ARCHIVED - Transcript, Hearing 2 November 2010

Volume 5, 2 November 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:

Outaouais Room

Conference Centre

Portage IV

140 Promenade du Portage

Gatineau, Quebec

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:

Outaouais Room

Conference Centre

Portage IV

140 Promenade du Portage

Gatineau, Quebec

November 2, 2010

- iv -

TABLE OF CONTENTS

   PAGE / PARA

PRESENTATION BY:

Marc Garneau, M.P. Westmount - Ville-Marie   921 / 5351

Public Interest Advocacy Centre (PIAC)   944 / 5471

Association des Compagnies de Téléphone du Québec (ACTQ)   1010 / 5822

Communications, Energy and Paperworkers Union (CEP)   1068 / 6109

- v -

UNDERTAKINGS

Undertakings can be found at the following paragraphs:

5588, 6320, and 6374

   Gatineau, Quebec

--- Upon commencing on Tuesday, November 2, 2010 at 0900

5344   LA SECRÉTAIRE: A l'ordre s'il vous plaît.

5345   Order, please.

5346   LE PRÉSIDENT: Bonjour, tout le monde.

5347   Commençons, Madame la Secrétaire.

5348   LA SECRÉTAIRE: Merci, Monsieur le Président.

5349   We will now proceed with Mr. Marc Garneau, MP for Westmount-Ville-Marie.

5350   Monsieur Garneau, please introduce your colleague for the record, after which you will have 25 minutes to make your presentation.

PRESENTATION

5351   HON. MARC GARNEAU: Thank you very much. I would like to introduce my colleague, Justin To who works in the Liberal Leader's Office on policy.

5352   Thank you, Mr.Chairman and Commissioners. My name is Marc Garneau, I am the Member of Parliament for Westmount-Ville-Marie. I am also the Industry, Science and Technology critic for the Liberal Party of Canada.

5353   Let me begin by thanking the Commission for giving me the opportunity to appear before it on this important issue.

5354   It is not often that a Member of Parliament speaks at a Commission proceeding, but for the Liberal Party of Canada this issue is of great importance and we felt compelled to participate.

5355   De plus, en tant que législateur, je considère essentiel de comprendre les enjeux de ces importantes délibérations et d'y participer. Le Conseil n'est pas le seul concerné, en l'occurrence, par les préoccupations et les besoins des Canadiens. Il en va de même pour les députés.

5356   Comme chacun sait, la réglementation en matière d'accès aux télécommunications émane non seulement du Conseil, mais également du Parlement, que ce soit à travers les lois habilitantes ou des programmes de financement. Il est donc impératif que le Parlement et le Conseil comprennent l'un comme l'autre quels sont les besoins des Canadiens et comment le mieux coordonner les programmes d'action.

5357   Within this consultation the Commission has asked key questions with regards to the CRTC's basic service objective, the obligation to serve, the local service subsidy, and how, or if, high-speed Internet should be considered within this context.

5358   My intervention, on behalf of myparty, will focus on the question of high-speed Internet for all Canadians.

5359   For almost a century, Canada has developed policies to ensure the goal of universal service in telecommunications. Telecommunications has long been deemed an essential service that should be made available to all Canadians, whether from the east or west, the north or south, whether urban or rural.

5360   If I may be permitted an aside, I remember when the Government of Canada made the visionary decision to build its own national communication satellite infrastructure in the late '60sin order to achieve the objective of connecting all Canadians, no matter where they lived in this vastland. The result was Anik A1 launched in 1972 and the creation of Telesat Canada, the satellite operator.

5361   Canada thus became the first country in the world to operate its own national communications satellite. Here was an example of implementing telecommunications policy at the federal level to serve all Canadians and Canada has since become a world leader in this field.

5362   Returning to the Commission, passed in 1993, the Commission's guiding legislation on telecom policy, the Telecommunications Act, states the following objectives:

"(a) to facilitate the orderly development throughout Canada of a telecommunications system that serves to safeguard, enrich and strengthen the social and economic fabric of Canada and its regions;
(b) to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada;
...
(h) to respond to the economic and social requirements of users of telecommunications services;"

5363   To achieve these objectives we can reference Telecom Decision 99-16 whereby the Commission established the basic service objective, setting out targets for the features to be provided as part of residential local service across Canada, including individual line local service with Touch-Tone dialling; a digital switch with capability to connect via low-speed data transmission to the Internet at local rates; access to emergency services, and others.

5364   In doing so the Commission set the standard by which it would achieve high quality telecommunications service to all Canadians in both urban and rural areas.

5365   Dans un monde en perpétuelle évolution, il est incontestable que l'Internet est devenu un instrument d'importance fondamentale. Que ce soit pour la transmission de courriels, la téléphonie ou les vidéoconférences, l'Internet est au coeur de la connectivité des télécommunications. Il sert par ailleurs de trait d'union important entre d'une part les particuliers et les collectivités et d'autre part le milieu des affaires (les banques, le secteur touristique, les services d'information ou les commerces de détail).

5366   L'Internet prend en outre une importance grandissante en tant que portail de services dans le domaine de l'éducation et de la santé. Avec le temps, il manquera aux collectivités privées de service Internet les outils dont elles ont besoin pour développer leurs économies ou leurs entreprises, pour créer des emplois ou offrir des services.

5367   Les Canadiens qui se trouveront dépourvus d'accès à l'Internet ou des compétences informatiques indispensables à l'usage de l'Internet seront privés de très nombreux services essentiels. Disons-le clairement: les Canadiens démunis d'un service Internet adéquat deviendront des citoyens de deuxième classe.

5368   In the opinion of the Liberal Party of Canada, access to high-speed Internet is essential to "enrich, and strengthen the social and economic fabric of Canada and its regions", as stated under theAct.

5369   For those reasons we believe access to high-speed Internet must be part of the Commission's basic service objective.

5370   In this context, the Commission asksthe following question: Should the Commission establish a target consisting of technical specifications for access to high-speed Internet service? Our answer is yes.

5371   Many countries have already established such targets including the U.S., the U.K., France, Australia and Finland.

5372   What should those technical specifications include-- for example upload/download speeds-- and in what timeframe should the targets be achieved? The Liberal Party has already outlined its stated goal, Canada should set an immediate objective of achieving a minimum universal high-speed Internet target of 1.5megabytes per second download speed by 2014, and set a higher standard for 2020.

5373   Many interventions in this consultation have called for a standard of 4megabytes per second by 2020. The Liberal Party is willing to explore such a target.

5374   However, let me further clarify thisposition. As stated in my opening remarks, the rules and regulations surrounding access to telecommunications stem not only from the Commission but also from Parliament. While we believe the Commission has the legislative authority to include access to a minimum level of high-speed Internet within its BSO, the Commission cannot and does not have the ability to achieve this goal on its own.

5375   While the Commission has its own tools, such as the local service subsidy and the deferral account, the tools required to achieve this goal may also include new legislation and new funding programs. Setting and achieving a minimum universal high-speed Internet target of 1.5megabytes per second or higher must be a joint undertaking by both the Commission and Parliament.

5376   Si on part du principe que l'Internet à haute vitesse doit être ajouté à l'objectif du service de base, la question évidente qui se pose ensuite est la suivante: Comment le Canada doit-il procéder pour atteindre cet objectif? Plus précisément, en ce qui concerne le Conseil, l'obligation de service doit-elle être élargie? Qu'en est-il du régime de subvention du service local? Et faudrait-il mettre en place un nouveau fonds pour atteindre l'objectif incluant l'Internet à haute vitesse?

5377   Let me begin by outlining several key principles the Liberal Party believes must be applied in achieving the universal high-speed Internet goal and they are as follows:

5378   Key Principle 1: Canada's digitalpolicy to achieve the universal high-speed Internet goal should use market-forces to the maximum extent possible.

5379   Key Principle 2: In many high-cost, rural and remote regions of Canada however, the market forces are simply not sufficient and in these areas governments and the Commission must act. In these high-cost areas, governments and the Commission must coordinate their activities and fund the development of high-speed Internet access.

5380   The consultation asked: Should the Commission establish a fund to enable Canadians to access high-speed Internet service in areas where it is not provided? The Liberal Party's answer is yes, and that the federal government must coordinate contributing dollars to this fund.

5381   The Commission has already ruled on $600million within the deferral account to be used to extend high-speed Internet in high-cost areas. Further, the Liberal Party believes the federal government should contribute an additional $500million over the next three years, and the Commission should extend the local services subsidy to achieve the immediate target of 1.5megabytes per second by 2014.

5382   In setting a higher target, for example 4megabytes per second by 2020, the extension of the local service subsidy and shared federal funding should continue.

5383   Key Principle 3: Allocating funds and achieving the universal target should be accomplished using the U-Can, least-cost auction model proposed by the 2005 Telecommunications Review Panel established by the previous Liberal government and used by the current Broadband Canada program.

5384   In using the U-Can model, we avoid any debate on the obligation to serve in the extension of the BSO to high-speed Internet. With convergence in telecommunications technology, it is no longer necessary to mandate ILECs to serve when any number of telecommunications entities, including cable companies, satellite and wireless providers, can also act.

5385   Finally Key Principle 4: Achieving the universal high-speed Internet target should be technologically agnostic. New satellite and HSPA» technologies can offer competitive and quality service to remote communities. The target must be the speed, and all technologies must be considered.

5386   Together, Principles 3 and 4 achieve the first principle, to use market forces to the maximum extent possible, take away any undue obligation for ILECs to provide broadband services, and achieve the least-cost solution, minimizing to the maximum extent possible the need for the local service subsidy.

5387   Again an aside. During my time as President of the Canadian Space Agency, Telesat brought into service the Anik F2 satellite, at the time the most advanced communications satellite in the world. Just as Canada had pioneered satellite communications moving from C-band to the higher bandwidth Ku-frequency band with the Hermes satellite in mid-'70s, once again did Canada move to the forefront by pioneering the useof an even greater bandwidth capability by funding the development of Ka-band transponders which allowed, for the first time, true broadband Internet via satellite. Another example of Canadian government policy connecting Canadians. That very same capability is today providing Internet service to Canadians in remote regions.

5388   Pour conclure, j'aimerais rappeler les raisons de ma présence ici aujourd'hui. Je suis venu pour souligner que le Canada devrait se fixer pour objectif la réalisation d'une couverture Internet à haute vitesse de 100 pour cent de ses localités. Il faut que le Parlement et le Conseil s'expriment sans ambiguïté, d'une seule voix, sur l'importance d'un service Internet à haute vitesse pour renforcer le tissu économique et social du Canada et de ses régions.

5389   Canada should set an immediate universal high-speed Internet target of 1.5megabytes per second by 2014 and a higher target, possibly 4megabytes per second, by 2020.

5390   Funds to achieve this target should be cost-shared through the local service subsidy as well as a contribution by the federal government, and funds should be allocated through a least-cost auction mechanism that is technologically neutral.

5391   Je ne saurais trop insister sur l'importance que revêt un service Internet à haute vitesse pour l'avenir de notre économie, de notre pays et de notre mode de vie. Tout comme les chemins de fer et la route transcanadienne furent les principales infrastructures qui ont contribué à relier nos localités au 20ième siècle, la fibre optique, les communications sans fil et les satellites seront les infrastructures essentielles de notre société au 21ième siècle.

5392   The Liberal Party is a progressive party and core to our beliefs is that all Canadians should have equal opportunity to succeed no matter where they live. Without universal access to high-speed Internet, this cannot be achieved.

5393   Thank you very much.

5394   THE CHAIRPERSON: Thank you for yourpresentation.

5395   You say in paragraph 22 that we should set a goal of 1.5megabytes and that "must be ajoint undertaking by both the Commission and Parliament."

5396   I have no problem with that as goal. How do we practically go there? As you know, we are anindependent Commission, we make the decision on thebasis of evidence before us. The government has not spoken on this point. Assuming they did speak, etcetera, how do we coordinate? How do we put thistogether?

5397   What do you have in mind when you say it must be a joint undertaking?

5398   MR. GARNEAU: In answer to that question, Commissioner, I would say that if my party was in power we would be working with the Commission because we believe that this is a goal that needs to beachieved.

5399   As I think you picked up from my presentation, it also involves a Parliament that has to contribute to this goal. I mentioned specifically the funding that we would provide in this context. We believe that it's not something that can be done simply by the Commission, as you say, saying make it so, it also involves the Parliament of Canada.

5400   So I would hope that the current government, which has spoken in the past and has put some funding into broadband would step up to the plate and make the commitment to connect all Canadians. At this point it's quite clear that the funding that has been allotted is not going to get us there.

5401   THE CHAIRPERSON: Yes. I'm just interested in the mechanics of coordination.

5402   Let's assume Parliament voted $500million to put to use in order that Canada reaches the 1.5megabyte target by 2014. So if I understand you, you have envisioned something like that so that $500million would go into the subsidy fund and we would then set the rules for access to the subsidy fund so that all ISP providers could access it and reach that goal.

5403   Something along those lines, that's what you have in mind?

5404   HON. MARC GARNEAU: Using the U-Can mechanism, which I have described here, so that individual sort of parcels of the country are addressed until we have reached the objective of connecting all parts of the country.

5405   THE CHAIRPERSON: Yes. That is a mechanism that doesn't exist right now, as you know. You think that is a preferable way of doing it?

5406   HON. MARC GARNEAU: That's what we are suggesting in this presentation, yes. That's correct.

5407   THE CHAIRPERSON: Why such a modest goal of 1.5?

5408   Because if you were here yesterday you would have felt that basically TELUS said it's already accomplished, we have this in most of the country. It's a very, very small percentage-- the numbers vary, but it's minuscule compared to the totality of the country and it is in regions which cannot be reached by wireline or wireless, you can only reach them in satellite, but anywhere else we basically are there.

5409   So according to them establishing a target, that's just bragging rights because we are already there.

5410   HON. MARC GARNEAU: Well, we are talking about doing something in the next three years. Three years is just around the corner. We think that we have achieved a reasonable compromise in terms of how quickly we get to a certain point and how much we expect in terms of actual speed.

5411   As you will have noted in our presentation we are talking about going to higher speeds within the decade.

5412   So we think that this is something that is pragmatic and reasonable because we are still talking about potentially 600,000 or 700,000 homes that do not have this access.

5413   THE CHAIRPERSON: I noticed you are picking 4megabytes for 2020. That is to put us in parallel with the U.S. I presume, because that's--

5414   HON. MARC GARNEAU: Yes, you are correct, it is what the United States is talking about. But we have also said, I think in my presentation, thatit is something that we are willing to discuss if you like.

5415   THE CHAIRPERSON: Okay.

5416   Len, do you have some questions?

5417   COMMISSIONER KATZ: Thank you, Mr.Chairman.

5418   Good morning and thank you for appearing before us today.

5419   I just have two questions.

5420   You used the term "cost-sharing" a couple of times and I'm just trying to understand who else besides the federal government, as you proposed, is sharing in those costs?

5421   HON. MARC GARNEAU: Well, I'm really referring to the fact, as you know better than I, that there is a deferral account, but there is also the fact that the telecommunications companies put a small amount of money aside to achieve the basic service objectives. I believe it is .8percent. This is something that implies that the private sector is also involved at this point. So it was in that sense that I meant it.

5422   COMMISSIONER KATZ: So would you see that .8percent going up or would you see that remaining flat and not decreasing any more in order to fund this cost sharing initiative?

5423   HON. MARC GARNEAU: We had not come to a decision about it changing. It wasn't in our initial thinking that it should change, but at the moment the issue of whether it should also apply to Internet service I think is something that has to be considered in the equation.

5424   COMMISSIONER KATZ: Okay.

5425   One of the things we heard yesterday from the cable industry was the notion that we should have an objective out to 2020, which was somewhat aggressive for large portion of the country and as you work down towards the more difficult areas of the country it would be much more attainable, I guess, and they started at 100megs in the big cities I would imagine and work their way down to 5megs.

5426   I guess I would ask you whether you believe that there should be equity or equality, if I can use those two terms, in all regions of the country?

5427   In other words, do the people in the remote areas of the country have the same services or, subject to the situation in hand, could there be and should there be some recognition of the fact that satellite technology just isn't there right now and it would be very expensive in order to make it available at the same speeds and at the same throughput as it is in urban centres?

5428   HON. MARC GARNEAU: I think we have to take a pragmatic approach. There is little doubt in my mind that market forces will take us towards the fibre high capacity 100megabytes per second capability by itself in the cities to a large extent because the market forces are there.

5429   Again referring to my answer to Mr.vonFinckenstein, I think we have to take a reachable goal and a pragmatic goal when we are talking about remote areas of the country, but it is very, very important that we get there. I don't think that it's realistic for us to say we have to have 100megabytes per second everywhere in this country by 2020. Clearly a lot of the main centres will have reached that goal, but I think that insofar as we are talking about areas where the business case does not currently exist and that there has to be federal involvement, I think one must choose realistic goals.

5430   COMMISSIONER KATZ: Thank you.

5431   Those are my questions, Mr.Chairman.

5432   THE CHAIRPERSON: Peter...?

5433   COMMISSIONER MENZIES: Thank you.

5434   I just want to get your response to some of the thoughts we heard yesterday from TELUS and we have heard from others regarding market forces achieving these goals, which is one of your goals, too, that market forces be used.

5435   Some have argued in front of us that if we were to get overly activist in this area we would interfere with the market forces that have taken us this far and people like Barrett indicate will take us almost all the rest of the way.

5436   What would you say to them in termsof that argument, that market forces will finish this job?

5437   HON. MARC GARNEAU: I guess my answer would be-- and we identified that as key principle 1. Obviously market forces, we would like them to take us all the way if that were possible, but as we pointed out, as we all know, the business case is not sufficiently compelling in some of the remoter areas.

5438   Whether it will all happen by itself, my concern is will it happen fast enough.

5439   I am very concerned about how fast it happens. As a politician I go to remote areas of Québec and the number one preoccupation there is having to move from those areas because they are not connected to the world. They are not connected to the world because they don't have Internet service or they have very, very slow and basic service.

5440   This actually causes migrations to the larger centres, as you know. It rules out the possibility of enterprises starting in these rural and remote areas so that the people can actually live there and grow their businesses and that they can't do this because they don't have adequate service.

5441   So I'm very concerned about it and I'm very concerned about it happening as quickly as possible. So time is very much a factor here. If time was not a factor perhaps in due course market forces would take care of it.

5442   COMMISSIONER MENZIES: Thank you.

5443   THE CHAIRPERSON: Suzanne...?

5444   CONSEILLÈRE LAMARRE: Merci, Monsieur le Président.

5445   Bonjour, Monsieur Garneau.

5446   HON. MARC GARNEAU: Bonjour.

5447   CONSEILLÈRE LAMARRE: Dans le cadre de votre présentation et les réponses que vous avez données à mes collègues vous avez clairement établi votre vision au niveau du déploiement de l'infrastructure. Mais une fois que l'infrastructure est déployée, encore faut-il que l'abonnement, le service soit abordable pour la majorité des citoyens autant -- en fait, « pour l'ensemble des citoyens », je devrais plutôt dire -- autant dans les centres urbains que dans les centres ruraux et éloignés.

5448   Avez-vous une réflexion à partager avec nous de ce côté-là?

5449   HON. MARC GARNEAU: Bien, vous soulevez certainement un point important.

5450   C'est une chose d'installer et d'instaurer les infrastructures, les mettre en place, ensuite le coût... l'abonnement, comme vous dites.

5451   C'est une question que nous avons commencé à aborder. Nous n'avons pas les réponses. Certainement, dans certains cas... Il faut reconnaître que les coûts d'abonnement seront plus élevés dans certains cas. Mais si je reviens à la philosophie de notre parti vis à vis le service aux citoyens canadiens, un service haute vitesse à haut débit -- qui est quand même assez modeste pour le moment -- je crois qu'il faut tenir en compte le fait qu'il faut s'adresser à toutes les dépenses qui sont incluses.

5452   Est-ce que ça veut dire qu'il faut que le gouvernement ait une responsabilité de subventionner en partie les coûts d'abonnement dans les régions où ça serait plus élevé? On n'a pas fini notre réflexion sur ce point-là.

5453   CONSEILLÈRE LAMARRE: Je vous remercie.

5454   C'est ma seule question, Monsieur le Président.

5455   THE CHAIRPERSON: Thank you.

5456   Before I let you go, there is one other question that came up before us, and you haven't addressed it at all; that it's not only a question of providing access to the Internet, but it is also providing digital literacy and making sure that people actually use it. Unfortunately, we have about 95 percent, 97 percent access now, but we only have take-up in the seventies.

5457   This is really something not for us, but for the government to address. We have heard several representations before us that we should do something. Personally, I don't see that it's our job, I see it that it would be much more a government view, but I would be interested in your views on that subject.

5458   HON. MARC GARNEAU: You have raised a very important point, and this is something that we have within, literally, our platform, within our platform for the future, and it is the question of literacy.

5459   We tend to think of literacy in the normal, conventional sense of being able to read, but our platform very clearly identifies a number of other aspects to literacy which are important, because if you do not have digital literacy, you are basically locked out.

5460   We also have an emphasis that we put on numerical literacy, or financial literacy, because a lot of people do not understand the realities of how to manage their finances.

5461   So there are a number of areas where a learning strategy can address those, and one of them is digital literacy, as you clearly point out. It's not something that we felt was appropriate to bring up within the CRTC, but it is something that, as a country, we feel is important.

5462   THE CHAIRPERSON: So you agree with me that it's a desirable goal, but it's not an object for Commission attention.

5463   HON. MARC GARNEAU: That's correct.

5464   THE CHAIRPERSON: Okay. I think those are our questions. Thank you for appearing before us.

5465   HON. MARC GARNEAU: Thank you for listening.

5466   THE CHAIRPERSON: Madam Secretary...

5467   THE SECRETARY: I would invite PIAC for Consumers Groups to come forward to the presentation table, please.

--- Pause

5468   THE CHAIRPERSON: Okay, let's begin.

5469   THE SECRETARY: Appearing for PIAC is Mr. John Lawford.

5470   Please introduce your colleagues, after which you will have 25 minutes.

PRESENTATION

5471   MR. LAWLORD: Good morning, Mr. Chair, Commissioners, CRTC Staff, other parties and the public. My name is John Lawford and I am counsel at the Public Interest Advocacy Centre. I appear today for the Consumer Groups -- Canada Without Poverty, Option consommateurs and Rural Dignity of Canada.

5472   With me today is Heather Hudson, University of Alaska, Anchorage, who will address the societal benefits of broadband connections and the risks of Canada not keeping up with this effort, as well as the position of wireless under the basic service objective now, and if broadband is added to it.

5473   To her left is Mr. John Todd of Elenchus Research Associates Inc. of Toronto, who will explain our proposed broadband subsidy plan to achieve affordable, ubiquitous broadband.

5474   To his left is Dr. Barbara Cherry, Department of Telecommunications, Indiana University, who will discuss the extent of the obligation to serve and will explain the legal basis for telecom carriers' obligation to serve.

5475   In short, we hope to provide the Commission with a roadmap of how to achieve affordable broadband service for all Canadians.

5476   The Consumer Groups consider that they have a responsibility not only to their own members, but to all residential Canadian telecommunications customers to be agents of change in this proceeding. Specifically, we want broadband to become part of the basic service objective for all telecommunications carriers. Canadians want it and Canadians need it to participate fully in society, and Canada needs it to keep pace with the world.

5477   To help achieve this goal we want the Commission to set clear broadband speed requirements: minimum actual speed of 2 megabytes per second download and 800 kilobytes per second upload by 2015; 4 megabytes per second download and 1 megabyte per second upload by 2020. However, the Commission should periodically review these targets as circumstances change.

5478   We want a method to subsidize broadband rollout in high-cost broadband areas. It is simply not available and affordable in far too many places -- mostly rural places -- and for far too many people, especially those of modest means, in Canada.

5479   While digital literacy is a problem, it is not the real impediment -- access and price are far more important.

5480   We want to defend all customers' rights to modern and affordable telecommunications services from the misguided view that competition can remove the obligation to serve them, and to serve them affordably. The obligation to serve applies in all markets, forborne and price regulated. All telecommunications carriers are subject to it -- ILECs, SILECs and CLECs -- where they provide service.

5481   Affordable access does not mean a sudden rate increase for lower income Canadians of between $9 and $14 a month, based on the simple carrier desire to raise prices to their own idea of what is the "maximum affordable", without any evidence at all of customers' ability to pay, coupled with the removal of any subsidy to lower those prices to affordable levels. For the same reasons, affordable access does not mean no standalone telephone option in price forborne areas. Both risk phonelessness, a sickness we thought cured.

5482   We also don't see how wireless can, in all places, especially rural areas, provide quality, affordable and reliable service to deliver the present basic service objective requirements, and we are sceptical that wireless broadband could be similarly reliable and affordable enough to satisfy completely any broadband addition to the BSO, at least in the near future.

5483   Finally, we approach the SILEC question with cautious hope. Our broadband subsidy proposal, together with a broadband basic service objective requirement, we believe would allow measured competition to develop in SILECs, both in the doughnut ring of the truly rural high-cost areas and in the easier to digest city centre-"Timbit" part, in a manner that is sustainable to SILECs, to the benefit of customers, who would also find that access to the Internet was preserved and, in fact, extended.

5484   I turn now to Professor Hudson to explain why we need to include broadband as part of the basic service objective. She will be followed by Mr. Todd and Dr. Cherry, and then I will summarize what all of this means to the Commission.

5485   PROF. HUDSON: Thank you, John.

5486   My name is Heather Hudson. I am a professor and director of the Institute of Social and Economic Research at the University of Alaska, Anchorage. I am originally from Canada, and am a dual citizen. I have worked on telecommunications projects in northern Canada, in Alaska and in many developing countries, and on rural communications policies at the national and international level in the U.S., and for the ITU, the World Bank and other organizations.

5487   I will briefly address several issues concerning the basic service objective. First, I strongly support the proposal to include broadband in basic service, as part of a goal to achieve universal broadband in Canada.

5488   Second, I will mention several considerations for broadband access.

5489   First, why broadband? My written testimony included a summary of broadband applications and benefits for social and economic development. Here I would just like to highlight a few examples concerning whether rural broadband requirements are lower than urban requirements. Of course, some rural applications, such as the transmission of digital X-rays from rural clinics, require much more bandwidth than sending e-mail from a rural home or library, but there are many other rural uses.

5490   In remote northern Ontario, KNET and Wawatay make training videos for community use. Now they make them available to other communities by posting them on YouTube.

5491   Keewaytinook Internet High School, based in Balmertown, Ontario, offers online tutorials and materials, so that aboriginal adults in remote communities who dropped out of school can now get their GED, or high school completion, which is a minimum entry requirement for most careers and training programs.

5492   Aboriginal artists and rural tourist lodges use websites to promote and sell their products and services.

5493   Videoconferencing is used for mental health consults with rural residents, for regional training and meetings, and virtual gatherings among isolated elders and relatives in remote communities.

5494   But what is broadband? Industry Canada has used a 1.5 megabyte per second downstream in its Connecting Rural Canadians criteria, but it has adopted no national definition.

5495   Many OECD countries have set targets ranging from less than 1 megabyte per second to 4 megabytes per second or more, and some have achieved much higher rates.

5496   In the U.S. National Broadband Plan, the Federal Communications Commission has set targets of 4 megabytes per second actual download and 1 megabyte per second actual upload speeds. Perhaps more importantly, the plan states: "The FCC should review and reset this target every four years."

5497   So I believe that it is important to set an achievable near-term benchmark, but also to recognize that broadband will continue to be a moving target.

5498   The definition of broadband should be technology neutral. Concerning whether wireless should be included, my response is that it depends on whether wireless -- or satellite or other technologies -- can meet established quality of service targets, including speed and reliability. Speed must be actual speed, meeting or exceeding established benchmarks. Fixed wireless, such as WiMax, and mobile 4G should be able to meet these benchmarks. HSPA» may meet the near-term benchmarks.

5499   A review that I did of 52 universal service funds around the world indicated that many of them now include mobile wireless, and several now support broadband.

5500   Concerning reliability, both wireless and satellite frequencies can be affected by weather, terrestrial obstructions and other factors. The typical wireline voice reliability target is 99.999 percent -- or "5 nines" as the industry calls it. Xplornet and other satellite vendors have a target of 99.9 percent reliability. This difference is significant. With wireline, .001 percent outage amounts to 5.25 minutes per year. The satellite .1 percent outage target amounts to 8 and three-quarter hours per year. Broadband is a critical service; the benchmark should be the wireline target.

5501   Access includes affordability as well as availability. Here both providers' price and users' ability to pay need to be considered. Satellite broadband costs several hundred dollars for equipment, installation and activation charges, plus $50 or more per month for up to 1.5 megabytes, or less. Wireless HSPA» requires the purchase of the USB modem, plus activation, monthly fees of $35 to $70, plus overage charges that are currently much higher than charged by fixed service providers. A price comparison must include all of these charges.

5502   Affordability should also be viewed from the users' perspective; in other words, their ability to pay. One standard is percentage of disposable income required for basic monthly broadband use.

5503   In northern Ontario aboriginal communities, annual household income averages about $32,000, with some communities averaging below $20,000, compared to a Canadian national average of $68,800. There is considerable variation in other rural areas, as well. So even if available, broadband may not be affordable in some rural and other low-income areas.

5504   My colleague John Todd will outline a proposed provider subsidy scheme. A complementary approach would subsidize users. One strategy is to subsidize community access through libraries, schools and community centres.

5505   In the U.S., a subsidy program for schools and libraries, known as the E-rate, not only provides benefits to the residents who use these facilities, but acts as an incentive to provide access to households and other locations.

5506   In Alaska, the schools and clinics in villages became, in effect, anchor tenants, with ongoing funding to pay for broadband. Under these conditions, Alaska carriers were then willing to provide service to about 200 villages, and to extend service to other customers, such as households, businesses and native organizations in these communities.

5507   User subsidies can also be offered to low-income households. The U.S. Lifeline and Linkup programs subsidize installation and minimal monthly voice services. Lifeline now applies to mobile voice, and the FCC is considering extending Lifeline to broadband. A U.S. stimulus project provides free satellite broadband equipment and subsidized monthly rates where no other option is available. A similar approach could be used in Canada to provide vouchers to low-income households, worth a certain amount for equipment and monthly usage from any qualified provider, whether wireline, satellite or wireless.

5508   To summarize, the CRTC should include broadband as a basic service in order to achieve universal access to broadband in Canada, with enforceable benchmarks for reliability and affordability.

5509   Thank you, and I would be happy to answer any questions.

5510   MR. TODD: Thank you, Heather.

5511   I am John Todd, President of Elenchus. I was here before the CRTC in your proceedings to establish the existing HCSA subsidy regime.

5512   The proposed innovation in the design of the HCSA regime centres on a move from a one-part to a two-part subsidy mechanism. The design of the contribution mechanism would not be significantly altered.

5513   The primary change to the contribution side of the regime would be to expand the revenues that are subject to contribution to include broadband revenues. This expansion of the contribution base is a logical extension of the modernization of the basic service objective to include broadband service. It would also help moderate the level of contribution as a percentage of total revenues subject to contribution.

5514   Turning to the subsidy side of the regime, the existing HCSA subsidy would be replaced with a similar mechanism, which we refer to in the evidence as the Connection Subsidy. However, an additional subsidy mechanism that we refer to as an Access Subsidy would also be introduced.

5515   The Connection Subsidy can be thought of as a continuation of the existing HCSA subsidy. It would be a portable subsidy that would be paid to service providers on the basis of the number of lines meeting the basic service objective that they provide in broadband HCSAs.

5516   I am using the term "broadband HCSAs" as a simplified version of the acronym in the evidence, which is HCHSISA -- high-cost/high-speed Internet service area. That's too much of a mouthful for a verbal presentation.

5517   Although the Connection Subsidy would operate much like the existing HCSA subsidy, the amount of the subsidy would have to be modified to reflect the difference in the shortfall that would be borne by service providers in HCSAs as a result of the change in the basic service objective.

5518   The Access Subsidy is the key innovation needed to implement the proposed broadband HCSA regime. This innovation is made necessary by the reality that facilities will have to be upgraded, often at significant cost, in many rural and remote areas, in order to provide service that meets the new BSO, including broadband. This was not an issue in designing the existing HCSA regime, which is why the continuation of only the existing subsidy mechanism would be problematic.

5519   The proposed Access Subsidy is designed explicitly to provide an incentive to attract the least cost technology for upgrading facilities on an area-by-area basis. It recognizes that the least cost option may not always be provided by the incumbent and may not always be the same technology in all parts of Canada. Hence, it is flexible. It is truly technologically neutral.

5520   Furthermore, the design of the Access Subsidy recognizes that competitive forces are the best way to determine the actual minimum level of subsidy needed to make it economic to provide access to service that meets the proposed modernized BSO. This competitive mechanism relies on three key features.

5521   First, it would be paid only to the first mover service provider, on the basis of the total number of lines in the broadband HCSA, all of which must meet the basic service objective, including the established broadband standard. It can be expected that potential service providers will compete to be the first mover, so as to benefit from the Access Subsidy. Subsequent entrants will not qualify for the Access Subsidy. So it attracts early entry.

5522   Second, the initial per access line subsidy will increase over time, making it increasingly attractive to become the first mover in each year after the mechanism is introduced. It can be expected that no service provider will self-identify as the first mover until the level of the subsidy is sufficient to make it economic to provide facilities that meet the new BSO.

5523   While this design feature provides an incentive for delay, the incentive to be the first mover should ensure that the least cost service provider will self-identify as soon as the subsidy is sufficient to permit economic entry, thereby minimizing the total cost of the Access Subsidy.

5524   To illustrate this feature of the Access Subsidy, the per access line subsidy might be set at -- and these are easy numbers for illustration -- $1 in the first year -- say 2012 -- $1.50 in the second year -- 2013 -- $2 in the third year -- 2014. So the starting level goes up over time.

5525   Third, since the Access Subsidy is designed to mitigate the initial capital cost of providing access to the new basic service objective in a broadband HCSA, it should not continue indefinitely. For this reason, it is proposed that once a service provider begins receiving the subsidy in any HCSA, it would then decline each year until it is eliminated.

5526   For example, it could be phased out at 10 percent of the original amount each year, so that it declines to zero after 10 years.

5527   This design feature recognizes that the competitive playing field should be made level over time, after rewarding the first mover for making the initial commitment to provide access to broadband service in high-cost areas. Once the Access Subsidy has been eliminated, all service providers will benefit only from the portable Connection Subsidy.

5528   To continue with the previous illustration, a first mover in 2012 would receive a subsidy of $1 per line in 2012, 90 cents in 2013, and so on, until it becomes zero. A first mover that implements broadband a year later, in 2013, would receive an Access Subsidy of $1.50 in the first year, $1.35 in the second year, and so on, down to zero.

5529   This Access Subsidy design is equivalent to a lump sum subsidy equal to the present value of the flow of the subsidy payments based on the subsidy rate and the number of lines in an HCSA. It will increase each year if no service provider opts to be the first mover, which would indicate that the level of subsidy is not yet sufficient to make it economic to provide the BSO in the new broadband HCSA.

5530   There are a number of additional details that should be worked through in a follow-up implementation proceeding. We expect that those details can and should be generally consistent with the existing HSCA regime, except where desirable improvements are identified and where modifications are needed that recognize the addition of broadband to the basic service objective.

5531   For example, the approach to identifying service areas that are high-cost could be similar to the existing definition of HCSAs, except that the definition of affordable service would have to be updated to include the cost of broadband service.

5532   In addition, the amount of subsidy required in HCSAs would have to be calculated so as to reflect the costs and revenues related to broadband, as well as voice service.

5533   In summary, the proposed approach to designing the subsidy and contribution regime consists of adding a new Access Subsidy to the existing Connection Subsidy, and then reworking the details to be consistent with the inclusion of broadband in the basic service objective.

5534   On to Barbara...

5535   DR. CHERRY: Thank you, John.

5536   Mr. Chair, Commissioners, CRTC Staff, other parties and the public, my name is Barbara Cherry and I am Professor of Telecommunications at Indiana University. I am appearing today for the Public Interest Advocacy Centre and the Consumer Groups.

5537   The obligation to serve is a fundamental obligation of common carriers arising under the common law since medieval times. The obligation to serve requires that the carrier provide service to customers upon reasonable request, without unreasonable discrimination, at a just and reasonable rate, and with adequate care. The obligation arises merely from the status of being a common carrier, that is, from the holding out to the public of the provision of common carriage services. This legal status is independent of market structure, that is, regardless of the number of carriers providing service to the public in a given area.

5538   During the 19th Century, an obligation to serve was also imposed under the common law on another class of entities, public utilities. Public utilities acquire their legal status and bear an obligation to serve by virtue of accepting a right, privilege or power of public concern from government, which is referred to as a franchise. Unless government directly provided the necessary infrastructure and associated service to the public, the grant of such a franchise was deemed necessary to ensure provision of an essential public service. The franchise may or may not be exclusive. Governmental powers considered the grant of a franchise include the general power of eminent domain, the power to use public streets and highways, the performance of some undertaking, or the use of state funds or credit.

5539   Telecommunications carriers in Canada are both common carriers and public utilities under the common law, and therefore bear the obligation to serve under two legal bases. Neither legal basis requires that the carrier be a monopoly service provider.

5540   Telecommunications carriers, as common carriers and public utilities, may not evade their responsibility to serve by selectively refusing to serve customers. A carrier must extend its facilities to serve reasonable demand -- that is, those making a reasonable request and tendering reasonable compensation for service -- within its existing service territory. However, the carrier is not obligated to extend facilities to serve for inadequate compensation.

5541   The common law obligations of telecommunications carriers have been augmented by a statutory framework, under which this Commission has been given important powers. Under section 46.5 of the Telecommunications Act, the Commission has the authority to require any telecommunications service provider to contribute, subject to any conditions the Commission may set, to a fund to support continuing access by Canadians to basic telecommunications services.

5542   Through the funding provided pursuant to section 46.5, the obligation to serve can be expanded to require that basic telecommunications services be provided to customers who would not be able to pay compensatory rates.

5543   Today, broadband service is an existing telecommunications service available to approximately 94 percent of Canadians. Providers of broadband service have an obligation to provide facilities to meet reasonable demand within their service territory. For those customers not able to pay compensatory rates, this Commission has the authority to define basic telecommunications services to include broadband service and provide funding to support the availability of broadband to all Canadians.

5544   I am happy to address any questions you may have.

5545   MR. LAWFORD: Just to sum up briefly, the Consumer Groups believe that the Telecommunications Act, in concert with the Commission's discretion to interpret the telecommunications policy objectives under section 7, both guides and, indeed, requires a new basic service objective that includes broadband. The Commission has ample authority and jurisdiction to design a broadband subsidy to ensure these rights for all Canadians. There is no need to change the CRTC's forbearance framework or to ignore the policy direction to take these steps.

5546   To do this, the Commission must realize the fundamental importance of the legal obligation to serve. If telecom providers are permitted to pick and choose customers and areas they want to serve, all efforts to achieve universal, affordable broadband are doomed.

5547   Our subsidy proposal requires that broadband be made part of the basic service objective. Our subsidy proposal is facilities-based. It is our understanding that all facilities-based broadband providers can achieve these speeds now, or will almost certainly be able to do so by our milestone dates. Our proposed BSO is therefore achievable by all carriers and is technologically neutral.

5548   The basic service objective was designed to be updated by this Commission. In 99-16, in the paragraph after listing the BSO elements, the Commission stated the basic service objectives independent of the technology used to provide service and may change over time as service expectations evolve. The online public consultation in this proceeding shows that Canadians expect broadband now.

5549   Broadband is so important to such a range of activities for Canadians that they do every day that it cannot be treated as a second-class telecommunications service to be provided on a best efforts basis solely when there is a business case that makes sense to established carriers, carriers that are playing a chess game of dividing this country into profitable and unprofitable areas, of areas that must be defended vigorously from competition or they can be allowed to stay stuck on dial-up.

5550   None of this game play interests consumers, citizens or customers. Broadband access at affordable rates does.

5551   The Consumer Groups hope we have provided the Commission with a road map to achieve this goal and we welcome your questions.

5552   Thank you.

5553   THE CHAIRPERSON: Thank you for your presentation.

5554   Can we just make it clear? I understand on page 4, second-last paragraph, last sentence you say:

"The obligation to serve applies in all markets forborne and price-regulated. All telecommunication carriers are subject to it, ILECs, SILECs and CLECs where they provide service."

5555   That's your understanding of the law as it is right now?

5556   MR. LAWLORD: Yes, that is.

5557   THE CHAIRPERSON: And when you talk about obligation to serve, are you talking about the common law that Professor Cherry talked about or are you talking about the obligation to serve as we stipulated it in our regulations?

5558   MR. LAWLORD: No, I am talking about the one that you have stipulated, but the basis for that obligation is found in the common law.

5559   The question of whether CLECs have an obligation to serve just hasn't arisen. That's what is interesting about this proceeding, because if you are going to change the basic service objective and then ask that this new add-on broadband be added, what is to stop a customer of a cableco, for example, from asking for broadband to be provided to them?

5560   Our view of the law and, I think the best policy as well, is that customer should be allowed to ask for that service if they are passed by a cable line.

5561   THE CHAIRPERSON: It's your contention that right now SILECs are subject to the basic service obligation?

5562   MR. LAWLORD: Yes, it is.

5563   THE CHAIRPERSON: Okay.

5564   Secondly, you speak about a modernized basic service obligation, and I think that John Todd referred to it. What do you have in mind by that?

5565   Are you only talking about including broadband? Or you also mentioned technologically-neutral, et cetera, so what would a modernized basic service obligation look like according to you?

5566   MR. LAWLORD: I think you are free to make a statement that the basic service objective should be technologically neutral. That would open the door to wireless and other ways to provide it.

5567   In doing so that's where for broadband we are saying you have to have certain targets in order to meet a kind of quality of service.

5568   THE CHAIRPERSON: You just said you are "free to do so". I agree with you, we have that capacity.

5569   What I'm asking, are you asking us to write it that way? Are you asking us to write the basic service -- you think this is what you have to provide your customer?

5570   These are the basic parameters. The technology which you choose is your own. If you can do it wirelessly, do it wirelessly. If you can do it by satellite, do it by satellite; if you want to do it wireline, be my guest, or fixed wireless or whatever it is. We don't mandate. We just require results.

5571   MR. LAWLORD: I think it is that time.

5572   THE CHAIRPERSON: That is time, okay.

5573   And, lastly, the access subsidy it's a fairly complicated scheme.

5574   But if I understand it, the very first amount, the first thing is you have to fix an amount of what will be subject -- what will be eligible for this access subsidy, so that your incentive scheme and first mover in getting the amount of money in the first year is less than the one in the second, et cetera.

5575   It only works when you start off by saying here is an access fund of X million dollars or something like that. Did I understand that correctly?

5576   MR. TODD: Yes, that's correct. It would be setup initially at the low end of what is required so that we --

5577   THE CHAIRPERSON: Okay. How do we determine the low end? How do I determine that amount, that low end, what's required?

5578   MR. TODD: There presumably would be an implementation proceeding following on this one at which more financial data would be put on the record similar to the implementation of the existing HCSA regime where the Commission would identify a range of costs and by taking costs to upgrade a high-cost area, dividing by the number of lines, it could be determined the range of subsidies necessary.

5579   THE CHAIRPERSON: But won't I get a smorgasbord of costs from various carriers using various technologies for different -- covering different areas of the country, et cetera?

5580   MR. TODD: And that is why the objective would be to -- having identified the range, which could be done on a fairly rough scale, the initial level would be set in the lower end of the range of what is feasible and essentially the market would respond to that subsidy.

5581   If that subsidy was actually quite adequate to service all areas, you should see people volunteering to be first movers very quickly. If it turns out that it's not adequate for many service areas, it may take five years before first movers have requested entry.

5582   THE CHAIRPERSON: And the money for this fund will come from where, from including broadband services in the contribution formula?

5583   MR. TODD: That is correct.

5584   THE CHAIRPERSON: Okay.

5585   Peter, I believe you had some questions.

5586   COMMISSIONER MENZIES: Thank you.

5587   First of all, Professor Hudson, would you be willing to undertake to put on the record the review that you did of the 52 universal service funds for us?

5588   MR. LAWLORD: I believe it was referenced in the evidence that Dr. Hudson put there but we are happy to file an independent copy.

UNDERTAKING

5589   COMMISSIONER MENZIES: Great, thanks.

5590   And for clarity's sake, I'm not certain whether you favour a technologically-neutral approach or not because on page 3 of your oral presentation today you say:

"We don't see how wireless can in all places, especially rural areas, provide quality, affordable and reliable service to deliver all the present BSO requirements and we are sceptical that wireless broadband can similarly be reliable and affordable."

5591   Elsewhere, you seem to indicate a technologically-neutral approach. Which is it?

5592   MS HUDSON: Maybe I can try that one.

5593   I think there is some scepticism at the moment about whether current mobile wireless in particular can meet targets. But I think the approach that we are stating is that any technology of which there are current examples, but obviously the technological world is changing very fast, should be eligible if it can meet the reliability and affordability targets that the Commission should set and continue to review.

5594   COMMISSIONER MENZIES: Okay. You have referred to the wireline as the "5 nines".

5595   MS HUDSON: Yes.

5596   COMMISSIONER MENZIES: Reliability, standard and wireless, currently at 3 nines?

5597   MS HUDSON: 3 nines, yes, or satellite at 3 nines, anyway.

5598   COMMISSIONER MENZIES: Satellite 3 nines?

5599   MS HUDSON: M'hmm.

5600   COMMISSIONER MENZIES: Okay. So what we are actually talking about there, I took it from your data, and there was a nice -- it was very helpful to see, actually, the difference between losing five and a quarter minutes a year and losing eight and three-quarters hours.

5601   So we are talking about -- I'm not good at math -- three and a half hours a year.

5602   MS HUDSON: Yeah, and I use satellite. I don't mean to exclude wireless from those targets because wireless reliability, I think, as all users know, is usually somewhat less.

5603   But what I'm trying to say is, you know, maybe 5 nines is not what you want to pick. But a higher-end target, because broadband and especially if it's part of the basic service is something that people rely on. I think it's much more sensitive to availability and reliability than, say, television which everyone likes but if it goes down for an hour here or an hour there it's not critical.

5604   But if your interactive connectivity goes down, which is what the telecom, traditional telecom industry has assumed for a long time, it's critical that it works. So that's what I'm trying to say.

5605   Whether -- you know, what target you choose it should be high enough so that people can really rely on it. It should be applied to all technologies and it really needs monitoring. I think what the FCC says about actual is critical.

5606   So I think getting some kind of ongoing monitoring and involving users in doing monitoring and reporting to you since no Commission or regulatory body has enough people to sit there collecting data, is going to be important in this broader definition --

5607   COMMISSIONER MENZIES: Just for the average person, what happens in those three and a half minutes or can't happen that is so critical, to define a difference between the 5 nines and the 3 nines?

5608   MS HUDSON: Okay. So I think the difference between a few minutes and a few hours is that -- and typically those outages can be either you know in blocks or spread throughout. It's clearly an average.

5609   But the whole telecom sector and the notion of why telecommunications is a critical service is that it should be available when people need it, obviously for emergencies but other critical conditions.

5610   So what I'm saying is, if you extend the definition to broadband, you should be aiming for a target that comes close to that rather than saying, "Well, broadband is a nice kind of accessory and we hope it works most of the time" but you will find that people -- they will be using VoIP telephony, they will be trying to send critical messages; they will be relying on the broadband service and so your target should be high.

5611   COMMISSIONER MENZIES: Okay. So you are simply talking in terms of a target then, right.

5612   So how is that --

5613   MS HUDSON. Yes, but --

5614   COMMISSIONER MENZIES: -- because I'm trying to get a sense of whether we should take a technologically-neutral approach or not.

5615   In Halifax with Hurricane Juan and the more recent one this fall, the first thing to go is the electricity. The next thing to go is the telephone. What people are typically left with, because once the electricity is gone, the television is gone, is the car radio and their cell phone. Those seem to be the tools that people were left with.

5616   Haven't those -- aren't those non-electrically-powered tools -- haven't they become more reliable? Because at the end of the day even with wireless you have got electricity to power it, right, and you are only going to be as dependable as --

5617   MS HUDSON: The traditional wireline still has power through the wire, which in fact I had to rely on in rural Ontario just two days ago.

5618   COMMISSIONER MENZIES: Yes, wireline does but in terms of Internet.

5619   MS HUDSON: Right, right.

5620   COMMISSIONER MENZIES: What would be the reliability of my average electrical provider?

5621   MS HUDSON: Do you want to try that out?

5622   I have my experts on all utilities here.

5623   MR. LAWLORD: I am not the expert on energy in PIAC but I think it's closer to the 5 nines than it is to the 3 nines. That's about as specific as I can get for electrical utilities.

5624   But then, again that varies from region to region. As everyone in the rural areas knows, power goes out twice a day for two seconds, but it does. So you have got -- I can't give a better answer than that at the moment.

5625   We are just saying that reliability of Internet service is something that the Commission should consider instead of just price and just availability.

5626   COMMISSIONER MENZIES: Okay. I will just maybe move on to affordability. Help me understand this too in terms of -- certainly hear what you are saying regarding some of the remote First Nations settings in the north particularly, but how do we define -- how do you define affordability? Is it a blanket number that goes across the board?

5627   Just to put this in context, obviously if you have a $30,000 a year income and you live in Moose Factory, I'm going to guess that housing is less expensive in Moose Factory. Some things will cost more, some things will cost less. If you live in Toronto your income might be much higher but your condo might cost you $750,000.

5628   So why should affordability be defined the same in all parts of the country? Isn't it reasonable to expect that if you are living in a remote location you may have to pay a little bit more for some things?

5629   MS HUDSON: I think that is a two-part question. If you look at affordability as ability to pay and use some indicators such as the OECD uses on occasion of a proxy such as percentage of disposable income, which the ITU also used, that's one way to look at it. What I'm trying to say is that there may be variation.

5630   You are quite right. There are differences in cost of living among subscribers or interested parties who want to subscribe not only in very remote areas where there aren't many jobs but, as we heard, I think, in some of your testimony already, in some rural areas that range from second home cottages to people that are living on seasonal income at best.

5631   So I don't think one number, X-dollars, fits for the whole country. I think an approach that looks at percentage of income -- and you can certainly also get more user input on this, I believe.

5632   And that's why I propose that you could also have complementary user subsidies such as the U.S. has used in the U.S. where they use a proxy of, say, eligibility for food stamps which requires providing certain information on your household income. And they say, okay, if you meet that income requirement you can have a discount on your phone service and perhaps also on your broadband service.

5633   So I think that just saying that one number is the right number for the whole country in terms of absolute dollars for the service, isn't a particularly good solution unless it comes with some adjustability given ability to pay in different areas.

5634   COMMISSIONER MENZIES: Okay. Do we have -- do any of you -- one of the things I'm trying to get a sense of is how many people are we talking about in terms of the percentage of people living in high-cost service areas who have affordability issues in terms of -- and we are talking about national programs here.

5635   Like do we have any real fixed idea how many real people we are talking about?

5636   MS HUDSON: I think that the data in Canada are really not that good, frankly.

5637   In the U.S., Pew has done some surveys. They show that when we get to adoption which is clearly what the purpose of the exercise is here, that affordability is the most cited criterion and not the only one.

5638   I don't believe that there are studies across Canada that provides a similar level of data. I think more data would be very helpful to know how big that population is. The problem is that if you just wait for people to say, "I can't afford it" to somebody they vote with their feet or their wallet by not signing up and you don't really know why.

5639   So the adoption issue is one that I think we really need to understand a lot better in Canada.

5640   MR. LAWLORD: But if I might be able to add something to that, Commissioner Menzies, this is an issue that, you know, the lack of data that we also faced in preparing for today, the closest I could get is looking through your Communications Monitoring Report and seeing things like rural accessibility being in the range of 84 percent, of which only 70 percent in the north, things like that.

5641   Nobody seems to know what the actual adoption rate is. We suspect it's much lower than the 69 percent that has been quoted because the availability is lesser in these areas.

5642   The closest we could get was -- and it's in our evidence -- a Stats Can study from a year ago, the Internet study they do every year, that said all Internet adoption, and that includes dial-up for rural areas, is 68.4 percent of the country, so high speed is less than 68.4 percent.

5643   So there is a large portion of rural people who don't take it. Is it affordability? We think so. Can we show you? We don't have numbers.

5644   COMMISSIONER MENZIES: Okay, thank you.

5645   THE CHAIRPERSON: How do you define affordability?

5646   MR. LAWLORD: Sorry?

5647   THE CHAIRPERSON: How do you define affordability?

5648   I mean the professor mentioned U.S. studies talking about affordability. I presume you must have some benchmark.

5649   MS HUDSON: What I was saying is that one way to do it is to look at percentage of disposable income, and that's hard -- that takes some digging out, percentage of income and then percentage of disposable income that is necessary for various communication services. The ITU use that indicator and so does the OECD. So that's one model.

5650   The Pew studies were based on survey data asking a sample who did not subscribe; why they didn't and what their reasons were. Ability to pay was not the only one -- there were certainly others -- but the one that was cited most often.

5651   COMMISSIONER MENZIES: Could you -- I am going to get your response to the proposal made by MTS last week that in terms of setting the targets for -- whether it's megabytes 1.5 or 4 or whatever, they suggested that it be defined as sort of a utility base as to what it can provide, given that pretty much everybody has said, well, whatever number you pick you are going to have to change it because the people will continue to innovate and create new things that they can offer through the Internet. They can only be offered at higher and higher speeds.

5652   Do you think it would make more sense, be more realistic to set a service target rather than picking numbers relatively out of the air?

5653   MR. LAWLORD: The reason -- the functional approach is very attractive. It's also extremely un-measurable. The reason why we have proposed hard targets is because then we can actually craft a subsidy on top to get people to at least -- we want to get people off the dial-up.

5654   Getting them onto even our very modest target is the first step. When they are over that threshold the demand effect will take over. They will want more speed. They will start to use it for more applications but then they will have it.

5655   The trouble with setting these either aspirational targets or targets that are functional is that you can't pin any carrier down and say, "You are not doing it". And we want to pin them down and say, "You are not doing it. These people need it and they don't have it".

5656   So we want to first get them up to a speed that, as we said in our submission, practically every technology can deliver today, and then ramp it up as we go. That was our thinking.

5657   But I understand the functional -- leave the functional definition more as what you should be thinking of if you are going to reset the targets or make them higher in the future as a guiding principle. But it's not in itself the goal, in our view.

5658   COMMISSIONER MENZIES: Okay. I wanted to get your response too, to the evidence we heard yesterday from Radiant and TekSavvy.

5659   They spoke fairly bluntly about the rather -- what they have described as the devastating impact of having a parallel BSO on broadband would have on them. They spoke about the reduction of choice for consumers, the loss of hundreds of jobs.

5660   I'm curious to hear your response.

5661   MR. LAWFORD: Sure. I will take that one.

5662   The subsidy mechanism by including Internet revenue, I understand that that scares them and their margins are slim. Perhaps their margins could be larger if they had a CO-based alternative. I don't know.

5663   But the point is the present contribution starts at $10 million. So to be contributing into this thing, if you keep the same rules as we are suggesting, roughly, you have to be a pretty good small Internet provider to be making $10 million so that it's not the smallest of the small. The ones who are smaller than that, who were just incubating, are going to frankly be under the $10 million at least for the first three, four years of their existence.

5664   I understand it's a burden. We are trying to spread the burden across all carriers and all services to make it as low as possible. And Mr. Todd's strategy is to have the access subsidy be set only as high as is necessary to incite economic entry instead of having a bloated certain amount per year that could be way out of whack.

5665   So those are the ways we are trying to minimize that.

5666   We hear them, and those are the only ways that we can think of, by spreading it and by exempting them at the $10 million level. That you could maybe reconsider that $10 million level, at least index it for inflation. Perhaps that would help some of their carriers.

5667   COMMISSIONER MENZIES: I am curious to know also about your position on BSOs in all cases for telecom. I mean, there is an argument there that the standards that -- in forborne areas you want it to continue to exist in forborne areas. Correct?

5668   MR. LAWFORD: Yes.

5669   COMMISSIONER MENZIES: Okay. There is an argument there that -- some would argue that areas are forborne because the standards set in section 7(b) of the Telecom Act have been met.

5670   Why do you see the BSO as still being necessary in areas that have been forborne?

5671   MR. LAWFORD: Well, the basic service objective -- and I may pass this to Barb -- is a standard you have set in addition to what is required. Underlying all this are duties of carriers.

5672   Then you, as the Commission, have the ability to set rates and to have aspirational -- sorry -- than to have objectives for policy that you put on top of them. But those objectives or policy don't take away the underlying obligations to begin with and certainly competition, we believe, if you look at the law, does not do that.

5673   Barb, did you want to add anything?

5674   DR. CHERRY: The setting of a BSO does not in of itself mean that an entity providing it needs funding. The setting of a BSO is setting essentially a minimum -- a recognition of a minimum threshold of a service that should be made available.

5675   The additional powers that the Commission has under the Act to in fact provide support to enable the further expansion of service satisfying the BSO to areas that would not otherwise be compensatory. It's in that fashion that -- it's only at that aspect that you then get into these other funding mechanisms.

5676   But in terms of holding oneself out to provide a given service, those entities that have done so traditionally have long had the obligation to provide it.

5677   The issue here is whether or not in the wisdom of the Commission and as a matter of policy, you want to ensure that a minimum level is available to everyone.

5678   COMMISSIONER MENZIES: Okay, thank you. I understand that.

5679   Finally, get your response to yesterday -- okay, I asked this of Mr. Garneau as well, but the -- I will pick TELUS out of the air because Mr. Hennessy was most articulate on it.

5680   In nine, 10 years, 11 years since high-speed Internet has been available, been rolled out, their argument is or what we have heard from them is that 95 percent of Canadians now have access. That's based on 2008 data and I'm going to guess it's probably moved up at least to 96 by now.

5681   What is it that makes you think it will stop, that it won't continue to grow into some of the areas that are underserved or not served now, particularly as some of the arguments we have heard indicate that if we -- actually, to use a technical term, if we monkey with this too much, that we will get in the way of the flow of capital and investment in companies like Barrett, et cetera that are moving in to fill the remaining gaps?

5682   MR. LAWFORD: A couple of answers to that.

5683   First of all, it's 95 percent of the population --

5684   COMMISSIONER MENZIES: Right.

5685   MR. LAWFORD: -- but it's actually a very much smaller amount of the population in the far flung areas.

5686   COMMISSIONER MENZIES: Okay.

5687   MR. LAWFORD: But secondly, in terms of --

5688   COMMISSIONER MENZIES: But you know where I am going.

5689   MR. LAWFORD: Yeah, I know where you are going, in terms of distortion of the market.

5690   There are a number of pressures that they have told you about. They have told you that they need -- and especially Aliant -- they need to build fibre in the cities to compete with other carriers. That diverts money from getting out to the further flung areas.

5691   So the operation of those forces in raising capital actually works 100 percent against rural areas. So if you set the table for everybody, if you make it the same obligation to get out there and they all have to pay the contribution, then that -- you know, then the markets will accept that. Well, that's on the table and here we go.

5692   They are not going to stop investing in telecom in this country and they are not going to stop investing in people who say, "We are going to sell a tonne of IPTV". It's just not going to happen. They will.

5693   I don't believe for a second that they will have any trouble raising capital because we have put, let's say, a contribution rate of 1 percent on them. It's just not true.

5694   COMMISSIONER MENZIES: Okay, thank you. My colleagues may have some questions.

5695   THE CHAIRPERSON: Len?

5696   MS HUDSON: Can I just add slightly to that and say that they -- of course there are still some pockets and the pockets are shrinking of places without broadband, as one might define, taking the same Industry Canada definition or higher but the quality of service and price issues are also very real.

5697   They deserve your ongoing oversight as part of the regulation of the providers of the services, because I think that that's going to be a continuing issue.

5698   The gaps are shrinking. There are technologies that can provide that coverage. This is good. Costs are going down. This is terrific.

5699   So the fact that you can maybe get to that threshold with minimal subsidy should be a positive one, but that doesn't remove all the obligations on the providers nor on the monitoring concerning the quality of the service and the affordability.

5700   COMMISSIONER KATZ: Thank you, Mr.Chairman, and good morning.

5701   I have a number of questions. I will use the order of this document you presented this morning. The first item is on page 4 where you talk about minimum speeds. You have inserted the word "actual" speed. I understand what a minimum is.

5702   I am just trying to understand that when dealing with broadband services there is a number of reason why you may not be getting the actual speed. Some of it is because the carrier is not sending it to you, others may be more inline with the actual user themselves and their physical characteristics of what they are using, where they are going and how.

5703   Have you thought through how one would go about implementing a system where a regulator is actually holding a provider accountable for actual speeds that the end user is receiving?

5704   MS HUDSON: Yes, actually. I think I did put those terms in that the FCC is used because I think there is a lot of concern about quality of service. We have heard some discussion earlier in these hearings about availability up to X, and I think that is one of the issues to be worried about, stating that service "up to" rather than available at a certain speed is one condition.

5705   The second is that there can be congestion on a lot of networks. This doesn't apply only to satellite services, but certainly wireless and even cable networks where congestion may reduce the speed that people think that they are going to get and have in fact signed a contract to pay for for a certain period. So it is important.

5706   I think that you will never have enough people to monitor. I think you have to require data, as you have from the telecom sector for a long time on quality of service. But also I think getting consumers to sign up and to do tests that can be measured, Industry Canada has one of these measurements on their website, the FCC is doing the same thing, so that you get kind of a crowd-sourced way of keeping on top of what is really going on out there is another piece of the puzzle. Otherwise, you will never have enough staff yourselves to be able to clearly monitor.

5707   COMMISSIONER KATZ: So this will be on a statistically valid --

5708   MS HUDSON: So yes, the actual speed is not just the advertised speed is what we are getting at.

5709   MR. LAWFORD: Just to add slightly to that, Commissioner Katz. There has been some work done on this I believe in Australia with defining what actual speeds mean, because they don't allow "up to" speed advertising there anymore.

5710   And I believe that they set targets such as, you know, 90 per cent of the customers receiving this speed 70 per cent of the time at peak hours of the day, things like that. That is, to me, what you should be looking at, that kind of approach because it is doable, it also takes into account where the carriers have issues, like they do at any one particular time, but overall they are doing pretty well.

5711   COMMISSIONER KATZ: Okay, thank you.

5712   On page 10, Professor Hudson, you use the U.S. as an analogy and you talk about Canadians providing vouchers to low-income households. Do you believe that is the responsibility of a regulator or of a government?

5713   MS HUDSON: You raise a very interesting question, because I think in this field the regulator often becomes a policymaker because times change and, in a sense, you are taking on policy issues here by saying should we have a basic broadband commitment.

5714   It could be done by the government. What I am groping for is something that recognizes users' concerns and builds in incentives to providers. Because what you have heard I think in these hearings is mostly from the providers who have a lot of very good evidence to provide and cases to make, but you need to have some kind of incentives to get them to provide services in areas that are unattractive or where the operating costs appear that the service is not sustainable.

5715   So this is one way of thinking about getting the subscribers the power in a sense to say, okay, now I am a customer, I can afford your tariff rate or I can afford up to this, who is willing to serve me? And in fact, that is what the E-Rate did in the U.S. and it worked very well in some remote areas where nobody was willing to provide service until they saw customers who basically had the equivalent.

5716   That came in the U.S. through a program administered by the FCC, which is in many cases a regulator but also does policy, as you know.

5717   COMMISSIONER KATZ: But do you foresee the CRTC writing cheques to Canadians?

5718   MR. LAWFORD: I think that what we were proposing as our sort of base is the funding mechanism which Mr. Todd outlined. These other approaches would be complimentary, something to think about after if it turns out that we are not reaching people or there are, for example, barriers such as the cost of satellite installation where people can otherwise pay the going rate per month. If find that is a barrier, maybe you can look into it.

5719   I like to view the role of government and maybe parties who have come here to say they are going to do stuff, that they should step up at that point and say what can we do? The kinds of things that are being outlined seem to be at least attractive to governments to do. But I think the point Professor Hudson is making is you may have to set the table a little bit.

5720   But it is not for right away. I think that the base thing we want done is getting a contribution fund to get broadband out there and, then if you start finding needs for these particular customers or areas, then that is when you have to start a new inquiry.

5721   I hope that helps.

5722   MS HUDSON: In fact, the cheque would go to the provider really, not the user. If the user had either a commitment worth X amount or a voucher worth $20 for broadband and they could sign up with anyone, then in fact that funding would be transferred to the provider.

5723   COMMISSIONER KATZ: The point I was trying to make was only who writes the cheque. I understand what you are saying. My only question, who writes the cheque, and I got my answer.

5724   MS HUDSON: I understand what you are saying. I believe that it could be done in a couple of different ways.

5725   COMMISSIONER KATZ: Thank you.

5726   Mr. Todd, your model suggests that we expand the revenues to include broadband as part of the distribution fund. And you have talked about it with my associate, Commissioner Menzies, as well.

5727   The question I have is isn't this just a mug's game? At the end of the day in Canada, particularly, the same players are in all services; they are offering telephone service, they are offering broadband service, they are offering long-distance service, they are offering wireless service.

5728   You add them all in, at the end of the day they are still going to be paying, maybe the per cent that they are paying is lower, the base is higher. So at the end of the day the numbers are going to come out the same way anyways with the exception of the smaller players, who we talked about earlier, and the fact that they feel they won't be able to sustain making any of these payments at all.

5729   So at the end of the day your proposal really doesn't change anything. The money is going to come from the same sources regardless.

5730   MR. TODD: That is correct. As with the current regime, there is a certain number of dollars that need to flow through the mechanism, if you want. And part of the design of the current regime was to ensure: number one; that everybody pays, so there is a competitive neutrality, at least all the ones above a certain threshold, and; secondly, that it is applied to broad base in revenue. So for any particular service the percentage rate is kept low.

5731   So the concept underlying these comments is exactly the same as the concepts that lay behind the design of the current regime.

5732   COMMISSIONER KATZ: Now, your proposal of a first mover and funding presupposes that there is no service in those areas. And we have heard during the last several days now that satellite, in some people's mind, is a viable alternative to provide broadband service.

5733   Is it PIAC's position that satellite is not a viable alternative? Because if it is, the problem basically is, for the most part, solved from an access perspective anyways.

5734   MR. LAWFORD: If I can just jump in. I think we have said that all technologies can play a part, and I think that is the case. So there will be areas where satellite is the best choice. There is no other way to get it there and it is the only or cheapest way to go.

5735   But let's be honest, we think satellite is too expensive for most people where they say it is available. They say it is available in 100 per cent of the country but, you know, they are not going to get everybody signing up because the installation charge is in the hundreds of dollars.

5736   It is not affordable. It is not affordable for the -- and we asked interrogatories on this, for the same speed as the Bell HSPA stuff or your average DSL line you are paying $150 a month, and that is a lot for Internet service.

5737   So unless that prices comes down -- as well, they are saying their speed will go up, their coverage will be there, they will get better throughput, but unless their price comes down, we have a problem with affordability, people will never take it.

5738   COMMISSIONER KATZ: But affordability is one component of it; one is access the other is affordability, as this model has been laid out. So if satellite can provide the access, the question is the affordability.

5739   So I am asking the question, if you accept the fact that satellite is a viable technology, then that first part of the model goes away because you don't need a first mover funding model because it is already there.

5740   MR. LAWFORD: Well, the first mover -- the satellite would still have to declare that they are first mover in all of these areas and be able to provide the service with the speed and reliability that we have suggested. If Barrett thinks on day one they can take on the whole country and deliver the service, provided that there is a proper sized access subsidy, that may be the way we go. I don't think that will happen.

5741   COMMISSIONER KATZ: Go ahead, sorry, Mr. Todd.

5742   MR. TODD: There may be areas where there are no facilities that are adequate to meet the basic service objective as redefined, in which case, clearly, there would have to be new facilities installed or upgrading of existing facilities, which is where the capital outlay would come into play.

5743   There may also be areas where nobody is able, economically, to provide the new basic service objective at a price that is the regulated affordable price established by the CRTC, in which case that access subsidy could be viewed as an amount which is paid against the capital costs which have been incurred which allows them to provide the service at that lower price and still operate profitably.

5744   COMMISSIONER KATZ: My last question is to Professor Cherry. It is the bottom of page 16, top of page 17, reference to "telecom carriers selectively refusing to serve customers." And you say on top of the page 17 that:

"As long as they make a reasonable request and tender reasonable compensation for service there shouldn't be a problem."

5745   Do you know of any situations in Canada where a carrier has refused to provide service when someone has offered reasonable request and tendered reasonable compensation?

5746   MR. LAWFORD: I do recall the evidence that was given by the NEOnet group about the gentleman who was across the street from another provider and was refused service.

5747   I agree with you, that the examples aren't there everyday, but you are setting yourself up for that situation if you take away the obligation to serve in forborne areas, that is our contention.

5748   MS HUDSON: I think the key interesting legal term here is "reasonable." And there are some areas where the amount that the provider has said would be required to extend service is so high that, in fact, the user has said, this is unrealistic. I have actually filed evidence on this in a previous hearing, but I can provide it.

5749   COMMISSIONER KATZ: But there are construction charges that go along with extending service beyond the base rate area.

5750   MS HUDSON: There are, but in some cases there --

5751   COMMISSIONER KATZ: Entire services approved by the CRTC today.

5752   MS HUDSON: Yes. In some cases those thresholds are very high, so there are a few examples, yes.

5753   COMMISSIONER KATZ: Those are my questions, thank you.

5754   THE CHAIRPERSON: Suzanne.

5755   CONSEILLÈRE LAMARRE: Merci, Monsieur le Président. Je vais poser ma question en français.

5756   CONSEILLÈRE LAMARRE: Merci, Monsieur le Président. Je vais poser ma question en français.

5757   Au tout début de votre présentation, à la page -- bien, pas tout à fait au tout début, mais au début -- à la page 5, vous dites que vous... Vous approchez la question des petites titulaires prudemment et avec espoir. Et vous dites que, selon vous, votre proposition va permettre d'amener la concurrence dans les territoires des petites titulaires tout en permettant un service durable pour les petites titulaires.

5758   Alors, plus loin, lorsque vous parlez de ce système-là, vous établissez deux subventions : celle qui est la subvention de connexion (connection subsidy) et l'autre, la nouvelle que vous proposez qui serait la « access subsidy ».

5759   La première, celle de connectivité, vous préconisez qu'elle soit mobile alors que ce même type de subventions-là, les petites titulaires sont très farouchement opposées à ce qu'elles soient mobiles pour permettre justement qu'elles demeurent financièrement durables.

5760   Alors, je présume que c'est avec votre subvention d'accès que vous estimez que vous allez chercher le compromis pour les petites titulaires. Mais franchement, je ne comprends pas comment, même après vous avoir écouté. Pouvez-vous me préciser comment cette subvention-là peut permettre justement cet équilibre-là entre la concurrence et la viabilité financière des petites titulaires?

5761   M. LAWFORD: Absolument. Normalement, on pense que les petites titulaires vont être les premiers... « first mover », parce qu'on dessert normalement disons 80 pour cent déjà de leurs territoires avec disons le DSL ou le sans fil fixe. Donc, elles sont très bien placées pour être le « first mover » dès qu'on commence avec notre système.

5762   Oui, c'est possible par exemple que le câblodistributeur va être un entrant dans le «10 bits».

5763   CONSEILLÈRE LAMARRE: Oui...

5764   M. LAWFORD: Mais vous voyez, la petite titulaire a déjà 10 ans de subvention pour ajuster le coût et ajuster à la concurrence. Et aussi, ils ont l'opportunité de dire « Nous, nous avons un meilleur service. Restez avec nous. »

5765   Oui, ils vont, j'imagine, perdre quelques personnes aux concurrents, mais c'est plus abordable, plus graduel, si vous voulez.

5766   Donc, ça dépend vraiment le niveau du soutien pour « access », mais je sais que c'est difficile pour vous de faire ces ajustements, mais c'est comme ça qu'on pense que ça va marcher.

5767   CONSEILLÈRE LAMARRE: Et de votre côté, avez-vous essayé de faire des scénarios financiers, justement peut-être en utilisant la plus petite titulaire, une moyenne titulaire -- dans les petites il y a des plus petites petites...

5768   M. LAWFORD: Oui.

5769   CONSEILLÈRE LAMARRE: Donc, en utilisant peut-être la plus petite petite et une moyenne et une plus grosse, avez-vous fait des scénarios financiers?

5770   M. LAWFORD: Pas des scénarios financiers comme tels. On n'a pas les moyens vraiment, mais juste... Pour les plus plus petites, ce sont déjà des compagnies qui sont placées dans des endroits un peu plus éloignés et on pense vraiment qu'ils ont -- comme j'ai dit -- la meilleure chance d'être le fournisseur primaire, si vous voulez.

5771   On n'a pas fait ces calculations, non.

5772   CONSEILLÈRE LAMARRE: Je vous remercie.

5773   Monsieur le Président? Merci.

5774   THE CHAIRPERSON: Thank you.

5775   Candice.

5776   COMMISSIONER MOLNAR: Thank you.

5777   I am going to try and be brief, but I have seen your submission, I have listened to you and I am having some trouble understanding.

5778   Professor Hudson, you spoke about the anchor-tenant approach and how that worked in the States in connecting communities and putting in anchor tenants that both built the backbone to these communities as well as supported the economic development and enabled service providers therefore to go in at a more economical rate.

5779   When I was looking at the proposal put forward by Mr. Todd, is that your proposal? Is that what this access subsidy is supposed to be, the equivalent of the anchor-tenant approach?

5780   MS HUDSON: No. In fact, what I was -- and I will let him certainly elaborate on explaining -- what I was proposing was a complimentary approach that also puts some support into the hands of institutional users. And this has been done actually on a kind of pilot basis in Canada through some projects like BRAND, but not on an ongoing basis. It is only part in the U.S. There is also a high-cost fund in the U.S. which provides much greater support to carriers. And so --

5781   COMMISSIONER MOLNAR: Sorry. I understand the anchor-tenant. In fact, it has been done in Canada and I can use CommunityNet in Saskatchewan --

5782   MS HUDSON: Yes, exactly.

5783   COMMISSIONER MOLNAR: -- as an example, that has successfully worked to rollout facilities to all the isolated communities.

5784   What I was trying to understand is is that what you are proposing in your approach to an access subsidy? Is something equivalent where we would have put in place, you know, sort of that anchor tenant to build the broadband connections to all of these communities to support development?

5785   MR. TODD: I would suggest that the access subsidy would be complimentary to such programs. So we --

5786   COMMISSIONER MOLNAR: So we would need another program to support connection between communities?

5787   MR. TODD: Think of it as what we need is entry into the broadband high-cost serving areas. Entry in come of them may be very inexpensive, entry into others may be very expensive, i.e. the amount of money that would have to be spent per line may be much higher in some communities than others.

5788   The initial access subsidy would be set at a level that you would get -- start in at the lowest-cost communities would be attractive for a carrier to come in --

5789   COMMISSIONER MOLNAR: Mr. Todd, does it address the cost of accessing that community?

5790   MR. TODD: Yes.

5791   COMMISSIONER MOLNAR: It does?

5792   MR. TODD: It addresses the cost initially for the ones that are cheapest to access. You don't want to pay a high subsidy which would be sufficient for it to come into the highest-cost areas and to pay that same subsidy at places where entry could be done much more inexpensively.

5793   Plus, once a low-level subsidy comes in in the first year a community could access other programs, government programs, raise money itself, and make it attractive for a carrier to come in and be first mover by saying, not only will you get the access subsidy through the CRTC mechanism, but in addition we will throw some money in in order to bring down the net cost of entry --

5794   COMMISSIONER MOLNAR: So this would not eliminate the requirement for governments or other programs to build out the broadband facilities to the communities?

5795   MR. TODD: It would work with them to accelerate --

5796   COMMISSIONER MOLNAR: But not eliminate them, right.

5797   MR. TODD: -- the rate at which broadband is rolled out.

5798   MS HUDSON: I would like to try to --

5799   COMMISSIONER MOLNAR: Can I ask one more question?

5800   MS HUDSON: -- can I clarify a little bit more?

5801   I think there is two components here, and one is the capital expenditure and the other is the operating expenditure. Many providers will not come into a community unless they see that there is going to be ongoing revenue to be generated. So you can do that through the model that is being described, which has some upfront help for the capital, and then uses the connectivity.

5802   You can also compliment that by saying, all right, we may have some schools in Saskatchewan or community centres in Nunavut who have funding, and so they become attractive because the provider knows that there is going to be somebody to pay once they make the capital cost, otherwise it is not really worth it to them.

5803   COMMISSIONER MOLNAR: One more quick question I am hopeful.

5804   But as you know, when you have had discussions here that some have put forward that the job is done, access has been achieved, or virtually been achieved, and the issue now becomes upgrading that. So where there has been a target of 1.5 our concern should be how can we afford, as a nation if you will, to move people into the higher speeds?

5805   So do you believe that the subsidy program that you have proposed here would address that issue?

5806   MR. TODD: First of all, I think we heard essentially the same messages prior to the implementation of existing high-cost regime with respect to voice telephony; that it was all there, it was unnecessary, that it would be high cost. So this is the same debate happening again.

5807   In terms of the actual level of cost, the way the access subsidy is designed the Commission could essentially set it at whatever levels it considers to be affordable. Because it is designed to make the easiest to enter high-cost areas accessed first and gradually over time, the more quickly or the more rapidly you increase the level of access subsidy the faster you are going to rollout access universally.

5808   But if cost is a concern, you can start off with a relatively low level of access subsidy and --

5809   COMMISSIONER MOLNAR: Sorry, Mr. Todd, just help me understand. Does this address the capital cost required to upgrade facilities?

5810   MR. TODD: Yes.

5811   COMMISSIONER MOLNAR: Yes? Okay, thank you. Those are my questions.

5812   THE ADJUDICATOR: Okay, thank you very much for your presentation. You gave us lots of food for thought.

5813   Mr. Lawford, I point out that you might want to check your law. As far as I know, the obligation to serve does not apply to CLECs unless they want to have the subsidy.

5814   MR. LAWFORD: I hear you, thank you.

5815   THE CHAIRPERSON: Thank you. That is all.

5816   We will take a 10-minute break before we go to the next intervener.

--- Upon recessing at 1055

--- Upon resuming at 1113

5817   LA SECRÉTAIRE: A l'ordre s'il vous plaît.

5818   Order, please.

--- Pause

5819   LE PRÉSIDENT: Commençons, Madame la Secrétaire.

5820   LA SECRÉTAIRE: Alors, Monsieur le Président, j'inviterais maintenant l'Association des compagnies de téléphone du Québec à faire leur présentation. Monsieur Serge Désy comparaît pour l'ACTQ.

5821   S'il vous plaît, Monsieur Désy, présentez vos collègues et vous pouvez procéder avec votre présentation.

PRESENTATION

5822   M. DÉSY: Merci.

5823   Bonjour Monsieur le Président, Membres du Conseil et Commissaires. Mon nom est Serge Désy, président directeur général de l'Association des compagnies de téléphone du Québec, l'ACTQ, qui représente neuf PESLT ayant l'obligation de servir et situées dans le grand territoire du Québec.

5824   Je voudrais dans un premier temps présenter les membres de l'ACTQ qui m'accompagnent, soit messieurs Roger Choquette de Comgate Telemanagement; Michel Couture, président du Téléphone de Saint-Éphrem; Sylvain Bellerive, vice-président de Sogetel, Claude Beauregard, vice-président de Téléphone Guèvremont et Jean-François Mathieu, directeur général de la Compagnie de téléphone de Upton.

5825   Je voudrais présenter cette allocution, ce matin, par un bref rappel du contexte menant à notre présence ici aujourd'hui et communiquer au Conseil notre point de vue des changements nécessaires au cadre réglementaire des petites entreprises de service local titulaire (PESLT) dans la question de la mise en oeuvre de la compétition locale dans leurs territoires.

5826   Les PESLT de l'ACTQ sont généralement favorables à l'actuel régime de réglementation appliqué à leurs entreprises avec deux exceptions. Ces deux exceptions touchent directement deux des quatre questions soulevées par le Conseil en annexe à sa lettre datée du 8 octobre 2010, à savoir la question du «Réexamen de la compétition locale dans les territoires des PESLT» ainsi que la «Réévaluation du régime de subvention locale», du moins dans la mesure où les PESLT sont concernées.

5827   Sur les deux autres questions soulevées dans cette lettre, soir la «Réévaluation de service et l'objectif du service de base» et «L'établissement du rôle du Conseil concernant l'accès Internet haute vitesse» l'ACTQ est généralement favorable aux politiques actuelles sur ces sujets, tel qu'indiqué dans nos correspondances écrites.

5828   La réalité de la PESLT aujourd'hui. L'ACTQ représente neuf PESLT dans la province de Québec, qui desservent environ 50000 abonnés dans 35 communautés rurales dont 100 pour cent de leurs territoires de desserte sont des régions considérées comme ZDCE, soit des zones de desserte à coûts élevés.

5829   Les entreprises sont réglementées en vertu de la compétence du CRTC depuis plus de 15 ans et, durant cette période, sont passées d'un régime réglementaire fondé sur le taux de rendement à une réglementation basée sur les prix.

5830   Il y a eu des changements majeurs au régime de subvention locale pour les PESLT. Des réductions de subvention ont débuté en 1999 et ont continué en 2002 de concert avec la mise en oeuvre du nouveau cadre de réglementation axé sur les prix. La réduction globale des subventions locales annuelles pour toutes les PESLT du Canada au cours de la dernière décennie est estimée à environ 40 pour cent.

5831   Les PESLT de l'ACTQ ont dû s'adapter à cette évolution de l'environnement réglementaire et, par conséquent, ont continué de façon proactive à introduire des nouveaux services et des nouvelles technologies générant des revenus supplémentaires afin de compenser pour l'impact financier de la réduction des subventions. Et cela, dans un effort pour rencontrer leur obligation de servir et de fournir des services de haute qualité dans leur base d'abonnés.

5832   Afin de vous donner une idée de la signification pratique de cet environnement évolutif au cours de la dernière décennie, je voudrais maintenant vous guider à travers l'expérience de l'un de nos petits membres. Cette entreprise possède moins de 1500 lignes d'accès au réseau et son service et son expérience est assez typique d'une PESLT de l'ACTQ.

5833   De 2001 à 2009, cette PESLT a réussi à augmenter son revenu moyen par SAR net de la subvention, l'accès aux services locaux ou les revenus d'interurbain par plus de 75 pour cent. Une partie de cette augmentation est liée à des hausses tarifaires du service local (des hausses totalisant 35 pour cent durant cette période). Cependant, plus de la moitié de l'augmentation des revenus locaux peuvent être attribués à un programme d'investissement agressif dans les nouvelles technologies et l'introduction de services nouveaux. Par exemple, aujourd'hui, des nouveaux services tels que l'Internet haute vitesse et l'IPTV représentent plus de 36 pour cent des revenus locaux de l'entreprise en 2009.

5834   Cette augmentation de performance de revenus a toutefois demandé à l'entreprise d'entreprendre de nouveaux investissements importants et d'absorber des coûts d'exploitation supplémentaires. En conséquence, les coûts d'exploitation de la compagnie pour la fourniture de tous ses services en 2009 (à la fois locaux et interurbains) était plus de 50 pour cent élevés qu'ils ne l'étaient en 2001. La majorité de ces augmentations sont reliées à l'introduction de nouvelles technologies et nouveaux services.

5835   Dans l'ensemble, cette PESLT a très bien fait face au remplacement des revenus perdus de subvention par l'ajout de revenus supplémentaires de détail provenant de services nouveaux et existants. La profitabilité de l'entreprise en 2009 était à un niveau à celui approuvé par le Conseil en 2001 sous le régime précédent de réglementation basé sur le taux de rendement.

5836   Je cède maintenant la parole à monsieur Roger Choquette.

5837   MR. CHOQUETTE: I would like to look at the financial impact of local competition on this particular company that we have used as an example.

5838   As you are aware, the ACTQ filed detailed financial models with the Commission on the forecasts financial impact of local competition on each of its member companies. These spreadsheets and workbooks were first filed in August of 2009 in response to Commission questions related to the ACTQ SILEC local competition implementation plans and were subsequently updated as part of this proceeding.

5839   In order to illustrate the basis of this financial analysis, I would now like to summarize the analysis in the context of our example company of less than 1,500 NAS. In other words, the financial impact of the implementation of local competition and that company's operating territory, assuming an implementation at the beginning of 2011 under the existing SILEC regulatory regime.

5840   I will also assume for purposes of this illustrative example that the company will absorb market share losses of approximately 5percent per year for the first five years once local competition is implemented, a somewhat conservative market loss estimate since it's quite possible that the total projected loss over five years, about 20percent, could easily be achieved in less than two years.

5841   Nonetheless, let's first of all look at the impact of local competition on the company's operating costs.

5842   One, there will be a 10percent increase in the company's total operating costs as thecompany absorbs all recurring and nonrecurring investments and expenses related to the implementation of local competition, items such as the setup and ongoing operations of a competitor services group, local number portability, equipment and facilities related to a point of interconnection for the new entrant, and others. This is of course based upon thedetailed company estimates already filed with theCommission.

5843   Two, there will be a further 20percent increase in the company's unit operating costs expressed on a per-NAS basis, since it's total operating costs prior to the implementation of competition are predominantly fixed. Roughly 20percent of its customer base would be expected to be lost to competition in the first five years under the assumed market share loss scenario, resulting in an equivalent increase in per-NAS costs.

5844   Some details. Number one. This company operates with three full-time employees, one General Manager, one business office clerk and one technician.

5845   Two, the company's network has been modernized over the last several years for the provision of new services and consequently most, if not all of the plant and equipment needed to serve its current customer base is already in place.

5846   Three, there is accordingly little opportunity for the company to materially reduce its operating expenses or plant investments, since in placeresources represent a minimum set of facilities and people needed to serve an even more reduced subscriber base.

5847   But that is not the whole story. Let's now look at the impact of local competition on the company's revenues. These revenues currently contribute to the recovery of the company's predominantly fixed operating costs:

5848   One, the company would lose all retail revenues associated with the lost customer base.

5849   Two, the company would also lose most, if not all, network access revenues associated with the lost customer. These network access revenues relate to toll interconnection revenues associated with direct connect toll conversation minutes and trunking.

5850   Three, the company would, however, retain the local subsidy revenues under the current regime of the lost customer base insofar as the subscriber is a residential customer. For example, if the company had a 75/25 residential-business split and the local subsidy was $16.50 per month per residential NAS-- the local subsidy amount in the current "E"Band of the current regime-- then the company would retain on average approximately $12 per month per customer lost, assuming the loss of both residential and business customers during that time.

5851   So if the company's average revenue per NAS today were, say, in the order of $75 per month, including the subsidy, an amount that includes all of the services offered by the company, then it would retain somewhere in the order of 16percent of the revenues associated with market share loss.

5852   In summary, the total effect, including both operating costs and revenues after theimplementation of local competition, would be asfollows:

5853   The company's total operating costs have increased by a minimum of 10percent

5854   The company's total revenues havedecreased by approximately 17percent, commensurate with the forecasted market share loss, even under circumstances where the local per-NAS subsidy is retained.

5855   Of course this type of situation cannot be sustained financially. Our calculations indicate that the company's profitability would likelybecome negative by the third year of operations, and this under a very conservative market share lossscenario.

5856   It is readily apparent that this typeof financial profile is not acceptable for any company, let alone a company that is federally regulated with an obligation to serve.

5857   Based upon our analysis, as provided in response to a Commission question during this proceeding, close to 24,000 subscribers-- 40percent of the total ACTQ subscriber base-- are located outside of the incumbent cable company footprint in ACTQ SILEC operating areas. Accordingly, the possible financial demise of the SILEC would not only result in a potential return to a non-competitive voice market, but would also potentially strand those subscribers located outside of the cable company footprint.

5858   We have therefore proposed two specific changes in the current regime for SILECs in order to provide for a sustainable form of local competition in SILEC territories. We will outline these two specific proposals later in this presentation. For now I would like to ask Serge to turn to the circumstances under which local competition is being proposed in ACTQ SILEC territories today.

5859   M. DÉSY: Merci.

--- Pause

5860   M. DÉSY: Caractéristiques dans lesquelles la compétition locale est proposée dans les territoires d'exploitation de l'ACTQ d'aujourd'hui.

5861   Comme vous le savez, le cadre réglementaire existant en matière de compétition locale pour les PESLT a été défini en 2006. Le cadre réglementaire des PESLT reflète généralement celui des grandes ESLT à quelques exceptions près liées aux prescriptions de la mise en oeuvre du Groupe des services aux entreprises, la transférabilité des numéros locaux, le maintien de la subvention locale par SAR et le dépôt auprès du Conseil des plans de mise en oeuvre de la compétition locale pour son approbation lors de la réception d'une demande de services de compétition.

5862   Comme vous le savez également, la base du cadre de la compétition locale pour les grandes ESLT a été élaborée en 1997. A ce moment, la téléphonie IP par câble n'avait pas encore été déployée et le cadre de la compétition locale envisageait l'utilisation de lignes dégroupées par les nouveaux entrants. En outre, les compagnies titulaires soumises aux nouvelles règles de compétition locale étaient beaucoup plus grosses que les nouvelles venues et, en fait, dans de nombreux cas, le sont encore aujourd'hui, même avec l'entrée des grandes EDR par câble titulaires dans le marché de la téléphonie locale.

5863   La première caractéristique importante liée à la compétition locale dans les territoires d'aujourd'hui des PESLT de l'ACTQ a trait à la taille relative de la nouvelle venue par rapport à l'opérateur titulaire historique. Les circonstances entourant la compétition locale dans les territoires des PESLT de l'ACTQ sont très différentes de ce qu'elles étaient en '97.

5864   Dans le cas de l'ACTQ, Telus, la deuxième plus grande ESLT au Canada avec plus de quatre millions de SAR a déposé une demande d'interconnexion locale auprès des PESLT de l'ACTQ à l'été 2008. Cette demande, comme l'ACTQ l'a finalement découvert, était au nom de Cogeco Câble, l'EDR par câble au deuxième rang dans les provinces de Québec et de l'Ontario avec plus de 2.5 millions de portes (des «home passed»).

5865   Conformément au code réglementaire de compétition actuel, les PESLT de l'ACTQ ont déposé leurs plans de mise en oeuvre de la compétition locale auprès du Conseil à l'automne 2008. Bien entendu, tel que démontré plus tôt dans cette présentation, les plans de mise en oeuvre déposés ainsi que les questions de suivi du Conseil ont soulevé un certain nombre de réflexions, la plus importante étant de savoir comment les PESLT de l'ACTQ allaient supporter la perte de revenus d'abonnés et l'absorption des coûts de la mise en oeuvre de la compétition locale tout en maintenant un profil financier raisonnable afin de rencontrer leur obligation de servir.

5866   Tel que noté précédemment, approximativement 24000 abonnés représentant 47 pour cent des SAR desservis par les ESLT seraient à risque de ne plus avoir aucun fournisseur pour le service de base incluant le service 9-1-1. De plus, ces clients risqueraient de perdre des services filaires déjà fournis par les ESLT, et par les petites ESLT, tels que l'Internet haute vitesse.

5867   Une deuxième caractéristique significative concerne la nature unique des territoires propres aux PESLT, territoires qui sont relativement petits, ruraux et identifiés à 100 pour cent comme des zones de desserte à coûts élevés, des ZDCE. Les PESLT de l'ACTQ sont donc beaucoup plus dépendantes de la subvention du service local que les grandes ESLT type pour leur santé financière. En comparaison, basé sur l'information recueillie suite aux réponses des questions de l'ACTQ dans cette instance, nous notons que 7 pour cent des SAR résidentiels de Bell Canada sont situés dans les zones de desserte à coûts élevés. Les pourcentages équivalents pour Bell Aliant et Telus sont respectivement de 50 et 22 pour cent.

5868   La petite taille et la nature rurale de la PESLT de l'ACTQ affectent généralement et également sa capacité de continuer à desservir les abonnés situés dans les zones périphériques d'une circonscription, une fois que la compétition locale est mise en oeuvre dans le noyau central de celle-ci. Ceci a été appelé «l'effet du trou de beigne» dans nos présentations et discussions antérieures sur cette question, et ce phénomène est très bien documenté dans la présente instance.

5869   Une extension de ce phénomène est spécifique aux zones de dessertes des PESLT avec plusieurs circonscriptions. Ces territoires d'exploitation sont caractérisés par de plus grandes circonscriptions primaires et plusieurs plus petites circonscriptions. L'ACTQ a appelé ceci «l'effet Domino».

5870   Sous l'effet Domino, la perte d'abonnés dans les circonscriptions primaires relativement plus grandes met non seulement en péril la capacité financière de la PESLT à continuer de s'acquitter de ses obligations de service dans les zones périphériques de ces circonscriptions primaires, mais également, met en péril sa capacité à respecter ses obligations dans les autres plus petites circonscriptions de sa zone de desserte, là où les installations de la compagnie concurrente ne sont pas présentes. Par exemple, la plus grande PESLT de l'ACTQ, soit Sogetel, dessert 16 centres de commutation, c'est-à-dire des communautés, et trois des centres de commutation représentent plus de 55 pour cent des SAR de la compagnie.

5871   Conséquemment, il est évident que les circonstances relatives à la compétition locale dans les zones d'exploitation des PESLT de l'ACTQ d'aujourd'hui sont très différentes de celles définies par les paramètres de la fin des années '90 pour les grandes ESLT.

5872   Monsieur Choquette?

5873   MR. CHOQUETTE: Proposal No. 1: The mechanism for the recovery of the SILECs' costs of implementing local competition must be modified such that these costs are not absorbed by the SILEC.

5874   As noted earlier, the current regulatory regime associated with the recovery of local competition implementation costs was initially established by the Commission in the context of local competition in the large ILEC territories, whose subscriber bases were, and remain, in the millions.

5875   The results of the ACTQ financial analysis confirm the requirement that the costs of implementing local competition not be borne by the incumbent SILEC. This is especially true in the case of the smaller SILECs. For example, in the case of the SILEC we have just discussed earlier in this presentation that has less than 1,500 NAS, the absorption of local competition implementation costs is the financial equivalent of a further annual market share loss of close to 10percent.

5876   It is, in the view of the ACTQ, bad public policy to require a SILEC with a few or several thousand subscribers to absorb the implementation costs of the entry of a multi-million subscriber cable BDU into the local voice market, under circumstances where the SILEC may be put in a position of such financial jeopardy that its current universal service obligations may not be met, especially in the context where a large percentage of the SILEC's customer base is located outside of the cable BDU footprint.

5877   The current policy may well have beenappropriate back in 1997, however it's clear thatthe existing policy has been overtaken by events, and certainly so in the context of the SILEC environment today.

5878   Some would nonetheless argue that since some SILECs in Ontario have already implemented local competition without any apparent negative consequences on the incumbents' abilities to meet theirservice obligations, then the current SILEC localcompetition framework would appear to be working just fine.

5879   A closer examination of the circumstances surrounding those local competition implementations reveals that the SILECs in questionare:

5880   (1) either an affiliate of a large ILEC or a large cable BDU;

5881   (2) serve large urban areas in their own right, or

5882   (3) are government owned.

5883   ACTQ SILECs do not fall into any of these categories. ACTQ SILECs are not affiliated with any level of government, are not affiliated with any large ILEC or cable BDU and ACTQ SILECs exclusively serve small rural areas. The largest ACTQ SILEC serving area has 4,300 NAS and 60percent of ACTQ SILEC serving areas have less than 1,500 NAS.

5884   The current SILEC regulatory policy associated with the recovery of local competition implementation costs should be modified. The local competition implementation costs should not be borne by the SILEC incumbent. It should either be borne by the new entrant or funded by a subsidy program through the Central Fund.

5885   Proposal No. 2: The amount of the SILEC local subsidy should be topped up to recognize the reality of the SILEC's obligation to serve, the fixed nature of the SILECs costs and the financial impact of local competition.

5886   The ACTQ has no quarrel with the level of the existing local service subsidy for its members in an environment where the incumbent's customer base is not subjected to reductions due to local competition.

5887   A company's existing obligation to serve has been factored into the current local subsidy regime, but only to the extent that its customer base is not shrinking. As stated in its April submission, and briefly touched upon earlier in this presentation, the current local service subsidy regime for SILECs is a per-NAS subsidy calculated using:

5888   (1) the proxy Phase II costs of thelarge ILECs for the provision of local residentialservice;

5889   (2) a percent markup on those costs;and

5890   (3) imputed service revenues from basic and optional local services.

5891   The existing local service subsidy regime is based upon the assumption that these residential service costs and revenues are variable on a per-NAS basis. As discussed earlier in this presentation, the revenues are indeed variable, but the costs are not.

5892   The existing subsidy regime was designed to compensate the SILECs for the higher than average cost per line in its HCSA environment commensurate with the size and scale of it's operations. The current subsidy regime was not designed to provide any upward adjustment to the per-NAS subsidy if the companies' average cost per line increased due to market share losses in the context of a SILEC's continued obligation to serve.

5893   The existing regime penalizes theSILEC in two ways if it loses a subscriber to localcompetition.

5894   One, it assumes that the SILEC can reduce its costs in proportion to its market share loss, which it cannot.

5895   Two, it assumes that the related lost retail revenue has no bearing upon the SILEC's subsidy requirement, which it does.

5896   In fact, with the majority of the SILEC's costs being fixed, the subsidy should be required to compensate the SILEC not only for the increase its average cost per NAS but also for the lost contribution made by the retail NAS revenue for the recovery of those fixed costs.

5897   It is accordingly clear to the ACTQ that changes are needed to the local service subsidy regime for SILECs if sustainable local competition is to be implemented in its member territories.

5898   The ACTQ has proposed that the subsidy mechanism continue to be based on the existinglevel of local service subsidy available to SILECs but that it be topped up if local competition isimplemented in a SILEC territory. The ACTQ has proposed a mechanism where the top-up is on the basisof the reduction in NAS served by the SILEC dueto competition.

5899   This approach would directly address the main reason for the top-up requirement, a decrease in the SILEC NAS base. Under this approach a SILEC's subsidy would be increased on an annual basis related to lost revenues associated with basic local service only. This measure would not completely address the total revenue loss since optional local services, Internet access revenues and other value-added services such a IPTV, would not be compensated, nor would losses in certain value-added business revenues related to business NAS.

5900   For purposes of comparison, the SILEC discussed earlier in this presentation has a weighted average basic local rate for both residential and business service of about $30 a month, while the average revenue per subscriber in that territory is in the order of $75 a month, including the subsidy.

5901   Such an approach would provide the companies with a minimum acceptable level of financial stability and predictability and also provide SILECs with continued incentives to retain and acquire customers in a competitive environment.

5902   The ACTQ has chosen to propose the retention of the current levels of the local service subsidy as a matter of practical convenience and in recognition of its use in the SILEC environment for the last eight years. The ACTQ proposes the top-up mechanism as a practical solution to the replacement of the imputed revenues of the existing subsidy formula associated with the lost NAS under competition.

5903   In the view of the ACTQ, this proposed approach provides a reasonable and equitable basis to meet the objective of universal service at affordable rates while providing the benefits of local competition to the SILEC subscriber base.

5904   The ACTQ notes that its proposal would apply to any SILEC territory where local competition is implemented, be it on a forborne or non-forborne basis, since forbearance related to competition in the core of the SILEC exchange, does nothing to alleviate the increase in average cost per NAS in the SILEC territory related to its obligation to serve, nor does it compensate for the loss of revenue contribution to the recovery of the SILEC's fixed costs.

5905   M. DÉSY: L'obligation de servir de la PESLT devrait être maintenue. L'objectif du service de base est primordial aujourd'hui pour tous les Canadiens. L'ACTQ appuie l'arrivée de la compétition locale sur les territoires des petites indépendantes du Québec, pour une concurrence saine et durable dans le contexte où les propositions soumises sont mises en oeuvre.

5906   A défaut d'accepter ces recommandations, une autre façon qui nous semblerait tout au moins équitable serait d'obliger le nouvel entrant à desservir l'ensemble du territoire de la PESLT visée.

5907   L'application intégrale de ces propositions de l'ACTQ permettra à tous les abonnés dans les régions rurales de continuer à recevoir des services de qualité et à la fine pointe de la technologie. Ces scénarios assureront également la pérennité de nos entreprises tout en offrant au consommateur le pouvoir de choisir son fournisseur de service.

5908   Monsieur le Président, je vous remercie.

5909   LE PRÉSIDENT: Merci de votre présentation. Évidemment vous avez bien pensé à la problématique et vous avez proposé une solution assez intéressante.

5910   Avant de parler sur la solution, les autres intervenants devant nous ont parlé beaucoup sur le formulaire que nous avons maintenant pour la subvention.

5911   Et ils ont critiqué deux aspects ou trois aspects:

5912   Premièrement, que les frais ne sont pas assez élevés et qu'on devrait permettre aux compagnies d'élever les frais à 36$ par abonné.

5913   Deuxièmement, que la productivité, ça ne s'applique pas... le facteur de productivité, ça ne s'applique pas à votre territoire parce que dans les petites PESLT cette productivité n'est pas réalisable.

5914   Et finalement, que les services supplémentaires qui sont implicites sont trop exagérés pour votre territoire.

5915   Est-ce que vous avez...? Vous m'avez dit que vous êtes satisfait avec le formulaire. Vous n'êtes pas d'accord avec les autres compagnies qu'il faut que nous revisitions la formule?

5916   M. CHOQUETTE: La première chose, Monsieur le Président, c'est que tel qu'on a remarqué, les coûts qui ont été établis pour les petites ESLT sont une moyenne pondérée des coûts des grandes entreprises au Canada.

5917   Donc, au fur et à mesure que ces coûts-là augmentent ou diminuent, on prend comme acquis qu'essentiellement, on serait assujetti à cette même moyenne et on n'a pas de problème avec ça parce qu'on ne veut pas rentrer dans une situation où on devrait établir spécifiquement par compagnie chacun des coûts des petites ESLT.

5918   Deuxièmement, sur la question de la productivité... Il y a une productivité implicite dans le régime des petites ESLT reliées à la subvention puisque depuis 2006 aucune augmentation au tarif de résidence est permise.

5919   Et puis ça, c'était une entente qu'on avait avec le CRTC qui a été établie dans le 2006-14 où on a dit «Écoutez, si vous êtes prêts à mettre de côté la question de l'inflation puis la productivité, nous on est prêts d'établir que le tarif de résidence n'augmentera pas du tout durant la période de quatre ans. Et puis c'est ce qui est arrivé.

5920   Et troisièmement, sur la...

5921   Je crois que vous aviez un troisième point sur la question de...

5922   LE PRÉSIDENT: Le bénéfice implicite d'avoir...

5923   M. CHOQUETTE: Oui, oui. Le bénéfice implicite des services optionnels. Pour le moment, nous, c'est à 5$ dans la formule. Fondamentalement, on a donné nos chiffres au CRTC. Certaines compagnies, c'était 3,50$... Il y avait d'autres compagnies c'était à 4,50$ ou 5,00$ ou 6,00$.

5924   L'important pour nous, c'est de réaliser que dans le contexte de la concurrence locale, du fait qu'on perd un abonné on ne perd pas seulement que le service de base et pas seulement les services optionnels qui sont implicites dans la formule, on perd tous les revenus -- inclus l'IPTV, la haute vitesse, et caetera.

5925   Donc, pour nous, si vous établissez que le revenu implicite devrait être, disons, 7$ ou 8$ plutôt que 5$, on n'est vraiment pas complètement contre ou pour ça, mais ce qu'on dit, c'est que si vous établissez ce régime, (inaudible) nécessairement nous donner, possiblement, une augmentation de tarif où on pourrait récupérer ces coûts-là. Essentiellement, c'est notre position.

5926   THE CHAIRPERSON: Okay. Then this new scheme that you have put on the table today, where you basically get compensated for each customer that you lose, where will the additional funds for the subsidy fund come from?

5927   It would undoubtedly have an impact on the draw of the subsidy fund.

5928   MR. CHOQUETTE: Maybe I could answer the question this way. Right now the ACTQ SILECs receive a subsidy of about $6.5 million a year.

5929   We recognize that, more than likely, there will be some type of basic revenue increase, say, from $25 to $30, as part of this proceeding or other proceedings, which would reduce that subsidy from $6.5 million to about $5 million, in terms of a percentage.

5930   What we have proposed today, in terms of the absorption of local implementation costs, represents, over all ACTQ companies, $1 million a year.

5931   So we have gone from 6.5 to 5. If our proposal was approved and the central fund was used, we would go back up to 6, and then the so-called top-up that we refer to, that is another -- and we have filed evidence to this effect -- that is roughly anywhere from half a million to $1 million a year, depending on the market share loss.

5932   The number that we filed was $3 million over five years. That's what it would cost the fund.

5933   Expressed on an annual basis, to compare it to the 6.5, what is happening here is that we are now moving from 6 to, possibly, 7, worst case.

5934   So the increase in the so-called subsidy from the central fund would be, approximately, half a million dollars a year for ACTQ SILECs, and we don't consider that an onerous amount. We realize that it's an amount that is greater than is currently the case; however, considering what is at stake, in terms of unserved customers, we feel that it's a reasonable and practical number.

5935   THE CHAIRPERSON: But, presumably, if we adopt your scheme, we couldn't do it only for Quebec, we would have to do it across the country, for all SILECs.

5936   MR. CHOQUETTE: Yes. The Ontario companies -- I believe the total for all independents is $23 million a year. However, if you start looking at companies that are so-called independent but are really not, some of these are very large companies, and that $23 million -- I'm not sure what that amount would be if you excluded somebody like Northern Telephone, for example. It would be substantially less.

5937   So it's still in the same order of magnitude, we think.

5938   THE CHAIRPERSON: Okay. Thank you.

5939   Suzanne, tu as des questions?

5940   CONSEILLÈRE LAMARRE: Oui. Merci, Monsieur le Président.

5941   Je vais continuer sur la lancée du Président. Au sujet de votre mécanisme de «top-off», si on devait choisir de l'établir, une fois qu'il serait établi, il est où le bénéfice pour le consommateur dans ce scénario-là?

5942   M. CHOQUETTE: Bien, le bénéfice pour le consommateur, c'est qu'il y a de la concurrence locale dans le territoire. Dans notre cas, 50 pour cent de nos abonnés auraient le choix d'un service du câblo titulaire, si le câblo veut entrer dans le territoire. Et puis Cogeco ont indiqué que ça les intéresse.

5943   Et puis, donc, c'est le choix. Et avec le choix, comme vous le savez... et la concurrence, il y a des bénéfices. Et puis je suis certain que vous en connaissez beaucoup plus que moi sur ces bénéfices-là.

5944   CONSEILLÈRE LAMARRE: Avant de continuer avec d'autres questions, j'ai besoin de deux précisions au sujet de votre présentation.

5945   La première: au paragraphe 37, vous avez utilisé un vocabulaire qui ne m'est pas familier lorsque vous parlez des «serving areas» plutôt que de la base d'abonnés des différentes compagnies. Pouvez-vous m'expliquer c'est quoi la distinction?

5946   M. CHOQUETTE: Oui. Je fais allusion aux centres de commutation qui ont été définis dans la décision 2001-756 et qui... Ce sont ces centres de commutation qui reçoivent la subvention locale.

5947   Donc, on peut avoir, par exemple une compagnie comme Sogetel qui a 16 ou 17 centres de commutation... Donc, quand on fait le calcul de la subvention locale pour Sogetel, il faut évaluer, en fonction de la décision 756 et puis du programme de subvention qui existe aujourd'hui, actuel. Le montant pour la compagnie, c'est vraiment 17 montants différents.

5948   CONSEILLÈRE LAMARRE: Oui. Vous avez parfaitement bien répondu.

5949   Au paragraphe 24, vous faites état du fait que les... -- Oh! Attendez... Est-ce que c'est b bien ça? Oui! -- Vous faites état du fait que les demandes de concurrence pour les territoires des petites titulaires ont été déposées par Telus et que finalement vous avez découvert qu'au fond, ce n'était pas vraiment pour Telus, c'était pour Cogeco.

5950   Entre vous et moi, que ça soit Cogeco ou Telus, c'est quoi la différence, en termes d'impact pour vous... les titulaires?

5951   M. CHOQUETTE: Bien, la grosse différence c'est que si c'était Telus et puis la...

5952   Moi, écoutez, j'ai été embauché par l'ACTQ à ce point-là pour essentiellement être leur représentant avec Telus.

5953   On a eu des conversations. La première question que j'ai posée... je leur ai demandé «Est-ce que vous ne voulez pas des boucles locales?» Ils ont dit non. Bien j'ai dit «Ça a pas de sens. Comment vous allez--

5954   CONSEILLÈRE LAMARRE: Monsieur Choquette, je vous arrête tout de suite. Ce n'est pas ça ma question.

5955   M. CHOQUETTE: Ah? O.K.

5956   CONSEILLÈRE LAMARRE: Ma question, c'est: Que ça soit Telus qui fasse la demande en tant que service de téléphonie, compagnie titulaire ou que ça soit Cogeco, c'est quoi la différence d'impact pour les petites compagnies titulaires?

5957   M. CHOQUETTE: Bien, l'impact, c'est que quand c'est une compagnie de téléphone qui a besoin des boucles locales -- puis c'est là où j'allais avec cette question-là...

5958   CONSEILLÈRE LAMARRE: O.K.

5959   M. CHOQUETTE: ...on reçoit des revenus reliés à cette boucle locale qui est offerte à la compagnie concurrente... numéro un.

5960   Numéro deux: quand on fait ça, il faut avoir ce qu'on appelle en anglais «co-location» et là, il y a des revenus reliés à l'installation du concurrent dans notre centrale.

5961   Donc, ce qui arrive, c'est qu'au lieu d'avoir ce qui est appelé dans l'industrie seulement que «l'interconnexion du réseau» (ça c'est le cas du câblo), on a l'interconnexion du réseau, on a les boucles locales dégroupées et on a la colocation des équipements.

5962   CONSEILLÈRE LAMARRE: O.K. Donc, dans le cas où c'est une autre titulaire qui fait une demande pour devenir concurrent dans votre territoire, disons que c'est plus facile de contrôler le dommage -- si je peux utiliser l'expression -- que si c'est un service de câblodistribution qui est déjà présent dans le territoire?

5963   M. CHOQUETTE: Essentiellement, oui.

5964   CONSEILLÈRE LAMARRE: Oui?

5965   M. CHOQUETTE: Il y a des revenus.

5966   CONSEILLÈRE LAMARRE: O.K.

5967   M. DÉSY: Madame Lamarre, juste pour ajouter... Que ça soit Telus ou Cogeco, l'impact est le même. Tout est une question de perte de revenus.

5968   CONSEILLÈRE LAMARRE: Maintenant, à deux endroits -- et ça, c'est quelque chose qui a été discuté et je m'en vais ailleurs avec votre réponse après, je vous le dis tout de suite...

5969   Au paragraphe 15(b) de votre présentation et au paragraphe 44, vous faites deux fois état du fait que la majorité des coûts d'exploitation sont des coûts fixes. Donc, «majorité»... vous utilisez la majorité de façon prédominante.

5970   Je saisis très bien qu'il y a un monde de différence entre Sogetel, avec un peu plus de 22000 abonnés, et Courcelles, qui en a moins de 1000, mais ceci étant dit, quand on dit «prédominant», on dit quoi? On dit 50 pour cent plus un ou on dit 90 pour cent des coûts d'exploitation qui sont fixes?

5971   M. CHOQUETTE: O.K. Évidemment, dans le cas qu'on a utilisé dans la présentation...

5972   CONSEILLÈRE LAMARRE: Oui?

5973   M. CHOQUETTE: ...c'est 100 pour cent. Je veux dire, on ne peut pas prendre un technicien puis le couper en deux. Il faut le payer, ce gars-là. Donc ça, c'est évident.

5974   Pour quelqu'un comme Sogetel qui a plus d'employés, normalement on dirait, bien, c'est directement en ligne avec le nombre d'employés, mais non, parce que Sogetel est dans une situation où ils ont... Tel qu'exposé dans la présentation, 55 pour cent de ses SAR sont situés dans trois communautés, ou trois centres de commutation puis le reste c'est éparpillé à travers du territoire.

5975   Donc, je ne sais pas si tu aurais des commentaires sur ça, Sylvain?

5976   M. BELLERIVE: Alors, comme monsieur Choquette disait, on a trois territoires, effectivement, qui ont 55 pour cent des SAR totals de la compagnie. Puis, en plus, notre compagnie s'étend sur près de 5000 kilomètres carrés.

5977   CONSEILLÈRE LAMARRE: Mais ça fait quoi, ça, au niveau, justement, de la proportion de vos coûts d'exploitation qui sont fixes ou qui sont dans une certaine mesure -- et je le dis entre guillemets et sous réserve -- «compressibles»?

5978   M. CHOQUETTE: Bien, ça revient à l'effet domino qu'on a essayé de décrire.

5979   Si par exemple l'EDR, la nouvelle venue se présente, disons, à Nicolet ou Lac Etchemin, ce qui arrive c'est que l'entretien et les services qui sont fournis dans toutes les autres communautés doivent être maintenus. Et puis là, est-ce qu'on va pouvoir réduire les coûts de la compagnie? Possiblement une ou deux personnes ici et là, mais généralement, les coûts vont être maintenus quasiment au même niveau qu'ils l'étaient dans l'année précédente.

5980   Ce que je dirais tout simplement c'est que si on prenait les états financiers de Sogetel en 2009 et puis qu'on prenait ses états financiers à la fin de 2011 suite à, disons, la concurrence locale, on verrait que les dépenses d'exploitation -- puis ça, c'est notre point de vue -- les dépenses d'exploitation seraient plus ou moins équivalentes, seraient quasiment les mêmes.

5981   CONSEILLÈRE LAMARRE: O.K.

5982   M. CHOQUETTE: Donc, même si Sogetel a perdu, disons, 10 pour cent de son marché, ça n'a pas eu d'effet sur ses dépenses. Ça a tout simplement eu un effet sur ses revenus.

5983   CONSEILLÈRE LAMARRE: Donc, ce que vous maintenez, c'est que non seulement presque la totalité, disons, des coûts d'exploitation sont fixes et qu'on n'aura pas de corrélation entre la perte du marché et une diminution des frais d'exploitation?

5984   M. CHOQUETTE: Non. Absolument pas. Ce n'est pas variable du tout, du tout, du tout. La seule variation directe qu'il a, c'est une variation en fonction des revenus.

5985   CONSEILLÈRE LAMARRE: En fonction des revenus. O.K.

5986   CONSEILLÈRE LAMARRE: Monsieur Beauregard, vous voulez ajouter quelque chose?

5987   M. BEAUREGARD: Oui, en fait ce qui arrive c'est que nous, par exemple, sur notre territoire -- on a deux territoires différents. On couvre Sainte-Rosalie (qui est près de Saint-Hyacinthe) et on couvre Notre-Dame-du-Bon-Conseil (qui est près de Drummondville). Ces deux territoires-là sont à 60 kilomètres de distance. Sur le territoire de Notre-Dame-du-Bon-Conseil on couvre 418 kilomètres carrés (pour vous donner un exemple), fait que je dois avoir des personnes qui sont liées aux territoires, qui sont liées à la grandeur du territoire à couvrir. La même chose que Sogetel qui ont 5000 kilomètres carrés à couvrir, mais 5000 kilomètres carrés qui ne sont pas contigus.

5988   Ce n'est pas des territoires qui sont contigus. Ça nous oblige à avoir plus de personnel, ça oblige à avoir plus de dépenses liées, justement, à la couverture de ces choses-là. Quand je veux déplacer un technicien, il faut que je le déplace d'un territoire à l'autre. Puis même, sur le même territoire, il a des grandes distances à couvrir ce qui fait qu'en termes de coûts, la majorité des coûts sont pratiquement fixes.

5989   Quand on dit «la majorité», là, c'est plus proche du 100 pour cent fixe que du 50 pour cent, comme vous posiez la question tantôt.

5990   CONSEILLÈRE LAMARRE: Parfait... Bien, ce n'est pas parfait, mais je comprends ce que vous me dites. Maintenant, en ce qui concerne l'obligation de servir, vous ne vous en plaignez pas. Vous ne vous plaignez pas du fait que vous avez une obligation de servir tout le monde sur votre territoire, vous êtes même conscient, je pense, de votre responsabilité et vous dites que vous voulez conserver cette obligation de servir-là pour les petites titulaires.

5991   Cependant, on comprend qu'il y a un coût associé à ça et il y a d'autres titulaires qui estiment que l'obligation de servir devrait carrément disparaître, dans la mesure où la compétition existe dans un territoire donné. Et pour étayer cette demande-là, une chose qui nous a été présentée c'est le fait que de toute façon, l'obligation de servir, ce n'est pas une obligation qui est onéreuse, étant donné qu'une fois que vous avez capitalisé votre infrastructure, ça marche tout seul.

5992   Ce n'est pas comme ça qu'on le dit là, mais j'utilise une métaphore.

5993   J'aimerais avoir vos commentaires à ce sujet-là.

5994   M. CHOQUETTE : Ah, bien, le commentaire de monsieur Engelhart des câblos, hier, c'était très intéressant, mais la réalité sur le terrain pour les petites entreprises, c'est tout simplement que du fait que les coûts ne sont pas réduits, que ce soit en fonction d'entretien, que ce soit en fonction de service à la clientèle, que ce soit en fonction de l'administration, ça n'a rien à faire avec rien parce que l'important, c'est qu'on a perdu le revenu.

5995   Et puis, si le coût est fixe et puis le revenu disparaît, parce qu'on a perdu le client, si on avait une formule de subventions qui n'était pas basée sur l'hypothèse de base que tout est variable, on n'aurait pas de problème. Ce qui aurait arrivé, c'est que vous nous donneriez une compensation plus élevée du fait que notre dénominateur, notre non-DSRA a été réduit.

5996   Mais ce n'est pas le cas aujourd'hui. La formule est bonne. C'est juste qu'elle est appliquée d'une façon un peu différente, et puis, c'est pour ça qu'on a soulevé cette question.

5997   CONSEILLÈRE LAMARRE : Donc, selon vous, ce qui est important, ce n'est pas tant qu'on regarde la capitalisation de votre infrastructure, ni vos frais d'exploitation, mais plutôt le rapport qu'il y a entre les revenus et l'ensemble des frais que vous devez débourser?

5998   M. CHOQUETTE : Essentiellement, tout ce qu'on a demandé dans notre proposition, c'est deux choses.

5999   On a dit tout simplement, il y avait la question des revenus, comme vous venez de soulever.

6000   Puis ensuite, on a dit, écoutez, si on doit augmenter nos coûts d'exploitation de 10 pour cent à cause des coûts de mise en ouvre de la compagnie... Pour donner un contexte, la petite ESLT avec 1 500 lignes.

6001   L'évaluation d'une entreprise en fonction de sa valeur, il y a deux ans puis peut-être encore aujourd'hui, c'était comme 2 000 lignes par abonné. Donc, cette entreprise-là vaudrait à peu près 3 millions, grosso modo.

6002   Qu'est-ce qui arrive, c'est que dans nos chiffres qu'on a déposés avec vous, on a évalué que pour une entreprise comme ça, disons que c'était 100 000 piastres par année sur cinq ans, le coût de mise en ouvre qui doit être absorbé afin de faire les dépenses de ce qu'on a discuté.

6003   Ce qui arrive, c'est que si je multiplie ce 100 000 piastres là par année par cinq, j'arrive à 500 000 piastres de coûts absorbés sur une compagnie qui a une valeur de 3 millions. En autres mots, 16 pour cent de la valeur de la compagnie est mis en cause pour mettre en place un investissement avec des coûts où le business case, c'est non, il n'y a pas de revenu. En effet, le business case, c'est que le revenu est négatif.

6004   Bon, si je faisais la même... si je faisais le même calcul avec TELUS, par exemple, ils ont 4 millions de SAR. Si j'évaluais TELUS strictement en fonction du nombre de lignes qu'ils ont, il vaudrait à peu près 8 milliards. Si je prends le même pourcentage à TELUS, c'est quasiment 1,3 milliard, l'équivalant. Bien, ça n'a pas de sens.

6005   Évidemment, en '97, si le Conseil, on lui avait des informations à dire 16 pour cent de la valeur de la compagnie en fonction tout simplement de son service téléphonique doit être utilisé pour la mise en ouvre, évidemment, ils n'auraient pas dit, bien écoutez là, il faut que vous absorbiez complètement ce chiffre-là. Ça n'a pas de sens.

6006   Donc, c'est ça qu'on veut tout simplement dire. C'est que ce n'est pas seulement le revenu, quoique le revenu est très important, relié au top-up. C'est la question de la mise en ouvre aussi.

6007   M. BEAUREGARD : Je voudrais ajouter quelque chose, Madame Lamarre.

6008   C'est que dans notre conclusion, on a dit aussi que... dans la deuxième proposition, on a dit que si jamais on ne pouvait pas avoir la compensation par le fonds central, il faudrait demander au compétiteur entrant de couvrir l'ensemble du territoire.

6009   Deuxièmement, on se demande qui peut couvrir le territoire. Je sais qu'ici, on parle beaucoup que... Par exemple, TELUS a dit qu'on pouvait couvrir le territoire en entier avec le cellulaire. Je pense que, Roger, tu peux donner quelque chose là-dessus. Je pense que c'est important.

6010   M. CHOQUETTE : Bien, on a une situation. La compagnie de téléphone Milot, ils ont 6 300 abonnés. C'est une des plus grandes entreprises de l'ACTQ. On a déjà exposé le fait que... dans les informations financières et détaillées qu'on vous a fournies, c'est que 63 pour cent de ces SAR là étaient situés à l'extérieur de l'empreinte du câblo.

6011   Ça, c'est une chose qu'on vous a donnée. Ça, il n'y a pas de problème avec ça. C'est assez typique.

6012   Mais l'autre chose qu'on n'a pas fait remarquer -- mais là, on le fait remarquer parce qu'il y a eu tellement de discussion du cellulaire puis du sans-fil puis l'obligation de service -- 87 pour cent des abonnés des SAR dans cette compagnie de téléphone là, qui englobe six centres de commutation, qui est située seulement à 30 kilomètres de la 40 et 90 kilomètres de Trois-Rivières, 87 pour cent de ces gens-là, ils n'ont aucun accès au cellulaire, zéro.

6013   CONSEILLÈRE LAMARRE : Par aucun fournisseur?

6014   M. CHOQUETTE : Zéro. Oui.

6015   CONSEILLÈRE LAMARRE : Ce n'est pas une question de vouloir s'abonner ou pas...

6016   M. CHOQUETTE : Non, non.

6017   CONSEILLÈRE LAMARRE : ...c'est une question, encore là, de -- excusez l'expression -- de footprint là des réseaux cellulaires?

6018   M. CHOQUETTE : Non, non, non. C'est zéro. Ça, ce n'est pas pour... le câblo, ce n'est pas le cas. Le câblo, c'est 60 pour cent. Mais le cellulaire, c'est 87 pour cent.

6019   CONSEILLÈRE LAMARRE : Bon.

6020   Et je veux revenir, Monsieur Beauregard, parce que vous avez très bien devancé deux de mes questions. On vient de résoudre la première.

6021   La deuxième au sujet de l'obligation de servir qui serait dupliquée avec le concurrent. Dans quelle mesure est-ce que ça sert l'intérêt du consommateur -- encore une fois, je me permets de revenir là-dessus -- en ce sens qu'on se trouve à dupliquer une infrastructure existante et qu'on n'a aucunement, au fond, de coûts qui sont partagés ou de coûts qui sont réduits du fait qu'il y a un autre concurrent dans le secteur?

6022   M. BEAUREGARD : En fait, de mon point de vue, c'est une impasse. Je veux dire, vous ne pouvez pas avoir deux personnes qui couvrent l'ensemble du territoire. Avec les coûts, c'est impossible. Je pense que c'est impossible dans ce sens-là.

6023   Si vous... C'est pour ça qu'on dit l'obligation de servir peut demeurer avec le titulaire en place, en premier lieu, mais obliger le nouvel entrant de couvrir l'ensemble du territoire. Ce n'est pas couvrir l'ensemble du territoire existant. S'il y a des nouveaux clients qui demandent le service ou autre, à ce moment-là, il demeure qu'on peut demeurer avec l'obligation de servir dans ce sens-là.

6024   Sinon, à notre sens, ce n'est pas trop équitable. Je vais vous donner un exemple, Notre-Dame-du-Bon-Conseil. Sur 418 kilomètres carrés, Cogeco couvre 1.17 pour cent du territoire -- 1.17 pour cent du territoire seulement -- mais couvre 35 pour cent de l'ensemble de nos lignes téléphoniques sur le territoire.

6025   Ça fait que, à mon sens, ce n'est pas très équitable que je sois obligé de couvrir l'ensemble... c'est un gros beigne, le 418 kilomètres carrés, puis 1.17 pour cent, c'est un très petit Timbit, comme on disait ce matin. A ce moment-là, ça ne fait pas beaucoup de sens en termes d'équitabilité que Cogeco puisse rentrer sur mon territoire et me faire compétition sans que j'aie de compensation nulle part.

6026   CONSEILLÈRE LAMARRE : Monsieur Désy?

6027   M. DÉSY : Je voudrais rajouter que la compétition locale, nous, on veut la faire, mais on voudrait la faire à armes égales. Actuellement, vous dites si un nouvel entrant arrive dans un territoire donné, qu'est-ce qui va arriver avec le consommateur? Les prix sont déjà raisonnables, sont très raisonnables. Donc, il n'y a pas d'avantage que l'obligation de service soit donnée à un autre concurrent ou un nouvel entrant. Par contre, ce qu'on sait, c'est que si la compétition locale arrive, l'effet du trou de beigne, le Timbit, c'est inévitable, ça va arriver.

6028   Madame Molnar, hier, mentionnait qu'elle vit dans une région, high-cost serving area, et puis c'est très bien, et puis, moi, je vis exactement cette même situation-là. Actuellement, j'ai vu dans les deux derniers mois un nouvel entrant potentiel desservir le cour du village de ma communauté, et puis, ce faisant, je sais fort bien qu'il n'y a pas eu de déploiement autre que le cour du village, à moins que les plans ont changé.

6029   Par contre, moi, en étant à l'extérieur, ce que j'ai peur, c'est que si la compétition locale n'est pas obligatoire, je vais être à risque de peut-être avoir une qualité de service ou sinon, pas de service là où je demeure, puis, je demeure à 12... 15 kilomètres du village.

6030   CONSEILLÈRE LAMARRE : Mais cette possibilité-là que le service disparaisse complètement, ça été discuté au cours de l'audience et un peu plus en détail hier par les compagnies de câblo qui disaient que c'était -- encore là, j'utilise une métaphore là -- mais qui disaient que c'était, au fond, un scénario le plus noir possible et que, au fond, tout ce qui arriverait, c'est peut-être qu'une compagnie serait vendue à une autre, et puis, bon, c'est l'essence même du capitalisme. Ils n'ont pas dit ça; c'est moi qui le dis. Alors, où serait le problème pour le consommateur? Il n'y en aurait pas.

6031   M. DÉSY : Il n'y a peut-être pas de problème selon ces dires là, mais dans les cinq dernières années, il y a cinq compagnies titulaires de l'ACTQ qui ont tout simplement été vendues et puis ils ont tout simplement fermé les portes.

6032   CONSEILLÈRE LAMARRE : Mais est-ce que le service a été perdu par qui que ce soit?

6033   M. DÉSY : Non. Non. Mais le point que je veux faire, Madame Lamarre, c'est que c'est coquasse, mais on dit que les compagnies vont être achetées. Aucun intérêt... aussi peu d'intérêt s'il y a eu des nouveaux entrants ou des titulaires, câbles ou titulaires, qui ont montré de l'intérêt à acquérir ces compagnies-là, et, en conséquence, c'est un plus grand PESLT qui a fait l'acquisition de ces compagnies-là.

6034   Donc, le fait de dire que tout le monde coure aux portes pour acquérir ces compagnies-là, j'en doute.

6035   CONSEILLÈRE LAMARRE : Maintenant, vous avez fait allusion à la question d'équité, et en parlant, vous avez dit des petites titulaires du Québec, il n'y en a aucune qui est affiliée à une grosse titulaire, il n'y en a aucune qui est affiliée à un gros câblo. Soit, je le sais, je le comprends. Vous l'avez affirmé, c'est suffisant.

6036   Maintenant, ça ne change pas le fait que certaines de ces titulaires-là sont devenues des cablôdistributeurs avec IPTV pour aller chercher plus de revenus. Vous l'avez expliqué très très bien dans votre présentation, et ça n'empêche pas non plus qu'il y a certaines des petites titulaires qui sont des concurrents dans d'autres territoires.

6037   Alors, quand on parle d'équité et quand vous demandez l'établissement d'un cadre réglementaire qui sont adapté aux petites titulaires, comment est-ce qu'on réconcilie ça avec les plaintes, si on veut, de d'autres titulaires qui disent que vous venez les concurrencer chez eux et de belle façon?

6038   M. DÉSY : Claude?

6039   M. BEAUREGARD : Nous avons dû regarder pour trouver des nouveaux-venus pour compenser les pertes qu'on a eues par rapport au CFA, par exemple.

6040   D'un autre côté, l'IPTV, on s'est lancé en IPTV de façon défensive. On a vu ce qui s'est passé avec l'entrée de Vidéotron dans les territoires puis l'entrée de Cogeco. Vidéotron a plus de 1,5 millions de lignes qu'ils ont acquis auprès de Bell, et puis Cogeco, dans le dernier rapport qu'on a eu en 2009, était à 350 000 lignes.

6041   Dans une mesure défensive, on a décidé de se mettre ensemble. On s'est mis ensemble pour partager des frais. On a trouvé des solutions pour être capable de lancer l'IPTV. Mais l'IPTV, à ce jour, n'est pas encore rentable. C'est une mesure défensive. C'est avec le temps qu'il va peut-être devenir rentable.

6042   On a été capable de se lancer dans la compétition autour, mais il faut faire attention parce qu'on l'a financée totalement ou pratiquement totalement. Tous les revenus... en tout cas dans notre cas à nous là, tous les revenus ont été réinjectés dans la compagnie, puis elle commence à peine à faire ses frais.

6043   Ça fait qu'on parle... On est parti en compétition en '96. On a commencé en '96. On a eu notre permis en 2000. Ça fait 10 ans qu'on est en compétition, mais ce n'est pas la petite entreprise indépendante avec 4 millions de revenus qui a pu financer toutes les parties. La plupart des compagnies qui ont dû le faire ont dû s'endetter pour le faire, ont dû aller chercher des capitaux puis ont dû prendre une décision différente.

6044   Puis, d'ailleurs, les CLECs qu'on a partis ne font pas partie de la compagnie. C'est un holding qui a ça, puis c'est un holding à qui appartient...

6045   CONSEILLÈRE LAMARRE : Oui, mais le résultat est le même là...

6046   M. BEAUREGARD : Le résultat est le même dans ce sens-là, oui.

6047   CONSEILLÈRE LAMARRE : ...du point de vue de la titulaire qui subit votre compétition.

6048   M. BEAUREGARD : La titulaire qui subit notre compétition, oui.

6049   L'autre fait, ce qu'il faut regarder, c'est la grosseur des compagnies. Nous, on est une très petite compagnie comparativement à Bell Canada sur le territoire sur lequel on s'est lancé en compétition.

6050   Je pense que c'est l'inverse qui se passe quand Cogeco rentre sur mon territoire. Moi, je fais face à une grosse compagnie.

6051   Roger.

6052   CONSEILLÈRE LAMARRE : Rapidement

6053   M. CHOQUETTE : Je voulais tout simplement ajouter que sur la question de CLECs puis les indépendants d'ACTQ, évidemment, il y a trois compagnies qui ont des opérations CLEC. Monsieur Beauregard a parlé de DGI avec le holding. Il y a aussi Sogetel qui a peut-être 1 500 abonnés. Puis il y en a un autre qui en a peut-être 3 000, CoopTel.

6054   Mais le principe de base, c'est que ce sont des services en concurrence avec d'autres, évidemment, et puis, on ne comprend pas pourquoi un service en concurrence avec d'autres devrait interfinancer essentiellement un manque de gagner à cause qu'on a une obligation de service dans un territoire titulaire, premièrement.

6055   Deuxièmement, pour ce qui est du risque financier, on parle tout le temps... On a bien écouté les commentaires de Bell Aliant. Par exemple, ils parlaient de Télébec puis ils parlaient de toute sorte de choses, et puis le nombre de zones de desserte à coûts élevés et puis que pour les petites entreprises, c'était équivalent... les conséquences étaient équivalentes.

6056   Bien, écoutez, la question, ce n'est pas en fonction du nombre de SAR que vous avez dans votre zone de desserte à coûts élevés. Ça, ce n'est pas la question fondamentale. La question fondamentale, c'est vous avez combien dans votre entreprise là, vous avez combien de SAR qui ne sont pas dans les zones à coûts élevés, pour évaluer le risque à la compagnie.

6057   Là, chez Bell, ça, ce serait comme 4,5 millions. Ils ont des SAR à peu près à 6,7 millions; coûts élevés, 7 pour cent. Et ça, ça représente strictement en fonction des SAR résidences, 4,5.

6058   Pour TELUS, l'équivalant, ça serait 2,5 millions. Pour Bell Aliant, trois-quarts de million, 750 000 abonnés qui ne sont pas dans les coûts élevés.

6059   Et la question du jour, c'est : Pour l'ACTQ, c'est quoi le chiffre? C'est zéro; on n'a pas un abonné qui est situé dans une zone de desserte qui n'est pas déjà définie comme une zone à coûts élevés.

6060   CONSEILLÈRE LAMARRE: Ma dernière question -- même si vous avez évité d'y toucher, je vais vous la poser pareil -- est au sujet d'Internet.

6061   Si on définit -- et c'est pour les fins d'avoir un portrait un peu plus global de la situation au Québec... Si on définit Internet haute vitesse comme étant un service de téléchargement à 1.5 Mbps, vous estimez que quel pourcentage des abonnés (je ne parle pas du territoire, mais je parle de quel pourcentage des abonnés) de vos titulaires présentement peuvent bénéficier de ce service-là s'ils le demandent?

6062   M. DÉSY: Actuellement, Madame Lamarre, 90 pour cent des territoires des petites ESLT de l'ACTQ offrent le service Internet haute vitesse et, si on regarde la grandeur de la vitesse... Moi, dans une zone à coûts élevés -- dans le champ, comme on peut dire, parce que je suis très loin... très, très loin -- j'ai tout de même la haute vitesse à 600, 700 kilobits. Et les compagnies offrent en général dans le 1.5 à... il y a des compagnies qui vont jusqu'à 10-15 kilobits où l'Internet est offert.

6063   CONSEILLÈRE LAMARRE : Donc, le 600 kilobits est disponible sur 90 pour cent du territoire minimalement et le 1,5 serait disponible sur quel pourcentage de l'ensemble du territoire de toutes les titulaires regroupées... les petites?

6064   M. DÉSY: Disons que je suis peut-être le plus mal nanti.

6065   CONSEILLÈRE LAMARRE: Il faudrait parler à votre fournisseur, Monsieur Désy.

6066   M. CHOQUETTE: Bien, on a déposé des réponses à cette question-là dans l'instance et puis grosso modo, je dirais que la plupart c'était un mégabit. Donc si 90 pour cent c'était 640, je dirais que pour le 1, ça serait peut-être 80-85.

6067   CONSEILLÈRE LAMARRE : 80 pour cent à un mégabit?

6068   M. CHOQUETTE: Oui, oui.

6069   CONSEILLÈRE LAMARRE: Ce sont toutes mes questions. Merci beaucoup, Monsieur le Président.

6070   THE CHAIRPERSON: Len, do you have questions?

6071   COMMISSIONER KATZ: Thank you, Mr. Chairman.

6072   Good afternoon. I need to go back to the first principles. The subsidy program that was introduced is based on a formula that says: costs minus revenue, minus some imputed contribution margin, is what the shortfall is for the subsidy.

6073   Do you agree with that model?

6074   MR. CHOQUETTE: Well, I agree that that's the way the model's formula was designed, if that's what you mean.

6075   COMMISSIONER KATZ: Okay. So that's how the subsidy is arrived at, and the reason it is arrived at that way, in my view, is because the revenues don't recover the costs, because the costs are so high.

6076   So the subsidy is actually a subsidy for the consumer to subsidize his cost of service in the high-cost service area.

6077   Now, your proposal talks to the view that it's the company, the SILEC, that needs the subsidy to continue to support your infrastructure and your business.

6078   If I take this to an extreme, the more customers you lose, the more money you take out of the subsidy per NAS, with the perverted consequence that at some point in time, if you take this to an extreme, you may lose all of your customers, but retain the subsidy, which would make you a financial target for a takeover, purely for the subsidy.

6079   To me, that's perverse.

6080   MR. CHOQUETTE: My only comment on that would be as such. The current formula, as designed, assumes that the company's costs are variable, and I think we have made the point that we don't believe they are.

6081   Number two, if you look at the formula, it basically says: Here is the example. We have determined that it costs $44 a line to provide the primary exchange service in Band "E" -- this is for the small ILECs -- and that is a Commission determination based on an average of the larger ILECs.

6082   The Commission then says: Okay, that's fine, but we know that you are getting $22.50 from basic service, we can assume that you are going to get at least $5 from optional service, so we are going to impute a revenue. The difference is our subsidy.

6083   All we are saying is, when we lose that customer, the $44.50 does not disappear. It is still there, it's a fixed cost.

6084   The revenue is gone. The imputed revenue is absolutely gone with the customer.

6085   As a matter of fact, the revenue that leaves the company is not the basic service and the $5, it's much more than that. It is all of the revenues associated with that customer.

6086   COMMISSIONER KATZ: I don't disagree that you have fixed costs, and some of those costs will remain with the company regardless of whether you have the customer or not, but the perversion, as I see it, is that, at the end of the day, you can lose all of your customers and simply be a takeover target just for the subsidy.

6087   Because what you are saying is, the subsidy is what you need to pay your fixed costs for your accounting, your technical person, your CFO, your president or general manager, and at the end of the day, those aren't required by someone coming in to take over your business, when you have no customers.

6088   You have a value there. You have created a value. If this Commission approves it, we have created a value for your business that is in inverse proportion to your success. The less successful you are, the more subsidy you get per customer, and the more attractive you are as a takeover target.

6089   MR. CHOQUETTE: I would totally disagree with you, on the following basis. If the average revenue for a local subscriber is $75 a month, or $60 a month, and we are asking for $25 a month, to suggest somehow that we are living off the subsidy is, in itself, a bit bizarre.

6090   And I would also suggest that if, in fact, the costs are fixed -- and we think they are -- the whole notion that the company does not have a regulatory bargain with the CRTC, in terms of an obligation to serve -- if the Commission really feels that that is a scenario that is possible, then, as we concluded, you simply have to remove the obligation to serve, on the one hand, or require someone else to have that obligation to serve, as well, to provide some kind of equity.

6091   COMMISSIONER KATZ: So if we simply removed the obligation to serve from your members, then you are satisfied that we don't have to move to your Proposal No. 2, which is the top-up.

6092   MR. CHOQUETTE: We don't think it is in the public interest to do that. We think that, if you do that, you are essentially putting at risk half of our customer base. That's our position.

6093   However, if the Commission deems that that's the position they would like to take, from a policy perspective, then, yes -- I mean, there is nothing we can do about it.

6094   But we can't be held accountable for both sides of the equation.

6095   COMMISSIONER KATZ: Have any customers been denied service because of one of your members going out of business in the past?

6096   MR. CHOQUETTE: No, because we have always had an obligation to serve, for 100 years.

6097   COMMISSIONER KATZ: But I think I have also heard you say that there were a number of takeovers. There were five members of ACTQ that were sold, as well.

6098   MR. CHOQUETTE: Yes, but it wasn't because they were going out of business, obviously. Otherwise, they may not have been bought at all, they would have been in bankruptcy.

6099   This was just a business decision, on the part of a larger SILEC, to acquire a larger number of customers.

6100   COMMISSIONER KATZ: So there has never been a situation where customers have been left out in the cold, to date.

6101   MR. CHOQUETTE: No, not that we are aware of.

6102   COMMISSIONER KATZ: Okay. Those are my questions, Mr. Chairman.

6103   THE CHAIRPERSON: Okay. Those are our questions. Thank you very much for your intervention. I hope you will be here for the rebuttal phase, because I am sure that other intervenors may have issues with the proposal you presented.

6104   We will now break, and we will resume at two o'clock. Thank you.

--- Upon recessing at 1223

--- Upon resuming at 1403

6105   THE SECRETARY: Order, please. A l'ordre, s'il vous plait.

6106   THE CHAIRPERSON: Commençons, Madame la Secrétaire.

6107   THE SECRETARY: Mr. Chairman, we will now proceed with the presentation by Bell Canada. Appearing for Bell Canada is Mr. Jonathan Daniels.

6108   Please introduce your colleagues, after which you will have 25 minutes.

PRESENTATION

6109   MR. DANIELS: Thank you, Madam Secretary.

6110   Mr. Chairman and Commissioners, I am Jonathan Daniels, Vice President of Regulatory Law for Bell Canada. I am pleased to introduce our panel appearing today on behalf of our company.

6111   On my immediate right is Mirko Bibic, Senior Vice President, Regulatory and Government Affairs;

6112   To his right is Bill Abbott, Senior Counsel, Regulatory Law;

6113   And on my immediate left is Judy Bodnar, Director, Regulatory Affairs.

6114   This hearing is examining the state of Canada's connectivity, voice and broadband, and exploring how best to complete the job of connecting as many Canadians as possible. The ability to connect, whether by voice or Internet, is important to individual social interactions and the ability of Canadians everywhere to participate in the new economy.

6115   The question you are confronted with is whether Canadians, and specifically rural Canadians, already have or will shortly get access to the communications services they need. And if not, how should it be achieved?

6116   Of course, connecting Canadians in rural areas brings with it the obvious geographical and economic challenges. Encouragingly, using the latest technology, the marketplace is addressing these issues to a very significant degree. In many cases, Bell Canada is leading that solution.

6117   For example, we launched the largest and most advanced privately funded 3G network in the world, blanketing 93 percent of the Canadian population from the get-go, and coverage continues to grow. We did not launch in large urban centres first and then roll out to rural areas.

6118   With this in mind, we approach this proceeding, as we hope you do, with three simple objectives:

6119   (i) to find ways to connect as many Canadians as possible in an affordable manner while;

6120   (ii) relying on market forces to the greatest extent possible; and

6121   (iii) ensuring that any regulatory prescriptions are the least intrusive possible and compensate providers for their obligation to serve, but only to the extent necessary.

6122   Ultimately, this comes down to the question of how best to finish the job of connecting rural Canadians and at what cost. In approaching this question, let's acknowledge that rural areas cannot be turned into urban areas and, thus, the costs involved in connecting them, the technologies used and the prevailing rural market prices will not be exactly the same as they are in urban areas.

6123   On the voice side, service availability is really not an issue any longer. Urban and rural areas are essentially on par when it comes to access to wireline voice.

6124   But does that mean that local telephony rates have to be the same? In our view, no. The real issue is affordability.

6125   As for broadband, the market is largely, but admittedly not entirely, solving this issue.

6126   We are at a potential breakthrough point, though, where the market will totally solve it, using wireless and satellite technologies. For those limited areas where the market may not solve this issue, we should continue to rely on targeted government subsidies.

6127   There is an important role for the Commission to provide objective analysis of the industry to help direct the targeting of government funding to fill those narrow gaps. But that is a completely different mandate than simply imposing antiquated voice regulation on emerging broadband services.

6128   Our firm belief is that the Commission should seek the most efficient and cost-effective mechanism for ensuring the continued broad availability of basic local voice services at affordable rates. The current contribution subsidy regime is wasteful, competitively unfair and violates the policy directive.

6129   It must be reformed and in a reasonable timeframe. There should be no unnecessary subsidization. There needs only to be sufficient levels of subsidy to provide affordable access, where necessary.

6130   We have heard a lot of discussion about the existing obligation to serve. But what is that obligation from a practical perspective? Quite simply it has two components.

6131   First, there is the obligation of the ILECs to build new facilities in certain limited circumstances set out in ILEC construction tariffs and, in the case of Bell Canada, in the Bell Canada Act.

6132   In the voice world, at this stage, it is a non-issue. Ubiquity has been achieved.

6133   Second is the obligation to continue to provide Primary Exchange Service or PES, as I will refer to it, where network facilities already exist. The requirements of PES are defined by the basic service objective or the BSO. Our proposal for addressing PES differs depending on whether the local exchange at issue is regulated or forborne.

6134   Turning then first to regulated, in these areas the obligation to serve is achieved through the requirement imposed on an ILEC to provide PES to any person in its footprint who is willing to pay the approved tariffed rate. Bell supports this obligation and is not proposing any changes.

6135   In forborne markets though, the obligation to serve manifests itself through the standalone price cap. Price regulation has been replaced with the safeguards of competitive market forces, yet the Commission has continued to implement the obligation to serve by requiring ILECs to provide standalone PES at rates that will not exceed the rate levels that were in effect in those exchanges at the time forbearance was granted.

6136   When the Commission established the standalone PES price ceiling, it had two concerns; first, the number and extent of pockets of uncontested customers and the affordability of standalone PES for vulnerable customers and, second, the lack of competition for standalone PES customers. These should no longer be of concern.

6137   First, I want to turn to uncontested and vulnerable customers. The original concern was driven by the large size of forbearance areas known as the local forbearance regions. But as a result of the Governor in Council decision, the forbearance area is now the much smaller exchange, thereby greatly reducing the potential presence of large pockets of uncontested customers.

6138   Furthermore, the reality is that when a cable CLEC enters an exchange, it enters on an exchange-wide basis. In the case of Bell Canada, 99 percent of our residential NAS forbearance was based on cable presence. We have no data to determine within an exchange where there is no competitor presence. We do not target uncontested pockets or vulnerable customers.

6139   Second, the Commission was concerned at the time that CLECs may not compete for standalone customers. We know today that that is not the case. CLECs generally offer affordable standalone PES, as well as bundles.

6140   In Appendix 4 of our submission, we included detailed tables setting out CLEC voice- telephony offerings and prices on an exchange-by-exchange basis in all forborne exchanges. That appendix shows that CLECs such as Rogers, Videotron, Cogeco, EastLink, Distributel, CoopTel, Yak and others, all offer standalone PES.

6141   In short, there is no evidence to indicate that there is a problem with the availability of basic local voice service or that the existing service may be abandoned in forborne markets. It makes no business sense whatsoever for an ILEC to stop serving customers in forborne markets. The presence of affordably-priced competitive alternatives makes the price ceiling unnecessary.

6142   Now, as we have been here listening for the last week and a half there seems to be some confusion about the BSO, the obligation to serve and the role of wireless. Today, only ILECs have an obligation to serve. CLECs do not.

6143   In regulated areas, an ILEC fulfils that obligation by providing PES at tariffed rates. Thus, although the BSO does not specifically call for unlimited local calling or equal access, both are effectively part of the ILEC's obligation through its PES tariff.

6144   The BSO itself is technologically neutral. Decision 99-16 states that. It says that the BSO is:

"...independent of the technology used to provide service."

6145   The reference is there in our Attachment 1.

6146   Thus, in some rural areas, Bell today meets its obligation to serve and the BSO using fixed wireless technology and charges end users its PES rates, as per its tariff, complete with equal access and unlimited local calling.

6147   For competitors, the BSO is irrelevant. It only matters if that competitor wishes to be eligible to port the subsidy in a high-cost serving area. In that case, the competitor must first become a CLEC and therefore provide equal access, and provide a level of service which meets the BSO, like Fido did.

6148   As for wireless specifically, there is a huge difference between saying one, that because wireless is now a competitive alternative to PES that every wireless provider must meet the BSO and the BSO will be redefined to include equal access and unlimited local calling.

6149   And two, saying that if an ILEC seeks to meet its obligation to serve with wireless technology, as Bell does today in certain locations, it must implement equal access and offer unlimited local calling.

6150   The latter is already the rule today.

6151   As for the former, it is not necessary to redefine the BSO to include equal access and unlimited local calling and to impose it on wireless providers. Consider the unintended consequences of doing so. Suddenly, in Toronto, all six wireless competitors and their 11 brands would be forced by regulation to offer unlimited local calling.

6152   At this point I would like to turn to the subsidy regime. A subsidy regime will be needed whenever a regulator requires a carrier to provide local service where the costs exceed the retail rate and the regulator permits the provider to charge. The danger with such a regime is that one can end up paying too much subsidy because the rates charged are too low or the costs are inflated.

6153   Now, it may be hard to detect some of these problems, because the ultimate objective of affordable service is still being achieved. So the regime can keep going and going unnecessarily until such a review as this one is initiated.

6154   Bell Canada believes, first and foremost, that no subsidy should be available in forborne exchanges.

6155   Second, subsidies should only be available in regulated high cost exchanges, but rates today in those exchanges are too low. By allowing rates to rise to the highest affordable level, along with updating the implicit subsidies to reflect today's realities, there will no longer be any need for a subsidy in Bands "E" and "F".

6156   Third, a special case is made to address Band "G" where subsidies are likely to still be required, although at a reduced level. Given these two changes, raising rates and updating the implicit target subsidy, the Commission need not undertake a time consuming and ultimately fruitless costing review.

6157   This proposal will reduce the reliance on subsidies and decrease the distorting impacts of an inefficient sector-specific tax. It will also correct the inequities of a subsidy regime that disproportionately burdens the customers of Bell and Rogers.

6158   When it comes to rates, the first principle is that subsidies are only required if costs are beyond affordable rates. We think the existing regime has lost sight of this principle. Rates in rural areas do not need to be exactly the same as in urban areas to be affordable. After all, the costs to serve those areas are higher. We believe that rates in high-cost areas can be increased, while still being affordable.

6159   Now, there has been a lot of discussion about the rate of $36.20. But let's be clear, it is not just cottagers who pay rates above $30. Those rates are applicable in many rural areas.

6160   For example, TELUS has rates in Alberta and BC above $30, a number of SILECs also have rates above $30, Bell Canada and the Bell Aliant companies have a number of rates above $30; Northwestel has rates as high as $37.83 -- the highest rate in the country.

6161   We were up in Timmins last week, in NorthernTel territory, where the rate there and in many of the neighbouring communities such as New Uskeard, is over $34. This is not cottage country.

6162   The Commission has already set a target rate of $30 for subsidy purposes in the 2007 price caps decision. However, we believe that the rate of $30 is still too low and getting there by the rate of inflation is too slow. While it is up to the Commission to determine what rate is affordable, we think the rate could be $36.20, perhaps even $37.83. But, whatever rate level is established, the Commission must move quickly to allow rates to rise to that level.

6163   Now turning to the implicit target subsidy, the implicit target subsidy amount was set by the Commission at $5 per NAS per month for each ILEC in each band in Decision 2000-745, based on the margins associated with optional local services that ILECs filed at the time.

6164   Over 10 years have elapsed since then and ILEC rates for optional local services have increased, suggesting that the implicit target subsidy margin should be greater than $5. We know our margins have increased and the Commission has the data provided in confidence to see whether the margins of other ILECs have too.

6165   The Commission should increase the implicit target subsidy as per the evidence before it.

6166   Next, the implicit margin associated with ILEC toll services and the related network access charge should also be included in the subsidy calculation. Consistent with the various elements of the BSO, not only does it include access to enhanced calling features, it also includes access to the long distance network.

6167   In fact, Bell Canada has more than 87 percent of our residential customers in high-cost serving areas -- have selected Bell as their primary long distance provider whereas only 61 percent subscribe to at least one optional local calling feature.

6168   The purpose of the implicit target subsidy is to recognize that a subsidy is not needed or should be reduced if other revenues justify the business case. Since the vast majority of customers take toll and ILECs make a healthy toll margin per NAS even in high-cost serving areas, these profits cannot be ignored. Recognition of this fact alone will eliminate subsidies in most of Bands "E" and "F". The implicit margin associated with toll services should also be considered when determining the subsidy requirement.

6169   In our view, updated margins for optional local services, as well as margins for toll services, should lead to an implicit subsidy of about $15.

6170   Now, rates and implicit subsidies, of course, are only part of contribution. The costs used to calculate the subsidy are another factor to consider. Perhaps the most compelling evidence that the current costs used to determine the existing subsidy requirements are flawed comes from the inexplicable differences between costs in western Canada versus those in eastern Canada, and the resulting distributional inequities.

6171   Given these dramatic differences in costs across Canada, despite the fact that high-cost bands are defined in the same manner by all ILECs, Bell Canada along with Bell Aliant commissioned two expert reports. Together these reports conclude that the relative cost differences for establishing subsidies in high-cost serving areas are not statistically plausible. Bell Aliant took you through this evidence, so in the interest of time, I will not repeat those arguments here.

6172   But even if one were to accept these costs, which we don't, it is unclear whether these would be the right costs to use. They are based on Phase II costs, a costing methodology which we believe is appropriate to set wholesale rates, but not necessarily subsidies.

6173   And even then, the Commission itself appears to be contemplating fundamental changes to Phase II, if the numerous interrogatories we received from staff on our tariff filing for wholesale unbundled local loops are an indication, where the Commission is exploring the combination of historic or embedded costs with forward-looking incremental costing in what we call a hybrid approach.

6174   Does this mean we should use Phase II embedded costs or the hybrid approach for determining subsidies? These are big questions that must be answered before you can even contemplate updating the costs.

6175   In other words, we would be facing not one but two follow-up proceedings, which would have to be run consecutively, not concurrently. Quite simply, we are talking years here.

6176   But Bell does not believe a costing review makes sense. Instead, we should first recognize that subsidies should not be permitted in forborne exchanges.

6177   Second, as can be seen in Attachment 2, by allowing PES rates to rise to the highest affordable level and by increasing the implicit subsidy, there would no longer be any need for a subsidy in Bands "E" and "F". This will ensure that subsidies are maintained where required and that they will continue to decline overall.

6178   This will also avoid the delay that would result from a re-examination of how to estimate costs.

6179   The extraordinary circumstances of Band "G" suggest that subsidy is still required in that band even if rates go up. However, the issues surrounding the appropriateness of the current Phase II costs, and the complexities associated with reviewing the current costing regime, remain.

6180   The most practical solution is to use the weighted average cost in Band "G" across all ILECs, thereby eliminating the distributional inequities and avoiding lengthy and complex costing reviews for Band "G" alone. This was the approach used by the Commission to establish the SILEC subsidy amount of approximately $23 million today, which is roughly the same amount of money that is being directed at Band "G" today.

6181   The weighted average cost should continue to decline each year consistent with the Commission-mandated "I minus X" formula, in order to continue to reduce subsidies.

6182   The contribution subsidy should only be available to ILECs, the only service providers who are subject to the obligation to serve requirements. The Commission's attempt to use subsidies to encourage competition in high-cost serving areas is no longer relevant. Competition exists in many of these areas due to the ubiquitous presence of cable plant and wireless service providers.

6183   The presence of competition is not in any way due to the availability of a subsidy. The only valid reason for a subsidy regime is the original purpose for which the contribution mechanism was constructed to begin with, to compensate providers with the ongoing obligation to serve. As ILECs are the only parties with the obligation to serve, subsidies should only be distributed to them, and only to the extent that the maximum affordable rate for service does not adequately cover the related costs.

6184   A logical extension of this proposal is that the subsidy itself should no longer be portable.

6185   I will now turn it over to Mirko to address the role of the Commission when it comes to broadband.

6186   M. BIBIC: Merci.

6187   Le modèle canadien du déploiement des services large bande a été extrêmement efficace. Il s'agit d'un modèle mené d'abord et avant tout par les investissements du secteur privé, mais néanmoins appuyé au besoin par des programmes gouvernementaux ciblés. Il nous apparaît inconcevable que le Conseil songe à remplacer ce modèle fructueux par un système coûteux du genre «contribution» qui perturberait le marché et qui nuirait au secteur que nous essayons justement de stimuler.

6188   Au cours des cinq dernières années, nous avons vu la couverture des services large bande sur fil passer de 92 à 95 pour cent. Durant la même période, nous avons également assisté au lancement du meilleur réseau 3G au monde qui dessert la presque totalité de la population canadienne ainsi qu'à l'arrivé d'une foule de téléphones intelligents, de clés et de stations sans fil. Le dernier Rapport de surveillance des télécommunications (ou le Monitoring Report) indique que les réseaux sans fil 3G ou équivalents sont disponibles pour 96 pour cent des Canadiens. Par conséquent, l'objectif de 1,5 à 2 Mbps a déjà été atteint pour presque tout le monde.

6189   Nous avons aussi entendu parler des améliorations dans la couverture et la qualité des services par satellite. De fait, grâce à la combinaison des technologies sur fil, sans fil et satellite, tous les foyers du Nouveau-Brunswick, de la Nouvelle-Écosse, de l'Ile-du-Prince-Édouard et de la Saskatchewan ont accès au service large bande.

6190   L'expansion rapide de la disponibilité des services large bande jusqu'à ce jour démontre que les forces du marché, aidées par des incitatifs volontaires tels que le financement gouvernemental, ont prouvé leur efficacité. Il faut poursuivre dans la même veine.

6191   En ce qui concerne l'abordabilité, comme l'a noté Leonard Waverman du Berkeley Research Group, le fait que les taux de pénétration des services large bande soient si élevés au Canada en dit long sur leur abordabilité. Selon le propre rapport Wall du Conseil, les prix des services large bande au Canada sont plus faibles que ceux de plusieurs pays, y compris l'Australie, la France, le Japon et les États-Unis. Toute préoccupation restante à ce chapitre peut être soulagée par des subventions gouvernementales spécifiques et ciblées, y inclus des subventions ciblées pour l'équipement chez les abonnés soit par satellite ou autre.

6192   De toute façon, nous ne croyons pas que le Conseil ait l'autorité en vertu de la Loi sur les télécom pour créer une obligation générale requérant le déploiement de nouvelles installations pour la prestation d'un service. L'avis juridique de Michael Ryan démontre que l'obligation d'offrir des services ne s'applique lorsque le fournisseur de service a un monopole concret. De plus, une telle obligation ne couvre que la fourniture de services existants le long de chaînes d'approvisionnement existantes.

6193   There seems to be some confusion regarding the element of the BSO related to providing access to dial-up Internet. To be clear, the Commission has not imposed the provision of dial-up Internet as part of PES via the BSO. Rather, the Commission has mandated that a PES customer be permitted to dial into the services of a dial-up ISP at local rates. It is not a requirement that the ILEC itself actually be the provider of the dial-up Internet service. Nor is it a requirement that the ILEC must build or upgrade facilities in order to provide dial-up Internet service. This is not a precedent to expand the BSO to include new services which require construction of new facilities.

6194   Despite the Commission's lack of jurisdiction, some parties have come before you with simplistic solutions and some complex, calling for adding broadband to the BSO. But this carries with it complexities that parties are ignoring or glossing over.

6195   For example, the voice BSO is based on the historical incumbency of the ILECs who built telephone networks in a monopoly era. In the case of broadband on whom would the BSO be imposed? Would it be ILECs, cablecos, others or all of us, and for what purpose?

6196   With voice, the objective is to ensure ubiquitous access for rural areas to plain old telephone service, essentially one application at a consistent quality level. But broadband is not so simple.

6197   First, we would need to define which of the thousands of possible applications would form part of the BSO, for which particular users or uses and then the quality levels, speeds and capacity required to properly use those applications.

6198   The Commission should not adopt last century's solutions to tackle a modern issue that is solving itself.

6199   Rather, Commissioners, we think we should be focusing on what we have and what we actually need, by whom and where.

6200   And this isn't in the text because I was listening this morning to Mr. Garneau and to PIAC and it occurred to me that there still isn't sufficient understanding of what mobile broadband can deliver.

6201   PIAC expressed some scepticism. Despite its claims that it wants to be technologically neutral, it expressed some scepticism as to what wireless can deliver and then it said even then there is an issue regarding the affordability of wireless.

6202   If you permit me in this, I will just be 30 seconds. I really think -- I really want to address those two points.

6203   First, wireless to me is critical to a proper outcome of this proceeding. I don't want to presume anything but if you haven't used the tablet, whether it's iPad or one of the tablets that will come out shortly, probably well before you render this decision, use one. And don't poke around for two hours. Seriously, use it for a month or two. You will see the power that the tablet can deliver.

6204   And please subscribe to a wireless 3G plan with the iPad because then you will see what it can deliver and you will see how much it costs, how fast it is and where you can actually deliver it.

6205   So just to put some facts on the table, no one disputes the affordability of DSL and the fact that it delivers what we consider to be broadband service in urban areas.

6206   Well, Bell Canada in Quebec offers a 2 Mbps DSL service with 5 gigabytes of capacity, so the speed of 2 megabytes, a capacity of 5 gigs for $32.95. So keep that in mind, $32.95. In Ontario we offer 2 Mbps and 2 gigs of capacity for $31.95. So we are talking about $32 to $33.

6207   Well, we offer a prepaid iPad plan, $35; essentially the same price, faster speeds and you get 5 gigabytes of data. So you get as much capacity, same price, faster speed and a mobile service. With that you can have 130,000 small emails, 10,000 large emails, 42 hours of streaming video. So there is a lot of usage there. And if you connect to WiFi wherever you are, if there is actual WiFi, you are not actually using the bandwidth allotted to you.

6208   So the point I'm trying to make here is that mobile broadband is powerful, it's fast; it's affordable and it's everywhere. I mean it's ready for primetime. It's been ready for primetime for a year and we need to start recognizing that.

6209   Okay, back to the text, thanks.

6210   So we believe the Commission should maintain its overall objective of reducing subsidies and should not expand the BSO to include high-speed Internet access. Quite simply, the Commission is not well situated to create, fund and administer such a program. That being said, governments and, frankly the industry as a whole, can benefit from better access to current, relevant and more detailed industry information which only the Commission can provide.

6211   We have all seen firsthand how difficult it is to get a firm grasp on which areas of the country are served with broadband, how many providers there are in each area, which technologies are used, what speeds and prices are offered, and the list goes on.

6212   Robust information along these lines would have been of tremendous use to government and industry in implementing the broadband Canada program. It would have been a significant value to all of us in formulating our submissions to the Digital Economy Consultation.

6213   The availability of robust data collected by an independent body such as the Commission, coupled with the establishment of aspirational targets of 3 to 5 mbps would be a perfect antidote to the harmful misinformation used to attack our industry which, sadly, we are all now very accustomed to seeing.

6214   In passing, when it comes to targets I would note that the FCC considers its target of universal access to 4 mbps by 2020 to be rather aggressive.

6215   In our view, the Commission can play an invaluable role in collecting robust and complete data regarding the broadband industry and thereby improve on the quality and quantity of information and, as a result, improve upon the quality of the public policy discourse.

6216   Jonathan.

6217   MR. DANIELS: In the interest of time, I unfortunately don't have any comments in our opening statement about SILECs, but we are of course happy to answer any questions you may have.

6218   The proposals we have put forward to you today address the fundamental question of how to achieve equity between rural and urban areas in a realistic manner, a manner that does not create new burdens or continue existing subsidy regimes which are, at best, unnecessary and, at worst, ill-designed and market distorting.

6219   There is a role for contribution subsidies for voice services, but they must be targeted and reduced. To borrow from my Bell colleagues, the current voice regime is broken, it needs to be fixed, and it provides no model for solving the broadband issue.

6220   Thank you.

6221   THE CHAIRPERSON: Thank you for your presentation.

6222   Mr. Daniels, paragraph 8, explain that to me. At first glance it seems to me -- it sounds to me like gratuitous lip service. "There is an important role for the Commission to provide objective analysis to the industry to help direct the targeting of government funding to fill those narrow gaps." What exactly do you have in mind here?

6223   MR. BIBIC: I will answer that one, Mr. Chairman.

6224   Really, what we meant here is blown up and amplified in my section where at the very end I talked about the Commission providing more information in its monitoring report who provides services where, where are people really not served, the speeds, et cetera, all the items that I indicate in paragraph 52.

6225   THE CHAIRPERSON: So essentially, you are suggesting we should get out of the subsidy business as much as possible, concentrate on data collection and set, as you call it, aspirational goals?

6226   MR. BIBIC: Correct. For broadband, set aspirational goals and monitor the industry and the development of service and then review it again in a number of years or three, five years, whatever the number happens to be. And in voice, get out of the subsidy regime to a very significant degree, certainly in Bands "E" and "F", but not in Band "G".

6227   THE CHAIRPERSON: What about service to high-cost serving areas, et cetera, does that same prescription hold?

6228   MR. BIBIC: For voice or broadband?

6229   THE CHAIRPERSON: For both.

6230   MR. BIBIC: For broadband we would counsel the Commission or suggest that the Commission not impose a subsidy regime for the deployment of broadband to unserved areas. And for voice, we say that the subsidy regime has run its course in Bands "E" and "F" and there is limited scope for it in Band "G", the truly high-cost areas.

6231   THE CHAIRPERSON: Looking at paragraph 25, where you really say it is not necessary to redefine the basic service obligation. And you clarified very helpfully, Mr. Bibic, that in effect the present BSO does not contain a reference to unlimited local calling on equal access, it comes as a consequence, but it is not stated there.

6232   But if you are now looking at this -- I have made the point to others and I will make it to you. You are all saying to me, let us figure out the best way of serving our customers, we will decide whether it is wireline fixed, wireless or even satellite in some cases, et cetera.

6233   In light of that, doesn't it make sense for us to rewrite the basic service obligation so it is technologically neutral and then, while it is, should we not also then clean it up and deal with the two issues of unlimited local calling and equal access? You say it has unintended consequences, then you cite Ontario and they have six wireless providers and 11 brands, be forced by regulation to offer unlimited local calling. So I don't get the connection.

6234   MR. BIBIC: Mr. Chairman, this is fundamental and critical, so let's walk through it.

6235   Bell Canada, TELUS, the ILECs, have an obligation to serve. In some areas today we actually do not meet that obligation with wireline service, we actually adopt fixed wireless services. Tomorrow, we could choose to try to meet that obligation in a particular high-cost area with a mobile wireless service.

6236   But if we choose to meet an obligation to serve with wireless we have to charge a regulated tariff rate and thereby we do offer unlimited local calling and equal access. So that rule is there today and the BSO, which is in Appendix 1, accomplishes that and it is technologically neutral.

6237   What we are trying to guard against and we are warning about in paragraph 25 is just because wireless is a competitive substitute for PES I wouldn't have thought that the Commission would want to force every single wireless provider, even those who don't have an obligation to serve, with the obligation to provide unlimited local calling and equal access everywhere they provide service. You would essentially be regulating wireless packages when that is not what the intention is.

6238   THE CHAIRPERSON: Well, what I am missing, you said you didn't think there should be any obligations to serve in forborne areas. Toronto is forborne, okay?

6239   MR. BIBIC: Correct.

6240   THE CHAIRPERSON: So the basic obligation to serve will only apply to the ILEC, would it not or if we adopt your proposal it wouldn't apply to anybody?

6241   MR. BIBIC: It would apply to only the ILECs in regulated areas.

6242   THE CHAIRPERSON: Yes.

6243   MR. BIBIC: And if we chose to meet that obligation to serve with wireline or wireless, would be our technologically neutral choice, then in those circumstances we are choosing one or the other to meet our obligation to serve in a regulated area. We would provide -- then we would have to provide through our tariff unlimited local calling.

6244   THE CHAIRPERSON: But you are picking on Ontario here, on Toronto. That surely, by any scenario, is not a regulated area.

6245   BIBIC: I know, but in a forborne area we don't have an obligation to serve, so equal access and unlimited local calling wouldn't come into play.

6246   THE CHAIRPERSON: I am sorry, we are not linking --

6247   MR. DANIELS: Can I try this in a different light?

6248   THE CHAIRPERSON: Well, let me just ask my question, then you can...

6249   I don't understand this example here, given your recommendation that there will be no obligation to serve in forborne areas. Having accepted that, then regardless of how we rewrite the basic service obligation it shouldn't bring this result.

6250   MR. BIBIC: Okay, I am understanding you now.

6251   We didn't draft paragraph 25 assuming that our proposal would be accepted. But let's assume that there is no obligation to serve in forborne areas. This example doesn't hold in Toronto.

6252   THE CHAIRPERSON: Okay.

6253   MR. BIBIC: However, it would hold in a regulated area. Take Timmins, there is three providers in Timmins; TELUS, Rogers and whoever, NorthernTel, then what you would in fact be doing is imposing unlimited local calling on all three of their wireless services. Is that really what you want to accomplish?

6254   THE CHAIRPERSON: Okay, so that is what 25 was trying to address. Okay.

6255   And the other thing, you have been hearing your colleagues in Timmins, there has been a lot of talk, especially by the SILECs, but also by I think Bell Aliant saying that the productivity factor in high-cost areas really doesn't make sense, it really reduces -- it makes sense in competitive well-developed areas, but in remote areas the productivity factor year after year actually cuts away on -- and is in effect, reducing the rate -- which is unwarranted.

6256   You didn't comment on the productivity factor at all in your presentation today.

6257   MR. DANIELS: Maybe it is not clear enough there, but we do make a reference to the productivity factor in terms of in Band "G". We did say at paragraph 40 that:

"The weighted average cost should continue to decline each year, consistent with Commission-mandated 'I minus X' formula."

6258   So that is our reference to actually supporting that productivity continue to apply. But let me break this down for you.

6259   THE CHAIRPERSON: Well, that is my point. You have no sympathy for the argument that the productivity effect is misapplied in high-cost areas.

6260   MR. DANIELS: Sympathy is a different issue from actually the hard economics of the cost.

6261   THE CHAIRPERSON: Okay. Don't accept the logic.

6262   MR. DANIELS: Right.

6263   We believe that productivity gains can be achieved overall in terms of year over year. Having said that, in the SILEC regime today there is no productivity requirement and we understand that considering their small nature.

6264   But we do think that the Commission's regime of targeting subsidies and having reduced it, setting a formula for reducing it, is a good thing to force ILECs basically to figure out how to become more productive.

6265   Having said that, I mean our focus of our presentation is more about changing, getting rates to increase and so on, but the productivity factor is a component, but it is not the key component to how we see how you need to reform the subsidy regime.

6266   THE CHAIRPERSON: You were here yesterday when we heard from the cable companies, and they basically suggested that the obligation to serve is a bit of a charade, a mirage or whatever, that it is all sunk costs, it has already been -- and therefore for them to put forward a heavy burden to -- is just not true, it is in effect something that has already been paid for and it is just common good business sense, okay, since you have the lines in the ground, to maintain them.

6267   Are they overstating the point? Do you agree with them? Where do you stand on that?

6268   MR. DANIELS: Where we stand on that is -- but it is really a question of when you are asking what kind of costs should be used to subsidize? So we believe that there is some areas, such as in Band "G", where you see those pictures of, you know, the helicopters and so on and so forth, that the actual operating costs in those areas could be quite high and that subsidies are required.

6269   In our view, in Bands "E" and "F", the costs -- and the western ILECs, as you know, we think are overstated and that with allowing rates to rise to the affordable level will eliminate the need for subsidies.

6270   But in terms of looking at it and saying, should we look at it and say historical costs, it has all been paid, it is..? That is using the embedded cost. That is one way of going about looking at the solution, there is some problems with that, they ran into problems in the States, but there is actually a lot of merit to taking that type of approach to costing. But that is not how the existing subsidy regime is set.

6271   And so we ourselves say, look, that is an example of the type of questions you would have to resolve if you opened it up to a costing review. But we don't think that is necessary, because we think if you allow rates to rise and recognize the implicit subsidies, you can avoid having to make a determination as to whether historical costs or you should use forward-looking costs.

6272   Like, all of these tough questions which we think the Commission would have to wrestle with if it was going to do costing. But I don't think it is a simple as saying simply it has all been paid, you can ignore, and that is why we recognize a special case for Band "G".

6273   THE CHAIRPERSON: Lastly, before I pass you on to my colleague. Looking at it from the consumer point of view, there are clearly some locations, if you talk about broadband, that can only be served by satellite, as it just doesn't make sense to do it by wireline or wireless, et cetera.

6274   Do you have any idea, how many of -- of the size of those and, secondly, what it would cost to do something for them? Because it strikes me that the initial setup cost for satellite is very high, whether that is $500, $800 or something like this, that is pretty hard to ask any consumer to do that compared what there is to sign up to some of the other means of getting broadband.

6275   It is a small number but, as you know, these small, discreet but very hard-hit minorities can make an awful lot of noise and take away from a good sensible overall policy and so we will have to address it. But we really don't have much of a handle on this. Do you have any handle on that?

6276   MR. BIBIC: I don't personally have a handle on the initial setup costs associated with satellite, and hopefully Barrett Xplore will be back in reply and will shed even more light on that I suspect. Well, I don't suspect, I mean it is pretty evident those costs will go down over time, probably by the time we have resolved how to setup a subsidy regime and get going on it those costs will already be down to levels that make everyone feel a little bit more comfortable.

6277   THE CHAIRPERSON: But you are in the business of satellite television, and there can't be all that much difference.

6278   MR. BIBIC: Well, if you take a look at -- when we were talking several times in the past around the Freesat program, of course, we always said $500 to give you a dish, a set-top box and install so, you know, it would be in that range.

6279   THE CHAIRPERSON: Right.

6280   MR. BIBIC: But I guess, to me, it is a little bit of a slippery slope. We don't, you know, other than in the special case of what the Commission did in the context of the Shaw acquisition of Canwest, we are not in the business of subsidizing people's set-top boxes for BDU TV, and people really value their television.

6281   Take Internet, for example, or broadband in rural areas. Sure, there might be some areas where only satellite will reach, but what about in those high-cost areas for broadband where 3G mobile broadband is a solution? We going to start subsidizing -- back to my iPad example, there are iPads now. The iPad is rather efficient, because you don't need receiving equipment together with an iPad, your computer is your receiving equipment.

6282   THE CHAIRPERSON: Yes.

6283   MR. BIBIC: The iPad costs $700. With satellite, let's say it costs $700 to get your dish and your receiving equipment, then you need a computer. Are we going to start subsidizing computers next?

6284   I am not trying to downplay or minimize the importance of the question, because I think it is an important one. I just really don't think that we should be establishing a sector-specific tax to fund the acquisition of somebody's satellite receiving equipment for broadband. I think that is very small in terms of a -- I think the scope of the issues is a fairly narrow one that I would hope could be resolved by direct government subsidies, but not a sector-specific tax.

6285   THE CHAIRPERSON: As you know, you struggle with it and I struggle with it because I see it there and then I don't know how to grab it, so I appreciate the honesty of your answer.

6286   Len, you have some questions?

6287   COMMISSIONER KATZ: Yes. Thank you, Mr. Chairman, and good afternoon.

6288   I want to come at obligation to serve from a different perspective. What obligation is there on Bell Canada to construct facilities beyond what I will call it base rate area into greenfield territories? Is there an obligation, what is their obligation, and how do you get compensated for it?

6289   MR. DANIELS: Like all ILECs, we have a construction tariff. So a construction tariff says that if we are talking about primary exchange service, that a person can come, and if they want to get primary exchange service in a particular area, if we have facilities that are fronting their house within, and it is as per the Bell Canada Act, 62 metres, then we are obligated to construct to their house.

6290   So if we have facilities in front of their house running the street, down, we have obligation to actually construct facilities to them. And then, if there is a cost for that, our construction tariffs determine that we have to pay for the first 165 metres of that construction of it.

6291   So the Bell Canada Act actually has a specific provision that applies to Bell Canada. But the actual costing in terms of what we could charge the customer for when we are obligated to build is set by our construction tariffs as approved by the Commission.

6292   So we do have an obligation to build if there are facilities running down the street, for example, in front, we have to do 62 metres. But if it is a completely different area with no facilities at all, there is no obligation to go in.

6293   COMMISSIONER KATZ: So if you do have an obligation, is that obligation extended to dial-up Internet service as well?

6294   MR. DANIELS: When you say extended to dial-up service, are you saying do we have an obligation to provide the customer dial-up Internet service themselves?

6295   COMMISSIONER KATZ: Yes.

6296   MR. DANIELS: No, we don't have an obligation to provide dial-up Internet service. What we have an obligation to do is we have, under the Bell Canada Act, a requirement to provide them telephone service, that is the term, telephone service, which is PES service, but PES service has to be of a quality and as well include the ability for them to access a dial-up provider, but not necessarily Bell Canada. And if we don't want to be the provider in a particular area, we have no obligation to provide this service.

6297   COMMISSIONER KATZ: The dial-up Internet service?

6298   MR. DANIELS: Dial-up Internet service, yes. Our obligation is restricted to voice service alone, PES.

6299   COMMISSIONER KATZ: Okay. And that would be the same for non-Bell Canada Act ILECs?

6300   MR. DANIELS: I think every other ILEC has -- I am not familiar with every single -- none of them have an act, but in terms of my understanding of what the requirements are, it is the same for everyone. I think there may be an exception for Northwestel in terms of some obligations that are part of its program, but I am not terribly familiar with that, but generally for the major ILECs, yes.

6301   COMMISSIONER KATZ: Yesterday morning Mr. Hennessy, in his opening remarks, drew a distinction, and he basically raised the issue of MDUs and I guess greenfield territories where a farm is taken over in rural area, becomes a near urban, maybe even a remote urban market as well with lots of homes going in, but yet there seems to be some relationship of a marketing nature that doesn't make it viable, economically I guess, for an ILEC to serve.

6302   And what he was looking for is the CRTC perhaps carving out the obligation to serve in those areas where someone has reserved the right to be the primary exchange carrier in that market. What are your views on that?

6303   MR. BIBIC: We think the fix is much more basic than what TELUS suggested in forborne areas. You know, ubiquity has been achieved everywhere, but in forborne areas not only is there ubiquitous voice service, there is competition and so there should be no obligation to serve. And of course, that would take in the greenfields and MDUs that TELUS is worried about.

6304   COMMISSIONER KATZ: So you are saying as long as I guess a Band "E" or Band "F" is competitive, and you are arguing I guess that the majority of it is competitive, that there is no obligation to serve?

6305   MR. BIBIC: What we are saying, in any band, "A" through to "G". But "A", "B", "C", "D", any -- wherever there is competition, no obligation to serve.

6306   COMMISSIONER KATZ: Okay. This question came up in the past as well from the perspective of a CLEC. Does Bell Canada have a CLEC brand that consumers can subscribe to?

6307   MR. DANIELS: We are a CLEC out west in TELUS territory and we don't provide residential service as a CLEC. If you are talking about the reference that was made yesterday to TeleNorth, I can't remember exactly, Telular --

6308   COMMISSIONER KATZ: Telular.

6309   MR. DANIELS: -- you can ask TELUS to clarify on it, so I won't talk about them. But our equivalent of that would be in our territory, in Bell Canada traditional ILEC territory, the reference we made that there is roughly about 1,000 customers that we provide our regulated PES service but using a fixed wireless solution. So what happens is we use our CDMA network, for the fixed wireless it connects to their inside wire in their home.

6310   But from the customer perspective, it is the same service as a regular PES service, it is the same price under the tariff, they get equal access, unlimited local calling. That is I think what the reference is, the TELUS equivalent. So we don't have a CLEC operating in our territory. And outside of our territory we operate as a CLEC which is, as you know, we compete in the business market outside of our traditional territory.

6311   COMMISSIONER KATZ: And in the wireless side of your business, Bell Mobility, Solo, whatever your products are, is there a CLEC equivalent if I was a wireless customer calling up Bell Canada and said I wanted to use party X for my long distance, but I want your service for wireless. Is there a product for me?

6312   MR. DANIELS: Just so I get the scenario. I mean, Bell Mobility is not a CLEC, and so I am just not sure I am getting the scenario. Could you just give it to me one more --

6313   COMMISSIONER KATZ: Is there a Fido equivalent in Bell Canada's tool chest of products and services?

6314   MR. DANIELS: No. We don't have any wireless provider that -- like, Bell Mobility is not, and although we have different brands, there is Bell Mobility and it is not a CLEC in any territory.

6315   COMMISSIONER KATZ: Okay. When you say you used fixed wireless services in certain markets, can you identify the markets for the areas? Is it Ontario, Quebec?

6316   MR. DANIELS: I have the breakdown here, if you just give me a second I will find that for you.

6317   One thing I can tell you about these areas is that they were -- this was a part of their SIP Improvement Program, so these were areas that we filed with the Commission and the Commission approved the structure of it. I have the breakdown between Ontario and Quebec.

6318   So there are some in Ontario as well as Quebec and we are using two different technologies, there is SR500 and CDMA.

6319   COMMISSIONER KATZ: Are these in bands that are also getting subsidies or are these distinguishable from subsidy-bearing markets?

6320   MR. DANIELS: I could happily check the answer to that, but my suspicion is that, because they were part of SIP programs, that they would be in high-cost areas. I can't confirm that right now, but I will undertake to confirm that.

UNDERTAKING

6321   COMMISSIONER KATZ: Okay. Let's make the assumption that they are for the time being, you can confirm that later on as well. You are obviously using a wireless technology because it is cheaper than the wireline technology. Yet, you are getting the subsidy based on your costs on a general basis that are higher and you have opted to use a cheaper solution to provide the equivalent service I guess.

6322   MR. DANIELS: I understand the point. But actually, Bell Canada doesn't get any subsidy in high-cost areas anymore. But, I mean, I take your point, which is -- and I would agree with you -- that there may be cheaper ways to provide and that the costing that was used was a Phase 2 forward-looking costing in 2000 which did not assume wireless, did not use the cheapest, so I understand.

6323   But actually, in our case, our rates in Bands "E" and "F" in Bell Canada territory, as a result of the decision last week, we don't get any subsidy anymore.

6324   COMMISSIONER KATZ: So there is no markets at all in Bell Canada territory that you have retained that haven't been sold to Bell Aliant where there is a subsidy?

6325   MR. DANIELS: That is correct.

6326   COMMISSIONER KATZ: Okay. I want to turn to the issue of affordability. We are all using this word and no one has yet put a number on it. I guess you suggested that it may be as high as $36.20 or $37.83. Has there been any survey studies done, to your knowledge, to see what a real affordable price would be for Canadians to subscribe to telecom services?

6327   MR. DANIELS: We haven't undertaken any study like that. The only think I can tell you is, in preparation for this hearing, we looked at, in conjunction with Bell Aliant, you know, whether there has been any impact or droppage that we have seen that is out of the ordinary for the highest rate with the $36.20. And it was consistent with the other areas where competition has come in.

6328   But no, I can't say to you that we have done a particular study on it. On the other hand, we point to the fact that the Commission has actually set the target of $30.00 a few years ago and has approved rates that are higher as well, so that is what we are relying on as the basis, and that we haven't seen any negative impact wherever those rates are throughout the country.

6329   MR. BIBIC: I would add the following, and this is a critical point, this whole issue about pricing. The Commission itself has determined that $30.00 is affordable, it was done in a 2007 Price Cap decision and it was done specifically in relation to high-cost serving areas and in respect of contribution. So there is a number there. We have all the other examples of prices above $30.00. This Commission or a predecessor Commission decided that that was an acceptable number.

6330   We also have a case where you have $170 million, $200 million subsidy pot that CLECs and ILECs are getting access to. And you have a situation where Bell and Rogers are the single -- our subscribers are the single biggest contributors by a wide wide margin to this pool. So that is context.

6331   And then what we did is we cross-referenced, you know, the price levels for PES in relation to the CPI, Consumer Price Index, from 2002 to 2009. The gap between the PES prices and CPI has grown from 2002 to 2009. In other words, we have gotten further away from CPI, prices for PES have flat-lined and gone down a bit.

6332   Whereas things like electricity, food, public transit, postage, cable, we talk about that a lot, and our beloved beer have all grown in relation to CPI.

6333   So it's just the math doesn't add up. I mean if you have prices that have been kept artificially low, including with respect to CPI, and it has an impact on a particular base of subscribers and on inefficient subsidies, it has to be addressed.

6334   COMMISSIONER KATZ: I understand your point. I guess the part that I have difficulty with is Bell Canada has chosen strategically to make the decisions it has made to be in a situation where you don't have anybody in Bands "E" and "F" because either 100 years ago you chose not to serve it and independents went in there or in the last three or four years you sold them off to Bell Aliant.

6335   MR. BIBIC: Mr. Katz, if we had not sold off our rural lines in Ontario and Québec to Bell Aliant and still owned them, so in other words if we were having this hearing in 2006, we would be making the same submissions to you. Back then we were the single largest payers into the contribution regime.

6336   We are not saying eliminate it where there's a need, all we are saying is prices can go up to reduce the reliance on subsidy. The costs are completely out of whack.

6337   I mean you asked us a question about the cost undoubtedly being lower for our fixed wireless service where we have 1,000 subscribers. Well, you know, we would have gladly given that up for fixing the cost disparities out west where there are hundreds of thousands of lines for which subsidy is being paid for.

6338   The fact that we sold the lines isn't what's dictating the position we are taking today as Bell Canada.

6339   COMMISSIONER KATZ: On page 2 of your remarks this afternoon you quote in paragraph 9:

"The current contribution subsidy regime is wasteful, competitively unfair and violates the Policy Direction."

6340   Can you expand on the word "wasteful"? In what context is it wasteful?

6341   MR. DANIELS: Well, we consider it wasteful in the sense that it's taking money from the industry and directing it into areas that don't require the subsidy based on what we maintain is faulty costs.

6342   So it's the fact that it's the market distortion that happens in directing money to companies that don't require in order to satisfy their obligation to serve. That's our --

6343   COMMISSIONER KATZ: Previous representatives on this Commission have made those decisions on the costs on the way it's being allocated as well. So are you suggesting that when they made those decisions they were not necessarily fair?

6344   MR. DANIELS: I don't want to cast aspersions about -- you know, they made the decision based on the record they had at that time, but we also know at that time that there was a problem with some of the costing that we saw on the Bell Canada side. There was a loop makeup study that was out of date, and that was known at the time but it was decided to hold off until there was going to be a Phase II review.

6345   So we are a number of years later, we have had the Phase II review, we have updated our costs on the unbundled loops and propose to you that our costs were out of whack then.

6346   However, what we didn't do then, what wasn't part of the record then, which we have only done now as part of this proceeding, is to do a comparison to see whether the rate differences between the west and east are reasonable. And we have put forward expert testimony to say they are not reasonable, they are not statistically plausible.

6347   So we think that part of that is driven by differences in how people calculate the costs. I'm not entirely aware exactly what caused the differences, but we know that the costs today are not statistically -- that the differences are not statistically plausible. I'm having problems saying that.

6348   But where does it all boil down to is to say yes, am I comforted by the fact that 10 years ago the Commission approved these costs? They did it for whatever reasons at the time then on the record they had then, but today we know that those costs aren't correct.

6349   Let alone to the question of should you be using Phase II costs to set subsidies, which we don't think you should. At the time that was driven by a different policy objective of the Commission which we no longer think is relevant.

6350   COMMISSIONER KATZ: My last question, and it was one that I asked the cable group yesterday as well and that is the distinction, if there is one, between their proposal, which is anything that is competitive should not bear a subsidy. Although you said that as well, you also said: Furthermore, if we make all these adjustments to the revenues and the implicit contribution you will go to the same place.

6351   Do you actually get to the same place and is there a difference between them and, if so, what is that difference? What falls out of this at the end of the day?

6352   MR. DANIELS: There may be some differences in terms of I think it could be at the margin.

6353   For example, there may be some Band "G" areas that aren't forborne but would have a wireless presence that the cable companies would say don't deserve subsidy and under our proposal we say Band "G" does get subsidy. That's possible. I don't know. I don't know factually.

6354   But it is true that factually under our proposal you allow rates to rise and all of Bands "E" and "F" and so subsidy disappears in Bands "E" and "F". Under the cable proposal the vast majority of "E" and "F" I presume have a wireless entrant, maybe not forborne but they have a wireless entrant, and therefore they would be forborne.

6355   So effectively it probably comes out to the same place, but the logical approach to getting there I think is different. And there may be some cases like for us under Bands "E" and "F" where -- excuse me, in Band "G" where subsidy would continue to apply that may not apply in cable. But factually I'm not sure.

6356   MR. BIBIC: Vice Chairman Katz, if you go to paragraph 27 of our opening statement there is one big common ground, one large area of common ground, where if you look at the first line we believe that:

"...no subsidy should be available in forborne exchanges."

6357   So in that there is a lot of similarity with the cable proposal at least in forborne areas. We don't go to the next step and say even if an area is not forborne but has a competitor, you know, eliminate subsidy. We just say where there is competition no subsidy, use the forbearance test as proxy. It's nice and it's simple and you don't have to do the second line of inquiry.

6358   COMMISSIONER KATZ: Well, it's the second line of inquiry that requires more quantitative information and more subjective assumption-making with regard to numbers and that's why I was trying to draw a distinction as to whether in your view there is a need to get to that second step or is the first step sufficient to achieve the goal that you were trying to achieve?

6359   MR. BIBIC: We don't support the second line of inquiry. What we say is where there is forbearance there is no subsidy.

6360   Just eliminating those forborne areas from subsidy eligibility would come close to wiping out the need for subsidy in Bands "E" and "F".

6361   COMMISSIONER KATZ: Come close

6362   MR. BIBIC: Pretty close, if not entirely.

6363   COMMISSIONER KATZ: Okay. Okay.

6364   MR. BIBIC: So in that respect I think we have answered your question. I mean you get there, in Bands "E" and "F" at least, without the need for the second line of inquiry that cable suggests.

6365   COMMISSIONER KATZ: Yes.

6366   MR. DANIELS: Again, where I don't think we differ but we come at and say the first answer in terms of looking at "E" and "F" is to allow rates to rise so that subsidy is not required. Even if you step away from our forbearance position, I mean that will eliminate subsidies in "E" and "F" by allowing rates to rise and that is set out in our appendix which shows the numbers there. By the way, the Appendix has been updated to reflect -- excuse me, the appendix to our oral, we have two charts there -- have been updated to reflect the latest numbers based on your decision last week about contribution.

6367   So it still shows that by raising rates you can eliminate the subsidy in Bands "E" and "F" whether it's forborne or not forborne, although fundamentally we believe in a forborne area there is no obligation to serve so there should be no subsidy.

6368   COMMISSIONER KATZ: Okay.

6369   I guess, to the extent that you are not in the rural areas it would be Aliant that would have competition coming in from the SILECs, not yourselves?

6370   MR. DANIELS: I said we don't get subsidy. Seven percent of our NAS is still located in Bands "E" and "F".

6371   As to whether we have particular areas where a SILEC can come in and compete with us, I know we have SILECs that are operating as CLECs in the territory but, to be honest, I'm not quite sure if that's in pure Bell Canada territory.

6372   I think it's both, but if you would like me to I can undertake to find out in terms of whether it's Bell Canada exchanges as well that have SILECs operating as CLECs in our territory.

6373   COMMISSIONER KATZ: Could you and then we can have this exchange at Phase II with yourselves or Bell Aliant?

6374   MR. DANIELS: Certainly.

UNDERTAKING

6375   COMMISSIONER KATZ: Those are my questions.

6376   THE CHAIRPERSON: Candice... ?

6377   COMMISSIONER MOLNAR: Thank you.

6378   Before I get into my questions I too want to address some of the confusion about the BSO and so on.

6379   I think that I had been asking some questions about unlimited local calling and equal access and I just want to be clear for everybody that in your paragraph 23 you identified that there is two situations and a second there is:

"...if an ILEC seeks to meet its obligation to serve with wireless technology...."

6380   I just want to be clear that that was what I was looking at, if an ILEC wanted to meet its obligations using wireless, and particularly I was thinking mobile wireless services was the BSO adequate.

6381   Now, you say here that in fact as it's defined within your network exchange, primary exchange services tariff it addresses all the issues. We can take that away and clear that up, but I did just want to clarify that that was the reason for my questioning, to see if we could do something so that mobile services could potentially be used to meet the BSO and we would still ensure they were provided equal access.

6382   MR. BIBIC: Okay. Thank you for the clarification. It helps a lot.

6383   We were listening yesterday and that's what we thought, but then the line of inquiry grew and became more general and then we started worrying about this issue and thought it was best to draw the distinction between the two scenarios.

6384   COMMISSIONER MOLNAR: No, I just did want to clarify the questions that I was asking at the beginning were talking about that.

6385   I wanted to ask you, I believe I heard you say that you no longer receive subsidy in Bands "E" and "F".

6386   Is that correct?

6387   MR. DANIELS: That's correct. As a result at the decision last week, yes.

6388   COMMISSIONER MOLNAR: Okay. But are you proposing that Bell Canada be able to raise its rates in Bands "E" and "F"?

6389   MR. DANIELS: Our proposal is that in Bands "E" and "F" all ILECs would be able to raise their rates to the maximum affordable level, whatever is established by the Commission.

6390   COMMISSIONER MOLNAR: So I'm just wondering on what basis we as a Commission would determine it would be just and reasonable for Bell Canada to raise its rates in Bands "E" and "F" if they are today above cost.

--- Pause

6391   MR. DANIELS: Okay. So first of all, the first thing to note is that in terms of when you say "above cost", I just want to clarify that there is the implicit subsidy. So there is an implicit subsidy level so it's possible for an ILEC to have a rate, not receive subsidy and still have its rate for PES itself being below the approved Phase II costs for the Commission, because there is the $5.00 imputed subsidy.

6392   But putting that aside, because I understand where your question is directed to. The question really is to say: Is it unreasonable or is it just and reasonable to have those rates rise?

6393   We start from the premise that first of all the costs upon which you are examining are out of date, especially for Bell Canada, have fundamental problems. I think you know our position on that, I'm happy to discuss it if you would like to.

6394   But putting that aside, our first proposition is that our costs are understated if you are using Phase II costs.

6395   The second point, though, is that costs for primary exchange service throughout the country -- excuse me, rates for primary exchange service throughout the country are above costs. It's unusual to have that. The key question is to make sure that they don't go above affordable levels. I think that's the key issue that you have to worry about and that not every particular service to say "Oh, it can only go to costs based on an antiquated notion -- sorry, not antiquated notion, but antiquated cost studies of what it is.

6396   So we know that the Bell Canada costs are low, are too low, they are understated, and as well we know that in regulated, and as well in forborne areas there are many times that primary exchange service rates, retail rates, are above cost. So why is that any different in these situations?

6397   In fact, I mean CLECs themselves were able to receive subsidies in these high-cost areas with the portable regime, even though their costs could have been a lot lower. That's how the subsidy regime worked.

6398   We are not asking for subsidies, we are just simply saying that we should have the ability to raise rates in those areas to the highest affordable level.

6399   COMMISSIONER MOLNAR: I still struggle as to how we as a Commission -- as you know, our responsibility within regulated areas is to ensure that we approve tariffs at rates that are just and reasonable and so I'm still struggling to understand how we could determine that rate is just and reasonable. Simply because it's affordable somewhere else how is it just and reasonable in your Bands "E" and "F"?

6400   MR. BIBIC: I may be doing a disservice to your question, but the logical extension of where you are going with this is that no rate above cost can be just and reasonable and that certainly can't be the case.

6401   We come at it from this perspective, number one is Jonathan's point about we think our costs are wrong. So there is one.

6402   Two, there is nothing wrong with rates being above cost, in fact rates being above cost is what drives returns and what allows us to make investments and to continue to serve subscribers across the country, urban and rural. So that by itself is a good thing.

6403   Take CLECs, CLECs come into an exchange, a high-cost serving area, imagine it's not forborne yet, that CLEC gets to take the subsidy. If it's a cable CLEC, I think it's a fair bet to say that cable costs are lower than ILEC costs, yet the cable CLEC draws subsidy by virtue of portability based not on the difference between rate and their costs but on the difference between rates and our cost. The Commission doesn't have a problem with that.

6404   And the third point is --

6405   COMMISSIONER MOLNAR: Sorry, maybe so we just limit our discussion a little more, I am going forward assuming your proposal. So your proposal is if there is a CLEC and if the area has been forborne there would be no subsidy and I believe your proposal also is that the subsidy, where it exists, would not be portable.

6406   So that's your proposal and that's the proposal I'm asking about.

6407   MR. BIBIC: You are not asking about that one, or are you?

6408   COMMISSIONER MOLNAR: Under that proposal --

6409   MR. BIBIC: Yes.

6410   COMMISSIONER MOLNAR: -- you have said in Bands "E" and "F" raise rates to an affordable level, somewhere in the range of $34 to $36 I think is what you are saying.

6411   MR. BIBIC: So the proposal --

6412   COMMISSIONER MOLNAR: And I agree. I'm not simply saying cost, I mean there is always a reasonable markup, that's normally the way -- or often the way the Commission determines what is a reasonable rate is to look at the costs and a reasonable markup. Now, we are not supposed to look at the costs because the costs are not accurate.

6413   So I'm asking you, how do we know it's a just and reasonable rate within your Bands "E" and "F".

6414   MR. BIBIC: Well, I think the line of inquiry under our proposal is only relevant in regulated high-cost areas because by definition forborne subsidy goes away and we are forborne so you don't rate regulate.

6415   So in the regulated high-cost serving areas how do you know?

6416   I have to cut right to the chase, go back to what I consider basic regulatory theory. Your job is to make sure that the rates are not too high such that consumers are being gouged and they are not too low so that they are predatory. There is a band there and it comes down to this notion of what we have been calling affordability.

6417   You have already determined that the price levels we are talking about are affordable in many areas of the country. To us by definition it almost speaks for itself that those are affordable rates. So I don't think you need to get into an inquiry of markup over cost when your baseline are costs which are wrong.

6418   MR. DANIELS: In addition I would add that again, as you mentioned, I mean using -- not that we accept these, but using the existing costs across the country you can get a sense of the average costs and a particular markup and so on in terms of averaging, knowing that ours are understated and the others are overstated, but that allows for the ability.

6419   We believe that costs should be comparable in the various different areas in "E" and "F". We are not talking like where the helicopter flies in, we are talking "E" and "F" for the most part here. That's where the vast majority of the NAS is.

6420   So the costs there should be comparable based on the densities across the various different ILEC. If you are comfortable and determined a base for other ILECs, then it should also apply to Bell as well, much, to be honest, in the same way that you did with the SILEC regime without actually having costs in front of them.

6421   COMMISSIONER MOLNAR: Thank you.

6422   Those are my questions.

6423   THE CHAIRPERSON: Just to follow up, let me ask a political question.

6424   If we give you that agreement to raise rates, and Bell Aliant suggested it was a three-year period to bring it up to $36, what does the consumer get in return for that?

6425   MR. BIBIC: The consumer continues to receive top-notch phone service at an affordable level and the five million or so --

6426   THE CHAIRPERSON: According to you it gets it now.

6427   MR. BIBIC: Pardon?

6428   THE CHAIRPERSON: According to you he gets it today.

6429   MR. BIBIC: Except that the five million urban customers of Bell don't have to subsidize provision of service in TELUS Manitoba and Saskatchewan territory on the basis of costs which are grossly exaggerated and are a basis of rates which are far too low. So I mean that's ultimately what is happening there.

6430   THE CHAIRPERSON: I appreciate the effect of eliminating the subsidy, but I mean in terms of the consumer in the remote territory who sees his rate going up from $26 to $36 or something, whatever it happens to be.

6431   MR. BIBIC: They continue to get the same service, but not a subsidized service where we don't think subsidy is warranted.

6432   Band "G" is a different story.

6433   THE CHAIRPERSON: Yes, okay.

6434   Suzanne, you had a question?

6435   CONSEILLÈRE LAMARRE : Oui, une ou deux. Monsieur Daniels serait tellement déçu si je ne lui posais pas de question sur les petites titulaires.

6436   Alors, la première que j'ai. Vous avez mentionnez en réponse, je crois, à monsieur Katz, que 7 pour cent de vos abonnés présentement sont situés dans les bandes "E" et "F".

6437   En termes absolus, ça fait combien de clients?

--- Pause

6438   MR. DANIELS: Roughly 300,000. Roughly 300,000.

6439   CONSEILLÈRE LAMARRE : O.K. Pas des dollars, des abonnés.

6440   Maintenant, vous proposez, si je comprends bien, d'abolir toute subvention pour tous les clients dans les bandes "E" et "F".

6441   Si je comprends bien, ça aurait pour résultat d'éliminer les subventions pour toutes les petites titulaires au Québec, et je m'abstiens de dire toutes en Ontario parce que je connais moins bien le territoire en Ontario, mais une grosse majorité, à tout le moins, des petites titulaires en Ontario; est-ce que c'est correct?

--- Pause

6442   MR. DANIELS: Under our proposal, yes, we talk -- because in Ontario and Québec the SILECs all have -- all of their NAS is Bands "E" and "F" so that they would have to do rate increases.

6443   Having said that, we appreciate that there are certain aspects that the SILECs face that may be different and that the regime can accommodate them.

6444   Our main proposition for starting point from the SILEC perspective is to the extent that they can raise rates like an ILEC is expected to raise rates, that's reasonable. So it's not just eliminate for the sake of eliminating, it's let the rates rise to do that.

6445   If there is some concern about that there are certain aspects that the regime can be adjusted to accommodate that, which is why we have specific proposals for changing the toll interconnection regime so that there would actually be a new subsidy regime for the SILECs to the tune of $11 million. This is the same proposal that all the SILECs, including the ACTQ and the OTA supported that we put forward before the Commission and is before this Commission now. So they would be receiving a new subsidy, as well as being able to get the ability to raise their rates to accommodate for the difference of the $23 million subsidy.

6446   So there are two subsidies. The $23 million could be accommodated by allowing them to raise their rates to the tune of the equivalent of the $23 million and also, in addition, they would get a new subsidy of $11 million by having to lower their toll interconnection rates to match those of Bell. That's their proposal and we support that.

6447   CONSEILLÈRE LAMARRE : Et rapidement là, l'augmentation de tarif pour compenser le 23 millions, en présumant qu'on répartit ça également entre tous les abonnées des petites titulaires, ça revient à combien, ça, par client?

6448   MR. DANIELS: Well, it would depend on in terms of what you determine is the highest affordable level.

6449   Again, our position is that like in large ILEC territories from a consumer perspective, the consumer should only be paying the highest affordable level, they shouldn't pay something above that. So whatever the maximum the Commission establishes as the rate, so say it's $36, then rates should go up to $36. If the Commission establishes a different rate, then the rates would go up to that. We don't see any reason to make a distinction in terms of what consumers can pay by the fact that they are in a SILEC territory or an ILEC territory, the regime should be identical from then.

6450   We do believe in accommodation for the SILECs in terms of recognizing the different treatment, I mentioned the toll, there is also some competition distinctions that we propose, but in terms of actually being able to put through a rate increase they should be in the same position as an ILEC which is to charge the maximum amount before it becomes unaffordable, which we are saying is at least 30 -- much higher, probably $36.

6451   CONSEILLÈRE LAMARRE : Maintenant, sur un sujet différent, Monsieur Bibic, vous avez ouvert grande une porte pour que je vous pose une question au sujet du sans-fil.

6452   Lorsque vous dites que l'Internet haute vitesse sans fil peut être accommodé... peut permettre de remplir les besoins des clients, j'estime que vous faites référence, ça peut être du sans-fil fixe ou ça peut être du sans-fil mobile, un comme l'autre?

6453   M. BIBIC : Un comme l'autre. Ma référence dans l'ouverture, c'était l'exemple spécifique du iPad, mais ça pourrait être le sans-fil fixe aussi, oui.

6454   CONSEILLÈRE LAMARRE : Maintenant, il y a quelque chose qui me préoccupe un peu et dont personne parle. Alors, peut-être que je m'en préoccupe pour rien. Mais je vous pose la question parce que vous avez ouvert la porte.

6455   Le sans-fil, au fond, va servir uniquement pour la dernière portion qui va rejoindre le client, parce qu'au bout du compte, peu importe que le dernier mile ou la dernière portion du lien entre le client et Internet soit avec fil ou sans fil, quelque part dans le réseau, le trafic va augmenter sur les grandes artères, qui, elles, sont soit filaires, soit fibrées, dans l'infrastructure générale?

6456   M. BIBIC : Oui, mais quand je discute de notre réseau qui couvre 93 pour cent de la population, c'est bien évident qu'on a l'infrastructure disponible pour desservir tous ces clients avec un service...

6457   CONSEILLÈRE LAMARRE : Donc, les clients qui présentement n'auraient pas Internet filaire, que vous prévoyez servir avec Internet sans fil fixe ou mobile, ce que vous me dites, c'est que l'augmentation de trafic que ça va causer sur votre réseau filaire et fibré, là où se trouve l'essentiel de votre infrastructure, que ce n'est pas une préoccupation, ça?

6458   M. BIBIC : On fait des prédictions en ce qui concerne l'adoption de nos services tout partout dans le territoire qu'on dessert, et dans le cas du sans-fil, c'est plus ou moins le Canada au complet, sauf le Manitoba et la Saskatchewan, mais 93 pour cent de la population. On a fait des prédictions en ce qui concerne l'adoption et l'utilisation des services. Ça un impact sur le trafic et la congestion, naturellement. L'utilisation est bien plus haute qu'on l'avait prévue en 2009 quand on a lancé le réseau, et ce qu'on fait, c'est qu'on ajuste la capacité dans le réseau en faisant des investissements pour accommoder le trafic. Ça fait qu'on s'en occupe sans subventions.

6459   CONSEILLÈRE LAMARRE : Je vous remercie. Je n'ai plus d'autres questions.

6460   THE CHAIRPERSON: Okay.

6461   Before I let you go, Mr. Daniels, maybe you can explain paragraph 37 for me.

6462   You are basically saying that -- I understand the tail end which suggests that Phase II costing are suspect our interrogatories to you have led you to believe we are marching toward a hybrid version, et cetera.

6463   That aside, it's the lead-in which perplexes me. You say:

"They are based on Phase II costs, a costing methodology which we believe is appropriate to set wholesale rates, but not necessarily subsidies."

6464   Costs are costs. I'm not an accountant but I can't even -- why would you draw a distinction between whether you are sitting subsidies or whether you are setting wholesale rates.

6465   I need you to explain that to me.

6466   MR. DANIELS: Let me start.

6467   I don't think costs are costs, there are different costs depending on what you are trying to assess, make a determination.

6468   So the Commission today uses Phase II costs at one point, as you know or may not -- you know, I don't really know much about it because it was before my time as well with Phase III which was looking at the historical sort of an accountant-type approach of looking at what you spent and would look at the historical costs.

6469   So when you are setting a wholesale rate, determining it, we support the notion of using Phase II, which is basically saying: Hey, what would it cost to build this service today using the latest technology forward-looking using the economies of scale and scope that the ILEC has.

6470   The reason we support it is because fundamentally what you are trying to ask when you are looking at wholesale is what rate should we set that pays the ILEC for its incentive to invest and to continue to invest -- so that's forward-looking -- and also we don't want to set a rate too low that the CLEC would decide: Oh, I'm better to buy from the ILEC than what my own costs are. Because if you just used for example a historical cost, you may end up with a rate that's too low from an accounting perspective, what an account would call the cost. The accountant would look at it and say: Oh, I have written that cost off or that cost is a lot lower.

6471   So when you are doing wholesale rates we agree that you should use a Phase II type methodology -- and the CRTC uses it, as do many regulators around the world, although not all regulators I should admit. But when it comes to doing subsidies regulators around the world use different types of costing methodologies. There was some reference earlier from the consumer groups and others as to other methods that the FCC has used and pointing out.

6472   Now I think there are lots of different methodologies, but the CRTC uses the same, as a result of the decision in 2000, uses Phase II as forward-looking and I think that the reason you did that is because it was designed to have it be equal to encourage CLECs to come into competitive areas. We will take the unbundled loop rate, we will use the same methodology, so we will encourage entry in those areas.

6473   So I think there was a reason for it and we are saying that reason no longer applies and, frankly, if you look at it and say: Well, what should we use for subsidies, is it about what theoretically it would cost today to build the whole area or should we look at what the ILEC actually spent which is still on its books? I mean those are big questions and that's why we think that you would want to carefully consider, if you were going to do a costing review, what kind of costs are appropriate for subsidies.

6474   And Canada is -- I don't want to say it's alone, but there are many different types of approaches that it is far from certain that you would use Phase II and in fact if you looked at it you may not end up at Phase II. As I say, in the U.S. they don't use Phase II.

6475   So I think that hopefully explains it.

6476   THE CHAIRPERSON: It does explain, but it sort of begs the underlying question, I mean wouldn't you, in terms of just convenience, rough justice, also use Phase II rather than engaging in the whole costing exercise?

6477   MR. DANIELS: Well, if you were going to do the rough justice it would be averaging the costs using the existing, but because the costs are so out of date there as a rough justice. But even still we have the issue of the hybrid, and so on, and that's why we are saying -- I mean you could do it that way, but in our view you don't need to get into the costing side based on our solution.

6478   THE CHAIRPERSON: Okay. Thank you.

6479   Okay, those are our questions for you today. I don't see any other hands up.

6480   So, Madame la Secrétaire, I guess that's it for today, if I understand it correctly.

6481   What time do we start tomorrow?

6482   THE SECRETARY: We will start at 9:00.

6483   I have an announcement to make, Mr. Chairman.

6484   Please note that the following parties have indicated that they will not be participating in Phase II of the hearing: Mr. Marc Garneau, MP Westmount-Ville-Marie; NorthwesTel and Union des consommateurs.

6485   Please note that the rebuttal phase will start tomorrow at 9:00 a.m. and while it is difficult to estimate how long this will last, at this time we expect this phase to last approximately 2-1/2 days. A copy of the rebuttal schedule is now available on the table in the back for you.

6486   This concludes Part I of the hearing, Mr. Chairman.

6487   Thank you very much.

6488   THE CHAIRPERSON: Do you want to, for the convenience of people, read out the sequence for tomorrow? Madame Roy, would you please read out for the convenience of the people in the room an order of appearance tomorrow morning?

6489   THE SECRETARY: Do you want me to read the order of appearance?

6490   We will start in reverse order from the parties who appeared in Timmins with MRC Papineau, and then it will be Ontario Telecommunications Association and TBay Tel, SaskTel, Bragg Communications, MTS, Barrett Xplore, Bell Aliant, KMTS, NorthernTel and Télébec, Bell Canada, ACTQ, PIAC for Consumer Group, Shaw Communication, Cogeco, Rogers and Quebecor Media, and then the Accelerated Connection, Radiant Communications, SSI Mirco and TekSavvy Solutions and we will finish with TELUS.

6491   THE CHAIRPERSON: So in short, we are doing the Timmins in reverse order first and then onto Gatineau in reverse order afterwards.

6492   Thank you.

--- Whereupon the hearing adjourned at 1534, to resume on Wednesday, November 3, 2010 at 0900

   REPORTERS

____________________      ____________________

Johanne Morin         Jean Desaulniers

____________________      ____________________

Monique Mahoney         Sue Villeneuve

Date modified:

2010-11-02