ARCHIVED - Transcript, Hearing 1 June 2010
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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
June 1, 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
June 1, 2010
- iv -
TABLE OF CONTENTS
PAGE / PARA
TELUS Communications Company 339 / 2044
Coalition of Internet Service Providers 427 / 2572
Canadian Association of Internet Providers 451 / 2698
Vaxination Informatique 510 / 3048
Public Interest Advocacy Centre 553 / 3279
- v -
"letter of investment"
"ladder of investment"
"effort should be made"
"effort shouldn't be made"
"that too is not enough"
"that two is not enough"
- vi -
--- Upon commencing on Tuesday, June 1, 2010 at 0900
2039 THE SECRETARY: Order, please. À l'ordre, s'il vous plait.
2040 THE CHAIRPERSON: Okay, Madame la Secrétaire, commençons.
2041 THE SECRETARY: Merci, Monsieur le Président.
2042 Good morning, everyone. We will begin today with a presentation by TELUS Communications Company.
2043 Appearing for TELUS is Mr. Michael Hennessy. Please introduce your colleagues and you will then have 25 minutes to make your presentation.
2044 MR. HENNESSY: Thank you, Madam Secretary.
2045 Good morning, Mr. Chairman and Commissioners.
2046 I am Michael Hennessy, Senior Vice-President, Regulatory and Government Affairs for TELUS.
2047 With me on the panel today are Eros Spadotto, on my right, Executive Vice-President, Technology Strategy; David Fuller on my -- he is on my right, Eros is on my left -- Chief Marketing Officer.
2048 It won't be the last time, Chairman, you suggest I said something wrong.
2049 Dave Fuller, Chief Marketing Officer with TELUS; Ted Woodhead on Dave's right, Vice-President, Telecom Policy and Regulatory Affairs; Bob Sinclair on Eros' left, our Senior Engineer, Technology Architecture.
2050 We are also joined by Dr. Robert Crandall, a Non-Resident Senior Fellow at the Brookings Institution, and we are being supported behind by Eric Edora and Michelle Dupuis as part of the TELUS regulatory team.
2051 So we thank you for this opportunity to present at this very important hearing. So I will start.
2052 The CRTC and the Government of Canada have both asked the question whether additional wholesale services should be provided by either ILECs or cable companies in order to promote competition, and whether unbundling requirements like speed matching will diminish incentives for facilities-based carriers to invest in next generation networks.
2053 TELUS submits first that further unbundling -- and I underline further unbundling -- is not required to ensure sufficient competition to protect the interests of users in the downstream market and, second, that further unbundling of our new investments will most certainly diminish investment and laterally reduce not only emerging competition in the television distribution and broadband markets, but also reduce the supply of advanced networks more generally.
2054 We believe not only is further unbundling net negative for our enterprise, and for digital economy goals, but it is not in keeping with broad government policy objectives. It is the stated policy of the Government of Canada that in telecommunications reliance should be placed on market forces and not regulation, to the greatest extent possible.
2055 Regulation, in effect, is only to be exercised as a last resort to fix market failure and then on the least intrusive basis possible. Unbundling of our new investments under mandatory and unpredictable incremental costing measures is significantly intrusive.
2056 And in the broadband internet business there is no market failure to justify regulation, and arguably never has been. In fact, the downstream retail internet market is the most open and most competitive market in communications.
2057 It is our position that the existence of hyper competition in the downstream internet market arises from the existence of substantial facilities-based competition, governed by an open user model, that permits any user to access whatever content and services they want, and conversely enables any application and service provider to offer goods and services without the permission of the network operator. This is how innovation at the edge of the network occurs; not via arbitrage.
2058 The purpose of this proceeding is to consider whether more wholesale services should be required to facilitate more internet competition. The problem is that if the quest for "more internet competition" is driven not by market forces but by regulation, then this could create significant and lasting negative effects on the continued construction of internet networks and on the delivery of higher bandwidth services and applications to Canadians. This arises because wholesale arbitrage changes the economics of each separate facilities-based provider and that affects the build or lease decisions carriers make before allocating capital.
2059 The prospect of these negative effects of regulating an already competitive market led the Government of Canada to require the Commission to reconsider recent decisions to unbundle new broadband facilities, in light of the following issues:
2060 The impact on incentives to invest in new network infrastructure;
2061 Whether there is sufficient competition in the retail internet marketplace already in place;
2062 Whether the wholesale obligations on ILECs and cable companies are equitable; and
2063 Whether ILECs would be impaired from the delivery of television services.
2065 DR. CRANDALL: These concerns of the Government of Canada are valid because, contrary to the assertions of some parties in this proceeding, Canada is already well served by the competitive dynamic that has arisen in its broadband market as a result of a regulatory policy designed to promote facilities-based competition. It is surely a mistake to sacrifice some of that success to guarantee a business model for companies that have chosen to resell rather than to invest.
2066 Now, it has been argued by parties seeking to impose wholesale requirements on next generation networks that the absence of such intervention is causing North America to fall behind its major trading partners in the west.
2067 The support for this proposition is provided by advocates of unbundling such as the Harvard Berkman Center, whom you heard referred to yesterday several times, who suggest that the North American facilities-based competition model is somehow deficient. Now, the problem with this support is that it's not backed by any real world evidence to support the proposition that unbundling either increases the supply of advanced infrastructure or broadband competition.
2068 Our evidence, including a report I submitted in this proceeding, shows that the European model of network unbundling is flawed because it does not increase broadband penetration and it serves to retard network investment.
2069 I might point out that I criticized that Berkman report in my report. That was before the Berkman report had revised its final report and withdrawn most of its support for unbundling from the report, and then before the Federal Communications Commission essentially rejected the Berkman report by not adopt any of its suggestions in its final national broadband plan.
2070 Network investment in Canada and the United States has consistently exceeded network investment by European carriers. By virtually any measure the Canadian internet market is dynamically competitive. Moreover, when Canadian broadband penetration is measured by households, Canada leads the G8.
2071 The most recent Statistics Canada data show that 75 percent of Canadians use the internet for personal use and the latest Global Matrix from the Bank of America found that the countries with the highest broadband household penetration rates in 2009 were: Korea at the top with 97 percent of households, Netherlands following with 87 percent, Israel 87percent, Denmark 83percent, and Canada right behind at 82percent. If you consider Canada's size and low population density, that is a remarkable achievement.
2072 Now, if government policy is to provide incentives for investment and, therefore, for facilities-based competition regulatory policy should not favour wholesale arbitrage models over investment in new, advanced networks. Current network investment in advanced broadband is a direct consequence of facilities-based competition, which has been shown by numerous studies to result in high household broadband penetration rates.
2073 By contrast, there is no evidence that mandatory unbundling or other forms of mandated wholesale access contributes to higher broadband penetration.
2074 There is, however, a significant risk that regulation in this market, by creating arbitrage opportunities, would have the perverse effect of distorting the competitive dynamic that derives from intense intermodal network competition that exists in this market today. And it would discourage further investment by established broadband competitors and new entrants.
2075 Therefore, increasing the mandatory wholesale obligations for the ILECs or the cable companies does nothing to increase real facilities-based competition that Canadians already experience.
2076 MR. FULLER: There are few countries that can claim as many facilities-based competitors across all communications markets, and in particular broadband, as Canada.
2077 Moreover, it is likely that by mid-2011 virtually 100 percent of Canadians will have access to a broadband service offering at least 5 Mbps, as a result of new satellite investment, wireless upgrades and continued investment by cable and ILECs in fibre and DOCSIS technologies. In fact, over 90 percent of Canadians will have access to multiple facilities-based suppliers.
2078 Just how competitive the Canadian market has become is evidenced by the fact that ILECs in Canada have less broadband market share than other ILECs in virtually all our major trading partners.
2079 As Chief Marketing Officer for TELUS, I deal with this competition every day and my focus is on the ever changing array of prices and bundles in market, and on the strategies of my principal competitors. International benchmark prices generally do not capture my attention until they are used to limit our team's ability to respond to competition.
2080 In general I would suggest that most international comparisons that I have seen bear little resemblance to the reality of the market.
2081 As an example, the CRTC, in releasing an internal study "Navigating Convergence" earlier this year, expressed concern with data that suggested prices in Canada were amongst the highest in the OECD. The example cited was an OECD calculation that the cost per megabit of broadband in Canada was $26. This type of analysis is totally wrong and unrealistic. A $26 per megabit average would mean that a 7 Mbps service would retail at almost $200 a month. That bears no resemblance to any reality that I live in and I don't understand how policymakers can accept data like this if on its face it's so obviously and completely wrong.
2082 While I was comforted that the CRTC had released another report "the Wall study" last week, which represents a far more realistic view of pricing and includes actual bundles of wireless, broadband and TV services, I would still suggest that the market in Alberta and British Columbia has prices that are actually significantly lower than even this study suggests. The fact is competition has become so intense that no costing study, particularly one based on 2008 or 2009 data has any real resemblance to reality.
2083 In our market today you can find triple play promotions, that is, you know, phone, TV and HSIA starting at $30 a month and standalone offers beginning at $9.95 per month. Even at non-promotional rates consumers can find triple play offers as low as $35 a month and triple play rates below $50 are commonplace across Canada. That's the reality we face today, not the out of date and erroneous data that bodies like the OECD often state.
2084 The competitive dynamic in downstream markets has caused cable companies, ILECs, satellite providers, fixed wireless and mobile wireless carriers to all build new broadband networks in Canada to stay competitive. In our region alone that means that there are least four to five facilities-based options for each of the three core in home services. These are Canadian companies that are investing billions in scarce capital resources across the country.
2085 From my perspective on the actual competitive battlefield, the current competitive environment provides significant incentives for network providers to invest, but also puts increasing pressure on margins that make decisions on where to allocate capital -- as Eros will attest shortly -- increasingly difficult.
2086 The critical fact is that retail internet competition is being driven by facilities-based providers that are investing in next-generation networks, not the wholesalers who rely on regulated access to network facilities. In my view, these incentives to invest will only increase if the Commission were to refrain from imposing further wholesale obligations upon providers.
2088 MR. SPADOTTO: Good morning.
2089 It's hard for me to understand why it is necessary to distort the underlying economics of the marketplace because, make no mistake such intervention will change our build or lease decisions.
2090 As EVP of Technology Strategy for TELUS, it is my job to pick the best technologies to compete and manage our capital investment strategy. In essence, my job is to optimize our investments. So let me try to answer the government's question as to whether unbundling can reduce our decision to invest. The answer is an absolute, "Yes, it will change our decisions".
2091 You will hear from other parties that network providers must continue to invest to ensure that their services remain competitive in the marketplace. Let me suggest that that is a very naive assumption.
2092 Clearly there are markets that we must continue to invest in to stay competitive and to catch up with cable, but not in all markets or even in all locations in major centers. As David suggested, if you change the economics of our business, we will need to adjust our capital plans accordingly. Let me provide an example.
2093 TELUS has in the past announced a build out in the top 48 markets in Alberta and B.C., of a new broadband infrastructure that will support faster internet and, more importantly, support television distribution over an advanced IPTV platform. But these investment plans can change, in whole or in part, if the CRTC forces us to unbundle the new facilities to create artificial opportunities for wholesalers. If that reduces our margins, then we must build less to keep our returns on target.
2094 We make build or lease decisions today to ensure our capital spending is economic. While we are investing in broadband networks to deploy our IP-based TELUS TV service, we also offer a satellite resale alternative for TV wherever it is too expensive to build.
2095 This is an important point. We don't have to build to compete. If the CRTC decides to diminish the value of our investment to create artificial arbitrager margins, we will be forced to reduce our investments.
2096 It is not simply the ISP reseller that looks at wholesale margins. It's what I do day in and day out. If you make these margins large enough, I will look at opportunities to use cable DOCSIS versus build options and then choose the most economical path, if that serves the economic interests of our shareholders.
2097 You will also hear that competitive symmetry can be easily obtained by making obligations the same for ILECs and cable carriers. That is patently wrong. Our networks are not the same.
2098 While I am not advocating cable unbundling, such views ignore the reality that ILECs, including TELUS, face relative to DOCSIS technology. TELUS has chosen to invest to enhance the internet speeds available on its network and to enable the delivery of television over a broadband platform in order to better compete with cable. Our facility, however, is a much narrower pipe, dedicated path to the customer that delivers all services across it.
2099 Yet any time TELUS is forced to unbundle a new ADSL2 or VDSL facility for an ISP reseller we immediately lose both the broadband business and, worse, we lose the option to offer IPTV, TELUS TV services on our new Microsoft IPTV platform. On the other hand, cable unbundling does not prevent the cable provider from continuing to offer TV.
2100 Unbundling our network to artificially support reseller ISPs means the regulator has guaranteed there will be less competition for cable television. That is bad for our business and ultimately bad for consumers given that price increases for basic cable services have risen significantly higher over the past decade than any price increase for phone services, internet services and wireless services, let alone price decreases for those services.
2101 As an example, if you look in the west in our incumbent territory, the price for Shaw's basic cable service has increased from $17.85 to $35.95 from the period of 2002 to 2010, an increase of 101 percent. In comparison, in the same timeframe, 2002, the price for TELUS' residential local phone service has decreased by 5 percent in Vancouver, 2 percent in Calgary and 6 percent in Edmonton. That is the real cost of unbundling our new network.
2102 In order to support artificial competition in the dynamically competitive internet market, you will undermine our ability to offer TV and actually reinforce the cable monopolies' dominance in television.
2103 And it's not just competition in TV that is lost. Competition, as the Wall study shows, is also about bundles, and currently cable dominates the bundle because of its dominance in TV and the power of its big pipe technology.
2104 In our operating territory, Shaw, our principal competitor, has 80 percent TV share via cable and satellite and a 60 percent broadband share. Moreover that same cable competitor now has a million local phone customers in the west, including 700,000 in our operating territory. This is our competitive reality.
2105 MR. HENNESY: Canadian telecommunications policy is predicated on a reliance on market forces to the greatest extent possible. The internet market in Canada is robustly competitive, with Canadians having access to very fast bandwidth speeds across many different networks.
2106 Based on every single issue the government has asked the Commission to consider, we submit there is no basis for the CRTC to deviate from reliance on market forces. In fact, it seems clear that promoting the business case of companies dependent on regulatory margin at the expense of real investment and competition is net negative.
2107 Mr. Chairman and Commissioners, there is no market failure that requires further regulatory intervention. In fact, in the downstream retail market there is seemingly no limit on the number of services and applications now available to end users.
2108 If internet usage and diversity of choice in terms of services and applications is a critical measure, there does not seem to be a problem with retail internet competition in Canada that needs the CRTC to manage price in a way that alters the economics of suppliers.
2109 In competitive markets it's not the role of the regulator to protect the business plan of individual suppliers. As long as competition is sufficient to protect the interests of users the regulator should allow the market to evolve.
2110 As our witnesses suggest, not only is there no evidence that unbundling increases competition or investment, there is substantial evidence that facilities-based competition has contributed to lower prices and increased choices in virtually all markets. Limiting our ability to compete in the cable market in order to promote artificial competition in a hyper competitive retail internet market is a bad trade off because the competitive dynamic would be distorted to protect wholesale arbitragers from market change.
2111 We submit, that for this reason alone, the Commission should reject calls to unbundle our new networks and let unregulated competitive forces continue to drive the direction of the market.
2112 Thank you. We will be pleased to answer any questions that the Commissioners may have.
2113 THE CHAIRPERSON: Thank you for your submission.
2114 Can we bring things first of all back to what you were talking about? You were talking about facilities-based competition as it was designed by Order in Council and as we adopted it in the essential facilities hearing.
2115 The Cabinet has defined a facilities-based telecommunications service provider as one that provides service in the relevant market either by using its own facilities and services or by using a combination of its own facilities and service together with those leased from other service providers, so all this talk about facilities-based competition versus resellers is just hyperbole. It is totally irrelevant. We have already said what is the type of competition that -- and we are not redoing the essential services hearing here.
2116 So let's start with what this is all about. There is a question of the essential services decision that we made down and we laid down a test for prospective services and you are very well familiar with it.
2117 Now, I have heard yesterday from two parties, both TekSavvy and Primus, who say basically what they are asking for is a CO-based aggregated ADSL -- fits squarely into the test as laid down in section 37 of the essential services decision.
2118 I gather you don't agree, Mr. Hennessy, and, if so, tell me why.
2119 MR. HENNESSY: Well, to begin with, Chairman, most of the services that we are talking about unbundling today were not identified in the essential services decision.
2120 Second, to the extent that you see some of those services as overlapping, the definition of essential services should be malleable enough to demonstrate that without unbundling there would not be sufficient competition in the downstream market to protect the interests of users.
2121 I think what we are saying in its simplest terms is that we recognize that the Commission here is in a box. There are a number of wholesalers in the market today that because of market change have their business strategies threatened unless the Commission finds some ways to protect their business strategy, and in my mind the only way you can do that is forced unbundling at rates that create a margin.
2122 I don't think that that is competition. I think that it is not necessary to protect users in the downstream market. And I think the end result of that, as we suggest, is to result in exactly the things that the government asked the Commission to reconsider in order to ensure that there isn't damage to investment or in our ability to offer TV.
2123 THE CHAIRPERSON: Mr. Hennessey, they didn't ask us to reconsider the essential services decision and we very carefully -- you were there, we spent a lot of time on this.
2124 We developed a test, first of all one retrospectively, to look at all existing to see whether we should be deregulating or not. We put them in six different buckets and we decided.
2125 Then we said for the future if the new service is required or if there is a request for us to mandate something, this is the test that we will apply. And this is one of these instances that we have before us.
2126 TekSavvy or Primus says CO-based ADSL is something that should be mandated, and they walked me through section 37. Now, I would like to -- you obviously disagree and I would like to hear the rationale why you see this doesn't apply.
2127 MR. HENNESSY: Yes. Let me ask --
2128 THE CHAIRPERSON: You are surely familiar with the test.
2129 MR. HENNESSY: I will ask my expert witnesses, Mr. Woodhead or Mr. Crandall, to respond to that as to whether we believe that the new services; that you are asking whether or not the new services should be the subject of the test, meet the test.
2130 THE CHAIRPERSON: Right.
2131 MR. HENNESSY: It's our position that they don't because they are duplicable and they don't -- aren't required to protect the interest of users in the downstream market.
2132 But Ted, do you want to respond to that?
2133 MR. WOODHEAD: There are two things I would add. We had an ADSL-CO service and we had no customers and precisely the thing that they are asking, they could do over the aggregated DSL service.
2134 Therefore, I don't understand why it is required to have the service; (a) there are no customers and (b) there is an alternative to it.
2135 THE CHAIRPERSON: What we heard yesterday and I'm sure you heard it, too, is that the ILECs are moving more and more the fibre to the node and therefore if they are at the node and you only provide access at the CO, as you do right now, they are actually disadvantaged. They will always have a slower speed delivery that you will have.
2136 So the only way to overcome that is to, in effect, allow them to create -- have their own aggregated ADSL at the CEO level.
2137 MR. WOODHEAD: Well, the other option would be to build.
2138 THE CHAIRPERSON: Clearly.
2139 MR. WOODHEAD: Obviously.
2140 THE CHAIRPERSON: Clearly.
2141 MR. WOODHEAD: I guess where I would come at this from, Mr. Chairman, is that if you assume that logic there is no end to this.
2142 As we deploy these increasingly speculative investments -- you know, I think they took you through -- I heard them take you through -- Bell took you through their fibre to the node, but increasingly you will have Ethernet to the suite, fibre to the home. Where does it end?
2143 The further you drive this fibre closer to the premise the more risky and speculative it becomes, because the cost of ploughing that fibre deeper and deeper into your network are very high. I would look to Bob or Eros to describe some of the economics of that.
2144 But when there are in the face of, you know, other platforms, truly facilities-based platforms, if I can use that, end-to-end facilities-based platforms available now or imminently through satellite deployment, I question whether this meets test.
2145 THE CHAIRPERSON: Okay.
2146 Mr. Crandall, one other question to you because your evidence was absolutely contrary to what we heard yesterday -- you say on page 2:
"Our evidence in this proceeding shows that the European model of network unbundling is flawed because it does not increase broadband penetration and it retards network investment."
2147 We heard from the expert that came with TekSavvy. I think he is in the room. I'm sorry, I forgot his name.
2148 I'm sorry, what is your name?
2149 MR. BLONDEEL: My name is Yves Blondeel.
2150 THE CHAIRPERSON: Yves Blondeel, thank you. I'm sorry for forgetting your name.
2151 His evidence was exactly to the contrary. He took the Netherlands for instance as a specific example where the unbundling had produced both competition and generated additional investment.
2152 So how do I reconcile those two?
2153 DR. CRANDALL: Well, you reconcile that by looking at their reports. There is nothing in his report, nor in the other report by the -- I believe she was a Dutch woman and colleague, which refutes the growing empirical evidence assembled by very serious economists that unbundling does not increase competition, does not lead to increases in broadband penetration, but rather tends to retard investment.
2154 Now, the latter conclusion is supported by fewer studies than the former one, but there is no new study which shows that unbundling increases penetration. Indeed the Berkman study tried to create one out of thin air and had to back off because it was so thoroughly criticized and they had so manipulated the data.
2155 THE CHAIRPERSON: We all have problems with the Berkman study that we seen.
2156 DR. CRANDALL: Well, you should. You should. But keep in mind that what you heard yesterday was not backed by any empirical evidence.
2157 The fact that Netherlands is fairly high -- is rather high, very high in broadband penetration is due in large part to the fact that they have the same sort of facilities-based competition that you have in Canada. They have a lot of cable competition.
2158 They are now moving into fibre, but not by their incumbent KPN alone, but rather by joint ventures including a municipal investment by the taxpayers.
2159 THE CHAIRPERSON: Okay. I don't have far too much, but my colleague, Mr. Katz and Elizabeth, you're the first.
2160 Okay. You go, lead off.
2161 COMMISSIONER DUNCAN: Okay. Good morning. First of all, I just want to just pick up there where Konrad was touching on and, that is, on the Order-in-Council because it says in the absence of speed-matching requirements there'd be sufficient competition to protect the interests of users.
2162 So, currently there is five or six percent of customers with the ISPs and they've obviously felt a need to go to those parties as opposed to cable or yourselves, ILECs.
2163 So, how are they going to be served?
2164 They seem -- maybe they're more of a niche market, or why do they go to those instead of you? Why do you think that you're going to be able to satisfy them if you don't today?
2165 MR. HENNESSY: I think that, and I'd like Dave Fuller to comment on that, you know, the fact that five percent of people go to a particular supplier or subset of suppliers is not evidence that if you had unbundling there would be a lessening of competition in the market. All evidence suggests there's more competition in the market.
2166 You have to demonstrate in terms of, as the Chairman asked, in terms of the essential facilities test that there would be a substantial lessening or prevention of competition in the market.
2167 I think, you know, to go back to Dave's point, if you could cover it, we're actually seeing an increase of competition in the market.
2168 The fact is that the people that may be supplying in the market in the future are more likely to be facilities-based suppliers than suppliers that have built their business case around the rates that the Commission give them and the margins that those provide.
2169 That does not mean if they disappear from the market, of which there is a great possibility if their business case is not sustainable except with the support of artificial margins, that there will be less competition. Everything Dave is suggesting is that there's actually increasing competition.
2170 MR. FULLER: I would concur with what Michael said. We have seen a fairly significant increase in competition in the last couple of years driven by our facilities-based competitors not by ISP-based competition.
2171 You know, the five to six percent I think could -- you know, there are many alternatives for those customers to go to that are both, you know, either a cable type option or coming to TELUS or choosing an alternative option which increasingly are offering better and better speeds at lower and lower prices whether it, you know, be something like the Inukshuk offering or the increasing services being provided by satellite providers like Parrot.
2172 So, I think there are multiple different options to those folks that wouldn't impinge on competition.
2173 COMMISSIONER DUNCAN: Thank you. I'm just going to go on with the questions that I had planned and I'm just going to come back maybe to your opening remarks a little later.
2174 First of all, I'm just wondering, with your aggregated wholesale services, are there any restrictions on those services that are not applied to your retail customers?
2175 MR. HENNESSY: Not that I'm aware of.
2177 MR. WOODHEAD: No.
2178 COMMISSIONER DUNCAN: Thank you. And I'm just wondering if you plan to continue to invest in legacy DSL technology at all?
2179 MR. SPADOTTO: So, you know, it's interesting when you step back and you take a look at what the Telcos including TELUS are doing and, that is, to drive more and more capability of what is a very thin copper plant.
2180 And to go into a little bit of detail, you know, if you compare and contrast ourselves to the Cablecos, you know, Cablecos have roughly 750 to gig of megahertz of capability versus our 50 kilohertz. That's forcing us to continually re-invest in that technology and it's forcing us to get closer and closer to the homes and put more types of services.
2181 So, we're forced to go and move from DSL to ADSL to VDSL to VDSL2, to bonding, to DSM and keep actually adding to the capabilities in order to compete against that cable threat.
2182 So, the answer is yes.
2183 COMMISSIONER DUNCAN: Okay, thank you. If matching-speed wholesale services is mandated, how do you feel you should be compensated?
2184 MR. HENNESSY: I would say you'd have to compensate in a way that not only recovers all the cost, which means not just the incremental cost your compensation regime works today and that's step one, because there is no longer that kind of cross-subsidy for monopoly services to recover embedded and common costs in the system.
2185 But there also -- to be fair, to put things on a level competitive playing field, there should be some compensation for the loss to our business strategy of the ability to actually offer TV because on a circuit that offers phone, TV and Internet using the same technology, you can't give that circuit away for somebody based on the incremental costs of only one product set.
2186 COMMISSIONER DUNCAN: I'm assuming those similar comments would apply if we approve the CO service as well; what factors should be taken into consideration in calculating a compensation?
2187 MR. HENNESSY: Yes. It goes back to, you know, a fundamental principle and it's of deep concern to us that the Commission continues to apply a very strict and sometimes not quite clear incremental cost system that increasingly seems to ignore your embedded and capital costs.
2188 And the result of that is that there is less and less opportunity to fully recover your costs of the network when you're actually providing it for use by competitors.
2189 And, as I said, in a monopoly environment rates were always set so that there was an opportunity to earn a fair investment on the investment overall.
2190 In an environment where all your product sets are competitive, if you don't recognize the common costs at a minimum within the system, then you're really forcing us to sell that product at a loss with no help of recovery by raising rates elsewhere.
2191 COMMISSIONER DUNCAN: So if those costs were adjusted, then you wouldn't oppose?
2192 MR. HENNESSY: No, I just -- I think I -- let me put it this way. If you actually allowed us a cost plus recovery, that would be worth discussing.
2193 The problem is, I think we can all accept here, that if you try to do that all the resellers in the room would scream that you're going to put them out of business.
2194 And all the evidence today in front of us looking at recent decisions like the UBB decision on Bell, the recent decision rolling back the rates on our 800 service, indicate that the Commission is moving away from a cost recovery system to an incremental cost system that creates margins for competitors.
2195 So, I don't believe the Commission would ever set rates anywhere near what would be necessary for us to recover our costs and will always, when you get into these competitive disputes over ratesetting end up setting margins that keep the competitors in business.
2196 I mean, that's why we're here today, is the concern that without unbundling, competitors that exist today using regulated margins may disappear in the future.
2197 So, you know, it's nice to say, well, if we adjust the cost wouldn't that be okay, but to adjust the cost to recover, you know, the opportunity lost from the video revenue stream, for instance, would not, you know, create an opportunity for any more margin for the wholesalers.
2198 COMMISSIONER DUNCAN: I don't believe --
2199 MR. HENNESSY: It's not going to happen.
2200 COMMISSIONER DUNCAN: Yes.
2201 MR. HENNESSY: You're not going to do it.
2202 COMMISSIONER DUNCAN: I suppose we don't want to argue how it would actually be done, but I don't know that your point about losing the opportunity cost, losing the video stream revenue, I don't quite understand why you think you'll lose that.
2203 MR. HENNESSY: Well, you know --
2204 MR. FULLER: Right. So, I think the fundamental problem is that broadband service is the anchor point into the home, so many of our service offerings reside on top of that.
2205 So, the point that Michael was getting at is if we were forced to unbundle and provide a certain amount of fixed bandwidth to an ISP, what that effectively then does is it also limits or removes our ability to offer TV as a service into that same home.
2206 Okay. So, if you took and said, 20 percent of our market is going to be, you know, given over to these ISPs at a fixed bandwidth, I effectively from a marketing standpoint can no longer market television services to that 20 percent of those households, right, because there's not enough -- to put it simply, there's not enough room left on the pipe afterwards to be able to allow you to watch two or three steams of HDTV while you're on a fixed Internet service offering from your ISP.
2207 COMMISSIONER DUNCAN: Okay. I'm not quite sure that -- I think that's what we're saying. We're not going to take away 20 percent of your capacity, you still have the opportunity to win the customer and to my thinking you're more likely to get that customer because you're the Internet provider.
2208 I just don't know if --
2209 MR. FULLER: No, but Ms Duncan, the problem was, if we didn't get that customer --
2210 COMMISSIONER DUNCAN: Yes.
2211 MR. FULLER: -- then automatically -- like the decision that we're making then is not that we would just lose the Internet service to them, we would also lose many of the other services that we serve into the home to them as well.
2212 COMMISSIONER DUNCAN: Yes. I guess --
2213 MR. FULLER: So, we'd be in a position where they would port their Internet service to the ISP and still have TV with us. We would have to phone them up and say, sorry, you're going to have to find another TV service provider, we can't provide TV to you any more.
2214 That is not a positive client experience and I think actually then plays into creating more dominance from the Cablecos in TV.
2215 COMMISSIONER DUNCAN: Because bundling is so important it's hard for me to envision that somebody would buy Internet service from an ISP and buy their IPTV service from -- sorry, buy Internet -- not buy, if they wanted to buy your TV service that they wouldn't also buy your Internet service.
2216 This is why I think yesterday Mr. Bibic suggested that we'd have a video restriction.
2217 MR. HENNESSY: Right.
2218 COMMISSIONER DUNCAN: I'll continue. Fine.
2219 MR. HENNESSY: Yes, the -- but I think this is -- for us this is really the critical trade-off.
2220 When we invest in these new networks, we're not investing in a broadband network simply to provide the Internet. The business case for the network is predicated on the ability to provide an advanced TV service on the same pipe and using the same frequencies or spectrum as the Internet service.
2221 And what that actually allows you to do in the sense of both -- you know, in the sense of innovation is it allows you to deliver a cable television product that can interconnect into the Internet. You know, it's next generation, it's an advanced service that isn't existing in the market today.
2222 But the other thing is that when we build the networks, we're assuming that a percentage of those pipes that we're building today will carry a bundle of services.
2223 So, we don't say we built this pipe and as long as we get the revenue stream from broadband that is a sufficient return. The return that justifies the investment in the first place is based on a certain percentage of those pipes because we're not going to take a hundred percent of the cable business, a certain percentage of those pipes offering multiple streams of revenues.
2224 So, when you lose the revenues from one stream because the broadband wholesaler has taken the pipe, you're actually affecting a much larger investment picture, and that is where Eros then talks about the need to then re-visit how much capital you can afford to spend going forward because it has to be less. It's basically simple math.
2225 COMMISSIONER DUNCAN: So you started doing your network upgrades though to compete just with Internet and now all of these other services and potential services are envisioned, and so you're having to upgrade your network even further? And that's the next generation that you're talking about, not Internet.
2226 MR. SPADOTTO: If I can answer that, that is basically untrue. If I go back in time and take a look at why we decided to go to the node with Internet, it was for IPTV.
2227 So, we have been -- you know, of the Telcos in Canada, we have been one of the more aggressive ones with IPTV. This is our third generation of IPTV technology and the broadband to the node technology was built in direct support of IPTV.
2228 We can serve up HSIA from the COs, we wouldn't have had to have been so dramatically intent on building out the network that we built out, and continue to build out.
2229 COMMISSIONER DUNCAN: So you would have been able to deliver a competitive -- an Internet service competitive with the cable companies had you not --
2230 MR. SPADOTTO: You know, I find it difficult to -- you know, the Cablecos have such a dramatic advantage over us because of the scale of their pipe. So, you know, it's hard to go back in time and, you know, what would you have done?
2231 But I'm telling you the decisions that we did make, and the decisions that we did make were based on IPTV technology.
2232 COMMISSIONER DUNCAN: Okay, thank you. It's just I'm trying to get my head around what actually constitutes next generation, that's where I'm at here.
2233 I'm just wondering, the cable carriers and MTS and SaskTel have indicated that their fibre-to-the-node investment will be impacted by regulation.
2234 And so what makes your situation different because the regulation is going to apply to everybody, so why is it that they're saying our decision won't impact their investment decisions?
2235 MR. HENNESSY: Well, I'll start and then pass it off. I think for the cable companies in particular, if you unbundle their service they can still offer TV. We can't.
2236 So, it's as much in their interest, since you're already unbundling them, to say that they're going to continue to invest any more anyways because they know that that screws us.
2237 I would -- you know, I would say it's as probably as simple as that.
2238 SaskTel, I don't know.
2239 COMMISSIONER DUNCAN: Go ahead.
2240 MR. HENNESSY: SaskTel, I guess, you know, the nice thing about SaskTel is that, you know, they don't report to, you know, shareholders who invested their own capital, they report to the government, they don't pay taxes, they have different economics and they have incredible loyalty in the province.
2241 COMMISSIONER DUNCAN: And MTS?
2242 MR. HENNESSY: MTS, you know, I can't think of anything I want to say about MTS. Maybe Eros does.
2243 MR. SPADOTTO: Well, I mean, you know, from my simple viewpoint, MTS has two sides of the business, right, they have an ILEC side and they have the Allstream side and, you know, their thinking is of course it takes both those thoughts into consideration.
2244 And my observations of MTS over the last little while is their thinking is more dominated from the Allstream side. So, I'm not surprised that they would say something like that.
2245 COMMISSIONER DUNCAN: Okay. So your position is that TELUS would be better off not investing in fibre to the home if our decision is to mandate access to these services?
2246 MR. SPADOTTO: What I'm saying is that we would modify our decisions. So, we are an intensely competitive company but, you know, let's take that as a fact, but we are also intensive in terms of returning return to our shareholders.
2247 So, if we actually modified the regulations where we start to not make the returns that we had planned because of the investment, we will have to turn down the dial on those returns, and how they will be turned down is likely going to be in turning down further expansion in smaller centres across our provinces and, in fact, perhaps going even into some of our major markets and saying, there's a particular area that I'm not going to invest in right now because I don't think it can make a return in this area.
2248 So, we will definitely turn down our investment. And if you take a look at our history, although we don't -- you know, we certainly don't publish these things, we've ebbed and flowed our investments based on returns.
2249 I would have been desirous to have more broadband out there today, but we ebb and flow our investments based on our returns. That is the nature of a publicly traded company.
2250 COMMISSIONER DUNCAN: Bell has submitted some studies where they showed the impact of these decisions, potential decisions on the CO base access and the matching speeds would have.
2251 Have you got similar studies that you could file, the impact that they would have on your investments?
2252 MR. HENNESSY: You mean studies as to how we would reduce our investment?
2253 COMMISSIONER DUNCAN: Yes. Or the impact it would have on your return.
2254 MR. HENNESSY: I don't think we've done those. Have we done those?
2255 COMMISSIONER DUNCAN: So you haven't done any studies, but you're convinced it would reduce your return?
2256 MR. HENNESSY: You know, we -- sorry, Eros.
2257 MR. SPADOTTO: The studies that we've done are progressive in nature, they are in essence, if we get these kinds of returns, this is what we build.
2258 It would be fairly simple for us to go backwards and say, if we don't get these returns, where do we dial down?
2259 So, we're coming at the same problem from a different side, but it wouldn't be terribly difficult for us to go the other way because we've done the work going the progressive way.
2260 COMMISSIONER DUNCAN: Well, do you agree with Bell's conclusion in that, that mandating the ADSLCO service would have a higher negative impact on their investment plans as compared to the matching speeds?
2261 Perhaps you didn't have a chance to look at what they filed.
2262 MR. HENNESSY: I didn't see what they filed yesterday. Do you have any preliminary -- or do you want us to --
2263 COMMISSIONER DUNCAN: No, it wasn't filed yesterday, it was before.
2264 MR. HENNESSY: We can -- why don't we undertake to come back on that question and we can look at it and come back.
2265 COMMISSIONER DUNCAN: Okay, thank you.
2266 Just looking ahead then to 2012, and this gets I guess to the viability of these competitors if we don't approve some of these changes, but what percentage of your customers would the competitor be able to reach in 2012 if they don't have access to these aggregated ADSL access services?
2267 I understand now they can reach 35 percent. So, you're going to continue rolling out?
2268 MR. SINCLAIR: No. Our understanding would be that they'd be able to reach at the current speeds approximately 88 percent. I think the figure here is in the -- the 2010's 84 percent range, so the 35 percent I believe is incorrect.
2269 COMMISSIONER DUNCAN: So they can reach a 35 percent base or they can reach --
2270 MR. SINCLAIR: In that area, yes, at the current, yes.
2271 MR. FULLER: So, the data we have says that, you know, at current coverage at six megs, right.
2272 MR. SINCLAIR: Correct.
2273 MR. FULLER: They can reach 69 percent in '09, 84 percent in 2010 and 88 percent in 2011.
2274 COMMISSIONER DUNCAN: With you using your aggregated ADSL service?
2275 MR. SINCLAIR: That is correct.
2276 COMMISSIONER DUNCAN: So what would be the maximum speed then that the competitors would be able to offer their retail customers then, or what would you be offering your customers in 2012? They're going to be limited to six.
2277 MR. HENNESSY: 2012, it depends on whether we're providing fibre to the node, fibre to the home and how much TV the customer is using relative to the Internet at any given time because, you know, it's a dynamically allocated network, so it depends on how the particular customer in the house is using it.
2278 Is that correct, Eros?
2279 MR. SPADOTTO: Yes. So, perhaps, you know, if I was to rephrase the question, and again you have to come from our world, we're coming at it from the TV side.
2280 COMMISSIONER DUNCAN: M'hmm.
2281 MR. SPADOTTO: You know, the HSIA comes along with TV. As our customers are participating in a TV market, we get to share that broadband pipe that we built to them for TV plus the left over bits are for HSIA.
2282 If you have a customer that's participating in the TV market and kind of watching, you know, three TV sets are on at one time, I would suggest that they probably have left over sub five meg available for browsing.
2283 If they turn off all their TV sets, then that increases because it's a flexible platform, if you will.
2284 MR. HENNESSY: I guess just to be fair, just to get to the punch line if that's okay, Commissioner Duncan, I think our position is that we would agree with you that it's very likely without further unbundling that the speeds that we could provide to our customers in the market would get faster than the speeds available to the wholesaler.
2285 What we're trying to say is, you know, number one, that there is no regulatory justification for keeping the wholesaler in business when if you don't unbundle there's no loss to competition in the downstream market and, if you do unbundle, then there's a net negative effect on us in terms of our ability to compete with cable, our ability to roll out more advanced infrastructure.
2286 So, unfortunately, you have -- you know, I mean, when you really boil this down, you're stuck in a regulatory "Sophie's Choice".
2287 It's not there are -- you know, this is a dynamically competitive market and there are winners and there are losers and, you know, I don't want to sort of leave the impression that everybody that's in business today is going to be happily in business tomorrow. It's not going to work that way.
2288 So, you know, if that's helpful, that's really I think the trade-off that you've got to struggle with.
2289 COMMISSIONER DUNCAN: No, that's very helpful and it's clear what you're saying.
2290 That's fine, Mr. Chairman.
2291 THE CHAIRPERSON: Mr. Katz?
2292 COMMISSIONER KATZ: Thank you, Mr. Chairman.
2293 And good morning.
2294 MR. HENNESSY: Good morning.
2295 COMMISSIONER KATZ: I've got a series of questions. Let me start with your opening remarks this morning and refer you to page 1.
2296 The second last paragraph, I need some explanation. It reads as follows:
"It is our position that the existence of hyper competition in the downstream internet market arises from the existence of substantial facilities-based competition, governed by an open user model, that permits any user to access whatever content and services they want, and conversely enables any application and service provider..."
2297 COMMISSIONER KATZ: I emphasize:
"...and service provider to offer goods and services without the permission of the network operator."
2298 COMMISSIONER KATZ: Now, when I read the first half of that statement it implies to me that at the application level there's lots of opportunity, but at the access level there is not, because what you're saying here is there is competition, however, between the two facilities-based carriers you basically -- I won't use the word control -- but you do have the lion's share of the access component of the business.
2299 Then when I read the second half of the sentence, you talk about without impeding service providers offering goods and services without the permission of the network operator.
2300 And that speaks to me of service operators competitive to yourself perhaps and application providers, don't have the ability to provide higher speed access without your permission.
2301 So, explain to me what that paragraph really means.
2302 MR. HENNESSY: Start from working backwards.
2303 COMMISSIONER KATZ: Sure.
2304 MR. HENNESSY: If you're a wholesaler -- and we're not talking about wholesalers here -- but if you're a wholesaler, you can't provide a faster speed on our network than our network is built to deliver, right, unless there's -- unless there's some sort of technology that I'm not aware of and I think Eros would like that.
2305 See, it goes to the premise as to, you know, one of them is, what is the definition of the appropriate downstream market? Is it the access market or is it the retail Internet market writ large?
2306 And I would say when you're dealing with IP-based networks, it's the ability of consumers to access the network and it's the ability of application service providers to deliver multiple goods and services over those networks that defines what's going on.
2307 So, you know, and the classic example of that would be things like the iPad, the iPhone, what Google is doing. All of that is what competition is about on these future networks, okay.
2308 But if you say, no, I just want to talk about the access market and right now you and the cable companies have the lion's share of that market, it's not a symmetrical lion's share of the market.
2309 And I think as Dave pointed out, the evidence in the market in terms of price competition and choice to consumers, when you look at the ads we put out and the offers there and the offers that Shaw had -- and, I mean, we can provide those, you know, they are public and available -- we're talking about product sets that start at 9.95 on promotions, go to, you know, $35 in our product market for a, you know, 12-month triple play bundle and we're starting to see the same kind of stuff come down below the $50 mark in the rest of Canada.
2310 COMMISSIONER KATZ: But the point is still the same. At the access level, they are predominantly the key player.
2311 MR. HENNESSY: But the only reason -- the only reason to justify wholesale regulation, forced wholesale regulation is a concern that there is not sufficient competition in the downstream market to protect the interests of users.
2312 And there is no evidence, when you look at what is actually happening in the market, and when you look at how people are using the internet, and when you look at the open network platforms, and your net neutrality decisions -- there is no evidence that there is a failure of competition in any aspect of the internet market.
2313 The fact that the cable companies have a 60 percent share, and that we have around 40, or the fact that the new satellite guys won't have their 10 megabyte download satellite available until next year, is not evidence of market failure, because the offers in the market are more than dynamic. I would say they are hyperdynamic.
2314 COMMISSIONER KATZ: Do you believe that the CRTC should be looking at not only the existence, if it does exist, of market failure today, but also the potential of market failure going forward?
2315 MR. HENNESSY: As long as you also look at the potential of market growth, and there is a lot more evidence of the potential of market growth.
2316 As Dave said, he can find you five competitors in the market.
2317 Let me give you an example of what else is out there.
2318 In the satellite market, it has been announced by Barrett that they are going to have a satellite service out there next year, the middle of 2011, that will provide every home in Canada with access to download speeds of 10 meg in the residential market, 25 in the business market, upload speeds of 5 megs, and capacity to serve a million people.
2319 COMMISSIONER KATZ: Yes, but when you start looking downstream -- they may have 10, but by that time you will have 100.
2320 We are always looking downstream and seeing the distinction, I believe --
2321 MR. HENNESSY: There is no way possible, by the middle of next year, that anywhere close to a significant number of our pipes are going to be delivering 100 meg.
2322 I mean, the fact is, Commissioner Katz, that you can look to LTE, you can look to all kinds of examples where you are starting to see substitution in other markets that give you evidence that the competitive dynamic that is working today is going to be more competitive tomorrow.
2323 You asked me to be forward-looking in terms of bad things that can be happening; I am saying that there is a lot of evidence to suggest that there are going to be good things happening.
2324 COMMISSIONER KATZ: Can you explain, though, the latter part of that paragraph, where you are saying that there are no restrictions on service providers being able to offer goods and services without the permission of the network operator?
2325 What did you mean by that?
2326 MR. HENNESSY: Because over-the-top providers, whether it's a Canadian Hulu-type service, whether it's an Apple service for the iPad, or the hundreds of thousands of applications and services that use Apple or the RIM store --
2327 COMMISSIONER KATZ: But you are back to the application level, not the service provider level.
2328 MR. HENNESSY: But the application levels are services.
2329 I mean, if you look at --
2330 COMMISSIONER KATZ: I am looking at the words "service provider". It doesn't say "applications and services", it says "applications and service provider".
2331 MR. HENNESSY: I think you are being nitty here. A service provider is somebody that provides a service. It doesn't have to be somebody that provides an access service.
2332 COMMISSIONER KATZ: Okay. Mr. Hennessy, I think you touched upon this with Commissioner Duncan as well. Do you purchase/lease facilities, broadband facilities, from other ILECs across the country today?
2333 MR. HENNESSY: Yes.
2334 COMMISSIONER KATZ: As your business grows and as major accounts, national accounts, seek ubiquitous services across the country, if we don't create a matching speeds opportunity for you, particularly, to serve your national accounts, how are you going to get access to serve the banks in remote areas or whatever?
2335 MR. HENNESSY: Okay. We are switching here, for a second, to the business market. Correct?
2336 COMMISSIONER KATZ: Right.
2337 MR. HENNESSY: Let me ask Mr. Fuller to answer that question, because he has a lot of experience in that market.
2338 MR. FULLER: I think it's a fair point. However, I would say that we are talking about broadband access and unbundling broadband access.
2339 When we service our midsize and Enterprise accounts on a national basis, we, generally speaking, wouldn't use this type of technology.
2340 There are multiple options on a managed service, as long as I have access to a local loop and an ability to backhaul that from a central office to offer managed IP data services, without requiring any further unbundling than exists today.
2341 Put another way, I believe, to the extent that those services are required, they can be commercially discussed and negotiated, as required, across Canada without any forced further unbundling required to make us competitive.
2342 I think the other key thing that you need to factor in is that, generally speaking, with businesses, their bandwidth needs are nowhere near the same level as residential.
2343 I think you heard earlier today that what is driving a need for ever-increasing bandwidth speeds in residence is video. The simple fact is, most businesses, even small and medium businesses, do not have anywhere near the same level of bandwidth needs that are driven from multiple HD services into a home.
2344 In fact, what most businesses want, actually, are synchronous services, not asynchronous services. Many of these services provide big download speeds, but not a lot of upload speed, and most businesses actually need upload speed for things like Unified Communications.
2345 COMMISSIONER KATZ: But you said the magic words, negotiated at commercial rates. So you feel that you don't need any regulatory support at all, because you can negotiate what you need at commercial rates with whomever you need it from.
2346 MR. FULLER: No, I believe that the existing set of tariffs that are in place today support that -- have supported those types of service offerings to medium and large-size business in the past and will continue to do so in the future.
2347 COMMISSIONER KATZ: I think I heard you say a few minutes ago -- maybe you are retracting a statement, but I heard you say that you are prepared, if necessary, to negotiate commercial rates for services to serve your customers.
2348 And I don't doubt that you can. That's why I am sort of saying, how do we -- and I raised this issue with Mr. Cope yesterday -- how do we broaden that notion so that other parties can negotiate as well?
2349 As we heard yesterday from some of the other folks, they don't have the leverage perhaps that a TELUS or a Bell Canada has.
2350 So I ask the question directly: Are you prepared to enter into negotiations with other alternate ISPs that are partially facilities-based perhaps -- as the Chairman said earlier, hybrid providers -- to provide them with the facilities they may need in order to continue their business as well, in the absence of a regulatory intervention or fiat?
2351 MR. HENNESSY: I would say that you are always prepared to negotiate, but I am not going to try to oversell that this is the panacea.
2352 I want to come back to the problem for a second. The problem here is that there are some parties in the market, as the market changes, that have a business case that is totally dependent on regulatory price structures to succeed, and the only justification for extending that business case to be encompassed by next-generation networks is the belief that without that you will have a substantial lessening of competition in the downstream market. Okay?
2353 At the end of the day, when you ask me will we freely negotiate, you still have to say, "Under what circumstances?"
2354 Like, what if we say no? What is the model you contemplate then?
2355 Is it, like, in AWS, commercial arbitration?
2356 COMMISSIONER KATZ: We haven't made a decision yet, obviously, and that's why we are here, in this forum, trying to figure out what all of the permutations and combinations are.
2357 One of the questions is: If there was -- I guess SaskTel raised it yesterday, Mr. Meldrum -- the notion of negotiating in good faith, saying that there is a need to have service providers out there and there need to be some negotiations in good faith.
2358 And I guess I would go further by saying that, if that means there needs to be a risk premium attached to some cost in order to recognize the additional risk, with the additional benefits that come from that additional cost as well, ultimately consumers pay for it.
2359 But as I am sure Dr. Crandall will recognize, more choice doesn't necessarily come at the same price, it comes at a cost sometimes, as well.
2360 So the question is, is it in the best interests of Canadians to have more choice? Perhaps there will be an increased cost to yourselves, which you will pass through to your customers at the end of the day as well, but at the end of the day there is more choice --
2361 MR. HENNESSY: I think that is very populist thinking, that somehow the state of competition in a downstream market is determined by the number of access suppliers, for instance.
2362 COMMISSIONER KATZ: It's determined by more than two is what we are saying.
2363 It's not a matter by the number, it's more than two.
2364 MR. HENNESSY: You are the one saying there are only two. There is not a market that Dave competes in today that doesn't have at least four or five.
2365 COMMISSIONER KATZ: That are competitively priced, with competitive speeds, competitive bandwidth?
2366 MR. FULLER: Competitive enough to take market share from us.
2367 We are facing substitution in broadband services all over the place -- from HSPA Plus, Inukshuk has an offering, Satellite Broadband has already been used as an example, and there are lots of people who have decided that, at those speeds and those prices, that is sufficient for them to go to.
2368 COMMISSIONER KATZ: Could I ask you -- we are going to come back together in a couple of days. Could I ask you, between now and then, to have a table listing all of the facilities-based carriers, with their prices, their download speeds, and the comparisons that are driving the number of five or six, or whatever you are suggesting, are competitive in the marketplace today, please?
2369 MR. FULLER: Sure.
2370 COMMISSIONER KATZ: Dr. Crandall, were you going to say something?
2371 DR. CRANDALL: I just wanted to point out that -- assume for the sake of argument that there are only two broadband suppliers, and that you are concerned about the fact that there is market power here, and therefore you adopt a regulatory strategy which allows someone to come in and lease, at some rate, one of those two facilities. That doesn't change the competitive reality at all.
2372 If you were one of the -- if you were the lessee, you would then -- let's say that you leased the TELUS facilities in Alberta and faced Shaw as a competitor. You would face exactly the same competitive situation that TELUS does today.
2373 Why would the outcome be any different?
2374 Only if you were more innovative and could, with the same physical facilities, provide something different would this change the competitive reality.
2375 In fact, that doesn't happen, and that's why the studies show that unbundling doesn't increase penetration.
2376 COMMISSIONER KATZ: But innovation goes beyond technical innovation, it goes to customer service, it goes to relationships. There are some people who, for whatever reason, may not want to buy from incumbent X, but will buy his services if they are sold through somebody else.
2377 DR. CRANDALL: There was a time in the United States when we thought, maybe, just by putting "AT&T" at the top of the bill it made a difference. I mean, the identity of the seller may make a difference, but, in fact, most of the quality of the service is going to be controlled by TELUS, which owns the facilities.
2378 So I don't see how this changes the competitive reality. I mean, you could hope that it does, but the evidence certainly does not support you.
2379 COMMISSIONER KATZ: Dr. Crandall, you made a claim, or a statement, that was in TELUS' submission. It's in paragraph 60 of your February 8th filing, and I will just read it out.
"Dr. Crandall notes that in Japan the incumbent NTT is not required to unbundle its fibre, and where it does so, the wholesale price is set very high."
2380 Why do they?
2381 DR. CRANDALL: Why do they what?
2382 COMMISSIONER KATZ: Why do they unbundle the fibre?
2383 DR. CRANDALL: It is my understanding that there is very little unbundling.
2384 As you may know -- and perhaps you have had communication with the Ministry of Communications in Japan, which is the regulator -- it is often difficult to find out exactly what is going on in Japan, but, as I understand it, it is the following.
2385 The Ministry of Communications maintains the myth that they require network unbundling. But, in fact, the terms on which that unbundling is offered, both in the bundle -- it isn't fibre-by-fibre because of the GPON network that NTT has deployed -- and the wholesale price of that fibre is set so high that there is no interest in obtaining that fibre.
2386 In fact, the leading unbundler, the entrant who was the great success story in Japan, Yahoo! Broadband, is essentially backing out of the broadband business. They have said that they cannot compete using NTT's fibre, they are not building their own fibre, and in some cases, when they lose a customer -- and they are losing customers right and left now -- they will perhaps be able to resell, just as a sales agent for NTT, their fibre service.
2387 But they, essentially, are backing out of the business, and what is happening in Japan is, because this unbundling is really not available for fibre, the electric utility companies and KDDI and others are actually building out competitive fibre against NTT.
2388 COMMISSIONER KATZ: When you say, to the extent they are, the wholesale price is set very high, do you know how high it is set relative to their costs?
2389 DR. CRANDALL: I would certainly not know what their costs are.
2390 I have seen quotes on what it is, but again, as I say, it is very difficult sometimes to get the facts on the ground there, so I cannot --
2391 COMMISSIONER KATZ: I'm just wondering about your evidence, that's all.
2392 DR. CRANDALL: Yes. What I am saying is, this is the conventional wisdom now, and if you read, by the way, the press releases or the annual report of Yahoo -- it's called SoftBank Corporation -- you will see that they are saying that the terms offered them make it totally uneconomic to use NTT's fibre, so they have essentially abandoned the field.
2393 COMMISSIONER KATZ: Thank you.
2394 Mr. Hennessy, one or two last questions.
2395 There were some parties here yesterday who suggested that the IPTV dilemma can be solved by CISC. Do you have any comments on whether a CISC initiative would be able to achieve the desired end result?
2396 MR. HENNESSY: Yes, I think that is posturing on their part.
2397 The IPTV dilemma can't be resolved because it is economically unfeasible to solve it. I really requires -- you know, if you lose the line and the ability to provide TV, the only way you can actually do it is to put in another line and to actually install new inside wire in the home.
2398 When you make it that simple, it's not possible to do that economically.
2399 THE CHAIRPERSON: Is this Hennessy the engineer speaking?
2400 Isn't this the whole idea of the CISC, to let the engineers figure something out?
2401 MR. HENNESSY: Is it okay if I ask my engineers to repeat what they told me last night?
2402 MR. HENNESSY: How did you know I wasn't an engineer?
2403 MR. SPADOTTO: Thank you, Chief Engineer Hennessy.
2404 The reality of the situation is that -- if you back up, what do engineers do?
2405 Engineers actually optimize returns. That's what we do. That's our goal in life, to optimize returns for our shareholders.
2406 So while somebody can come and say that various objectives can be technically feasible, they are not feasible based on returns.
2407 What Michael was basically suggesting was, while somebody could figure out a way to provide an extra set of wiring in a home, you will not be able to do that in the real world, because no homeowner would allow that, or no service provider would actually be able to afford that.
2408 So it comes down to, again, the optimization of the return.
2409 COMMISSIONER KATZ: My last question -- and maybe it's to the engineers, I don't know. You make the suggestion here that if your investments are not economically viable to build out, you may opt for reselling cable DOCSIS.
2410 Is that a viable alternative for TELUS?
2411 MR. HENNESSY: It goes back to what I think the key issue in this proceeding is, as it always is in business, money. Right?
2412 If you have a belief that you need to keep the wholesalers in business, and the primary business of the wholesaler is to operate between -- or the retailer -- is to operate between the wholesale price and the price that they can offer into the market, then there is always an incentive, and there will always be, as Mr. Tacit pointed out, numerous regulatory proceedings to get that game right.
2413 If you do that, if you are playing around with creating margins, at some point -- just as we suggested that we do with satellite when it no longer makes sense to roll out that fibre -- it may equally make sense that, while there are technological difficulties with marrying our engineering group with the DOCSIS-type thinking, the margins are so attractive that it's a lot better than building.
2414 I guess that Dr. Crandall probably can comment on the fact that what we have seen in the U.K., where you see the most unbundling, is that we are beginning to see the least investment, because whoever is offering the cheapest facility at the time is attracting all of the people who would otherwise have built.
2415 But I guess just to close on that question, because you want a "Yes" or "No" from Eros as to whether it's practical to do that --
2416 MR. SPADOTTO: Yes.
2417 MR. HENNESSY: He says yes, for the record.
2418 COMMISSIONER KATZ: We heard yesterday, I think, from some of the parties that they are heavily entrenched in ILEC technology and DSL technology, and they couldn't naturally move toward a cable solution within their infrastructure.
2419 MR. SPADOTTO: I would not understand why that would be the case, because if you take a look at TELUS and take a look at the number of networks that operate both across fixed networks, internet-based networks, wireless networks, we are a haven for all technologies.
2420 We would have no problem figuring out how to interact with a DOCSIS world.
2421 COMMISSIONER KATZ: Those are my questions, Mr. Chairman. Thank you.
2422 THE CHAIRPERSON: Candice...
2423 MR. FULLER: Sorry, could I just come back on one point you made, Commissioner Katz?
2424 I just want to, I guess, state more clearly -- you made the point that, or inferred that because there might only be two access providers, that limits competition. As a marketer, living in that environment, I just find that an incredulous thought.
2425 I spent 15 years in the consulting business, and consulted to consumer packaged goods companies, life sciences, retailers, and this is one of the most intensely competitive environments that I have worked in, on any measure.
2426 If you were a homeowner in western Canada, you would sit and watch TV, or listen to radio, and you would probably hear more from Shaw and TELUS around why you should come to us than almost any other advertising medium out there.
2427 We would touch you, probably, once a week, through either a direct mailer or a direct phone call, trying to get you to come over to our service, or them to get you to go over to theirs.
2428 And we constantly change and move around price points, to try to move ourselves into a more or less competitive position.
2429 COMMISSIONER KATZ: There is no question that you are both reaching out and trying to get the customer. All I am saying is, if it's two, it's a different question as to whether it's five, and I draw that analogy only from the perspective of -- Industry Canada, not three years ago, notwithstanding the fact that you, Rogers and Bell all said that wireless is heavily competitive and there are calls going back and forth as well, and yet they chose to do something slightly different.
2430 So, I guess, draw that analogy and sort of say: If, in fact, there only are two access providers, as opposed to the five that you are hypothesizing, then maybe there is a different issue here than we are led to believe. That's all.
2431 MR. HENNESSY: That, then, gets to the nub of the question here. If your concern, it seems to me then, is that you need to ensure, because there are two, that the competitive pricing regime in the market is sustained -- which I think is what you are suggesting -- and you believe that wholesale is the way to discipline that market, then the only way you can do that is to create significant artificial margins for the wholesaler, so that they can keep pushing price down.
2432 MR. FULLER: And/or have an environment where there are more and more facilities-based providers. Right?
2433 The example of the contrast to the wireless --
2434 THE CHAIRPERSON: You made your point, okay? I would like to move on. I have asked the next Commissioner --
2435 We know your view with Commissioner Katz, let's move on.
2437 COMMISSIONER MOLNAR: Changing direction.
2438 I would like to ask Mr. Spadotto -- you commented that the IPTV investment is perhaps most at risk in smaller centres, and Bell made the same comment. Can you explain that to me, because it is not immediately obvious to me why the size of the city is going to influence why that is.
2439 MR. SPADOTTO: Certainly. Let me answer that, probably, from an economic standpoint, which is, of course, coming from a shareholder perspective, our job is to ensure that we return shareholder wealth -- create shareholder wealth for our shareholders. The way we do that is, of course, by making money off the investments we have made.
2440 If we actually start to play with the returns on those investments, we can make less of them. So, as we take a look at our markets, we are going to naturally retrench into the big centres, and the reason we will do that is, quite simply, that the bigger centres have more population, they are more compact, it is easier for -- more economical for us to provide services to them.
2441 The more distant centres, when you start to take away some of that return, will become secondary and tertiary in our minds, in terms of investing in them.
2442 It's because of the total return.
2443 COMMISSIONER MOLNAR: Okay. What sort of centre are you calling a smaller centre? Can you give me an example in Alberta, because I might know it.
2444 What is at risk? What centres are at risk?
2445 MR. SPADOTTO: They would be centres that are farther out from the core.
2446 I am not as familiar with Alberta, given that I live in Toronto, but I would suggest that there would be places like --
2447 COMMISSIONER MOLNAR: Do we have anybody here who lives in the west?
2448 MR. SPADOTTO: Yes, we do.
2449 MR. SINCLAIR: I do.
2450 MR. SPADOTTO: They would be places of the nature like Lloydminster, or areas of that size.
2451 MR. SINCLAIR: I am trying to think, I don't know the exact list of the next 24 that we are rolling out, but certainly Lloyd would be a good example of a centre of that kind of scale.
2452 COMMISSIONER MOLNAR: A centre that would be at risk?
2453 MR. SINCLAIR: Yes.
2454 COMMISSIONER MOLNAR: Because one of the things that confuses me about this, this argument that investment in smaller centres is at risk -- you have made a planned decision that it is viable to go to Lloyd. It is unlikely that Lloyd is the first place that a competitor entering the Alberta market is going to go. For the reasons you noted, they will be going into Calgary, they will be going into Edmonton, to grab economies of scale.
2455 If Lloyd is viable to you today, the competitive risk in Lloyd is not going to be as significant as it is in Calgary or Edmonton. Your investment is made at a --
2456 You know, when you are talking about fibre to the node, what is at risk is a community-level investment.
2457 That's why I get mixed up as to why we continue to say that driving out this broadband to smaller centres is at risk through this.
2458 MR. SINCLAIR: So you are saying that you will mandate competition there, but don't expect it to happen, or can we assume that it won't happen in these places then?
2459 COMMISSIONER MOLNAR: Well, it's not the first place it's going to happen --
2460 MR. HENNESSY: Perhaps Mr. Spadotto can answer your question.
2461 COMMISSIONER MOLNAR: I think we can all expect that it's not the first place.
2462 And, in any case, as I said, when you are making this investment -- and yesterday we heard that cabinet holds 196 customers -- can serve 196 customers -- why is it less viable in Lloyd than Calgary, when the investment is at the node?
2463 MR. SPADOTTO: If you go up to 100,000 feet, the way we decide where we make our investments is -- it first starts with what the market can bear in terms of us investing. So call it a capital intensity measure: how much capital as a percentage of the revenue you make are you willing to invest.
2464 And as that revenue starts to erode, your capital intensity, of course, goes down.
2465 So in a world where your revenues are going down, you actually have less aggregate money to invest, and now we are making choices about where do we actually make that investment.
2466 Where do we choose to make that investment? Largely, we choose to make that investment where we actually have the fiercest competition. That tends to be in the bigger centres, because we can get the most economic return from those areas.
2467 What will happen when we do that is, you immediately start crossing off from your list the market that is -- Market 72, Market 71, Market 70. They get crossed off the list, or they get further pushed out. It takes a longer time to get to them.
2468 That is relevant because, if I take a look at what has happened in the past few years -- again, without getting into details that I do not wish to share with my competitors -- we have made those choices. We have actually deferred markets and pushed out.
2469 I wish we could be further along right now with our broadband deployment, but our broadband deployment is driven off of a capital intensity figure, which is driven off of a revenue figure, which is driven off of the competitive intensity in our marketplaces.
2470 COMMISSIONER MOLNAR: So it has nothing to do with the competitive conditions within the smaller markets, it simply has to do with your capital allocation in the larger markets.
2471 MR. SPADOTTO: The quick answer is yes, but we look at competition in aggregate, and we decide where we need to compete the most fiercely.
2472 COMMISSIONER MOLNAR: Perhaps it would be more attractive in smaller markets where there isn't the same competitive intensity.
2473 MR. SPADOTTO: But then you're asking us to make Sophie's choice, which is: Please give up on competing in Calgary because you can get a better return out of Terrace, B.C.
2474 Now, Calgary is a million-plus subscribers, a million-plus inhabitants, you have lots of homes there. It's easier to get to, versus going to Terrace, B.C., where there are 25,000 inhabitants.
2475 While that may be true, it's a very difficult Sophie's choice.
2476 COMMISSIONER MOLNAR: I am going to move through my questions quite quickly, if that's okay.
2477 Just to clarify, SaskTel yesterday said that they made their ADSL available at the highest available speed, which is 10 megs, and you say that you make aggregated ADSL available today at 6 megs.
2478 Is 10 megs available on your ADSL product?
2479 This is just a simple question.
2480 MR. SINCLAIR: The aggregated ADSL product is what you are referring to?
2481 COMMISSIONER MOLNAR: Not what you tariff, what is available. Do you technically deliver 10 megs over ADSL?
2482 MR. SINCLAIR: Over ADSL, no.
2483 COMMISSIONER MOLNAR: You don't?
2484 MR. SINCLAIR: Not over ADSL, no.
2485 COMMISSIONER MOLNAR: You use what?
2486 MR. SINCLAIR: To deliver higher speeds, our next generation network.
2487 COMMISSIONER MOLNAR: So what is it?
2488 MR. SINCLAIR: The technology would be ADSL2+ and beyond.
2489 COMMISSIONER MOLNAR: ADSL2+?
2490 MR. SINCLAIR: Correct.
2491 COMMISSIONER MOLNAR: Okay. I'm going to move maybe first to one of the questions I have here related to the characteristics of a facilities-based carrier. We are talking here about competitors and sometimes they are called resellers and sometimes they are called, you know, facilities-based carriers who rely on unbundled network components.
2492 I wonder if you could help -- and maybe this would be better as a take away than us trying to sort it out here -- in defining what characteristics would truly define someone as a facility-based carrier?
2493 I will just throw out some examples of what I'm thinking about. But do you need to be able to manage the quality of service for example?
2494 Do you need to be able to manage throughput or those sorts of elements of your network that would define you to be a facility-based carrier relying on unbundled network components; versus define you to be a reseller? Is that fair as a take away?
2495 MR. WOODHEAD: Yes, it is, but I mean obviously the definition of a facilities-based carrier is that you own a facility. So you need to own a transmission facility in order to fall into that category of some level or another and a reseller, a pure reseller obviously is simply that, a pure reseller of the end and service to the end customer.
2496 And in between, in terms of a facilities-based provider there is a continuum where you own a piece of a transmission facility all the way to all of the transmission facilities and switching apparatus and everything else that is not required and then you are a fully facilities-based provider much like ourselves or a cable company or a wireless company.
2497 But is there something else that --
2498 COMMISSIONER MOLNAR: I understand that. I mean I understand those bookends and I guess what I'm trying to do is really get a sense as to what point in the internet services market we should consider these competitors to be facilities-based. I mean they all own a piece of facility.
2499 MR. HENNESSY: Could I just ask for a point of verification, or maybe to make one that could help?
2500 We don't look at unbundling differently if you are pure reseller or mostly a facilities-based carrier or anything in between. So our position on unbundling applies equally to all those flavours. We don't -- I think the rules as they exist today apply equally to all those flavours.
2501 We can try to define it, but I think at the end of the day I don't think that there is a difference or there should be a regulatory rule that cut the line somewhere along there. I don't know how you would ever enforce it.
2502 COMMISSIONER MOLNAR: Okay. Well, I will let it go. Just one more question then and I want to go back to this issue of Sophie's Choice. I know Commissioner Katz has talked to you about this notion of negotiating with alternate ISPs.
2503 One of the things -- and I asked Bell about this. I presented my thoughts. But as a telco you are not necessarily -- it's not liable for you to target every customer. There are customers that have specific needs and some of our competitive ISPs today serve these niche markets. They may be high bandwidth users.
2504 They may -- you know, whatever their users are they are separate from the mass market that generally as a telco you are targeting. Bell came back and said "No, we are trying to serve every customer".
2505 I guess I want to talk to you about that as well, because if I look at your services it appears you have three high-speed services available. The cost of creating services and serving 100 percent or having services available to attract 100 percent of the market, I would think, rapidly becomes operationally inefficient in trying to have your call centers available to support that and, you know, your systems available to support multiple -- multiple internet service options and so on. Therefore, there is a value to some of these competitors who served niches.
2506 Do you disagree? Are you there to serve 100 percent of the market?
2507 MR. FULLER: We are, yes. Probably the way I would say it is we aspire to service 100 percent of the market.
2508 From a marketing standpoint, Commissioner Molnar, I'm not going to say that that doesn't mean that a much smaller company couldn't perhaps be more innovative about, you know, figuring out a way to market to a micro-segment of the market more effectively than we are.
2509 But there is no question that when we stand back and look at the market overall, we don't go and say there is a segment of the customer base we don't want or we can't serve and therefore we are not going to focus on them. Our aspiration is absolutely to service and sell to and market to 100 percent of the customers.
2510 COMMISSIONER MOLNAR: But would you agree there might be some value for you partnering with that firm who is targeting the niche where they can create pricing plan, you know, and the service characteristics and take the calls of that niche?
2511 MR. FULLER: Possibly. I mean, I don't want to say, no, that there is nothing that no one could bring forward a value proposition that that makes sense. I can't think of any right now.
2512 COMMISSIONER MOLNAR: But it's not something you are considering or have considered?
2513 MR. FULLER: No. No. We definitely don't go and say there is a segment of the market we can't get to; we need to find a partner to help us get to that segment of the market or, as I said, our aspiration or our goal.
2514 Everything around how we have been built as a phone company is to get to 100 percent of customers.
2515 COMMISSIONER MOLNAR: Okay. Thanks.
2516 That's all I have.
2517 THE CHAIRPERSON: Marc.
2518 COMMISSIONER PATRONE: Thank you, Mr. Chair.
2519 Good morning. I have one question and possibly a follow-up.
2520 Can you envision any scenario in which in a market where next generation networks are rolled out, assuming hypothetically that they were not unbundled, that legacy networks could be made available at cost to allow competitors to be primarily value players?
2521 MR. HENNESSY: That is today the scenario that I think we put on the table and I would suggest, getting back to Commissioner --
2522 COMMISSIONER PATRONE: Forgive me if I'm asking a question that you have already answered.
2523 MR. HENNESSY: No, no, I didn't actually answer it as part of our evidence. We didn't discuss that. Your question is fresh in terms of today, Commissioner Patrone.
2524 You know, we have said that we will continue to provide the legacy ADSL service even if there is no further unbundling. So we are saying, you know, that is -- when I said we are talking further unbundling at cost. We would love to actually provide that service at cost today because we believe currently it is priced below cost and that of course is -- you know, those are constant debates that will be in front of the Commission.
2525 The reason we believe that, right, is as I said, is that it is all incremental cost and there seems to be a tendency in the way things are costing today at Commission to give less and less due to embedded common cost, capital cost of capital, that type of thing.
2526 COMMISSIONER PATRONE: I'm talking about without --
2527 MR. HENNESSY: But even in your old -- at the existing, say, rates that you call cost --
2528 COMMISSIONER PATRONE: I'm talking about without a markup.
2529 MR. HENNESSY: We haven't proposed any changes without a markup.
2530 COMMISSIONER PARONE: Right.
2531 MR. HENNESSY: You know, we would argue today there isn't a markup; there is a markdown.
2532 But you know, in principle I hear what you are saying and I think that is consistent with what we have said on the record.
2533 COMMISSIONER PATRONE: So the answer is yes?
2534 MR. HENNESSY: At the rates that exist on the record today we would continue to provide the legacy ADSL service.
2535 COMMISSIONER PATRONE: Do you detect there being a market out there for speeds that are fairly modest, say 5 to 10 megs going forward for people who basically don't want to spend -- are perfectly satisfied with those speeds, forget for a moment that applications are going to demand more than that -- but do you see a market for that going forward?
2536 MR. FULLER: Yes, no question. I think there will always be a value segment of the market that looks at it and says, "We don't need massive download speeds". It is a viable market today and I see it as a viable market going forward.
2537 MR. SPADOTTO: In effect -- David, if I can add?
2538 MR. FULLER: Yes. Sorry, Eros. It's just Ted just made a good point that we still have subscribers on dialup, right, which is far lower than that, right.
2539 So there is absolutely a market for it, Commissioner Patrone.
2540 MR. SPADOTTO: You know, if we look elsewhere in the world, and again the challenge the Commission has right now is of course to set some progressive policy, a future looking kind of policy, but if we look at areas of the world where perhaps they are leading us with adoption of technologies -- so I look at Finland and Sweden, who are the areas in the world which tend to be the more progressive countries around wireless, although that I would conjure up with what we have done in wireless over the past year and a half I think they are falling off in terms of their progression towards our favour.
2541 Bt if you take a look at adoption there of what would the HSIA, or high-speed internet access, it's actually declined in favour of wireless substitution.
2542 So the only place in the world where you see HSIA declining and people are taking on wireless, whether it is through a dongle running on something like an HSDPA network or HSPA+ network like we have built and Bell built and Rogers built and all the new entrants are building out, they are actually taking a share of those subscribers.
2543 And you would argue that in that case, as we all know the capabilities of wireless are smaller than capabilities of a fixed network, that people have made that choice. They have made the choice that yes, there is a market here and I am willing to take it.
2544 COMMISSIONER PATRONE: Those are my questions, Mr. Chair. Thank you.
2545 HE CHAIRPERSON: Thank you.
2546 Tim, last question?
2547 COMMISSIONER DENTON: Mr. Hennessy, a question for you. Are you suggesting to us that there is no lease arrangement that we can authorize that would satisfy the Commission's essential services test or are you proposing that even if it could it is a mistaken policy to pursue that course of action?
2548 MR. HENNESSY: Yes, I think I am in both circumstances. I think the first one, you know, the critical element of the test is really, you know, if you were denying access to the facility that would likely result in a substantial lessening or prevention of competition, the relevant downstream market.
2549 I don't believe that that would occur because we are -- actually in terms of penetration we continue to see penetration go up. We continue to see price go down.
2550 We are seeing a satellite service coming to the market next year that will be 10 Mb download.
2551 We are seeing, as Eros said, substitution at the current HSIA and we will see very rapid substitution when we hit LTE. We are seeing the growth of fixed wireless services like the Inukshuk in territory.
2552 So there are increasing alternatives in the downstream market at the same time that there is increasing competition and increasing competition as well in access and increasing competition over the top. So the first thing is that, you know, I don't think further unbundling meets the essential services test.
2553 And having talked for so long I'm trying to remember your second question.
2554 COMMISSIONER DENTON: The second point was that even if it could it is still a mistake in policy. Is that your view?
2555 MR. HENNESSY: Yes. I think it's a mistake in policy because, as we point out, if you look at the internet market today, downstream internet market, as being more competitive than the cable TV market, and recognizing the convergence of bundles, recognizing that we are introducing a technology that actually marries TV and internet together; provides that opportunity as subject to Commissioner Arpin's approval of various services under the Broadcasting Act, there is tremendous innovation here.
2556 You can point to these new networks as being something -- delivering something in terms of the broadband video space that is truly new, that is truly innovative, that is truly next generation.
2557 If the result of what you do in terms of unbundling reduces the availability or supply of that, you are reducing competition in a much less competitive market to begin with, you are reducing innovation and you are reducing investment in next-generation networks and those are all trade-offs that I would submit are not consistent with government policy to begin with.
2558 COMMISSIONER DENTON: Thank you.
2559 MR. WOODHEAD: Commissioner Denton, I have one just very brief addition to what Michael just said and it goes to a bit of a history that predates this sitting Commission.
2560 But one thing that you do risk doing by forced sharing and mandated discounts is destroying the business proposition of other new entrants who are trying to build facilities. That has happened in the past with --
2561 THE CHAIRPERSON: Okay. We are not redoing the essential services decision. It's there and we --
2562 MR. WOODHEAD: I just say it from a policy perspective.
2563 THE CHAIRPERSON: Yes. I said at the beginning; that is the starting point. So let's not revisit that.
2564 Thank you for your submission. We will take a 10 minute break.
--- Upon recessing at 1045
--- Resuming at 1103
2565 THE SECRETARY: Order, please. À l'ordre, s'il vous plaît.
2566 THE CHAIRPERSON: Okay. Madame la Secrétaire, before we resume, I just want to tell you all, unfortunately because of some other commitment we have to break at 12:05 for lunch. So, wherever we are in the proceeding, we will break then, and we will resume an hour later.
2567 Thank you.
2568 Madame la Secrétaire?
2569 LA SECRÉTAIRE : Merci, Monsieur le Président.
2570 We will now hear the presentation by the Coalition of Internet Service Providers Inc. (CISP) and the Canadian Association of Internet Providers (CAIP), and we will begin with the presentation from the Coalition of Internet Service Providers Inc.
2571 Comparaît pour CISP monsieur Alain Bergeron. Monsieur Bergeron, s'il vous plait, nous présenter vos collègues. Vous disposez de 25 minutes.
2572 M. BERGERON : Alors, bonjour aux membres de la Commission.
2573 Mon collègue ici est François Ménard de la Coalition des fournisseurs Internet du Québec, et du Canada aussi.
2574 J'aimerais en premier lieu remercier les membres de la Commission de l'opportunité qui m'est donnée de présenter la vision d'Oricom Internet concernant les services d'accès Internet haute vitesse qui sont offerts ou deviendront offerts par les entreprises titulaires d'une partie vitale des infrastructures, soit l'infrastructure de câblage entre les résidences des abonnés et les équipements d'agrégation, qu'elle soit filaire, coaxiale ou de fibre optique.
2575 Oricom Internet est présente surtout dans la région de Québec depuis ses débuts en 1995.
2576 À cette époque la technologie utilisait le câblage téléphonique de Bell Canada pour fonctionner. Bell Canada à cette époque a collaboré aux améliorations technologiques demandées par les fournisseurs comme Oricom lorsque la vitesse des modems a atteint l'astronomique vitesse de 56 kilobits.
2577 Une partie des infrastructures des compagnies de téléphone ont été déployées à ce moment-là dans les centres de données des fournisseurs Internet.
2578 Par la suite les technologies se sont développées et la haute vitesse est apparue d'abord avec l'ADSL et ensuite par le développement du modem câble.
2579 Ces deux technologies obligeaient des investissements importants de la part des compagnies titulaires, mais la popularité de l'Internet les a rapidement convaincues que la télécommunication avec le protocole IP allait devenir une question de survie à moyen ou à long terme.
2580 À ce moment-là, Oricom a vu ses parts de marché augmenter rapidement jusqu'en à peu près 1999, c'est-à-dire au moment où Bell Canada s'est mis à offrir des accès haute vitesse dans la région de Québec.
2581 Il y a eu un délai de plusieurs mois entre l'offre de Bell pour la haute vitesse à ses propres clients et l'offre par Oricom suite à l'autorisation, si on veut, de Bell d'utiliser son infrastructure pour les concurrents.
2582 Donc, cela a eu pour effet que l'essentiel du développement du marché dans cette période est allé à Bell Canada.
2583 Par la suite, il est devenu très difficile pour Oricom de suivre la lutte en raison des marges de profit marginales qui ont empêché Oricom d'être agressif sur le plan marketing, comme la plupart des autres fournisseurs indépendants, d'ailleurs.
2584 Les services haute vitesse étaient pour une bonne partie vendue aux clients existants chez Oricom, la cause principale étant que les campagnes publicitaires des compagnies titulaires étaient, et sont encore, extrêmement agressives et coûteuses.
2585 Ces coûts n'ont d'autre choix que d'être refilés aux clients. Conséquemment, il n'est pas surprenant que les marges de profit que nous permettent les tarifs déposés soient si minces que nous n'avons d'autres choix que de trouver d'autres marchés, comme par exemple, les services affaires, et de délaisser de plus en plus les services résidentiels.
2586 À titre d'exemple criant concernant les tarifs déposés, notons les blocs de bande passante que nous offre Vidéotron. Je prends l'exemple de Vidéotron parce que, chez Oricom, c'est un partenaire depuis plusieurs années.
2587 Le prix tarifé, par exemple est de 12,50 dollars pour 30 gigaoctets, alors que Vidéotron vend exactement le même produit à sa clientèle de détail le même prix, c'est-à-dire 12,50 dollars.
2588 En fait, Vidéotron vend aux fournisseurs tous ces produits reliés à l'utilisation de bande passante au prix de détail pratiqué auprès de ses propres abonnés.
2589 Pourtant Oricom doit posséder une infrastructure et des interconnexions pour pouvoir fournir cette bande passante.
2590 C'est comme si les frais de bande passante n'existaient que pour Vidéotron. Le plus ironique est que Vidéotron est également un fournisseur de bande passante vers l'Internet pour Oricom et que, donc, les frais de bande passante sont facturés une seconde fois à Oricom par le biais de son contrat de fournisseur de connexion IP vers l'Internet avec Vidéotron.
2591 C'est sans parler des marges de profit qui sont en diminuant à mesure que la vitesse offerte augmente.
2592 Les services TGV15, TGV30 et TGV50 de Vidéotron nous sont offerts avec une marge brute potentielle de 15 pour cent. Cela signifie une perte nette obligatoire si Oricom veut offrir ces vitesses.
2593 N'oublions pas que la bande passante n'est pas incluse vers Internet. Le soutien technique non plus. Les services connexes comme le courriel, les pages Web personnelles et tous les autres services qui doivent faire partie d'une offre sérieuse d'un fournisseur Internet auprès d'une clientèle résidentielle.
2594 Je voulais simplement par cet exemple vous démontrer à quel point il est devenu difficile de continuer d'offrir des services résidentiels dans un contexte comme celui-là.
2595 S'ajoute maintenant depuis quelques années l'offre de trio Télé, Internet et téléphonie.
2596 Ces offres ont pour effet qu'il devient très difficile pour un fournisseur Internet de continuer dans le secteur résidentiel sans une offre de téléphonie IP et bientôt une offre de TVIP.
2597 Toutes ces technologies existent déjà. Le problème est de savoir dans quel contexte réglementaire les fournisseurs indépendants pourront utiliser l'infrastructure des compagnies titulaires.
2598 J'aimerais aborder le sujet principal de la présente audition, à savoir la pertinence de maintenir la réglementation des services d'accès haute vitesse et dans quel cadre.
2599 D'abord, la pertinence est-elle toujours là?
2600 Cette question est facile à répondre. Sans réglementation les y obligeant, Bell Canada ne semble pas disposée à rendre les nouvelles vitesses disponibles au fournisseur Internet indépendant.
2601 Pourtant le produit FIBE présentement n'est en réalité qu'une configuration différente de l'infrastructure existante lorsqu'elle est récente.
2602 Seule la Fiber To The Home (fibre à la maison) est une réelle évolution technologique par rapport au DSL.
2603 Donc, de constater la lecteur extrême ou l'absence d'intérêt de Bell à offrir ces nouvelles vitesses a pour effet que le service DSL que nous offrons est en perte importante de clientèle.
2604 Ajoutez à cela que les clients veulent des forfaits incluant la téléphonie et qu'il faut ajouter les frais réglementaires de ligne sèche dans le cas du DSL avec téléphonie.
2605 Il devient très difficile de conserver la clientèle actuelle au service DSL.
2606 Donc, pour résumer, les agissements de Bell, de notre point de vue, confirment la nécessité de réglementation si Oricom veut continuer à offrir les technologies de Bell à sa clientèle.
2607 Du côté de Vidéotron, le problème d'offrir les technologies qui progressent en vitesse n'est pas problématique. Ce sont surtout les tarifs qui font un obstacle majeur.
2608 Le coût mensuel tarifié il y a quelques années du forfait 7.5 megabits est d'environ 19,25 dollars.
2609 Le TGV15, qui est actuellement le service le plus en vue chez Vidéotron, nous est accessible, mais à un coût mensuel de 42,94 dollars.
2610 Pourtant le prix de détail pratiqué par Vidéotron n'est pas du simple au double pour passer du service 7.5 megabits au TGV15, mais une augmentation de seulement 12 dollars par mois pour le client.
2611 On pourrait donc s'attendre au pire à 12 dollars supplémentaires par Vidéotron. Mais non. Vidéotron a fait approuver un tarif qui comprend une surprime mensuelle pour les fournisseurs de 23,69 dollars, soit presque le double de ce qui est demandé à sa propre clientèle.
2612 Il est donc évident que le bon sens ne semble pas être un critère pour Vidéotron, mais plutôt de mettre le plus de bâtons dans les roues pour empêcher la compétition de s'installer dans son marché. Je n'ose imaginer l'absence de réglementation.
2613 Malgré tout, le produit modem câble 7.5 megabits est actuellement le produit le plus populaire auprès de notre clientèle de la région de Québec, surtout parce qu'on peut associer à ce service la téléphonie IP.
2614 Mes craintes sont surtout reliées aux nouvelles vitesses vendues à un prix proche du détail, qui m'inquiète à moyen terme.
2615 Maintenant, quels nouveaux services devraient être réglementés et de quelle façon devrait-on réglementer les tarifs?
2616 Notre coalition a déjà proposé qu'un monopole temporaire puisse exister pour des nouvelles technologies comme la fibre vers la maison, par exemple, que lancera Bell Canada bientôt.
2617 Toutefois, je suis très inquiet pour mon entreprise à Québec si le déploiement est précédé d'un projet pilote à grande échelle comme il est annoncé en grandes pompes dans la région de Québec avec un budget de 320 millions de dollars. Ce projet pilote couvrira 80 pour cent du marché géographique actuel d'Oricom Internet.
2618 J'ai demandé au représentant chez Bell ce qu'il comptait faire avec les clients actuels d'Oricom qui voudront s'abonner à ce nouveau service. La réponse de Bell a été de me référer à la présente instance, devant vous.
2619 J'ai également demandé à notre représentant quand les vitesses allaient être harmonisées aux DSL suite à l'arrivée de la promotion FIBE chez Bell. Encore là, la réponse a encore été de me référer à la présente instance.
2620 Pourtant FIBE n'est qu'une notion marketing, pas une nouvelle technologie.
2621 Donc, oui, il faudrait inclure dans la réglementation tout nouveau service qui aurait comme potentialité de remplacer à terme les services déjà réglementés.
2622 Il faudrait tenir compte pour les technologies nouvelles d'un délai raisonnable pour permettre à l'entreprise titulaire de rentabiliser l'investissement initial.
2623 Il faudrait également qu'un projet pilote d'envergure qui couvre plus de 50 pour cent du marché d'une entreprise non dominante soit assujetti à des mesures particulières de compensation si l'entreprise peut démontrer une perte de clientèle au profit du projet pilote.
2624 Il faudrait faire attention dans la détermination d'une nouvelle technologie à ce qu'une entreprise titulaire ne puisse invoquer comme nouveau un service le FIBE de Bell, par exemple, ou le DOCSIS 3.0 en câblodistribution, qui ne sont en réalité qu'une amélioration d'une technologie existante.
2625 Pour ce qui est des tarifs, à mon avis, une étude de coût devrait être exigée pour une technologie.
2626 Notre expérience avec la réglementation actuelle était positive jusqu'à ce que les entreprises titulaires entrent en guerre entre elles pour la course à la vitesse.
2627 Le mode actuel d'établissement de nos coûts étant très lent pour Bell et obligatoire mais sans paramètres précis pour Vidéotron a eu pour effet que Bell a négligé d'offrir les vitesses, n'y étant pas obligé par la réglementation, et Vidéotron a mis en place une tarification abusive, n'étant pas obligé de démontrer ses coûts.
2628 De toute façon, la technologie étant la même, les coûts pour les entreprises titulaires n'étaient pas vraiment différents d'une vitesse à une autre.
2629 Conséquemment, l'absence de réglementation contraignante pour les tarifs a été une méthode d'empêcher l'accès pour Vidéotron, et l'absence d'obligation pour Bell a été une méthode d'empêcher l'accès aux concurrents.
2630 Un point majeur, à mon avis, n'a pas été discuté en détail dans ce débat, à savoir la tarification de l'utilisation de la bande passante.
2631 J'aimerais souligner que le débat bande passante est en réalité le vrai débat qui permettra ou non de pouvoir offrir la télévision IP pour Oricom ou pour tout fournisseur indépendant.
2632 La téléphonie IP n'est pas une technologie exigeante en bande passante. Toutefois la télévision IP est plus exigeante.
2633 L'imposition de limites est souhaitable, de l'avis d'Oricom, dans le cas d'infrastructures partagées.
2634 Mais lorsque la tarification est conçue pour dissuader le fournisseur d'offrir des services, c'est autre chose.
2635 C'est le cas présentement observé avec Vidéotron, qui facture Oricom 7,95 dollars par gigaoctet avec un maximum de 50 dollars.
2636 Aucune étude de coût ne vient confirmer une telle pratique.
2637 Vidéotron facture 12,50 dollars à ses clients pour un bloc de 30 gigaoctets. Une simple division permet de constater qu'un gigaoctet vaudrait 42 sous, incluant la bande passante vers l'Internet en plus de transiter sur son réseau câble, et ce, au prix de détail.
2638 Les prix pratiqués pour les excédants de bande passante par Vidétron ou le contrôle de certains types de trafic, dans le cas de Bell, sont des éléments à considérer.
2639 La fourniture éventuelle de télévision IP par des fournisseurs indépendants est conditionnelle à ce que la réglementation du trafic IP par le CRTC tienne compte de la convergence des divers médias vers la technologie IP.
2640 Les entreprises titulaires sont très conscientes que l'offre de TVIP associée à la téléphonie et l'Internet est le nerf de la guerre et que l'élimination des fournisseurs indépendants ne pourra être que bénéfique pour eux.
2641 La seule façon d'y parvenir est de mettre en place des barrières à l'entrée pour limiter la bande passante de façon à rendre économiquement irréalisable de fournir la télévision IP ou tout autre service qui pourrait éventuellement remplacer la télévision traditionnelle. Je pense ici à des sites comme tou.tv, par exemple.
2642 La coalition a proposé des solutions pour aider à résoudre la problématique du partage de certaines infrastructures comme le dégroupage autant en technologie ADSL, fibre vers la maison ou modem câble.
2643 Ces solutions de dégroupage demeureraient efficaces dans un contexte de * triple play +.
2644 Les fonctionnalités de qualité de service pour la téléphonie IP et le * multicast + pour les solutions de TVIP seraient possibles.
2645 Ni les câblos ni les telcos n'ont voulu présenter une offre de référence de dégroupage accompagnée d'une étude des coûts afférents fondée sur les architectures proposées par la coalition en prétendant que le dossier actuel ne vise que le marché de l'Internet.
2646 L'opportunité existe pour le CRTC de s'assurer que les architectures de dégroupage * ADSL-CO + et * Local Head-end Interconnection + présentent le * IP Multicast + et la qualité de service (QoS) nécessaires à assurer une pérennité de ces architectures.
2647 Au moins, de cette façon, le choix sera possible pour le CRTC, lorsqu'il aura validé l'opportunité de concurrence, de vérifier si cette opportunité est affaiblie si les concurrents doivent utiliser des liens bridés et facturés au gigaoctet pour offrir le bouquet de service qui leur permettra un jour, eux aussi, de faire des investissements dans leur propre infrastructure.
2648 Merci de votre attention.
2649 MR. MÉNARD: The Commission proposed that it would focus the present hearing around five questions...
2650 Are Incumbent telcos and cablecos disadvantaged by the current wholesale obligations?
2651 Should DSL unbundling be mandated at the local central office?
2652 Should DOCSIS, the equivalent of DSL but on the cable carrier side, be mandated at the local head-end?
2653 Should speed-matching requirements apply to aggregated ADSL?
2654 And how should the essential services frameworks apply to ILECs investments in fibre-to-the-home or next generation access?
2655 In response to these five questions, CISP has the following answers...
2656 The answer to question 1 is: No, the incumbents are not disadvantaged; however there are important discrepancies. And I believe that TSI -- we agree with TSI in this matter. About 6, and they should be resolved.
2657 Our answer to question 2 is yes. DSL unbundling should be done at the central office. We have proposed a solution for this at paragraph 30 of our submission dated October 30, 2009, and is reproduced below.
2658 Please note that our proposal does not allow for ADSL-CO costs to be contaminated by interfacing with legacy DSLAMs, as such equipment are in ever decreasing quantity and will continue to remain accessible by current aggregated DSL wholesale services.
2659 Our answer to the third question is also yes.
2660 We have proposed at paragraph 25 of our submission dated October 30, 2009 a solution for local interconnection of the local head-end without introducing the need for co-location or spectrum unbundling, which we believe are two key elements which would make technically feasible an unbundling architecture for a local head-end.
2661 CISP has identified that the most recent DOCSIS standard, the modular cable modem termination system architecture is actually designed for -- DOCSIS, that is -- most suitable for unbundling, and we have heard from cable carriers that they are investing in DOCSIS 3.0 and they have already made those investments.
2662 This architecture would allow for competitors to get a dedicated downstream and engineer their own quality of service on that dedicated downstream.
2663 CISP will simply note that its proposal was deliberately ignored by the cable carriers.
2664 Before we address our answer to the fifth question as to how the wholesale obligations should apply to new investments and next generation access, we would simply point to the Government of Canada`s digital economy strategy consultation paper, which identifies in its public statement that like to emphasize that the current proceeding has been amended to examine how the wholesale framework should apply on a forwardlooking basis to new types of Internet access infrastructures.
2665 CISP respectfully submits that the present proceeding is being presented to the broader population at large with that in mind.
2666 CISP submits that it may be too late to integrate fibre-to-the-home at this late stage of the proceeding, but it is important that any interim framework that is put in place is technology agnostic until we can get to the issue of FTTH.
2667 Regarding the fifth question (How should the essential services frameworks apply investments in next-generation access technologies?), our answer is based on the economic evidence that was put forward by CISP and authored by Dr. Stephan Barnes, submitted first in March 2007 in PN 2006-14, which led to the essential services framework decision and re-submitted by CISP again in this proceeding.
2668 Dr. Barnes simply stated that the investments by the incumbent cable carriers, telcos and cablecos are substantially sub-additive, that is, they are costs that a first mover can easily share and recover amongst a large user base and that a new entrant cannot economically duplicate.
2669 As far back as March 2007, Dr. Barnes provided the following testimony to the Commission (I will read it):
"We show below that if no obligation is made to unbundled new fiber optic facilities, the Commission is likely to encourage the development of de facto monopolies in small andmedium-size markets, that is wherever marginal costs are large relative to the potential revenues the facility can generate, and, at best, duopolies in each major national markets."
2670 MR. MÉNARD: However, what was at the time perhaps a good solution six years ago is difficult to reconcile with the fact that by the time ADSL-CO service becomes commercially available at the earliest -- you know, 2012 -- one third of the Maritimes will be on Fibre-To-The-Home and most of Quebec City suburbs will also be on Fibre-To-The-Home and potentially putting our economy financially at risk.
2671 The only way to reverse course is to have a solid transition strategy involving unbundling of all next-generation access technologies, including Fibre-To-The-Home, until such time as it can be demonstrated that market power of the incumbents has been lessened.
2672 On to the essentiality test.
2673 CISP submits that next-generation access unbundling at the Central Office and at the local head-end, both for DSL, for GPON (Gigabit Passive Optical Network Fibre-To-The-Home) as well as DOCSIS 3.0 access technologies, fully meets the essentiality test and the Policy Direction as:
2674 ISPs require access to next-generation access at the central-office in the local head-end to provide Internet, telephony and broadcasting distribution services in the residential market;
2675 Incumbent telephone and cable carriers possesses upstream market power such that withdrawing mandated access would deny the opportunity for new entrants, other than incumbents, to climb the investment ladder by utilizing efficient resale as a mean of bootstrapping the business model of new entrants to overcome the first mover advantage of the incumbents;
2676 Thirdly, the third part of the test, we note that even the Government of Canada in its Digital Economy Strategy has recognized that the incumbents possess a tremendous first mover advantage in their deployment of next-generation access technologies.
2677 The good chunk of them, like excess fibre optic capacity, were built at a time where access to support structures was significantly easier than it is today, and cheaper than it is today.
2678 They are able to, today, continue to make investments in new access technologies at a price -- they can build at cost that is much lower than the cost of construction of new entrants.
2679 We can only refer to pole loading calculations, permitting and technical fees and engineering search charges. Most of these charges, they can get by without incurring nearly as much as we would, should we undertake a build of a similar scale.
2680 I will skip reading the bit out of the digital economy consultation, but it refers to trenches and poles and all of these types of costs that made the market what it is today, largely duopolistic in nature as only the big players have the ability to endure these costs.
2681 But sometimes it is not necessarily the big players that can build. Certainly, our company, we have built Fibre-To-The-Home as far rural as Cantley, Quebec, just North of the Gatineau area here.
2682 So CISP submits that regionalized competition between the incumbent telephone company and local cable carriers is not sufficient to preserve Internet neutrality and to guarantee non-interference with innovative new business models -- such as the reliance on use of services such as ITunes, Radio-Canada Tou.tv, Youtube, MLB.TV (Major League Baseball.TV), or possibly Hulu or Netflix on demand -- when should such services become available in Canada as an alternative to traditional broadcasting distribution undertaking services.
2683 Be it noted that such services, while not demonstrated as being the source of congestion in the same manner as peer-to-peer file sharing applications, are penalized today no differently than such file sharing applications.
2684 This brings us to our conclusion.
2685 The Commission cannot fairly dismiss IPSs and new entrants as relevant industry players and thus deny their continued existence on the basis that their disappearance would not result in a significant lessening of competition.
2686 Rather, the Commission must cease to protect the revenue streams of incumbents generating double and triple play revenues from their infrastructure rooted in incumbency while at the same time expect ISPs to have to make investments in new facilities on an income stream of 44.95 dollars a month for an Internet-only service, a single-play service.
2687 The availability of access, next generation access at the local CO and at the local head-end, represents a fair balance between the reliance on market forces which would see ISPs eventually deploy infrastructure to the CO and then use that for such alternative access as WiMAX and, (b) the changes in market conditions that the Commission would trigger ceasing to mandate unbundling. I think it is an appropriate balance between those two extremes.
2688 Until we can get to the time where it is appropriate to cease unbundling then we can use the wholesale services to bootstrap the investment and climbing up the ladder of investments. So much remains to be done in order for the market to benefit from the changes in conditions contemplated in this presentation.
2689 Unbundling tariffs for next-generation access at the local CO, at the local head-end, will have first to be proposed, costed, debated through tariff notices, implemented, and it will take a long time.
2690 It is impossible at this time to bundle prioritized voice over IP on top of the wholesale service on cable and it is also impossible for us to make use of cable modems with built-in batteries and telephone jacks because the cable companies will not let us make use of the same equipment that they are using. This is higher on our priority list than having a local head-end interconnection.
2691 CISP submits that the Commission must also question itself as to the relevance of the continued rules which require small ISPs who wish to offer IPTV in a market where the incumbent carrier possesses a Class 1 license to both;
2692 (a) be forced to go through the Class 1 license application process and;
2693 (b) build parallel facilities to those of the incumbent cable and telephone carriers, just to get away from unbundled infrastructures which are tariffed on a per gigabyte, per month basis and reach quotas very quickly that make it prohibitive to offer TV services and really, truly designed to protect the existing BDU oligopoly, especially the wireline BDU oligopoly. Right now it is monopolistic. The telcos deploy IPTV over DSL and then it would be a wireline BDU oligopoly.
2694 We would welcome the opportunity to obtain forbearance from the obligation to file for a Class 1 BDU license to launch IPTV in markets where the incumbents have such a license.
2695 So we wish to thank the Commission for the opportunity to make these statements and we would be pleased to answer any questions you may have after the CAIP presentation. Thank you.
2696 THE SECRETARY: Thank you very much for your presentation.
2697 We will now proceed with the Canadian Association of Internet Providers, CAIP. Appearing for CAIP is Mr. Tom Copeland. Please introduce your colleagues and after which it will have 25 minutes for a presentation.
2698 MR. COPELAND: Thank you.
2699 Commissioners and Commission staff, my name is Tom Copeland and I am the Chair of the Board of Directors of the Canadian Association of Internet Providers.
2700 With me today from our group, starting on your left, are Leslie Lorinz, the CEO of Acanac Inc.; Paul Louro, President of Acanac Inc.; Sandro Henriques, Vice President of Acanac.
2701 We have Bill Sandiford, President of Telnet; Paul Andersen, the President of EGATE Networks; Michael Garbe, President of Accelerated Connections Inc.; and our counsel, Monica Song, from the firm Fraser Milner Casgrain LLP.
2702 We represent the face of independent managed service providers in Canada and we do so in all of its diversity. Included in our panel are some of the largest and smallest independent internet service providers serving the retail, residential and business markets.
2703 However, also included in our midst are CLECs and service providers who do not provide internet access to many of their clients. We are in the data, voice, data centre and managed service business.
2704 Attached as Appendix 1 to this statement are descriptions of the companies that are before you today. We are the founders and operators of these companies. We will speak to you about our experience and what that experience has taught us. To assist the Commission to better understand who we are, we will take a few moments to introduce our companies to you.
2705 MR. SANDIFORD: Thank you, Tom.
2706 I am Bill Sandiford, President of Telnet Communications.
2707 We are a traditional ISP that has evolved over the years into a CLEC. We offer a wide variety of managed and unmanaged services to both residential and business customers. In addition, we also offer data and voice services to other ISPs. Most recently, we completed the acquisition of the retail Internet access customers of Look Communications.
2708 Outside of my responsibilities at Telnet I also sit on various industry boards and advisory councils, including my role as Vice President of the Toronto Internet Exchange, Canada's largest public exchange point.
2709 MR. ANDERSEN: I am Paul Andersen. I am the President of EGATE Networks.
2710 I run an ISP that offers specialized services for businesses. We enjoy a trusted advisor relationship with our customer base that allows us to create unique solutions for their individual needs.
2711 Outside of my responsibilities at EGATE, I am also the Chair of the Board of the Canadian Internet Registration Authority and I also sit on the Board of the American Registry for Internet Numbers.
2712 Through my work with ARIN I am proud to be one of the first ISPs in Canada to offer IPv6 services. IPv6 is a numbering system for the global internet that is expected to replace the current IPv4 numbering system whose pool of available new addresses is expected to be depleted within the next 24 months. Utilizing least services, EGATE is bringing innovative services such as IPv6 to market faster than many of the larger players.
2713 MR. LORINCZ: Hello. My name is Leslie Lorincz. I am Chief Executive Officer of Acanac Inc.
2714 Acanac Inc is one of the largest independent ISP serving over 50,000 internet access accounts as well as providing local and long-distance voice services. We specialize in internet activity, voice communications, data storage, encryption, cloud computing and software development services.
2715 MR. GARBE: My name is Michael Garbe. I am the founder of Accelerated Connections.
2716 My customer base is primarily composed of national Canadian retailers. Through wholesale ADSL and other accesses, we have created a national network with a footprint larger than that of any ILEC.
2717 We provide private networks and direct access to payment processors for our retail clients. You cannot walk into your local mall without finding approximately 30 percent of those stores on my network. Even though we employ a staff of just 18 people, literally billions of dollars of transactions traverse our network every year.
2718 MR. COPELAND: And along with my role with CAIP I also own eagle.ca. Eagle.ca provides dial-up and high-speed internet access services and web hosting in Northumberland County, 120 km east of Toronto.
2719 Due to the difficulties and the economies are providing services in rural areas, we found we were only able to compete with incumbent carriers to provide consumers with alternative services by purchasing DSL services from other GAS customers on a wholesale basis.
2720 As you can see, no two of us are alike, but we are here today to advocate for a rational regime for wholesale access in Canada because we are united in a firm belief that the implementation of a more rational regime is necessary for our survival and will result in a more innovative and responsive IT sector in Canada.
2721 Commissioners, with your indulgence in these opening remarks we will address four of the five broad issues identified in the Commissions conduct and organization letter for this proceeding, save for the first question which was addressed --
2722 MR. COPELAND: My apologies.
2723 Commissioners, in these opening remarks we will address the question of so-called next generation access facilities, speed matching, CO-based ADSL access services and, to a lesser extent, cable-based services. We will begin with a discussion of "access".
2724 We are starting with the issue that we find most problematic. To be frank, based on the specific question posed by the Commission, it seems to be based on at least two false premises.
2725 First, that the access infrastructure that is being examined in this proceeding is used only for internet access services and;
2726 (b) that the access infrastructure that is being examined in this proceeding is new or next generational.
2727 Myth number one, there is no such thing as internet access infrastructure. As stated in our opening, the access infrastructure that is the subject of this proceeding is used by independent managed service providers for a wide range of services other than internet access services. There are people here who have innovated, met with customers, invested in equipment, software solutions and telecommunications facilities in order to provide end-customer services.
2728 For example, the companies represented here today use ADSL accesses in order to provide the following services that technically have nothing to do with traditional Internet access:
2729 - power substation remote monitoring and control systems;
2730 - a traffic light remote monitoring and control system;
2731 - manage secure VPN services;
2732 - access redundancy;
2733 - carrier redundancy;
2734 - private network solution;
2735 - direct, to the two point-of-sale payment processors;
2736 - VoIP services;
2737 - data center services; and
2738 - disaster recovery services.
2739 Therefore, it is not helpful to refer to these wholesale infrastructure services as internet access infrastructure. It is not helpful because it is not representative of the current reality and the future potential of wholesale access services, assuming that competitors' wholesale accesses are not encumbered.
2740 Attached at Appendix 2 to this statement is a network schematic that illustrates the use that Accelerated Connections makes of the wholesale broadband access services currently available.
2741 I will let Michael Garbe, President of Accelerated Connections walk you through that illustration.
2742 MR. GARBE: Commissioners, I draw your attention to the network diagram at the back of your package. I was very interested to constantly see TELUS refer to us earlier this morning as resellers, a term that I find a little bit offensive given the nature of our network.
2743 I would invite you to take a look at the network as we describe it and ask yourselves if in your mind this constitutes a reseller.
2744 To the very right of the diagram we have depicted different broadband access services and the different ILECs across the country that supply us with "accesses", namely the facilities and services that are absolutely required in order to reach end-customer premises across the country.
2745 We have depicted the ILECs from whom mandated ADSL, CDN and Ethernet services are available. Although Telnet Communications is represented there, the underlying facilities of the services that we obtain from Telnet are controlled by the same ILECs.
2746 We have represented other incumbents at the very bottom of this diagram because mandated wholesale broadband ADSL access services are not available from these incumbents. So we are forced to obtain retail ADSL access services from these smaller incumbent providers and we resell them.
2747 Within the parameter of the circle that represents the outer edge of the Accelerated Connections' network we have omitted several servers and switches that are on our network and that are also required to deliver services, to simplify the diagram.
2748 The three-dimensional circles with arrows represent the routers on our network and the three-dimensional square boxes represent switches.
2749 Depicted in the boxes to the top and left side of the diagram are the managed services that we offer to end-customers. You will note that we do not have to offer internet access services at all in order for our customers to use the various applications that we provide, such as voice or email services.
2750 We provide private network services that give customers a completely private and secure network similar to what you would find with frame relay or an MPLS network at a fraction of the cost.
2751 ACI offers an innovative custom payment gateway service option to retailers for point-of-sale, credit and debit transactions. We provide a direct connection to the various payment processors that offer security and speed for our customers.
2752 It's not just ILEC investment that counts. Competitors are continuously investing in their networks.
2753 By way of illustration, ACI has invested almost $2 million in a carrier class PBX platform that offers national customers a single phone system for their entire company. This may not sound like much when you hear ILECs talk about billion dollar investments, however, I can assure you that none of the officers of the ILECs appearing before you had to explain to their spouses why in that capacity they needed to re-mortgage their home to pay for that investment.
2754 Of course, what you don't see on the diagram is what we cannot provide given the refusal of Bell and TELUS to provide access to their higher speed services. In ACI's case today we are precluded because of Bell and TELUS' arbitrary refusal from further innovating to provide multi-camera surveillance systems and certain digital signage applications, to name but a couple of examples.
2755 I invite you to draw four conclusions from the diagram in my explanation of it:
2756 First, independent TSPs do much more than simply re-bill or resell ADSL access services.
2757 Second, independent TSPs invest in significant network facilities and equipment and innovate constantly in search of opportunities to create and respond to the needs of our customers.
2758 Third, we believe access is access, whether it is Ethernet, T1, ADSL or cable, meaning that given unhindered access independent TSPs can provide array of downstream retail services, none of which necessarily touched the public internet.
2759 Finally, when an ILEC provides VPN services or access to private networks, this traffic is not subject to Bell's ITMP policies or subject to UBB in the network and it shouldn't be for independent TSPs either.
2760 MR. COPELAND: Thank you, Michael.
2761 Myth number two is the misnomer of "Next Generation". The term next generation in this context is a whole lot of smoke and mirrors. Telecommunications networks are constantly upgraded. Next generation in the sense that Bell or TELUS refer to that term is nothing more than the network in its current evolved state.
2762 The ILEC argument is unnatural. By way of illustration, cable networks have upgraded from DOCSIS 1 to DOCSIS 2 to DOCSIS 3. These upgrades simply represent the constant evolution of the network, in this case cable networks, in accordance with industry-wide consensus standards.
2763 Similar standards have evolved for telco networks. As networks cycle through successive standards, older protocols and equipment become obsolete. To relegate a portion of users on a network to outdated standards is a death sentence. That is what Bell and TELUS are attempting to do by precluding us from accessing their so-called next generation access facilities.
2764 e feel very strongly about the importance of the foregoing two clarifications. Clearing these false premises would help enormously in moving forward with a truly effective regime for wholesale broadband access services. To our way of thinking, so-called "Next Generation Access Facilities" are:
"Broadband facilities and associated services, at speeds that the incumbent carrier provides to itself, between the end-customer premise and the first point in the network at which interconnection is both technically and economically feasible."
2765 MR. ANDERSEN: Thank you, Tom.
2766 In regards to the Commission's question regarding matching speeds, and without any way diminishing the importance of CO-based ADSL and other issues in this proceeding, if the Commission does not take immediate and decisive action on speed matching, we as a group won't be around to see the resolution of these other many important issues.
2767 Independent TSPs assume that aggregated ADSL access services will continue to be mandated, irrespective of any other determinations in this proceeding. In this context, independent TSPs believe that yes, matching speeds for aggregated ADSL services should be mandated.
2768 Bell and TELUS are offering higher-speed wholesale aggregated ADSL access services to themselves for purposes of providing their end-user services, including retail Internet access services. Bell and TELUS unduly prefer themselves by granting higher-speed wholesale aggregated ADSL access to themselves and refusing to supply the same services where facilities exist, to competitors.
2769 Bell and TELUS are unjustly discriminating against independent TSPs and to end customers of independent TSPs by refusing to supply the same services where facilities exist, to independent TSPs.
2770 Competitors have been without matching speeds of ADSL access for many years. The Commission should ensure that non-discriminatory wholesale offerings are available in the form of an approved tariff prior to the incumbent carriers offering such higher-speed access to themselves.
2771 From the perspective of the ILECs, wholesale services increase overall demand which results in a higher return on investment. This should incent investment rather than the reverse.
2772 The matching speed requirement is, by definition, applicable only where facilities exist. Moreover, as amply demonstrated by several parties on the record of this proceeding, Bell's incentive to invest in higher-speed access facilities are independent of any wholesale speed matching obligations. ILECs are fully compensated for costs of capital and all other provisioning and maintenance cost plus a markup.
2773 We are in agreement with the positions of Execulink, Distributel and Primus in this regard.
2775 MR. SANDIFORD: With respect to CO-based ADSL access service, independent TSPs believe that there are no technical impediments to providing a CO-based high-speed ADSL access service that cannot be readily overcome. What is not clear, given the absence of a cost study and proposed tariff or other relevant details, is:
2776 (a) the exact configuration of the service; and
2777 (b) the economic feasibility of a CO-based high-speed ADSL access service.
2778 For example, with respect to configuration, there are still questions surrounding the proposed configuration of an ADSL-CO service such as whether the service will continue to be routed through the so-called broadband access servers and Deep Packet Inspection equipment. We do not think that ADSL-CO traffic should be routed through such equipment. Doing so will not only dramatically increase the cost of the service, but it will be completely futile as the resulting service will be subject to the same restrictions that impede differentiation on the aggregated ADSL access service such as ITMPs and UBB.
2779 Another concern is whether or not co-location will be required or whether competitors will be allowed to interconnect at the first technically and economically feasible point in the network.
2780 Independent TSPs, such as my company, are acutely aware that co-location is an expensive undertaking. Many competitors have tried to build out on a co-location model in the past and have become extinct in the process: Axxent Communications, Norigen, Riptide and C1 Communications, to name a few.
2781 Also part of our group, but unable to attend today, is Managed Network Systems Inc., a competitive telecommunications service provider based in Windsor, Ontario.
2782 Similar to the point raised yesterday by Primus, MNSi has observed that its significant investment in 21 central office co-location builds has been diminished due to the ever-increasing deployment of fibre-fed remote DSLAMs. We encourage the Commission to take into account the problem of accessing customers served off fibre-fed remotes when considering the ideal configuration of an ADSL-CO service.
2783 In terms of the pricing of such a mandated service, we agree with other competitors that there is no reason to deviate from the essential facilities decision, which classified ADSL-CO services as conditional essential.
2784 With respect to cable access services, we understand that the Commission is interested in certain issues in relation to current restrictions on third-party internet access services and the possibility of further unbundling of cable bandwidth.
2785 However, the ISPs represented here have no practical experience with a TPIA implementation. Here are some of the reasons why we have not implemented TPIA:
2786 (a) it is a highly marked up service;
2787 (b) restrictions on use of TPIA services makes it quasi-impossible currently for independent TSPs to utilize cable-provided broadband access services as true or near Layer 2 services that can then be transformed into innovative Layer 3 services such as those described already here today;
2788 (c) most of the cable access services do not provide for the option of aggregated interconnection points; and finally,
2789 (d) static IP addresses are not available with TPIA.
2790 If these feelings were, however, corrected, we would seriously consider implementing TPIA or any other mandated cable access service, albeit likely only to serve residential customers in more densely populated areas given the limited footprint of cable networks.
2791 MR. COPELAND: Mr. Chairman, Commissioners, the resolution of the issues in this proceeding is critical.
2792 Without speed matching for aggregated ADSL access services, and mandating and development of a practical ADSL-CO service that addresses the problem of fibre-fed remotes, and the mandating of necessary improvements to cable-provided TPIA services, continued investment and innovation by competitive TSPs to enable the provision of a wide range of relevant broadband service offerings will wither and die.
2793 We wish to thank you all for your attention today and we welcome your questions.
2794 THE CHAIRPERSON: Thank you for your presentation.
2795 You are talking about the myths of next generation and in paragraph 25 just now you said DOCSIS 1, DOCSIS 2 or DOCSIS 3, these are just upgrades.
2796 But we have heard very much from the telcos that fibre is a totally different thing. In fibre you actually have to dig up usually a new fibre and of course incurring huge additional expenses. They do that, according to them, because of obviously serving their customers not only on the internet but also to have it as a means to deliver IPTV.
2797 So would you agree with them that fibre is actually the next generation of fibre to the home?
2798 MR. COPELAND: Fibre to the node has been deployed for a couple of decades now so it is part of the evolution to gain greater capacity at the node, at the remote switches that the incumbents have been installing for 20 years. Fibre to the node has become standard. It is their de facto operating practice.
2799 So that is why we are saying that fibre is not next generation. It's part --
2800 THE CHAIRPERSON: But I did not say fibre to the node. I said actually fibre to the home.
2801 MR. COPELAND: Fibre to the home --
2802 THE CHAIRPERSON: Or fibre to the premises or whatever you want to use.
2803 MR. COPELAND: I think what we are talking about here though is access to the customer and access used to be dial-up. Access used to be DSL, ADSL. Now, it is ADSL2+. It is going to be fibre to the home. It is going to be who knows what down the road.
2804 So I think focusing on fibre to the home as next generational when we don't know what is going to come down the road is inappropriate. We have to focus on accessing the customers, providing them access.
2805 That is really the crux of the matter. It's how do we determine what is access and who should have the ability to provide service?
2806 THE CHAIRPERSON: So basically you are saying there is no next generation. Everything is just an improvement from existing?
2807 MR. COPELAND: Everything is an evolution.
2808 THE CHAIRPERSON: It's a continuum. We are moving on a continuum.
2809 Now, on your chart here, what is the bottom of this chart? I understand the right-hand side and I understand the left-hand side. What is this bottom with Telebec, TBAYtel, tiscali, et cetera? What is this?
2810 And "Internet" in the middle, what is that supposed to represent?
2811 MR. GARBE: At the bottom of the diagram the five carriers listed, including TBAYtel, Telbec, TELUS Quebec, NorthernTel and Dryden Tel are all providers or carriers that we have to supply services for or to, or from rather, to give our customers the full footprint.
2812 The nature of my business is that I sell to retailers who have chains of stores across the country and they will come to us and say we have 100 or 200 stores, you do them all, and therefore we have to find ways to reach everyone. That's why we have a big footprint.
2813 We get to these providers along the bottom not through a wholesale aggregated ADSL tariff, but by purchasing resell ADSL which comes to us over the internet.
2814 And then we have five different internet upstream providers. You will notice that Bell is there as well. So not only do we buy access from Bell, but Bell is our upstream provider. We do buy internet from Bell separate from the access.
2815 In addition, we buy from Cogent, tiscali, MTSallstream and we are connected to TorIX.
2816 THE CHAIRPERSON: I see. Thank you.
2817 My colleagues have some questions.
2818 Candice, I believe you have some questions.
2819 COMMISSIONER MOLNAR: Yes, thank you.
2820 Welcome everyone, and it isn't everyone. I am going to try and limit my questions somewhat so it gives everybody an opportunity to respond.
2821 Let me begin by a question I asked TekSavvy yesterday, and that is what is it do you view as the priority? In this proceeding there are many things being considered. Is there one thing that is of utmost importance to you as a company?
2822 I would like the companies to answer individually, if that's okay, because I do see that there are some who are focused more on the residential market and others focused on business.
2823 So I would be interested in knowing if it is the same priority for all or if it changes based on the markets that you serve -- in whatever order. Just remind me of the company as you answer.
2824 MR. LOURO: I am Paul Louro from Acanac Inc.
2825 Our main priority, at least in the medium term, is gaining access to matching speeds. We have reached a client base size that we are ready to take that next level in investment, but if we have to wait two or three years we might not be there. Our client base attrition will increase and we won't be able to invest in the next level, which is ADSL-CO.
2826 COMMISSIONER MOLNAR: Okay. Thank you.
2827 MR. LOURO: But today matching speeds is the main priority.
2828 MR. SANDIFORD: Thank you, Commissioner. I made specific note of the question yesterday and thought that we might get asked again.
2829 In terms of Telnet Communications our answer is very similar to the one that you received from TekSavvy yesterday, which is all the matters before the Commission today are very, very important to us.
2830 We believe that in order for competitors to properly survive we need access to all of the services from the aggregated DSL to speed matching, the ADSL-CO, et cetera.
2831 In terms of an initial impact we certainly feel that the speed matching is one that the Commission could answer decisively and would make a very strong impact on our business.
2832 MR. ANDERSEN: I think my answer is similar to my colleague to the right and that all of them are priorities although there is a desperation for speed matching because, as I think we mentioned in our comments, if that is not dealt with shortly many of the faces here will disappear in short order.
2833 MR. COPELAND: As a reseller of the GAS product that's purchased by some of Bell's wholesale customers, and the size of the relative markets that I serve, speed matching would be my priority and would be my customers' priority as well.
2834 MR. GARBE: When I heard TekSavvy discuss this question with you yesterday and they talked about the investment ladder, it occurred to me that what they were talking about was in fact what I had been doing for years and years without really articulating it that way.
2835 In markets where we are small, such as the incumbents along the bottom of my network diagram, there is no way we can afford at this point in time to go beyond anything other than a reseller.
2836 However, in markets where we are larger and we can make an investment, such as we have with our network, we have moved up that chain to becoming a wholesale customer. I hope to one day see the opportunity where I have a density of customers in a certain area where I will make use of ADSL-CO.
2837 So to that end I see myself using or evaluating all of them, but because I'm not at the point today where I could make use of ADSL-CO, because I don't have the density of customers in any one location, the overwhelming issue that is of importance to me today is the mandating of speeds for the delivery of the next generation of applications that my customers are going to require of me.
2838 MR. MÉNARD: François Ménard with Xittel.
2839 Perhaps on this table Xittel is the only ISP with an established footprint in the Maritimes. Our case in Prince Edward Island sees us purchase aggregated DSL wholesale from Bell Aliant in the Maritimes that in fact loops out of PEI through Nova Scotia to get back to PEI such that we can interconnect, then to pay wholesale rates for every one of them that are in excess of the retail rates that Bell Aliant is practicing at a retail level. There is a significant chronicle problem with the current tariffication of DSL wholesale and it is especially prevalent in the Maritimes.
2840 The ADSL-CO proceeding is the first proceeding in 10 years that will finally put an end to an issue that started in 2002 with TN 6622 Bell Canada, Tariff Notice TN 6622 and TELUS TN 72 which will see us finally be able to understand what is the appropriate markup for unbundled network elements.
2841 So this issue is prevalent across all elements of the preceding, be it for ADSL-CO, be it for local head-end interconnection, being able to resolve the margin squeeze issue that we are, as ISPs, all victim of at this time, is and must be on top of the list.
2842 Thank you.
2843 COMMISSIONER MOLNAR: Sorry, before we proceed, and I will give you an opportunity to speak of your company but -- so you said it's the margin squeeze but we have two services. We have head-end, cable head-end and we have ADSL-CO. Is there any priority? Which one is it?
2844 You want to resolve it for both, I understand, but what is the priority?
2845 MR. MÉNARD: Well, in Trois-Rivières where we are based, we send all of our wholesale business to Cogeco. We have margin squeeze issues with Cogeco and it is important to solve -- and we have a local head-end interconnection with Cogeco.
2846 As you may have seen in this proceeding, Cogeco is arguing that they already have a local head-end interconnection framework in place, which in fact is more or less true. However, it is not fast enough and it is subject to margin squeeze.
2847 In PEI, EastLink does not have TPIA obligations at this time. Its subsidiary persona does --
2848 COMMISSIONER MOLNAR: So it's the TPIA service that you are --
2849 MR. MÉNARD: Cogeco's TPIA in Trois-Rivières.
2850 COMMISSIONER MOLNAR: Okay. Thank you.
2851 MR. MÉNARD: In PEI, since the incumbent cable carrier over there owns a cable company which does have TPIA, i.e. Persona, which was bought by EastLink -- EastLink itself does not have TPIA -- and we have and must and can only use Bell Aliant, which offers no solution to the margin squeeze issue of course.
2852 COMMISSIONER MOLNAR: Go ahead.
2853 M. BERGERON : Si je peux, en français. Alain Bergeron, Oricom Internet, à Québec.
2854 Nous, Oricom, à Québec, on a deux priorités simultanées. C'est que : on a une bonne base de clientèle déjà sur la technologie ADSL, où on a des problèmes avec les vitesses équivalentes, ce qui fait qu'on perd beaucoup de clients éventuellement sur ce côté-là; et également avec la problématique des tarifications de lignes sèches, qui font que le tarif en plus n'est pas compétitif dans ce produit-là.
2855 Donc, depuis deux ans, on vend énormément de technologie câble avec TPIA avec Videotron. Dans ce cas-là, il n'y a pas le problème de vitesse parce qu'il y a une obligation réglementaire pour Videotron d'égaler les vitesses du marché résidentiel.
2856 Par contre, on a un problème de marges important depuis quelques semaines avec les nouveaux tarifs pour les nouvelles vitesses, qui sont tarifées presque au prix de détail. Donc, on les vend à la perte, si on les vend.
2857 Donc, je dirais qu'il y a deux priorités pour nous : la compression de marge au point de vue des vitesses équivalentes de Videotron et l'absence de vitesses équivalentes chez Bell, qui est un autre problème.
2858 Heureusement, je dirais, la région de Québec est un peu exceptionnelle. La grosseur du marché permet à Oricom de faire des promotions, de faire de la publicité, et d'atteindre nos clients de façon efficace.
2859 On n'est pas trop gros non plus -- comme la région de Montréal, par exemple -- où on essaie de faire de percées marketing et c'est très, très, très compliqué dans les très grands centres.
2860 Donc, exemple, le EDSLCO -- en français, je ne me rappelle pas du terme.
2861 COMMISSIONER MOLNAR: Sorry, Mr. Bergeron?
2862 MR. BERGERON: Yes.
2863 COMMISSIONER MOLNAR: Sorry. Do you need translation? I am afraid I have to speak in English.
2864 MR. BERGERON: No, I understand very well.
2865 COMMISSIONER MOLNAR: Okay. Thank you. Just because we have a number of questions and a large panel --
2866 MR. BERGERON: Okay.
2867 COMMISSIONER MOLNAR: -- your priority you said to me was to address TPIA pricing and ADSL matching speeds, and I'm not going to continue this --
2868 MR. BERGERON: Basically yes.
2869 COMMISSIONER MOLNAR: -- to say what is the priority between those.
2870 All right. Thank you.
2871 THE CHAIRPERSON: Candice, if I may interrupt you, it is 12:05. As I said before, we will break now and we will resume at 1:15.
2872 COMMISSIONER MOLNAR: Oh, okay.
2873 THE CHAIRPERSON: Thanks very much.
--- Upon recessing at 1208
--- Upon resuming at 1317
2874 THE SECRETARY: Order, please.
2875 À l'ordre, s'il vous plaît.
2876 THE CHAIRPERSON: Okay. Let's continue.
2877 I believe, Candice, you were mid-stream when I interrupted you. So go ahead.
2878 COMMISSIONER MOLNAR: Just a couple of other questions.
2879 First of all, one of the things, if you were here yesterday, you may have heard us speak about was potentially negotiating with the carriers for access to services.
2880 And I wondered I guess two things; what your experience has been to date and whether you think that you could viably negotiate in the future.
2881 Let me ask perhaps this time, if we could, to have the groups that are here together maybe consolidate your answers so we're a little bit more timely.
2882 MR. HENRIQUES: Good afternoon.
2883 We've actually had extensive experience with those circumstances where we've requested things that were outside the guidelines imposed by the CRTC and, in all cases, we've been rejected.
2884 A few examples. We've been asking for speeds for the last few years. We've had a serious demand in our customers and a lot of the services that we offer require additional speeds in order to service the clients properly and they've been rejected.
2885 We've been asking for years.
2886 Another recent case, as simple as the new technology with access from our network to the Bell network, we've asked for a 10 Gigabit circuit in between us as opposed to single GigE interfaces because we've already -- we were one of the few companies that have exceeded the 10 Gigabits limi -- well, 10 Gigabit lines and we said, you know, why do we have 10 switches, 10 routers, 10 fibres, give us a 10 Gig circuit or two 10 Gig circuits so we can continue our build.
2887 We've been informed by their technical people, and these are the people who are designing the networks, that it is feasible, their equipment supports 10 GigE but it's not a tariffed service, they can't offer it to us.
2888 So, I mean, that puts us back to, if it's not tariffed, it's not -- regardless of what's being said.
2889 COMMISSIONER MOLNAR: Thank you. Do you folks want to comment at all?
2890 M. BERGERON: Alain Bergeron, Oricom.
2891 Une des problématiques vécue très récemment par Oricom au niveau de la négociation avec un fournisseur a été avec Bell, qui a refusé la construction de... On a à construire de la fibre dans le centre-ville de Québec et Bell refuse l'usage de ses conduits prétendant qu'il se garde une réserve pour le futur. Un exemple de problème qu'on a, de négociation avec Bell qui est insoluble.
2892 Ça nous oblige à creuser les rues de la ville et c'est très complexe. Et on a demandé aussi d'obtenir des vitesses équivalentes; ça a été refusé par Bell en prétendant que ça allait être réglé par l'instance du CRTC. Et au niveau de Vidéotron, on a aussi fait des demandes de tarifs plus raisonnables pour la bande passante, des choses comme ça et c'est toujours la même réponse : veuillez vous adresser au CRTC.
2893 Donc, il semble que le réglementaire est comme une façon de faire, présentement, par ces institutions-là.
2894 M. MÉNARD: Bonjour. I would say that in the more recent days we've -- years a lot of effort has been made to attempt negotiating first and seek resolution before the Commission at a later stage.
2895 One more recent example has been a failed attempt at negotiating the use of cable modems with built-in batteries and built-in telephone jacks, so that as ISPs we do not have to put four different equipment at the customer premise to offer a bundle of Internet and telephone and, whereas, the cable carriers can put a single device to offer Internet and telephone and they are refusing.
2896 And it will eventually I suppose have to be the subject of a Part VII in order to solve this issue.
2897 On the other hand, on a more positive note, I would say that anything that pertains to interconnection, not the access service, but the technical characteristic of the interconnection, in our experience working with Vidéotron, they have been very forthcoming in being agreeable to various kinds of interconnection and they should be commended for that.
2898 It's not every carrier that practises this approach.
2899 So, I would say it works in some cases, but any times that it becomes potentially more contentious, then it's back to tariffs and back to the Commission.
2900 COMMISSIONER MOLNAR: Thank you. My last question. Speed matching has been declared by many of you to be very important and, as you know, the incumbents state that those higher speeds come at an increased risk in their facility builds, there's a significant risk to them, revenue foregone as well as potential of, you know, not reaching the homes and then the potential if we do mandate anything that there will be revenue foregone.
2901 So, there's been -- obviously their position is no access and some other positions being put forward are to compensate them through a risk premium or potentially a revenue holiday.
2902 Would you have comments on what might be an appropriate means if it were to be mandated to compensate them for the increased risk?
2903 MR. GARBE: Our feeling on this is that there is absolutely no reason for any compensation whatsoever.
2904 We've brought no experts to this table. We have no research to refer you to. There's no bookcase full of binders over to the side quoting this statistic and that prediction.
2905 However, what we have is years and years of actual experience with Bell, with TELUS, where they've been providing us these services and yet although I've listened intently for two days, I've heard no evidence being put forward by the ILECs indicating that they have actually suffered any economic harm due to us being on their networks for, in some cases, eight to 10 years.
2906 And along the way they have increased the technology, whether they have moved the speeds up, whether TELUS has moved to an ADSL2 plus platform, of the panel I believe I'm the only one who does business with TELUS, and we were migrated from the legacy platform to the 2 plus platform and that was done and we're on that 2 plus platform today and there's never been an issue.
2907 When we are with the ILECs outside of this meeting room, they never refer to us as competitors, we are customers of theirs and, as such, we help them, in my opinion, get an earlier return on investment by helping them fill up these ports as they make their investment to expand into different neighbourhoods with fibre to the node or ADSL2 plus.
2908 They use our customer base as a means to help them get a quicker return on investment.
2909 So, for that reason, I believe that there's nothing that we should be looking at in terms of further compensation.
2910 MR. ANDERSEN: And to quickly add to Michael's comments, with regards to the additional risk capital, we've heard one of the ILECs speak of their next-generation network is ADSL2 plus.
2911 In the case of Telnet Communications, we've been co-located in the ILEC COs for a couple of years and in that time frame I've never been able to buy anything but ADSL2 plus.
2912 If I go to my vendor today and say I want to buy the legacy technology they don't have it, all they have is the ADSL2 plus technology and the port cost of the ADSL2 plus so-called next-gen technology is substantially less than the cost of the so-called legacy technology.
2913 So, to suggest that they have additional capital risk for this next-generation technology, to me it's atrocious. I mean, I can't even buy the legacy technology, all I can buy is the next gen for less.
2914 So, I don't understand the argument.
2915 MR. MÉNARD: It has been put forward by Dr. Barnes in our initial submission in the essential services proceeding and has been re-submitted in this proceeding, the notion that temporary monopolies may be an adequate vehicle for compensating additional risk that might pertain to next-generation investments.
2916 This body of evidence has unfortunately been largely ignored to date and it has never been required to be looked at, given that the essential services proceeding was initially very comprehensive and was filtered down to deal only with ADSl at mid-course and this proceeding is also very strictly focused on ADSL.
2917 Should it be required to look at the broader issue of FTTH and investments, the body of evidence still exists, it is before the Commission and we would be more than able to debate these issues.
2918 And the principle issue that is surrounding this is the means, the way to quantify the duration, what is an appropriate duration for a temporary monopoly.
2919 And I will conclude simply by saying that it is intimately linked to the notion of a first mover advantage. The value of the first mover advantage is directly proportional to the lessening of the duration of the temporary monopoly.
2920 COMMISSIONER SIMPSON: Good afternoon. History being a great teacher, I resort to it when I am confronted with very complex situations because sometimes the outcomes of historical situations provide some clues as to what we're dealing with in an instance like this.
2921 This is a very complex business and it's a very complex piece of regulation that supports and sometimes hinders the industry.
2922 The railroad when it was first developed built the nation as in the first real network, but it was the spur lines that build the communities.
2923 And I look at what you're doing as a spur line in many instances. I know that your business is often much more core with provision of wholesale services and some specialty services, but the idea I think holds water.
2924 And what you're doing is attempting to continue to drive the larger network into areas of opportunity in your respective communities.
2925 But this is also the wheel house of the cable industry which, unlike the ILECs, grew from the community and is networking up to become a formidable competitor to the ILECs.
2926 So, my question is this. Given that you're sort of in the middle on this whole thing, what is it going to take as a whole in both your working relationship with the ILECs and with the BDUs to level the playing field between the two so that you have greater options to be able to choose between an ILEC and a BDU in terms of your interconnection relationship?
2927 I guess I'm asking the centralized aggregation question. If centralized aggregation was mandated, would that be something that would help level the playing field for you to continue in your business?
2928 MR. ANDERSEN: I think the answer to the question is a simple yes. I mean, one of the biggest reasons why we haven't been able to make use of the Cablecos TPIA services today, one of the large ones, is the lack of aggregation and we don't have that nation-wide railroad that happens to run past all these aggregation points that the Cablecos have in order to build spurs off of.
2929 So, we rely on the fact that we need somebody else's railroad to aggregate those back to a single point for us.
2930 So, the simple answer to your question is yes.
2931 COMMISSIONER SIMPSON: That was clean. The next question is, again in the pursuit of expanded relationships with the BDUs, because over the last day and a half they haven't come up with a whole heck of a lot, I mean, their day is coming.
2932 But the question is that aside from the technological issues that have been presented to you in terms of interconnection with BDUs, by the very nature of their network differences, let's focus on the working relationship side of things and ask you the question that, if a regime that offered the opportunity to negotiate some form of relationship that would obviously include the technical issues to be dealt with, is that something that you would embrace or that you would not be interested in, having some mechanism by which you could sit down with the BDUs and get into a meaningful discussion?
2933 MR. ANDERSEN: I mean, once again, the simple answer to your question is yes, provided that we will arrive at the negotiation table on a level playing field with the BDUs -- sorry, yeah, with the BDUs.
2934 I mean, today we feel that we are severely under advantaged when we arrive at any negotiating table and it's been evidenced by the fact that in most cases we've been flat outright denied a seat or flat out rejected.
2935 So, once again, the simple answer to your question is yes.
2936 COMMISSIONER SIMPSON: Okay. Going back to the railroad analogy, if there is no strong central railroad the spurs run into trouble.
2937 And being that you're in the wires and bits business, although you are not managing their network you have a chance to get under the hood every once in a while, I would assume, can you give this Commission your very subjective but technical view as to the reality of the impairment that would be incurred by the ILECs with respect to their inability to carry IPTV should you find yourself in an access situation to their fibre?
2938 MR. MÉNARD: This has been an issue which has been largely under estimated, under tested and is dying for more technical work in order to make it possible to derive conclusions which are technically accurate.
2939 There is a world-wide body -- standards body called the Broadband Forum which has standardized a specification called TR101 which provides for all of the necessary mechanisms to unbundle at the bit stream level, at the packet level inside a DSLAM or inside a fibre to the home OLT, which is the equivalent of a DSLAM but for fibre to the home and provide one-to-one VLANS, one customer, one VLAN in multiple multi-cast planes, all the necessary mechanisms to have multiple sources of IPTV reaching multiple customers as well as to provide wire speed aggregation, defined as the sum of the output is the sum of all of the inputs, such that there is no contention inside the DSLAM or the OLT and with local interconnection at the CO, then -- or at the head-end, all of the aggregation network which is the subject of traffic shaping is inherently bypassed.
2940 It has been demonstrated in this proceeding that it was the under investments in the aggregation network which has led to the IPMP decision.
2941 Consequently being able to interconnect in a technically accurate way at the central office or at the head-end and obtain access to the underlying mechanisms to isolate customers is available today.
2942 There are even vendors in this room which are monitoring this audience looking to make their futures and functionality in their equipment known to the public that these standards exist.
2943 And they are not being implemented by the ILECs because they are not required to implement them.
2944 COMMISSIONER SIMPSON: Thank you for that.
2945 With respect to the installation of DSLAMS on a CO base ADSL system, aside from the hard costs of equipment, whether they're borne by a wholesale provider or by an ILEC, are there any significant migration costs or protocol issue costs that would be borne by the ILECs with respect to co-location?
2946 MR. ANDERSEN: I think you lost me on the question there. It sounded like two in one and then --
2947 COMMISSIONER SIMPSON: Yes.
2948 MR. ANDERSEN: Could you repeat it one more time.
2949 COMMISSIONER SIMPSON: Aside from hardware costs associated with DSLAM installations on a co-located basis, are there migration costs, protocol issues or migration issues that the ILEC have to deal with that would be a substantial cost to them?
2950 MR. ANDERSEN: If there are, I certainly haven't seen any evidence of them. In terms of the ILECs talking with regard to their fibres to the node, et cetera, we've seen fibres to the node for a long time.
2951 The DSL service that services my residence has been on the fibre-to-the-node platform of the ILECs for two to three years and I fail to see how they suggest that they are not going to build the fibre to that node if the framework doesn't -- allows for competitors, when it's already built.
2952 So, you know, I don't see any technical impediments.
2953 And with your indulgence, I'd like to go back to your last question with regards to the IPTV. Were you specifically referring to the two modems on a line question?
2954 COMMISSIONER SIMPSON: Pretty much. The way it's been characterized is that carriage by third parties over fibre to the node or fibre to the home would be quite a deal killer for the ILECs because it would present them with the relative inability to be able to cost efficiently convey IPTV over their own system.
2955 MR. ANDERSEN: So I'd like to address both of the two situations, the fibre to the node and the fibre to the premise separately.
2956 We'll start with fibre to the premise. So, in a fibre-to-the-premise situation, what the ILECs tell isn't completely untrue. There's one fibre to the house. Putting multiple fibres to the house isn't something that's very likely and would be cost prohibitive, however, I'm quite certain that myself as well as a lot of my fellow competitors would be more than happy for a port on the ILECs' ONT.
2957 So, for those that aren't familiar, the ONT is a device that sits either on the side of the house or on the inside of the house and it terminates the single fibre from the node, but in a fibre-to-the-premise solution and it converts the signal into ethernet or POTS lines or RF, in the case of RF delivery over fibre to the premise.
2958 And most of these ONTs have several ethernet ports on them which can be addressed independently. I'd be very happy to buy on a wholesale basis access to one of those multiple ethernet ports on the device.
2959 So, in the case of fibre to the --
2960 THE CHAIRPERSON: Stop right there.
2961 In that situation, if you buy it, do you then have to re-wire the house in order to bring the computer to that ONT, whatever you call it?
2962 MR. ANDERSEN: I may have to at my expense, dependent on where the customer's computer is located in relation to the node, but I may as a competitive provider choose to plug a wireless access point into that ethernet port and make my service to the customer via wireless, a wireless LAN.
2963 With regards to your fibre-to-the-node question where the last mile is still delivered over copper, I've heard the ILECs talk a lot about, you know, requiring additional drop wires to be installed and no two modems on the line.
2964 They are correct, you cannot put two modems on the same line, but I encourage all of you, whether it be one of your Commissioners that is here in the Ottawa region or someone from Regina, indicating that the different ILECs do it the same way.
2965 Go to the side of your premise, open up the little grey box on the side that says customer demarcation point and take a look at the single drop wire that comes to your residence.
2966 I am fairly certain you will find that there is already more than one copper pair to your house. There is no need for a second drop wire to be run.
2967 My residence which I moved into two years ago had six of them when I arrived. I assume someone before me had multiple lines.
2968 And we find this is the case in a lot of scenarios.
2969 It's the same with the inside wire inside the house. It's a little more work, but pop open a jack, I'm sure you'll find there is already a red/green pair and a black/yellow pair inside your house that can be used.
2970 COMMISSIONER SIMPSON: Yes, but sometimes -- well, you know, a lot of businesses you've got to double up on the pairs at the quad to be able to -- you know, to be able to get the line speed you need, so...
2971 Anyway, let's not debate that.
2972 We're under some time pressure here, so I have two more questions I'd like to ask.
2973 First is, are you familiar with or have you had a chance to absorb any of the Wall study that --
2974 Okay. Well, I'll have to ask the question from the position that -- you'll have to trust me on this -- but in the analysis of consumer costing, the Wall -- we've heard a lot from both ILECs and BDUs that we are a significantly well penetrated country, and that for the most part we are holding our own, if not slipping with respect to consumer costs on a bit cost basis, you know, because -- and the question still remains, is it because we're not growing as fast as the other guys, what's happened, we don't know.
2975 But for the most part the differential between ILEC and BDU and third party services, whatever we as a Commission have been able to do up to this point has not really generated two desired outcomes. One is a great percentage of the market shifting to third party sources either on a wholesale or on a resale basis; and number two, of those who have, there haven't really been significant cost reductions and cost competitiveness.
2976 We're sitting right now at about five to six percent of the universe of those receiving broadband into the households.
2977 So, my question is this. Is it the cost of service or technical issues, or both, and if so, on what ratio, that is inhibiting more price competitiveness in the market?
2978 MR. ANDERSEN: So, once again, I'm not familiar with the study, but you look like a trustworthy guy to me and I'm willing to take your word on it.
2979 COMMISSIONER SIMPSON: Remember, I'm from the west.
2980 I just want to throw in that from my recollection, and again I just take it that -- I advise you to have a read because the study is available on our web I believe.
2981 But from my recollection, the competitive price differential was 10 percent, 12, 15 percent, maximum, across the board, which is significant from a margin standpoint, in terms of your profitability, but not as significant as perhaps hoped for by the consumer.
2982 MR. ANDERSEN: I will say the following, very briefly. I think the answer to the question is both, but I will undertake, prior to the next phase of this proceeding, to read the study, and I would be very happy to address it at that time.
2983 COMMISSIONER SIMPSON: Anyone else?
2984 M. BERGERON: Peut-être une petite réponse supplémentaire d'un fournisseur qui fait beaucoup de résidentiel.
2985 Le marché résidentiel est très compétitif et on fait de la haute vitesse depuis l'année '99-2000, à Québec. Et on s'est toujours plaint des marges très restreintes dans ce marché résidentiel. Et ça empire d'année en année avec l'augmentation des vitesses.
2986 Donc, c'est évident que développer des marchés à l'extérieur de la ville de Québec, par exemple pour notre compagnie, c'est presque impensable, présentement. On se tourne vers le côté affaires, qui permet des marges un peu plus intéressantes.
2987 Et je ne sais pas... du côté du CRTC, est-ce que vous visez une concurrence au niveau résidentiel ou uniquement affaires? En tout cas, pour ce qui est de Oricom, on a un marché résidentiel de 80 pour-cent. Donc, on est intéressé à ce que ce marché-là continue à avoir des concurrents. Nous sommes concurrentiels sur le marché, mais avec des marges à peu près impossibles pour développer plus notre marché.
2988 MR. GARBE: Could I make one additional comment, please?
2989 We, as competitors, offer multiple benefits. Number one, we come up with unique solutions. Maybe it's a national network, in the case of my company, or maybe we bring efficiencies to the marketplace that the big players can't bring.
2990 You have heard from two competitors, CANAC, who is here today, and TekSavvy, who presented yesterday, both of whom stated that they have 50,000 customers. I would suggest to you that their numbers are growing, and they are growing quickly, and both of them offer services at a much lower price than the ILECs are offering, because they, as competitors, have brought efficiencies to the process that have allowed the prices to drop.
2991 So I think that we are getting to where you think we ought to be, but we are not there yet.
2992 My concern, as it relates to this hearing, is that the refusal of the ILECs to allow us to get to their higher speeds has something to do with the fact that these companies have uncovered efficiencies that allow them to be both profitable and come in at a lower price, and they are very concerned about undermining the price of these new, faster speeds before they have even really come to market. It concerns me that those might be some of the underlying reasons why they are so resistant to us having access to those speeds.
2993 COMMISSIONER SIMPSON: Thank you.
2994 My last question is prefaced by the dreaded unintended consequence that we always seem to face here at the Commission, and it is a nagging concern of mine, going back to the spurline analogy, that when we look at a network, whether it be a BDU or an ILEC, the health, financially, of a big network is to everyone's benefit, including yours and the consumer, because it allows them the mechanism by which they can continue to grow, which -- and it may not feel like it to you at times, but it ultimately does have a benefit, I am sure, somewhere in your ongoing business relationship.
2995 The question is this. As we look at networks as a whole, and we look at this country as a whole, is there, in your respective experiences, an opportunity to look at regional and market size differences with respect to your ability to compete against a major network player, be it a BDU or an ILEC, so that you could demonstrate that, given an opportunity in an area that is not on their radar because of physical size or their relative economies of scale, you could get in and do good business and continue to grow broadband in this country?
2996 If you feel there is, if there is opportunity on a regional level or on a basis that we could identify on a smaller market level, I would be very interested in hearing about it now.
2997 And if you choose to, also, make another submission to the Commission before we close the books on this hearing, I would be very interested in seeing that, too.
2998 MR. ANDERSEN: As I understand the question, I think there are opportunities, and I think what we have tried to demonstrate in our presentation, for some of us here, is that that is exactly what we do.
2999 For example, in our company's particular case, we were able to take a very unique solution to our local municipality that wanted to manage the cameras on all of their traffic lights to ensure that traffic effectively flowed through the city.
3000 They approached the ILEC before they approached us and said: This is what we want to do. What can we do?
3001 And the answer they got was: Well, we can sell you business internet for $69.95 or give you static IP for $99.95.
3002 And that wasn't what they were asking for, so they came back to us and said: We don't want internet, we want to make use of these ADSL facilities to get traffic information, camera, video to control our traffic lights, back to us without going on the internet.
3003 No problem, we can do that. We can innovate. We can invest in some of our network, we will ask you to invest in some of your network, and we can make it happen.
3004 For some of us here, that is what we do. Michael has done it with his payment processing solutions. We have done it with other solutions, as well.
3005 COMMISSIONER SIMPSON: Thank you, that's the answer I am looking for, because I feel, as I close my part of the interrogation, that you sit before us, in my eyes, looking for parity, and it's hard to find parity between a big and a small player, but the inherent beauty -- your greatest weakness, being small, is your greatest strength, and it would help this Commission to understand the corners you are working into, of areas especially that are very lucrative and very promising, and again build the services to the community that are beyond trying to be another "me too" network or IP provider.
3006 That is not to say you shouldn't be, it's just to say that a greater definition of what you are doing would perhaps help us.
3007 Thank you.
3008 MR. GARBE: I am going to take a little bit of latitude with your question, if you don't mind, and give you a slightly different spin on it.
3009 You can have communities that are residential communities, you can also have communities that are business communities. As such, some of us at the table have created unique solutions geared towards certain business communities that are not served by the ILECs or the cablecos.
3010 I found it very ironic yesterday that Mr. Cope came to you with an example of Tim Hortons. It's ironic because last year Tim Hortons deployed with a competitor for their data services across the country because the competitor brought a solution that the customer felt was the best for their needs. They chose this competitor because they developed a national network, like we have. Also, they developed further into the States and delivered other services to the customer that they were looking for.
3011 So, in cases like that, communities can be businesses as well, and we are providing a unique solution to those communities as well.
3012 THE CHAIRPERSON: Thank you.
3013 Marc, you had a question?
3014 COMMISSIONER PATRONE: Yes, Mr. Chair, thank you. I only have one.
3015 Mr. Garbe, you spoke about how you see yourself as a customer of Bell's, and the fact that you actually helped them achieve an acceptable level of return within a period of time that is sort of acceptable.
3016 Did I hear you correctly, am I paraphrasing you right?
3017 MR. GARBE: Close enough, sure.
3018 COMMISSIONER PATRONE: If we mandated negotiations for access to next-generation networks, as has been suggested, do you envision some kind of framework for discussions where perhaps a profit-sharing agreement might be reached that could allow for a win-win?
3019 MR. GARBE: I think that would be an ideal situation; however, I feel that it is unlikely to ever occur.
3020 As several of the panel members have indicated, we have difficulty negotiating for the services that have already been mandated. We have difficulty in certain situations having our orders put in and serviced in the amount of time that has already been mandated. We have difficulty whenever we deviate the slightest bit from the tariff, as in the case of CANAC, where they have gone beyond the original contemplation of the gigabyte service and they have 14 gigabyte connections. It makes logical sense to negotiate a 10-gigabyte link, and yet the ILEC is unwilling to do so.
3021 COMMISSIONER PATRONE: So you are basing the possibility, or feasibility of any future discussions on what you have experienced in the past with Bell and other ILECs.
3022 Is that correct?
3023 MR. GARBE: That's correct.
3024 COMMISSIONER PATRONE: Thank you.
3025 THE CHAIRPERSON: Before we let you go, Mr. Ménard, I want to make sure that I understood you correctly. Did you say, with respect to IPTV, that there are solutions right now that are available to solve that problem, so that if there was mandated resale of hybrid to the home, for instance, that could happen without their being an impairment on the IPTV delivered by the telco?
3026 MR. MÉNARD: Not only am I certain, but we are privy to the ongoing design and architecture of European FTTH and DSL undertakings whereby the functionality available in the most recent firmwares of Huawei and Alcatel are being tested in the labs for unbundling multicast functionality.
3027 It is a fact. If the Commission --
3028 THE CHAIRPERSON: Careful, you are getting into technological language and losing me.
3029 What I wanted to know is, there is a solution there --
3030 MR. MÉNARD: Yes.
3031 THE CHAIRPERSON: -- which does not involve putting a separate line or a separate --
3032 MR. MÉNARD: Send it to CISP.
3033 THE CHAIRPERSON: It exists.
3034 Can you file evidence with us, because that testimony goes directly against what the telco has told us so far.
3035 MR. MÉNARD: Most of that information is --
3036 THE CHAIRPERSON: Can you file it for us, so my people can look at it?
3037 Or can you give us the references, et cetera?
3038 MR. MÉNARD: I will send you the standards.
3039 THE CHAIRPERSON: Thank you.
3040 Okay, we will take a five-minute break before we hear the next intervenor.
--- Upon recessing at 1357
--- Upon resuming at 1403
3041 THE SECRETARY: Order please.
3042 À l'ordre, s'il vous plaît.
3043 LE PRÉSIDENT: Allons-y, Madame.
3044 LA SECRÉTAIRE: Merci, Monsieur le Président.
3045 J'inviterais maintenant Vaxination Informatique à faire sa présentation.
3046 Appearing for Vaxination Informatique is Monsieur Jean-François Mezei.
3047 Monsieur Mezei, vous disposez de 25 minutes. Allez-y!
3048 M. MEZEI: Mon nom est Jean-François Mezei, Vaxination Informatique. Je vais faire ma présentation en anglais, mais je peux répondre aux questions dans les deux langues.
3049 I am a self-employed individual. I have been curious about what is going on with the internet because I depend on the internet and I see many decisions affecting me personally. That is why I am here.
3050 I have a few points. First of all, I will talk about competition here. Competition here, so far, has been mentioned only in terms of whether Bell and cable are sufficient. Competition affects all of Canada, because if we don't have sufficient competition at the telecom level, it hurts us, the citizens.
3051 I will be talking about the various last mile options, obviously the prerequisite questions, the five questions you have asked, and I also have a few solutions that may be sort of out of the box that have not been discussed so far.
3052 In terms of competition, last year Zip.ca, at the ITMP hearing, said something very significant that should have really rung a lot of alarms. They said that it's cheaper for them to burn a DVD and mail it to their customers, with a prepaid envelope, by Canada Post, than it is to send it by the internet.
3053 In the U.S. and everywhere else in the world, there are companies like Netflix and everything else that do this on the internet, and it's cheaper than using the post.
3054 So there is a problem in Canada, and I hope that you guys address it.
3055 The whole industry in Canada -- it's like the railroads, basically, and airports. These are necessary items for industry and the economy to function, and we need something that is healthy. Right now what we have seen from the telcos, in terms of what they are willing to do, is not healthy.
3056 One more point: Canada should have had its own Google or iTunes and all of these big Amazon.coms. We have the education system, we have the technology, yet we don't.
3057 That is another question you guys should ask.
3058 What is needed is not what the UBB decision was, the retail level decision; we need a stable, robust and simple wholesale decision, one that is truly wholesale and nothing but wholesale, so that ISPs and other information companies can build their own services the way they want and buy what is needed for them to do this.
3059 Once, as a suggestion, I used chocolate chip cookies. A company should be allowed to buy whatever number of chocolate chips they want for their recipe, and Bell should not prevent them from buying the number they want. As long as they pay for them, Bell has no reason to dictate what recipe they use.
3060 Bell Canada yesterday repeated the choice of President's Choice as an example of competition. President's Choice is truly white label resale.
3061 Bell Canada also stipulated that it will freely negotiate with parties that it feels happy with, or whatever the expression was that they used. Well, I am sorry, but a company that will only deal with friends, by default, means that they are not going to be dealing with potential competitors, and President's Choice is not going to compete against Bell, so this does not generate competition, it's just a different bill, a different logo on the invoice you get.
3062 By the way, the market -- when we talk about market-driven or market forces -- the market is you and me, it's not Bell and TELUS and all of the others.
3063 And choice is needed by us, the citizens, not by the companies, and for there to be competition we need to have choice.
3064 When Bell dictates the micromanagement of what the other ISPs can do, and how many gigs we are allowed to download, and it imposes its AUPs, as part of the UBB decision, onto other customers, there is no choice left. It might be a different company providing the service, but they are forced by Bell to do the same thing as Bell. There is no choice.
3065 This is something that the Commission has to steer away from and really stick to negotiating tariffs that are wholesale only.
3066 Another point that I wish to make is, with all of the different organizations that have made presentations so far, in terms of the proposals, the ADSLCO, Version 1.0, 2.0, 3.0 -- people aren't, so far, sure -- there is one aspect that is different from the current GAS.
3067 The current GAS gives an ISP immediate access to all of Bell Canada's territory. The newer proposals will give pockets of coverage where individual ISPs feel they can have a sufficient number of customers.
3068 Even today -- and I will use Primus as an example, because they are one of the larger ones with their own DSLAM -- in public forums, a lot of people ask, "I live in such-and-such a place. Is that covered by Primus?"
3069 There should be a database. A monitoring organization, either the CRTC or something else, should actually have a database of which areas in Canada, down to the neighbourhood, have competitive coverage, and how many competitors. That would not only give you, the Commission, the ability to actually gauge the progress or regress of competition, but it would also give us, the citizens, the ability to see: Okay, I live here. What can and can I not get here?
3070 Because it gets very complicated when one neighbourhood, one block, has coverage from one company but not from the other, and another company has another block, and depending on where they locate the equipment, it gets very complicated.
3071 Having a database like that would help to simplify things.
3072 Or, keep GAS, which is a lot simpler and a lot more efficient. You just have to fix all of the mistakes that have been made in the last few years.
3073 Now, in terms of the last mile, the big question is: Do you mandate equal speeds?
3074 Just to put it on the record here -- and I think that other people have said this -- the 5 megabytes that we are limited to right now, as GAS end users, when Bell was at 6 and 7 megabytes, the difference was small enough that the additional advantage of the ISP made up for the difference in speed. But when Bell is now at 25 megabytes and we are stuck at 5, the difference is too big now for the advantages of the smaller ISPs.
3075 And while statistics may not yet show degradation of the small ISPs' business, it is going to start, and it is going to start pretty soon. So you guys have to act quickly to provide palliative care, or whatever, for those ISPs, until ADSLCO, or whatever, comes through.
3076 The other point is that, again, you have to have a transition between the current GAS and what will be new.
3077 And if I may make a comment, a lot of people have mentioned the fact that the recent decisions for GAS were designed to sort of wean ISPs off Bell and sort of motivate them to go with facilities-based. You don't stop breastfeeding your kid until he is ready to eat food, and that is what has happened now with GAS, with the throttling and the UBB, and no equal speeds. Basically, ISPs are now on their own, with inferior stuff, and maybe a lot of them will not survive if this lasts too long. So they have to start to be fed quickly.
3078 Facilities-based concept -- this has been mentioned so many times by Bell and by everyone else.
3079 I would like to remind everyone that an ISP's business is not last mile, it is being an ISP, and independent ISPs have their own facilities. They have their own servers, they have their own DNS servers, they have responsibility for the IP addresses they have. They are the ones responsible if there is abuse. They are the ones who get called, not Bell.
3080 As a matter of fact, in the case of the GAS system, somebody in the U.S. tracking abuse down to an ISP will not know, in any way possible, that that ISP uses Bell as the last mile, because Bell is supposed to be transparent. That is something in the UBB decision that was not understood, because by agreeing with the AUP, it made Bell responsible for something that it can't be.
3081 There are a whole slew of services that ISPs have on Slide 9, and that is their core business. Their core business is not to do the last mile. The last mile is a dumb pipe that is meant to carry packets from A to B, and it should be that. If it is kept at that, it's simple. No other stupid rules of throttling, or you can't do this during certain times of the day, or you can't do that, it has to be just a dumb pipe that carries data from A to B.
3082 That makes the tariff simpler. You want so much capacity, you pay so much, and that's it.
3083 And that doesn't change. Internet transit providers have similar arrangements. It doesn't change every two weeks. It doesn't get bogged down by CRTC commissions every two months with new tariff requests. They have a simple structure, and they have a simple fare, and it works.
3084 And it allows ISPs and any commercial operation that buys the service -- it allows them to know that two or three years down the road they will have the same structure of tariff, so that they can plan their business.
3085 Right now the poor ISPs don't know what the hell to do. I mean, you guys -- not you guys, but Bell keeps submitting new tariffs, day after day after day after day.
3086 The UBB is a very good example. They don't know when it is going to go into force. They don't know exactly what it is going to look like, because Bell has to submit yet another change to it, and now Bell has an RNV to it, so we don't even know...
3087 How is an ISP supposed to deal with this?
3088 GAS was perfect in the days before this happened because it was stable and it was a pure data transfer service, and that is what it should go back to, because that is what we need.
3089 Just out of fun, we talk about facilities-based -- Sympatico, or Bell Internet, whatever the name is this year, they don't have their own IPs. They use Bell's IP, the AS577. Bell is the one that does all the routing, all the decisions. Bell is the one that gets the reports for abuse and everything, not the Bell retail. If you guys were to force the Bell retail to be spun off as a separate entity it would have less facilities than the current independent ISPs who have a lot more than that, because they do all that themselves.
3090 So the whole facilities-based thing, I think, should be reviewed because it may have been good five years from now back when the concept of having a DSLAM in the CO was still viable, but it's not viable anymore because you need to be near houses to get the modern speeds.
3091 Another point with various proposals, when you ask ISPs to set up their own links or their own DSLAMs, this is duplication of existing services. Now, it removes money from Bell, so Bell complains it is losing money. Well, you are actually reducing the revenues from Bell and it will actually cause overcapacity in many instances and overcapacity is not very good because it ends up raising the cost for everyone.
3092 Now, talking about the DSLAM at the CO, just to repeat this, it was viable a few years ago, maybe back when 2008-17 was done. It's not viable anymore. I think a lot of people have already mentioned that you need to have access to the remotes and deploying your -- especially since DSL is basically a limited lifetime, because we all know it is going to fibre eventually, asking high speeds now to deploy all their capital onto something that is not going to last very long is not very smart.
3093 Another point, too, if DSLAMs at the CO were still viable, Bell Canada would not have spent the gazillions of dollars they have spent to move their DSLAMs out to the houses and neighbourhoods. So the fact that Bell moved it to the neighbourhood means that it is no longer viable. Asking the small ISPs to put their DSLAMs in the CO not very smart at this time of -- the period of -- it was five years ago, five or six years ago, but not now; certainly not in the future.
3094 I'm going to skip.
3095 Links to the CO, the second sort of option on the DSLAM on the ADSL-CO "stuff", this is an interesting one but there needs to be aggregation because you can't have 400 different links going from the 400 central offices, 400 or so central offices, going into each ISP with 400 fibre pairs going in with 400 ports. There has to be some type of aggregation.
3096 This could be done commercially, but Bell is there. It already has that. Why does it not want to do that and get money for it?
3097 That is a good question to ask, isn't it? And also the link to the CO has the problem again of doing little islands of coverage because an ISP will not be able to justify a link to a CO if he only has two customers in that CO, or three customers or whatever.
3098 There was a question asked yesterday to which ISPs did not want to respond. I got an informal number. You may want to maybe use that. I have a number of about 400 customers needed to justify an investment into the CO. There are not many COs that have that sort of concentration of people living -- of potential customers within the area of one kilometre around the CO. You're talking downtown cores with apartment buildings all around it. That again is just a pocket of competition and the rest of the country is stuck without it.
3099 Okay. Sorry about this.
3100 Okay. The NGNs, whether a DSLAM is located in their pedestal giving VDSL2, whatever, or located in a CO, both of them are connected to fibre so it is really just a question of taking a DSLAM with a long extension cord and moving it out into the backyard instead of keeping it in the house. There really is no architectural big difference into it.
3101 VDSL2 is other peoples -- an upgrade from ADSL2+. As a matter of fact, some customers -- not me, but some customers on GAS are actually on VDSL2 capable DSLAMs today that they were given by Bell, a 5 Mb ADSL1 profile, because all these machines are able to do that. The limitation of 5 Mb per second imposed by Bell, you should be aware just for the record, ADSL1 back in 1999, the limit is 8 Mb per second, not 5.
3102 Personally at home Bell made a mistake. I am on at seven and I pay for five. I'm sure tonight it will be gone, but I figured I would risk that.
3103 MR. MEZEI: And also the question was asked yesterday -- VDSL2 dates back -- was standardized in 2006 so this was before 2008-17 was passed. So at the time that 2008-17 was passed VDSL2 was already established. Bell may not have had it or may not have admitted to having it but the standard was established and everybody knew people would be moving to that because that is a logical evolution.
3104 FTTH now: We have heard a lot of comments from Bell and others that they are not going to modify their investments in the FTTH if you mandate access to it. What I find interesting is Bell delayed its announcement that it was rolling out FTTH in Quebec city until after the Governor in Council's decision on the equal speeds aspect.
3105 You have to know, because DSL has a finite lifetime I don't know exactly how much longer it can last, how much longer it can compete against cable. That is the real driver of how quickly Bell has to switch to fibre, because once cable goes up to 100 Mb a second and Bell can't switch, if Bell hasn't started FTTH it's going to die.
3106 That is the big driver, is how quickly or how long DSL can compete against cable. Whether you mandate access or not, you know, it may change a penny here or there, but it's a small thing.
3107 The second part, in the Bell presentation they also mention that another big driver of this was the physical characteristics of a neighbourhood where, you know, they might decide to deploy in one neighbourhood and not the other. To me, depending on how easy it is to dig or whatever, those costs are going to be far more important than a few pennies they might lose in revenues from mandating access.
3108 Transition to FTTH -- and again, the way that you regulate this, FTTH from DSL is not mine to be overnight. They are going to coexist for a long time and whatever tariff that you do should support both because an independent ISP, they can't afford to be left out of Quebec City because Bell has already converted Québec City. Of course when Bell goes neighbourhood by neighbourhood how is a small ISV supposed to know, or the individual citizen supposed to know whether he can get it or not, you know, because it is going to be all pockets?
3109 Having a hybrid system that feeds into one tariff to the ISP allows the ISP to serve every neighbourhood no matter if they have been converted or not. As I said, this is a long-term process and the tariff has to be done to support that.
3110 Just to talk about FTTH, just to make sure that you understand, the DSLAM is called the OLT. It's normally in a central office but maybe it could be moved to remote locations in villages that have a walk-in closet they call it, I'm not sure.
3111 This is like cable. It has one piece of fibre going out that has the data for between 30 to 128 houses. Close to the house is what they call the optical splitter. You have to look at it as a fancy prism. It literally splits the light beams into 32 or 6,428 light beams. So every signal that goes to house A will also go to house B, C and all those houses, so they share the bandwidth. In very many aspects this is similar to cable.
3112 The big difference with DSL is that you cannot buy the loop to the house from the CO because that doesn't exist anymore. That concept doesn't exist. Bell mentioned that well, you could, you know, dig your own fibre to the optical splitter and then you build your splitter and we will move the cable.
3113 Well, you know, if you are going to serve one house in a neighbourhood are you going to install the OLT and a splitter and all the costs just for one customer? It's not realistic for the smaller ISPs to go that way. They have to have access to the Bell FTTH.
3114 IPTV: I have a few minutes left.
3115 There are many options for Bell to do this. Obviously Bell does not want to do this so they are not going to work hard to find these options, but they are there. I asked this in an interrogatory. Bell said that, "We have not thought about that".
3116 They could white label resell their own IPTV service and small ISPs can put their logo on it and Bell gets the money.
3117 They could provide, similar to cable, a point of access to their IPTV server location, which Bell said are very central in each city and the ISPs could then access the multicast-enabled network to the homes and then they could have their own IPTV server serve that, or they could locate their own IPTV server in the same room as Bell's.
3118 Now, in terms of the sharing of IPTV, the previous folks here did provide some questions. I already had mine in mind. Mine is actually simpler because with GAS the way it is with the PPOE protocol Bell has to do something very big, not lift a finger. It's built-in. The modems, the cell pipes -- 7130s I believe the model is -- support the two logical links onto one physical link.
3119 At some point within the aggregation network, Bell sees this is an IPTV packet and that is an internet packet -- splits them apart. The internet packet goes to the same BAS machines that the GAS -- that we use and those BAS machines can route the packets to whatever independent ISPs.
3120 This can be done today, if Bell wanted. So the fact that they have found excuses not to do it sends you a message about their willingness to allow competition.
3121 THE CHAIRPERSON: So Mr. Ménard, when I asked him, said there is some specific -- I guess it's software available right now to do it. You say you don't even have to go that far. You have the capacity right now?
3122 MR. MEZEI: With the architecture of GAS as it is, no. If you go to ADSL-CO, some sort of modified system, there might be. Then again there might not need be. Bell mentioned that they would be able to do a Level 2 switching at the CO, Level 2 internet. If they do, then they send the internet packets belonging to internet service, they send it off to the ISPs. And the IPTV packets belonging to IPTV they go to Bell's IPTV server.
3123 So it is doable. And where there is a will there is a way. This is not overly complex, really.
3124 You know if I had been the first to mention it, but I have a different solution with GAS. Mr. Ménard has another solution. Solutions exist and they are not very difficult to get if you want them.
3125 If you don't want them you find excuses not to do it.
3126 THE CHAIRPERSON: This would not in any way degrade the quality of your IPTV or interfere with it?
3127 MR. MEZEI: No, because according to what I have read from Bell, Bell has the quality of service implemented in the switches at the CO. So the traffic would flow through that switch through the quality of service, guaranteeing the IPTV stream at 7 Mb or whatever it needs.
3128 THE CHAIRPERSON: Right.
3129 MR. MEZEI: And the packets going to an ISP or to Sympatico are treated the same way.
3130 As a matter of fact, if you remember last year during the ITMP hearings, Bell stated categorically that it did not have the ability to differentiate packets between its own retail operations for internet and competitive ISPs, because the question had been asked if we could split that.
3131 THE CHAIRPERSON: Right.
3132 MR. MEZEI: And they said no, we cannot do this. Yes, they can do it but basically at the DSLAM level they are treated the same way in the same pipes, so it's possible.
3133 And maybe, you know, Bell will be able to provide real proof with documentation, paper documentation or something when they do the rebuttals. But from everybody that I have spoken to when I mentioned this, is this possible; yes, with the sell pipe.
3134 Obviously you can't use your own ADSL1 modem. You have to upgrade to a VDSL2 modem.
3135 THE CHAIRPERSON: You keep talking about Bell. TELUS made the same claim. So does the same apply to them or is there different architecture here or something?
3136 MR. MEZEI: I am not familiar with the TELUS architecture. I know because Bell has implemented it and people are speaking about it. I assume it is the same because basically VDSL2 is a standard and you may have different brands and modems, but inside they are all basically the same chips, the same chipsets. And the capabilities are basically all the same.
3137 When Bell designs its IPTV they just look at what is available in the market, you know, and they look at the solutions. I think Bell has a Microsoft solution. TELUS mentioned they have a Microsoft solution. So I have to assume they are very similar, but you know I can't say categorically. But the solutions are there if there is a will.
3138 A lot of people have mentioned 2008-17. I have seen this mentioned by Bell in all its filings as an excuse that it doesn't have to justify what it wants done because of 2008-17.
3139 As a citizen, I would like you guys to review this to see whether it is still applicable in the current environment that is changing quite significantly in terms of the capabilities because now we really do need access to the last mile from the incumbent. It can't be replaced anymore realistically. Whereas in the last few years, you know, the concept of doing the DSLAM and the CO was still viable. Now it is not viable anymore.
3140 Bell Canada has a past where it was an official monopoly and had been granted many privileges because of that and guaranteed return on investments, et cetera, et cetera. Mr. Cope yesterday did not seem to remember that and he said we are a new private company, we have no past, we don't have -- the polls that they have were paid for basically not by the government, but the government guaranteed a return on investment by agreeing to rates that paid for those polls; the same thing with the COs and everything else.
3141 I think that has to be taken into consideration and the incumbents have to be treated with a special case because they have that past where they were given privileges.
3142 As I said before, you need to have better clarity in the tariffs. Last year Bell decided to redefine HSBI, the aggregation part of -- as just a window -- whereas in the past it was seen as an aggregation, capacity based. This sort of thing from the ISPs' point of view, you need a tariff that won't change definition midway. It should be fairly clear.
3143 Obviously nobody is asking Bell to subsidize the ISPs. It is up to Bell to provide us with numbers instead of hash marks in its filings so that we can see the numbers and see that, yes, this is what it costs. You know if it costs that much to provide higher speed then people will have to pay for it.
3144 Nobody is asking -- and Bell keeps saying subsidy, subsidy. I have yet to see any proof as a citizen and someone who has read the filings -- I have yet to see any proof that there is a subsidy, that Bell is subsidizing GAS service. I don't see any proof of that, yet they continue to claim that.
3145 Okay. I will get to the -- my time is up now. Hold on. My Mac is a little slow.
3146 Responding to your questions, I will tackle the regulatory symmetry. I have a different opinion on this.
3147 I agree with symmetry that it must be done comparing apples to apples, not apples to oranges. It has to be done at the wholesale level. If you are going to have a wholesale service you are going to have symmetry at the wholesale level.
3148 If you are going to do that, then Sympatico, or Bell Internet retail, it should be made to buy GAS tariff and that way there would be symmetry and you would see that GAS would quickly remove that 5 Mb imitation and they would be symmetric and the core, basic core data transport would be equal between all ISPs including Bell's.
3149 Each ISP can then shape their own environment, their own service the way they want, and they could compete that way and that actually increases competition. And it's fair because, you know, even Sympatico gets to stay at the same rate, the same speeds; the same treatment as everybody else.
3150 I think that would be -- it would take a step from the government to put your foot down and say, "This is what we are going to do". They won't like it, but I think that would be the best solution. It would be a long-term solution with a clear direction and one that wouldn't result in constant haggling at the CRTC and requesting for changes.
3151 Responding to the five questions, in equities, this will be quick. Because we can't compare what Sympatico pays to Bell for the last mile we can't know if there is any inequity or not because we only know what the independent ISPs pay. We don't know what Sympatico pays.
3152 Mandating high speeds to me is obvious. Maybe you could make it a service essential again because that is the only way to reach the homes with modern speeds. In my text there is different stuff.
3153 One aspect also that I bring up which nobody else has brought out, with many independent and some small, some large high speeds, they can't get together and buy wholesale links together.
3154 What the Commission or the government could do is to form a company such as NAV Canada as a non-share, private non-profit organization, which would basically take all the needs from the small ISPs, aggregate them and then buy the links with all 400 COs. Essentially it would duplicate what Bell does but it would serve all ISPs and it could be sort of a cooperative owned by the ISPs or some sort of structure that way.
3155 But that would enable -- remove a lot of the problems that individualized speeds cannot reach everywhere, but having one organization sort of gather all the needs of the ISPs and provide that, that would solve a lot of the problems. It would probably be a radical solution, but it's one possible solution.
3156 In terms of cable a few comments. I have less experience on cable. Your question should be delayed because cable -- from their answers the upstream bandwidth that cable has is extremely limited. And while you might be able to allocate more downstream channels and dedicate them to ISPs, you can't improve the upstream until the cable companies change their upstream repeaters to something more modern.
3157 I will give you an example. I have a friend in New Jersey. He gets 100 Mb on his cable and 5 Mb up. He is allowed to run servers. He has a fixed IP address. Reverse translation, he can run his business from home on cable. In Canada TPIA forbids this.
3158 In my case I'm stuck on DSL until six months from now when UBB comes in and it can no longer operate because of the AOPs, but in the U.S. this is done.
3159 The technology exists and it is done on a day-to-day basis where people can run their servers and use bandwidth on the upstream of 5 Mb and some of them actually offer higher. In Canada they are limited to 800 kB or 101 MB sometimes; a big difference.
3160 That is something you can ask the cable companies tomorrow, if they have plans to fix that problem.
3161 THE SECRETARY: Excuse me, Mr. Mezei.
3162 MR. MEZEI: Yes?
3163 THE SECRETARY: I'm going to have to ask you to conclude, please.
3164 MR. MEZEI: Okay. One minute.
3165 This I have already done.
3166 New types of internet access, I have already said basically VDSL2 -- and other people have said it -- it's just an evolution. I think it should be mandated because this is the only remaining solution. And as you evolve the old stuff, it may still be physically there but it is no longer useful. 5 Mb is no longer useful.
3167 My proposed solution is to bring back GAS to the way it was and have a simple tariff capacity-based. That is something the ISPs know how to run. It is something that is stable and doesn't need to change every time you change your retail service.
3168 It's a fix. It would simplify everything. It would simplify your life and my life because we wouldn't be here talking every year about changing the system.
3169 Finally, I will close in saying that you guys should enable the future instead of protecting the past.
3170 THE CHAIRPERSON: Okay. Thank you for your presentation.
3171 The basic thoughts running through yours is basically structural separation, the same thing as the Europeans have done. You basically say take -- you used Bell but you could take TELUS, et cetera --
3172 MR. MEZEI: Yes, yes. Yes.
3173 THE CHAIRPERSON: -- whatever you say and split them up. There should be one commodity site which provides transportation and one on the application side which competes with all the ISPs?
3174 MR. MEZEI: Correct.
3175 THE CHAIRPERSON: That's what you were -- that is not the policy that neither the government nor the CRTC so far has endorsed.
3176 Maybe someday we will wind up there if the telcos and cable companies don't try to make the present policy work. But we, as you know -- the fundamental assumption that the government has made that there will be facility-based competition and companies will compete providing both the underlying transport, the access and the applications, et cetera, and there will be a secondary market, to some extent we are trying to make sure there is a viable secondary market.
3177 It is a different concept. I'm not sure -- so what you are really producing is a complete -- rethinking and introducing a new concept into our telecom regulation, or did I misunderstand you?
3178 MR. MEZEI: Well, you did not misunderstand me. I think the ability to place a DSLAM in the CO has been there for a number of years, I think Primus and Colba and another of other companies have had DSLAMs. It has not been a resounding success. The same thing with TPIA, it has not been a resounding success.
3179 From your point of view -- and again my idea of the monitoring the progress of competition, if there was something like an annual report saying okay, this is how it is progressing or regressing, you would have seen in the last few years it's regressing.
3180 We are only talking about 5 or 10 percent of competition in Canada. The rest are all incumbents. This is not exactly very healthy. I think that you guys should bring the alarm bell in saying we need to do something a little more radical and review, not in terms of legal stuff but, you know, look again at what is really needed.
3181 I don't get a warm, fuzzy feeling that the ADSL-CO proposals so far that I have seen will lead anywhere. The smaller ISPs, they don't have the capital to start deploying all these lines. They would much rather -- like my ISP electronic box in Montreal, it is not here today because it is installing a lot of routers and stuff and building, rebuilding their whole network and servers. That is where their money is going to improve the service.
3182 THE CHAIRPERSON: We have here the typical Canadian compromise. We don't want the U.S. basis of only the facility-based competition and no mandated retail nor the European structural separation model. That's sort of trying to have our cake and eat it too.
3183 So we are saying we will have a facilities-based system but we impose on it a certain element of mandated resell so that other companies who have facilities can -- if that is the basic underlying assumption or approach we took -- if you take that, what does it need? What needs to be done to improve the system and make it better, rather than the revolutionary sort of change that you suggest?
3184 MR. MEZEI: Well, it's not revolutionary. I'm asking you to go back to --
3185 THE CHAIRPERSON: Wholesale, whatever you want to call it.
3186 MR. MEZEI: Yes.
3187 My solution of that, a NAV Canada-like organization, would be the one that would palliate the problem of reaching the whole geographic area that smaller ISPs could not be able to do. Having one organization that would be formed that is neutral, non-profit, that serves the small independent ISPs.
3188 It would be buying the bulk links to all 400 COs and then by combining all the small ISPs together then you have enough customers in each CO to justify that link. That would enable you to go to the facilities-based without forcing all the small ISPs either to go out of business and shift all the people to one or two or three independent ISPs. It would enable new entrants to come in and use the available infrastructure that is available, neutral, NAV Canada type.
3189 I think it would be the solution to solve the problem of economic access to the COs. Such an organization could also facilitate going to cable as well and it could be a one-stop shop for an ISP to serve both.
3190 THE CHAIRPERSON: Okay. Thank you.
3191 My colleague Monsieur Arpin has some questions.
3192 CONSEILLER ARPIN: Merci, Monsieur le Président.
3193 Je vais passer des questions en français à des questions en anglais, dépendamment...
3194 M. MEZEI: C'est correct.
3195 CONSEILLER ARPIN: ...parce que je veux continuer sur la discussion que vous avez idée de terminer avec NAVCAN.
3196 Bon, NAVCAN, c'est un organisme gouvernemental. Ça, on le connaît bien, dans le secteur de la radiodiffusion, parce qu'il intervient régulièrement dans les dossiers des stations FM, à cause de l'interférence. Mais un organisme semblable, qui serait, donc, conceptuellement un organisme sans but lucratif qui aurait pour objet de faire de la coordination, ça relèverait... Qui devrait le créer? Le gouvernement ou bien... ou bien la coalition des fournisseurs de services Internet?
3197 M. MEZEI: Bien, écoutez. Les groupes qui sont venus ici représentent un bon nombre de ISP, mais pas tous. Mon ISP, Electronic Box n'est pas membre de ces organisations-là.
3198 Moi, personnellement, je pense que si le gouvernement forme une telle organisation, ça aura beaucoup plus de poids et plus de chances d'avoir... de succéder, avoir un succès que si c'est fait par un mish-mash de ISP qui eux, vont avoir des différences entre eux et qui risquent de péter et de ne pas fonctionner. Avec un gouvernement qui ferait ça dans une étape : on fait ça, ça se fait... et cet organisme-là aurait aussi un mandat de négocier avec Bell, Telus, et cetera... Ayant un mandat du gouvernement, ils auront plus de poids à négocier avec Bell, et cetera.
3199 CONSEILLER ARPIN: Si je vous comprends bien, puis je comprends bien la discussion que vous avez préalablement avec le président, Bell a intérêt à avoir son Sympatico à l'intérieur de cet organisme-là, tout comme Telus, tout comme SaskTel, parce qu'ils sont aussi des fournisseurs de services Internet, en ce sens-là.
3200 M. MEZEI: Écoutez, si la branche d'Internet au détail de Bell veut être membre, why not?
3201 CONSEILLER ARPIN: Parce que... Moi, je penserais... C'est une opinion, là, et c'est seulement une question d'opinion, mais je ne pense pas que le gouvernement veuille nécessairement être intervenant dans une organisation de ce type-là, mais dans d'autres secteurs industriels, ça existe des organismes...
3202 M. MEZEI: Oui. Mais regardez bien la charte de NAV CANADA. C'est vraiment maintenant une organisation indépendante, et les Board Members sont les compagnies d'aviation et les pilotes personnels qui ont une certaine représentation sur le Board de NAV CANADA.
3203 Et c'est NAV CANADA, quand ils font leur rapport annuel, ils rapportent... puis ils ajustent les frais d'aéroportu-- pas d'aéroport, mais de * landing and take-off + selon le nombre d'avions puis selon les profits des coûts.
3204 Et c'est beaucoup plus comme une coopérative, sauf que ça a été coordonné et formé par le gouvernement...
3205 CONSEILLER ARPIN: Oui, mais parce que le gouvernement a voulu se désister d'un secteur d'activités qu'il jugeait qu'il pouvait opérer par lui-même et de manière commerciale, comme il l'a fait avec les aéroports, et qu'il a fait dans d'autres...
3206 M. MEZEI: Via Rail.
3207 CONSEILLER ARPIN: ...à Via Rail puis Petro-Canada.
3208 M. MEZEI: Oui.
3209 CONSEILLER ARPIN: Donc, il avait une motivation, le gouvernement, pour le faire. Dans le cas qui nous intéresse ici, je vois... Je cherche l'intérêt du gouvernement ...
3210 M. MEZEI: L'intérêt...
3211 CONSEILLER ARPIN: ...de créer cet organisme de coordination-là, alors que, comme vous l'avez dit tantôt, il y avait de multiples coopératives, ne serait-ce que les coopératives agricoles, qui sont des beaux exemples de coordination.
3212 M. MEZEI: Oui. Au point de vue de justification, la présentation de Bell, hier, moi, le message que j'ai eu, c'est que Bell ne veut absolument pas s'impliquer dans l'agrégation et la distribution et il veut que les petits ISP trouvent une autre façon.
3213 Si Bell veut pas la business, c'est son droit. Mais si Bell veut pas la business et le gouvernement veut que la structure, l'architecture de la distribution s'en aillent dans une direction en particulier, à ce moment-là, le gouvernement a un rôle, de faire un * steering + dans cette direction-là. Et la façon de le faire, ça serait de créer cet organisme-là.
3214 Et une fois qu'il est créé, ça devient comme NAV CANADA, ça devient indépendant puis c'est géré par les ISPs. Mais ça donne un leadership pour y aller, pour faire le premier pas que les petit ISP n'ont pas fait, jusqu'ici.
3215 Puis écoutez, ça fait plusieurs années qu'on parle de * facilities base + puis de ces affaires-là et ça se fait pas. Si vous voulez que ça se fasse, puis que moi je perde pas mon accès comme individu... que je perde pas mon accès à l'Internet, peut-être que le gouvernement, eux, doivent prendre une étape puis faire un pas en avant pour commencer le processus.
3216 CONSEILLER ARPIN: Mais si j'essaye de décoder ce que vous me dites, c'est que le gouvernement, dans cette instance, c'est le CRTC?
3217 M. MEZEI: Moi, comme citoyen canadien : oui, vous êtes le gouvernement. Vous implantez les politiques du gouvernement, la * policy directive + du gouvernement qui...
3218 CONSEILLER ARPIN: Oui.
3219 M. MEZEI: ...est directrice.
3220 CONSEILLER ARPIN: Et la politique canadienne sur les télécommuniqués?
3221 M. MEZEI: Exactement.
3222 CONSEILLER ARPIN: J'ai lu votre mémoire, puis... qui est complet en lui-même. Puis votre présentation orale d'aujourd'hui, elle est encore plus complète. Elle est beaucoup plus détaillée. Même qu'elle donne davantage d'information, même, que votre mémoire. Et ça, je l'apprécie, je pense... Mais vous...
3223 In your oral presentation, you say that, "Canada's failure to hatch a world-leading Google is indicative of a problem."
3224 C'est beau de poser la question, mais quelle est votre réponse, à vous? Comment ça se fait que c'est... Le Canada, c'est pas la taille --
3225 M. MEZEI: La réponse, c'est Zip.ca. Ce qu'ils ont dit l'an passé, que ça coûte trop cher au Canada... Quand vous regardez le monde qui veulent faire de la colocation, qui veulent mettre leur serveur ailleurs, ce que je vais être obligé de faire, moi, à la minute où le UBB rentre, parce que ça va être rendu illégal d'avoir ce serveur à la maison, c'est d'aller chercher une place.
3226 Puis les places moins chères de mettre les serveurs, c'est aux États-Unis. C'est moins cher aux Etats-Unis; et écoutez, Bell Canada, moi, ne me veut pas comme client. Ils n'ont pas de package abordable pour de petites entreprises où tu as le droit de rouler tes serveurs, puis qui donnent des adresses IP fixes, que tu peux faire ce qu'on appelle le * reverse translation +.
3227 CONSEILLER ARPIN: Justement, dans quelle sorte de commerce êtes-vous? J'ai passé une partie de ma soirée hier sur votre site Internet et j'ai pas encore compris dans quel sorte de commerce que vous étiez.
3228 M. MEZEI: Consultant en informatique.
3229 CONSEILLER ARPIN: Consultant en informatique?
3230 M. MEZEI: Oui, oui, oui.
3231 CONSEILLER ARPIN: Et vos clients ont des problèmes que le Conseil peut régler, ou c'est essentiellement vous?
3232 M. MEZEI: Non. Moi, j'ai des problèmes...
3233 CONSEILLER ARPIN: Oui.
3234 M. MEZEI: ...que les décisions du CRTC me causent, à cause que souvent, les décisions ils ont un bagage caché, comme les AUP de Bell qui moi, m'affectent, ou le 5 mégabites que je ne peux pas avoir plus vite.
3235 C'est des choses qui m'affectent. Et pour moi, parce que ça m'affecte, j'ai décidé de m'impliquer, parce que je trouve qu'il y a besoin, à un moment donné, d'un rogue agent qui est capable de parler puis d'ouvrir sa grande bouche et de dire des choses différentes.
3236 CONSEILLER ARPIN: Ça, j'ai bien compris, pendant votre présentation.
3237 CONSEILLER ARPIN: Je m'étais permis d'avoir un certain nombre de questions sur les Functionally competitive sector, mais vous êtes... avec le président, vous avez eu ensemble des réponses que je pouvais peut-être chercher de vous.
3238 La seule chose, et je... Dans votre mémoire, vous avez écrit en utilisant l'exemple de Vendée au Québec...
3239 M. MEZEI: Oui.
3240 CONSEILLER ARPIN: ...et dans lequel vous dites : Vendée, au Québec, il n'y en a pas de CO. Mais le CO le plus proche, il est à Arundel.
3241 M. MEZEI: Arundel.
3242 CONSEILLER ARPIN: Mais est-ce que c'est un exemple unique, ou bien c'est un exemple qui se multiplie... Parce que Vendée, je ne sais même pas où ça se trouve; mais Arundel, je le sais. Donc, je présume que ça devrait être autour.
3243 M. MEZEI: Vendée, c'est au nord de Saint-Rémi d'Amherst, qui lui, est au nord d'Arundel. Et Vendée est à l'ouest de La Conception, qui est à l'ouest de Mont-Tremblant.
3244 C'est un coin perdu.
3245 CONSEILLER ARPIN: Oui, oui, oui. Effectivement.
3246 M. MEZEI: Mais les villages le long de cette ligne-là, de 40 kilomètres de long, sont tous dans la même situation. Et je suis sûr qu'il y a d'autres cas comme ça. Ce qui est peut-être moins pire que le Eagle Plains Hotel sur le Dempster Highway qui est à 700 kilomètre du CO à Inuvik. Mais ça, c'est un cas... Ça, c'est un cas vraiment spécial.
3247 Mais écoutez, je suis sûr qu'il y a d'autres cas au Québec et en Ontario où un village a pas vraiment son CO, où il y a un petit * remote + qui fait du * backhaul + au CO plus loin.
3248 CONSEILLER ARPIN: Et donc, quelqu'un qui veut travailler, s'ouvrir un... travailler à partir de son domicile qui serait localisé à Vendée, ça va lui prendre du temps avant d'avoir la haute vitesse, puis...
3249 M. MEZEI: Oui. Mais là, j'ai entendu une rumeur que peut-être que ça va venir à Vendée. Je sais qu'ils ont mis un DSLAM à Arundel. Peut-être qu'ils peuvent mettre un autre... un * remote + ou quelque chose du genre, je le sais pas.
3250 Je sais que le gouvernement du Québec a posé de la fibre jusqu'à Vendée, il y a plusieurs années. Et ils ont pluggé la bibliothèque et la caserne de pompiers -- la caserne de pompiers pour que les pompiers volontaires aient déjà toute l'information sur la maison qui est en feu avant de partir sur leur camion.
3251 Et le but de cette fibre-là, ça faisait partie du programme du Québec de Branchez-Vous. C'était de brancher des villages. Donc, c'est peut-être un coin reculé, mais...
3252 CONSEILLER ARPIN: Les villages, oui... oui.
3253 M. MEZEI: ...il y a quand même de la fibre optique.
3254 CONSEILLER ARPIN: Écoutez, peut-être que mes collègues ont des questions plus pointues. Et je vais leur laisser la chance de vous les poser.
3255 M. MEZEI: O.K.
3256 THE CHAIRPERSON: Candice?
3257 COMMISSIONER MOLNAR: Thank you.
3258 Mr. Mezei, you said that you are now limited to 5 Mb speed?
3259 MR. MEZEI: Yes.
3260 COMMISSIONER MOLNAR: And from that, in your conversation, it is clear that you are using the services of a competitive ISP and not either the cable company or the ILEC.
3261 MR. MEZEI: Correct.
3262 COMMISSIONER MOLNAR: We were assured yesterday that the ILEC, as an example, wants every customer. So can you tell me why it is, if you need additional speeds, that you aren't moving to either the cable company or the ILEC to obtain your service? Are there characteristics or something that limit you?
3263 MR. MEZEI: Yes. The cable company forbids us to run servers at home. So my little web server runs in the basement basically and I can do tests on it and configure it and do -- if a customer of mine needs to have like a special feature, I can test it at home and I can, you know, do the testing on stuff before I roll it out on their side. And I have email server, et cetera.
3264 Those are all illegal under cable. And for Bell to allow that you have to pay a lot more because it is only available as a business line and they will still not do the reverse translation of VIP which is now a must if you run an email server in order to have the credibility to have your emails not rejected as spam.
3265 And those are features that Bell only gives to like $1,000 a month type connections, the really big ones, not something that is affordable for small business.
3266 And I am not alone, I know that. It may not be a large number. But as you said in one of your questions yesterday, there is niche markets and I am one of those niches. And my current ISP electronic box, it is a small outfit in Quebec, they are more than happy to have me despite me talking a lot.
3267 And they serve me and, you know, my website right now, my document I posted on the website, my ISP actually helped me and they provided a seamless solution where actually that document is hosted on one of their web servers because they have all the bandwidth to serve for today, and they set it up for me. And no problem, they did this in an hour, you know.
3268 This is people that you can talk to, they know their business, they are not, you know, people -- trained script readers in India, these are the actual technicians who do this stuff. And that is a value that, to me is important. And to a lot of people, a lot of ISPs here. TekSavvy was built with that reputation as well.
3269 COMMISSIONER MOLNAR: Thank you.
3270 THE CHAIRPERSON: If you removed the restriction on TPIO and brought in the symmetry that Mr. Cope spoke of earlier, wouldn't that change your situation dramatically?
3271 MR. MEZEI: If I am able to run servers on cable and if cable agrees to enable the static IP, which they have by default on their DHCP servers, there is just a policy not to do it, if they do this, if they give me the equivalent, I will jump because cable is superior to DSL.
3272 THE CHAIRPERSON: Okay, thank you for your presentation.
3273 We will take a five-minute break before we deal with the last intervener.
--- Upon recessing at 1456
--- Upon resuming at 1503
3274 THE SECRETARY: Order, please. À l'ordre, s'il vous plaît.
3275 THE CHAIRPERSON: Commençons, Madame la Secrétaire.
3276 THE SECRETARY: Merci, Monsieur le Président.
3277 We will now proceed with the Public Interest Advocacy Centre, PIAC, and appearing for PIAC is Mr. Michael Janigan.
3278 Please introduce your colleagues and you will then have 25 minutes to make your presentation.
3279 MR. JANIGAN: Thank you very much, Madam Secretary.
3280 With me today is Jean-François Léger, legal counsel familiar to the Commission and Andrew Briggs, a consultant with over 20 years experience in the telecommunications and broadcasting industries.
3281 Mr. Chair, the consumer groups are in the position of attempting to assess the best possible world of retail broadband Internet services without championing any particular option.
3282 The Commission has forborne with respect to retail broadband prices, terms and conditions. So, from the standpoint of consumer protection, the advancement of those conditions in the wholesale market that best provide for vigorous and workable competition has been our goal.
3283 But as the Chair is likely aware from its previous position, the task of promoting competition but not competitive offerings is like promoting the benefits of exercise while sitting on the sidelines.
3284 We know what we want to happen, we may not be able to make it happen.
3285 This is more than simply a function of our public interest role. We will not and have not the resources to play dress-up as telecommunications network operators, engineers and design specialists, nor do we think that the Commission wants us to critique the specifics of access and interconnection arrangements.
3286 We believe that it's more essential to attempt to suggest ways in which the private commercial interests of most participants can be aligned with the broader national public goals contained in the Telecommunications Act.
3287 So, our submissions, both in the written components of this proceeding and in our presentation today will pursue several over-arching themes that we believe can be derived from the evidence before the Commission in this proceeding.
3288 They are:
3289 Broadband is an essential component of the telecommunications system and will likely become an even more important platform for delivering social and economically vital communication.
3290 Practical solutions with demonstrable effects should be given precedence over ideological cant.
3291 Inevitably faith-based reliance on market forces in important industries leads to ad hoc intervention to prevent a bad result.
3292 Mobile wireless markets and financial services are but a few examples of this phenomenon.
3293 Canadians may have reason to expect better performance from their broadband markets and providers. The ISP market has morphed in a decade in a half from a flourishing competitive market to a competitive broadband duopoly with the dominant players being the same old communication monopolists of the past.
3294 Thirdly, the policy direction of 2006 is much abused by those who see it as a free pass on the rest of the Telecommunications Act objectives outside of promoting the use of competition.
3295 However, one need not go much further than the policy direction itself to be persuaded that measures to make market forces work are not synonymous with intrusive control over the business of facilities-based stakeholders.
3296 The Commission's authority should be used so that regulatory arrangements are technologically and competitively neutral. It is patently ridiculous for facility owners, whose networks were established by the regulatory regimes that for decades funded all prudently incurred cost, to lecture newer entrants on the business wisdom of network investment rather than interconnection arrangements.
3297 Fourthly, the opportunity to earn super normal profits in the absence of vigorous competition is not the only driver for investment in broadband facilities. No current facilities owners can afford not to make the requisite investments to maintain their broadband memory, but the threat to take the ball and go home should be given scant credence.
3298 Fifthly, the mechanics of access and interconnection arrangements need not all be worked out by the Commission and imposed. Once the principles have been established, industry arrangements can be settled through the workings of groups such as occurred with the CISC process.
3299 It is fair comment that when competition is the principal consumer protection remedy, we want to make very sure that it is established and that it works.
3300 I now want to turn to Mr. Léger and Mr. Briggs who will be developing these themes and associated hoped for consumer benefits.
3301 MR. LÉGER: Thank you, Michael.
3302 We would like to reiterate at the outset as I think Michael has just pointed out that as consumer groups we're here to speak to you as advocates for retail, principally residential consumers, we are not telecommunications network operators.
3303 To be specific, although we would certainly like to do so, we are not able to provide detailed criticisms or suggestions regarding specific network arrangements.
3304 What we are focused upon, however, and we believe that the Commission should be also, are outcomes. In particular, the outcome we seek in this proceeding is a retail broadband Internet marketplace that is served by a diversity of service providers, not just the incumbents and their affiliates.
3305 The evidence before the Commission in this proceeding and in the proceeding which led to Decision 2008-17 suggests that robust and lasting competition for the retail broadband Internet services of the incumbent Cablecos and Telcos is unlikely to arise without the incumbents making effective wholesale services available to competitors.
3306 More to the point, in our view, what is needed are wholesale services that offer independent ISPs a reasonable opportunity to offer to their retail customers broadband Internet services that are credible alternatives to the incumbents' own retail services.
3307 Why should the Commission care about the ability of independent ISPs to obtain wholesale services that meet their business needs and enable them to market credible alternatives to the incumbents' services, we believe first that consumers should be able to enjoy service provider choice beyond the cable and the telephone company incumbents and their affiliates.
3308 The Commission repeatedly over the years has emphasized its commitment to customer choice. In its landmark Decision 94-19, the Commission stated that:
"Users should have the opportunity to choose whatever package of services and whichever supplier best fits their particular needs." (As read)
3309 MR. LÉGER: The Commission has reiterated this commitment numerous times since then. More over, indeed, in Order-in-Council 2009-2007, the government has also reiterated the importance of a regulatory regime that leads to consumer choice.
3310 Now, this brings us to the second reason why the Commission should care.
3311 Consumer choice is not easy to achieve. It's our view that the incumbents, driven primarily by their retail businesses, have over the years deployed wholesale services that have completely failed to meet their wholesale customers' business needs.
3312 It seems plain to see that if, as the ILECs have alleged, independent competitors should be able to establish their own broadband facilities, well they would already have done so. They would also have garnered significant market share, yet the independents remain to this date with single digit market shares.
3313 No matter how skilful at marketing their services the independent ISPs may be, unless they have access to useful and effective wholesale services, the independents, in our view, have little likelihood of success. Unless competitors can offer credible alternatives to the incumbents' retail residential high-speed Internet service offerings, such competitors are likely doomed to remain marginal participants.
3314 Now, we acknowledge that the government has stated in the policy direction that the Commission should, and I quote:
"...rely on market forces to the maximum extent feasible as the means of achieving telecommunications policy objectives." (As read)
3315 MR. LÉGER: And also:
"When relying on regulation, the Commission should use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet policy objectives." (As read)
3316 MR. LÉGER: The policy direction, however, does not exist in a vacuum, it refers to policy objectives found in the Telecommunications Act and several of those policy objectives focus upon needs of telecommunication service end users which we believe can best be achieved through the availability of services from a range of TSPs, not just from a duopoly.
3317 These objectives are those set out in sections 7A, B, C, F, G and H of the Act. Now, I'll spare you a repetition or a reading of those sections, I'm sure that the Commission is well aware of them.
3318 We read in these objectives a commitment to regulation that is efficient and effective in delivering to Canadian consumers telecommunications services that offer leading performance, are priced aggressively and that respond to users' needs.
3319 The consumer groups do not believe that the effective duopoly which Canadian consumers have been left with over the last decade in the broadband Internet service marketplace has met these objectives.
3320 There has been a steady flow of studies and reports in the last few years that suggest that Canadians pay more and perhaps get less speedy Internet services than do consumers in many competing economies. We've put some of these studies on the record of this proceeding, but there are more. We've also provided our own evidence.
3321 In this respect, Andrew Briggs has been retained by the consumer groups to conduct research and to assess Canadian ISPs' performance in terms of price and speeds.
3323 MR. BRIGGS: Thank you, Jean-François.
3324 I was initially requested by the consumer groups to prepare a report comparing Canada's performance in broadband Internet services with a number of its OECD peers.
3325 The 10 other OECD countries selected have broadly similar levels of GDP per capita which the OECD has identified as having a relatively high correlation of broadband penetration.
3326 I looked at a number of categories in assessing Canada's performance including penetration, coverage, prices, services and speeds as well as competition and consumer choice using mainly data from the OECD supplemented with other information sources.
3327 For the purposes of this presentation, I'll focus on only two of these categories, penetration and pricing.
3328 I will be referring to the set of three tables that the consumer groups have attached to its oral remarks.
3329 The penetration data and rankings are provided in Table 1 of the hand-out package. For each year the table provides a penetration in the first column expressed as the number of subscribers per 100 inhabitants and the second column provides the rank among the countries included in the comparison.
3330 In terms of penetration, the data illustrates that notwithstanding Canada's growth in penetration over time, it's ranking among the selected group of OECD countries has fallen from first in 2002 to sixth in 2008 as the number of broadband subscribers in other countries has grown more rapidly than in Canada.
3331 In terms of pricing, I looked at the price of broadband services across a number of service speed tiers: low speed, medium speed, high speed and very high speed. While the comparisons use OECD data for comparative countries, for Canada I replaced the data set used by the OECD with the data filed by the incumbent telephone companies and the cable companies in this proceeding to provide a more encompassing comparison.
3332 The expanded data set for Canada includes 44 service packages versus the 16 included in the OECD data.
3333 Pricing information by service tier and rankings is provided in Table 2. The first column for each service tier provides the average monthly price while the second column provides the country's ranking.
3334 The pricing data indicates that across each of the service tiers, Canadian prices rank towards the higher end of the range in comparison with the other OECD countries.
3335 Canada ranked between 8th and 11th of the 11 OECD countries in the low, medium and high-speed service tiers. For the very high speed tier, which includes services with download speeds of 35 Megabits per second or greater, Canada ranked fifth among the eight countries reporting such services.
3336 Using the data filed by the incumbent telephone companies and cable companies, I also provided the consumer groups with a summary of how speed and price offerings have changed in Canada over time.
3337 Table 3 graphically illustrates a change in the average price by service tier over the 2002 to 2009 period. This data indicates that for low speed offerings, average prices declined over the 2002 to 2005 period but have since stabilized.
3338 For the medium speed offerings, average prices have declined over time by an average of three percent per year.
3339 For high speed tier offerings, which have only been available for the past four years, average prices initially remained flat for the first three years before declining in 2009 by 13 percent.
3340 Finally, for very high speed offerings, these are relatively new with only four offerings reported in 2009, one for each of the major incumbent cable companies and none for the incumbent telephone companies.
3341 As a result of the limited time these services have been available, it's not possible to comment on the pricing changes over time.
3343 MR. LÉGER: Thank you, Andrew.
3344 It's worth pointing out in addition to Andrew's observations that most price and speed studies the consumer groups have examined, other than perhaps some papers commissioned by the incumbents themselves, place Canada in terms of prices and speeds, particularly for higher speeds, no better than mid-pack and often lower among economies with which Canada competes.
3345 We note in this respect that the Wall Communications Inc. Study, that CRTC and Industry Canada commissioned and which the Commission placed on the record of this proceeding late last week and which looks at prices for individual services and baskets, also ranks Canada at mid-pack for Internet services, albeit for a very small selection of nations.
3346 Now, is mid-pack or lower where Canada should be? We've pointed out in our written submissions in this proceeding, the Minister of Industry has described broadband access as one of the key elements of 21st century infrastructure and a key component of a digital economy.
3347 In its own ITMP regulatory policy, the Commission likewise described access to the Internet as an engine of productivity growth. So, is mid-pack performance good enough for Canada?
3348 Well, we don't think so. We believe that Canada cannot keep hoping that the good will of the incumbents will deliver at some point in the future the performance Canadians need in terms of prices and speeds.
3349 Yet this is exactly what the incumbents, the ILECs in particular, appear to be asking the Commission to do.
3350 The ILECs based on particularly what we've seen this week, appear to be saying, well, look, we're already forborne in the retail marketplace, now leave us alone to decide what, if any, services we should make available to our wholesale customers, however, we make no commitments in this respect, we'll decide to whom and under what conditions we'll offer wholesale Internet services.
3351 At the same time, however, the incumbents tell the Commission and Canadians that in order to justify our investments in our networks we must "win the household", in effect, control customers and keep out competitors.
3352 In the consumer groups' view there's somewhat of a contradiction here.
3353 Now, the Commission has asked whether matching speed requirements for aggregated ADSL services should be mandated. In Order-in-Council 2009-2007, the Governor-in-Council noted that it is critical that the regulatory regime provide a cohesive forward looking framework which provides the proper incentives for continued investment in broadband infrastructure, encourages competition and innovation and leads to consumer choice.
3354 So, let's look at some of these requirements.
3355 First of all, cohesive forward looking framework. Well, the consumer groups submit that the matching speed requirement is entirely consistent with the cohesiveness and forward looking quality of the regulatory regime sought by the government. The Commission has found notably in Decision 2008-17 that competitors in the Internet services marketplace could not reasonably be expected to build out facilities to serve retail broadband Internet service customers at this point in the development of that marketplace.
3356 It also found that in many instances aggregated access services are the only reasonably efficient alternatives available to competitors.
3357 In our view, these findings remain as relevant today as they were when they were made in Decision 08-17.
3358 There's nothing cohesive, in our view, or forward looking about a wholesale services regulatory policy that would permit the ILECs to, in effect, freeze the transmission speeds their wholesale customers can offer to their own retail customers at levels that the ILECs themselves have decided are no longer competitive.
3359 Such treatment of wholesale customers would also clearly, in our view, be unjustly discriminatory.
3360 Furthermore, in our view, the fact that the ILECs are even making the argument that they should be able to handicap their wholesale customers, appears to provide compelling evidence that the wholesale marketplace for underlying broadband Internet services is characterized by inadequate market forces.
3361 Now, with respect to the incentives for continued investment which the government also mentioned in Order-in-Council 2009-2007, the government noted that it is critical that the regulatory regime provide the proper incentives for continued investment in broadband infrastructure.
3362 The consumer groups submit that there are also no inconsistency between a matching speed requirement and proper incentives for continued investment.
3363 The contention that they're being disincented from building new facilities has been a central point of the ILECs in this proceeding and previously before the Governor-in-Council.
3364 The Governor-in-Council, in our view, wisely chose not to accept the incumbents' contention but also wisely referred the matter back to the Commission.
3365 The Commission can test, in our view, the voracity of, in particular, the Bell companies and TELUS' claim simply by comparing what these carriers have been telling the Governor-in-Council and the Commission with what they've been telling their shareholders and investors.
3366 In order to remain competitive and to meet their often reiterated commitments to improve their customers' experience, the Bell companies and TELUS have recognized that they must deploy fibre optic facilities in the local network and offer transmission speeds to their retail customers that are competitive.
3367 In the financial results it has issued for several quarters now, Bell has reiterated its commitment to "our key strategic imperatives, including the ongoing deployment of our high-speed FTTN network". TELUS has done likewise.
3368 More recently, in results released in February, BCE has stated that it is accelerating its fibre-to-the-node and fibre-to-the-home deployment.
3369 The ILECs have been losing the battle for retail broadband Internet customers for a number of years now. The ILECs are getting trounced in the retail Internet services marketplace by cable companies and, in the consumer groups' view, this is all the incentive they need to build next-generation facilities.
3370 Now, with respect to the further objective set out in 2009-2007, encouraging competition and innovation, in the Order-in-Council the Governor-in-Council also stated that regulatory regime should encourage competition and innovation.
3371 We believe that independent ISPs would in fact, if they were allowed to compete, be potentially strong generators of innovation. We believe that the ability, incidentally, of smaller more nimble ISPs to innovate should not be under estimated by the Commission.
3372 Now, regarding the other issues that the Commission has raised in its procedural letter, concerning symmetry, we agree in principle that wholesale service obligations should be imposed on both the incumbent cable and telephone companies. Symmetry, however, poses challenges as the incumbents' respective networks feature significant differences.
3373 In our view, just as if not more important than symmetry, the record of this proceeding is replete with complaints of inadequate and seemingly indifferent service from the incumbents, whether they're Cablecos or Telcos, and when I mean service, I mean wholesale services.
3374 The ILECs' self-granted policy of denying independent ISPs matching speeds and the relative unattractiveness of their CO-based access service or of the Cablecos' TPIA service, are examples of these suppliers' apparent indifference to their customers' business needs.
3375 In a wholesale marketplace in which market forces operate as they should, one would expect that the service providers themselves would remedy the situation by making improvements to their services. This, however, has clearly not been the case.
3376 It's our view that without regulatory obligations, neither the Cablecos nor the ILECs are likely to provide services that meet their wholesale customers' business needs and ultimately those of consumers.
3377 This proceeding, which has now been underway in one form or another for nearly two years, has given rise to considerable debate regarding specific network access arrangements.
3378 It's our belief that proceedings and, in particular, hearings such as this one may not be the optimal place to debate and ultimately settle technical issues associated with network interconnection or access arrangements.
3379 That being said, we also think that the Commission in the past has shown that it can marshall industry participants into developing solutions themselves through arrangements such as CISC, once the Commission establishes principles. We believe that industry with the help of the Commission and some arm twisting, when necessary, can achieve good results.
3380 This concludes our comments.
3381 THE CHAIRPERSON: Thank you very much for your presentation.
3382 Contrary to our normal procedure, I'll let my colleague, Steve Simpson start with you and I'll be clean-up.
3384 COMMISSIONER SIMPSON: Thank you very much, Konrad.
3385 Jean-François, may I ask just a point of clarification.
3386 I can't point to a specific example, but in this written presentation that you submitted just now, is the use of the word or the acronym ILEC always used in specific relationship to the Telcos, or has it been possibly interchangeably, because of multiple authors?
3387 I'm curious because it struck me that that might be the case.
3388 MR. LÉGER: You actually just reminded me that I perhaps should have done a little bit more proofreading.
3389 The reference to the ILECs I think generically refers to the incumbent telephone companies.
3390 Now, having said that, to be fair, there are differences between those telephone companies and, I'm thinking in this respect to MTS Allstream which has -- with which there are many, many differences in terms of policy.
3391 Again, to be fair, I think the incumbents that we had in mind are the major incumbents other than MTS Allstream. But we were -- when we refer to ILECs, yes, we were referring to the telephone companies.
3392 COMMISSIONER SIMPSON: Okay, thank you.
3393 I guess my first question, I'd like to go right to the tables, if you don't mind, because again they set a framework.
3394 And in your introduction I may have missed it, Mr. Janigan, but I don't think you introduced Mr. Briggs.
3395 Would you mind telling me what your relationship is with PIAC and what your background is so we can better understand --
3396 MR. BRIGGS: Sure.
3397 COMMISSIONER SIMPSON: -- your view to the data you provided.
3398 MR. BRIGGS: Yes. I was hired as a consultant to prepare the research information for this particular proceeding looking at international comparisons. And I also did the analysis on the information that was filed on the pricing by each of the telephone company and cable companies.
3399 My background is I have been an independent consultant for the last 11 years working on various telecom broadcasting proceedings. And I have worked in the industry for telephone companies, for the Cable Association, and for satellite providers.
3400 COMMISSIONER SIMPSON: Just a hint here, when you are asked questions like this it is always good to get the company name out.
3401 MR. BRIGGS: Of who I work for?
3402 COMMISSIONER SIMPSON: Yes.
3403 MR. BRIGGS: Fine. I have worked for Unitel Communications, I have worked for the CCTA --
3404 COMMISSIONER SIMPSON: As a private contractor --
3405 MR. BRIGGS: No.
3406 COMMISSIONER SIMPSON: -- so I meant your company.
3407 MR. BRIGGS: I am sorry?
3408 COMMISSIONER SIMPSON: Your company.
3409 MR. LÉGER: This is a time to make a pitch for your company.
3410 MR. BRIGGS: Oh, my consulting company.
3411 COMMISSIONER SIMPSON: Yes, okay. Great, thank you. Can't miss an opportunity.
3412 COMMISSIONER SIMPSON: Now, the next question I have, in looking at all of the tables that have been provided, in going to the legends, on Table 2 I believe you indicate that the data that was provided was aggregated from both BDUs and ILECs for you to be able to -- this is not going to be a trick question, this is just for my own clarification. But it came from data provided by both BDUs and ILECs.
3413 But was the first table on penetration and Table 3 also from BDUs and ILECs? I just didn't see any reference to the origin of the data.
3414 MR. BRIGGS: Right. The first table, Table 1, is information from the OECD that they collect either from the -- I mean, they typically source it either from the regulator in the particular country or from the individual companies in a particular country. So it would have been aggregated, but it wasn't from data that was filed in this proceeding.
3415 COMMISSIONER SIMPSON: The source of my question, without going up to Table 3, is that when you take BDU penetration and add it into the mix it can quite often substantially increase penetration, particularly in a country like Canada because we have such a connectivity rate through the ability to provide broadband or internet through cable and that is why I was --
3416 MR. BRIGGS: Right, okay. I understand your question now. The penetration numbers on Table 1 would include BDUs.
3417 COMMISSIONER SIMPSON: Now, if I could go on to some of the data, because I have seen this data before. And the question I had and I am asking, for all three of you, if this has crossed your mind. When you are in a footrace, you know, the question is did you lose or did the other guy win? And in looking at the build-out of other countries like Denmark and Korea, you know, they have a substantially less challenging geography that we do here in Canada.
3418 And every time I see -- and I understand that Australia's sitting right up there alphabetically at the top. You know, when you look at smaller countries with smaller populations, their ability to achieve higher penetration is often a function of the geography they are trying to build out to, not so much their commitment to actual dollars.
3419 And I am wondering if there is some tolerance that has to be given to all of the broadband providers in this country to the extent that when you start taking the capital cost and dividing it into the root mile of building out any system in this country you start running out of dollars before you start running out of geography. And I am wondering, as one researcher to a commissioner, whether this table hasn't got a bit of a bias built into it because of that?
3420 MR. BRIGGS: What I would respond to that is the information from the OECD, and it was referenced in the initial paper that we submitted, sort of does indicate that the geography issues have lesser impact than would be thought of. A lot of it has to do -- a couple items that they look at is how much of the populations are in urban centres, for instance. Usually they measure it -- I believe it is sort of what percentages greater than 50 per cent at urban centres.
3421 And Canada, even though we have a very large geography, we are relatively concentrated where our populations are. So I agree there are smaller communities to build out to, but for the most part, there are a lot of concentrated communities that need to get built to.
3422 So it does have an impact, but it doesn't have as significant impact that one would think.
3423 COMMISSIONER SIMPSON: Fair enough. I was just interested in your professional opinion on that.
3424 Going to Table 3 -- sorry, I know that, Mr. Janigan, that you had indicated that, you know, it wasn't your intention to come in on a fact-laden presentation, but on more of a social objective with consumer interests in mind. We will get to that, believe me. But I just thought I would deal with this while it is fresh in my mind.
3425 Table 3 indicated that as you take pricing of broadband at the varying speed levels and start moving it overtime what we are seeing here is an increasing efficiency or a decreasing cost because of competitive pressures I would assume that are creating a downward force in the pricing of broadband, partially due to the fact that as you increase speed there is a lessening of the value of the slower speeds.
3426 With this table specifically in mind, how does it alter PIAC's point of view that we are not in a competitively enough market to satisfy the public interest given the data that is before us here?
3427 MR. BRIGGS: Before Mike or Jean-François respond, one comment I would make on that would be is it does show obviously overtime there is some degree of decrease in prices. But you need to take this piece, this table, and put it in context with the previous Table 2, which shows it sort of statically at a point of time versus other countries. So while we can say that prices have moved on average downward, still the relative price position against the other OECD countries that we compare, it doesn't compare that favourably.
3428 COMMISSIONER SIMPSON: But I am just, again, curious as to whether you feel there is a diminishing return on build-out of existing architecture. Because, from all the data I have seen, it is tough to do a value comparison country to country because of all the other anomalies that occur in the data. As mentioned earlier, the issues of geography, the issues of density and the like.
3429 So I am just trying to extract -- you know, when you present this kind of data to us I am trying to match it up to exactly what your thought process is to support your position.
3430 MR. JANIGAN: I think, Commissioner, to some extent this data is in opposition to rather extravagant language, you know, that claims that we have vigorous and robust and ever diminishing price in the broadband internet market.
3431 We don't have a completely dismal performance and I don't think that is our position. We have a performance that is somewhere possibly in the middle of the pack or somewhat less. And it is difficult to size up of these studies.
3432 I mean, when I look at these studies it is reminiscent to some extent to of what happens when my children bring home report cards and they scored a C plus in something that they supposedly are supposed to get an A. Well, lots of their friends have scored less than they have and, in fact, they were away that day that the teacher covered that unit. And there is always some sort of reason why they don't score on top. But ultimately, at some point in time we have reason to expect an A. And we are not getting As.
3433 And in this kind of circumstance, where we have a reason to potentially tweak the system to enable more competition to take place, that is where we are.
3434 COMMISSIONER SIMPSON: Well, I wholeheartedly support that because this is a country where not all, but most, of this technology was invented. But I have said before in other hearings that, you know, we conquered geography through the railroad, we conquered it through telecommunications and, you know, that is no reason for us to stop and rest on our laurels and I agree with you.
3435 Let's move over to the other side of your argument, which is that we can always do better.
3436 In the Wall study we saw that, in aggregate, the introduction of what level there is of competition and choice in a consumer market does not seem to be having a significant effect in driving down the price of broadband.
3437 And I guess two parts of the question that I would like to ask you are: is it greater access to incumbent services alone that is going to change that in terms of creating more competition or is it going to be pricing, cost-based pricing, that is going to allow the existing competitors to be able to provide more competitive prices to the consumer?
3438 MR. LÉGER: I think the answer may well be both. I think one thing we have seen this week is that there are a lot of different service providers out there with a lot of different strategies to approaching the marketplace. Now, we believe that there are significant problems with the existing wholesale services.
3439 And this is not intended as, you know, blame to Commission here. We understand that there is a very very considerable challenge in determining what these services should look like, what their attributes should be and ultimately the rates for them and even how those rates should be established.
3440 But when we look at the record of the competitors over the years, you know, they have had 10 plus years to set roots in the marketplace. Now, one could say well, geez, you know, these guys are all dummies and, clearly, that is the reason they can't generate a solid business. Well, you know, as consumers we have some trouble believing that.
3441 Yes, there may be problems with the competitors' own strategies, but at the end of the day or take on it is, if you start off with underlying services, which again the Commission has already found cannot feasibly or practically be replicated, well, if you start out with services that handicap the competitors from the outset, well then consumers are not going to have attractive offerings.
3442 I have spent quite a bit of time in the presentation on speed matching because that seems, to us, to be an excellent example of the problem. You know, to the extent that competitors are reliant on speeds, well if you are out there trying to market a service and the best you can do is -- and I am making up numbers here -- is half the speed of the telephone incumbent let alone what the cableco is offering well, you know, you may well be wasting your time advertising that.
3443 Because consumers are, you know, they are sophisticated, they are more and more sophisticated and the expectation that you will be able to sell a service that is blocked or that is frozen at three years ago's going speed I will call it, frankly it is not realistic to expect that will succeed.
3444 And again, we look at it from consumers' perspectives and consumers want services that meet their needs. Not every consumer needs the very highest speeds, but let's face it, speed has become a significant marketing tool today. And if the best you can do as a service provider is offer a service that again matches what the incumbents were providing three years ago, you have a pretty steep hill to climb to gain market share.
3445 MR. JANIGAN: Just a brief comment to follow. Through all the years of dealing with proceedings which involve forbearance of regulated services, the argument that was made to us time and time again was the fact is that notwithstanding they weren't strong competitors, there were contestable markets here. And if you had ease of entry into the market, then you could have competition established so that the players would behave in a certain fashion.
3446 I am not certain I would believe that theory, but in this particular circumstance where the incumbents are saying that in fact there should be in fact no ability to access those services, if their position is consistent then we should maintain mandated access to allow ease of entry into those markets and so that the competitors could contest those markets whenever price and service offerings by the incumbents are not attractive to the population.
3447 COMMISSIONER SIMPSON: Thank you.
3448 Going back to your oral presentation. I appreciate very much your view that regulating with a light touch and relying on market forces is something that, you know, we seem to share. But I have two questions and then I will be done.
3449 Question number one is, if one was to get very simplistic or binary about this whole situation from the consumers' point of view and look at the issue of access to next generation networks, on one hand we have the very competition that you are feeling we need more of saying that they will be out of the business in five years. Now, I am paraphrasing, but that was a comment from one of the larger IP providers, Primus I believe, and it seems to be shared with representatives from CAIP and others.
3450 And second --
3451 MR. LÉGER: If I could ask.
3452 COMMISSIONER SIMPSON: Yes.
3453 MR. LÉGER: If I could ask. Sorry, I apologize of interrupting. But if I could add the incumbents' own numbers say the same thing. In our, I think it was our October 30 submission, we pulled some of the interrogatory results or interrogatory responses from the ILECs, and I don't have it in front of me. But our response from Bell, for example, in which Bell provided anticipated market share numbers for non-affiliated I will call them third-party ISPs, and that included wireless service providers. those numbers were very very small.
3454 Now, one might say way, geez, Léger, that was seven months ago and things have changes. Well, maybe they have but, you know, those guys have pretty sophisticated folks working and models developing where they expect the market to go.
3455 And when they themselves are saying that they don't expect, again, non-affiliated third-party ISPs to get anywhere beyond the single digits, well, it is not just the folks here before you asking for relief, it is the incumbents themselves that are basing their own marketing decisions on the expectation that these small guys are not really going to go anywhere.
3456 Sorry, that was a long interruption there.
3457 COMMISSIONER SIMPSON: That is fine. It segues very nicely into the other part of my question. Which is then if we were to mandate access and assuming fairly that, from the testimony given by the ILECs, they will be -- and you said yourself, they are getting trounced, and they now lose the ability to bulk-up their companies through the ability to start providing television, does that not have a negative effect to the consumer given that it puts the consumer back into a single-source situation for the television side of the equation?
3458 MR. LÉGER: I guess I/we have considerable faith in the skills of engineers and what they can do if the will is there. I mean, you will pardon me for maybe a high-level response there. We pointed out at the outset, we just do not have the resources to conduct detailed technical analyses.
3459 But, you know, having gone through the implementation of IX competition, local competition, local number portability where the process often started by, oh, this can't be done or this is going to cost, you know, I mean in 1992 numbers $800 million. And at the end of the day the Commission exerted what I call leadership, as we pointed out, some arm twisting. And in virtually all these cases technical solutions were found. Now, are we saying that we believe, we know that this IPTV issue is going to be resolved? Frankly, we have to say, no, we are consumer groups, we don't know that.
3460 But having said that, we look at the alternatives and the continued existence and reinforcement of a duopoly, and that, you know, frankly that scares the hell out of us because we don't think that is where the market should be going.
3461 COMMISSIONER SIMPSON: Thank you.
3462 Just a last question. This hearing is predominantly fixated on the wireline side of the equation, but do you have an opinion as to the role mobility will play in the future given that its uptake seems to be substantial and it seems to be a level playing field between the BDUs and the cablecos who are in that business and the ILECs in terms of relief to the consumer?
3463 MR. LÉGER: Certainly, we have seen numbers, I think we very recently Stats Can issued some numbers, which suggested quite a dramatic increase in the I will call it take up of wireless broadband access.
3464 I guess we have some trouble with those numbers because we are not sure we understand, you know, who that 23 per cent is made up of and what is in there. And I am relaying to you some discussions we had internally. And the question was, well are we really talking about ISPs? What are consumers describing when they are asked about wireless access?
3465 The other thing that we asked ourselves is, well, who are these wireless ISPs? Right now, and I am exaggerating slightly here, but they are basically the affiliates of the incumbents. And when we looked at an earlier stage in this proceeding, we had some interrogatories asking the incumbents about their wireless affiliates. And frankly, it wasn't very hard for us to find admissions in there that they don't view their wireless broadband services, or at least they are not marketing them, to take away business from their wireline broadband side.
3466 Now, that is a bit of an indirect and maybe a bit of a twisty answer to your question there, but theoretically, yes, I suppose wireless is an alternative. But again, you know, as speeds increase on the wireline side will speeds increase as well?
3467 Today, we know we have seen wireless advertising or claims that they are providing 21 Mbps speeds. But then when you read the fine print you realize that, you know, that these are highly shared spectrum that, depending on the number of customers that are using the service at a particular time, your speed may be closer to 2 rather than 21 and, in fact, more typically going to be there.
3468 Well, as these higher intensity applications come on stream -- and again, you know, we are looking at this from the perspective of consumers and how usage is growing seemingly very quickly and will likely continue to grow very quickly, well it may be that, you know, wireless today is behind wireline in terms of the functionality it provides, and as the applications become more and more demanding, that will continue to be the case.
3469 But is it an alternative? Yes, we recognize that. But again, I guess we want to emphasize that right now the wireline and wireless providers are basically the same people.
3470 THE CHAIRPERSON: Following up on that question. I have trouble with your answer because I have heard from the ILECs here basically in every market you have at least four providers; you have the cable, you have telcos, you have satellite, and you have wireless. And the fact that most of them are -- the wireless are owned by the telcos doesn't mean that necessarily there won't be competition, because all of them have it.
3471 You know, obviously they are trying to take a market share from each other. So we have four different modes of competition, four ways of intermodal competition. Why wouldn't that be enough? Why do you feel that we absolutely have to mandate a wholesale market?
3472 It strikes me you are taking a bit of a static view based on wireline. If wireless, the way it has been growing and it has been coming on strong, and the way the people have developed a penchant for mobile access, isn't it that it is much more likely that in the future we are going to have sufficient intermodal competition, that we don't need to mandate wholesale access?
3473 MR. LÉGER: Well, I think we need to come back our perception of the marketplace. Again, we come to you as consumers and we think that the choice is an important element in itself in terms of delivering innovation.
3474 The fact that there are potentially four service providers today, as some of the incumbent participants have noted, yes, that is certainly better than one. But again, we look at what we have seen in terms of Canadian prices and Canadian speeds and maybe in the future that problem will be fixed, but right now I guess we are concerned by the fact that Canada is what we would describe, at best, an average performer. And it has these competitors today, that doesn't appear to be enough.
3475 Number two, as I pointed out earlier, we think that having more service providers in the marketplace stimulates innovation. And whether they are the existing four or the existing four expand their territory, well they will still be the same guys that are there today.
3476 THE CHAIRPERSON: So it is really the innovation aspect that you want to see?
3477 MR. LÉGER: Again, we are consumers, so we have to pay for services, we want capacity, we want features, we want -- I think the customizability, if I can make up a word here, we have seen some folks before you earlier pointing out the ability that smaller new service providers have, their nimbleness to introduce services. And as consumers, there is no doubt that this is an element that we look for.
3478 Again, our consumers have many many different needs. And, you know, as good as the incumbents' services are, there is opportunity to meet additional needs.
3479 MR. JANIGAN: Mr. Chair, let me also address the question of innovation and whether or not the provisions of any order requiring access may stifle innovation.
3480 I think we have to look at a couple of things. Number one, the biggest innovation that has occurred in this last generation has been the digitization of the networks. And that took place in an atmosphere of cost-of-service regulation. Rate of return were little incentives for the incumbents themselves to reduce prices, because obviously that would be reflected in reduced rates.
3481 Yet, the companies developed digital networks, digitized their networks and went forward with all of the innovation that we are getting the benefit of today in that kind of atmosphere.
3482 When I hear them say that in fact, in the event that access is directed by the Commission, this will stifle innovation, I assume that that is because they do not have the opportunity to earn as high a profit margin on those services as they would have otherwise. And I take it from that, is that they do not have faith that the Commission could set rates that would be sufficient to enable them to recover what their expectations are.
3483 I don't have that lack of faith that the Commission has the ability to in fact assess rates and to have them be fair and reasonable in relation to the investments that have been made by the facilities' providers.
3484 THE CHAIRPERSON: That actually takes me to the next question, which is you have been here, we have been discussing mostly around fibre to the home, but it doesn't make any difference, and where the ILECs specifically say that they have to do this. But if they were forced to resell it on a mandated basis that really will discourage them from investing.
3485 And you heard I think Mr. Woodhead, or somebody from TELUS anyway, this morning saying every time they make an investment decision, that is what markets they target or not, depends directly on what are the regulatory...
3486 Yet you dug out in your written submission on page 15 a beautiful quote from Bell, and I will read it out. It says:
"Cable companies have aggressively rolled out into internet networks offering higher speeds to their customers forcing us to incur significant capital expenditures in order to also be able to offer higher speeds on our networks. Their failure to make continued investment in our internet, enabling us to offer internet services at higher speeds to our customers as well as our inability to offer a different range of products and services compared to our competitors, could adversely affect the pricing of our products and services in results of our operations." (As Read)
3487 This is from February, 2010.
3488 So what am I supposed to make of this? You're showing me on the one hand a statement that they have issued, says to their investors saying, we must do this, we have no choice, if we don't, we fall behind; on the other hand, they appear before me and they say any investment which we do is directly driven by the regulatory decisions that you make.
3489 MR. JANIGAN: Well, I think that probably is our point. The difficulty here is that we -- all of us want to see them make those investments and we believe that they will be made and they're in the interest of the company to be made and as, in fulfilment of their duty towards their shareholders, they're attempting to get the highest rate and highest prices they can get for that investment.
3490 And, you know, God bless them, that's their job. But our job is to make sure that the public interest and the competitive interest are best served and we think that they are best served by ensuring that there's an ability for competitors to gain access to those facilities at fair and reasonable rates that recognize the value of their investments and enable competitive offerings to take place.
3491 THE CHAIRPERSON: You're basically saying disregard the testimony and look at the statements to the shareholders?
3492 MR. LÉGER: Well, we are saying that the statements to the shareholders we think are very important. These are the folks that invest in those companies. There are all sorts of requirements for them to be absolutely forthright with their shareholders, and we're not suggesting that they're not forthright with you, but there are certainly requirements there.
3493 You know, they've been telling their investors and their shareholders, oh yeah, we're going ahead and we're fibering the network, basically we have no choice. And to us, frankly, that's self evident and there's probably reason to question why this hasn't happened before.
3494 They've been taking a licking in the retail marketplace. The Commission's own report has shown the ratios in terms of subscribers that are signing up for service cable versus ILEC for some years now and showing that the cable companies were doing considerably better.
3495 And we think that an important part of that, and I think the Commission acknowledged that in its own monitoring report, is that the cable companies are offering -- you know, offering more -- I guess I was going to say more modern networks, but certainly more higher transmission speeds.
3496 THE CHAIRPERSON: Doesn't that also bring in the whole issue of symmetry. I mean, we've heard lots of evidence here before us that, in effect, the cable offering the TPIA is not comparable because of the lack of points of aggregation and because of the service restrictions, et cetera.
3497 So, if we moved on that and provided a greater level of symmetry between the cable offering and the ILEC offering, would that to some -- I mean, this has been demanded of us, et cetera, and as my colleague mentioned, it will make sense at first blush but we are always worried about the risk of unintended consequences, et cetera.
3498 So, you representing consumers' interest, do you think this would be in the consumers' interest or not?
3499 MR. JANIGAN: I think definitely the idea of regulatory symmetry is appealing from the standpoint of ensuring competition across the board and equal treatment of the major players.
3500 We're not in a position I suppose to speak to the technical requirements of each network and the ability to interconnect in each of those networks, but to the maximum extent possible, we think it would be in the benefit of consumers to see symmetry and to see equal access to offerings that are available on either network.
3501 MR. LÉGER: We think that -- and we tried to point this out in our presentation a little earlier, we agree that symmetry is important, but we also recognize that there are big differences in the networks.
3502 So that, you know, obligation "A" may have to be slightly different for service -- obligation "A" may be different for service provider "C" versus service provider "D" or technology "C" versus technology "D".
3503 One of the underlying concerns though that we have is, again, it's this decade long problem with the services that -- the wholesale services that have been mandated and the inability of these services seemingly to meet the business needs of the wholesale customers to which they're intended.
3504 You know, again, we're not really here to point fingers, but good Lord, how many years did it take for TPIA to get developed? You know, there were endless requests for extensions and, again, I'm sure there are very good reasons for that, but even after that, you know, if you look at the use of the service and you wonder.
3505 And if I'm an ISP, I'm looking to serve customers, I'm going to look at all the alternatives. And, you know, if I make a conscious choice not to pick one alternative, whether it's the CO base service or TPIA, well, you know, there are probably good business reasons why these services, frankly, they're just no good to meet my requirements.
3506 And, you know, if the Commission is serious or is committed to having a third party ISP presence out there, well, those services and the way they're delivered and -- you know, we heard earlier about problems in dealing with some of the incumbent telephone companies.
3507 These problems ultimately have to be resolved and these customers have to be able to rely upon their providers to provide them services that they can use.
3508 THE CHAIRPERSON: And we've also heard this somewhat startling suggestion of a regulatory holiday, especially with fibre to the premises.
3509 Do you care to comment on that?
3510 MR. LÉGER: If by a regulatory holiday we're saying, and I just want to make sure we understand the concept, we're saying in effect, you know, postpone an obligation to make facilities available, well, I guess our take is, you know, you're looking at a third party ISP marketplace now that's down to the -- again, I keep repeating this -- but it's basically down to the single digits.
3511 Now, well, is it okay for all these guys to go bankrupt and then for the Commission to launch those services after the end of the regulatory holiday and then presumably there will be a whole bunch of new investors that will come in and be, you know, be willing to invest in ISPs that now have access to these services?
3512 Well, I suppose that's a strategy. It seems to us, and again we're consumers not service providers, it seems to us quite wasteful of resources to have, you know, this roller coaster business climate for these third party ISPs.
3513 THE CHAIRPERSON: Yes. So, essentially what you're saying is, make sure consumers are best served if there's a wholesale market, not just intermodal, make sure there's a vibrant wholesale market with easy access to it.
3514 That's essentially the bottom line, and that will allow us to force innovation and do better in international comparison than we have done so far?
3515 MR. JANIGAN: I think that's a fair summary, Mr. Chair.
3516 THE CHAIRPERSON: Okay. Thank you.
3517 Do any one of -- Len?
3518 COMMISSIONER KATZ: Thank you, Konrad.
3519 I'm going to ask you a question. A couple of questions.
3520 One is, I gather from what you just said, Mr. Léger, that you feel the market is currently not competitive in broadband services.
3521 MR. LÉGER: This is -- I apologize for saying this, it sounds like almost a trap question there.
3522 We're not saying that it's not competitive. We recognize that there are two competitors that are actively marketing services. What we're saying is that we think that there are benefits to consumers, important benefits that can be had through a more dynamic marketplace with more competitors.
3523 I guess we keep turning, and I think it may have been you, Commissioner, who reminded some parties -- maybe the incumbents -- that in the wireless sector the Government of Canada looked at, you know, whatever it was three or four service providers and came to the conclusion that this wasn't quite enough in terms of competitors.
3524 Now, the government didn't mandate access to networks, I'll grant you that, but they did something else but it was for the same purpose, to ensure that there were more competitors out there and, in particular, more competitors who were independents of the existing -- or independent of the existing incumbents.
3525 And we find that attractive, that concept.
3526 COMMISSIONER KATZ: But this currently is a forborne market at the retail side. The wholesale strategy and rates and tariffs are there in order to sustain competitive markets in the eyes of the consumer.
3527 There is a school of thought that says unless there's market failure the Commission shouldn't be intervening, and that's why I ask the question, is there market failure and, if not, does the Commission have the authority and the power to go in regardless in a market that heretofore at the retail level has been forborne?
3528 MR. JANIGAN: I think you're correct in terms of looking at -- that the question revolves around the question of market power and whether or not the incumbents in the market, and particularly the ILECs and the cable company have market power in relation to the wholesale broadband services and reflected in the retail offerings.
3529 We suspect that they do. We haven't done the appropriate pricing tests of looking at significant non-transitory increase in prices or the kinds of things that would enable us to do it empirically, but we suspect that they do, and we're operating under the assumption that given the record that we see or the uneven record associated with competition that we see, that in fact it may be appropriate to apply the kinds of remedies that one would use in order to mitigate that market power.
3530 COMMISSIONER KATZ: Okay. Dr. Crandall this morning in his evidence postured that there is no research out to date internationally or North America, I guess would be part of international, that supports the notion that opening up a resale -- a market to wholesale services. resale plus innovative services, actually results in more price competition and prices coming down.
3531 And you're focusing in one of your tables here on price obviously and Canada being further behind on a price curve.
3532 Do you believe that the advent -- the introduction of wholesale service will drive prices down to the consumer level?
3533 MR. JANIGAN: I think that has the potential to help. The other thing Dr. Crandall said, which I fail to understand, is that in fact having a resale on a particular facility will not bring competition because you will have, albeit all of the components -- the cost components of that particular facility.
3534 Well, that only applies if that facility-based provider is perfectly competitive or, in fact, that there is no efficiencies that that reseller can bring to market or innovations with respect to prices.
3535 We think that there potentially can be and we see that this is an opportunity to ensure that there can be entrants in the market that may provide benefits to consumers.
3536 COMMISSIONER KATZ: My last question.
3537 Do you think that a viable alternative is mandated wholesale with negotiated prices? Is that a viable scenario?
3538 MR. JANIGAN: It depends I guess upon whether or not there is any potential for resolution in the event of failure to negotiate.
3539 I think you have to have some kind of arrangement in the event of non-negotiation that will fix the price based on maybe the best last offer of those participants.
3540 COMMISSIONER KATZ: Those are my questions. Thank you.
3541 THE CHAIRPERSON: Marc, last question?
3542 COMMISSIONER PATRONE: Thank you, Mr. Chair.
3543 I just have the one and it's sort of a continuation on what Vice-Chair Katz was asking you about the level of competition that you think currently exists in the market.
3544 And I heard you say, sir, that you feel there are currently basically two competitors.
3545 I've also heard you say that the cable companies are the dominant player.
3546 Since much of this debate in this proceeding has been about the roll-out of the ILECs' future fibre networks, are you concerned that by mandating access to those fibre networks that we are actually diminishing the capacity of the ILECs to compete against the Cablecos whom you feel are currently dominating the market?
3547 In other words, is it possible that unbundling those next-generation networks may actually hurt the competitive nature of the market?
3548 MR. LÉGER: I think we need to be careful just a little bit, perhaps that we've not been quite clear.
3549 We haven't said that -- in my mind at least, the word dominant has quite a specific meaning and I don't think we suggested that the cable companies are "dominant".
3550 Yes, this proceeding -- the focus in this proceeding has largely been about the, I'll call it unbundling or the existing services of the incumbent Telcos.
3551 We've also said that we agree in principle with symmetry. What we said there though was that symmetry is one thing, but ensuring that the services are provided, whether it's by the ILEC or by the cable companies, need to provide the customers to whom those services are intended a reasonable opportunity to roll out services that, you know, that have a chance of attracting customers.
3552 Now, that again is a bit of a roundabout way of addressing your question.
3553 We don't believe -- and maybe it's partly because we've heard this story so many times before, we don't believe that the increased competition will cause the incumbents to stop investing in their networks.
3554 It sometimes sounds maybe trite to do this but, you know, I was reading out of 79-11 a few days ago and when you look into the proceeding, well, that's what they were arguing then, then they were arguing the same thing before IX2, then they were arguing the same thing before, I think it was about number portability.
3555 And, you know, we've heard this argument so many times and...
3556 COMMISSIONER PATRONE: Do you feel that they're playing catch up here?
3557 MR. LÉGER: Well, they're --
3558 COMMISSIONER KATZ: The ILECs, do you feel that they --
3559 MR. LÉGER: Well, they've fallen behind.
3560 COMMISSIONER PATRONE: Because I think I've also heard you say earlier in the proceeding, you know, that they really have to, they have no choice but to lay out these fibre networks --
3561 MR. LÉGER: That's what it means.
3562 COMMISSIONER PATRONE: -- in order to catch up with the Cablecos.
3563 MR. LÉGER: That's right.
3564 COMMISSIONER PATRONE: And presumably because you feel that the Cablecos are ahead, you've said that it's not dominant, but...
3565 MR. JANIGAN: Well, I think --
3566 COMMISSIONER PATRONE: Clarify that for me.
3567 MR. JANIGAN: I think what we have said is that the cable companies have made considerable inroads in the market and that likely both the ILECs and the cable companies have a degree of market power in that market.
3568 Your premise I think would be valid if you accepted the additional premise that in order to counter the influence of the cable companies that you need one large provider in the form of the ILECs.
3569 I don't think that's the case. I think that what is required is a workably competitive market and that may mean that ILECs lose market share.
3570 But in the long run, if you have a workably competitive market that has prices and offerings that are --
3571 COMMISSIONER PATRONE: I'm sorry, that the ILECs would lose market share --
3572 MR. JANIGAN: Well, in the event --
3573 COMMISSIONER PATRONE: -- if they had to compete with competitors on the next-generation networks; is that correct?
3574 MR. JANIGAN: Well, yes, and if they had mandated access, I'm sure that they would lose -- I'm sure that some of those resellers would be, in order to be successful are going to have to gain market share either from the ILECs or from --
3575 COMMISSIONER PATRONE: Do you think they know that, that they would lose market share if they had to unbundle next-generation networks?
3576 MR. JANIGAN: Absolutely.
3577 COMMISSIONER PATRONE: And then we get again to the disincentive that they've talked about to roll out those next-generation networks, knowing that, as you say, they're going to lose market share.
3578 MR. JANIGAN: Well, competition is messy, it's not clean. I mean, it's not a guaranteed result.
3579 What you have in the case of the ILECs is that when you have another player in the market like cable who is making the appropriate investments, they have to make those investments in order to continue to maintain the value of their network.
3580 The question arises then is that, do you still have, even with the competition between the ILEC and the cable, do you really have a workably competitive market? All right,
3581 And when you analyze that market, is there still market power that is being exerted by the cable companies or the ILECs in that market?
3582 If there is, then you adopt a policy that mandates access by other players on appropriate terms to both the ILECs and the cable companies.
3583 COMMISSIONER PATRONE: Okay. Those are my questions.
3584 Thank you.
3585 THE CHAIRPERSON: Thank you very much. I think that's it for today.
3586 Thank you for your presentation.
3587 MR. JANIGAN: Thank you, Mr. Chair.
3588 THE CHAIRPERSON: We'll resume tomorrow morning at nine.
--- Whereupon the hearing adjourned at 1619 to resume on Wednesday, June 2, 2010 at 0900
Johanne Morin Jean Desaulniers
Sue Villeneuve Monique Mahoney
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