenarios that the Commission had been looking at in previous proceedings.
541 We didn't do one that would be a model of our build out and then commercially reasonable volunteer terms for wholesale. Obviously, as George mentioned, we would do that and we would be very willing to do that in the scenario where it is accredited to our case, but those weren't what we were asked to explore. So the models that we have supplied are no wholesale and the two wholesale scenarios that the Commission had been looking at.
542 To your question, there is a lot of assumptions behind -- not all the assumptions in the subscriber degradation is necessarily of one between us and the ISP in question. You will see that in the scenarios the total on network, if you will, RGUs also degrade, our revenue generating units.
543 And that is because; to one of the points brought up earlier in the proceeding, what would happen in terms of market share dynamics in the aid of the other party that is better able to fully bundle, and what it does to disrupt our ability to compete with the other major players in the market, is wireless and cable-based. So there is a degradation to the RGUs on network as well as the shifting between us and the wholesaler.
544 COMMISSIONER KATZ: Okay. Let me come back, Mr. Cope, to something you said about the value of distribution.
545 If hypothetically this Commission agreed with your model, how would you see us transitioning from the wholesale model that is there today to a distribution model that you see in the future, short of saying on day certain that these wholesale tariffs are no longer in place and therefore they are gone and you have an industry that is in disarray.
546 How do you see that devolving?
547 MR. BIBIC: Well, there is no mandated wholesale access that Bell provides today to FTTN or FTTH infrastructure.
548 COMMISSIONER KATZ: There is a matching speed decision that the Commission has got out there as well.
549 MR. BIBIC: Well, the tariffs that we have available today are at maximum 5 Mb per second and that is because of the review and varies and the Cabinet petitions, et cetera.
550 So today our GAS tariff is up to a maximum of five on residence six on business, so there is no access being given on a mandated basis to the higher speeds and therefore there is nothing to grandfather or rollback for next-generation infrastructure access.
551 COMMISSIONER KATZ: So those carriers that are out there today, I don't know, Primus and the rest of them that are appearing before us, would basically have to come before you effectively naked saying, "I want to form an alliance with you" and then it is up to Bell to decide whether it's a yay or a nay?
552 MR. COPE: Yes. Just as in any other business they would be obviously on their current business where they are. Other businesses we would appoint them or, like us, they can execute the business plan and put capital on the ground in a competitive environment, just like we are seeing in the wireless industry where some people are putting capital like Videotron into the industry and creating another access point for the industry. The answer would be yes, but it is an evolution from what their current business is.
553 COMMISSIONER KATZ: You see no transition regime at all?
554 MR. COPE: Well, I think that's a harder -- we would have to reflect on what you're asking us specifically to understand what it is you would want us to take a look at doing because obviously we want to understand that that would be a change for some businesses. But our view would be -- my commercial mind would go to those that have been the best and done a great job working with Bell.
555 Why would we turn around the next morning and want to see them with somebody else in the industry, if we think there is a value-added approach to that business model? But we are not currently getting that access today to that new technology.
556 COMMISSIONER KATZ: Could I ask you to flesh that out and your thought process?
557 We are going to be back with you I guess in a couple of days and maybe pursue this as well, just to get a better understanding as to how you see the evolution for some of these other players out there today?
558 MR. BIBIC: Sure, we can. But rest assured, Mr. Katz, that today our maximum GAS tariff is at 6 megs business, 6 megs residence. There is no tariff for any services at higher speeds and certainly there is no ADSLCO service, although it was mandated by the Commission in the essential facilities decision through the RMVs, et cetera. We don't yet have a determination on that.
559 COMMISSIONER KATZ: But certainly, if I heard Mr. Cope correctly, you would be partnering with somebody and therefore you would be making available to them at some degree a wholesaler or relationship basis the services that you offered to allow them to offer competitive services in the marketplace as well?
560 I mean you have a strategy. You want them to grow your pie as well.
561 THE CHAIRPERSON: Ask the question --
562 COMMISSIONER KATZ: He is about to answer, I think.
563 THE CHAIRPERSON: No, no, but do you have a strategy for competitive service?
564 MR. COPE: Thank you for clarifying the point.
565 We did not say we would appoint anyone. What we said was in a commercial environment history has proven that we have appointed people to resell our products. If tomorrow morning one of our cable competitors went to appoint someone in a deregulated environment we would have to think about it.
566 Also if we think, you know what, we don't want to lose this guy who has done such a great job for us in the last 10 years in the historical model, good business sense would be that is probably where you think we would go, but I'm not going to disclose here who and what that would contain.
567 I mean that is exactly what would happen in a marketplace as we have done in all of our other segments that we are in. That's really, you know, as far as I think we would go here.
568 We will come back, you know, as you have asked us to, and make a note on that. But I think you have to think about these are brand-new services for us and as we rollout those services and we see a way to maximize market share through an appointment of someone to add some value-added services, we would do it.
569 You know, no one anticipated OnStar. The next thing you know, we didn't say no. We said yes for competitive reasons. We wanted to make sure we had that access, that revenue.
570 COMMISSIONER KATZ: Okay. My last question is in relation to IPTV and the degradation that you have suggested would happen.
571 Can you differentiate line sharing where there is a split in your infrastructure network where one party over one wire can actually provide a broadband separate and distinct from a different carrier yourself offering the voice service from IPTV and the fact that you are saying if you split out and had an alternate ISP providing broadband you couldn't provide IPTV?
572 MS TULK: Okay. Mr. Commissioner, I will answer it in plain English, and if you want a more technical answer on the record I will hand it over to one of my technical colleagues who can give you all the details you need.
573 The basic plain English difference is that in the case of line sharing between voice and IP traffic they use different pieces of spectrum on the copper pair and the voice doesn't require modem attachment on the end. In the case of internet and IPTV they both ride on the IP traffic using the same piece of the spectrum on the copper pair and they both require a residential gateway modem at the end that can't coexist on the same copper loop.
574 So I don't know if you need more detail than that, and we can get into all the technical detail, but that's the short answer, the short English answer.
575 COMMISSIONER KATZ: I don't need any more from that perspective, but it brings the follow-up question. That is, I think, it was Primus in reading their evidence, indicated that Aliant on their website said that there was capability to be able to provide IPTV service even though the broadband service provider was not Aliant.
576 I can get the quote.
577 MS TULK: Well, in fact, Aliant is providing IPTV without internet service, but not in the case where there is an internet access riding over that loop.
578 It will be in the case -- and it's actually targeted against the small proportion of the market that actually wish to have IPTV and voice service and no internet in their home or they are using, to George's point, wireless internet access into their home, or presumably they could be using the cable provider's access into the home but it isn't being provided in the case of other internet services riding on the same copper pair. That is what is not possible to do.
579 The other --
580 COMMISSIONER KATZ: Okay --
581 MS TULK: I think there was also an issue on the website that we actually in an interrog clarified that the website had been corrected.
582 There was a wording issue with the way that the answer was originally on the website that we saw in the interrogs, led to some conclusion in that it was eating read in a way it wasn't intended to be. We actually clarified the website and filed with the Commission the clarifying wording. It really -- it was just ambiguous wording on the website and we corrected the website and filed the new wording with the Commission.
583 COMMISSIONER KATZ: Thank you, Mr. Chairman.
584 THE CHAIRPERSON: Okay. Marc, you had a question?
585 COMMISSIONER PATRONE: Thank you, Mr. Chair. My question has been asked, Vice-Chair Katz got to it.
587 THE CHAIRPERSON: Thank you. Candice?
588 COMMISSIONER MOLNAR: Thank you.
589 I just have a couple of questions of clarification.
590 And, first, Mr. Bibic, you talked about restrictions on use and that there should be restriction on video use and I just want to clarify, when you're talking about that restriction, what services are you speaking of?
591 Are you speaking of the aggregated ADSL as well as the CO based?
592 MR. BIBIC: To the extent -- either. To the extent the Commission were to grant mandated access to some form -- some form of mandated access to our next-generation networks, the competitors using that mandated access riding on our network should not be permitted to offer, you know, IPTV services.
593 We are, you know, the new -- and that's the rule that applies for cable TPIA, so it would be on both.
594 COMMISSIONER MOLNAR: I want to go back to the issue of negotiated solutions that Commissioner Katz was speaking of.
595 In your opening statements, Mr. Cope, you say, I am here to assure you that we will leverage many different distribution channels and wholesale can make a valuable contribution.
596 But then I just thought I heard you say that you may or may not have wholesale on your new generation networks and that's a choice you want to make in the future.
597 So, you're not assuring us now that there would be wholesale?
598 MR. COPE: No, I wasn't. And if you go back to, so it's complete, transparency and clarity, we want the decision to how we're going to distribute our products and services and one viable channel historically for us in the non-regulated areas has been wholesale.
599 So, absolutely comfortable business wise, instinct wise to think that wholesale would be a part of a channel, but to make a commitment means we've made another regulatory commitment in a deregulated industry.
600 So, you know, if you go back, I think in our wholesale business, and our folks can certainly share with you, 50 percent of our wholesale business today in the land line is from forborne revenues.
601 We had no regulation -- regulatory requirement to offer that and I think it's about a billion dollar business unit, so it's about $500-million roughly of revenue we generate in our forbornes and that's not counting our wireless and our video business.
602 But it would be inconsistent for me to then say, but don't worry I'll guarantee you because then I've actually said, I agree, you should regulate it.
603 It would be completely inconsistent for me to guarantee you. It's like saying I guarantee you I will sell my product through one retail channel. I don't know if I'm going to sell them through 65 retail channels or one and I don't know if I'm going to sell them through six wholesale channels or two, and I don't know if I'm going to have six in each market or 75 and one in every city.
604 I don't know that answer. What I do know is, we're going to maximize market share through all the best channels. And what's unique in Canada, there are some channels in wholesale that have been created that have been successful. It would be unusual for us commercially to not think about approaching them, given the market share battle we're in in this market.
605 COMMISSIONER MOLNAR: Let me just throw something out and, that is, today we have a number of competitive ISPs that provide a value add to the Canadian Internet market, they serve essentially niches in large part, not all, but many serve niches that the mass market products that you deliver as a telephone company and that the cable companies deliver that are intended to address and target the mass market don't target all consumers.
606 And so these -- some of these competitive ISPs serve a very valuable role in serving niche markets where their requirements, be it the speeds, the capacity, you know, their customer relationship, management, billing, whatever it is, is different than what you provide as a mass market product. So, they do serve a valuable role.
607 If we don't mandate that they can continue to have access to products and services, how can we be assured that those consumers who aren't looking for a mass market product continue to be served?
608 Because, you know, you're saying there is no commitment, we can -- there will be no commitment that those wholesalers will get access to services.
609 MR. COPE: Well, one, my shareholders and board will remove me pretty quickly if I'm not going after every part of the market. That's what our business is about.
610 But, you know, on a more serious vein, there was no assurance there'd be wireless broadband in Canada through regulation and it happened because of an open market.
611 And so I think what the Commission has to step back and ask, because there's no doubt those people offer valuable services, that's why we -- half of our wholesale business is not regulated. I mean, you do have evidence that Bell has appointed companies to sell service for us in a non-regulated competitive environment.
612 You just have to step back and ask a fundamental question, which is, do you view this market as competitive? If you view the market as competitive, then you have to allow us to choose those channels.
613 And, so there's no disagreement between Bell and yourself on people who offer value to the marketplace. The fundamental disagreement is, does our business and the cable companies and the wireless companies who are now in our business get to choose who's going to sell those products and how.
614 That's what really we're here for. That's my position on it.
615 MR. BIBIC: And, Ms Molnar, just a very quick add-on to that answer is, I mean, I sense what the Panel is struggling with, but it really has got to come back -- at this point I have to say it has to come back to first principles.
616 The essential facilities framework says, if it can't be practically duplicated then you regulate, and that's not the case here.
617 So, it's not about protecting the business case of six, seven, eight, 1,200 small independent ISPs or allowing those who get served in that niche, it's about, you know, first principles; can it -- is the market competitive, George has addressed that, and can the element be duplicated and it can.
618 COMMISSIONER MOLNAR: You have forced me to ask the question since you're talking about practically and economically duplicated.
619 Your sub-loop unbundling, could I use an example, perhaps Ottawa just as an example. How many -- and I don't believe this is competitive information because somebody could go out and count how many DSLAMs you have in Ottawa.
620 MR. BIBIC: I don't know. I don't know the answer to how many DSLAMs we have.
621 COMMISSIONER MOLNAR: I mean, because there's one thing to say practically somebody can pull fibre and it's another to say, and it makes economic sense to pull fibre.
622 One DSLAM would serve how many customers, a hundred, 200 customers per DSLAM?
623 MR. COPE: Our economic situation is exactly the same as theirs. That's why we're here.
624 There's a perception of Bell, Bell's a large company. More of our revenue comes from video, wireless and Internet today.
625 We have to move off of the telephone company monopoly wire line story. It's over.
626 Yes, you're absolutely correct, it takes millions of dollars to do this. We're spending a billion and we're going to end up then ultimately doing fibre everywhere. We just know we're going to have to.
627 So, I absolutely agree with you that it takes a lot, a lot of capital to do this. And the great news for Canada is there's other competitors spending the same billions, you know, so we have a competitive environment now.
628 And I apologize for keep repeating myself, but that actually is the fundamental answer.
629 And when you go down to the detail, the problems -- I have to go back to the principle because on the detail point you're so correct that it impacts a change in market, it does, for sure. There's no doubt it does.
630 COMMISSIONER MOLNAR: I just have one other question and it's about the comment that Phase II costing is not appropriate moving forward.
631 Do you have an alternative?
632 MR. BIBIC: No, I don't have a fully fleshed-out alternative, just if there is going to be regulation, if that's going to be the case, it's got to address -- no, and we really don't think that in the environment we're in there should be mandated access, but if there is, it can't be on the traditional basis because it will -- I mean, you've heard the CEO of Bell, it will affect the pace of roll-out, it will affect which communities get it, you know, period and so that would need to be addressed and current costing rules just don't do it for all the -- I don't want to repeat the answer.
633 COMMISSIONER MOLNAR: Is it possible, and it may not be possible because of course you're coming before us again this week, but to consider what might be an alternative to the Phase II costing?
634 I mean, there are models like avoidable costing or something else. I mean, how do you cost wholesale services?
635 If there is any possibility to come back with something --
636 MR. BIBIC: Okay. We can give some thought to some concepts but, you know, in a five-day hearing it's hard to fully flesh out --
637 COMMISSIONER MOLNAR: In a week, I understand that.
638 MR. BIBIC: -- all the costing for something like this.
639 COMMISSIONER MOLNAR: Okay. Thank you. That's all I have.
640 THE CHAIRPERSON: Elizabeth?
641 COMMISSIONER DUNCAN: Thank you.
642 I just have a couple of questions.
643 I'm just wondering, I understood from Staff that the information that we got on your models was insufficient for them to really come to a conclusion or to assess it.
644 And I'm just wondering if it's possible for you to give us that information. I understood, for example, we didn't have all the assumptions we had asked, and also we were given three years of 10 instead of all 10.
645 I just wonder, because I think some of our decision is going to be based on our evaluation of that model.
646 MR. BIBIC: Yeah, we would be happy to discuss with Staff exactly what's needed. I under -- I thought that we had given all the assumptions that was asked.
647 COMMISSIONER DUNCAN: Okay.
648 MR. BIBIC: And then in terms of each of the years, I would -- we'd have to discuss what exactly is needed.. Sure, we'd try to be helpful.
649 COMMISSIONER DUNCAN: Could you? That would be helpful. That would be helpful. Thanks.
650 MS TULK: So, we thought we answered all the questions, but we can add on.
651 COMMISSIONER DUNCAN: All right. If you wouldn't mind just checking, that would be helpful.
652 The other thing that I wanted to understand, Ms Tulk, is on your comment about there is nobody else that will provide competition in the video market, other than for yourselves, nobody else is going to make that investment.
653 But I understood that wireless at some point is going to be -- and I think Mr. Cope you just mentioned there a few seconds ago -- isn't that a potential competitor and what kind of a time frame would that come about?
654 MS TULK: Well, certainly. Just to clarify. There's many ways -- I guess you have to separate the difference in, there's many ways that consumers will acquire video and I'm sure that it's something that the --
--- Background noise
655 THE CHAIRPERSON: Go on. Ignore it.
--- Background noise
656 MS TULK: Perfect. That's good.
657 MS TULK: Sorry, so to follow on.
658 And I'm sure that it's something on the broadcasting side of the Commission it's going to have to wrestle with in the time to come as well, and that will certainly include over-the-top video delivery which can be delivered really to any IP connected device, whether that's a wireless device, a land line device or any other way we figure out how to connect IP devices in the future, high-res and Wi-Fi, et cetera.
659 What I'm talking about is full broadcast linear television and really in the foreseeable future the practical way to deliver that that will compete in the urban centres with the Cablecos is IPTV.
660 And I guess it also links back to a quick comment made earlier about innovation and, I mean, I don't want to -- hopefully this won't sound like an editorial, but I really believe IPTV will bring application layer innovation to homes in Canada in a way that we haven't seen before on a localized basis and will allow Canadians, small companies and businesses the opportunity to really bring applications to Canadians on a very micro local basis and I think that we'll see innovation we haven't seen in the past in the advent of IPTV.
661 COMMISSIONER DUNCAN: And would not see delivered by wireless?
662 MS TULK: Delivered by...
663 Well, I mean, some of it is available. Certainly over-the-top, it tends to be much more mass. I mean, as I know the Commission wrestles with, you know, there will be, you know, certainly opportunities to do micro-partnerships, content partnerships, content deals with the wireless players.
664 We're already seeing that, I'm sure we'll continue to see that.
665 But interactive high video, high upstream and downstream bandwidth on a linear interaction, so being able to develop applications that interact with your linear television programming is what I'm talking about. That's unique in the IPTV construct probably.
666 MR. COPE: And you have to watch definitions.
667 MS TULK: Absolutely.
668 MR. COPE: Because Heather is talking about HD high quality TV in the home versus anyone who is watching wireless on their handsets already.
669 So, yes, there is a TV application that's going to explode in that space. So, it's really --
670 COMMISSIONER DUNCAN: So, just to follow on that point then. Will the wireless deliver high definition TV at some point?
671 MR. COPE: Ultimately with LTE you'll have -- with speeds you'll start to see it, but the reality at that higher end we've always continued to see wire line stay ahead just because of spectrum constraints and technology development.
672 But you get to LTE, as we talked about, you're talking about speeds that, if the wireless tech guys are in the room with our wire line, they'd be telling Heather, no, tomorrow morning.
673 So, I mean, it's just going to continue to develop on both sides.
674 COMMISSIONER DUNCAN: Thank you both.
675 That's it, Mr. Chairman, thanks.
676 THE CHAIRPERSON: Thank you.
677 Just three clean-up questions before I let you go.
678 Number one, your new proposal for the ILEC sub-loops, what is the equivalent you would expect cable companies to do? You were talking very much about symmetry, you wanted to have a symmetrical field.
679 So, if you offer this, et cetera, what do cable companies have to do in order to match this?
680 MR. BIBIC: Can we get back to you on that one?
681 THE CHAIRPERSON: Sure.
682 MR. BIBIC: Okay.
683 THE CHAIRPERSON: Secondly, Mr. Cope, you spent -- a lot of your comments were on IPTV and the great future that you see -- you should be able to deliver that and if there's mandated sale, then it will interfere with it.
684 I don't quite understand that. Didn't our net neutrality decision deal with that whole issue and IPTV clearly is something that is sensitive or could be, so wouldn't your IPTV not automatically have priority if there's contention on the line because you're selling Internet access over the same line which you're selling -- I don't quite understand why you feel it would interfere with your IPTV?
685 MR. BIBIC: It's a technical provisioning issue and, Heather, if you want to answer, go ahead.
686 MS TULK: Yes. I think just in clarifying the question, if you're speaking of our remarks of how mandated access would interfere with IPTV.
687 THE CHAIRPERSON: We were.
688 MS TULK: It's because, as I mentioned in my introduction, the decision of rolling out of next-generation networks is inextricably linked with the footprint of IPTV.
689 So, we can only deliver IPTV where we've built that NGN networks. NGN networks, on the other hand, require all the revenue streams of Internet, phone and IPTV in order to pay back the investment.
690 So, any access that harms our case to invest, limits the footprint of the NGN --
691 THE CHAIRPERSON: Okay. The financial -- I thought you had said technical.
692 MS TULK: Yeah, that -- no, the technical consideration is that when a consumer purchases Internet over the loop from an ISP, we cannot run IPTV over that loop because it has the competitor's modem on the end and we will be distributing -- trying to distribute our TV over the same spectrum that they're already using for IP.
693 And so the prioritization, the double modem on the end, that's where the technical limitation starts to come in and also the inside wire distribution.
694 THE CHAIRPERSON: That's where you lose me.
695 MS TULK: Oh, sorry.
696 THE CHAIRPERSON: That's where you lose me.
697 MS TULK: Okay. Well, I've been going into the technical issues, so Carl can --
698 THE CHAIRPERSON: No, I don't want to --
699 MS TULK: Okay, sorry.
700 THE CHAIRPERSON: I'm a lawyer.
701 MS TULK: Okay.
702 MR. BIBIC: Let me try from a lawyer's perspective.
703 MS TULK: Yeah.
704 MR. BIBIC: There's one loop, one modem in the house.
705 THE CHAIRPERSON: Yes.
706 MR. BIBIC: You can't run -- you can't run both a competitor's Internet service over that loop and the competitor's modem and our IPTV, they just can't function at the same time over one loop.
707 MS TULK: And one modem, yeah, they'd conflict. So then you'd have to run separate loops to separate modems.
708 THE CHAIRPERSON: Okay.
709 MS TULK: Then you need two separate inside wire distributions and it becomes extremely complex.
710 THE CHAIRPERSON: And, lastly, coming back to matching speed, which really resulted in all of this hearing which is the one thing that you -- and the matching speed on what is mandated properly today, let's just leave it as today, okay, let's not go any further, on what is mandated today.
711 You basically went to Cabinet and said that's unacceptable for us, we cannot do this on a matching speed basis, that doesn't make sense.
712 And Cabinet has sent it to ask us to redo it and we're in the process of re-doing it.
713 I still remain unconvinced that you couldn't have the matching speed requirement but build in something into the costing formula in order to compensate you so that it would not affect your investment rates.
714 I don't understand why the matching -- you're telling me that for new services, I understand that, but what is there on the table right now, the matching speed requirement that we imposed on it, you've got to explain to me why you feel that cannot be addressed through a revised formula rather than that basically as you suggest, we have to ban the matching speed.
715 MR. BIBIC: So, could you again elaborate what you mean by what's there with cable right now? So, cable -- the thing is we don't have --
716 THE CHAIRPERSON: Right now.
717 MR. BIBIC: I consider our FTTN, the fibre-to-the-node infrastructure to be brand new.
718 MR. COPE: Next gen, yeah.
719 MR. BIBIC: And it is, in the U.S. regulators found it to be next gen and obviously fibre to the home is next-generation.
720 So, it's just that we kind of haven't gone in lock-step with cable in terms of building out the network, so...
721 I mean, basically your question is, can't the regulated price be adjusted so that it doesn't diminish your incentives to invest. That's --
722 THE CHAIRPERSON: You got it. That's exactly how --
723 MR. BIBIC: And then it would not -- that would not apply to new services, is where you lost me.
724 THE CHAIRPERSON: It seems to me there was the -- we seem to -- in our discussion you've merged two things, one which is the aggregated ADSL which we mandated and which we then said you have to deliver at matching speed, right?
725 MR. BIBIC: Right.
726 THE CHAIRPERSON: And secondly your worry that this principle somehow will apply automatically to any next-generation stuff you indeed deliver over the Internet -- over the fibre, sorry.
727 MR. BIBIC: M'hmm.
728 MR. COPE: Well, FTT -- IPTV is delivering over FTTN.
729 THE CHAIRPERSON: Yes.
730 MR. COPE: So, it is our next gen network today that we're operating and we're saying that is where we can't have the access unless we commercially decide that we should do it.
731 I think that's -- because we're already -- if we have to allow access to the next gen you have by definition said they have that access, we have some of the complexities we talked about on IPTV and we're not trying to turn it into an IPTV discussion.
732 We wanted the Commission though to understand clearly that if we're re-selling forced FTTN access, then we're taking away from our IPTV footprint return unless we see a commercial reason to deal with some or all of our businesses.
733 So, we're not trying to confuse, we want to make sure it's clear. As I understood, I was here, and I came in here today really with the focus saying, our next-generation network's being built, it's fibre-to-the-node and it's also going to be fibre to the home in Quebec City and other areas.
734 Those new networks, we should not be required to provide access to in a mandated way. The old network apparently it is what it is and it stays where it is.
735 MR. BIBIC: And I think one last little sentence. I think I've kind of figured out where the confusion lies.
736 When the Commission imposed wholesale speed matching, the reason we went back, we went to Cabinet is we sought a clarification from the decision and we ended up with a clarification order after we wrote in a letter, because we interpreted fibre-to-the-node as being next-generation network to which wholesale speed matching did not apply and the Commission disagreed and said that fibre-to-the-node is actually an ADSL based service, so the same rules that apply to your legacy DSL infrastructure should apply to it, and we went to Cabinet. So, it --
737 THE CHAIRPERSON: But I thought there was this whole aggregated ADSL that we dealt with and the clarification from you, there has to be a copper element. If it's pure fibre it doesn't apply.
738 MR. BIBIC: Correct. But our problem is that --
739 THE CHAIRPERSON: Isn't what you take to the node pure fibre?
740 MR. BIBIC: Correct.
741 THE CHAIRPERSON: Then why -- so it's just from the node onward that we're talking about?
742 MR. BIBIC: No, except that -- except that -- except...
743 MR. COPE: That's not what you do though.
744 MR. BIBIC: No. The wholesale speed matching would allow a competitor to take a service from the home all the way back into the central office. So, the wholesale speed matching decision of the Commission isn't a question of granting access from the home to the node over the copper, you would be actually granting access to the entire network at the speeds we're able to deliver over the fibre.
745 That's why we went to Cabinet.
746 MS TULK: And there aren't any speeds above seven megs -- oh, sorry. There aren't any speeds above seven megs that are delivered on anything except next-generation networks at Bell.
747 So, the speed matching decision, to say that we have to match speeds above seven megs de facto means we have to provide service --
748 MR. BIBIC: On our fibre.
749 MS TULK: -- mandated access to our fibre networks because that's the only way we deliver speeds above seven megs.
750 MR. COPE: So, the clarifying answer was critical when you came back to this.
751 MR. BIBIC: I'd like to --
752 THE CHAIRPERSON: Run that by me again, please, I want to make sure I get it.
753 MR. BIBIC: Let's do it with respect to the diagram and this is the best way to do it.
754 THE CHAIRPERSON: Yes.
755 MR. BIBIC: Figure 1 would be the appropriate diagram, Mr. Chairman.
756 If you take the Bell situation which is the top half of the page.
757 THE CHAIRPERSON: Yes, right.
758 MR. BIBIC: Ignore the yellow Bell fibre.
759 THE CHAIRPERSON: Right.
760 MR. BIBIC: Pretend that's not there. Our legacy Internet services are delivered not over fibre but over copper, so there's those copper lines that you see, those squiggly lines --
761 THE CHAIRPERSON: Yes.
762 MR. BIBIC: -- from the central office to the node, that brown box, and then it continues on copper to the house.
763 So, today DSL is offered entirely over copper.
764 THE CHAIRPERSON: Right.
765 MR. BIBIC: And that allows us to offer the five megabits per second service.
766 By however bypassing that first chunk of copper and building fibre, we're shortening the copper loop length and that allows us to increase the speed from five to call it 25 megabits per second because we're using fibre.
767 Now, take the wholesale speed matching decision, it says this:
"If Bell offers 25 megabits per second retail service in the marketplace, it must offer an equivalent speed to the wholesale market." (As read)
768 MR. BIBIC: By definition, to do that would require us to give access to competitors to our fibre, otherwise they never would be able to offer that 25 meg service.
769 So, the wholesale speed matching decision that we appealed to Cabinet is because it resulted in giving access to our fibre, which is next-generation and duplicable.
770 THE CHAIRPERSON: So the competitor in this diagram is the competitor DSLAM, the green one here, so he -- the competitor who has a relationship with the customer in the house, then buys access to you from where, from the Bell CO to his DSLAM?
771 MR. BIBIC: No, today -- well, under our model --
772 THE CHAIRPERSON: Yes.
773 MR. BIBIC: -- their proposal --
774 THE CHAIRPERSON: No, no, but what --
775 MR. BIBIC: Oh today.
776 THE CHAIRPERSON: Today, today.
777 MS TULK: From the CO.
778 MR. DANIELS: Today, what happens, remember how you were asking us at the beginning about symmetry.
779 THE CHAIRPERSON: M'hmm.
780 MR. DANIELS: About a GAS customer who comes to us, aggregated ADSL.
781 THE CHAIRPERSON: Right.
782 MR. DANIELS: They connect to one point in Ontario and Quebec and they get access to every single DSL customer we have anywhere in our territory in Ontario and Quebec.
783 So, remember you were asking us about the parallels. So, when you talk about speed matching, that would mean a competitor, what was ordered and what we appealed to Cabinet, is that a competitor could interconnect at one point in Ontario and Quebec and get access to anywhere that we had built fibre-to-the-node and were providing speeds of 25 megs.
784 So, to the extent that we had built out in Ottawa -- excuse me, Montreal and Toronto, it would mean the competitor connects at one place and gets any customer in Toronto and Montreal, and as soon as we turned up another place, another city, he would get it.
785 MR. BIBIC: But, Mr. Chairman, this is a critical issue. What we'll do is we'll file a Figure 3 quickly showing ADSLCO and how it's provisioned.
786 THE CHAIRPERSON: But, just to follow up what Mr. Daniels just said, you said before you still deliver to the customer through the copper wire and so which is right now five or six, right.
787 So, the customer would still get -- in either scenario wherever he lives, from you or from a third party, he will still only get five or six megabits, if I understand it correctly.
788 MR. BIBIC: For legacy speeds, yes.
789 THE CHAIRPERSON: Okay.
790 MR. BIBIC: But if the wholesale matching decision of the Commission that was ruled on in December, 2008 I believe were to prevail --
791 THE CHAIRPERSON: Right.
792 MR. BIBIC: -- then competitors would have access to any speed we offer in the marketplace.
793 THE CHAIRPERSON: But how would they get it to the customer?
794 MR. BIBIC: How would they get -- well, see that's why --
795 THE CHAIRPERSON: Right now.
796 MR. BIBIC: -- we're not showing it --
797 MS TULK: They would get it by interconnecting, in the case of the GAS, interconnecting at one interconnection point.
798 THE CHAIRPERSON: Right.
799 MS TULK: And then the signal will ride over our next-generation network the same way it does for a customer of ours.
800 MR. COPE: And then over the fibre.
801 MS TULK: Over the fibre, over the new DSLAM that we had to build out in each of the locations and then over the copper at the sub-loop level to the home. So, over our fibre network is the short answer.
802 THE CHAIRPERSON: But at the end of the day it goes over copper still?
803 MS TULK: In this diagram that you're looking at.
804 THE CHAIRPERSON: Yes.
805 MS TULK: They -- the turquoise box in the top which is our network, they would come -- they would come kind of from the one interconnection point through our backhaul network into the CO, over our fibre network to the turquoise box and then on copper from the turquoise box to the home.
806 That's what they would do today.
807 MR. COPE: From a business standpoint, I don't know if this is helpful, I'll try again, is that to get over five speed you in essence in our case have to be on our fibre-to-the-node network.
808 If you're on fibre-to-the-node network, you're on our fibre.
809 THE CHAIRPERSON: I understand, but if I -- I'm just trying to understand how I as a third party get it from the node to my customer at those great speeds?
810 MR. COPE: Right now you --
811 MS TULK: On this copper.
812 MR. BIBIC: I see. So, Mr. Chairman, on a model where we're delivering Internet service from the central office to the home entirely over copper.
813 THE CHAIRPERSON: Yes.
814 MR. BIBIC: The maximum speed, as I said, is five megabits per second, that's because the loop -- the copper loop length is too long.
815 THE CHAIRPERSON: Right.
816 MR. BIBIC: By shortening the copper loop length, in other words, by building -- installing the DSLAM which is that turquoise box --
817 THE CHAIRPERSON: M'hmm.
818 MR. BIBIC: -- to within less than a kilometre of the home.
819 THE CHAIRPERSON: Yes.
820 MR. BIBIC: With the copper loop length being that small --
821 THE CHAIRPERSON: Right.
822 MR. BIBIC: -- it now has the capability to offer 25 megabits, 40 megabits.
823 THE CHAIRPERSON: That is the missing part, I was missing.
824 MR. COPE: Yes.
825 MR. BIBIC: And so, therefore --
826 THE CHAIRPERSON: So, therefore, as you bring things closer and closer, it also gets faster and faster?
827 MR. BIBIC: Obviously.
828 THE CHAIRPERSON: That's what you don't want to share.
829 MR. BIBIC: So, if the competitor goes closer and closer in lock-step with us and gets access to the sub-loop, they too will be able to offer those same speeds themselves to compete with us but they will do it having built their own fibre.
830 And now, I'm not here to quarrel about competition, I mean everybody has the right to compete.
831 And so if they build their network they'll get access to the sub-loop, they'll compete, sure it will affect our investment case, but we can't come here complaining about our investment case being affected because somebody's built their own network.
832 THE CHAIRPERSON: But at higher speeds, obviously you charge more I think to your wholesale customers as well as to your retail customers et cetera, right?
833 MR. BIBIC: Well, under --
834 THE CHAIRPERSON: Let's assume the matching rule stays.
835 MR. BIBIC: And that's how it works for the speeds of five and six and below on business, five and below on residence GAS, yes.
836 THE CHAIRPERSON: So, it's really not a competition, for you it's not an issue, losing customers, it's for you an issue of the financing of the investment of the fibre, and this is where I don't get it.
837 Why would it necessarily be a disincentive here? Right now you have something like, whatever number it is, it's about five percent of all people get their service from ISPs, they get it from third party ISPs and as the speed increased, presumably your wholesale rate will increase as well as your rates of retail rate will increase.
838 Why do you automatically assume there will be an increase in customers which will in fact, therefore, affect your business case in terms of building fibre?
839 I just don't quite get it.
840 MR. COPE: Part of it is we lose customers, the relationship at the end user which is the business we're in, if we're mandated to wholesale to anybody who wants to re-sell services.
841 I mean, because they use the price arbitration against a market that's competitive, we don't get to set that price, you do.
842 So, part of it is we lose customers and every customer we lose takes away investment return for building out our network and that's so implicitly clear to everyone.
843 THE CHAIRPERSON: But you have lost customers in a great number in the past, so why --
844 MR. COPE: Five percent?
845 THE CHAIRPERSON: Over how many years?
846 MR. COPE: Well, we spent hundreds -- millions, be careful here millions of dollars to buy a certain retail channel in Canada to get at five percent of the market last year in the wireless industry.
847 Five percent of the market is enormous, it moves our share price.
848 You know, the fundamental point over and over, you are right, you are absolutely correct, when you tell us to re-sell Internet higher than our retail price, I can deal with your decision.
849 MR. COPE: Because you keep telling me price can fix it, price can fix it. You're absolutely right, it's one of four of the key components to our marketplace assessment.
850 I don't mean to -- I wasn't being disrespectful, I'm making the point. You are driving to the fundamental issue.
851 We have to set the price of access to our networks in a competitive environment, or at a minimum -- you know, to be creative for a minute, if we're left to do it, maybe the best wholesaler in country pays us to be the one who re-sells.
852 We want to pick who that's going to be.
853 THE CHAIRPERSON: I guess --
854 MR. BIBIC: Anyway...
855 THE CHAIRPERSON: Put it in the absolute simplest form is, you are now forced to re-sell at cost plus a percentage and you are saying this is a disincentive to investment.
856 My question is, fine, there must be a point between cost and retail whatever the -- which diminishes or takes away this incentive to invest.
857 I just don't understand why you have to go to the extreme where you say it has to be retail plus.
858 MS TULK: Well, there's also the cross impacts with the interoperability with IPTV. So, it's not just -- like, when you're talking --
859 THE CHAIRPERSON: Yes, but that's a different issue. I was talking purely on the money side.
860 MS TULK: No, no, but when you're talking about the cost, right, I'm assuming you mean the cost, you know, the cost versus retail, I'm assuming you're meaning the cost versus retail of Internet only and we're saying that when we look at these households, the retail we look at is not Internet only, it's Internet, voice and IPTV that we can get out of that home.
861 MR. COPE: And we've lost that revenue.
862 MS TULK: So, yes, the break point is somewhere between cost and total revenue in the home, it's not between cost and Internet revenue is my point.
863 THE CHAIRPERSON: I do understand your argument, I accept the different issues --
864 MR. COPE: Based on the question, we know you understand the --
865 THE CHAIRPERSON: Thank you very much, Mr. Cope. I very appreciate you taking the time to come in here. It helps us to have the CEO here and explain it from his point of view.
866 Thank you.
867 MR. COPE: Thank you.
868 MR. BIBIC: Mr. Chairman, just one quick quick point of process.
869 THE CHAIRPERSON: Sure.
870 MR. BIBIC: If you'd indulge me.
871 On Friday the consumer groups filed a request with the Commission to appear on Thursday and to bring Mr. Benkler of the Berkman Centre, and I was wondering if there was a decision on that, because depending on the outcome, I think there's something I might want to file in evidence.
872 THE CHAIRPERSON: There is no -- our schedule is set, I cannot change it at this late date. I mean, I would love to hear from Mr. Benkler, but I can't -- you know, as you know we have lots of hearings now and other commitments, et cetera, so this week is basically the week to hear wholesale access, we're going to deal with it.
873 I would have loved to hear him, but not at the price of upsetting the schedule.
874 MR. BIBIC: Okay. So, let me do this. In case Mr. Benkler appears, I would like to file and will file it, a letter I wrote to Mr. Benkler completely -- and I was completely unaware when I wrote it to him that he might appear here, but in case he does, I think for the sake of transparency I would like to file my letter to him on the record because we feel we uncovered an error in his report on Canadian unbundled local loop pricing, so I would like to put it on the record.
875 THE CHAIRPERSON: Thank you. Is that the same one you sent to me, sent to everybody?
876 MR. BIBIC: Yes, same one.
877 MR. COPE: Thank you all.
878 THE CHAIRPERSON: Thank you very much. We will take a five-minute --
879 MR. LAWFORD: If I may.
880 THE CHAIRPERSON: Yes, please.
881 MR. LAWFORD: John Lawford. Just this morning, it hasn't reached the Commission's table, but we have withdrawn our request to have Professors Benkler and Dr. Ferris appear.
882 THE CHAIRPERSON: Okay. Well, thank you, then obviously you don't need to file anything.
883 Thank you. We took much longer than expected, but hopefully we will catch up later on, but clearly it was necessary. The first person being questioned by us always takes the longest, but I think it set us a good factual base.
884 We will take a break now and we'll resume in an hour from now at 1:30.
885 Thank you.
--- Upon recessing at 1221
--- Upon resuming at 1334
886 THE SECRETARY: Order, please. À l'ordre, s'il vous plaît.
887 THE CHAIRPERSON: Before we resume, Mr. Bibic, we talked about the letter that you had sent out. Since we talked about it on the record, why don't you file it just for everybody's information?
888 MR. BIBIC: My pleasure. Thank you.
889 THE CHAIRPERSON: Okay, Madame la secrétaire.
890 THE SECRETARY: Merci, monsieur le président.
891 We will now proceed with TekSavvy Solutions Inc.
892 Appearing for TekSavvy Solutions Inc. is Mr. Chris Tacit. Please introduce your colleagues and you will then have 25 minutes to make your presentation.
893 MR. TACIT: Thank you, Madam Secretary.
894 Mr. Chair and Commissioners, my name is Chris Tacit and I am here representing Teksavvy Solutions Inc.
895 With me on the panel are Mr. Rocky Gaudrault, the CEO of TekSavvy who is seated immediately to my right; Mr. Marc Gaudrault, its Chief Technical Officer, who is seated on my left.
896 Also on the panel are Dr. Ware, Professor of Economics at Queen's University, who is seated to the right of Mr. Rocky Gaudrault; Roger Hay, Vice-President of Pacomm Consulting Group Limited, who is seated to the left of Mr. Marc Gaudrault; Mr. Yves Blondeel, Managing Director of T-REGS of Belgium, who is seated to the right of Dr. Ware; and Dr. Annemijn van Gorp, Senior Economic Advisor with OPTA, which is the Dutch telecommunications regulatory authority. She is seated to the left of Mr. Hay.
897 Dr. van Gorp is here only in her personal capacity as a co-author of two studies tendered by TSI as evidence in this proceeding.
898 Assisting the panel are Mr. Eric Gaudrault, Vice President of Corporate Development and Ms Kate do Forno, Regulatory and Community Affairs Coordinator.
899 TekSavvy is pleased to be here today to provide its views on the critical issues being examined by the Commission in this proceeding. I will provide TSI's responses to the questions posed in the Commission's organization and conduct letter during the course of the presentation. However, since this is the first time that TekSavvy has appeared before the Commission in a public consultation on a stand-alone basis, Rocky is first going to provide a brief overview of the company's history, activities and aspirations and Marc will then describe how TSI intends to invest in the business.
900 MR. ROCKY GAUDRAULT: Thank you, Chris.
901 Mr. Chair and Commissioners, thank you for the opportunity of appearing before you today.
902 TSI was founded in 1998 and our initial business activities focused on database and web development, web hosting, as well as providing software training for customers. In 2002, the company started providing high-speed internet access services over the aggregated ADSL platforms of certain ILECs. A few years later, we added the provision of local and long distance telephone services using wholesale services provided by Bell Canada.
903 Our operations as an ISP are currently centered in Ontario, Quebec, Alberta and B.C. We are expanding into other geographic areas, as well.
904 The majority of our 50,000 customers are private label resellers and residential consumers. The company also provides service to a number of business customers. TSI has had particular success in attracting technologically savvy consumers.
905 Our strategic vision relies upon TSI's ability to move up the new entrant investment ladder as we scale up our operations through internal growth and possible strategic acquisitions. In order to attract capital for such further expansion, TSI's operating environment must be stable, predictable and pro-competitive. In other words, fit-for-purpose wholesale inputs must become available on economically viable terms, and must remain available to provide investor confidence.
906 We have observed, and the Berkman and other international studies confirm, that there continues to be an unserved wireline broadband market opportunity in Canada. The opportunity arises because retail prices are higher than they should be and new capabilities and features are slow to come to market in the current duopoly environment. Our success to date has been predicated on finding market niches, finding technology to serve them, and providing superlative customer service.
907 Our current wholesale service pricing is such that TSI operates on thin margins yet continues to reinvest a significant portion of our operating margins into our business.
908 We recently started delivering high-speed services over the TPIA platforms of Rogers and Videotron and are in the process of rolling out services on Cogeco and Shaw TPIA platforms as well. We are also in the process of negotiating a cable resale arrangement for certain geographic areas where TPIA is not yet available and are actively involved in the design of a future IPTV offering.
909 We are also rolling out fibre to the premises implementation in selected portions of Perth, Ontario and are also investigating the rollout of FTTP in another small community.
910 To date, we have been financing our operations and investments from internal cash flow. This continues to be a challenge and explains our recently announced rate increase, the first in TSI's eight year history in the broadband market. We are now at the point where the company must attract additional outside capital in order to meet its strategy for expanded growth and investment. For this reason, TSI is proposing a Competitive Framework which will provide new entrants, incumbents and investors alike a predictable and stable path of growth and success and which relies upon access to needed unbundled network and service components from incumbents in order to provide greater competition in the market and thereby better protect the interests of users.
911 I will now turn the presentation over to Marc, who will describe how our company intends to invest in the business in order to meet market demand for new and enhanced services.
912 MR. MARC GAUDRAULT: Thank you. As the company grows we recognize that the ability to bundle services and to provide services that can be differentiated on a variety of dimensions is critical. The availability of aggregated ADSL and TPIA services with full speed matching, priced at reasonable levels is key to our continued ability to scale up operations and generate funds to reinvest in the business.
913 As Rocky indicated, in order to attain these objectives, the company needs to make additional investments, in other words, move up the investment ladder. I will now turn to a discussion of the investment ladder that applies with the ILEC service/technology platform as a base.
914 At the bottom of the ladder is a pure resale of ILEC high-speed internet access services. We do not rely on such services given the availability of the aggregated ADSL services of the ILECs, which constitute the next rung on the ladder of investment.
915 However, we do actually use this ILEC platform to resell high speed internet access services to other service providers and, in so doing, we have provided them the first rung of the investment ladder and some of them have gone on to the next step, which is their own use of ILEC aggregated ADSL services.
916 We provide the bulk of our internet services today using the aggregated ADSL platforms of the ILECs. Those platforms offer a limited number of medium-speed services that we combine with other facilities and our own equipment to provide internet access services to our customers. The facilities and equipment that we employ for this purpose represent significant investments. We are currently hampered in the use of the ILEC aggregated ADSL platform by the lack of full speed matching of ILEC wholesale services provided over these platforms.
917 We expect that the next rung on the investment ladder will involve the layer 2 ADSLCO solution described in section 22.214.171.124 of the Pacomm Report. This service will enable us to compete with a local focus and will also enable us to improve our service propositions and margins by deploying our own equipment where customer density justifies such an approach. Needless to say, the pricing of the wholesale inputs must enable competitors to operate in the absence of margin-squeeze by incumbents.
918 Finally, we plan to engage in FTTP projects on a selective basis, although we caution that such third wire deployments are unlikely to occur on a mass scale.
919 In the case of cable, resale is the lowest rung and is still required and employed since not all cable carriers are providing TPIA. We view a TPIA service with POI aggregation -- which should also include the other improvements to TPIA described in section 7.3.2 of the Pacomm Report -- as a missing step in the ladder. We also believe that this missing step is one of the key reasons that TPIA has not been as successful as DSL to date as a platform for competitors.
920 The absence of consistent high-level aggregation in the case of TPIA has made high-speed internet services more expensive to deploy over TPIA relative to ILEC aggregated ADSL services. Although speed matching is available over the TPIA platform, it is our perception that at least one cable carrier currently appears to be dragging its heels in this area.
921 The next step in the investment ladder is the TPIA service that exists at the current variable levels of aggregation provided by cable carriers today, with the balance of the enhancements that we have proposed. These enhancements would make the service consistent with the competitive framework and more comparable to the aggregated ADSL platforms of the ILECs in terms of the kinds of wholesale service functionalities and characteristics that can be supported. A further refinement is making such services available on a cable head end basis to support more localized deployments.
922 The next step in the investment ladder applicable to the cable platform is spectrum unbundling, which can only occur following further study by the industry to solve a number of technical and operational challenges.
923 The last rung of this ladder is also comprised of competitor FTTP projects, subject to the same caveat previously discussed.
924 If the Commission requires the provision of the services that we have proposed and restores speed matching to the ILEC aggregated ADSL services, all at reasonable rates and under reasonable conditions, then we are committed to following the investment paths just described.
925 As a final comment on our investment strategy, I wish to note that pending the availability of the services that are under consideration in this proceeding, we intend to collocate in a number of ILEC COs where customer density justifies such deployment in order to offer new differentiated services and improve margins. The problem with those arrangements will be that customers served by ILECs over fibre to the node facilities will not be available to TSI.
926 In order for the ladder of investment to work most effectively, the wholesale services provided by ILECs and cable carriers at each rung of the ladder should be constructed so as to facilitate the maximum amount of service differentiation downstream at the retail level and the ability of competitors to climb the ladder. This means differentiation of functional attributes such as speed, throughput, quality and types of service, geographic coverage and service bundling.
927 The ability for competitors to differentiate services at the retail level based on these dimensions is the essence of the competitive framework that we have proposed in this proceeding. Here is the main reason why the competitive framework is essential to competition.
928 The industry is moving at the speed of Moore's law and broadband speeds and throughputs are increasing at the rate of 30 to 60 percent per year. The most significant problem faced by competitors is that the regulatory process is slow and uncertain compared to the pace at which technology is developing. Appeals of regulatory decisions contribute further to regulatory lag.
929 In this environment regulatory delay is a very important competitive weapon for incumbents. The manner in which certain ILECs have thwarted speed matching on their aggregated ADSL platforms for such a long time while the speeds of the retail services that they offer has increased dramatically is a case in point.
930 One way for the Commission to address this problem is to adopt a regulatory principle that requires incumbents to adhere to the competitive framework when they propose new wholesale services or wish to modify existing wholesale services. Under such a rule, incumbents would have to design, implement and maintain or enhance wholesale services so as to maximize wholesale customers' ability to differentiate their retail services from those of the incumbents. Incumbents would not be permitted to modify wholesale services in a manner that reduces the ability of wholesale customers to differentiate their retail offerings.
931 Such an ongoing focus on the differentiation of the key underlying functionalities embedded in wholesale services would go a long way toward blunting the negative impact of regulatory lag and would increase regulatory certainty. We urge the Commission to adopt this principle in making its rulings on the specific issues under consideration in this proceeding.
932 Chris is now going to wrap up by responding to the questions posed by the Commission in Schedule 2 of the organization and conduct letter.
933 Thank you.
934 MR. TACIT: Thank you, Marc.
935 The first question posed by the Commission addresses the issue of any inequities or competitive disadvantages imposed by the existing wholesale obligations on ILECs and cable companies and any changes required to rectify such inequities or competitive disadvantages.
936 In responding to this question, TSI believes that the Commission's focus should be on competitive outcomes. ILECs and cable companies don't have to be treated the same from a regulatory perspective to the extent that there are valid technological constraints that justify differential treatment, so long as the same regulatory outcomes are pursued in both cases.
937 TSI has identified six areas of inequity between ILECs and cable companies.
938 First, the lack of full speed matching in the case of aggregated ADSL favours ILECs over cable carriers. The preferred method of addressing this inequity is to impose the obligation on the ILECs as well.
939 Second, the cable carriers are not subject to the same internet traffic management practice-related measures for usage based billing as those ILECs that presently employ UBB pursuant to Decision 2010-255. This favours the cable carriers and so these measures should be applied to the cable carriers as well.
940 Third, except in the case of Videotron, which offers access to all of its systems via a single point of interconnection, TPIA services do not include the same levels of aggregation as are available under the aggregated ADSL services of the ILECs. This state of affairs favours the cable companies and the inequity should be resolved through the rollout of an aggregated single-POI per cable carrier or major region for TPIA service.
941 Fourth, TPIA is subject to a number of service limitations such as prohibitions on the use of TPIA for multicasting, LANs and VPNs, and the lack of availability of TPIA for business services, to name a few. Aggregated ADSL services do not include these restrictions. This situation favours the cable carriers. The appropriate remedy is to remove these and any other artificial restrictions from TPIA.
942 Fifth, to the extent that ILEC or cable carrier tariffs are not kept current so as to permit the latest available interconnection standards between ILEC/cable carrier networks and ISP networks, the type of incumbent whose tariff refers to more recent standards will be disadvantaged relative to the one that can rely on older standards.
943 The solution to this problem is for the Commission to ensure that both ILECs and cable carriers are required to support the latest, generally available open interconnection standards in use in the industry.
944 Finally, different approaches to pricing may lead to competitive inequities between ILECs and cable carriers. A pricing policy that does not disadvantage either class of carrier would be purely cost-based.
945 Before responding to questions 2 through 4 posed by the Commission, I want to address the notion of compensation for risk in general terms, since the concept is included in each of these questions.
946 When incumbents talk of being compensated for the increased risk associated with the mandating of wholesale services, they are trying to shelter at least some of their revenues from competition, and to do so at the expense of competitors and ultimately consumers. What this does is to set up an inefficient subsidy from new entrants to incumbents. Such a subsidy undermines the very competition that the Commission is trying to promote.
947 The notion of compensating incumbents by way of some sort of risk premium for providing access to their networks where such access is necessary to overcome the market power of the incumbents and create a more competitive environment should therefore be rejected.
948 TSI is of the view that no compensation is required or appropriate in these circumstances. Nevertheless, should the Commission decide to allow the recovery of a risk premium, an action that TSI strongly opposes, such a premium should be compensated through a cost of capital adjustment, rather than through a markup on Phase II costs. This approach is consistent with financial theory, whereby increased risk will attract a higher rate of return on invested capital. A markup on Phase II costs is not aligned with this market reality.
949 Turning now to the specific questions posed by the Commission, in response to question 2 through 4, TSI is of the view that a CO-based high speed ADSLCO service, a head-end-based high speed access service for cable companies and speed matching for aggregated ADSL access services should all be mandated.
950 TSI is also of the view that the ADSLCO and head-end services should be configured in accordance with the service descriptions set out in sections 126.96.36.199 and 7.3.2 of the Pacomm Report, respectively.
951 Furthermore, head-end unbundling should be investigated as described in section 7.3.3 of that same report. We would also add to that that Spectrum unbundling should also be investigated.
952 No compensation for economic risk should be provided in any of these cases for the reasons already discussed.
953 The last question posed by the Commission relates to how new types of internet access infrastructure -- also called next generation infrastructure -- should be defined and what principles should govern such access.
954 Access should be mandated to any next generation infrastructure that is of a monopolistic or duopolistic nature.
955 Access should be provided to the unbundled next generation network elements in which the owner can exercise market power and such a service should be configured so as to maximize the choices available to competitors to differentiate their retail services according to the principles of the competitive framework. The prices of such a service should not exceed at most Phase II costs plus a markup of 15 percent, although TSI believes that even rates set at this level will be inflated.
956 In conclusion, TSI has observed that the current largely duopolistic market structure for broadband services does not serve end users well. Prices are higher than they should be and feature and service choices do not develop as quickly as they would in a more competitive environment.
957 The ILECs have to continue their rollouts of FTTN -- which is the natural evolution of their remote deployments that started many years ago -- and FTTP in order to compete with the cable carriers and nothing that other competitors do will alter this because the ILECs' survival depends on such rollouts.
958 Wireless broadband platforms are not substitutes for wireline broadband platforms. Otherwise the ILECs would not continue investing so heavily in their wireline networks given their concurrent ownership of wireless networks.
959 Overall industry investment will rise as competition increases, but the objective is not the quantum of investment, but rather selective investment that leads to greater consumer welfare through more dynamic competition. In the absence of speed matching and the new services that are the subject of this proceeding, competition will not be sufficient to protect the interests of users.
960 Concerns regarding the ability of ILECs to offer IPTV services should be addressed as technical issues, and not used to prevent the adoption of appropriate open access policies.
961 An access policy that is founded on the competitive framework proposed by TSI and that ensures that wholesale services are available at all of the various rungs of the ladder of investment based on the most current technologies in use by the industry will lead to a more dynamic and vibrant competitive environment.
962 Such a regime is also more likely to lead ILECs and cable carriers to view wholesale customers as valuable business partners and to compete for wholesale business, rather than the current situation in which incumbents try to thwart competition from wholesale customers as much as possible.
963 Under such a regime, simply because an incumbent chooses not to provide a certain retail service will not prevent the availability of wholesale services that wholesale customers can use to provide that retail service.
964 Prompt and efficient enforcement of regulatory rules is also crucial to the success of the wholesale regulatory framework.
965 If these elements are present, the stability and predictability necessary for ISPs such as TSI to be able to attract sufficient capital to operate as more significant and efficient competitors and continue climbing the investment ladder will be present for the benefit of end users. The evidence from other countries is that open access policies work for the benefit of end users.
966 Thank you for your attention. The panel is now available for questioning.
967 THE CHAIRPERSON: Thank you. It occurred to me you are in favor of a CO-based aggregated ADSL access and you want us to mandate that. In order to do that we have to apply the essential services test which we set out, which you are well aware of, Mr. Tacit. You participated.
968 How do you meet that test, on what basis? You heard Bell this morning who feel that you don't meet it at all. So I would be interested in your views.
969 MR. TACIT: Well, if the question is meant to ask whether the sub-loop proposal would be sufficient --
970 THE CHAIRPERSON: No, that's not what I asked.
971 MR. TACIT: Okay.
972 THE CHAIRPERSON: You want CO-based ADSL access.
973 MR. TACIT: Right.
974 THE CHAIRPERSON: You are proposing that. You don't have that right now.
975 MR. TACIT: That's right.
976 THE CHAIRPERSON: In order for us to mandate it, you have to come to me and say you established a test under the essential services facilities which is both backwards in which you are about to use in order to declassify and also prospective for any new one.
977 MR. TACIT: Right.
978 THE CHAIRPERSON: This is a new one and it fits within the test as set out in the essential services.
979 MR. TACIT: Right.
980 THE CHAIRPERSON: And you know the three categories. It is the facilities required. There is input by competitors to provide telecommunications services in the relevant downstream market; the facility is controlled by the firm that has excess of upstream market power. So denying access to this facility would likely result in substantial lessening of conventional competition in the relevant downstream market and, thirdly, it is not practical or feasible for the competitors to duplicate the functionality of the facility.
981 So walk me through those three tests --
982 MR. TACIT: Sure.
983 THE CHAIRPERSON: -- and tell me why you feel you qualify.
984 MR. TACIT: Absolutely. It would be my pleasure to do so, and I will probably also ask Dr. Ware to chime in on this one.
985 First of all, clearly, the inputs are necessary because it is a means of providing more differentiated retail services than is possible under the current aggregated services.
986 The problem with the current aggregated services of both the ILECs and the cable carriers is that it forces a lot of the characteristics of those services to be flowed through to the wholesale customers of the ILECs and cable carriers, which really limits the ability of competitors to innovate and offer new differentiated services.
987 So, clearly, to offer those services, these are required inputs. Without these inputs, competition is, in fact, reduced, because we know what the market share of the ILECs and the cable carriers is, and it is well over 90 percent combined. So it is pretty clear that the two classes of carriers dominate the market significantly.
988 THE CHAIRPERSON: Just a second. Just because you have a small market share doesn't mean there is a substantial lessening of competition.
989 MR. TACIT: For new services, though, the test is whether there would be an increase in competition, if the service were provided, and what we are saying is, chances are, if these differentiated services could be offered using these platforms, the competition would significantly increase.
990 THE CHAIRPERSON: The test is a substantial lessening or prevention of competition?
991 MR. TACIT: For existing services, but the paragraph below, I seem to recall --
992 THE CHAIRPERSON: Yes, I am reading the paragraph below.
993 MR. TACIT: -- is for new services.
994 THE CHAIRPERSON: Yes, that's exactly what it says:
"The facility that is controlled by a firm that possesses upstream market power, such as denying access to the facility, would likely result in a substantial lessening or prevention of competition in the relevant downstream market." (As read)
995 So you have to establish an SLC or a PLC. I don't see where that -- where is the prevention of competition here or the substantial lessening?
996 MR. TACIT: As I said, the prevention is, especially as the ILECs are migrating to FTTN and FTT platforms, there will be a substantial lessening, even at the current low market shares that competitors have.
997 As I said earlier in the presentation, speeds and throughput requirements of consumers are increasing dramatically, and the ILECs and the cable carriers are both rushing to try to fill some of those needs. But by not allowing other competitors access to the types of services that are required to keep up with those requirements, existing competitors like TekSavvy will be marginalized over time and there will be an even stronger entrenchment of the duopoly.
998 So, yes, there will be a substantial lessening of competition if that occurs.
999 THE CHAIRPERSON: And why is it not practical or feasible for competitiveness to duplicate the functionality?
1000 MR. TACIT: It is not practical, first of all, because we can't address a lot of the markets that are served by different types of technologies, such as through remotes, for example, and fibre to the node. There is no other real way to address those.
1001 Even under the current co-location arrangements, the best that can happen is that competitors can address a portion of the market, and it is an increasingly smaller portion as the ILECs move more and more toward fibre-based services. As they move the fibre closer to the end user, to nodes and to the premises, that access is simply disappearing.
1002 So the existing services just aren't there, and we can't find any other way to duplicate that economically, or they would be --
1003 DR. WARE: On the large scale.
1004 MR. TACIT: -- on the large scale.
1005 Dr. Ware, do you have anything to add?
1006 DR. WARE: Yes, perhaps a couple of points.
1007 On what is Part 2 of the essentiality test -- I think, you know, as I show in the report that I filed, we do have a very stable duopoly structure in the upstream market here of, approximately, 45 percent for each of cable and the ILECs, except, of course, where cable provides no service, so we have monopolies. That is a structure in which there will be market power. There is upstream market power. I can't think of -- you know, other than a monopoly, it's hard to think of a structure in which it is more clear that there will be market power exercised.
1008 So I don't think that that's a difficult part of the test at all.
1009 Again, on the substantial lessening of competition part, I think the implication of denying access would simply be, certainly, the marginalization and perhaps the elimination of competitors. They are currently operating with the aggregated service of 5 megabytes, which is not a level of service -- and, also, with some restrictions on that wholesale input.
1010 That's not a service that is going to be economic at the retail level in a couple of years, so it is simply not a service that they will be able to continue supplying.
1011 THE CHAIRPERSON: On page 8 of your presentation, in the second-last paragraph, you say:
"...should the Commission decide to allow the recovery of a risk premium, an action that TSI strongly opposes, such a premium should be compensated through a cost of capital adjustment, rather than through a mark-up on Phase II costs."
1012 Put some flesh on the bones for me here. What do you mean by that?
1013 MR. TACIT: As I understand it -- and I am by no means a Phase II costing expert, but as I understand it, part of how Phase II costs are derived is through the inclusion of a cost of capital factor -- a weighted average cost of capital factor of the provider that has to provide the services that are rated using these principles.
1014 That is the place where, if there is any risk to be measured, it should be rewarded, because it is that risk premium that derives the cost -- that basically defines the cost of capital, and it is the capital that needs to be attracted.
1015 The mark-up, as was indicated earlier today, is a means of recovering some additional kind of fixed costs, a contribution to fixed costs and so on. It really, conceptually, has little or nothing to do with rewarding, or compensating for a perceived risk.
1016 THE CHAIRPERSON: Okay. Thank you.
1017 Candice, I believe you have some questions.
1018 COMMISSIONER MOLNAR: I do.
1019 Good afternoon. Let me start by saying that you have a very complete opening statement, so thank you for that. I had prepared a number of questions, and I have been flipping through, because you have answered many. So if I ask you a question that you have answered, we will refer back to your opening statement.
1020 I want to begin by ensuring that I understand; you said that you focus on niche markets today, and you spent some time laying out your future strategy as the company grows, and you are going to expand and so on.
1021 So is your strategy -- if the competitive framework, similar to what you have proposed, is in fact implemented, would your strategy be to continue to focus on niche markets, or do you have an expanded strategy for the future?
1022 MR. TACIT: I think Rocky is best placed to answer that.
1023 MR. R. GAUDRAULT: Thank you, Commissioner.
1024 From where we sit, the biggest driving factor on where we are today and have come from, and are going, drives from our ability to listen to the marketplace, listen to consumers. So, as a result, yes, the future will definitely be future-looking. So whenever a new opportunity arises, we will investigate it.
1025 We have a team of developers, as well as network engineers, that essentially sit with us on a weekly/monthly basis and review things to see where we can better improve services, provide new types of services, and that will not change.
1026 So, from where we sit, things like, in the past, bringing bonded internet connections together to provide higher speeds as a temporary solution, awaiting the equal speeds matching -- things like that allow us, through our employees and consultants, to find new and innovative ways to bring to the marketplace new solutions.
1027 And if we were provided the ability to have control over some of what we have to provide in the future, that would give us future leverage, or further leverage, on the ability to actually expand those horizons and look at what other ways can we actually bring innovative and future-looking technologies.
1028 Our statement alone is "TekSavvy: Making technology work for you". That is what we do. That is our statement for the business.
1029 MR. TACIT: I would add to that that having the inputs necessary to assist TekSavvy in attracting capital, so that it can really expand its operations more, and the scale of its operations and the types, I suspect that certainly provides it the ability to provide a much broader range of services.
1030 Some may still continue to be niche, but some may be competing for the triple-play bundle that the ILECs and the cable carriers provide, to provide another alternative to consumers that isn't available today.
1031 COMMISSIONER MOLNAR: Thank you. That's what I wanted to clarify as well, and that is the bundle. You mentioned the need for bundles.
1032 Within the framework that is laid out here, and with the services being considered here, how do you foresee being able to provide that bundle?
1033 MR. TACIT: I am going to start very gingerly on this, and very quickly get out of my realm of expertise and pass this on to Mr. Hay for a further response, but the beginning part of the answer to this is grounded in the competitive framework. The basic principle is that if TekSavvy gets access to the specific functional attributes of things like speed, throughput, quality and type of service, geographic region and so on, it has the necessary building blocks in those functionalities to build services that ride on the broadband platform.
1034 The issue today is that broadband isn't just an end service on its own, it's a platform for the bundle. So the building blocks are those functionalities that I described, and having access to those allows you to design an internet service, a broadband service. It allows you to design a Voice over IP service. It allows you to design an IPTV service. And that is the --
1035 COMMISSIONER MOLNAR: Thank you. I think that actually does answer the question. So you are wanting access to the broadband platform.
1036 We are looking here today at four particular configurations -- aggregated ADSL. Would you see being able to access your broadband platform over an aggregated ADSL service, unrestricted broadband access through aggregated ADSL?
1037 MR. TACIT: That is an interesting question. Part of the difficulty with that is that, for example, if competitors could ask to have speeds added, for example, to aggregated ADSL services that are not available today because they wanted it, and they would be willing to pay for that -- have the ILEC insert whatever card it needs to in the DSLAM, and the competitor would pay for that functionality, then it would be possible.
1038 But there are other constraints. We have seen in recent years that the ADSL platform has been modified in ways that make it more difficult to serve as a full platform for these services. UBB, for example --
1039 COMMISSIONER MOLNAR: So are you looking primarily, then, at the CO-based ADSL as the means of delivering your bundled solution, and what are you looking at as the service?
1040 MR. TACIT: It is one that will take it up a notch in terms of service differentiation.
1041 We see some problems with the aggregated platform, because of things like UBB, the ITMP application, and so on.
1042 Again, I don't want to get too technical, but some of these things will, for example, interfere with IPTV and various things, so it becomes very difficult to provide the bundle.
1043 The other part of that is, unless you get to speeds of about, I think, 25 megabytes per second or more, you can't reliably provide an IPTV signal over that sort of platform.
1044 And there is all sorts of legacy equipment in the ILEC network, again, and we don't understand what the implications would be to the delivery of these services.
1045 So we agree with Bell when it says that access to fibre closer to the user is essential to be able to do this.
1046 And what the Commission is really considering here are different ways of providing access to that fibre. One of those is aggregated ADSL, but going up the investment ladder, the ADSLCO service is next, and provides a greater ability to access those functionalities that I was talking about more directly.
1047 In other words, we don't have to be limited to 5 megabytes per second because that's what the ADSL aggregated service is defined at. We get to put in what we want and define how we want the speed attribute -- the throughput attribute. We don't have to worry about price caps, UBB price caps and so on.
1048 COMMISSIONER MOLNAR: Okay. I understand that.
1049 MR. TACIT: But I think that Mr. Hay may want to add something, if you don't mind.
1050 MR. HAY: I don't know if this clarification is necessary, but TekSavvy and all of the competitors will be on different rungs of the ladder, at the same time, in different places, depending on what the local density is.
1051 So if I understood your question to say would we be only focused on ADSLCO, the answer is no, the panoply is necessary to have a business.
1052 COMMISSIONER MOLNAR: I was just trying to understand how you were going to compete in the three-screen universe, and what it was here that was going to enable you to compete.
1053 Bell, as you know, has proposed that aggregated ADSL, as well as, potentially, CO-based ADSL, would have restrictions on use for video.
1054 MR. TACIT: Yes, and those restrictions would exactly defeat the ability to offer the bundle.
1055 So we would have the situation that exists today, where the offering of the bundle would be limited to two types of providers.
1056 I think that Rocky has a remark to add.
1057 MR. R. GAUDRAULT: One thing to consider when you are looking at the different rungs of investment is, you have to consider the statement that Marc made when we identified the want and the desire and -- quite frankly, we are going to be doing it very shortly -- investing in some CO-based investments.
1058 So we do plan on making use of the investment ladder. The thing is, we have to do it in a very strategic way at the moment, for no other reason than we have to look around the issue of the remotes. We have to look around a variety of other issues that revolve around what we want to do next.
1059 We found some areas that are of value to us currently, in the current restrictions, to invest in central offices. We have taken a couple or so right now that we are thinking of doing, and we are going to.
1060 However, to keep on going with that idea, and then maybe invest at the ADSLCO level, where we have greater control, it's a stepping stone.
1061 As Roger just pointed to -- Mr. Hay -- it's a piece of the equation.
1062 It may come from gateway access services, it may come from TPIA, it may come from a CO base, it may come from a variety of other areas, but, as identified earlier, with 50,000 users, you have to start picking and choosing where you go further.
1063 So that will play a very necessary piece in it.
1064 MR. M. GAUDRAULT: The geography, the reach, the footprint that we can reach with the aggregated service is obviously significantly different than the ADSLCO service.
1065 So if we were offering, let's say, a TV service with phone and internet, the aggregated service allows us to build up a base, and then drive in with an ADSLCO solution, where we can then, really, really, provide a stronger and better user experience.
1066 So, really, it's not one single thing, it is the combination of all of the above that allows us to do these things.
1067 MR. TACIT: I just have one final remark on this, and then I will stop. I'm sorry, but --
1068 COMMISSIONER MOLNAR: I have a number of questions, so we are going to have to keep going.
1069 MR. TACIT: Okay.
1070 COMMISSIONER MOLNAR: I understand what you are talking about with your ladder of investment and --
1071 MR. TACIT: That was the point, so...
1072 COMMISSIONER MOLNAR: Exactly. Okay.
1073 So on your ladder of investment, approximately how many customers do you need before a CO-based service becomes feasible?
1074 MR. TACIT: That's a Marc or a Roger Hay question.
1075 MR. M. GAUDRAULT: The exact number, obviously, depends on the pricing of the inputs and the density that we have, and the number of subs that we can reach currently. For example, if we deploy into a CO, we are relegated to customers that are within a kilometre or two of the CO.
1076 So all of these factors are -- so the exact number...
1077 An estimate, I would say --
1078 COMMISSIONER MOLNAR: There is another opportunity as we go through this, so if you could --
1079 MR. M. GAUDRAULT: Okay. We are a little reluctant to give specific numbers.
1080 COMMISSIONER MOLNAR: Exactly, and it doesn't have to be a specific number, I am just trying to understand. You have put forward the proposal of a ladder of investment that goes from resale to an aggregated solution to a CO solution to a facility-based solution, and I am just trying to understand what that evolution takes, and how many.
1081 MR. M. GAUDRAULT: What I can say is that we do have sufficient densities, and we are ready now to go forward and do this.
1082 So depending on pricing and whatnot, we are very interested, which is why we are here.
1083 COMMISSIONER MOLNAR: Right.
1084 Perhaps something that is new today is the sub-loop unbundling, which would change that point of unbundling a little further.
1085 That is another thing that I don't expect you to, necessarily, comment on today, because we do have another opportunity to discuss this, and you may have a better opportunity to prepare your comments on sub-loop unbundling and how that might be economically feasible.
1086 MR. TACIT: We do have some initial thoughts --
1087 COMMISSIONER MOLNAR: Okay, sure.
1088 MR. TACIT: -- and if you want us to share them now, we will. Otherwise we will wait until the rebuttal stage.
1089 THE CHAIRPERSON: Mr. Tacit, you could gladly share them now, but remember that we are under a time constraint. We have other colleagues who want to question you.
1090 MR. TACIT: Fair enough. Thank you, Mr. Chair.
1091 The first thing I would like to point out is, just as a procedural matter, it is very difficult to assess what this option really means because it came so late in the proceeding. We have been through three rounds of evidence and this is the first time we have heard about this. We can't test what it would look like, how it would deploy, where it would be deployed, what it would cost.
1092 So we are kind of alarmed, frankly, that this kind of option, to veer away from the real subject matter of the proceeding, would happen so late.
1093 But leaving that aside, there are a whole bunch of other practical considerations, and I will mention them very briefly.
1094 One is that, in order to deploy one of these things, one has to have, again, a certain critical mass to do it, if you are looking at the sub-loop, and the economics of this are very difficult and, in other countries, have not been proven to work.
1095 The other thing is, you need land, you need power, you need AC. There are a whole bunch of reasons why this is impractical.
1096 And Mr. Blondeel actually has experience with this --
1097 COMMISSIONER MOLNAR: Perhaps it would be better if you were to put it together as a particular, where you could tell us about what is the mass, how many customers you need within a subdivision.
1098 I understand the basics and fundamentals as to what you need to deploy DSL, so I don't need generals. I think what we need for the record of this proceeding are actuals.
1099 MR. TACIT: Just to be clear, you would like an undertaking for us to provide a written response on this? Is that what you would like?
1100 I am just trying to be clear on what you are asking for.
1101 COMMISSIONER MOLNAR: I think I would like you to be able to reply to this --
1102 THE CHAIRPERSON: We have two phases.
1103 COMMISSIONER MOLNAR: -- in the next phase --
1104 MR. TACIT: Fair enough, okay.
1105 COMMISSIONER MOLNAR: -- as best you can, with specifics, versus the general requirements of rolling out to the cabinet.
1106 Because we understand the general requirements, what we need are the more --
1107 MR. TACIT: There are some specifics that Mr. Blondeel can provide, based on the European experience, where these kinds of services have been considered.
1108 COMMISSIONER MOLNAR: Can we do this in the next phase?
1109 MR. TACIT: Fair enough.
1110 THE CHAIRPERSON: Let me explain to you the procedure. In the first phase, everybody puts their ideas forward. The second phase, you take comments and positions on what was put forward.
1111 This morning, for the first time, Bell put some proposals out. I don't expect an answer from you. Everything you do right now is off the top and qualified, and therefore of little value. But when it is your time to respond, I would like to have a detailed response.
1112 MR. TACIT: Thank you.
1113 COMMISSIONER MOLNAR: You can tell that we are under some time pressures here, and I don't want to cut you off on important things, but sometimes there is an opportunity to answer better with time.
1114 I want to move to a more general question on priorities. You have laid out a strategy, a ladder of investment, and you have identified all of the issues covered in this proceeding, and thank you for doing that. But could you identify for us what would be your priority? If one thing could be achieved in this proceeding, what is it?
1115 MR. TACIT: I think that's up to the client to determine.
1116 Again, maybe this is better for us to reflect on and answer in reply, because we haven't really thought about it that way.
1117 If you require an answer right now, we will see what they can do for you.
1118 COMMISSIONER MOLNAR: Let's see what you come up with, because this is based on your position, not on the position of others.
1119 MR. R. GAUDRAULT: The idea behind the competitive framework was geared around flexibility, choice, and a means to keep reinvesting.
1120 The differentiation factors have a variety of different meanings for different people, and in our particular case the ability to give choice is a major one.
1121 So, as a result, if the competitive framework -- if there was such a thing as an acceptance of it, that would be very major for us. It sets a very base foundation for anything you do going forward, and, quite frankly, allows us to then start making use of something in a functional way from the competitors' side of things.
1122 MR. R. GAUDRAULT: If there was one service specifically?
1123 COMMISSIONER MOLNAR: That's being considered in this proceeding.
1124 Are you looking -- well, you understand the items being considered in this proceeding.
1125 MR. R. GAUDRAULT: Give it a try, Marc.
1126 MR. M. GAUDRAULT: You know what, it's almost an unfair question, it feels like.
1127 I mean, our inputs are --
1128 COMMISSIONER MOLNAR: Would it be better if I asked you to put the issues in order of priority, instead of choosing one?
1129 Can you put the issues in order of priority?
1130 MR. M. GAUDRAULT: They are equally important to me -- speed-matching, the CO solution, and the regulatory framework.
1131 This regulatory -- like all of this is a big priority. Speed-matching is a big priority. ADSLCO is a big priority.
1132 There is no order, they are all right up there.
1133 MR. R. GAUDRAULT: The biggest thing is that they all come together. Right?
1134 COMMISSIONER MOLNAR: One of the questions that I have to ask coming out of that is, what about the opportunities to use the cable infrastructure? Not as high of a priority for you?
1135 MR. M. GAUDRAULT: I'm sorry, I missed that question.
1136 COMMISSIONER MOLNAR: Using the cable infrastructure, improvements to TPIA, or a head-end based CO solution?
1137 MR. M. GAUDRAULT: Currently, today, the bulk of our business is over the ILEC aggregated ADSL service, so that's where we are today.
1138 We have recently launched into the TPIA, so gradually, over time, that will obviously increase. Obviously, today, you know, it is where it is.
1139 Certainly the most impactful thing that could happen today, for us, are these items that I just mentioned.
1140 But, at the same time, the TPIA issues that we have highlighted are right up there, as well.
1141 To me, we are here for all of these reasons, and we have put significant effort forward to highlight exactly this. For us, we feel that from the years --
1142 COMMISSIONER MOLNAR: It's kind of all or nothing?
1143 MR. M. GAUDRAULT: No, I wouldn't put it that way, but we are here and we have put our best foot forward, and I think that's why these proceedings exist, so we are here participating.
1144 MR. TACIT: I think the reason we are having difficulty with this -- if I could tell you the reason, the base reason is that we view the ladder of investment as a coherent and dynamic thing, and if you pull out any of the rungs, you are never going to get to the next rung, and it's the higher rungs that provide the biggest service differentiation and value for end users.
1145 And it has to be available at all times, because you always have new competitors entering.
1146 So if you were to say, "Let's put this -- let's do ADSLCO," yeah, we kind of like ADSLCO, but to have the critical mass to do that everywhere -- you can't reach it unless you have the lower rungs.
1147 So that's why we are having trouble.
1148 MR. R. GAUDRAULT: That is, in large part, why I ended up jumping into the framework right off the bat.
1149 The biggest thing for us, quite frankly, is -- it's not really technology-specific, it's more a matter of solution-specific.
1150 COMMISSIONER MOLNAR: On page 7 you lay out the areas of regulatory asymmetry. I wonder if we could go through those.
1151 And I had wondered if these were in order of priority, but I know now that you are not comfortable speaking in priorities, so we will just go through them.
1152 The first one, just to be clear, that's just speed-matching. That's what you are talking about.
1153 MR. TACIT: That's correct.
1154 COMMISSIONER MOLNAR: And the second one, on the cable carriers UBB, what is that about?
1155 MR. TACIT: It is, basically, applying the same measures that the Commission saw fit to apply for Bell Canada and Bell Aliant in Decision 2010-255 to the cable carriers, in which the Commission required that we file submissions on May 25th, which we did.
1156 COMMISSIONER MOLNAR: Okay. Thank you.
1157 The third one being TPIA, the single point of interconnection, the POI?
1158 MR. TACIT: Correct.
1159 COMMISSIONER MOLNAR: On the issue of service limitations for TPIA, I did bring it up, but I would like to bring it up again.
1160 You have suggested to remove all limitations that don't exist on the aggregated ADSL, and, as you know, Bell has suggested that we add a restriction to ADSL to limit video.
1161 Would you like to comment on that?
1162 MR. TACIT: Obviously, the option that is going to drive more competition is providing, again, platforms that give you more of those functionalities we talked about. So we view the removal of restrictions as more consistent with that than the addition of restrictions that are going to prevent anyone from doing anything with the platforms.
1163 COMMISSIONER MOLNAR: Could you explain to me what this last one is, interconnection standards?
1164 MR. TACIT: This was in my mind because, for example, I recall in the midst of time when the CISC high-speed working group was working on TPIA for the first time.
1165 There were four particular types of interconnection that were approved and at that time GigE was just coming in and the group basically sort of said, "Well, we are not really going to look at this now because, you know, this is what we have been mandated to do. It's this is what is in our tariffs and that's how we're going to talk about".
1166 So all we are trying to say is that interconnection standards have to keep up with the times and then entrenching a particular kind of standard when the industry by and large has agreed to move on only benefits the incumbents, it doesn't drive competition. So we are just saying that those standards have to be kept up over time.
1167 COMMISSIONER MOLNAR: As I understand today, the interconnection with the TPIA is at lower speeds than it is with the aggregated ADSL. So is that what you are speaking up here or are you speaking of more?
1168 MR. TACIT: That's part of what that's about.
1169 COMMISSIONER MOLNAR: That's what you are talking about?
1170 MR. TACIT: But it's actually the other way around.
1171 COMMISSIONER MOLNAR: It's the other way around?
1172 MR. ROCKY GAUDRAULT: The aggregated ADSL is the one that's lower, not cable.
1173 COMMISSIONER MOLNAR: On the interconnection?
1174 MR. TACIT: The interconnection to us --
1175 MR. ROCKY GAUDRAULT: No, we are good.
1176 MR. TACIT: The original response was correct.
1177 COMMISSIONER MOLNAR: Okay. I want to move back to matching speeds for a minute.
1178 As you know, the incumbents have claimed that mandating wholesale access at matching speeds could slow investment and particularly in certain markets and it could place competition in the BDU market at risk.
1179 Can I have your response to that assertion?
1180 MR. TACIT: You could have Dr. Ware's response because he is more qualified to respond to this.
1181 DR. WARE: Thank you, Chris.
1182 What I would emphasize first of all is that the evidence on investment, as I read it -- and I would strongly recommend the Berkman report summary on this to the Commission -- but the evidence is that competition drives investment.
1183 Investment is not driven by a protection of a monopoly or duopoly market but it is driven by competition and it is driven in a number of ways. It is driven by -- the entrant themselves of course will invest as well as the incumbent. And in fact evidence again from Europe has shown, and Mr. Blondeel knows more about this than I do, but that the incumbent tends to respond to entry by investing more than they would otherwise have done.
1184 So I would just basically just emphasize that essentially it is the process of competition that we want to encourage, not the protection of markets.
1185 I don't know if you want to add to that?
1186 MR. BLONDEEL: Yes. My report contains a citation of the impact assessment documents when the European Union debated this investment versus access regulation issue. And the European commission has firmly concluded with clear quotes that competition is what drives investment.
1187 There was also a study which is footnoted which was made for the European commission, in the context of that impact assessment, which shows a very strong relationship between the efficiency of a regulatory framework in terms of facilitating competition and investment by all players, by entrants and by incumbents.
1188 COMMISSIONER MOLNAR: I'm going to just tell you I don't feel like I know the answer after having heard that. I mean Bell has essentially said to us, "We are investing fibre to the node and we are investing that to capture the broadband home."
1189 And if we use it in simple terms, you know, if internet is one dollar, telephone is one dollar and TV is one dollar, so they are investing to get three dollars, and if this service is taken by a competitor they get 50 cents. You know, that is my very simple way of sorting this out.
1190 MR. TACIT: I understand your dilemma.
1191 The thing is underlying all of this is that we believe the ILECs have to do this; whatever market share they end up with, simply because they are facing the cable carrier triple bundle competition and the cables are leading in video and are ahead in market share in broadband as well.
1192 But I think there is also a difference between sort of risk of investment and the pure risk of competition. You know, the mere fact that somebody may lose market share if their ability to exercise market power is limited by regulation, as it should, is not a bad thing. It's what drives the dynamism of the marketplace and benefits end-users.
1193 So you have to look at the total investment and not just theirs, for one thing. But as I say, we don't think that their investment is really going to be blunted.
1194 DR. WARE: If I could just add something, Madam Commissioner?
1195 A better question it seems to me to ask is what does the consumer get, not what is Bell getting. So yes, Bell, taking your example at its face value, but the one dollar is a monopoly rent and so if the one dollar is reduced to 50 cents perhaps that is a competitive profit.
1196 And of course what is happening is an entrant is also now competing for that market and is also engaged in their own investment program. That has to be taken into account.
1197 Plus in the end, it is the end-users that we really care about and the variety of differentiated services that are being supplied to them.
1198 MR. MARC GAUDRAULT: Effectively the reverse is true; provide competition and allow us to compete and I guarantee you they are going to compete.
1199 COMMISSIONER MOLNAR: Okay. Thank you.
1200 My numbers were obviously just for illustrative purposes and weren't intended to reflect anything. I also want to ask on the issue of IPTV, the companies who were up before you said there is no way for -- essentially no practical way to share a home so internet by one party and IPTV by Bell Canada is not a practical solution.
1201 Do you agree with that?
1202 MR. TACIT: No, I don't agree that it's an insurmountable problem and Roger Hay can speak to the technical reasons why that is not the case.
1203 But in addition to that, I would like to also just point out that this is an example of a very small marginal problem that shouldn't drive competition, because again we are back to the fact that what the competition is about and what we are trying to promote his competition for the bundle. There aren't going to be that many broken homes, so to speak. TekSavvy is not contributing to broken homes in Canada.
1204 What is going to happen is that it will give companies like TekSavvy the ability to compete on the bundle. Most customers aren't going to just take Bell's IPTV but take TekSavvy's internet. That is not the way the market is going to work.
1205 So first of all it is a marginal problem, but then there are also ways to overcome it even where it exists. Perhaps Mr. Hay could add to that.
1206 MR. HAY: Yes. It's a technical question that can be resolved technically. If the ILEC can provide the services over a single loop then the ILEC and a competitor can also provide them. There is no technical magic.
1207 There are a number of ways to do it, provide a separate loop, just as today, so nothing different, or provide effectively midstream access as they do in Europe.
1208 So this is a technical issue being blown up into the sky is falling.
1209 COMMISSIONER MOLNAR: Okay. Thank you for your time.
1210 THE CHAIRPERSON: Tim, I believe you have some questions?
1211 COMMISSIONER DENTON: Gentlemen, I have a question and I would just like to say that it may seem argumentative but it allows you to put your case, I hope, better or you are doing fine, but I just want to hear you say this.
1212 It seems to me that when you consider the notion of the letter of investment that the basic problem is that it is requiring the regulator to intervene in a manner which is at once timely, precise and comprehensive because at any point in the game a delay, a change of protocol or any other kind of action by the incumbent is sufficient to severely block or render you less competitively effective.
1213 So the essential proposition I hear coming out of people in your position -- and I have been in your position -- is that it depends upon a regulator and a regulatory policy which is precise, timely and comprehensive and with a continuous focus on the problems of the smaller competitors to cause to happen for the consumer something that we desire, which is the spread of broadband and the spread of the most effective updated services.
1214 So there are two points to my question. Can the regulator be this good and what do we get at the end of the day from all this regulatory activity that is, in a sense, worth the cost of the regulatory intervention?
1215 MR. TACIT: Those are very good questions indeed.
1216 First of all, regulation by its nature is going to be imprecise and not always timely and the regulated price isn't always going to be set right. We know that. That doesn't mean that the effort should be made because at the end of the day, I believe, that a situation in which you get substantially more competition than in a duopoly market is still better for the consumer. Maybe it's not perfect, but it is better.
1217 The second point is that today, yes, we are very vulnerable because there aren't a lot of services on the ladder of investment. But to the extent that the runs on that ladder gets filled up over time, and there are different options, then the cost and blocking to competition that may occur from the absence of one service or from an error in the way a service is priced is not going to have the same level of impact on the marketplace.
1218 The problem is, we are at a stage in Canada where we have virtually no rungs on that ladder and so what we are urging you to do is to start putting those rungs. As those rungs increase and as competitors can get access to those functionalities we talked about, the likelihood that regulatory error will harm any one party is going to diminish, I think.
1219 I think Mr. Blondeel has some live experience from Europe to share with us on this.
1220 MR. BLONDEEL: Yes, I think, on the question, "Can it be done?" yes, because it has been done. The obvious country is France.
1221 If we look at it between the year 2000 and today you see that at the beginning of the launch of DSL, which was just before 2000, there were no access products, there was no regulation, there was basically nothing and there were a number of resale arrangements that were entered into.
1222 At the beginning of 2003, upon application of an alternative operator not dissimilar to the situation, wholesale bitstream access was defined, which is a transmission-type solution which is maybe not dissimilar to ADSLCO, but then with significant backhaul higher up into the network and you saw a takeoff of that competitor's market share and a number of other competitors entering into the markets.
1223 By 2003 local loop unbundling, which had been mandated actually in 2001, became effective because we had to tighten the bolts on things like collocation, modalities, electricity, air conditioning, backhaul, building access, all these difficult problems, and you see other entry and the entry at that time is a company called free.fr -- and I urge you to have a look at free.fr to look at the proposition that this company enters today.
1224 You can see the market share of France Telecom being affected in the bitstream phase, in the local loop unbundling phase, and the takeoff of competition and the takeoff of penetration at the same time. I'm sort of trying to show you a graph that shows you.
1225 By 2007 when the alternative operators, two of them, had achieved over 40 percent of the market in France through a combination of local loop unbundling in dense areas and complementary bitstream remedies to reach the rest of the territory, an announcement was made that they were going to invest in fibre to the home. So that's the "Free" announcement from late 2006.
1226 Until today they have built the horizontal fibre network throughout Paris and four other cities and are expanding further and are beginning to wire up buildings with their own fibre to the premises equipment and having a real effect on the markets.
1227 Now, an interesting point in the case of France is that this company, Free, they launched their product on DSL at Euros 29.99. They offered the maximum speed possible of the loop, which was up to 24 MB immediately. They subsequently launched IPTV over ADSL2+. So that can be done, by the way.
1228 They subsequently offered telephony with unlimited calls nationally and unlimited calls to multiple destinations and they kept the price point at 30 Euros throughout the period. When they announced the fibre investment they said, "We will still keep a 30 Euros".
1229 So you see there a phenomenon where competitors are taking market share, are giving a fantastic user proposition and are keeping clarity and consistency as their main message to be able to attract customers.
1230 The funny thing is that some of these companies were actually niche competitors in the past, but they came with the mainstream proposition that was enabled by this ladder of investment and very importantly they were able to combine various elements of the ladder because of course you can't local loop unbundling the entire country in one go.
1231 So I think you should really look at the set of decisions that the French regulator has taken between, let's say, the end of 2002 until very recently to see which interventions and which combinations of regulatory solutions have led to that outcome.
1232 COMMISSIONER DENTON: One more question, then.
1233 It will be immediately objected to that comprehensive regulatory plan that Canada already benefits from the presence of well-established telecom -- or shall we say telephone -- forgive me for calling them telephone because they are moving -- and cable incumbents and that we would not need to engage in that kind of comprehensive set of regulatory interventions because we already have adequate competition between the giants.
1234 What would be your response to that?
1235 MR. BLONDEEL: If I may, with two examples. France itself has actually 10 million homes plus connected to cable and cable is today offering over 100 MB internet plus TV. So cable was actually also a factor in that market.
1236 And today cable is the speed meter and the price leader because they have an offer at 20 Euros a month that does triple play. So the presence of cable has not prevented the French regulator of taking that action. It is true that the penetration in terms of customer success of cable was far lower than it is in Canada today. That is a reality.
1237 But I think another country that is really interesting to look at is the Netherlands. In the Netherlands historically the cable companies made the broadband market. That is not different from what the situation is in Canada. The telco incumbent had to invest in DSL rapidly to catch up with that and managed to capture some market share, but still today cable has over 40 percent of the broadband market in the Netherlands.
1238 Now, what happened at the end of 2008, the telecom regulatory authority still decided to keep mandating local unbundling, still decided to mandate what is called bitstream access in specific circumstances and decided to mandate fibre unbundling.
1239 So that regulator clearly considered -- and there is a presentation that I have quoted -- that too is not enough to achieve the effect of consumer protection and the consumer benefits and the innovation efforts that can be achieved by a more competitive market than that.
1240 COMMISSIONER DENTON: Finally, thank you very much.
1241 Mr. Tacit, this one is for you. I will expect you to explain to us why, in your arguments, why this is compatible with the government's Order in Council direction to the CRTC.
1242 Thank you. That's it.
1243 MR. TACIT: Thank you.
1244 THE CHAIRPERSON: Len, you have a question?
1245 COMMISSIONER KATZ: Thank you, Mr. Chairman.
1246 You state in your submission that you currently have 50,000+ customers. Do you believe that if you were asked to negotiate an arrangement with the ILECs you would be successful in negotiating one in the absence of regulation?
1247 MR. TACIT: No.
1248 COMMISSIONER KATZ: So your 50,000 customers have no value, you don't think, to the ILECs?
1249 MR. ROCKY GAUDRAULT: I suspect the answer to that in a certain breath would be well, price increase on GAS, UBB, throttling, these are all things that in our mind hamper the ability to keep increasing our market share and as a result I think if you remove the regulatory body from that effect, yes, I could see definitely going down to 40, 30, 20 down.
1250 COMMISSIONER KATZ: So you couldn't do it on your own. Yet I see here on page 2 of your submission you are saying you are currently negotiating cable reseller arrangements with certain cable companies.
1251 That is not pursuant to any regulatory obligations?
1252 MR. MARC GAUDRAULT: Actually it is.
1253 MR. TACIT: It is.
1254 COMMISSIONER KATZ: It is? Resale?
1255 MR. TACIT: Yes, where TPIA is not yet offered by a cable carrier that could be required to provide it there is an order, a decision of the Commission that requires resale at a 25 percent discount.
1256 COMMISSIONER KATZ: Thank you.
1257 Just one question, Mr. Blondeel. I didn't hear you say what the market share was for the cable infrastructure in France.
1258 MR. BLONDEEL: It's market share is around 10 percent today in France but, as I said, the example of the Netherlands is more relevant perhaps in that respect, given that cable is over 40 percent market share.
1259 COMMISSIONER KATZ: What percent of the homes in France are covered with cable?
1260 MR. BLONDEEL: A little over 10 million and I estimate the number of homes must be 25 million maximum. So cable is present on a significant proportion of the territory.
1261 COMMISSIONER KATZ: Thank you.
1262 THE CHAIRPERSON: Okay. Thank you very much. Those are all our questions.
1263 We will take a five-minute break before the next one.
1264 MR. TACIT: Thank you.
1265 THE CHAIRPERSON: Thank you.
--- Upon recessing at 1450
--- Upon resuming at 1459
1266 THE SECRETARY: Order, please. À l'ordre, s'il vous plait.
1267 THE CHAIRPERSON: Would you please sit down and let us proceed?
1268 Okay, Madam la secrétaire.
1269 THE SECRETARY: Merci, monsieur le président.
1270 We will now proceed with Saskatchewan Telecommunications appearing via a videoconference from our Regina regional office.
1271 Appearing for Saskatchewan Telecommunications is John Meldrum. Please introduce your colleagues and you will then have 25 minutes to make your presentation.
1272 MR. MELDRUM: Good afternoon, and thank you for accommodating us by videoconference.
1273 I am SaskTel's Vice President, Corporate Counsel Regulatory Affairs.
1274 With me today is Andrew McKay on my right. He is the Regulatory Affairs Manager.
1275 On my left is our Chief Technology Officer, Kym Wittal.
1276 We are pleased to have this opportunity to explain SaskTel's position to you and to answer your questions.
1277 I will begin our presentation today focusing on policy issues with Kym providing insight into some of the technical challenges.
1278 I will begin by addressing the one issue that to SaskTel is the most important item for the Commission to address in this proceeding. That issue is the need for a clearly defined and stable regulatory regime governing those next generation networks that consist of fibre running to a customer premise which we call fibre to the prem.
1279 In order for SaskTel and others to move forward in evaluating whether and to what extent we deploy fibre to the prem we need to know what level of mandated wholesale access will be required and the pricing and interconnection principals involved.
1280 Your rulings regarding speed matching, aggregated ADSL and other wholesale internet access issues have not created such a regime. In fact, the Commission deliberately kept its powder dry by indicating in the matching speed decision that that decision applies only to services delivered in part over copper facilities.
1281 SaskTel believes that the Commission needs to define a stable regulatory regime governing fibre to the prem in this proceeding. Only then will SaskTel and other potential network builders understand both the interconnection rules that will impact network design and the revenue model to support the business case. And only by understanding such factors will we be able to make informed decisions regarding deployment.
1282 The enormous costs entailed in building fibre to the prem networks make even the most optimistic business case for deployment a marginal one for us. The lack of regulatory clarity further complicates the situation because SaskTel must make assumptions regarding whether competitor access will be mandated, the price at which it might be mandated and the manner of interconnection which might be required.
1283 SaskTel believes that the best way for the Commission to provide regulatory clarity would be to state that no wholesale access to fibre to the prem networks will be required for at least 10 years. We chose 10 years as for us it takes a 10-year period for a business case for fibre to the prem to turn positive.
1284 Such a statement would do three things. It would recognize the volatility of high-speed internet technologies. As we speak, the cable companies, with their DOCSIS 3 enabled networks are ahead of the game. They are able to offer higher bandwidth than anyone else.
1285 Wireless technology is also making rapid advances with our friends at Rogers now urging Saskatchewan residents to cut the cord and get wireless Internet at speeds up to 21 Mb. Satellite providers are also improving their capabilities and we expect to hear more in the future.
1286 Finally, ILECs are considering fibre to the prem deployments. Some are actually deploying such networks, presumably with the expectation that the regulatory environment will be favourable. Others continue to crunch the numbers and hope for some clarity.
1287 In such a volatile environment a forbearance period would allow the Commission to obtain a clearer picture of the new high-speed Internet landscape before applying a regulatory framework that may be inappropriate.
1288 A 10-year forbearance period would also provide facilities providers with certainty that for that period they could make their investments without the fear that the rules will change.
1289 Finally, such a time-limited forbearance period would incent facilities owners to deploy such networks more quickly to take full advantage of the unregulated period. Such accelerated deployment would help bridge the perceived bandwidth gap with other parts of the world and that would be good for Canadians.
1290 We note that such a forbearance period would not preclude market-based negotiations between facilities builders and potential wholesale users of those facilities.
1291 To the extent that a potential wholesale customer is willing to pay us a fair price and to interconnect in a manner that makes sense to our network, we will always be willing to negotiate terms which offset some of the cost of building.
1292 Should the Commission decline SaskTel's suggestion of a time-limited forbearance period, SaskTel firmly believes that the most the Commission should do with regards to fibre to the prem networks is to mandate that owners of such networks negotiate in good faith with competitors so that access can be granted on market terms and conditions.
1293 As Kym will explain later, knowing the rules now will help SaskTel make informed decisions regarding the extent of our deployment.
1294 Having addressed our most critical issue I will turn to some of the other items.
1295 The first of these is the equitability of the current wholesale obligations for ILECs and cable companies or, as we refer to it, regulatory symmetry. Tied into this question, at least in SaskTel's estimation, are the potential mandating of a central office-based ADSL service for ILECs and the potential mandating of a head-end-based service for cable companies.
1296 Regulatory symmetry is one of the main principles of federal government's policy direction to the Commission. As such, regulatory obligations, including the obligation of providing various levels of wholesale access should not be applied to one class of facilities owners such as the ILECs while not being applied to other classes of facilities owners who compete in the same retail market.
1297 Unequal regulatory obligations are even more unfair in a situation such as occurs in the provision of high-speed internet where the cable companies, who have the highest market share in Canada, continue to be subject to fewer regulatory obligations than the ILECs.
1298 For instance, SaskTel must allow competitors to purchase aggregated ADSL, DSL access capability, unbundled loops, or any retail internet service on a resale basis in order to compete with SaskTel. The ADSLCO service under consideration in this proceeding would add yet another alternative.
1299 For SaskTel, for the most part, this menu of wholesale alternatives is more of an administrative headache than a business issue. Aggregated ADSL is the only service which has seen any appreciable demand in this province. However, SaskTel must continue to inventory its spare equipment and maintain CSG knowledge and network procedures related to service implementation for all these services.
1300 On the other hand cable companies are required to provide only one wholesale service, that being third-party internet access, and only those cable companies seen as large on a national basis are required to provide it. In that regard Access Communications, which serves almost half of Saskatchewan, is exempt from TPIA. At a minimum it should be a goal of the Commission not to make the existing asymmetry worse.
1301 This proceeding is considering, among other things, whether to mandate a central office based high-speed ADSL service for ILECs and whether to mandate a head-end-based high-speed service for cable companies. SaskTel does not believe that either of these services should be mandated.
1302 We foresee no demand for CO-based EDSL in Saskatchewan and we firmly believe that it would be contrary to the policy directive to mandate SaskTel to configure such service in the off chance that someone might want it some time. And if we expect there is only minimal demand it will significantly add to the complexities already faced by our field forces.
1303 We cannot speak to the potential demand for a head-end-based high-speed service in Saskatchewan. We do know that the cable companies have raised, as they often do, technical concerns related to providing such a service.
1304 Although we cannot speak in detail to the technical manner in which a head-end-based high-speed service could be provisioned, we do have enduring faith in the creativity and competence of their engineers. Although neither of these services should be mandated, we believe that if the Commission were to mandate the cable companies to provide such a service, and were to institute a regime with real consequences for non-compliance those cable company engineers would find a way to do so. If they can't, then this is one more reason not to mandate a central office based high-speed ADSL service for the ILECs as otherwise this will exacerbate the regulatory asymmetry that already exists.
1305 We have also been asked whether the cable companies' TPIA service should be subject to the same measures regarding equivalent treatment which the Commission found appropriate in the Bell Companies application to introduce usage-based billing for their wholesale GAS services. SaskTel sees no reason why, if the Commission feels such measures are appropriate for an ILEC, they should not also be appropriate for a cable company.
1306 Finally, the issue of mandating matching speeds for aggregated ADSL services. You may have noted that SaskTel's aggregated ADSL service is somewhat different from some of the other ILECs. It is different, not a general concept, as it allows wholesale competitors to provide competitive services to their end customers using SaskTel's ADSL network between a customer premise and a point of aggregation, but rather it is different in some of the factors which have been raised as concerns in this proceeding.
1307 We believe these differences arose because SaskTel, like all ILECs, faces market dynamics and network topographies unique to its own circumstances and we therefore designed our aggregated ADSL service to conform with SaskTel's own unique circumstances and not as a carbon copy of services provided by any other ILEC.
1308 One of the differences pertinent to the current discussion is the fact that SaskTel's aggregated ADSL service is already provided to competitors at the highest retail ADSL speed available at the specific end-user premise being accessed.
1309 Several years ago, in accordance with Commission directions, SaskTel contacted our actual and potential aggregated ADSL customers to see if they were interested in getting the service at lower speeds, in accordance with the speed matching decision. The response was no interest.
1310 Therefore, SaskTel's answer to the question of whether matching ADSL speeds should be mandated is irrelevant to our situation. However, we also note that just because SaskTel chose to provide the service in a different way than others does not mean that we ourselves did not also have limits.
1311 SaskTel is currently adding VDSL technology to portions of its retail high-speed internet network. This technology differs from ADSL in certain ways that Kym will touch on. SaskTel's aggregated ADSL service does not offer access to VDSL technology.
1312 SaskTel also has certain limits on the wholesale internet service it is providing. The fact that we draw these boundaries in different places than other ILECs does not make us so different. As far as we are concerned, VDSL is part of our next generation network.
1313 This technology was introduced after the essential services decision and access to it was not mandated in that decision. It was also introduced after the government's policy direction to the Commission.
1314 That direction requires the Commission to use measures that interfere with competitive market forces to the minimum extent necessary and to not artificially favour either Canadian carriers or resellers. Mandating access to VDSL networks would, in our opinion, run counter to this direction.
1315 With respect to the question of how the incumbent should be compensated, we have come to accept the current treatment of aggregated ADSL as conditional mandated nonessential. We note quite strongly here that none of these current or proposed services should ever be considered to be essential. These services fail every component of the essential services test which the Commission has just recently devised.
1316 There is no failure in the retail high-speed Internet market. Competition in Saskatchewan is vibrant, consumers are well served and although some may feel that Canada is falling behind in bandwidth provided, hindering bandwidth providers with regulatory obligations is no way to improve that situation.
1317 Mr. Wittal will now further address your questions regarding new types of internet access infrastructure.
1318 MR. WITTAL: Thank you, and good afternoon.
1319 Just to add to some of the items that John had discussed, engineers are indeed creative and dedicated to finding a way to make things work. I'm sure that if they have to, cable engineers can find our way to provide a more unbundled wholesale access then TPIA.
1320 And not to drag us too far into a technical discussion, but I do believe that with IP technology such as DOCSIS 3 many of the limitations which the cable companies perceive related to providing dedicated channels should be alleviated.
1321 To focus on next generation networks, it is SaskTel's opinion there are quite a number of next-generation networks being developed, or at least considered in this country. Often the term next generation network is used to refer to the use of fibre in the access component of the ILEC network. However, when we consider the true concept here, new types of internet access infrastructure, there are a number of other players who should be discussed.
1322 As John mentioned previously, cable companies have their own new types of internet access infrastructure. They achieve this through the use of DOCSIS 3.0. Version 3 of DOCSIS was released in 2006 and is allowing the cable companies to reach previously unprecedented bandwidths.
1323 For instance, Shaw uses DOCSIS 3 to offer its Nitro service with 100 Mb per second download speed in Saskatoon, our province's largest city. That is four times the download speed SaskTel can currently offer its retail Internet customers. To us that certainly represents a new generation internet access. Shaw is also apparently trialing a 1 Gb per second download speed delivered over fibre to the prem technology.
1324 John also noted that the wireless providers are rolling out new technology which delivers greater wireless data speeds than ever before.
1325 We ourselves are working on -- working hard to upgrade our wireless network to provide similar services.
1326 An example of this is the wireless offering as Rogers service which comes bundled into a stick which looks like a small thumb drive and can be plugged directly into any USB port to give a computer the ability to access the Internet wirelessly.
1327 This service is also being bundled directly into a netbook. Certainly this development is a new generation in Internet access.
1328 I should note that we do not believe mobile wireless Internet is a solution for everyone. We do believe, however, that for a certain section of the market it is a wonderful solution. And judging from the number of billboards I pass on my way to work each day, our friends at Rogers think so too.
1329 We expect further developments such as this to occur in the satellite industry and perhaps even in the fixed wireless industry.
1330 All of which leads me to the point that fibre-to-the-node and fibre-to-the-prem as delivered by the ILECs are not the only members of the next generation of Internet access. Their cousins are also growing up quickly and may well come to dominate this race.
1331 The Commission should not make any rulings here which restrict one class of market player while letting the others run free.
1332 Now, when we talk about next-generation networks in the ILEC world, we are really talking about the use of fibre in the access network.
1333 In other words, in that portion of our network that runs between a customer's central office or wire centre and that customer's residence or place of business.
1334 In the next generation, Telco network would be using this fibre access on a wide spread basis and providing voice as well as data services.
1335 With fibre in the access network, there are two quite unique scenarios. The first, known as fibre-to-the-node is really an evolution of our existing DSL technology. Originally DSL electronics were placed in central offices and wire centres and attached to copper loops served from that office.
1336 The bandwidth you can provide over a copper loop is limited by the length of that loop. So, to get more bandwidth to our customers, we began putting the DSL equipment closer to them. Sounds pretty simple, right?
1337 Well, it sure is if you have a rich uncle who can pay for it. To get the DSL equipment closer to our customers, we had to design DSL cabinets which could be placed in streets and alleys forming nodes which are connected to our central offices using fibre.
1338 We ploughed fibre into these nodes which is an extremely expensive endeavour and, of course, once it was done, the bandwidth stakes were raised and we had to try to figure out how to increase the speeds even more. That's essentially what VDSL is, the ILECs' new technology to provide higher speeds.
1339 Our view is that VDSL should not be available to our competitors for resale purposes and that it certainly is not part of aggregated ADSL service.
1340 The policy direction requires the Commission to:
"...rely on market forces to the maximum extent feasible as the means of achieving the Telecommunication Policy Objectives."
1341 MR. WITTAL: If every technological development made by a market participant is automatically made available to its competitors, especially artificially low prices, this is hardly allowing market forces to work.
1342 In fact, it will likely cause those market forces, at least those that lead to innovation, to slow to a crawl. And there are certainly enough other concerns with wholesaling VDSL.
1343 VDSL technology was not included in the cost uses to support the rates for aggregated ADSL. VDSL has not been installed in the majority of our network, and there are some real interoperability issues between VDSL equipment in the customer premise and in the DSL cabinet.
1344 These concerns mean that we would not be willing to sell this technology in an aggregated ADSL configuration where the wholesale customer provides the customer premise modem. We would need to provide that modem ourselves as we would have to routinely push firmware fixes to the wholesale modem.
1345 I mentioned there were two scenarios for a Telco next-generation network. The second scenario is fibre-to-the-premise.
1346 SaskTel is exploring this technology, but we have done nothing more than a trial to date. That is because of the incredible cost. Even without regulatory impediments, the business case to deploy this technology is an incredibly tough sell.
1347 Fibre-to-the-prem is a revolutionary new access methodology that is in its early stages in terms of deployment in Canada. Fibre-to-the-premise does not use DSL technology at all, instead it uses optical technology all the way to the customer.
1348 This involves placing fibre, not just the nodes which I described previously, but to each individual premise. This would also involve us retiring almost all of the DSL plant we have developed over the years. We would have to retire this plant to reduce operating and maintenance cost or the marginal business case would be negatively impacted.
1349 To give you some idea of the relative costs involved, fibre-to-the-node involves placing DSL cabinets closer to the customers. As long as the customers live closely enough together, each node can then service 192 customers or more if we had more equipment.
1350 The traditional copper loops from those customers will continue to run to the node untouched.
1351 If we deploy fibre-to-the-prem, we have to take out that node and run fibre to every customer premise that was served by that node and that is incredibly expensive.
1352 The majority of SaskTel's access network is varied, so for every node replaced, we would have to plough new fibre drops to 192 individual premises. Not only is this a lot of fibre, we're also no longer running it down highways, ditches and conduit, we're now beating up Mrs. Smith's tulips. Of course, Mrs. Smith won't let us do that, so we now have to directionally bore the fibre to her house. This of course costs even more.
1353 Now, we have said that we'd be willing to provide access to fibre-to-the-prem networks if we can come to terms in a market-based negotiation. We do need someone to help us pay for this, so as long as you follow the policy direction and allow market forces to drive the negotiations, we welcome potential partners to come and talk to us both about price and about methods of interconnection.
1354 If you decide to mandate pricing for wholesale access to fibre-to-the-prem networks, especially at essential services prices, you will not help or make our business case.
1355 As I mentioned, the case for deploying this technology in any meaningful way in Saskatchewan is already significantly challenged, and this is based on the assumption that you will not regulate us in this manner.
1356 If you do regulate us in this manner, the business case becomes even harder to prove out.
1357 Essential services pricing simply does not provide us with any kind of profit margin on wholesale accesses. Given the risks involved with this service and the huge cost of deploying these networks, any portion of our build which was assumed to be purchased by competitors at essential prices would detract directly from the viability to the business case involved.
1358 I should mention one more thing. We recognize that the Commission currently classifies unbundled local loops as essential services and we have stated that if we deployed fibre-to-the-prem we will continue to make the bandwidth equivalent of a local loop service available.
1359 We also propose to do a similar thing for aggregated ADSL. Aggregated ADSL works over traditional and fibre-to-the-node networks. As I've said, once we deploy fibre-to-the-prem, we will have to remove those nodes so as to avoid running multiple networks in the same area.
1360 Therefore, we propose that where fibre-to-the-prem is deployed, aggregated ADSL is available at the bandwidth equivalent of our maximum retail ADSL Internet speed.
1361 However, it will actually be delivered over our fibre connections.
1362 Despite the reference to acronyms, the sophisticated technology and myriad of potential services, we are asking the Commission for some very simple things.
1363 First, tell us the rules of fibre-to-the-prem. If we don't know the rules of interconnection we are forced to make assumptions about how to configure the network. And if these assumptions are wrong, the re-work involved could be extremely expensive.
1364 At least knowing the rules under which we have to operate allows us to make more informed decisions regarding fibre-to-the-prem.
1365 Knowing the rules will impact not only whether SaskTel deploys fibre-to-the-prem at all, which we will probably do to some extent, but also how quickly we do so and the reach of our deployment.
1366 For instance, if the already marginal business case for deployment becomes weaker, we will likely only deploy in large communities and may only deploy in certain circumstances, such as greenfield neighbourhoods, or only in areas served by aerial cable but not in areas served by buried cable.
1367 Knowing the rules will also tell us whether we should more closely investigate other technologies to serve our customers.
1368 Second, pay attention to what is happening in the North American market.
1369 Equipment makers in this market design their equipment, which is the exact same equipment we will have to use for our fibre-to-the-prem build to meet the needs of the United States.
1370 Therefore, the equipment is being optimized to not allow physically unbundled access to these networks. Please don't mandate this kind of access. We can't do it and we certainly can't force our equipment suppliers to do it.
1371 Third, create symmetrical rules. For the first time in my career I'm playing catch up to my competitors in terms of speeds and infrastructure. In these circumstances, I expect the same type of consideration you gave the cable companies when they were entering the voice market, a level playing field.
1372 And, lastly, give the market a chance. Give me the flexibility to try to develop a business case to build these new fibre technologies. Right now I'm facing tremendous challenges in justifying this build to my fellow executives, to my board and to my owners. Don't make it any harder.
1373 With that, I would like to close and to thank you for your kind attention and we await any questions you might have.
1374 THE CHAIRPERSON: Thank you for your submission.
1375 First of all, why do you mention DSL. By your own word it was introduced after -- I'm only repeating what you are saying, I never heard of it until five minutes ago -- but you say it wasn't there when we made the essential services decision, it is not covered by it.
1376 So, what are you looking for from us then?
1377 If both those facts are correct, it was not there when we made the essential services and it doesn't meet the test of essential services, why are you mentioning it and what do you require from us?
1378 MR. MELDRUM: Well, it didn't exist and I guess in some respects people will consider it to be a next-generation network or perhaps even somebody else suggest that it's included in ADSL.
1379 So, I guess we want to make it -- what we'd like from the Commission is to be clear that it's not.
1380 THE CHAIRPERSON: You want us to basically repeat what you said. We agree with your position.
1381 You want a confirmation that it's not covered by essential services.
1382 MR. MELDRUM: Yes.
1383 THE CHAIRPERSON: Okay. What is VSL, just so for my own edification?
1384 MR. WITTAL: DSL stands for digital subscriber loop.
1385 MR. MELDRUM: V he said.
1386 MR. WITTAL: Or VSL is very high speed DSL.
1387 THE CHAIRPERSON: So, it's just at a higher speed, that's it, VSL?
1388 MR. WITTAL: Well, no. While it does offer faster speeds, it also requires newer technology in terms of chip sets and electronics, et cetera.
1389 So, in general is it an enhancement to a DSL service? Yes, but there is much, much more to it in terms of it's not just another modem and not just another faster bit rate on a copper loop.
1390 THE CHAIRPERSON: Okay. Secondly, you say that you want a holiday for 10 years on fibre-to-the-prem, but then you say, should we decline to do that, then the most the Commission should do with regard to fibre-to-the-prem network is to mandate that owners of such networks negotiate in good faith with competitors so that access to it can be granted on market terms and conditions.
1391 Let's say for argument sake we adopt that, so basically you then have an obligation to negotiate in good faith and to develop secondary markets.
1392 You heard Mr. Cope this morning he was not even willing to answer a question whether he was going to market or not, he was not willing to make any commitment.
1393 So, you would see us imposing such a commitment to negotiate in good faith, and then if there are complaints to us that you are not negotiating in good faith, what do you see happening?
1394 MR. MELDRUM: We would see the Commission providing mediation services and dealing with the issue of us not having negotiated in good faith. We weren't recommending that the Commission arbitrate the issue.
1395 THE CHAIRPERSON: Okay. This 10-year holiday from wholesale access to the fibre-to-the-prem, why 10? On what basis did you come up with the number of 10?
1396 MR. MELDRUM: We ran the business case with five years cost study and it's actually negative. It actually takes a 10-year study to turn positive which basically needs 10 years of revenues, 10 years of stability.
1397 THE CHAIRPERSON: Did you file --
1398 MR. MELDRUM: Sorry?
1399 THE CHAIRPERSON: Did you file with us that study, that exercise? I mean, I appreciate you wanted to file that in confidence, but we would certainly be very interested to know what the assumptions you made to come up to the 10-year period.
1400 MR. MELDRUM: We have not filed it. We would be prepared to file it in confidence.
1401 THE CHAIRPERSON: Okay.
1402 My colleague, Marc Patrone, has some questions for you.
1404 COMMISSIONER PATRONE: Yes, I do, Mr. Chair.
1405 And thank you, gentlemen, for your presentation this afternoon.
1406 I too have some questions related to the 10-year regulatory holiday that you've asked for as well.
1407 You've certainly gone a fair way towards identifying what you see as the priorities for this hearing. In both your written and oral submission you talk at length about the disincentives associated with:
"...pricing access to next-generation networks as an essential service, especially in small markets."
1408 COMMISSIONER PATRONE: You've also offered a number of definitions for next-generation network. As far as SaskTel is concerned, we're basically talking about fibre-to-the-prem; is that correct, as far as your definition of next-generation?
1409 MR. MELDRUM: That and I think we would consider VDSL as well to be next-generation.
1410 MR. WITTAL: Correct.
1411 COMMISSIONER PATRONE: And to the degree that you can given that your competitors are listening to every word you're saying right now, are you able to talk about the degree to which you have begun the planning process towards the roll-out of next-generation networks?
1412 MR. WITTAL: Certainly. On the VDSL/DSL perspective we have deployed some of that technology in our marketplace today and, of course, we use that to offer higher bit rates which then allow us to do things like IPTV.
1413 On the fibre-to-the-prem scenario, we have contemplated numerous planning scenarios and have socialized those internally, but as I mentioned that so far all we've done is really deployed a trial to date.
1414 COMMISSIONER PATRONE: And what does that trial entail?
1415 MR. WITTAL: We did really two trials, I guess. The very first one was really more of an electronics trial than a lab kind of trial just to understand a bit about the potential of the technology.
1416 The second trial was a field trial, a very small field trial to understand again the placement of cable, both buried and aerial, in a small couple of neighbourhoods and to run some electronics and to run a couple of test services, again, to understand the build process, to understand the performance and to understand some of the operational issues.
1417 So, again, it was to gather information and facts about to basically help us build our business case.
1418 COMMISSIONER PATRONE: You talked at length about the challenges associated with the laying out of next-generation networks.
1419 What do you make of the argument that we heard today by TekSavvy as well as others that ILECs really don't have a choice but to lay out their next-generation networks in order to compete with Cablecos.
1420 Disincentive or no, the ILECs either roll out their new networks or they die.
1421 MR. WITTAL: Well, I'll maybe start this.
1422 From my perspective, I think there is certainly a move afoot in the industry that you must innovate and continue to evolve and invest or you will certainly lose market share and lose customers.
1423 However, I think what may be lost and I think it did come up a bit this morning in a couple of presentations is that if there is an opportunity that the business case obviously is impaired in some way, that there is really no incentive for SaskTel for example to go ubiquitously.
1424 So, we would be much more selective in terms of how fast, where we go, which areas, even what services we potentially offer.
1425 So, I don't think it's a question of whether you go or not because certainly I think we believe that that is the next wired innovation, if you will, that will help us obviously meet the marketplace, but certainly if that business case is impaired, we would not be ubiquitous or certainly not as broad as we maybe would like.
1426 COMMISSIONER PATRONE: Has SaskTel --
1427 MR. MELDRUM: When --
1428 COMMISSIONER PATRONE: I'm sorry. Go ahead, Mr. Meldrum.
1429 MR. MELDRUM: When we were discussing this issue over the weekend, Kym said, for example, he may not get fibre-to-the-prem at his own house. He lives in an older area, about 30 years old and it's buried and it will be -- buried is much more expensive than aerial.
1430 COMMISSIONER PATRONE: I know you've sort of been asked this question in roundabout ways, but I'm going to ask it again anyway.
1431 Can you envision any compensatory regime in which the disincentive to roll out the next-generation networks might be mitigated to the satisfaction of SaskTel?
1432 In other words, is there a wholesale mark-up rate that would satisfactorily offset that disincentive or perhaps some other regime?
1433 MR. MELDRUM: Our experience with the mark-up rates set by the Commission is not that good.
1434 We basically end up with the same mark-up that Bell Canada gets with no account for the size of SaskTel.
1435 The mark-up is supposed to provide -- cover your common costs and then some other, I think sort of more direct costs and we end up getting the same mark-up even though Bell Canada is 10 times bigger than us. So, no, we don't have a good experience with national mark-ups.
1436 Our preference would be to see us have the opportunity to negotiate directly with those parties that might be interested in using our facilities.
1437 COMMISSIONER PATRONE: Well, Mr. Meldrum, why don't you just drop the past for a second and just consider the future.
1438 I understand that there are major issues as far as the current rate are concerned. Do you envision any other possible scenario, and I know it may be difficult for you to put numbers on the table here, but what would it take?
1439 MR. MELDRUM: Ah... Do you want to try.
1440 MR. McKAY: I don't think we have a specific number in mind. Certainly it would take more than we are currently receiving and our position has been that we would like to negotiate that on a market basis. It would depend on probably other terms and conditions and volumes and a number of things.
1441 COMMISSIONER PATRONE: So the answer is more than you're getting, that's basically the response.
1442 And I know I'm putting you on the spot here a little bit, but we're trying to get a handle on some pretty complicated issues and that's why I ask.
1443 MR. MELDRUM: There's an important aspect of our business case method that does rely on revenues well in excess of just simply high speed.
1444 We wouldn't build this next-generation network just to get high speed revenues, we'll be building it and relying upon and counting on revenues from all the other services that we will provide -- that we provide today and those future services that presumably are going to come in the future.
1445 COMMISSIONER PATRONE: Okay. You currently have little in the way of wholesale demand in Saskatchewan; is that fair?
1446 MR. MELDRUM: It's quite small, yes.
1447 COMMISSIONER PATRONE: Now, when SaskTel got no expressions of interest from wholesale customers, did it ask those potential competitors why they were not interested?
1448 In other words, did you solicit information from those who might have considered accessing wholesale services with SaskTel?
1449 MR. McKAY: To clarify, the question was around matching speeds for aggregated ADSL.
1450 COMMISSIONER PATRONE: Yes.
1451 MR. McKAY: Where we do already provide the highest attainable ADSL speed to those locations, we didn't expect there to be any interest in a frankly inferior product, and I don't think we --
1452 COMMISSIONER PATRONE: I believe they are written.
1453 MR. McKAY: Yes.
1454 COMMISSIONER PATRONE: So, you spoke a little bit about issues around transportation facilities and that you felt that that was one of the reasons for perhaps the lack of interest.
1455 MR. MELDRUM: Well, there's two issues I think. One is the question of matching speeds that Kym spoke to which basically we provide 10 megabits today, they weren't interested in anything less than that.
1456 COMMISSIONER PATRONE: Yes.
1457 MR. MELDRUM: The second one is the question of ADSLCO access.
1458 COMMISSIONER PATRONE: Additionally.
1459 MR. MELDRUM: And I think it probably is in relation to our geography and the fact that today aggregated DSL gives them basically access in Regina and Saskatoon and I just don't think that they could foresee a need to get access any central office other than in Regina and Saskatoon.
1460 They don't tend to have transport facilities from those central offices to that point in Regina and Saskatoon or back even to their sort of back bone facilities.
1461 So, I think that's probably the biggest issue as to why they didn't do it.
1462 But to answer your question, we didn't get any additional information from the competitors as to why they weren't interested in ADSLCO based service.
1463 COMMISSIONER PATRONE: You offer high speed classic and high speed plus retail options; is that correct?
1464 MR. MELDRUM: Yes.
1465 COMMISSIONER PATRONE: And on the wholesale side is it just -- do you just offer the one, or do you have multiple options or how does that work?
1466 MR. MELDRUM: Just one.
1467 COMMISSIONER PATRONE: Yes.
1468 MR. MELDRUM: As far as aggregated ADSL goes.
1469 COMMISSIONER PATRONE: Yes.
1470 MR. MELDRUM: Just the one option. Maximum --
1471 COMMISSIONER PATRONE: Were there any plans to offer upgraded wholesale services in future?
1472 MR. MELDRUM: Not at this point.
1473 COMMISSIONER PATRONE: If I quote from your written submission:
"Competition in the retail Internet market is intense and is sufficient to protect the interest of users." (As read)
1474 COMMISSIONER PATRONE: How do you reconcile the apparent lack of demand on the wholesale side in Saskatchewan with the view that you already have all the competition that you can handle
1475 MR. MELDRUM: We have been tossing that around ourselves, given the lack of smaller competitors.
1476 I think what lies at the heart of it is that we provide an excellent service at an excellent price, as do the cable operators.
1477 A lot of the competition here because we have a full IPTV product and have had that product for five --
1478 MR. McKAY: Six years.
1479 MR. MELDRUM: -- six years, we compete very vigorously with the cable television entity, both Shaw and Access Communications and I think that is what really provides the level of competition that one might have looked to perhaps from the wholesale folks.
1480 MR. McKAY: Frankly we see --
1481 COMMISSIONER PATRONE: All right, go ahead.
1482 MR. McKAY: -- we see competition as a facilities based environment, we see the cable companies, we see the wireless providers coming along, we see satellite improving their capabilities and that's the type of competition that we think is real.
1483 COMMISSIONER PATRONE: Right. We did hear from Bell this morning, as you know, talked extensively about the growth of wireless, HSPA Plus networks, offering consumers broadband access and speeds up to 21 megabytes.
1484 What is your understanding of the degree to which those services have made inroads in rural Saskatchewan?
1485 MR. MELDRUM: I'll tackle that first and you guys can think about anything to add.
1486 Rogers has only deployed HSPA Plus in Regina and Saskatoon. We are in the process of deploying it on all 514 of our towers. That project isn't complete yet. Once we are done, both Telus and Bell, as a result of the agreement that we've entered into with them, will have full and complete access to our HSPA Plus network and they will be offering that service everywhere, including rural Saskatchewan.
1487 COMMISSIONER PATRONE: I'd like to ask you about your 10-year regulatory holiday proposal to allow facilities based providers to recoup their investment.
1488 First of all, is that 10 years from the roll-out period, is that -- just so I have some clarity around when the 10-year period would begin?
1489 MR. MELDRUM: We thought it was 10 years from your decision.
1490 COMMISSIONER PATRONE: From the decision.
1491 MR. MELDRUM: Because to have a rolling 10 years I think would be quite difficult.
1492 COMMISSIONER PATRONE: Wouldn't that 10-year period essentially kill any potential competitors?
1493 Feel free to jump in any time.
1494 I ask because that would be -- that's a fair stretch of time and I think if your competitors were speaking to you right now they'd say 10 years, you know, they'd be in some other business.
1495 MR. MELDRUM: Well, certainly the competitors that exist today we wouldn't see being killed. Rogers, Telus and Bell in terms of wireless and HSPA, satellite opportunities, the fixed wireless that does exist and does have about five or six percent market share in rural Saskatchewan.
1496 In terms of these niche players that rely solely upon regulatory fiat to have a business, yeah, they may be in trouble. Whether they actually add anything to the long-term development of telecommunications in Canada, I guess that's up for expert debate.
1497 COMMISSIONER PATRONE: You touched on this in your answer to the Chairman's question, but you said:
"Barring the 10-year period of forbearance that we mandate that the owners of such networks negotiate in good faith with competitors so that access can be granted on market terms and condition." (As read)
1498 COMMISSIONER PATRONE: In that kind of atmosphere, doesn't the owner of the network essentially have the whip hand? And I know that you offered a proposal to the Chairman which is to say that there would be then some kind of arbitrator of negotiations, but what leverage would they have in a situation like that in any kind of negotiation?
1499 Because when we asked TekSavvy that question, they basically that that was a non-starter as far as negotiating is concerned.
1500 MR. MELDRUM: Yeah. Just to go back, I think I offered mediation, I didn't offer arbitration.
1501 COMMISSIONER PATRONE: Sorry.
1502 MR. MELDRUM: Of rates. Certainly in any negotiations one party typically has more power than the other. There are -- obviously there's the opportunity for them to deal as well with the cable companies.
1503 And, again, I think as we've indicated, if somebody will come onto our network at an appropriate price, then we are anxious to have them.
1504 We have developed a network of networks strategy for the Province of Saskatchewan where we're basically in negotiations with a number of parties to come onto our networks outside of Regina and Saskatoon.
1505 I guess only time will tell whether the parties can reach an agreement that's acceptable to both parties, but we don't consider that we're going to beat people over the head with the power that we have in the negotiations.
1506 That's not our intention.
1507 COMMISSIONER PATRONE: But in negotiations, they really wouldn't have a whole lot in the way of leverage. I mean, you have the networks, they would --
1508 MR. MELDRUM: Their leverage is to go elsewhere. Yeah, their leverage is to go elsewhere.
1509 And certainly, you know, we had some pretty interesting negotiations with other wireless providers in Canada when we finally did our deal with Bell and Rogers and some people might say, well, we didn't have any power in those negotiations.
1510 As it turned out, we certainly did, we had options and I think that's the key. As long as somebody has options, then they tend to have power.
1511 COMMISSIONER PATRONE: I know my colleagues have some questions to ask as well, so I have a couple more and then we'll move along.
1512 If there is a 10-year holiday, do you think it's feasible to offer competitors access to legacy network, networks at cost from the point at which fibre networks are rolled out to the end of that 10-year period so the competitors could compete as primarily valued operators?
1513 MR. MELDRUM: You mean at a price other than what we're charging today?
1514 COMMISSIONER PATRONE: Yes. I'm saying that assuming that they weren't given access to the next generation, assuming, okay --
1515 MR. MELDRUM: Right.
1516 COMMISSIONER PATRONE: -- is it feasible to you that those same competitors who were denied access to next-generation networks could have access to legacy networks at cost so that they could at least compete on price point where they couldn't compete at speed?
1517 And if you don't want to answer that right now, I'm prepared to wait. If you don't want to touch that at the moment, I understand.
1518 MR. MELDRUM: That might be a good one for us to speak to later in the week.
1519 COMMISSIONER PATRONE: There has been a proposal put forth in this proceeding that the regulator -- that if the regulator grants access to next-generation networks at mandated prices that we apply video restriction on access to fibre in order to achieve a level of regulatory symmetry with TPIA.
1520 What are your thoughts about that?
1521 MR. WITTAL: Sorry, can you repeat the question?
1522 COMMISSIONER PATRONE: Bell put forth a proposal that in the event that next-generation networks were accessible at mandated prices, that we apply restriction to video access in order --
1523 MR. MELDRUM: Yes, and we would -- sorry, yes, we would be on that page.
1524 COMMISSIONER PATRONE: Okay. I'm going to stand aside for my colleagues at this point.
1525 Thank you, Mr. Chair.
1526 THE CHAIRPERSON: Len?
1527 COMMISSIONER KATZ: Thank you, Mr. Chairman.
1528 Good afternoon.
1529 A couple of quick questions first. What is the maximum speed of your ADSL service today?
1530 MR. WITTAL: The aggregated ADSL is 10 megabits.
1531 COMMISSIONER KATZ: What is the maximum speed of your VDSL service today on a retail basis?
1532 MR. WITTAL: 25 megabits.
1533 COMMISSIONER KATZ: And how do you go about pricing and differentiating your two products? They're obviously priced differently. What is the retail price for each one of them today?
1534 MR. WITTAL: I don't think we've got that.
1535 Well, we know what it's called, but we didn't bring the price.
1536 MR. WITTAL: Call it high speed extreme.
1537 COMMISSIONER KATZ: Maybe you can have it for Wednesday or Thursday when you come back.
1538 MR. WITTAL: We can do that. Yeah, sorry about that.
1539 COMMISSIONER KATZ: I appreciate it.
1540 I imagine that your reference to the 10-year holiday would apply equally to your VDSL product as it would to your fibre-to-the-prem?
1541 MR. WITTAL: Yes.
1542 COMMISSIONER KATZ: Okay. My last question, paragraph 88 of your submission this afternoon, you recognize that --
"We have defined local loops as an essential service."
1543 COMMISSIONER KATZ: And you're saying:
"In a fibre-to-the-prem environment, you'll continue to make bandwidth equivalent of a local loop service available."
1544 COMMISSIONER KATZ: What does that mean, you'll put electronics on the fibre in order to continue to provide the speed and the bandwidth comparable to local loop but not any higher? Is that what you're suggesting there?
1545 MR. WITTAL: Essentially, not exactly, but the concept is right. We would make available in that fibre loop equivalent bandwidth to a copper loop to allow voice services for that local loop.
1546 We would also do it as well for an aggregated ADSL. So the 10 megabits per second that we spoke of earlier would be made available.
1547 So, it wouldn't be additional electronics, it would be really a segregation or a carving out of that bandwidth.
1548 MR. McKAY: Should a customer request that service.
1549 COMMISSIONER KATZ: Okay. So you're removing your legacy infrastructure and replacing it with new infrastructure, but you'll provide the wholesale service only up to the flexibility that was inherent in the old infrastructure. Is that right?
1550 MR. WITTAL: Yes, we'd grandfather it.
1551 THE CHAIRPERSON: Okay.
1552 Those are my questions.
1553 THE CHAIRPERSON: Thank you.
1554 Before I let you go, one quick question. All your proposals, do they hold equally for the business market as well as the retail market, or could you see yourselves saying that, you know, the business market is really quite different and whichever one of your positions would only apply to the business market but not the retail market, or vice versa?
1555 MR. WITTAL: We didn't differentiate between consumer and business. We considered the high speed market business to be quite competitive in Saskatchewan.
1556 MR. MELDRUM: And perhaps it's because the basic cable plant that the cable operators own in the Province of Saskatchewan was actually built by SaskTel and we built it as a ubiquitous network. So, when they inherited it when they purchased it in the 1980s, they would have continued to upgrade and to have those facilities available to business areas similarly to retail, whereas I don't think that was necessarily the case in other areas of the country.
1557 THE CHAIRPERSON: But if you say it's competitive in the business market, the implication is it's not competitive in the retail market.
1558 So, therefore, could one make a differentiation?
1559 MR. MELDRUM: I think it's competitive. We'd say it's competitive in both.
1560 THE CHAIRPERSON: Well, it's not what you said just a moment ago, you said to me it's very competitive in the business market.
1561 So, from that I infer that it's not that competitive in the residential market.
1563 MR. MELDRUM: I would say both are competitive.
1564 THE CHAIRPERSON: What I'm trying to find out is whether your demands or your proposition as you put forward can be differentiated on a business market versus residential market?
1565 MR. MELDRUM: We don't see differentiating between the two, no.
1566 THE CHAIRPERSON: Okay.
1567 MR. MELDRUM: They're both fully competitive.
1568 THE CHAIRPERSON: Thank you very much. We'll talk to you later on this week.
1569 We'll now take a five-minute break before we go to the next intervenor.
--- Upon recessing at 1452
--- Upon resuming at 1601
1570 THE SECRETARY: Order, please. À l'ordre, s'il vous plait.
1571 THE CHAIRPERSON: Commençons, Madame.
1572 THE SECRETARY: Merci, Monsieur le Président.
1573 We will now proceed with the presentation by Primus Telecommunications Canada Inc. and Execulink Telecom Inc. who are appearing together. We will hear each presentation, which will then be followed by questions.
1574 We will begin with Primus Telecommunications Canada Inc. Appearing for Primus is Mr. Andrew Day.
1575 Please introduce your colleagues and you then have 25 minutes to make a presentation.
1576 MR. DAY: Thank you. Good afternoon, Mr. Chair and Commissioners.
1577 My name is Andrew Day and I am the Chief Operating Officer of Primus Canada. Joining me today on the panel are, on my right, Matt Stein, our Vice President Network Services, and now my left Christopher Hickey, Regulatory Analyst.
1578 We have two messages we would like you to take away from our presentation today.
1579 First, if you do not mandate an ADSLCO service Primus will effectively be forced out of the residential high-speed internet business within five years. Speed matching is necessary while an ADSLCO solution is being built out, but it will not let us offer any real differentiated choice to customers over the long run so it is not enough on its own.
1580 Second, the ILECs are not going to stop investing in their infrastructure. No matter what you do in this proceeding they are not going to concede the market to the cable companies. So please take the threat of infrastructure investment reduction with a large grain of salt.
1581 Having said that, let me briefly answer the five questions you asked us to address and then we will come back to some of them in more detail.
1582 First, the wholesale obligations of ILECs versus cable companies. As a matter of principle we believe that there should be competitive and technological neutrality as much as possible between the regulatory obligations. In fact, this is required by the policy direction.
1583 Second, should the Commission mandate a high-speed ADSLCO service and, if so, how should it be priced? We say yes, the server should be mandated and priced as an essential facility, cost +15 percent. No further markup is warranted.
1584 Third, should the Commission mandate a high-speed head-end-based cable service? Yes, because it is consistent with the principles of competitive and technological neutrality between ILECs and cable companies.
1585 Four, should the Commission mandate matching speeds for aggregated ADSL services and, if so, how should it be priced? Again, yes, the server should be mandated and priced as it is today. There is no need for any further markup because the ILECs are continually coming up with ways to drive up their wholesale margins on these services. Usage-based billing is only the latest example.
1586 Finally, how should new types of Internet access infrastructure be defined? The answer is that it should not be defined. There are no new types of next generation networks that are not in use today. There is copper. There is fibre. There is cable. There is wireless. We know what they are. If someone invents something radically new we can all come back and talk about it then. In the meantime, we should be focusing on the service, not the technology.
1587 The same with principles for access, you have already set out the principles. They are in the essential services decision. Our focus should be on applying them today.
1588 Before I turn it over to Matt to discuss these points in more detail, let me tell you a little more about Primus Canada.
1589 Primus is a full-service telecommunications provider with over 1 million customers across Canada. We are the largest non-incumbent provider of residential high-speed internet in the country. We provide long-distance, local, internet, voice over IP and wireless services across both the residential and business markets.
1590 We also offer business internet data center services through our seven data centers located in five Canadian cities. Currently two-thirds of our revenue comes from the residential markets.
1591 Primus has a history of innovation in Canada. We were the first to offer a national voice over IP service in 2004. We were the first to broadly deploy an ADSL2+ based high-speed internet service.
1592 Customers love our telemarketing guard feature which currently screens over one million unwanted calls per month from telemarketers. We also provide a unique internet portal to our residential telephone customers, that allows them to control their phone service over the Internet, including accessing their voicemail by email.
1593 Let me make an important point. Primus is not a pure reseller. Since entering the Canadian market, Primus has spent hundreds of millions of dollars in network infrastructure. Primus indirectly collocates by placing equipment in SILEC facilities within the ILEC central offices. Currently we have a multimillion dollar effort underway to upgrade equipment and markets where we have indirectly collocated.
1594 Today our footprint covers 21 percent of Canadian households through collocation and with ADSLCO we will invest to reach more than 50 percent. So for us having an ADSLCO access service is not just a matter of philosophy. It is dollars and cents and it is critical to our investment plans going forward.
1596 MR. STEIN: Thank you.
1597 In the essential services decision the Commission found that there are almost no wholesale access alternatives for competitors. It also held that an unbundled ADSL access service must allow competitors to serve all of the ILECs end-customers, including those served from remote. Nothing has changed in this regard.
1598 As we described in our February submission, the ILECs frustrate our ability to provide service through collocation. They do this in two ways; first, by withholding access to remotes and, second, by refusing to provide access to fibre facilities.
1599 Since Bell and TELUS are serving 65 percent of customers from remotes today, that means Primus can only effectively compete with them in 35 percent of the addressable market and unless you mandate access to an ADSLCO service that includes all remote that 35 will keep going down. Why? Because the ILECs are going to keep on adding remotes. That gets them closer to the home so they can provide higher quality and higher speeds.
1600 This is simple physics; the longer the loop, the slower it gets. Because there is more noise on the line and that leads to a degraded signal quality.
1601 Primus relies on unbundled copper local loops that are run directly from the central office. Those loops are just too long to provide service comparable to what an ILEC can provide from a remote.
1602 Let me give you an example. Let's say that both Bell and Primus would like to offer Mary Brown high-speed internet. The nearest Bell CO is 5,000 metres from Mary's house. That is a very common loop length. We are collocated at that CO, but the best offer we are able to make using that on bundled loop is a 500 kb service. That is half a megabyte, not even within the definition of a high-speed rock band.
1603 But if Bell served Mary from a remote located 1,000 metres from her house, again a very common loop length, Bell can offer 16 megs or even better. In this very common case of Mary shopping for high-speed internet, Primus is just out of the game.
1604 The loop length issue means we also have serious service quality problems with these unbundled local loops.
1605 And here is another story. Tim Jones subscribes to our high-speed internet service provided over unbundled loops. He starts experiencing slow speeds. He calls to complain and our tech support people work with him to try and determine the cause.
1606 After running standard tests we explain to Tim that the problem is the distance of the loop from the central office where we are collocated. So Primus gives Tim Jones a choice. He can keep his current service or he can switch to an aggregated service if it's available.
1607 Let's say he decides to switch. We initiate the transfer and let him know it will take 10 days, but during this there will be periods where his internet is not available. He calls a number of times for status updates. He is confused, he is frustrated and he can't understand why this is taking so long. He might be patient, but he might not. He might just decide to switch.
1608 Why does it take so long? Because it is not in the ILEC's interest to help make life easier for us.
1609 This isn't an unusual story. The first quarter of this year almost 30 percent of the customers were brought onto our network had to be moved to an aggregated ADSL service because of the problems specifically due to loop length and the quality of those unbundled loops. Once we move them off our network we have lost our competitive advantage.
1610 Customers come to Primus in the first place because we offer a different service than everyone else. If we have to serve them an aggregated ADSL they are forced to accept the ILEC's traffic management practices and now usage-based billing as well.
1611 The numbers tell the story. When we serve customers on our own network our churn rate is consistently lower than when we serve them on an aggregated ADSL service. So for all these reasons we believe it is critical to mandate a CO-based high-speed ADSL service.
1612 By the way, the ILECs have told you that to provide ADSLCO will take them three to five years. That means they will stretch it out a full five years if you let them, because it is in their interest to delay competition as long as possible.
1613 Based on our experience, because we just did something like this recently, three to five years is far too long. In our view, they should rollout in urban areas first and they should be able to complete that in two years. We suggest that the Commission ask the ILECs a number of questions to satisfy itself as to what constitutes a reasonable timeline for the rollout of ADSLCO in the circumstances and oppose that timeline.
1614 We also urge the Commission to again mandate matching speeds for aggregated ADSLCO service.
1615 Speeding up a little bit now. As the Commission recognized, speed matters. In fact it is critical not only to competition in and of itself, but to investment by all players.
1616 As we noted earlier, Primus has already invested hundreds of millions of dollars into infrastructure in Canada. In our evidence we told the Commission about the degree of investment that we would make under serious scenarios.
1617 We can summarize the evidence by saying that if the Commission rules, as we submit it should, our planned investments and indirect collocation will allow Primus to offer a competitive choice to more than 50 percent of Canadian households, but we will not invest in a regime that relegates us to copper access, inferior speeds and limited reach.
1618 Put simply, with an ADSLCO we will be able to provide a differentiated service that will allow us to continue to innovate. The Commission has asked with respect to both the proposed ADSLCO service and matching speeds whether the incumbents should be compensated for economic risk. Our view is no, the current regime offers a sufficient rate of return.
1619 In the essential services decision the Commission determined that the unbundled access service should be categorized as conditional essential and priced at cost +15. Bell's suggestion that it should be allowed to charge an additional one-time per user is nothing more than double dipping.
1620 The ILECs seem to forget they are still making money off competitors in this scenario, money that would be entirely lost if our subscribers went to cable. A properly configured ADSL-CO service will drive the uptake by competitors and that will drive wholesale revenue for the ILECs as well.
1621 Finally, to address the government's concerns in the Order of Council, we believe that the ILECs' threats to stop investing in high-speed infrastructure if the Commission mandates the services under consideration are just not credible, and here is why.
1622 First, cable competition in most residential markets is driving ILEC investment. In its 2009 annual report Bell noted the aggressive rollout of high-speed internet by cable companies and admitted this was forcing us to incur capital expenditures in order to be able to offer higher speeds on our networks. In their own submissions in the proceeding Bell says it has the incentive to compete aggressively with cable. Stopping isn't an option, unless the ILECs want to give up the market to cable altogether.
1623 Second, despite their threats the ILECs are building. Bell will rollout FTTN to five million homes by 2012 and not just in Toronto and Montreal. It is building out in Quebec City, Hamilton, Kingston, Sherbrooke, Windsor, just as it told its shareholders that it would.
1624 Bell Aliant is spending $60 million to deploy fibre to the home in Fredericton and Saint John, New Brunswick and TELUS recently announced plans to reach 90 percent of the households in the top 48 communities in B.C. and Alberta by the end of the year with ADSL2+ coverage, even while it begins also upgrading to VDSL-2.
1625 Third, and most importantly, they are making money from these investments. In a conference call with analysts Bell noted that 39 percent of its subscribers moved to FTTN by the first quarter of this year and that shift is driving incremental subscriber revenue for them.
1626 So which is more credible, the talk or the walk? The ILECs' own actions contradict their claims that mandating ADSLCO service or matching speeds will discourage investment.
1627 But don't take it from us, ask them directly. Ask the ILECs are they prepared to concede the market to cable rather than provide access to the small number of competitors in Canada? Do they need to be paid an economic risk premium when they are already making incremental revenue from these investments?
1628 Primus has focused in our submissions throughout this proceeding on services offered by the ILECs because that is where our investment has been made today, but the Commission has also asked us to address the potential mandating of the cable head-end-based high-speed access service.
1629 Our view on this is pretty simple. As a matter of principle we agree that the creation of a cable alternative to CO-based high-speed access service could be helpful to encourage new competitors into the market competitively and technologically neutral regulations mandated by the policy direction.
1630 Practically speaking, that means that both incumbents should offer similar disaggregated and aggregated services. Both ILECs and cable companies should offer a disaggregated wholesale service that allows competitors to fully control their service offering, is free of any traffic management by the underlying carriers, and is priced as conditional essential. Neither should have any restrictions on the type of traffic that may be carried out over these services.
1631 For aggregated services, ILECs should provide matching speeds for aggregated ADSL, just as cable companies offer matching speeds for TPIA and cable companies should provide gigabyte ethernet interconnection at the points of interconnection as well as support LAN and DPN service and provide a level of aggregation similar to that provided by the ILECs.
1632 What the Commission should not do is allow the concept of regulatory symmetry to become an excuse to get rid of wholesale access obligations as argued by the incumbents. That might look like the easy way out, but it would destroy competition in Canada.
1633 I would like to turn now to the question of internet access infrastructure. The Commission asked how new types of internet access should be defined and if wholesale access to new services using such facilities is to be mandated, what principles should govern that access.
1634 We think the question starts with the wrong premise. The Commission should be focusing on the service, not on the technology.
1635 The service is high-speed internet. We know how it is being delivered today and those delivery methods are unlikely to change in the foreseeable future. There really is not any new type of infrastructure that we don't already know about.
1636 Fibre is not very new or particularly next gen. The incumbents have been deploying fibre in their networks since the eighties. They started using it for inter-office, document trunking and eventually to replace copper loops. Since then it has been slowly transitioning its entire network to an IP-based architecture.
1637 Today, fibre is generally an overlay onto the ILECs' existing networks, using existing easements, rights of ways, ducts, so on. The continuing deployment of fibre towards the home is an evolutionary process, not a revolutionary one.
1638 Because fibre is steadily replacing these copper facilities it has become the new normal. That's why it makes no sense at all for the ILECs to offer a purely copper-based ADSLCO service to competitors. Why would they even want to continue investing in legacy facilities we all know are doomed to obsolescence?
1639 TELUS conceded in its evidence that it has completely rebuilt its wholesale offerings because it is not interested in spending money on legacy technology. Primus believes it is a waste of money, it is expensive to maintain and, most importantly, it is a backward-looking approach when we should be looking forward.
1640 From Primus' point of view we cannot remain in the DSL space in the residential market without ADSLCO service and until ADSLCO is available we will need matching speeds. If we cannot offer service equivalent to what the ILECs can offer, we simply cannot compete. Primus wants to make more investments. We are not a pure reseller.
1641 The Commission has in our confidential interrogatory responses to the exact number of COs in which we have indirectly collocated already. We want to build on that number, but we can only do that with an affordably priced ADSLCO service that allows us to deliver the high-speed services that customers are already looking for today and in the future. To consign competitors to legacy infrastructure is to condemn competition.
1642 Fibre does offer the opportunity to develop new services. IPTV is one that has attracted the Commission's attention in this proceeding and has come up today many times, but it is just the beginning of what is likely to be an explosion of new services.
1643 The ILECs claim they cannot provide wholesale internet access on the same line they are providing IPTV to their own customers and therefore the Commission should deny competitor access. This morning Bell told you there is no way to have Bell provide IPTV if another provider is offering internet, but actually the line can be split.
1644 We suggest that this be submitted to CISC to be worked out and coordinated amongst competitors. It absolutely can be split and it is being done today for certain things such as management networks and so on. As well, the conversation this morning about sub-loops proves this point even further. If Bell is willing to give up the sub-loops, obviously they are not too concerned about being the only one on the far end of the loop reaching into the home.
1645 The ILECs have acknowledged that if there is a second copper pair available to the home there is no issue. A second copper pair could be installed if it's not there already.
1646 But more importantly, if a customer wanted both IPTV and high-speed, he will almost certainly buy from a bundled product rather than getting them from two separate providers. So in fact we are really talking about very few customers who are going to want to subscribe both to a competitor internet offering and to an ILEC's IPTV offering.
1647 Fibre to the node will be replaced with fibre to the home. A time will come when copper will be phased out completely. If you allow the incumbents to block competitive access to these facilities you will set a precedent that will over time completely foreclose any competition beyond an ILEC cable duopoly. You also lose the opportunity for competitors to come up with innovative new ways to use the network. Since innovation is one of the key benefits of competition it follows that good policy should support, not discourage competitive access.
1648 Finally, the Commission does not need to invent new principles to govern access to new wholesale services that may rely on so-called next generation technology. The framework set out in the essential services decision is not technology specific. It is a straightforward three-part test that can be applied going forward to any new service.
1649 The Commission will need to review the retail and wholesale market each time, but the principle should stay the same. In our submissions of last October we reviewed the service under consideration in this proceeding with respect to both the essential services test and the policy direction. We do not find any change in circumstance to merit reversing the Commission's previous decision to mandate an ADSL access service and matching speeds. The same exercise can be followed by the Commission as needed with any new wholesale service.
1650 Lastly, one more point here, Bell spoke at length today about wireless speeds finally approaching wireline speeds but they didn't speak about the cost implications. While the sync rate may be the same, and when we say 20 or 21 or 23 meg it may sound similar, but it is important to note that the cost delta relegates wireless to only the lightest of users. Over charges on wireline versus wireless are very different. A gigabyte costs 50 times as much over wireless than it does over wireline.
1651 If interested, you can review our page 19 of our February 8 comments for our chart that outlines that in some detail.
1653 MR. DAY: Thanks, Matt.
1654 This proceeding is incredibly important to increasing competition and choice for consumers. Today we have an effect of duopoly in the residential market. Just 6 percent of high-speed internet access revenues are being earned by competitors. The duopoly is not a genuinely competitive marketplace and wireless is not a silver bullet. Nothing has changed since the essential services proceeding.
1655 In comparison with wireline, as Matt said, mobile wireless internet access is incredibly expensive and it will remain expensive for some time to come. So we suggest that the Commission not succumb to the incumbents' repetitive rhetoric in this respect. Do not be taken in by the incumbents. They are investing today and they will keep investing to meet competition from cable companies. But competitors like Primus can only invest if we see a future in the business.
1656 As I said at the beginning, without an ADSLCO access service, Primus will not be able to provide the type of differentiated services that will allow us to compete effectively in this market. But if the Commission mandates an ADSL-CO service and speed matching, Primus can and will invest for the long term. A pro-competitive policy will help Primus build on its history of innovation in the Canadian market to the benefit of Canadian consumers.
1657 Thank you. We look forward to your questions.
1658 THE SECRETARY: Thank you to Primus.
1659 We will now proceed with Execulink Telecom Inc.
1660 Appearing for Execulink is Mr. Keith Stevens. You have 25 minutes, Mr. Stevens.
1661 MR. STEVENS: Thank you.
1662 Good afternoon, Mr. Chair and Commissioners.
1663 My name is Keith Stevens and I am Chairman of Execulink Telecom.
1664 Execulink Telecom is a small TSP operating primarily in southwestern Ontario. Execulink offers local telephone, both as an SILEC and as a CLEC, cable TV as a BDU, long-distance and internet access services as both a reseller, facilities provider and as a DLEC. Our roots as a small incumbent local exchange carrier are over 100 years old.
1665 Execulink owns and operates its own facilities, including twisted copper telephone cables, coaxial TV cables, fibre optic cables, fixed wireless radios, telephone switching equipment, cable TV distribution equipment and internet routers and switches and servers.
1666 Execulink also uses essential services at wholesale facilities from other TSPs to deliver services in areas where it is uneconomic or impossible to use our own. Execulink provides broadband services using several different methods, both as a retailer and as a wholesaler.
1667 We utilize our own DSL facilities, both the central office and local loop. We use collocated DSL central office equipment together with wholesale local loops. We use wholesale DSL, primarily Bell's GAS product. We use our own cable TV facilities. We use our own fixed wireless facilities, our own fibre optic cables and leased fibre optic cables.
1668 Providing a wide range and sometimes competing telecommunications services utilizing both our own facilities as well as those of other TSPs compels Execulink to continually consider often competing regulatory positions. Purchasing wholesale services from some TSPs and providing wholesale services to others forces Execulink to understand the issues from both points of view.
1669 We believe that walking the line between incumbent and competitor forces us to have a balanced regulatory perspective that I think will be beneficial to the Commission.
1670 In the expanded Notice of Consultation, parties were invited to provide their views whether the existing essential service framework provides appropriate incentives for continuing investment in broadband infrastructure; encourages competition and innovation and leads to consumer choice.
1671 Before answering these questions, Execulink wishes to comment on what ADSLCO and local cable head-end high-speed servers should look like and to expose some fallacies that have been expounded in this proceeding.
1672 Canadian consumers are best served when there is vibrant and sustainable competition. Sustainable competition occurs when one, the competitors can innovate and differentiate the products and services; two, competitors have the ability to earn a reasonable profit; and three, the associated risks are manageable.
1673 It remains impossible for telecommunications competitors to build all the access and transport facilities that are required to reach every single household and business. Particularly, each competitor would have to rip up roads, install lines from every household and every commercial building back to a neighbourhood serving wire center and then rip up more roads and install more lines to connect each of these serving wire centers together.
1674 Even if this was economical, which it isn't, it is not acceptable at a municipal level or to society to spoil our roads with multiple communication lines. The joint use of poles was introduced almost 100 years ago as a result of societal pressure.
1675 The incumbents in contrast already own all the transmission facilities that are needed in order to gain access to every commercial building or premise in their serving areas. Consequently, new entrants are at the mercy of the incumbents when it comes to the last mile access.
1676 This is why the Commission has consistently and correctly mandated the provision of wholesale access and transport services including DSL. For sustainable competition to be a reality this must continue.
1677 Thus, in order to ensure the sustainable broadband competition in both the near term and the long term it's necessary for competitors to have access to the networks of both the ILECs and the cable companies, hence the original reason for this proceeding and what -- in explaining why CO-based DSL was classified as conditional essential, paragraph 76 of telecom decision 2008-17 stated:
"The Commission considers that, similar to the situation with respect to ULLs, there are not sufficient wholesale alternatives to the ILECs' ADSL access services."
1678 Execulink agrees with the Commission's assessment that there are not insufficient wholesale alternatives and supports the classification of CO-based DSL as conditional essential.
1679 It wasn't known at the time that Bell would refuse to supply the tariff service. That however doesn't change the need which 2008-17 clearly recognized.
1680 In the first phase of this proceeding various CO-based DSL models were proposed by Bell and TELUS which they then characterized as not viable. It is clear they were not trying to find a practical solution. MTS Allstream, however, did propose a very workable solution that deserves careful consideration.
1681 The best and most practical solution will be one that shares as many components of the incumbents' retail solution as possible. The most critical factor determining the most practical solution is the point of interconnection.
1682 Execulink notes that Bell has fought even the consideration of where the most appropriate point of interconnection is located. Execulink has concluded the most logical and appropriate location of interconnection would be the same location in the LIR POI used by the CLECs for voice interconnection. This inclusion is based upon a number of factors including the following:
1683 These locations are already established as points of interconnection;
1684 There is often established competition for back office facilities at these locations;
1685 The ILECs have established facilities interconnecting the LIR POI with all central offices.
1686 Broadband access servers, or BAS's facilities, are typically located at the LIR POI, the exception being that in very large cities, to accommodate capacity, there are additional BAS's distributed within the LIRs.
1687 The LIR POI model closely parallels the network architecture and topology for retail access ADSL customers.
1688 Mirroring competitive voice and retail ADSL technical topology will be the most economic and least disruptive.
1689 And in Telecom Decision 2004-46, which was the trunking arrangements for inter-exchange of traffic decision, the following determination was made:
"The Commission finds that consolidation of exchanges to form larger local interconnection regions (LIRs) would provide for more efficiency and lower the costs of interconnection."
1690 The same arguments and logic apply equally to interconnection for ADSL, and thus the most logical place for interconnection is at the LIR POI.
1691 Likewise, the same arguments and logic apply equally to interconnection for local cable head-end high-speed services. The most logical place for interconnection is the aggregation point used by the cable companies.
1692 Both ADSLCO and cable local head-end high-speed access service interconnection will have start-up costs, both capital and one-time costs. The result is that a minimum number of customers in each access service area is required to cover these costs.
1693 For small ISPs and larger ISPs, until they have reached the minimum number of customers in the newly served areas, these access services will not be affordable. Thus, to ensure that smaller ISPs are not forced out of business, and to allow larger ISPs to expand into new areas, aggregated ADSL and TPIA services must not be phased out. The ongoing and continuing availability will allow competitors to establish a critical mass of customers, so that they can then migrate to the ADSLCO service or to local cable head-ends, or to co-locate their own equipment in the CO.
1694 Bell and TELUS have continually repeated a number of fallacies about their so-called NGN services that need to be exposed. Because they have repeated the claims numerous times doesn't make them true.
1695 Let me deal with several, in turn.
1696 Bell and TELUS persistently claim that their so-called NGNs warrant unique regulatory treatment. They refer to NGNs as if they are some sort of major paradigm technological shift that carries with it huge risk and unprecedented capital investments.
1697 Nothing could be further from the truth. NGNs are nothing more than small DSLAMs, remotely located and interconnected by fibre optics.
1698 I have been connected with the telecommunications industry all my life, and have witnessed major paradigm technological advances. The conversion to electro-mechanical switching, or step-by-step, in the 1950s and 1960s, the conversion to digital switching, which included the introduction of remotes and fibre optics in the local network in the 1980s, the introduction of DSL in the 1990s, and the conversion to IP in the core in the 2000s are examples.
1699 Since the introduction of digital switching in the early 1980s, remotes have progressively decreased in size and increased in capacity.
1700 Likewise, fibre optics have been increasingly used to serve customers using remotes.
1701 There has been a steady improvement in the speed and capacity of DSLAMs since they were introduced a decade ago. Installing small DSLAMs closer to the customer and connecting with fibre optics is another step in the DSL evolution, but not a major paradigm technological shift, and it certainly doesn't warrant unique regulatory treatment.
1702 Do not be swayed by the fancy marketing name for old-school, outside plant engineering. There is nothing new nor unique about Bell or TELUS' NGNs.
1703 Mandated access: As recently as early May, Bell made the following statement about their NGN deployment in answer to a CRTC question:
"The Company's investment plans...have been designed under the reasonable assumption that there will be no mandated access provided to competitors."
1704 This statement is incredible. Ever since competition was first introduced, the Commission has consistently and appropriately mandated that the last mile access services, including both unbundled local loops and DSL, must be made available to competitors on a wholesale basis.
1705 For Bell to claim that it is reasonable to assume that they would not be mandated for their next version of DSL, that is virtually indistinguishable from the previous version, which was mandated, is just not credible.
1706 Bell and TELUS are making their so-called NGN investments in response to competitive pressures from the cable companies. The cable companies are themselves upgrading their networks to provide higher speeds of internet and other broadband services, so the phone companies must, out of necessity, reciprocate with their own network upgrades if they wish to remain competitive with the cable companies.
1707 This is supported by Telecom Decision 2008-117. It found that the phone companies' investment incentives "would not be materially impacted" by the mandating of additional WAA service speeds and that, in reality, these investment decisions are "principally impacted by their need to compete with facilities-based competitors in retail broadband markets," such as the cable companies.
1708 Finally, 2008-117 concluded that the phone companies will be able to recover their causal costs associated with the provision of WAA services to competitors, "including their investments in the associated facilities," which would include FTTN-related investments.
1709 It is a blatant pretence, therefore, for Bell and TELUS to argue that they will not pursue certain investments in their networks simply because the CRTC mandates that they must provide the last mile connectivity to competitors at speeds that match those which they provide to their own customers.
1710 Early this month Bell made the following statement about Telecom Decision 2008-17, in answer to a CRTC question:
"Accordingly, the companies believe the Commission erred in mandating the introduction of a new ADSLCO service..."
1711 Bell should know better. 2008-17 did not mandate the introduction of an ADSLCO service, it simply classified a ten-year old tariff service as Conditional Essential.
1712 Bell subsequently refused to supply the service they themselves tariffed, which is one of the reasons we are here today.
1713 Now let's turn to specific questions. Question (a) asks whether the existing framework strikes an appropriate balance between incumbents, competitors and consumers.
1714 Execulink agrees with the assessment in 2008-17 that there are insufficient wholesale alternatives and supports the classification of the ADSLCO access service as Conditional Essential.
1715 However, Execulink notes that Bell has refused to provide the ADSL access service, even though it is a tariffed service, which resulted in a further reduction of wholesale alternatives, none of which are classified as Conditional Essential.
1716 Aggregated ADSL, or GAS, and third party internet access services, TPIA, are classified as conditional mandated non-essential, as the withdrawal of mandated access would "likely result in a substantial lessening or prevention of competition in retail high-speed internet access services."
1717 Execulink agrees with the Commission's reasons why GAS should be mandated. However, Execulink disagrees with GAS being classified as non-essential. GAS, in our opinion, clearly satisfies all of the conditions of a conditional essential service; it is required by competitors, it is controlled by incumbents, and it is not feasible to duplicate.
1718 Considering that Bell has refused to provide ADSL access service, the arguments for GAS being classified as Conditional Essential are even more compelling.
1719 The answer to the question of whether or not the essential service framework on a forward-looking basis adequately (a) provides appropriate incentives for continued investment in broadband infrastructure, (b) encourages competition and innovation, and (c) leads to consumer choice, is a qualified yes.
1720 Each of the three components will be addressed separately.
1721 Investment is incented when an acceptable return on investment, or profit, can be expected. The greater the return, the greater the incentive.
1722 For investments that are used for both retail products and wholesale products, there are two sources of revenue and profit, retail and wholesale. Conditional essential wholesale services are tariffed at Phase II costing plus 15 percent.
1723 Very few competitors, if any, are able to generate revenue at cost plus 15 percent. Any argument that there is not an incentive to invest when the product will be priced at 15 percent above Phase II costing is just not credible.
1724 The total numbers of end users of a product are increased when there are both wholesale and retail customers.
1725 Product differentiation and multiple marketing campaigns result in both an increased number of customers and market share. The net result is an increase in total customers, and a higher return on investment.
1726 The result is an increased incentive, not a decrease, to invest in broadband infrastructure when they are wholesale customers.
1727 For there to be competition there have to be competitors. An increase in the number of viable competitors will foster competition and innovation.
1728 Telecom Decision 2008-17, paragraph 76, said that there were not sufficient wholesale alternatives to the ILECs' ADSL access service. It went on to say that withdrawing mandated access to the ILECs' ADSL access service would likely result in a substantial lessening or prevention of competition in the retail high-speed internet access market.
1729 Execulink agrees with that assessment, and the level of competition has not increased since Decision 2008-17 was issued two years ago. In fact, the situation has deteriorated with Bell's refusal to provide their tariffed CO-based ADSL access service, Bell's refusal to provide matching speeds to wholesale customers, and Bell's imposition of their retail ITMPs on wholesale customers.
1730 Will the essential service framework adequately encourage competition and innovation?
1731 The framework is sound, but until a competitor-friendly, speed-matching, conditionally essential, wholesale access service is available, competition and innovation will not be encouraged.
1732 To offset the competition void, the classification of GAS and TPIA should be immediately changed to conditionally essential.
1733 Question B(a) asks whether the speed-matching requirement mandating the provision of high-speed access service under consideration or mandating access to any new types of internet access infrastructure does, or would unduly diminish incentives to invest in the network, and, in particular, in markets of different sizes.
1734 The answer is no.
1735 Execulink interprets markets of different sizes to mean exchanges of different sizes. The size of the exchanges will have little or no effect on the investment of the new network infrastructure.
1736 Traditionally, equipment was installed at the central office. The result was that some smaller exchanges did not have the critical mass necessary to justify investment.
1737 That was the past, it does not apply today for broadband. Broadband equipment for higher speeds is not centralized in the CO, it is located near the customers, at a remote, recently re-coined and remarketed as a node.
1738 The common equipment to control broadband equipment located at the nodes is not necessarily located at the CO. It is often located in a regional office outside the exchange, frequently where the LIR POI is located. The result is that the broadband network has become virtually independent of the exchange, and thus the market size.
1739 The same arguments equally apply whether it is speed-matching, new technologies, or new types of infrastructure. In all cases, the incentive to invest increases when access is mandated.
1740 Arguments to the contrary by the incumbents should be seen for what they are, an aversion to your mandate of competition.
1741 Question B(b) asks whether the absence of the speed-matching requirement and the mandated provision of high-speed access services under consideration -- if there would be competition sufficient to protect the interest of users.
1742 The answer is no.
1743 The demand and requirements of end users for increased speeds is incessant. What was acceptable and sufficient just two or three years ago is not acceptable today. What is acceptable and sufficient today will not be acceptable tomorrow.
1744 To imply that access to dial-up supplies sufficient competition today is just not credible.
1745 Similarly, access restricted to today's wholesale speeds will not provide sufficient competition tomorrow.
1746 In the absence of the speed-matching requirement, broadband competition in Canada will quickly disappear. The result will be a duopoly in the urban areas where there is cable TV, and a monopoly where cable TV is not provided, which is most of Canada's geography.
1747 Canada needs and deserves a healthy and competitive broadband market, and duopoly is neither healthy nor very competitive, nor is it driven by market forces.
1748 Question B(c) asks whether the respective wholesale obligations imposed on the ILECs and the incumbent cable carriers are equitable or represent a competitive disadvantage.
1749 They are equitable and do not represent a competitive disadvantage to the incumbents.
1750 Although there may be technical differences that warrant asymmetrical implementation of a wholesale cable head-end service relative to a wholesale ADSL access service, equitability is possible.
1751 Equitable should not be confused with equal. Equitable simply means fair and reasonable.
1752 Where technology requires different treatment, as long as it is done fairly and reasonably, it is equitable.
1753 Competitive disadvantages and advantages result from an uneven playing field. This could be price, technology or availability.
1754 Phase II costing was developed to ensure equitable pricing. To ensure that no TSP has a competitive advantage, Phase II costing plus 15 percent should be used.
1755 TSPs will invariably be at a disadvantage when they are unable to provide service or are forced to use inferior technology.
1756 The only equitable solution is equal, complete and open access by the wholesale customer to the incumbent's infrastructure.
1757 Only equitable and competitively neutral mandated wholesale conditionally essential services will result in sustainable competition. Sustainable competition is essential to meet the requirements of section 7 of the Telecommunications Act.
1758 The wholesale obligation imposed on the ILECs and on the incumbent cable carriers will be equitable and not present a competitive disadvantage or advantage for the ILECs or the incumbent cable carriers or their competitors as long as there is equal, complete and open access by the wholesale customers of the incumbent's infrastructure at Phase II plus 15 percent costing.
1759 Question B(d) asks whether the impact of these wholesale requirements unduly impairs the ability of the incumbent telephone companies to offer new converged services such as IPTV. The answer is no. IPTV service is one of a growing number of applications that can be carried over high-speed internet service. Some of this traffic such as IPTV and VoIP is time sensitive and some is not.
1760 For customers to receive maximum benefit from the time sensitive applications it requires prioritization or non-time sensitive traffic. However, the provider does not require control over the access service for the traffic we prioritize.
1761 It should be the customer and not the access provider who determines what applications are given priority. Surely the customer should be able to determine whether their voice application, VoIP, has priority over their video application IPTV or vice versa. The preferred method to ensure customer choice and to manage the impact of multiple applications and multiple application providers sharing the same high-speed access facility -- and that is quite possible to do, seeing it's a shared facility -- is to have industry standards.
1762 To allow the access provider who is an application competitor to control the prioritization is inappropriate. Execulink recommends the Commission task CISC to develop standards to allow consumers to manage and prioritize their applications while respecting the Telecommunications Act and the policy directions and Commission decisions.
1763 I think I'm running out of time so I will quickly go through the rest, if I can.
1764 In summary, Execulink is pleased to provide these answers to the questions posed in expanded telecommunications consultation. The existing essential service framework will adequately provide appropriate incentives for continuing investment in broadband infrastructure, encourage competition and innovation and lead to consumer choice as long as the unrestricted wholesale service for all speech is mandated and classified as conditional essential.
1765 Speed matching requirements mandating the provision of high-speed access service under consideration or mandating access of any new types of internet access infrastructure does not diminish incentives to invest in new network infrastructure in general and in markets of different sizes in particular. Without mandating speed matching there will not be sufficient competition to protect the interests of end-users.
1766 Wholesale obligation imposed on the ILECs and on the incumbent cable carriers will be equitable and not represent a competitive disadvantage or advantage as long as they are equal and complete. Open access by the wholesale customers of the incumbent's infrastructure priced at cost plus 15 percent, and mandated wholesale access to all types of broadband access infrastructure, new and old, does not impair the ability of incumbent telephone companies to manage -- offer new converged services such as IPTV.
1767 Execulink urges the Commission to mandate introduction of ADSLCO and local head-end high-speed access service with the interconnection of the LOR, the LIR POI or for ADSL's access service in the refill head-end aggregation point for the local cable TV service.
1768 Recognize Bell's marketing buzzword of NGN for what they really are, nothing more than old-school, outside plant engineering and forced wholesale access; reclassify GAS and TPIA to traditionally essential; require Bell to immediately provide all speeds on a wholesale basis; and task CISC to develop industry standards to allow customers to manage and prioritize their applications on a shared high-speed access with multiple applications.
1769 To conclude, I would like to thank the Commission for this opportunity to participate in this very important oral proceeding and we would be pleased to answer your questions.
1770 THE CHAIRPERSON: Thank you very much.
1771 Unfortunately none of us are getting any younger and I have a request for another call of nature break. So let's do a short five minute break.
1772 Thank you.
--- Upon recessing at 1649
--- Upon resuming at 1653
1773 THE CHAIRPERSON: Okay, let's resume.
1774 Mr. Stevens, you say you want to reclassify GAS and TPIA as conditionally essential. Isn't TPIA right now classified as conditionally mandated nonessential? Why the difference? What do you get by reclassifying?
1775 MR. STEVENS: I guess partly right now because we have no conditionally essential service right now because ADSL is not available to us. So I guess it's really that.
1776 For the reasons that you would make -- until ADSLCO service becomes available I think it should be -- the other one should be reclassified. It would also put an encouragement on the incumbents to bring the other product to market much faster too.
1777 THE CHAIRPERSON: I just don't understand the practical difference to you. Right now it is conditionally mandated nonessential, but it is mandated, so you are entitled to it. So what difference is it if it is being reclassified as conditionally essential?
1778 MR. STEVENS: I think, price. But that is not a high priority for us, it is just something I thought from fairness should be done.
1779 THE CHAIRPERSON: Okay.
1780 Then both of you want us to mandate CO-based aggregated ADSL. I asked the other intervenors to explain to me how you pass the conditional essential -- sorry, the task in the essential services for prospective services.
1781 Mr. Stein or Mr. Stevens, will either one of you walk me through and tell me why you feel you meet the conditions?
1782 MR. HICKEY: Well, first off, the first step is that it is required to provide service to the downstream market.
1783 THE CHAIRPERSON: Yes.
1784 MR. HICKEY: So currently by collocating or, in our case, indirectly collocating in ILEC central offices you can provide high-speed internet service to the customers that are served out of that central office.
1785 However, due to the loop links, as discussed by Matt, you are significantly limited in the ability to serve all customers that the ILEC is able to serve out of that same CO. So to provide service to all customers in the downstream market requires ADSLCO because that would resolve the distance limitations regarding current collocation structures.
1786 In regards to the second step, it asks whether absent a facility there would be a lessening or prevention of competition. Again there are competitors that currently offer service through unbundled local loops. If these competitors are relegated to legacy copper loops that allow up to 5 Mb to 7 Mb service, depending on where the customer is located, going forward that competitor's status will be significantly diminished.
1787 In addition, not having access to -- not having access to ADSLCO will significantly limit the ability of competitors to differentiate and bring innovative services to markets which will prevent competition going forward.
1788 The third asked whether it's possible for a reasonably efficient competitor to economically or practically duplicate the facility. As noted by Bell doing so would require copper access, fibre facilities, central offices and other components.
1789 Matt can comment on this further if you would like, but at the most basic it is not feasible for a competitor to duplicate these facilities on any material basis.
1790 THE CHAIRPERSON: Now, Mr. Stein, when you went through your explanation you said that more and more of the traffic was being served from remotes rather than from the central office.
1791 MR. STEIN: Yes.
1792 THE CHAIRPERSON: Why couldn't you collocate in the remotes? Why do you have to have a separate central office?
1793 MR. STEIN: We indirectly collocate in the central office.
1794 THE CHAIRPERSON: Yes.
1795 MR. STEIN: The remotes are out in neighbourhoods all around and there is no ability for us to collocate in remotes at this point.
1796 THE CHAIRPERSON: Why not?
1797 MR. STEIN: It has never been made available to us.
1798 THE CHAIRPERSON: No, but wouldn't that be another way of getting at it?
1799 MR. STEIN: Potentially it would be. That has not been suggested at this point.
1800 THE CHAIRPERSON: I was asking why you didn't ask for that.
1801 MR. STEIN: To be honest, an ADSLCO- type service, as we have been discussing, works a little bit better I think for everybody involved. I think for the ILEC they don't need to make room and accommodate all manner of CLECs being interested in joining them in the remotes in what are already sometimes crowded pedestals and an ADSLCO service allows a very, very slight bit of aggregation, but it is a reasonable amount of aggregation that makes it more convenient for everybody.
1802 Everybody -- excuse me, not everybody. CLECs already know how to work with the ILECs and get access to collocation in COs and so forth. That is already a well-established mechanism and therefore ADSLCO feels like a much more reasonable approach to achieving what I agree would be a very similar end.
1803 Collocating in the remotes is also palatable.
1804 THE CHAIRPERSON: Now, Mr. Stevens, you suggested we should send things to CISC to solve this problem for IPTV and internet access, et cetera.
1805 MR. STEVENS: Yes.
1806 THE CHAIRPERSON: But before we even do that -- I don't understand this. Doesn't Bell or anybody else, any of the ILECs, if they provide IPTV also would provide internet access to that same customer?
1807 MR. STEVENS: Yes, it would.
1808 THE CHAIRPERSON: Why would it not cause a problem for them, but why would it cause a problem if their internet access is provided by somebody else?
1809 MR. STEVENS: Oh, if the customer takes all the services from one customer there is not a problem. Bell mentioned this morning the fact that if two providers have to share the ADSL access service, Bell was saying it couldn't be done.
1810 Technically it can be done. It's not easy and I think CISC could work out the details so that two providers could share the one access service.
1811 THE CHAIRPERSON: I'm not an engineer, that's obvious, but it seems to me the capacity that is going to be put on that line at the same time, IPTV and internet, is the same regardless of whether it comes from the same source or it comes from different sources.
1812 MR. STEVENS: Absolutely correct. I mean if the limit on the line is 25 megs, the maximum is 25 megs.
1813 THE CHAIRPERSON: Yeah, right.
1814 MR. STEVENS: If cable TV needs 20 or 21 or 22, there is four left over for internet.
1815 That's why I was saying where it really should be the customers -- one should be able to prioritize that traffic. If you are watching TV and also a phone call comes in, you may want to have priority for that phone call so you can hear the phone call properly rather than the TV -- keep running.
1816 So really the customer should be able to prioritize that traffic and for the customer to determine or decide what traffic is prioritized because you are going to have many competing services coming over that same line.
1817 THE CHAIRPERSON: So it's a question of prioritization?
1818 MR. STEVENS: Yes, correct.
1819 THE CHAIRPERSON: Okay. Thank you.
1820 Elizabeth, I believe you have some questions.
1821 COMMISSIONER DUNCAN: Thank you.
1822 First of all, I think your submissions and your comments today of both parties are very thorough. So I don't really have that many questions but I do have a few areas I would like to talk about.
1823 First of all, I would like to get a better understanding of how much TPIA you use and -- also I'm going to go from there. I would like to know why you are not using more because, as you know, the ILECs have less of the internet business and yet -- and the cable companies obviously more and you are not buying the TPIA -- both.
1824 So if you would care to comment on that?
1825 MR. STEIN: Today we are not doing any TPIA. We come from a phone background as a company and have made our investments and allied our investments towards phone and those sorts of technologies.
1826 As such, we feel that it would be very difficult to just up and switch to TPIA. It's not quite as simple at the technology level, at the organizational level. Right across our company, our systems, our people, et cetera, it would be very, very, very difficult to do.
1827 That said we have looked at the economics a few times and considered it. I know that some other competitors have made the decision to jump in. We have not felt, partially due to the nature of how the POIs are laid out and so on, we have not felt the economics work to the point that we feel we could actually succeed in that. So we have decided not to at this point.
1828 COMMISSIONER DUNCAN: So the question here is what changes would need to be made to the services to make them equitable and following from that then, to motivate you to move.
1829 So I am hearing you say that unlikely.
1830 MR. STEIN: I agree. It's unlikely that we would move. It's certainly not out of the question, but it is unlikely. It's not -- it just doesn't line up with the kinds of technologies that we use in the rest of our business, and so forth.
1831 COMMISSIONER DUNCAN: You would probably have to have a new skill set, would you, to deliver the service by a TPIA?
1832 MR. STEIN: New skill set, new technology, new modem types. It is not as simple on Tuesday we stop one, on Wednesday we -- it really -- it would be quite complicated for us.
1833 COMMISSIONER DUNCAN: What about if you were just going into a new market that you are not in at all right now?
1834 Would it be more reasonable or still not worth considering?
1835 MR. STEIN: Every time we do things like that of course we consider all of our options so I wouldn't want to close the door to it. But at the same time we run a converged network and even though it may be a new market we would expect to extend our converged network as much as possible, leverage the 10+ years of building that we have been doing, so it is still very unlikely.
1836 COMMISSIONER DUNCAN: Mr. Stevens...?
1837 MR. STEVENS: Technically we don't use TPIA either as well, I guess for several reasons.
1838 We are not concerned or afraid of the product because we actually are in the cable TV business ourselves, so we do know and understand providing high-speed over cable. But in those areas where we are competing outside of our own cable or SILEC areas, we are mainly focused on the business customers and TPIA or cable was never as easy from a business point of view.
1839 First of all, they didn't necessarily serve the businesses. I mean businesses don't normally have cable or cable TV on their premise, but also some of the product differentiation using IP, you know, your fixed IP addresses, et cetera, for businesses was not as -- it was much harder to use TPIA. So we went with the GAS product for those, having said though from businesses though we are often going to higher speeds than GAS too as well. We are using fibre, et cetera as well, too.
1840 So would we go to TPIA? If some of those differences disappeared and interconnection was easier we would definitely consider but, as I said, when our focus is outside our area on business it makes it harder to do that.
1841 COMMISSIONER DUNCAN: So for both of you, then, what sort of would be your split on business versus res?
1842 MR. STEIN: About two thirds residential.
1843 MR. STEVENS: And for us, I mean we are talking revenue-wise for more than half our business, so it's a different split.
1844 COMMISSIONER DUNCAN: More than half is business?
1845 MR. STEVENS: Well, on revenue. For number of customers we have more on residential, but our focus and our growth is on business.
1846 COMMISSIONER DUNCAN: Yes. I guess I'm just wondering about the expense of making them identical or as near to identical as possible if there is not really a likelihood that people are going to use it.
1847 So if you were going into a new market would you consider it?
1848 MR. STEVENS: Oh, well absolutely we would consider it. And to make them identical is not --
1849 COMMISSIONER DUNCAN: I take your point.
1850 MR. STEVENS: I'm an engineer, so engineers can do anything, right, if there is enough money involved. So it can be done. I think, you know, it should done to do that, as it rolls out.
1851 But I think you are going to see, because the whole internet industry for the ISPs for the last 10 years have been mostly using the wholesale DSL, to change is not easy. It is having a new technology. It is not easy to change or add a new technology on.
1852 But as companies get larger, as you heard today from TekSavvy, they are now moving into TPIA. So as companies get larger I think you will see that I think there is a need for both.
1853 COMMISSIONER DUNCAN: Thank you. I want to now understand the kinds of bundles that you offer.
1854 MR. DAY: We were one of the first companies to have a billing system that allowed us to bundle all products. So in the consumer market today our lead message is what we call a triple value bundle, which is local high-speed internet and unlimited long distance.
1855 So we are in a position where every product that we can offer is available on one bill.
1856 COMMISSIONER DUNCAN: And what about you, Mr. Stevens?
1857 I guess I will go back and forth here.
1858 MR. STEVENS: We are for billing because -- we have provided many hats because we are a cable provider and a local telephone, et cetera.
1859 But where we provide we do bundle whatever we provide. If we are providing telephone and high-speed and long distance in one area we will bundle -- and video -- we will bundle all four of those together. So we bundle wherever we can, yes.
1860 COMMISSIONER DUNCAN: So if a CO-based high-speed access service was approved, what type of new services would you expect to offer your customers?
1861 MR. STEVENS: It would expand -- I mean first it would allow us to access new customers, customers you don't access right now and I think Matthew you mention that.
1862 COMMISSIONER DUNCAN: Yes, I understand.
1863 MR. STEVENS: Particularly those on remotes. We are situated in southwestern Ontario. Our roots are rural and we have a lot of rural customers and we would like to be able to serve those on the smaller exchanges that are in remotes and we would like to get to them.
1864 So our first reason for the CO-based DSL is for us to be able to serve customers that we can't now or have traditionally served by dial-up and now we can't serve them because they are on a remote.
1865 The newer services, we are not offering VoIP over DSL right now because we have had some -- we are very concerned to make sure we have exactly the same quality wherever we offer and we offer over copper, twisted copper and coaxial cable. So we are not offering VoIP to residential customers.
1866 If we had a CO-based DSL we would have more control and the quality would be there. We would start offering that. So we would offer voice to more customers if we did that.
1867 It's been holding us back in rolling out our CLEC operations, that has -- for a number of those smaller areas.
1868 COMMISSIONER DUNCAN: Thank you.
1869 MR. STEVENS: I can't tell you all the services that we would start to offer once ADSLCO is available, but the initial it comes down to speed. Today in places where we use aggregated DSL we are limited to 5 meg. With ADSLCO we will no longer be limited like that. We will be able to offer speeds much, much faster and that forms the basis of many new services.
1870 Sometimes a new service is something truly wonderful, IPTV, something game changing, and sometimes a new service is just how it's bundled and sold and priced. One of the changes that we are considering, rather than either throttling during peak periods or putting really low caps and things like that that are not very customer-centric, taking a different approach and only having usage recorded during those peak periods; allowing customers to do whatever they want outside of peak periods, this is just something we are considering right now that we would be unable to do in an aggregated model because we are forced to make our product look just like the ILECs' product.
1871 Once we are able to make it different, that is when we can start to innovate and be more creative. These are things that we are able to do through our indirect collocations, but not in the aggregated.
1872 COMMISSIONER DUNCAN: We heard a lot of talk this morning about the objective being to deliver IPTV and I don't hear either one of you saying that you would or you wouldn't. But it's not your primary objective, is it?
1873 MR. STEIN: It's not currently our primary objective. It is something that I think, like most communications companies, we are considering. It is not actively being worked on right now.
1874 MR. STEVENS: Yes. I think it's important to mention about the IPTV.
1875 IPTV is a -- we consider ourselves an access provider, whether it is through copper or ADSL, and IPTV is an application rather than an access. So I don't see the two blending. I don't see the two have to go together.
1876 That is what bothers me a little bit about Bell's position is, well, whether it is email or web surfing, I mean we don't offer -- you know, people choose what web pages they want to go view themselves. That's an application, and I see that IPTV, just as VoIP can be as an application as well added on top of the access provider.
1877 So I think the two need to be separated apart in that regard so that is the reason I didn't mention that. I mean there are lots of data storage and all those things are applications. IPTV is just another application. It's just sending data down the pipe that happens to have pictures and sound attached to it, that's all.
1878 COMMISSIONER DUNCAN: So is it -- sorry, go ahead.
1879 MR. STEIN: I was just going to agree and say that there are many applications. We also consider IPTV an application of the network. A door is close to it with very low sync rates and speeds. Once it is faster things like that become possible, but so do things like cloud computing and thin clients and many, many other applications.
1880 You know, VoIP, we were in this room five plus years ago talking about voice over IP and its implications and so forth. That became possible because broadband speeds became fast enough. But VoIP only needs a megabit or even less. This on the other hand, IPTV, you need much, much, much faster.
1881 But again, these are just applications layered on top of the network.
1882 COMMISSIONER DUNCAN: So two questions maybe just falling out of that, then.
1883 Going back to the question earlier about the bundling and whether you were able to deliver both the services to the customer, how likely is it that a customer would buy IPTV service from the telephone company and internet from another provider? I mean do you think that's --
1884 MR. STEIN: Customers tell us that they want to bundle. It is a key element of our value proposition.
1885 I think it is very likely that customers will choose to by their IPTV service from the same person that they are buying their internet from. Will it happen 100 percent of the time? Absolutely not, but I think it is going to happen most, the overwhelming most.
1886 MR. STEVENS: I agree with that, but I also think there will be some very specialized versions of video, of IPTV coming down this pipe. I know what Bell is proposing won't be necessarily what everybody else proposes.
1887 People may have some very specialized IPTV-type services or video service that people will subscribe or want access to. So blocking video is going to block more than just IPTV. It's going to be a person that wants to watch the cricket match in India today.
1888 You know, it's going to block those things, too, which will become much more available, not just on video streaming over the internet, but really much more at high definition, et cetera. Those things will be maybe available and they are going to be blocked as well too.
1889 COMMISSIONER DUNCAN: So my next question actually was to ask you to comment on Mr. Bibic's suggestion or request that there be a video restriction. So it would have to be pretty fenced in then and pretty narrow.
1890 MR. STEIN: No, we are definitely opposed to there being a video restriction. Today people offer IPTV through many forms. Sometimes it is directly -- what has been discussed today, directly on DSL or directly on an access service provided through some private means, but many of them are over the top. It is still IPTV if it's over the top if it runs over the internet connection.
1891 It would he unreasonable for an ISP to try to prevent a customer from acquiring that from somebody and therefore why shouldn't the ISP also be able to sell, whether it be over-the-top or through some additional quality of service.
1892 If you are thinking about innovation, the most innovative ways of delivering video today are not the traditional IPTV type set-top boxes. They are the much more innovative ways such as Boxie and GoogleTV and things like that that are coming down the pipe that are as an application far more exciting mesh of video and social networking and so on. They really deliver a very powerful value proposition.
1893 COMMISSIONER DUNCAN: Thank you.
1894 I am not going to ask you now to comment on the Bell suggestion this morning about the sub-loop model, but I presume you will comment on that in the next phase.
1895 I am also wondering about -- Mr. Cope, I believe this morning, suggested that next generation services should be determined by negotiations and not by regulation.
1896 I probably don't even need to have to ask the question, but I will give you a chance to comment.
1897 MR. STEVENS: Well, in negotiation you need equal power and we heard this before. SaskTel I thought gave it equal power.
1898 But Bell has a number of wholesale arrangements and we think we have a good relationship with Bell and appreciate it, but they usually try to choose wholesale partners who are those that certainly want to become marketing arms of the Bell product. We are interested in differentiating and having our own product and that becomes -- I just don't see where that would happen very quickly.
1899 So negotiation doesn't mean it's going to happen or not and, you know, having General Motors being a client of Bell for their iStar doesn't really make them a wholesale product line. That is just a customer.
1900 So it's something quite different. We want to differentiate and treat it as our own, make it look like our own product.
1901 COMMISSIONER DUNCAN: I think probably my last question is I think that it's quite clear in your comments this afternoon, Mr. Day, about what will happen, but I am going to ask the question again.
1902 If the new services under discussion aren't approved, you know, the CO-based, or if the matching speed decision is not upheld, what will be the impact on your business?
1903 MR. STEIN: To reiterate what we said in our comments, within five years we would be forced out of the residential high-speed internet business. It comes down to speed.
1904 Today we already offer the speeds that we are allowed to. Customers are already requesting far faster speeds. In retail the ILECs are providing faster speeds, many faster speeds.
1905 We are simply not able to compete if we can't match them on those speeds. That is just what it comes down to.
1906 COMMISSIONER DUNCAN: So on the business end, it's not a problem because you build the network out or you lease other facilities?
1907 MR. STEIN: No, our focus in this proceeding is mostly on residential. That's true. But this is still a concern on business as well.
1908 COMMISSIONER DUNCAN: It is?
1909 MR. STEIN: Yes.
1910 MR. STEVENS: Yes, for us it's -- since Bell has refused to match the speeds, our investments in retail DSL outside of our own operating areas it has drastically dropped in the last two years and we see that continue to go down or disappear if we don't -- if we can't match the speeds.
1911 If we don't have the speeds, et cetera, and able to reach the customers in remote, because more and more customers are being fed from remotes in the future -- if we can't get those we will stop. We will find other places to invest our money.
1912 COMMISSIONER DUNCAN: Thank you very much.
1913 Those are my questions, Mr. Chairman.
1914 THE CHAIRPERSON: Len, I believe you have some questions?
1915 COMMISSIONER KATZ: Yes, I do. Thank you, Mr. Chairman.
1916 Good afternoon. I'm going to pick up on the question that Commissioner Duncan raised with regard to negotiations. I think you are all going to get sick of this question. I am going to ask every single party the question.
1917 Mr. Day, Primus is a multi -- tens of millions of dollars business. I don't think Bell wants to lose you.
1918 Do you think you could go into a room with them and negotiate a satisfactory arrangement to protect your brand and your identity and everything else and come up with a longer-term resolution to your relationship without regulatory intervention?
1919 MR. DAY: No. I mean, we are a large customer of Bell's today, so certainly our relationship with the folks on the wholesale side of their business is good, but we have a multitude of examples where we cannot make progress on negotiating with them for access to different services.
1920 COMMISSIONER KATZ: So they are prepared to let you walk?
1921 MR. DAY: Absolutely.
1922 COMMISSIONER KATZ: Okay.
1923 MR. STEVENS: Do you want me to answer that too, Mr. Katz?
1924 COMMISSIONER KATZ: Sure. A different ballgame in your case, but sure.
1925 MR. STEVENS: Well, it is a different ballgame. You know, we have a good relationship with Bell too, but not too long ago Bell in changing their rates for GAS, there was built in the tariff that they could negotiate agreements with customers and they wouldn't be longer tariffed.
1926 We asked Bell three times immediately after that, increasingly going up the ladder, and Bell -- whether we could negotiate. And we have never -- they have never sat down and talked to us.
1927 So we don't have any greater expectations in this as well either.
1928 COMMISSIONER KATZ: So let me try a different twist.
1929 You were both here when Mr. Meldrum and the fellows from Saskatchewan were here and in his submission -- and I will read it out -- he talked about a secondary scenario saying that:
"SaskTel firmly believes that the most the Commission should do with regard to Fibre to the Prem networks is to mandate that owners of such networks negotiate in good faith with competitors so that access can be granted on market terms and conditions."
1930 Is there a hybrid here where the Commission can come along and mandate that negotiations take place and negotiate in good faith, which basically means you have to come up with something at some point, and still leave it to the marketplace to negotiate the terms and conditions?
1931 MR. DAY: We still think no. I mean we just have too many examples where that just doesn't work.
1932 MR. STEIN: We have even existing businesses where we have built them in conjunction with Bell. Bell reaches the point where they are not interested anymore and says not interested. We said, "But wait. We have many thousands of customers on this. You are going to lose revenue. We are going to lose the customers".
1933 Just getting them to sit down at the table -- having them sit down at the table and negotiate in good faith might be a start, but I don't see how that will get us to the final product.
1934 COMMISSIONER KATZ: Is the broadband network competitive today in Canada?
1935 MR. STEVENS: In much of Canada, no. I mean I'm thinking of rural areas. I'm thinking of small towns. I'm thinking of even medium sized towns. It's not.
1936 COMMISSIONER KATZ: You are a SILEC.
1937 MR. STEVENS: Yes.
1938 COMMISSIONER KATZ: You do have wireless providers in your territory?
1939 MR. STEVENS: Yes, we do have them.
1940 COMMISSIONER KATZ: You do have fixed wireless providers in your territory. Is there not competitive services and broadband in your territory?
1941 MR. STEVENS: It is competitive, but from a consumer point of view, to use a stick for their daily use to surf and download movies, it's just too expensive, et cetera.
1942 So I mean if it's competitive and cost effective, no. A lot of Canada still needs help.
1943 COMMISSIONER KATZ: Okay. Go ahead.
1944 MR. STEIN: Yes. We feel that the market is competitive, but you need to look at competitive in product type.
1945 Wireline products are competitive with other wireline products, absolutely, but not to wireless. Wireless I mentioned earlier, 50 times more expensive to download that same movie that was just referred to. 50 times is just not competitive, even though they may go similar speeds some of the time. But it is competitive, yes.
1946 COMMISSIONER KATZ: So if you are saying it is competitive in the wireline side, why should the Commission intervene in that sector?
1947 MR. STEIN: Because today much of the market is made up of how it has been for a long time. 5 meg is still at this point starting to wane for sure as a fast speed, but it is still considered quick enough by many for the applications that are available and in common use right now.
1948 As applications develop in some of the IPTV and over-the-top services that we talked about evolve, those very, very quickly become no longer competitive. To your question about is it competitive today, I believe that it is on a wireline but it is quickly becoming not competitive.
1949 COMMISSIONER KATZ: Okay. So let's assume for a moment that we do make available wholesale services and mandate the opening up of matching speeds and everything else.
1950 Currently the market shares that we hear are the incumbents between cable and telephony are at 95 percent and the competitors are at 5 percent and this thing all turns around and five years from now the alternate ISPs are at 20 percent market share and the incumbents are at a 80 percent. What does that do to the consumer?
1951 What does the consumer actually get other than he is now buying the service from an alternate ISP as opposed to an incumbent?
1952 MR. STEIN: Now, speculating, he is probably paying less. He has probably got a more innovative service and he certainly had a choice.
1953 COMMISSIONER KATZ: Stop right there.
1954 Are there any studies that you can show us that say that competition of a non-facilities-based nature will result in prices being driven down to the consumer?
1955 MR. STEIN: I can't show you a study, but what I can stay is that customers of ours, many thousands of them that chose us and switched from an ILEC to us did so for, in many cases, the same product for a lower price. So I can't say that it's happening everywhere. I can say that it is happening for sure for those customers, and I'm talking about many thousands.
1956 COMMISSIONER KATZ: Okay. You were going to --
1957 MR. STEIN: I'm sorry, and I said and innovation and certainly the customer made a choice.
1958 I will touch on choice first. Sometimes customers just simply want that choice. Sometimes they want a change and sometimes they know who they don't want before they decide who they do want. Having a choice does matter to those customers. Sometimes -- hopefully often, but sometimes they end up with Primus.
1959 And on innovation we have spoken before. We had a couple of examples in here about innovation, but the innovation is not necessarily always going to happen in a two solution scenario. Having many people out at the edge, much smaller providers who are going to fight and scrap to do something different and differentiate themselves creates an environment where there is innovation rather than a "They did it, so I will do it too" kind of a situation.
1960 COMMISSIONER KATZ: Okay. So I am back to my basic dilemma now.
1961 You are saying the broadband industry is competitive today. I guess what you are saying is you don't think it will be in the future as speeds increase, but it is today.
1962 MR. STEIN: As speeds increase, if ADSLCO is not, it will no longer be competitive. That's right.
1963 COMMISSIONER KATZ: Okay, but it is today.
1964 MR. STEIN: Yes.
1965 COMMISSIONER KATZ: So it behoves the Commission to make a decision, supposedly forward-looking, recognizing that today it ain't broke. It is working, but that we should be looking out into the future at some point to see how we can effect positive change?
1966 MR. STEIN: I don't think that the solution is broken today. It's that it is limited today.
1967 So whereas in the now and forward customers are looking for more than 5 meg that has already happened. We are already experiencing customers asking for higher speeds. We can't offer it. They leave.
1968 That means that while it is still competitive, a lot of what has made it competitive is on the inertia of at 5 meg being competitive. That has changed.
1969 And we need to look from this point forward as though the Commission does need to make this change and mandate this to ensure that it continues to be as competitive as it was from this point onwards.
1970 COMMISSIONER KATZ: And you believe that with the tens of thousands of customers you have, if you called up Mr. Cope and said, "I have all these customers who want to migrate up to a faster speed. How can we make this happen together?" you wouldn't get a response?
1971 MR. STEIN: I'm positive.
1972 COMMISSIONER KATZ: Okay. Those are my questions.
1973 THE CHAIRPERSON: Thank you.
1974 Marc, last question?
1975 COMMISSIONER PATRONE: Thank you, Mr. Chair.
1976 I appreciate what you are saying about customers already looking for more than 5 meg. But as long as we are kind of speculating anyway, if you were denied access to next generation networks, do you think there might be a market for the lower speeds, assuming you were allowed access to legacy networks at cost?
1977 In other words, I'm asking you to consider the market for lower speeds on price point alone. How feasible would that be?
1978 MR. STEIN: We are not interested in competing purely on price. If that were really the only reason to stick with Primus we would have a very, very narrow value proposition and unfortunately that would lead us to wanting to invest in different places and spending our time in different places.
1979 So no, that wouldn't be suitable.
1980 MR. STEVENS: Yes. From Execulink's point of view it's the same way. We don't compete on price. We don't try to do that.
1981 But one example I want to give is dial-up DSL is still available. Prices dropped. You can now get it for $2.95 a month and they are still losing customers. So purely on price is not going to keep them there as speeds are continuing to increase.
1982 COMMISSIONER PATRONE: That is my question. Thank you, Mr. Chair.
1983 THE CHAIRPERSON: Candice...?
1984 COMMISSIONER MOLNAR: Thank you.
1985 I'm going to start with a somewhat technical question for Mr. Stevens. You indicated that ADSL, the CO-based service should be -- I believe you said that you want it at the LIR --
1986 MR. STEVENS: That's correct, yes.
1987 COMMISSIONER MOLNAR: -- which is an obvious alternative to a CO-based ADSL solution.
1988 MR. STEVENS: Well, I think is a very practical solution, and let me explain why.
1989 I mean the Commission came to the same conclusion from a CLEC point of view. It wasn't practical to interconnect at every CO.
1990 Let me remind people what COs are. Area code 416 is one CO and so it's one exchange, area code 416. And also you have small towns in Ontario and across Canada that maybe two or three or four or five hundred people is one CO.
1991 So in some ways it doesn't make sense to say that the central office and the exchange level by exchange. It really makes much more sense from a practical point of view. It's really at those aggregation points where they bring back -- you know, it makes more sense where they should be.
1992 COMMISSIONER MOLNAR: So isn't that actually an alternative to an aggregated ADSL solution and not to the CO-based solution, I mean because it will include aggregation?
1993 MR. STEVENS: Yes, it does include some aggregation. And unless you -- and even the CO that has been caused by the Commission proposed in this was aggregating at the CO. It still would bring all the remotes back.
1994 COMMISSIONER MOLNAR: Right.
1995 MR. STEVENS: Unless you go to the point where you have to now bury -- put cables to every remote, you are aggregating somewhere and the remotes -- those nodes are getting smaller and smaller.
1996 So, they all involve some form of aggregation to do that.
1997 I find what's most practical for not only from -- I'm wearing both hats in that, from both as a cable -- as a cable provider or as a telephone company or as a competitor, what is the best place to do that. It makes most sense where the networks are naturally aggregated and then bundled together at the present time.
1998 COMMISSIONER MOLNAR: I would appreciate perhaps both of your response to this question.
1999 As you point out, absent I think what Bell put forward as the sub-loop unbundling proposal that you'll talk about later, everything incorporates some level of aggregation, some -- I hate to use the word artificial, but it is an artificial point of unbundling past the sub-loop.
2000 So you can aggregate at the CO, you can aggregate at the LIR, you can aggregate at the point it's aggregated today which, in Bell's case, is their entire company, in other cases it's the province, or you could aggregate at the point that MTS has proposed.
2001 MTS as you know, or may know, has also put forward an alternative proposal for aggregated ADSL in this proceeding that includes regional aggregation with -- and made available at highest available speed.
2002 Do you have any comments on their proposal, or do you prefer your proposal?
2003 MR. STEVENS: I don't see there's much between theirs and ours, it's very close. I mean LIRs tend to be to region. They're very similar and either one would be -- I think both would work very well on that.
2004 And by the way, even the sub-loop type thing, there's aggregation there, unless you're down to fibre to the home you're aggregating at some point, wherever that be your aggregation.
2005 So, there always is aggregation, so...
2006 MR. STEIN: I do agree that the proposal you're mentioning and Mr. Stevens are similar, the difference obviously being one is tied to the LIR, already a well known and established point of aggregation and interconnection between carriers, and the other not necessarily.
2007 In Primus' view our preference is absolutely at the CO. We feel that that is the place that will allow us to get the closest to the customer practically and allow us to differentiate our service.
2008 COMMISSIONER MOLNAR: And also there has been quite a bit of discussion here about the potential of negotiating arrangements and I did hear you say you don't think it's practical.
2009 I would wonder if it might be possible for you to give some thought as to what conditions you would require to make that practical.
2010 And you don't have to respond now.
2011 MR. STEIN: Okay.
2012 COMMISSIONER MOLNAR: Because I know it's -- you know, that would be off the top, but perhaps if in the later part, if there are any conditions, let us know what they are.
2013 MR. STEIN: Yes.
2014 COMMISSIONER MOLNAR: Finally I just have one more question for you.
2015 One of the other possibilities put forward and it was presented by SaskTel in the last -- just right before you, was the notion of a regulatory holiday.
2016 And, you know, I think there was some question whether 10 years is an appropriate regulatory holiday, but the notion that the carrier, the facility carrier who invests should have some opportunity to recoup some of that investment by being able to market and serve the market first without making it available for resale is perhaps one way of acknowledging the risk associated with making these investments.
2017 What are your thoughts on utilizing a regulatory holiday as a means of acknowledging the risk with new investment?
2018 MR. STEIN: Do you want to go first?
2019 MR. STEVENS: I think it's a terrible position to have. I mean, there's always going to be the next technology. What's new today will be old and tomorrow there will be something new, and if you're always saying that the competitors have to wait 10 years, they will have never have competitors.
2020 It just won't happen. I'm not going to -- I don't want to do dial-up or DSL that was available 10 years ago at half a meg, I can't offer that product. What's going to be available 10 years from now, I can't being today's product, I just won't be in the business, it just won't happen.
2021 MR. STEIN: We also don't think that's a good idea. They already do have a, so to speak, regulatory holiday in the sense because when they do turn up a new neighbourhood or enable it there is a period of time before Primus would be able to reach that CO and establish backhaul into that CO and start our marketing activities in that CO and so forth.
2022 So, the day that we go from being able to offer five or six megs service to 20 megs service is, at best, several months after of the ILEC already investing in marketing and frankly reaching customers that are already probably looking for those higher sink rates.
2023 So, they already do have an advance, plus just the very inertia that they have in the market provides them sufficient advantage right on day one.
2024 COMMISSIONER MOLNAR: Just to clarify, you know, I wasn't expecting you to say that a regulatory holiday was a great idea, obviously.
2025 But if we were looking at different ways of addressing the fact that the carriers have come forward and saying they are making risky investments, so either you don't make it available we get a significant risk premium, or we get a regulatory holiday.
2026 You know, I mean, within that context, where does this fit?
2027 MR. STEIN: Right.
2028 COMMISSIONER MOLNAR: And we're not talking 10 years potentially.
2029 MR. STEIN: Sure. But remember that they're not making this investment because Primus asked them to or because you've asked them to make this investment and start offering faster speeds. they're doing this for their own retail operations. They're doing this because their customers are asking for it.
2030 We talked about the 94 percent, that is, of the market that is captured by cable and ILECs right now. We're talking about the same thing.
2031 That's the percentage of the market that they're making the investment for. Therefore, the risk is very, very minimal. They're not establishing 21 meg or 30 meg or 50 meg or whatever because competitors are looking for it, they're doing it for their own reasons anyway,
2032 COMMISSIONER MOLNAR: Thank you.
2033 THE CHAIRPERSON: Okay, thank you.
2034 Thank you both for a refreshingly non-technical and intelligible submission.
2035 I think we'll end there for today. Tomorrow we'll start at nine o'clock and we'll hopefully go back to our habit by finishing by 4:30 rather than this late hour.
2036 Thank you.
2037 MR. STEIN: Thank you.
2038 MR. STEVENS: Thank you.
--- Whereupon the hearing adjourned at 1737, to resume on Tuesday, June 1, 2010 at 0900
Johanne Morin Jean Desaulniers
Sue Villeneuve Monique Mahoney
- Date modified: