ARCHIVED - Transcript, Hearing 4 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 4, 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 4, 2010
- iv -
TABLE OF CONTENTS
PAGE / PARA
TELUS Communications Company 1241 / 7402
Bell Aliant Regional Communications Partnership, Bell Canada and Télébec, Société en commandite 1297 / 7756
Execulink Telecom Inc. 1387 / 8374
Primus Telecommunications Canada Inc. 1403 / 8465
TekSavvy Solutions Inc. 1434 / 8705
- v -
Undertakings can be found at the following paragraphs:
7581, 7751, 8229, 8275, 8282, 8315, 8324 and 8359
--- Upon commencing on Friday, June 4, 2010 at 0831
7391 THE SECRETARY: À l'ordre, s'il vous plaît. Order, please.
7392 THE CHAIRPERSON: Good morning.
7393 I'm looking for Mr. Hennessy.
7394 THE CHAIRPERSON: Okay, let's proceed.
7395 MR. WOODHEAD: Ted Woodhead, TELUS.
7396 Two primary issues with respect to some questions yesterday that we undertook to provide you with answers to.
7397 Vice Chairman Katz asked whether we were in negotiations with respect to facilities subject to phase out.
7398 I have checked and yes we are in negotiations with two parties in this room in fact with respect to that.
7399 Second point, we were asked percentage of customers served out of territory for TELUS on net.
7400 It's a very small amount because primarily our business in that respect is with national accounts.
7401 THE CHAIRPERSON: Okay. So it's your turn for rebuttal.
7402 MR. HENNESSY: Thank you, Mr. Chairman, Commissioners.
7403 In our mind the issues before you are a lot simpler to frame for discussion than to resolve and that is because, no matter the course of action you choose, there will be losers as a result of your decision and, in our opinion, you really can't avoid that fact.
7404 We are at this proceeding because the CRTC made a decision that TELUS and other carriers were required to further unbundle new networks that we are building in order to offer faster broadband and integrated next generation broadband-based services like IPTV.
7405 This decision was subsequently appealed to Cabinet and referred back to the Commission to reconsider.
7406 The Cabinet has asked the Commission to consider whether, in the absence of speed matching and the mandated provision of ADSL-CO services, there would be competition sufficient to protect the interests of users. It's our position that you must answer yes to that question, regardless of the impact on particular resellers.
7407 Even without speed matching or mandated ADSL-CO, there would continue to be sufficient competition to protect the interests of users. Just look at the price plan ads we have attached to our submission and the number of new facilities-based broadband alternatives in-market or being deployed for confirmation.
7408 It's also our position that further unbundling will actually lead to a lessening of competition between cable and carriers like TELUS and a reduction in investment in advanced networks in marginal areas.
7409 Conversely, it's the opinion of others that without further unbundling, and without new wholesale services, resellers that depend on unbundling and the related margins may go out of business.
7410 We actually agree with both propositions, but that does not mean competition is lessened if some resellers exit the market, it simply means some competitors, including new broadband service providers, have superior business strategies and those strategies will prevail over arbitrage.
7411 The Government of Canada has told the CRTC it must consider the effects of unbundling on the ILECs' ability to sell internet television services.
7412 Our reality is a very simple, if we are forced to unbundle our new networks for a broadband reseller, for each customer lost, we will lose the ability to offer TV over that unbundled channel.
7413 We ask you to accept this simple fact and not be seduced by competitor suggestions that somehow the CISC process can fix this.
7414 While MTS argues a carrier could simply supply a separate loop to a reseller, that is not economically feasible and in many cases does not work.
7415 First, not all homes are equipped with dual copper loops, either due to design or viability of the second loop.
7416 Second, even where those loops are available in many cases these will be required for channel bonding for VDSL to increase speed sufficiently or to even support TV service alone.
7417 If you required such loop splitting, we cannot increase speed or fully support growing demand for HDTV.
7418 There is also the problem that homes would still require the installation of a second in-home network, something householders would be unwilling to accept.
7419 These are serious practical concerns that we believe CISC will not be able to resolve.
7420 As we suggest, the ability to distribute TV over broadband is critical to our ability to close a significant competitive advantage that currently accrues to cable in television and high speed internet.
7421 It's important to note our current status is not symmetrical in the sense of competitive equality. We are a market follower in both these product markets.
7422 Cable companies such as Shaw have an advantage when it comes to offering bundles to customers in our serving territories. And cable, because of its big pipe, can unbundle and still continue to offer TV.
7423 For the record, we are not seeking to impose any burden on cable. The point is that if there is already is competition sufficient to protect the users in the downstream markets, then there is no longer a need to impose unbundling based on the test of an essential service.
7424 TELUS notes that the issues in this proceeding raise incredibly complex regulatory challenges for you. That is a consequence of regulating markets that are highly competitive. It is also because in an artificial wholesale market, as you have heard yesterday, the easiest way to make money is by gaming the regulatory system.
7425 I submit that is not real competition.
7426 Mr. Chairman, before I go forward, please be assured we are not suggesting you change the essential facilities test, but a discussion of its impact is important for our case.
7427 As an example, in the essential services decision, as discussed yesterday, the CRTC designated aggregated ADSL service as conditional mandated non-essential which allows for a commercially based mark-up. This conditional non-essential service provides competitors with the ability to provide ADSL service to all the same customers that TELUS can serve in our territory, even those ADSL customers who are served off remotes.
7428 At the same time, the CRTC also required that TELUS offer an ADSL-CO-based service that enabled CO-based competitors the ability to serve all customers in the exchange, including those behind remotes. This was a new service.
7429 Yet while both the aggregated and CO-based service provide a similar functionality, the Commission designated this service to be conditional essential, not non-essential, and as such the mark-up is capped at 15 percent.
7430 The only real difference to us is the mark-up and a requirement to connect at each CO, which is why it's called CO-based.
7431 Now, MTS Allstream says that ADSL-CO service isn't good enough and that ADSL-CO should be offered on a regional or aggregated basis not a CO-basis. But that is what aggregated ADSL already does, except at a different margin.
7432 MTS does not like the markup on Aggregated ADSL, and I suggest does not like the backhaul conditions, so they want you to invent a new service that provides the same reach and functionality, but at a cheaper price.
7433 That's the problem with forced resale. It's all about costly regulatory machinations that can cost millions of dollars in systems changes and the significant time wasting debating issues that are really about adjusting competitor margins.
7434 This is the same debate that has gone on in different markets from long distance to CLEC's for 13 years. And every time that model ultimately collapses because the regulator cannot guarantee margins in a competitive market where retail prices are constantly changing.
7435 Price always keeps changing in downstream markets that are competitive. And the retail market is competitive because of facilities-based competition, not because of unbundling.
7436 There is lots of evidence to suggest the market is competitive, but no evidence we have seen to support the proposition that unbundling actually either increases competition or that it increases investment in facilities.
7437 As Dr. Crandall stated during his oral testimony, parties such as TekSavvy have filed expert evidence about unbundling, but those studies are not supported by any empirical evidence. Indeed, the available empirical evidence was summarized in Dr. Crandall's written testimony and shows that unbundling has no significant effect either on subscriber penetration or on network investment.
7438 Mr. Chairman and Commissioners, you have asked whether you can set a wholesale price higher in a way that creates a "win-win" scenario. We have said that it is not possible because the wholesale market is ultimately dependent on gaming costs.
7439 As resellers who are dependent on your price setting to compete have told you, wholesale rates have to be reduced in order for them to compete. That is due to an acceleration of competitive intensity in the downstream market which has squeezed margins.
7440 We are equally concerned that your costing regime is increasingly geared to imputing lower costs in a number of ways, such as excluding embedded costs, in order to lower competitor inputs.
7441 That is a problem because new investments like fibre to the node are heavily front-end loaded and capital recovery is critical. Sharing at incremental cost always assumes a carrier has an inelastic or monopoly market elsewhere where it can raise price to recover fixed or common costs. That works only if you still have a monopoly or can compete in markets where competition is not driving price downwards.
7442 That is how regulation used to work, when the regulator could require cross-subsidy. The classic example being long distance to local. Incumbents were always fully compensated for total costs of running their business by regulators raising rates elsewhere.
7443 But assume for the moment you did decide to raise wholesale rates to fully recover all costs, as some Commissioners have posited? The result would be that you would simply reduce reseller margins, and resellers would quickly appeal and argue they could no longer compete. They have argued this already.
7444 We submit really that is what is at issue here today, it's all about artificial competition propped up by regulated margins.
7445 And that brings us back to the question of the day: Are regulated wholesale services, as the government asked, necessary to ensure effective competition in downstream markets?
7446 In other words, does the Commission need to artificially influence downstream price by creating margins in the access market to ensure the internet market is dynamically competitive.
7447 We submit the answer is no because access rates continue to decline and over the top internet options are increasing exponentially.
7448 TELUS made a point the other day that competition is more intense than any study suggests. We quoted you rates as low as $9.95 for a single product on promotion and we had submitted you can get triple play bundles in the $30 range. These prices are not because of reseller ISPs.
7449 But maybe stating this on paper does not make the point, so we have attached the ads to this rebuttal to show you what is going on in the market. And make no mistake, consumers are not making their buy decision based on OECD studies. They are influenced by marketing and TELUS and the competition are spending tens of millions of dollars to market our products daily. Not tens of millions of dollars daily, but tens of millions to market every day.
7450 Mr. Chairman and Commissioners, much of our debate today revolves around past and prospective determinations of what is essential. That is something that is always hard to define, particularly in a static way, where markets are dynamic.
7451 ADSL-CO, a new service in the essential facilities decision, was mandated as conditional essential, yet the near identical aggregated ADSL service is designated as non-essential.
7452 It's unclear why this is the case, but perhaps it's immaterial. In our view, no new internet services should fall into any mandatory category because mandatory wholesale access is simply not required to guarantee competition in downstream markets. That is one of the key tests for essentiality.
7453 In TELUS' territory, in the absence of the mandating further facilities, there are or will continue to be more than two facilities-based providers in the communities we compete in.
7454 For instance, in some of our markets Rogers and Bell both compete with TELUS and Shaw offering fixed wireless broadband over the Inukshuk network.
7455 HSPA providers are beginning to offer mobile broadband, and there will be increasing substitution as speed and capacity increase.
7456 Wireless may have less capacity than wireline but already, with well over 100,000 TELUS Mobility Internet keys in market and thousands of new subscribers every month, the evidence is that many Canadians are already using mobile internet as a substitute.
7457 By the time LTE launches in 2012-13 there will be no question that mobile wireless is a total substitute. By mid-2011 satellite, as announced, will have the capacity to deliver 10 to 25 Mbps download. Surely this demonstrates the dynamic downstream competition.
7458 But our concern is, no matter how many full facilities-based competitors you have you will always face the prospect of competition undermining the business case of small non-facilities based competitors that depend on you intervening to set margins.
7459 That is what Mr. Copeland was saying for CAIP when he said that even fibre to the home, one of the largest capital deployments ever undertaken in the telecommunications industry, was a mere enhancement of the telephone network. His business case requires continual access to another's network, forever, no matter the technology.
7460 Unfortunately protecting inefficient competition in a competitive market creates distortions and unnecessary costs.
7461 The cost to TELUS is real, not just in terms of regulatory diversion and millions more costs to support new wholesale models, the costs in terms of a reduction in our ability to fully compete with cable is real and we submit in respect of the government's order, you must not order the unbundling of new wholesale services and you must vary your decision regarding speed matching as a consequence of the negative impacts of further unbundling.
7462 Thank you, Chair, Commissioners.
7463 THE CHAIRPERSON: Thank you for your submission.
7464 Just a minor correction. On page 4 you say:
"...the business case of small non-facilities based competitors..."
7465 As you know, all of this hearing is about facilities-based competitors. We are not discussion non-facilities-based competitors.
7466 I mean the definition as given by Cabinet which we are using is mixed, that you have facilities and some you own, some you lease. We are not talking about non-facilities-based competitors, as you suggest here.
7467 MR. HENNESSY: I think I used that term to refer to resellers, Chairman.
7468 THE CHAIRPERSON: Okay. Well, if you want to use it pejoratively, obviously that's your privilege, but I just wanted to make clear what we are talking about.
7469 MR. HENNESSY: Okay. I apologize. It wasn't my intent to be pejorative.
7470 THE CHAIRPERSON: Now, much more important on that page, really I think the last sentence of your second paragraph said:
"It's unclear why this is the case..."
7471 But in TELUS' view:
"... no new internet services should fall into any mandatory category because mandatory wholesale access is simply not required to guarantee competition in downstream markets."
7472 As a principle I don't think anybody has much of a problem with it, but what is the "new"? When you say "new", isn't this what our debate was all about, whether fibre to the home is new or whether it is really just an extension of existing technology?
7473 MR. HENNESSY: Yes. I mean, our case has been that the new services that we are talking about include ADSL to VDSL, fibre to the home, GPON, the services that --
7474 THE CHAIRPERSON: What I'm trying to get at, what is a characteristic of "new"? What really does it --
7475 MR. HENNESSY: For us, it's something that enables a significant increase in speed and supports the ability to be able to offer not only broadband but TV over the same pipe. For us that's new, that's how we have defined our investment to the marketplace when we...
7476 THE CHAIRPERSON: So is that really, honestly speaking, the newness is a newness technology or is the newness a different dimension of risk?
7477 MR. HENNESSY: I would say -- I mean I would certainly give you the point that if you had a scale of things that went from ADSL2 to full fibre to the home, complete fibre to the home, one would be more easily defined as next generation than the other, the fibre to the home obviously.
7478 For us it's new in the sense that this is a very defined investment program that is being rolled out for a very express purpose that is different from what we have been trying to do in the past.
7479 THE CHAIRPERSON: If I asked you for a generic definition of "new", I guess you would then say (a) it has to be a technological advancement or step up, something that has not been done; and (b) It has to be accompanied by a risk that is outside the ordinary risk of improving your network, or something along those lines. I gather that's what you mean?
7480 MR. HENNESSY: Yes, absolutely. I think risk is a critical point.
7481 Because clearly I could never argue that our new investment was going to result in stage one in a broadband service that was as good as the DOCSIS service that the cable companies have already rolled out. So different networks, different technologies.
7482 That's one of the problems I think we all face, whether you are a satellite provider or a copper, fibre provider or wireless provider, everybody in this environment now has new investment in new broadband relative to what they had, but if you compared them all, they are all different.
7483 THE CHAIRPERSON: Yes. But I mean you reinforce that point, it seems to me, on page 2 where you talk about aggregated ADSL and the ADSL-CO-based service. You are basically saying they are the same. The difference is the rate that it comes, because one is conditionally mandated non-essential and the other one is conditional assessment, so it is cost plus 15 or it is a commercially-based markup. So really we are talking it is the risk that is driving you. That is of concern to you.
7484 MR. HENNESSY: Yes. I used those two more as the example to suggest that even in an environment where the definition of what constitutes essential is a good and reasonable definition in a non-static environment, it can impact differently.
7485 My point in this was not so much on the newness of things, but the fact that when you have these kind of regulatory constructs there is always an opportunity for competition, if you will, discussion on definitions intended to leave rich margins.
7486 I don't want to go on if that is good enough.
7487 THE CHAIRPERSON: No, I'm just trying to figure out.
7488 It seems to me the margin is huge. That is really the big issue here. They are all talking of what -- they all have trouble drawing a line between new and what -- I mean I have heard evidence throughout the week as to whether fibre to the node is new or it is just an improvement, whether fibre to the home, fibre to premises, blah, blah, blah, but really What is the driving force is not so much the technological breakthrough but the financial risk. And it strikes me --
7489 MR. HENNESSY: Yes. Yes. And I would say, you know, what we have tried to do as we have developed our case is step away from, as much as possible, new versus old, although, you know, we are forced into that kind of dichotomy.
7490 But suggest that in assessing this the real test is still, you know, is there sufficient competition in the downstream market to protect the interests of users. I think that is, at the end of the day, still what the test is.
7491 THE CHAIRPERSON: Yes. Okay. Thank you.
7492 Len, you have some questions.
7493 COMMISSIONER KATZ: Thank you, Mr. Chairman. I will start.
7494 I want to try and distinguish between the business market and the res market. You touched upon both of them interchangeably throughout your submission here.
7495 I know you identified facilities-based carriers that play in both fields, but who are the real competitors on the business side when it relates to facilities-based carriers.
7496 The things we heard from MTS for example yesterday, who else do they have to go to get facilities from besides the incumbents who are there today?
7497 MR. HENNESSY: Well, you know, in a very traditional sense I would agree with you, the number one suppliers of many of the facilities that are used by competitors that are not building in an incumbent territory come from the incumbents. I think that goes without saying.
7498 Who are the biggest providers? I would say -- I don't have the comparative numbers, but I would be willing to take issue with MTS as to whether they are the biggest competitor all the time out of territory as opposed to us, given our significant presence in the enterprise market, particularly in Ontario and B.C. where we now have I think around 12,000 employees and, as you know, just opened a pretty significant headquarters in Toronto.
7499 Another way of saying it is, I would totally agree with you, Mr. Katz, that there is a fundamental difference between the business and the residential market and that the services for the most part that we have been talking to, or talking about at this proceeding, are really services that are primarily focused on the residential or small-business market rather than the enterprise business, no doubt about that. That's why really our evidence has been focused on that.
7500 COMMISSIONER KATZ: So when you need facilities for your out-of-market customers, where do you go?
7501 MR. HENNESSY: It depends. You know, if we are in Ontario and Québec we would obviously look to Bell, we would look to Vidéotron, we would look to Rogers.
7502 We might even look at times to MTS, you know, it depends who has -- generally you are looking at fibre in the network.
7503 COMMISSIONER KATZ: And those facilities are available on tariff or are they special facilities tariffs?
7504 MR. HENNESSY: I think, Ted, it would be a mix, some in markets that aren't forborne, or in product sets that aren't forborne are obviously still on tariff, but much is not.
7505 COMMISSIONER KATZ: Okay.
7506 MR. WOODHEAD: It's a mix. Largely many of these facilities, depending on the type, are forborne, probably north of 50 percent of them. When you get a bundle of services it might he pursuant to tariff, but the underlying quality of the facilities are largely forborne.
7507 COMMISSIONER KATZ: If they are forborne you just enter into a relationship with the incumbent for those facilities?
7508 MR. WOODHEAD: That's correct.
7509 COMMISSIONER KATZ: Okay.
7510 I'm sure you would agree with me that TELUS competes with Bell and Rogers competes with Bell and yet both of them competing for consumers have entered into joint ventures for Inukshuk in one case and for HSPA in the other case.
7511 MR. HENNESSY: Yes. That's a common practice in the industry.
7512 As SaskTel says, they have cut some sharing arrangements and as -- I was getting to MTS -- as MTS just did, they cut a national resale deal on the wireless HSPA front with Rogers.
7513 COMMISSIONER KATZ: So when a small alternate ISP wants to get -- I will distinguish that from what you call a reseller.
7514 When a small alternate ISP wants to get some facilities and there isn't a tariff for it, they want to enter into a relationship and if there is no tariff they pretty well have a difficult time to do it because they either build it or they don't got it.
7515 MR. HENNESSY: I wouldn't say it's that simplistic.
7516 It's okay, Ted, I promise I won't --
7517 COMMISSIONER KATZ: But that's what many of them are --
7518 MR. HENNESSY: I promise I won't meltdown.
7519 COMMISSIONER KATZ: But that's what many of them are facing at the end of the day.
7520 MR. HENNESSY: Can I just nuance that?
7521 COMMISSIONER KATZ: Sure.
7522 MR. HENNESSY: I don't totally disagree with you, but I would say that if an ISP came up to us and said we want to get a facility from you and, you know, we think it's only worth incremental cost or incremental cost plus 15 or 25, we would almost definitely say no, unless there were other things in the game to trade.
7523 There are from time to time things in the game to trade that, you know, go beyond the deal.
7524 But we would definitely start at something that better reflected our total costs and, you know, what the commercial market would suggest that product would be worth.
7525 And so generally, you know, to the extent that if you're an ISP and you're looking to compete on any kind of margins, that's completely unacceptable.
7526 COMMISSIONER KATZ: Okay. So the real issue for them is that they don't have the financing available. So, why would an alternative not be to pay what I will call a risk premium to overcome the hurdle of not being able to finance a seven-figure investment, but are prepared to pay the investment premium associated with that in order to secure those facilities?
7527 MR. HENNESSY: I think, you know, the problem with that is, as I tried to infer, is that unless you really are sort of saying you're working up some kind of an investment ladder, the more you pay a price that better reflects what the real cost to the initial builder is, the less difference between being a builder or a reseller and, therefore, the resale opportunity rapidly disappears unless you're adding significant value and that's actually where you're extracting your money for the service.
7528 COMMISSIONER KATZ: But you started on the sentence by saying, unless your strategy is to go through an investment ladder. What if it was? How do they get up that investment ladder chain without getting to the first step on the ladder?
7529 MR. HENNESSY: Well, I guess the issue is, what is the first step on the ladder?
7530 And let me just be clear in terms of access to capital, that a lot of, you know, these issues, the things we've run into in wireless, the debates we have today often come back to the belief that the Canadian market is not competitive enough because it's a closed market.
7531 And we, probably more than any other carrier in the country, fully support the removal of foreign ownership restrictions so that we can have a competitive North American market and that level of scale without the need for this kind of intervention.
7532 COMMISSIONER KATZ: Yes, but you are not going to get some of these smaller alternate ISPs looking for international funding.
7533 MR. HENNESSY: Yes. No, I don't disagree with you and it goes back to my point very early on and what your essential services test says is that you, I'm pretty sure in your test say it's not your job to pick or support an individual business strategy.
7534 If the individual business strategy requires, in effect, us to provide a lower rate than the market would require in order to allow somebody to go up the investment scale, and we have nobody else to compensate us for that, I just don't think that's appropriate.
7535 I mean, you know, I'm not --
7536 COMMISSIONER KATZ: But you are --
7537 MR. HENNESSY: I'm not a big believer there is this investment ladder. I've heard this tale from, you know, long distance resellers, I've heard it on the CLEC angle, I've heard it many, many times before and I think I'm hearing it in the wireless market now and I seem to stand up in the same place, that if you create margins big enough there is no incentive to build.
7538 COMMISSIONER KATZ: Yes. But you are saying instead of subsidy, they are saying the price is too high. I am just asking whether if there is a fair price to be paid to recognize the cost of capital and the risk to the incumbent and a fair price for them to pay to recognize the fact that they need financing and may have to compromise some margin, is that not a reasonable view?
7539 MR. HENNESSY: Yes, I wouldn't -- I would agree directionally with where you're going, I would never agree with the word fair.
7540 Fair is, you know, it's not a word that has regulatory significance.
7541 COMMISSIONER KATZ: Okay.
7542 MR. HENNESSY: You know, and it is a very significant word. It's used a lot to kind of, you know, wisdom of Solomon balance things.
7543 COMMISSIONER KATZ: I get your point. I get that.
7544 MR. HENNESSY: Yes.
7545 COMMISSIONER KATZ: My last question is this notion about fibre to the node, fibre to the prem and fibre to the home.
7546 Is it your view that fibre to the node should be distinguished from fibre to the home, that if it's an overlay network right to the home or to the premises it's an overlay network; if it's to the node, then it's a transitional normal step of technology, evolution?
7547 MR. HENNESSY: No. Now, I have to be careful because I would hate to, you know, read the decision and say, well, we had to unbundle fibre to the home as well because of what Mr. Hennessy said.
7548 MR. HENNESSY: So, with that caveat of mine, given the Globe today, you know, I want to see if I still have any chance of a job by the time I get home out of here at noon.
7549 I would say it's -- that the problem is and I think we're seeing with Verizon, you may never get there, you may never actually get fully to fibre to the home. In fact, as you can see Verizon who has probably built more FTTH than any carrier in the world has really signalled they are now pulling back, they can't do it, it's too expensive.
7550 So, you know, the issue for us is how far -- you know, to continue to compete with cable we do have to keep pushing out the node closer and closer to the home, they do too ultimately in terms of switched video because you can see they're having problems with HD.
7551 Bbut I don't know if we'll get there. I don't know in a country like Canada if, you know, if the Verizons of the world now think they can't do it.
7552 We'll do it in places. Regardless of what happens in this proceeding, we will do it in places, but I don't ever...
7553 So, you know, the end state is often more a theoretical state than the reality of the market which is why I think that your test, even -- let me flip it around.
7554 Even if we were sitting here today and everything was fibre to the home, the issue in terms of your essential services test would be no different, right. You would say, is there a need for wholesale unbundling of some manner to ensure competition in the downstream market?
7555 That remains in my mind the real question, not whether something is evolutionary or revolutionary.
7556 COMMISSIONER KATZ: Okay. Here is my dilemma, and maybe I have got it all wrong.
7557 Let's assume for a minute the aggregated ADSL and the ADSLCO are not an issue, currently there are operators out there that are leasing facilities for the provision of 5 Meg ADSL service into an apartment building, they're providing services to 20 people in a building of 500 in downtown Vancouver or something.
7558 If that link suddenly becomes fibre end-to-end and tomorrow you decide to replace the last, whatever it is, 900 metres with fibre and now it's a total fibre-based network, what happens to their business because they're serving 20 customers in that building and now you're saying, guess what, this is next-generation network, it's end-to-end fibre, there is no copper here any more.
7559 What happens to them? What happens to their business? What happens to the customers that are on their network, the 20 of them out of the building of 500; have they got to leave their service provider or is there some way of grandfathering them, or what?
7560 MR. HENNESSY: So, you're assuming that not only we put fibre into the building but in -- because, you know, it's an existing building, we pull all the copper out?
7561 COMMISSIONER KATZ: I am just asking whether you would pull the copper out or you would leave it there for them.
7562 MR. HENNESSY: It's a tough question. Can I have a very fast huddle with my guys?
7563 COMMISSIONER KATZ: Sure.
7564 MR. HENNESSY: Because it's a good question and...
7565 MR. HENNESSY: So, if I can take it a step further from obviously where you have copper in the building as well as you've now overbuilt, that is obviously less an issue.
7566 So, maybe I should go to one, you know, the example where let's say you may not have -- I think it works just as well.
7567 You have a new building, you put in total fibre, what happens to the reseller whose only access to that building is over a hybrid fibre unbundled service?
7568 COMMISSIONER KATZ: In a new building they're starting off with no customers.
7569 MR. HENNESSY: Yes.
7570 COMMISSIONER KATZ: In an old building there are customers there that have got to be dealt with.
7571 MR. HENNESSY: And they can, you know, so they can do -- and unless you pull the copper on them, the customers exist.
7572 All I was trying to give you was, you know, a -- so, unless you pull the copper, you can continue to service them. If you pull the copper, you can't and when you build a new building there won't be any of that copper in there to service them in the first place, I guess would be the...
7573 COMMISSIONER KATZ: So, if there is no copper there to serve them in the first place, they can't serve the building?
7574 MR. HENNESSY: I think that's correct, unless you decide that that is necessary and appropriate, and then I'm not quite sure how you do that technically.
7575 We could undertake to, you know --
7576 COMMISSIONER KATZ: Can you think it through under both scenarios and put something in writing, because in one scenario, you're right, they don't get a start in there, no different than fibre to a DSLAM and they're exempt right now from being able to provide customers on the other side of it, but in the case where there is copper and you're taking it out and creating a next-generation building or whatever, there's a problem if they already have customers to carriage and now they can't serve them any more.
7577 So, I certainly welcome your views.
7578 MR. HENNESSY: So you'd like to know, you know, if that would happen and what potential commitment we might want to make in those circumstances?
7579 COMMISSIONER KATZ: If you would.
7580 MR. HENNESSY: Yes.
7581 THE CHAIRPERSON: Or what we should regulate, you know, should one provide for instance that if in that scenario, at least over your new facility, you give them access to the extent that they would have had their own copper beforehand?
7582 MR. HENNESSY: Yes. I understand and I won't embellish it with the answer as to why I don't think you should, but...
7583 THE CHAIRPERSON: It's a question.
7584 MR. HENNESSY: I will assume your intent.
7585 COMMISSIONER KATZ: Bell, I might ask you the same question. You can answer it now, fine; if you want to think about it and put it into your submission or talk to it later on, that's fine too.
7586 MR. BIBIC: Mirko Bibic, Bell. I'd be happy to answer it now.
7587 On FTTN we offer -- we continue to use the copper that's there to offer telephone service, so there are no plans to pull the copper out.
7588 And in fibre-to-the-home architecture where it's an overlay, the copper's still there, there are no plans to pull that out.
7589 So, I don't think the scenario you present is going to materialize in the near future. The copper's there.
7590 COMMISSIONER KATZ: Okay. Can I ask the alternate ISPs in the room whether they agree that the scenario is an unlikely scenario to happen, or it is something that would?
7591 Mr. Tacit?
7592 MR. TACIT: Yes. It's my understanding, and I think Mr. Marc Gaudrault may want to chime in here, but it's my understanding that in the longer term it's actually inefficient to run both in parallel and that they will be incented for the purpose of operating expense reductions to pull the copper and this will drive them to do that eventually.
7593 COMMISSIONER KATZ: Okay. So, why don't we just leave it that you folks will try and --
7594 MR. HENNESSY: Yes. Certainly, no problem, I'm prepared to answer your question as asked.
7595 COMMISSIONER KATZ: Okay. Last question. Mr. Hennessy, you have identified a number of players that are in the facilities-based broadband alternative business and you state there's a number of new facilities-based broadband alternatives in markets or being deployed for confirmation.
7596 Are these the satellite and the fixed wireless folks that you are talking about?
7597 MR. HENNESSY: Sorry, Mr. Katz. Yes.
7598 COMMISSIONER KATZ: And you believe they are replacements and substitutes at price, quality and speed for terrestrial?
7599 MR. HENNESSY: I believe that all of them are replacements to a greater or lesser degree depending on the following characteristics of the user: Their sensitivity to value pricing, their need for mobility, their geographic location and, you know, their need for speed, if you will.
7600 COMMISSIONER KATZ: I thought I heard Mr. Cope on Monday, and I think someone repeated it during the week, say that wireline will always be ahead of wireless simply because of its inherent nature.
7601 Did I get it wrong, Mr. Bibic?
7602 MR. BIBIC: I think you might have, but we'd have to go back to the transcript.
7603 I recall him answering Ms Duncan's question about running video, linear broadcasting over wireless, and it's in that context that he said what you suggest.
7604 COMMISSIONER KATZ: Okay. We will have to go back.
7605 Those are my questions, Mr. Chairman.
7606 THE CHAIRPERSON: Elizabeth?
7607 COMMISSIONER DUNCAN: Thank you, I do have a few questions.
7608 What I was particularly interested in and impressed with, in fact, was the types of services that the ISPs described as providing to their clients.
7609 And with respect to your statements that competition is sufficient, I just wonder how or if it is realistic to think that you will serve and offer those same services to those clients, because I see Bell and TELUS and large companies like yourselves as dealing in more mass market products, not able really to deliver, or interested really or practically feasible for you to deliver really customized products to those types of people that, the clients that the ISPs have.
7610 MR. HENNESSY: Yes. I think I would disagree with that in principle. It's difficult I think without a list of what those services are, and I would be happy if, you know, the Commission provided me with a list or an interrogatory explaining these services: Would you provide these services, and I'd be happy to undertake to answer that.
7611 But you have to remember, in our circumstances, putting aside the total share of the market, you know, which is more than just cable and DSL, but obviously those two have the significant share, we are in a very desperate race deploying extreme risk capital to try to take a larger chunk of the share of that market to offset a very rapid decline in the basic telephone business.
7612 COMMISSIONER DUNCAN: Yes.
7613 MR. HENNESSY: Which is, as people says, going south. So, every -- you know, I think you characterized on Monday or Tuesday the size of that share being about five percent.
7614 That relative to the spread that we right now have with cable is, as Dave Fuller said, a substantial number and one we can't overlook. But, you know, I'd be happy to actually detail that. So, you know, we have to grab whatever we can grab.
7615 COMMISSIONER DUNCAN: I have some questions on that in a second, but the reason I wanted to address that is because I think it goes to your point that the market is fully competitive.
7616 And I am interested in the consumer, whether the consumer is being served as the best they can. So, that is why I wanted to go to that point.
7617 I don't know whether any of the ISPs wanted to just comment on that, with anything new to add that we haven t already heard, or...
7618 Yes. En français?
7619 M. BERGERON : Oui, en français.
7620 CONSEILLÈRE DUNCAN : Oui.
7621 M. BERGERON : Bien, moi, ce que je veux dire sur le sujet des services que les FSI se différencient, c'est surtout au niveau du courriel au niveau des entreprises, permettent de la redondance sur deux technologies différentes, assurent une sécurité des courriels, comme j'ai expliqué hier.
7622 Toute cette question du courriel, les listes de courriels, l'envoi de courriels par les entreprises, ces choses-là sont très difficiles pour les consommateurs qui font affaire avec les grands joueurs du marché, et mes confrères peut-être pourraient en parler également, les autres FSI.
7623 C'est de ce côté-là, les services un peu spécialisés d'un client particulier qui veut une configuration un peu différente de ce qui est offert sur le marché.
7624 On a parlé aussi de serveurs chez les entreprises, serveurs de courriel, serveurs de diverses technologies. Toutes ces choses-là, ce sont des choses que les FSI indépendants sont, de loin, supérieurs au point de vue de capacité de personnaliser des offres à nos clients.
7625 C'est ce que je voulais mentionner.
7626 COMMISSIONER DUNCAN: Thank you.
7627 Mr. Hennessy, I don't know if you have any comment you wanted to make at this point?
7628 MR. HENNESSY: Yes. I would say, you know, with all respect that, you know, our business solutions team focuses on an incredible variety of tailored services to clients.
7629 I'd also say that, you know, that whether or not a service such as the email type server type service that was described is dependent on the ability to actually sell an access facility as opposed to provide over the top as I think probably you'll find many people do, you know, suggests any sort of impediment to competition.
7630 So, I think those would be my two key points.
7631 COMMISSIONER DUNCAN: I did actually highlight where you had written:
"We submit the answer is no because access rates continue to decline..."
7632 COMMISSIONER DUNCAN: This is on page 3:
"...and over the top internet choices are increasing exponentially."
7633 COMMISSIONER DUNCAN: And so I just didn't know how that would address these people -- this market.
7634 MR. HENNESSY: Well, I think, you know, I don't have a lot of evidence before me to suggest other than anecdotally that something like server-based email service is highly competitive.
7635 And increasingly any service like that is not dependent on the ability to actually sell an access facility to the customer, particularly in the business market, although it may -- you know, it may be tied into the business strategy of a particular company.
7636 But that's what I'm saying is, you know, over-the-top server-based services increasingly with an open user environment where there are rules against throttling or determining who actually engages on commercial activity on the Internet, is really the future, you know.
7637 The future is increasingly applications and those that sort of focus only at the first layer or the access layer, including large companies like ourselves, you know, their existence is ultimately threatened.
7638 COMMISSIONER DUNCAN: All right.
7639 MR. HENNESSY: You have to move up the value chain, and that is an over-the-top thing that doesn't require the same type of investment in physical facilities that were once required to be in the communications business.
7640 COMMISSIONER DUNCAN: Do the over-the-top providers then have to get access to the speed from you people then?
7641 MR. HENNESSY: No, absolutely not.
7642 COMMISSIONER DUNCAN: Just so I understand.
7643 MR. HENNESSY: They are to a greater or lesser extent limited by the speed at which the network operates, but the Commission has been very clear in its proceeding last year that the network operator shall not, except in the most extreme circumstances, and with the onus on to prove to the Commission that it's okay to throttle traffic.
7644 COMMISSIONER DUNCAN: So my concern then, I am just going to leave it with you and with the ISPs, my concern is your claim that the market is adequately served. And, so, if you have any more comments that you want to add in writing --
7645 MR. HENNESSY: No, I'll just finish with, you know, because it is -- you are on I think exactly the right test, is there sufficient competition in the downstream market. And the only other thing I would add in terms of the Commission's test is that is not predicated on the entry or exit of people with particular business strategies, but the robustness and dynamism of the market overall.
7646 COMMISSIONER DUNCAN: Thank you.
7647 I do understand your concerns about your investment, your IPTV investment and I am just following up on Mr. Bibic's suggestion the other day about a video restriction. So, two questions in that regard.
7648 First of all, I am just wondering if it is possible to have such a restriction. If somebody has the ADSLCO-based service, are you able to know if they are delivering a video service; can you tell that, or do you only know through advertising?
7649 R. HENNESSY: You know, we have consistently over the last couple of years come before the Commission and I think to the credit of the people I work with, promoting open networks, promoting investment over throttling, and I don't think that we would ever contemplate such a thing.
7650 I mean, if you -- you know, if you look at the Internet today, so if one of the ISPs in the back takes a facility from us and decides to provide some form of over-the-top video service, licensed or unlicensed -- you know, let's assume most over-the-top video services are really at this point Internet based -- that's their business, you know.
7651 The fact I want to use the cable we have to operate under the licence I have from the Commission to provide cable, you know, effectively a class 1 cable service, does not give me the right when somebody else is using -- leasing a broadband pipe from us to stop them from doing whatever they want in terms of video applications, because the Internet is more and more video centric.
7652 COMMISSIONER DUNCAN: Well, I think that Mr. Bibic's suggestion was that if we approve the services that we impose a video restriction.
7653 So, I have two questions, as I said. First of all, I wondered if it was possible to know. So --
7654 MR. HENNESSY: Is it -- I mean, if you're doing deep packet inspection, yes. We're also one of the only companies in North America that doesn't have deep packet inspection technology, so we don't --
7655 COMMISSIONER DUNCAN: You can't.
7656 MR. HENNESSY: -- do a lot of peeking. But, you know, you can manually -- you can manually look in.
7657 COMMISSIONER DUNCAN: Peeking's probably not good.
7658 MR. HENNESSY: Yes.
7659 COMMISSIONER DUNCAN: Mr. Bibic's going to explain I think, maybe I have it wrong.
7660 MR. BIBIC: I think the way we would know, Commissioner Duncan, is simply observing what's going on in the marketplace.
7661 COMMISSIONER DUNCAN: Okay.
7662 MR. BIBIC: And I'd just add one little addition to that. CDN services, the CRTC has imposed a resale restriction, you can't buy CDN from us and simply resell it. We don't know what the customer -- the wholesale customer's doing in that event, but they have to declare every year that they're abiding by that resale restriction.
7663 You don't have to go there with this, because we would simply see in the marketplace what they're offering and then we could tell.
7664 COMMISSIONER DUNCAN: Okay. So this leads to my part 2 then. I am just wondering if a video -- and this is sort of combining the SaskTel suggestion -- I am just wondering if there was a video restriction for a period of time, for example five years, and then a review at the end of that five years, if that would give you some comfort or be feasible?
7665 MR. HENNESSY: Sorry, was that for me?
7666 COMMISSIONER DUNCAN: Perhaps Mr. Hennessy first, that's fine.
7667 MR. HENNESSY: Well, I'm not looking for one. I recognize that, you know, because I don't believe like a video restriction on a pipe that we would give -- you know, on a pipe that we use for IPTV that we would give to a broadband reseller would in any respect still allow us to offer TV, so...
7668 Because the problem is, right, that it's -- as we say, we think it's lost. Because the pipe is dynamically used, the user is really, depending on, as we were discussing yesterday, depending on how much TV you're using or Internet, one slows down the other.
7669 So, that in my mind is not a workable solution. So I would reject that.
7670 And the only other reason you might ultimately worry about if you had a torrent of video sort of floating down the pipe as people were downloading and uploading Avatar at will, is that you might be forced faster towards some kind of usage based pricing to -- you know, to manage the network.
7671 But I wouldn't -- it's not our position here that there should be a video restriction on the Internet service that we would sell to somebody else.
7672 COMMISSIONER DUNCAN: Okay. What I was looking for, was trying to do was an all or nothing. You are at one end, the ISPs are at the other. I am just trying to see what is workable.
7673 MR. HENNESSY: Oh yes, I appreciate that. I think that the problem is that restricting video, you know, it's the loss of -- it's not what a broadband reseller puts on the pipe that's the issue, the issue is that you split the pipe and we don't think there's anything economically feasible in a way that can allow us to continue to provide IPTV under those circumstances.
7674 COMMISSIONER DUNCAN: I actually -- I can understand your technical concern, but I would have thought from what I have heard here that your concern was that you are competing with cable for the video service --
7675 MR. HENNESSY: Right.
7676 COMMISSIONER DUNCAN: -- for providing video service, and that was a big concern.
7677 So if you had a video restriction, that might be of some help, but --
7678 MR. HENNESSY: But that would just restrict somebody else from providing video against cable.
7679 Maybe I don't understand, I'm sorry.
7680 COMMISSIONER DUNCAN: Yes, that's what I am saying.
7681 MR. HENNESSY: No. No, that's not -- I would not support that.
7682 I am not trying to stop other people from competing on a reasonable basis, and I think that would be unreasonable.
7683 MR. BIBIC: Commissioner Duncan, if I may add, I think we diverge with TELUS on this point.
7684 But first let me clarify that the video restriction that Bell has put forward is about multicasting video. There would be nothing preventing anyone from operating unicasting video over a leased pipe.
7685 It's multicasting that we are concerned about, and the reason is simply this. We are the new entrant in wireline TV, and allowing somebody to take our internet pipe and offer an IPTV service over it is going to undermine our ability to win the broadband home.
7686 So that's where the business case starts falling apart, and that's also why I don't think a five-year grace period is enough, because the business case is modelled over a longer period.
7687 COMMISSIONER DUNCAN: Okay. That's fine, thank you.
7688 THE CHAIRPERSON: Can you explain the difference between unicasting and multicasting, in non-technical terms?
7689 MR. BIBIC: The way I understand it, Mr. Chairman, is that multicasting is -- think about the traditional linear broadcasting service that you subscribe to from whoever your provider is -- Shaw, Bell TV, et cetera.
7690 Unicasting is kind of video-on-demand. If you are on the internet now, you can go on YouTube and watch a clip of something. That's unicasting.
7691 THE CHAIRPERSON: Thank you.
7692 MR. HENNESSY: Mr. Chairman, could I just clarify, just in case I left the impression that we are white knight on this issue?
7693 MR. HENNESSY: I was probably giving Mr. Tacit a heart attack, and he's sure there must be something else there.
7694 When I say that we wouldn't prevent anybody offering video, in an over-the-top sense, we wouldn't, but at the same time, as I suggested yesterday, we certainly wouldn't be in the business of supporting somebody else's IPTV platform, or going to that extent.
7695 The trick with the open internet is: You have the pipe, you decide how you want to manage it, not us.
7696 COMMISSIONER DUNCAN: I just have a couple of quick questions, because I know that others want to ask you some questions.
7697 I am just wondering, in your territories, do you have an idea of the split between ISPs using TPIA and your ADSL services?
7698 Is it pretty much equal?
7699 MR. HENNESSY: I would assume that virtually all of them probably use our service. That's a hunch. It's a bit anecdotal.
7700 There may be ISPs here who could better answer that question, but that would be my guess.
7701 COMMISSIONER DUNCAN: Yes, I notice you say that you are not seeking to impose any burden on cable, but if it's not a black-and-white issue, and we do have to come to some solution, are there requirements that should be imposed on the cable companies so that some of these ISPs would be more likely to move to TPIA as a service, from your point of view?
7702 If you don't have an answer, that's...
7703 MR. HENNESSY: I don't know, the ISPs are doing such a good job of that for me that, you know, it's almost sitting back, watching the other guys squirm.
7704 COMMISSIONER DUNCAN: Okay, that's fine.
7705 MR. HENNESSY: I don't actually -- you know, I am not supportive of some of the things being asked. I just think it's unravelling real business cases to shoehorn in business cases that don't make a lot of sense.
7706 I am not trying to put pressure or anything on the cable companies in this proceeding. I think the more I ask for them, the more I will just be told: Well, to be symmetrical, we have to do it to you, too.
7707 So I would much rather --
7708 COMMISSIONER DUNCAN: Because they are offering the speeds, as you know -- the matching speeds.
7709 MR. HENNESSY: They have a network that is significantly faster and can offer TV and internet at the same time, something we can't do.
7710 They have 80 percent in our territory of the TV market, and 60 percent in terms of our split between them, 60/40.
7711 But I would still -- I always want to come back to the test. Irrespective of the advantage that cable has on us today, I think you still have to look at the downstream market to assess competitiveness.
7712 And in terms of the advantage they have on us today, recognize that that's why we are investing, and recognize that when you limit our ability to compete with them, for another competitor, you are making a trade-off.
7713 I think that's our case in a nutshell.
7714 COMMISSIONER DUNCAN: Thank you very much.
7715 Thank you, Mr. Chairman.
7716 THE CHAIRPERSON: Tim...
7717 COMMISSIONER DENTON: Mr. Hennessy, one of the interesting points you raise, in a very interesting presentation, concerns how the Commission might achieve the strategic objective of gradually or suddenly eliminating wholesale.
7718 You write on page 3:
"But assume you did decide to raise wholesale rates to fully recover all costs as some Commissioners have posited? The result would be that you would simply reduce reseller margins, and resellers would quickly appeal and argue they could no longer compete."
7719 Assuming that there are two courses of action before us, one to make the immediate decisions you ask for, or simply having appropriate weighted average costs of capital and appropriate pricing mechanisms. Why would it not be in your interest for us to pursue this path of having appropriate mark-ups on wholesale services, as opposed to, what seems to me, the more sudden decision that you are asking us to make?
7720 MR. HENNESSY: Because, in the residential business, even with an appropriate mark-up to reflect the full cost, including full allocation of embedded costs, et cetera, we still lose the ability to offer that pipe to customers to sell IPTV, and that is the principal reason that we are making the investment in the first place.
7721 The full recovery of the cost of a broadband pipe does not include the cost associated with either competing or not competing with the cable bundle to close what I think is a growing gap. That is really our dilemma.
7722 COMMISSIONER DENTON: Forgive me, but could you just say that last sentence once again?
7723 Does not include...
7724 MR. HENNESSY: It doesn't include the cost to us, in terms of, if you will, the ability to compete fully in the market, the lost revenues associated with a certain number of those lines that would otherwise have gone to us to compete with cable, which is, obviously, a percentage of the total lines, and that is really why we are making these investments in the first place.
7725 The reasons we are making the investments in the first place are -- we have lost now over 30 percent of the phone market, including about 700,000 customers to cable.
7726 Contrary to what people were saying in rebuttal yesterday, our costs of telephone service are not going down. In fact, the network being fixed, if you take 30 percent of the customer base away, the network remains the same. The actual cost per subscriber is rising.
7727 We have, at this point, a slower internet service than the cable companies, and with their fat pipe, they are on a trajectory to get ever bigger.
7728 That is why Shaw sort of fired that shot across everybody's bow when they -- I can't remember which city out west they did it in, where they launched a 1 gigabyte service, really just to show, yes, we can use DOCSIS to launch a 1 gigabyte service, if there was ever demand.
7729 And we have a tremendous gap to close in the TV business.
7730 So we are as new entrant as anybody in this room when it comes to TV, and we are expending money, as Mr. Meldrum said, that is border line NPV positive in order to close that gap.
7731 Because if we can't, we will continue to lose phone customers, our costs for running a telephone business will continue to go up, we are not going to have sufficient revenues to roll out services, and we will continue to fall behind in broadband and never catch up in TV.
7732 And broadband and TV are what drive the bundles today.
7733 And if you look at the prices in our market, Shaw knows that too, and I would challenge anybody in the country to show more competitive rates for broadband than what we showed you today.
7734 COMMISSIONER DENTON: So what you are saying then is that we should adjust the regulatory conditions, according to certain economic doctrines, which are perfectly legitimate, to make sure that the former telephone companies, now getting into IPTV, have appropriate conditions for them to continue to be able to offer television packages and to gain necessary market share, so that, at the end of the day, there is sufficient competition in downstream markets.
7735 MR. HENNESSY: Yes.
7736 COMMISSIONER DENTON: Thank you.
7737 THE CHAIRPERSON: Okay. Before I let you go, let's go back to where you started off, which is the whole idea of new technology, et cetera.
7738 And I am glad to see that you reaffirmed that if we have an essential services conceptual framework, if we applied it for all existing services, you may have agreed or not disagreed, it's done.
7739 Now, talking about the future, how do we apply it to the future?
7740 Obviously we are only going to apply it to new ones, and not just iterations or evolution, but to new ones.
7741 And, then, if you do apply it, they have to pass the test, and then the question is, if they do pass the conceptual framework and, indeed, it should be mandated, what should it be mandated for?
7742 All of it really keys in on what is new generation, next generation, new technology, whatever you want to call it, et cetera.
7743 You tried to define it at the beginning, and I sort of caught you off guard with it, so I would very much appreciate it if you, Mr. Bibic, the ISPs, et cetera, would all put your minds to it and furnish us in your reply with what we should -- with the test that we should apply as to what is "next-generation technology", to which this conceptual framework would be applied.
7744 What have you determined that we should look at to determine whether something is next generation or just evolution or modification of an existing one, because I think it would be very useful for us if we had some guidelines from you on that, or some suggestions, because at the end of the day I think that will be the key decision from which will be flowing, do you apply the network -- do you apply the conceptual framework, and if you do apply it -- if it passes the test and has to be mandated, how do you mandate it, et cetera.
7745 That, really, is the initial point.
7746 And I am certainly unclear, because I think that your presentation this morning brought out to me very clearly how important it is that we have a workable definition along those lines.
7747 MR. HENNESSY: Yes, I will certainly do that, Chairman. I would suggest, just on a couple of points, though, that that, in our mind, is not the critical test, the test in terms of the competitiveness --
7748 THE CHAIRPERSON: No, no, the critical test -- but, I mean, that's the starting point.
7749 Then the critical test, obviously, is will it be mandated; and secondly, if it is mandated, what are going to be the terms and what is going to be the compensation.
7750 MR. HENNESSY: Yes, we will do that.
7751 THE CHAIRPERSON: Okay, thank you.
7752 We will take a break now. We have asked Bell to come next because we wanted to have the two large ISPs first, and then we will have -- the two ILECs first, and then we will hear from the ISPs.
7753 So let's take a 10-minute break, and then we will listen to Bell next. Thank you.
--- Upon recessing at 0944
--- Upon resuming at 1000
7754 THE SECRETARY: Mr. Chairman, we will now proceed with Bell Aliant Regional Communications, Bell Canada and Télébec, Société en commandite -- the Companies.
7755 Please reintroduce yourselves for the record and proceed with your 15-minute oral rebuttal.
7756 MR. BIBIC: Thank you, Madam Secretary.
7757 I am Mirko Bibic, for Bell Canada.
7758 To my extreme left is Steve Karan, from Bell Canada, and Denis Henry, from Bell Aliant.
7759 To my right is Jonathan Daniels, from Bell Canada, Carl Condon, from Bell Canada, and Sheldon MacDonald, from Bell Aliant.
7760 Commissioners, there has been much debate this week regarding how to define a next-generation network. Predictably, ISPs and MTS have tried to convince you that FTTN networks are not next-generation networks. Their arguments are intended to avoid the obvious implications of the Cabinet's December Order-in-Council. If they can convince you that FTTN is a legacy network, their hope is that legacy rules will apply.
7761 As an overlay network, FTTN is widely considered next-generation.
7762 Mr. Chairman, I have a chart here which describes the overlay nature of the network. I don't think I have the time to go through it now, but if you want to explore it afterwards, I would be more than happy to. It is the last chart in the package.
7763 FTTN is treated as next-generation by the FCC. But, ultimately, we need to look no further than the Order-in-Council. The Order-in-Council stems from our petition, which was all about FTTN and FTTH.
7764 The OIC specifically indicates that the issues under consideration are about "new, higher speed internet services", "continued investment in broadband infrastructure", and investments in "new network infrastructure". FTTN is all of that, as of course is FTTH.
7765 I will now move on to symmetry.
7766 As Mr. Cope forcefully stated, in a competitive industry the Commission's decisions going forward must be symmetrical. This applies to the competitive voice business, the video business, where cable remains dominant, and in the internet segment.
7767 And you have access to the market shares in internet, and much has been said about that this week.
7768 Our concern with symmetry, as you know, goes well beyond GAS and TPIA, even though that has taken on a central role in this proceeding.
7769 We recognize that symmetry can't necessarily always be met through absolute equality, but there at least needs to be equity. We can no longer have measures imposed on us, but not on the cablecos.
7770 While we do not believe that either GAS or TPIA should be regulated, there is a glaring absence of symmetry or equity today. Perhaps the best example of asymmetry is the absence of a TPIA tariff for Eastlink in Atlantic Canada.
7771 You may have noticed on Tuesday, Commissioners, that every time you asked about the cable companies' TPIA tariffs, Eastlink responded for Persona. No mention was ever made of Eastlink, because they don't have a TPIA tariff.
7772 As bad as we consider this to be, even worse would be to repeat the past, in the sense that ADSL-CO would be imposed on the ILECS now, while CISC takes years to figure out an equivalent cable solution, and then even more time debating the tariff.
7773 At paragraph 7 I was going to leave you with the final thought on symmetry, which is about the multicasting restriction. I won't cover it; we did it while TELUS was on.
7774 Let me move to the business case, in paragraph 8.
7775 Cable next-generation networks are already built and National Bank estimates that 70 percent of cable costs are variable. Our NGNs are largely not yet built, and 70 percent of our costs are fixed and incurred before we secure the first customer.
7776 So the effect of mandated access on our incentives to invest is greater than it is on the cablecos. To be justified, the investment must generate sufficient returns. This requires broadband home revenues.
7777 To generate sufficient revenues, we also need to adopt the appropriate pricing strategies, such as usage-based billing and tiered pricing. The latter allows us to attract customers at the high, medium and low ends.
7778 Speed matching and ADSL-CO undermine the business case. If the customer moves to an independent ISP for internet, that customer likely would not choose us for TV either, and if he did, technical workarounds would be necessary, at significant cost.
7779 Forced access will also down-price the market, further affecting revenues.
7780 MTS says that mandated wholesale access is not a disincentive to invest. Here is the key, though: they have only 4 GAS customers in their territory, serving less than 1,000 end users, and hence not much risk. Bell alone has 129 GAS customers in its territory. We bear a much greater risk.
7781 And mandating ADSL-CO will make our case even more challenging.
7782 With ADSL-CO, independent ISPs will never have the need to build -- period. Forget the ladder of investment, it will stop there.
7783 If I could turn your attention to Exhibit 1, I would like to explain this a little bit further, with reference to the pricing chart, just to highlight what I am trying to put forward here.
7784 If we focus on the top half of the page, you have our pricing here for Ontario. The first row is our retail pricing, the bottom row is our wholesale GAS pricing. You will see, obviously, as we go up in speed, that the price goes up. That is the tiered pricing. If we had one price for --
7785 Mr. Chairman, I will wait for you.
7786 MR. BIBIC: Mr. Chairman, the top row is our retail pricing, and the second row is our wholesale GAS pricing. Let's just focus on Ontario. It doesn't much matter if we go Ontario or Quebec.
7787 Quite obviously, price goes up as speed goes up. This is tiered pricing. If we had one price and one speed, that might leave some business at the low end, because people wouldn't want to pay the price or want that speed. So if somebody wants a 2 meg service, or wants to pay less, they can have a 2 meg service. Obviously we want to generate revenues from the high end, as well. That is pretty simple price discrimination.
7788 You can see that our GAS pricing moves up in lockstep, too. The higher the speed, the higher the price.
7789 With ADSL-CO, as I explained on Monday, the competitor would get access to the fibre at the central office, and the entire speed and capacity available to be delivered over that fibre.
7790 I don't know what the price would be, but it would be one price, regardless of the speed. So let's assume, for the sake of argument only, that the price was $30. For $30 -- for $40 now, if you have a mark-up -- for $40 the competitor could offer the full 25 meg speed, completely undermining the tiered pricing model that we have.
7791 THE CHAIRPERSON: I'm sorry, I don't understand that. Why wouldn't the GAS move up with speed, the same way as your retail does?
7792 MR. BIBIC: Because that would be speed matching.
7793 With speed matching, if we offer 6 megs, right now --
7794 Let's start first with speed matching. You will see from the chart that we don't have a wholesale service at 6, 12, 16 and 25 megs. That will be resolved after this hearing. We will either have that obligation or not. Currently we don't offer it.
7795 Let's assume that you do impose speed matching. We will have a 6 meg equivalent service, and presumably the price will be higher than it is for 5, and on and on.
7796 So that would be speed matching, and you would be correct, I would assume, in that case, Mr. Chairman.
7797 ADSL-CO, however, has nothing to do with speed. ADSL-CO allows the ISP in the central office to get access to the fibre, and the full amount of the speed capable of being delivered over that fibre, and the full amount of capacity.
7798 And I would presume that there would be a price fixed by the CRTC for access to the fibre at the CO. There wouldn't be six prices, there would be one price.
7799 THE CHAIRPERSON: But aren't you going to impose UBB on your customers, so you would be imposing it on your wholesale customers as well?
7800 MR. BIBIC: With ADSL-CO, they would have the access to that fibre and they would control all of that.
7801 The reason I revisited this again is, that's why ADSL-CO, in our view, is potentially so much more damaging than speed matching. They are both damaging --
7802 THE CHAIRPERSON: But that suggests, of the two, that speed matching is, by far, the lesser evil, from your point of view.
7803 MR. BIBIC: Speed matching would be the lesser evil, but it also risks -- undermines the ability to win the broadband home.
7804 So they are both bad outcomes, one is worse, and I was just trying to revisit that again, because I don't think that we really kind of nailed it on Monday.
7805 Let me go back to the text. That's what I wanted to cover with Exhibit 1.
7806 Now I am at paragraph 13. I was saying that, with ADSL-CO, once the independent ISP gets subsidized access to the full speed and capacity over that fibre, and the ability to fully differentiate their service from ours -- and there goes usage-based billing -- there is nothing more for the ISP to build. If they get a customer, they pay us. If they don't get a customer, they don't pay us. Their cost structure is success-based, as I mentioned yesterday, with no upfront risk capital required.
7807 Competitors also cavalierly assert that Bell shouldn't complain, because they will pay us cost-based rates for access. Mr. Tacit went so far as to say yesterday that anything more would amount to a subsidy from his clients to Bell, to help us fund our infrastructure program. Think about that statement.
7808 If that's what it comes down to, we won't invest. The wholesale revenues are simply not enough to make up for the retail revenue losses and to cover fixed costs.
7809 I think that the best elaboration of that was perhaps Commissioner Molnar's, earlier in the week, the very simple example of: we are investing for one -- three services, $1 each. One plus 1 plus 1; the revenues are 3. We are not building to get 50-cent wholesale revenue.
7810 The pricing was discussed this morning. If you add a risk premium and the wholesale price becomes 75 cents, not 50, that comes nowhere near replacing the $3 in revenue that we set out to earn by making this investment.
7811 THE CHAIRPERSON: But on that very same point, I asked Mr. Cope about that, couldn't this be accommodated through a different rate, and he suggested that it should be retail-plus, which is, I think, going to the other extreme.
7812 MR. BIBIC: I think the reason he said -- he actually said retail -- and he said plus -- was for the same reason that I am saying. To really allow us to recover what we need to make the investment worthwhile, we need that $3.
7813 I think what Mr. Cope was trying to say is, if you make it retail-plus, then we will have those revenues.
7814 You have to replace the retail revenue, that was his basic point.
7815 THE CHAIRPERSON: But doesn't that leave out the point that if you resell, you also have some savings? There are certain things that -- and you have to take those into account.
7816 MR. BIBIC: And you would, but the savings wouldn't be the difference between $3 and 75 cents.
7817 THE CHAIRPERSON: So now we are talking about the price.
7818 It is the range of the prices that really is the issue.
7819 MR. BIBIC: And we think that we are in a way better position to figure out what the appropriate price would be as between ourselves and wholesalers than the Commission ever could be.
7820 THE CHAIRPERSON: Okay.
7821 MR. BIBIC: Let me move on to paragraph 15, impacts on IPTV.
7822 The problems we would face would be compounded, given the impacts that forced access will have on our IPTV business. You have heard, and no one disagrees, that there can be only one modem on a line at a time. If the customer has internet from an ISP, he cannot get IPTV because a Bell modem is required to interoperate with IPTV set-top boxes.
7823 Several parties have said that a second line could be used to provide ISP DSL in homes being served with IPTV, but this would drive up the costs of operations in an already challenged business case.
7824 Bell would incur the cost of a second port on the DSLAM, as well as the proportional costs of FTTN construction.
7825 And copper loops are not in infinite supply.
7826 Mr. Hennessy had the same point this morning.
7827 Additional loops are needed for second lines. They are needed for pair bonding to increase FTTN speeds.
7828 And other areas have short supply of loops due to the age of our plant.
7829 On Tuesday, I believe it was, Mr. Ménard raised this TR101 document or proposal from Europe and he claimed it was a solution.
7830 We spoke on Tuesday night to Alcatel-Lucent and Huawei engineers and they have confirmed that it is not a solution.
7831 As to the single modem sharing option discussed yesterday, over and above the complications for customer service, we explain in Exhibit 2 how it will limit future IPTV product innovations.
7832 The bottom line is this: We are building to become a wireline TV entrant, and yet this would tie one hand behind our backs before Bell even starts.
7833 THE CHAIRPERSON: Do you want to take the opportunity to walk us through Exhibit 2 here?
7834 MR. BIBIC: We can certainly do it now, if you wish.
7835 Mr. Daniels will do it.
7836 MR. DANIELS: What we have highlighted here is some of the products that would be affected in terms of there are certain types of product innovation.
7837 Again, trying to keep this at a high-level, because it's both internet and TV that are being sent over the same line there are ways to integrate that service. So if we were to sell to a customer just the IPTV and they have bought the internet from another customer, our IPTV product and some of the innovations -- and we haven't listed all of the things that we planned here, but we just give you some ideas of how to integrate that -- won't work because we are not the ones providing the internet service.
7838 There are also issues about how we would set up our home networking, integrating services between the TV and the PC, other things that we have planned in terms of stuff that will differentiate our product in the market.
7839 So that's in terms of the product innovation.
7840 In terms of the product definition, you have mentioned that one of the issues is well, it will be the ISP to understand and to sell a service that knows that if we are providing IPTV, the internet, the amount would go down.
7841 THE CHAIRPERSON: Yes.
7842 MR. BIBIC: But it's a practical problem. Think about it from a marketing perspective in terms of if a customer is already signed up for internet from an ISP they are getting 25 meg service, because that's been mandated. Then we go to sell IPTV to that customer and the ISP doesn't even know that because we are busy -- you know, we are just trying to sell them on the product and we tell them oh, if you take it it may affect your internet. We don't even know that they are getting the internet, maybe we find that out, but suddenly the ISP is affected because his product where he is paying us for a guaranteed 25 megs is suddenly changed because we sold the IPTV. How is that all going to work?
7843 So that's what we are saying from just a product perspective.
7844 From the technology, today we are using Microsoft TV and it has been designed for a single operator. Although we have talked about how theoretically it's possible to share a modem there is no known commercial implementation of that, but tomorrow there is a new technology that Microsoft is moving to which even there is not a theoretical solution for.
7845 We can go into more detail on that, but I think, high-level, speaking from one lawyer to another, that's the best way to explain it at this point.
7846 THE CHAIRPERSON: Okay. Thank you.
7847 MR. BIBIC: Thank you, Mr. Chairman.
7848 Let me move to paragraph 20.
7849 We have explained in our case that investment is at risk and we have also said particularly in small and mid-sized centres. Commissioner Molnar questioned TELUS on Monday or Tuesday and, Commissioner, you wondered whether investment in smaller communities is really at risk as they won't be priorities for competitors.
7850 Well, first, most of the ISPs who appeared before the Commission this week primarily serve small communities.
7851 Second, Bell has a greater proportion of wholesale GAS users outside the greater Toronto and Montréal areas than we do retail users outside the greater Toronto and Montréal areas, further indicating ISP presence in smaller centres.
7852 Third, apart from the greater Toronto and Montréal areas, there are 21 cities in the build plan that we filed confidentially with you. Competitors are already co-located in 20 of those cities -- mostly small and mid-sized -- and thus they are already poised to have access to things like ADSL-CO.
7853 Now, the Order-in-Council instructed the --
7854 THE CHAIRPERSON: I'm sorry, what's the upshot of this?
7855 MR. BIBIC: Well, the upshot of this is that if you take a step back we said we have built Montréal and Toronto already with FTTN, so is investment at risk here.
7856 Yes, it is ultimately down the line as if we consider to go FTTH there. But put that aside because we have built Montréal and Toronto.
7857 What's left is all the other centres, the mid-sized centres, the smaller centres.
7858 We heard Mr. Cope say investment will be delayed in some of those and some of those we won't build altogether. London came up as one of those examples.
7859 Commissioner Molnar questioned TELUS as to whether that is really the case, that the smaller centres are at risk, the theory being perhaps that's not where the competitors are really going to contest you so why would you invest in smaller centres.
7860 I was just trying to respond that the small ISPs are actually more prevalent in the smaller and mid-sized communities 90 with it.
7861 THE CHAIRPERSON: But are you not condemning the smaller communities to lower speeds? I mean, I thought part of this whole --
7862 MR. BIBIC: That's the point, Mr. Chairman. We don't want to condemn the smaller communities to lower speeds, we want to go there.
7863 Our build plan that we filed with you is showing us going to many, many small communities, but if mandated access is imposed and that affects our ability to generate the revenues we need in those communities, which it will, we won't invest or we will delay our investments in those communities, and that's entirely the point of our case.
7864 THE CHAIRPERSON: Okay. Go on.
7865 MR. BIBIC: Bell filed detailed business cases showing the impacts of forced access on our returns. The business cases were prepared in the manner we would for our own build/no build decisions.
7866 And given what's at stake, Mr. Cope attended here. He emphatically stated that next generation deployment will be delayed and in some cases abandoned. That's the clear evidence on the record.
7867 There is no evidence to the contrary, merely statements of opinion asserting that we will build anyway, and pleas that you should "call our bluff".
7868 The most anyone could come up with is a passage from the Bell disclosure to shareholders. The quote, referenced by PIAC, discusses how cable NGN rollout is forcing us to incur significant CapEx in order to rollout higher speeds ourselves. PIAC's implication was that we say one thing to shareholders and perhaps another to the CRTC.
7869 What we say to shareholders and what we say to you is entirely consistent. We have said to the Commission and to Cabinet that we are building NGN, that we want to build more, and that forced access will jeopardize those plans.
7870 Unfortunately, PIAC, Mr. Chairman, either didn't read the entire shareholder document or they provided you with selective disclosure.
7871 Very quickly, because you did read the quote out loud and you wondered about its implications, I would like to turn you to Exhibit 3. You will see there is a big B.C. logo on the top.
7872 THE CHAIRPERSON: Yes.
7873 MR. BIBIC: So if you will go to page 12 -- this is actual extracts from that document.
7874 Page 12, in yellow you will see the quote that was read on the record.
7875 THE CHAIRPERSON: Yes.
7876 MR. BIBIC: Page 15 of that document, which is only three pages later, the yellow part says this:
"Substantial investments usually need to be made before new technologies prove to be commercially viable. There is also a risk that current regulation could be expanded to apply to newer technologies which could delay our launch of new services " (As read)
7877 If you flip the page, which is now 24 of that document, if you are with me. You will see at the bottom we have an entire section on this hearing.
7878 The conclusion is:
"Depending on the outcome, these issues could, however, require Bell Canada to modify its investment plans and its retail and wholesale commercial practices, pricing and plans." (As read)
7879 So our evidence is consistent, Mr. Chairman, I just needed to respond to that. Our evidence is clear.
7880 THE CHAIRPERSON: I'm glad you did.
7881 MR. BIBIC: Okay.
7882 THE CHAIRPERSON: I don't want partial evidence.
7883 MR. BIBIC: Okay. Thank you.
7884 So the evidence is consistent and our evidence is clear, forced access will diminish our incentives to invest. Cabinet has instructed the Commission to ensure this does not happen.
7885 I'm almost done.
7886 We have ample evidence that the Canadian broadband market is highly competitive. We have multiple competitors over multiple platforms, wireline and wireless. We are world leaders in broadband adoption and actual download speeds. And we have evidence, in the Wall Study and the Navigating Convergence Report, that our year-over-year prices are dropping or stable, and are very competitive when compared to major trading partners. The Commission has consistently found as much. So has the Competition Bureau.
7887 The flawed OECD and Berkman reports do not prove otherwise.
7888 Given this retail competition, wholesale access should not be imposed. This is entirely consistent with the essential facilities framework.
7889 We also have evidence of duplicability.
7890 TekSavvy, as I mentioned yesterday, is trying its own FTTH network in Perth. A small ILEC, Wightman Telecom, is building FTTH outside its incumbent territory in a number of small communities in south central Ontario. Novus offers 200 Mbps in Vancouver over its FTTH network, and numerous wireless providers are building networks.
7891 This is consistent with Decision 2008-17, where the Commission found DS-3 fibre access, OC-3 fibre access and OC-12 fibre access to be duplicable.
7892 Given duplicability, access should not be mandated, again consistent with the essential facilities decision.
7893 So let me end by revisiting, briefly, the appropriate legal and policy context.
7894 This week reference has been made to various Cabinet orders and decisions, and that needs to be addressed.
7895 The December Order-in-Council must govern the decision. You know that of course, but it bears mentioning as most everyone else has deliberately avoided it.
7896 Cabinet did not ask you to change the essential facilities definition, and, like TELUS, neither are we. That still governs.
7897 The Local Forbearance Variation Order does indeed accept that those competitors who lease unbundled elements from ILECs can be facilities-based carriers.
7898 But that Variation Order does not dictate the outcome here, in the face of the December 2009 Order-in-Council, issued two years later, which specifically asks the CRTC to ensure incentives to invest in new network infrastructure are not diminished.
7899 It is the ILECs, cablecos and wireless providers who are making the investments in NGN. If we don't build, or if we slow the pace of deployment, that's a bad outcome, and not one Cabinet seeks.
7900 We appealed to Cabinet on the basis that wholesale speed matching rules would affect investment. Clearly Cabinet agreed, otherwise they would have rejected the petition, just as they rejected MTS' petition on the same day seeking to stop ethernet forbearance and seeking more unbundling.
7901 I appreciate that you are struggling with the potential impacts of the absence of forced access on ISPs. It is a difficult issue. But your role, respectfully, is not to protect them, and you acknowledge that in paragraph 39 of your essential facilities decision to which TELUS made reference this morning.
7902 There is ample retail competition. ISPs have options.
7903 Cabinet did not ask this Commission to reconsider its own speed matching rule in order to get the same decision back, or worse, a decision with yet more unbundling.
7904 Thank you.
7905 THE CHAIRPERSON: Okay.
7906 First of all, thank you for your very concise presentation.
7907 Looking at paragraph 8 where you are saying:
"Our NGNs are largely not yet built, and 70% of our costs are fixed and incurred before we secure the first customer."
7908 You were here for my exchange with Mr. Hennessy this morning and I asked you to come up with a definition of next generation, et cetera.
7909 It seems to me this is a reflection of what he said and presumably your position, too, next generation has to be a technological innovation and (b) it has to be an investment risk which is greater than the normal improvement or updating of your infrastructure.
7910 Now you are quoting some figures here, et cetera. Is this something that could be built into the definition of whether something is next generation or not, if you look at both the technological risks and the investment risks?
7911 MR. BIBIC: I do want to give this more thought in my final reply, but I think that's a factor. Risk is a factor, technology is a factor, the overlay nature is a factor, and of course the ability to deliver a step function in internet speeds is a factor.
7912 The reason I say that is that Cabinet did say in the Order in Council that this is about new higher speed internet services. So that has to be a factor, Cabinet made it so.
7913 Really that's why we are building FTTN and FTTH, is to deliver that next bump up in speed in order to compete with what cable is now able to offer already with DOCSIS.
7914 THE CHAIRPERSON: What's the overlay factor?
7915 MR. BIBIC: Okay. Thank you for asking that.
7916 If we could go to the very last page of this package.
7917 THE CHAIRPERSON: Yes.
7918 MR. BIBIC: Okay.
7919 If we focus first on the top half, this is the legacy deployment, and this time rather than showing you copper from the central office all the way to the home and have everyone jump on me, I have given you a model where there is actually some fibre in the network and hopefully the back room will be at peace.
7920 So we have the serving central office on the right. In some areas where we didn't have network before we did build fibre to what is called a remote. That's the AMAS remote that you see there.
7921 And then we used copper, because it was a legacy network, all the way to the home. But you will see the copper loop length is still 3 to 5 km in that deployment which limits our speeds to about 7 megs in the best case.
7922 So that is a legacy Bell network right there.
7923 In many, many, many cases it's copper all the way from the CO all the way to those homes.
7924 THE CHAIRPERSON: I thought it was the other way around, I thought you had more or less proclaimed victory that you now have fibre to the node.
7925 MR. BIBIC: Okay. We are going to get to that in a second. I'm just describing the top half.
7926 THE CHAIRPERSON: No, no. Your various statements when you said you fibred Toronto and Montréal, that I thought was that first part of the top graph.
7927 MR. BIBIC: No, that's the bottom.
7928 THE CHAIRPERSON: Oh, that's the bottom.
7929 MR. BIBIC: That's the bottom.
7930 You see, the ability -- fibre to the node is really the ability to deliver a quantum leap in speed which requires us, as we discussed on Monday, to shorten the loop length to a kilometre or less.
7931 But you can see in the top half, the loop length remains 3 to 5 km. So the top half is a legacy build.
7932 THE CHAIRPERSON: So for argument sake atop is London, the bottom is Toronto?
7933 MR. BIBIC: Correct.
7934 THE CHAIRPERSON: Okay.
7935 MR. BIBIC: Okay. So now let's go to Toronto in the bottom.
7936 What we did here is -- well, before we built -- let me just add this.
7937 Before we built FTTN in Toronto, Toronto looked like London, which is the top.
7938 THE CHAIRPERSON: Yes.
7939 MR. BIBIC: So now we started building FTTN in Toronto, two years ago let's say. It used to look like the top, now it looks like the bottom.
7940 But you see what happens here, the fibre to the AMAS remote remains, as it was before, the copper remains.
7941 But this is what we had to do to deliver fibre to the node, we had to install that round box with the turquoise DSLAM deep in the neighbourhood which allowed us to shorten that loop length to less than 1200 m, or a kilometre if you will, and that allows us to deliver 25 mega bits per second.
7942 But we didn't rely on the old fibre that was there before. People say they built the fibre, you know, this is just an evolution. We have to build for fibre to the node brand new upgraded fibre from the central office all the way to that node.
7943 So you can see that even though the legacy network in some cases already had fibre, this is a complete overlay network because we had to build brand new fibre, upgrade it all the way from the central office, we had to install all these nodes deep in the neighbourhoods, we have to install the DSLAM, and then we shorten the loop length. That allows us to deliver the 25 Mb per second. This is brand new.
7944 THE CHAIRPERSON: A stupid question, but I have to ask it.
7945 Why did you have to do that? Why couldn't you just do the fibre from what you call the AMAS remote to the remote node?
7946 MR BIBIC: There is not enough --
7947 THE CHAIRPERSON: Why did you have to go back all the way to the CO?
7948 MR. BIBIC: Not enough capacity on that old fibre.
7949 MR. DANIELS: Mr. Chairman, the one other thing about why we keep calling this an overlay network, to explain, is that the bottom network that we are talking about in terms of the fibre that has been built, we strictly did that for the high-speed internet. We continue in Toronto and Montréal to use the copper for the voice.
7950 So what actually happens is the copper loop that goes to that remote node there, you see the copper is still there and so the voice continues to stay on the copper, it does not go onto the fibre. That's why we keep saying this is an overlay network.
7951 The purpose that we built this fibre, unlike the one above, was strictly for the high-speed internet and the IPTV services. We continued to use the legacy copper for the voice services.
7952 That's why the business cases completely different, it's not like oh, this is what we are doing for voice now in terms of how we built the fibre previously on the above.
7953 That's why we call it an overlay, because it's a separate additional network for the purpose of high-speed internet and IPTV.
7954 THE CHAIRPERSON: TELUS, does the same apply to you?
7955 MR. SINCLAIR: I'm so glad that I actually get to speak today.
7956 MR. HENNESSY: That's Mr. Sinclair, for TELUS.
7957 MR. SINCLAIR: Sinclair.
7958 In many cases this indeed applies. I suspect Bell, looking at the way they are presenting this, that they may have done more remote deployment than we did.
7959 I would suggest in just round figures that we probably still had about 80 percent of our customers served directly from COs, but I would have to check the figures. Theirs may be a little higher.
7960 So what they are showing here exactly applies to us in some cases. In most cases we were dealing with the case where we didn't have fibre to the remote and had to take the fibre all the way from the CO for this overlay network.
7961 So largely, but perhaps even more so in our case.
7962 THE CHAIRPERSON: Somebody up there had their hand up.
7963 MR. STEVENS: Yes. Keith Stevens, from Execulink.
7964 I think I want to pick up on what TELUS just said.
7965 I think it's important to emphasize these brown boxes with the turquoise DSLAMs. You might get the impression from these diagrams we had to do that for all customers. I don't know the number for Bell, but I expect that is a fairly small percentage of customers, 20 or maybe 25 percent. The rest still has not -- when I say overly, it's only overlay for a small number and that's why really it's purely incremental additions. We are always adding some additional elements in the network to expand it.
7966 This is not a brand new overlay for everyone, just for a small number of customers.
7967 THE CHAIRPERSON: Would you care to comment on that?
7968 MR. SINCLAIR: Would you indulge TELUS commenting on that?
7969 THE CHAIRPERSON: Sure. It will give Bell some time to think. Go ahead.
7970 MR. SINCLAIR: Okay. Sure.
7971 THE CHAIRPERSON: No, no. TELUS, go ahead.
7972 MR. SINCLAIR: I understand.
7973 If I understood what was said there it was said that the new overlay is being done for a relatively small portion of customers.
7974 I can't comment on other telcos, but for TELUS that would be incorrect. I would say that the original fibre to the remote primarily put in for POTS coverage purposes would be in the order of 15 percent, whereas the fibre to the node now covers approximately 80 percent, just in round figures, of the customer.
7975 So that's a big change in deployment between the two. It's not a small amount, this so-called overlay that makes up what we would call the next generation network.
7976 THE CHAIRPERSON: MTS, did I see your hand up?
7977 MS GRIFFIN-MUIR: Yes. Thank you, Mr. Chairman. This Teresa Muir for MTS Allstream.
7978 Actually Mr. Stevens' description is correct in terms of fibre to the node. There are a couple of things I would like to comment on that Bell said.
7979 We have actually an IPTV service, we have incrementally invested and pushed obviously fibre closer to the home.
7980 So if you look at the bottom chart what essentially you are doing is expanding the number of customers you can reach with the remainder of your copper by pushing this out incrementally. Typically you would make that investment so you don't have to immediately invest in fibre to the home, if ever.
7981 So it's a bit different than suggesting you are building fibre right out. Bell has a lot of remotes already and you don't have to replace the old fibre.
7982 Also, when Bell is suggesting that we have four GAS customers, which we do, and they have 130 or 29, we also have 500,000 mass and they have 8 to 10 million.
7983 So I think it's important to keep that in perspective as well.
7984 THE CHAIRPERSON: Bell, back to you?
7985 MR. BIBIC: Okay.
7986 First, it's flat out wrong to say that you don't replace the fibre. We are replacing the fibre.
7987 In terms of whether or not this is just some kind of an incremental build, let's keep the numbers in perspective.
7988 This bottom deployment, this public number, we are doing this to over 5 million homes. That's 80 percent of the territory.
7989 That's huge. That's why you have the nine zeros, Commissioner Simpson.
7990 THE CHAIRPERSON: Okay.
7991 MR. CONDON: Carl Condon, Mr. Chairman.
7992 That fibre does not exist. Ms Muir is incorrect.
7993 Building that fibre out and the labour constitutes 75 to 80 percent of the cost of putting FTTN in. It's a very expensive proposition.
7994 THE CHAIRPERSON: I see him. Let him finish.
7995 Okay, Distributel.
7996 MR. COHEN: Thank you, Mr. Chairman.
7997 Mel Cohen, from Distributel.
7998 I just want to point out that one of the reasons why this can't be considered incremental is that while the new node is required to reach certain homes within the distance required to provide the higher speeds, the old AMAS remote is still within 1 km of many, many homes and can provide high-speed DSL service to them, as is the central office, because within the 1 km radius of the central office itself you can continue to provide high-speed to those homes at the higher speeds and you do not have to build new to serve those homes at higher speeds.
7999 MR. CONDON: Mr. Chairman, Carl Condon.
8000 That's incorrect. The 1 km radius only encompasses about 11 percent of our subscribers and the loop lengths on that AMAS generally run out to 5 km.
8001 THE CHAIRPERSON: Okay. You mentioned when we started discussing it, Mr. Bibic, about the rate compensation. I must say I still don't quite get the argument.
8002 I can see that you say yes, fibre to the node or fibre to the home is a different dimension of investment, it's a higher risk for us. We have to lay, et cetera, and therefore cost plus really doesn't cut it.
8003 But retail plus doesn't cut it for me either. It seems to me that if there is mandated resale it's not beyond your ability to suggest to us the formula which would compensate you, taking into account that you do after all get paid by the person to whom you are mandated to resale and still not work as a disincentive to investment.
8004 MR. BIBIC: How would we factor in -- that might work conceptually if we had one network, one service, but how do you work that when you have three services, one network?
8005 Because if the ISP gains access to the pipe for either marketing or technical reasons we now lose the opportunity to win the broadband home. Because if they leave us on internet they will leave us on TV.
8006 THE CHAIRPERSON: We will come to that soon.
8007 Okay, if you want to go there, okay.
8008 MR. BIBIC: But ultimately that's what the pricing problem is.
8009 THE CHAIRPERSON: I know. But this is what I -- isn't this whole thing a bit of an artificial debate because customers want bundle and they will want to buy all three or all four services together. To suggest that they go to an ISP for the internet access but they go to you for IPTV or for telephony, et cetera, seems to me very artificial positioning on something that's not likely to happen.
8010 MR. BIBIC: It's not. The question was asked of Mr. Cope on Monday and we said we would file the number of single product customers we have and we did. I don't want to say what the number is, but take a look, it's not an academic artificial debate.
8011 There are a lot of customers that don't buy the full bundle, but we need to encourage them to buy the full bundle and we need to succeed in convincing them in order to make the return work for this investment. So that's the challenge.
8012 We need that to bundle home and it's not easy to get the bundled home and there will be many homes who, if they have decided to move from Bell for internet they will not come to Bell for IPTV, they will either go to the cable company, go to another competitor, and there are choice from the dominant cable company, or they will watch TV another way or they don't want TV. Then the revenue opportunities are diminished.
8013 THE CHAIRPERSON: I don't get it.
8014 You say on the one hand you want to get the bundle, on the other hand you are telling me that in effect there are a lot of customers who don't buy on a bundled basis?
8015 MR. BIBIC: All that is built into the model. You have to take a look at the model.
8016 The point is, we estimate a certain number of penetration or marketshare on internet, a certain penetration in marketshare on TV, et cetera, and with forced access we have to reduce those expectations and that affects the return on investment in the model.
8017 MR. DANIELS: May I add, Mr. Commissioner?
8018 It's Jonathan Daniels from Bell.
8019 When you look at the business case -- or the way we are approaching it in looking at this issue is that there are 129 ISPs on our network. Are all of them going to be able to and market themselves on being able to sell a complete bundle, even if that was permitted, ignoring our restrictions saying -- we don't think so. We think that a number of them are going to be focused on price and they are going to be focused on price and selling on the internet service.
8020 So that it's all about the regulatory arbitrage about what price they can get and how much they can influence and try to say oh, there's a margin squeeze. So that they are going to create and enhance the market for the single internet service.
8021 THE CHAIRPERSON: So that's your basic assumption, that the ISPs will make a play on a single service or two services on a price point?
8022 MR. DANIELS: I certainly can't say that. That's not every ISP. You know, we heard yesterday from CAIP saying we have different models, and so on. Mr. Copeland talked about how he charges more and sells on service, but generally where our model is driven by is the ISPs who are focused on the price arbitrage and the impact of taking away the internet customer from us and ultimately our ability to win that home.
8023 And the model has actually a trajectory of how that plays out, which is described in detail in our filings.
8024 MR. BIBIC: I also would like to add to this point, because I don't get the opportunity to sit in with Commissioner and staff meetings.
8025 If you look at those models I just need to point out they are not cost studies. So it's not a question of staff or Commissioners sitting there and saying well, that assumption is wrong, we should downgrade that assumption or boost the market share expectations, because -- the reason is it's not a cost study. That model is what the executive team looks at within Bell to determine go or no go.
8026 So the Commission may obviously have to test the veracity of the model, but the Commission can say well of course they will build because the market share should be this. I mean that will be irrelevant because we will be basing the decisions on the type of model we filed with you.
8027 THE CHAIRPERSON: Okay.
8028 Mr. Hennessy, you wanted to say something?
8029 MR. HENNESSY: Yes. I would look at it slightly differently, because I think what happens is if we are intending to offer television and internet over the same pipe and that pipe is lost to the broadband provider and therefore we lose the opportunity to provide TV, the opportunity for anybody to provide TV is really effectively lost and so the cable company is, in effect, insulated from competition.
8030 I say that because it's not the ability to offer an over-the-top kind of internet-based TV that's the issue here, it's the ability to create over that broadband pipe a managed IPTV Class 1 cable system type of service and that requires substantial capital investment that can't really be replicated on a line-by-line basis or at such a small fraction of the market as the ISP would take.
8031 THE CHAIRPERSON: Okay. Really the IPTV is sort of the key to it and this is your strongest argument for saying it will be a disincentive because you won't deliver the IPTV and this is what you have to do in order to compete with cable.
8032 Now, I heard from Mr. Ménard and others that there are solutions possible which don't involve a second line. I can understand what you are saying about the second line.
8033 You say here that you check with Alcatel-Lucent and Huawei and who have confirmed what?
8034 If the ISPs in the room have information to the contrary, I would like to -- I would love to know whether in effect there are solutions that do not involve a second line in order to not denigrate or impair your ability to deliver IPTV and yet be able to resell the internet access.
8035 MR. BIBIC: I didn't fully comprehend what Mr. Ménard was suggesting, but kind of directionally he was suggesting, I think, that there are some protocols being developed somewhere in Europe that would solve the problem and allow ISP internet service and IPTV service to be delivered over the same line.
8036 THE CHAIRPERSON: I believe he went further, he said they are actually in use.
8037 MR. BIBIC: That's what we checked with the engineers at Alcatel-Lucent and Huawei and they said no, this protocol that he is referring to has nothing to do with IPTV and internet over the same line, it has to do with helping telcos move from ATM to ethernet.
8038 MR. CONDON: Exactly.
8039 Mr. Chairman, we actually checked with one of the authors of TR101 who is an Alcatel employee in Belgium and he is clear that TR101 was developed to enable ISPs to migrate their broadband access networks from ATM to ethernet. And if you check the broadband forum and look at that standard, it's practically the opening statement.
8040 There are actually no active working groups in the broadband forum on wholesale mechanisms at this time also we were told.
8041 THE CHAIRPERSON: Mr. Cohen, I saw your hand up there.
8042 MR. COHEN: Well, Mr. Chair, thank you.
8043 From my perspective a second line is a viable solution. It's Distributel's practice, because we used naked DSL to deliver our home phone service, to order a second line in most cases so that we can get our phone service working without disrupting the other customers, the customers of Bell phone service.
8044 So I'm not really sure I understand what the big concern about having a second line is. If we are losing so much market share to cable companies from the telephone companies I would expect there are even more pairs available.
8045 The other thing that really concerns me about what I'm hearing in these models -- of course we haven't seen them -- but when we were dealing with Bell's wholesale department in connection with our acquisition of Cybersurf I never saw them so interested in Distributel's business as when it came to discussion of moving customers back and forth between DSL and cable.
8046 I'm just really curious to the extent to which these models that we keep hearing Bell refer to take into consideration that some of the business that the wholesalers will bring them are saves from cable or is it strictly a question of just we are going to lose this much percentage of the market.
8047 Do these NPV studies really take into account realistic forecasts of all the different demand situations?
8048 Thank you.
8049 THE CHAIRPERSON: Let's stay with the technology for a moment, we will come back to that.
8050 There was a hand over there on the right-hand side.
8051 M. BERGERON : Yes. Alain Bergeron du CISP.
8052 LE PRÉSIDENT : Oui.
8053 M. BERGERON : Concernant la position de CISP concernant la question soulevée par Bell et Alcatel concernant la possibilité d'avoir un seul modem pour la télévision IP, ce qui a été soumis mercredi au CRTC, c'était concernant l'accès fibre to the home et non pas fibre to the node, donc, la solution d'un seul équipement chez l'abonné et pour le fibre to the home.
8054 LE PRÉSIDENT : O.K.
8055 M. BERGERON : Pour to the node, on n'a pas de certitude là-dessus.
8056 THE CHAIRPERSON: Okay.
8057 Yes, please go ahead. Identify yourself.
8058 MR. TACIT: Yes. It's Chris Tacit, TekSavvy.
8059 Just two points.
8060 I think the lack of standards work at the wholesale level is perhaps indicative of the very problem we have. If there was a bigger wholesale demand that sort of work would be done, as it was in the case of TPIA.
8061 TPIA was a mandated service where Canada was the leader in the world and work was done to bring it about because the Commission said that this should happen for competitive equity.
8062 So these kinds of technical issues just because today haven't been solved doesn't mean they are beyond being resolved at all.
8063 THE CHAIRPERSON: Okay.
8064 At the very back there. Yes...?
8065 MR. STEIN: Matt Stein for Primus.
8066 To speak specifically to what Mr. Ménard raised about TR101, I believe that he was citing purely one example of the multiple ways that this could be addressed.
8067 TR101 in itself may be slightly in its infancy, however multiple PPPOE sessions are another method that could be used and are used by many ISPs in the room, including Primus, as well as multiple PVCs across the DSL, which is also in use by many ISPs.
8068 There are many options and the point here is to focus on specifically TR101 and say well, we found that TR101 might not quite be there quite yet, it's a little bit shortsighted.
8069 THE CHAIRPERSON: I'm sorry, what are you saying?
8070 Are you as Primus right now employing a technology which allows over fibre to deliver both IPTV and internet access by separate providers?
8071 MR. STEIN: We are not offering IPTV today. However, we are offering multiple services in some cases with multiple providers on the same DSL line and yes, we do that today.
8072 Now, in this case it is not IPTV, but IPTV is an IP carried service. There is no reason that that can't be done for IPTV.
8073 THE CHAIRPERSON: TELUS...?
8074 MR. SINCLAIR: Just a couple of comments.
8075 It was mentioned there for example as a multi-PVC service.
8076 Now, first of all you have to realize that Bell and us have slightly different network architectures and that may come into play here. But as an example on providing surpluses to multiple service providers on our network, if you look at the embedded base of modems we have today, well over a million, they would not be capable of supporting multiple service providers, either due to a lack of a second ethernet port, or in cases where they have a second ethernet port when you look at the issues that would be involved in partitioning what is fundamentally designed as a single user device to a multiple service provider on things like multiple IP stacks, multicast stacks, multiple DHCP stacks and the like, it's really impractical to use the equipment that we use today to support multiple service providers.
8077 So we would end up in a situation of having to come up with special equipment to serve this market.
8078 Now, one thing I do want to say, too, is the history of having special equipment, especially for Canadian only requirements -- and I'm not aware of anybody at least using our technologies in the world who has to support multiple service providers over ADSL loop. That has tended to be pretty dismal, to be honest. The Canadian market is just too small. This would be a very small subset of the Canadian market to support that kind of thing.
8079 THE CHAIRPERSON: You are preaching to the converted on that point. Developing a technology only for the Canadian market is not something that we envision.
8081 MR. STEIN: For the last several years we have been using one consistent modem vendor that is in use with in fact many of the ISPs in the room, including Bell, and those modems have supported multiple VPI/VCI configurations, they have supported multiple PPPOE bridge tunnels, they have supported many of the things that would be required for this for the entire length of time.
8082 When I mentioned that we have been running multiple services across single DSL channels for some time, I am referring to a number of years in conjunction with a number of the networks by the company speaking.
8083 THE CHAIRPERSON: Okay. Thank you.
8085 MR. BIBIC: I think we have to pull all this together. Lots has been said.
8086 So first, we are investing in FTTN and FTTH to deliver IPTV, to enter into that market. Let's be clear.
8087 We are not investing so that we can turn into everybody's science experiment, okay. So -- no, seriously.
8088 MR. BIBIC: I could just stop there, but I have too much respect for the process, so we came forward and we tried to respond to everybody.
8089 THE CHAIRPERSON: Yes.
8090 MR. BIBIC: There are three options.
8091 One person said TR101. It doesn't work. We checked.
8092 Another, Vaxination, came up with the shared line model. We put together a chart explaining the customer satisfaction issues and explaining the product innovation issues. We responded to it.
8093 A third person says just put in a second line. We responded to that in our opening statement.
8094 I think I would like to ask Mr. MacDonald to give you the stats on second lines.
8095 MR. MacDONALD: Yes, Mr. Commissioner.
8096 We typically in our distribution plant allow for about 1.1 lines per customer. So yes, we are losing NAS, that's clear, but the plant is aging as well so we need for maintenance purposes to have additional pairs. We also want the opportunity to win back those customers.
8097 And in Bell Canada's case, they need second lines for the purpose of the bonding on FTTN to go to higher speeds.
8098 MR. BIBIC: So there aren't second lines all over the place that we can use and to have to install second lines is just going to increase the cost of operation.
8099 So that's the IPTV and the technical issues.
8100 Now, Mr. Cohen raised -- I don't know if you want to go there yet, Mr. Chairman, but Mr. Cohen raised the issue of our business cases and how we factored wholesale impacts to that.
8101 I don't know if you want to deal with that now, but I would like to respond to it.
8102 THE CHAIRPERSON: Go ahead, respond.
8103 MR. BIBIC: Jonathan...?
8104 MR. DANIELS: Certainly. So the first answer, and I think we said it before, is that we did factor wholesale into it.
8105 But Mr. Cohen's question was really about did we factor in the fact that we would be bringing some customers to Bell that otherwise wouldn't be on the network. The answer is yes.
8106 The model, as you will see when you look at it, actually shows that the amount of end-users that tend to be on our network in the first few years is actually higher than otherwise would have been the case, and we show the comparisons.
8107 So it's definitely we take into account the wholesale revenue and the wholesale costs and we take into account that there is extra end-users that come onto our network as a result. So filling the pipe, if you will.
8108 But you can actually still see the financial impact that the extra revenue we get from those incremental extra customers is not offsetting the amount of the revenue loss that we are experiencing overall in the market.
8109 Another factor that happens is, as time goes on we actually see a decrease in the amount of end-users on our network because we believe that once the comb is split in terms of -- or that term "broken home" that some people have referred to. So that changes.
8110 So as a result that's how we look at it and we took that all into account.
8111 THE CHAIRPERSON: Okay.
8112 Let's go on to the other issue which you mentioned, impact in smaller communities.
8113 You talked about two issues really, wholesale access and speech matching and you quite rightly said speed matching is the lesser of the two evils from your point of view, et cetera.
8114 When you consider smaller communities, which obviously for logical reasons, economic reasons, will be the last ones that you will rollout your fibre to the node or fibre to the home because of the -- isn't speed matching the thing that protects them from being sort of condemned permanently? At least for the time being they will have the same access that you can offer in those cities and they will have some competition from ISPs, given that, you know, in those markets competition is not very strong to begin with but, and as you yourself said, most of your ISP customers are in those cities.
8115 So I don't quite understand why you are so opposed to speed matching because it does provide some comfort to the smaller centres; does it not?
8116 MR. BIBIC: I guess you and I are -- I don't understand the question either, sir, because the proposition we're putting forward is with forced access, whether it be speed matching or ADSLCO or both, the business case won't fly in the small communities.
8117 THE CHAIRPERSON: Okay. So, for argument's sake --
8118 MR. BIBIC: Which means we won't go there.
8119 THE CHAIRPERSON: -- there is no ADSLCO, but at least speed matching or whatever you offer in those.
8120 MR. BIBIC: Okay. If it's speed matching, the business case will not fly. So, we won't go there.
8121 THE CHAIRPERSON: Not at all? Basically you are telling me you will not go to London because of speed matching --
8122 MR. BIBIC: Well, Mr. Cope --
8123 THE CHAIRPERSON: -- as an example?
8124 MR. BIBIC: Mr. Cope raised London. What we're saying is
8125 THE CHAIRPERSON: Okay. But whatever city he mentioned.
8126 MR. BIBIC: -- speed matching in and of itself will undermine the business case and that's what the business case shows. So, now we're going to be put in a position, we're going to say, okay, we have this capital envelope, where do we assign the dollars.
8127 Those small communities won't get the dollars, other programs will.
8128 How will we compete in those communities, we will compete with the service we have now because a fair -- you know, our customers are on that service now and we have a fair bit of them, we will compete with our state-of-the-art world leading wireless network, we will compete with our Bell TV network, we do have close to 2-million subscribers, and that's what we'll do and we'll put the dollars into the next evolution of wireless so those communities would get LTE.
8129 Those are the trade-offs we're going to make.
8130 THE CHAIRPERSON: I just find it hard to accept that you are going to write off mid-size and small-town Canada, you know, because the thirst for speed there is just as much great as in Toronto and Montreal.
8131 MR. BIBIC: Except that they have so few customers and the business case is that much harder to make fly.
8132 Now, Mr. Cope was clear though, I don't want to mislead anybody. He said it will be either delayed or, in some cases, we won't go to communities altogether because the business case will no longer be optimized.
8133 Neither option's a particularly good one, whether or not it's delay or not going at all, and I suppose --
8134 THE CHAIRPERSON: But he also said he faces great competition from wireless. If that is true, then you are basically saying those markets will be served by wireless and you are writing them off for your main wireline --
8135 MR. BIBIC: No, not --
8136 THE CHAIRPERSON: I just don't get it. It just doesn't make sense to me.
8137 MR. BIBIC: But we serve 93 percent of Canada with our brand new -- you know, brand new wireless network. We are serving those communities.
8138 Other than Bell and TELUS, no one serves rural Canada with wireless more extensively than Bell and TELUS do. We have made a big, big rural community bet with wireless.
8139 The debate here is, will we go there with wireline, and that's what's at risk. We're there with wireless, but --
8140 THE CHAIRPERSON: So, in effect, it's a two-part strategy, big cities you will serve with fibre, small cities you will serve with wireless if forced to by us. That is what you are saying?
8141 MR. BIBIC: That's what we will have to consider. Right now you have the built plan in the confidential filings.
8142 Right now tonnes of communities would get fibre to the node.
8143 THE CHAIRPERSON: Yes, but I am positing that we justify or better justify our speech, our decision, in which case that is the outcome you are suggesting will happen?
8144 MR. BIBIC: What will happen is the built plan will be reviewed, some communities may continue to get wireline Internet, you know, on a delayed basis and others will fall off.
8145 And I'm not saying anything that Mr. Cope didn't categorically state.
8146 THE CHAIRPERSON: No, no, I understand. I am just trying to make sure of the implication of the...
8147 Now, lastly, you say the local forbearance order really was limited to the local forbearance. I mean, who can argue with, I mean, obvouisly it was used in that inference.
8148 But did it not express the appreciation of the government which we also referred to in our essential services, that nobody can enter into service in this country and everybody is forced to lease in some way and, in effect, that the best we can achieve in this country is facilities-based competitors who have hopefully largely built their network but partially have to lease it because it is just not economic to build all over the country, and that is really the competitor field we should consider.
8149 So, when you say here that -- you suggest that, in effect, for speed sharing and for this whole hearing we do not adopt the definition of facilities-based competitors as set out under the variation order; isn't that over stating it?
8150 Isn't that taking away from the very essence of what we started with in our essential services when we said after hearing the evidence from you and others, in effect, the reality in Canada is that everybody is mixed, there will be facilities-based some and leased others. That is what we had taken and, on that basis, you were all framework and the Cabinet re-affirmed that framework.
8151 So, I don't think they said, for this purpose do not consider facilities-based competitors anything else than even we did in the essential services.
8152 MR. BIBIC: I think, Mr. Chairman, that you're reading far more provocation in my page 6 than was intended.
8153 THE CHAIRPERSON: Oh, I am delighted if that is the case.
8154 MR. BIBIC: Yes. No, you're reading far more provocation. I do not dispute that the variation order defined facilities-based competition -- facilities-based competitors in Canada as including those who lease and build in part. I'm not debating that.
8155 But what I'm saying is, it doesn't dictate the outcome. It doesn't mean, therefore, that because they are facilities-based competitors you must mandate access to ensure that they're protected in their business.
8156 That's why I say it doesn't dictate the outcome. And the reason is -- the reason is, let's be practical, this would not have been sent back if Cabinet was not concerned about our investments.
8157 It goes right back to the debate we just had a second ago about the impacts in small communities. Cabinet is concerned about ILECs continuing to invest in next-generation infrastructure to put us at the forefront of broadband in Canada.
8158 That's why this issue was sent back, as well as IPTV, and of course they put in their Order-in-Council that you had to look, as one of the elements, at competition. But it doesn't dictate the outcome, is all I meant to say.
8159 THE CHAIRPERSON: But Cabinet, much as it is concerned about the whole outcome of, you know, next-generation network, it is also concerned about the whole outcome of not leaving out small-town Canada, and that is why I am trying to find if there is some way, some middle ground, some win/win solutions, therefore, you are putting me in front of a very difficult choice.
8160 You say either you have a roll-out of next generations or, if you do mandate speed or mandate ADSLCO you are going to delay it, retard it or you are not going to have it.
8161 MR. BIBIC: And that's what Cabinet is concerned about, that's why they sent it back.
8162 If we don't build -- when I say -- and Dennis will -- Dennis would like to step in here, but if we -- I say in the end, if we don't build nobody will.
8163 And perhaps I could refer you to Exhibit 4 of my opening statement. It's kind of four, five pages from the back.
8164 THE CHAIRPERSON: Yes.
8165 MR. BIBIC: And we don't have to go through this in detail, but this is from IDC and they have Canadian Telecom Cap Ex by company and you'll see the extent of the investments we make, that Rogers makes, the cable companies make, TELUS make, all of this is fairly obvious.
8166 But if you look at the extent of the Cap Ex, we are the ones -- and I'm not putting this to diminish the investments that ISPs make and that MTS make, that's not the purpose here, what I'm trying to show is we're the ones that are making the significant investments that are needed in order for Canada in communities large and small to get the broadband that we want.
8167 The others will do their part, of course, but you're not going to get there, you know, with $142-million of Cap Ex a year. It's a big, big endeavour. That's why this issue was sent back.
8169 MR. HENRY: Yes. Mr. Chairman, I just wanted to come back to your point on small-town Canada.
8170 Indeed our fibre-to-the-home project, and we've announced I think half a billion dollars over the next three years, touches very much small-town Canada, communities like Miramichi, we've announced are being rolled out with fibre to the home.
8171 It's those kinds of communities precisely though that your decision will affect, but we are going there with the right decision and I don't want to have to re-examine all those communities, but I want to assure you some of them are quite small.
8172 THE CHAIRPERSON: Okay, thank you.
8174 COMMISSIONER SIMPSON: I have no questions, Mr. Chair. I think we have covered all of the ones I had.
8175 THE CHAIRPERSON: Yes.
8177 COMMISSIONER KATZ: Thank you. I have got a couple of questions.
8178 You posit all this as a black and white choice or, as someone said earlier this week, a "Sophie's Choice".
8179 Let me posit something else and ask you to comment on it. Your capital expenditures are predicated on percent of revenues and some other financial indicators. You have invested heavily in IPTV, you also needed to invest heavily in an HSPA network as well, and I position it to you that when you only have so much capital resources, the financial gurus at Bell and the board decided that maybe you should be partnering with somebody to spend the capital on HSPA because you didn't have enough capital to build out an end-to-end wireless network and build out an IPTV network at the same time.
8180 So, you had another choice. You found a way of minimizing your capital investment but still getting what it is you needed out of it as well.
8181 And I am questioning why you think it is just a black and white issue as to either you build out broadband in rural areas or, alternatively, the alternative is not very favourable with regard to IPTV?
8182 There are other alternatives that any corporation has with regard to how you invest your capital dollars, how you form strategic alliances and strategic partners as well.
8183 And to just make it a black and white decision, I think is misrepresenting the other alternatives that are before you as well.
8184 MR. BIBIC: Mr. Katz, I think you're misrepresenting what I've been saying, and rather nuance, it's not black and white. I said it at least half a dozen times.
8185 I said that we want to do all. I've also said that forced access will cause us to re-visit that. And I've also said that we'll continue to go in some places no doubt, that some places will be delayed no doubt, and some places will fall off no doubt, and we'll do the balance that you said between wireless and wireline and legacy wireline and next-generation wireline. That's not black and white.
8186 And, Mr. Cope also said that one of the areas we'll clearly explore are commercial wholesale arrangements.
8187 So, none of that is -- no one from Bell's come here and said, if you mandate we're shutting off the Cap Ex pipe tap and it's over. We didn't say that.
8188 COMMISSIONER KATZ: No, but you are saying the same thing, you are saying some markets may not be served.
8189 What you have to look at is the risk of deferring or delaying some markets at the expense of some other method of finding capital in order to not delay those markets. That is all I am saying.
8190 MR. BIBIC: No, what we look at is a net present value. That's what we look at, because we have to put our cap ex dollars where they're going to earn a return.
8191 COMMISSIONER KATZ: Okay. You mention the word -- again, you said that Mr. Cope said that you would negotiate wholesale, and I think you mentioned in passing in your opening remarks today that there was an opportunity to look at negotiations as well.
8192 Can you just elaborate on that?
8193 Because yesterday I was in a discussion with Mr. Hennessy and he -- I guess they clarified this morning their views. I just want to make sure that I understand what your views are as well.
8194 MR. BIBIC: We'd of course explore wholesale arrangements for forborne services if that's what you're getting at.
8195 COMMISSIONER KATZ: Yes.
8196 MR. BIBIC: Yes, I kind of gave you half of an answer yesterday, but we huddled yesterday after we broke and, yes, we would of course entertain that.
8197 We've had those discussions with MTS.
8198 COMMISSIONER KATZ: Okay. Your chart Exhibit 6, the bottom half, the FTTN overlay network. I just want to understand.
8199 As you move more and more customers to the fibre network and you move them closer to the homes as well, the remaining network that is down below the legacy network, if we can call it that, will become less and less viable.
8200 But that is the part of the network that will be left and remaining for the alternate ISPs. Are we facing a situation that as you move customers up, the question is either you shut down the legacy network because it is not viable any more or, alternatively, you are looking to increase the price for wholesale services because those folks have got to bear the burden of maintaining that network?
8201 MR. BIBIC: It's a good question.
8202 First, the copper will remain there because we provide voice over copper as is shown on the diagram and as Mr. Daniels explained, so that would be kind of the first pass at the answer.
8203 And then the other element to this which has not yet been discussed and, in most cases, I usually find this an unfortunate outcome of regulation and maybe here it's fortunate for me here to answer it, we can't withdraw services that are regulated at wholesale without your approval.
8204 So, I suppose we'd have that debate if that ever were to come to pass.
8205 COMMISSIONER KATZ: But you likely would come back and say the cost of maintaining this has increased because there is less traffic going over it and, therefore, it is being distributed over fewer and fewer customers.
8206 MR. BIBIC: I mean, it's very speculative because, as we said, I mean, the real answer of course is the first one, that's why I said first.
8207 Voice remains over the copper. You're talking about long-range plans and I can't say there are any plans to pull or rip that out.
8208 COMMISSIONER KATZ: Okay.
8209 MR. BIBIC: So, the point is the network will be there, the GAS services at legacy speeds will continue to be there unless you roll back regulation on those, that will continue to be available at tariff.
8210 COMMISSIONER KATZ: Okay. I just have one technical question. Bell's retail Internet shares the modem and bandwidth with IPTV today.
8211 MR. BIBIC: Yes, once launched it will.
8212 COMMISSIONER KATZ: Okay. Can the same capability technically as what you do for the retail Internet be provided for wholesale matching speeds or ADSLCO? It is a technical question I guess.
8213 MR. DANIELS: Commissioner, can you elaborate, when you say can the same be done...?
8214 COMMISSIONER KATZ: Well, the capability. I mean, once you launch your IPTV you can put the modem and the IPTV service on the same network for retail purposes and give a customer both over one pipe. They co-exist.
8215 Your retail Internet shares one modem and provides both bandwidth and IPTV.
8216 MR. CONDON: Yes, Commissioner.
8217 COMMISSIONER KATZ: In an environment where there is a need for wholesale matching speed or ADSLCO, can that co-exist with IPTV?
8218 MR. CONDON: You mean on the same modem, Commissioner?
8219 COMMISSIONER KATZ: Yes.
8220 MR. CONDON: We answered technically yes yesterday, but in Exhibit 2 today that Mr. Daniels went through we explain why that was undesirable. TELUS also explained some of the technical limitations of that.
8221 COMMISSIONER KATZ: Okay. Thank you.
8222 Those are my questions.
8223 THE CHAIRPERSON: Candice?
8224 COMMISSIONER MOLNAR: Thank you.
8225 And I just, before I get into my questions, just want to follow up a little bit on this technical, that whether it is technically or not feasible to share a modem and share a broadband access.
8226 What I haven't heard very much explained here by any parties is the impact on customer service, operational support systems or otherwise; what is the cost and what is the customer impact.
8227 So, perhaps in your final comments you could explain that in more detail, unless you want to do it right now. But I feel that it all has been whether or not it is technically feasible versus what is -- you know, what is the customer impact of sharing that.
8228 MR. BIBIC: It's a critical issue. So we will do it in written, but we would also like to take a stab at it now.
8229 COMMISSIONER MOLNAR: Okay.
8230 MR. MacDONALD: Madam Commissioner, I think the customer experience is going to be very confusing. If a wholesaler's providing Internet and we're providing IPTV, especially in the case of a single shared modem, if there's a problem on the line say with the customer's Internet, we've said before that we have to have -- own and manage that modem, who is the customer going to call?
8231 So, we're going to have cases where our call centre's getting calls for the wholesaler's services or vice versa. So, that's going to be causing some confusion for the customer.
8232 We've talked about the customer experience in terms of IPTV impacting or throttling down the wholesale Internet speed. So, that's another negative impact.
8233 But clearly we're going to have two service providers on the same line and that's going to require new provisioning processes, new trouble shooting processes to be -- to come up with. How do we handle migration when -- like we have the customer, or the wholesaler has the customer and they want to move from one service provider to another and the whole communication processes between the two service providers dealing with this whole speed issue that we talked about in terms of IPTV impacting the wholesaler's service.
8234 MR. CONDON: Carl Condon. And as we said, that it will lock those customers for ever in time. The IPTV service as it is today will not allow us to innovate and there is a cost to building this, of course. This would be an entirely new process and inventory requirements would have to be built for this as well.
8235 So, it is an IT issue as well and a customer service issue, requires training of the reps, training of installers. It's pretty difficult.
8236 On a scale of one to 10, I'd call it a nine.
8237 COMMISSIONER MOLNAR: Not seeing any other hands up, I am going to move on to my next question.
8238 Oh, Mr. Hennessy.
8239 MR. SINCLAIR: Mr. Sinclair from TELUS. I would heartily endorse what Bell said there. Just to add to it a little bit.
8240 What we'll end up with, and this has happened before is, a shared service, we'd probably have relatively little uptake but it will cost us a lot of money to implement it. I've never seen these things less than seven figures and we're talking significant money.
8241 The other thing is, technically it's possible. It ends up as a bit of a Rube Goldberg device which any time you have something complex, it lowers the reliability, it makes it harder to trouble shoot and, you know, when I look at what's going to have to happen especially to split apart a shared modem at a deep level, layer 2 conductivity which, by the way, is a fundamental difference from how we do TV today which answers a previous question, it gets really -- becomes quite complex.
8242 I think we'll really strain some of those devices and pay the penalty for that.
8243 COMMISSIONER MOLNAR: Yes. It is Primus I believe in the back.
8244 MR. STEIN: I was going to point out that of course there are customer service implications and things that need to be addressed and coordination and so forth, but that is not different from the current coordination that's required for the GAS product that we use today which is a service that is done in conjunction with the ILECs and the resellers and so forth.
8245 MR. CONDON: Commissioner, Carl Condon. It's significantly different, in my opinion.
8246 That's a service that the ISP provides the modem, they handle all the customer service, they can configure that modem.
8247 None of that is true in the proposal that's been made about sharing a modem. Bell Canada has to provide the modem. If they don't, the TV won't work because there's interoperability between the set top boxes and the modem.
8248 Bell Canada has to manage that modem as a result of that. And it's just significantly different, very little in common with a GAS service.
8249 MR. DANIELS: The only other thing I'd add to put it all together is quite simply this. We keep saying and coming back, we're the new entrant in this, we haven't even launched our product and already people are talking about how we have to develop systems and go in and negotiate about how to make this all work for a service that we haven't even launched yet when we're trying to compete with cable.
8250 And that's fundamentally we think what the biggest problem with this is.
8251 COMMISSIONER MOLNAR: Thank you. But my question was not whether or not you should, it was what were the customer and operational implications.
8252 I want to move on to the issue of business service. Mr. Bibic and group, you have made your case over and over as to the impacts on IPTV and the links between your investment in IPTV and decisions related to wholesale access.
8253 And, frankly, throughout this whole week there has been I think in some cases, at least for me, some confusion as to when people are talking about an application for business purposes and residential purposes and the builds.
8254 The builds you are talking about here, these speeds you are showing us are related to the residential market, ADSL, you know, the aggregated ADSL service today, the services under consideration here for residential and business purposes.
8255 So, can you unpack your arguments at all as it regards the business market. And maybe I will begin by asking a couple of questions.
8256 There is a business service, a GAS business service today. Have you limited that to a matching -- limited your matching speeds to legacy networks for the aggregated business service you provide today?
8257 MR. BIBIC: Yes, but the -- and I would add that Bell has two tariffs, one residence GAS, one business GAS, but it's really a rating issue.
8258 Bell Aliant has one, but of course GAS can be used for business purposes in Atlantic.
8259 The key point though being that, as I mentioned yesterday, 80 percent of the business GAS users in Bell territory are one to four-line business users, so you're talking about the small in business -- small and medium size business segment.
8260 COMMISSIONER MOLNAR: Exactly. And that is exactly what I want to talk about here for a minute, it is the small and medium size business user who -- I am not certain how your discussion of the broadband home affects your investment for that market.
8261 I mean, there is not a broadband home when you are talking a small or medium business.
8262 So, what are the problems or impediments to providing wholesale access in order to serve that small and medium size business?
8263 MR. BIBIC: I'll give you a first principles answer and then I'll have to huddle on the financial question that you raise.
8264 But, you know, the small and medium size business market is -- that segment is very competitive and we've had some debate over the last couple of days with the presence of cable and we filed our market shares and you'll see what they are.
8265 So, if you examine the competitiveness, I would put to you that you don't need to regulate either legacy or next gen. But you asked about the impacts on the broadband home revenues and that I can answer right off the top.
8266 COMMISSIONER MOLNAR: Right. And I just want to put this back into perspective.
8267 There was a matching speeds decision that would have impacted both the availability of higher speeds for residential use as well as for business use to serve, as you pointed out, that small and medium size business.
8268 And the matching speeds decision has been challenged primarily on incentives to invest, but your arguments centre around losing access to the broadband home, losing access to the bundle of revenue that is causing you to invest.
8269 Those arguments don't, as far as I can see, relate to the small and medium size business market.
8270 So, what are the arguments, what are the reasons why matching speeds should not be made available?
8271 MR. BIBIC: Well, the first argument is it's competitive, and the second argument would be back to the returns on the investment. It's the same network and it's the ability to generate revenues over the network through the entirety of the customer base.
8272 Now, I'll have to go back and explore that a little bit further internally with our data and give you an answer in writing.
8273 But conceptually, that would be the answer.
8274 It's competitive and, of course, it's the same network, so we're trying to generate revenues, whether it's the home or the small and medium size business to justify the investment.
8275 COMMISSIONER MOLNAR: If the argument is "it's competitive" that would be, in effect, contrary to the essential services decision that said it is mandated and non-essential; right?
8276 We are looking at higher speeds and whether those higher speeds should be made available and whether making those higher speeds available would somehow influence your opportunities or incentives to invest in other ways.
8277 And I am just trying to understand how providing access to higher speeds to small or medium size businesses would significantly influence your opportunities or incentives to invest.
8278 MR. BIBIC: Okay. That one, I'll get back to you on, as I mentioned. But I don't think -- I don't want to debate 2008-17 too much, the Chairman's given clear signals on that throughout the hearing, but I mean I could quarrel with that decision in terms of its assessment of competitiveness, I won't do that, but even -- talking about a hearing in 2007, surely a market doesn't -- isn't locked in time merely because three years ago the Commission reached a decision.
8279 Things evolve. You have a lot of evidence of what cable's doing in that segment of the marketplace. Things change.
8280 But I didn't come here to ask for a roll-back of regulation on legacy GAS. What we're saying is it's competitive today, don't regulate next-generation networks and there are the incentive to invest problems and that's not going to be a good outcome and not one that Cabinet seeks if there's forced access which causes us to scale back the investments.
8281 And I do acknowledge you have a question there that's kind of not completely answered and we will do it in writing.
8282 COMMISSIONER MOLNAR: Thank you.
8283 MTS, do you still want to speak?
8284 MS GRIFFIN-MUIR: Actually, I just want to make a comment about competitiveness, because contrary to what Bell is saying, it has been demonstrated that there is a lack of competition there.
8285 But that, again, goes to the essential analysis, where the Commission also found that.
8286 Also, it seems to me that -- recognizing that Mr. Bibic is going to go back and explore this, really what he is saying is: Because I want to invest in fibre to the home, I don't want there to be wholesale in business, because I need 100 percent of the business revenue.
8287 MR. BIBIC: I did not say that.
8288 MR. BIBIC: It would be a nice outcome, indeed, if we could get 100 percent of the business revenues, but unfortunately those are not the facts we face on the ground.
8289 And I didn't say that.
8290 COMMISSIONER MOLNAR: That is all I have. Thank you.
8291 THE CHAIRPERSON: My colleague raised the issue of business, and you heard MTS yesterday and their case was really on national business. They say that there has to be -- if there is no mandating, essentially, they cannot compete, and that you and TELUS -- she didn't use the word, but you have a corporate relationship with regard to each other's home markets. They do not have that ability, so they really need some mandating, otherwise they cannot serve large businesses, or national-based businesses.
8292 You haven't commented on that at all.
8293 MR. BIBIC: I kind of did yesterday. MTS, yesterday, was at a bit of a different hearing. They were at an Ethernet unbundling hearing, and in the absence of Ethernet unbundling at essential facilities pricing, which isn't going to happen, they are asking you for an aggregated -- regionally aggregated GAS as an alternative.
8294 So they really are trying to revisit 2008-17. I put that to you yesterday, after lunch, and Mr. Peirce --
8295 You questioned him, just to make sure that you understood, and he agreed with your characterization.
8296 So that needs to be appreciated, and Cabinet rejected those requests, on the very same day, as you know, as they sent this issue back.
8297 Another point is, let's put into perspective what we are talking about here in terms of the volume of business -- and I cannot give you the numbers, but the book of business from MTS on the services that will be subject to phase-out is about 10 percent with us. So it's not the entirety of their business by any means.
8298 Then, the last point I would make is -- and this would be the second-last sheet in the package that I distributed this morning -- just to put it into perspective again.
8299 If you go to the bottom of the chart -- you have seen this several times now, but ADSL-CO, as you would appreciate, would give access to competitors co-located in the serving central office access to that yellow fibre, and that's what ADSL-CO is all about, and you have our arguments on that.
8300 But this is what MTS wants. Instead of picking up the data traffic in the serving central office, they want to pick it up over to the right.
8301 THE CHAIRPERSON: I'm sorry, you are talking about the second-last page -- is it Exhibit 5, page 1 of 1?
8302 Am I looking at the same thing?
8303 MR. BIBIC: Yes, it's the one that you have right there.
8304 THE CHAIRPERSON: And where are you on this page?
8305 What is it that MTS wants?
8306 MR. BIBIC: ADSL-CO, as you had initially conceived it, would have required competitors to pick up the internet traffic at the serving central office, which is the blue box in the middle of the page.
8307 THE CHAIRPERSON: Yes.
8308 MR. BIBIC: What MTS is asking you, as a replacement to Ethernet unbundling, is to pick up the traffic over -- deeper into the network, in the red box.
8309 In fact, what they are trying to do is, they are trying to move farther away from the premises.
8310 THE CHAIRPERSON: I'm sorry, Mr. Bibic, I am not with you.
8311 MR. BIBIC: I guess what I am trying to say is, they want more aggregation.
8312 THE CHAIRPERSON: Yes, but the MTS model is not on this page. You are just using this page to illustrate?
8313 MR. BIBIC: Just to illustrate.
8314 THE CHAIRPERSON: I see.
8315 MR. BIBIC: I'm sorry. Yes, it's just to illustrate.
8316 THE CHAIRPERSON: But could I ask you to send me this page, and everybody else, with the MTS model shown on it --
8317 MR. BIBIC: Sure.
8318 THE CHAIRPERSON: -- graphically, so that we know what --
8319 MR. BIBIC: Illustratively, right.
8320 THE CHAIRPERSON: For illustrative purposes, yes.
8321 MTS has their finger up, so maybe --
8322 Please, go ahead.
8323 MS GRIFFIN-MUIR: We will be happy to file our model, as opposed to having Bell file our model.
8324 THE CHAIRPERSON: Fine.
8325 MS GRIFFIN-MUIR: I think it's already on the record, but I would be happy to give it to you.
8326 Just to be clear, what we are proposing is what we feel fits more in line with the way the technology is moving.
8327 Today there is an aggregated service, which takes you, in Bell's case, and in our case, provincially. So once you get access on the aggregated GAS service, as an example, you remain on the incumbent network until you terminate your traffic at the provincial gateway.
8328 So rather than doing it at every CO, which doesn't fit with the technology, we propose something that is in between as a replacement for the ADSL-CO service.
8329 It's really the characterization that I am having a little bit of a problem with, the way Mr. Bibic is characterizing it. All we are doing is suggesting that, in unbundling the service, it would be better if it fit with the way the technology works. This would enable service providers who operate regionally to be able to just stay within a region, and it would be more cost effective, frankly, for the incumbent and the competitor than a CO model would be.
8330 THE CHAIRPERSON: If I understand you -- just to fit you into this hearing, which was what I was trying to do yesterday, because this wasn't something which was really part of our original notice -- you are really coming forward, saying: Here is a new service that is capable of being delivered because of technological advances, so please apply the conceptual framework of essential services. We do meet it, et cetera, and therefore we are now asking you to have it mandated.
8331 If I am doing you a disservice, please say so, but that's how I see the position you request in the nature of this hearing.
8332 MS GRIFFIN-MUIR: In the nature of this hearing -- I guess the way we looked at it was, once the hearing was expanded in December -- we serve ourselves this way. In Manitoba, this is how we would provide ourselves service.
8333 A more disaggregate model was asked for --
8334 THE CHAIRPERSON: Yes, so this is what you propose.
8335 MS GRIFFIN-MUIR: This is the proposal.
8336 THE CHAIRPERSON: TELUS, you had your hand up.
8337 MR. KOCH: Sir, if I could just add, because in fairness to --
8338 THE CHAIRPERSON: I'm sorry, identify yourself for the record.
8339 MR. KOCH: It's Michael Koch, representing MTS Allstream.
8340 In fairness to Ms Griffin-Muir, she wasn't here yesterday; I don't think it is fair to say that Mr. Peirce agreed with the characterization that MTS Allstream was going back and trying to change the ruling in 2008-17. What he said was precisely what Ms Griffin-Muir just said, which is, with the expansion of the proceeding, it was very clear that a configuration of the ADSL-CO access service that is more useful and more consistent with the development of the IP architecture was under discussion.
8341 In his remarks, as well, I think he clarified that MTS Allstream's concern was not just the Enterprise national market, but also small and medium-size businesses.
8342 THE CHAIRPERSON: You don't have to worry, there is a transcript of what he said. So rather than us interpreting it, we can check it out.
8343 Thank you.
8344 Mr. Hennessy.
8345 MR. HENNESSY: I won't go any further into this discussion, although I do sense yet another way to sort of sneak backhaul into something that fits the definition of essential service, even though it has been punted many times.
8346 My point is really to something else, and it's something I have heard over and over again. There is almost like an inference or an assumption that Bell and TELUS tend to do a lot of things together, including hating each other many times --
8347 MR. HENNESSY: -- as you can tell from some of the things we have filed with the Commission, but we do.
8348 The thing is, we are not the only people in this industry that do that. Rogers and MTS, just as we entered into a network-sharing arrangement, entered into a national sharing or resale arrangement.
8349 We partner with Eastlink, and have for many years in Atlantic Canada, and I think we see each other often as some of our best customers, and vice versa.
8350 We partner as much as we fight with our friends at Videotron, and we have been a supplier of Cogeco's for a long time, all outside of the tariff process.
8351 So I think that you can point to the existence of many competitors in the market who actually do come to commercial arrangements and arrangements of mutual interest, and when they are not such, don't.
8352 THE CHAIRPERSON: Mr. Hennessy, I was very careful in my words. I was not trying to suggest that there was anything untoward in the relationship between Bell and TELUS.
8353 MR. HENNESSY: I wasn't referring to you, Chairman, and I promise you that I am not sleeping with Mr. Bibic.
8354 MR. BIBIC: Oh, Michael, there are transcripts!
8355 THE CHAIRPERSON: Let me just leave one last idea with you. You have several times mentioned ADSL-CO. You obviously believe that if it was mandated it would have a big impact on you, and there would be a take-up.
8356 Also, earlier, in an exchange with me, you sort of described speed matching as the lesser of two evils.
8357 Can you, in your written submission, separate the impact of those two and say what would be the impact on your disincentive, in terms of investments, if there was only speed matching and no ADSL-CO, and vice versa?
8358 MR. BIBIC: Yes.
8359 THE CHAIRPERSON: Thank you.
8360 MR. BIBIC: Mr. Chairman, this is what I wanted to step in on before, and I will be very quick.
8361 MTS gave you a very complicated answer, and these things can be very complicated, and I just want to make it as simple as I possibly can, so if you would allow me...
8362 If you go back to this chart, the yellow fibre from the blue boxes are Bell's central offices --
8363 THE CHAIRPERSON: Yes.
8364 MR. BIBIC: -- and those yellow lines going toward the right of the page -- what MTS is asking is for those yellow lines, which are Bell fibre, to be bundled in with ADSL-CO.
8365 You started zeroing in on the issue. The reason why that is a re-visitation of 2008-17 is because you have found those yellow lines to be duplicable. That's why they are subject to phase-out.
8366 And by asking for those to be bundled in with ADSL-CO, they are asking for what has already been found to be duplicable, what Mr. Hennessy just referred to as backhaul, to be re-regulated.
8367 That's why their entire case is about revisiting what you have already found to be duplicable and have rejected on their RNV.
8368 I just wanted to leave it at that.
8369 THE CHAIRPERSON: Okay. Thank you very much.
8370 Let's take a 10-minute break before we go on to the next one.
--- Upon recessing at 1143
--- Upon resuming at 1152
8371 THE SECRETARY: We will now proceed with Execulink Telecom Inc. and Primus Telecommunications Canada Inc., who are appearing together.
8372 We will hear each presentation, or rebuttal, which will then be followed by questions.
8373 We will begin with Execulink Telecom Inc. Please reintroduce yourself for the record and proceed with your 15-minute oral rebuttal.
8374 MR. STEVENS: Thank you.
8375 Good morning, Mr. Chair and Commissioners. I am Keith Stevens, Chairman of Execulink, and I am pleased to make these comments.
8376 Thank you for the opportunity to refute arguments that have been made at this proceeding.
8377 The expanded TNC 2009-261 asked whether, on a forward going basis, the existing essential services framework was adequate and appropriate.
8378 Having listened to the presentations and questions for the last four days, it is obvious that some parties, Bell and TELUS in particular, are attempting to use this forum to re-monopolize the access portion of their infrastructure. This causes Execulink grave concern. Telecommunications competition in Canada would be set back 10 years, and perhaps fatally wounded.
8379 Before refuting arguments, I will address the two areas on which the Commission asked for comment, sub-loops and negotiation.
8380 First, with respect to sub-loops, let me say that it was inappropriate for Bell to introduce a new concept at this stage of the proceeding. No specific information has been provided, and even if it was, the parties would not have had an opportunity to examine it unless an extension was given, which I highly doubt. On those grounds alone, the concept should be ignored.
8381 Upon reflection for the last four days, I believe the concept has extremely limited merit, at best.
8382 TekSavvy, in their oral presentation, did an effective job of explaining the investment ladder. Sub-loops would be an additional step on that ladder. Until all of the other steps are in place, discussion of sub-loop unbundling is purely academic.
8383 To even consider co-locating at a node, the competitor would have to have a substantial number of customers in that particular neighbourhood to justify it. Depending upon the size, it may be a majority of the customers. Considering that competitors only have 5 or 6 percent of the market, this would be extremely rare.
8384 From a practical point of view, it can't happen. Municipalities are not going to allow equipment enclosures, like the brown box that Bell showed you this morning on their diagram, to be twinned, let alone tripled or quadrupled, on their rights-of-way.
8385 Bell suggested that competitors could use Bell ducts to install fibre optic cables, but more often than not all Bell ducts are in use or reserved for future Bell use.
8386 If my memory serves me correctly, the concept of CLECs gaining access to remotes was considered by CISC. It didn't go anywhere because the incumbents, including Bell, weren't willing to consider creative solutions for interconnection. I wonder what has changed.
8387 To summarize, I don't believe that Bell's suggestion about sub-loop unbundling is practical. It is nothing more than an inappropriate diversionary tactic that should be ignored.
8388 With respect to negotiations, Bell suggested negotiations rather than a mandated wholesale arrangement. This is a bad idea. If tried, I believe we would be back before the Commission in six months to resolve the issue.
8389 As a result of Bell's incessant regulatory challenges, they have already had a two-year holiday since 2008-17 was issued. This is just another attempt to extend it even further.
8390 Mr. Cope talked about appointing wholesale customers, and then cited General Motors and President's Choice as examples. General Motors is not a wholesaler, they are a customer. President's Choice is a resale distribution arm. Neither are competitors.
8391 The Commission recently approved the ability to negotiate within GAS. Since then we have asked Bell three times to negotiate, without even a response. To my knowledge, no one has been able to negotiate, let alone reach an agreement. I have no reason to believe why this would be any different.
8392 I will now address some specific items that Execulink wishes to comment on.
8393 Competition: The question of whether it is a competitive market -- whether the high-speed wireless market is competitive -- has been asked of each participant, with a variety of answers. I don't think that any of the answers are wrong; it is just that each is talking about a different sub-market. Sub-markets may be competitive, but that doesn't make the high-speed market competitive.
8394 I will elaborate further, but first let me talk about wireless, because it leads into this discussion.
8395 A number of participants have cited the introduction of HSPA as a new competitor in the high-speed access market. Let's examine HSPA and see where it fits.
8396 The providers claim 21 megs, but we know it is shared bandwidth, with all of the wireless limitations. Buildings, topology, weather and distance, as well as other users, will all affect speed. Realistically, users will be able to count on 1 or 2 megs.
8397 In addition, it is not cheap. It does offer a solution for some, but doesn't offer a viable solution for most high-speed consumers.
8398 Another important consideration is multiple devices. Wireless high-speed users, whether they are using a BlackBerry or a stick, usually also have a wireline high-speed service, where it is available. These wireless devices are often a supplement, not a replacement.
8399 Market share is very difficult to determine when consumers have two or three different accesses, unless the questions are asked very carefully.
8400 Now let me turn back to sub-markets. It is a mistake to talk about high-speed as one market. There are sub-markets that must be examined separately. Residential and business are different and, within each, speed requirements create further sub-markets.
8401 Feature capabilities create further sub-markets, as well, but I will try to keep it simple and not talk about those.
8402 ISPs bring options to the consumer, but they don't necessarily create the market itself. I am really talking about intermodal competition here.
8403 In the 1 to 2 meg residential markets, the slow speed high-speed, I guess, there are a number of delivery options, including DSL, cable, fixed wireless, satellite, and now HSPA. Most of Canada will have two of these, or more, and I agree that this sub-market is competitive, but it is the only sub-market that is.
8404 For the same speeds -- sub 2 megs -- for business, the options are much more limited. Businesses often need options as simple as a fixed IP address that is just not available on cable or HSPA or on many fixed wireless networks. The result is the only option left is DSL. This is not competitive. It is a monopoly in most cases.
8405 When the speed requirements increase to more than 2 megs the options for residential customers decrease to DSL and cable in urban areas, DSL in some rural areas and none in the rest of Canada. At best it is a duopoly of delivery options. Again, it is not competitive
8406 As speed requirements increase further, into the 10 megs, increasing further and approaching the very high speeds, delivery options decrease further. These sub-markets are not competitive.
8407 For businesses the options are even less. The one exception is the ultra-speed requirements in large urban areas where competitors have built fibre networks. But in many rural areas the opposite is true, businesses are desperate for service. Fixed wireless sometimes fills the void, but it has limited availability. Business markets are not competitive.
8408 Thus, the only high-speed sub-market that is competitive for most Canadians is the under 2 meg residential market. The rest is not. One sub-market being competitive does not make high-speed competitive. It is contrary to what Bell and TELUS would have us believe.
8409 Next generation networks.
8410 There has been a great deal of discussion about NGNs. Bell has talked about fibre to the node; SaskTel has talked about VDSL; TELUS tried to distinguish between ADSL and ADSL2+. They all claim these services warrant unique regulatory treatment.
8411 Fibre to the node has been around for 20 years. Not only does it increase capacity but it also saves costs.
8412 VDSL is not new.
8413 To distinguish between ADSL and ADSL2+ is absurd. At Execulink we started deploying ADSL2+ more than 5 years ago. The cost of ADSL2+ today is significantly cheaper than ADSL was 5 years ago. Which, by the way, could lead to an argument why GAS is too high for the lower speeds.
8414 Just listing these items is almost argument enough against unique regulatory treatment. The request should be seen for what it is, an attempt to re-monopolize access.
8415 This is an additional I have written down. Having heard discussion for the last two days I realize there is still a misunderstanding regarding Bell's FTTN network. I will elaborate a little bit on that at the end of the discussion.
8416 I agree that fibre to the home, FTTH, is the next advancement, but I question whether it warrants regulatory protection.
8417 Execulink is deploying FTTH in greenfield sights because it is the cheapest solution.
8418 Wholesale access to FTTN should be mandated. If the ILECs feel there is increase risk that warrants changing the cost of capital in their Phase II calculation they should make their arguments in a subsequent application, but this should not prohibit competitors from having access to FTTH from the get-go.
8419 This leads me to the next point, costing. There are several items in this category.
8420 Phase II costing. TELUS objected to the use of Phase II costing. I'm sure everyone in the room has some concerns about Phase II, including us, but it's the best we have. I'm sure their objections are a result of the Phase II will not yield the answers they want.
8421 In a highly competitive market prices are driven down to costs. That is exactly what Phase II costing yields and that is what competitors should pay for wholesale services. Regulation is emulating a highly competitive market.
8422 Revisions to Phase II are for another proceeding, but in the interim it is what we have and what we should use.
8423 Special Treatment. Bell wanted to be paid a premium for NGN services. Bell didn't want to use Phase II costing for CO-based DSL; Sasktel wanted a 'regulatory holiday'; and TELUS didn't like Phase II at all.
8424 We all want to increase what we receive and decrease what we have to pay, but wishing isn't a reason. It is clear they want their monopolies back.
8425 When it was decided there would be competition it was inevitable that the incumbents would lose market share and revenue. That was a decision made a number of years ago and the result is now happening. They don't have an entitlement to be made whole.
8426 Having said that, the incumbents have 94 percent market share. That's between the cable companies and the ILECs. We, the rest of us, have 6 percent.
8427 If we are able to increase our market share by 14 percent -- that's a pretty good increase for us -- the market share for the cablecos and telcos together would only be decreased by 1 percent. But it wouldn't be lost, their wholesale businesses will have increased with little effect on the bottom line of their return.
8428 Surely the margin differences between retail and wholesale on 1 percent of the high speed revenue is lost in rounding. It's insignificant to their cost studies.
8429 Risk premiums or regulatory holidays are not warranted. Phase II costing plus 15 percent is the correct solution.
8430 ADSL-CO Service.
8431 We heard from Bell that they were opposed to using Phase II costing for CO-based ADSL. They wanted the wholesale price tied to bandwidth. Bell said they were concerned that ISPs could significantly undercut Bell's price.
8432 But bandwidth is not an input cost of ADSL so there is no justification to link the price.
8433 When we buy wholesale -- I want to explain this a wee bit.
8434 When we are buying at wholesale that bandwidth, that pipe, we are buying the hose from the Bell CO to the customer. Whether we put half at full or full-full, we are renting that hose. We then have to pay for the water or whatever we send down that pipe ourselves. So that's where the cost comes in for speed, but not what we are paying to Bell for the pipe. How fast we push the water down that doesn't affect the cost of that pipe.
8435 Perhaps Bell should reconsider their retail pricing models. Perhaps this is also part of the reason why the rates in Canada haven't decreased as quickly as the Commission has expected.
8436 Withholding Investments.
8437 We heard from the CEO of Bell that they would withhold investments if they had to provide higher speeds on a wholesale basis.
8438 We subsequently heard that Bell shareholders were told that Bell had to invest to meet the competitive threat of the cablecos. I do grant, having seen this morning that Bell did put a caveat, but it's still their thrust they were going to invest.
8439 We have heard from TELUS that they would also withhold investments, but didn't have any studies to back it up.
8440 We have heard from Bell and TELUS of the high risk involved with IPTV rollout. We subsequently heard they have been successful in raising capital without risk premiums.
8441 We heard from the cablecos that the 6 percent market share the ISPs have does not affect their investment decisions.
8442 Bell and TELUS have a long regulatory history of threatening they will withhold investments unless they get their way and in my experience it has never happened.
8443 We heard from the cablecos as well as a number of ISPs that when a customer moves from retail to wholesale they are not lost and that the contribution may well be comparable.
8444 So who should we believe? I think it's a blatant pretence and should be ignored. Bell and TELUS will continue to invest irrespective of the outcome of this proceeding.
8445 Bell has been very careful the last day or so saying that they may slow down, they may not. Well, it's a reality that whether the sun shines today or not will affect my decisions today and so of course everything that happens will affect their decisions, but the threat I think is hollow.
8446 Competitive Symmetry.
8447 By the way, I should come back to that. If Bell doesn't want to provide fibre to the home in places like London, well, tell the rest of us and maybe somebody else will.
8448 There has been a lot of discussion about competitive symmetry. For there to be symmetrical treatment requires equatability, not equal treatment. I should emphasize that. Equitable is not necessarily equal. Equitable simply means fair and reasonable.
8449 By the way, TELUS earlier today said that fair was not a regulatory term that we should be considering, but I think it was the Cabinet that raised the issue that we need to be equitable. If you look in the dictionary equitable means fair and reasonable. So I guess it is a term we have to come to grips with.
8450 Where technology requires different treatment as long as it is done fairly and reasonably it is equitable. It is important to emphasis that section 7 of the Act applies to wholesale customers as well as the incumbents. We are all TSPs and we all need to be treated fairly and equitably.
8451 By the way, I'm not trying to preach to the Commission on that, I believe you are doing a very good job on that, I'm sort of reminding some sitting behind me of that fact.
8452 The three areas of concern are price, technology and availability.
8453 Phase II costing was developed to ensure equitable pricing, so we know the answer to ensure equitable pricings, that is use Phase II costing.
8454 TSPs will invariably be at a disadvantage when they are unable to provide service or forced to use inferior technology.
8455 The only equitable solution is equal, complete and open access by the wholesale customers to both the incumbent's infrastructure.
8456 If they offer us what they offer themselves, or use themselves, it is equitable. Anything else is not equitable.
8457 The solution is straightforward. The wholesale obligations imposed on ILECs and on incumbent cable carriers will be equitable and not represent a competitive disadvantage -- or advantage -- for the ILECs or the incumbent cable carriers or their competitors as long as there is equal, complete and open access by the wholesale customers of the incumbent's infrastructure at Phase II plus 15 percent costing. Anything different will put someone at a disadvantage and thus be inequitable.
8458 I would like to add a little bit to my written comment here, a couple of things that came up in the last couple of days.
8459 Subsidy. It was brought up yesterday that cablecos said that the wholesale customers were being subsidized and that is simply not true. We are not asking to be subsidized. We want to pay our fair share, but we are not being subsidized.
8460 Another one is fibre to the node. Bell has asked for special treatment for fibre to the node and I do disagree with that very heartily, but then they are asking for special treatment for more than that.
8461 They want special treatment for all speeds above 5 megs for residential and I guess above 6 for business, even for those customers that aren't being fed from one of these new nodes fed by new fibre. As rightfully pointed out by Commissioner Molnar, they are asking this for businesses, even though it has nothing to do with their risk in going to the IPTV.
8462 So to conclude, I thank the Commission for the opportunity to participate and I'm glad to answer your questions.
8463 THE SECRETARY: Thank you, Mr. Stevens.
8464 We will now proceed with Primus Telecommunications Canada Inc. Please reintroduce yourselves for the record and proceed with your 15 minute oral rebuttal.
8465 MR. DAY: Thank you.
8466 Good afternoon. My name is Andrew Day and with me, on my left, in order, are Matt Stein, Chris Hickey and our counsel, Peter Ruby from Goodmans.
8467 We will comment on a small number of issues to ensure that you have the most complete information available as you consider the matters at hand.
8468 We want to respond with respect to five issues.
8469 One, Bell's sub-loop unbundling pseudo-proposal.
8470 Two, there is nothing the Commission can do to create a viable market for negotiations with ILECs and cable companies.
8471 Three, the ILECs claim that they will withhold investment.
8472 Four, how residential internet access competition is beginning to fail.
8473 Five, this proceeding is a red herring, IPTV.
8474 First, this week Bell put forward a proposal for sub-loop unbundling. We all welcome creative regulatory options, but sub-loop unbundling is not such an option.
8475 Also, while we do not think it was Bell's intention, its sub-loop proposal provides an excellent indication why ADSL-CO and aggregated ADSL satisfy the duplicability prong of the essentiality test.
8476 As you have already heard there is a tremendous amount of cost and effort involved in building new fibre infrastructure into neighbourhoods. As difficult as it is for the ILECs, it is much worse for competitors that are not overlaying there own existing facilities.
8477 All this cost and effort needs to be done to access the couple of hundred customers served off that remote. An ILEC, which has at least 40 percent of the customers served by the remote, can financially justify all that work and investment. A competitor with under 1 percent market share cannot justify such a build.
8478 Bell offered sub-loops in an attempt to create the illusion of a substitute for ADSL-CO. Since the use of sub-loops is clearly impractical and not a feasible alternative, ADSL-CO satisfies the third prong of the essentiality test.
8479 In any event, what Bell is asking you to do is decide not to mandate ADSL-CO and speed matching, in part because it has offered a bald sub-loop proposal on the basis of a single diagram and 5 minutes of explanation of what the colours on the diagram mean.
8480 The issues in this proceeding are too important to make a decision based on a proposal with little information and analysis. The Commission should make a decision in this proceeding without regard to Bell's sub-loop proposal.
8481 Second, there has been a lot of discussion about negotiation at this hearing as an alternative to regulation. We were planning to say that you have been offered two diametrically opposed views. However, having heard TELUS and Bell's comments on Thursday under questioning by Vice-Chair Katz and the Chair, it appears that we may all agree that the successful negotiation of unregulated and unbundled wholesale services is, at best, highly unlikely.
8482 SaskTel asked that at most the ILECs, and presumably the cable companies, be mandated to negotiate in good faith. To be clear, we do not think that the ILECs negotiate in bad faith; they negotiate in their own best interest, which can also include not coming to an agreement. They enjoy the benefit of substantial bargaining power and they routinely use that power. That is not bad faith, but leaving competitors to be crushed by deregulating would be bad public policy.
8483 On Monday, Mr. Cope kept trumpeting Bell's deal with President's Choice as an example of a successful freely negotiated wholesale arrangement. He kept talking about it over and over
8484 Let's take a closer look at what President's Choice was able to negotiate, keeping in mind that it is part of the largest retailer in Canada with annual revenues of over $35 billion.
8485 President's Choice Telecom managed to get from Bell a pre-paid wireless service that uses CDMA technology.
8486 Now, maybe -- maybe President's Choice wanted to only be a pre-paid service provider and participate in the smallest segment of the wireless market; maybe they wanted their high-end President's Choice brand to be associated with a slow, legacy CDMA network, with no broadband functionality; and maybe they wanted to offer basic phones and not smart phones, but I can tell you that if this is the best example Bell can offer of a successful wholesale negotiation with a huge partner, the prospects for a negotiation with competitors like Primus are bleak.
8487 You have asked us to comment on what conditions would foster a viable negotiation regime. We have struggled to come up with anything that the Commission can do to create an environment where negotiation will be viable. We have come up with nothing. It is obvious to us there is no way you can instruct or incent the ILECs to negotiate with us in a meaningful way.
8488 Even if you order all the parties to negotiate or face Commission intervention, we expect to be back here in front of you in short order, with nothing having been gained and a lot of time having been lost.
8490 MR. STEIN: Third, on Monday we submitted that you should take the ILEC's claims of withheld or delayed investment with a grain of salt. Let us take a minute to focus on another example given by Mr. Cope.
8491 Mr. Cope sat before you and claimed that if you mandate ADSL-CO or reaffirm speed matching, Bell will delay rolling out fibre in London, Ontario.
8492 Bell is trying to convince you that for some undefined period of time they are going to leave the market in London to the cable companies. That would be a short term approach.
8493 In contrast, long term thinking would dictate that Bell would continue to invest in London to protect their position there.
8494 As the demand for higher speed services continues to increase, the cable companies will increase their penetration and dominate the market. If and when Bell goes back to building in order to re-enter the London market, it will be even harder to build back up their market share. Basically, they are suggesting they will disadvantage themselves in the short term and give up their long term benefits. We just don't think this is realistic and, to use Mr. Cope's word, "optimizing" their business.
8495 Mr. Bibic also criticized competitors that only buy what they need from the ILECs once they have a customer.
8496 To be perfectly clear that is not Primus' business model. Primus indirectly co-locates today. The reason we need ADSL-CO, and need it now, is so that we can leverage the multi-million dollar investments we have already made and extend upon them to reach more than 50 percent of the Canadian market.
8497 Fourth, the ILECs and cable companies argue that the retail market is competitive.
8498 We were candid in our presentation on Monday when we agreed that the residential market is currently competitive. However, that is changing and fast.
8499 Because customer demands for speed are increasing and the ILECs and cable companies are responding with faster speed offerings, the market is very quickly becoming uncompetitive. We cannot offer what customers can get elsewhere.
8500 This is not a hypothetical scenario. It's happening now. That is why ADSL-CO and speed matching are required by competitors without delay.
8501 Fifth, the ILECs have given you two reasons why mandating ADSL-CO would hurt their particular flavour of IPTV, one economical and one technical. Both are unfounded and here is why.
8502 On the economic side, Bell argues that they need every dollar, from every service, including IPTV, from every customer to justify deploying their fibre facilities. This argument is wholly undermined by Bell's own proposal to offer sub-loops to competitors.
8503 If a competitor takes up a sub-loop then Bell cannot offer any service to the customer since, in Bell's view, the competitor would control the pipe into the home.
8504 So by offering it to us, Bell shows that:
8505 the IPTV opportunity loss is not material to Bell; or
8506 they have figured out a way for us to provide internet service while at the same time Bell provides IPTV; or
8507 Bell's position is merely rhetoric.
8508 On the technical side, Bell conceded yesterday that placing one modem on the line to provide two services is possible and the only problem they now allege is coordination.
8509 TELUS still says this is technically impossible. However, you should have no doubt, that there are modems on the market that provide this functionality today, as I mentioned a little bit earlier.
8510 I should also note at this point that if the exact same situation were to occur today with Bell aggregated DSL product, GAS, Primus has its modem on the line now, placing Bell in the exact same situation they would have in an ADSL-CO scenario where Primus has its modem on the line. It's not different, it's the same.
8511 I can go into that in much more depth if required during questions.
8512 Let me also say a brief word about innovation.
8513 ILECs, cable companies and competitors such as Primus all innovate. Some of the innovation overlaps, like IPTV providing essentially the same television service provided by cable companies and satellite operators. Others innovate with new or niche services.
8514 What the Commission should do is balance the regulatory system so all forms of innovation are attainable. In the context of this proceeding, that means mandating ADSL-CO, speed matching and their cable equivalents.
8515 This will allow companies like Primus to continue to innovate; it will allow the cable companies to invest as they said they will; and it will allow the ILECs to engage in long term thinking and continue to invest.
8516 Thank you.
8517 We would be pleased to answer your questions.
8518 THE CHAIRPERSON: Thank you.
8519 Let me start with Execulink.
8520 You say on page 4 a somewhat startling enunciation:
"... ISPs bring options to the consumer but won't make an non-competitive market competitive."
8521 MR. STEVENS: What I was referring to there, sir, is the intermodal markets.
8522 You know, in this case when we are using somebody else's facilities, whether we are using Bell's ADSL or the TPIA from the cable companies, we are adding competition and value to the consumers, but we don't make it competitive or uncompetitive.
8523 THE CHAIRPERSON: The underlying market is what you are talking about?
8524 MR. STEVENS: Underlying market, yes. Correct.
8525 THE CHAIRPERSON: Okay.
8526 MR. STEVENS: Yes. And I'm sorry if I didn't --
8527 THE CHAIRPERSON: Then I understand.
8528 On that same page you are saying that:
"Businesses often need options as simple as a fixed IP address that is just not available on cable or HSPA ..."
8529 MR. STEVENS: That is correct.
8530 THE CHAIRPERSON: I'm sorry, I don't understand what that means.
8531 What is a fixed IP address and why can you have it on a telephone network but not from cable?
8532 MR. STEVENS: I don't want to get too technical and I'm sure I will try not to.
8533 IP addresses are assigned to all connections or to routers to modems and those things are assigned.
8534 The ADSL, they are usually assigned dynamically, but you can set it up so that one person has a fixed address all the time so it then allows a lot of business functions.
8535 Even having your own mail router, you really want a fixed address so they can do authentication where you are talking to.
8536 On the cable, if we use TPIA, they won't give a fixed IP address, it's dynamically assigned and, as I understand it -- we looked at TPIA a few years and rejected it, not only won't they assign you one, they won't tell you what the IP address is.
8537 So from a business point of view it makes it very difficult to use those products.
8538 THE CHAIRPERSON: If you as a businessman buy the service from Rogers, Rogers won't give you a fixed IP address you are telling me?
8539 MR. STEVENS: That I don't know. Rogers should maybe answer that. My understanding is no.
8540 THE CHAIRPERSON: Rogers...?
8541 MR. WATT: Yes, we actually do have two business retail offers that provide static IP addresses. Four of our business offers do not.
8542 The static IP address offers are the higher priced premium offers in the retail market.
8543 THE CHAIRPERSON: Okay. So then you can get it now from a telco, as I understand it, a fixed --
8544 MR. STEVENS: Yes, you can.
8545 THE CHAIRPERSON: So this is a question of making the TPIA offer similar to the ILEC offer?
8546 MR. STEVENS: That's correct, although I think there are some technical challenges that may not make that easy to do.
8547 THE CHAIRPERSON: Of course. I agree with you.
8548 MR. STEVENS: And I have been very careful not to ask anybody to give something they don't give to their own customers.
8549 THE CHAIRPERSON: Yes. But as you just heard, they give it to their own customers.
8550 Yes, okay.
8551 Primus, I hate to revisit this, but the technical differentiation, I have heard so much about it and in paragraph 16 are you now telling me that there are modems available that allow you to split the signal for IPTV and for internet so that what we heard from Bell at great length, and from TELUS, et cetera, we should disregard?
8552 MR. STEIN: Yes. Today we offer multiple services on the same modem, sometimes in conjunction with other carriers.
8553 So there are many ways -- I mentioned a little bit earlier, I don't want to get all down into all the technical pieces, however we today offer multiple services.
8554 While it's true we do not offer IPTV in this, IPTV is simply an IP-based transmission and in that respect it is no different, it can be done.
8555 It's an issue of coordination, which is why we have suggested it go to CISC.
8556 THE CHAIRPERSON: I'm rapidly out of my depth here, but I thought essentially what Mr. Bibic said was that with IPTV when you talk about multicasting that's not possible, and IPTV is obviously a multicasting.
8557 So how do we resolve this? Bell says no, you say yes, but you don't offer it.
8558 MR. STEIN: Unfortunately, too, I could explain, certainly I could spend the time at a whiteboard. I suspect you wouldn't like me to go into quite that much depth.
8559 The simple fact of the matter is that the two methods that we are aware of that are in common use now to do similar things, neither would be -- neither of them would preclude multicast.
8560 Both are reasonable to be done and the only issue is coordination. Again I say that this is what CISC is for and --
8561 THE CHAIRPERSON: Obviously we are not going to resolve it here, but I just wanted to know if there is a possibility of this being resolved or not.
8562 MR. STEIN: Yes, absolutely.
8563 THE CHAIRPERSON: I saw TekSavvy there, you had a hand up?
8564 Identify yourself, please.
8565 MR. MARC GAUDRAULT: Hi. Marc Gaudrault, TekSavvy.
8566 On the issue of multicasting, if I may explain that perhaps a bit better?
8567 If you are sending from a source to multiple destinations, multicasting allows you to take one package of information and a networking trick creates many copies for everyone. So that makes it when you are on the network you can take one source and deliver it to many destinations in one sweep.
8568 Without multicasting you have to have -- if you are delivering to 10 destinations you need 10 times the source. So this is critical.
8569 THE CHAIRPERSON: What about Mr. Stein's contention?
8570 MR. MARC GAUDRAULT: It can definitely be done?
8571 THE CHAIRPERSON: It can be done, okay. Thank you.
8572 MR. STEVENS: Mr. Chairman, could I make one comment on that, too?
8573 THE CHAIRPERSON: Yes, absolutely.
8574 MR. STEVENS: And perhaps this goes back actually the testimony I believe that SaskTel gave on Monday where they said for their IPTV customers that going forward they, for their wholesale customers, would carve out their bandwidth they required to do that. So I think even SaskTel was proposing they would do that for us.
8575 I maybe misinterpreted that, but I took great encouragement when they said that.
8576 THE CHAIRPERSON: Is SaskTel still in the room?
8577 Can you confirm this?
8578 MR. WITTAL: Kym Wittal, from SaskTel.
8579 THE CHAIRPERSON: Yes.
8580 MR. WITTAL: If the question is can we carve out some bandwidth on an optical fibre to the prem network, we have agreed that we would carve out up to 10 megabits to do that.
8581 THE CHAIRPERSON: Now, just for MTS and Bell Atlantic, you all provide IPTV so where do you stand on this?
8582 Is what Mr. Stein said correct?
8583 Do you share that view, MTS?
8584 MS GRIFFIN-MUIR: How we would do it today is the way Paul Frizado described it, so that we would use a separate copper loop for the ADSL service and we would have our IPTV service on another loop.
8585 THE CHAIRPERSON: And Bell Atlantic?
8586 MR. MacDONALD: Mr. Chairman, with respect to the multicast question and the wholesalers being able to provide multicast over our ADSL-CO -- on ADSL-CO infrastructure, it's not technically possible. It hasn't been completed in the standards, the vendors have not built to it, so there is no way to do it.
8587 THE CHAIRPERSON: So from that I take it purely technically it's feasible, but it's not operational?
8588 MR. STEIN: We have entered a conversation --
8589 THE CHAIRPERSON: I'm sorry...?
8590 MR. STEIN: I'm sorry. We have entered a conversation now about multicast when in fact we are really talking about IPTV.
8591 THE CHAIRPERSON: Yes.
8592 MR. STEIN: IPTV is delivered sometimes with multicast, sometimes not.
8593 Further multicast -- not to get into the technical details of it --
8594 THE CHAIRPERSON: Yes.
8595 MR. STEIN: -- is largely about optimizing the middle, not about that last leg.
8596 So in fact our plan would not be to use multicast if we were to do IPTV in this.
8597 The fact that Bell chose to use that particular piece of technology shouldn't enter into the fact that we are talking about the service characteristics, not individual technology elements.
8598 THE CHAIRPERSON: You are telling me you could deliver IPTV other than through multicasting?
8599 MR. STEIN: Absolutely. In fact it's done today.
8600 If you look at many of the IPTV services that have come out so far, many of them do use multicast, many do not.
8601 Some of the IPTV sources that we see on the internet today, Boxee, Hulu, Netflix, things like that, some available in Canada, some available elsewhere in the world, I would venture to say that as much bandwidth is being consumed for IPTV around the world in unicast scenarios as it is multicast.
8602 So multicast is being brought up as yet another thing, here is yet another thing that we can't do if we allow this one little thing that affects 6 percent of the market.
8603 THE CHAIRPERSON: Okay. Okay. I have that. I'm no the technical point.
8604 MR. STEIN: Sure.
8605 THE CHAIRPERSON: Two people, SaskTel and then the gentleman in the blue shirt in front of them.
8607 MR. McKAY: Mr. Chairman, Andrew McKay from SaskTel.
8608 Just to clarify our position and Mr. Wittal's comments, they were not at all related to IPTV and sharing with two --
8609 THE CHAIRPERSON: I'm sorry, can you speak into the microphone? I can't hear you.
8610 MR. McKAY: I'm sorry.
8611 Just to clarify SaskTel's position and Mr. Wittal's comments, the carveout of bandwidth was not related to IPTV at all.
8612 THE CHAIRPERSON: Okay. Thank you.
8613 And the gentleman in the blue shirt?
8614 MR. ANDERSEN: Yes, Paul Andersen with CAIP.
8615 I'm sorry I'm going back a bit because I thought the original part of this question came was it possible for Bell to provide a service such as IPTV and allowing the independent ISP to be able to provide internet service.
8616 I would just reiterate, as Mr. Stein said, there are lots of technical ways where we could be provided a segmented service and Bell could still provide their IPTV service.
8617 The other thing I would point out is that's assuming that this loop issue has not been solved and also go back to the technical challenges -- sorry, I believe what Commissioner Molnar said about some of the service challenges that might arise.
8618 Well, yes, there are challenges, but in today wholesale providers constantly will share the DSL service on one copper pair with the voice service and when there is an issue on the line it could be one. For years we have been able to coordinate that.
8619 The universe hasn't exploded to the fact that the customer could be confused is the problem on the voice line, is the problem on the data line.
8620 I believe also my colleague wanted to add something.
8621 THE CHAIRPERSON: Okay.
8622 Rogers, you wanted to add something?
8623 MR. LOURO: I'm sorry, this is Paul Louro from CAIP.
8624 Maybe Bell can correct me, but in terms of IPTV I actually do know one person who has IPTV-based service while using our own GAS service as well. So if it's being done today why can't it be done in the actual future?
8625 MR. CONDON: Mr. Chairman, I don't know what IPTV service that person has, but really we are confusing a couple of key elements here.
8626 If we are talking about getting a broad range of what we call television channels similar to the cable lineup, that is only done with multicast, it cannot be efficiently done any other way.
8627 What Mr. Stein and others are describing is considered to be over-the-top streaming or something like video-on-demand, which is the intercast model.
8628 So to really confuse the issue here with this discussion, I think we are going to stick to our guns, we said there is a technical way of doing it that you can mock up, that you can do in a lab on some of these modems, but to make that a deployable, supportable service, we disagree.
8629 THE CHAIRPERSON: Okay. Thank you.
8630 MR. CONDON: The complexities are too much.
8631 THE CHAIRPERSON: Rogers.
8632 I don't want to waste any more time on it, just since you had your hand up.
8633 MR. WATT: Just very briefly, David Watt from Rogers.
8634 Just to reiterate what we said the other day, Mr. Steiger explained the situation that we can not -- do not have the technology to provide multicasting at the current time. We do view it as a broadcast video service and agree with Mr. Condon's comments.
8635 The issue of course is, even if you could do it it would be the congestion on the network.
8636 THE CHAIRPERSON: Okay.
8638 COMMISSIONER KATZ: Thank you, Mr. Chairman.
8639 I just have two quick questions and they are both to Primus actually.
8640 On the bottom of page 4, top of page 5, you state that you were:
"... candid in our presentation on Monday when we agreed that the residential market is currently competitive."
8641 Then you go on to say that it is "quickly becoming uncompetitive."
8642 But what you are saying is as of today the market is competitive, there is no market failure.
8643 Do you know currently today what percent of customers are demanding speeds beyond the speeds that are available through ADSL? What is the penetration for super high-speed or ultra high-speed services today?
8644 MR. BIBIC: We don't sell any super high-speed or ultra high-speed services, so we can't answer that, unfortunately.
8645 I don't have access to that data.
8646 COMMISSIONER KATZ: Has Bell or TELUS filed that information on the record?
8647 MR. BIBIC: What do you mean by super high-speed?
8648 COMMISSIONER KATZ: Above what ADSL provides today.
8649 MR. BIBIC: I don't think we have filed anything on the record, but we could certainly --
8650 COMMISSIONER KATZ: I'm just wondering, it might be useful, for me anyways, to know what the market is right now for that level of service, because obviously it's a higher price as well. If you have a forecast out three years as to how much take-up will result from customers seeking that -- because if the issue here is the market is quickly becoming uncompetitive, I guess the question is what percent of the market is not available to alternate ISPs.
8651 MR. STEIN: I would point out that today if 94 percent of this market is getting it served from non-alternate ISPs, the offerings from both the cablecos and the ILECs are higher-speed, the ILECs at 6 and 7 megs and better, not at 5. Then the cablecos at much higher speeds as well.
8652 These days the advertising is for double-digit speeds. Being stuck at 5, it sticks out like a sore thumb. More and more we face customers who, outside the confines of our bundle, are saying "I like what you guys offer, but I really want to download faster" and there is nothing we can do for them.
8653 COMMISSIONER KATZ: Okay.
8654 My second question, it's actually to Bell related to your IPTV arguments in paragraph 15.
8655 I wouldn't mind getting Bell's response to your statement that on the economic side Primus thinks that there is an inconsistency in your argument.
8656 MR. BIBIC: Well, I'm surprised that this is still in the opening statement. This is the same argument that the CAIP panel made yesterday with their big Bristol board with my diagram.
8657 The point is, if they build it -- this all relates back to the sub-loop. If somebody takes a sub-loop it means they have built their fibre and they have co-located and they have their node and they have their DSLAM and they have built their network. They take the risk. They compete.
8658 I'm not going to sit here and complain about somebody competing and taking share. That was the answer and it remains the same answer.
8659 As far as Bell arguing that we need every dollar from every service from every customer, that's a great exaggeration. Bell never, ever said that.
8660 If you look at the model it does not presuppose that Bell captures 100 percent of the market. I would love for that to happen, but unfortunately that's not what we are going to get.
8661 COMMISSIONER KATZ: So their middle bullet where they say they:
"Bell have figured out a way for us to provide internet service while at the same time Bell provides IPTV service." (As read)
8662 That is not a correct statement? You are just saying in a competitive market if you lose the customer, you lose the customer.
8663 MR. BIBIC: Correct. You win the home. If you build the network and you win the home, you win the home and then we will have to win the home back. But it won't be on our network if you build, it will be on your network.
8664 MR. DANIELS: The assumption here is that the sub-loop -- is that whoever builds out takes the sub-loop, puts their modem on it and we are not providing IPTV on that sub-loop.
8665 So there is no suggestion that there would be a sharing in the sub-loop scenario between us and them.
8666 COMMISSIONER KATZ: Mr. Stein, any comment?
8667 MR. STEIN: This issue, the sub-loop in my view points to the fact that Bell is saying we can't let them put their modem on the end of it because then we can't provide IPTV, but it's okay if they take a hole end the pipe, just not if they also take some of the other parts of the pipe that they already have. So it really does -- it feels like doublespeak.
8668 As well, as I pointed out about GAS, today with aggregated DSL services available right now at 5 meg we already have our modem on the end of that line and that doesn't change in this case.
8669 COMMISSIONER KATZ: Okay. Thank you.
8670 THE CHAIRPERSON: Elizabeth...?
8671 COMMISSIONER DUNCAN: Thank you.
8672 I don't think I have any questions, Konrad, thank you.
8673 THE CHAIRPERSON: Marc, you had one?
8674 COMMISSIONER PATRONE: Thank you, Mr. Chair, I have one.
8675 I would like you to help me with something, Mr. Stein, regarding paragraph 12.
8676 The line is:
"The reason we need ADSL-CO, and need it now, is so that we can leverage the multi-million-dollar investments we have already made and extend upon them to reach more than 50 percent of the Canadian market."
8677 Is it fair to categorize the argument as been that Primus is asking that its competitor, Bell, be regulated into unbundling its network so that Bell's competitor, Primus, can leverage its multi-million dollar investment so that it can reach more of the Canadian market presumably to better compete against the very company that helped it leverage those investments to begin with?
8678 I would like you to address that within the context of your comments about the disincentive to rollout any future networks.
8679 Is it fair to say that what you have suggested is a serious disincentive for them to continue doing that given what you are asking for?
8680 MR. STEIN: I'm not sure I understand the question so I'm going to try to answer it, but if I'm heading in the wrong direction, please do stop me.
8681 Our plan is once ADSL-CO is available to extend the investments that we have already made, building at COs and so forth, to allow us to reach far more of the market. Once that's done, though, we will continue to pay our share of the last mile of the connection to the customer, and so forth.
8682 My point here that I'm trying to make is we are not simply waiting for the very first customer and then only paying for that one customer, we are spending an enormous proportion of our capital budget, several million dollars, to deploy in such a fashion where we can reach more of the market.
8683 That's what I was trying to say. I don't know if that clarified it for you.
8684 COMMISSIONER PATRONE: Yes. I was just trying to understand it better within the context of the disincentive to rollout any future networks and basically asking that Bell be regulated into helping its competitor, meaning you, to grow its network to better compete against it.
8685 I guess that's kind of where I was headed. But if that's your answer, I'm prepared to accept that.
8686 MR. STEVENS: Commissioner Patrone, if I could comment a little bit on that as well.
8687 We, as well as Primus, have co-located at central offices.
8688 One of the original pushes for the CO-based DSL was we could get access to remotes, which we can't now. So even though locations where we have already invested, built fibre there, have co-located, everybody in that office that's fed from a remote, we can't get access to.
8689 As you have heard today, more and more customers are being switched over to remotes so the number is going down, it's not going up.
8690 So that's the reason that we really need that ADSL-CO service, is so that we can now meet those customers.
8691 And from a marketing point of view, if we are in a town, we are in the central CO, we market to that town, we are getting phone calls saying "I want your service". We look at the map and say, "I'm sorry, you are on the wrong side of the street, we can't do it". So that's why it's very important to have the --
8692 So we are not asking to -- you know, we want to pay our fair share for what Bell is doing there, but we really do need access to those COs.
8693 COMMISSIONER PATRONE: Okay. Thank you very much.
8694 THE CHAIRPERSON: Okay. Thank you very much. Those were all our questions.
8695 I notice the hour, it is 12:45. We have one more intervenant, which is TekSavvy I believe. If you are willing, I would be prepared to deal with you now and then we can all go and have a leisurely lunch afterwards.
8696 TekSavvy, are you ready to come forward?
8697 MR. TACIT: If that's the Chair's wish, we are prepared to come up.
8698 THE CHAIRPERSON: Okay.
8699 We will take a five-minute break while you set yourself up.
8700 Thank you.
--- Upon recessing at 1245
--- Upon resuming at 1251
8701 LE PRÉSIDENT : O.K., commençons.
8702 LA SCRÉTAIRE : Merci, Monsieur le Président.
8703 We will now proceed with TekSavvy Solutions Inc.
8704 Please re-introduce yourselves for the record and you have 15 minutes for your oral rebuttal.
8705 MR. TACIT: Thank you very much.
8706 Mr. Chair, Chris Tacit, external counsel to TekSavvy and with me are, once again, Mr. Rocky Gaudrault, Dr. Ware and Yves Blondeel as well as Mr. Marc Gaudrault and Roger Hay.
8707 In this rebuttal argument I'm going to reply to submissions made by parties with respect to a number of specific issues.
8708 First, on the state of broadband markets.
8709 Despite the contrary assertion of the incumbents, they exercise significant market power in facilities used to provide broadband.
8710 It is also clear that the markets for broadband services for both wholesale and retail services are essentially duopolistic in nature.
8711 The fact that retail prices are falling as costs fall says nothing about the state of competition since prices will tend to follow cost trends regardless of the competitive state of a market and telecommunications is a declining cost industry.
8712 However, the prices charged to consumers will be lower and the degree of innovation and service differentiation will be higher as markets become more competitive.
8713 The fact that the overwhelming share of the broadband market is held by the incumbents is much clearer evidence of the duopolistic nature of the market.
8714 In the current market, there are two significant trends. First, the speeds for high-speed retail Internet and other services demanded by end users are increasing rapidly.
8715 Second, the main retail competition, at least in the residential segment, is for the service bundle. Both of these trends are expected to continue for the foreseeable future.
8716 Service providers that can't offer increasingly higher speeds and service bundles and otherwise drive greater efficiency, innovate and differentiate are becoming increasingly irrelevant.
8717 Without wholesale inputs that satisfy residential and business requirements, competitors will stagnate and, in many cases, exit the market and competition will be substantially lessened or prevented.
8718 If the Commission agrees with us that the incumbents exercise significant market power in the provision of broadband services, it must fashion remedies to discipline it. If this doesn't occur, TSI will not be able to attract the capital it requires to scale up its operations and become a substantial player in the mass market.
8719 As the Commission indicated in the essential services decision, reasonably efficient competitors have to be given the opportunity to earn sufficient revenues so they can justify investing in the construction of facilities.
8720 The regulatory task is complex and difficult and errors will be made from time to time. However, contrary to the emanations you've received from some of the incumbents, this does not make regulation irrelevant, inappropriate or contrary to the Policy Direction.
8721 The challenges associated with regulation do not justify abandoning it where it is necessary to discipline incumbent significant market power in order to advance competition.
8722 Earlier this week the Commission asked parties to rank order the services that are being considered in this proceeding. We view such an approach to the regulation of access as being inimical to competition. All services required to discipline incumbent significant market power should be mandated.
8723 A bit about negotiations now.
8724 Negotiations are appropriate for resolving many commercial disputes, but will not work in a situation in which a supplier has market power, is competing with its own wholesale customer and does not view that customer as a business partner.
8725 The companies and TELUS are very clear in their view that they have no obligation to negotiate broadband access with competitors.
8726 Market forces cannot be relied upon to protect the interests of users. Regulatory action is required and entirely consistent with the Policy Direction.
8727 We urge the Commission not to resolve this proceeding by simply requiring parties to negotiate. All that would come of such a decision is further delay, continued erosion of competition, with the consequence that competitors will be relegated to providing increasingly marginal services.
8728 The Commission has already indicated that aggregated ADSL and TPIA services should continue to be made available and that speed matching should be provided in order to prevent the substantial lessening or prevention of competition in the retail high-speed Internet services market.
8729 The Commission made these findings even though these services did not meet the Commission's direct essential services test at that time.
8730 The conditions that led to the continuing mandating of these services have not changed. In fact, the competitive situation is worse today than at the time those determinations were made.
8731 Retail speeds have increased significantly, while speed matching is not available on the ILEC platform;
8732 The service bundle is more important now than it was two years ago, yet the ADSL platform is even less conducive to supporting such bundles than it was at that time; and
8733 Competitors' ability to otherwise innovate through service differentiation is limited by restrictions inherent in the TPIA service and by increasing restrictions placed by Bell on GAS.
8734 This proceeding has demonstrated the need for improvements that are urgently needed to these services to make them more practically useful to competitors and as a matter of competitive symmetry.
8735 We urge you to mandate all of these improvements as soon as possible.
8736 Any technical issues can be addressed within CISC.
8737 Contrary to the assertions of the incumbents, ADSLCO and cable head-end services meet the three prongs of the essential facilities test.
8738 First, the services are required as inputs by competitors to provide telecommunications in relevant downstream markets that include the markets for retail high-speed Internet services, other high-speed services that do not even touch the public Internet, services such as VoIP and IPTV, other innovative services, and bundles of services that can be provided over broadband platforms.
8739 Second, the facilities required by competitors to provide these services are controlled by the incumbents such that denial of access to the facilities would result in a substantial lessening or prevention of competition as the market moves towards higher speed services, more differentiated services and service bundles that are increasingly out of reach of competitors.
8740 Third, as acknowledged by the cable carriers, it is not practical or feasible for competitors to duplicate the functionality of the facilities in question, otherwise competitors would already be doing it, particularly given the lack of speed matching on aggregated ADSL and impediments to service differentiation and bundling.
8741 Now, we were asked to comment as well on whether regulation of access would be consistent with the Policy Direction.
8742 According to subparagraph 1(a)(i) of the Direction, regulation is appropriate where market forces are not sufficient to attain the policy objectives of the Telecommunications Act.
8743 We believe that the comments we've just made demonstrate that that is the case here.
8744 According to subparagraph 1(a)(ii), the purpose of providing all of the services under consideration in this proceeding would be to ensure that competition in services and service bundles enabled by the broadband platform are not substantially lessened or prevented.
8745 So, that test would be met as well.
8746 With respect to subparagraph 1(b)(i), the provision as well of the services sought in the proceeding would advance the objectives set out in paragraphs 7(b), (c), (f), and (h) of the Act, just as the Commission found in the speed matching decisions.
8747 Pursuant to subparagraph 1(b)(ii) of the Direction, such an approach would neither deter economically efficient entry into the markets for residential and business services nor promote economically inefficient entry, so long as the Commission sets cost-based rates for the required wholesale broadband inputs.
8748 And I'm going to say a little bit about the companies' sub-loop proposal.
8749 As I've already discussed, the proposal was tabled in a very procedurally unfair manner, coming so late in the proceeding, nevertheless, we will comment on its substance and we've already made some comments, so I'm not going to repeat those.
8750 This type of unbundling --
8751 THE CHAIRPERSON: Excuse me. Are you procedurally objecting to Bell introducing the sub-loop proposal?
8752 MR. TACIT: Yes, I am.
8753 THE CHAIRPERSON: Well, that is the first time you have said it.
8754 MR. TACIT: No, actually it isn't. We said it in our opening -- we said it --
8755 THE CHAIRPERSON: You said it was unfair that they put, you didn't say that you were objecting.
8756 Am I take this that you are saying that because it was introduced at a late time you want us to disregard it because it doesn't meet the procedures of the Commission?
8757 MR. TACIT: Yes, and we will take that position in final argument.
8758 But if you're inclined to overrule that objection, we will nevertheless proceed.
8759 THE CHAIRPERSON: I haven't heard it, that is why it is good to know. I had to interpret your remarks because you never stated it in those words.
8760 MR. TACIT: Fair enough.
8761 The objection is that, you know, the Public Notice set out a certain number of services that were considered in this proceeding. There was another amendment that dealt with the Cabinet referral back. That was all clear for everyone on the record.
8762 There have been four rounds of submissions requested of parties, four rounds of interrogatories. Those things have been tested thoroughly. There's a record on which the Commission can sufficiently make a decision.
8763 In this case, you know, we had a diagram and a few minutes from the companies of something that's supposed to divert the attention of the Commission from the real subject matter of the Commission, the real subject matter of this proceeding and there's really been no opportunity for other participants to properly test that evidence in any meaningful manner.
8764 So, yes, we view the -- and, you know, the proposal being advanced at this late stage as really being out of process.
8765 So, if I wasn't clear before, I hope that makes it very clear.
8766 Thank you.
8767 Nevertheless, since one always as a lawyer has to have an alternative argument, I will add to the comments I previously made about the substance of the proposal.
8768 This type of unbundling has been approved in other jurisdictions and there's been virtually no take-up. This has been the case in Europe and is not surprising, since the number of customers that can be served by a node is not sufficient to justify the expenditure required to take advantage of this form of unbundling at typical penetration rates for competitors, assuming that a node can serve approximately 200 users. COs are the smallest units in which selective deployments make sense.
8769 The high costs of taking up sub-loop unbundling and associated obstacles have already been discussed and I won't repeat them.
8770 However, the most important reason why this proposal is not a real solution is because it involves planned obsolescence. By the time that competitors could deploy such a solution on any kind of scale, even if it were practical to do so, which it is not, the incumbents will have moved on to FTTP making sub-loop unbundling obsolete and stranding all of the competitors' investments.
8771 How can the companies possibly claim that sub-loop unbundling is a practical solution at this point in the evolution of ILEC networks?
8772 We urge the Commission to continue its principled approach of mandating all services required to ensure that competition is not substantially lessened or prevented. Requiring competitors to choose some services and discard others simply will not achieve this objective.
8773 Contrary to the ILECs' submission, rates for mandated services should be cost-based with a mark-up over Phase II costs not exceeding 15 percent. No risk premium should be included.
8774 As many parties have noted, the ILECs have to roll out FTTN in order to compete with the cable carriers no matter what competitors do.
8775 A look at Bell Canada's most recent annual report reveals that in 2009 BCE Inc. bought back shares valued at $1-billion, reduced its short-term debt by $1.6-billion and made a $.5-billion voluntary contribution to its defined contribution pension plan while continuing to roll out FTTN aggressively.
8776 In its annual report, BCE also stated:
"We've advanced VDSL2 to 1.8-million homes and plan to have 100 percent of our network VDSL2 capable by the end of 2010."
8777 MR. TACIT: The ILECs are also generating considerable revenues from new services such as wireless and the move to FTTN and FTTP leads to very significant savings in operating expenses, which is another key driver for these types of investments.
8778 The ILECs do not need to shut out competitors or obtain a subsidy from them in order to reduce risk or survive in the market. FTTN-based competition is also not an obstacle to the offering of IPTV services by them, though some details do remain to be worked out.
8779 Nevertheless, if the Commission disagrees with us and does decide to apply some sort of a risk premium, it should be recognized through the application of an appropriate weighted average cost of capital applied only to the risky assets involved.
8780 I want to make a few remarks about the ILECs' objection to providing an ADSLCO service at a flat-rate price.
8781 The whole point of such a service is to provide competitors the ability to provide services at whatever speeds and throughputs they desire. In other words, the only limit to innovation should be their own imagination and the technical constraints of the platform.
8782 The underlying costs of such a service do not vary by bandwidth. Charging for such a service by bandwidth would handicap competitors and distort the competitive market. Access service pricing should not be structured in an artificial manner by making rates variable with respect to any attribute or class of customer when the underlying cost structure is flat.
8783 And a short word on wireless platforms.
8784 Contrary to what the incumbents continue to claim, wireless is not and cannot be a comprehensive substitute for wireline broadband services. When Mr. Engelhart compared his wireless and wireline services, it was clear that he had both. Households do not give up the broadband connection on a mass scale because of the availability of individual mobile broadband connections.
8785 The technical characteristics and economics of wireless technologies guarantee that wireline networks will continue to be expanded and utilized for the foreseeable future. Bell's program to spend $1-billion on such expansions is proof enough of that.
8786 Contrary to Dr. Crandall's evidence, broadband penetration in the U.K. took off when local loop unbundling became fit for purpose. A number of new competitors came into the market which increased total industry investment.
8787 Similar dynamics were observed in France and were discussed by Mr. Blondeel during the first day of the oral consultation.
8788 The Berkman Report also contradicts Dr. Crandall's evidence and I would refer you to pages 13, 105 and I would also add 136 and 138 of that Report for the conclusions.
8789 The ILECs have already had an undeserved regulatory holiday.
8790 There's been a lot of discussion about a regulatory holiday for the ILECs.
8791 We have stated our views that no such holiday is required or appropriate, but the truth is they've already had one since speed matching has been thwarted for approximately three and a half years. This period will be further extended by the time this proceeding is taking and the time it will take to implement the corresponding decision to be made by the Commission.
8792 It's time for competition to be enabled so that innovation can thrive and end users can reap the rewards.
8793 In that vein, we also urge the Commission to be forward looking in its regulation and initiate a proceeding to address access to ILEC FTTP facilities as soon as possible.
8794 Thank you.
8795 THE CHAIRPERSON: Okay. Thank you.
8796 You are saying on page 6 when you discuss ADSLCO:
"The underlying costs of such a service do not vary by bandwidth."
8797 THE CHAIRPERSON: Bell, do you agree with that?
8798 MR. CONDON: Mr. Chairman, it's Carl Condon.
8799 If I go back to legacy DSLAMs, the number one point of congestion on those DSLAMs is the uplink from the DSLAM. That's where we spend our money, relieving and adding capacity.
8800 Now, this argument in TekSavvy's statement assumes that because we built newer technology that it's free and that it's infinite in capacity.
8801 But I think there will come a day where we will have to relieve those same uplinks, things like 3D video will continue to drive more and more demand onto them and they will have to -- we'll have to spend on that, just like we did on legacy.
8802 THE CHAIRPERSON: That was a very careful answer. Do I interpret that to say right now it wouldn't increase the cost, but it may in the future as capacity demand increases?
8803 MR. CONDON: Mr. Chairman, capacity is always in a step function, so I can't say, you know, adding one customer, no; but adding a lot, yes. We would have to spend now if there was a significant demand, yes.
8804 THE CHAIRPERSON: But the statement of TekSavvy here that:
"The underlying costs of service do not vary by bandwidth"
8805 THE CHAIRPERSON: Is by itself correct; it is when you are talking about increased demands that the costs only rise?
8806 MR. CONDON: No, I'm disagreeing that underlying costs do not -- I'm disagreeing. Underlying costs do change with the amount of traffic on those links, yes.
8807 THE CHAIRPERSON: TELUS, do you have any comment on this?
8808 MR. SINCLAIR: No, we agree with what Mr. Condon said.
8809 MR. TACIT: Sorry, I think there's confusion between augmentation as demand increases and getting a pipe.
8810 When you initially provision an ADSL service, you are getting a certain number of links to do with as you wish. And what we're saying is, whatever the competitor wants to do with that, however much traffic it wants to pump through there and at whatever speeds should be the competitor's choice and the pricing should be agnostic of that, it should be indifferent to that.
8811 If we want two pipes or 10 because our demand is increasing, we'll pay the Phase II cost plus the mark-up.
8812 THE CHAIRPERSON: I understand your position, but I understand Bell and TELUS don't agree with you.
8813 MR. TACIT: I don't know if they wouldn't agree with that statement though.
8814 THE CHAIRPERSON: Well, here's your chance.
8815 MR. CONDON: Mr. Chairman, if we could ask TekSavvy to explain what pipes they're referring to.
8816 MR. MARC GAUDRAULT: The pipes to the customer, I don't know what --
8817 MR. CONDON: Then my statement stands, Mr. Chairman.
8818 MR. MARC GAUDRAULT: So, the downstream from the DSLAM which is the device that connects the physical wire from the home and as well facing upstream, so the upstream blade, as we call it, the port facing upstream.
8819 The latest technologies, the VDSL2 technologies, these have dual 10 Gig ports in many cases.
8820 The order of magnitude is now available greatly, greatly superior to what, you know, the first legacy devices are. In other words, it's negligible. The incremental price of the upstream blade like. whoa, if this is what it boils down to, I'll give you a blade to put in there.
8821 THE CHAIRPERSON: Okay. Let me try this.
8822 Yes, I read the statement as saying you say if we grant you ADSLCO, we mandate Bell to provide that to you, that would not result in increased cost for them. They say it would.
8823 That is as simple, the most basic I can put it to you and I am trying to figure out which one of you is right and what I am supposed to make of this.
8824 MR. MARC GAUDRAULT: So, as far as importance, it's a negligible -- it's small in the order of the grand scheme of things.
8825 THE CHAIRPERSON: Thank you.
8826 MR. BLONDEEL: If I may, I think the point here is that it's the one-off cost and there is no cost associated with variability of bandwidth.
8827 MR. TACIT: That's the essential point.
8828 THE CHAIRPERSON: Thank you for that clarification, Mr. Blondeel.
8829 MR. CONDON: Mr. Chairman, if I may though, that's -- we disagree respectfully. It is not a one-time cost and we must constantly monitor that link and augment whenever there's congestion.
8830 It's not a different situation than legacy, it's bigger pipes, I've agreed with that right off, but it's not a different situation.
8831 Thank you.
8832 THE CHAIRPERSON: And, Dr. Ware, since you are here I am going to take advantage of your expertise.
8833 I read this out several times, you heard the statement that Bell made in its submission which says:
"The Commission must also, even if access to an ILEC's 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 with potentially marginally reduced competition; and, one where competition may be more rigorous, but where product choices and innovations are stymied."
8834 THE CHAIRPERSON: Is this the choice that is facing the Commission?
8835 DR. WARE: I think not, Mr. Chair.
8836 The first thing I would emphasize in response to that question is the ladder of investment that has been described in several submissions that TekSavvy put forward.
8837 If I could characterize the statement you just read, it is a statement that basically says: We, the ILECs, the incumbents, are the only real sources of competition ever.
8838 So if you are going to get competition, it has to come from us, so somehow or other you had better protect us enough so that you will get that competition. Otherwise, you won't get it.
8839 That seems to me to be a completely false characterization of the way competition works in this market, or can work with enlightened regulation.
8840 As we have described, for example, in several European countries, there have been entrants who have successfully climbed the ladder of investment, who have entered as resellers, and who have become facilities-based competitors.
8841 We described on Monday the case of Free, the French supplier, who now has 20 percent of the market and is investing $1 billion in fibre.
8842 And, of course, they were not one of the incumbents. They are a facilities-based carrier, and a source of competition, and a source of investment, precisely because of that enlightened regulation, that open access policy.
8843 THE CHAIRPERSON: Thank you.
8844 Tim, do you have any questions?
8845 COMMISSIONER DENTON: I would like you, Mr. Tacit, or your team, to respond to some of the claims that were previously made in Primus' submission -- and I will read it for you. It's paragraph 15.
"On the economic side -- Bell argues that they need every dollar, from every service, including IPTV, from every customer to justify deploying their fibre facilities."
8846 And further they state that this was used to rebut their proposal to offer a sub-loop.
8847 Do you agree that IPTV is essentially what is at stake for the -- what I will call the former telephone companies?
8848 MR. TACIT: I think there are two issues at stake from a competitive standpoint. One is market share, and I think that IPTV will be key to them and to other competitors to win the bundle, and TekSavvy wants to be in that game in addition to its niche markets, so it could provide a source of viable competition.
8849 But, in addition to that, I think what they are concerned about is that the excessive pricing that is feasible in a duopoly -- largely duopolistic market -- those prices will decrease and the margins will decrease.
8850 That may be a little bad for them, but it's certainly not bad for Canada and end users.
8851 I don't think they are going to be going out of business anytime soon as a result of that. Their shareholders may make a bit less money, but --
8852 COMMISSIONER DENTON: As a result of which?
8853 MR. TACIT: As a result of competition.
8854 But I don't believe that it is the Commission's job to protect them from competition.
8855 Just as somebody said yesterday -- and I can't remember who. I think it might have been Mr. Hennessy, and if it wasn't, I apologize for putting words in his mouth.
8856 There was a question, I think, from Commissioner Katz about, you know, you want the right kind of conditions, so that you can provide these services, and their answer was yes.
8857 We are saying the same thing. The difference is that the obstacle for us to do that is the very market power that the incumbents have, and that's where regulation fits in. But it shouldn't go beyond that and protect market shares or margins for the incumbents.
8858 COMMISSIONER DENTON: Granted.
8859 In your statement you say that rates for mandated services must be cost-based, and you open with the sentence: "No risk premium should be included."
8860 My question is, why is not the telco's risk substantially greater now than it has been in the past, when more of their markets are opened up for competition and they face a catch-up game with the cable industry? Why isn't their risk going to be higher than it was in previous times?
8861 MR. TACIT: I am going to let Dr. Ware answer that question.
8862 DR. WARE: I will attempt an answer, but I think that Mr. Blondeel has a contribution to make too.
8863 I would contrast the risk -- what you are describing seems to me to be the risk from competition. This is a risk that every competitive firm making an investment faces, that is, the risk that whatever they are investing in may turn out not to be as successful as they had hoped, and the market share that they had hoped to get may not materialize.
8864 But that is normal competition, and it's not --
8865 COMMISSIONER DENTON: But, Dr. Ware, what if our costing methodologies are based on previous conceptions of risk which were then lower?
8866 DR. WARE: If there is riskiness to this investment that can be identified, then I don't have any conceptual problem with attaching that risk to the cost of capital.
8867 But my feeling is that that risk is probably not that great.
8868 COMMISSIONER DENTON: Your feeling is --
8869 DR. WARE: Well, I mean, I haven't seen the numbers, so...
8870 COMMISSIONER DENTON: Okay.
8871 Yes, Mr. Blondeel.
8872 MR. BLONDEEL: Just one word. In the position that the ILECs are in, isn't the risk of not investing far greater for them than the risk of investing?
8873 COMMISSIONER DENTON: I take your point, but, still, they are exposed to marketing conditions now which, it seems to me, are substantially riskier than they had been at the time when our cost methodologies were worked out, and that may be something we need to look at. That is all I am saying.
8874 MR. TACIT: I just have one more point. I was struck when I looked at the BC annual report, because it looks like their cost of capital has actually been decreasing. They renegotiated a significant amount of debt -- $2 billion worth of debt last year, on favourable terms, which is reducing their debt payments by $25 million a year.
8875 This does not, to me, look like the climate in which risk is increasing, or the markets wouldn't be lending the money.
8876 COMMISSIONER DENTON: I heard a "ding" from Mr. Bibic.
8877 MR. BIBIC: I think that Mr. Tacit is venturing into areas of finance which he may be less familiar with.
8878 We have cash flow. That's not the issue. The issue is what we do with that cash flow.
8879 What we are talking about is CAPEX. These things about pension payments, et cetera, that is not CAPEX, and it is not the return on investment related to CAPEX.
8880 So I think we should probably stay away from the cash flow issues and focus on what is relevant to the hearing.
8881 COMMISSIONER DENTON: Would you agree that -- I mean, your basic contention, Mr. Bibic, is that Bell and the telephone companies are now exposed to greater risk than they had been in the past, when all of their product lines are exposed to greater competition.
8882 Is that correct?
8883 MR. BIBIC: Yes, sir, that is our contention.
8884 COMMISSIONER DENTON: Therefore, your contention has been, I believe -- and correct me if I am wrong -- that our costing methodologies need to take this into better account than they do.
8885 MR. BIBIC: That would be an alternative contention, to step away from regulation, but, yes, we do have a problem with the costing methodology, largely --
8886 COMMISSIONER DENTON: Yes, presuming that we make the error, according to you, of continuing --
8887 MR. BIBIC: Correct.
8888 COMMISSIONER DENTON: Okay.
8889 Mr. Tacit, I return to your question of -- that the Berkman report contradicts Dr. Crandall's evidence.
8890 Now, there are a number of problems with the Berkman report, which made a brave attempt to figure out Canada's competitive position on the basis of some OECD figures, which I believe have been -- I believe there have been some data problems at the core of those figures, which have come under significant criticism.
8891 So when you ask us to refer to the Berkman report, is there any edition of that report where the OECD -- where the criticisms applied against it in the past would not be relevant?
8892 MR. TACIT: Yes. We have to distinguish between the preliminary report, which was issued last fall, and was open for comment, and all of the various criticisms came out and were tabled, and then the authors issued a memorandum in which they kind of foreshadowed how they intended to deal with these issues.
8893 The final report really does address all of those issues.
8894 Now, I know that the ILECs still take issue with certain issues relating to unbundled loop rates, but that has nothing to do with what we are talking about here.
8895 And for the balance of the answer that is more detailed about the data itself, I will turn it over to Dr. Ware. I think he can actually provide you with a more complete answer than I can.
8896 DR. WARE: Yes, I have been concerned, actually, that no matter how often Mr. Bibic calls it a flawed report, and Dr. Crandall calls it discredited, that doesn't actually make it so. It appears to be somewhat tarnished by association here.
8897 Neither of those gentlemen has actually told us why they think that is true.
8898 As far as I know, the final version of the Berkman report does not contain any major errors, or any error that I know about, with the one exception that Mr. Tacit just referred to, which, as I said, is not relevant to what we are discussing.
8899 The OECD data on penetration, I don't believe there is anything wrong with it. What it was criticized for was that they used a penetration per 100 inhabitants number. Several people suggested that they should use per household. They did use per household and compared it, and the rankings of the United States and Canada are almost unchanged. There is virtually no difference.
8900 In terms of speeds and prices, there is no study of comparable quality to the Berkman report. They used data from the OECD, from the ITU, and they used two sources of data on actual download speeds. They also have a survey of their own on prices.
8901 And the conclusion, as far as I know, that Canada has some of the highest prices for the lowest speeds, is not controversial.
8902 COMMISSIONER DENTON: Thank you very much, those are my questions.
8903 THE CHAIRPERSON: Candice...
8904 COMMISSIONER MOLNAR: Thank you.
8905 I have a few questions, and I will try to limit them somewhat to what hasn't been covered before, because there are some elements of your proposal, such as many of the elements of the sub-loop proposal, that we have kind of beaten to death over the last couple of days.
8906 But I am going to start, despite that -- in your sub-loop proposal, at page 5, paragraph 2, you talk about the fact that in Europe there has been virtually no take-up for the sub-loop proposal.
8907 Do you have experience or information -- European experience that suggests there is significant demand for the ADSL-CO solution?
8908 MR. TACIT: Mr. Blondeel can answer that.
8909 MR. BLONDEEL: Briefly, first, on the take-up of sub-loop unbundling in Europe, sub-loop unbundling has been mandated, de facto, from the 1st of January 2001, by an EU regulation that applied directly to all of the telecom operators in Europe. This was a highly exceptional measure at the time, and has made its appearance in the reference offers for local loop unbundling of the incumbent operators throughout Europe over that time.
8910 The debate really started about using that more and more in the same context as what we are observing here, when higher speeds were needed. The remedy was further fine tuned and, in fact, for example, in The Netherlands and in Germany, there has been a debate about sharing discrete cabinet, so that there would not have to be two or three cabinets, but just one.
8911 And still, after that, there has been no take-up, due to the lack of economic and technical viability of the solution.
8912 I would like to reference three specific sources. The regulators of Ireland, ComReg, The Netherlands, OPTA, and Belgium, BIPT, have done a specific economic analysis. The Irish one relates only to the City of Dublin, which is a relatively high density area, and the Dutch and Belgians have very high-density countries.
8913 These reports are available, and they put the final nail in the coffin of sub-loop unbundling.
8914 COMMISSIONER MOLNAR: Are there reports available that indicate that there is high adoption of ADSL-CO solutions?
8915 MR. BLONDEEL: Talking about ADSL-CO is a bit complex, because the situation is not always comparable, but you have heard of the notion of bitstream access or wholesale broadband access.
8916 What we have witnessed in Europe is that these remedies were mandated, typically, from 2001, 2002 onwards. They provided the platform for the initial expansion of alternative operators in the market.
8917 These platforms remain available today, and remain used, maybe not so much in the central areas, but in more remote areas.
8918 And as local loop unbundling has emerged and become fit for purpose, basically the alternative operators use a combination of local loop unbundling and what we call wholesale broadband access, or bitstream access, which is similar to the CO model that we are discussing here, and they use these two platforms together, on a geographically differentiated basis.
8919 So where it is viable, they do local loop unbundling. Where local loop unbundling is not viable, they use a type of ADSL-CO solution, and they patch those two together in order to deliver a nation-wide solution to customers.
8920 I would like to emphasize that the whole intention of this is for these people to be able to compete for the entire bundle, and not for all of the partial things I have heard here over the past week.
8921 COMMISSIONER MOLNAR: I want to go on to paragraph 4 on that same page, where you talk about the fact that, even if it was practical to allow sub-loop unbundling -- or if it was practical to do sub-loop unbundling, which it is not, one of the problems is that the incumbents will have moved to fibre to the premises, making sub-loop unbundling obsolete and stranding all of the competitors' investment.
8922 When I read that, I just couldn't help but wonder, as the move continues to fibre to the premises, is your investment in a CO-based -- to enable you to capture the fibre to the ADSL, if you will -- the ADSL solutions -- is that investment at risk as soon as they move to a fibre to the premises solution anyway?
8923 Are your statements here unique to sub-loop unbundling, or would your investment at the CO also be at risk?
8924 MR. TACIT: I think it is a matter of scale and timing. Networks will evolve, and so will competitor networks. So as FTTP unbundling becomes available, there will be moves to that.
8925 It all boils down to the ladder of investment, but the central message we are trying to deliver is that all of these services have to be available at the same time.
8926 The ones we have proposed, we think, are viable services. The problem with this one is that it puts a huge economic burden on competitors for either little or no reward right at the outset, and if you try to deploy that and you get it wrong, you are hammered anyway because of FTTP.
8927 So it all kind of works together in a way that disadvantages competitors from start to finish.
8928 I can't comment specifically on the point at which we would want to go from ADSL-CO to FTTP. Again, it is something that the market will determine. But we think that, if all of those services are available at reasonable prices, at cost plus whatever the Commission feels is appropriate, those things will sort themselves out.
8929 The demand will be there for each of these, and the evolutions will take place. Just as the ILEC networks are evolving, so will the services and the networks of the competitors.
8930 I think that Mr. Blondeel has a comment, based on his experience, as well.
8931 MR. BLONDEEL: Very briefly, the regulator in the United Kingdom, Ofcom, proposed in March a concept called "Virtual Unbundled Local Access", which is a new idea. This would apply both to the FTTN model, with VDSL2, and to the GPON network, fibre to the premises network, that BT is rolling out at this time.
8932 This was mentioned by the Bell companies on Day 1 of this hearing, saying that this product would not be subject to being cost-based.
8933 Yesterday, or the day before yesterday, the European Commission, which is required by law to express its comments on the proposal from the U.K., stated that the U.K. should cost-orient that particular product, Virtual Unbundled Local Access.
8934 So I think there is an understanding there that on that ladder of investment, between what we would call -- and I speak, maybe, a bit too simply because I don't know all of the Canadian details -- between what we would call ADSL-CO and the eventual evolution to fibre to the premises, there would be, at the same location at which ADSL-CO is handed over, a virtual unbundled product that applies both to FTTN and FTTP, and that is exactly what Ofcom is putting forward.
8935 COMMISSIONER MOLNAR: Okay. So the next step is access to FTTP. The investment ladder, getting to investment, is not the next step.
8936 MR. BLONDEEL: Yes, but with the ultimate intention to go to your own FTTP, and I spoke on Monday about the experience of Free in France. This is happening. They started from the bottom of the ladder of investment seven or eight years ago. In 2006 they announced an investment in FTTP. Yesterday their CEO said that they would pass 4 million homes by the end of 2012 with their own fibre network.
8937 So this is the poster child of this model. It is really happening. They have 24 percent of the market.
8938 And they invested in the very, very last mile, the most difficult to replicate part.
8939 COMMISSIONER MOLNAR: I want to move to page 6 -- again, on the premise that I want to deal with things that are new and not that we have repeated for a week.
8940 I was very surprised -- actually, in the middle of the page:
"...ILECs are...generating considerable revenues from new services such as wireless and the move to FTTN and FTTP leads to very significant savings in operating expenses..."
8941 Hearing that a move to FTTN leads to considerable savings in operating expenses is new information for me, so perhaps you could explain that statement.
8942 MR. TACIT: I am going to ask Roger Hay to comment on that, and then I am going to actually take you back to a reference in our evidence where we actually address this, as well.
8943 MR. HAY: Thanks for your question.
8944 You may remember that people have been saying that putting fibre remotes has been in our technical repertoire for 20 or 30 years, and from those very early days, a very important component of the economic justification has been to save money operating expense-wise, and here is why.
8945 These original fibre remotes were replacing copper connections, and copper costs a lot of money to maintain. It has -- what shall I say -- it has a large propensity to generate faults, which faults go away when you are on fibre. Fibre is a very much more reliable piece of plant.
8946 So this is the major area in which cost savings are made, and that is still true today. Fibre to the node is just -- the remote is closer to the sub, and if you are closer to the sub, you make more savings.
8947 Incidentally, I remember seeing a study a few years ago from the cable industry, which has a similar situation, where they showed that moving fibre closer, indeed, all the way to the cable subscriber, was almost enough to completely justify fibre to the home for them, as well.
8948 So this is a big component.
8949 MR. TACIT: Now, as promised, I found my paragraph here, and I will just read you a very short quote.
8950 And this is from Ericsson, one of the major suppliers of equipment. They say:
"Capital expenditures are extremely important, but they are not more important than operating expenses. In some cases, opportunities to reduce OPEX might justify the transition from older access technologies to FTTX, where the X can be N or P [or whatever it is], or a decision to use FTTH instead of FTTC."
8951 And by "FTTC" they mean fibre to the cabinet. We would call it to the node.
"NTT and Verizon, for example, have each indicated that they base their decision to build full FTTH networks, in large measure, on lower OPEX, a 40 to 60 percent reduction, compared with the cost of operating copper access networks. Reductions like these can be realized in a number of ways, including lower maintenance costs, fewer field repairs, and lower new-service activation costs once subscribers have been connected." (As read)
8952 That also, obviously, goes to the question of risk that we were discussing.
8953 I think that Marc has a point, too.
8954 COMMISSIONER MOLNAR: I am going to make my point.
8955 What I just heard you say is, there is a study that says you can generate operating cost-savings by moving to fibre to the prem, not fibre to the cabinet.
8956 MR. TACIT: No, it says FTTX.
8957 There are two parts to that sentence. One says "FTTX", where the X can be N or P.
8958 You have to look at that paragraph. It's in our February 8th evidence.
8959 COMMISSIONER MOLNAR: Okay.
8960 MR. TACIT: And then it says "or to move to FTTH from FTTC".
8961 So both of those are true.
8962 In other words, the initial choice to go fibre to the node and the choice to go from the node to the premises can both be driven significantly by these operating expense savings.
8963 That quote is at paragraph 39 of our February 8th evidence.
8964 MR. GAUDRAULT: Even looking at Bell's diagram here, in their submission just now, when they provision a phone customer of ours, they actually provision it on a remote node, and then, if we ask to have high-speed on it, as well, they then ask for a line transfer, putting us back on the AMAS remote.
8965 All of this stuff is inefficient. It doesn't make sense to do that, to manage all of this plant just for us wholesalers.
8966 I believe that Commissioner Katz alluded to this, as well, while questioning Bell a minute ago.
8967 MR. BLONDEEL: Could I just say two words? Ethernet and mobile backhaul -- key drivers for ILECs to invest in fibre to the node include this, not only for residential customers, but also for other purposes.
8968 Today they run leased lines, ISDN, Frame Relay, ATM, and all of these different protocols for different services. Part of their strategy is to migrate all of that to Ethernet, which means one network that they can manage with less personnel, less difficulties, less complexity, et cetera.
8969 That has been articulated many times as a key driver for FTTN, going beyond the residential IPTV opportunity and such aspects.
8970 The second one is that they are indeed investing in mobile networks. These mobile networks need more capacity in the backhaul than legacy voice networks. Therefore, they need to find a strategy to do the backhaul from their mobile base stations, which also may be more numerous, et cetera. The FTTN rollout is always a major element in facilitating this.
8971 MR. GAUDRAULT: As a tangible --
8972 COMMISSIONER MOLNAR: I am going to just -- if it's okay, because Mr. Bibic has had his hand up ever since I asked the question. I will give him an opportunity.
8973 MR. BIBIC: A lot of things are getting mixed up. FTTN deployment does not reduce operating expenditures. We run the business, we build these networks, it does not. FTTN -- and this refers to FTTN, as well, in the TekSavvy document -- does not. That's wrong.
8974 MR. GAUDRAULT: Certainly, if they are doing it like on this diagram, I could see why.
8975 COMMISSIONER MOLNAR: Okay. I have just one more question.
8976 I just want to ask -- and I have asked a couple of parties now about making a distinction between the residential and business markets, and in your comments I see very little that would distinguish between those two markets either, and I wonder if you think that could be appropriate, based on the record of this proceeding, that we could be making determinations separate between residence and business.
8977 MR. TACIT: I think it would be tragic if that were to occur, because I think that both markets are suffering.
8978 It may be a matter of degree, depending on location and situation, but I can tell you, on the ground, that TekSavvy certainly doesn't perceive the residential market to have that competitive vibrancy that it should.
8979 And the fact that the situation is worse in business may well be true. That is not TekSavvy's core business, and we are not about to try to second-guess what others have said on that.
8980 It may well be more monopolistic, but I think a duopoly is bad enough, as well, so I would urge you to act on both.
8981 COMMISSIONER MOLNAR: Thank you, those are my questions.
8982 THE CHAIRPERSON: Thank you.
8983 I don't believe that any of my other colleagues have any questions, so I thank you very much.
8984 Madam Secretary, do you want to make the closing announcements?
8985 THE SECRETARY: Yes, please.
8986 Consistent with the Notice of Consultation procedures, final written submissions are to be filed with the Commission and served on all parties by the 21st of June 2010.
8987 This completes the agenda of this public hearing, Mr. Chairman. Thank you very much.
8988 THE CHAIRPERSON: Thank you all for participating. This is the first time we have done this procedure of rebuttal, and the Commission has found it very helpful and very useful, and I thank you for participating.
8989 I also want to take this opportunity to thank my staff for having prepared us for this. They have walked us through this very technical and difficult hearing. Without your help, we couldn't have done it.
8990 Thank you.
--- Whereupon the hearing concluded at 1330
Johanne Morin Jean Desaulniers
Sue Villeneuve Monique Mahoney
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