ARCHIVED - Transcript, Hearing 27 October 2010

Volume 2, 27 October 2010

TRANSCRIPT OF PROCEEDINGS BEFORE

THE CANADIAN RADIO-TELEVISION AND

TELECOMMUNICATIONS COMMISSION

SUBJECT:

Obligation to serve and other matters (Formerly Proceeding to review access to basic telecommunication services and other matters)

HELD AT:

Ballroom A-B

Days Inn and Conference Centre

14 Mountjoy Street South

Timmins, Ontario

Transcripts

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

Contents.

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

Telecommunications Commission

Transcript

Obligation to serve and other matters (Formerly Proceeding to review access to basic telecommunication services and other matters)

BEFORE:

Konrad von Finckenstein   Chairperson

Len Katz   Commissioner

Rita Cugini   Commissioner

Timothy Denton   Commissioner

Suzanne Lamarre   Commissioner

Peter Menzies   Commissioner

Candice Molnar   Commissioner

Marc Patrone   Commissioner

ALSO PRESENT:

Lynda Roy   Secretary

Alastair Stewart   Legal Counsel

John Macri   Hearing Manager

HELD AT:

Ballroom A-B

Days Inn and Conference Centre

14 Mountjoy Street South

Timmins, Ontario

October 27, 2010

- iv -

TABLE OF CONTENTS

   PAGE / PARA

PRESENTATION BY:

MTS Allstream   250 / 1541

Bragg Communications Inc.   326 / 1985

Saskatchewan Telecommunications (SaskTel)   374 / 2235

Regional Working Group on Broadband Infastructure   442 / 2630

Town of Kirkland Lake   450 / 2674

NEOnet (North Eastern Ontario Communications Network Inc.)    456 / 2704

- v -

UNDERTAKINGS

Undertakings can be found at the following paragraphs:

2178, 2504, 2560 and 2805

   Timmins, Ontario

--- Upon resuming on Wednesday, October 27, 2010 at 0900

1535   LE PRÉSIDENT : Bonjour.

1536   Commençons, Madame la Secrétaire.

1537   LA SECRÉTAIRE : Merci, Monsieur le Président.

1538   Bienvenue à tous.

1539   We will begin today with the presentation of MTS Allstream. Appearing for MTS is Ms Teresa Griffin-Muir.

1540   Please introduce your colleagues, after which you will have 25 minutes to make your presentation.

PRESENTATION

1541   MS GRIFFIN-MUIR: Thank you.

1542   Good morning, Mr. Chairman, Commissioners.

1543   With me today is Mr. Calvin Shepherd, President of MTS, the division of MTS Allstream operating as the incumbent in Manitoba and the counterpart to our competitor division Allstream which operates nationally. Calvin provides overall direction, strategy and leadership for the company and is ultimately responsible for sales, service and operational support for customers in Manitoba.

1544   Together Calvin and I will present MTS Allstream's view on the four issues identified in the Commission staff second Order and Conduct letter.

1545   I will speak about three issues that relate to the reassessment of the existing regime, that is the obligation to serve and the basic service objectives, reassessing the local service subsidy regime and re-examining local competition in the territories of small ILECs.

1546   Calvin will address the fourth issue and the one that MTS views as the most critical to Canadians, specifically determining the Commission's role with respect to high-speed Internet access.

1547   MTS Allstream would like to leave the Commission with four propositions today.

1548   The first is that the current regulatory regime, including the local service subsidy regime, has been demonstrably effective in terms of wireline voice service and is world-class in terms of its results.

1549   Accordingly, we caution against a major overhaul of the regime.

1550   The second proposition is that to continue to be relevant to Canadian consumers and businesses, a 21st-century basic service objective, or BSO, requires broadband access because the current provision for dial-up Internet access has become obsolete, incapable of supporting basic day-to-day Internet functionality.

1551   Third, is that market forces and government funding on their own will not achieve the goal of universal broadband coverage because, as was the case for telephone service, there are simply some areas that are too costly to serve at affordable rates. The price tag alone is too great for government funding and the business case simply isn't there.

1552   The fourth and final proposition is that the Commission has the authority, and the regulatory regime at the ready if it chooses, to make universal broadband access a reality and in this regard MTS Allstream has a proposal for that to be achieved.

1553   In terms of the existing regime, it bears noting that Canada's local telephone service regime has worked very effectively. While some parties may take issue with some elements of the regulatory regime, this is quite different from saying that the system needs an overhaul or even drastically that it should be dismantled.

1554   From a national schematic perspective -- which is the Commission's mandated perspective -- the local service regime has delivered results that are, in terms of penetration, quality, reliability and pricing, world-class. Affordable fixed wireline or basic telephone service availability is virtually universal.

1555   The OECD ranks Canada first in terms of fixed telephony lines per a hundred inhabitants. Furthermore, prices for Canada's residential telephone service rank among the lowest in the OECD countries, including lowest for high use customers. This is also apparent from the CRTC's 2010 Communications Monitoring Report.

1556   We have achieved these results here in Canada, a country with geographic and climate challenges the scale of which few countries face. This is something we can and should be proud of and it is something we should build on rather than put at risk by accepting proposals which would begin to dismantle this carefully crafted regime.

1557   As it stands, the regime is designed to ensure that in the absence of market competition in a given exchange, the basic service objective will be reliably met by an incumbent local exchange carrier who has the obligation to serve and who is reasonably compensated for providing service to customers in those exchanges that otherwise would not be served at affordable rates.

1558   To begin making changes to the obligation to serve customers in high-cost areas, or to the funding mechanism that gives ILECs a reasonable incentive to serve those customers, puts Canada's impressive results at risk. It also puts at risk an effective regulatory regime that could be brought to bear on closing the broadband gap.

1559   Keeping this in mind, I would like to address the three issues dealing with the existing regime you have asked us about.

1560   The first issue, reassessing the obligation to serve and the basic service objective. The question you have put to us relate to who should have the obligation to serve, under what circumstances and where, and also whether wireless voice service can meet the basic service objective.

1561   The fact is, in forborne exchanges there are effectively no underserved or unserved areas for the purposes of the BSO, thus maintenance of an ILEC-specific obligation to provide the current BSO is no longer very relevant. Nonetheless, in non-forborne areas, or at least where there is no evidence of sustained or pervasive competitive entry, MTS has no objection to maintaining the current BSO.

1562   In terms of whether wireless can satisfy to BSO, our answer is no, or at least not yet.

1563   From the carrier perspective, mobile wireless service is complementary to wireline service and not a complete substitute, nor is it a substitute for all customers. Certainly for some customers, about 8 percent of households, mobile wireless service may be an acceptable substitute for wireline service, but there are some important qualifications to that.

1564   First, while it is very likely that most customers in most areas can receive reliable service wirelessly, not all wireline features may be enabled or available and reliability and quality are highly variable pending on geography, equipment and who the provider is and what services that provider offers.

1565   Second, the cost for provisioning wireless and the pricing model are generally different, an example being unlimited unrestricted calling that's uncommon for wireless.

1566   Third, it is one thing to speak about the ability of wireless to meet the BSO in densely populated urban areas and another to speak about its ability in areas we are ultimately talking about in this proceeding, rural and remote areas.

1567   There are very real limits in those areas in terms of wireless' ability to meet the quality and reliability standards Canadians expect of wireline telephony and those limits are there regardless of how much customers are willing to pay to try to have equivalent functionality.

1568   In terms of the obligation to serve, under the Commission's current forbearance regime, the ILEC alone has a continuing obligation to serve post-forbearance.

1569   The obligation to serve should continue to apply in non-forborne situations, but there is no need or justification to retain this obligation post-forbearance, given forbearance is premised on the existence of competition in a given exchange.

1570   To continue to obligate incumbents to serve post-forbearance is counter intuitive and counter to the objectives of regulation in the first place, which is to protect consumer interests in the absence of competition. Once the Commission deems that there is competition sufficient to protect the interests of users, which is a necessary condition of forbearance, we don't see the need for consumer protection purposes to continue to have the obligation to serve.

1571   It also doesn't make sense to change the way the current regime is funded, which leads me to the second issue you have asked us to address. That issue is reassessing the local service subsidy regime and the question you have put to us here relate to whether there should be any changes to that regime.

1572   Assuming there is no change to the basic service objective, there is no need to make any changes to the existing local subsidy regime, because overall the framework has worked well to provide affordable, reliable, high quality service to customers in areas that would otherwise not be well served. Here again we rely on the OECD data and on the Communications Monitoring Report.

1573   And when we consider the telecommunications policy objective in subsection 7(b) of the Telecommunications Act, that is rendering reliable and affordable telecommunications service of high quality, accessible to Canadians in both urban and rural areas in all regions of Canada, we see no basis for dismantling the system.

1574   Nor do we see any basis for the proposals to protect SILECs from local competition within their territory. Subsection 7(c) of the Act specifically states that one of the objectives of the Canadian Telecommunications Policy is to enhance the efficiency and competitiveness of Canadian telecommunications.

1575   This leads me to the third issue you have asked us to address, the re-examination of local competition in the territory of small ILECs.

1576   You have asked us whether local competition should continue to be introduced in small ILEC markets and whether the small ILECs should be subject to any special considerations.

1577   In short, we say yes to competition and no to special considerations.

1578   As we noted in our submission in Industry Canada's Digital Economy Strategy Consultation, competition, when it exists, is good for consumers, good for businesses and good for Canada because it symbiotically drives investment in innovation. This is true for large and small ILEC territories.

1579   We therefore think that protecting small ILECs within their territories, yet allowing them to compete outside of their territories, runs counter to competition. Treating small ILECs differently from large ILECs isn't justified, especially in the case where the small ILECs are principally urban areas and is a division of a national company or competes outside their territory. The rural and remote regions of small ILECs are not materially different from those areas in a large ILEC territories.

1580   We also say that because the so-called doughnut effect affects both small and large ILECs what may look like a doughnut from the small ILEC perspective begins to look more like Swiss cheese when you zoom out to look at the ILECs larger territory.

1581   With our view on the existing regime in mind, and subject to any questions you might have, I would like now to turn to Calvin to address the fourth subject, which is determining the Commission's role with respect to high-speed Internet access.

1582   MR. SHEPHERD: Thank you, Teresa, and thank you, Mr. Chair and Commissioners for welcoming MTS Allstream's views in this important proceeding.

1583   We feel as an incumbent in Manitoba, as a truly national competitor across Canada, and as a provider of voice and data services to both residential and business customers, that we offer a multifaceted and uniquely balanced perspective on what is working, what is not and what can be done to improve services to Canadians.

1584   The fourth issue is determining the role of the Commission with respect to high-speed Internet access and your questions here relate to whether the Commission should mandate the provision of broadband access in areas where it isn't provided, whether the Commission should fund that provision and whether there should be any technical specifications for broadband access service.

1585   MTS Allstream believes that universality remains a worthy and important objective for Canadians. As such, in framing our submission in this proceeding, the starting point was a discussion about universality and the objectives of the policy. We asked: Is the goal simply to maintain a 10-year-old virtually obsolete basic service objective or is it to strive for a loftier goal, one that reflects current technological realities and trends? That really goes to the heart of this proceeding, access by Canadians to basic telecommunications service.

1586   As Teresa explained, the existing regulatory regime has served Canadians well in terms of wireline telephone service, but what about Internet or broadband access?

1587   Let's take a minute to review some of the data.

1588   I would like to turn the Commission's attention to both the 2010 Communications Monitoring Report as well as an exhibit MTS Allstream has prepared and attached to our written remarks showing broadband access across all of the incumbent's territories.

1589   We know from reading the CRTC's 2010 Communications Monitoring Report that 5 percent of Canadian households that access the Internet do so at speeds below 1.5 Mb per second, whether using dial-up or other types of connections. That is well behind the 5 to 15 Mb per second to which just over 60 percent of Canadian subscribers have access.

1590   What this tells us is that there are roughly 700,000 households in Canada that do not have access to a very minimum standard of broadband service today.

1591   Moreover, according to the Monitoring Report, there was no appreciable improvement in the percentage of households with access to broadband services in 2009 as compared to 2008.

1592   We also know from the interrogatories we have asked in this proceeding that approximately 16 percent of Canada's NAS are in high-cost serving areas and that 69 percent of high-cost serving area NAS do not have access to broadband with a still lagging download speed of 4 Mb per second , which amounts to 11 percent of Canada's NAS.

1593   And we know from what we and our industry peers are doing that fibre-to-the-node and fibre-to-the-home are quickly becoming the gold standard for access technology, with more and more Canadians in urban areas enjoying the benefits of that technology.

1594   What has happened since 1999, however, when the Commission last reviewed the threshold basic service is that innovation and the ever-increasing demand by consumers and businesses for faster and faster speeds has rendered dial-up virtually useless in terms of being able to support everyday things that Canadians do online. But dial-up is what the BSO calls for and the BSO is all that many Canadians living in rural and remote areas receive.

1595   And why does this matter?

1596   As many of you may have experienced sending and receiving e-mail, reading or watching the news, shopping, working from home, investing, distance learning, using social media, all of these things which many Canadians take for granted as being quick, easy and affordable are painfully slow, if not impossible using dial-up.

1597   But this obviously isn't just about online shopping and Facebook. As Industry Canada has stated, and as the Commission has recognized, broadband access entails important economic and social benefits and encourages economic development, spurs innovation and can improve the quality of life in hundreds of communities from coast to coast to coast.

1598   To the extent, therefore, that the Commission determines that the BSO should reflect the practical needs of Canadian businesses and consumers, we say that dial-up is simply not enough and that broadband access must be the new basic.

1599   As well, to the extent that a basic service objective continues to be mandated for the incumbent telephone companies, it should address the gap between those areas in which broadband access services are available and those currently underserved and unserved areas.

1600   Therefore, in terms of whether the Commission should mandate broadband access to areas where it is not provided, MTS Allstream says yes, so long as those who are given that obligation are guaranteed a reasonable opportunity for return on investment.

1601   If universal broadband is the goal, then only the Commission can ensure that such a goal is reached in the first place and then sustained over time in a way that keeps step with the perpetual advances in technology.

1602   The hands-free approach that some parties are suggesting will bridge the access gap -- that basically either market forces or government funding or both will do the job on their own will simply not happen. At best, the end result will be an incomplete, unregulated patchwork of coverage of varying quality, all without the reliable backing of an obligation to serve. What standing back and leaving the problem to market forces and government funding alone will do is perpetuate and widen our broadband access gap at the same time that other countries with less of the geographic challenge are taking bold steps to close theirs.

1603   For example, and as we have stated on the record in this proceeding, regulators and governments in countries such as Australia, the United Kingdom, Finland, New Zealand, and most recently the United States, have announced ambitious programs for the deployment of universally available broadband networks.

1604   While we aren't necessarily suggesting that the Commission model other countries approaches given the unique landscape in Canada, it's important to understand that other countries are, by mandating universal access and designing various ways to fund it, pulling ahead of Canada.

1605   The United States for example, and the Federal Communications Commission's National Broadband Plan, has as its primary goal ensuring that by 2020, through the revamping of the existing universal service fund and the use of certain new funding mechanisms, such as a new category of high-cost rural areas, at least 100 million U.S. homes should have affordable access to actual broadband download speeds of at least 100 Mb per second.

1606   I'm not citing this example necessarily as a model for the Commission, but simply to show that other countries are taking big steps now to ensure that none of their citizens are without a basic level of Internet functionality, as well to show that, like MTS Allstream's view, other countries accept that market forces alone will not close the broadband gap.

1607   It's simply unrealistic to claim that market forces will do the job. The cost of delivering broadband services in rural and remote areas is very high and in many cases uneconomic in the absence of a subsidy. Quite frankly, without a subsidy those high-cost serving areas would continue to be unserved and underserved.

1608   This is why carriers are not pushing broadband out to these rural and remote areas. Market forces actually discourage it. The business case isn't there.

1609   With respect to the claim that government funding, be it federal, provincial and/or municipal will fill in the gaps, this approach on its own is also incomplete and unsustainable.

1610   As the Commission is well aware, there have been numerous broadband deployment programs launched by various levels of government over the last decade. At the federal level, these programs started with the $105 million Broadband for Rural and Northern Development, or BRAND program, in 2003; the $155 million national satellite initiative in 2004; and most recently the $225 million Broadband Canada Program which was launched last year and is still under way, which in combination amounts to not much more than was allocated to broadband deployment through the ILECs deferral accounts.

1611   There have also been well over a dozen separate provincial broadband programs launched as well, a few which are currently in progress.

1612   According to our estimates, such government-funded programs have jointly provided roughly $1.4 billion in public subsidies for broadband services over the last 10 years or about $140 million a year on average.

1613   While these programs are certainly welcome and have provided benefits to Canadians, the fact of the matter is that the government funding often comes in the form of one-time only or time-limited subsidies that expire, leaving no incentives to upgrade over time and no guarantees of continued service once the funding has dried up.

1614   We cannot wait for someone unforseen breakthrough to suddenly make broadband service to currently unserved and underserved customers profitable. In the absence of such a breakthrough, market forces will not push broadband service into the high-cost areas.

1615   Government programs may be able to fund part, but definitely not all of the price tag and not on a sustainable basis. MTS Allstream believes that we have a workable solution for motivating the industry to serve high cost areas sustainably, reliably and affordability. Our proposal is based on a proven mechanism that uses and builds on the existing contribution regime which, as Teresa noted earlier, has delivered world-class results.

1616   If the Commission decides to mandate a basic broadband service objective, then the sustainable way to achieve universality is:

1617   first, by updating the basic service objective to include broadband; and

1618   second, by expanding the existing local service subsidy regime to give incumbents already obligated to serve the basic telephone service objective both the obligation and the economic support to support high cost areas with broadband access service.

1619   In high-cost serving areas as currently delineated, we advocate subsidizing a single provider, the ILEC, for providing high-speed Internet access, subject to that provider accepting an obligation to provide the service. This makes eminent sense because ILECs currently have an obligation to serve all customers in high-cost serving areas and therefore already have the contiguous infrastructure in place which can often be leveraged to fulfil an obligation to provide high-speed Internet access in the same areas. The coverage of alternative service providers is generally restricted to the denser pockets of these communities.

1620   While the proposed obligation to serve broadband could apply immediately in the non-forborne areas where ILECs offer broadband services which are fully compliant with the established broadband service objective, a broadband service deployment and improvement program would need to be developed to ensure that over a reasonable period of time similar quality broadband services are made available in all existing unserved and underserved areas.

1621   Our proposal would have each ILEC develop something akin to a time-orientated service improvement program subject to the Commission review and approval in order to establish the funding requirement to expand broadband coverage to all unserved areas and improved broadband services in underserved areas in their respective operating territories.

1622   To ensure broadband SIP funding requirements are minimized, there should be no constraints on technology used, as long as the broadband service being delivered under the program is fully compliant with the established broadband service objective.

1623   History has proven that the contribution mechanism has been effective in maintaining affordable telephone service to Canadians in high-cost areas. There is no reason to believe that this mechanism cannot do the same again in the case of broadband.

1624   The actual costs will only be able to be determined after the SIP process described above has been duly assessed, however we have prepared a preliminary estimate based on public information of the potential cost to close the broadband coverage gap in high-cost areas.

1625   Based on information filed in this proceeding, and in the deferral accounts proceeding, our estimate is that closing the coverage gap over 10 years will cost approximately $700 million per year. We realize this amount may cause a bit of sticker shock, however it's actually lower than the contribution requirement for the BSO in 2000 and the burden borne solely by the interexchange carrier or long-distance carriers prior to 2000.

1626   Naturally, if the BSO is to include broadband, then the industry revenues associated with retail paging revenues, which are largely from text messaging, and retail Internet revenues would have to be included in the pool of contribution eligible revenue. This would increase the base of contribution eligible revenue by more than 30 percent.

1627   Not only would doing so be consistent with the reality that these services are basic in nature, adding these revenues, which have been growing by nearly 20 percent each year, it would also provide $60 million in additional contribution per year at the current contribution rate of 0.73 percent. This addition would replace declining revenues from wireline voice that currently define basic service.

1628   Based on this preliminary analysis, the current contribution rate of 0.73 percent would need to increase to about 2.7 percent of the expanded contribution eligible revenues pool. While that may look like a significant increase, it's quite low in comparison to what we see in the United States where the universal service fund contribution factor may top 15 percent.

1629   With the additional subsidy from the increased contribution rate, plus the amount from the expanded pool of eligible revenues, we arrive at the $700 million per year necessary to fund a 10-year roll-out. Not only do we think this is workable, we think it's the only way universal broadband can be achieved in a way that ensures rural and remote Canada can get up to speed and stay up to speed with the rest of Canada.

1630   Now, regarding the technical specification of an updated VSO or broadband VSO, the precise characteristics of the broadband aspect would necessarily need to be determined in a follow-up proceeding, but we wish to emphasize two points about the risk involved in either setting too low or too fixed a standard.

1631   The first point is that any definition must continue to be relevant or else we will end up setting a standard like dial-up in 1999 that quickly becomes useless from the perspective of the average Canadian

1632   As we noted in our submission in the Digital Economy Strategy Consultation, while it may be appropriate to articulate certain technical specifications at a later stage, forecast and mandating speed is often counterproductive and an unnecessary process given the perpetual rapid increases in broadband speeds.

1633   The second point is that we have to be clear that having a broadband standard means that everyone has access to a prescribed minimum threshold of functionality, not that everybody has access to the highest level of functionality.

1634   In other words, the goal of universal access should not be misunderstood as being a goal of uniform access.

1635   We say this because competitive market forces and implementation efficiencies drive the business cases to provide accelerated speeds and increased functionality in denser urban areas first, and only then fanning out into progressively less dense areas over time.

1636   Accordingly, we prefer the National Broadband Task Force's functional definition of broadband service; that is:

"A high-capacity, two-way link between an end user and access network suppliers, capable of supporting full motion interactive video applications."

1637   As a starting point, though, we suggest that a minimum download speed of 3 to 4 megabytes per second would be a reasonable starting point today, but there are a variety of other characteristics to consider, as well, such as minimum upload speed, minimum monthly usage limit, and price, among other things, each of which would clearly need to be reviewed periodically as technologies improve.

1638   The 3 to 4 megabytes per second today could easily be much higher the next time the Commission reviews basic service. That is why we caution against setting a fixed standard.

1639   Mr. Chair, Commissioners, I would like to conclude MTS Allstream's opening presentation with a fitting proverb, which says: The best time to plant a tree is 20 years ago. The second best time is now.

1640   Recognizing that a network is in many ways like a tree, we say that now is the time to plant the first seed, and to do so by updating the 1999 BSO.

1641   While the exact design and implementation of a basic broadband service objective would require a follow-up proceeding, the other route is, as some parties have suggested, to leave the broadband gap to governments and market forces alone.

1642   The Commission is in the best position to close the broadband gap, whereas the other alternatives do nothing, and allowing that gap to widen would widen another serious gap, the gap between Canada and its international peers, who are each taking bold steps now to ensure that their citizens are served by a globally competitive information and communications technology infrastructure.

1643   There is no question that closing the broadband gap is squarely within the Commission's mandate, and there is no question that the Commission has the necessary authority to do so.

1644   With this mandate comes the corresponding authority under the Telecommunications Act to update the term "basic service" to include broadband access, to interpret the term "basic telecommunications service", and to mandate contribution to a fund for the purpose of access by Canadians to those basic services.

1645   What is more, the Commission has today the necessary regulatory scheme with the current contribution regime in place to make basic broadband access universal, if it so chooses.

1646   The Commission can achieve the same world-class universal penetration for broadband that has been achieved for telephone service, and it can do so in a way that benefits Canadians and Canada as a whole, not to mention the industry itself.

1647   Thank you for the opportunity to participate in the hearing. We are open to your questions.

1648   THE CHAIRPERSON: Thank you for your very interesting presentation.

1649   Let me make sure that I understand this. When Teresa started out, she said that the basic service obligation is no longer needed for forborne areas. Then, when you talk about the broadband proposal, you obviously assume that it's in place.

1650   Would your basic service application, assuming that we adopt it, only apply in non-forborne areas?

1651   MR. SHEPHERD: Yes, that's correct. In our view, forborne areas, based on the data we have seen, largely already have achieved a basic level of broadband service, so we are suggesting that a broadband basic service objective would apply in non-forborne areas.

1652   THE CHAIRPERSON: In paragraph 55 you have a little hook in there:

"In high-cost serving areas, as currently delineated, we advocate subsidizing a single provider, the ILEC, for providing high-speed internet access, subject to that provider accepting the obligation to provide the service."

1653   Why is that "subject" in there? Basically, either you have an obligation to serve or you don't. Now you are making it a voluntary obligation to serve?

1654   That sounds like a contradiction in terms.

1655   MS GRIFFIN-MUIR: Yes, it's not actually intended as a contradiction in terms, it's more saying that we have an obligation, the obligation is defined by the Commission for non-forborne areas, and we are funded, somehow -- the way we are today -- to fulfil that obligation.

1656   So once we are mandated, I don't think it's a question of -- or, we didn't intend it as a question of us saying yes or no to the mandate. If you are mandating us, we have that obligation.

1657   THE CHAIRPERSON: So I can basically ignore that sub-sentence.

1658   You think that this means $700 million a year, and you say in paragraph 62 that this means the contribution rates will go up from .73 to 2.7.

1659   What exactly does this mean for the average user?

1660   I mean, we would obviously be triggering a price increase in telephone service across the country. Have you made any modelling as to what this would be like?

1661   MS GRIFFIN-MUIR: The short answer is, no, we haven't modelled what it would look like.

1662   We actually looked at the revenue levy that is applied to service providers. So the .73 to the 2.75 is really the rate that MTS Allstream and other service providers would use to apply to their contribution eligible revenue to contribute to the fund.

1663   Now, it's true that somehow that rate always gets to the customer, but it's never quite as direct. It's not a one-on-one relationship. It could be spread over a number of services. It could be, as has been the case in several instances, applied to long distance, wireless, in very indirect ways.

1664   THE CHAIRPERSON: You don't think it will result, as we have seen in broadcasting, with the BDUs passing on the costs, saying, "This is a mandated CRTC cost"?

1665   The telephone company is saying, "Here, this is a mandated CRTC broadband cost. Therefore, we have to increase -- here is your bill, and here is the extra $2 that you have to pay because of us."

1666   MS GRIFFIN-MUIR: Actually, the regime, as it stands today, prevents that. So, as I was saying, all carriers, including ourselves, have found ways to pass on the fee.

1667   So, yes, I do think that, eventually, the customer will cover the cost, but we were prohibited -- the carriers were prohibited, actually, from having it as a specific line item on our bills.

1668   THE CHAIRPERSON: In forborne areas, too?

1669   MS GRIFFIN-MUIR: Yes. Generally speaking, yes.

1670   THE CHAIRPERSON: And you want to increase the base -- I am looking for the paragraph where you say that, in order to calculate the subsidy, you want to bring in some extra source of income.

1671   I'm looking for the paragraph where you say that.

1672   MS GRIFFIN-MUIR: I am not sure what paragraph, but I can tell you that it is strictly -- there is a prescribed -- it's one of the forms now as part of the monitoring report, but there is a prescribed way in which the actual contribution payment that MTS Allstream and others make is calculated.

1673   The contribution eligible revenues for each carrier are determined using a specific formula that, today, excludes retail internet revenues, for everybody. So what we are saying is, it's logical that if you decide that broadband is part of the basic service objective that the revenues associated with broadband service, i.e., retail internet, should also be included in the base of revenues, subject to the contribution levy.

1674   THE CHAIRPERSON: It is paragraph 61 that I am talking about.

1675   MS GRIFFIN-MUIR: Right.

1676   THE CHAIRPERSON: We have heard a lot of submissions on the formula, saying it's wrong, that the costing is too low. Aliant says that we shouldn't apply the productivity factor to remote areas, that the imputed $5 is too low, et cetera.

1677   So you basically say, leave the formula as is, just change the amount on which you calculate it.

1678   MS GRIFFIN-MUIR: I think we are talking about two different things.

1679   THE CHAIRPERSON: Okay.

1680   MS GRIFFIN-MUIR: We do say, change the formula that the carriers use to calculate how much they actually have to pay into the subsidy fund.

1681   I believe what Aliant is talking about are really the costs in high-cost serving areas. They actually want to get rid of everything, but they are talking about the costs -- the uneconomic portion that is funded through the subsidy.

1682   I will let Kelvin speak to the cost part of it, but --

1683   THE CHAIRPERSON: It's not only Aliant, lots of people take issue with the formula.

1684   MS GRIFFIN-MUIR: Right.

1685   THE CHAIRPERSON: I just want to know, if I accept your proposal in paragraph 61, what do I do with the formula, do I leave it as it is or not?

1686   MS GRIFFIN-MUIR: If you accept our proposal, you would -- if you are talking about the formula for carriers to contribute to the fund --

1687   THE CHAIRPERSON: Yes.

1688   MS GRIFFIN-MUIR: -- you would modify it so that you include the revenues from retail internet services.

1689   THE CHAIRPERSON: Right.

1690   MS GRIFFIN-MUIR: And in terms of the costs --

1691   THE CHAIRPERSON: So, in effect, just so I am clear, in the formula, the rates, as they are right now -- the formula is the cost minus the rates, plus productivity, plus the imputed $5.

1692   So, in effect, the rates number would change, because you would apply it to a different base.

1693   Is that what you are saying?

1694   MR. SHEPHERD: Let me take a crack at that, Mr. Chair, kind of following it all the way through.

1695   We are saying on the contribution formula that the rate of contribution would have to be increased. Now, the 2.7 percent that we calculated is a very high-level estimate. We are not suggesting that that wouldn't change after you went through a detailed review, but that would have to change.

1696   We are suggesting that the pool of revenue that that rate would be applied to would be expanded to include additional services, primarily retail internet services.

1697   We are saying that the basic structure of the formula is fine, in terms of the costs that are used in the calculation. We don't think there is anything fundamentally wrong with the way the costs are calculated, the costing methodology.

1698   We recognize that different people have disputes about some of the specific costs.

1699   We are not opposed at all to the idea, if the Commission wants to re-examine costs, but we think, largely, that the costs that are there reflect the actual costs. They were all based on quite extensive studies at the time.

1700   In fact, in the case of MTS's costs, they were actually done by Bell Canada, on our behalf, and submitted by Bell. So, you know, there is some authority behind them, in terms of the work that was done.

1701   We don't think there is anything fundamentally wrong there, but as with anything else, costs change over time, and if the Commission determined that they wanted to re-examine the question of costs in high-cost serving areas, we think there could be some merit in doing that, but we certainly think that the current methodology and the current approach of looking at costs specific to each carrier is important and should be maintained.

1702   THE CHAIRPERSON: Let's assume that I buy into your suggestion. If I understand it correctly, we would enunciate these as principles, that you include the internet revenue, that where we have a basic service -- it only applies to forborne areas, that the basic service obligation is somewhere around 4 or 5 megabytes down, and then have a follow-up proceeding to work out the details of how this could be implemented over 10 years.

1703   That is essentially what you are suggesting?

1704   MR. SHEPHERD: Yes.

1705   THE CHAIRPERSON: Thank you.

1706   Peter, over to you.

1707   COMMISSIONER MENZIES: Thank you.

1708   I am a little confused by your numbers. The $700 million a year for 10 years was in your oral presentation today, and in your written presentation you estimate costs at between -- for a full broadband expansion, to be between $9 billion and $15 billion.

1709   Could you clear up that confusion, please?

1710   MS GRIFFIN-MUIR: Yes, certainly. At the time we made our written submission, we were basing it on public record information filed by ourselves and Bell and TELUS in the deferral account proceeding, and that was a per household -- we based it on the uneconomic portion per household to come up with the $15 billion.

1711   Once the decision came out, the estimate approved by the Commission -- so the uneconomic portion of the costs funded was reduced.

1712   In other words, the actual amount of deferral funding made available to cover the uneconomic portion was lowered, so we lowered our estimate.

1713   COMMISSIONER MENZIES: So you are really confident on the $7 billion, because --

1714   MS GRIFFIN-MUIR: No. No, we --

1715   COMMISSIONER MENZIES: -- this is, you know, a billion here, a billion there.

1716   MS GRIFFIN-MUIR: No, actually what Kelvin just explained is, this is a high-level estimate to give you order of magnitude. So, in accepting the principles, we would then look at the cost.

1717   But I think, order of magnitude, it's a very reasonable number.

1718   COMMISSIONER MENZIES: It sounds a little bit like a blank cheque, if we were to approve the proposal and not have a firm idea on the cost.

1719   MS GRIFFIN-MUIR: Actually, what we are suggesting is that you then get a firm idea. So you would have us and other carriers propose precisely how we would roll out a high-speed internet service to high-cost areas, and approve those costs.

1720   COMMISSIONER MENZIES: Okay. I didn't find your response -- I didn't understand your response, put it that way -- or it wasn't as precise as I wanted -- to the Chairman's question regarding how much, in your estimate, this is likely to cost the average telecom consumer, because that is where the money is coming from. Right?

1721   MR. SHEPHERD: Ultimately, the costs will be borne by consumers and businesses, yes.

1722   COMMISSIONER MENZIES: Right. So I think it would be fair to those people for them to have some idea of what we are talking about.   

1723   MR. SHEPHERD: If you assumed that 100 percent of it flowed through, you could assume that if there was a 2.7 percent contribution rate, you could work that back, I assume, and try to figure out what that would be as an increase on total revenues in the industry that would be passed on.

1724   I have not done that. I don't know what that is going to be, but you can assume that, at a minimum, if it's $700 million a year, which Teresa said is a high-level estimate -- so we are not putting a stake in the ground and saying that that is anything more than an estimate -- you would assume that that $700 million would be recovered through rates somewhere in services provided.

1725   COMMISSIONER MENZIES: Give me a ballpark -- $5 a month, $10 a month, $20 a month, $50 a month?

1726   MR. SHEPHERD: I don't have a ballpark to give you, so I am reluctant to give you one off the top of my head.

1727   COMMISSIONER MENZIES: If somebody could work it out and get it to us -- I think it's only fair for the public and business, which is going to be paying for this, that while we are discussing it, we give them at least a ballpark --

1728   MR. SHEPHERD: Okay. Let me give you a real rough idea, then. It is going to be in the order of, probably, 1 to 2 percent on a bill.

1729   COMMISSIONER MENZIES: How much is that in dollars?

1730   MR. SHEPHERD: It depends on what you are spending, but if you are an average consumer, with a $30 phone bill for basic service, 2 percent on your $30.

1731   If you spend $150 for internet, a wireless phone and some other things, it's 2 percent on the larger number.

1732   If you want a rough idea, that's the sort of range that you would be thinking about.

1733   COMMISSIONER MENZIES: Okay. That was hard.

1734   MR. SHEPHERD: It's not -- I guess it's not a 10 percent increase in consumer fees, is what I am saying.

1735   COMMISSIONER MENZIES: Okay. In your written presentation you said that public funding from the general tax base would be welcome. I just wanted to clarify whether that was a preferred outcome or whether the model you mentioned in your written submission, and expanded upon today, is your preferred outcome.

1736   MR. SHEPHERD: Let me clarify my remarks. I think, over the last 10 years, government has put in well over a billion dollars of funding, and I don't think anybody would say that funding isn't welcomed, it has improved access.

1737   What we are saying is, we don't think that's a particularly effective or sustainable way of funding, so we are not suggesting that, in a future mechanism, government funding through that mechanism would be part of the funding model. We are saying that it should really come through a modification to add broadband to the basic service objective, and to fund it through a subsidization regime.

1738   COMMISSIONER MENZIES: But that would be in addition to the broadband BSO.

1739   MR. SHEPHERD: Yes.

1740   COMMISSIONER MENZIES: Thanks.

1741   MS GRIFFIN-MUIR: I'm sorry, when you say in addition to the broadband BSO, the government funding would be in addition to the broadband BSO?

1742   I'm not sure that we --

1743   COMMISSIONER MENZIES: I am just trying to get the numbers straight. If we are talking $7 billion or $10 billion, your estimate is based on: This is how much it would cost without additional government funding.

1744   MS GRIFFIN-MUIR: That's right.

1745   COMMISSIONER MENZIES: I just want to clarify something in your written submission. You threw in there -- suggested the elimination of the requirement to distribute Yellow and White Pages, except upon request, I take it, and I wanted to know what the financial impact of that would be.

1746   MR. SHEPHERD: Could I ask you -- the financial impact on the customer --

1747   COMMISSIONER MENZIES: Yes.

1748   MR. SHEPHERD: -- or on the carrier?

1749   Currently those directories are distributed in paper form, and usually as part of the basic service. We are suggesting that that requirement, to substitute a paper directory, is quickly becoming obsolete and not required for most customers, and that we could replace the requirement to, essentially, distribute paper to everyone with a requirement to only distribute it to people that request it.

1750   COMMISSIONER MENZIES: Right.

1751   MR. SHEPHERD: So there would be no financial implication to the customer.

1752   COMMISSIONER MENZIES: Okay. But it would save you money, I'm assuming.

1753   MR. SHEPHERD: It is going to help save costs. I think you have to be cautious about who ends up saving the money, because in many cases there are different agreements between the publisher of the directory and the carrier, as to how those costs are actually borne. But there would be cost savings, certainly.

1754   COMMISSIONER MENZIES: Thank you.

1755   I am curious about your suggestion -- and I am not sure which paragraph it is in your oral presentation, but I footnoted it as paragraph 32 in your written submission -- that the definition of access would be service-based, instead of using transmission rate, in terms of -- I think the phrase was that we would measure it as significant enough to be capable of supporting full-motion, interactive video applications.

1756   That is different from what we have heard from others.

1757   Isn't it a little subjective, in terms of people's various expectations for what, for instance, the word "support" might mean?

1758   MR. SHEPHERD: Perhaps I could try to elaborate a little bit, and hopefully address your question.

1759   The National Broadband Task Force definition, which we went back to because we think it is relevant -- it was produced by quite an esteemed panel and process that came up with that definition, and it really goes back to the issue of functionality: what can consumers of an internet service actually do with the service.

1760   Do recognize that that eventually, probably, has to get translated into something as specific as a transmission rate.

1761   So, in our discussion today, we tried to translate that requirement into the, roughly, 3 to 4 megabyte per second range that we say, today, we think would constitute a service that would meet that definition.

1762   But, as I cautioned -- and I don't know whether this is a good example or not, but it is one that I will give you to show how difficult it is to actually set specific standards. I think, at one point in time, Bill Gates was quoted as saying that 640K of ram is more ram than anybody will ever need on their computer.

1763   Now, nobody is saying that Bill Gates is a dumb guy. He's a lot smarter than I am.

1764   I am saying that 3 to 4 megabytes today is a good rate. It probably won't be the rate that you need down the road, but it does depend on what happens with the applications and what consumers and businesses are using their access for.

1765   One thing I can tell you is that dial-up does not cut it. I think we all understand that.

1766   We could have, probably, a healthy and vigorous debate about whether a minimum is 1.5 megabytes, whether it's 3 or 4 megabytes, whether it's what Australia has set at 12 megabytes, but what I can tell you is that it's not dial-up, and the requirement today is probably, like Mr. Gates and his estimate of memory, going to be underestimated in terms of the future requirement.

1767   So we think that the 3 to 4 megabytes we have talked about is a good starting point. We are not suggesting that it is where you need to end up in 10 or 15 years, but it's a good starting point, and it would, we think, meet the functional requirements that the National Broadband Task Force laid out.

1768   COMMISSIONER MENZIES: You are very clear in your presentation that you don't believe that market forces are incapable of serving some of these remote areas, and that there is no business case, but I am trying to understand that in terms of the presentation yesterday afternoon by Barrett, which seems to have investors and a business plan to serve those areas.

1769   How can one person in the industry be doing one thing, and the other saying something completely different?

1770   MR. SHEPHERD: I can't comment on Barrett's business case. They know their business case and their business. They obviously feel that there is an opportunity there.

1771   I can only tell you, from firsthand experience, and practical experience on the ground, what customers in these communities and what stakeholders in these communities are telling me, and they are not seeing that service.

1772   There is always next year, and next year turns into five years or ten years, and market forces are not driving universal broadband coverage into these rural and remote communities at anywhere near the rate that internet is progressing in competitive markets in urban areas, where people have choice.

1773   I am not going to debate -- in fact, I don't want to debate, nor am I in a position to debate what other companies say. If they say there is a business case, I would say good. I say that the practical experience, the numbers, and what people in communities in rural and remote areas are seeing doesn't support the view that an affordable, reliable, quality broadband service is readily available today.

1774   COMMISSIONER MENZIES: I am curious, also, to get your response to the chart that Bell Aliant showed us yesterday, which showed that western ILECs are receiving more than six times the subsidy per line than Bell Aliant gets, and that they serve equally remote areas.

1775   MR. SHEPHERD: Yes, I have seen the chart. I guess I would make, probably, two or three key points.

1776   First of all, I think the point they are trying to make with that is primarily around cost. Although it talks about subsidy, it really goes back to, I believe, the costs that are included in the formula are too high.

1777   COMMISSIONER MENZIES: Yes.

1778   MR. SHEPHERD: I would go back to say that the costs are what the costs are. They were established through a very rigorous, disciplined process. They were reviewed by the Commission. They were approved by the Commission.

1779   I think, actually, the costs probably reflect the reality that there are different costs in this country to serve different areas.

1780   Now, I don't know -- I will tell you, I am an engineer by background, and I don't know what the costs are in New Brunswick, and I doubt if Bell Aliant knows what the costs are in Snow Lake or Tadoule Lake or rural Saskatchewan.

1781   I would suggest, for them to say that costs that have been reviewed and approved by the Commission, through quite a disciplined and rigorous process -- I would say: What is the basis for saying those costs aren't accurate?

1782   Now, costs change. Technology changes. We have no argument with the view that, on a reasonable interval, the Commission may want to review the costs, but I don't think, to suggest that those costs are somehow inappropriate, that there is any real basis in fact to make that suggestion.

1783   COMMISSIONER MENZIES: On a different topic, the concept of competition for the small ILECs, your position is that it should be allowed in, obviously, non-forborne areas, but how would you -- there is the argument on the other side which says that to do so could undermine the business case for those ILECs and put at risk service to those communities.

1784   I would like you to help me understand why you don't think that is true.

1785   MR. SHEPHERD: I don't think that is true and I would probably make two or three points, in my view, that the Commission should think about.

1786   So the first is -- and I admit, having worked for an incumbent for most of my career, it sounds suspiciously like the same arguments incumbents made as to why competition would be bad in their own territories, and that hasn't proven to be the case.

1787   Customers have continued to be served and, in fact, I would argue that that competition has spurred investment, has spurred innovation, has created productivity and actually has improved overall the level of service to consumers and businesses.

1788   I don't really think it would be different in a small ILEC. I understand that small ILECs have different challenges. However, I think history has proven that competition, even in a small area, will ultimately be beneficial.

1789   It does create the possibility that those small ILECs may not continue to exist in the form they exist, which I think is a factor in the industry.

1790   And you could suggest that, you know, the other fallout of competition has been some companies have failed, some companies have consolidated, some companies have been bought.

1791   That might be an outcome but I don't think there is any evidence. It is quite theoretical and no practical example that I am aware has been brought forward where introduction of competition in an area has resulted in customers not receiving service.

1792   So I would suggest that it is more of a theoretical concern than a practical concern and that the track record in the industry and in the world has been that the introduction of more competition ultimately is beneficial and that companies that are successful thrive and that companies that are not successful in a competitive environment, largely customers are not the ones that suffer from that, the companies sometimes do but not the customers.

1793   COMMISSIONER MENZIES: Thank you.

1794   THE CHAIRPERSON: Len, do you have some questions?

1795   COMMISSIONER KATZ: Thank you and good morning. I have about half a dozen questions.

1796   I want to come back to your estimate of $700 million per year to fund a broadband proposal if we were to move that way. That amounts to about $7 billion over time, notwithstanding cost of money, and that will get us access to 100 percent of Canadians from what is today 95 percent.

1797   Is that my understanding of what you are trying to -- your model says?

1798   MR. SHEPHERD: I am not suggesting that you will ever get to 100 percent because I don't think even in terms of telephone penetration you have reached there, but you certainly can get a much higher percentage.

1799   The goal would be to, in effect, achieve virtually that, but I mean I think, Mr. Commissioners, you know there are always going to be some cases where you are going to have exceptions.

1800   COMMISSIONER KATZ: Do you agree with some of the evidence that we have before us, that the Commission filed as well, that indicated that adoption in Canada is in the 65 to 70 percent range today?

1801   MR. SHEPHERD: Adoption of broadband --

1802   COMMISSIONER KATZ: That is right.

1803   MR. SHEPHERD: -- or Internet or broadband Internet?

1804   COMMISSIONER KATZ: Broadband.

1805   MR. SHEPHERD: I think on an overall basis that is probably a good estimate.

1806   COMMISSIONER KATZ: Okay. So I guess I pose the question to you: Notwithstanding the role of the CRTC in whether we can or cannot get involved in the adoption component, is spending $7 billion to go from 95 percent to 99-plus percent the best investment as opposed to using a $7-billion figure from somewhere in order to increase adoption to Canadians and move it from 65 percent to closer to the 95 percent access that currently exists?

1807   MR. SHEPHERD: Well, I think it is an interesting question and a valid one, but I will give you my view on it.

1808   I think we are talking about two different issues. Adoption is actually affected by a number of different factors and I think generally speaking adoption where access is available has increased and continues to increase.

1809   But certainly, there are different factors around the adoption: demographic factors, affordability factors, access to a computer being a main driver. So --

1810   COMMISSIONER KATZ: But at the end of the day it is the consumer that is going to pay the freight, regardless of whether it is a direct subsidy coming from some government agency to fund a $7-billion program if that is what it takes to move adoption up or an indirect subsidy coming from a broadband-related national contribution regime. At the end of the day, they are going to pay for it.

1811   MR. SHEPHERD: Yes, I agree, but let me go back to the difference.

1812   I think adoption is a different problem and a different issue than access and I think fundamentally if people have access but choose not to use it for whatever reason, that is fundamentally a different challenge than not having the opportunity.

1813   What we are talking about here is Canadians who do not have the opportunity and that is a different factor and that is why we suggested something that is a valid objective and it is something the Commission should consider.

1814   Not to say that adoption isn't an important issue, but I think adoption where people have availability of the service is really a different issue than people not having any access.

1815   COMMISSIONER KATZ: But money could solve part of that adoption problem?

1816   MR. SHEPHERD: Oh, I don't disagree that some of the adoption issues, not all but some, may relate to fundamental affordability.

1817   COMMISSIONER KATZ: Okay. You also say in your evidence that we are living with an old BSO dial-up which is 10 years old and we need to get with the times, but one of the things that you skirt over is the fact that wireless and satellite are with the times today and do provide an alternative.

1818   And yet, I think, through your evidence and again this morning, you have talked about the fact that wireless and satellite do not provide the necessary technology applications and capabilities to get us into the next generation, if I can call it that. Why is that?

1819   MR. SHEPHERD: Let me try to tackle that.

1820   So, first of all, in terms of wireless, wireless is a pretty broad term. Specifically we were talking mobile wireless, which is the most broadly deployed, you know, whether it is 3G or 3G+ or ++, whatever, you know, pick your acronym, but the idea of mobile broadband, which is becoming more widely deployed and for some people in some areas is a substitute.

1821   But what we would suggest and what I would suggest is that there are very very real limitations in terms of capability and cost that prevent mobile broadband services from really being an effective substitute for true broadband as would be used by a business or a consumer in a fixed environment.

1822   I think you only have to look at the challenges that carriers have in just keeping up with mobile broadband requirements to understand that those networks would basically break if you actually got any significant penetration of high-capacity usage in a fixed environment going over them.

1823   Now, there are other wireless technologies -- WiMAX, 4G technologies, fixed wireless technologies -- that can be engineered and deployed and I think there is no doubt that those play a role and would play a significant role in extending broadband.

1824   I would suggest though that the business cases for those are difficult. Where those technologies have been deployed, they have been deployed typically through -- directly through the application of government funding and the coverage quality and reliability is limited.

1825   Let me give you a personal example. I was in Brandon about two weeks ago at a conference and I was talking to a person that came up. He had broadband wireless access from a provider in Manitoba. That provider was Craig Wireless. They were bought by -- recently bought by Inukshuk, who shut the service down. And so he was hunting for a replacement. He had tried two or three other wireless service providers and none of them -- they had all come out. None of them could actually serve his location.

1826   COMMISSIONER KATZ: Yes.

1827   MR. SHEPHERD: The trees were blocking. So --

1828   COMMISSIONER KATZ: That acquisition was done for different reasons and --

1829   MR. SHEPHERD: Oh, I understand that, but all I am saying is that -- all I am saying, Mr. Commissioner, is that there are limitations in today's deployment of wireless. It is costly, it doesn't serve effectively a high percentage of customers where it is deployed, mostly because people can't afford to deploy enough towers.

1830   And so when you get back to the issue, it is not a technology issue per se, it is the cost of effectively deploying the technology that is the issue.

1831   Similarly with satellite. Again, I think satellite has a place. I am not downplaying the potential use of satellite. We use it to serve remote communities ourselves. But I haven't see any evidence today that suggests that for typical customers satellite is a preferred mechanism both in terms of performance and cost. It generally has issues.

1832   Now, I understand there may be new satellites, there may be new technologies, and I think -- my view is all of those things will help, but I would simply go back to suggest that if -- as I said in my remarks, if you want to rely on market forces, on new technology and on government funding, I think that creates at the end of the day a pretty unreliable patchwork of service to service these communities.

1833   COMMISSIONER KATZ: Mr. Shepherd, you said you use satellite technology today. To what extent do you use it in rural and remote areas for broadband services?

1834   MR. SHEPHERD: We don't use it for broadband today. We use it primarily for telephone service.

1835   COMMISSIONER KATZ: Okay.

1836   One of your suggestions is to use the contribution regime to fund the rest of the broadband rollout.

1837   To the extent that some provinces have already rolled out broadband through 100 percent of their population and have done it through provincial direct subsidy means, if we were to pursue your recommendation, those provinces basically have funded it themselves and so what we would see is those customers in those provinces subsidizing and funding shortfalls for construction of broadband services in those areas where provinces did not choose to make the investment.

1838   Number one, I ask you if that is fair, and number two, how to you respond to that?

1839   MR. SHEPHERD: Well, let me respond in a couple of ways.

1840   First of all, I am aware of the high level of the funding arrangements in those areas and clearly there has been some type of one-time funding put in place.

1841   I think there is a question that would have to be examined about whether the service being provided meets the minimum that the Commission might decide is required and also whether that service is sustainable.

1842   So over a period of time, I think the sustainability question would come into play and even carriers and customers that might have service today may still see benefit in a longer term more sustainable program.

1843   In terms of the fairness, I guess I would simply applaud those places that have managed to reach that objective, but sometimes there is a price to be paid for being progressive and I guess it would be a matter of considerable debate, I guess, as to how to handle those situations.

1844   I don't have a suggestion as to how you would do it in a fair manner, but I guess it would be a good question to be asked.

1845   COMMISSIONER KATZ: Did the Province of Manitoba fund any broadband rollout services through government subsidies in the province?

1846   MR. SHEPHERD: I don't believe, to my knowledge, the province has. I know in our own case we, I believe, received funding at least in one area as part of a joint community proposal through -- it may have been Brand.

1847   And I know there have been other, many other smaller providers that have received government funding, but I don't believe that it was provincial funding. I believe it was all federal programs.

1848   COMMISSIONER KATZ: Okay.

1849   My last question. What are your views on portability of contribution should -- you are in favour of competition, obviously. There is contribution in those markets that are subsidized.

1850   What are your views with regard to the portability moving across to an alternative provider who chooses to go into the market?

1851   MS GRIFFIN-MUIR: Well, in terms of the existing service we are not suggesting any changes to the regime.

1852   The thing we think should be borne in mind is once the cost is made in the existing -- sorry, the investment is made in the existing regime, the thought was the subsidy goes with a local loop. So ultimately the investor, the ILEC in that case, is compensated.

1853   With broadband we are not recommending a portable regime unless that is the case. So once the ILEC makes the investment, there has to be some opportunity for a return on that investment. So either you are using our broadband loop wholesale or we are, but --

1854   COMMISSIONER KATZ: Now, Miss Muir, I wasn't looking at the broadband regime here. I am looking purely at the contribution regime as it exists today.

1855   MS GRIFFIN-MUIR: Oh! As it exists today, yes, we have said leave it alone.

1856   COMMISSIONER KATZ: You are not in favour of portability?

1857   MS GRIFFIN-MUIR: It is portable today.

1858   COMMISSIONER KATZ: It is?

1859   MS GRIFFIN-MUIR: Yes. And we are saying fine.

1860   COMMISSIONER KATZ: Okay. Those are my questions.

1861   THE CHAIRPERSON: Candice?

1862   COMMISSIONER MOLNAR: Thank you.

1863   Just a couple of questions in order of your presentation.

1864   The BSO. On paragraph 20 you talk about wireless not being a reasonable substitute and you bring up issues of both quality and pricing and affordability and so on.

1865   We as much as possible should be putting forward regulations that are technology neutral and we could in some ways adjust the BSO to address issues such as those addressed through your pricing issues: unlimited calling or equal access, as an example.

1866   Do you believe if we were to adjust the BSO to address some of those pricing features, for example, that the service needed to provide unlimited local calling and should have equal access to long distance networks, do you believe the technical limitations of wireless would still cause you to say it can never be a substitute?

1867   MR. SHEPHERD: Let me try to tackle that.

1868   So, first of all, I think wireless, be it mobile wireless or kind of modifications of mobile wireless infrastructure, can play a role and a very effective role in serving -- in providing basic service. So I think there is an opportunity there. Certainly some modifications to the BSO might assist in that.

1869   I think fundamentally what we were trying to communicate, the more fundamental issue with wireless is that, and particularly in rural areas and high-cost areas, these mobile networks are deployed for mobile coverage. They are subject to real limitations in terms of quality and reliability primarily because of the nature of the technology and propagation.

1870   So the simplest example I can give you is that people expect their phone to work in their basement, and oftentimes in a rural area a wireless phone may not work in a house because the signal just isn't strong enough to penetrate and to go through the structure.

1871   It also has the characteristic that, of course, the further you are away from the transmitting location and receiving location, the less capable -- capacity in terms of data you generally have and that is simply related to the way wireless technology works.

1872   So there are ways to get around that and they generally involve a lot more towers and a lot more money in many of these rural areas.

1873   And so really what we are suggesting is that mobile wireless service as it is deployed is engineered to meet mobile requirements, and while it often will substitute effectively for basic service and can do so, there are some features and technical things that might have to be adjusted to make it entirely equivalent.

1874   But there are many cases where it simply isn't a substitute. Even if a customer wants to disconnect their wireline phone, their wireless phone doesn't work effectively.

1875   MS GRIFFIN-MUIR: But just to be clear, we are talking about what we think is the most efficient right now. We do agree with you that whatever the mandate it should be technologically neutral.

1876   So if it were the most cost-effective and wireless, even mobile wireless today could work. We wouldn't be opposed to it. I think we are just suggesting it is not the most cost-effective way to do it now.

1877   COMMISSIONER MOLNAR: Okay, thank you.

1878   I am going to turn to the issue of broadband, as my colleagues have. I apologize if some of my questions might be a bit redundant.

1879   I tried to understand from the conversation that -- just to be clear, your $700 million per year estimate, is that based on the information you provided in this attachment that says 69 percent of high-cost areas are unserved?

1880   MS GRIFFIN-MUIR: Yes, it is based on that information. The NAS comes from here and the actual per household dollars come from the deferral account.

1881   COMMISSIONER MOLNAR: Okay. So if you are not served with DSL, you consider them to be not served?

1882   MS GRIFFIN-MUIR: Yes, that is -- well, not served with broadband according to the information on the record of this proceeding, yes.

1883   COMMISSIONER MOLNAR: But this schedule that you have provided us is simply where do the ILECs have DSL?

1884   MS GRIFFIN-MUIR: DSL, yes, that is right.

1885   COMMISSIONER MOLNAR: So --

1886   MS GRIFFIN-MUIR: So where somebody else may be --

1887   COMMISSIONER MOLNAR: -- Atlantic provinces that have 100 percent coverage today, you have measured as having none because it is not DSL?

1888   MS GRIFFIN-MUIR: Potentially, yes. I don't know what -- it would make a difference. I think what we are just saying is here is our estimate, we will look at what is really happening when we get all the data.

1889   COMMISSIONER MOLNAR: Yes. Because you are not proposing to us that all customers should be served on DSL?

1890   MS GRIFFIN-MUIR: No. As we just said, it is technologically neutral.

1891   COMMISSIONER MOLNAR: Okay.

1892   I want to ask you about something I talked briefly yesterday with Barrett about and that is the difference between the last mile and the middle mile.

1893   While we are all looking at the objective of the customer penetration and that is ultimately the objective, I think there are potentially two different issues and that is service to the last mile and funding the middle mile.

1894   A lot of the government programs that have been in place, at least some of them, you know, the SuperNet, the CommunityNet, for example, have funded the middle mile.

1895   What are your views as to where are the true or where are the more significant cost issues in serving the high-cost areas? Is it the last mile where potentially there is a mix of fixed and satellite and DSL and alternate service providers and technologies to serve or is it that middle mile, the backhaul costs?

1896   MR. SHEPHERD: Well, it is a good point because in many -- it really does depend on the geography and the -- a number of factors, the geography and the population distribution.

1897   So, for example, let me take a very kind of real example, a place that I am sure not many folks in this room will have been at, but Pukatawagan, Manitoba. A lovely place to visit. It is a fly-in remote location. It is served by satellite today. Clearly -- and by the way, in terms of distribution of population they tend to be clustered in a very small area.

1898   So it is a community with very few people living outside the community and in a scenario like that, backhaul costs tend to be the predominant issue because actually distribution, local distribution is actually probably more easily solved than cost effectively solved, but the costs to get bandwidth to that location on a reliable basis are very very large.

1899   So that is an example where backhaul costs dominate and are very very significant.

1900   There are other types of scenarios which might exist, for example, in a more distributed area where you have, again, probably a significant backhaul component but where access becomes a bigger part of the cost equation, where you have many individual land holdings that are distributed over a broader area.

1901   And so you really do have to look at each situation and both situations can be high cost, but in the first example backhaul is a huge component that really makes it very difficult to serve cost effectively.

1902   In the second one, often backhaul can be shared because there are many communities spread out along a route and so there is more efficiency in the backhaul and the last mile distribution becomes a bigger component of the cost structure.

1903   So it really does depend on the exact situation and it varies significantly. I know in my province --

1904   THE CHAIRPERSON: Mr. Shepherd, I am sorry to interrupt you but could I ask you to be a bit more concise.

1905   MR. SHEPHERD: Sure.

1906   THE CHAIRPERSON: We are running out of time. I have three more questioners lined up and we have to get through this. I apologize but --

1907   MR. SHEPHERD: No problem.

1908   THE CHAIRPERSON: -- if you can just answer the question, we would appreciate it.

1909   COMMISSIONER MOLNAR: Thank you. I will conclude my questioning now.

1910   THE CHAIRPERSON: Okay.

1911   Tim?

1912   COMMISSIONER DENTON: Good morning.

1913   When you mentioned the possible figure of 1 or 2 percent on the bill, is this on the basic component of the bill or on the total bill?

1914   MR. SHEPHERD: It would be on the total bill because generally speaking all elements of a bill would be largely subject to contribution.

1915   COMMISSIONER DENTON: Right.

1916   One of the things that concerns us if we get into this area of mandating these kinds of outcomes or mandating the kind of funding you are talking about is its relationship to provincial and federal subsidies that have already occurred.

1917   How should we take into account the fact that certain provinces have invested in this area more heavily than others?

1918   MS GRIFFIN-MUIR: I think, as Kelvin said, it is a question of revisiting that and I am not sure you could totally take it into account. It is a question of what is the requirement nationally and then what would the funding -- the new investment look like in a relative sense.

1919   We still support a national scheme. We still think it is the most efficient way to get that accomplished. So I don't know that there is a particular way that that can be taken into consideration in what we have looked at.

1920   COMMISSIONER DENTON: Okay.

1921   Now, you said, I believe, that your proposal is technologically neutral, but how would it affect satellite, for example?

1922   MS GRIFFIN-MUIR: Well, for example, as Kelvin was saying, if that is the most effective, efficient way to reach the customer, that is the way we would reach the customer.

1923   COMMISSIONER DENTON: Okay.

1924   MS GRIFFIN-MUIR: So all we are suggesting is we would find the least-cost technology.

1925   MR. SHEPHERD: We have suggested one method. The method we suggested is that if the Commission did decide to proceed, you would require companies to develop a service improvement program and generally speaking those programs have been mandated to use least-cost approaches and to be able to demonstrate that a least-cost approach has been used.

1926   So an option -- a satellite option would have to be one of the options considered and if it was least-cost it would have to be the one that was proposed.

1927   COMMISSIONER DENTON: Okay.

1928   As you know, you have probably heard some of the other parties speak of the potential legal challenges to such a scheme if we were to develop it.

1929   May we expect MTS to be participating in such cases to defend the right of the CRTC to act in this way?

1930   MS GRIFFIN-MUIR: Well, we have also put forward an opinion that suggests -- well, we believe actually you have the authority to mandate this. The Act gives you that authority. So I mean we obviously disagree with those who have put forward a differing opinion.

1931   COMMISSIONER DENTON: Thank you for that careful evasion of my question.

--- Laughter

1932   COMMISSIONER DENTON: I am satisfied. Thank you very much.

1933   THE CHAIRPERSON: Marc?

1934   COMMISSIONER PATRONE: Thank you, Mr. Chair, and good morning.

1935   Just a note of clarification for me on page 7, paragraph 38.

1936   The 700,000 households that do not have access, we are talking about -- and I know this sort of is the access versus adoption question -- but are those households that want the service and don't have access or is it your understanding that that includes those that don't have a computer and have no interest in having one?

1937   MR. SHEPHERD: I believe that is simply an estimate of those that don't have access. We haven't tried to apply a factor and say that only X percent of them would take the service. It is simply an access figure.

1938   COMMISSIONER PATRONE: Okay. So it represents everybody, including those who, for whatever reason, have no interest in getting the service?

1939   MR. SHEPHERD: Yes, although I believe -- you know, our own experience is that if broadband access is made available, and penetration rates do vary, but certainly, most communities range between 50 and 75 percent who would take service if it is available. So --

1940   COMMISSIONER PATRONE: Did you say 50 and 75?

1941   MR. SHEPHERD: 50 to 75 is kind of the range I see, at least in the serving area where we provide service.

1942   COMMISSIONER PATRONE: So somewhere between half and three-quarters would --

1943   MR. SHEPHERD: As a typical number, yes.

1944   COMMISSIONER PATRONE: Now, last question, having to do with an issue which I know you have discussed to a degree and that is the issue of market forces.

1945   The matter of market distortion has been raised a number of times during this proceeding and I wanted you to address that for me within the context of your proposal and suggestion by some that say that this would distort the market and burden the very industry that we are trying to promote and stimulate.

1946   MS GRIFFIN-MUIR: Well, today, if you just look at the basic service objective, since we don't have a business case, since there is a huge uneconomic portion, nobody would serve those communities. That is why we have the mandate to serve and that has a very long history.

1947   So if we don't want to distort the market by mandating broadband, we are essentially saying some people or some communities will not have broadband. I mean that is the market distortion you are talking about.

1948   So it is really a question of policy, and, as we said, even when you look internationally, I mean it is viewed as necessary infrastructure ultimately for consumers and businesses to operate over the longer term.

1949   COMMISSIONER PATRONE: Do you buy into the potential dampening effect on capital investment that has been also raised as an issue insofar as they apply to subsidy programs and rollouts of this type?

1950   MS GRIFFIN-MUIR: Dampening effect on whether we would invest in a non --

1951   COMMISSIONER PATRONE: Dampening effect from capital markets as they might have accrued to firms looking for money in the markets in order to do rollouts. You know, when you look at that within the context of -- you are nodding your head, so I think you get where I am going.

1952   MS GRIFFIN-MUIR: Well, I understand what you are saying. You are suggesting though that there is a business case and we are suggesting in those pockets there is not a business case. So obviously, we don't agree.

1953   COMMISSIONER PATRONE: Those are my questions. Thank you, Mr. Chair.

1954   THE CHAIRPERSON: Thank you.

1955   Suzanne?

1956   CONSEILLÈRE LAMARRE : Merci, Monsieur le Président.

1957   Just one issue. In your submission as well as your presentation this morning, you are quite clear that you don't think that SILECs should benefit from any different treatment than the other ILECs that do exist right now.

1958   And in your presentation this morning you do point out a situation where the small ILEC who may be serving principally an urban area is a division of a national company -- gee, I wonder who we are talking about here -- or competes outside their territory.

1959   I need to know, for you to make the statement that you see no justification for different treatment for SILECs, have you gone through the list of the 36 small ILECs that do exist in Canada currently, looked at their customer base, the territory they serve? Have you done that?

1960   MS GRIFFIN-MUIR: Yes. We are familiar with those ILECs and the territory --

1961   COMMISSIONER LAMARRE: Okay.

1962   MS GRIFFIN-MUIR: -- or SILECs, whatever --

1963   COMMISSIONER LAMARRE: Okay. So you still maintain that Courcelles with 500 customers, Gosfield North with 1700 customers, Execulink with 5400 customers, should get the same regulatory treatment as yourself, MTS, as an ILEC, as Bell and as TELUS? That is your position?

1964   MS GRIFFIN-MUIR: Yes.

1965   COMMISSIONER LAMARRE: Okay.

1966   MS GRIFFIN-MUIR: What we are suggesting is the framework would work the same way for them as it does for us.

1967   COMMISSIONER LAMARRE: Okay. I just wanted it to be clear.

1968   MS GRIFFIN-MUIR: Yes.

1969   COMMISSIONER LAMARRE: Thank you.

1970   THE CHAIRPERSON: Okay, thank you.

1971   Before I let you go, let me make sure I understood you correctly. There was a lot of talk about investments done by provinces and the federal government for broadband structures.

1972   So the scheme that you suggest, which obviously would have a nominal formula, if I understood you correctly, Mrs. Griffin-Muir, you suggested that the formula should take into account somehow, province by province, to what extent there has been already state funding?

1973   MS GRIFFIN-MUIR: No. I am suggesting they wouldn't be part of the cost. We haven't really thought about how to take that into consideration.

1974   THE CHAIRPERSON: But that also would mean that you would have a disproportionate impact. So in those provinces where there has been provincial investment, the ILEC basically has much lower costs than in those where there hasn't.

1975   MS GRIFFIN-MUIR: That would be correct, yes.

1976   THE CHAIRPERSON: That is part of doing business?

1977   MS GRIFFIN-MUIR: No. I have to be frank with you, we haven't taken that into consideration at all one way or another.

1978   THE CHAIRPERSON: Okay.

1979   Well, thank you very much. It was very interesting. I think that you thought it through about what it would mean to put broadband into the BSO and giving me figures to the extent that they are available. It really makes our job much easier. Thank you very much.

1980   We will take a 10-minute break.

--- Upon recessing at 1035

--- Upon resuming at 1053

1981   THE SECRETARY: Order, please. À l'ordre, s'il vous plait.

1982   THE CHAIRPERSON: Okay. Commençons, Madame.

1983   THE SECRETARY: So Mr. Chairman, I will now invite Bragg Communications Inc. to make its presentation. Appearing for Bragg is Natalie MacDonald.

1984   Please introduce your colleagues. You will have 25 minutes for your presentation.

PRESENTATION

1985   MS MacDONALD: Thank you.

1986   Good morning, Mr. Chairman and Commissioners, Commission staff. I am Natalie MacDonald, VP Regulatory for Bragg Communications Inc.

1987   With me here today is Ron Mervis, Regional Manager, Southwestern Ontario and Natasha Wirtanen, Regulatory Analyst.

1988   Bragg Communications, on its own and through its wholly-owned subsidiaries, provides broadcasting distribution services, high-speed internet and telephone services throughout its service areas across nine provinces. We operate under the business name "EastLink".

1989   Bragg is also the parent company to two small incumbent telephone companies, known as Amtelecom and People's Tel, both of which operate in communities in Southwestern Ontario.

1990   Our subscriber base is primarily comprised of customers residing in smaller towns and rural areas and through our investments and upgrades in these communities, we have been able to bring digital and high definition cable, improved internet speeds of 15 Mbps and higher and competitive local exchange services to hundreds of communities that were otherwise unserved or underserved.

1991   EastLink is in a rather interesting position because we operate as both a CLEC and a SILEC. The SILEC operations are relatively new to us, as we acquired those systems in 2007 and having the opportunity to learn and experience the SILEC operations has enabled us to provide a balanced consideration of the issues in this proceeding from the perspectives of both a CLEC and a SILEC.

1992   The Commission has proposed that the parties address a number of specific questions at this hearing. Our views about these issues are based on the underlying principles of the Policy Direction, which mandates that the Commission should:

"...rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives..."

1993   And:

"...when relying on regulation, use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the... objectives."

1994   EastLink's approach to business is one that supports a competitive marketplace, with as much reliance on market forces as possible. Today, the markets we operate in are very competitive, with an increased number of entities now competing within the same service category.

1995   Our cable operations face competition from satellite, fibre-to-the-home, IPTV and other cable providers.

1996   We provide competitive telephone service in the markets of the large incumbent telcos, bringing new products and service options to customers.

1997   As a SILEC, in compliance with the existing Telecom Decision 2006-14 framework we accepted the entry of another CLEC into our incumbent territory.

1998   The benefits of competition cannot be overstated. Businesses and residential consumers experience significant direct benefits when competition forces operators to be innovative and to find ways to improve services. We support an environment that embraces the opportunity for companies to continue to invest and expand and where the regulatory regime treats all players equitably.

1999   In keeping with our support of a competitive marketplace, and consistent with the Policy Direction, we believe that the issues in this proceeding should be addressed with a view to streamlining regulation, allowing market forces to operate without unnecessary regulatory intervention and striking an appropriate balance among all stakeholders.

2000   At the same time, the transition to less regulation should not result in long, unnecessary delays and processes.

2001   One of the major issues for us in this proceeding is the current suspension of CLEC entry into the SILEC territories. We request that the Commission lift this suspension so that consumers in these communities can receive the benefits of competition.

2002   EastLink requests that, at the conclusion of this proceeding, the Commission take immediate steps to approve CLEC entry plans in those exchanges where implementation plans have been filed, and require SILECs to comply with the 2006-14 process in response to entry plans that have been filed by the CLECs. Companies like EastLink have been waiting almost two years in some cases to enter these territories.

2003   We also oppose the creation of a regulatory regime that includes broadband as part of the basic service objective and we similarly oppose the inclusion of broadband in a subsidization regime.

2004   We will now address each of the issues on which the Commission has requested the parties to comment.

2005   We believe that the obligation to serve continue to apply only for the incumbents in the exchange. Various parties have offered comments as well on when the obligation to serve should be removed. In keeping with the principles that regulation should only occur where and to the extent necessary, as markets become competitive, it would be appropriate to remove the obligation to serve.

2006   If the Commission accepts that a competitive market means consumers will be able to receive basic telecom services at affordable rates, then the obligation to serve could be withdrawn once a market is competitive. The Commission has already established a test to apply in determining when a market is sufficiently competitive to protect the interests of users.

2007   The forbearance test provides a reasonable and administratively efficient means by which to assess when an obligation to serve should be removed. We propose that the obligation to serve be withdrawn once a market is forborne.

2008   We do not believe any significant changes to the basic service objective are required at this time. Additionally, contribution subsidies should continue to be available to those entities that meet the basic service objective in a high-cost serving area.

2009   EastLink acknowledges that wireless service may, in some cases, be used as a substitute for wireline services. However, at this time, we do not support proposals that wireless services be treated as a full substitute throughout all serving territories. Given the lower adoption rates in rural areas and within certain demographics, as well as poorer coverage and other issues in rural and other areas, we are not prepared to accept that wireless service is a full substitute for wireline service today.

2010   EastLink believes that the basic service objective should not be modified to include high-speed internet service. Expansion of broadband is already occurring as a result of very aggressive competition, upgrades to existing carrier networks and new technologies.

2011   The markets will naturally continue to expand to meet Canadians' needs for broadband without imposing a regulatory obligation to provide it. The evidence already provided in this proceeding establishes that today 95 percent of Canadians have access to high-speed internet services.

2012   The expansion of broadband has been supported not only by competitive market forces, but also by government initiatives. EastLink's experience is that in order to remain relevant to our customers, and in order to be competitive in these markets, we must continually upgrade our facilities and improve our broadband offers.

2013   In EastLink's case, we have expanded the rollout of high-speed internet into many rural communities across the country, including in many small systems, such as Elliston and Burlington, Newfoundland and Labrador, each of which has only slightly more than 100 customers. These customers now enjoy services comparable to those offered in urban markets, with speeds of 15 Mbps.

2014   In some communities, we have also been upgrading our internet speeds to offer 30 Mbps and 100 Mbps speeds. These higher speed services are available in a number of markets, including Hanover, Ontario, Grande Prairie, Alberta and New Minas, Nova Scotia, as well as in even smaller markets such as Elmwood and Neustadt, Ontario.

2015   Numerous other companies, including SILECs, ILECs and wireless providers, are also improving their networks to bring high-speed services to small, rural communities throughout the country. As this activity is already underway, we believe there is no need to regulate further.

2016   If the Commission has concerns about whether the pace of activity will slow down, or whether growth in rural areas will not occur, then it may be appropriate to reassess these issues at a later date. All indications are that, today, we are witnessing an aggressive and active marketplace with regard to broadband rollout.

2017   We are opposed to the inclusion of high-speed internet as part of the basic service objective and the introduction of any subsidy regime to build out broadband to unserved communities.

2018   EastLink has been at the forefront of expanding services to rural and small communities. The investments we have made into these areas are significant. The evidence filed in this proceeding illustrates that 100 percent of consumers in Nova Scotia, Prince Edward Island and New Brunswick have access to internet services. Companies will invest and are investing into these areas.

2019   Additionally, parties such as Barrett Xplore have indicated an intention to serve areas throughout all of Canada using the new cost-efficient technology of next-generation satellites with coverage to 100 percent of Canadians.

2020   Provincially and federally-funded government broadband expansion programs continue to provide opportunities for companies to expand their broadband footprint.

2021   EastLink does not support establishing a regulatory regime that will subsidize some carriers while others have already made the investment or will make the investment. Such a regime would be difficult to manage and it would create inequities among carriers.

2022   We recognize the significant challenges the Commission faces on the issue of the local service subsidy regime. While there may be some opportunities to streamline this, we do not believe that it is necessary to conduct a full review of the costs and high-cost serving area definitions used in the calculation of subsidy amounts. Such an undertaking would place a significant burden on parties' resources and would require an extensive process and a significant amount of time to complete.

2023   The subsidy should continue to be reduced over time, not expanded. One way it can be reduced by removing subsidies to operators in forborne markets. If a market is able to sustain multiple providers, including new entrants who must create a new customer base, it suggests that there is a business case to serve that market without reliance on subsidies. Once these markets are forborne, it makes sense that the subsidies for that market would no longer be available.

2024   EastLink supports retaining the current regime of a CLEC receiving the subsidy in a high-cost serving area until it is no longer provided in a given market. On principles of competitive equity a new entrant should not be required to compete with a subsidized incumbent.

2025   There is no reason to deny consumers in SILEC territories the benefits of competition. The Commission should continue to allow CLEC entry into these markets, pursuant to the regime established in Decision 2006-14.

2026   EastLink has provided notice of entry into the markets of five SILECs, some of which were initiated almost two years ago. We invested heavily into network upgrades at that time in reliance on the process established in Decision 2006-14 so we could offer telephone services to our customers in these exchanges. Those upgrades have been for the most part complete for over a year and, yet, we still cannot offer our customers telephone service in these exchanges.

2027   Yet, our affiliate, People's Tel, has faced competitive entry by Execulink in the Forest and Arkona exchanges pursuant to the same decision. People's Tel currently serves less than 550 NAS in the Arkona exchange and has faced aggressive marketing offers from Execulink. Execulink's success is also evident in business markets, which have recently been forborne in Forest.

2028   For the most part, the SILECs who operate in these Ontario exchanges where EastLink has sought competitive entry are successful, innovative and competitive incumbents. Most of these SILECs are very familiar with competition as they have moved beyond their incumbent markets into adjacent territories where they compete as CLECs, broadcasting distribution undertakings and internet providers. Some of these SILECs also offer cellular services.

2029   In this proceeding, the SILECs paint a picture where their businesses would be in dire circumstances should they be required to allow competition in their incumbent territories. And yet they compete aggressively in other markets.

2030   Outside their SILEC territory they offer triple and quadruple play bundles, and, in some cases, they tie their customers to multi-year contracts. At the same time, they enjoy the security of a monopoly incumbent market where they receive full subsidies in exchanges where we are prohibited from offering telephone service.

2031   The fact that the SILECs can assume the risks of investing heavily in other small markets, where they have to win over customers from the incumbent, and that they are doing so in some cases with lower-priced offers, raises serious doubt about their claims of instability in their incumbent markets.

2032   For instance, Wightman Communications operates as a SILEC in Mildmay, Ayton and Neustadt. They also operate as a CLEC in at least 11 exchanges outside of their incumbent market.

2033   Wightman has been building fibre-to-the-home in their non-incumbent markets of Harriston, Listowel, Palmerston and Mount Forest, markets that are also served by EastLink. They are offering bundles priced at $84.95 for cable (high definition, 67 channels), telephone and 20 Mbps of internet. In comparison, EastLink offers its services at a price of $103.95 for a triple play bundle.

2034   Despite the fact that Wightman has the freedom to build the CLEC operations in these exchanges to compete with us, we are not currently permitted to offer telephone services in Wightman's SILEC exchanges.

2035   The SILECs are currently able to enjoy monopoly status in their SILEC territory and yet the regulatory regime permits them to overbuild EastLink's cable territory with fibre and sell cable, telephone and internet to EastLink's customers at competitive prices. This suggests that their circumstances are not nearly as dire as they would have the Commission believe.

2036   In fact, in one community, Listowel, Ontario, where EastLink is the incumbent cable provider and Bell Aliant is the ILEC, there are two SILECs now competing with us as CLECs and offering services via fibre-to-the-home.

2037   EastLink respectfully submits that the SILECs have exaggerated the costs that they will incur by allowing competitive entry. EastLink is able to draw on its own experience with the costs of competitive entry as a result of Execulink's entry into People's Tel Forest and Arkona exchanges.

2038   For instance, the SILECs claim that a separate carrier services group will incur significant costs, to the tune of $500,000. However, the Commission itself has recognized that a carrier service group is not necessary where the parties are willing to negotiate an alternative arrangement.

2039   People's Tel and Execulink were able to negotiate an alternative through confidentiality agreements which alleviated these CSG costs. To date, this appears to be working well for both parties.

2040   Additionally, the SILECs cite the need for significant resources for tariff filings required to implement competition. Again, People's Tel did not experience any onerous tariff filings and, in fact, many of the tariff items referenced in the OTA submission were unnecessary for competitive entry since each party already had arrangements in place for many of those services.

2041   Generally, our experience with Execulink's entry was that we were able to work through many of these issues in order to coordinate a relatively smooth transition to a competitive market. There were some one-time costs, such as entry into the LNP Consortium at approximately $10,000, and membership costs to Neustar. EastLink suggests that these costs could be minimized if there were support for a combined sharing of these costs.

2042   An industry group, such as the OTA, may also be able to coordinate sharing of one-time costs, facilities, et cetera, if it could minimize some of these costs. In no circumstances, however, should the new entrant be responsible for the SILECs' costs of competitive entry.

2043   In many cases, the SILECs are already familiar with number portability as they are operating as a CLEC in other markets. For some SILECs their existing SILEC switches may already have the functionality to perform LNP. Switch upgrades are often required as a normal course of business. In the event a switch upgrade is required, there may be opportunities for mutual arrangements amongst smaller companies for sharing of equipment and resources, as such shared arrangements are not uncommon.

2044   It seems that when it is to their advantage to be creative and efficient to minimize costs, the SILECs can do so. This is evidenced by their success in other lines of business, including cable. However, when it is not to their advantage, they claim that their costs are excessive, as they have in this proceeding, in order to deny competitive entry.

2045   Even if the SILECs are capable of incurring costs to the extent they have described in this proceeding, if anything it simply illustrates that there are a lot of inefficiencies in the way they operate the business. In that case there is clearly room to improve efficiencies and reduce the subsidies they receive.

2046   EastLink submits that competitive entry into the territories of the SILECs should be permitted. The SILECs should be mandated to comply with the processes established in Decision 2006-14. For those larger or more experienced SILECs, particularly those that have CLEC operations and/or cellular operations, the Commission should also ensure that the process for competitor entry into these territories is enabled with minimal delay.

2047   The Commission seeks comments on whether the SILECs should be subject to any special considerations. Today, there are some differences in the regulatory treatment of SILECs and these existing distinctions remain appropriate. However, we do not propose any additional special considerations.

2048   The SILECs have made claims that there will be a "doughnut effect" with competitive entry, where the CLEC will focus on the core of the exchange and the SILEC will be the exclusive provider in the outlying areas. The loss of NAS in the core, the SILECs say, will put their business operations at risk.

2049   As a result, they claim they require ongoing subsidies and, in some proposals, they claim they should be compensated for the loss of the NAS as well.

2050   We submit that the alleged risks to their business as a result of this "doughnut effect" are not borne out by the evidence and should not be given any significant weight in the Commission's analysis.

2051   People's Tel is a SILEC and Execulink now competes with us in the Arkona and Forest exchanges. As with any business-focused company, when faced with competition, our reaction is to reassess the business, consider where customer loyalty can be established, where operations can improve and where new services can be provided to minimize customer loss and also to gain customers. The SILECs are doing this already by expanding into other territories and through their fibre-to-the-home builds and their provision of cellular services.

2052   As such, we do not agree that there should be special considerations for the SILECs beyond what is already provided in 2006-14. It is through that process that the Commission already has the discretion to assess specific applications and investigate whether a certain, unique approach may be warranted.

2053   To conclude, we believe that the 2006-14 framework for competitive entry remains appropriate. This, along with the objectives of the Telecom Act and the Policy Direction allow the Commission both to support competition and allow for exceptional circumstances.

2054   We believe that it is imperative that all current applications for CLEC entry into the SILEC territories be processed as soon as possible so consumers in those territories can also benefit from competition. Permitting CLEC entry into the SILEC territories is one of our core concerns in this proceeding.

2055   Additionally, and consistent with the Policy Direction, we believe that a transition away from more regulation is appropriate as markets become more competitive. The evidence establishes that this is happening today. With that transition, we believe that our proposals to minimize subsidies, to eliminate subsidies in competitive markets and to not impose new obligations in the basic service objective are appropriate.

2056   Thank you.

2057   THE CHAIRPERSON: Thank you for your submission.

2058   Let's go back to the issue of broadband. You are quoting figures all over the place. You are also using apparently high speed and broadband interchangeably, et cetera. Let's stick with broadband.

2059   I'm going to ask Bell Aliant if they could define it as sort of 1.5 megabytes and down, et cetera. You were mentioning all others and we had all sorts of other speeds that were given by various providers. We had long discussions yesterday.

2060   Let's assume we want to establish a minimal national goal for broadband access. What should that be in your view?

2061   MS MacDONALD: Subject to further consideration and opportunity to comment in reply, I would say that, you know, a number of parties have proposed that a broadband goal of 3 to 4 Mbps down would be appropriate and I think that's something that, you know, we could look to supporting.

2062   But I would like the opportunity to clarify that.

2063   THE CHAIRPERSON: Well, please, do. I think MTS before you actually said 4 -- between 5 -- and, as you know, the Americans established 4. But I would be interested in your views, given from your position.

2064   Now, you basically make a strong case that this will happen through market forces. There is no need for us to intervene, to put in a basic service obligation. You say:

"The evidence already provided in this proceeding establishes that today 95 percent of Canadians have access to high-speed internet services."

2065   As you know, it's the 5 percent that we are worried about where there is no business case to be made for it and, yet, you make -- very strongly argue we shouldn't concern ourselves. Why? How will those 5 percent get access?

2066   MS MacDONALD: I guess the point that I'm making is today there is 95 percent with access to high-speed internet, and certainly there is ongoing investment and expansion.

2067   And, as we heard from Barrett Xplore yesterday, I think they paint a really good picture as to where the future is in terms of all Canadians having access. In fact, they had indicated that they have 100 percent coverage at a lower level and they have full plans to expand that out you know beyond.

2068   THE CHAIRPERSON: What Barrett did not speak about is the initial setup costs.

2069   I happen to know from personal experience. You know to have satellite access to my cottage costs me 700 bucks. That's you know 100 kilometres outside of Ottawa. God knows what it costs in remote areas, et cetera.

2070   Yes, they can reach you and, yes, maybe their monthly rates are competitive but the initial setup costs are quite substantial and for people in remote areas, you know, undoubtedly it will only go up.

2071   MS MacDONALD: Yes. Well, if I recall correctly -- and I would have to check the transcript -- but my recollection of what Barrett Xplore had said yesterday was that when they compare the costs for them to provide these services, it was significantly lower than some of the other costs for comparable providers.

2072   In fact, they had made the distinction that for one of their services there was no distinction between the urban and rural costs so other costs would be similar.

2073   THE CHAIRPERSON: I think they were talking about ongoing costs. I'm speaking of setup costs.

2074   But essentially you are thinking those 5 percent will be dealt with by either satellite or wireless, if I understand you.

2075   MS MacDONALD: Yes, we do.

2076   THE CHAIRPERSON: And then on the SILECs where you make this impassioned case that you have been stopped from going in while the local -- the cable company -- while the SILECs have gone outside their territory, et cetera, and you state some specific examples.

2077   And then you deal -- I mean is this across the board or in your experience you are one of these companies who because you bought sooner you are all over the place, et cetera. You gave us three examples. Are these examples representative of what is happening?

2078   MS MacDONALD: I will have to clarify that. Our focus of our presentation is our own experience, which is in relation to those SILEC territories where we have requested entry.

2079   The point being, though, that the framework that exists allows us and should allow us to enter under the circumstances that were established in 2006-14. There may be differences in other territories but we haven't really -- we haven't looked specifically to those.

2080   THE CHAIRPERSON: Would you be amenable to saying, yes, we will let you in but because of the high costs of number portability which I understand is one of the key -- you can come into SILEC territory but without number portability?

2081   MS MacDONALD: Our view and based on our experience in those territories where we are seeking access, is that we would expect and request number portability in those territories.

2082   There is significant evidence that these small ILECs either have potentially LMP-capable switches today or that they have the means by which to coordinate together for shared facilities, which is not uncommon among the smaller companies. Additionally, they are operating as CLECs in outlying territories.

2083   There may be -- and I think 2006-14 allows for some consideration of very exceptional circumstances but of course we would be concerned that, you know, we think the norms should be an expectation of LMP on entry.

2084   THE CHAIRPERSON: You mentioned that you did a special deal between People's Tel and Execulink. Did you pick up part of the costs of converting or providing them portability?

2085   MS MacDONALD: No. The reference to we worked through arrangements together was really just to say, you know, it was new to us having a competitor enter SILEC territory. There were issues around the capacity and the functionality of our existing switch. We had some discussions around different arrangements that could be made and then worked through them.

2086   Where there were cooperative efforts had to do with, for example, the carrier services group which both parties agreed to work an arrangement that would avoid incurring those separate costs. So those sorts of things are still possible for other smaller ILECs as well.

2087   THE CHAIRPERSON: Okay.

2088   Candice, you had some questions?

2089   COMMISSIONER MOLNAR: Thank you. Not many questions, actually.

2090   I wanted to begin though on paragraph 12 of your comments where you note that you don't believe or you believe that the obligation to serve should be removed once a market is forborne and not before, and that differs from the other cablecos. Where you have supported the evidence of the other cablecos on many issues, on this one you differed.

2091   MS MacDONALD: Yes.

2092   COMMISSIONER MOLNAR: Can you tell me why specifically you have a concern with this issue, relative to the other cablecos? Why would you be -- have a unique position on this?

2093   MS MacDONALD: I think the key point for us was when are you removing regulation?

2094   If the proposal is to remove regulation when it's no longer necessary, when we looked at this issue we thought, "Well, it's no longer necessary once a market is competitive enough to ensure that users have affordable service".

2095   So the Commission has already established a test that determines when a market -- when it has deemed a market competitive enough for certain purposes which is the forbearance test.

2096   So for us the forbearance test, it requires the entry of two providers, one of which is wireline. Therefore, we think that the threshold should be at least the forbearance test which is two providers. I believe the cablecos' position was one provider enters in the market and the obligation to serve goes away.

2097   So we felt that the forbearance test was the appropriate threshold.

2098   COMMISSIONER MOLNAR: For purposes of safeguarding consumers?

2099   MS MacDONALD: Yes, and for removal of the obligation to serve.

2100   COMMISSIONER MOLNAR: Right, okay. Thank you.

2101   You also say in paragraph 12 that contribution subsidies should continue to be available to those entities that meet the BSO.

2102   MS MacDONALD: In high-cost areas.

2103   So basically the contribution subsidy, we support it continuing to be a portable subsidy regime.

2104   COMMISSIONER MOLNAR: Okay. As you know there is many parties in this proceeding who have proposed that the subsidy be linked to the obligation to serve.

2105   MS MacDONALD: Yes.

2106   COMMISSIONER MOLNAR: And that only the provider who has the obligation to serve should be eligible to receive subsidies.

2107   MS MacDONALD: Yes, we are aware of that and, you know, our view is that the current regime for subsidy portability would continue and that it not specifically be linked to the obligation to serve.

2108   COMMISSIONER MOLNAR: And from an objective perspective what would be the reasons for us to continue to keep it portable versus to target that subsidy and link it to the obligation to serve? What's the benefit for us of keeping it portable?

2109   MS MacDONALD: Well, in the -- I think for us it's in the context of equitable treatment among competing carriers in a market.

2110   When that market is competitive, based on our proposal and some of the others in this proceeding, at some point there would be forbearance and neither party would have that subsidy. But until that time happens, both parties should be treated equitably when competing in the same market which has the same, you know dynamics and characteristics as a high-cost serving area.

2111   COMMISSIONER MOLNAR: And there are some who would argue that the availability of the subsidy within those high-cost areas could artificially incent competition. You know, getting an extra $20 per customer per month through a subsidy mechanism could cause entrants to artificially create a business plan.

2112   MS MacDONALD: I would think that -- you know I would say that any business plan that a company makes that's an efficient operating business would make its business plans on the case of the environment where they are entering and the business case to be made to serve and not fully reliant on subsidies as an exclusive reason to enter that market.

2113   Over time and, as the Commission reviews the subsidy regimes and starts to streamline it more, those companies will, you know, not likely be able to operate a viable business. I don't think any smart business would make a move like that.

2114   COMMISSIONER MOLNAR: Okay. And you propose that they be removed and when there is forbearance.

2115   So if a company entered on the assumption that they were going to receive subsidy, their entry could cause that subsidy to be removed through forbearance?

2116   MS MacDONALD: That would happen, yes.

2117   COMMISSIONER MOLNAR: So I understand, and we don't need to go into details, but I understand that you do receive subsidy in some of the markets you serve as a CLEC?

2118   MS MacDONALD: Yes, we do.

2119   COMMISSIONER MOLNAR: And removal of that is not an issue?

2120   MS MacDONALD: I think overall, and this is where for us, you know, getting into this proceeding and looking at the issues, I mean there is definitely you know different considerations. But ultimately, we want to expand our service. We want to build a business.

2121   So we thought the approach is what is the most reasonable way to operate a business efficiently without reliance on additional subsidies? So we would say that once a market is forborne neither party in that market which is deemed competitive would get the subsidy.

2122   COMMISSIONER MOLNAR: Okay.

2123   If we were to actually accept the argument of others that the subsidies should only be targeted to those that have the obligation to serve, a question I asked of Bell Aliant was: What do we do with existing CLECs who receive contribution within the high-cost areas?

2124   MS MacDONALD: So I think that although we maintain our position on the subsidy, should the Commission determine its tie to the obligation to serve, certainly CLECs who have been receiving subsidies have incorporated that into their planning and business plans.

2125   So I would expect that a reasonable approach would have to be a grandfathering or some other consideration to recognize the impact on simply stopping a subsidy regime on which certain business plans may have been made or incorporated part of those revenues.

2126   COMMISSIONER MOLNAR: Okay. So grandfather it only until the market becomes forborne and then that contribution is removed?

2127   MS MacDONALD: I haven't really thought about the process but, I mean --

2128   COMMISSIONER MOLNAR: But you are saying if it's forborne --

2129   MS MacDONALD: -- if the market would be forborne --

2130   COMMISSIONER MOLNAR: -- then subsidies are gone?

2131   MS MacDONALD: That would make sense, yes.

2132   COMMISSIONER MOLNAR: Okay, okay.

2133   I'm going to move to the issue of SILEC competition. You did speak with our Chair about the high-speed access and basic service issues.

2134   So I will move right to the issue of SILEC competition. As I mentioned the other day, that one of the things that I have learned in this proceeding is all SILECs are not the same.

2135   Would you see any reason or, I mean, I understand your position, open the markets in all SILECs and use the framework that's there today to assess on a case-by-case basis as necessary if there is any need to make accommodations for any specific SILEC.

2136   But would you see any reasons or not for redefining who may be termed a SILEC?

2137   MS MacDONALD: Well, I think the first statement I would make is, we weren't in the SILEC business in the days when all of those decisions were made.

2138   So certainly you know what I would say is that the Commission's reasons for establishing high-cost serving areas, if the basis for making those decisions which presumably has to do with the location and the fact that there isn't a highly-populated urban area, they are typically smaller areas, that the costs to serve within that territory would be considered relevant to determining the high-cost area than if you have companies that are independently operating in those areas then, you know, they would continue to operate as SILECs.

2139   I think it's one of those issues that would need a separate consideration, you know, to give anymore definitive answer on it. But there's a lot of SILECs that continue to operate in those high-cost areas and I think they should continue to be treated as SILECs.

2140   COMMISSIONER MOLNAR: Right. And there is a lot of high-cost areas also operated by ILECs, the majority of high-cost areas are actually operated by ILECs.

2141   MS MacDONALD: Yes.

2142   COMMISSIONER MOLNAR: But there has been significant change in the organization, operation and ownership of some of what have traditionally been ILECs. I mean, yours is a case in point where in 2007 you purchased what had been independent, you know, ILEC operations and they have now become part of a larger organization with access to greater economies of scale and so on than occurred in the past.

2143   So what defines a SILEC?

2144   MS MacDONALD: I think I would have to reserve comments on that. I think, you know, getting into an analysis or review of those issues would definitely involve, you know, I think a separate consideration. So I don't think I am in a position here today to say what a SILEC should be. But I do think that if the Commission has any concerns about the issues, that a separate proceeding is probably the way to go.

2145   COMMISSIONER MOLNAR: Okay, that is fair.

2146   I want to just talk briefly about your own experience as a SILEC in People's and where you said you had opened to competition. I am interested to know how you recovered your start-up costs.

2147   MS MacDONALD: I can tell you what the facts are, that we received -- when Execulink entered the territories we enabled the competitive entry. To date, we haven't raised any rates, so we have absorbed them to date within the company. But I don't know if that is the specific question that you are getting at or if there is something else.

2148   COMMISSIONER MOLNAR: No that, in essence, was my question. I mean, because one of the key arguments for being concerned about opening these markets is the impact, effectively, on the rates of those who remain within the SILEC's operating base. So you absorbed the costs?

2149   MS MacDONALD: Yes.

2150   COMMISSIONER MOLNAR: But People's, do they have their own financial statements or you absorb them within the Bragg/EastLink operations?

2151   MS MacDONALD: I believe they are filed separately, yes, they have their own financial statements, in with Amtelecom as well.

2152   COMMISSIONER MOLNAR: Okay.

2153   You touched on this with our Chair, and I just want to cover it again. You proposed in your evidence in this proceeding that some of the markets, those where there are requests in place that they should be opened before LNP is available?

2154   MS MacDONALD: Pardon?

2155   COMMISSIONER MOLNAR: That the markets, where you have requested competition in the small SILEC markets, that they should be opened immediately, even before LNP is available in those markets? I believe that is what you said in your evidence?

2156   MS MacDONALD: Oh, in the evidence. Well, I guess our first position is that we would like immediate entry with LNP in place. But at the time that the entry into SILEC territories was suspended we were certainly, I would say, rather distraught because we were already in the process of significantly investing in these territories.

2157   So we were basically hoping for any solution that would at least allow us to recover some of our investment by serving some customers in those territories. So for us it was, look, if we have to wait for this proceeding, then we at least would like immediate entry without LNP.

2158   But certainly, a no-LNP solution is not a long-term solution. It was really a request to have access so that we could start to recover a return on our investment that we had already made.

2159   COMMISSIONER MOLNAR: So entry without LNP is not a viable solution?

2160   MS MacDONALD: Most of our customers are customers who want to port their number so, no, it wouldn't be a viable long-term solution for a competitor to enter a local territory without LNP.

2161   COMMISSIONER MOLNAR: Okay.

2162   Just one more question about your request to enter the SILEC market. Right now there is contribution available to both parties: the SILEC and to the CLEC. If the contribution is not made portable, would that change your plans to enter any of these markets?

2163   MS MacDONALD: I think, as I said before, we need to make business decisions based on a lot of factors. So, for example, when we acquired the systems where we are currently looking to enter the SILEC territories there were cable systems already in place and needed upgrading. And so as a part of our desire to upgrade, you know, the choice to invest in those areas is based on being able to serve and also provide multiple services, including phone.

2164   When we make a decision to enter a territory it is not exclusively based on the subsidy, we have to make a good business case for entry anyway. So I can't say that we wouldn't choose to enter if there wasn't a subsidy. But I do think that any competitor that does enter should do so on equitable terms in terms of how the subsidy is distributed.

2165   COMMISSIONER MOLNAR: Okay, thank you. Those are my questions.

2166   THE CHAIRPERSON: Len?

2167   COMMISSIONER KATZ: Thank you, Mr. Chairman, and good morning.

2168   I am going to pursue the same line of questioning, I think maybe in a bit of a different way.

2169   I guess the first question is a general one. Should ILECs and SILECs be treated the same in high-cost serving areas?

2170   MS MacDONALD: I don't necessarily think they should. I understand that today the regulatory regime is somewhat different for small ILECs and even the assessment of the contribution subsidies, et cetera. It is my understanding also that there is expected to be a follow-up proceeding specific to the framework for SILECs after the conclusion of this proceeding.

2171   But at the outset, we would think that there may be differences to warrant a different treatment, which is the current regime today. I think there is a different treatment between the two.

2172   COMMISSIONER KATZ: Well, you own a couple of SILECs and you are competing in high-cost serving area, ILEC territory. So you would probably be the best party to give us some information as to how to treat those markets from a competitive perspective and from a consumer perspective.

2173   So I guess I look to you folks as being the model to sort of educate us in that regard. Because presumably, a consumer is a consumer, he doesn't know if he is in a SILEC territory or in a high-cost serving area ILEC territory, all he knows is he has a bill to pay, he is getting services. And what the Commission is entrusted to do is to make sure consumers get the best services for the most affordable price.

2174   MS MacDONALD: Right.

2175   At this point we haven't analyzed the differences between the two regimes. I know that there is a slightly different regime. We don't operate as an incumbent in any other high-cost territories, we operate as a SILEC. So I think it is something that would have to be reviewed again, you know, with a regulatory framework review.

2176   I don't have an answer, a specific answer.

2177   COMMISSIONER KATZ: By the time that regulatory framework review comes out this decision will have been rendered. So can I ask you in your final response to this proceeding to give some thought to that?

2178   MS MacDONALD: Sure. And in this proceeding we also have committed to say that there is a different regime for SILEC entry and under the 2006-14 regime there are some recognition of SILEC differences, and we maintain that that should continue to apply so we do standby that. But certainly, we can do that.

UNDERTAKING

2179   COMMISSIONER KATZ: Now, as I understand it, you are suggesting that subsidies be eliminated in competitive markets. So is that in forborne markets or in -- I am just looking at the last page, page 9, the very last sentence that you have in here, "With that transition, we believe that our proposals to minimize subsidies, eliminate subsidies in competitive markets, and to not impose new obligations in the basic service objective are appropriate."

2180   So my question again is, are you looking to us to render a decision to eliminate subsidies in competitive markets or in forborne markets?

2181   MS MacDONALD: Forborne markets.

2182   COMMISSIONER KATZ: In forborne?

2183   MS MacDONALD: Yes.

2184   COMMISSIONER KATZ: Not in competitive markets?

2185   MS MacDONALD: No. It would obviously be deemed competitive through the forbearance process.

2186   COMMISSIONER KATZ: But in those territories, SILEC in particular, "we forbear a 50 per cent competitive marketplace." So until it reaches that threshold, subject to some other conditions, you are saying that the subsidy should be portable. But once we decide to forbear, that subsidy is lost to both parties or to all parties in that market?

2187   MS MacDONALD: Our position is that in a forborne environment it would be lost to both parties. Now, as you had mentioned, subject to some exceptions, because the forbearance test is different in SILEC territories there may be some additional consideration given that the test is slightly different.

2188   COMMISSIONER KATZ: You talked with Commissioner Molnar with regard to the smaller ILECs and LNP and your views on LNP. Let me ask you this question.

2189   If this Commission decides that portability is lost when a competitor comes in, so basically it is not yet forborne but there is no subsidy moving across, but yet those funds can be used to subsidize LNP and whatever else is required through a transition period to allow the SILECs to recover their costs of meeting the marketplace with whatever software enhancements they need or LNP or whatever, what would your views be on that?

--- Pause

2190   COMMISSIONER KATZ: Let me restate the question. In lieu of portability of subsidies until forbearance, if the Commission chose to use those funds to subsidize the cost associated with making the network competitively enabled, what would your views be?

2191   MS MacDONALD: It is an interesting proposal. I would like to reserve an opportunity to comment on that in the rebuttal period or in the closing submissions.

2192   COMMISSIONER KATZ: Okay.

2193   My last question is on page 4 of your comments this morning. In paragraph 15 where you say that markets as small as Elliston and Burlington, Newfoundland and Labrador, enjoy services commensurate with urban, with speeds up to 15 mbps, what technology are you using to provide that?

2194   MS MacDONALD: That would be the upgrade to our cable facilities in Newfoundland.

2195   COMMISSIONER KATZ: So you are using coax --

2196   MS MacDONALD: Yes.

2197   COMMISSIONER KATZ: -- land-based, terrestrial-based technology?

2198   MS MacDONALD: And cable modems.

2199   COMMISSIONER KATZ: And cable modems. You are not using any satellite technology in your plant right now?

2200   MS MacDONALD: No.

2201   COMMISSIONER KATZ: Anywhere?

2202   MS MacDONALD: Not to my knowledge, no. I mean, we also have a wireless broadband rollout in very rural unserved communities in Nova Scotia that only had dial-up and we are in the process of working through that project now.

2203   COMMISSIONER KATZ: Thank you, those are my questions.

2204   THE CHAIRPERSON: Suzanne.

2205   CONSEILLÈRE LAMARRE : Merci, Monsieur le Président.

2206   Tout d'abord, j'aimerais vous remercier pour votre présentation.

--- Pause

2207   CONSEILLÈRE LAMARRE: Canal 1.

2208   Je veux vous remercier pour votre présentation. Vous nous faites part d'une expérience que pas beaucoup d'autres entreprises ont, autant en tant que petites titulaires que compétiteurs, mais je veux revenir sur un point dont vous avez discuté avec madame Molnar.

2209   Je comprends bien votre position, à savoir que dans un marché qui est réglementé, vous estimez que la subvention devrait être accessible autant aux compétiteurs qu'à la titulaire.

2210   Ce que je ne comprends pas, c'est le fondement de votre demande, parce que, à la page 5 de votre présentation, au paragraphe 21, vous dites que c'est une question de principe d'équité compétitive. Cependant, la titulaire qui est encore là a une obligation de servir que le compétiteur n'a pas.

2211   Alors, qu'est-ce qui manque dans cette équation-là que je n'ai pas pour qu'on puisse conclure une question d'équité?

2212   MS MacDONALD: Well, I think the point being that the current regime for contribution subsidies is that it is portable and that it would be appropriate in an environment where a competitor is entering into that territory to compete, that the subsidy be ported over. The competitor is entering as well in an area with investment and cost to serve, and if the regime establishes that a subsidy is to be provided it would be equitable for both parties to have equal access to that as opposed to a competitor competing against a subsidized party.

2213   CONSEILLÈRE LAMARRE : Mais il demeure qu'il y a une partie de la subvention qui implicitement est nécessaire parce que la titulaire a une obligation de servir sur l'ensemble du territoire, ce que n'a pas le compétiteur lorsqu'il décide de choisir la partie du territoire qu'il va desservir.

2214   MS MacDONALD: I understand what you are saying, however the current regime does actually enable the competitor to receive those subsidies when they enter, and so our position is just that it would remain the same way.

2215   The impact of that regime to date hasn't apparently created any problems for entrants and in fact, you know, we would maintain that it should continue as it is.

2216   CONSEILLÈRE LAMARRE : Je vous remercie.

2217   THE CHAIRPERSON: Let me just follow up on that one, I don't understand your answer. You know, because my colleague says very clearly you are talking about equity, surely equity means that you have to carry the same burden if you were to get the same benefit.

2218   As she points out, the incumbent has a burden that you, as an entrant, won't have. So why then therefore should you get the subsidy since you are going to -- the famous donut effect will only go into the areas where there is something approaching to business -- you certainly won't go into the very remote areas? They have no choice, they have to serve that.

2219   Therefore, if you want to apply a principle of equity it doesn't make sense that the news guy who enters, and enters into the densest area, gets a subsidy without having any obligation to serve the outlying regions.

2220   MS MacDONALD: In the case of EastLink's initial introduction of telephone service even into Nova Scotia we did initially focus on the core areas in Halifax which, of course, isn't the high-cost serving area. But the point being, we continued to expand our business out against a large incumbent who, you know, eventually became a very aggressive competitor to us.

2221   EastLink is now providing service throughout all of Nova Scotia via telephone and I think that, you know, a portable subsidy regime enables a competitor then to compete on fair grounds to improve service offerings, et cetera.

2222   And in a case where the market allows competition, I don't think it is reasonable or fair perhaps for the incumbent to continue to be subsidized on a per line basis when a competitor is also trying to expand and build and invest its network to improve services in those areas.

2223   So we would say that while starting out in maybe a core or an urban area is correct, if Aliant had continued to receive full subsidies in a lot of the smaller markets and we were continuing to invest to upgrade our facilities we may have had different considerations as to ability to compete on fair terms. And they would be in a subsidized position that, you know, we wouldn't say would be equitable.

2224   THE CHAIRPERSON: But I mean, basic SILECs regime, why do we have it? Because these are small remote areas there is no business case. If we regulate them, we provide for a subsidy. You now want to enter into that area because you quite rightly say the people, if they stayed in their territory we are fine, but they don't stay in their territory, they go outside so we have this local unprotected monopoly and they encroach our territories. It is only fair that you let us in. Up to there, we are in agreement, it is fair to let you in.

2225   But then you say, well once we are in we should have the same as they. Yet their area by definition is one that one wouldn't do purely on a business case basis. So surely there has to be -- you can't expect to have full equal treatment to the SILECs.

2226   MS MacDONALD: And I guess our experience and our position comes from the specific markets that we are looking to enter and, as you say, that these SILECs are operating outside, in other territories very aggressively.

2227   But I guess it strikes us that in a situation where an incumbent is receiving full subsidies and yet is able to compete with very aggressive offers and significant investments and a lot of cash to build those investments out in some cases, then it just begs the question as to whether in some cases those circumstances are really so dire that similar treatment shouldn't occur when a competitor enters their territory.

2228   THE CHAIRPERSON: Okay. I suggest you reflect on that, because it seems to me that, you know, your starting premise is okay, but your ending premise, some concession of some sort has to be done, either in terms of number portability or in no subsidy or however. But I think there is a missing logical element.

2229   Anyway, thank you for your presentation. I think that is it for today. So let's break an hour and a half, we will resume at 1:30.

--- Upon recessing at 1150

--- Upon resuming at 1331

2230   LA SECRÉTAIRE : À l'ordre, s'il vous plaìt. Order, please.

--- Pause

2231   THE CHAIRPERSON: Okay, Madame la Secrétaire, commençons.

2232   THE SECRETARY: Yes.

2233   Before we start, Mr. Chairman, I would like to remind everyone to please turn off your cells and BlackBerrys as it is causing interference in the system. We had problems with it this morning. Thank you very much.

2234   We will now hear the presentation of Saskatchewan Telecommunications. Please introduce your colleagues, after which you will have 25 minutes for your presentation.

PRESENTATION

2235   MR. STYLES: Good afternoon. My name is Ron Styles and I am President and CEO of SaskTel.

2236   With me today I have our Corporate Counsel, John Meldrum, our Chief Technology Officer, Kym Wittal, and from our Regulatory Affairs Department, Bob Hersche and Andrew McKay.

2237   Mr. Chairman, Commissioners, I would like to thank you for the opportunity to appear before you today.

2238   As you may know, I am relatively new to the telecommunications sector. As my staff showed me the mounds of paper associated with this particular hearing, I came quickly to believe that your task of sorting through the multitude of interpretations of reality is daunting. I have some appreciation of your challenge because, as the Deputy Minister of Finance for the Province of Saskatchewan and the President of Saskatchewan's group of Crown corporations, I have been confronted with many of the same challenges.

2239   The difficulty in developing policy for different regions of a province or a country is the very diversity of their circumstances, their history and their geography. Even words have different meanings.

2240   When the various companies come before you and use the word "rural" they mean very different things. Recently, the Commission approved Bell's use of the deferral account to provide broadband to the rural community of Pembroke, Ontario, with a population of 14,000. In Saskatchewan, a community of 14,000 people would be one of our 10 major cities. Just for perspective, Timmins itself, at almost 50,000 people, would be the third largest city in Saskatchewan.

2241   Today, I am asking you to see and interpret rural and high cost service areas as we do in Saskatchewan.

2242   I would like to give you a sense of what "rural" means to us. It's a matter of density, the number of customers within a geographic area; and for the sake of argument, I will speak today to the density of residential customers in the areas currently defined as high cost serving areas in Saskatchewan.

2243   Generally, they average far less than one residential customer per square kilometre. In fact, the density of our high-cost exchanges is so low that one of Bell's expert consultants could not believe that such densities existed and excluded all of the Band G exchanges in Saskatchewan from his analyses on the grounds, and I quote, that there was no "reasonable explanation for this".

2244   We don't let our sparse population deter us from finding ways to improve our reach and cost effective provision of services. In Saskatchewan, in cities of less than 10,000 people we deliver DSL, 3G plus cellular and IPTV.

2245   In fact, even sparsely populated areas where there are stable communities with as few as 50 permanent households are not regarded by us as high cost areas compared to the more remote portions of an exchange.

2246   During this hearing we ask you to acknowledge that the differences between rural and urban areas of Canada require very different policy approaches.

2247   Mr. Chairman, Commissioners, over the past decade the CRTC and the Government of Canada has placed competition at the centre of its vision of telecommunications in Canada. SaskTel believes that the Government of Canada and its agencies must create stable, ongoing policy instruments that recognize the differences between urban and rural areas, areas where market forces may function effectively and areas where they do not and never will.

2248   SaskTel welcomes competition and we will continue to do so. However, we also believe that a fully competitive system, without mechanisms to deal with rural and remote needs, will eventually conflict with the goals outlined in section 7 of the Telecommunications Act. These goals, outlining the need to maintain a strong economic and social fabric in all parts of Canada, must balance those of supporting competition.

2249   In rural areas market forces alone will not result in either telephony or broadband services which are reasonably similar in terms of affordability or performance to those available in urban areas. Unlike urban markets, there is a need for national policies to supplement the abilities of carriers to provide rural services.

2250   We all have a national obligation to provide service to our rural farmers, our First Nations peoples and other residents in remote areas of Canada. However, SaskTel cannot meet the goals of the Telecommunications Act without your help.

2251   To date the National Contribution Fund has been used to ensure that the appropriate funding for the deployment and maintenance of telecommunications is available to provide high quality, affordable services. It has proven to be a valuable policy instrument resulting in the provision of universal access to basic voice telephone service in Canada in an effective and efficient manner.

2252   The Fund originally levied a fee of 4.5 percent of revenue on all telephone companies with revenues of over $10 million. This fee has declined dramatically over the years and in 2010 this fee represents well under 1 percent of revenues.

2253   SaskTel has brought before you suggestions on how to make this voice system even more efficient. However, it is no longer sufficient to just maintain the current voice contribution mechanism.

2254   It's SaskTel's belief, along with other rural-based telecom companies, that the Contribution Fund must be improved and strengthened to include broadband in order to reach the goals of the Telecommunications Act to promote economic growth and social cohesion.

2255   The Government of Canada's previous approach of providing one-time funding targeted to specific areas has not resulted in steady growth of broadband in rural areas. The timing and the targeting of these one-time capital expenditures does not provide a framework that enables service providers to replace, maintain and expand a leading edge infrastructure on an equitable basis for these areas.

2256   For the most part, government programs at every level mistakenly assumed either that rural areas can support a facilities-based competitive environment or that small communities can develop and sustain their own community-based broadband services.

2257   These misconceptions have resulted in excessive costs and, in many cases, short-lived broadband services for residents.

2258   SaskTel suggests that any program to support rural markets would build upon and extend existing telecommunications initiatives and infrastructure. The nature of rural markets is such that their customer base cannot support a separate commercially viable system. Building on or extending existing networks will avoid duplication, reduce costs, provide extra economies of scale and result in a sustainable service.

2259   In urban areas, the private sector is already building a world-class, leading edge infrastructure. Rural areas continue to lag behind because there are no economic margins to stimulate infrastructure growth. There must be a national commitment to a sustainable policy framework to ensure that rural and First Nations Canadians are not forever left behind.

2260   Before I turn things over to my staff who will deal with some of the details of our proposal, I would like to make three over-arching observations.

2261   First, I believe that SaskTel's proposals are responsible public policy consistent with the policy objectives of the Telecommunications Act. We are looking at enhancing the public good in a way that does not unduly impinge on the industry or its growth. SaskTel's proposals are a far cry from the universal service demands placed on service providers in the United States which, in our view, lack focus on specific objectives, while assessing a levy of more than 13 percent on revenues.

2262   Second, I believe that it's incumbent on all of us here today to create a system that looks to the future of our rural residents, a future which allows them to fully participate in the cultural and economic benefits being brought forward by advances in telecommunications.

2263   Lastly, the time to act is now. Government and industry have been talking about the critical need for broadband for over a decade. Someone has to begin to take the lead and we are asking the Commission to do so as it has done in ensuring the delivery of voice services. The evidence is overwhelming: To be successful in the new digital economy, Canadians must have access to the most advanced telecommunications services, particularly broadband.

2264   Other countries are moving ahead with new broadband strategies and programs; rural and First Nations Canadians must not be left behind.

2265   MR. MELDRUM: Thank you, Ron.

2266   I would like to deal with some of the specific issues raised by the Commission and some of the participants in this proceeding.

2267   First, the requirement for the obligation to serve in forborne exchanges.

2268   Several parties in this proceeding have argued on the basis of the Policy Directive that the obligation to serve should be abandoned in forborne exchanges. We believe that this argument is made under the misconception that forborne somehow means that market forces will ensure that all potential new accesses will have a choice of service provider and the delivery of high quality services.

2269   This is not the case. Even though an exchange is forborne it is only necessary that the alternative service providers are capable of serving 75 percent of potential NAS in that exchange.

2270   In many areas of Canada there are high cost NAS outside of the core of forborne exchanges. An example is the Moose Jaw exchange which extends some 60 kilometres outside of the city limits. While the residents within the core of the exchange are presented competitive alternatives, residents outside of the core are high-cost customers as defined by extraordinarily long loop lengths and low density population and simply do not have a choice of provider.

2271   Without the obligation to serve, and without a contribution regime, these customers could well be left without service. The vast majority of exchanges in Saskatchewan, rural and urban, have these same attributes.

2272   The obligation to serve should be retained for ILECs in all exchanges, forborne and non-forborne.

2273   Second, I would like to turn to our proposal of using the real costs of high cost serving areas as the base for the contribution calculations.

2274   This proceeding has talked extensively about the doughnut. I believe that all participants are in agreement that serving residents within the centre of the doughnut -- serving those people in cities, towns and villages -- is not as expensive as serving people in areas with less density and longer loops.

2275   In these towns and villages both telecommunications and cable providers may have competing facilities and offer increasingly similar lines of products for their customers. It is an absolute rarity however that cable infrastructure passes beyond the municipal boundaries of a city, town or village.

2276   In the interests of targeting subsidy dollars to where the real costs are incurred and in improving the efficiency of the system, SaskTel is suggesting that only true high cost residents, being those outside of the base rate areas, be targeted as eligible for subsidy.

2277   There has been some controversy as to what a base rate area is and whether other companies could accommodate this concept.

2278   In Saskatchewan a base rate area is the area within an exchange where there are at least 50 people living in a city, town or village. It is almost synonymous with municipal boundaries and generally has the largest portion of the population in an exchange.

2279   MTS Allstream and SaskTel currently use this concept and TELUS and Bell Aliant have used this concept in the past. Other companies such as Bell may use slightly different labels such as urban and rural routes.

2280   We are not convinced that identifying the dense regions of an exchange and isolating the truly high cost customers would be an extraordinarily difficult task.

2281   SaskTel believes that focusing on the real costs of providing service to high-cost accesses with long loops would be more in keeping with the efficiency principle demanded by the Policy Directive.

2282   The third major topic of discussion within the interrogatories is the claim that rural and northern residents should pay substantially more of the costs of basic service.

2283   This assertion is based on a very narrow view of who lives in rural and northern areas.

2284   Bell has suggested that the entire Canadian contribution regime should be based on the highest rate for basic service charged in Canada. That happens to be $36.20 per month charged in the Val-des-Bois region of Québec, a one hour drive north of Ottawa, an area whose economy is based principally on cottage tourism.

2285   SaskTel does not believe that the rate approved for Val-des-Bois in order to receive local calling expansion to Ottawa-Gatineau region should be set as a standard for the residents of the over 82 First Nations reserves in Saskatchewan. With only 52 percent of First Nations on reserve being employed, we respectfully submit the vast majority do not have the income of cottagers.

2286   It also does not seem appropriate to compare the ability of Ottawa cottagers to pay for services to farmers in Saskatchewan who have seen their worst year in decades or to rural poor such as seniors or unemployed forestry workers. Arbitrarily setting a rate to be applied across the country is, in our view, a mistake. It fails to address the vast economic disparities within and across various Canadian regions, and will ultimately mean higher rates for those least able to pay.

2287   Few rural residents have constant and consistent incomes like the cottage owners of Val-des-Bois. We urge the Commission to consider the needs of a wider range of rural residents before it sets any arbitrary price floors.

2288   With that I would like to turn it over to Kym.

2289   MR. WITTAL: I would like to address just two items, first the productivity factors used by the Commission to artificially reduce contribution amounts and, second, the claims that mobile wireless is a substitute for basic service.

2290   Like TELUS, SaskTel believes that the Commission needs to reassess the methodology they are using to reduce subsidies in high cost serving areas.

2291   There are very few additional productivity gains to be had in the provision of voice services in high cost serving areas. I believe that we have done all that can be done without resulting in a degradation of the service. In fact the costs per NAS of delivering this voice network in high cost serving areas are growing with the gradual reduction of the overall number of people in those areas. Rather than SaskTel becoming more productive, the cost per NAS actually increases because SaskTel must continue to operate an entire rural network.

2292   SaskTel is requesting that the Commission discontinue its use of "I" minus "X" in the determination of the high cost serving area subsidy requirement. The application of some assumed productivity offset is inappropriate in high cost serving areas. SaskTel submits that the application of inflation alone would more appropriately reflect the true cost of operating a wired network in rural areas today.

2293   Second, I would like to examine the claim that wireless cellular technologies are an adequate substitute for basic services.

2294   There is a good reason why rural households are less likely to abandon their wireline phones in favour of mobile phones than their urban counterparts.

2295   Most residents who live in truly rural areas are not able to get the same level of service or dependability from a wireless phone as they do from a wireline phone. This is especially true in terms of the quality of the transmission and E911 service.

2296   In an urban environment there are multiple towers in a relatively small area. In Regina, a city of some 200,000 people, SaskTel has 18 towers in order to provide good in-building signals. That equates to about one tower within a circle of about 800 metre radius. Within that radius, assuming you do not live in a basement suite or the spectrum used by the carrier is not in the upper bands, a cell phone will have virtually all of the services found in a wireline phone, plus you have the factor of greater mobility. As a result some people do switch from wireline to wireless.

2297   In a rural environment, cellular coverage is a different scenario altogether.

2298   I would like to draw your attention to the map of SaskTel's cellular service. That's on the easel to your right.

2299   Unlike the urban practice, towers in rural areas are located over 30 kilometres apart, sometimes further. Even on the bald prairie where there are few or no obstructions the attributes of a wireline phone can only be replicated in a 10 kilometre radius or less of a tower, indicated by the green areas of the map. Outside of that you only get good in-vehicle coverage -- and that is described as the yellow area -- or outdoor coverage -- which is the red area -- for the next 20 kilometres. After that, really the white spaces, you really don't get much of anything.

2300   This leaves vast distances where rural residents cannot get the kinds of services that are found in urban areas.

2301   Saskatchewan has one of the most extensive cellular networks in the country. SaskTel has some 511 towers in rural and urban areas. Yet to build a network that would supplant the public telephone network you would need at least 2000 more towers.

2302   An example, a short while ago the CRTC sent us a complaint from the Village of Weyakwin. The residents of this village, located 14 kilometres from a cellular tower, were concerned that they did not have wireless access to emergency services because the signal did not reach them through the trees. Luckily they do have wired telephones that are available for such an eventuality.

2303   Wired phones which are now available to almost anyone in the country remain the preferred communications choice and provide the most reliable access to emergency services.

2304   New technologies and greater wireless coverage may become more prevalent, but rural power outages, terrain, in-building signal strength and sustainability concerns are only overcome today with the old wired system. At this time there are no technology options which provide basic voice service with the universality of wireline service.

2305   Unfortunately, making mobile wireless an eligible basic local service entitled to high cost serving area contribution payments is not appropriate. SaskTel continues to contend that the voice contribution system should be maintained for the wireline network for the foreseeable future.

2306   We do believe, however, that Canadian broadband targets should be examined with a variety of technologies in mind.

2307   Quite simply, in urban areas we are all likely, over the next 5 to 10 years, to depend on fibre directly to the home; in smaller towns, variants of DSL with a fibre backbone; in less populated areas where shared bandwidth is less of a problem, the future LTE or a form of fixed wireless may provide the broadband access; and in very remote rural and northern areas perhaps satellite will be the preferred medium.

2308   SaskTel has been building towards that kind of ubiquitous coverage. We have, for example, partnered with Barrett Xplore for satellite delivery, we have built a fixed wireless network the size of Newfoundland and provide DSL to over 300 rural and northern communities.

2309   However, we cannot create a ubiquitous broadband network alone. Many residents still do not have the affordable access to the broadband services they need and if this does not change they will remain on the wrong side of the digital divide.

2310   I will now turn this over to Bob who has a lot of experience in bringing broadband programs to rural Saskatchewan.

2311   MR. HERSCHE: Thanks Kym.

2312   It does seem as if much of my career over the last decade has been bound up in promoting rural broadband and attempting to access ad hoc funding.

2313   In the early '80s the Government of Saskatchewan created a distance education system through SCN, the Saskatchewan Communications Network. SaskTel implemented various phases of the Government of Saskatchewan's CommunityNet. We negotiated funding for First Nations broadband from the northern BRAND program and now we are working with INAC and another 26 First Nations to bring broadband services to their homes.

2314   In all of these projects there are certain commonalities. I would like to use our most recent project as an example.

2315   This is roughly a $17 million project creating a fibre backbone to 26 First Nations. It will result in services of up to 1.5 Mbps being available to approximately 95 percent of the residents of those reserves. It is a three-year construction program and we started it this year.

2316   We were using 1.5 Mbps target, even though it is already inadequate for education, advanced health care and entertainment, because that was the target set by the federal government if we were going to participate and work with them. Not surprisingly, the institutions and the bands we are serving are already calling for higher speeds and more connections.

2317   We have moved these First Nations from being unserved to underserved.

2318   SaskTel cannot afford to upgrade these connections, probably even in the next decade, without searching for another project, more funds, another avenue. This project has 50 percent of its funding coming from INAC. Even with that, given the costs of implementation, SaskTel may break even on this project in about seven years.

2319   This project is symptomatic of all rural broadband initiatives to date. They advance rural, northern and First Nations people only slightly and still leave them behind their urban counterparts. This leaves rural and northern residents on a perennial search for the next grant and the next program which will give them something to get them closer to the urban areas.

2320   The northern network completed just last year under the BRAND program is now at full capacity. People have rushed to get onto the system and when one person drops off another is quickly added. Given the costs of construction and the density of the population there are no market factors which will ensure that an upgrade of speeds and capacity will be forthcoming.

2321   Nationally, we have created a system where there will always be a digital divide.

2322   I truly believe that Saskatchewan has one of the best rural/northern broadband networks in Canada, but it is unsustainable as it exists today. Market forces will not do the job on a go-forward basis.

2323   When the network needs to be upgraded we will need to search for new ad hoc programs. This keeps me employed, but more importantly it demonstrates that there is a need for a national program for expansion, modernization and operation of a broadband network in rural and urban areas.

2324   Government programs to date have not been surgical, but rather they have been a shotgun effect. We need a consistent program.

2325   We are prepared to address more of the principles of such a regime at this time, but we believe that it would be more appropriate for the CRTC to launch a proceeding to develop the details of such a regime in the future.

2326   With this I will quickly turn it back to our President.

2327   MR. STYLES: I want to quickly summarize for you.

2328   Overall we are calling for the retention of the voice contribution system.

2329   We have suggested a number of enhancements to it. However, our bottom line is that the regime remains necessary and that rate increases such as those recommended by Bell Canada and others are not affordable for the majority of rural and First Nations residents in Saskatchewan.

2330   It also is time to ensure universal broadband for all Canadians, not via haphazard measures but through concrete steps that will increase Canada's economic prosperity and social well-being.

2331   High-quality telecommunications is no longer merely access to dial-up internet as included in the original basic service objectives created in 1999. The world is changing.

2332   Accordingly, we and others have recommended that the Commission create a broadband contribution regime which would make access to broadband services available to all Canadians at affordable rates. Such a regime would provide sustainable, ongoing funding to support the deployment, enhancement and maintenance of high speed networks in non-urban areas.

2333   With that I would like to close and thank you for your kind attention and we await any questions that you might have.

2334   THE CHAIRPERSON: Thank you for your presentation. It certain puts a different perspective on things.

2335   Now, unless I have missed something you are very much in favour of setting a national goal in terms of broadband, but you shy away from specifying it. I didn't hear 5 or 6 or 10 MB or anything like that.

2336   MR. STYLES: Well, the position that we have advocated in the past is 4 or 5, but I think more important in setting that rigid target is to set a mechanism by which that target can be reviewed on an ongoing basis and adjusted, because that number will change over time. What works today will probably not work in three years or five years.

2337   THE CHAIRPERSON: Absolutely. I think nobody takes any issue with any target you set will be out of date, but you have to start somewhere.

2338   So your starting point was four or five?

2339   MR. STYLES: Yes.

2340   THE CHAIRPERSON: Second, when you were talking about the doughnut effect you suggested the definition that you use in Saskatchewan and you carefully qualified that this works in Saskatchewan.

2341   A base rate is an area in which there are at least 50 people living in the city, town or village. Assuming we use your approach saying that in terms of base rates that anything outside the base rate is a target for subsidy but inside the base rate obviously not.

2342   It works for Saskatchewan, is there any reason why it wouldn't work for the rest of the country?

2343   MR. MELDRUM: Well, there have been a number of interrogatories where some of the other ILECs have indicated that they no longer have base rate areas. We do believe that they should be able to determine what is high cost and what is not high cost, but through interrogatory process they claim that it's much too complicated. I know certainly --

2344   THE CHAIRPERSON: But how can you argue doughnut effect and say you don't have a base rate area? Isn't there a contradiction there?

2345   MR. MELDRUM: I can't speak for them.

2346   We don't think it's reasonable to say that it can't be done. We think it can be done.

2347   THE CHAIRPERSON: Okay. Let me put the question then: Do you see, from a conceptual point, any reason why your definition couldn't be applied nationally?

2348   MR. MELDRUM: Not at all.

--- Pause

2349   THE CHAIRPERSON: Okay. We have heard all sorts of conflicting advice in terms of the substitutability of wireless and satellite, some of them very much thinking that is the future, you are making a very strong case that it is not. Even in rural areas now that wireless is -- that is clearly your view as of today, et cetera.

2350   But I heard you say that in order to give wireline equivalent access in Saskatchewan you would need to build 2000 towers on today's technology.

2351   Again, like when we talked about the goal for broadband, isn't that something that will change as the technology evolves, et cetera?

2352   How should we approach this? This is clearly a continuum and wireline and wireless will both be able to reach more and more. What is sort of the view of the acid test when we can say wireless as equivalent to wireline is an acceptable substitute?

2353   MR. WITTAL: So I will start the answer and maybe one of my colleagues can pick up the rest of it.

2354   From a pure technology perspective today we are certainly suggesting that wireless, as we know it, both fixed, cellular and even satellite services do not replace a wireline phone in terms of features, functionality, universality and coverage. That is certainly not to say that at some point in time that will happen.

2355   The acid test or the test you described I think certainly would have to be does it truly replace all wireline services. We see that certainly not for a number of years. Certainly five to 10 years is kind of our range where we are thinking of.

2356   So in the short term no, we just do not see it. I don't have a good test, but certainly one of them could be is it true they could replace all wireline services and that obviously works.

2357   We would also suggest that there are different niches for different technologies. Certainly satellite has a place today for some broadband services, but it is not, in our opinion, universal for everybody. That's why we deploy fibre, that's why we deploy DSL, and that's why we will deploy fixed wireless, as we have today, and also new wireless services, such as LTE.

2358   So you are right, technology will evolve, and it will become more suitable, more ubiquitous, but until the day happens that it is truly ubiquitous, we do not believe that it is a substitute today.

2359   MR. MELDRUM: I think, Mr. Chairman, that if you focus on cellular, which I think was a big part of your question, in the 25 years that I have been in the cellular business, the physics and scientific principles of the propagation of radio waves haven't changed hardly at all.

2360   Kym, can you add on that aspect?

2361   MR. WITTAL: If you look at our map, what you see is that there is a lot of red coverage. Red indicates that you have, really, outdoor coverage, but not in-building and certainly not in a basement or anything like that. That's where you get into green and other colours.

2362   So while this is a model, we certainly drive test and verify that this is generally correct.

2363   So today, if we were to leverage this cellular network, this 3G cellular network that we are building, and suggest that it would replace in farmstead and deep rural Saskatchewan their wired phone with a wireless service, we would have lots of customers that just wouldn't have suitable service. It just doesn't work today.

2364   THE CHAIRPERSON: You were here, or at least you listened when Bell Aliant was here, and they made considerable representations to us about the inappropriateness of the subsidy formula and that their costs were understated, your costs were overstated. They brought in an outside consultant, who reported that there is an absolute -- high statistical improbability that your costs could reflect proper costing, et cetera.

2365   You didn't, at all, comment on that. Is that just out of politeness, are you going to do that in writing, or what?

2366   I doubt that you agree with Bell Aliant.

2367   MR. MELDRUM: We were saving that for the rebuttal stage. We strongly disagree.

2368   We think that it's the basic difference between the Maritimes and Saskatchewan. In Saskatchewan, the people are indeed spread out over that entire area that you see. When you get to the red, it's not that people aren't there, they just don't get good cellular coverage.

2369   People are spread out all over the Province of Saskatchewan.

2370   THE CHAIRPERSON: Tim, I believe that you have some questions.

2371   COMMISSIONER DENTON: Good afternoon, gentlemen.

2372   One of the interesting points that I read in your submission is the notion that what is high cost for the purpose of subsidizing broadband is different than high cost for the purpose of subsidizing voice communication.

2373   Can you expand on that a bit, please, for me?

2374   It's in paragraph 123 of your submission.

2375   MR. HERSCHE: What we are looking at as the major cost in the wireline is the long loop cost as we go forward.

2376   I take you back to some of the discussions that you had this morning with MTS. As we go forward, when we start to do broadband -- for example, if we are going up to northern Saskatchewan, then we will have both the local, in a small community like Stony Rapids, and the backhaul will also be a major factor in bringing up the kind of signals that we have to use up there, whether it be 4 megabytes or 10 megabytes, or whatever the target is.

2377   So we do see that it's different in terms of the technologies, that you are bringing voice versus broadband.

2378   COMMISSIONER DENTON: Does this imply, therefore, that if we seek to establish a scheme of subsidy for rural broadband, or remote broadband, we need to think more accurately and reconsider high-cost areas in the light of these technological factors, so that we may have high-cost areas for voice, but a different set or different characteristics of high costs for broadband?

2379   MR. HERSCHE: Yes. What we are suggesting is that we keep the voice system going for the near term, and that we also have, let's call it, a complementary system for broadband. We believe that eventually they will come together, but as we get the broadband system going to reach those kinds of targets, there will be some differences.

2380   COMMISSIONER DENTON: So, if we were to start to devise such a scheme, we would need to rethink -- what you are really saying is, we need to think again about what high-cost serving areas are in relation to broadband differently than in relation to voice.

2381   MR. HERSCHE: Yes.

2382   COMMISSIONER DENTON: Okay. I just note that you are not so much interested in any individual targets as creating a mechanism for the periodic review of the appropriate targets to be achieved. You are also very firm in not including wireless, because of its propagation characteristics.

2383   Do I understand you correctly to say that wireless is excluded from what you think should be subsidized for basic service objectives?

2384   MR. HERSCHE: For basic service objectives, yes.

2385   COMMISSIONER DENTON: Does it have any role to play that I am missing here?

2386   MR. HERSCHE: We believe that over time -- again, it's not really quite ready yet -- and depending on the targets that you have, wireless -- and by that I mean cellular, as opposed to fixed wireless, I am making that distinction -- that cellular, as it goes to LTE and others over time, may have a role to play and may be able to do that in some, let's call it, less dense populations.

2387   Of course, on cellular, you have to share the kind of bandwidth that's available. So it depends on how many people you have available, how many people share the bandwidth, and your targets.

2388   COMMISSIONER DENTON: So, then, if you are counselling us as to how to establish a subsidy regime, you are saying that there are no permanent solutions, no permanent technology that is ready to be -- that must necessarily be subsidized, and that we need to be flexible and adaptive in the future.

2389   MR. HERSCHE: Absolutely. There is no one size that fits all. As Kym said, there are some places that the absolute -- as Barrett Xplore said, there are some portions of the geography where satellite may actually be the most efficient and -- as we did under the voice programs, under the service improvement programs -- and we still have today two small communities, Descharme and Grayson, that are just too expensive to serve with a wireline voice kind of thing.

2390   Those would be, or are, candidates for satellite kinds of transmission. Will it be as good at doing all of those other kinds of things? Probably not.

2391   COMMISSIONER DENTON: This sort of reminds me of am I asking a wolf about what he thinks of coyotes, but where does satellite fit into your scheme of things, therefore?

2392   MR. HERSCHE: If I may, as Barrett pointed out, we have an agreement with them, and when we were doing our rural, to make sure that we have coverage, we have something on the order of -- jointly, we do something on the order of 5,800 customers that we are looking for.

2393   And satellite does a wonderful performance, and a good performance, especially for those people who had absolutely nothing before, or dial-up.

2394   Depending on the kinds of performances you want, how far we go, there are some problems that we have that we don't have with some other kinds of technologies -- problems with caps, problems with the shared network, or the shared bandwidth. The bandwidth available to you shrinks with the number of residents you have.

2395   And the reason that we had gone with Barrett to get to these places was because we also are providing -- or the Government of Saskatchewan is providing an upfront subsidy to help reduce some of the CPE costs for some of these residents that are, again, very isolated.

2396   So, yes, satellite has a role, and there will be a number of locations, depending on density, where satellite may be the most effective way to get it to them.

2397   COMMISSIONER DENTON: You mentioned in passing that you have some arrangements with Barrett Xplore. Did I hear you correctly?

2398   MR. HERSHCE: Yes, we do.

2399   We have a contract with Barrett Xplore. Barrett Xplore runs under the SaskTel name in Saskatchewan.

2400   But what we have, again through the Government of Saskatchewan, is that we provide Barrett with a small subsidy to keep the customer premise equipment down to a reasonable cost for Saskatchewan residents.

2401   COMMISSIONER DENTON: I noticed, around paragraph 71 of your submission, that you had a chart for the national contribution requirement and revenue percentage charge, which had declined from the year 2002 from 1.3 percent to, last year, 2009, .81 percent.

2402   This is, I believe, reflecting how much of people's bills is going to a national subsidy for voice.

2403   Have you people given thought to the consequences of what you are proposing, in terms of the impact upon average Canadian household telecom bills, for the kind of subsidy regime you are contemplating, as MTS did this morning?

2404   MR. MELDRUM: We listened intently to MTS's proposal and their submission. They talk about needing a contribution rate of about 2.75 percent, which would raise $700 million. We think that is on the high side. That is $7 billion over 10 years, and about $12,000 a broadband access, and our experience would say that that's on the high side.

2405   They are saying that the total would be 2.75 percent. If you were down to, maybe, a 2 percent assessment, that would be up from this year's .73 percent.

2406   COMMISSIONER DENTON: I'm sorry, I didn't understand the last reference to .73 percent. Could you unpack that for a moment?

2407   MR. MELDRUM: If you take the chart that is at 71 --

2408   COMMISSIONER DENTON: Yes.

2409   MR. MELDRUM: -- for 2010, that number is .73, for this year. So it dropped another .08.

2410   COMMISSIONER DENTON: Right. You believe that your ballpark estimate is more like around 2 percent that would be adequate, in your view, to achieve the subsidy goals you are talking about.

2411   MR. MELDRUM: Right.

2412   MR. HERSCHE: If I may add to that, 2 percent shows in the voice system, and I think it will show in the broadband system, even with an escalating kind of target, that what you are going to have is, if you build on existing infrastructure -- for example, if Kym puts in -- is able, in terms of a backbone, to put in fibre, you have a resource there for a number of years. If you can begin to build on that, some of that 2 percent will begin to fall over time, as well, as we begin to do that.

2413   COMMISSIONER DENTON: Then, I guess the question I would ask is, given that such a subsidy scheme is likely to be opposed by some carriers, is it in the interests of SaskTel to be part of the litigation that might ensue if we decided to engage in such a program as you are proposing?

2414   MR. MELDRUM: Yes. We would be on the side of the Commission in that case.

2415   COMMISSIONER DENTON: I'm delighted to hear that.

--- Laughter

2416   COMMISSIONER DENTON: I don't have any more questions, Mr. Chairman.

2417   THE CHAIRPERSON: I am sure that your colleagues have lots of them.

2418   Len...

2419   COMMISSIONER KATZ: Thank you, Mr. Chairman; and good afternoon.

2420   I have in front of me a press release dated June 9th, 2009:

"SaskTel's Satellite Internet Powered by Xplornet now Available."

2421   Mr. Styles, you are not quoted on here, but your predecessor is, and he basically said: SaskTel is pleased to offer high-speed internet service to all its customers in Saskatchewan.

2422   "SaskTel president and CEO Robert Watson said, 'This is a great accomplishment that Saskatchewan will be one of only two provinces in Canada'" -- at that time -- "'that provides the service to 100 percent of the province.'"

2423   You also talk about price, saying that Explornet provides affordable, fast and easy internet access packages, with speeds of up to 1.5 megabytes, starting from $56.95 a month.

2424   How does that jibe with this?

2425   MR. WITTAL: Those are answering, really, two different questions. We had a goal to provide 100 percent coverage of high-speed broadband. For us, it was truly a DSL build. That is kind of our core technology. But we knew that --

2426   So that would be our core technology.

2427   We also have a fixed wireless technology, to provide broadband to other areas that, again, DSL just doesn't cover.

2428   But when we looked and said, "If we want 100 percent coverage, what is the way to do that cost effectively," at that time, truly, the only solution we had was a satellite service of some kind.

2429   The 3G network that we are building, it, itself -- well, it's not complete yet today, but even when it's done in 2011, it will not provide 100 percent coverage at those kinds of speeds.

2430   We will have gaps, as shown on the map, where we do not have coverage today, and even in the red areas we will have poor coverage, and in some cases no coverage.

2431   The only true way to get to those customers that we couldn't get to any other way was via satellite for broadband service.

2432   MR. MELDRUM: Mr. Commissioner, this map represents the cellular coverage, the 3G cellular coverage. It doesn't represent the coverage of broadband. It is trying to get at the specific issue that some of the parties in the proceeding have raised, to say that cellular wireless service will provide broadband to everybody; therefore, you don't have to be concerned about any kind of broadband program.

2433   We are saying that, in our province, the cellular coverage will not do that.

2434   COMMISSIONER KATZ: Okay, but you are saying that the Explornet coverage will, at affordable prices, for 100 percent of the customers. Ergo, why a subsidy, why any support mechanisms at all?

2435   MR. MELDRUM: If you look at our customer base, I think that Bob highlighted about 5,800 customers. That truly is the target.

2436   So we have no designs to take satellite coverage and go to the 100 percent, call it the 400,000 or 500,000 customers that SaskTel would have in total. There is no plan to ---

2437   COMMISSIONER KATZ: I am not suggesting that every single customer should be powered by satellite, all I am saying is, you have provided a mechanism for every resident in Saskatchewan, through whatever technology, to provide affordable broadband services.

2438   MR. HERSCHE: Yes, that is right.

2439   In our program, which we did under the rural -- through various subsidy programs, we are providing through satellite, DSL -- whatever -- we are providing 1.5 megabytes.

2440   As I said in my remarks, we are looking now at what is the next stage.

2441   As I said, I think we have one of the best broadband -- we have, virtually, ubiquitous coverage with all of those technologies, but at 1.5.

2442   If we want to bring that up to the target that we are talking about, in the 4 or 5 megabyte range, or eventually in the 10 megabyte range, that will not happen without some sort of program to support it.

2443   Where we achieved -- where we are now, today, did not happen with us as a business program, we had to go, hat in hand, to every federal and provincial agency that we could think of to try to get money to do one little project here, one little project there.

2444   What we are saying is, if we want to do this in some sort of consistent way, to reach a target, as opposed to waiting around and saying that we won't do anything until we can get the next grant program, someplace, because of --

2445   COMMISSIONER KATZ: Why do you need a grant program? Yesterday we heard Mr. Maduri from Barrett say that he is upgrading his infrastructure, as we speak, and there will be a bird up next year that will provide all the flexibility, all the speeds, all the capabilities, at what he said was affordable, competitive pricing.

2446   How much money do you have to spend to go from 1.5 megabytes to 5 or 10 or 20 over the next several years?

2447   Is it outside plant costs, is it software costs, is it equipment costs? I don't understand it.

2448   MR. HERSCHE: You have, actually, two questions. If I could answer both --

2449   COMMISSIONER KATZ: At least.

2450   MR. HERSCHE: I thought that you had two questions.

2451   The first one, in terms of dealing with satellite, I would like to refer a little bit to the U.S. broadband program and their assessment of satellite. Essentially, what they said -- and we take the same position -- is that satellite is good for serving a portion of the unserved rural and remote population, but it is not sufficient to serve all of the rural and remote population.

2452   The bandwidth that is up on that bird, whatever that bird is, is finite. It has to be shared. As we begin to do that, over time, the more people that use that, the more people -- the higher your target, it will not reach those kinds of grand numbers of people that we need to reach.

2453   So what we have to use is a range of technologies.

2454   So what we need on that range of technologies -- and that's why I used the example of the First Nations project that we have. We are putting fibre into each one of those First Nations. Fibre, in and of itself, is a great investment and it will lead us to the future in the long run. But that doesn't mean that all of the electronics that we have on there, all of those kinds of things, will allow us -- that we can just invest in that to meet new targets and broader targets.

2455   The revenues that we will receive from those First Nations will not pay for that kind of upgrading, that expansion, or the maintenance as we do it, unless we start to pay, again, for the First Nations, some very large rates, because they don't have that kind of concentration of population.

2456   COMMISSIONER KATZ: I think I hear you saying that satellite technology may not be able to provide the same capability and value to the customer. Yet I also heard Mr. Maduri say yesterday that he just signed a contract with the City of Ottawa for service, as well, in near, urban markets.

2457   So I am sitting here questioning whether this technology -- if people are buying it for government purposes and City of Ottawa purposes, why you say it wouldn't be appropriate for rural and remote areas.

2458   MR. HERSCHE: Because what Mr. Maduri was talking about -- and I hate to talk about his operation, but what he was talking about is, he has two kinds of services. He has a fixed wireless service and a satellite service. The contract that he won outside of Ottawa that he is doing is a fixed wireless service, not a satellite service.

2459   COMMISSIONER KATZ: So a fixed wireless service --

2460   MR. HERSCHE: For the area outside of Ottawa that he was talking about, which you referred to. It is not the isolated farmer or person who just gets a satellite service.

2461   COMMISSIONER KATZ: So fixed wireless is a substitute and a comparable service to a terrestrial, land-based service. Is that what you are saying?

2462   MR. HERSCHE: Absolutely, yes.

2463   COMMISSIONER KATZ: If wireless is a substitute -- fixed wireless services -- I guess the question is, why are we still in the contribution regime -- voice contribution regime -- in the national contribution regime that we have -- still looking at loop lengths as the vehicle to subsidize costs for basic telephone service, as opposed to something more technologically current?

2464   MR. WITTAL: As we plan forward now about how we are going to reduce and potentially eliminate copper loops, whether it be urban or rural, we have a 10-year plan that speaks to it, and in the nine major centres, we think that fibre to the home will be our plan.

2465   In the smaller centres, we will keep the copper loop and drive DSL, so that's in the small towns.

2466   When we go to the long loops, to the farmers in deep rural Saskatchewan, in the short term -- and I am talking five years -- we do not have a good answer today.

2467   We certainly believe, as we have done, that some fixed wireless service that we have today does serve some of our customers, but we know that doesn't cover them all either. Hence the reason why we negotiated a deal with Barrett Xplore, to get to those customers that we just could not reach any other way.

2468   Our longer term plans speak to that we do need some kind of wireless service at some point in time. But right now our roadmap would not suggest that it's anytime soon that -- you know, whether it be LTE, whether it be fixed wireless, or even satellite -- any of those are suitable substitutes today. We do not believe that today.

2469   Could that be possible? Sure. We think that's five to ten years out before that becomes possible.

2470   And that will also depend on deployment rates, it will depend on, obviously, cost structures, and performance.

2471   We are estimating right now that LTE will be really good. Until we actually deploy in our environment, we don't know what kind of coverage we are going to get. We don't know what kind of throughput we are going to get.

2472   So, today, we are kind of going -- I won't say guessing, but we are certainly estimating that it has potential, it is possible, but we do not see it on the roadmap for the next five years.

2473   COMMISSIONER KATZ: So you believe that loop lengths still continue to be the best way of distinguishing where subsidies should be or should not be granted.

2474   MR. HERSCHE: I go back to my answer to Commissioner Denton. We are saying that, at this time, we would like to continue with the voice subsidy, as it exists, begin to develop the broadband subsidy, or the broadband program, and over time, as Kym has mentioned, these two will come together, and we believe that the voice will, essentially, disappear and it will be all together.

2475   COMMISSIONER KATZ: Ten years ago, when the contribution regime was looked at, the whole notion was: It's pretty hard for someone in a rural or remote area to pay the cost of providing a telephone service -- because, I guess, in Saskatchewan, based on the data from Bell Canada, in Band E the cost of providing service is $51.67, in Band F it is $43, and in Band G it's $50.

2476   But it is higher, and it was deemed to be non-affordable at that time, so there needed to be a subsidy.

2477   Since that time, that same loop that was being used primarily -- solely, in fact -- for telecom services, for voice telecom services, is now being used to carry broadband services, and is now being used, in some cases, for IPTV as well.

2478   Given that the margin on the services that are going across that loop grows, why can't some of that subsidy reflect the fact that you are generating a higher contribution from all of the services that are going down that same loop that is being subsidized today under the regime?

2479   MR. MELDRUM: Mr. Commissioner, if you adopt our doughnut proposal, the centre of the doughnut will not be high cost. It's only the centre of the doughnut that that line is being used for, for all of those other services.

2480   We don't have IPTV in rural Saskatchewan. We are not delivering high-speed to farms over that loop.

2481   COMMISSIONER KATZ: There is no broadband going to Band E or Band F in Saskatchewan?

2482   MR. MELDRUM: Today that band will include the centre of the doughnut. We think that the centre of the doughnut is low cost. The high cost is the rural area outside of the doughnut -- outside of the centre of the doughnut.

2483   Those high-cost customers -- that service is only used for voice.

2484   MR. WITTAL: And dial-up.

2485   MR. MELDRUM: And dial-up.

2486   MR. WITTAL: And, again, it's limited dial-up, depending on where you are and what service you are asking for.

2487   COMMISSIONER KATZ: So outside the base rate area, you are only providing basic phone service to those customers.

2488   MR. WITTAL: On the cooper loop, yes.

2489   COMMISSIONER KATZ: So, given your proposal -- and I read your proposal and I heard you discuss it with the Chairman, as well -- have you analyzed the impact on SaskTel Communications with regard to subsidy payments into the regime, payments coming out of the regime, under your model?

2490   MR. MELDRUM: When you say under our model --

2491   COMMISSIONER KATZ: Under your proposed base rate --

2492   MR. MELDRUM: -- with the doughnut?

2493   COMMISSIONER KATZ: Yes.

2494   For Saskatchewan, for SaskTel.

2495   I mean, you know what it is right now under the current regime. You know what you are putting in, you know what you are getting out. Have you done an analysis to provide us with a comparison, at least for SaskTel, as to what is going to go in under your model and what is going to come out under your model?

2496   MR. McKAY: Your question is referring to the voice model only?

2497   COMMISSIONER KATZ: Yes.

2498   MR. McKAY: We have done some looking at it. We feel that the impact will be relatively minor, assuming that you re-cost the areas outside the base rate, because, obviously, those are all the longer loops, and they would have a higher cost per loop.

2499   COMMISSIONER KATZ: I have no doubt that it's confidential, so could I ask you, as part of your filings in confidence, to provide us with a comparison of, under the current voice regime today, for the contribution, what are your -- under the new rates that we struck just a couple of days ago, what are your contributions going into the system, what are they coming out, and under your proposed model of a base rate area, what would it be under the same conditions?

2500   MR. McKAY: With respect, Commissioner, we can provide you some numbers, but the rates would be the result of a full costing review. The last time one happened, we were never able to totally recreate the rates that we were given.

2501   So we would be somewhat unsure of what the final rate would be out of that review.

2502   COMMISSIONER KATZ: Provide us with your assumptions, as well, and if the staff have to re-engineer it or recreate it, we will try to do that as well.

2503   But at least give us what your assumptions are. Since you are proposing this model, it would be worthwhile for us to analyze that data and see what it is.

2504   MR. McKAY: Yes, we can provide some estimates.

UNDERTAKING

2505   COMMISSIONER KATZ: Thank you.

2506   My last question goes back to the quote again about "SaskTel Satellite Internet powered by Xplornet provides affordable, fast and easy internet packages, starting at $56.95."

2507   You have put the word "affordable" in there.

2508   In paragraph 86 of today's documentation you say:

"Accordingly, we and others have recommended that the Commission create a broadband contribution regime that would make access to broadband services available to all Canadians at affordable rates."

2509   Are those the same rates you are talking about here?

2510   MR. HERSCHE: First of all, what we had to do to get those rates down for Barrett Xplore was, we had to provide a subsidy for every subscriber that was powered by Barrett Xplore on the CPE.

2511   We would think, if we were looking at affordability for broadband, that we would look at something that would be reasonably equivalent between urban and rural areas. As it goes along, it may be slightly higher in urban areas.

2512   There is no question that $59, or $60, would be on the high side of what we would be asking for what would be, essentially, a 1 megabyte service.

2513   COMMISSIONER KATZ: If that is what you deem to be affordable -- the high end of affordability -- for broadband services, what do you define as affordable for basic voice services in the Province of Saskatchewan for your residents today?

2514   MR. MELDRUM: We wouldn't see moving away from the current regime that's in place, which is moving it to $30. We weren't completely happy with the prices moving to $30, as we looked at the impact on our customers.

2515   We certainly don't see it going above $30.

2516   As to why, we think that the value of service proposition is still relevant. For the $23 to $25 that people pay in rural Saskatchewan, they get to phone about 1,000 or 1,500 other people.

2517   To get the kind of calling that perhaps other people are used to, you need to get a toll plan from somebody. That adds another $15 to $20 onto what you would term to be basic telecommunications service.

2518   So we certainly don't see the rates going above the $30 that the Commission is currently moving them toward.

2519   COMMISSIONER KATZ: But you do see $30 as being affordable in the overall context, particularly when you are saying that $56.95 is affordable for Xplornet service, which is rural community?

2520   MR. MELDRUM: Yes. But for basic voice there will be some drop-off as it moves to 30 bucks. There is no doubt about that, especially on reserves and poor people in rural Saskatchewan.

2521   COMMISSIONER KATZ: But it still is affordable in the overall scheme of things?

2522   MR. MELDRUM: In the overall scheme, yes.

2523   COMMISSIONER KATZ: Okay. Thank you.

2524   THE CHAIRPERSON: Candice?

2525   COMMISSIONER MOLNAR: Thank you.

2526   I want to just clarify some items related to the broadband discussion that has been going on.

2527   Saskatchewan has ubiquitous broadband coverage today and we have heard throughout the hearing so far and in the evidence that we have that we should allow the markets and the programs in place to enable penetration, to get the access out there.

2528   I think what I heard from you folks is you are more concerned with the continued upgrading and maintenance of broadband, not simply achieving broadband access, universal access to broadband, but maintaining that over time as requirements change and speeds change.

2529   MR. HERSCHE: Yes, precisely. We believe we have attained -- and while everybody says 100 percent, there is always something --

2530   COMMISSIONER MOLNAR: Right.

2531   MR. HERSCHE: -- but we have attained 1.5 percent -- or 1.5 megabits.

2532   But assuming, as we will, that the world is going to or residents are going to need 4 to 5 megabits, we are going to have to find something to --

2533   COMMISSIONER MOLNAR: Right. Okay. So let me continue if that is okay.

2534   When we are talking about a program to maintain and enhance service, which essentially is the voice program today, you know, there were little bits put towards service improvement, but in large part it is a program to maintain universal affordable service for voice and we are talking about something similar here you are proposing for broadband.

2535   But unlike voice, it is not simply about maintaining the service today, it is about increasing capacities as the service requirements change.

2536   When we are talking about a program like that, can you tell me what are the key issues? And, you know, I had the discussion with Barrett and I asked MTS the same.

2537   Is the issue that we should be talking about here the last mile or is it the middle mile? Where is the true cost barriers to maintaining affordable high-quality service in broadband?

2538   MR. WITTAL: In the discussion this morning I think the MTS people described that it depends on the situation.

2539   If you have a large backhaul network in place, then obviously the gap gets to be your access network, and, of course, that would be the piece that we continue to upgrade.

2540   If you do not have backhaul capacity in place, then you need to do both ends of it. So it makes no sense to have a high-speed wireless link, for example, but no aggregation point back into the core.

2541   So for us, we would certainly believe that as you deploy larger bandwidth backhaul, you have generally addressed -- although there will always be electronic upgrades, there will be software upgrades, there is always the maintenance to be done, but you have solved kind of that kind of core issue about your big pipe, if you will, and therefore, most of your money would go into the access side.

2542   So it really depends where your starting point is and, in fact, how fast you want to get to the next level.

2543   MR. HERSCHE: May I add?

2544   I agree a hundred per cent with Kym that there will be differences in different locales.

2545   Earlier today people talked about Alberta's SuperNet and I have done some work with the Alberta Economic Development groups.

2546   Alberta's SuperNet was a wonderful program. They focused on building the backbone. They have a backbone that goes to points, at present to 449 communities, throughout Alberta. It sounds wonderful. They spent $800 million on doing that. Of that 449 communities, about 250 -- there might be a couple more -- the people actually have service.

2547   It is not what you -- so if you don't get the whole program right, so if you look at just the backbone or just the access, you are going to miss something as they do that.

2548   That is why we would -- in listening to MTS this morning, the idea of submitting a service improvement kind of business plan, if you will, to yourselves to look at this kind of thing would show the kinds of components and then that would be able to be addressed.

2549   Because of the models that we have, it is not one or the other and I think we would be in trouble if we picked that.

2550   The other thing that we want to do in --

2551   COMMISSIONER MOLNAR: Sorry, Bob, can I continue?

2552   MR. HERSCHE: Sorry, go ahead.

2553   COMMISSIONER MOLNAR: Sorry.

2554   Let's say we begin this, if the issue is maintaining and upgrading, we perhaps have a little time here.

2555   So targets are set and we monitor, against those targets, targets for consumer access at certain speeds and potentially some kind of monitoring of the backbone, the capacity and affordability of backbone for those service providers who want to serve in the high-cost areas.

2556   If that was kind of an initial first step to define this middle mile and to monitor it through the CRTC's monitoring process, do you have some thoughts as to what we could define or what are the important attributes of that middle mile we would want to monitor so that we would be in a position to identify where problems occur?

2557   And perhaps this is a takeaway if you would like to think about it.

2558   MR. WITTAL: I was going to offer a technical answer to that and I am not sure my counterparts are with me just yet. So I think we may reserve the right to come back and clarify to some extent.

2559   But certainly, if we are trying to enable capacity and bandwidth, I mean those are the kinds of things, parameters that you would think about in terms of having the throughput, the ability to have the end services of whatever they might be, of certain bandwidth or capacities or features or functionality, that the middle mile would support all that in some way, shape or form.

2560   Again, I think there would be, you know, certainly a couple of key metrics that could probably be watched, but I think I would have to defer to my counterparts a little bit on what exactly that would be.

UNDERTAKING

2561   COMMISSIONER MOLNAR: Just to clarify to make sure that I am thinking about this the correct way, you potentially have different suppliers of middle mile than last mile, correct?

2562   So if there was a program, the persons who may need subsidy if there is subsidy or those persons who need investment or so on are different for middle mile than last mile? It can be.

2563   You can put forward the backbone and you can have, you know, various wireless, fixed wireless providers or satellite providers -- maybe not satellite but others who can participate maybe through municipal grants or whatever in serving a community?

2564   MR. WITTAL: Yes. The simple answer is yes.

2565   COMMISSIONER MOLNAR: So it would make sense if we are looking at this to look at the two separately?

2566   MR. HERSCHE: We are not saying, by the way, that any kind of program that you put forward would only be available to ILECs or something like that. I mean it would be the people who are actually serving the people for the last mile as we begin to do that.

2567   We do have some principles, if you will, when we start to go down this path that we will -- and again, hopefully, we would have a hearing to talk about this. But again, what we are looking for is something that is very consistent as it goes forward.

2568   We are also very concerned with the dollars because of our experience with the federal programs, that it is sustainable. We have seen so many of these dollars go to Bob Hersche's fish and chips and broadband and then they wasted that money where you could have been going down and providing those kinds of --

2569   So it is sustainability. And again, it is not just a one -- like the federal or provincial programs, it is not just a one-time capital here, go away. We have to look at a whole business case as we do this.

2570   COMMISSIONER MOLNAR: Okay, thank you. I would look forward if you could think a little bit about defining what parameters, you know, if, for example, the first step in any kind of -- before any program is put in place is to monitor, to ensure you are monitoring and keeping track of the correct attributes -- or, sorry, correct network components or so on that may require some assistance, where you may have the different gaps within the network.

2571   So think about that if you don't mind.

2572   Just a couple of other questions.

2573   You have provided the map on cellular coverage to argue that wireless is not a viable option to wired service today and I won't argue that. I know where I do and don't get wireless coverage in Saskatchewan.

2574   But what I did wonder is the BSO today is defined as in order to achieve contribution or the subsidy you need to meet the BSO, have an obligation to serve and meet the BSO, and today it is defined in such a manner that it really can only be achieved from wireline or I mean it has really been only made available to wireline.

2575   One might argue that it should be able to be met with any technology if the technology meets the necessary service attributes, and you have given examples where it doesn't, but there may be some customers within high-cost areas where it could meet those attributes.

2576   What I would like to have your opinion on is whether we could define the BSO in such a way or what changes would need to be made to the BSO so that a customer could be assured of having a high-quality service using any technology.

2577   MR. MELDRUM: Bob will maybe add something, but I think there is a real practical issue if you are going to extend it to cellular and that is that that is not a fixed location where the cellular exists.

2578   So I don't know how you would ever keep track of who took what cellular for what purpose and then provided the contribution subsidy accordingly.

2579   COMMISSIONER MOLNAR: Let me give a more narrow approach to this.

2580   Let us assume we accept the arguments put forward by certain parties that those with the obligation to serve are entitled to subsidy, those with an obligation to serve should have the potential to meet that obligation using various technologies.

2581   Under that scenario, what should be the defined attributes of the basic service objective that would allow the carrier with the obligation to serve to use various technologies but still ensure a customer had a high-quality service?

2582   MR. MELDRUM: Well, I think that is part of the key, is that high-quality service and the five 9s that the customers are used to and which I think the Commission would still have an expectation.

2583   Maybe that was how you would end up measuring it, is to go back to the extent to which that particular technology could provide that five 9s of service.

2584   MR. HERSCHE: If I can just approach this an entirely different way, sort of turning your question around a bit.

2585   We could also just leave the basic service obligation as it is today in wireless if, as others claim, that it is a comparable service, that people are going to be moving from it and off the voice system. We are paid on a per NAS basis. Then if they are correct and they can do that, then the voice subsidy would disappear.

2586   COMMISSIONER MOLNAR: But I see that there are some potential issues with that basic service objective. It does not require, for example, equal access. It doesn't ensure a customer is provided with unlimited local calling. I mean there are certain attributes of service that aren't today included in the BSO.

2587   So take it away, if you don't mind, if you want to speak to it at any point in this hearing and come back to it.

2588   Just one more question related to the costing.

2589   You propose rebanding to eliminate the centre of the doughnut.

2590   So rebanding is a very very significant exercise. Rebanding is a significant exercise. Costing once that rebanding is completed is a very significant exercise.

2591   You are likely talking, you know, multiyear regulatory process by the time you would get to that end outcome and there are many in this proceeding who suggest that having such a long protracted costing process is not feasible, not reasonable.

2592   Have you given any thought to options that might achieve some of your outcomes without a long and protracted banding and costing approach?

2593   MR. McKAY: Only since you asked the question yesterday --

--- Laughter

2594   MR. McKAY: -- and we have no answers as of today.

2595   COMMISSIONER MOLNAR: Okay. I would appreciate if you want to, you know, think about that one as well.

2596   Those are my questions. Thank you.

2597   THE CHAIRPERSON: Thank you.

2598   Before I let you go, two clarifying questions.

2599   Mr. Wittal, you said that essentially wireless technology has not made great advances in the last few years.

2600   But if we are now freeing up new spectrum, especially the 700 MHz, does that not mean a totally different reach for wireless and therefore, even if the technology has not meaningfully advanced, you will have a much greater reach than you had before?

2601   MR. WITTAL: That is partially true. In our rural areas we run at 850 MHz today for the cellular network. Should we be able to obtain 700 MHz spectrum, that will help but it will not solve the problem that we have in terms of all those red areas that we show on the map will not go away just because we have access to 700. We truly need more towers to cover properly if we want to use it as a substitute.

2602   THE CHAIRPERSON: And secondly, you talked about satellite services and you talked about the deal that you have with Barrett, and all the figures you always quote and the press release that Len Katz quoted talk about the usage.

2603   What is the initial cost? For a single user of satellite, how much would he have to dish out in order to become a customer for Internet via satellite?

2604   MR. HERSCHE: Your monthly charge is -- as it says in there, is $59.95, if I remember, and what you get is 1 megabit for that, and your charge for the CPE will be approximately $250. Plus you will have -- there will be an installation charge and the installation will vary on how far you are from the nearest dealer in terms of windshield time, if you will.

2605   THE CHAIRPERSON: And you need a dish too, don't you?

2606   MR. HERSCHE: I beg your pardon?

2607   THE CHAIRPERSON: Besides the CPE, you need a dish too, don't you?

2608   MR. HERSCHE: That is all included in the price.

2609   THE CHAIRPERSON: So CPE stands for what? I thought this --

2610   MR. HERSCHE: Customer premise equipment. Sorry.

2611   THE CHAIRPERSON: Oh! So that is both the set-top box or the modem and the dish?

2612   MR. HERSCHE: And the dish, yes.

2613   MR. MELDRUM: But to be clear, there is a subsidy that is provided by the Province of Saskatchewan to get to that price.

2614   THE CHAIRPERSON: Okay. Well, let us talk about the cost rather than the price.

2615   What is the cost of providing a satellite access via Internet the first time to a single user?

2616   MR. HERSCHE: Without the subsidy, we add another -- we provide a subsidy of $300. So it would be --

2617   THE CHAIRPERSON: Do the math for me, the total amount.

2618   MR. HERSCHE: The total amount would be $500 and -- say, $550 plus install, and again, the install will vary by where you are.

2619   THE CHAIRPERSON: So my personal experience of about $700 and change is more or less representative?

2620   MR. HERSCHE: Oh, yes.

2621   THE CHAIRPERSON: Okay. Thank you. I think those are all our questions.

2622   Let's take a 10-minute break before we go to the next presenter.

--- Upon recessing at 1448

--- Upon resuming at 1503

2623   THE SECRETARY: Order, please. À l'ordre, s'il vous plait.

2624   THE CHAIRPERSON: Commençons, Madame.

2625   THE SECRETARY: Thank you, Mr. Président.

2626   For the record please note that Mr. Charlie Angus, MP for Timmins and James Bay, has informed the Commission he will not be appearing before the Commission today.

2627   However, the associations who are scheduled to appear with Mr. Angus are present and will be appearing. Each party will be granted a 10-minute presentation.

2628   So we are reconvening today the Regional Working Group on Broadband Infrastructure, NEOnet, Northeastern Ontario Communications Network Inc. and the Town of Kirkland Lake.

2629   We will start with the presentation of Regional Working Group on Broadband Infrastructure. Please introduce yourself for the record and you have 10 minutes for your presentation.

PRESENTATION

2630   MR. ORTH: Okay, thank you.

2631   Ladies and gentlemen, my name is Doug Orth, and I have had the privilege of co-chairing the Regional Working Group with our MP, Charlie Angus.

2632   Ladies and gentlemen, thank you for this opportunity to appear before you this afternoon.

2633   Much has been said in the past regarding the digital divide. Numerous studies and consultations have been undertaken in an attempt to create a vision of what a digital Canada may look like.

2634   We are here today to provide another most important viewpoint, that of our people, those who live and work in this rural and remote area.

2635   Members of our working group have had the opportunity to consult extensively with residents, businesses and service providers in our area both through the functioning of the group and the day to day operations of our individual organizations.

2636   Typically proceedings of this nature are held in a place or at a time that makes it difficult for them to appear individually. So we are here today to bring their message forward. We believe that this is how we can best assist the Commission in its mandate to ensure that both the broadcasting and telecommunication systems serve the Canadian public.

2637   In urban areas customer choice and consumer choice forces telecommunication companies to provide a wide range of applications and services at competitive rates in order to capture market share. In areas such as ours where there is limited local competition, huge distances to be covered and low population densities, regulation and subsidization are required to encourage local access to service.

2638   Unfortunately, we become the "poor cousin" too often as service providers concentrate on markets that provide substantial return on investment. Our view of the future represents a level playing field where all Canadians enjoy comparable service at comparable cost.

2639   With this in mind let us discuss the issues that are the focus of this proceeding.

2640   With regards to obligation to serve, it is the opinion of the working group that the obligation to serve is still valid in areas where there is limited or no competition and the local service subsidy must provide sufficient compensation.

2641   In its plan for a digital Canada, the Standing Senate Committee recommended that the government in its digital strategy should define universal as 100 percent of Canadians, and we agree.

2642   But it must be stressed that the packaging and pricing that is considered commonplace in highly-competitive urban areas must also be available to rural and remote customers. We must not lose sight of the mandate that ensures Canadians, all Canadians, receive reliable telephone and other telecommunication services at affordable prices.

2643   Again, we consider the needs of the consumer and suggest the focus be re-established to ensure their requirements are met wherever possible. Obligation to serve can be of much value in rural and remote areas to ensure telecommunications technology is available in areas of lower population densities. Unfortunately, it can also penalize consumers who fall beyond the 165-metre limit simply because a service provider can pass the expense on to the customer to maximize corporate profits.

2644   We recommend that the obligation to serve be revisited to allow for installation beyond the mandate of 165 metres of existing infrastructure and feel that this can be accomplished through the application of a variety of technologies.

2645   As the basic service requirements expand, which they must, obligation to serve will become more essential, as will timeframes to deliver basic local service with minimal delay to the consumer.

2646   With regards to the basic service objective, we are dismayed to learn that some parties have submitted that the existing measure is appropriate and that high-speed internet access should not be included in the basic service objective as internet is not a basic service and its inclusion should raise serious funding issues.

2647   What then do we tell the consumer who has limited access to their educational opportunities?

2648   What do we say to farmers who are attempting to run their businesses and are stifled by dial-up internet?

2649   What do we say to communities in depressed areas and many of those in northern Ontario?

2650   What do we say to them who are attempting to attract new residents, investment or innovative companies but are put at a huge technological disadvantage?

2651   Are we really saying that the consumers in rural or remote areas shouldn't have access to the high-speed internet that the majority of Canadians enjoy simply because it could not -- or simply because it would create funding issues and the service providers won't be able to generate double-digit increases and operating income each quarter?

2652   Are we really saying to these people, "Let them each cake"?

2653   No, people in rural and remote areas should not be penalized because they were born and raised in some of the most beautiful and productive parts of our country. We agree with those who submit that the basic service objective is outdated and that high-speed internet is a basic service that should be enjoyed by all Canadians at affordable prices.

2654   I believe that dial-up internet through toll free or local exchange is already established as part of the basic service objective. The question then becomes does dial-up technology meet the needs of the consumer and, if not, how much bandwidth is required.

2655   We agree again with the Standing Senate Committee on Transport and Communications who state that:

"...government should determine the broadband speed required to access basic digital services (health, education and other online services whether provided by the public or private sector) and focus government policy on bringing this broadband speed to all Canadians, whether in cities or in rural and remote settings."

2656   A common platform, level playing field and comparable costs are essential elements to building a digital future in which all Canadians have equal opportunity to participate.

2657   Before we consider the required broadband speed we need to factor timeframes into the equation. This proceeding will terminate in early 2011 as the Commission publishes its determinations. The decisions must be implemented by the service providers which could take another three to five years or beyond.

2658   How much will technology advance during this timeframe?

2659   Do we base our decisions on what is required now or is our aim to have sufficient bandwidth to meet the projected demand for digital services, a minimum of five years into the future?

2660   We must be proactive to ensure the results of this proceeding will meet the basic needs of Canadians when it is fully implemented. If not, we will be mandating digital services that will be obsolete by the time it reaches the consumer, particularly in rural and remote areas where advance service deployment tends to trail that of urban areas.

2661   While it has been suggested bandwidth speeds of 1 to 1.5 Mbps are being considered, we are recommending to the Commission that a minimum bandwidth of 10 Mbps be required if we want to bring essential services to our citizens in the future. As technology progresses during the implementation period there may be a need to revisit this requirement to ensure that bandwidth availability keeps pace with new developments.

2662   Local service subsidy: So how do we finance a service enhancement of this magnitude?

2663   Certainly, the existing local service subsidy regime must be reviewed and expanded to include those who benefit financially by providing broadband services. These could include companies who provide internet services to the public such as cable companies and also businesses that utilize the internet to provide telecommunication services such as Skype, just to name two examples.

2664   The regime could better balance between the needs of the consumer and the corporate desire to generate greater profits.

2665   In its consultation paper on a Digital Strategy for Canada, Industry Canada suggests accessing passive infrastructure such as rights-of-ways, ducts and support structures to reduce costs. Through increased collaboration between telecommunication service providers and governments of all levels, we believe that these assets could be used to a much greater degree.

2666   As a last resort, direct government financial assistance may be required to create passive infrastructure that would be used to provide service enhancements.

2667   In closing, let me provide a summary of our recommendations.

2668   First, that obligation to serve is still valid in areas where there is limited or no competition and the local subsidy must provide sufficient compensation.

2669   Secondly, the basic service objective is outdated and high-speed internet is a basic service that should be enjoyed by all Canadians at affordable prices. The minimum bandwidth that should be provided to all Canadians by 2016 should be 10 Mbps.

2670   Third, the existing local service subsidy regime must be reviewed, expanded and create a better balance between the needs of the consumer and the desire to generate corporate profits. After this has been accomplished private/public partnerships could be pursued to meet the costs of implementation if necessary.

2671   Ladies and gentlemen, let me thank you once again for allowing me to present this message on behalf of the consumers in our area.

2672   THE SECRETARY: Thank you, Mr. Orth.

2673   We will now invite the Town of Kirkland Lake to make its presentation. Please introduce yourself for the record and you have 10 minutes.

PRESENTATION

2674   MR. HASS: Thank you for allowing us to appear here. I apologize in advance if my voice fails. I'm fighting a bad cold at the same time.

2675   My name is Wilfred Hass. I am the Director of Economic Development and Tourism for the Town of Kirkland Lake.

2676   I would like to clarify upfront that I am not a technical person. I represent the users, the people that are most implicated and impacted by the decisions that the CRTC will make and in terms of my position the consequences are for economic development and community sustainability. We bear the brunt of the decisions you make.

2677   The Town of Kirkland Lake is a partner in the Timiskaming Working Group on Broadband Infrastructure and Digital Issues. Our presentation today complements that made by our colleagues.

2678   Our goal is to highlight, through real world examples, the points that our colleagues have made as pertains to the obligation to serve, basic service objectives and local service subsidies.

2679   Again a caveat, my real world examples: I am not bashing any telco. We have a wonderful relationship with the telecommunication companies in our area. They provide excellent service. But sometimes things go a little askew and that usually reflects the environment that they are working in too. The examples I cite are ones that could happen, did happen and could happen again, regardless of who is at the helm.

2680   Obligation to serve: The Town supports the working group's assertion that the obligation to serve is still valid in areas where there is limited or no competition.

2681   Kirkland Lake is for all intents and purposes a rural and remote community. We face incredible challenges attracting newcomers, especially professionals and entrepreneurs.

2682   One of the few draws that we do have is the availability of telecommunication services that parallel those available in southern Ontario. But that advantage only exists because it is mandated. If the obligation is removed, then the level and accessibility of the service will either stagnate or contract. That would be to our detriment.

2683   These are not just words. We have seen this happen.

2684   An entrepreneur moved to Kirkland Lake and made a considerable investment in setting up a new business. High-speed internet service was critical to his business, and access to such service was one of the key criteria in selecting his location. Yet once he moved into that location the telco cut the service and stated that it was not required to extend it there any more. This is despite the fact that high-speed service was available directly across the street from his store, at a competitor's location no less.

2685   The entrepreneur was forced to rely on expensive and very unreliable satellite service, resulting in lost sales, lost market opportunities to expand services and a world of frustration that was strongly and regularly communicated to Town Council.

2686   This is clearly a case where the telco was following the letter of the law, not the intent. They based their business decision on what was good for them, as they should, but not so good for the customer, not for a struggling community that absolutely could not attract investment at that time.

2687   Remove the obligation to serve and we are convinced, based on our experience that this scenario will happen much more frequently. To this end, we recommend that the obligation to serve be maintained.

2688   We also agree with our colleagues that the 165 metre radius limit be reconsidered and expanded. I will speak more on this in a moment.

2689   The municipality also supports the working group's contention that the service pricing that is considered commonplace in highly competitive urban areas must be available to rural and remote customers. This simply makes sense in a world where affordable, reliable access to information is the foundation of education, employment, social cohesiveness.

2690   How are we supposed to attract young professionals when a service they take for granted is priced out of range here?

2691   An example, we did attract a doctor and that was wonderful in itself. He didn't come after he figured he could not get that service at his chosen residence.

2692   How are we to retain our young people? They know what is available, what it is worth, and what it means to them. If they can't get what they want here or, worse, they feel they are being fleeced for it, then you have added yet another reason for them to leave the north.

2693   The telcos will tell us that the markets should decide what happens. I agree. It's fine. But given the subsidies they enjoy, the monopolies, et cetera, it behoves the telcos to use a bit of imaginative mixing of pricing and services to help create the market.

2694   Basic Service Objective: The municipality strongly believes that high-speed internet access be included in the basic service objective.

2695   The high-speed internet access is a basic service requirement now for both the businesses and the consumer sector. I refer you to the example I cited earlier. High-speed internet access was the basic service that the business needed.

2696   Here is another example. At a time when our town was literally staring into the abyss, new owners of a local mine found that the "questionable" mine that they had bought was really a bonanza.

2697   High-speed communications were an absolutely critical component in the subsequent analysis and development phase. They could not get it as they were beyond the 165-metre limit. It was only through the extension of wireless services from the municipality, backed by the local hospital, that their needs were met. That should not have happened. We are glad it did because now we are in a boonful cycle.

2698   Today's businesses are data intensive, so a minimum bandwidth of 10 Mbps, as recommended by our colleagues, is valid, particularly as it will be a number of years yet before this throughput speed becomes the base required amount. We echo our colleagues when we say plan for the future and not the past.

2699   Local Service Subsidy: In our opinion, the local service subsidy is essential to preparing rural Canada for the 21st century. Beyond a doubt, it is important to the telcos tasked with servicing these broad areas and it is important to the consumer. Without it, they will not see service levels comparable to that enjoyed elsewhere in the country or abroad.

2700   But it is also important to the governing authorities as it creates the leverage needed to ensure that these targets are being met. We encourage you to keep them.

2701   I think I should stop there because my voice is leaving faster than I am. So thank you.

2702   THE SECRETARY: Thank you very much.

2703   We will now hear the NEOnet presentation. Please introduce yourselves for the record and you have 10 minutes.

PRESENTATION

2704   MS SPENCE: Good afternoon, Chairman, Madam Secretary, members of the panel and guests.

2705   My name is Alexandra Spence and I am here with my colleague Dave McGirr, to represent Northeastern Ontario Communications Network, NEOnet.

2706   NEOnet is a non-for-profit organization network with the public and private sector to bring better telecommunications services to northeastern Ontario.

2707   We also focus on adoption and application of ICT services.

2708   What I'm going to be doing is going over the images that are found in the back of your package that we have. It's just after the title page, "Gap Analysis Initiative of Northeastern Ontario".

2709   So if you please refer to image one?

2710   Over the past six months NEOnet has worked extensively with all the internet service providers within our region to gather information regarding their high-speed internet service footprint. With this information we have developed a comprehensive mapping tool using Google Earth as the application to show where high-speed internet is currently available in northeastern Ontario and clearly identify where gaps remain.

2711   It is NEOnet's desire and focus to bring high-speed internet access to all areas within our catchment area.

2712   So now, while you are looking at the first image, I'm going to do my best to explain to you what you are looking at.

2713   The first -- no, sorry. If you keep going to the back? Yes. Yes. Sorry about the confusion.

2714   So this first image shows you NEOnet's catchment area. Our catchment area is quite large. It has over 60 communities within this area with a population of about 121,000 people.

2715   So we will just go to the next image if you don't mind flipping through.

--- Pause

2716   MS SPENCE: This next image shows -- you can see the boundary of the NEOnet catchment area. The yellow represents the road and that road is Highway 11. Then the red represents where high-speed internet coverage or, sorry, service is currently available.

2717   And just something to note is that the majority of the population within our catchment area does live fairly close to the highway. You can see that from the availability.

2718   So now, flipping over to the next one, this as you saw in the first image, our catchment area does include the James Bay coast. So this just gives a quick snapshot as to the high-speed internet availability up in that region. It doesn't show the whole area. And as you can see, all six communities do have access to high-speed internet.

2719   So moving forward to the fourth image, now in this fourth image the yellow rings represent where service gaps currently are. You can clearly identify especially when you compare where the red is and where it isn't.

2720   NEOnet last fall contacted all the communities within our catchment area to understand and have their input as to where high-speed internet was not available within their communities. What we will do is continue to work with them to ensure that we have all the information we need to put together the project to then cover off all these areas.

2721   Now, the fifth --

2722   THE CHAIRPERSON: Let me just make sure I understand.

2723   MS SPENCE: Sorry.

2724   THE CHAIRPERSON: The areas in the yellow circles those are communities, are they?

2725   MS SPENCE: Yes, sorry.

2726   THE CHAIRPERSON: Okay.

2727   MS SPENCE: Yes, communities as well as homes.

2728   So now the fifth image -- I am just trying to go quickly so we can get through this and then on to the other part of the presentation.

2729   So the fifth image has an additional component and this shows the implications of the HSPA Plus Network that will become available in the coming months. With that there is the high-speed internet capabilities, and that's represented in the lime green area.

2730   So as you can see, some of those gaps will then be filled with the HSPA. However, there still will remain areas without service. I'm going to do my best to highlight a few.

2731   As you can see on the right-hand side there is a ring that's close to the large body of water that's shown in the image. That represents Wagosh Lake First Nation. They will remain without high-speed internet.

2732   You can also see, if you look a bit further down the page, there is another larger ring and that represents Matachewan First Nation which, again, will also remain without service.

2733   So now the last image in your package is a home in Fauquier-Strickland which is a community with a population of about 590 residents. This home currently does not have high-speed internet.

2734   Through the Google Earth application and the data that we have collected, we are able to get down to the home level in regards to who has access to high-speed internet and who does not.

2735   So now my colleague, Dave McGirr, will take over for the rest of the presentation.

2736   MR. McGIRR: And I will be quick. And Alexandra would be pleased to give anybody a presentation using the Google Earth application post this meeting. It is quite neat.

2737   First of all, on behalf of the city of Timmins, I was just with our Mayor Tom Laughren and he said to say welcome. We are really, really pleased that you chose Timmins again for this. So welcome, welcome and welcome!

2738   I just want to say upfront I love the --

--- Technical difficulties

2739   MR. McGIRR: -- and we have done a lot of work with them and without them the success story that I am going to talk about wouldn't have happened.

2740   I'm going to move to the fourth slide in your package, NEOnet impact. Through government funding and private sector relationships -- private/public sector relationships -- we have delivered high speed to over 40 communities.

2741   In addition we have achieved additional 540 kilometres of cell coverage.

2742   We have provided satellite internet access to approximately 1,000 businesses.

2743   We have developed a comprehensive training program to enhance computer skills of not just older adults and we have created and delivered 400 educational seminars.

2744   As a result of collaboration and partnerships -- moving to the next slide -- we have done $110 million worth of investment in this region.

2745   I won't talk about -- dwell on the economic developments or regional developments on the next slide, but from what I have heard from all of the presentations we are all kind of on the same page here.

2746   But as an individual who has pretty strong ties in economic development with our local college and with our --

--- Technical difficulties

2747   MR. McGIRR: Sorry.

2748   I want to emphasize that this movement to further increased broadband deployment is critical for economic and community development.

2749   Our message is on the next page and it's three major points.

2750   One, Alexandra clearly showed that there is significant high-speed internet in this region. I have articulated what NEOnet through private sector/public sector partnerships have done. There are still gaps and we have got to fill those gaps in 1.5.

2751   But similar to the conversations that we have had throughout the presentation, that standard is no longer acceptable and we are going to suggest that a minimum of 10 megabits has to be in place.

2752   Our position is the public sector/private sector model is very, very effective in terms of closing those gaps but the federal government must set a new standard and provide the necessary tools through their funding programs.

2753   We will back those points up. I won't go through every slide.

2754   Some of the presentations have mentioned it, but the specific standards that Finland has in place are on the next slide and that's 100 megabits by 2017 to every single community. These have been mentioned in several presentations.

2755   Australia are going to spend $4.7 billion.

2756   Again, and if we flip through the slides, Japan has one; Sweden has one.

2757   Canada -- we get to Canada. We are no longer an ICT leader.

2758   High-speed internet: As we have heard throughout the presentations, people consider 1.5 to be the standard. A lot of presentations were pushing for more.

2759   Dennis Henry from Bell Aliant mentioned earlier in the hearings the Eastern Ontario Wardens' Caucus broadband. That is a great template. So we line up with Bell Aliant on that one, that that is a great template to use.

2760   Moving on, the next slide is a matrix of average download speeds by country, and that comes from the Organisation for Economic Co-operation and Development and it shows Canada mid-stream, about the median, not great, but not the worst.

2761   The next slide is something that we put together that shows the minimum and maximum download speeds across Canada by provider. You can see that the median is about 1 megabit and the maximum download averages out about 25.

2762   But the next slide is a telltale story, and that is something that we put together as well, and that is the providers in rural Ontario, that is the providers in the NEOnet catchment area. You can see that the averages and the medians are significantly less than these providers would provide across Canada. So the heavy density areas are significantly different than the rural areas, which I don't think is a surprise.

2763   Just on the slides that Alexandra showed in terms of what progress has been made there, we drew some stats and some of this is caveat, but of the projects that have been done 85 per cent of those have required private sector/public sector collaboration to achieve high-speed internet in those areas. So those projects would not have been done if it had not been for public sector/private sector partnerships.

2764   An organization such as ours with support from FedNor and Northern Ontario Heritage Fund Corporation have encouraged the private sector to move into more innovative and provide service in these new markets.

2765   The next slide shows what it looked like in our community in July of 2005, the red dots being the areas that were not served. Now, as of a month ago, we only have the three areas that Alexandra mentioned, again the red dots not served.

2766   So to close our message would be that we have to fill the 1.5 for sure. It is no longer acceptable, we have to set a new benchmark of a minimum of 10 megabits. I would personally be happier if it was considerably more. We believe that the federal government must play a role to set that new standard and establish a strategy for implementation.

2767   But once a standard is set and the monetary tools are provided, we believe the public sector/private sector model can take over and RFPs can be issued. What we have heard over the last couple of days, some of these companies think they can move aggressively into these areas. If they win the RFP, then we will see how that service is delivered. I am confident that that will prove to make these companies more nimble and make Canada more innovative.

2768   That is it for us, thanks.

2769   THE CHAIRPERSON: Thank you.

2770   Just on that last point on your slide for north-eastern Ontario, September 2010, when you talk about high-speed, you mean 1.5?

2771   MR. McGIRR: When I talk about high-speed filling the gaps, I am talking about 1.5. But I think that that standard, Mr. Chairman, is way out of date and I think we have to set a new standard just like Finland and other countries have done at a minimum of 10, potentially as high as 100.

2772   You have had lots of input here, whether it is CRTC and Industry Canada, I think the federal government has got to play a role in setting that standard and giving these companies, through an RFP process, the opportunity to deliver.

2773   THE CHAIRPERSON: I don't think anybody disagrees that higher speed would be preferable, et cetera. I just caution you with some of this. Really, the only country which has a geography comparable to ours is Australia. Then you look at Australia, north-eastern Ontario would fall under the 10 per cent, which gets 12 megabytes. I mean, the 100 megabytes is the big cities on the periphery, on the oceans. The remoter areas inland will not see anything near 100.

2774   MR. McGIRR: Mr. Chairman, if you will allow me to say, I don't think this country should hide behind our geography. I think we should leverage our geography.

2775   THE CHAIRPERSON: Well, I don't speak of terms of aspirations, I speak about realities. The reality is we have this geography and so, therefore, we have to -- it imposes costs, that is the only point I was making.

2776   MR. McGIRR: No, I agree with you. But I really believe that if we want to make Canada more innovative, we can challenge the companies behind us, and I do love them, and they will deliver.

2777   THE CHAIRPERSON: Okay. Timiskaming Working Group. You are the closest thing to a grassroots that has appeared before us, all three of you are, but really everybody else has been in the industry. I have never heard of you before. I am fascinated that there is such a thing as a Timiskaming Working Group on broadband infrastructure and digital...

2778   Tell me, how did you come about to be created? Is our hearing the reason that you exist or did you exist beforehand? Because I have not heard from organizations similar to yours.

2779   MR. ORTH: Actually, Mr. Chairman, yes, you did hear from us before. I was actually here making a presentation, back then it was regarding eliminating party lines, which was more than a few years ago.

2780   THE CHAIRPERSON: Before my time.

--- Laughter

2781   MR. ORTH: There you go. Unfortunately, not before mine.

2782   But the working group itself was formed by a number of individuals and a number of groups, some of those represented here, because of work that we do in the community in large cases. Certainly this proceeding kind of spurred us to action. But we all deal in our respective communities, in our respective municipalities.

2783   What we wanted to do is we want to try to develop a more close relationship between the different groups and organizations that deal with issues that affect community economic development. And telecommunications certainly came out in the forefront as one of those.

2784   As a result, we approached our MP and said, no, we may want to get this thing together, we may want to put it together and see what we can do not only to address this proceeding, but also to look at some other issues that are coming to the forefront with regards to provision of telecommunication services in our area.

2785   THE CHAIRPERSON: Who is on this Working Group? Obviously the Town of Kirkland Lake is on it, but who besides that?

2786   MR. ORTH: My organization, which is the Kirkland & District Community and Development Corporation, as well we sit on it and we represent communities throughout North Timiskaming, NEOnet is a member of it, our MP is involved, we have people from the college system as some of the main players. And I'm not sure, perhaps you guys can provide me with some --

2787   THE CHAIRPERSON: As I understand, these are all user groups? None of the provider groups are on there. Are any of the cable or telcos or internet companies, service providers, part of your group?

2788   MR. ORTH: Actually both, but we have had representatives from both telephone companies in our area that also sit with us to provide us with technical advice and also we get a feel from them for exactly, you know, where they are at as far as delivery of service and also what their issues are.

2789   THE CHAIRPERSON: In your presentation you are looking for essentially, if I understand it correctly, you want us to set a new basic service objective, et cetera and it somehow generates a funding out of the federal government or did I misunderstand you?

2790   MR. ORTH: Actually, we say that it can come from a number of different sources. Certainly one of them is by expanding the subsidy regime to include those who have not traditionally contributed. I think there may be some service providers there that do provide internet service or even telephone service over the internet, that that could be included in the subsidy regime.

2791   We are also suggesting that perhaps the private sector could contribute more if we want to see this thing be successful. There is already public infrastructure that is available or is present in this area and certainly across Canada that could be utilized rather than reinventing the wheel and building more towers and building more infrastructure. Let's use what has already been created by the use of public funds to the best ability we can.

2792   And lastly, we are looking at the reality that there will need to be government intervention, particularly if we want to increase the rates to 10 megabits per second. However, you know, we were looking at it saying that as a last resort after these other areas have been exhausted. And certainly when looking at more passive infrastructure, that could perhaps remain in the hands of the public and be offered to telecommunications companies or services providers on which to put their equipment.

2793   THE CHAIRPERSON: Town of Kirkland Lake, you twice make reference to the 165 kilometre limit. Excuse my ignorance, here is your opportunity to educate me. What are we talking about?

2794   MR. HASS: Sorry, sir, it is metres not kilometres.

2795   THE CHAIRPERSON: I beg your pardon?

2796   MR. HASS: Metres, 165 metres.

2797   THE CHAIRPERSON: Metres, okay.

2798   MR. HASS: Yes. Most of our, and I think I speak for many of the smaller communities here that were built around a mine site, there is no organization, there is no plan, they put them up and they were hoping that -- well, they assumed that these towns would just simply fall down again eventually. That is not the case, it is not politically correct to kill a community.

2799   These communities now, when they are bringing in new businesses, are often finding themselves going further and further away from the core from where the telco may be. So sometimes that acts as a problem. We need to see more inclusive geographical area for that kind of coverage. That is basically the kind of point I am making.

2800   If that distance is redefined in something, you know, according to expert technical mileage, well, yes, we will accept that. But let's try to be a bit more flexible in getting these things out. It should not be a municipality that is putting up wireless units and feeding a business because they can't get it somewhere else. It is not appropriate, because that puts us at odds with the other businesses in the community.

2801   THE CHAIRPERSON: Thank you.

2802   And NEOnet, your presentation using Google Earth, et cetera, unfortunately you had to give us slides today, but do you have a disc or a USB stick on which so that we could play it?

2803   MR. McGIRR: Yes, we could.

2804   THE CHAIRPERSON: Well, if you would provide that to the Secretary, I would really appreciate that.

2805   MS SPENCE: Sure.

UNDERTAKING

2806   THE CHAIRPERSON: Thank you.

2807   Peter, I believe you have some questions?

2808   COMMISSIONER MENZIES: I guess my first question is -- and Mr. Orth, Mr. McGirr or Ms Spence could answer -- tell me why NEOnet and the Town of Kirkland Lake haven't fixed this issue. What is getting in the way? Because NEOnet has obviously done a very good job of bringing internet services to a number of communities throughout north-eastern Ontario. And then we hear the story of Kirkland Lake, so what has gone wrong there?

2809   MR. HASS: Yes, sir. Actually, that situation I think was one of the impetus to fix the situation, that circumstance that I was referring to.

2810   COMMISSIONER MENZIES: M'hmm.

2811   MR. HASS: Subsequent to that NEOnet led a project for the installation of wireless high-speed access and that covered off that area. And so it has been one case among many in north-eastern Ontario that led to what I would consider a fairly innovative project by NEOnet to solve the overall situation.

2812   COMMISSIONER MENZIES: So that problem that is outlined in Kirkland Lake was..?

2813   MR. HASS: It was resolved last year.

2814   COMMISSIONER MENZIES: Was resolved by NEOnet?

2815   MR. HASS: It was resolved through NEOnet, and Ontera put up the wireless points, yes.

2816   COMMISSIONER MENZIES: Okay, good.

2817   For NEOnet, I guess my main question is I just want to make sure I know exactly what you are asking us to do. Because you were asking us to implement a broadband basic service objective or are you asking us to report that the federal government should -- because we don't really have any money, as Konrad pointed out yesterday.

2818   MR. McGIRR: I am not suggesting the CRTC should be giving money, but the federal -- what we found has worked really well is public sector/private sector partnerships in an RFP process and to have the companies that want to be in this business compete.

2819   So our message is we have to clean up the 1.5 that Alexandra showed you that remains. So we are going to work on that no matter what, that is our priority. We are going to be 100 per cent covered in this area, we will be the first area in Canada to do that.

2820   Second item, the federal government must play a role in setting a new standard. We have come up with it has got to be at least 10 megabits, you can see other countries are up to 100. And I am personally closer to 100 than I am to 10, but it has to be a high standard and it has to be a stretch objective for Canada. Whether the CRTC plays a role with Industry Canada in setting that, it is a federal government responsibility and that is what the other companies have done.

2821   Finally, it is the public sector/private sector point. We don't think that you could force one company -- we have nine companies competing in our area. We think it has to be a competitive process with the federal government and the provincial government in many cases providing the financial tools or the business case doesn't make any sense.

2822   COMMISSIONER MENZIES: Okay. Does that mean that you want us to implement a broadband basic service objective?

2823   MR. McGIRR: We want to see a --

2824   COMMISSIONER MENZIES: Yes or no?

--- Laughter

2825   MR. McGIRR: Okay, Canada needs to set a broadband service objective, whether that is the CRTC's responsibility, is not my jurisdiction, but Canada, the Government of Canada needs to set it.

2826   COMMISSIONER MENZIES: Mr. Orth, I believe you do want us to set a broadband basic service objective. I am just trying to get a sense of where you see, in terms of internet, affordable prices being. And when you say, "where all Canadians enjoy comparable service at comparable costs," are you talking about something flexible where market-type rates may apply?

2827   I mean, for instance, some things are more expensive here than in cities, some things like with watching TV, you can rent an apartment for $650 a month, which is much less than you would pay someplace else. Are you looking at market rates or are you looking at a national fixed rates in which some people would pay over cost to subsidize other people?

2828   MR. ORTH: I think there were a couple of questions there. Certainly we are saying that we would like to see a basic service objective of at least 10 megabits per second.

2829   When we talked to the people in our communities -- and this was all about community consultation from our perspective -- there were some things that they really are concerned with.

2830   Number one, is that they should be able to have the same type of service as their kids do in Toronto or Ottawa or wherever. They should have the same access to high-speed internet, they should have the same access to telephone services, et cetera. And they are also looking at the costs associated with that, okay. Is what I am paying as a consumer in this area similar or comparable to what my kids or people in other urban areas are paying as well?

2831   So certainly taken from a consumer's perspective, they are looking at level of service that they can have access to and also at a cost that is comparable to what people in the other parts of the country are paying.

2832   COMMISSIONER MENZIES: But that doesn't mean necessarily the same cost, just -- I mean if I had to pay $50 for internet access in Winnipeg, would $60 or $70 be comparable in Moose Factory?

2833   MR. ORTH: I am sure everyone would love to be paying $10 actually, but I think --

--- Laughter

2834   COMMISSIONER MENZIES: Well yes, free stuff is always the most fun.

2835   MR. ORTH: Yes, free stuff is always good.

2836   But again, and I can't speak for everyone in the region, I can only speak for some of those people that I have spoken to. And the big concern here is actually the provision of service. You know, we live in northern Ontario, we know that there are issues with distance to market, we know that there are higher costs in some areas, not all, and we understand that and that is a price that we pay for a living here and choosing to live here in some cases.

2837   On the other hand, when that gap becomes too wide and we are paying far more than what we may see people paying in other parts of the country and certainly in other parts of Ontario and urban areas then, yes, that creates an issue.

2838   COMMISSIONER MENZIES: Okay. I was going to ask you if you had any direct proposals as to how the money for what you suggest could be raised? I noted that you said here, "The regime could provide a better balance between the needs of the consumer and the corporate desire to generate greater profits." Which, to me, suggested that there might be some way to get companies to subsidize this without the cost being eventually passed along to the consumers.

2839   MR. ORTH: Again, not necessarily. Without the cost being passed onto consumers, essentially if we look at issues of common platform and that kind of stuff, you know, what are consumers in urban areas paying for now and what services are they getting? Should people in rural and remote areas be paying essentially the same dollar and not receiving the same service is another way of saying it or me responding to that.

2840   What we are seeing here is we are seeing that, you know, in a lot of ways rates are comparable between what we are paying in northern Ontario versus what is being paid in urban areas. However, in some cases the service is not being provided similar to what is available in urban areas simply because it is not mandated first of all and, secondly, because we are not in a competitive environment.

2841   So I mean, if we want to look at providing the service, certainly there should be some requirement for the service providers to contribute towards the subsidy regime to the extent that the services can be provided to the consumer.

2842   I am not sure if that is answering your question or not.

2843   COMMISSIONER MENZIES: I think I understand what you are getting at.

2844   MR. ORTH: But the point is, in a lot of cases we are already paying for the services that urban areas are, right, but we are not getting them here.

2845   COMMISSIONER MENZIES: No, I am fine.

2846   Mr. McGirr and Ms Spence, we have heard some arguments and I am sure we will hear more that say that this industry, this service has developed just fine without the CRTC being heavily involved over the past 10 -- I mean, some of these companies it has only been 10, 11 years since they launched high-speed internet, and it is accessible to the vast majority of the country and continuing to expand and there is more satellites going up and that sort of stuff and so, you know, if it is not broken, don't fix it.

2847   I am trying to get a sense of what sort of barrier you see it having hit that would necessitate expanding our interest in the service at this stage?

2848   MR. McGIRR: A couple of quick points. One is there is a mentality out there and we have heard it throughout these hearings, that 1.5 might be enough, and we all know that it isn't enough.

2849   So NEOnet's point is that the Canadian Government should be setting a strategic objective in that area. And then collectively, we should be analyzing what that is going to take from a financial perspective, because we know from what we have heard over the last few days that it is not likely to happen on its own and it is going to need government funding to make a business.

2850   What we are suggesting is let's set the strategy aside, set the objective and let's figure out what we need from a financial perspective in Canada to achieve that and let's let these companies behind us bid on it. And I am willing to bet that it will make -- if we make it a competitive process we will see this thing move along a lot quicker and that certainly has been NEOnet's experience.

2851   As I said, we have eight or nine providers in this area, two major telcos have won a significant piece of it, but they are not the only ones that could get one, and they are outbidding each other to get in on the projects that we are involved with. And I think we heard from Barrett that they want a piece of the pie and let's make it competitive.

2852   COMMISSIONER MENZIES: Thank you. My colleagues might have further questions, but I am done. Thank you all very much for taking the time and the interest to participate in the process.

2853   THE CHAIRPERSON: Len?

2854   COMMISSIONER KATZ: Thank you, Mr. Chairman, and good afternoon.

2855   My question is to NEOnet and you touched on it when you mentioned Barrett now. You identified in here that you have met with the telephone companies and the wireless companies, you have done all the mapping and everything and there is still some areas where there is no service. Have you spoken to Barrett at all?

2856   MR. McGIRR: Actually we have done through a project funded by the Northern Ontario Heritage Fund and FedNor, we provided assistance to 1,000 businesses in north-eastern Ontario to achieve high-speed internet in those locations. We are considering doing a residential program in a similar fashion. We haven't put it together at this particular point in time. But as I said earlier, we are going to figure out what it takes to be the first community of a geography like ours to have 100 per cent internet coverage.

2857   So yes, we have on the business side and we know some residences are using it, but we haven't done up a private sector/public sector partnership on the residential side yet.

2858   COMMISSIONER KATZ: So that is why there is some voids in here, not because -- because Barrett came here yesterday and said they can provide service everywhere there is a void. What you are telling me is there is a couple of holes in here and I guess there is three First Nation reserves that probably are --

2859   MR. McGIRR: Well, there is a couple of holes and to your point and to the point that we had, some of our residential customers and even our business customers, that is why we needed to get some kind of a public sector funding, would not see at this particular point in time Barrett being financially feasible, it is a little bit expensive.

2860   Now, some of the stuff we heard yesterday, in the future that may change, we will have to go and analyze that and talk to Barrett post this meeting. Some of that was news to us, including the higher bandwidth stuff. But again, really progressive news.

2861   COMMISSIONER KATZ: My last question is on your mapping dated September 2010 where you identify there is still three little pockets here that have yet to have service at 1.5 anyways, I note that they all have a First Nation reference to them. I would have thought there were other First Nation markets along Highway #11 as well. Are there not and is there something unique about the fact that these three unserved territories are all First Nation territories?

2862   MR. McGIRR: There is something unique about it and we have had a couple of different proposals together that we haven't been able to achieve success with and we are going to go back to the drawing board and figure out a way to do it.   

2863   But there are other First Nations communities in this area that are already covered, but there are three that are left, and it just happens that they don't get hit by the HSPA range, but we are going to figure out a way to make that happen, Mr. Commissioner.

2864   COMMISSIONER KATZ: Thank you, those are my questions.

2865   THE CHAIRPERSON: Marc.

2866   COMMISSIONER PATRONE: Thank you, Mr. Chairman, and good afternoon.

2867   I also had a question regarding the map and those unserved pockets. How many people are in those pockets?

2868   MR. McGIRR: We figure there is approximately about 2,000 -- I can't answer the people --

2869   COMMISSIONER PATRONE: Households?

2870   MR. McGIRR: -- there is about 2,000 households.

2871   COMMISSIONER PATRONE: And I think you gave the global number of people that live on that stretch as being over 100,000?

2872   MR. McGIRR: 121,000.

2873   COMMISSIONER PATRONE: So out of 121,000 households or..?

2874   MS SPENCE: People.

2875   MR. McGIRR: About 121,000 people would be 2,000 households.

2876   COMMISSIONER PATRONE: Twice as many people. You don't have a --

2877   MR. McGIRR: We can't Google Earth people.

--- Laughter

2878   COMMISSIONER CUGINI: Not yet.

2879   MR. McGIRR: Not yet, you're right, Rita.

2880   COMMISSIONER PATRONE: So it is 120,000 people?

2881   MR. McGIRR: Yes.

2882   COMMISSIONER PATRONE: In 2,000 -- or in pockets of areas that don't have access?

2883   MR. McGIRR: That is right.

2884   COMMISSIONER PATRONE: And the other question I had had to do with the mining companies that you mentioned had trouble getting access. Would they not have the resources to access to satellite and set up those types of communications?

2885   MR. HASS: No, sir, when the mining companies are starting up, and particularly at that point in time, I can honestly tell you they did not have money. They had come in, it was an investor firm overseas, a fellow who had studied the Kirkland Lake Gold (indiscernible) and had assumed that in the seven original mines there was gold left. They basically sank everything into just buying those mines and looking at them, and they run out last minute, they found that out.

2886   COMMISSIONER PATRONE: Nothing leftover in the kitty for a satellite dish?

2887   MR. HASS: Yes, they did not have the money.

2888   COMMISSIONER PATRONE: Thank you for your answers.

2889   Mr. Chairman.

2890   THE CHAIRPERSON: Okay, thank you very much.

2891   So don't forget to send me the disc, I really would like to see that. And thank you for your presentation.

2892   MR. McGIRR: Thank you for allowing us.

2893   THE CHAIRPERSON: I think that is the end of our hearing for today, Madam Secretary. When do we start tomorrow?

2894   THE SECRETARY: Tomorrow we will resume at 9:00 a.m., Mr. Chairman.

--- Whereupon the hearing adjourned at 1559, to resume on Thursday, October 28, 2010 at 0900

   REPORTERS

____________________      ____________________

Johanne Morin         Jean Desaulniers

____________________      ____________________

Monique Mahoney         Sue Villeneuve

Date modified:

2010-10-27