ARCHIVED - Transcript, Hearing 3 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 3, 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 3, 2010
- iv -
TABLE OF CONTENTS
PAGE / PARA
Cybersurf Corp. 908 / 5262
Distributel Communications Limited 924 / 5322
Cogeco Cable Inc.; Quebecor Media Inc., on behalf of Vidéotron ltée; Rogers Communications Inc.; Shaw Communications Inc.; Bragg Communications Inc. 973 / 5645
MTS Allstream Inc. 1020 / 5957
Public Interest Advocacy Centre 1079 / 6348
Vaxination Informatique 1102 / 6471
Coalition of Internet Service Providers 1139 / 6732
Canadian Association of Internet Providers 1145 / 6765
Saskatchewan Telecommunications 1196 / 7087
- v -
Undertakings can be found at the following paragraphs:
5625, 6095, 6111, 6123, 6149, 6166, 6209, 6282, 7064 and 7318
--- Upon commencing on Thursday, June 3, 2010 at 0908
5245 THE SECRETARY: Order, please. À l'ordre, s'il vous plaît.
5246 THE CHAIRPERSON: Okay, let's start.
5247 First of all, Madam Secretary, you have some announcements to make?
5248 THE SECRETARY: Thank you, Mr. Chairman.
5249 We will now proceed with Phase II of the hearing where parties will appear in reverse order to present their oral rebuttal argument.
5250 Before we start, I would like to go over a few housekeeping matters to ensure the proper conduct of the rebuttal phase.
5251 Please note that the Commission Members me ask questions in either English or French. Simultaneous interpretation is available during the hearing. The English interpretation is on Channel 1 and French on Channel 2. Channels can be selected from the left side of your microphone base.
5252 I would like to remind participants that during the oral presentation they should provide for a reasonable delay for the interpretation while respecting their allocated presentation time.
5253 We would ask that you please turn off and not only put on vibration mode your cell phones and BlackBerry's as they cause interference in the internal communication systems used by our translators.
5254 During this phase, regardless of whether they are presenting oral rebuttal argument, participants may be called upon at any time to answer questions from Members of the Panel in light of another participant's submission.
5255 For technical reasons, and in order to facilitate the work of the court reporter and interpreters, I would ask participants that are not making presentations to identify yourselves every time you are asked to respond to questions from Commissioners.
5256 It is also important that you turn off your microphone after each intervention in order to avoid interference in the audio system.
5257 We appreciate your collaboration in this matter.
5258 Mr. Chairman, we will now proceed with the oral rebuttal presentations.
5259 We will begin this morning with the presentation by Cybersurf Corp. and Distributel Communications Limited, who are appearing together.
5260 We will hear each presentation, we would then follow by questions. We will begin this morning with Cybersurf Corp.
5261 Please introduce yourselves for the record and you have 15 minutes for your oral rebuttal argument.
5262 MR. MERCIA: Good morning, Commissioner, staff and participants. I am Marcel Mercia, Chief Operating Officer of Cybersurf Corp. Next to me is counsel, David Elder.
5263 At this hearing, the technical and policy arguments advanced by the incumbents in the proceeding initiated by Public Notice 2006-14 are now clearly taking a back seat to the primary argument of this proceeding, that if the Commission subjects the incumbents to more regulation, they will slow or stop investment.
5264 In an era where the Commission, the government and a host of interested stakeholders are growing increasingly concerned about the extent, affordability and speed of Canada's broadband network, it seems to me that this position basically amounts to a threat. And I think the fact that this position is perceived as so threatening only serves to confirm the market power of the incumbents.
5265 In rendering the Decision 2008-117, the Commission concluded that it did not believe investments would be dampened by providing competitors access to fibre networks based on the fact that rates for wholesale services were set to recover costs and that the competitive rivalry between ILECs and cable would continue to drive investment, regardless of wholesale obligations. There is no reason to believe that that determination from the Commission was incorrect.
5266 ILEC arguments in respect to the lessening and dampening of investments in this proceeding have largely centred on their own investments and not investments of ICTs as a whole. The OECD and Berkman Centre Report both state that in regulatory regimes where competitors can purchase unbundled network elements competitors do build facilities.
5267 In fact, it's worth noting that incumbent arguments that competitive access arrangements dampen investment of competitors and incumbents alike are only postulations largely made by incumbent consultants and have no actual basis in fact.
5268 In the OECD's 2009 Broadband Report at page 41 it states exactly the opposite is the case.
5269 It says:
"Unbundling of copper telephone lines itself seems to be a factor in reducing the price of broadband subscriptions, as they introduce more competition at the telecommunication exchange. Evidence points to lower 'per Mbit/s' charges in countries with unbundling rules."
"Competition is a key to lowering prices but it also has a significant effect on the services and speeds available to businesses and consumers. Broadband quality tends to increase over time even as prices decline."
"The trend continues as operators upgrade their networks."
5270 Accordingly, to be successful, Bell's "dampening argument" must go beyond the bald threat that they will stop investing if the Commission doesn't behave the way they want them to and forgoes competitive access.
5271 Bell must also prove that competitors will continue to rely on ILEC investments rather than making investments of their own.
5272 The global evidence cited by the OECD and the Berkman Center report shows competitors do invest in their own networks when unbundled elements are available, appropriately costed and overseen and enforced by an effective regulator.
5273 The OECD 2009 Broadband Policy Report also says:
"The strongest new infrastructure-based competition has come from fibre networks built by new entrants who can attract consumers by offering speeds greater than cable or DSL. Competitive providers, municipalities and power companies have installed these networks. The areas where they have had the most significant positive impact on competition have been where networks have been run on 'open access' principles."
5274 Another example is in France. Alternative operators such as "Free" began providing service using an unbundled product, but later commenced building out their own FTTH networks in selected areas.
5275 The ILEC's argument with respect to next generation networks requires the Commission to create regulatory policy focusing on the type of infrastructure deployed and the timing of its deployment -- with little or no consideration of the effects on the relevant markets, including competitors operating, or that may operate, in those markets -- most importantly, without consideration of the consumers that will obtain services in those markets.
5276 This self-interested approach is not only contrary to the Act and long-standing regulatory policy, but is also contrary to the evidence of TELUS' own expert, which suggests that such an approach is undesirable, as networks are built upon networks through constant investment and upgrading and old and new are intractably co-mingled.
5277 In a paper submitted by TELUS and written By Dr. Debra Aron she stated:
"The idea that one could quarantine unbundling obligations on broadband services to those that ride on 'old' infrastructure rather than 'new' infrastructure would therefore be flawed in its inception. Higher speeds of ADSL require some new capital investment. Even the copper loop upon which it rides requires ongoing maintenance and may require replacement if it exhausts its useful life. An unbundling obligation defined by whether the facility is 'old' or 'new' would therefore be intractable."
5278 On May 31st the CEO of Bell Canada expressed to the Commission in respect to Bell's FTTN that "there are no incumbents", suggesting then that these deployments, at which Bell stated in the proceeding leading to 2008-117 was $1.3 billion, are completely new networks and fully duplicable.
5279 If Bell can't build a fibre network without realizing a full return on retail margin with 75 percent market share in telecommunications, all the right's of ways, conduits, poles, trenches, remotes, municipal agreements and central offices, without being able to get a full return from retail mark-up, who exactly do they think can?
5280 For a competitor that lacks all of this support infrastructure, the deployment would be exponentially more expensive and exponentially far riskier, since a new entrant has no customers, no revenue and no base to bundle and up-sell to. The fact remains that only the incumbents have no significant barrier to entry into NGNs. Competitors still do, and in spades.
5281 I do not believe Mr. Bibic simply saying "anyone can build fibre to a remote" is evidence of duplicability. Evidence of duplicability is that the facility has been duplicated in a meaningful and significant way, and the test is found at paragraph 41 of Decision 2008-17.
5282 It says:
"The Commission considers that a facility can be practically duplicated if a reasonably efficient competitor could expect to earn sufficient revenue to justify investing in the construction of a given facility. As such, the Commission considers that all potential revenue and costs must be factored into the duplicability analysis."
5283 In light of that view the Commission made this determination in Decision Telecom Regulatory Policy 2009-34 at paragraph 76.
"... there are not sufficient wholesale alternatives to the ILECs' line-sharing services. The Commission also considers that in the absence of wholesale alternatives, withdrawing mandated access to the ILECs' line-sharing services would likely result in a substantial lessening or prevention of competition in the retail high-speed internet access service market and that this would be inconsistent with both the policy objectives set out in section 7 of the Act and the Policy Direction."
5284 The second major conceptual prong of the ILECs' argument also centres on the idea that a duopoly between ILEC and cable is sufficiently competitive in the retail market and that correction is not required by the Commission.
5285 However this conclusion is contrary to the finding the Commission made in requiring incumbents to continue to provide access of certain broadband services in Decision 2008-17 and expanded the obligation in Decision 2008-117.
5286 The incumbents have only repeated arguments in this regard and have not provided any new information or argument to suggest that the Commission's finding was incorrect.
5287 The essentiality test found at paragraph 37 of Decision 2008-17 is for new services, of which NGN's would fall. It is not concerned with retail competitiveness, incumbency, technology or anything else. It is only concerned with control over a facility a competitor needs to compete, and the ability for a reasonably efficient competitor to duplicate that facility.
5288 In fact, the Commission has never been satisfied with a duopoly, nor has the government, demonstrated by its recent licensing of several new entrants to the wireless marketplace, where there were three major incumbents, not two. It is unclear why such marginal competition should be acceptable now.
5289 Also the notion does not address the fact that regardless of the competitive nature of the downstream market, the Commission was required by the Policy Direction to consider not only incumbent control of the retail market, but also the wholesale market, and the impediments facing carriers in constructing and deploying facilities.
5290 The third conceptual prong of the ILEC argument suggests that unless their major competitor in the cable companies are regulated to the same degree as they are in the interest of "symmetry", then the ILECs cannot be so regulated.
5291 Cybersurf notes that the question of "symmetry" in regulation was first brought to the Commission by Cybersurf in its application to the Commission to create a graduated service for cable by unbundling components of the network, to the degree possible and appropriate, in the same regard as the Commission had already done for competitors using ILEC facilities.
5292 Properly applied, the concept of "symmetry" means the application of equivalent regulatory policy for each incumbent operator to the degree it's reasonable, proportionate and efficient, taking into account all relevant circumstances. It does not suggest a slavish adherence to the application of precisely the same rules in all cases without consideration of technical or economic limitation.
5293 In a regulatory context, symmetrical should not mean "identical". For example, although Cybersurf believes that the cable networks can be unbundled further, if the Commission were to decide that TPIA is as unbundled as it can be, this should not mean that the ILECs should be relieved of unbundling obligations that they currently have and are technically capable of providing.
5294 Such an approach would sacrifice competition and end-user choice in the interest of an inflexible and self-serving notion of "symmetry."
5295 The idea that the Commission is regulating the wholesale market and that the essentiality test still applies seems also to be lost on the cable companies.
5296 In yesterday's presentation Shaw asked what "malaise" requires correction from the Commission; "the market is highly competitive". While at the same time Shaw boasts few TPIA customers and some markets with none at all; content to control the speed quality and large degree price of the ISPs that it's supposedly competing with.
5297 There was no discussion of wholesale access. I think the message to the Commission from yesterday's panel was clear, cable companies generally do not want to wholesale. We indicated yesterday that the one that does is Vidéotron. To our understanding Vidéotron was far more successful at it and had far more customers due to the fact that they support their wholesale services, which I believe contends with Mr. Englehart's assertion that ISPs do not want TPIA because cable doesn't adequately cover business markets.
5298 On an aside, the assertion that cable companies do not offer business services needs to be conveyed to whoever it is that is making cable companies' advertising in websites. Anyone can go to Rogers websites and find all kinds of bundled offers aimed at business, including, if you talk to one of their agents, bundling business internet and mobile internet together.
5299 The anecdotal assertion made by Rogers that wireless is a substitutable service to wireline for "median" customers was a very narrow observation and not real proof of substitutability, particularly when one considers price.
5300 In that regard, Rogers stated that they have actively sought out wholesale distribution for wholesale wireless, however in response to interrogatories from Cybersurf, Rogers claimed a single wholesale customer and it wasn't clear if that customer was even permitted to sell high-speed wireless access.
5301 Mr. Cohen's experience mirrors the experience of some of Cybersurf's directors that when incumbents say they will selectively partner with someone for distribution, it selectively means they will not partner with anyone that competes at any level with their core business, and it is also usually coupled with restrictions on pricing, plans and ITMP in much the same manner as GAS and TPIA are.
5302 Anyone living west of Sault St. Marie can attest to be inundated through local availabilities of Shaw's business phone offerings and internet business offerings through Shaw Business Solutions. I do not think it's accurate to say cablecos do not actively pursue and compete in the business market.
5303 One of the more interesting comments from yesterday's cable presentation, was the assertion that ILEC offerings are not driving their offerings, that customer demand is driving their offers. Perhaps that sentiment, coupled with Mr. Cope's statement that his wireline and wireless people discuss product pricing and placement at a retail level, should give pause to the Commission to contemplate the retail forbearance determinations.
5304 Rogers also stated that what their customers want is customization and not faster throughput, as demand for its very high-speed accesses have never developed.
5305 Unless I missed something, I think competitors have been making it clear that what they want as customers is also customizations; however, I do not think I heard from Mr. Englehart that this was being given much consideration. In fact the Commissioners question with respect to negotiated access arrangements dumbfounded the panel.
5306 I think it was EastLink that stated that ISPs prefer lower capacity access arrangements because they are cheaper. I don't know where they are drawing this experience from.
5307 To my knowledge, EastLink only provides actual TPIA through an affiliate Persona in Sudbury. However, I can assure the cable companies if they are unclear about the issue, that GigE's are typically hundreds of dollars more expensive than E-100s and have more or five times the capacity. ISPs have long being trying to get them.
5308 You look at the original TPIA CISC documents from 2000, more than 10 years ago, and there is discussion and papers related to ISPs asking for GigE access and arguments from the cable company stating that it "wasn't technically feasible".
5309 Shaw stated that the idea that a competitor could build a user base and get critical mass and develop their own network is flawed. Mr. Brazeau said "It's never happened because the market doesn't support it".
5310 Of course the OECD I quoted earlier refutes that notion. It's never happened in Canada because there is no place to go from TPIA that is economical. This statement is sorely accurate and is the answer to Shaw's other question, "What is the malaise here that we are trying to solve"?
5311 Cable also made an assertion in their presentation that it was not entirely accurate. It is was in their written submission.
"... that the Commission has already considered dedicated access arrangements and rejected them in Decision 2006-61."
5312 This is not true. That decision was in relation to Cybersurf application for access to PacketCable and it was the Commission that actually suggested another way to go about it would be dedicated channels. However no evidence was provided in that respect.
5313 There is a plethora of technical issues that have been raised that are best dealt with in written reply, after we hear cable's response to the presentation Cybersurf's made yesterday.
5314 However, one other thing I heard yesterday was that because the bandwidth restrictions are made on the upstream that QCSIP and Cybersurf's proposals to share the bandwidth would not alleviate them from cable company controlled ITMP.
5315 I think they are confused. Cybersurf has asked and been asking for QoS on the upstream for voice services which take up a minimal amount of bandwidth to the same degree that cable companies provide it to themselves.
5316 From the statement one can assume that disproportionate downstream bandwidth isn't as contentious for the cable companies. That is where we would be looking to set our own service attributes and ITMP. For example, the type of video service I discussed yesterday with Commissioner Duncan is downloaded by the user and only travels downstream. So without further explanation from the cableco I don't think that that statement was entirely accurate.
5317 THE SECRETARY: I'm sorry, to interrupt, Mr. Mercia, I'm going to have to ask you to conclude, please.
5318 MR. MERCIA: I'm done.
5319 THE SECRETARY: You are done?
5320 MR. MERCIA: Yes.
5321 THE SECRETARY: Thank you.
5322 MR. COHEN: Good morning, Mr. Chairman, Vice Chairman, Commissioners and staff. I am Mel Cohen, President of Distributel Communications. To my left is Don Cavanagh, Vice President, and external counsel Chris Taylor.
5323 Distributel has identified five areas for reply and rather than read them all now I will read them in context.
5324 First, the retail market is not competitive.
5325 Both the ILECs and the cable companies have argued strenuously that the retail market is intensely competitive. We have provided evidence in our written submissions and in our oral presentation yesterday that this is not the case.
5326 A further simple example of failure in the retail markets should illustrate the point.
5327 We have all heard the term "bandwidth hog" to refer to consumers that have a high volume of data transfer. Someone yesterday made a disparaging reference to a hypothetical user who would like to download a terabyte of data in a single month.
5328 There is indeed a segment of the market that has relatively high demand, but what if those users were willing to do their heavy downloading outside of peak periods? A terabyte of data could easily be transferred within a month, even with a 5 Mb per second service, completely outside of the six busiest hours of the day.
5329 Data networks, like traditional telephone networks, are built to accommodate peak demand. So, if this usage was entirely outside out of the peak period, the incremental cost to a network operator would be practically zero.
5330 In a properly functioning competitive market with near zero network cost, someone would surely step up to offer a service to meet this need at a reasonable price.
5331 But no one is doing so today because the two incumbents have taken an identical approach to economic Internet traffic management and have chosen to impose this same approach on their wholesale customers.
5332 So, here is demand that could be profitably served and no one is serving it. That is what market failure is all about.
5333 The retail market is not intensely competitive, on the contrary, competition is limited and weak.
5334 Second point, Bell's false choice of competition versus innovation.
5335 Bell argues in its submissions that the Commission must choose between two futures:
"The Commission must weigh the relative social and economic merits of two futures; one where new services may be introduced and made available though potentially with marginally reduced competition, and one where competition may be more vigorous but where the product choices and innovation are stymied."
5336 MR. COHEN: This is nonsense. The evidence before you is very clear, competition drives innovation.
5337 The Commission doesn't have to choose between competition and innovation, the Commission has to choose competition in order to promote innovation.
5338 Bell wants a cosy, cash rich and competition sparse future, but that is not what the Telecommunications Act and the Policy Direction say is required. The Commission's mandate is to promote competition, not limit it.
5339 Bell's choice is a false one and the Commission's mandate is clear, focus on competition.
5340 Third point, Bell's IPTV issue.
5341 Bell claims that if wholesale access were granted to its fibre-to-the-node and fibre-to-the-home facilities this would seriously interfere with its IPTV service since a customer who chose the competitor's Internet service could not also purchase Bell's IPTV.
5342 Just suppose for the moment that Bell's technical statements were true and a consumer could only choose one provider or the other. When would this impairment of Bell's IPTV service occur?
5343 Firstly, we have to be talking about a consumer who found Bell's IPTV service attractive or the whole issue is irrelevant.
5344 Second, the consumer would have to find the competitor's Internet offering so much superior to Bell's that he would be willing to forego the IPTV service that he also wanted.
5345 Yes, the consumer would have to choose, but why should a consumer not have the opportunity to make that choice? More choice in the marketplace is better than less. This is the desirable outcome.
5346 In any event, the evidence submitted by Bell and other parties indicates that IPTV and Internet can co-exist independently, I should say competitive Internet.
5347 Two solutions come to mind immediately; modem sharing and second lines. The former might take some effort to work out, but as many parties have pointed out, hurdles have been overcome before in order to enable competition, they can be overcome again.
5348 Fourth point, the cable companies' technical claims.
5349 The cable companies predicted chaos and calamity if their networks are further unbundled, they claim they don't have the capacity and that the technical hurdles are too great.
5350 This is hype and bluster. There is no capacity issue. As we mentioned briefly yesterday, the cable companies have a wealth of capacity available to them if they choose to operate in a rational and efficient manner by harvesting their analog channels once the digital transition comes into effect.
5351 The evidence on the record of this proceeding indicates they have anywhere from 49 to 74 analog 6 Megahertz channels which could be freed up.
5352 Consequently, the Commission could require the cable companies to dedicate a dozen or more 6 Megahertz channels to competitors without fear of compromising the cable companies' digital television business. The cable companies could easily harvest analog channels to meet this requirement.
5353 If the cable companies were to choose to meet this requirement by using up digital channel capacity rather than harvesting analog channels, that would be their choice, but they should not be permitted to block effective competition in the broadband Internet market because they refuse to make efficient use of their analog capacity.
5354 The alleged technical problems. As far as the alleged technical hurdles suggested by the cable companies, there is plenty of evidence before you indicating that the cable companies' claims are exaggerated.
5355 These are technical challenges, not insurmountable obstacles. There is no reason to believe a workable solution is not possible.
5356 And my last point is with regard to Bell's sub-loop proposal, and I apologize if I'm repeating a bit of what Marcel said to you, but maybe it's good to have the point reiterated.
5357 Bell has proposed to give competitors access to sub-loops at Bell's thousands of local neighbourhood wire interfaces and suggested that competitors deploy their own fibre networks and DSLAMs to deal with every other aspect of broadband service delivery.
5358 Presumably this generous offer to use their last kilometre copper is in recognition of the monopoly legacy under which the copper was deployed.
5359 But by implication, everything else, the DSLAMs and fibre that Bell is deploying for their fibre-to-the-node and fibre-to-the-home roll-outs represents new investment that any aspiring competitor should also have to make.
5360 This is a non-proposal. It is totally impractical and uneconomical and ignores the fact that the advantages bestowed by Bell's monopoly legacy extend far beyond the copper loops that run to the customer premises.
5361 Competitors would have to establish hundreds of points of presence analogous to Bell's central office buildings, would have to attain rights-of-way everywhere to run their fibre, negotiate with municipalities for permission to build their pedestals for their DSLAMs near to all the Bell wire interfaces and make arrangements for power to be delivered to those pedestals.
5362 All of these things Bell Canada already has by virtue of its monopoly legacy. The cost and other obstacles for a competitor to start anew would be overwhelming.
5363 The reality is that no one is going to lay fibre to Bell's wire interfaces, it is impractical and far, far too expensive. This proposal is a non-starter.
5364 To sum up our overall position.
5365 Competition in the Internet market has become extremely weak and this is bad for Canada and Canadians.
5366 The wholesale regime for ILECs and cable companies must be revised to establish competitive and technological neutrality.
5367 Wholesale services should have cost-based rates to promote efficiency and wholesale services should be structured to enable flexible growth and service design and any restrictions on use should be eliminated.
5368 With a revised wholesale regime, there is a hope for revitalized competition. Without it, Canadians will face higher prices and more restricted services and Canada will be at a competitive disadvantage internationally.
5369 That completes our reply.
5370 We would be happy to answer any questions you may have.
5371 THE CHAIRPERSON: Thank you very much for both your presentations, especially Distributel. I like what you did, this is exactly what we had in mind that in the reply phase you pick out the key points of where you differ with the presentation, present them to us and then...
5372 We have never done this before in quite this format, but hopefully it works.
5373 So, for instance, Cybersurf, you made very strong allegations sort of questioning Rogers' credibility because Mr. Engelhart says we don't have a business service because we don't serve business and so, therefore, TPIA, there's no uptake.
5374 You say their website -- which I haven't visited -- specifically has a business market based on that, et cetera.
5375 Mr. Engelhart, would you like to comment on that?
5376 MR. ENGELHART: Yes. I think --
5377 THE CHAIRPERSON: You have to identify yourself, sorry, because some people not in the room have to know who's speaking.
5378 MR. ENGELHART: Thank you. Ken Engelhart, Rogers.
5379 I think we made it pretty clear yesterday that we have a business sales force, that we're aggressively trying to serve the business market and that we currently do not have cable facilities into the vast majority of business premises.
5380 We, generally speaking, try to sell to those buildings where we do have cable or, as we described in some detail, we assess the cost of installing those facilities into those locations.
5381 So, of course we have a business sales force, of course we have business products, of course, as we said yesterday, we are very much trying to get into this game, but we still have about I would say 90 percent of the business premises without our facilities entering them.
5382 THE CHAIRPERSON: Secondly, Distributel, your point two is saying that Mr. Cope put a false choice before us. He said we have to choose between, to use your words here -- or his words:
"...where new services may be introduced and made available though potentially with marginally reduced competition, and one where competition may be more vigorous but where the product choices...are stymied."
5383 You say this is wrong and competition theory suggests just the opposite, that it's competition that drives innovation not protected market, which I understand as a former commissioner, is also my understanding of basic competition law.
5384 But Mr. Bibic is also a former competition lawyer and maybe he can explain Mr. Cope's position and why it is -- or anybody from Bell, I don't want to single out, Mr. Bibic.
5385 Just that the position that's quoted here seems at first blush to be not exactly in line with accepted competition doctrine that competition fosters innovation rather than stymie it.
5386 MR. BIBIC: So, Mr. Chairman, the difficulty I'm having is that are you quoting from what we said or what Mr. Cohen said?
5387 I don't have the quote in front of me, so I don't want to react --
5388 THE CHAIRPERSON: It says here, I will read it for you:
"Bell argues in its submission that the Commission must choose between two futures:..."
5389 THE CHAIRPERSON: And now he's quoting from Mr. Cope:
"The Commission must weigh the relative social and economic merits of two futures, one where new services may be introduced and made available though potentially with marginally reduced competition, and one where competition may be more vigorous but where the product choices and innovation are stymied."
5390 MR. BIBIC: Okay. Well, firstly, Mr. Cope did not say this, this was from our written submission. But I will --
5391 THE CHAIRPERSON: Okay.
5392 MR. BIBIC: Obviously Bell said it, but --
5393 THE CHAIRPERSON: You could correct it there.
5394 MR. BIBIC: Yes.
5395 THE CHAIRPERSON: Because it doesn't say here -- I didn't hear him say it here either, but it's in his written submissions.
5396 MR. BIBIC; Okay, fine. I'll just take a moment, Mr. Chairman.
5397 THE CHAIRPERSON: Well, maybe, and I don't want to catch you off guard, if you want to reply in writing, that's fine.
5398 MR. BIBIC: I can address it when we're up as well.
5399 THE CHAIRPERSON: Okay. Why don't you do that when it is your turn. Okay.
5400 So, thank you.
5402 COMMISSIONER DUNCAN: Thank you, Mr. Chairman.
5403 One question that I'd like to ask the cable companies to address is on page 5 of the submission from Distributel and, that is, dealing with the cable companies' capacity when we've gone through the digital transition and the availability to use those analog channels or other high definition channels to provide the capacity that the ISPs are looking for.
5404 MR. ENGELHART: Ken Engelhart, Rogers.
5405 COMMISSIONER DUNCAN: Or do you have a copy of the -- I'm sorry, do you have a copy of it?
5406 MR. ENGELHART: Yes.
5407 COMMISSIONER DUNCAN: Thank you.
5408 MR. ENGELHART: Okay. Converting an analog channel to digital and the digital transition date are completely unconnected.
5409 We can convert analog channels to digital today and we don't have to convert analog channels to digital after the transition date.
5410 So, the fact that the broadcasters are broadcasting in analog or digital doesn't matter for cable, we can down convert the digital to analog.
5411 So, the question is, why can't we convert analog channels to digital in order to harvest channel capacity as Distributel put it?
5412 The reason is that every single home, every single television in every single home that doesn't have a digital box would need a digital box to be able to receive that channel.
5413 And if you took all the televisions in Canada today that are getting analog channels that don't have a digital box and you bought them a digital box and you did the necessary network modifications that would need to be done, the cost Canada wide would be about a billion dollars.
5414 So, this is not a trivial undertaking, it's something that every cable company in the world is wrestling with.
5415 But, as we said in our interrogatories when we were questioned about this, it's not something that we plan to do any time soon.
5416 COMMISSIONER DUNCAN: Thank you.
5417 So, Mr. Chairman, is it appropriate for me to go back to the others?
5418 THE CHAIRPERSON: Yes. You are in charge, Elizabeth. Go ahead.
5419 COMMISSIONER DUNCAN: So, Mr. Cohen then, or Mr. Taylor because we were talking yesterday and you didn't feel the question had been answered by the Cablecos.
5420 Are you then satisfied with that answer, or do you have a follow on?
5421 MR. TAYLOR: I don't think that the answer has been answered by the Cablecos. I mean, some -- the Cablecos' primary competitors are -- well, they have two, they have satellite which is a hundred percent digital and they'll have IPTV which will also be, and so that what they're really talking about here is the ability to maintain a competitive advantage vis-a-vis the other BDU competitors who aren't a hundred percent digital.
5422 The cable companies want to maintain the ability to have paid digital service with as a supplement or a complement to it an analog service which also comes into the home for free and can be used on the second and third television in the house.
5423 So, that's the business case that they want to maintain, the competitive advantage they want to maintain.
5424 But that opportunity for them, to use the spectrum in that way, to basically be giving it away, the analog, to be giving it away in that way is not a basis, I don't think, for the Commission under its telecommunications mandate to say, oh that's a good reason for us to refuse to require a wholesale regime which will actually enable Internet broadband competition in a viable manner.
5425 The policy decision under the Telecom Act says, is it appropriate to mandate wholesale unbundling and that to get the level of competition you feel is necessary. We argue, yes it is.
5426 Then ultimately -- and if you were to do that, then the business decision for the cable companies would be, how do we provide the 6 Megahertz to competitors that the CRTC has required us to?
5427 We could take some of the channels that we currently use that are already digital channels, we could take some of those, decrease the number of pay-per-view services being offered, decrease, you know, some of the packages, you know, they could make that decision.
5428 As an alternative they could harvest some of their analog channels and make the analog service that they're giving away for free to their digital customers.
5429 They could make that maybe slightly less attractive, instead of having almost full -- or, you know, significant, you know, 60 or whatever channels there are on it, they could say, well, you're only going to get 25 for free for watching on your second and your third television.
5430 They could make that business decision.
5431 They could harvest all of their analog channels because they don't need the analog channels to do their primary digital television business which is their primary product to compete with the IPTV providers or the satellite providers because both of those guys are already digital.
5432 So, when Mr. Engelhart says, well, you have to convert every TV in the country, you know, and put in all these boxes, it's going to cost you a billion bucks, well, that doesn't sound like a very good business case. And of course you wouldn't want to do that and maybe you'd do something else.
5433 Maybe you'd instead decide that you have to alter your offer to the public.
5434 COMMISSIONER DUNCAN: Before I go back to Mr. Engelhart, can I just ask one question then of Mr. Mercia, because yesterday you of course had the experience dealing with the Cablecos, it appears you're the most experienced with TPIA.
5435 How many of these 6 Megahertz channels are you thinking is reasonable to expect, so that if there's 10 ISPs, or five years from now there's a hundred ISPs, how many of these channels -- I think you might have touched on it yesterday, it didn't have to be dedicated channels.
5436 MR. MERCIA: Can I just comment quickly on what Mr. Taylor said?
5437 COMMISSIONER DUNCAN: Sure.
5438 MR. MERCIA: So, I understand, I understood what he says, I just want to make sure it's clear.
5439 When you go buy a television it comes out of the box cable ready, you plug your coaxial in and it works and you're going to get about 40 channels.
5440 IPTV and satellite providers have to provide you with a modem and a decoder and that costs them, I think I heard from TELUS in one of these things, $400 per user.
5441 So, there's a huge advantage to the cable companies in not harvesting those analog channels because they aren't faced with these $400 in equipment expense per customer.
5442 I'm not going to comment on their business plan, I just wanted to make that point clear.
5443 The reason we positioned to the -- you know, the appropriate amount is because I don't really know the answer to that.
5444 DOCSIS bonding to make use of that, there have been submissions from competitors saying this is how many channels you're going to need. Our business model isn't to provide a full IPTV service.
5445 The DOCSIS, to make use of the DOCSIS spectrum or the DOCSIS technology would require three 6 Megahertz channels, that would be the way to fully utilize, but that isn't necessarily the case.
5446 A competitor with a small amount of users could use one and still provide sufficient bandwidth just because they have few customers.
5447 So, I can provide you a 50 Meg service over one 6 Megahertz line, not 50 Megs, say 38 Meg service over one 6 Megahertz channel and I can provide that to relatively, you know, hundreds of customers but only hundreds of customers.
5448 When I start getting into thousands of customers, I'm going to need more bandwidth.
5449 COMMISSIONER DUNCAN: Okay.
5450 MR. MERCIA: So, there has been submissions I think from QCIP, from TekSavvy on what would be required based on certain business models. I don't think that approach is exactly the right approach.
5451 I think the correct approach was what we propositioned was a proportionate amount to what they use for telecommunications services today.
5452 COMMISSIONER DUNCAN: Okay.
5453 MR. MERCIA: And we would have to find a way to make use of that, provided it's sufficient to create a service.
5454 COMMISSIONER DUNCAN: Okay. So, I'd like to go back then to Mr. Engelhart and just give you an opportunity to give us your comments on those remarks.
5455 MR. ENGELHART: I'll let Mr. Béland respond.
5456 MR. BÉLAND: Denis Béland from Quebecor Media.
5457 I would first like to say that we do not give away our analog TV service. Off the top of my head I believe Vidéotron alone has somewhere in the order of six to 700,000 analog TV customers.
5458 So, what's on the table here, what's being proposed is in effect a massive wide-scale customer disruption to purchase and distribute and install these digital conversion boxes to the six or 700,000 analog customers, all of this in order to permit the launch of a highly speculative, unproven, deployed nowhere in the world, experimental effort to unbundle 6 Megahertz cable network channels.
5459 That's what's being proposed here, let's not deny that.
5460 And even if we were to proceed with that massive province-wide, in our case, customer disruption, you still haven't addressed the issues that we addressed in our oral presentation yesterday regarding whether it's at all technically feasible to have separate management or even co-management of these 6 Megahertz channels from purely an equipment basis.
5461 We haven't addressed the issues we raised with regards to the economic feasibility of those models to the ISPs themselves, the inadequate utilization of their capital equipment that they would have to invest in, all of the connecting network spider -- spaghetti images we showed you yesterday.
5462 We haven't addressed whatsoever the upstream issue, because remember we made all this effort only to get them a few downstream channels. We've proven I believe beyond a reasonable doubt that there's no feasible way to give them any upstream channels.
5463 So, any advantages that would accrue in that respect haven't been demonstrated, we haven't shown that they're feasible.
5464 So, this massive disruption in order to launch ourselves into a speculative experimental channel unbundling arrangement that's been deployed nowhere in the world, at a certain point you need to question the sanity of the exercise.
5465 COMMISSIONER DUNCAN: Thank you, Mr. Béland.
5466 I think what I'll do is --
5467 MR. TAYLOR: Commissioner, can I just make one very brief comment?
5468 COMMISSIONER DUNCAN: Yes, sure.
5469 MR. TAYLOR: Basically from a policy perspective, what the cable companies are saying is -- and they wouldn't quite put it this way -- but they have a competitive advantage on the BDU side because they have both the digital network and they have the analog network and they don't want to lose that.
5470 So, they're saying from a policy perspective, protect our competitive advantage on the BDU side. And on the telecom side with respect to Internet, they've got a competitive advantage because they're not required to pay -- to put forward an analogous form of wholesale regime and they're saying protect our competitive advantage on the telecom side, you know, so that we can maintain that advantage as well.
5471 They want, from a policy -- the policy decision is, do you want a regime that protects the cable industry both in the BDU market and in the telecom market?
5472 I don't know why you'd make that choice.
5473 COMMISSIONER DUNCAN: Thank you. And, of course, everybody's going to have an opportunity again, so just so I can move on with my questions and then my colleagues also I'm sure have questions.
5474 I guess I'd like to turn to the ILECs. And, first of all, we've had a lot of evidence as to what next generation is or is not, and it appears to me that -- let me ask you if you're holding -- what you're holding, what your definition is of a next-generation service, if you're still considering fibre to the node, fibre to the home as next generation, or is it the service that's going to be delivered over those networks?
5475 MR. MERCIA: Are you directing that to me?
5476 COMMISSIONER DUNCAN: Actually, I'm asking --
5477 MR. MERCIA: Oh, sorry.
5478 COMMISSIONER DUNCAN: Mr. Bibic is ready, that's fine.
5479 MR. BIBIC: Mr. Bibic from Bell Canada.
5480 The answer is both, fibre to the node is a next-generation network, fibre to the home is a next-generation network.
5481 The services over which -- the services which we will deliver over those networks are next generation. IPTV is clearly the next generation, wireline TV, in fact it's the only generation of brand new method of delivering TV over telephone networks.
5482 The U.S. -- and I think this is very important, when the U.S. established its unbundling rules for next-generation networks -- sorry, when the FCC established its unbundling rules for next-generation networks, it specifically treated fibre to the node the same as fibre to the home.
5483 And I can certainly -- I knew when we appeared here on the first day, and this is why I specifically put in my opening statement the point, or I read out the point that the competitors would come before you this week and tell you that this is just the same old thing we've been doing for years and it's not.
5484 And I think it's rather unfortunate that an allegation was made yesterday that we are, you know, misleading for example. Because when I went through the diagrams with the Chairman on the first day about, you know, DSL being delivered over copper, what I was trying to do was kind of break things down into very understandable bite-size notions so we could have a conceptual understanding.
5485 Sure there is fibre that's been built to nodes in the past by Bell, but that's a completely different endeavour.
5486 When we pushed out fibre into nodes in the past, it was in this context. No. 1, our loop lines would remain at three to five kilometres, in other words, our speeds would always be, you know, up to 7 Megs. That's legacy.
5487 Secondly, we would do this in the past in new areas that we were going to and, in that environment, well, we got all the voice business and we got certainly more of the Internet share than we do now.
5488 These networks that we're talking about today are complete overlay networks. We're actually going back and we're building new fibre, upgraded fibre deeper into the neighbourhoods in areas where we already have network.
5489 And this is the most important point, in a competitive environment where we can't have -- be guaranteed of anywhere near the share we would have 10 years ago or five years ago, and I won't read it because it s confidential, but I urge you, Commissioners, to read the undertaking response we filed yesterday, in fact, it was in response to, Commissioner Duncan, your question about clarifying with staff some of the assumptions that we made in our business case.
5490 You will see there the penetration that we managed to secure in places like Ottawa -- penetration and market share. I think you will be surprised at what those numbers are.
5491 COMMISSIONER DENTON: Just for clarification for my purposes, then, the fibre that we are talking about that has been rolled out over the last 10 or 15 years, a lot of it is being upgraded. So you can deliver with greater capacity, I gather. So you can deliver your IPTV service right to the home.
5492 MR. BIBIC: Correct. In the past you could go from the central office, in new areas, with fibre to a node, and then copper to the home. That copper would be 3 to 5 kilometres long.
5493 As I showed in the diagram in the opening statement, we do two things now. We push the node deeper into the neighbourhood, so that the loop length is about 1 to 1.2 kilometres, which allows for the speeds we are talking about.
5494 The second thing is, we are upgrading the fibre from the central office to the new node, to allow for greater capacity.
5495 So it's a complete overlay network.
5496 COMMISSIONER DENTON: Just for process --
5497 THE CHAIRPERSON: That was just for the process. The questions are supposed to go to what Cybersurf and Distributel said, if they gave rise to anything in your mind.
5498 We are going to have to deal with Mr. Bibic at the end of the hearing --
5499 COMMISSIONER DENTON: Okay.
5500 THE CHAIRPERSON: -- and the other ILECs.
5501 So it's just what was presented this morning. It is to use that in order to clarify whatever is left.
5502 COMMISSIONER DENTON: Okay. I think, then, that I will let my colleagues go, because you have both made your points clear, and we will ask the questions of the others when we come to them. Thank you.
5503 THE CHAIRPERSON: Marc, do you have anything?
5504 COMMISSIONER PATRONE: Thank you, Mr. Chair.
5505 I am going to try to paraphrase Mr. Mercia's arguments without the benefit of his notes -- and you can correct me, Mr. Mercia, if I don't paraphrase your arguments correctly.
5506 I believe you argued that the ILEC position amounts to a threat, as far as its deployment of NGN networks is concerned -- next-generation networks -- which confirms the market power of the facilities-based providers.
5507 Is that correct?
5508 Does Bell want to address that?
5509 MR. BIBIC: Yes.
5510 MR. MERCIA: Yes.
5511 MR. DANIELS: Thank you, Commissioner. This is Jonathan Daniels from Bell Canada answering.
5512 From our standpoint, our response is that we have never discussed it in terms of that, we are just describing the reality of our business decision-making; not that all build-outs would stop, but that the nature of the decision that could be made by this Commission will impact our decision-making.
5513 That is just the reality on the ground that we are explaining. So, I don't appreciate that characterization, but that's our position.
5514 COMMISSIONER PATRONE: And the degree to which it will impact the build-out will vary, according to regions of the country or markets?
5515 MR. BIBIC: Absolutely.
5516 You have two cities, like Montreal and Toronto, and FTTN is done.
5517 And if we are candid, I think you would be quite accurate to think: Well, they are going to have to do Montreal and Toronto, think of the number of people there.
5518 But there are two things. One is, the rules may slow the deployment of fibre to the home in these two cities, since we already have fibre to the node. That's one.
5519 But, two, what it will do is, it will slow the pace of deployment of either fibre to the node or fibre to the home in the smaller and mid-sized centres, for sure.
5520 I think Mr. Cope said that our returns wouldn't be optimized with these forced access rules. Would deployment absolutely cease? No, it will be slowed down, and in some cases it will cease, and I think the first places to drop off would be the smaller centres.
5521 COMMISSIONER PATRONE: Is it fair to say that, as you slow down the build-out, assuming that what you say is correct, the cablecos would basically have a further opportunity to increase their penetration in the various markets, as they have already done?
5522 MR. BIBIC: They are already done.
5523 COMMISSIONER PATRONE: I realize that, but I guess what I am saying is, if you are slowing the rollout of your next-generation networks, then the pace of that market penetration by the cablecos will continue, I guess, at a faster rate, being that they wouldn't have to compete against your next-generation networks.
5524 Is that fair?
5525 MR. BIBIC: Yes, and that was built into the business cases that we filed with the Commission.
5526 COMMISSIONER PATRONE: Mr. Mercia also says that competitors do in fact build out facilities.
5527 MR. MERCIA: I quoted from an OECD report, yes.
5528 COMMISSIONER PATRONE: Right, as outlined in various economic studies, i.e., Berkman, OECD, which also state that there has been downward pressure on prices to consumers, improved quality, and that, hence, Bell and TELUS' dampening argument, according to Mr. Mercia, does not apply.
5529 Do you have any response?
5530 MR. BIBIC: I think I have two responses.
5531 I am not sure that I follow the argument entirely, but my first response would be that -- I hope this doesn't come across as glib, but there are some fatal flaws in the OECD report and in Mr. Benkler's Berkman report, and that's why we filed the letter that we wrote to Mr. Benkler, because what is particularly germane to this hearing are his assumptions about unbundled loop pricing in Canada.
5532 The second point is -- I think that we have filed -- it is easy for an ISP to come forward and say that, of course, Bell will invest, but the point is, you have to look at the evidence, and we filed, really, reams of evidence showing the impacts of forced access on the financials for four cities.
5533 We took a large city, we took a mid-size city, London -- a large city would be Ottawa -- and we took two small cities, Joliette and Sorel, and we tried to show how we actually assess a business case internally, and you will see the impacts of forced access on the return on investment, and it will have a dampening effect.
5534 COMMISSIONER PATRONE: Yesterday there was an argument made about the capacity of the ILECs to secure capital, and I believe the argument was made that they have had no real difficulties in doing that in this regulatory environment, and that that won't change going forward, regardless of whether access is provided on next-generation networks.
5535 MR. BIBIC: That argument is tantamount to saying that Bell and other ILECs have lots of money, so they will spend it.
5536 I think the best answer to this was actually given by Mr. -- I believe it was Mr. Spadotto of TELUS. He gave a great answer, and it's the right answer, and it's this.
5537 We have to answer to our shareholders. The capital markets expect us to operate within a particular range, in terms of capital intensity -- so the amount of CAPEX we spend as a percentage of the revenues we generate -- and that's around 16 percent.
5538 What you do is, you project what you think your revenues are going to be for the year, you apply the CI ratio -- call it 16 percent -- and that determines your capital envelope.
5539 And your capital envelope is fixed, you can't just willy-nilly spend as much as you want. You have to be disciplined in your CAPEX allocation.
5540 So you have your budget, and now you allocate your budget amongst projects, and you are going to allocate that budget to the projects with the biggest bang for the buck.
5541 So you might do Montreal and Toronto for fibre to the home and fibre to the node, and you will pick some other cities, but when you get to the bottom and you start running out of money, this is what is going to happen. Your last dollar, are you going to put it into long-term evolution, the next wireless project in a particular city, or are you going to build fibre to the node in Magog, Quebec?
5542 That's where your choice comes, and that's where the decisions get difficult, and that's where, when you get to those last dollars, trade-offs have to be made, and forced access will have an impact, given the results it has on the financials.
5543 So that's how we actually approach it in the business.
5544 COMMISSIONER PATRONE: Okay. And if the trade-offs include a slower rollout of next-generation networks, then obviously that is going to play into the revenue side of your equation, which then factors, once again, into your ability to secure capital for further investments.
5545 Is that fair?
5546 MR. BIBIC: Yes.
5547 COMMISSIONER PATRONE: I have a couple more things to raise from Mr. Mercia's presentation before I hand off to my colleagues.
5548 Why should marginal competition, as in a duopoly, be acceptable to anyone, including the government -- and Mr. Mercia cited the recent Spectrum auction as an example -- and/or consumers, who are looking for the kind of value that only a truly competitive market can provide?
5549 Have I summed up your arguments correctly on that count?
5550 MR. MERCIA: Yes.
5551 MR. BIBIC: Thank you for the question.
5552 I think this gives me an opportunity, Mr. Chairman, to also respond to your first question to me, which I didn't, with respect to this quote from Distributel, so I will deal with both in one shot.
5553 What we were trying to say in our February 8 submission, which Distributel quotes, but only in part -- and I admit that the part they parsed is not the most elegant, but what we were trying to say is that forced access may lead to more players in the market, but if we don't invest, as rapidly or at all, product choices and innovation will be stymied, and we referred specifically to IPTV.
5554 So the parts that Distributel didn't include in the quote, because it starts with "..." -- the "..." excised the specific reference to our IPTV investments, that being an innovation that we would not be able to bring into the marketplace in every location we want to with forced access.
5555 What the quote also doesn't provide is the part in the next paragraph -- and it comes down to this. We say:
"Vigorous competition is much more likely to evolve between full facilities-based competitors who control their own network and who bear the direct consequences of their ability to recover, or not, their network investments than from 'me too' entities that take none of the investment risk."
5556 Ultimately, what we are trying to say, Commissioner Patrone -- and this is a direct response to your question -- is: We don't define competition by the number of players.
5557 You can have vigorously competitive markets with two, three, four, five players; you don't define it by -- a market with twenty competitors isn't necessarily more competitive than one with five.
5558 COMMISSIONER PATRONE: I am going to raise the symmetry argument, which Mr. Mercia also raised, and I believe his point was that identical applications of TPIA and ADSL are not necessarily practical, nor should they be necessary.
5559 In other words, you shouldn't necessarily have to insist on exact symmetry in order to have unbundling of NGNs.
5560 MR. BIBIC: I would agree that symmetry doesn't always dictate exact equality, but where you can have equality because of technical reasons, the rules should be equitable.
5561 There is a difference between saying, you know, we are going to unbundle -- we are going to require a point of interconnection deep in the network, versus we are going to require interconnection at each cable head end.
5562 By the way, I don't think that's right, but I am just trying to give an example.
5563 There is a difference between that and then saying, "Okay, once we have determined the extent of the unbundling and where --" there are all kinds of trappings -- you know, regulatory trappings that come with these rules, like restrictions on use.
5564 Those restrictions on use -- and I will cover them tomorrow because I don't want to take too much of the time here -- there is no reason for those restrictions. Those restrictions on use aren't technically based.
5565 So I think what I would say to you, Commissioner Patrone, is this. You have to be as equitable as possible on the technology, but once you have decided the extent of the unbundling, then you have to take a look at all of those other rules that have nothing to do with technology and make sure they are equal.
5566 Now, that having been said, I don't think that either the cable networks or the telco networks should be unbundled, but you understand our position on that.
5567 COMMISSIONER PATRONE: Did you agree with the cable gentleman's argument about symmetry being difficult as long as the business footprint by the cablecos remains as it is?
5568 In other words, it's a disincentive to go with TPIA, because if you access the telco networks, you get access to both the business and the residential side of the business.
5569 MR. BIBIC: The evidence you heard from the cable companies yesterday on that issue is completely false.
5570 You have the numbers, and I think that the Chairman and Commissioner Molnar certainly started exploring it, but here are the facts.
5571 Eighty percent of our GAS users are residential, so only 20 percent of our GAS users are business users, number one. So GAS is a residential product.
5572 The restrictions on use that cable enjoys, that we don't, have nothing to do with a business footprint, nothing.
5573 So 20 percent of our GAS users are business users. Eighty percent of that 20 percent, so the vast majority of our GAS business users, have only 1 to 4 lines.
5574 What does that mean? That means they are small-business users.
5575 And cable says that they don't have a business footprint. Well, how come, when I sat at my kitchen table Tuesday morning before coming to this hearing, out dropped from my Globe and Mail -- in Ottawa -- out dropped this flyer from Rogers -- it's red -- and it says: "Smart solutions for every small business."
5576 The back page says: "Hi-speed Internet solutions for small business."
5577 Interestingly, it says: "Download speeds up to 30 megs."
5578 You can't get 30 megs off a telco network, so this is not their Call-Net profile, this is the Rogers Cable footprint.
5579 So the story doesn't hang together.
5580 The fact is that that was given as an excuse to justify the restrictions on use, and we don't have those restrictions on use, and we should.
5581 I would make another point. TELUS today has one GAS tariff, and it applies for residential and business. So does Bell Aliant, one tariff that applies for residential and business.
5582 There is no reason why the Rogers TPIA service can't be used for business, and that is not a justification for the restrictions on use.
5583 COMMISSIONER PATRONE: In fairness to the cablecos, Mr. Chairman, can I give them an opportunity to respond?
5584 THE CHAIRPERSON: They are next; don't worry, they will respond.
5585 COMMISSIONER PATRONE: Fair enough. Then I will pass it back to you.
5586 Thank you for your responses.
5587 MR. MERCIA: Mr. Chairman, could I make some clarifications about what Mr. Bibic just said?
5588 THE CHAIRPERSON: Keep it short.
5589 MR. MERCIA: Okay.
5590 First of all, when they said that the OECD study and the Berkman report were flawed, from what they have provided, their contention with those reports is that the per megabit price and top speeds that OECD reported were, in their view, flawed.
5591 I don't think there is any contention that fibre build-outs by competitors reported by the OECD are flawed or incorrect.
5592 Also, their argument has to do -- they said that they weren't threatening to withdraw or withhold investment based on the outcome of the hearing. However, what I heard from them -- and I don't know which lady it was who said it -- was, if we don't build it, no one will. And I don't know how somebody is supposed to take that.
5593 The question of dampening investments is in relation to their investments, and what the OECD shows is, yes, there is going to be a retraction from the ILEC, but in a properly regulated, costed market, competitors will pick up those bills.
5594 So, overall, we are seeing more investment in the sector, perhaps less investment from the incumbents.
5595 But that's what is supposed to happen. The pie is only so big, and everybody has to cut it up into pieces.
5596 So I think that, in this environment, Mr. Bibic is absolutely correct. If they don't build it, there isn't any access service right now that is economical enough that a competitor may step up and build into residential.
5597 We are seeing competitors build in the business markets, because the loop lengths are shorter, the fibre is more ubiquitous, and the revenue is more attractive. We need to create that sort of dynamic in the residential markets.
5598 THE CHAIRPERSON: Len...
5599 COMMISSIONER KATZ: Thank you.
5600 I just have one question for you, Mr. Mercia.
5601 I think you mentioned that Videotron is the only player in Canada that really has a truly available and supportable TPIA service.
5602 MR. MERCIA: That is my understanding from discussions with Videotron. I don't want to quote, it's best for Mr. Béland to answer, but I believe that they have far more wholesale customers than all of the other cable companies combined, and I relate that to the fact that, when we first approached them, they were receptive to the idea of wholesale.
5603 Before the tariff they were re-selling -- to my understanding, before there was a tariff -- and they also negotiated access arrangements with us.
5604 COMMISSIONER KATZ: Let me take that one step further. If that is the case and they see a viable business for this opportunity, for this arrangement, why wouldn't their competitor, Bell for example, not at some point in time say: If they can make money on this and build their distribution, why can't I?
5605 Wouldn't natural competitive juices cause them to do that, without necessarily needing a regulator to force that upon them?
5606 MR. MERCIA: I think I also stated that Bell actively wholesales their GAS product, too. I have never had any issue getting services -- getting interest from Bell to make a sale. The question comes over control of the service, QoS, managing policies and being able to define your service. That doesn't exist in the market.
5607 And that dampens investment from competitors, because no matter how you cut that, a competitor may sit back and say: Hey, this is good enough. Give me matching speeds and we are good.
5608 Or, a competitor like us and Distributel would like to go and build and define our own service.
5609 COMMISSIONER KATZ: Thank you.
5610 THE CHAIRPERSON: Candice...
5611 COMMISSIONER MOLNAR: Mr. Mercia, we heard in response to the request for 6 meg that it's a massive customer disruption, that it may not be feasible -- you know, earlier -- and, I'm sorry, I missed who was responding.
5612 The other point they made was that it is all for something that is speculative. It is speculative whether it can be technically feasible at the end of this, because it has never been attempted, but it is also economically speculative.
5613 So it's, you know: If you build it, they will come.
5614 I wondered if you have filed on the record of this proceeding -- and I am going to admit that I don't know everything on the record of this proceeding. Have you established a business plan that would show how, with a 6 megahertz channel, you would have a viable business plan, and what costs are required in the varying components of your network to have a viable business plan if the 6 megahertz channel was made available?
5615 MR. MERCIA: We do have a business plan. As I mentioned to Commissioner Duncan, we have sort of fished for financing on a video-on-demand service, and I could submit it. It wasn't put on the record; it would be submitted in confidence.
5616 On the technical feasibility of the service -- I don't think that Mr. Béland was here yesterday when we discussed the issues that he raised.
5617 The other thing, too, is that it sort of speaks to the exaggeration of the problems, that the cable company keeps coming back.
5618 I don't think that the Commission, or anybody, expects that they are going to unbundle and then, willy-nilly, everybody is going to go without trial testing, and whatever is necessary, to make sure that it's stable and doesn't affect their service.
5619 I would point out that in TPIA right now, just to get a cable modem approved, a DOCSIS standard modem approved, requires all kinds of testing to get approval from the cable company.
5620 COMMISSIONER MOLNAR: Right. Sorry, just to be clear, you said that you do have a business plan?
5621 MR. MERCIA: Yes.
5622 COMMISSIONER MOLNAR: If that business plan could be submitted, in confidence, with all of the assumptions clearly defined, so we can understand what pricing assumptions are built in, as it regards the cost of your underlying facilities that you are assuming, you know, you can get your network built at --
5623 MR. MERCIA: Yes.
5624 COMMISSIONER MOLNAR: -- as well as the customer adoption that you would expect --
5625 MR. MERCIA: Absolutely, we have that built. I can submit it.
5626 COMMISSIONER MOLNAR: Thank you.
5627 THE CHAIRPERSON: Before we break, Bell, I have now the benefit of the February 20 submission and the entire paragraph, and you are right, it is shortened and it takes it slightly out of context.
5628 But it does mention IPTV only as an example, it is not restricted to IPTV.
5629 Essentially, the tenor of the paragraph is that there is a choice between innovation and competition, and that we have to make a choice. We have to be clear that if we want major new innovation, you can't have a competitive market.
5630 That's how I read that paragraph clearly. Therefore, my original question to you -- I don't think that is your position. I haven't heard it expressed this way.
5631 So I want to give you an opportunity. Is this paragraph an unfortunate reduction, or is this your position?
5632 MR. BIBIC: I start from the very first sentence of 65. We are now at a stage in this argument, because we are on page 19 of the submission, where we say: Even if you find that access to our networks, somehow, is essential -- so we start from the premise that we don't agree --
5633 THE CHAIRPERSON: Yes.
5634 MR. BIBIC: -- then we are asking you to consider, if we do not build because of the dampening on the investments, is that really going to lead to innovation?
5635 So it may be at the expense of some of the ISPs -- I don't know, I suspect it might be -- but the choice is, do we want to continue to protect the small ISPs, rather than let the marketplace dictate how the ISPs are going to find their way through commercially negotiated wholesale arrangements.
5636 So, do we want to continue to protect competitors, or allow for the further investments that we want to make, and all of the innovation that that is going to lead to.
5637 THE CHAIRPERSON: Okay. Thank you.
5638 We will break now for five minutes, and then we will start with the cable companies.
--- Upon recessing at 1025
--- Upon resuming at 1039
5639 THE SECRETARY: Order, please. A l'ordre, s'il vous plait.
5640 THE CHAIRPERSON: Before we proceed, two things. I noticed you have given us written remarks and so did Distributel this morning. That is very helpful, it makes this process work much smoother. And I would encourage everybody else to do that. Secondly, we will break at 12:00 today, just so you know, and hopefully we will be done with cabelcos for now. But if we need more time, we will do it after lunch. Okay?
5641 So now over to you Madame Secrétaire.
5642 THE SECRETARY: Thank you, Mr. Chairman.
5643 We will now proceed with the joint presentation by Cogeco Cable, Quebecor Media Inc. (Videotron Ltd.), Rogers Communications Inc., Shaw Communications Inc., and Bragg Communications Inc. (Eastlink Cable Systems).
5644 Please introduce yourselves for the record and please proceed with your 40-minute presentation.
5645 MR. BÉLAND: My name is Dennis Béland from Quebecor Media. Mr. Chairman, Commissioners, Commission Staff, our reply comments today will be brief. We will address three areas: restrictions on LANs and VPNs, POI aggregation, and claims regarding the feasibility of a dedicated 6 MHz channel.
5646 First, we would like to address the so-called restrictions on LANs and VPNs. We have examined this matter in detail and we believe that our practices are symmetrical with the phone companies.
5647 First, let me explain what we mean by a LAN or VPN in this context. Take, for example, a business customer that has three offices, each with an internet service that wants to establish a connection, a virtual private network, or VPN, between these offices. There are two ways of doing this. First, the business customer could buy a device that could connect the offices over-the-top. Second, their service provider could enable the VPN connection through its own equipment.
5648 The cable carriers do not restrict customers, either retail or wholesale, from the first type of connection. We are not even able to detect whether this type of connection is being used. However, our own DOCSIS equipment is not currently capable of delivering the second type of connection.
5649 There is no restriction on LAN or VPN service as part of our wholesale or retail offering. Rather, we do not offer LAN or VPN service as part of our internet service. The tariffs of Rogers, Shaw, Cogeco and Persona state that we do not "support LAN or VPN Service." That is to say, they do not prevent customers from enabling this functionality, but they do not provide it as part of their service.
5650 The Videotron tariff contains no statements about LANs or VPNs. Bell HSA and GAS tariffs also do not prevent over-the-top connection. However, unlike our current DOCSIS equipment, ADSL equipment can offer a LAN or VPN to the end customer.
5651 In summary, neither the telephone companies nor the cable carriers restrict customers from providing their own LANs or VPNs. DSL can offer a type of VPN or LAN service that cable equipment cannot currently.
5652 It seems that this issue has generated a lot of confusion and concern. The cable carriers are prepared to remove the words from their TPIA tariffs.
5653 Second, we would like to address the issue of POI aggregation. The Commission asked Distributel for its views regarding TPIA versus ADSL wholesale offerings. Mr. Cohen replied that while it would be nice to serve business customers, the key point of difference was the lack of POI aggregation for TPIA.
5654 We would make four points in this regard. First, Distributel paid a sizeable amount for Cybersurf's TPIA customers, so it appears that the lack of POI aggregation was not a barrier to them. Second, Mr. Cohen gave some rough numbers, that if 400 customers were served from a single POI with a $2,000 backhaul charge per month this in effect was an additional $5 per month per customer.
5655 We would note that many Rogers POIs, for example, serve 200,000 homes and that, with such a large base of homes, it should not be difficult for a third party to get more than 400 customers, which would lower the per-customer cost.
5656 Third, we would note that some cable carriers have provided on POI in Quebec and one POI in British Columbia. They do not have significantly more TPIA end users than provinces where there is less aggregation. Therefore, having a single POI per province does not significantly affect the take-up of TPIA.
5657 Fourth, the cost of reconfiguring the Rogers network to provide a single POI would be several millions of dollars, as noted in the response to Rogers CRTC-23April10-1. We doubt that this cost could be recouped from incremental revenue from third-party ISPs.
5658 Finally, there were comments from Mr. Mercia and Mr. Taylor about the 6 MHz channel. Mr. Mercia's comments reflect a lack of understanding of the cable architecture and have been, we believe, extensively addressed and refuted in our interrogatory responses and expert evidence.
5659 In our final argument we will cross-reference our responses to or otherwise address each of Mr. Mercia's points.
5660 Mr. Taylor argued that the spectrum problem could be addressed by harvesting analogue channels. The problem with this argument is that cable companies or their customers would need to buy a digital box for every television in the home that does not have a digital box today. The cost of doing so, plus the cost of associated network modifications would be approximately $1 billion for all of the cable homes in Canada.
5661 Moreover, even after these expenditures were made the problem of upstream bandwidth limitations remains and the other provisioning operations, management and cost problems we identified remain.
5662 We thank you for the opportunity to respond to these points and we would be happy to answer any further questions you may have.
5663 THE CHAIRPERSON: Thank you for your presentation.
5664 First of all, let me tell you I very much appreciate you trying to put this in language that I can get my head around and refrain from using technobabble. So I actually did understand what you said this morning, which is very helpful.
5665 On this whole point of LAN and VPNs, you say you are willing to remove this from the TPIA tariffs. So you are basically suggesting this has been a misinterpretation by third parties, that they cannot run LAN or VPN on it. You don't offer it, but they can run it on the TPIA that they rent from you, if I understand you?
5666 MR. BÉLAND: Yes. It was actually some surprise to us that this issue attracted the attention it did. And I think the best way to express our position is that we have a current limitation in our DOCSIS equipment where we are not currently able to actively support the provision of these services, not even to our own retail customers.
5667 But we do nothing and we are prepared to commit to doing nothing to prevent either our wholesale or our retail customers from purchasing their own off-the-shelf equipment that will allow themselves to equip these sorts of services on an over-the-top basis.
5668 THE CHAIRPERSON: What are we talking about here when you say, "First, the business customer could buy a device that could connect offices over-the-top." Is this standard equipment? Is this a major expense? I have no idea. You say it is possible, but is it economically feasible, rational or not?
5669 MR. BÉLAND: Yes. It is over-the-shelf sorts of equipment. My understanding is it is not terribly expensive equipment. In fact, it is precisely the sort of value-added opportunity that I think some of our TPIA customers have expressed a willingness to fulfil.
5670 THE CHAIRPERSON: Can I hear from Distributel or Cybersurf or one of those third parties, their position on this? Is this a generally accepted correct statement of the situation or not?
5671 Go ahead. Identify yourself please.
5672 MR. CAVANAGH: It is Don Cavanagh from Distributel.
5673 Yes, we would concur with that. It is an over-the-shelf box that could be used for VPNs. We don't see any issue with that. There certainly are technical limitations in the TPIA to do the second situation where the service provider is attempting to create the VPN network. It can be done on the ADSL aggregation service, but not on the TPIA.
5674 THE CHAIRPERSON: Okay. And the gentleman over here on the right?
5675 MR. HAY: Roger Hay from TekSavvy.
5676 I was going to say the same.
5677 THE CHAIRPERSON: Thank you.
5678 Secondly, on the points of interconnection I asked each one of you specifically yesterday in terms of whether you are offering the same kind of interconnection to third parties as you offer to yourself.
5679 And I asked Cogeco. Mr. MacFarlane said, "For Cogeco, we have several interconnections in each province for the internet and it does not mirror the same way we interconnect with the TPIA."
5680 That was the clearest answer I got.
5681 Don't, frankly, Mr. Engelhart, know whether you offer the same one or not, I couldn't figure it out, out of the answer. The whole idea being that you should re-service on the same basis that you serve yourself, et cetera.
5682 And from the answer this morning, Mr. Béland, you are making a cost argument, but I am not sure whether each one of you offers the same types of interconnection to third parties as you offer to yourself. And if not, why not?
5683 For instance, Cogeco, you specifically said, "It doesn't mirror." Why doesn't it mirror? Or let me put it differently, if it doesn't mirror, doesn't it automatically provide a disadvantage to a TPIA user?
5684 M. MESSIER: Je dirais à ce propos que nous fournissons le service TPIA en conformité avec le tarif qui a été adopté par le Conseil.
5685 Dans ce tarif -- parce que les discussions ont eu lieu il y a plusieurs années -- nous avons offert le service sur une base de 40 POI disponibles.
5686 LE PRÉSIDENT: Est-ce que ce n'est pas un problème pour les acheteurs de séries chez vous?
5687 M. MESSIER: Il y a certains de nos clients qui sont venus -- nos clients TPIA. Plusieurs opèrent sur une base très régionale et sont satisfaits de ça.
5688 Certains POI peuvent être opérés sur plusieurs POI, mais comme nous avons fait état depuis qu'on est ici, les services pour relier ces POI sont offerts sur le marché sur une base concurrentielle.
5689 Donc, pour nous, nous opérions en conformité avec le tarif. Nous opérons -- rien n'empêche aucun de nos clients de pouvoir relier ces POI et de couvrir le même territoire.
5690 LE PRÉSIDENT: C'est une autre question. Rien n'empêche. J'ai demandé pourquoi vous ne fournissez pas à vos clients la même chose que vous faites pour vous mêmes?
5691 THE CHAIRPERSON: Mr. Engelhart or Mr. Faccia, what is the story at Rogers?
5692 MR. FACCIA: In our network we have an interconnection between the access network where the TPIA service is provided and our residential access is provided on the CMTS. So from each CMTS we interconnect into the Rogers' core IP network.
5693 So in that sense, the interconnection point that we are offering TPIA is identical to Rogers. And so we are handing off a POI interconnection from a third-party internet provider into their IP network. And for our retail service we are interconnecting our access in CMTS into our IP core network at each head end.
5694 That core network, within Rogers, interconnects all of our head-end locations. And as I explained yesterday, we then interconnect with other providers and with some providers that provide us access into the worldwide web at several points in our core network.
5695 But from the perspective, the access service, I believe that we are inner connecting in a similar fashion for TPIA and retail.
5696 THE CHAIRPERSON: We are dancing here and I don't understand. My issue is very simple. We are obviously keen on seeing a certain amount of competition and we have made the decision in the essential services that one way of fostering that is to see that there is a resale; we provide it for the resale and we made it conditionally mandated nonessential, and that is the TPIA.
5697 We want to make sure that that is being used and can be used. It only makes sense to use it if the third party who buys it basically faces the same situation as you in terms of technical access. The point that has been made with us, is are there too may points of interconnection, et cetera?
5698 I cannot believe that you have -- and what I am trying to find out is whether a TPIA user faces the same technical problems that you face or not. You talk about a core network which obviously connects all of this, et cetera. So if you have that core network, why couldn't there just be one point of interconnection? Why would this require millions of dollars of investment?
5699 There is a disconnect for me here and please enlighten me.
5700 MR. FACCIA: Okay. So we have provided on a commercial basis those backhaul services used for aggregation by a TPIA customer of ours. And in order to provision that there are costs that we incurred to upgrade or update our network to allow for that type of connectivity.
5701 And then there is capacity that is utilized on the core network where we have made investments to interconnect on fibre, transport facilities and so on, the equipment required to interconnect all of our head ends, which is capacity that has got to be set aside for use by the ISP. The costs for us to do this, overall, on our network have been filed, filed in confidence.
5702 THE CHAIRPERSON: So is this a question of the tariff not reflecting your cost?
5703 MR. FACCIA: Sorry?
5704 THE CHAIRPERSON: Is this a question of the tariff not reflecting your costs? Is that what you are saying?
5705 MR. FACCIA: Yes, we are saying that the costs in our current tariff do not cover the incremental costs that we would incur to interconnect all of our head ends and to provide a single POI. The costs to do so have been filed in confidence just recently on CRTC-23April --
5706 THE CHAIRPERSON: Okay. But then we have the obverse of this is if we ordered you to offer a single point of interconnection, you say it would trigger revision of the tariff?
5707 MR. ENGELHART: Yes, it would. And, you know, the TPIA provider in London would now be paying a higher rate to connect in Toronto, and he didn't want to connect in Toronto, he wants to connect in London. So as Mr. Messier said, it is a problem for the regional TPIA providers.
5708 THE CHAIRPERSON: Okay. Could I hear from TekSavvy or Cybersurf or Distributel on this point? Is this point of interconnection, and what you just heard from Rogers -- a) is it a problem; and b) do you share Rogers view that this would trigger -- if we ordered it, would it necessitate an adjustment of the tariff?
5709 MR. MERCIA: It is Marcel Mercia from Cybersurf.
5710 I think what they are saying is that it would be a problem through the negotiations that took place 10 years ago; ISPs were looking for regional connections because they typically serve single markets. But that doesn't do anything to help larger ISPs like Cybersurf, Distributel, TekSavvy who would require multiple markets, and market to multiple markets.
5711 I think the key issue is the capacity of the backhaul that the cable companies permit at only 100 megs, that would also have to be addressed. Because you can serve very few customers on 100-meg interconnection when you are selling a 25 and 50-meg service.
5712 So I can't speak for every ISP, but it was a significant -- we did drop many secondary markets access because there was just too much costs involved in interconnection for the expected amount of market that we were anticipating we could secure.
5713 THE CHAIRPERSON: Go ahead.
5714 MR. MARC GAUDRAULT: Marc Gaudrault from TekSavvy.
5715 As far as I understand your question is, is the cost of the backhaul currently in the TPIA tariff? Is that..?
5716 THE CHAIRPERSON: Well, did you agree with the representations that Mr. Faccia from Rogers just made? And are there any --
5717 MR. MARC GAUDRAULT: I don't agree that it would cost a lot. Their network is already built. As far as the pricing of the current TPIA, as far as I know, it is not cost-based, it is cost plus unknown mark-up.
5718 So I would say that, you know, the aggregated TPIA would need to be reworked in such a way. And as far as I am concerned, the prices are way too high right now.
5719 So there it is.
5720 THE CHAIRPERSON: Okay. Thank you
5721 M. MESSIER : Monsieur le Président?
5722 LE PRÉSIDENT : Oui.
5723 M. MESSIER : Si je peux ajouter, l'instance présente a débuté sur la question de fournir un service qui était en fonction des têtes de ligne.
5724 Le service qu'on a dans notre -- tout l'ensemble des POI qu'on a dans notre tarif reflète en général, plus probablement quelques-uns qui devraient être ajoutés.
5725 La question que vous posez est maintenant une nouvelle question pour nous. Ça n'a jamais été une exigence jusqu'à maintenant. On s'est toujours conformé au tarif. Et la toute la question du backhaul, des liens qu'on peut fournir pour relier ces POI, était dans un marché déréglementé.
5726 Donc, on a toujours agi en conformité.
5727 Maintenant, si vous demandez de réorganiser la question des POI... Nous avons aussi déposé nos estimés. Dans le cas de Cogeco, il est clair qu'il faudrait implanter deux POI par province. Ce serait des coûts supplémentaires.
5728 Pour des raisons techniques qui sont expliquées dans la réponse que nous avons fournie, il faudrait aussi avoir un choix entre les deux. Nous ne pouvons pas fournir et les POI régionaux et un POI provincial.
5729 Donc, il y aurait des coûts supplémentaires qui se refléteraient dans le tarif, étant donné la faible base de clientèle que nous avons.
5730 THE CHAIRPERSON: Okay.
5732 MS MacDONALD: I just want to clarify that in the case of the Persona TPIA service we don't actually have interconnection between certain locations so we would actually have to lease separate backhaul facilities from third parties in order to provision that kind of transport.
5733 THE CHAIRPERSON: Do you do that for yourself now? Do you lease third-party transport in order to --
5734 MS MacDONALD: We lease to the extent we need to to provide our service.
5735 THE CHAIRPERSON: Okay. I think I have -- as I say -- the whole purpose of this exercise is to understand the different positions, I'm not trying to find a resolution on it.
5736 But at this point, for instance, Mr. Cope came in here and said symmetry is absolutely important, et cetera, and I'm trying to figure out what would be the implication of symmetry and I think I have a bit of a feel of what the implications are.
5737 MR. WATT: Just to be absolutely clear, and I think you do understand it now, but just to categorically state there is absolutely no cost for backhaul were included in the costing study that underlie Rogers current TPIA tariffs.
5738 THE CHAIRPERSON: Yes. You made that point twice now. I got it.
5739 THE CHAIRPERSON: Tim... ?
5740 COMMISSIONER DENTON: Good morning, gentlemen. I'm going to be a little tendentious.
5741 The basic proposition I hear of this hearing is that the telcos are seriously concerned for their future; cable is, at least in this decade and maybe for the next, triumphant; investments need to be made in order to stay abreast; and, in particular, the proposition that is emanating from both the telco and cable is let's just kick the hell out of the small competitors because they are a nuisance.
5742 And more than that, we hear from Mr. Engelhart, at page 695:
"In such a competitive market, there is no requirement for regulatory intervention in the wholesale market. Mandating wholesale access is contrary to the government's policy direction and the Commission's framework for essential services."
5743 And later, in the same presentation yesterday, Mr. Brazeau:
"Mr. Chairman, there is no public policy rationale for a further mandated wholesale Internet regime.
The Commission should achieve regulatory equity and symmetry only by deregulating wholesale access requirements for both the cable and telephone companies."
5744 So at least the two of you are agreed on one thing, which is basically crush the weak, feed the strong, that's natures way, don't tell me it's wrong.
5745 MR. BRAZEAU: Is that the weak?
5746 COMMISSIONER DENTON: Yes. Yes. They who are about to be devoured applaud.
5747 COMMISSIONER DENTON: Now, putting it really kind of crudely, this is what is being said and it's not just being said in this room in the polite terms of regulatory discourse, it's being said around town. Get rid of these people, we are going to have a much better system when you just allow those who own the facilities, the very large facilities, to control the game.
5748 Now, are you not actually asking us to do something very bold, which is to stake the future on you guys, meaning both telcos and cable. Are you not asking a governmental organization -- which is, come to think of it, kind of interesting -- to stake the entire future of telecommunications in Canada on the propositions that you are advancing?
5749 Comment, please.
5750 MR. ENGELHART: Thank you, Commissioner.
5751 I guess I would characterize it as follows. I would use the local telephone voice market as an analogy.
5752 We had years and years and years of competition using unbundled loops and resale, lots of Commission hearings, lots of tariffs, lots of regulation, lots of angst, very little market share on the part of the competitors. Then cable got into the local phone business using its own facilities, boom, we took away 25 percent share from the incumbents and growing in a very short period of time. No real regulatory muss or fuss, we just did it.
5753 I think that analogy describes what I see as the problem with regulated mandated wholesale and the benefits of facilities-based competition.
5754 Commissioner Simpson and I talked about this yesterday, I just don't think ultimately it's a model that works. It leads to a huge amount of regulatory intervention and it doesn't ultimately go anywhere. The U.S. has basically decided they are going to emphasize facilities-based competition and that was very clear from the FCC broadband report.
5755 THE CHAIRPERSON: I'm sorry, I have to interrupt you.
5756 We are not redoing essential services. We made that decision, you made that argument, you lost it. So let's start at the basis with the essential services decision, not go back to reargue essential services.
5757 MR. ENGELHART: Thank you, Mr. Chair.
5758 I think the essential services decision was almost exactly what Rogers asked for, so I don't think we lost there and I don't think I am rearguing it.
5759 I think I'm just addressing the point which I think you are asking, Commissioner Denton, which I think you are perceiving a hostility toward small players that I don't think is correct. I think small players have been and continue to be a very vibrant part of the larger communications sector.
5760 I just think the Commission needs to ask itself to what extent this regulated wholesale model is the right model.
5761 COMMISSIONER DENTON: Mr. Brazeau...?
5762 MR. BRAZEAU: Just to add maybe a couple of comments.
5763 I think Dr. Crandall addressed that issue in cross-examination, or when he was being questioned, you know the outcome, even if we were to encourage 100 or 200 of these resellers, would that result in more competitive marketplace? His answer was no. I think that's the right answer.
5764 It comes back to Ken's point, you know, this is really a facilities-based industry and in order to promote real competition in this industry you need facilities-based carriers. You may not like it, but that's the market that we are operating in.
5765 I think that's -- Ken is completely right, we have to start asking the question whether this reselling market is really the market that we should be betting on to achieve all the great benefits that everybody in this room are trying to achieve, which is more efficiency, more investment, more job creations, a more competitive economy.
5766 COMMISSIONER DENTON: Granted the truth of what you are saying, that is to say right now in Canada 95 percent of the competition, 97 or whatever, is between very large facilities-based carriers who do not, apart from some backhaul arrangements, need to equipment from each other.
5767 Granted the truth of what you are saying, the question for us is not whether it's true, but whether it's the whole truth. The proposition you put before us is not merely that facilities-based competition is the way to go, the proposition you put forward to us is it's the way to go for all time. By putting these people out of business now we are actually going to allow for better innovation, better competition, lower prices for all time. Because once you have put them -- once they are gone they are gone and they won't resurrect.
5768 MR. BÉLAND: I would just like to add my perspective on the notion of staking the future on facilities-based competition.
5769 Vidéotron is currently a non-facilities-based reseller in the wireless market. We resell Rogers network, as everyone knows, it's referred to as an MVNO in wireless parlance. If we believed that that was the way to carve out our place in the wireless market, to inject additional real competition into the Québec wireless market, we would not be spending $1 billion building our own facilities-based wireless network.
5770 So I think in that very pertinent example this approach, this staking out of the future in Vidéotron's case, is much more than just talk, we are walking the talk.
5771 MR. ENGELHART: If I could just respond to your last point, Commissioner Denton, we have never said -- not one of these companies has ever said if there was no resale we would do more investment and more innovating. We have never said that. That's Bell's line, that's TELUS' line. We have never made that argument.
5772 We in fact have said -- with the exception of the 6 MHz channel proposal which would have devastating impacts on our network -- we will keep investing, we will keep doing what we do.
5773 But the danger for the Commission is, they say generals are always fighting the last war. There is a danger for you that you are looking in the rearview mirror. I realize that people are always coming to you and saying "Well, this is the next big thing and this is the next big thing" and mostly those people are wrong, but this wireless broadband thing is the next big thing. It's a huge, huge change to the market that you are dealing with today that I don't believe people have properly factored in.
5774 When Rogers goes to Alberta and B.C. and Québec and Saskatchewan and sells that rocket hub, we are taking wireline internet customers away from the providers there and it means that in Canada there will be three or four facilities-based providers.
5775 So you need to factor that into your calculations as well.
5776 COMMISSIONER DENTON: Thank you.
5777 And now for the small but important stuff.
5778 You have just announced you are going to be getting rid of restrictions on LANs and VPNs in your tariffs for TPIA.
5779 Are you likewise willing to get rid of the prohibition on non-internet services such as things that might be like point of payment systems or others?
5780 MR. ENGELHART: I don't think there is a prohibition like that in the TPIA tariff.
5781 COMMISSIONER DENTON: For non-internet services?
5782 I thought we went over this yesterday.
5783 MR. ENGELHART: I don't think it says anything like that.
5784 THE CHAIRPERSON: Presumably if for some reason it does, you have no problem with the removal?
5785 MR. ENGELHART: Yes.
5786 We are not giving services other than Internet access, but what he pulled do with it is their own business and we can't even tell what they are doing with it.
5787 COMMISSIONER DENTON: Thank you.
5788 Aggregation is available from some carriers on a province-wide basis and on others much more numerous point of interconnection.
5789 If it can be done by one, why can it not be done by all?
5790 MR. ENGELHART: Well, of course, it could be done.
5791 We that the tariff complied with the essential facilities test to have head-end interconnection. As Mr. Mercia said, that's what the ISPs asked for 10 years ago and we developed the tariffs.
5792 I think a lot of what has gone on in this hearing is being driven from Bell, not from requests by the ISPs.
5793 I still think that it's a mistake for the Commission to mandate competitive transport services, but of course it can be done.
5794 MR. BRAZEAU: Just to add, we would certainly incur some costs.
5795 For example, in Alberta we have two POIs, to connect those and to create a provincial point of interconnection would require a bigger router and us connecting those facilities or those centres. So it would incur some costs.
5796 COMMISSIONER DENTON: Okay.
5797 In the ongoing and ever-flowing engineering advances I read an article in Light Reading called "Cable Ponders Life after DOCSIS", April 26, Jeff Baumgartner, in which it is noted that new chips, new systems would be required, nothing would happen before the second half of the decade, et cetera.
5798 Given the inevitable advances of cable protocols, for how much longer would your arguments about the 6 MHz restrictions last if in fact cable moves to a protocol which does not bind up itself into channels?
5799 You made an argument yesterday based on the technical limitations of your current DOCSIS and I read in Light Reading that you are contemplating life after DOCSIS.
5800 Would you like to comment?
5801 MR. ENGELHART: I will start and then Mr. Faccia will jump in.
5802 We, I think, identified five areas of problems, spectrum, management, provisioning, costs and -- well, there was one more.
5803 Anyway, so whether DOCSIS changes or not most of those problems still remain, you still have those problems.
5804 But in any event, our roadmap does not anticipate departing from the DOCSIS standards.
5805 MR. FACCIA: I will add that CableLabs -- who is represented here with us today and can add to this comment -- is always looking at advanced systems and beyond our current roadmap, you know, at CableLabs, in their labs and so on, they are thinking about what might come next after DOCSIS 3.0, which we said yesterday we see as a platform which will make us very competitive with the ILECs as they deploy fibre deeper into their network.
5806 COMMISSIONER DENTON: Okay. Thank you.
5807 In paragraph 17 of your rebuttal, Mr. Béland read:
"Mr. Taylor argued that the spectrum problem could be addressed by 'harvesting analog channels'. The problem with this argument is that cable companies or their customers would need to buy a digital box for every television in the home that does not have a digital box today."
5808 I would like to ask of Mr. Taylor and the other groups who might like to respond to this, is that true and does it matter?
5809 Anyone in the back?
5810 Sir, state your name.
5811 MR. HAY: Roger Hay from TekSavvy.
5812 I think we have an existence test of this in Comcast in the U.S. who have largely completed a program of handing out for free $30 U.S. digital terminal adapters in order to do exactly what is being discussed, both harvesting downstream channels, but also moving up the downstream/upstream frequency split in order to provide more upstream spectrum.
5813 Indeed, this is what is outlined in our technical report.
5814 MR. MERCIA: Marcel Mercia from Cybersurf.
5815 I think that I don't want to talk about the cablecos business plan and their costs, because I don't know, but I think if you look at the DOCSIS 3.0 standard, the advent to digital is built into it and I think, you know, they may be delaying the investment because of the competitive advantage it gives them with cable-ready televisions, but it's inevitable, it's going to happen because of the demands for bandwidth on the cable plant.
5816 COMMISSIONER DENTON: Thank you.
5817 Mr. Chairman, those complete my questions.
5818 THE CHAIRPERSON: Thank you.
5820 COMMISSIONER MOLNAR: Thank you.
5821 COMMISSIONER DENTON: I'm sorry, do you still want to answer?
5822 MR. FACCIA: Yes. I would like to comment on the point that was made around Comcast taking steps to increase their upstream capacity. That is incorrect.
5823 They have not taken any steps in their network to increase upstream capacity by doing what's called a mid-split. The mid-split is the term that's used in the industry to refer to moving or creating more upstream capacity in the network.
5824 COMMISSIONER DENTON: Okay.
5825 MR. FACCIA: They have not taken any steps to do so.
5826 COMMISSIONER DENTON: We will hear more about this in final argument.
5827 Thank you.
5828 COMMISSIONER MOLNAR: Okay?
5829 THE CHAIRMAN: Candice...?
5830 COMMISSIONER MOLNAR: First of all, I have no rhymes and I don't --
5831 COMMISSIONER DENTON: Envy will get you nowhere.
5832 COMMISSIONER MOLNAR: And, frankly, I don't have a lot of questions because I'm struck by how very few items your group have chosen to rebut and I'm going to limit my questions to what you chose to rebut, but it leaves an awful lot of issues that have been discussed at this hearing not addressed here.
5833 So I just want to follow up on what Commissioner Denton was talking about on paragraph 17, because it's always a very interesting thing in a regulatory hearing to throw out a $1 billion number.
5834 I believe it's Mr. Taylor who likely is the one, based on our earlier conversation, that would talk about this. I think we just talked about the fact of harvesting analog.
5835 As far as I understand from our discussion with Distributel earlier, we are talking about harvesting a channel, we are not talking about harvesting all analog and thus forcing you to put digital settop boxes in all homes.
5836 So can we be clear on this? Is there anything in this proceeding that relates to this $1 billion number?
5837 MR. ENGELHART: If you took just one analog basic channel off and put it on digital and you wanted everyone who is getting it today to get it, you would have to give a digital box for every television set in the home that did not have a digital box currently or else those people couldn't see it anymore.
5838 COMMISSIONER MOLNAR: So the next time you harvest an analog channel your entire customer base is forced to subscribe to digital settop boxes, the next time you harvest the channel?
5839 MR. ENGELHART: We have not moved Tier 4 to digital. We have not moved any of our tiers to digital. It's something that we wrestle with every day, but we haven't done it.
5840 Currently we are obtaining spectrum using switched video, at considerable cost. At some point that avenue will no longer be available and we are going to have to bite the bullet, as some cable operators are doing, and probably on a system-by-system basis we are going to move tiers onto digital. But when we do that we will be doing that because we need those channels for our own video and internet offers and if we have to come up with more channels it will be more disruptive.
5841 COMMISSIONER MOLNAR: Okay.
5842 MR. BÉLAND: I would also like to add, we hear contradicting statements from the potential users of such a service themselves.
5843 On the one hand we hear we only need one channel.
5844 First of all, each of them would only need one channel, so that's not one.
5845 But we also hear that it is absolutely essential that they have speed matching going forward to be able to compete in this industry.
5846 What that means in cable terms is they want to be able to use DOCSIS 3.0 technology. DOCSIS 0.3 technology, to profit from it, does not use one channel, as we described in our opening statement yesterday in some detail. You are looking at, in the relatively near future, bonding eight channels together downstream. So now let's say we have three TPIA competitors who would like to do that, now we have 24 channels.
5847 So to hear on the one side that we are looking for them to give up only one 6 MHz channel and they could do that without a lot of pain, and then to have the consequence of their other statements pointing in the direction of 24 6 MHz channels, that contradiction has to be pointed out to you.
5848 COMMISSIONER MOLNAR: But it has nothing to do with the $1 billion investment, would you agree, what you were just speaking of?
5849 MR. BÉLAND: Well, as Ken just stated, whether it's one channel or 24, if you are removing an analog channel and you want the people who could previously watch that channel to still watch it, and you digitized it, you have to give them all digital boxes.
5850 COMMISSIONER MOLNAR: So just one more question on this and then I will conclude.
5851 Have you harvested analog channels and taken away those programs from your analog customers ever in the past?
5852 MR. ENGELHART: No.
5853 COMMISSIONER MOLNAR: Never done it?
5854 MR. ENGELHART: No. I mean we have moved --
5855 COMMISSIONER MOLNAR: And the next time you need a channel you will have to do that.
5856 Is that what you are telling us?
5857 MR. ENGELHART: Our analog tiers are in traps. Now, sometimes we have taken the Golf Channel from Tier 4, moved it to digital and moved something else into Tier 4 to the never-ending complaints from golfers, but we have never --
5858 COMMISSIONER MOLNAR: Mr. Engelhart, you are trying to make complicated --
5859 MR. ENGELHART: We have never, ever, ever moved analog tiers into digital.
5860 We have never digitized an analog tier ever.
5861 THE CHAIRPERSON: But wait a minute.
5862 Didn't you just say you moved the Golf Channel into digital?
5863 MR. ENGELHART: It doesn't free up a channel because it's still within the trap.
5864 THE CHAIRPERSON: You used it for other purposes.
5865 The question of my colleague was: Have you ever moved --
5866 MR. ENGELHART: No.
5867 THE CHAIRPERSON: And you did.
5868 MR. ENGELHART: The question was whether we had harvested it.
5869 Moving it and replacing it with something else does not harvest it. It does not make it available for something else.
5870 You have to crash the entire tier, the entire trap to harvest it.
5871 THE CHAIRPERSON: Excuse me. What did you do with the channel that you freed from golf? You used it for other purposes.
5872 MR. ENGELHART: No, sir.
5873 THE CHAIRPERSON: By your own moment.
5874 MR. ENGELHART: No, sir.
5875 THE CHAIRPERSON: You put something else on there --
5876 MR. ENGELHART: No, sir.
5877 THE CHAIRPERSON: -- didn't you?
5878 MR. ENGELHART: No, sir.
5879 If you are harvesting it you are using it for digital or you are using it for internet and you cannot do that if that channel is within an analog trap. It can only be used for another analog service, an analog TV service.
5880 THE CHAIRPERSON: Okay.
5881 Len, you have a question?
5882 COMMISSIONER KATZ: I have just two questions actually.
5883 One of them, Mr. Béland, you made a comment which I want to pursue about Vidéotron being an MVNO and you are walking the talk.
5884 The reason you are walking the talk I guess is because you decided to walk before you ran.
5885 I mean the reason you did pursue the MVNO is because the value you saw in seeing whether there really is a market for this, and as it grows there is economies of scope and scale and costs associated which drove you into the next decision and that is to bid for some spectrum and get some spectrum.
5886 But you made the first step first and there are some other parties on this panel who are still MVNOs and haven't even bought spectrum as well.
5887 So it raises the question as to is not an option to not own but to lease a viable option to start a business and then grow it and bill out as necessary?
5888 MR. BÉLAND: In effect you are presenting the ladder of -- I believe it was referred to as the ladder of investment argument.
5889 It's not true in our case. Sure, we have learned some things about the wireless market by being an MVNO, but was the fact of being an MVNO a prerequisite to us getting into that spectrum auction and building our own network? The answer to that is no.
5890 Had we never done the MVNO we would have done it anyways because of the competitive imperative to us.
5891 So in the one sense we would be doing this if we hadn't done the MVNO at all.
5892 Has the MVNO experience somehow enabled us to proceed with those other investments? We have learned a few things, but probably the biggest thing we have learned is that the resale model just doesn't work.
5893 COMMISSIONER KATZ: But there is value in the investment model. I mean no one is going to go out there and invest $1 billion without first starting off in a relatively microcosm, whether it's territorial or whether it's services, and building out from there.
5894 MR. BÉLAND: What I have stated is I firmly believe had we not done the MVNO we would have invested the $1 billion. It's a competitive imperative for us.
5895 COMMISSIONER KATZ: Okay.
5896 MR. BRAZEAU: Commissioner Katz, I think we also are in the midst of investing similar types of capital for wireless and we never had an MVNO. There is a new entrants, I think one that you reviewed, whether they were Canadian companies that also did not have been MVNO and also decided to invest significantly in this market.
5897 So I don't think it follows that if you have an MVNO somehow you have an advantage or disadvantage in this.
5898 COMMISSIONER KATZ: Mr. Brazeau, I'm staring at your website, and this page is called "Shaw Business Services" -- and I'm sure if I looked at other carriers I would see the same thing -- it says:
"Shaw for Business meets the needs of small to medium businesses with a variety of phone, Internet and television packages. All of our services come with no contracts or cancellation fees..."
5899 And then when I click on the Internet one it actually asks me to identify the province and the city that I'm looking for. I have actually gone through probably 100 cities in the last 15 minutes and you offer service in any one of them.
5900 I will pick one of them, London, Ontario. What broadband Internet service does Shaw provide in London, Ontario?
5901 MR. BRAZEAU: I will have to come back to you on that one.
5902 But it could be that that we are offering large bandwidth access to the Internet. Our Business Solution Division focuses mainly on providing large pipes to the internet. That's their main core business.
5903 As for the small and medium-sized customer, where we have coaxial cable in a business we will try to sell them a business service, absolutely. The problem is that we reach very few business -- you know, strip malls or other business locations to offer those services.
5904 Certainly our business revenues probably represents certainly less than 5 percent of our cable revenues and so I think we have all said it here, we are trying.
5905 We see this as a tremendous opportunity, but we are not there yet. Are we making strides? Yes. But as I said, it's far less than 5 percent of our business.
5906 COMMISSIONER KATZ: Does Shaw or any other carrier on this panel lease facilities from the ILECs for the purpose of providing your customers with broadband services?
5907 MR. BRAZEAU: Absolutely. I think I had indicated yesterday that we buy PRIs from TELUS and that often gets us into the building.
5908 So absolutely we lease facilities from them.
5909 COMMISSIONER KATZ: Do you buy them at tariff?
5910 MR. BRAZEAU: I'm not sure if they are still a tariffed item, but -- I would have to come back and confirm that.
5911 COMMISSIONER KATZ: How about the rest of you?
5912 MR. ENGELHART: We purchased CallNet which has of course an extensive telco resale business. We are largely retrenching from that business and our entire business focus is going to our on net services.
5913 Just to give you some idea of the scope of our business offering and, as Mr. Brazeau said, we are working hard at it, but if you look at Rogers/CRTC-103, those numbers were filed in confidence, but as you will see from those numbers our business internet subscribers are 2 percent of our total Internet subscribers and our business internet revenues are 3 percent of our total internet revenue.
5914 So look, we are trying, but to suggest that we have a big footprint into business is, unfortunately, not true.
5915 COMMISSIONER KATZ: Okay.
5916 Those are my questions.
5917 THE CHAIRPERSON: Mr. Engelhart, let's come back to the harvesting. I appreciate your explanation.
5918 I'm sorry, I didn't mean to question your credibility. I now understand what you are saying, that if you move a channel you can only use it for another -- what you are saying is if you move the channel you can only use it for another analog.
5919 But we are forcing the industry to move to digital in 2011 and presumably the over-the-air will be there, lots of people buying, et cetera. So it must be part of your overall strategy to do this harvesting at some time after 2011 because the advantages for you must be obvious.
5920 MR. ENGELHART: As I indicated earlier from the desk, 2011 is not really a relevant date for us. We intend to down convert the digital signals to analog so that -- and the Commission has kindly given us authorization to do that. So we can take all the digitized signals and put them back into analog so that our analog customers will continue to receive them.
5921 So the decision as to whether we digitize a tier, and therefore harvest the channels, will be made on the basis of our channel requirements, bearing in mind that it will cause disruption.
5922 We have no immediate plans to do it, but the direction we are going -- I will ask Mr. Faccia to jump in -- is that as the digital boxes get cheaper and cheaper and more and more of them get out there, then the incremental cost of doing it gets smaller and at some point you just do it.
5923 THE CHAIRPERSON: Yes, but you will agree with me that the over-the-air digitization that takes place next September will certainly change the mindset, will bring it to consumers.
5924 Lots of consumers aren't buying digital sets now and will do it in the future, so presumably the permission that we gave you to downgrade to analog is a transitional matter. The overall trend will be there, we will have everybody digital and it will be in your own commercial interests to do it as soon as you can.
5925 MR. ENGELHART: I will let Mr. Faccia --
5926 THE CHAIRPERSON: If I'm reading you wrong, please correct me.
5927 MR. ENGELHART: You are reading us wrong.
5928 In fact, part of our sales pitch at the conversion will be "You don't have to worry with cable, everything stays the same" and -- I will let Mr. Faccia jump in.
5929 MR. FACCIA: Yes. I will add that as we have stated there is a significant cost, $1 billion plus in order to do that digitization and there are more cost-effective ways to reclaim spectrum, such as switched digital video which we are currently undertaking and which we are expanding.
5930 So we at this point are using that versus any reclaiming of analog tiers to digital.
5931 THE CHAIRPERSON: Sorry.
5932 MS MacDONALD: I just think it's important to note, I agree with everything that's being said here with regard to harvesting channels and in our own interrogatory responses we also spoke to the same concerns and issues.
5933 There is a significant cost involved in doing that and we certainly don't have plans to, you know, harvest all of our analog channels in terms of the digital deadline.
5934 But I do have to say that in one of our systems we have recently announced that we did transfer our analog offering over to a digital offering and that system is in Sydney in Nova Scotia. A very small system relative to many of our other systems in the country.
5935 But I just want to make it clear that the reason we had to do that in that system is, unlike what we have heard from our submission yesterday, a lot of the cable companies are building up to 850 MHz systems. Our Sydney system is a 550 MHz system. So it already was very -- and it still is -- capacity challenged. So we had to make a decision, are we going to rebuild that system or try to find other ways.
5936 Although it was a huge cost to us, it was still more economical for us to transition over to fully digital instead of rebuilding that entire system. So I just wanted to make sure the Commission was aware of that.
5937 THE CHAIRPERSON: The second thing that you said, most of you -- Mr. Engelhart, this is addressed to you.
5938 Most of you said the resale model doesn't work and yesterday said, fellows, you have to understand from other industries, you resort to resale, et cetera, when you have sort of reached close to saturation point and then you basically differ that, pushing out, you allows parties to do that and you concentrate on your resale.
5939 I gather from the conclusion that I'm supposed to draw on that, that the rollout of internet access has not reached the saturation point yet, where it makes economic point for you to rely on resellers to push it out further?
5940 MR. ENGELHART: I think it's getting close. We are at about 70 percent of homes penetrated in Canada with broadband. Some of those people are just never going to get broadband because they don't have a computer or whatever. So we are getting to that point.
5941 When you do resale like that, the resellers you look to are perhaps not typical of third-party ISPs in this room, it might be more people like President's Choice or Sears or CIBC, someone that has a customer base and they can move a lot of product.
5942 THE CHAIRPERSON: And they push your product. That's what you are talking about?
5943 MR. ENGELHART: Yes.
5944 THE CHAIRPERSON: I see.
5945 Are the rest of you of the same view that this is where we are in terms of this market basically? Mr. Engelhart said we are near saturation point and now the push out will be done through third parties, but basically third parties pushing your contract. Therefore, TPIA and the ISP resellers that we are talking about here is really of no interest to you?
5946 MR. BRAZEAU: I think so.
5947 MR. BRAZEAU: I think generally we would prefer to see MVNO-type of arrangements because they can move product, absolutely.
5948 But also, you know, for a reseller to remain competitive he needs to be able to add value to the service and they have to find ways in order to create that value. I think getting a subsidized access to the network is not a competitive advantage.
5949 THE CHAIRPERSON: Okay. Thank you.
5950 I don't believe my colleagues have any other questions.
5951 It's 11:40, why don't we start with the next presentation. I think it's MTS. We can sort of listen to the oral part and then do the questioning after lunch.
5952 Thank you very much, everybody.
5953 THE SECRETARY: À l'ordre, s'il vous plaît. Order please.
5954 I think we are ready, Mr. Chairman.
5955 We will now proceed with the presentation by MTS Allstream Inc.
5956 Please introduce yourselves for the record and you will have 15 minutes for your oral rebuttal argument.
5957 MR. PEIRCE: Thank you, Mr. Chair, Commissioners, Commission staff. My name is Chris Peirce with MTS Allstream Inc. and with me is Michael Koch, our counsel with the Goodmans.
5958 I would like to start by noting that there are a number of key propositions on which all or nearly all of the participants in this proceeding are in agreement.
5959 First, we all agree that competition drives investment.
5960 This is certainly true for MTS Allstream, both in and out of territory.
5961 It is also true for Bell, which has made it clear to the market that its investment in fibre to the home is driven by the need to compete with cable.
5962 One of TELUS' witnesses put it quite plainly: We tend to make investments where competition is most intense.
5963 Second, we all agree that in the business market there is only one ubiquitous network capable of serving the home market.
5964 The one holdout on this appears to be Bell and I will later address the lack of any factual foundation for the position that the business market as a whole can be served by the cable carriers networks.
5965 Third, we all agree, subject to the one caveat of your question this morning, Mr. Chair, that competition drives innovation.
5966 This is true on a large scale as represented by MTS Allstream's significant list of firsts in rolling out IP technology over its national network.
5967 It is also true on the smaller scale described by representatives of CAIP who told the Commission about the businesses they have built by providing innovative niche services in competition with incumbents.
5968 Fourth, we all agree that fibre has been deployed in the networks of the incumbent telephone companies since the mid-1980s and started to be pushed out to remotes on their networks from at least the middle of the 1990s.
5969 Again, the one outlier in this regard is Bell, which persists in characterizing this fibre to the node investment as next generation.
5970 However, as explicitly acknowledged by SaskTel and reflected in the Commission's questioning, there is a real difference between fibre-to-the-node investments which represent the natural evolution of the incumbent network and new fibre-to-the-home access infrastructure which is a true overbuild of the existing Telco access infrastructure.
5971 Even with broad-based agreement on these facts, Bell, TELUS and SaskTel each came to the Commission to ask for an exception from your essential services regime for broadband.
5972 Although they took different rhetorical approaches in their presentations, each made what is essentially an identical request, for you to sacrifice broadband competition and along with it the hope of vigorous competition in the small and medium size business market in order to assist their efforts to contest the TV distribution market.
5973 In doing so their focus was entirely on the consumer or residential market. Tellingly, neither Bell nor TELUS, nor for that matter SaskTel or the cable carriers addressed the business market, a market of critical importance to realizing the benefits of broadband competition and investment that will meet the government's objectives for improving the productivity of Canada's economy.
5974 The cable carriers told you again this morning that their network doesn't serve the business market. In the business market where competition is crucial to Canadian leadership in a digital economy, Bell and TELUS have been forborne on the premise that a competitor like us is present.
5975 Now, they purport to ask, or shall I say demand that you free them from any obligation to afford access to broadband inputs.
5976 With a straight face they have told their shareholders that there is no business case for them, the largest investors on the block, as they continue to loudly insist, to invest capital in their out-of-territory competitor business while at the same time telling the Commission that there is nothing preventing us or any other smaller player from overbuilding their broadband access network.
5977 Bell has confused the Governor-in-Council's request for a consideration of whether wholesale obligations imposed on telephone and cable incumbents are equitable, that's the government's word, equitable, with a desire for identical or copycat network access configurations.
5978 This is an inefficient and illogical approach to competitive and technological neutrality both principles required by the Governor-in-Council in its Policy Direction.
5979 Equally illogical is the notion that the Commission should refuse to mandate wholesale access to the telephone companies' networks in the business market specifically simply because cable carriers do not serve the business market and, therefore, it is not possible to impose the same wholesale obligations on them in that market.
5980 Obligations on telephone and cable incumbents should be symmetrical, but only if meaningful. In this instance, symmetry will not be meaningful if its pursuit results in the complete ineffectiveness of the regulatory framework and consequential eradication of competition in an entire market.
5981 This misguided focus on symmetry at all costs has no basis in the Telecommunications Act or the Policy Direction.
5982 In contrast, a competitive telecommunications industry and the enhancement of Canada's international competitiveness are consistent with the policy objectives underlying the Commission's statutory mandate.
5983 More over, these are policies embraced by the Government of Canada which has specifically directed the Commission to interpret and apply these objectives in a manner consistent with its vision for facilities-based competition which includes providers like MTS Allstream which both own and lease facilities.
5984 The Commission must reject Bell and TELUS' evidence and proposals for the following reasons:
5985 There clearly is insufficient competition in the business market where there is no parallel incumbent network like the cable network in the residential market and, therefore, no reality or prospect of intermodal competition.
5986 Bell and TELUS know the business market is different from the consumer market on which their position is uniquely focused. This is precisely why they failed to address the business market in their oral presentations.
5987 When confronted by the Chairman with this very relevant difference between the residential and business markets, Bell's witness, Ms Tulk, stated her profound disagreement that cable has not been a factor in the business market.
5988 However, as I stated at the outset of these remarks, Bell is alone in this contention and the record does not support its position.
5989 Dean Prevost, the President of our national business arm made it clear that the limited footprint and nature of the cable carriers' network in the business market render the use of their services inappropriate for all but the most simple Internet access services.
5990 More over, the cable carriers' witnesses themselves stressed over and over that their footprint, a footprint designed and built to serve the residential TV market, does not extend into the business market to any significant extent.
5991 This testimony is consistent with the cable carriers' interrogatory responses filed in this proceeding and the conversation this morning where they clarified the very limited nature of their network footprint in the business market and emphasized the fact that having fibre pass by a building is still a long way from having a viable offering to business customers located on the premises.
5992 Yesterday Bell filed figures in confidence regarding their contention that the cable companies are significant players in the business market and this morning with Mr. Bibic's waving of copies of advertisements for Internet services aimed at business customers.
5993 None of this is news or relevant to the issue before you for that matter. It is clear from the evidence on the record that, unlike the residential market, there is no prospect for intermodal competition in the business market and, hence, no prospect for meaningful competition to protect the interests of users or spur innovation or investment.
5994 TELUS for its part attempted to downplay the significance of broadband services in the business market in a breathtaking statement that broadband was not nearly as important to business customers since they do not subscribe for TV services and, therefore, do not require the same high speeds as consumers.
5995 If sincere, a big if, TELUS' position that business customers simply don't require the same high-speed service as consumers is emblematic of the problem in a market where there is clearly insufficient competition.
5996 TELUS' patent indifference to the needs of business customers demonstrates the complacency engendered by a lack of competition necessary to spur investment and innovation and goes a long way to explaining Canadian businesses' lack of ICT adoption as well.
5997 Added to this complacency, George Cope's treatment of facilities-based wholesale competitors as mere distribution channels to be treated like OnStar or President's Choice wireless, the two examples he gave, gives the Commission a picture of the attitude competitors encounter when trying to negotiate with incumbents for wholesale access, a fundamental feature of the facilities-based policy framework to this date established by the government.
5998 Even with more than $200-million in business with the incumbents, MTS Allstream has been unable to overcome their powerful incentive to refuse to provide advanced services or simply to delay arriving at agreement until the retail opportunity has vanished.
5999 It is indisputable that negotiating broadband access will not work. Bell and TELUS have refused to provide even you with any assurances whatsoever that they will in fact negotiate with competitors for unbundled access to their networks.
6000 This brings me to Bell's last minute proposal introduced Monday to provide competitors with access to the sub-loop.
6001 In the essential services decision the Commission was concerned that the fact that an increasing number of the ILECs' customers were served off remotes prevented competitors from addressing the entire market.
6002 The Commission therefore mandated an ADSL access service that after several iterations is under consideration in this proceeding.
6003 Bell has now disingenuously suggested that the solution to the problem is to give competitors access at the remote rather than the CO. This is absurd.
6004 To provide an illustration of how difficult it would be for competitors to address this market under Bell's proposal, it is useful to compare it to MTS Allstream's proposal which is for a regionally aggregated ADSL access service.
6005 Our proposal would permit a competitor to access all of our customers in the Province of Manitoba by interconnecting at only nine broadband access servers.
6006 By contrast, if a competitor had to interconnect at every CO in the province, it would have to build out to as many as 250 locations in the province, a clearly impractical and inefficient proposition that flies in the face of the increasingly aggregated nature of IP networks.
6007 Under Bell's new proposal, however, a competitor would have to build out to no fewer than 1,000 locations. Can you imagine how many that would translate into in the territories of Bell or TELUS.
6008 You might want to ask them.
6009 Bell's proposal is premised on the notion that all fibre, yes even fibre to the node which all other parties have agreed the ILECs have been pushing out into their network since the 1990s is new infrastructure that is somehow duplicable.
6010 There is simply no truth to this. Far from being a constructive proposal, this is in reality a Trojan Horse, that the Commission must see for what it is, a poorly disguised attempt to thwart competition.
6011 Wholesale broadband access services clearly meet the Commission's test for essential services and should, therefore, be classified as conditional essential.
6012 Because business customers don't generally require television services, mandatory unbundling of business broadband services in particular would have no impact whatsoever on the roll-out of IPTV.
6013 While MTS Allstream is not advocating forbearance in the wholesale residential market, if the Commission finds that intermodal competition in that market is sufficient to protect the interests of users in the downstream market, it cannot on the evidence make a similar finding in the business market.
6014 So, our response to the ILECs' contention that you need not mandate matching speeds or unbundled access to broadband services in the residential market is, the business market is different. Therefore, the Commission must mandate wholesale access in the business market, even if it does not do so in the residential market.
6015 Your essential services regime was designed to provide you with precisely the flexibility necessary to treat different markets differently should different treatment be indicated.
6016 The industry has always considered and the Commission has always recognized the business and residential markets as being distinct. The regulatory framework is clearly capable of applying different regulatory prescriptions in the two markets.
6017 For example, under the local forbearance regime, you apply different criteria to the two markets. In addition to differentiating between wholesale obligations in the business and residential markets, it is possible to justify the application of different costing assumptions to business services on the one hand and true fibre-to-the-home investments in the residential market, which are riskier for the reasons we provided, on the other.
6018 As we said in our presentation yesterday, the Commission has an important role to play in ensuring that wholesale access for underlying broadband services is available to drive greater choice and innovation in telecommunications services and to stimulate investment and ICT adoption by Canadian businesses.
6019 We trust that you will not be diverted from this important task by Bell and TELUS' request to sacrifice this potential in favour of their efforts to contest the TV market which, by the way, we have been successfully contesting for over five years.
6020 With the right framework, Canada can and should re-assert its global leadership position in the broadband world.
6021 Thank you.
6022 THE CHAIRPERSON: Thank you very much for your presentation.
6023 We will break for lunch now and we will question you after lunch.
6024 Okay. It is now 12 o'clock. I suggest we meet back here about 1:15.
6025 Thank you.
--- Upon recessing at 1200
--- Upon resuming at 1316
6026 THE CHAIRPERSON: Okay, let's resume.
6027 I hope you had a good lunch, Mr. Peirce.
6028 You make a statement on page 2:
"Tellingly, neither Bell nor TELUS, nor for that matter SaskTel or the cable carriers addressed the business market, a market of critical importance to realizing the benefits of broadband competition and investment that will meet the government's objectives for improving the productivity of Canada's economy."
6029 THE CHAIRPERSON: You heard them this morning saying, again, it is the structure of our network, while we may bypass we don't serve business districts, therefore, really the business market is not...
6030 What did you expect from them?
6031 MR. PEIRCE: From the cable carriers?
6032 THE CHAIRPERSON: Yes.
6033 MR. PEIRCE: Oh, we -- that's just a reference --
6034 THE CHAIRPERSON: Oh, you are just talking to the ILECs.
6035 MR. PEIRCE: Yes. Just the fact -- exactly, a reference to the fact that they're not in that market.
6036 THE CHAIRPERSON: Okay. Can I hear from the ILECs, either Bell or TELUS or SaskTel, the general contention being here that there is quite a different issue in the business market than the broadband market and, therefore, the resale is required for there to be competition in that market.
6037 MR. BIBIC: Mr. Chairman, Mirko Bibic, Bell Canada.
6038 It's clear that -- well, it's clear, I should say it's clear. I think MTS is talking about the large business market and I think what they're trying to do, therefore, is have you re-visit and change your 2008-17 decision.
6039 This hearing is really about speed matching -- two things, ADSLCO and speed matching. Let's start first with speed matching, really what we're talking about is speed matching over GAS which we all know is primarily a residential and small business product and that's why we've been focusing on the small business and residential arguments.
6040 If we talk about ADSLCO, what MTS wants is a regionally aggregated ADSLCO, so rather than picking up the traffic, so to speak, at the central office, they want to pick it up deeper into the network at a few select points of interconnection.
6041 So, they're trying to move deeper into the network, further away from the "ladder of investment", so to speak, and I say that in quotes, rather than closer to the premises.
6042 And here's the key thing, here's why I say they're asking you to re-visit 2008-17.
6043 The Commission in that decision two years ago found CDN DS3 access, OC3 access, OC12 access to be duplicable in business markets. You found intraexchange transport to be duplicable and, therefore forborne, and you found CDN metro intraexchange transport to be forborne as well, they're subject to phase-out these.
6044 And what MTS wants through this aggregation is they want an essential facilities pricing, mind you, they want to force us to bring the ADSLCO traffic deeper into the network which is that portion that you found to be duplicable.
6045 And so it's simply a request to re-visit 2008-17 given your decision to forbear ethernet and their request to have ethernet unbundled, their Review and Vary which you rejected, and their Cabinet petition which was rejected.
6046 THE CHAIRPERSON: So, this is a substitute for ethernet now?
6047 MR. BIBIC: Absolutely.
6048 THE CHAIRPERSON: Okay. TELUS, do you concur with that?
6049 MR. HENNESSY: Yes, absolutely, Chairman, and we'll skip over that part of our submission when we make it later.
6050 THE CHAIRPERSON: Okay. Mr. Peirce, what would you say to that?
6051 MR. PEIRCE: The questions that the government posed and that you've posed in this proceeding have been around broadband investment. Certainly you've used the tool of the existing proceeding you had going in terms of ADSLCO and matching speeds, but clearly the questions you're asking around broadband investment go beyond ADSLCO.
6052 We have given -- and you heard Mr. Prevost yesterday talk about how ADSLCO is absolutely a service we use. It's not all that we need, absolutely.
6053 This is also the first time you've had, Mr. Chairman, to really directly address the issues in a context of the business market in addition to the residential market.
6054 So, some of the questions you asked in this proceeding are questions you frankly have not asked before. So, we've had the chance to give you feedback on what's going on in the business market.
6055 There's also been things that have changed since your essential facilities decision. If you think about things like competitive access providers. I know last -- at the essential facilities hearing you had quite -- or one of the Commissioners had quite a lengthy conversation with Mr. Prevost again about how you could potentially do business with different hydro telecoms and that sort of thing and you could match together different providers.
6056 Those people aren't here any more. Those have all been largely consolidated and that consolidation process continues, so there are features of the landscape that are changing.
6057 And in terms of broadband investment, we've told you in some detail what's involved in our ability to invest and what we need from the incumbents. If you came out of this proceeding with some conclusions about what's required in terms of broadband investment and that called you, in your view, I need to re-visit portions of the essential services framework, then you might come to that conclusion.
6058 We aren't asking -- we obviously aren't asking for that type of relief from these proceedings, it's beyond scope. But you've asked questions about broadband investment and we're clearly telling you about broadband investment.
6059 THE CHAIRPERSON: I don't want to put words in your mouth, but I guess it didn't occur to me until now, so what you are essentially doing is saying -- just make sure I did interpret you properly -- so I am not alleging you said that, this is what I understood, so we understand.
6060 What you are basically saying, Cabinet gave us a broad mandate to review especially this regard to next generation. We are now in a different phase than we were two years ago of development of the industry and, therefore, in light of the express government wish to see a competitive investment and for the roll-out of broadband, et cetera, it also means we have to have a comparative business and so, therefore, we have to give you access by way of what you suggest or, you know, a facsimile thereto, without it the business market, or as Mr. Bibic says, really the large business market is not competitive.
6061 MR. PEIRCE: With the caveat that I don't agree about just the large business market, but yes.
6062 THE CHAIRPERSON: Okay. Thank you.
6064 COMMISSIONER SIMPSON: Thank you very much, Mr. Chairman.
6065 Thank you again for round two.
6066 Moving right in on the wholesale issue to try to, let's say, you know, somewhere between the ground level and the 80,000 foot level, would it be inappropriate to ask you how significant your use is of ADSL services currently available through the ILECs, let's say in comparison with other services you're purchasing from the ILECs to serve the business market?
6067 MR. PEIRCE: It would probably -- I'd tell you that it's -- as currently configured, it's not useful for us because contrary to what Mr. Bibic was I take it trying to imply there, our request for an aggregated service is really just about what the characteristics are of an IP-enabled network and the way traffic is gathered with an IP-enabled network and moved, and traffic is, in my non-technical terminology, aggregated at more central points than a purely CO-based service.
6068 So, that's just not how IP traffic flows. So, to call on a competitor to invest -- it's not anything -- an economic service for us to use and, so, as currently crafted, it's not really a solution for us.
6069 COMMISSIONER SIMPSON: M'hmm. Understand.
6070 I don't think there's anything that the ILECs wish to add to that?
6071 MR. BIBIC: Just that that component --
6072 COMMISSIONER SIMPSON: Mr. Bibic, would you please identify yourself.
6073 MR. BIBIC: Sorry. Mr. Bibic, Bell Canada.
6074 The point from the central office -- you know, the transport of the data traffic from the central office to the point of aggregation that MTS requests, that's fibre transport and these are the product services that the Commission has found to be duplicable.
6075 I would also point out that while we've been sitting in this hearing room, MTS did issue a press release today pointing out that they're proceeding with a targeted expansion in 2010 of a national IP fibre network into select and targeted buildings in major markets across Canada where strong demand and opportunities exist.
6076 So, the point is, it is duplicable. Where there's demand in a building, they will build.
6077 COMMISSIONER SIMPSON: Go ahead.
6078 MR. PEIRCE: Just to -- here we go.
6079 Dean Prevost told you about that investment yesterday. He told you what we're trying to do, that we're trying to extend our footprint and that we're making a bet and that we're not making individual customers pay for the capital investment, we're betting that if we can build to select buildings that we can win the business.
6080 He also told you that would raise our on-net capability from 30 percent to 35 percent.
6081 You know, you don't take a straw and make a man, which is the straw man that Bell's trying to put in front of you.
6082 That was pretty good, eh?
6083 COMMISSIONER SIMPSON: Well, you're right up there with Commissioner Denton.
6084 Mr. Hennessy, any words of wisdom?
6085 MR. HENNESSY: I don't think I could say anything that would add value to that.
6086 COMMISSIONER SIMPSON: All right. Doesn't want to play.
6087 That actually segues nicely into the issue of build-out. Bell had proposed a narrower access solution which is how it's been typified by some, but -- I'm groping for a better word, that's all I can come up with right now.
6088 But essentially you're implying, Mr. Peirce, that that type of solution -- I guess it would be a co-location solution or a connection solution to the node, would not be viable because of the sheer numbers that you suspect would be involved to be an operable service; is that correct?
6089 MR. PEIRCE: Yes, certainly and that's certainly a piece of it. I think it's also just really important for you as a policy-making -- rule-making agency just to pause for a second and realize the consequences of what their proposal is, which is really if there's any fibre, we don't have to provide any access.
6090 These are the guys that have been forborne in their retail pricing. You know, frankly, the logic of their message in the business market, if they don't have to provide any access where there's any fibre, which really means no access because there's now fibre deeply into the network, and they -- implicit in their logic to you is that no one can overbuild it, although they say duplicable, they're telling you that the type of investment they need they can't be sharing because otherwise it's not justified. So, clearly no one else could build it.
6091 So, they're the only provider. Well, the only thing that's left is, well, I guess you should go back to rate of return regulation, regulate their retail pricing, let them come forward and tell you what their capital is and you can give them an approved mark-up.
6092 But they're clearly going to be the only provider because they're saying with that solution, unless you build to thousands, 10s of thousands of locations probably across the country, there's no access.
6093 COMMISSIONER SIMPSON: Have you got a figure in the back of your mind as to what a per location cost might look like, or is it so variable because of geography?
6094 MR. PEIRCE: I'd probably say we could provide that -- endeavour to provide that in our -- by way of undertaking or in our written final comment.
6095 COMMISSIONER SIMPSON: Okay.
6096 COMMISSIONER SIMPSON: Mr. Bibic, sorry for picking on you, but I can't see name tags back there, Mr. Henry, someone from Bell, do you want to put a number in terms of location.
6097 Mr. Peirce is a national client and if he was to bite the bullet and spend money, how many locations is he looking at? Do you want --
6098 MR. BIBIC: I don't think anyone's suggesting that to serve the large business market you would actually have to go co-locate, pick at each node and pick up a sub-loop in every single -- for every single fibre node we have in our territory.
6099 And clearly the investment decisions would be made where there are large businesses, number one, and where there's a demand, just like they're doing today with building fibre right into buildings.
6100 So, if we're talking about the large business market, you're going to pick your spots.
6101 If you're talking about the residential market, again, some providers will pick their spots. You have, you know, a company like right behind me, TekSavvy, that has in their interrog, they mention that they're going to test fibre to the home in a part of Perth.
6102 Just as an example, you have Wightman Telephone, which is building fibre to the home.
6103 If you want to be a wireless play, then you can serve a wide swath, a wide chunk of territory.
6104 And you heard Mr. Brazeau from Shaw saying that they are doing it, you heard Mr. Béland from Videotron saying that they are doing it, you have Mobilicity doing it, you have Public Mobile doing it. None of these companies had to climb up the ladder of investment, as they call it, in order to start offering service.
6105 So it depends on which market you are in and what you want to target.
6106 MR. PEIRCE: Just to get back to that small -- glossing over the large business market, we have 20,000 medium and large-size business customers, and we have 85,000 small -- what we call small business customers.
6107 So we are in the business market. We provide communications solutions to businesses. Our problem getting to smaller and medium size business is our footprint.
6108 COMMISSIONER SIMPSON: I didn't hear a number, so I guess that no one knows.
6109 Between a little and a lot. Between 100 to 1,000 --
6110 THE CHAIRPERSON: Maybe Bell wants to reflect on it and give us a number in their reply.
6111 MR. BIBIC: We know the number of COs, I just don't know the number of nodes that we have.
6112 COMMISSIONER SIMPSON: Okay, we would love to get it as a submission after the hearing is over, before we close. Thank you.
6113 Mr. Hennessy, I can see your hair, but I can't see your face.
6114 MR. HENNESSY: Yes, Mr. Simpson.
6115 COMMISSIONER SIMPSON: Do you have anything to add to --
6116 I am trying to put a metric on costs on an overlay --
6117 MR. HENNESSY: To be clear, Mr. Simpson, the proposal of Bell's is not a proposal that we put forward or that we necessarily endorse.
6118 So, to be fair, we haven't looked at it; we are certainly not endorsing it, either.
6119 COMMISSIONER SIMPSON: Thank you.
6120 The next question, Mr. Peirce: If matching speeds were mandated --
6121 You can tell this is a Staff question, so I will just read it.
6122 If matching speeds were mandated, would the comparative views of the wholesale ADSL access service increase relative to the other access services purchased from the ILECs?
6123 MR. PEIRCE: Sitting before you, I don't know. I would have to provide an answer to you for that, what we would project in terms of where it would fit with what else we get.
6124 COMMISSIONER SIMPSON: Okay.
6125 Just a couple more questions, and then I am done.
6126 On the business side of the equation -- you know, you have done a very effective job at clearly stating that the business customer is the customer that is in your gunsight. What type of competitor would you characterize you are up against in this service?
6127 I have a reason for asking.
6128 MR. PEIRCE: We would face a number of competitors. In a bidding situation, we are almost always faced with the incumbent. As you track down --
6129 Well, we are always faced by the incumbent. Rarely would we not be faced by the incumbent.
6130 Depending on the type of service being bid out -- if it's a straight voice service, toll-free or long distance, you might get more players in than you would otherwise.
6131 In pursuing the very small end of things, small-business customers, we do run into cable, which is offering, effectively, a consumer-like solution. You move from consumer up the size and complexity chain of business. The smallest of businesses are probably getting by with a consumer-like approach. It's really about voice and internet, but it's not sort of around a collective use of data.
6132 So we run into cable there.
6133 You are starting now -- with very large business, you are running into converged providers, the IBMs of the world and that sort of thing, or Ciscos, who are, effectively, using their network capability to almost use the carrier as an input to their bid, but trying to get the customer to deal with them directly.
6134 So you run into some individuals like that.
6135 And when you transit into global business, you are running into global carriers that you are competing for wholesale business with, whether it's Level 3, or Global Crossing, or players like that.
6136 COMMISSIONER SIMPSON: Big pipe guys.
6137 MR. PEIRCE: In that circumstance, yes.
6138 COMMISSIONER SIMPSON: Understanding that big pipe is usually in the big speed, big data, trunk side of the business, are you a potential customer of big pipe or are you a competitor to those who use it?
6139 MR. PEIRCE: We are both. We are a wholesale provider and, obviously, a wholesale customer. So we are on both ends of that equation.
6140 COMMISSIONER SIMPSON: Okay. Shaw has a really interesting service called -- it's not a virtual -- it's a transparent LAN service, which is a data service that is marketed as a coast-to-coast, all-fibre service -- and I am going by memory here -- that, from what I understand, accesses big pipe from Alcatel-Lucent and others.
6141 Is this service that they are providing a competitor, in your equation, even though it looks to be on the data side exclusively?
6142 MR. PEIRCE: As to the specifics, I can find out for you.
6143 Certainly, we would run into Shaw as a competitor from time to time, probably not -- the world of that would be pure carriage, more than, you know, our fundamental --
6144 We have three product suites: Unified Communications, converged IP products, and then what you would think of as your more legacy-type products.
6145 So, in the legacy world of carriage, where you are, as you say, a big pipe, you don't need the functionality that you need to provide UC-type or IPC-type services, where you are really adding value to -- along with your physical assets, you are putting together a solution that helps your customer deal with the information they have, or deliver a solution like videoconferencing, or things that are beyond the pure carriage of bytes.
6146 COMMISSIONER SIMPSON: This one particular service -- and I apologize for sounding like I am singling out Shaw, but it's the first one I ran across -- markets itself as an Ethernet-based LAN system that is providing a network solution, which, again, is not, from what I can see, totally in your wheelhouse.
6147 But what I find intriguing -- and I am going to ask Shaw this question as well -- is that it markets itself as a protocol agnostic type of system, and what we have heard a lot of in the last couple of days is that protocol matters a lot when it comes to system, equipment design, and handshaking and interoperability.
6148 But is there, from your experience -- and this is probably an engineering question -- the potential that a cable company can interface with that kind of pipe to provide an internet service -- an ISP internet service that is delivered through a LAN?
6149 MR. PEIRCE: I would have to undertake to get back to you on that, Commissioner, but we will. I will ask the engineering people.
6150 COMMISSIONER SIMPSON: Now, because I brought you into the discussion, Mr. Brazeau, would you like to join it?
6151 MR. BRAZEAU: I will have to consult with his engineer.
6152 MR. BRAZEAU: I think we would have to consult with our engineers, also, but my knowledge of this is that this is just raw bandwidth, and basically what we are saying is, you can throw anything down that pipe and we will deliver it for you.
6153 But it's really a huge amount of bandwidth that --
6154 COMMISSIONER SIMPSON: Yes, but this isn't the kind of service that you --
6155 All I have heard in the last few days is that the business that is elusive to the cable industry is at the strip mall and the shopping centre. This isn't the kind of service that you would offer them.
6156 MR. BRAZEAU: No, this is the utilization of our fibre network.
6157 COMMISSIONER SIMPSON: Right.
6158 MR. BRAZEAU: We have a fairly significant fibre backbone --
6159 COMMISSIONER SIMPSON: Yes.
6160 MR. BRAZEAU: -- so it would be utilizing the capacity on that backbone for these types of distant services.
6161 But this is very large --
6162 COMMISSIONER SIMPSON: It gets you into the big business stakes.
6163 MR. BRAZEAU: Yes.
6164 MR. PEIRCE: We are a customer of them in that regard.
6165 COMMISSIONER SIMPSON: Okay.
6166 MR. BRAZEAU: And we can provide you with a bit more information, for the record.
6167 COMMISSIONER SIMPSON: I am just trying to find out the solutions, or trying to create the opportunity to see are there solutions other than ILEC for your business, Mr. Peirce.
6168 I think I am done. Thank you very much.
6169 THE CHAIRPERSON: Len...
6170 COMMISSIONER KATZ: Thank you, Mr. Chairman.
6171 Good afternoon. I have four questions, or four areas. The first one is, you said that the obvious person you bid against, when you bid for major accounts and enterprise accounts, is the incumbent.
6172 Where does the incumbent get facilities from for their out-of-province bids?
6173 When you go up against Bell or TELUS on a national basis, for banks or whatever, aren't they in the same boat as you are, trying to get facilities in order to complete their tender and their bid?
6174 MR. PEIRCE: You had the experience of TELUS in front of you, in the not too distant past, arguing about what they claimed was temporary dominance, when they were in that boat, in terms of trying to deal with Bell.
6175 But you have heard them -- well, we have told you that what they have said to the markets is that they are, to a greater or lesser measure, retreating to their home territory.
6176 COMMISSIONER KATZ: So does that mean that they are not going to entertain any enterprise bids at all?
6177 MR. PEIRCE: No, I didn't say that. I am telling you what they said of their markets. What Bob McFarlane told his investors was: We are going to take a break.
6178 And George Cope's investors were not going to invest capital in there.
6179 As to what Bell and TELUS are doing together, in terms of servicing national customers, I can't tell you. They are doing more and more together.
6180 If you think about their HSPA build, if you think about the resale by TELUS of Bell TV -- I can't tell you what all of their dealings are. I can tell you that there are certainly times when we think that we could be a supplier to TELUS -- for instance, when they were bidding heavily in the eastern Canadian market -- and that hasn't happened to the extent that we would have thought.
6181 COMMISSIONER KATZ: But --
6182 MR. PEIRCE: But I think the bottom line, though, Commissioner -- I'm sorry, I will finish here -- the bottom line is that, for them, the risk/reward of embracing wholesale access, versus the benefit to them of retaining their home territory business, just means that it's de minimis for them.
6183 They would much prefer to be able to keep out another aggressive competitor than to go after what you are saying, to go after mandated access, call it, for their business out of territory.
6184 COMMISSIONER KATZ: But I am just trying to get a simple answer. Do you believe that they are entering into joint bids in order to service a customer at the exclusion of you, who doesn't have access to the facilities, and because they both have access to facilities across Canada, for the most part, they are using that vehicle to compete against you, perhaps from your perspective, unfairly?
6185 I am not trying to put words in anybody's mouth here, I am just trying to understand, the fact that there is no tariff in place for some of the services that you are looking for, and in two and a half years from now there are going to be non-essential services, subject to phase-out, perhaps being phased out, their solution to this problem is to enter into joint bids in order to service the customer.
6186 MR. PEIRCE: I am telling you that I don't know.
6187 COMMISSIONER KATZ: Okay. So, from that perspective, they are in the same boat as you when they bid for national accounts, if they bid individually. They need access to infrastructure -- for the last mile, for small banks, and rural areas, or whatever.
6188 MR. PEIRCE: Understanding the scale -- that proposition would be true, but the scale is a crucial one.
6189 You know, we are the biggest, by far, competitor. TELUS is, what, six times bigger than us? Bell is ten times bigger.
6190 You know, I am not sure how much significance you can take from the truth of your proposition.
6191 COMMISSIONER KATZ: But your evidence has been -- I think I heard you again this morning say that you are in 30 percent of the buildings across Canada today, and you are going to 35 percent.
6192 MR. PEIRCE: No, no, no, that's not what I said. What I said was, for 30 percent of our customers, we can serve them end-to-end on our network. So for 70 percent of our customers, we need access to some piece of the incumbent infrastructure.
6193 With our investment to 600 more buildings -- 600 to 700 more buildings across the country, raising our number to 3,000, we will increase our on-net capability, we think, to about 35 percent of our customer base.
6194 So in 65 percent of the cases --
6195 COMMISSIONER KATZ: I understand. So let me ask you this --
6196 MR. PEIRCE: Just to finish the thought -- those percentages would be wildly in a different universe than similar percentages that either Bell or TELUS would tell you.
6197 COMMISSIONER KATZ: And I am about to ask that question.
6198 So Bell and TELUS, roughly speaking, what percent of your enterprise accounts do you provide end-to-end connectivity over your own network for?
6199 MR. BIBIC: I do not know.
6200 COMMISSIONER KATZ: TELUS?
6201 MR. HENNESSY: I think I am in the same situation.
6202 COMMISSIONER KATZ: I can't hear you, sorry.
6203 MR. HENNESSY: Clearly, I would agree with you, Commissioner Katz, particularly --
6204 COMMISSIONER KATZ: I am looking for a number.
6205 MR. HENNESSY: Well, I don't have a number.
6206 COMMISSIONER KATZ: Okay. Could I ask both of you to file a number, please?
6207 MR. HENNESSY: You know, it may take until we file final argument, because that is not the kind of number that is, you know, lying around in the hat.
6208 COMMISSIONER KATZ: That's fine.
6209 If we could get that number of the record, I would appreciate it, from both of you.
6210 MR. PEIRCE: The other relevant number, just to buttress what that 30 or 35 percent means, Commissioner, is, as you heard, it's over $200 million that we spend on incumbent infrastructure every year, which works out to over 20 cents on every revenue dollar.
6211 COMMISSIONER KATZ: Yes, I understand that.
6212 Let me go on to another question. In your comments this afternoon here -- I want to take you to page 2. In the first full paragraph you talk about new fibre to the home access infrastructure, which is a true overbuild, and fibre to the node, which you are suggesting is not.
6213 I think you are quoting from SaskTel, but it appears as though you are in agreement with that.
6214 Is that correct?
6215 MR. PEIRCE: Yes.
6216 COMMISSIONER KATZ: I am trying to understand the distinction between fibre to the node and fibre to the home, because as you get closer and closer to the home, eventually you are going to get to the point where, you are suggesting, it's a true overbuild.
6217 Maybe I am missing something, but if Bell, for argument's sake, took all of their fibre right to the home, is that, in your definition, considered a true overbuild, and therefore outside the scope of what you are seeking?
6218 MR. PEIRCE: No, we haven't said -- as we have said, we are not arguing that there should be no mandated access. We have said that we recognize that replacing the access infrastructure, especially replacing the access infrastructure now, in a competitive context, represents a different risk for an incumbent.
6219 We recognize that, so we are saying that that should be -- the way that that can be recognized is in the costing methodology.
6220 COMMISSIONER KATZ: But the closer you get to the home, the more economics change, obviously, as well.
6221 You start of with to the node, and then, as you get closer and closer, you may get to a pedestal down the street, and you may get closer. So I am trying to understand where the economics --
6222 MR. PEIRCE: The difference is, Commissioner, that investment has been going on for a long time, so that investment has benefited from the monopoly or dominant position of the incumbents in the marketplace.
6223 Now fibre to the home is -- we are talking about that now, and when we are talking about that, cable is clearly in the market.
6224 So there is clearly competition going on between cable and the telco.
6225 So what makes your essential facilities framework is all about competition. Now you have a competitive context. When most of the investment was pushed out in terms of fibre to remotes, as they were called -- they have been re-branded nodes apparently -- when most of that investment went on, you didn't have that kind of competition going on. So the market shares -- the business case for an incumbent, which Mr. Bibic went over to some extent in one of his earlier responses -- the business case was different as the investors thinking about investing or not.
6226 Now, legitimately, in terms of taking out the access infrastructure and putting in the new fibre access infrastructure, you are looking at a situation where you don't know -- you certainly know that you are not going to get 100 percent of the customers, you know that, and you may well not be getting more than half of the customers.
6227 So that is a different business case.
6228 COMMISSIONER KATZ: But the node can get closer and closer to the home, as well.
6229 I am trying to understand at what point in time --
6230 MR. PEIRCE: Well, you are at the point now --
6231 COMMISSIONER KATZ: -- am I looking at a next-generation network, as distinct from an overlay network, as you call it.
6232 MR. PEIRCE: The difference now, I think -- at least to the extent I have heard incumbents talk about it -- is that you are not -- the fibre has been pushed out. Now you are talking about, are you going to replace the access infrastructure and go with fibre to the home.
6233 COMMISSIONER KATZ: So it's the local loop you are talking about.
6234 MR. PEIRCE: Yes.
6235 COMMISSIONER KATZ: The minute the local loop becomes fibre, that's a new network, that's a next-generation network.
6236 So it's in the drop to the house.
6237 MR. PEIRCE: No, the issue isn't whether it's a next-generation network, the issue is, that is an overbuild, so the fact of that piece being replaced when the market is competitive means that there is a different risk associated with that investment.
6238 You can deliver -- we deliver next-generation services over ADSL now, using copper. So the entire nature of the whole network doesn't change, it is just that this is replacement investment.
6239 COMMISSIONER KATZ: Okay. Let's go on, because I am not getting to where I want to get to, so it doesn't matter.
6240 On page 6 you say, at the end of the first paragraph: "It is indisputable that negotiating broadband access will not work."
6241 And then you go on to say that, as well.
6242 Since the decision on essential services, and the fact that there are some services that are subject to phase-out, that were deemed non-essential, have you approached the ILECs to try to negotiate a relationship, a longer term deal for facilities that you might need that may no longer, heretofore, be tariffed?
6243 MR. PEIRCE: Absolutely.
6244 COMMISSIONER KATZ: And what has been the result?
6245 MR. PEIRCE: We have not achieved any --
6246 The only -- the extent to which the incumbent is prepared to talk to us about those types of high-speed services -- the high-capacity things that we need, the next generation -- is if we are willing to pay for an end-to-end service, because they are completely at odds with the notion of investing in your own network and using the unbundled access component.
6247 I have heard Mr. Bibic complain about the extent to which we want unbundled access.
6248 They are prepared to sell us their end-to-end services, at a rate that is entirely uneconomic for us.
6249 We are in constant negotiations with them. We are their largest customers, so, yes, we are constantly talking about these things.
6250 COMMISSIONER KATZ: You make the statement that "it will not work". I would have thought that you would have said "has not worked".
6251 When you say that it will not work, I gather that the continuation of that sentence means from their perspective, but have you given up?
6252 MR. PEIRCE: Have we given up?
6253 COMMISSIONER KATZ: I mean, it takes two to sit in a room. I guess the question is, how often do you guys sit in the same room together?
6254 MR. PEIRCE: All the time. We pay them over $200 million a year.
6255 We are negotiating large agreements with both of them right now.
6256 So, you know, absolutely, we are constantly talking to them.
6257 But what we are telling you is that, after seven years, we know that unbundled broadband access is not coming.
6258 So excuse me for that wrong tense.
6259 It is clear that that is not going -- it has not been negotiated in any sort of timely way.
6260 COMMISSIONER KATZ: Mr. Bibic, Mr. Hennessy, is it your company's position that you will not negotiate unbundled access under any conditions?
6261 MR. HENNESSY: Mr. Katz, as Mr. Peirce well knows, we have negotiated, recently, significant but confidential arrangements -- and when I say significant, I mean very sizable. If Mr. Peirce wants to suggest to me that I am wrong, he can put that on the record and we can file things in confidence with the Commission.
6262 But I take significant exception to the tone and allegations in what he is saying.
6263 MR. PEIRCE: Excuse me, what I just said was, we are negotiating with both companies now, and that we do over $200 million of business with them.
6264 So of course I am not suggesting that we don't use all sorts of services from both TELUS and Bell. Obviously we do. What I am saying is, they have not been prepared to negotiate unbundled access to --
6265 COMMISSIONER KATZ: And that was the question that I asked Mr. Hennessy and Mr. Bibic.
6266 Are your companies prepared to negotiate unbundled access, or is that a non-starter at the table?
6267 MR. HENNESSY: Are you saying, are we prepared to negotiate unbundled access with MTS to facilities that you have determined to be essential, in any particular category, or services that you have told Mr. Peirce, on a number of occasions, aren't part of this proceeding?
6268 And you have turned him down now a number of times, and the cabinet has turned him down.
6269 Which services are we talking about?
6270 COMMISSIONER KATZ: The ones that were deemed non-essential, subject to phase-out.
6271 MR. HENNESSY: We don't have to negotiate those with Mr. Peirce, because there are substitutes in the marketplace.
6272 COMMISSIONER KATZ: So your company is not prepared to negotiate.
6273 MR. HENNESSY: We will negotiate anything. I just told you that we had negotiated a big deal with him.
6274 MR. HENNESSY: Bite me.
6275 This is bullshit.
6276 THE CHAIRPERSON: Mr. Hennessy, let me put the question to you unequivocally. What we want to know is, are you prepared to negotiate non-essential services, which include, obviously, internet access, with MTS, yes or no?
6277 That was the question.
6278 No qualifier, I just want a clear answer.
6279 MR. HENNESSY: I can't give you a "Yes" or a "No", I can give you: That depends on whether or not MTS is prepared to negotiate things that we need to get access to in their province or not.
6280 COMMISSIONER KATZ: Mr. Bibic?
6281 MR. BIBIC: Mr. Katz, I don't know the answer. I am not involved in these negotiations. I didn't come here expecting that we would be engaging in some form of mediation, nor did I think we would be revisiting 2008-17.
6282 I can check as to the extent of the negotiations, but I certainly will not give a public answer. I can give you a private answer.
6283 COMMISSIONER KATZ: Okay, thank you.
6284 MR. SANDIFORD: This is Bill Sandiford, from Telnet Communications, for CAIP.
6285 I was just disturbed by something that I heard from -- I believe it was Mr. Hennessy, when he didn't answer the question and said: It depends on whether or not MTS Allstream will talk to us about the things we need in their province.
6286 Does that mean that those of us who don't have provinces are unilaterally not going to be allowed to come to the table?
6287 MR. HENNESSY: No, it doesn't.
6288 COMMISSIONER KATZ: My last question, Mr. Peirce -- you say on page 7, in the last paragraph:
"While MTS Allstream is not advocating forbearance in the wholesale residential market, if the Commission finds that intermodal competition is sufficient..."
6289 And then you go on to talk about "can make similar findings in the business market".
6290 I would like to know, what is MTS' position with regard to wholesale residential access?
6291 MR. PEIRCE: As we said in our statement yesterday, we support the matching speeds requirement for the same retail internet services that we provide.
6292 COMMISSIONER KATZ: As well as aggregated ADSL to CO?
6293 MR. PEIRCE: Yes, we have put before you --
6294 COMMISSIONER KATZ: You have your other --
6295 MR. PEIRCE: Yes, we have put before you an aggregated solution for ADSL that we think works.
6296 COMMISSIONER KATZ: Okay, great.
6297 Those are my questions.
6298 THE CHAIRPERSON: Candice, do you have a question?
6299 COMMISSIONER MOLNAR: Thank you.
6300 Just to follow up, you also say in here that there may be a different risk differential for residential markets than for business, and that's your position, that that occurs?
6301 MR. PEIRCE: Yes.
6302 COMMISSIONER MOLNAR: I want to go to page 8 of your rebuttal comments, where you say, "The regulatory framework is clearly capable of applying different regulatory prescriptions in the two markets," those two markets being business and residential?
6303 MR. PEIRCE: Yes.
6304 COMMISSIONER MOLNAR: And then you go on to note that, for example, the residential market holds a higher risk premium.
6305 I expect that you have read the full record of this proceeding. I know that you have been here through the entire proceeding. Do you believe there is enough information on the record of this proceeding for us to determine and treat residential separate from business?
6306 And I say that -- and I am sure you are aware of this -- in the essential services decision, ADSL access was treated as a single service, and there was no differential between residence and business.
6307 MR. PEIRCE: The royal "we" has read the record, and we are not advocating a different ADSL solution for residential or business.
6308 So, for the specific service that you have in front of you, you don't need to worry about a residential business differentiator.
6309 We are telling you in terms of broadband investment and the questions you, and before you answer the government for broadband investment more generally, you should think of the business market and the residential market as being different.
6310 COMMISSIONER MOLNAR: Okay. So you are not advocating it. We are not looking at a lot of other services. Well, while it is being discussed, there are four services specifically being considered as part of this proceeding, and one of them is the aggregated ADSL, another the CO-based ADSL as well as the cable companies' equivalent services.
6311 The arguments you make about different risk profiles, different competitive profiles at both the retail and the competitive level potentially fit into these services that we are looking at here today.
6312 So why are you not advocating for something different for ADSL?
6313 MR. PEIRCE: Well, ADSL CO is not a fibre to the home service. Because, Commission Molnar, you have asked a number of questions in this proceeding since the government referred back a the petition to you that go beyond ADSL CO.
6314 You have asked a number of questions that deal with broadband investment and how to appropriately incent broadband investment, and how to do it to ensure that there is competition sufficient to protect the interests of users. Those are broadband questions, they are not ADSL CO questions. But you have done it in the context of the ADSL CO --
6315 COMMISSIONER MOLNAR: But ADSL provides a broadband access.
6316 MR. PEIRCE: Yes.
6317 COMMISSIONER MOLNAR: So you don't care so much what we do with ADSL CO --
6318 MR. PEIRCE: No, Commissioner, we have been involved in this proceeding since the beginning. We have put a proposal in front of you about an aggregated ADSL CO service that we think we could use. What I am telling you is that in mandating that service we have not said, you should mandate one for the residential and one for the business.
6319 But as you go, we are thinking, that you are going to have further questions coming out of this proceeding that are probably going to require more proceedings. And we are suggesting some facts that are important as you think about those future proceedings, including the equation for investment in broadband is going to be different for competitors in the business market and competition sufficient to protect interests of users different in a business market than in a residential market.
6320 COMMISSIONER MOLNAR: Right. And assuming that I feel, you know, that I am accepting your arguments that competition will be different, competition is different today, the risk profiles are different today, why wouldn't it apply to the services we are looking at today?
6321 MR. PEIRCE: Because the solution that we have had in front of you will work across both markets. We said to you, you should mandate that service, period. We have not said to you that we think that is a service that should be restricted to business markets.
6322 COMMISSIONER MOLNAR: I want to hear from the others because, you know, what you have laid out here, again, is a series that says the competitive market conditions are different at the retail level and at the wholesale level. There is potentially different risk profiles dependent on whether you are investing in the business market versus the residential market.
6323 So why wouldn't we treat this one different? I understand now that you didn't propose it. Is there anyone here who would like to comment on whether or not that, based on the record in this proceeding, we would be able to differentiate between the residence and business markets as we go forward in this decision?
6324 Someone in the back.
6325 MR. MEZEI: Yes. Jean-François Mezei. Just a very quick comment.
6326 At the technology level with ADSL there is really no difference whether it is business or private. There's service levels that the retailer will impose, but from a wholesale level there is really no difference.
6327 So from the Commission's point of view, I don't think that there should be a differentiation. There should be just ADSL CO, or whatever you want to call it, a raw transfer of packets between A and B, and let the retailer then decide whether it is going to be business or...
6328 But at the technology level there is really no difference.
6329 COMMISSIONER MOLNAR: Right. I just want to throw one more thing out there. Just recognizing, and you likely do, that some of the aggregated ADSL services today, and particularly Bell's GAS, already differentiates between a residential and a business service. Despite the fact that technology may not have significant differences, the services are different; one have usage-based caps on, one does not, pricing are different, they are different wholesale services.
6330 MR. MEZEI: They are now, but two years ago they were the same basically, with just a slight difference in speed.
6331 COMMISSIONER MOLNAR: Go ahead.
6332 MR. TACIT: Chris Tacit for TekSavvy.
6333 This gets really to the core of the case that we are making to the Commission, and that is that especially as you go up to the higher order services, up the investment ladder, it is really important for us to be able to get at the raw functionalities without any kind of distorted price signals that have nothing to do with costs.
6334 We really need to be able to use the services, compensate the incumbents fairly for their resources that we are using according to the Commission's accepted methodologies, and be able to use those in ways that are gong to promote innovation.
6335 If we start getting into different kinds of costing principles based on whether it be usage or throughput or speed or customer segment, that starts limiting the differentiation that can be made of those services in order to transform them into end-user services.
6336 In other words, the more you put some sort of artificial constraint that has nothing to do with the cost of the pure service, whether it be bandwidth or anything like that, then it would decrease the ability of the wholesale customer of the incumbent to transform that into a differentiated service.
6337 COMMISSIONER MOLNAR: Thank you. And I am not talking now about how these services are defined or otherwise, I am just saying that we have heard through the proceeding, and MTS makes it very clear, that there is differences between the residential and the business market. So I am not talking about how a service would be defined, I am just talking about the fact that can we treat them differently where they haven't been before --
6338 MR. TACIT: Well, clearly, you can as a regulator. But what we are saying is --
6339 COMMISSIONER MOLNAR: -- based on the record of this proceeding?
6340 MR. TACIT: What we are saying, that both of those markets have difficulties in terms of the level of competition that exists and that it wouldn't be a good idea to do that.
6341 COMMISSIONER MOLNAR: Okay, thank you. That is all I have.
6342 THE CHAIRPERSON: Just to wrap up. If I understand you, you are saying the proposition that you put before us, one has to adopt it across the board. If we don't do that, then at least do it for the business market, given the lack of competition in the business market?
6343 MR. PEIRCE: That is right.
6344 THE CHAIRPERSON: Okay, thank you.
6345 Let's move onto the next group now, before break, PIAC and Vaxination Informatique.
6346 THE SECRETARY: Okay, so we will now proceed with PIAC.
6347 Please reintroduce yourselves for the record, and you have 15 minutes.
6348 MR. LÉGER: Mr. Chairman, Members of the Panel, my name is Jean-François Léger, outside counsel to the consumer groups. And with me is John Lawford, counsel to the Public Interest Advocacy Centre.
6349 As consumer advocates, we are here because we believe that Canadian consumers should not be left to rely upon the current virtual duopoly composed of the incumbent cablecos and telcos for retail broadband internet services.
6350 We came to this hearing with the view that current incumbent cableco and telco wholesale offerings in the broadband internet marketplace appear to be inferior services that do not meet their intended customers' business requirements and do not result in retail services from those customers that are credible alternatives to the incumbents' own retail services.
6351 Until these wholesale services are improved, in our view the disintegration of the independent ISPs' market share will continue with the result that Canadian consumers will have little or no alternative to the incumbents and their affiliates. Nothing we have heard in the course of the hearing has given us reason to question this view.
6352 In fact we have heard, we believe, more confirmation from the intended customers for the incumbent telcos and the cableco wholesale services that these wholesale services are inadequate.
6353 We have also heard from the cablecos and the ILECs that there has been little demand for their wholesale services other perhaps than GAS. The cable companies have tried to put forward explanations or I guess we prefer to think of them as excuses for this.
6354 I will spare the Commission our repetition of comments we have about the cablecos' views. I think these have already been expressed by other parties. All that to say, however, that we did have some difficulty believing the views put forward by the cablecos.
6355 The story from the ILECs is different, but appears to lead to the same unfortunate result. The ILECs argue that they are investing in their networks to provide retail services which have been forborne and that, in effect, the Commission has no business interfering in that retail business by making them offer wholesale services that would potentially dilute their retail customer base.
6356 The Bell companies next argue that the Commission should trust them and that they should be left alone to decide what wholesale services they will offer and to whom they will make the services available in the broadband internet marketplace. We think there is a fundamental contradiction here.
6357 The ILECs' principal contention is that they investing in fibre-to-the-node and to the premises on the basis that they will, and these are their own words, "win the broadband home." This leaves little doubt in our view that if the Commission does decide to step aside, there will be no speed matching or CO-based access service from most of the ILECs, with the possible notable exception of MTS Allstream.
6358 The ILECs have also contended what we thought were very careful perhaps to couch their words, that they may not make their planned investments in the deployment of fibre-to-the-node or to the home if the must also offer matching speeds or CO-based access. We believe that this is a bluff, and one which has been unsuccessfully put forward many times before. The cablecos, on their part, have certainly stated that they have no plans to stop investing.
6359 We urge the Commission to call the ILECs' bluffs.
6360 In the consumer group's view, if the ILECs want to remain in the marketplace not only for broadband internet, but for the entire suite of communication services they offer, they must substantially improve the facilities they use to serve customers. All of the major service providers have developed bundling strategies and the ILECs cannot hope to compete in the marketplace generally if they cannot compete in broadband.
6361 We have also heard no expression whatsoever from the incumbents that they have any intention of improving the broadband internet wholesale services they offer. The incumbents have made very little effort to defend the quality or suitability of their wholesale services.
6362 We acknowledge, however, that Bell has offered to finally address the remotes issue after some seven years since the first Call-Net complaint on this subject.
6363 Now, one of the basic principles of this proceeding, and something the Commissioners have reminded parties of during the course of the hearing, is that the Commission defined essentiality in Decision 2008-17, and this proceeding was not intended to review this definition or the mandate it services.
6364 In Decision 2008-17 the Commission already found that withdrawing access to end customers from the ILECs' COs would substantially lessen or prevent competition. The Commission also found that use of co-location and use of local loops was often not a cost-effective alternative and mandated aggregated access to TPIA. I two decisions the Commission has also required the ILECs to provide matching speeds.
6365 These findings are all consistent with the policy direction as well as Order in Council 2009-2007.
6366 Looking at the reasons for mandating the services in the first place, we submit that the record of this hearing confirms, if confirmation was needed, that the incumbent cablecos and telcos possess upstream market power. An argument might be made that they do not, that is if they competed with one another for wholesale business, but this is clearly not the case.
6367 In this proceeding the incumbent cablecos and telcos, with the possible exception of MTS Allstream, seem to compete with one another to come up with reasons why they should not be serving the wholesale broadband internet services marketplace. There is no evidence of market forces at play.
6368 These carriers clearly collectively and individually possess upstream market power and have no intention of providing satisfactory services in this marketplace or of competing for wholesale customers' business in our view.
6369 The record of this proceeding also confirms that the services at issue are requires as inputs by competitors. The Commission already made these findings in 2008-17.
6370 The collapse of independent ISPs' market share these last few years, as well as their comments in the course of this hearing and more generally on the record of this proceeding, leave no doubt in our view that without access to credible wholesale services -- and we think that this means substantially improved wholesale services in comparison to what the incumbent cablecos and telcos have been offering -- we have experienced a substantial lessening of or prevention of competition in the downstream market. The result is an independent ISP market share in the single digits.
6371 We believe that there is substantial evidence on the record of this proceeding to support the contention that competition has not been effective in curbing market power in the downstream market.
6372 Based on our own research as well as research performed by others, the current duopoly does not appear to have performed very well for Canadian consumers. The responses to interrogatories filed by incumbents suggest, for example, that prices for broadband internet services, and particularly at the higher end of the marketplace, have not been very dynamic.
6373 While there had been some debate regarding the performance of Canada's retail broadband internet services marketplace in relation to other economies, there appears to be little debate that Canada is no better than a mid-pack player. Canadian consumers depend on high-performing, competitively-priced internet services. Canadian consumers, in our view, deserve better. The consumer groups believe that more competition could lead to improvements.
6374 Furthermore, disappearance of the remaining independent ISPs would further undermine what few market forces operate in the retail broadband internet services marketplace today.
6375 Now, we reiterate that we are here as advocates for consumers. We are not here to attempt to promote specific network or operational solutions. Now, we heard with great interest Mr. Engelhart's admission that he at least doubts that "resale is or can ever be a viable business model."
6376 As consumer advocates, we have no way of verifying this, but draw the Commission's attention to a point made by several participants at the hearing, that it is incorrect and misleading to refer to the use of incumbent facilities as just "resale."
6377 We also draw the Commission's attention to the point made by several participants that virtually all competitors, including incumbents out of territory, buy service or facilities of some kind from the incumbents.
6378 In any case, we would suggest to the Commission that perhaps the fix to Mr. Engelhart's concern, if it has any basis, may not be to withdraw wholesale services, but instead to ensure that independent ISPs have access to services that provide them the opportunity to add value to the incumbent cablecos' and telcos' underlying services.
6379 One essential aspect of such wholesale service, however, should be that the serving arrangement in question must be such that reasonably efficient ISPs can make use of them on a commercially viable basis. We do not believe that it is the Commission's role to make detailed assessments of what is commercially viable for individual competitors.
6380 But it appears that interconnection arrangements at a level of aggregation analogous to something perhaps comparable to the LIR, and I only raise the LIR as an example, may hold promise. There is ample precedent for interconnection arrangements that reflect some form of aggregation.
6381 This proceeding, in our view, is an opportunity for the Commission to reignite an innovative and dynamic marketplace for Canadian consumers and we urge the Commission to take advantage of this opportunity.
6382 Those are our comments, thank you.
6383 THE CHAIRPERSON: Thank you.
6384 Madam Secretary, I gather there is no rebuttal from Vaxination?
6385 THE SECRETARY: Yes, there is one. They are appearing individually, Mr. Chairman, so he will be next.
6386 MR. LÉGER: Oh, I apologize, did we -- I have somebody else's place?
6387 THE CHAIRPERSON: I called you both to the table. I don't know why Vaxination is not here. I said PIAC and Vaxination. You appeared together in the main --
6388 MR. LÉGER: No, we didn't.
6389 THE SECRETARY: No, they were appearing individually, Mr. Chairman.
6390 THE CHAIRPERSON: Oh I see, okay, fine.
6391 Mr. Léger, you heard this morning Distributel quoting Bell's submission from February 20 and their view of competition, which I find somewhat startling. And you talk about the same thing. Basically, let me repeat it.
6392 Paragraph 45 of their February 20 submissions is:
"The Commission must also, even if access to an ILECs NGN is somehow found to be essential, carefully consider what kind of competition and consumer landscape it is seeking to encourage to the extent investment allows the development of new services that would not exist absent this investment, such as IPTV. The Commission must raise the relative social and economic merits of two futures; one, where new services may be introduced and made available though potentially marginally reduced competition, and one where competition may be more rigorous, but where product choices and innovations are stymied." (As Read)
6393 So basically, a somewhat dismal choice of one or the other. You can have competition but you will have stymied innovation or you can have innovation, but it would be at the reduction of competition.
6394 MR. LÉGER: You are asking for our comments?
6395 THE CHAIRPERSON: Yes, because this is clearly, obviously, not what -- and if I understood you correctly, this does not reflect your view of the marketplace.
6396 MR. LÉGER: No, it doesn't, Mr. Chairman. But to be fair, and then we keep repeating this, we are not engineers. However, we have great faith in engineers. And our sense is that these services all ride on facilities for which there are many vendors out there. I guess we are challenged to believe that it is an all or nothing type scenario the way it is described.
6397 The ILECs or the incumbents clearly have, and you know, we don't blame them, they clearly have substantial commercial incentives not to make certain services available and, at this juncture, to raise to the Commission this prospect that they may slowdown the deployment of certain services. We have I guess considerable faith in the ability of organizations or organisms such as CISC to resolve some of these issues.
6398 Now, this may be entirely a pipedream. Frankly, again, we don't have the engineering skills to address that. But the alternative I guess we look at is the prospect that -- I mean, I has become quite clear that these competitors are disappearing. There are a number of them here today but, frankly, you know, with a collective market share in the single digits and there are I think some several hundred of them, we are not looking at a long lifespan here if they are unable to provide viable serving arrangements.
6399 THE CHAIRPERSON: But Mr. Cope was here on Monday and he made a very compassionate plea saying, IPTV is a huge investment. It will cost us an awful lot, we can make it and we want to make it so that we have something to offer to cable companies, which is comparative to them.
6400 But basically, beware if you force me to share it, et cetera, this will have a direct impact on the amount of investment I can make in IPTV, if I understood him. If I misunderstood him, I am sure Mr. Bibic will correct me, but I think that was the essence of his message.
6401 I mean, I can understand from his point of view that that is exactly how the world looks. I just don't know to what extent, you know, to --
6402 MR. LÉGER: Well, you know, we are not in the boardroom at Bell making those decisions. But having said that, it is a competitive marketplace out there. And the idea that, you know, they will not make investments or they will postpone investment or they will not rollout services, well they are competing today with the cable companies that, frankly, are doing quite a bit better than them in terms of the types of services they can provide to consumers.
6403 As we have pointed out, bundling has become a very important aspect of the services that both of the incumbents and I presume new entrants would like to offer. And if you can't compete in the broadband marketplace, then you may not have much of a future. And the ILECs right now aren't very competitive on the broadband side.
6404 THE CHAIRPERSON: But does that really feed into Mr. Engelhart's argument, saying you have a bundle to compete, and just offering internet access? Even if on a mandated basis, there is no business there because you are going to compete against people who offer a whole bundle and that is what the consumer is after.
6405 MR. LÉGER: Well, remember technology is advancing. With a broadband connection today, you know, you can provide a wide variety and we believe a growing variety of services.
6406 Now, we are sort of rapidly reaching the limits of my, you know, technical knowledge here. But our understanding is that, yes, it is true that bundling is important, but it is also true that broadband connection has become, we think, sort of the anchor facility that suppliers, that service providers need to have.
6407 And the ILECs are deploying fibre out in their marketplace. Right now, what that will deliver to them or is providing them is the ability to deliver much greater broadband speeds. Yes, it is key to their IPTV strategy but, you know, if they don't have competitive broadband services, I think they could tell you better than us, but --
6408 THE CHAIRPERSON: So from your viewpoint, as a representative of consumer interests, I gather there is no issue, we should do what we can to provide third-party internet access on a mandated basis?
6409 MR. LÉGER: That is correct.
6410 THE CHAIRPERSON: Okay, thank you.
6411 Stephen, do you have any questions?
6412 COMMISSIONER SIMPSON: Yes, I do have a couple. Thank you.
6413 First off, I just want to say that in the two types of arguments that have been presented to us one set of argument is being highly technical which I at times have trouble understanding and therefore really can't at times come down with an immediate notion of where I stand on what I have heard.
6414 I find myself equally challenged when it comes to broad-based concepts of the notion of competition versus the ability to put metric to it, because it is equally difficult to grasp the validity of a concept to the point where, if you move forward on it on a hunch, that you can be wrong and there is a lot of damage that is done.
6415 The build-out of this whole system that we are looking at, again, parallels other industries that have conquered the geography of this country, the railroads and the airlines and so on. And as we have watched, you know, the threshold of competition occur, it seems to porpoise from too few to too many, and then there is a crash back to too few again.
6416 And it seems that even after 50 years of running airlines in this country it is hard to find the sweet spot and stay there. It is an industry that is still evolving. And I am tempted at this point to draw some parallels to open this discussion to what we are looking at, which is a highly accelerated industry, you know, reaching maturation with Moore's Law right there. You know, it is moving at light speed literally and figuratively.
6417 And I would like to, first of all, challenge your assumptions from a practical standpoint and try and move to the middle ground between the technical and the conceptual and move into the economic.
6418 Looking at what we have seen from the very minimal uptake of competition third-party providers and the fact that there hasn't been a whole lot of what I would say substantial benefit to the consumer at this point and we are seeing a downward projection the viability of these entities given the existing regime, do you feel that forcing the market, potentially at the expense of the incumbents from what we have heard, is a risk that you, if you were sitting here, would take?
6419 MR. LÉGER: As we have said, we don't think that the risk is as it has been described by the incumbents. We have pointed this out.
6420 But again, as I mentioned to the Chairman, we are consumer groups so we are looking at it from the perspective of consumers. We have difficulty believing or understanding how the ILECs could possibly say to the Commission -- and they are not -- I'm rounding corners here, but we are not going to roll out IPTV if you don't give us this.
6421 To us it's not really an IPTV issue in any event, it's a broadband service and it's the ability to remain competitive in the marketplace.
6422 Now, to be fair, but we don't -- again, we are not there making their decisions. They filed numbers with you confidentially to which we have no access.
6423 Now, the way we see it -- so we don't believe that this -- we are unkindly perhaps calling it a bluff, but we don't believe that this slowdown will materialize.
6424 Having said that, we also look at 10 years of the availability of wholesale services which, frankly, whether it's TPIA or CO access, it has never been really, we would describe, services that meet the customer's needs.
6425 If this was a retail market and customers, instead of being the ISPs were, I don't know, the Bank of Montréal or the Royal Bank or General Motors and came to the ILECs and said, you know, Geez, I need this functionality and I need it to work this way and I need it to be able to do this, those guys would probably be falling all over themselves to find ways to fix that.
6426 We look at the wholesale market, there have been years and years of discussions, negotiations, and seemingly never services that are suitable to meeting their customers needs.
6427 So to us there is an apparent problem there and we think that the Commission, through this proceeding, has provided an opportunity to fix that problem and we encourage the Commission to, you know, I guess what I would call finally resolved these services to make them into workable solutions that these customers can use.
6428 Now, will these customers ultimately fail after the services are made available to them? We have no crystal ball, we can't tell that. But what we do see right now is that we are clearly heading towards an environment in which there are incumbents and their affiliates and maybe future service providers with new technologies, but certainly right now there are incumbents with their affiliates and that's it.
6429 COMMISSIONER SIMPSON: Given that this hearing is about the larger end of the system, you know, the wholesale access, do you disagree or agree with the notion that what -- because you are advocating on behalf of consumers, that on the other end of that system the consumer offerings are getting greater, not only in terms of diversity but in terms of vendors.
6430 Although we are talking wireline services there has been a significant increase in the access of telephony, mobile telephony that's giving consumers a choice, there has been the advent of internet telephony which is being provided by the wireline guys that are in -- what I'm saying is the Shaw's --
6431 MR. LÉGER: They are not in that business though
6432 COMMISSIONER SIMPSON: -- the Shaw's and the Rogers.
6433 MR. LÉGER: Oh, that wireline telephony, okay.
6434 COMMISSIONER SIMPSON: Yes.
6435 MR. LÉGER: Okay.
6436 COMMISSIONER SIMPSON: And then on top of that --
6437 MR. LÉGER: Sorry, I was thinking --
6438 COMMISSIONER SIMPSON: That's okay.
6439 MR. LÉGER: I thought you were talking about internet telephony, sort of what we used to call over-the-top.
6440 COMMISSIONER SIMPSON: I understand.
6441 MR. LÉGER: It has pretty well disappeared now.
6442 COMMISSIONER SIMPSON: I understand.
6443 And on top of that incumbents wanting to write big cheques with nine zeros to get into a healthy competition with the cable companies in the television space.
6444 Is that not, given the times we are in and the window we are in in the evolution of this industry, not sufficient for the next while to give the consumers the choice and the pricing they are looking for?
6445 MR. LÉGER: It gives consumers choice in those markets, but those services aren't the subject matter of this proceeding.
6446 The subject matter of this proceeding -- and again correct me if I'm wrong here -- but our understanding is the subject matter of this proceeding are services, facilities that are used to provide high-speed internet service and that's where all of our evidence has pointed to what we think is a -- and again, we don't want to sound unfair here, but a somewhat less than optimally dynamic marketplace where yes, prices have been going down over the years and speeds have been going up, but certainly doesn't appear that they have been moving at the same rate as the competitive economies have.
6447 I'm sorry, that's a long answer.
6448 COMMISSIONER SIMPSON: That's fine.
6449 THE CHAIRPERSON: No, no. We are talking theory, there are no facts here. The rebuttal is to elucidate those facts.
6450 MR. LÉGER: I'm looking for the facts, Mr. Chairman --
6451 THE CHAIRPERSON: I know.
6452 MR. LÉGER: -- and I don't see them here.
6453 COMMISSIONER SIMPSON: That's exactly the point I wanted to end on, which is that yes, it is about the Internet, but the issue is that there is risk associated with a wholesale decision that could impede all of the bundle, including those services and the internet on the basis of -- one would seem, if one buys the arguments of the ILECs, that one would preclude the other.
6454 MR. LÉGER: Well, it's the argument of the ILECs, you know. I think it may have been Mr. Engelhart, or perhaps it was Mr. Brazeau who reminded the Commission that the cable companies aren't threatening to cut down on -- you know, reduce their investments.
6455 So, you know, it's really the ILECs that are saying well, we may spend less or we may slow down spending if you give our competitors what they are asking for in this proceeding. I mean, I may be again cutting corners little bit here, but that's pretty well what it boils down to.
6456 They are not saying we are not going to roll out IPTV, they are saying it may not come to the same places at the same rates as it did before. We are saying well, you know, if you guys want to be competitive in the marketplace you are going to have to offer high-speed service in the internet and your DSL technology, I think most people would agree, is coming to, again, sort of the end of its certainly -- you know, of its growth phase in its life.
6457 COMMISSIONER SIMPSON: Before I close off, are there any rebuttals from the ILECs or the cable companies to this testimony?
6458 I didn't think so.
6459 Thank you.
6460 THE CHAIRPERSON: Marc, last question.
6461 COMMISSIONER PATRONE: My question has been asked, Mr. Chairman.
6462 Thank you.
6463 THE CHAIRPERSON: Okay.
6464 We will take a five-minute break before we go on with Vaxination.
6465 Thank you very much.
--- Upon recessing at 1438
--- Upon resuming at 1446
6466 THE SECRETARY: Order, please. À l'ordre, s'il vous plaît.
6467 THE CHAIRPERSON: Okay. Let's proceed, please.
6468 LA SECRÉTAIRE : Alors, j'inviterais maintenant Vaxination Informatique à faire sa présentation.
6469 Mr. Jean-François Mezei is appearing for Vaxination.
6470 You have 15 minutes.
6471 MR. MEZEI: Thank you, Mr. Chairman.
6472 I am more of a rebuttal of what I have seen and heard as opposed to what has been talked to so it's going to be a little different in terms of time.
6473 First I want to speak about IPTV.
6474 On Tuesday I brought out some arguments, I would like to support them and I have some evidence in some of the slides.
6475 THE CHAIRPERSON: Mr. Mezei, this is rebuttal. I want you to take issue with what you heard. I don't want to hear any new evidence from you, I don't want to hear -- I want you to say I heard Rogers say so-and-so, I agree or disagree.
6477 MR. MEZEI: Okay. I will go quickly over. Just for the record, I just want to include some of the evidence that I have collected. It's going to be quick.
6478 The first part is a real rebuttal.
6479 Bell has asked that the wholesalers not be allowed to distribute any TV or IPTV.
6480 This is, in my opinion, extremely anti-competitive and a bigger picture of this is when you look at every incumbent that has market control they are also a BDU and anything coming from the internet is a threat to their BDU business.
6481 You as a Commission have to consider the internet as a new source of competition for distribution of entertainment. On that basis it would be very wrong to allow Bell to prevent competitors from offering it, because if Bell and the cable are going to protect their own turf through different measures by protecting the internet, you need to allow independents freedom to offer the new internet-based services and that will provide competition and choice.
6482 I will just go very quickly over the evidence that I have provided.
6483 I just provided slides here about the IPTV.
6484 There are some slides about the modems being used by Bell Canada and they show that they have different IP addresses for the IPTV and the internet, showing that it is possible to segregate those.
6485 It also shows that they use different user names for authentication, which means it's possible to have an authentication from a Bell ID to get the IPTV and authentication from a third party to connect your internet to a third party.
6486 So in the current environment with GAS this is highly possible. In the ADSL-CO environment where an independent brings their own backhaul to the CO and connects to a Level 2 switch it would be possible. Where it's not possible is if we are forced to install our own DSLAMs, because then you have the two DSLAMs.
6487 But the evidence is there. There are screen grabs from some actual Bell users showing that it's possible.
6488 Another aspect about competition. Bell has stated that its IPTV will be deployed in a few urban markets, yet Bell does not want the independents any television or entertainment stuff, which means that there are going to be a lot of regions where Bell is not going to be present, but independents will be prevented from doing something. That's really like Bell staking their claim without ever going there and I don't think that should happen.
6489 In terms of the SaskTel request for 10 years of exclusivity, my response to this would be to just give -- if Bell started to of with it's new fib this year, a big marketing campaign pretending that copper can be fibre-optic, whatever. This normally last a certain number of months, and I would say given six months of full advertising where the third party can't and after that, you know, the third party should be able to offer those speeds at the equal speeds stuff.
6490 In terms of the ADSL-CO processes, this is more of a general philosophical thing.
6491 I have asked around and there is no consensus as to where it's going and I think one of the missing items, which is going to be a problem for you because of your mandate from the government, is we need to know whether the independent ISPs will have access to the remote DSLAMs, because once we know this and once Bell is asked to provide pricing, then we can see what sort of backhaul or links they can be built to and what kind of the economic issues are going to be there.
6492 Until this is resolved we are just sort of swimming in water going nowhere because we are discussing philosophy without any specifics.
6493 I think to go forward -- but I realize that your mandate is to do both at the same time and it's not an easy one.
6494 For cable, yesterday the cable people mentioned that the maximum speed for upload for the actual bandwidth on the cable is 10 Mb per second.
6495 Optimum online, I have some screen grabs and the URLs in my presentation. They offer 15 Mb upload to their users, which means that their actual upload window is a lot bigger than that.
6496 I would like to know from the cable industry if they ever plan to offer this, because -- this is DOCSIS 3.0 that they have. If they are ever going to upgrade that that means they could offer services to small business, allow servers, et cetera, like Optimum does.
6497 They give, you know, 100 Mb a second download and 15 upload for $60 and you have the right to run your servers with that with fixed IP address.
6498 About the sub-loops, I don't think it's even within the realm of the possible to ask a small ISP --
6499 COMMISSIONER DENTON: What slide are we on now?
6500 MR. MEZEI: Number 13. It's Various Items. You got it?
6501 The sub-loops, you know, Bell is investing a lot of money to do this and asking a small ISP with a couple of thousand people to start to deploy fibre to basically near the pole where the houses are and then only take the last little bit of stuff, if you have one customer per neighbourhood it means deploying your OLT or DSLAM one per customer, because you have to do this per neighbourhood. It's not workable. I really think there has to be a big picture policy on this.
6502 As I said in my original presentation, perhaps like a central company, like I had mentioned NAV Canada organization, maybe they would have the size to do this. But asking individual ISP...
6503 The other thing, too, if you start to do this, it's going to become like India with 500 wires on each pole.
6504 And the owner of the pole, often Bell Canada, the other -- in Québec, the other one is Hydro-Québec, they have limits on the weight that you can put on the pole, which means that the first couple of ISPs might get their right to put their wires on it and after that there's no more room.
6505 Yes. The last one on that page is a bit radical, but it shows a bit my frustration at seeing how Bell reacted on Monday.
6506 If Bell doesn't want to play a game, you know, why doesn't the country nationalized its central offices in the last mile and then provide free access to everyone, including Bell and everybody else. You know, I think that would solve the problem once and for all, but I realize at the policy level it's probably not the current policy.
6507 THE CHAIRPERSON: There's also an issue of source of funds.
6508 MR. MEZEI: Yes.
6509 MR. MEZEI: In terms of competition, a lot of arguments have been made, by the ILECs especially, that there is a lot of competition. They have named a lot of people. There is a huge difference if you have 100 companies and two of them have 90 percent of the market and the rest hold only 10 percent and having 100 companies each with 1 percent. The latter is where this competition -- the first one, it's a duopoly that controls the market.
6510 So the arguments that Bell has made especially about there being so many competitors doesn't really hold true because you have to look at market share and market control over each.
6511 Rogers may have a wireless service in Québec. How many percentage, how many customers do they have?
6512 I know that my Fido, you know, I am allowed 5 MB for $5.00. You know, I can't access a full webpage. I can download any e-mails, but very carefully, otherwise it goes up to $30 or $40 a month. There is nothing in between.
6513 A lot of the wireless stuff -- pardon the terminology, a lot of it is marketing hype. The 21 Mb is when you are alone on the tower.
6514 Even the wireless in the proceeding have agreed, even this week, that if you download a lot -- you know, they have a limit of five gigs, the average now I believe is 13 gigs and that's going to grow. So you really need to have a wireline system in there, the wireless is not...
6515 It's a neat compliment if you have your iPad and everything else, you can go into your backyard and you can go take the bus, but it does not mean that -- those 23 percent that was quoted, it doesn't mean that that's their sole source of internet at home, it's just that they have mobile Internet.
6516 Wow, I have 40 seconds left on my 10 minutes.
6517 Competition is really needed in Canada and I, as a citizen, I really want you guys to give us a solution that will work because right now we are in a state of limbo, nobody knows where it's going. GAS seems to be going downhill pretty quickly and it's not -- it's speech are not being increased and it's been a while now and I think some strong action is necessary because obviously it's not happening.
6518 You know, negotiations were mentioned quite often. I haven't seen negotiations. I know that some of the small GAS customers have gotten a bit of negotiation with Bell, but this is minor, some stuff like from what I have heard, installation costs might be reduced, one-time costs, but the stuff that's on the tariff, you know, they are not going to negotiate throttling away or UBB away because they fought so hard for that.
6519 Because of the market dominance of both telco and cable I think we still need to have a strong regulator and one right now is still needed with a strong hand to steer it in the right direction and maybe a little later to go.
6520 Hopefully we can find something within your 2008-17 framework which, from what I have been told by you last time, is very important.
6521 So this is it. I have four minutes ahead of time.
6522 THE CHAIRPERSON: Thank you. I appreciate your efficiency.
6523 THE CHAIRPERSON: Slide number four which you presented, basically you are telling me BAS, which I guess is what MTS suggested we adopt, is feasible, notwithstanding that Bell is going to provide IPTV, or TELUS?
6524 MR. MEZEI: The connection, the aggregation at the BAS level?
6525 THE CHAIRPERSON: Yes. Right.
6526 MR. MEZEI: I would say so.
6527 THE CHAIRPERSON: Okay. Let me --
6528 MR. MEZEI: I remember reading, there are about 250 or 255 BAS' -- maybe Bell can confirm.
6529 I do not know how many locations because many locations have multiple BAS'.
6530 THE CHAIRPERSON: Right.
6531 MR. MEZEI: If it comes out to about the same number of what Rogers has -- Rogers has 31 POI's in Ontario -- if it comes out to that it might be workable.
6532 But just so you know, Rogers, after how many years have they been in TPIA, from what I have been told they only have 10 POIs that are currently active. This will change, but since the last few years it's only 10 of the 31. So one third the region, obviously the most populated one.
6533 So one has to be careful if you go with a mid-aggregation level as opposed to the 400 COs or one central point, the conversion or the transition period should sort of make it easy to go for ISPs who may not have the money to --
6534 THE CHAIRPERSON: Okay. What I understood on Monday was Mr. Cope saying, you know, one of the problems with this solution is it wouldn't allow Bell to roll out IPTV.
6535 You suggest it's possible. Let me hear from --
6536 MR. MEZEI: Yes. Yes.
6537 THE CHAIRPERSON: Let me hear from Bell what they have to say to this.
6538 MR. MEZEI: Okay.
6539 THE CHAIRPERSON: Or TELUS, please. Both of you.
6540 MR. CONDON: Carl Condon, Bell Canada.
6541 On Monday, Chairman, Ms Tulk said that we could not put two modems on the same line and that's correct.
6542 What Vaxination is suggesting is that we would have one Bell modem on the line and we would use it for TV and the internet component would be provided by somebody else. He describes here how we have two authentications to do that.
6543 That's technically correct. But when I'm not very clear on is what the product that Vaxination is suggesting would be sold.
6544 As TELUS pointed out in its opening statement, all that's available to the ISP would be the bandwidth that's left over from TV. So if you were watching four TV channels that's a fairly small number.
6545 Also, the customer service issue is the important one here, because usually of course the ISP provides its own modem, but in this case Bell would provide the modem, or TELUS, they would have to manage that modem because it's essential for the TV and it actually interoperates with the set-top boxes. So we really have some of that has undefined service features and an extremely confused service model compared to what we have today.
6546 Also to his point, he pointed out that the long-term architecture is a single DHCP authentication, that's the standard for Microsoft TV, it's adopted across North America, so a model like that would freeze the technology in a very early state.
6547 THE CHAIRPERSON: Can you explain that point? I didn't understand that at all, that last point.
6548 MR. CONDON: Well, he is suggesting that there are two, you can use dual authentication.
6549 THE CHAIRPERSON: Yes.
6550 MR. CONDON: The single authentication, which is the future model architecture for Microsoft, simplifies the entire management process. So it's something we will move to overtime.
6551 But that said, it's just a very, very difficult customer service model because we don't know what we are selling in this case and we don't know who supports it.
6552 THE CHAIRPERSON: But I take the upshot of what you are saying, it's technically doable, you have a business and client relationship problem?
6553 MR. CONDON: Yes, Chairman. It's something you can do in a lab, it's not something you can support in the field, yes.
6554 THE CHAIRPERSON: Okay.
6555 MR. BIBIC: There was another --
6556 THE CHAIRPERSON: Go ahead.
6557 MR. BIBIC: There was another component to what Mr. Condon said, which is under this model we wouldn't know what we would be selling to the ISP. Because if you have, let's say 25 Mb per second capable of travelling over the pipe and that's our IPTV, if there are four TVs running at the same time, then the bandwidth left over for internet is very small.
6558 So that particular point in time the independent ISP is selling to the end-user however many megs. If the TVs are all turned off, then there is more bandwidth available for internet.
6559 So the ISP would never know what it's delivering to the end user, which is another issue. That's what Mr. Condon meant by saying we don't know what we would be selling.
6560 THE CHAIRPERSON: That's really their issue, not yours. The ISP will have a problem.
6561 MR. BIBIC: Well, it would be our issue if they demand guarantees as to what we would be supplying them.
6562 THE CHAIRPERSON: You are saying you couldn't guarantee?
6563 MR. BIBIC: No.
6564 THE CHAIRPERSON: All right. Okay.
6565 There is somebody at the back there. Please identify yourself.
6566 MR. SANDIFORD: Bill Sandiford, Telnet Communications for CAIP.
6567 With regards to what the gentleman from Bell just said, I think the problem would be true with what they are providing for themselves. If they don't know if they are going to have three, four, two TVs running in the house, they don't know how much internet bandwidth is going to be left for their own customers.
6568 So in effect the product that they would be selling to their customers for internet would be the same that they would be selling to us, the competitors in this case, which is exactly what we are asking for.
6569 THE CHAIRPERSON: Yes. That's what I said, it would be your problem as ISPs, it wouldn't be Bell's problem.
6570 Okay, TELUS, you have been remarkably quiet on this.
6571 MR. HENNESSY: Yes, Chair. I guess at first, though, if you we just permit me as a point of order to apologize to the Commission and the rest of the room, Mr. Katz and Mr. Peirce in particular, and whoever I snapped at behind me. That was inappropriate under any circumstances and certainly doesn't reflect the values of my company.
6572 THE CHAIRPERSON: I didn't even hear it, but that's very --
6573 THE CHAIRPERSON: It's very kind of you to offer that apology.
6574 MR. HENNESSY: Well, then perhaps I could repeat myself.
6575 MR. HENNESSY: Chairman, I think the problem is in our view you really can't provide service to both parties over the same pipe. You can guarantee any kind of throughput to the ISP and therefore you don't have any type of speed matching you can sell.
6576 You can't have two modems without actually taking apart some of the inside wiring in the house, which isn't workable.
6577 So we don't really see that as a practical or economic solution or a solution that would work to the satisfaction of either party or to the customer who would not understand what was happening to their service, given there would be two suppliers.
6578 THE CHAIRPERSON: But what do you say an answer to the intervention which we had here, that that problem is no different whether there are two suppliers or whether you are the sole supplier. You have two services and one trades off against the other?
6579 MR. HENNESSY: I think the problem is, if you are looking for a speed matching service you are usually looking for some level of speed. And as our witnesses said the other day, the speed varies as the customer uses different technologies. So it jumps back and forth between the internet and the television.
6580 THE CHAIRPERSON: Yes, but that would apply whether he buys both of those services from TELUS or whether he buys one from TELUS and one from an independent ISP. So I don't understand.
6581 MR. HENNESSY: I guess we don't really understand, Mr. Chair, how you would put two modems on one line. I think that's the starting point.
6582 THE CHAIRPERSON: Mr. Mezei... ?
6583 MR. MEZEI: This is one modem. This is CellPipe 7130 which Bell uses. I think other ILECs may use different models, but that model which Bell uses is fully capable of having the two segregated one.
6584 By the way, all the tests that people have done, each HD channel that you turn on on a TV will take 7 Mb. Bell allocates -- I'm sorry, reserves the first five in a hidden place on the modem. So the first five only cost you about to Mbs on your internet throughput and subsequent TVs that you turn on will take seven.
6585 This is documented and, as you said, this happens for both Sympatico or a third party and this is something the user can just be told: Every TV that you turn on will reduce your throughput. It's not complicated.
6586 On the internet, you do a big download, you know that the rest of your internet connection will be slower.
6587 This is not magic, this is no big deal and people understand that.
6588 In terms of the relationship, the way that it seems to be currently set up right now is Bell has a portal on the internet where the person enters his internet username and that portal does a remote configuration of the CellPipe modem with the two IDs from the Bell database.
6589 This does not need to be done in a third-party scenario, the third party could probably provide their own CellPipe 7130, preconfigured for the user, and a third party could resell the IPTV service and manage the relationship with Bell in terms of programming and all the options, et cetera.
6590 The reason I brought this up is that Bell made the argument that some technological limitations prevented them from doing this and their argument was that unless we can sell IPTV this whole investment into NGN would not pay off. So I set out to find out if it was possible and it is possible and Bell would get its money.
6591 THE CHAIRPERSON: Bell has not disputed that it's possible technologically. They say that --
6592 MR. MEZEI: It did on Monday.
6593 THE CHAIRPERSON: Thank you for your intervention, because what I heard from the Bell engineers just now just saying it can be done in a lab versus use, but obviously it hasn't done it on a network, but if I understand it there are no technological problems, but there may be customer service problems.
6594 MR. MEZEI: That can be arranged.
6595 THE CHAIRPERSON: Okay. Let's not go -- this is the whole purpose of finding out.
6596 Somebody in back there had their hand up.
6597 MR. WITTAL: Kym Wittal, from SaskTel. Chief Technology Officer for SaskTel.
6598 I just wanted to comment a bit about the technological viewpoint here about whether the protocols allow for this. I think the answer is yes they do.
6599 However, I think, as both Bell and TELUS have alluded to, that there are significant and quite serious support issues and service issues about how you actually manage that.
6600 I would also take exception to the comment about that every high-definition or every standard definition channel reduces -- sorry, per unit basis reduces the amount of bandwidth.
6601 Certainly in SaskTel's experience on our IPTV, every channel consumes -- every standard def channel consumes the same amount of bandwidth, so obviously the more channels you have the more bandwidth we consume and therefore less is available for internet service.
6602 I think it would certainly be our customers' understanding that they are paying for 5 Mb of internet service, they want 5 Mb.
6603 Thank you.
6604 THE CHAIRPERSON: So you offer both in SaskTel right now? You offer an IPTV version and you offer internet?
6605 In your service offering, are you telling your customers if the kids watch TV and you want to use the internet there may be a trade-off here?
6606 MR. WITTAL: No, we don't.
6607 What we sell is, for example, a multi-TV stream. We then allocate it that kind of bandwidth and then what is left over is actually what we sell and what we say to the customer.
6608 THE CHAIRPERSON: So the customer is guaranteed whatever, 5 MB, 10 MB, et cetera.
6609 MR. WITTAL: Right. We don't see --
6610 THE CHAIRPERSON: Is there any reason why you couldn't wholesale those 10 MB to an independent ISP?
6611 I don't see how it would detract on your IPTV since you are doing it now to yourself. Why couldn't the same apply when it's a third party?
6612 MR. WITTAL: The issue is that depending on the service offering in terms of the number of standard def or high def channels, 10 Mbs may not be available.
6613 THE CHAIRPERSON: Yes, but if the person buys a huge number of high definition channels from you then you are in the same boat, you wouldn't be able to make the 10 MB.
6614 So I don't understand why there is a difference whether you sell it directly or whether you sell it indirectly?
6615 MR. WITTAL: I don't think I'm disagreeing with you, I'm suggesting that once we determine how much bandwidth we need, then that's obviously what we would sell to ourselves and to others.
6616 THE CHAIRPERSON: Right. Okay.
6617 Thank you for that clarification.
6618 MR. HENNESSY: Mr. Chair...?
6619 THE CHAIRPERSON: Yes.
6620 MR. HENNESSY: Could I just ask a point of clarification?
6621 THE CHAIRPERSON: Absolutely.
6622 MR. HENNESSY: I think I heard Mr. Ménard suggest that the way his model would work would be that we would, as well as provide the broadband service to the reseller, actually allow them to resell the license Class 1 television service as well.
6623 Is that correct?
6624 THE CHAIRPERSON: Mr. Ménard, did you say that?
6625 MR. MEZEI: I'm not François Ménard, I'm Jean-François Mezei.
6626 MR. HENNESSY: That's probably good for you.
6627 MR. MEZEI: You know, I came here with a goal to show that it's technically possible and, you know, the concerns have been raised by the ILECs -- sorry to be blunt, they are excuses. Where there is a will there is a way and they found a way to do TPIA and separate who is responsible for what, the same thing with GAS. That managed, but there were dire predictions before.
6628 I'm sure they could come to an arrangement where one person, the third party is responsible for the modem, is responsible for the IPTV subscription and configuring the modem, and Bell would basically, literally, resell the IPTV and Bell would get its revenue.
6629 By the way, on the Bell website they sell their 25 Mb per second fib, whatever it's called, and they have two prices, one bundled and one non-bundled, which means officially it's available as a single entity.
6630 So when Bell says on Monday that they are going to lose money if they only sell the internet, you know, you have to ask yourself, their website sells only internet, is this dumping or is Bell still making money?
6631 So this whole question of the IPTV might just be moot if Bell is actually making money selling just the internet.
6632 THE CHAIRPERSON: Even if they dump, they probably should do that.
6633 But anyway, Mr. Bibic...?
6634 MR. BIBIC: Thank you, Mr. Chairman.
6635 Seriously, we have come here and we have said quite -- our explanation of IPTV was based on the revenues and it's based on the technical issues.
6636 You can't just come here and just simply dismiss and brush away the customer service problems. I mean if anyone in this room ought to appreciate I'm sure you do how customer service issues are critical. And to just say "Ah, it's not a problem, everything will be solved", I think it's making light of how serious an issue this would be to manage.
6637 Sure, when a customer buys internet, and will buy internet and IPTV from us, the amount of bandwidth available for internet will fluctuate as a function of how much the TV is being used and how many TVs, et cetera, but we can control that dialogue with the customer.
6638 We can't control the dialogue with the customer in the scenario that Mr. Mezei is putting forward that we can adopt, not to mention all the other customer service issues. That's going to be a significant point. That's going to affect our cost of operation, it's going to make a challenged business case even that much harder.
6639 We indicated on Monday that -- and you have the numbers, on IPTV alone the investment isn't justified.
6640 THE CHAIRPERSON: That's a different point.
6641 But, I mean, the point that Mr. Mezei was making is that it is technologically possible and your colleague pointed out it might result in customer relation problems, and I took note of that, whether it is necessarily customer relations problems for you or for the ISP is a different issue.
6642 But all in this rebuttal is to see whether certain statements which were made were correct or people take issue with them, and I have found now from several people saying, yes, technologically can do it. I have heard the person from SaskTel telling me, yes, it can be done but again, like you, he sees a problem in customer relations.
6643 So, I don't know what more we want to...
6644 Nobody has reached a conclusion, we just want to make sure that we have the relevant facts before us.
6645 I just repeat, beating the same horse to death, I don't really want --
6646 MR. MEZEI: No, it's a very quick one. The mention about customer service. A lot of people who leave Bell to go to third parties do so because they do not want to deal with the Bell support organization somewhere in the world, they want to have a person who can speak to you and explain to you and take the time to explain to you, and third parties are often better organized and better trained to explain to people how to set up their modems and their service than the Bell people somewhere in the world.
6647 And so, I think this question is a bit moot.
6648 THE CHAIRPERSON: I won't touch that. That is a judgment call. Let the customer decide.
6649 Michel, you have some questions?
6650 COMMISSIONER ARPIN: Yes, thank you.
6651 Thank you, Mr. Chairman.
6652 Only to conclude on that issue, the conclusion is it's complex, it's got a lot of issues, but it's feasible.
6653 Now, my next round -- my first question to you -- and it will go to SaskTel because in your slide No. 9 you are saying that -- well, we've heard that SaskTel wants to have a 10-year holiday when they implement fibre, and you're saying that six months is sufficient.
6654 And I want to hear what SaskTel has to say regarding that statement.
6655 MR. MELDRUM: It's John Meldrum here from SaskTel.
6656 What I heard Vaxination saying was that the six months would be to do marketing. We're not talking about a 10-year forbearance period for marketing purposes, we're talking about 10 years so that we have 10 years of fixed revenues that can come into the corporation to be able to make the business case because the business case for our fibre to the prem is marginal, and that is assuming no regulatory mandated resale of the service.
6657 And that's where we get 10 years from, as opposed to the notion that it's a head start or would help you with marketing. No, it's the problems that we have with the business case that we've been working on.
6658 COMMISSIONER ARPIN: And it is because your market is much smaller than all the other ILECs, so the cost of implementing the fibre for you is greater than it will be for other ILECs?
6659 MR. MELDRUM: A good portion of the problem is that we have a very high percentage of buried drops to the customers as opposed to aerial. Aerial is much, much cheaper than to have to bury it in.
6660 In other words, a big piece of Saskatchewan, the customers do not have poles in their backyards, they have buried facilities and that is expensive, very expensive.
6661 COMMISSIONER ARPIN: Now, Mr. Mezei raised some issues regarding the cable, so we now heard a lot about the ILECs, but there are some issues that he is raising and particularly in using the case of Optimum Online in New Jersey which makes use of DOCSIS 3.0 and where they are able to do upstream of up to 10 Megabits and even 15 Megabits.
6662 Now, I know that we had a fairly long discussion earlier today and the day before regarding the capacity of the cable industry to dedicate a given channel to a third party.
6663 So, what are your views based on, say, look at the slides that he has provided on page 11 and 12 of its presentation.
6664 MR. ENGELHART: I don't have a slide, but it sounds like -- well, Optimum Online is the service of Cablevision. It sounds like they've used DOCSIS 3.0 bonding for their upstream channels which we said is something that we would like to do.
6665 So, it sounds like they've done that which is why they get the higher speeds.
6666 That having been said, when we just looked on their website, we can't see anything faster than 5 for the upstream.
6667 COMMISSIONER ARPIN: However, if you look at page 12 which is titled Slide 13, Optimum Online, you will see that the picture of their own website which says: Learn More - up to 15 Megabits per second downstream speed, up to 2 Megabits upstream speed, and later on that Everything with Optimum Online Plus is up to 30 Megabits downstream, up to 5 Megabits upstream for 79.95.
6668 MR. WATT: I was just going to say, I think, and we may have misheard, but we thought the comment was that Optimum offered up to 15 Megabits upstream and we simply said on the website it appeared to be 5 Megabits upstream, and I think that's what you just read to us.
6669 COMMISSIONER ARPIN: Yes, Mr. Mezei.
6670 MR. MEZEI: It's the Optimum Online Boost Plus and it's listed at 101 Megabits and 50 Megabits upstream. I have a friend who has it and he's the one who pointed me to this.
6671 I pointed this because I would like to know, yesterday when the cable people said -- they said they've got the narrow, I think 42 Megahertz for the upstream, what does it take for them to remove that limitation so they can bond a lot more upstream?
6672 Because that's a serious limitation of the Canadian cable system because they seem to all have the same limitation and do they have plans to remove that?
6673 Because we're lagging behind the world now because this is a serious -- you know, between one and two Megabits and 15 is a big one.
6674 MR. FACCIA: I'll comment on that. Tony Faccia, Rogers.
6675 I'm not familiar with Optimum and what the status is within their network of implementing upstream channel bonding on DOCSIS 3.0, but DOCSIS 3.0 does allow for upstream channel bonding and higher upstream speeds.
6676 I think we've spoken about that as part of the proceedings here and our responses to interrogatories.
6677 The technology to do so is still at the stage of possibly some field trial implementations, but not wide-spread production implementation.
6678 We at Rogers and other cable operators have plans to implement DOCSIS 3.0 upstream channel bonding at some point. Plans from company to company differ on timing, but we will be implementing upstream channel bonding and offering higher upstream speeds.
6679 We did comment though that in order to do so, we would have to use all of our available upstream bandwidth, the 6 Megahertz upstream channels in order to implement DOCSIS 3.0 and higher upstream speeds.
6680 COMMISSIONER ARPIN: Thank you.
6681 And the other Cablecos that are here...?
6682 Go ahead.
6683 MR. BÉLAND: Yes. Yes, I would just make a couple of comments.
6684 First of all, as Tony said, we've all indicated that it's in our plans to implement DOCSIS 3.0 in the upstream and to try to push the upstream as far as we can push it.
6685 Were it easy, I can guarantee you we'd be doing it already, we would have done it already, but the intention is certainly there.
6686 The second point I would make is that you've seen that consistently when we have increased our speeds that's built into TPIA, that we don't keep our TPIA customers at the lower speed, they benefit from the augmentations and improvements we make to our network.
6687 The third point I make is that similar to what Tony just said, if you want a sure fire way to guarantee that Canadian end users will never have access to those speeds, start giving away our upstream channels on a so-called unbundled basis.
6688 Thank you.
6689 COMMISSIONER ARPIN: Yes, Mr. Mezei.
6690 MR. MEZEI: I just have -- I forgot to put that in my slides. I actually support the cable industry's stance with regards to the unbundling of channels.
6691 And there's one good reason. With DOCSIS 3.0, I don't think it's valid any more. In the past when you had one 6 Megahertz channel and one 6 Megahertz channel, they were equal, but right now the cable will have two, three, four, I don't know how many channels bonded, allowing much higher speeds and if you only give the competitors a 6 Megahertz channel, they're limited to older ones. They will not be able to match the speeds of the incumbent.
6692 And lastly, just to make it a lot clearer. With DOCSIS 3.0, being able to combine six channels is like making a highway that's six lanes wide versus having six one-lane roads.
6693 And in terms of management, I can really see why the cable companies much prefer that because you have, in effect, a lot more bandwidth, you can handle a lot more people.
6694 For the upstream, once they get there -- sorry, once they get their act together and raise it, it will benefit both third parties and the cable companies; whereas if you split it, I can really see -- understand their arguments and I think it has some value.
6695 COMMISSIONER ARPIN: Thank you, Mr. Mezei.
6696 All right.
6697 THE CHAIRPERSON: Tim?
6698 COMMISSIONER DENTON: For those who would wish to comment, Mr. Mezei said that the Internet -- well, basically this is about access to the Internet as a new source of competition to the entertainment plans of the cable and Telco industry, particularly the Telco.
6699 CISP or CAIP, does anyone have a response to that?
6700 COMMISSIONER DENTON: Don't everyone speak at once. No?
6701 MR. COPELAND: Tom Copeland for CAIP.
6702 I think we would tend to agree that this would be a new challenge to that new business model that they're looking to deploy.
6703 COMMISSIONER DENTON: Mr. Tacit?
6704 MR. TACIT: I think if the technical and customer relations issues are managed properly, and this isn't anything that hasn't been done before, for example, in CISC when we had long distance competition and when we had local competition, we've had E911 issues, wireless issues, all of these issues once it's mandated for incumbents to do something, they find a way to do it through CISC with some Commission Staff oversight and assistance.
6705 I don't think it can't be done.
6706 So then the issue becomes, what are we trying to do here? Are we trying to give the ILECs some sort of a guaranteed monopoly on the bundle, or are we trying to acknowledge that the IP platform is a platform and that other parties could use that platform to provide the bundle as well?
6707 I don't see any reason why the ILECs shouldn't have to compete for their own IPTV business and the bundle together with whoever else is technically and financially capable to provide the services on that platform.
6708 That's in the interests of the end user.
6709 COMMISSIONER DENTON: Mr. Bibic, would you like to comment on that?
6710 MR. BIBIC: I would simply be repeating what I've indicated to the Chair. I think I'll address it tomorrow.
6711 COMMISSIONER DENTON: Thank you.
6712 MR. HENNESSY: I would, Mr. Denton.
6713 COMMISSIONER DENTON: Mr. Hennessy.
6714 MR. HENNESSY: I just want to make clear what it is that I hear people talking about, that we should unbundle to resell licensed class 1 cable TV services, licensed under the Broadcasting Act, to increase competition in that market.
6715 And so, for a company like ours that has invested well over a billion dollars so far in this platform and is a new entrant in the sense that we have, you know, much less than -- you know, we're probably at this point five, six percent market share, we're now being accused of somehow monopolizing the IPTV platform when the IPTV platform is simply managed IP technology used to provide a closed class 1 cable service licensed under the Broadcasting Act to compete in our territory with a company that, in combination with its cable and satellite service, has 80 percent market share.
6716 THE CHAIRPERSON: Let me just stop you right there.
6717 IPTV is not on the table. Just because Mr. Tacit raised it does not mean it's part of this discussion.
6718 MR. TACIT: Excuse me, I didn't actually say resale, that's not my intention. In fact, TekSavvy's planning its own IPTV offering.
6719 What we said was to be able to use the broadband platform to deliver our own services. We're not out to resell anybody else's broadcasting service.
6720 THE CHAIRPERSON: The terms of reference for this hearing and what is on the table is pretty clear, and IPTV is not part of it.
6721 So, let's leave it as that.
6722 Do you have another question, Tim?
6723 COMMISSIONER DENTON: No, that's it, thank you very much.
6724 THE CHAIRPERSON: Thank you.
6725 COMMISSIONER DENTON: That was useful.
6726 THE CHAIRPERSON: Thank you very much then.
6727 Let's go on with the next one, Madame la Secrétaire.
6728 THE SECRETARY: Merci, Monsieur le Président.
6729 I would now invite the Coalition of Internet Service Providers Inc. and Canadian Association of Internet -- I'm sorry, CAIP and CISP to come forth to the presentation table.
6730 LA SECRÉTAIRE: Alors, nous procéderons avec la première présentation, The Coalition of Internet Service Providers Inc., CISP, et monsieur Alain Bergeron comparait pour CISP.
6731 Monsieur Bergeron, vous disposez de 15 minutes.
6732 M. BERGERON: Bonjour. Mon intervention va être en français.
6733 LE PRÉSIDENT: ...documents pour votre intervention? Non?
6734 LA SECRÉTAIRE: Pardon?
6735 LE PRÉSIDENT: Est-ce qu'il y a des documents pour cette--
6736 LA SECRÉTAIRE: Non, on n'a pas de document papier, Monsieur le Président.
6737 LE PRÉSIDENT: O.K. Allez-y.
6738 M. BERGERON: Monsieur le Président, je voudrais juste confirmer avec vous si la Commission a bien reçu de monsieur Ménard le document intitulé * Bitstream unbundling over GPON Access Networks +. Ça a été...
6739 LA SECRÉTAIRE: Oui, Monsieur le Président. Nous l'avons bien reçu.
6740 M. BERGERON: Bien reçu? O.K.
6741 Je n'ai pas préparé de document pour... un exposé écrit, mais j'aimerais quand même soumettre quelques brefs commentaires sur ce que j'ai entendu depuis... J'ai été ici mardi et aujourd'hui.
6742 Un commentaire concernant la Fiber-to-the-Home dégroupé que Telus, entre autres, a mentionné mardi. Concernant la perte de revenus provenant du service de TVIP si le Fiber-to-the-Home est dégroupé. Ça a été invoqué aussi par Bell, je crois.
6743 Je voudrais soumettre que l'éventuelle tarification pourrait tenir compte du dégroupage; par exemple, avec un tarif plus bas, selon ce qui est dégroupé. Par exemple s'il y a la qualité de service pour permettre la téléphonie IP, il est possible que le tarif serait ajusté en conséquences.
6744 Et si on ajoute le multicast pour permettre le dégroupement de la télévision IP, à ce moment-là, pourquoi le tarif du fournisseur ne serait pas en conséquence pour assurer un certain revenu, je dirais, juste et équitable à la compagnie titulaire de téléphone qui autorise ce dégroupage-là.
6745 La perte de revenus aussi serait compensée raisonnablement. Si on tient compte que le FSI paiera une partie... les redevances que normalement la compagnie de téléphone paye pour la télévision. Donc, tous les abonnés du FSI qui ne permet pas, si on veut, la télévision IP au titulaire parce que lui-même la fournit, et bien il n'a pas à payer les redevances de ces abonnés-là.
6746 Donc, à mon avis... Nous, Oricom, par exemple, on serait prêt à compenser Bell dans notre territoire de façon équitable pour cela. Sans parler du fait qu'en tant qu'éventuel partenaire dans l'affaire de télévision IP par exemple, bien, on serait une source de clientèle pour permettre de rentabiliser l'opération du détenteur des infrastructures, au lieu d'un ennemi ou je ne sais pas trop.
6747 Donc, c'était le point que j'aimerais apporter là-dessus, concernant l'éventuelle perte de revenus.
6748 J'aimerais aussi parler de la question du service Internet affaires, qui est accessible tel qu'il est offert par les câblodistributeurs.
6749 Oricom a fait des essais avec le service de Vidéotron, par exemple, et nous constatons que ce n'est pas équivalent à ce que Vidéotron câble... ce que Vidéotron offre.
6750 Précédemment, aujourd'hui, j'entendais les câblos mentionner que le service VPN était disponible sur le TPIA sans problème, sans différence et sans aucun impact pour les clients. Je voudrais m'inscrire en faux là-dessus.
6751 Oh! Vidéotron, par exemple, offre à ses clients affaires par modem-câble la bande passante illimitée, qui n'est pas du tout disponible au TPIA. De plus, ils offrent...ou quand ce n'est pas illimité, ils vont offrir de deux à trois fois le nombre de bande passante du même service du côté résidentiel.
6752 En plus de cela, ils offrent des adresses IP fixes à leur clientèle et, en plus d'un autre service qui est un service de réseautage IP privé. Donc, ces trois services-là, on ne les a pas.
6753 Donc, la simple question de l'IP fixe, par exemple, pour les VPN est une problématique. Et donc, c'est faux de dire que le VPN tel qu'il nous est offert présentement est équivalent. On a fait des expériences; il y a quelques clients qui ont eu du succès avec ça, mais la plupart des clients finissent par s'abonner directement à Vidéotron pour obtenir l'IP fixe.
6754 Également, pour continuer dans la technologie affaires de modem-câble, un service que les entreprises demandent de plus en plus présentement, c'est de la redondance d'un service Internet sur deux technologies différentes.
6755 Toujours dans le cadre de la question du service affaires aux entreprises sur technologie câble, nous à Oricom, on offre aux entreprises un seul FSI pour deux technologies différentes, ce qui permet un meilleur fonctionnement en cas d'un des deux services qui tombe : les courriels des entreprises continuent à fonctionner.
6756 S'il n'y avait pas de concurrent dans le marché, l'autre option qui existe pour les entreprises : s'abonner d'une part à une SLT pour le DSL, par exemple, et à un câblo pour l'autre technologie. Le problème, c'est qu'en cas de panne du principal des deux qui est choisi, les courriels s'arrêtent et ça créé beaucoup de problèmes.
6757 C'est un marché qui est intéressant pour les FSI comme nous autres, parce que de plus en plus d'entreprises petites exigent une redondance et ils ne peuvent pas tolérer des pannes qui peuvent aller, par exemple dans le cas du DSL, jusqu'à 48 heures. Donc, c'est un service que je ne vois pas comment des compagnies titulaires pourraient offrir.
6758 Le problème aussi, que je voudrais soulever, c'est concernant (toujours dans le TPIA)... On a parlé tantôt de dégroupement du service TPIA et il y avait la question des six... (Est-ce que c'est mégahertz? Je ne suis pas ingénieur, là...). CISP, la coalition des fournisseurs Internet avons soumis il y a quelques mois une solution quand même viable de partage de dégroupement, autrement dit, de services aux -- comment est-ce qu'on appelle ça -- le CMTS.
6759 Donc, par contre, les câblodistributeurs ne semblent pas avoir tenu compte de cette proposition et tout à l'heure, j'entendais un précédent intervenant mentionner DOCSIS.0. Notre proposition, on faisait DOCSIS 3.0. Notre proposition à ce moment-là utilisait la solution DOCSIS.0 pour régler le problème de ne pas prendre des bandes passantes qui seraient de toute façon illimitées éventuellement, par rapport à la concurrence.
6760 C'était mon intervention. Je vous remercie.
6761 Si vous avez des questions.
6762 LA SECRÉTAIRE: Merci beaucoup, Monsieur Bergeron.
6763 We will now proceed with CAIP, the Canadian Association of Internet Providers.
6764 Please re-introduce yourselves for the record and then proceed with your 15-minute presentation.
6765 MR. COPELAND: Thank you, Madam Secretary.
6766 Commissioners, Commission Chairman and Commission Staff, on your left is Paul Louro and Les Lorincz from Acanac Inc., Mr. Bill Sandiford from Telnet Communications, Paul Andersen from EGATE Networks, our counsel, Monica Song from Fraser Milner Casgrain LLP and Adrian Boros from Accelerated Connections.
6767 We're back today to provide thoughts on what we have heard from the ILECs and cable companies over the last several days.
6768 We've heard Bell and TELUS suggest that the services under consideration in this proceeding are not essential. We'd like to begin by stressing once again the importance of us having mandated access to the ADSLCO service.
6769 As the Commission has correctly determined, ADSLCO is an essential service. In our view, ADSLCO service is required. It will substantially enhance competition in downstream markets and the ADSLCO functionality is certainly not duplicable by independent telecommunications service providers. In short, ADSLCO is required.
6770 In the absence of a number of modifications to the ILECs' aggregated ADSL access services, there is no other existing wholesale alternative that would allow competitors to effectively differentiate their services from the services offered by the incumbents.
6771 The state of aggregated ADSL access and of TPIA puts control over the essential characteristics of any downstream retail service in the hands of the incumbents.
6772 These restrictions and the high cost of these wholesale outputs make it difficult for independent TSPs to differentiate their service offerings and lower prices. This has led to the limitation of the diversity of service offerings in downstream retail markets and high prices.
6773 We are saying that aggregated ADSL and TPIA should provide raw bandwidth and nothing more while we wait for practical, feasible ADSLCO service to be deployed. Denial of ADSLCO will substantially lessen competition in the downstream retail markets.
6774 During the course of this oral hearing, we've heard Bell and TELUS say that the broadband market in Canada is very, very competitive, therefore, they say, denying ADSLCO service will in no way affect the status quo.
6775 We, on the other hand, think that the Commission should be considering whether mandating open access to the ADSLCO service is likely to; one, significantly improve the diversity of innovative service offerings; and, two, potentially reduce consumer price levels.
6776 For our part, we are positive that mandating the ADSLCO service will lead to substantial improvement in the current state of competition in downstream retail markets, assuming that the wholesale service is priced as essential.
6777 As was demonstrated in our original submission in this proceeding, independent TSPs target and serve, among other things, various important niche markets for which ILECs being mass market service providers generally do not have the know-how, agility or true incentive to serve.
6778 Aggregated ADSL services currently enable us to provide voice and data. ADSLCO will enable the provision of a true triple play bundle in the residential market by potentially adding video.
6779 In the SME market, it will allow us to be even more innovative and responsive to the needs of our customers.
6780 With this competitive framework in place, incumbents will be encouraged to respond to the innovative and more reasonably priced service offerings offered by other market players, thereby improving the overall competitiveness of retail markets.
6781 Importantly, when the Commission forbore in the late 90s from the regulation of retail Internet services, it did so because there was a large number of providers. That situation has changed drastically over the past decade.
6782 As Commissioner Simpson rightly noted, history is a good teacher, all that is required from us is to be good students of history.
6783 We have collectively tried the high-priced wholesale model and the result has been market exit and lagging innovation and price competition.
6784 MR. SANDIFORD: Commissioner Simpson asked our panel on Tuesday what explanation we had for the relatively high bit costs in Canada for broadband.
6785 We agree with Commissioner Simpson that as more than one competitor has noted, Canadians pay more for less.
6786 We know for a fact that speeds in Canada are substandard in international terms. While prices may appear only moderately high, the average speed delivered in Canada is far below what is available internationally. So, when considering international price comparisons, one has to consider what Canadians are receiving for the same dollar cost.
6787 In any event, in answer to Commissioner Simpson's question why prices are so high in Canada's residential Internet access market, the answer is simple: There is an effective duopoly in these markets across the country. This has been bad for competition.
6788 This duopoly is, in part, enabled by very high wholesale prices for both ADSL and cable-provided TPIA services. These are costs that we pay in addition to costs of Internet pairing arrangements, end customer equipment provisioning, the cost of running our own routers, services and other equipment and the costs of marketing and business processes, to name just a few.
6789 If the price of wholesale access from ILECs and cable companies went down, we would have the option of lowering our prices without question.
6790 In addition to what we have just said, as Mr. Cope stated on Monday, wireline will stay ahead of wireless options; in other words, wireless will always be one or more steps behind.
6791 He is merely stating the obvious. Mobile wireless is not yet a substitute for wireline broadband services. If you compare the data caps and prices of mobile wireless broadband data services, they are cost prohibitive given the bandwidth utilization levels of the average user today.
6792 And in the business market, wireless broadband services are at best a supplementary connection because they do not have the speed, reliability and scalability features that are required in a business context of wireline broadband connections.
6793 Nobody has claimed that the functionality of ADSLCO is duplicable by any reasonably efficient competitor. It clearly is not.
6794 To avoid the obvious essentiality of ADSLCO, Bell has proposed sub-loop unbundling instead of a workable ADSL service.
6795 We have two main points in response to Bell's sub-loop proposal. There's no economic case for it, and it calls into question the credibility of Bell's technical objections to matching speeds.
6796 If the economic case for building out each central office is uncertain, then how much more impractical is Bell's suggestion of sub-loop unbundling which would require competitors to build out to cabinets that serve, to our knowledge, at most a hundred to 150 homes at a time.
6797 Bell has stated repeatedly that independent TSPs can build it themselves using mandated access to Bell's support structure. What Bell fails to mention is that from our experience there is roughly a one in 10 chance of actually obtaining a permit to use Bell's support structures that we need for a multitude of reasons. The most common one we hear is that these structures are reserved for Bell's future use.
6798 Further, obtaining rights-of-way on public lands is not a trivial task. Bell need only pull fibre through their existing pathways. It is an absolute myth that Bell does not enjoy the advantage of incumbency because it is fibre and that fibre somehow is a whole different ball game.
6799 Bell's fibre feeder network runs along the same rights-of-ways as their copper feeder network. For competitors to be able to construct access to each and every curbside, as we would be required to do under Bell's sub-loop unbundling proposal, competitors would have to negotiate with every municipality for access to public lands, easements and rights-of-ways.
6800 Whereas Bell, as a result of its monopoly legacy, is merely constructing over its existing pathways, independent TSPs would be starting from scratch.
6801 This competitive disadvantage cannot be over emphasized and we can't stress enough how disingenuous we think this particular Bell submission is.
6802 Secondly, Bell says that it cannot give us higher speed ADSL access services because of, among other things, the alleged two modems and lack of additional pair issues on the sub-loop. Out of the other side of its mouth, Bell says that as an alternative to giving independent TSPs access to their so-called NGNs, it will unbundle sub-loops if we build out fibre to each of their nodes.
6803 With your indulgence, we've taken the opportunity to, for the record, reproduce a copy of Bell's diagram from their original submission on Monday showing their FTTN overlay network. We do this so that we can illustrate to the Commissioners clearly the next point.
6804 If Bell cannot share this sub-loop using their fibre-to-the-node solution, what makes this exact same sub-loop sharable with a competitor-built fibre-to-the-node solution?
6805 If you accept that the two modems on the same loop problem is one that cannot be overcome by sharing of the modem or otherwise, then under the sub-loop proposal Bell must be prepared to give a second pair and yet Bell has said that an extra pair is only available on their network at a considerable cost and expense to them.
6806 Commissioners, can you please ask Bell how their alleged technical impediments suddenly disappear if a competitor somehow manages to build its own fibre to the node but the technical impediments remain on their fibre-to-the-node solution?
6807 And if their response is that it doesn't go away, then can you please ask them why these technical impediments are now suddenly acceptable?
6808 We could go on with other perplexing inconsistencies with Bell's sub-loop and build propositions but, in the interests of time, we will leave it at that.
6809 We want to say a brief word about transition.
6810 In Decision 2008-17, the Commission's classification of aggregated ADSL as a conditional mandated not essential was based on the premise that ADSL service was or would be available. This was and still is clearly not the case.
6811 Rationally, until an economically practical ADSLCO service becomes available, there is no way for competitors to interconnect with the ADSL access component or to self-provision the transport component.
6812 Therefore, we propose that until such a time as workable ADSLCO service is implemented, at a minimum, the classification of aggregated ADSL access should be changed to conditional essential.
6813 This may also have the salutary side effect of spurring the development of a workable ADSLCO service.
6814 MR. ANDERSEN: Thank you, Bill.
6815 On the question of matching speeds, in its written submission throughout this proceeding Bell has relied on two arguments to persuade the Commission not to mandate matching speed for wholesale services.
6816 One, Bell has said that wholesale access will put a chill on their investment in pushing fibre closer to end customers' homes; number two, that Bell wants the Commission to believe that from a technical perspective the delivery of high-speed data services by a competitor to an end customer will make it impossible for Bell to compete in the IPTV business for the same customer.
6817 Other people have persuasively rebutted Bell's investment arguments and we don't intend to repeat them here.
6818 The issue surrounding the broken home are from a technical and a service standpoint solvable and the magnitude and concern of only one available copper pair we believe is largely overblown.
6819 First, in our experiences, only in the rarest of cases that we've encountered fewer than two copper pairs into a residence. In new developments it is very common to see three or more copper pairs.
6820 Second, and perhaps most importantly, the Commission should not be fearful of allowing competitors to vigorously compete for the home.
6821 We do not accept that the technical issues are insurmountable, however, even if one were to assume that they were, it is not the responsibility of the Commission to protect the bundle on behalf of the ILEC or any competitor. If the consumer decides to break the bundle and have multiple providers to the premise, that is their choice.
6822 Bell has asked to be compensated for the risk if access to higher speed services is mandated. We think that the ILECs require no such compensation. For one, not all ILECs, nor the cable companies have asked for similar compensation; and, two, as the cable companies have admitted for them, losing an end customer to an independent TSP is not a disaster.
6823 As the incumbent, the end customer stays on their network, they haven't lost the end customer to the other incumbent and they still get revenue at a lower cost to the cable company which covers their risk.
6824 SaskTel as well has asked for a regulatory holiday if the Commission considers mandating wholesale access to higher speeds. They want a head start.
6825 Bell has not expressly stated this, but in reality their regulatory gaming has in fact given them a head start for roughly five years. They have already enjoyed a regulatory holiday, plus the notion that the ILEC is entitled to be protected from competition or is entitled to be compensated for lost revenue due to competition is contrary to the very idea of competitive telecommunications market in Canada.
6826 In other words, what we are asking for is open access that fairly compensates the ILEC for the reasonable cost of providing wholesale services, however, it is not the responsibility of the Commission to protect incumbents' profits.
6827 Further on the question of competitive symmetry, we have heard a lot from both Telco and cable incumbents as to who is more asymmetrically regulated.
6828 We have to say that from our perspective, the most glaring asymmetry lies in the fact that neither ILECs nor the cable companies are prepared to give independent TSPs what they give themselves, and this is our focus.
6829 So, are the ILECs giving competitors what they give themselves? Assuming they give themselves ADSL at cost, the inflated mark-ups over actual costs of providing wholesale services must be reconsidered.
6830 Are they giving competitors the same speeds of ADSL service that they provide to themselves? No.
6831 Bell first introduced 7 Megabit service in 2008 and since early 2007 the ILECs have weaved and dodged and filed applications on top of application to avoid the Commission's directive to provide matching speeds of ADSL access.
6832 This must finally be fixed.
6833 The ILECs are the ones who invoked the argument of competitive symmetry, they cannot and should not have it both ways once again.
6834 Are cable companies giving competitors what they give themselves? Again, the inflated mark-up for the TPIA service needs to be reconsidered and the option of aggregated interconnection points has been introduced.
6835 Yesterday we clearly heard from each and every cable company that they each aggregate their traffic at three or four points within their networks for themselves. We should be entitled to the same.
6836 On the latter point, we have heard the cable companies say that they should not have to --have to because it's against the Commission's prohibition on mandating of transport. That's not quite how we see it.
6837 The Commission has also recognized it is not practical for competitors to co-locate in every central office and mandated aggregated ADSL service is a result, notwithstanding their assumption that mandated ADSLCO is also available.
6838 So, we are saying that interconnecting at each cable company head-end is not economically feasible for reasonably efficient competitors. It is also on this basis that a more aggregated TPIA service should be mandated.
6839 We heard from the cable companies that there is no technical reasons for the restrictions on the use of their service. We think that the Commission's regulation should encourage technological and competitive neutrality in all its forms.
6840 Removing the restrictions on use will increase the take-up of TPIA among independent TSPs, it will substantially increase the opportunities for competitors to innovate. Therefore, the restrictions on use should be removed.
6841 It is ridiculous that the ILECs and cable companies have said the way to achieving symmetry is to permit additional restrictions to be applied to their wholesale broadband obligations. We say competitive symmetry between competitors, ILECs and cable companies is achieved by removing all restrictions.
6843 MR. COPELAND: Mr. Chairman, Commissioners, we hope that we've been able to demonstrate that the ILECs' arguments that the ADSLCO service is somehow non-essential and are without any foundation and that Bell's sub-loop unbundling proposal does not deserve another moment's attention.
6844 We also repeat that as a matter of regulatory symmetry for competitors, ILECs and cable companies, the matching speeds requirement that has already been mandated by the Commission should be implemented without delay.
6845 Also, until a workable ADSL service becomes a reality, a speed-matched aggregated ADSL service should be made available as a conditional essential service during the transition period.
6846 Lastly, we submit that the Commission should fix TPIA in the manner that we have identified.
6847 We thank you all again for your attention and for giving us this opportunity to voice our concerns within the framework of this proceeding, whose importance for the future of the industry and to the welfare of the consuming public cannot be under estimated.
6848 Thank you.
6849 THE CHAIRPERSON: Thank you for your comments.
6850 Monsieur Bergeron, vous comprenez l'anglais, si je comprends bien? Le document de vos confrères, est-ce que vous avez une copie de ça?
6851 THE CHAIRPERSON: Can you give him a copy of the document you were just presented.
6852 Madame la Secrétaire, please give him one.
6853 It's okay, she will do that.
6854 THE CHAIRPERSON: Today, please.
6855 Si vous regardez le paragraphe 6, on est là.
6856 LA SECRÉTAIRE: Monsieur le Président?
6857 THE CHAIRMAN: Yes.
6858 LA SECRÉTAIRE: Est-ce que c'est le document de monsieur Ménard que vous venez... auquel vous référez?
6859 LE PRÉSIDENT: Non, je parle de votre document, le document de monsieur Tom Copeland. J'aimerais que monsieur Bergeron fasse des commentaires sur le paragraphe 6.
6860 It says:
"As was demonstrated in our original submission in this proceeding, independent TSPs target and serve, among other things, various important niche markets for which ILECs, being mass-market service providers, generally do not have the know-how, agility, or true incentive to serve."
6861 Vous êtes principalement dans la province de Québec, si je comprends bien? Est-ce que...?
6862 M. BERGERON: (Sans microphone) Oui, dans la ville de Québec.
6863 LE PRÉSIDENT: Dans la ville de Québec?
6864 M. BERGERON: Dans la ville de Québec.
6865 LE PRÉSIDENT: Est-ce que ça s'applique là aussi? Est-ce que c'est vrai que vous... vous êtes le fournisseur... marché de détail où des niches qui ne sont pas servies par Vidéotron ou par Bell?
6866 M. BERGERON: Je ne comprends pas votre question exactement.
6867 LE PRÉSIDENT: Est-ce que ça s'applique à votre situation? Est-ce que vous vous trouvez dans la même situation, que vous desservez des marchés que les grands géants, soit les ILECs soit les câblos ne desservent pas?
6868 M. BERGERON: Dans la région de Québec, on est desservis par Telus, pour le commercial seulement; par Bell, qui détient les infrastructures pour le résidentiel; par Vidéotron pour tout ce qui est câblodistribution. Dans la région de Québec, oui.
6869 Et le point 6, j'essaie de le traduire, là, mais...
6870 LE PRÉSIDENT: Mais vous, vous-même, votre compagnie...
6871 M. BERGERON: Oui.
6872 LE PRÉSIDENT: Est-ce que vous vous concentrez sur des marchés, des niches comme on dit ici, pour faire de la concurrence aux grands fournisseurs?
6873 M. BERGERON: Non. Nous, on offre le service aux résidences et au résidentiel et au... Et depuis trois, quatre ans, on offre aussi plus de services au niveau affaires, pour faire nos frais. Mais non, on offre la téléphonie et puis on offre tous les services Internet normaux.
6874 Est-ce que c'était votre question?
6875 LE PRÉSIDENT: Non. Troisième fois : Est-ce que vous, comme on dit ici que le rôle principal pour les FSI indépendants est servir des marchés de niches qui ne sont pas servis maintenant par les grandes compagnies, soit les câblos, soit les ILECs...
6876 M. BERGERON: Oui.
6877 LE PRÉSIDENT: Est-ce que ça s'applique à votre cas aussi?
6878 M. BERGERON: Ça s'applique dans notre cas, dans quelques services, oui. Exemple, la téléphonie IP n'est pas offerte par aucun des concurrents, et certains services affaires spécialisés où on a besoin de fournir...
6879 Par exemple, j'ai donné l'exemple tout à l'heure : deux technologies différentes au même client, nous on offre ça. Les Telco et les câblos n'offrent pas ça.
6880 LE PRÉSIDENT: Et il y a une business case de faire ça, même vous n'êtes pas dans la position d'offrir des bundles, comme on dit en anglais, tout un bouquet de services.
6881 M. BERGERON: Oui, on offre un bundle.
6882 LE PRÉSIDENT: Ah oui?
6883 M. BERGERON: Oui.
6884 LE PRÉSIDENT: Oui, vous...?
6885 M. BERGERON: Câble avec téléphonie ou DSL avec téléphonie IP. Oui. Mais on n'a pas encore la télévision. Un bundle... tous services bundle.
6886 LE PRÉSIDENT: O.K. Merci.
6887 Now, in paragraph 24 of the same document, you refer to our essential services decision, and you say that conditional service was based on the premise that ADSLCO service was available. "This was, and still is, clearly not the case."
6888 I just looked at the essential services decision, and I don't -- where do you read this assumption into it?
6889 MS SONG: That would be our reading of the essential facilities decision. I don't have it in front of me, but the discussion of aggregated ADSL access services came after the discussion of ADSLCO. I believe there is a reference to the aggregation aspect of the service, and it's implicit that there was another means of accessing the end user customer in the decision.
6890 That is our reading of the decision.
6891 THE CHAIRPERSON: Am I getting confused with the terminology here?
6892 I thought that one of the things we were considering here was whether to mandate ADSLCO -- aggregated --
6893 THE CHAIRPERSON: The terminology is so difficult here.
6894 -- aggregated ADSLCO service or not.
6895 I thought that was one of the issues before us.
6896 MS SONG: Yes, I think there is confusion with the terminology.
6897 The ADSLCO service is the service that, we understand, is under consideration as to whether or not the Commission will -- in our view, how it is that the Commission should mandate that service.
6898 Aggregated ADSLCO is the only ADSL service that currently exists in the market, right now, and that is --
6899 THE CHAIRPERSON: Oh, so you think that our decision here was based on ADSLCO.
6900 MS SONG: Yes.
6901 THE CHAIRPERSON: Okay, now I understand. Thank you.
6903 COMMISSIONER MOLNAR: Thank you.
6904 I would like to begin with Mr. Bergeron, and I first need to make sure that I understood your submission. I don't have a copy of it, so I was writing notes.
6905 Did you say, for fibre to the home, that if there were sufficient bandwidth to enable IPTV, you felt it would be appropriate for there to be a greater price associated with that, to compensate for, essentially, revenues forgone?
6906 M. BERGERON: Puis-je répondre en français? May I answer in French?
6907 CONSEILLÈRE MOLNAR: Oui.
6908 LE PRÉSIDENT: S'il vous plaît. On a la traduction. Vous pouvez utiliser votre langue.
6909 M. BERGERON: Oui? Ce que j'ai dit c'est que si dans la démonstration technique de monsieur Ménard d'hier, où il est fait une démonstration que oui, c'est possible que la télévision IP puisse fonctionner de façon partagée entre un fournisseur tiers pour l'Internet et, par exemple, Bell pour la télévision IP, c'est démontré techniquement que c'est faisable.
6910 Ce que je dis, c'est que -- et ce que Bell dit -- il serait donc possible que le fournisseur lui-même fournisse la télévision dans la résidence et d'où Bell pourrait perdre des revenus. Moi, je dis... Ce que je dis c'est : Si nous, Oricom, on décide d'offrir le Third... le Triple Play, les trois services, on est prêt à compenser Bell pour le troisième service qui serait la télévision IP, par exemple.
6911 Et si on voudrait offrir la qualité de service à nos clients sur téléphonie IP, on est prêt à payer un petit peu plus pour la fonctionnalité, qualité de services. Donc, on parle de deux, si on veut, fonctionnalités techniques à ajouter dans le cas que je...
6912 En tant que compagnie, j'aimerais faire le Triple Play avec qualité des services et télévision IP. À ce moment-là, on est prêt à payer un supplément pour défrayer les coûts de... la qualité de service, par exemple, et le multicast (un terme technique) qui permet à fournir la télévision IP dans les résidences avec la * Fiber-to-the-home +. C'est ce que je dis.
6913 Mais au départ, si je n'offre pas le service de télévision IP, je n'ai pas à compenser Bell pour un service que lui va pouvoir offrir à mon client dans la même résidence. C'est ce que je dis.
6914 Est-ce que ça répond à votre question?
6915 COMMISSIONER MOLNAR: I believe so.
6916 Where you are saying fibre to the home, you are essentially saying on any broadband access that is capable of carrying a TV-quality signal.
6917 Is that right?
6918 So it doesn't have to be fibre to the home, it can be the existing fibre to the node, where they are offering IPTV today.
6919 M. BERGERON: Dans la situation de fibre jusqu'au noeud, il n'y a pas d'investissement majeur de Bell d'impliqué dans la problématique. Je ne vois pas pourquoi j'aurais à compenser un investissement majeur. Le seul...
6920 Je suis prêt à compenser un investissement majeur dans la Fiber-to-the-Home, qui est une technologie qui va durer peut-être les 20 prochaines années, tandis que le Fiber-to-the-Node est une solution temporaire qui n'implique pas de gros investissements pour l'instant et dont la qualité...
6921 Tantôt les gens techniques des compagnies de téléphone en parlaient. Il y avait des limitations avec le Fiber-to-the-Node à offrir plusieurs canaux de télévision, l'Internet haute vitesse, puis ces choses-là.
6922 En tant qu'entreprise indépendante, je serais porté à investir dans une solution de télévision IP associée à du Fiber-to-the-Node, mais avec un objectif d'aller vers le Fiber-to-the-Home.
6923 Est-ce que j'ai répondu?
6924 COMMISSIONER MOLNAR: Yes, and I want to open up, I guess, two elements of what you have said for comment. I believe even the other folks at the table may want to comment on the notion of compensating more where there is an -- I mean, you would say where you deliver IPTV, one might say where it is possible to deliver an IPTV service over that capacity.
6925 So whether or not there should be greater compensation at broadband speeds that would enable an IPTV product; and secondly, I would also like to give at least the carriers, and particularly Bell -- I think you mentioned Bell -- the opportunity to comment on the fact that there is no investment -- no additional investment required related to IPTV as it regards fibre to the node.
6926 That is what you said; correct?
6927 I would like to get comments on both of those.
6928 Would you have comments on the first? Would you, too, believe it is reasonable to compensate at a greater level where it is an IPTV-capable broadband access, essentially at speeds that would enable broadband, because of the potential revenue forgone to the carrier?
6929 MR. SANDIFORD: I think what we have said already, and I think what I have heard others say today, as well, is that we believe the ILECs and the cablecos need to be reasonably compensated for their costs of providing services at a reasonable mark-up, but we don't feel that it is the Commission's role to protect the ILECs' profits by way of other forms of compensation.
6930 MR. ANDERSEN: I could add something perhaps by saying that the access we get today provides a certain type of ADSL which may not be suitable for an application such as real-time video delivery, as IPTV, and when Bell is delivering it, they are most likely enabling features that we don't have access to today. Would we potentially pay for a feature -- potentially -- to compensate for their lost revenue?
6931 I think our position has been made clear. I don't know if that helps at all.
6932 COMMISSIONER MOLNAR: Assuming that no one else wants to step into that, maybe Bell --
6933 MR. STEVENS: Yes, I would like to. It's Keith Stevens from Execulink.
6934 Compensation should be based on costs.
6935 And it is also very important to remember that we are talking about the access facility here, not the application. IPTV is the application, and we are talking about wanting access to -- use of the access service.
6936 So the access services should be based upon cost.
6937 And if we keep getting back to the fundamental basics that the Commission has established over the years, I think we are not going to get -- any of us are not going to get into too much trouble. But trying to compensate somebody for an application that they may not provide, or may not sell to the customer anyway, doesn't make any sense.
6938 MR. HENNESSY: Commissioner Molnar, I think, just to be clear, it wouldn't be our position that there is any requirement for us to support somebody else's offering of IPTV. That's not to suggest that we would block it or say that you couldn't offer video on a line, or anything like that, but it sounded a couple of times like people are actually suggesting that we would be required, in some way, to support the application in the same way that we do ours, or provide quality of service on that, and we would fundamentally disagree with that.
6939 MR. BIBIC: Commissioner Molnar, if I may, very quickly, I agree with what Mr. Hennessy said.
6940 But just to respond to the -- you put the question back to Mr. Bergeron about fibre to the node investments. Let's make it clear that the fibre to the node investments that we are making now have, as Mr. Simpson said earlier, nine zeros. I consider that to be rather large, and Bell is not taking that kind of risk to earn back its cost. Let's make that perfectly clear. That is completely -- completely -- unacceptable.
6941 MR. TACIT: Madam Commissioner, I have just one thing to add to that.
6942 I guess that would be true if Bell weren't also going to use the pipe to provide its own services. If they were only providing it for competitors I could see that argument, but the point is they are going to be providing their own service.
6943 And so what we are saying is don't create a cross subsidy from competitors to Bell to help them fund their infrastructure program. We are not a source of capital for them.
6944 We will compensate them for the use of a facility that they are building in their own interest to provide their own services, but it shouldn't go beyond that.
6945 COMMISSIONER MOLNAR: I want to move on.
6946 The CAIP rebuttal, on page 2, very quickly, just a question of clarity.
6947 Number 2:
"It will substantially enhance competition in downstream markets." (As read)
6948 So what are you calling a market? Are you just talking geographic areas or are you separating residence from business or what?
6949 MR. COPELAND: It could be a geographic market, it could be for a business or residence, it could be for a particular service type.
6950 "Market" is sort of a colloquial term in that regard. It could mean a variety of things.
6951 COMMISSIONER MOLNAR: I asked a question earlier about separating residence from business as relevant markets.
6952 What do you think of that?
6953 MR. COPELAND: Well, regarding the current GAS product, we have always been perplexed as to why GAS for residences and GAS for business were priced differently when they are essentially the same service and business has generally put less of a burden on the network GAS businesses do.
6954 So we wouldn't be in favour of separating the two. The product is the access to the customer, residential or business.
6955 COMMISSIONER MOLNAR: I will just let it go. I understand what you said.
6956 In paragraph 9 you identified that speeds in Canada are substandard as one of the issues for going forward with your proposal here.
6957 One of the things I don't quite understand is how is it your proposal will influence the speeds available in Canada?
6958 MR. COPELAND: I think what it does --
6959 COMMISSIONER MOLNAR: Just to be clear, it appears when I read this that it's a proposal of utilizing the broadband access of the underlying carriers.
6960 MR. COPELAND: Well, I think most of these studies are a practice in determining averages and right now we have one sector of the market that is providing services at 10, 12, 15, 25 Mb, whereas we have another sector of the market that is limited to 5. So clearly if the 5 are included in some of these studies we are going to come out looking worse.
6961 If the wholesale market, the independent TSPs, are able to get the higher speeds, all of a sudden all of our customers, the customers that are being rated into some of these service baskets in these studies, are getting better speeds.
6962 COMMISSIONER MOLNAR: Okay. I understand.
6963 At paragraph 11 it says:
"If the price of wholesale access went down we would have the option of lowering our prices without question." (As read)
6964 It just really makes me wonder at what point -- you know, we had other people come before us speaking of a ladder of investment and that these services should be provided because they are a mechanism or a gateway to getting to a pure facilities-based model at the end.
6965 Is it your goal to be competing on price or is it your goal to be building a customer base and injecting some of your cash into facilities and builds?
6966 MR. SANDIFORD: What I think we are saying in these few paragraphs is the direct answer to the questions that Commissioner Simpson asked myself on Tuesday which we could not answer because we weren't familiar with the Wall report -- which I undertook to read without knowing that it was 299 pages in its entirety. So I did so mainly by skimming over the relevant points and the executive summaries and bringing myself up to speed as much as possible.
6967 It is certainly not our intention to compete solely on price alone. We have some competitors at the table who have competed based on price. We have some competitors at the table here today on our panel who have done the exact opposite and refused to compete on price.
6968 This paragraph was a direct response to Commissioner Simpson's question asking why it was one of the reasons that we felt that our prices were higher per bit than in the other countries.
6969 MR. LOURO: We are actually one of the companies that did compete on price and for the first few years at a loss.
6970 At the same time, I would say that we actually achieved what you would call your dream, the ladder of investment. We are at 50,000 clients and we are ready to actually move to the ADSL-CO, but we need that opportunity to go forward.
6971 MR. COPELAND: I am one of the ISPs that Bill alluded to that will not compete on price.
6972 In the dial-up days my dial-up service was the highest priced in the neighbourhood and we did not -- we have never and we still do not offer unlimited dial-up.
6973 Similarly on DSL, we refuse to compete on price.
6974 We are certainly nowhere near 50,000 customers, but we have a core customer base that we service well and that's what they want, is service that is reliable and that they can depend on, and we are the only local provider that has been around for 15 years and continues to operate.
6975 So there are lots of different models.
6976 MR. BOROS: I'm sorry, I wish just to concur with Mr. Tom Copeland.
6977 I represent Accelerated Connections and we have a similar niche market and we don't compete on price.
6978 The service is really what we are going for and offering innovative ideas for our customers.
6979 MR. SANDIFORD: And the last piece to your question was about taking our margins and putting them back into building essential facilities.
6980 In the case of my company, prior to 2010 in certain markets we had only been able to climb the investment ladder per se to allow us to co-locate in two ILEC COs, but with the limited margin that we have, we have since, in the last two or three months, embarked on a project whereby this year we are going to co-locate in an additional 10 ILEC COs.
6981 So we are not just looking for the services to be priced to us at cost and a reasonable markup so that we can lower the price, we are looking for it so that in some cases we can keep our prices the same but use our margins so that we can reinvest them into building facilities-based networks so that we can compete in the future.
6982 COMMISSIONER MOLNAR: Okay. Thank you.
6983 At the end of your long discussion on Bell's sub-loop proposal you say that this shouldn't garner another second I think you say or something -- does not deserve another moment's attention.
6984 But we are going to give it just one more moment of attention because I think the process here is to allow Bell to respond.
6985 I'm not sure, Bell, if you actually have a copy of these comments. They were essentially -- you do have it? Okay. Then I will leave it to you.
6986 MR. BIBIC: So the response, Commissioners, is this, there is no smoking gun that the panel uncovered. The technical impediments do remain with our sub-loop proposal.
6987 But here is the big, big, big difference: If a competitor takes the sub-loop and wins the home, then they win home and that's life in the competitive world.
6988 But the difference is, the competitor will have built their network to the node, they will have built their fibre, they will have taken the risk, and having taken the risk and having won the home, they have won the home. We are not here to complain about competition. You know, he who takes the risk wins the spoils.
6989 There is no regulatory protection in this environment, there is no regulatory arbitrage, they get access to the sub-loop for the reasons I explained on Monday.
6990 The difference between that environment and what they are seeking today is that they get to unitize their costs. If they get a customer, they pay us; if they don't get a customer, they don't pay us and their cost structure becomes largely success based with no upfront risk capital required. That's the difference.
6991 COMMISSIONER MOLNAR: Mr. Bibic, they made two arguments, one being that issue of sharing the sub-loop. I hear you saying you are not going to share it because under your proposal you take the entire full broadband access and capability of all services that go on there. So I understood that part.
6992 But as you know they made two arguments, the first being that it's not practically feasible just from a pure construction sense, they don't have access to support structures, they don't have access to rights-of-way, they need to take power to every cabinet. They weren't even talking the economic issues, they were just talking the practical construction issues.
6993 Do you have any comment to that?
6994 MR. BIBIC: I don't have -- I can't respond to the allegation that we always deny access to our support structures. You know, people have to present me with situations and then we could investigate in response. So I can -- I can't respond to that, other than to say we are obligated to give access to our support structures.
6995 There is a spare capacity exception there, that's true. Now, the allegation that we invoke that all the time, I suspect that that's not accurate.
6996 In terms of rights-of-way, this was asked of me on Monday, it can be difficult but I don't control how the municipalities react to people. Some municipalities give us a hard time, too, and we have to -- I acknowledged on Monday that is something that needs to be worked out.
6997 And yes, it does cost a lot of money to build, it does, but others are doing it.
6998 TekSavvy indicated, as I mentioned earlier -- now I'm starting to repeat myself -- but that they are going to try in Perth and Wightman has tried and others are trying as well.
6999 MR. TACIT: If I may, to be fair, we didn't say we are doing sub-loop unbundling.
7000 MR. BIBIC: No, no, I meant building fibre to the -- sorry, that is correct. I really meant -- I was going too quickly, I really meant that TekSavvy is going to try a fibre to the home deployment in Perth.
7001 The point is, you still have to get rights-of-way, you still have to get support structures, you still have to string the fibre, you still have to get the electronics.
7002 MR. TACIT: Just to respond to that, we had to actually do trenching there because we couldn't get access to the Bell poles, but trenches aren't always available either.
7003 COMMISSIONER MOLNAR: I think, to be fair, I would like you folks to have an opportunity to respond, because it does become -- you know, it's a little bit the elephant in the room here, some hope of an investment ladder, because all of the obstacles you speak of to getting to the node are the same obstacles or even accelerated obstacles if we believe you ultimately will move to a facilities-based model.
7004 If you are going to ever drive past a CO you need to address these. Is that not true?
7005 Like how do you ever get to an investment -- a facilities-based model without addressing the construction obstacles that are here?
7006 MR. SANDIFORD: We get to a facilities-based model historically by building our businesses and growing by use of the facilities that we get from the ILECs until we can gain enough density in a certain area that we can then make the business case to duplicate the structures in a particular area.
7007 So we may be able to use the City of Oshawa where we are headquartered as an example, it was the first central office that we co-located in and we had to make use of the GAS service to obtain approximately 400 customers in the Oshawa area that were served from the CO and not by remotes before we could think that it was economically feasible to do so.
7008 As soon as we had made use of the GAS service to get those 400 customers, we then took the opportunity to invest and co-locate in the CO and do it on a more facilities basis.
7009 The same remains true for the next iteration of the network. If we don't have access to start winning homes we can't possibly believe that we would be able to raise the capital to build when we have zero customers in a neighbourhood.
7010 We don't have the ability to raise nine zeros, as Mr. Bibic calls it.
7011 COMMISSIONER MOLNAR: Yes. I guess my point, a CO, there are competitive facilities to a CO, we know those are forborne interoffice trunks and so on. When you get past the CO into -- this is in effect in large part a residential build we are speaking of -- you will address at any point if there is to ever be facilities-based, if we would ever get past the point that we are speaking of here of a CO-based service, you have to address these impairments or obstructions being it rights-of-way, being it permits, municipalities and the fact that there will be a small number of customers.
7012 You know, there are no economies of scale in serving a neighbourhood, or few economies of scale.
7013 MR. SANDIFORD: Understood. And if we have access to the access facilities in a particular town or city to allow us to build up substantial density, we can then take the business case with customers in hand to our bankers and say we need to raise the following capital in order to do a facilities-based build.
7014 This is what I believe TekSavvy has done, it is what I believe Mr. Bibic was referring to with Wightman, with what Wightman has done.
7015 I can't speak particularly to that, not Wightman, but if we can't have the opportunity to try to build up a customer base which allows us to raise capital, we can't then in turn obtain that capital and spend it.
7016 COMMISSIONER MOLNAR: That's all. Thank you.
7017 THE CHAIRPERSON: Len...?
7018 COMMISSIONER KATZ: Thank you, Mr. Chairman.
7019 I didn't think I heard an answer to Mr. Bibic's comment that he is taking all the risk and your risk only is minimal given that you only invest when you have your customers.
7020 Can I get a response from you as to your views on that?
7021 MR. COPELAND: Mr. Bibic's company is taking the risk to win the home. If they don't win the home, then we are paying them for the services that we buy from them.
7022 So they are receiving some revenues when we win the home or win the customer, win half the home, win the basement, win the bedroom, whatever. They will receive revenues for that and they will be compensated for it.
7023 They are taking the risk, though, to win the home. They know they are not going to win them all, we know we are not going to win them all. So they are going to take that risk to win the home and if they don't, as he said, so be it, they won't win them all, we won't win them all. But when we do win them he still gets something out of it, as the cable companies have noted as well.
7024 COMMISSIONER KATZ: But he also said I thought, and I heard Mr. Cope say, the economics, their business is predicated on reaching a certain level of penetration and obviously that is going to change with more competition.
7025 I gather he is prepared to recognize the fact that with more players in the game it's going to be spread across a broader base. We are not increasing the size of the Canadian marketplace here so more players will mean you are spreading it and therefore the economics change. So his risk changes as well.
7026 I guess what he is saying is how does he get to pass that risk onto those that are contributing to that risk, because if you wouldn't be in the market you wouldn't be contributing to it and therefore his models would be somewhat changed and more positive.
7027 MR. COPELAND: It sounds to me that the model that they have developed isn't taking into consideration the potential revenue that they can get from the wholesale services that we would be happy to buy from them.
7028 COMMISSIONER KATZ: You are saying that the revenues he should be getting on a wholesale basis should be equivalent to what he is getting on a retail basis?
7029 MR. COPELAND: I say his model should allow for the understanding that he won't get all of the homes, that cable will get some of the homes, that independent competitors will get some of the homes, and that there is a different form of revenue depending on the service that he sells to either the end-user or to wholesale suppliers.
7030 MR. SANDIFORD: The other thing that Mr. Bibic is failing to mention is that his risk could be considered less than ours from the standpoint that in the neighbourhoods that he is building into in a lot of cases he already has a majority of homes for the two services they have. So his risk is substantially less than it would be for us, where we might need to build to a fibre cabinet where we have proportionately one home, whereas he already has half or three-quarters of the neighbourhood today. His risk is inherently less.
7031 COMMISSIONER KATZ: So there is a lot of risk to you folks in building out and trying to get the customer base.
7032 Is there a hybrid model here where some value of his additional riskiness is embedded in the wholesale rate?
7033 In other words, the wholesale rate recognizes the additional riskiness of the wholesale product entering the market?
7034 MR. BERGERON: At this time we don't have any results.
7035 CONSEILLER KATZ : Tu peux parler en français si tu veux.
7036 M. BERGERON : Ah! O.K.
7037 Présentement, on n'a pas d'étude de rentabilité qui provient de Bell, par exemple, sur les millions de dollars que les FSI, nous leur donnons à chaque année, mais le nombre d'employés qui travaillent chez Bell au wholesale, comparer au nombre d'employés qui travaillent chez Bell au détail, est énormément différent.
7038 En tout cas, les informations non-prouvables disent que les opérations wholesale chez Bell sont rentables, très rentables. Donc, on contribue au succès de tout déploiement, quel qu'il soit, à condition que les redevances soient raisonnablement établies, c'est sûr.
7039 COMMISSIONER KATZ: Okay. Well, I guess we will hear from Bell tomorrow as to the profitability of their wholesale service, but thank you.
7040 MS SONG: If I could just add, we haven't heard from the cable companies, in fact they have directly contradicted or said that they would not be seeking some kind of compensation for their risk of investment.
7041 So what Bell is saying is that they fear the risk that these smaller players, TSPs, independent TSPs in the market pose to them and that we should bear the difference between the risk they face without us and the risk they face with us.
7042 But the real risk for them is that they are going to be left behind in the marketplace. We believe that these investments in NGNs, they have already happened and they are going to happen.
7043 So that is their risk. That is the risk that they voluntarily assume.
7044 COMMISSIONER KATZ: Mr. Bibic, do you have any --
7045 MR. BIBIC: Yes. I will be very brief.
7046 To Mr. Sandiford's point, well, clearly we don't have three-quarters of the market. That's a bygone era.
7047 But to be -- I just want to clarify something about our business model. To be fair to Mr. Copeland he wouldn't know this because he doesn't have access to it, but what we filed with the Commission staff obviously recognizes retail revenues, it assumes that some of the homes go to cable and it also builds in wholesale revenues. So all the factors that Mr. Copeland said we should have taken into account have been taken into account in the detailed business cases we filed.
7048 Now, he wouldn't know that so I don't want to be unfair to him, but we have done that.
7049 COMMISSIONER KATZ: Thank you.
7050 Just one more question, Mr. Copeland, and the panel here as well.
7051 On page 2, under section (a) in paragraph 3, you talk about:
"There are no other existing wholesale alternatives that would allow competitors to effectively differentiate their service from services offered by the incumbents." (As read)
7052 How do you differentiate your service today?
7053 MR. COPELAND: I think, as you heard on Tuesday, we have private IP networks that we build with these services so they don't touch the internet. We can't do that with anything other than GAS or potentially ADSL-CO. We just take that service and do things with it that just aren't possible through the other wholesale avenue that's available to us.
7054 MR. SANDIFORD: I think what Mr. Copeland is saying is that we are forced to differentiate our services at the application layer.
7055 COMMISSIONER KATZ: Okay.
7056 So when I go to paragraph 7 here you talk about:
"ADSL-CO will enable the provision of true triple play bundle in the residential market by potentially adding video." (As read)
7057 Is that the differentiation that you see being able to develop with the approval of the CRTC in part of this application?
7058 Is that what we are talking about here, is adding video into the bundle?
7059 MR. SANDIFORD: It's one of them, it's not all of them. There are other applications that we can take advantage of solely by speed matching alone.
7060 Mr. Garbe mentioned it. He can't be here today, but he mentioned it on Tuesday when he referenced multi-video surveillance systems where multi-screens are being watched at one time and the available bandwidths today aren't available.
7061 There are a multitude of services that can be developed.
7062 COMMISSIONER KATZ: Because those are the services I would be interested in.
7063 When I see that you have singled out video it sort of raises a whole host of questions that I don't want to go to, but I think there would be some value in you listing in your final report to us, reply to us, the types of services you are talking about that are unique and distinguishable from what they ILECs and/or the cable company would be offering?
7064 MR. SANDIFORD: We will do so.
7065 COMMISSIONER KATZ: Thank you.
7066 Those are my questions.
7067 THE CHAIRPERSON: We are unfortunately not at the point where I thought we would be and I'm in your hands, especially TELUS' hands.
7068 We have a very full schedule for tomorrow. We can obviously go on to a later date, but there would need a break of a week in between because all of you want to go to the Telecom Summit, et cetera.
7069 TELUS, are you ready to go on right now and how much time will it take?
7070 MR. HENNESSY: Yes, Mr. Chairman.
7071 You know, as we mentioned to the Commission, the only problem is our engineering witness is flying in, so there may be a couple of questions we will have to undertake to answer tomorrow, but we are certainly happy to help out.
7072 THE CHAIRPERSON: Okay.
7073 Well, let's take a five-minute break and then we will start with you.
7074 Thank you.
--- Upon recessing at 1641
--- Upon resuming at 1651
7075 THE CHAIRPERSON: I seem to have lost a Commissioner, but while we wait for him...
7076 SaskTel very kindly at my request agreed to come on today so that we can have tomorrow TELUS with their engineer here.
7077 So, obviously SaskTel doesn't have their document because they expected to be on tomorrow and so, therefore, their presentation will be all...
7078 But I want to express my appreciation now to SaskTel for being willing to jump in the breach, so to allow us all to finish tomorrow hopefully.
7079 Thank you.
7080 So, no, we are missing one.
7081 UNIDENTIFIED SPEAKER: Is there a written copy of this presentation? No?
7082 THE SECRETARY: Unfortunately, no.
7083 THE CHAIRPERSON: I just told you, there isn't one --
7084 UNIDENTIFIED SPEAKER: Sorry, about that, Mr. Chair.
7085 THE CHAIRPERSON: Unfortunately they kindly came on, although they weren't prepared to.
7086 So, go ahead, SaskTel, over to you.
7087 MR. MELDRUM: Yes, thank you.
7088 As the Chairman said, we were writing out our presentation while we were sitting here this afternoon and my chicken scratches wouldn't be legible as one of your Commissioners could attest to.
7089 We're going to try and focus on the major issues of contention for ourselves, what we disagree with and what is different with respect to SaskTel and Saskatchewan.
7090 We'd like to start with fibre to the premise.
7091 We do take quite exception to those that describe fibre to the premise as an evolutionary investment. That can't be any further from what it is for us than when the asteroid hit the earth and the mammals came instead of the reptiles.
7092 MR. MELDRUM: It totally replaces SaskTel's 100-year-old copper network. Of course not all the copper is a hundred years old, but that was the basis on which our company was built was copper and it will be replaced with fibre. So, it is a very big issue for SaskTel,
7093 I want to try and scope it for those that have trouble with trying to think about what size we are and so we're going to try and scope it.
7094 It is over $600-million worth of investment for the plan that we're currently looking at and there have been a lot of iterations to that business case. $600-million. Our total enterprise value which would include a yellow pages company and a couple of other subsidiaries, we think our total enterprise value is about 1.7-billion. So, we'll be investing $600-million to basically break even on that investment.
7095 So, I think that gives you a sense of that it is something more than just a minor little evolutionary investment.
7096 I did talk to our Chief Financial Officer to get his take on it because he and his people have been working on the business case with our engineers. He characterizes it as betting the farm. It is that, if we do the full investment, we consider it to be a bet the farm investment.
7097 The second thing I want to cover, is SaskTel threatening not to build? We have said we will do some fibre. There is no doubt about that, we will do some fibre to the prem.
7098 What we're talking about is the speed and the scope of the build, and the speed and the scope of that build is totally dependent on the CRTC's wholesale treatment of fibre to the prem.
7099 As I said, the current business case is virtually break even and we did a 10-year business case on it because five years is actually a loss. It takes 10 years of revenues based on the assumptions that we have in the business case to be able to have a positive net present value for this investment.
7100 So, it's not a bluff. I've heard that thrown around in this venue. It is not a bluff, it is purely factual.
7101 For us it's all about what disincentives that will be needed to be taken into account in our business case, I say disincentives in terms of what sort of wholesale rules are going to come with respect to fibre to the prem that will affect that business plan and potentially make it either more risky or for sure a not break even.
7102 The third area I'd like to address is why do we think that the Saskatchewan market could support a 10-year regulatory forbearance period?
7103 And I'd first of all like to indicate that it's been described by various folks as a regulatory holiday, but we prefer to describe it as a forbearance period, that is, a period of time before which the Commission wouldn't then be implementing a wholesale regime and that you would actually look at it some time during that 10-year period and then come to the conclusion whether a wholesale regime had to actually be implemented.
7104 We do believe that the current Saskatchewan market does support a 10-year period.
7105 There are four facilities-based competitors in Saskatchewan that provide sort of the traditional high-speed Internet. That would be the cable companies, ourselves, satellites and in a lot of locations, fixed wireless provided by a company called YourLink.
7106 Upon the completion of our HSPA+ cellular network in Regina and Saskatoon and presumably in the future for Rogers, they do have HSPA+.
7107 For ourselves, I think as I indicated earlier in the week, we will be installing HSPA on every single tower in the Province of Saskatchewan, that's 514 towers and Bell and TELUS will have full and complete access to that service and will be able to use our HSPA network to provide whatever speeds it is capable of providing.
7108 There's been a lot of discussion about the cable footprint not covering the business markets in the rest of Canada. I accept that.
7109 That isn't the case in the Province of Saskatchewan at all. For those that are as old as I am, you might recall that the original cable plant in the Province of Saskatchewan was built by SaskTel. It was built in the 1970s and the early 1980s.
7110 There was a huge fight between the Government of Saskatchewan and the Federal Government with respect to the provincial government wanting to have a broadcast licence and being able to provide cable television and, as part of that fight, the cable network was built by SaskTel throughout the Province of Saskatchewan and it was ubiquitously built within the footprints of the cities.
7111 We have checked back at the office with our facilities people and they are of the view that is still 98, 99 percent coverage for the cities in terms of business and residential areas.
7112 I don't want to just have Mirko Bibic flying around with pieces of paper. When I left Regina earlier in the week, it was interesting, on the front of the Business Section, the new lounge at the airport shows Access Communications as the sponsor of the free Wi-Fi at the airport.
7113 So, that clearly shows the extent to which Access Communications has high-speed service right out to the airport, and certainly our position is that the cable companies in Saskatchewan are the exception to the rest of the country and they do have ubiquitous access to all of the business customers within the major cities and towns that have cable television.
7114 Again, in terms of where we sit with competition in the Province of Saskatchewan on high speed, there is a very active competitive environment between ourselves and the cable companies, being Access Communications, the sixth largest cable company in Canada according to what they've been bragging in the Regina Leader Post and Shaw Communications which is four times bigger than SaskTel and growing.
7115 For us it's all about the bundle in terms of what's going on in the Province of Saskatchewan and the key product as we fight each other is cable television, it is the TV product.
7116 That is the entry to the home, but what comes with the TV product then is usually, not always, but usually high-speed Internet, local telephone service and the services that then come with respect to local telephone service.
7117 There's a lot of churn back and forth between those two entities, between ourselves and the cable companies and for anybody who is price sensitive, that's how they get the cheapest bundle possible, is that they go from one promotion with us, then they quit us and go back to the cable company for their promotion.
7118 Some of the offers in the marketplace in terms of either win-backs or attempts to save approach $600 a year.
7119 Our President is of the view, not necessarily based on empirical data, but he believes that Saskatoon is actually the most competitive place in Canada in terms of pricing at this stage of the game.
7120 Still on the 10-year regulatory forbearance period, it isn't a full 10 years because it will take us five years at least to build out the network. So, for those locations that are at the end of that five-year period, there will only be five years left because we didn't propose that it would be a rolling 10 years.
7121 I think we addressed that earlier, it's not a question of head start, it's a question of what's necessary to support our business case to install fibre to the home in an area that is I think 60 percent buried, which is very expensive as I indicated and which, in many cases, is certainly fairly far flung.
7122 I akin our proposal to a social contract or a social compact, as they sometimes describe it in the States and I would describe that as, if we get a 10-year regulatory forbearance period we will build fibre to the home as far as the business case will support the build.
7123 The fourth area I wanted to address, and that is that if access is mandated, for us it is all about price, and I think you've indicated that throughout the proceedings, Mr. Chair.
7124 We will negotiate in good faith with competitors. I don't believe that there has ever been a competitive dispute that has gone to the CRTC concerning SaskTel. We have always managed to sort them out.
7125 If price is to be arbitrated at a future date, that will be a risk that we will have to take into account in determining the size and the scope of the build because that would put the numbers that we had in our business case at risk and we'd have to take that into account, and that's why we haven't been in favour of the notion of arbitration of the price that access would be mandated.
7126 We do, however, support mediation by the CRTC but, as I say, not arbitration.
7127 The fifth thing we wanted to cover was Commissioner Patrone's question from earlier in the week for us, and that was whether we would support selling legacy networks at cost to potential competitors.
7128 Our position is that we do already sell below cost, and I know you've heard that from others. Just in support of that I note that QuébecTel and Télébec get a 25 percent mark-up.
7129 We are much more similar to the size of QuébecTel and Télébec than we are to Bell and TELUS who get a 15 percent mark-up.
7130 I think that alone says that the mark-up for SaskTel is not appropriate.
7131 But in answer to the question, if prices were re-set at actual cost, we believe this could be part of that social contract, that we would be prepared to provide all those legacy networks at an appropriate cost.
7132 I think Kym will address a couple of points on VDSL and then I have a very short conclusion.
7134 THE CHAIRPERSON: You didn't introduce yourself at the beginning. I think you have to do that for the record and for those people who listen.
7135 So, would you just introduce the colleagues so the reporter has it before you pass it on to your colleague.
7136 MR. MELDRUM: Certainly.
7137 So, I'm John Meldrum and Kym Wittal is our Chief Technology Officer and Andrew McKay is one of our Regulatory Managers and we asked Brian Krug to sit up front with us since he's one of our engineers that's been working on the business case.
7138 MR. WITTAL: Thank you.
7139 We wanted to just circle back a bit and talk a little about next-generation network. There's been some debate about where you draw the line and why you draw the line and we drew the line at what we call VDSL technology. It wasn't fibre to the node, it wasn't fibre to the prem, it was VDSL technology and, of course, those fibre-to-the-node builds and fibre-to-the-prem builds are again even more, if I would call it, next-generation networks.
7140 We drew the line there, talked about it in the oral presentation because for us VDSL was not ever included as part of our aggregated ADSL service.
7141 For us VDSL is not a ubiquitous service. There's no doubt that it provides higher bandwidth into our marketplace but it is not a ubiquitous service throughout our network in our major centres.
7142 We want to make sure the Commission understands that VDSL is not just ADSL on steroids, it is significantly different and there are a number of reasons why which I'll go through quickly.
7143 One, like all technologies there are standards defined, however, as they mature they become more interoperable and that is certainly true with ADSL today, well defined, interoperable, lots of vendors can interoperate with each other.
7144 But in VDSL, while the standards are defined, they are not fully interoperable, which means you really can't take one vendor's modem and connect it to a different vendor's head-end if you will or DSLAM box.
7145 Specifically one chip set is not the same as the next chip set and, therefore, it is not the same piece in terms of ADSL which of course you can.
7146 For us, and for everyone, it will require more aggressive management. Again, a ADSL box is a bit like a dumb box, if you will, where a VDSL box is a very smart box and requires ongoing aggressive management, firmware updates as we said in the oral presentation.
7147 And for us, unlike ADSL, which is basically provision of one rate because it really only has one magic capacity or one maximum capacity, we provision VDSL at different rates depending on line length or copper loop length.
7148 So, again, it's radically different than what an ADSL technology looks like.
7149 So, while we do talk about it as VDSL -- sorry, as DSL, part of the DSL family which I think the Chair had asked back on Monday, we would certainly call it a radically different DSL solution than what ADSL is today.
7150 MR. MELDRUM: Thanks, Kym.
7151 So, the conclusion was the part that I hadn't even gotten down on a piece of paper other than the quote I wanted to use.
7152 But one of the things that the Commission asked people to look at and commented on was about whether the rules would unduly diminish incentives to invest in new network infrastructure in general.
7153 And I just note that I heard from the ISPs just a moment ago saying, give us what we want and we might build. Okay, I contrast it to what we're saying. Give us what our business case needs and we will build. And I think those are two very different things.
7154 THE CHAIRPERSON: Thank you for your presentation.
7155 Let me just question a little bit what you said because I have trouble putting things together.
7156 You are in a competitive situation, you are competing against Shaw and Access Communications. Access Communications by your own words has built out throughout the province, as I understand, their system.
7157 You say that SaskTel originally built the cable system and then was taken over by them?
7158 MR. MELDRUM: Yes.
7159 THE CHAIRPERSON: All right.
7160 MR. MELDRUM: We built it in the late 70s and the early 80s and we sold it in 1986 to the cable companies.
7161 THE CHAIRPERSON: Obviously you have Shaw as a competitor. And you said the roll out is based on the ruling that we are going to make.
7162 It seems to me competitive pressures will force you to roll this out anyway. As you yourself said, if we don't have the IPTV market and you don't have the home, then you are going to lose the rest of the services too because everybody just wants a bundle.
7163 Secondly, you are a Crown corporation, you clearly have a commercial mandate but you also have this sort of a provincial mandate, if I can use it, and surely Saskatchewan wants to be as competitive as the other provinces and wants to make sure that the ICT structure in Saskatchewan is as good as possible so that Saskatchewan can flourish and go forward.
7164 So, while I can understand that our ruling may be a bit of a damper, to suggest that it will significantly retard or affect you, it seems to me it is just one small factor and the other two are far bigger factors and, in effect, where does Saskatchewan want to go and what you do has to do in terms of competitive pressures in order to keep up with your competition.
7165 Do I see this wrong?
7166 MR. MELDRUM: That certainly isn't the discussions that we've been having at a senior executive level, it is not just a small factor because the business case is so difficult to make.
7167 Our board and our owners look to us to be a viable commercial enterprise and to invest $600-million and lose money, I don't think that would be approved.
7168 We are answerable to the Crown Investments Corporation that require a financial return and at the moment we are probably almost a jewel in the group of Crown investments in terms of the expectation to deliver dividends to the province.
7169 So, I would say that our governance process would look very hard at a business case that was negative as a result of the wholesale requirements in terms of whether or not fibre to the home would be approved.
7170 THE CHAIRPERSON: That would mean that your present status of being a great contributor to the revenue of Saskatchewan would obviously suffer.
7171 I mean you are, as you say, the jewel, you are a Crown investment yet you generate a lot of revenues, and surely your shareholders must realize that continued investment is required for you to upkeep with the competition and continue in the excellent shape that you are in right now.
7172 MR. MELDRUM: But to invest and lose money, because the business case is that marginal.
7173 THE CHAIRPERSON: You are telling us that if there is mandated access by ISPs your business case does not work? I mean, the total numbers of the ISPs who right now use mandated access, as you know, is relatively small, it is less than 350,000, that is for all of Canada, I have no idea what the breakout is for Saskatchewan, so...
7174 I mean, if you say so I have to accept it, but it seems to me that it cannot be that precarious, at least that mandated resale which after all does generate income to (inaudible) your business case.
7175 MR. WITTAL: As John is alluding to, our business case is two-fold. One is I would correct you on, it's well in excess of $600-million, and it is extremely marginally positive for that kind of investment.
7176 Our business case has not taken into account any losses I will say either through mandated or other things. We have estimated, of course, competitive losses due to the marketplace and that certainly would be a business driver to try and be competitive and obviously win the customer base.
7177 But it is certainly that close, if I could say it, to a zero that any sizeable, and even not sizeable, but any losses of any magnitude pretty much would cause us to re-think about how far and how fast we go.
7178 As John said at the beginning, we do have plans obviously to deploy fibre, we will do that, but only if it makes economic sense. We have recent examples where we have struggled I think back to the executive more than five times to drive a business case that was not positive and we finally found a way to do that.
7179 But I think our owner and our -- well our management team and our board and our owner all believe that we need to be a viable business and we're going to do that, and to have anything that would disrupt this would cause us to re-think exactly what it is we would build, where we would build and how fast we would build.
7180 THE CHAIRPERSON: Okay. And at the beginning you made a strong case saying that fibre to the home is a new generation, et cetera, and it is not just an iteration on advancement on existing technology.
7181 Throughout this week we have heard many people saying fibre to the node was really just an enhancement of existing network, et cetera, and that really up to the node you should look at it as essentially ongoing improvement of technology.
7182 Yes, fibre to the home, the last part truly is next generation.
7183 Do you feel that way or do you draw the line earlier?
7184 MR. WITTAL: Well, we have said that really for us VDSL is where we kind of classify next generation network, so that says that you are utilizing the fibre to the node as part of that ADSL service if you will, but it's really the copper side, if you will. Obviously the fibre network that goes deeper into the network to the home is all truly next generational.
7185 I think there is an argument to be made that would say that when you change out from copper to optics you have started a next generation network in and of itself. Whether you use it for transport, whether you use it for communications or backhaul, whether you use it to the node or whether you use it to fibre to the prem, optical technology is radically different than copper to the home.
7186 THE CHAIRPERSON: Is that your position? You were very careful in saying "one could make an argument".
7187 Is that the argument you are making or not?
7188 MR. WITTAL: No. No, that's not Sasktel's position.
7189 Our position is VDSL is the start of the next generation network.
7190 THE CHAIRPERSON: Okay. Thank you.
7192 COMMISSIONER SIMPSON: Sorry, it's Mr. Patrone.
7193 COMMISSIONER PATRONE: Sure. Thank you, Mr. Chair.
7194 Thank you for your presentation today.
7195 I'm going to just raise your points in the chronological order that you brought them up during your rebuttal and then give those who may have raised the issue an opportunity to address it.
7196 First off, your view that fibre to the prem is an evolutionary investment.
7197 MR. MELDRUM: Is a revolutionary investment.
7198 COMMISSIONER PATRONE: Sorry, revolutionary rather than evolutionary.
7199 Did I get that correct?
7200 MR. MELDRUM: Yes.
7201 COMMISSIONER PATRONE: Because it totally replaces the old 100-year-old network and replaces copper.
7202 I'm wondering if any of those who may have raised this issue care to take issue with what SaskTel has just said?
7203 COMMISSIONER PATRONE: Going, going, gone.
7204 It is over a $600 million investment. The total enterprise value $1.7 billion.
7205 Over how long of a stretch of time?
7206 MR. WITTAL: The current view -- and again I think John highlighted that we have had numerous iterations and we continue to work on that.
7207 Today it is roughly around a nine-year build. Well, in the order of nine years. That's for all locations.
7208 COMMISSIONER PATRONE: I take it you have differing business models depending on the regulatory regime that may happen in future.
7209 So in other words, have you done those types of examinations whereby here is what our model looks like if regulatory regime looks like this vis-à-vis mandated wholesale access and here is how it looks if in fact that access is denied.
7210 Do you have those varying models?
7211 MR. WITTAL: The answer would be no.
7212 Our model today it assumes there is no regulatory impairment.
7213 COMMISSIONER PATRONE: Okay. You say speed and scope of the build is really what is at debate here, that it takes 10 years to get positive and that this is not a bluff.
7214 How long would it take you to get positive in the event that wholesale access was approved?
7215 MR. MELDRUM: Again we would have to run that business case and put the assumptions in. The missing piece is always what the price is.
7216 But I would think that you couldn't get it positive. I think the net present value of the business case would be zero or less. I'm sure it would be below water.
7217 COMMISSIONER PATRONE: I find that surprising. Did I hear you correctly that you are saying you would never get positive if wholesale access was mandated?
7218 MR. MELDRUM: Today the net present value is just above zero. So as soon as you go below it doesn't become positive. You don't add to the value of the corporation by proceeding.
7219 The business case looks at the whole question of saved revenues. They are at the heart of what creates the business case, is what losses do you avoid by making that investment.
7220 COMMISSIONER PATRONE: Because there are those who would argue that really you are going to get to where you were going eventually vis-à-vis getting positive and generating satisfactory revenues, but it just may take you longer if in fact access was mandated on a wholesale level.
7221 MR. MELDRUM: Certainly. The business case might change as you go forward. If you find that you are falling further and further behind and do another assessment and conclude that now you can earn more revenues by putting in your fibre to the home, then I guess at that point the business case might be positive again and you might be able to get approval for it and proceed.
7222 COMMISSIONER PATRONE: So it depends on the economics, the state of the economy going forward? Is that --
7223 MR. MELDRUM: It depends on a number of factors.
7224 COMMISSIONER PATRONE: But those factors have not really been factored into any alternate models of what may or may not happen in future, though, if I heard you correctly that the only model that you have, the only business case that you have established is one in which access is denied at a wholesale level.
7225 MR. MELDRUM: At a wholesale level, yes.
7226 COMMISSIONER PATRONE: If anybody out there has any issue with what SaskTel has said raise your hand.
7227 Now, you at one point said -- I'm sorry, is there a hand that went up?
7228 Oh, I see. Okay. All right. I believe this gentleman's hand went up first.
7229 MR. SANDIFORD: It's Bill Sandiford from Telnet Communications for CAIP.
7230 What I believe the competitors have proposed would be a framework where we are fully compensatory to the ILECs at a Phase II cost plus 15 percent and I don't understand how cost plus 15 percent translates into a loss.
7231 COMMISSIONER PATRONE: Mr. Meldrum...?
7232 MR. MELDRUM: Well, I think is leads to the -- it takes you right back to the whole question that people don't seem to understand the costing.
7233 The 15 percent is not a markup, the 15 percent is to cover other costs that weren't included in the Phase II costs. As I said earlier, 15 percent doesn't cover that for us.
7234 The example I used was QuébecTel and Télébec that are fairly similar in size to us. Yes, we are maybe twice, two and a half times bigger, but they have a 25 percent amount, which again isn't -- it's not profit margin, is just covering the costs that weren't specifically identified in the Phase II costing.
7235 I don't know, do you want to speak to that, Andrew?
7236 MR. McKAY: Actually, one other topic I guess.
7237 You are proposing Phase II plus 15 where we would have assumed retail. So Phase II plus 15 leads to a loss when compared to obtaining a retail price for that service.
7238 COMMISSIONER PATRONE: There was a hand up that way.
7239 Mr. Hennessy...?
7240 MR. HENNESSY: Thank you, Mr. Patrone.
7241 The costing thing is an important issue for us, too.
7242 The Phase II costing was developed in a monopoly environment and incremental cost plus markup always assumed there was at that time what was called Phase III, or the embedded costing regime, always assumed that where one had to provide services to competitors, or a particular customer at incremental cost, they were allowed to raise prices for other parties within the enterprise as a whole in order to recover all the embedded costs plus a reasonable profit.
7243 When you move to an environment where all your services are subject to competition and the ability to raise prices across the board to recover your full cost is no longer there, the imposition of an incremental cost regime can mean that you end up under recovering your investment.
7244 COMMISSIONER PATRONE: The TekSavvy section?
7245 MR. TACIT: With regard to the Phase II issue there are a couple of other factors to consider.
7246 First of all, the Commission has already dealt with the very issue that Mr. Hennessy has raised in previous decisions and came up with its policies in this regard and I don't know that, you know, we are going to revisit them here in any case.
7247 But the important things to note are that there are other factors at play.
7248 First of all, telecommunications is largely a declining cost industry and a lot of these studies once they are done the rates get set and stay for a very long time. So, you know, there are certainly factors at work to the detriment of competitors once those kinds of rates are set.
7249 The other thing, as I said, is cost of risk, if there is any -- and I'm not conceding that there is, but conceptually if there were any -- and I made this point earlier -- should really be reflected in a cost of capital adjustment and only on those assets that are risky. So you wouldn't have the cost of capital applied to all of the assets first of all and you certainly wouldn't do it by way of a markup on all of the costs.
7250 COMMISSIONER PATRONE: Okay.
7251 MR. TACIT: With that, there is a practical experience that Mr. Blondeel has from a couple of other jurisdictions on this point.
7252 COMMISSIONER PATRONE: Okay. Very quickly.
7253 MR. BLONDEEL: Yes, Yves Blondeel.
7254 I would just like to point out that there are ILECs in other jurisdictions, notably the Netherlands and the U.K., that do not take this assumption that granting wholesale access is detrimental or destructive of their business case, but they want to attract wholesale partners as early as possible in their VDSL or fibre buildout because they consider that attracting these customers will help them build scale in the early phase and rapidly reduce the risk of the investment.
7255 COMMISSIONER PATRONE: Okay. Thank you.
7256 I will give the last word to you on that matter and that I have to move on.
7257 MR. BLONDEEL: Thanks.
7258 COMMISSIONER PATRONE: Go ahead, Mr. Meldrum.
7259 MR. MELDRUM: Just to be clear, we are not saying we don't want wholesale customers, we want them at an appropriate price.
7260 COMMISSIONER PATRONE: I want to address your regulatory forbearance period again.
7261 I believe it was Mr. Andersen of CAIP that said regulatory gaming has already given you -- meaning SaskTel -- a five-year head start -- I'm paraphrasing what he said, and hopefully doing it correctly -- and as a result you should not be now awarded a 10-year regulatory forbearance period.
7262 MR. MELDRUM: Well, fibre to the prem hasn't been built yet so I don't know how one could say that looking backwards there has been some kind of a regulatory gaming advantage that has occurred. So I just don't understand where he's coming from.
7263 COMMISSIONER PATRONE: If Mr. Andersen --
7264 MR. MELDRUM: And SaskTel does not participate in regulatory gaming. When we have issues we bring them forward; when we don't have issues we don't bring them forward.
7265 COMMISSIONER PATRONE: I'm going to ask you about the cable footprint matter in conjunction with regulatory symmetry.
7266 You have spoken about the differences in Saskatchewan relative perhaps to other provinces, specifically that the business customers in that province are being serviced to perhaps a greater degree by TPIA than in comparison with other areas of the country.
7267 Is that what you said?
7268 MR. MELDRUM: I think what I said was that they have access to the high-speed services from the cable operators.
7269 COMMISSIONER PATRONE: They have access to it.
7270 MR. MELDRUM: Yes. Because of the ubiquitous footprint.
7271 In other words, the business customers in Saskatchewan are contested by the cable operators because the footprint is there.
7272 COMMISSIONER PATRONE: Because there has been this debate about the business footprint having an impact on the degree to which TPIA is somewhat of a disincentive relative to ADSL.
7273 You have heard that argument?
7274 So I asked, because I was wondering if the take up for TPIA in Saskatchewan is perhaps a little greater as a result of the business footprint by the cablecos in your province.
7275 MR. MELDRUM: It could be, but we are not aware at all as to how much if any TPIA is actually sold by either Shaw or Access in the Province of Saskatchewan.
7276 In terms of Internet service provider competitors that aren't facilities-based, they are few and far between.
7277 COMMISSIONER PATRONE: I also wanted to ask you another question about the regulatory symmetry issue.
7278 You talked about the degree of churn between SaskTel and the cable companies and you are referring to the switching that goes back and forth.
7279 MR. MELDRUM: Right.
7280 COMMISSIONER PATRONE: Did I hear you correctly?
7281 Do you have any thoughts about the capacity to switch back and forth and whether or not regulatory symmetry is an issue as far as how that's being conducted under the current regime?
7282 MR. MELDRUM: Yes. We do believe that the requirement for a CSG group with the cable operators would prevent them from being able to stop a customer from moving over to SaskTel, because they do make aggressive please don't leave offers to their customers when our new prospective customer phones them to cancel service.
7283 COMMISSIONER PATRONE: Okay.
7284 I'm going to pass this along to my colleagues who may have some questions.
7285 Thank you, Mr. Chair.
7286 THE CHAIRPERSON: Michel...?
7287 COMMISSIONER ARPIN: Thank you, Mr. Chairman.
7288 My first question is a question of clarification.
7289 Did you say that it will take you nine years to build -- to replace your copper access network with fibre?
7290 Mr. Meldrum, can you please...?
7291 MR. WITTAL: Yes. We have conducted many different business case models, anywhere from 5 to 9 years, and they all of course have different economics associated with them.
7292 The current view that has been before the executive is trying to reduce the build from nine down to some number smaller, but we have not come to the conclusion on what the build really could be or should be.
7293 COMMISSIONER ARPIN: And then it's all the households across Saskatchewan that will have fibre to the premise?
7294 MR. WITTAL: No. The build we are contemplating will be to the nine major centres only and it will pass every household but dropped to only our customers or potential customers.
7295 COMMISSIONER ARPIN: I see.
7296 Have you figured out whenever you will be able to cover the whole province or is that a scenario that you have been looking at?
7297 MR. WITTAL: We have not contemplated a provincial build at all. I know the number --
7298 COMMISSIONER ARPIN: Because I know that you are extending broadband across the province, that's part of the current plan of the Government of Saskatchewan, and so you are bringing fibre everywhere, not necessarily to the home but any existing locality, whatever the size.
7299 MR. MELDRUM: Yes. The last time that the Commission looked at what percentage of SaskTel's customers were high cost rural and remote it was 42 percent of those customers. Many of that 42 percent have very long loops of copper. It would be extremely expensive to plough fibre in place of that copper.
7300 In fact, as we look out into the future we don't think we will even replace the copper, that it will have to be a wireless solution for rural Saskatchewan.
7301 Saskatchewan, it is such a rural province, there is a lot of people that do not reside in cities and towns.
7302 COMMISSIONER ARPIN: No, that's true. I have visited your province so I have had that opportunity.
7303 Now, if we were to grant you that forbearance period, what will you be saying to the ISPs who are interested in offering service to the province? Are they going to pay -- I know I heard you that you were not contemplating that they will not be a competitor providing some services, but what will you be saying to them, they have to pay much more than doing business in any other province?
7304 So in a way you are telling them go, you better do business in Alberta or in Manitoba and leave us alone.
7305 MR. MELDRUM: If they can't make a business case paying the appropriate rate, then I guess that would be the end result.
7306 COMMISSIONER ARPIN: The proper rate obviously is your rate, plus a markup.
7307 MR. MELDRUM: As distinct from below cost, yes.
7308 We heard some competitors that said that even today's rates that are below cost aren't sufficient for some of them.
7309 COMMISSIONER ARPIN: Now, you said that VDSL was the beginning of next generation access.
7310 I don't know if all those in the room share that view.
7311 Mr. Hennessy, I saw your --
7312 MR. HENNESSY: Yes, thank you, Vice Chair.
7313 No, I would say -- I mean the problem with trying to define next generation in a world where everybody has a different network, a different technology path, I don't think is a useful test for us. It starts at ADSL2 because with ADSL2 we can actually launch an integrated broad IPTV service over the Microsoft Mediaroom platform. So for us that's the beginning.
7314 COMMISSIONER ARPIN: That's when next generation starts.
7315 MR. HENNESSY: Yes
7316 COMMISSIONER ARPIN: How long have you been offering ADSL2?
7317 MR. HENNESSY: Just since, I think just last year.
7318 MR. HENNESSY: Yes. We will ask Mr. Sinclair. It really rolled out -- there may have been tests as far back as 2006.
7319 COMMISSIONER ARPIN: Thank you.
7320 And Bell, do you have any comment to make?
7321 MR. CONDON: If you are asking about ADSL2 --
7322 COMMISSIONER ARPIN: First, Mr. Meldrum said that VDSL was the beginning of next generation.
7323 MR. CONDON: We would agree with Mr. Wittal, yes, SaskTel.
7324 COMMISSIONER ARPIN: You agree.
7325 So since when do you have a VDSL?
7326 MR. CONDON: VDSL.
7327 MR. CONDON: Two or three years now. Two anyway.
7328 COMMISSIONER ARPIN: You are also offering ADSL2 as well, so since when have you been offering ADSL2?
7329 MR. CONDON: ADSL2, since late 2004.
7330 COMMISSIONER ARPIN: 2004.
7331 MR. CONDON: Although I will certainly support Mr. Wittal, although we have had VDSL2 in the network, the standards that he talked about, the care and feeding around it is really limited widespread deployment until the past year and a half.
7332 COMMISSIONER ARPIN: Mr. Meldrum, since when have you been offering VDSL, or Mr. Wittal?
7333 MR. WITTAL: We are not 100 percent sure, but we estimate VDSL2 in 2008, so a couple of years; and ADSL2 would have been pre-2006, so about four years.
7334 COMMISSIONER ARPIN: Mr. Meldrum spoke about VDSL, not VDSL2.
7335 MR. WITTAL: We make no distinction.
7336 COMMISSIONER ARPIN: You make no distinction in between.
7337 As a matter of curiosity, I came here thinking next generation was something that will start in a couple of years from now while I'm discovering that next generation -- so I'm part of the next generation.
7338 COMMISSIONER ARPIN: I'm pretty happy to hear that.
7339 Yes, sir?
7340 MR. SANDIFORD: It's Bill Sandiford from Telnet Communications for CAIP.
7341 This brings us back to the point that Commissioner Patrone mentioned a few moments ago when he was talking about the comments of Mr. Andersen.
7342 This is exactly what the competitors say when we see that the regulatory gaming that has been taking place has precluded us from access to these ADSL2 speeds which competitors today still do not have when they have been offered for, in the case of Bell, according to Mr. Condon, since 2004.
7343 COMMISSIONER ARPIN: Yes, Mr. Bibic?
7344 MR. BIBIC: Thank you, Monsieur Arpin.
7345 We think to define next generation network by one particular carrier's technology would be the wrong way to go. What we define as next generation networks is the fibre to the node deployment or the fibre to the home deployment and it's no secret that our fibre to the node deployment started, as Mr. Condon said, in 2004, but that was focused on Montréal and Toronto which has just been completed.
7346 It's the overly nature of it and the deployment of fibre deeper to the node and the shortening of the loop lengths that's the next generation component.
7347 COMMISSIONER ARPIN: Thank you.
7348 And Mr. Taylor?
7349 MR. TAYLOR: Commissioner, we have made the submission that next generation basically is a lot of smoke and mirrors because -- and this I think is one restriction of that fact, because what people are doing is declaring whatever it is that they don't want to let people have access to to be the next generation.
7350 What all of these technologies, whether it be fibre to the node or fibre to the home, they are all built on the legacy duopoly infrastructure in the sense that was discussed by ourselves this morning and by the CAIP representatives today, the rights-of-way, the support structures, they are coming out of the central offices which are established, it's all based on that basic structure that exists and if they did not have that structure the enterprise, the venture would be a significantly different one.
7351 The real question we would suggest is how do you set an appropriate wholesale rate and to do that you look at the costs and obviously the costs for fibre to the home are different than from fibre to the node, the wholesale rate would be different in the one case than the other, but nonetheless you look at the costs, including the cost of capital, as Mr. Tacit has referred to, and then you set out an appropriate rate.
7352 But the notion of trying to cast some bright line, we are seeing an illustration here that that's just not a reasonable thing to try and do.
7353 COMMISSIONER ARPIN: Thank you.
7354 I see, Mr. Hennessy, that you want to make a further comment.
7355 MR. HENNESSY: Yes.
7356 I think we have to come back to the issue before us, or one of the issues before us, and a key one, is that the government has asked the question whether in the absence of speed matching or in the absence of ADSL-CO2 -- sorry, CO.
7357 MR. HENNESSY: It's my first job in CRTC years ago.
7358 But whether in the absence of those two things there would be a lessening of competition in the market, what is the impact of that on investment and does speed matching and ADSL-CO mandatory speed matching and ADSL-CO impact the ability to offer IPTV.
7359 Those and one other question are sort of the issues we have to -- and they are not saying, you know, define what is NGN.
7360 I mean the Commission has an essential services test that they look at these things first and the government is saying in light of your rules, and in light of these questions where do you end up. I think that's what we are here for.
7361 COMMISSIONER ARPIN: Thank you, Mr. Hennessy.
7362 Thank you, Mr. Chair.
7363 THE CHAIRPERSON: Thank you.
7364 Elizabeth, last question.
7365 COMMISSIONER DUNCAN: Mr. Meldrum, I just want to clarify so I have a clear picture.
7366 What I understood you to say was that the speed and the scope of the build is dependent on our decision here, not that you wouldn't do it at all.
7367 So I wouldn't want to think that Saskatchewan and Saskatoon or Regina or other larger centres are going to be deprived of fibre because of this decision.
7368 That's not what you are saying, is it?
7369 MR. MELDRUM: No. When we say "scope" that is getting to the point of what geographic locations will actually be receiving fibre to the home.
7370 COMMISSIONER DUNCAN: It just seems --
7371 MR. MELDRUM: Maybe within those communities themselves, because it is so much cheaper to do aerial fibre to the home than it is to do buried fibre to the home and we would have to have a hard look at some of the fibre to the home that would have to be buried.
7372 COMMISSIONER DUNCAN: To make those statements then, do you have some estimates as to what the implications would be, how much lost revenue you would have if the ISPs work -- if these wholesale features were approved?
7373 MR. MELDRUM: We haven't modeled it because we don't know what those prices would be.
7374 COMMISSIONER DUNCAN: But I mean for you to say that you wouldn't do that build you must have an idea the cost effect it would have or the implications it would have on you?
7375 MR. MELDRUM: It's because the NPV today is just above zero.
7376 COMMISSIONER DUNCAN: So any?
7377 MR. MELDRUM: It's intuitive rather than empirical.
7378 Certainly once -- assuming that the Commission ends up mandating wholesale access at Phase II cost plus 15 percent for SaskTel we will run the numbers and at that point we will make the decision as to how far we will build.
7379 COMMISSIONER DUNCAN: How many ISPs do you have now to deal with SaskTel?
7380 Do you have any idea?
7381 MR. MELDRUM: The products that our customers do take, our wholesale customers do take, is aggregated ADSL. That tends to be for national solutions and national resale.
7382 As I indicated earlier. We don't see small ISPs in the market in Saskatchewan.
7383 COMMISSIONER DUNCAN: Okay.
7384 MR. MELDRUM: It's a facilities-based competitive model that is occurring.
7385 COMMISSIONER DUNCAN: Thank you.
7386 THE CHAIRPERSON: Okay. Thank you very much.
7387 Thank you for coming on. We are now going to finish for today.
7388 We will start tomorrow morning -- I'm sorry, time is up because I have to worry about my translators getting home and everything, they are already over time.
7389 We will start tomorrow morning at 8:30 sharp here and we will start with TELUS.
7390 Thank you.
--- Whereupon the hearing adjourned at 1745, to resume on Friday, June 4, 2010 at 0830
Johanne Morin Jean Desaulniers
Sue Villeneuve Monique Mahoney
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