ARCHIVED - Transcript, Hearing 4 November 2010

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Volume 7, 4 November 2010





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


Outaouais Room

Conference Centre

Portage IV

140 Promenade du Portage

Gatineau, Quebec


In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of


However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

Canadian Radio-television and

Telecommunications Commission


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


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


Lynda Roy   Secretary

Alastair Stewart   Legal Counsel

John Macri   Hearing Manager


Outaouais Room

Conference Centre

Portage IV

140 Promenade du Portage

Gatineau, Quebec

November 4, 2010

- iv -




Barrett Xplore Inc. and Barrett Broadband Networks Inc.   1425 / 8139

Bell Aliant Companies

Bell Aliant, Regional Communications,

Limited Partnership, KMTS, NorthernTel

Limited Partnership and Télébec,

société en commandite   1439 / 8235

Bell Canada   1512 / 8700

Association des Compagnies de Téléphone du Québec (ACTQ)   1587 / 9132

"Consumer Groups"

Public Interest Advocacy Centre (PIAC)   1632 / 9372

"Cable Carriers"

Shaw Communications Inc., Cogeco Cable Inc.,

Rogers Communications Inc. and Quebecor Media

Inc. (QMI) on behalf of its affiliate

Videotron Ltd.   1664 / 9563

- v -


Undertakings can be found at the following paragraphs:

8356, 8358, 8848, 8858, 8880, 8941, 9363, 9522, 9761, and 9870

   Gatineau, Quebec

--- Upon commencing on Thursday, November 4, 2010 at 0900

8136   THE SECRETARY: Order, please. A l'ordre, s'il vous plaît.

8137   THE CHAIRPERSON: We finished last night with Barrett Xplore and Mr.Maduri said he didn't have a chart and he wanted to show it to us this morning and I invited him to come back.

8138   So please, let's see what the chart says.


8139   MR. MADURI: Good morning. Thank you, Mr. Chair.

8140   Up on the monitor what we have -- hopefully you can read it -- basically this builds off the a point that Bob Hersche made about the technologies -- I think he made it yesterday as we were coming to a close -- that all of these technologies are going to be critical to getting to 100 percent of Canada and delivering the speeds and feeds that we need to serve all population, urban and rural.

8141   So if I can orient you to the graph. Along the horizontal access -- and this is not to scale, it's not perfect, if I could just ask you to think of it conceptually and then I will talk about it in the micro sense, but along the horizontal access what we have is population density, on the left from the highest population density urban through suburban and into the lowest population densities of rural and remote. Up the vertical access what we have is, in essence, the key statistic of cost per household.

8142   So the black line represents -- again conceptually, please don't hold me to the specifics of where these all align -- but basically the black line represents wired technology and the key message on wired -- the experience that we have had, there are lots in the room who can speak to this in greater detail -- is that as you move into areas of lower and lower density the cost of wire technology increases quickly, if not exponentially.

8143   Since about 2000 a lot of governments, community groups, industry players have believed that wireless was the solution and in fact if you look at that orange -- I guess it's orange -- yes, orange or yellow line, the second line, wireless does have a substantial cost advantage as you move outside the urban and suburban areas. I won't specify which wireless technology, but wireless broadband technologies have an advantage as you move into areas of lower population density.

8144   But even wireless is impacted by density. In our estimation, once you get past 6 to 10 homes per square kilometre you are into areas where wireless gets less cost effective, less economic without subsidy. Again, that's our own experience. I'm sure others have experience with that technology.

8145   Further, wireless is challenged by topography, by terrain, trees, and again the critical issue of access to cost-effective reliable backbone.

8146   The top line, I think it's red, is basically satellite. So even with current satellite technology there are going to be areas in Canada, again based on geographic and population density, where satellite is the least-cost best-fit technology.

8147   We have talked a lot about the high throughput satellites. What happens in 2011 is that red line shifts down dramatically. I think we have been on record with CRTC in terms of the reduction in cost per megabit and cost per customer, but basically that line shifts down substantially and in essence makes wireless and satellite both very cost effective.

8148   Over time I think what we will see is these lines will shift. We have currently made some changes to our wireless platform, moving from 3G to 4G. That will shift the gold or yellow line.

8149   So in essence the message here, all of these technologies have a place in getting to 100 percent of Canada. There will be a part of what we call rural and remote were some combination of wireless, fibre and satellite will be the right solution, other areas where satellite only will be the solution.

8150   I wanted in a final note to emphasize that that line with the wireless satellite, these aren't just Barrett Xplore lines, there are a lot of players in this marketplace, a lot of wireless players in addition to the folks that are in this room today.

8151   THE CHAIRPERSON: Thank you. A graph always explains things much better.

8152   It still begs the question of the installation of the customer premise equipment.

8153   If I understood you correctly, and please correct me if I'm wrong, your evidence yesterday was because of the rate of adoption by satellite by the U.S. and Australia, et cetera, you expect the equipment, the unit cost, to come down dramatically, both in terms of dishes and set-top boxes.

8154   MR. MADURI: Correct.

8155   THE CHAIRPERSON: It still leaves the issue of the initial installation which obviously is higher for satellite than for others.

8156   MR. MADURI: Yes. Well, not for satellite. It's not technology. Any of the technologies will be impacted by windshield time, right.

8157   THE CHAIRPERSON: I know, but to the consumer. The initial. If he wants to become your customer there is an initial cost that --

8158   MR. MADURI: Well, I think we have to work from the premise that if a cost is high a cost is high and it will manifest itself in some pricing. So I think my point is only that that is technology agnostic. Windshield is technology agnostic.

8159   If there was fibre in a location in rural Canada, for whatever reason there was backbone going through a community and there was a home that could get fibre, the fact that you still have to run a truck 15 kilometres is still going to result in a high installation cost.

8160   THE CHAIRPERSON: Okay. Mr. Engelhart will tell you just buy one of these little units and plug it in the wall and you are fine. So is this wireless, the initial cost is just the cost of that unit, while with you I have to have an installer come and install a dish and mount it in the right way and lay the cable into my house, et cetera.

8161   MR. MADURI: The Chair has made an assumption and I'm not sure I agree with that.

8162   THE CHAIRPERSON: Please tell me why.

8163   MR. MADURI: Well, I think if there was a stick -- if the consumer could get service with a stick, then you are right.

8164   THE CHAIRPERSON: Yes, of course. That was my assumption, that there is a wireless service in that area so that you could -- okay.

8165   Well, thank you very much. This is extremely helpful.

8166   I guess just a final to make sure I -- your basic position is that in some of these what you call remote areas, satellite will probably be the best and the most efficient way of serving them and to the extent that there is a high initial installation cost or a set-up cost, that is something that is up to various governments to subsidize in conjunction with you, et cetera. It's not something that we should build into our regulatory scheme?

8167   MR. MADURI: I will emphasize again that there has not been -- whether it's TVs, whether it's DVD players, volume drives down cost and I do believe that there are a number of programs in play in the marketplace, targeted programs, that are addressing that upfront cost for all technologies.

8168   THE CHAIRPERSON: But did I read something into your words or not, you say that it is something we should not address?

8169   MR. MADURI: Correct.

8170   THE CHAIRPERSON: Right, okay. Thank you.

8171   Does anybody else have any questions for Mr. Maduri?

8172   MR. SAMSON: Yes, Mr. Chair.

8173   THE CHAIRPERSON: Okay, let's go first with the gentleman with the beard there.

8174   M. SAMSON : Oui. Michel Samson de MRC Papineau.

8175   Je voudrais revenir très rapidement. Trois questions rapides.

8176   La première : Est-ce que j'ai bien compris hier lorsque, à votre question pour ce qui concernait la latence du système satellitaire, après avoir fait la référence à la vitesse de la lumière, heureusement, pas au design intelligent, on a mentionné quelque chose de l'ordre de 400 millisecondes.

8177   Est-ce que j'ai bien entendu? Je pense c'est monsieur Maduri qui avait répondu.

8178   MR. MADURI: Each trip is 200 milliseconds. That's physics. That's not something we --

8179   MR. SAMSON: That's what I thought.

8180   MR. MADURI: Yes.

8181   And again, I think if I can just direct, Mr. Chair, there is quite a bit of material on satellite on the Australian national broadband initiative, it's public information, and they address latency, they address some of the strengths as well as the issue of latency inherent in satellite technology.

8182   M. SAMSON : Excellent! Merci.

8183   Ma seconde question : En termes d'avenir, vous avez parlé hier que, effectivement, vous pouviez offrir la téléphonie IP. Si on imagine que dans trois ans, quatre ans, cinq ans, on pourrait penser à des systèmes qui offrent les trois services de base, c'est-à-dire télévision par IP, téléphonie IP et Internet haute vitesse, comment ça se présenterait pour la distribution satellitaire?

8184   Trois, quatre ans, ça nous mène, finalement, à 2015, 2014-2015. Est-ce qu'on pourrait s'attendre à avoir les trois services offerts par une distribution satellitaire?

8185   MR. MADURI: I think today there are customers that are doing over the top voice on their own. Would we like to be in the voice business? We are today to a small extent, so I do envision a day when those services will be delivered over one broadband connection. So I think the possibility, the potential is there, absolutely.

8186   I think the comment that was made yesterday by one of the Commissioners or the Chair, that in fact if this could come together in terms of a rural bundle the opportunity actually reduced the installation charges, or at least have one trip in essence for three services.

8187   M. SAMSON : D'accord.

8188   Une dernière question. Hier, est-ce que j'ai bien entendu lorsque vous mentionniez... je pense que vous avez été questionné sur l'installation d'une réception satellitaire Internet haute vitesse et une installation distincte dans le Nord, là où vous desservez par satellite, une installation distincte pour la télévision.

8189   C'est bien le cas, il y a deux antennes -- c'est ce que j'ai bien entendu -- deux antennes, donc, deux coûts d'installation?

8190   MR. MADURI: Today we don't offer our own satellite TV service so it would be two dishes.

8191   Now, if it happened that a dealer had a customer who wanted broadband and TV I guess it would be one truck roll, but that doesn't happen in all cases or it is not engineered to happen.

8192   M. SAMSON : Merci, Monsieur le Président.

8193   THE CHAIRPERSON: Thank you.

8194   There was another hand over there.

8195   MR. LAWFORD: John Lawford.

8196   THE CHAIRPERSON: SaskTel.

8197   MR. LAWFORD: John Lawford, PIAC.

8198   THE CHAIRPERSON: PIAC, sorry.

8199   MR. LAWFORD: Dr. Hudson has two questions. Thank you.

8200   MS HUDSON: Thank you and thank you for this chart.

8201   I think it's certainly true that there are different areas or different densities where different technologies are almost cost effective, but it seems to me there is a little bit of confusion here.

8202   One is that, as we have heard in some of the testimony, isn't it true that terrestrial wireless is being extended as kind of an end-to-end all the way to the customer solution farther into the lower density areas, certainly not to cover everybody, but so that there is some more competition on the margin there than they might have been a few years ago.

8203   Second, I think in the remote application where you are thinking about isolated places where it does not make any technical or financial sense to extend terrestrial last mile, I think this chart confuses a bit the backbone and the end-user solution.

8204   So, in a sense, rather than lining up 13 dishes in a row in a remote community or 13 houses each having their own satellite dish in a small dense community such as in the northern territories or northern parts of the provinces, you could provide a satellite backbone, or other backbone if it was available, and then have local ISPs who put in their own WiFi or string coax or provide the last mile solution so that the satellite or any other technology that makes sense -- and in parts of northwestern Ontario it is microwave -- is used for the backhaul and the last mile and the middle mile, but if there is a cluster of households you can really use that technology to allow local ISPs or other providers to have a more cost effective last mile solution.

8205   MR. MADURI: I think what Dr. Hudson is pointing out is that there are lots of potential solutions and there is competition, so I wouldn't disagree with her that there are many different ways to get to the customer.

8206   THE CHAIRPERSON: Don't you also offer it yourself?

8207   MR. MADURI: We offer wireless.

8208   THE CHAIRPERSON: That you use your satellite for backhaul and then you have a local fixed wireless or something?

8209   MR. MADURI: No. We are direct-to-home, so basically from the home up to the satellite out to a gateway. So ours is a direct-to-home.

8210   There are other satellite solutions where they use satellite as backbone and they have in essence a wireless system on the ground, so a tower. Basically they do what we do with wireless except the backbone is neither terrestrial wireless or fibre, it's satellite.

8211   THE CHAIRPERSON: But if a remote community comes to you and says "Can you not do use the satellite has backhaul, put a tower up and then serve our 50 houses say directly through fixed wireless", you wouldn't do that?

8212   MR. MADURI: We don't do it today because we believe that we have a very cost-effective solution with either wireless or direct-to-home satellite.

8213   THE CHAIRPERSON: Yes. Right. Okay.

8214   There was somebody else up there.

8215   SaskTel...?

8216   MR. MELDRUM: Thanks. It's John Meldrum from SaskTel.

8217   I would just like to speak to the installation cost issue as SaskTel does have lots of windshield time for our installs in rural Saskatchewan.

8218   How you charge for those installation costs, in our opinion, is reflective of the overall economics of your offerings. We don't charge for installation for our high-speed DSL services in rural Saskatchewan and I think that reflects the greater efficiency of DSL versus satellite.

8219   THE CHAIRPERSON: Any other questions?

8220   TELUS...?

8221   MR. HENNESSY: Yes, Mr. Chairman. It's Michael Hennessy with TELUS.

8222   The difficulty I have with some of this conversation is that we are talking about services that are going to be rolled out in the market over the next year and obviously Mr. Maduri or any of us at our turn is going to have difficulty discussing details as to what we actually plan to offer commercially because we are all competitors and we all have different plans and this is a competitive market.

8223   So take our business, you know, the wireless business where increasingly people are taking broadband through a SmartPhone that could use much as $700. You can buy the SmartPhone for $700, which is really, if you want analogous to your satellite dish, or you can sign a three-year contract.

8224   I'm not trying to instruct Mr. Maduri on the choices to make because that would probably offend the Competition Bureau, but it does strike me that what is sort of being put on the table in terms of how you recover these installation costs, front-end equipment costs. always seem to assume a worst case scenario.

8225   THE CHAIRPERSON: Mr. Maduri, before I let you go, just coming back for one second to the question of backhaul, do you offer backhaul in a small community, say we will set up our own rural thing, but we want to have the traffic to and from our community go via your satellite.

8226   Do you are for that?

8227   MR. MADURI: We don't today, no.

8228   THE CHAIRPERSON: You don't. Okay.

8229   Well, thank you very much for coming back and sharing the chart with me.

8230   Let's move on, Madam Secretary, to the next intervenant.

8231   THE SECRETARY: Yes. I will now invite, please, Bell Aliant, KMTS, NorthernTel and Télébec.

--- Pause

8232   THE CHAIRPERSON: Okay, Madame la Secrétaire, commençons.

8233   THE SECRETARY: Yes.

8234   Please reintroduce yourselves for the record and you can proceed with your 15-minute oral rebuttal.


8235   MR. HENRY: Thank you, Madam Secretary.

8236   To my right is Peter Dilworth again, our Vice President Finance and Chief Procurement Officer; and Dr. George Hariton, to my left; and Michel Gilbert, Director Regulatory Affairs.

8237   Mr. Chairman, we welcome the opportunity presented by this next phase and, given the limited time, I am going to focus on just one topic, the local service subsidy regime.

8238   It will come as no surprise to you to hear me repeat that we have major issues with the current subsidy regime.

8239   One fact is undeniable: the current regime results in large transfers of funds from east to west.

8240   We have already told you that we serve half the high cost lines in the country, but what I forgot to mention last week is that these high cost lines represent more than half of our residential lines. That compares to much smaller percentages for all the other major ILECs, including the western ILECs. And virtually all of our business is wireline because we don't operate wireless in most of our territory.

8241   So that's why this issue is so important to us and why we have been eagerly anticipating this proceeding as a top priority.

8242   We are tiring of the innuendo we have heard in this proceeding suggesting that the cost of our operations are lower because the west has mountains and prairies while we operate in PEI, Nova Scotia and New Brunswick.

8243   In fact, three-quarters of our high cost lines are not in those provinces. Our territory is extremely challenging to serve, from the outports of Newfoundland, to the isolated settlements in northwestern Ontario, to the arctic regions of Québec well north of James Bay, to the nether regions of Labrador, and to the 240 First Nations communities we serve, some of them close to 2,000 kilometres north of here.

8244   In the last year alone, we have had major ice storms that toppled a remote microwave tower, not to mention two hurricanes.

8245   It seems as if many parties see Bell as the urban company and Bell Aliant as the Atlantic company. Our purchase of Bell's rural operations in Ontario/Québec did not make that territory disappear. We cannot ignore the fact that 56 percent of our owners are public unit holders -- not Bell -- and that our operations must stand on their own financially.

8246   So how do our costs stack up against the other ILECs and translate into subsidies in the current regime?

8247   Well, I showed you a chart on opening day of the hearing. That chart had numbers based on 2009 data showing that the western ILECs were receiving around six times more subsidy per line than us, despite having prices that were 10 percent higher.

8248   Now, there have been allusions to last week's decision approving the latest 2010 subsidy charges so we updated the 2009 figures in the chart in the package we handed out. If you turn to that in the separate package we handed you, you will see it.

8249   That reflects the 2010 data based on that decision. Again, the results are similar. In fact, as you will see, the western ILECs are now receiving seven times the subsidy per line as us, while their prices remain 10 percent higher.

8250   Mr. Chairman, you don't need a statistician --

8251   THE CHAIRPERSON: Can you tell us which chart? Are you referring to this chart here?

8252   MR. HENRY: Yes. Yes, indeed.

8253   So we have superimposed the 2010 data on the 2009.

8254   THE CHAIRPERSON: Okay. Thank you.

8255   MR. HENRY: So as I say, you don't need a statistician or economist to tell you these numbers just don't make sense.

8256   However, we have one. The HDR evidence proves that these results are statistically implausible.

8257   Now, I'm not going to take you through this, but Dr. Crandall for TELUS has tried to call that analysis into question based on U.S. data, and MTS criticized it yesterday.

8258   I'm not going to deal with those technical matters here, but suffice it to say that in our rebuttal evidence of HDR they put in a new statistical analysis last week that just demonstrates that Dr. Crandall's conclusions are simply not supported by Canadian data.

8259   As to MTS's allegations, we have dealt with that in our interrogatory responses.

8260   So it's obvious there is a problem here and that problem stems from both sides of the subsidy equation: price and cost.

8261   Let's look at price, because it seems to me there has been a lot of misconception. Local prices in Canada are all over the map.

8262   We have all heard about the $36.20 price in two exchanges in our territory. As Bell shared with you yesterday, prices are also well over $30 in many other exchanges in Canada.

8263   And let me dispel another myth, these are not just communities that have large calling areas or are populated by rich cottagers from big cities.

8264   All of the examples I'm going to give you I should mention are high cost communities.

8265   Example, Virginiatown. That's an exchange just east of Kirkland Lake, Ontario, it has a total of 331 lines and a population of 674 and the local service price there is $34.20/month.

8266   Another example, Calstock, a First Nations community located just northwest of Hearst with a total of 305 lines and a population of 705. Again, the price of local service there is $34.20.

8267   Neither of these communities have extended local calling areas and both have median annual disposable family income well below the Canadian average and unemployment levels well above. There are many other exchanges like this in Canada.

8268   Now, at the same time many other exchanges have prices in the low-mid $20 range.

8269   Example, Bala in the heart of the Muskokas, which is populated by wealthy seasonal dwellers from the big cities, has a local price of $23.58. In fact, there are many other lower priced exchanges in Canada, including exchanges in prosperous provinces like Saskatchewan and Alberta.

8270   It is difficult to explain to customers in Calstock why under the current system they are paying over $34 for local service while customers in the Muskokas or in Saskatchewan and Alberta, for example, are paying far less and are in fact being subsidized to keep those prices low.

8271   There are also dramatic examples of price differences amongst neighbouring communities. Take, for example, the communities of Disraeli and Garthby near Sherbrooke, Québec. These very small communities are 13 kilometres apart, yet local service in Garthby is $23.58 and in Disraeli $30.97. The people of Disraeli are effectively paying a surcharge which disproportionately goes to Garthby.

8272   Another example. We heard a lot about the $36.20 price and one of the two communities paying that price is Notre Dame de la Salette which has extended local calling with Ottawa. However, 70 kilometres down the road the community of Montebello also has extended local calling with Ottawa, yet its price is $24.45.

8273   Mr. Chairman, these prices are trapped in a regulatory time warp that simply defies rational explanation today. It's time we changed all that and moved to a standard and affordable price ceiling in regulated high cost areas across Canada.

8274   Let's now move to the cost side of the equation. Here the problem is obvious, the solution is not.

8275   I have already explained that the cost differences across the country are implausible, but to fix costs would be a terribly long and controversial process. We have laid out the types of issues that would have to be addressed at some length in our written undertaking No. 3.

8276   These include things like defining the appropriate objectives and costing principles, the continued appropriateness of the growth route/growth technology concept in the face of changing network architecture, developing a process for updating costs, ensuring consistency across ILECs, evaluation of "X" factors and reassessing band definitions.

8277   All of these issues are interrelated and cannot be resolved in isolation.

8278   TELUS has suggested that the Commission could take a short cut and simply update capital and maintenance costs for all ILECs. But this is no shortcut. Capital and maintenance are not just two items, they are multiple items that account for about 90 percent of the costs. They involve complex decisions about transport, switching, structures, remote switches, feeder and distribution cabling, terminals, drop wires, loop links, construction mix, fill factors, cable size -- the list goes on.

8279   It took years to settle the rules for operating expenses but capital expenses are even more controversial. And unless we figure out how to ensure uniform application across all ILECs, we will have no assurance that we will be in any better place when we are done.

8280   SaskTel at least seems to imply that the variations in costs across ILECs may not be justified by suggesting the use of updated Bell Aliant costs that soon will be coming out of the loop cost proceeding. While this might improve our situation, especially if you combine it with some price increases, there is no guarantee that it would not lead to calls for further updates from other ILECs, and that could put us right back where we started in terms of wide cost differences, at least until a broader review is undertaken to ensure consistency of application and approach.

8281   In short, Mr. Chairman, we have thought long and hard about this because we would like nothing better than a quick fix. Unfortunately, we cannot find an alternative to a full costing review.

8282   So what's the solution to this subsidy issue? Well, the options are actually quite limited.

8283   But one thing seems obvious to us: prices should move to the highest affordable level before even thinking about whether and how to subsidize them. As you know, we think $36 could be that price but, in any event, well above $30.

8284   Questions have been raised about how the Commission could be satisfied that such prices are reasonable. Let me tell you why:

8285   First and foremost, they would be affordable and you, not us, would determine that.

8286   Second, they would eliminate the totally unjustifiable subsidization of some customers by others.

8287   Third, they would permit a substantially reduced reliance on a complex regulatory mechanism and reduce regulatory risk, all consistent with the Policy Direction.

8288   Now, further questions have been asked about how the Commission can accept prices of, say, $36 as reasonable in the face of the currently prescribed costs for Bell and Bell Aliant or in the absence of reliable costing information. Well, first of all, we don't accept those costs as valid, for all the reasons we have discussed.

8289   And, actually, if you look at the hybrid loop costs that have been filed in the loop cost proceeding ($36.28 and $38.11 for Bands "E" and "F") and then you add the extra costs required to provide local service, then these local service costs would be in the $42 to $44 range for Bands "E" and "F".

8290   But that aside -- that's not my main point. There is a more important point -- determining prices without basing them on costs is not only appropriate in the circumstances, especially where costing issues abound, but it is entirely consistent with the modifications Parliament made to your statutory framework in the nineties.

8291   Mr. Chairman, I remember this vividly. At the time, price regulation was becoming in vogue around the world but there was a worry that our legislation, the Railway Act at the time and the jurisprudence, required the Commission to set rates in relation to carriers' rate bases which effectively means some kind of cost base. So Parliament addressed that and specifically enacted a section in the new Telecom Act in 1993 to say that the Commission need not be bound by such concepts. That section is now section 27(5) and it says as follows:

"In determining whether a rate is just and reasonable, the Commission may adopt any method or technique that it considers appropriate, whether based on a carrier's return on its rate base or otherwise."

8292   The enactment of this section cleared the way for the Commission to decide to move to price cap regulation in '94 and we have never looked back. While we set the initial retail prices based on costs, from then on we have not based them on costs.

8293   So we think it is entirely reasonable for all the reasons I have stated to move to affordable prices, without regard to costs. If this is done, then subsidies can be eliminated in all but the most remote areas. We recognize that this conclusion cannot be demonstrated with mathematical precision, given the costing issues.

8294   But think of the alternative. The only alternative to eliminating subsidies would be to try to fix the costing. That would not only take too long, but it's not clear that you would ever get to the right answer.

8295   We also think you would have to eliminate the current formula which unrealistically assumes that the ILECs can achieve productivity in these high-cost areas at 3.2 percent in excess of the productivity gains in the economy at large. SaskTel and TELUS seem to agree on this point.

8296   If you turn your attention to the same chart again, the effect of this productivity formula on subsidies can be seen. You will see that in 2010 Bell Aliant's net subsidy per line is $1.57, down from $2.17 in 2009. Similarly, for the western ILECs, the subsidy received is now $11.14, down from $13.55 last year.

8297   This kind of deemed productivity has not been achieved and is not achievable in the face of declining lines, higher copper prices, higher electrical power prices, and many other things. And the adverse effect of this formula is multiplied if one's costs are understated in the first place. It results in many high-cost lines no longer qualifying for subsidy, as is now the case with all our high-cost lines in Nova Scotia and many in New Brunswick.

8298   As to whether subsidies should remain in forborne areas should you choose to maintain a broad subsidy regime, we have proposed a package whereby subsidies, the obligation to serve, and the standalone price ceiling would all be eliminated in forborne areas.

8299   I cannot leave this alternative without stressing the need for an immediate and temporary solution to address the distributional inequities of the current system should the path you choose be a broad subsidy regime with the necessary full costing review.

8300   And as you know, we have suggested some kind of cost averaging for all ILECs, just as has been done with the SILECs. We agree that you should update the margins from local features, and you have the information to do that.

8301   It would not be appropriate, however, to impute margins from long distance or other services. That would not be competitively neutral. Our competitors don't have to use their margins to subsidize local service. Again, there seems to be broad support for this proposition.

8302   I also want to clear up some confusion regarding the network access charge, or NAC. For Bell Aliant, at least, this charge only applies to certain long distance services purchased from us. It does not apply if the customer is only a local customer of ours so it is not associated with local service and should not be imputed.

8303   We should also not lose sight of the pricing issue during any interim period while costs were being examined. There is no reason why prices should not also be moved up during any interim period.

8304   Now, we stress again however, that all of this subsidy administration, costing review and interim solution can be avoided if you adopt our simple first option, raise prices to the $36 level and eliminate subsidies in Bands "E" and "F".

8305   So that leaves us with Band "G", a much more contained and manageable issue. These are truly remote regions with no road access and everyone seems to recognize that they will continue to require subsidies.

8306   However, the distributional inequities from the current cost discrepancies between ILECs need to be fixed. It is not just B.C. that needs helicopters to install and service equipment in these types of areas, so do we.

8307   So to remedy these inequities, we have suggested averaging Band "G" costs for all ILECs and removing the X factor.

8308   We also need to address the current shortfall which we estimate at approximately $10 million annually arising from the operation of our long-haul facilities which provide access to long distance. And this is a similar issue that I think you heard from NorthwesTel.

8309   It's a matter of concern to us and we would request that the Commission examine and resolve this issue in an expeditious manner.

8310   Now, Mr. Chairman, just to try to make this Band "G" discussion a little more real for you before closing, I would like to leave you with a few images of our Band "G" territory to give you a sense of the challenges we face. We have some pictures and they are appended to the handout. If you just bear with me for a moment I will just show you them briefly.

8311   On page 2 this is a picture of Bell Aliant's most northern-served community, Ivujivik, I think is how you pronounce it. It's 1,900 kilometres north of Ottawa. It's served by Hughes' Telesat satellite. That equipment is "manufacture discontinued" so we have an issue we are facing there and very soon. And this is north of 60.

8312   You go to the next picture. This is a First Nations community, no road access, 95 NAS, 900 kilometres north of Thunder Bay. There is a 510 foot tower there and it's past its life estimate and it too is manufacture discontinued. And we have more, just like this.

8313   If you go to the next picture this gives you a typical radio site in Labrador. I think you get a sense of the typography there and this is, again, 900 kilometres northwest of Cornerbrook.

8314   You go to the next picture. You will see earlier this year we had an ice storm and a microwave tower collapse. This is a very remote location, very hard to get to, especially in ice conditions. The cost there to replace that was $2.5 million.

8315   And, lastly, this is some more modern equipment up north. You kind of see the conditions we face there. That's a totally-encrusted piece of equipment that needs maintaining and of course you can see the helicopter.

8316   THE CHAIRPERSON: Since we are on the pictures, the second-last one where you have the broken micro tower. How did you actually serve those people until the signal was rebuilt?

8317   MR. DILWORTH: I think for a period of time they were without service. We were able to get it fixed pretty quickly.


8319   You are relying on this HDR study which deals with probability and, as you heard from Dr. Crandall, it's based on one variable and that's density. He has made what appears to be a very cogent point, is density is not the only variable. You have to look at others such as typography for instance, et cetera.

8320   Why would you -- why have you not done that? Why have you not taken one sort of another variable into account by just doing a statistical analysis on the basis of density? Don't we get a misleading picture?

8321   MR. HENRY: Well, I think first -- I am going to hand this to Dr. Hariton, but I think first and foremost the one thing that we and Dr. Crandall agree on is that density is by far the biggest factor. His point is that the relationship is not constant, so that -- based on U.S. data that the densities instead of being a straight line are more curved.

8322   But he, himself, concludes that density I think is the most important factor.

8323   But Dr. Hariton is our mathematician and economist so I will let him explain.

8324   DR. HARITON: Thank you.

8325   What we have here is a situation where the one variable of density explains 80 percent of the differences in costs if you look at the different bands and the different ILECs.

8326   That's true whether you look at it for all Bands "A" to "G" or whether you look at it for the high-cost Bands "E" and "F" and also if you look at "G", because as I understand it, HDR ran redirections every which way.

8327   The results are always the same. It comes out to the density, the one density factor picking up or explaining approximately 80 percent, 79 percent of the differences.

8328   There is a lot of other variables at play, there is no doubt. It turns out that many of them feed through density. By measuring density you capture the effect of very many factors.

8329   There are other factors which would not be picked up by density like some of the pictures you saw in the presentation. But by and large it turns out that they tend to average out across different provinces, across different ILECs. At least this is what the statistical analysis shows us.

8330   So that while you are quite right there are other factors and, in theory, they could be very, very important, in practice the data tells us that they are basically averaging out or cancelling out.

8331   THE CHAIRPERSON: Let me translate it into something I understand.

8332   You are telling me that if you just do just density you more or less get rough justice and it works out. Bringing all the other factors into account would get it more precise but would not make a meaningful difference.

8333   DR. HARITON: That is correct.

8334   THE CHAIRPERSON: Now, your solution is to raise the price to $36 or at least above 30 bucks. For argument's sake, Mr. Henry, we accept it and we say, "Yes, go ahead. Do it" and you say "Over three years". You don't wear it. We wear it because we have -- we authorized it.

8335   What do I say to the consumers in those affected areas who sees for the next three years their price going up without any change in service, without any improvement, without anything, just basically status quo but the price authorized by the CRTC goes up in three equal increments of whatever they happen to be?

8336   MR. HENRY: Well, first of all, it removes the current cross-subsidization of one set of customers by another. So it's more equitable for all customers. At the same time, it also removes subsidies between regions.

8337   But, most importantly, I think, what consumers get is our continued ability to invest in both the urban areas which we need to do to remain financially viable and in the urban areas as well.

8338   THE CHAIRPERSON: Go to page 5. It gives you two examples of Notre-Dame-de-la-Salette and Montebello. I happen to know both of those communities.

8339   So what do I tell to the good folks of Montebello? "You are going to have to pay more." Nothing has changed. Everything you talked about the consumer doesn't know, doesn't understand and doesn't really care about.

8340   What do I explain to them that, "Sorry, you have to go up to -- you are going to be -- from now on just as -- within three years you are going to be just as expensive as Notre-Dame-de-la-Salette"?

8341   MR. HENRY: Again I think it is more equity between customers.

8342   This is something you have done before. We did rebalancing. We did it many years ago. We did, I think, several years of reasonably substantial price increases. Was there a huge customer backlash? No. There was probably some.

8343   It's no different than what we have done before and this is just completing the process.

8344   THE CHAIRPERSON: You have all sorts of other solutions and I presume you have run the numbers on it. One of them you say eliminates the productive factor. It doesn't make sense. Other folks have suggested that the imputed $5.00 also doesn't make sense, et cetera.

8345   To what extent would -- let's take the productivity factor. We say, okay, you are right. The evidence is there. That kind of productivity factor in remote or in outlying doesn't make sense. We discontinue it as of today, no more productivity factor imputed. To what extent does that address your problem?

8346   MR. HENRY: Well, it helps going forward. One of the problems, though, is that it's been going on for so long that it has the effect of understating the costs.

8347   So for example, the result of that unrealistic productivity factor means that in Nova Scotia and New Brunswick we already have no subsidy for our high-cost lines. Now, you heard Bell say they have no subsidy for their high-cost lines. We have some in Ontario and Quebec in this very high-cost territory that next year are going to fall off the cliff and they are very close to getting no subsidy.

8348   So you stop the decline but you are at a point where maybe, you know, you shouldn't be there to begin with. So it improves it but --

8349   THE CHAIRPERSON: I am sure you don't want to share it with your competitors, but have you run the numbers of what it would mean if we bought your suggestion that there is no productivity factor --

8350   MR. HENRY: Just kept the existing regime and just simply froze that?


8352   MR. HENRY: I haven't run the numbers.

8353   THE CHAIRPERSON: Can you run those and show what the impact would be on you?

8354   MR. HENRY: Oh, yes.

8355   THE CHAIRPERSON: Obviously, it's agreed you will file it in confidence.

8356   MR. HENRY: Sure.


8357   THE CHAIRPERSON: The same thing with the imputed $5.00 if we eliminated those?

8358   MR. HENRY: If you eliminated the imputed $5.00, sure we could. That's arithmetic.


8359   THE CHAIRPERSON: Okay. And somebody will ask, you know, why do we have to do this? You are here right now. You are a profitable company. Your costing may be historically as screwed up as you suggest for whatever reasons, et cetera. It doesn't reflect -- but you know you are serving those folks. You are making a profit, et cetera.

8360   What happens if we didn't do this? What happens if we say -- sorry, did I say something that triggered a question?

8361   What happens if we say we don't buy it? You have done so far okay. You know the subsidy regime is there. It is designed to be self-phased out. It is actually working that way. It is going down year upon year. We are not prepared to accede to your wishes. What does this mean for Bell Aliant?

8362   MR. HENRY: Well, I think increasingly with competition in these areas, we can no longer look to the company as a whole from all its regions basically subsidizing these areas. Increasingly, they have to stand on their own.

8363   We have a problem building up where you have a plant out there that is you saw "manufacture discontinued" that, sure, it's easy for people to say maybe the last couple of years your costs have been low. It's a bow wave that's building out in front of us. It will need replacing and we have to look at these to stand on their own.

8364   If we look at our Band "G", that interexchange facility problem, the long haul facility, we are losing $10 million a year on that. We just cannot do that anymore.

8365   What might have to happen if we can't address that problem; we might have to come to you and say, "We are going to have to abandon long distance service in that area".

8366   THE CHAIRPERSON: Okay. When you are talking about discontinued manufacture and we look at your chart here, you say Ivujivik -- I presume that's how you call it -- served by U.S. Telesat, manufacture discontinue, et cetera. So you are going to come forward saying "We don't serve Ivujivik anymore. We can't afford to".

8367   Is that what you are prepared to say?

8368   MR. HENRY: Well, I think we are in --

8369   THE CHAIRPERSON: I am trying to understand what is the worst-case scenario here.

8370   MR. HENRY: Yes. We are in this together. We think we need to look for a solution together. We are coming to you. We realize that you can't just accept the $10 million number I threw out. You are going to have to -- we are going to have to satisfy you of that.


8372   MR. HENRY: We could have a short proceeding to do that.

8373   But one of the options -- again, this is long distance service -- one of the options would conceivably be to discontinue service. We don't think that's the right option. We don't think you would think that's the right option and let's get at the costs and see if we can get it fixed for contribution.

8374   It's the same issue that NorthwesTel faces.

8375   THE CHAIRPERSON: Well, let them speak to it. Let's keep with Bell Aliant.

8376   So you are basically telling me that if we don't address your problem we have to face the facts that some of the remote communities you will discontinue servicing.

8377   MR. HENRY: I am talking the long-haul portion here. The actual local portion we want to get the costs fixed there as well but the one I'm specifically talking about is the long distance. So it's the backhaul access to long distance.

8378   THE CHAIRPERSON: I guess I am out of my technical knowledge here. You can do local services out of long distance service?

8379   MR. DILWORTH: Yeah. Mr. Chairman, if I can, we have looked at a 10-year economic study of the cash flows associated with continuing to provide long distance IX services in our Band "G" territory. I can tell you that we know we have a big profitability issue.

8380   It's principally in the central part of our region and it's relating to the fact that (a) we have very low revenues we are earning there, (b) we have very expensive ongoing operations expense to lease the satellite from Telesat, and then put on top of that we have got tens of millions of dollars we need to spend to replace old, aging equipment.

8381   Some of these towers that we are looking at are well over 30 years. Some of them were bought from the military. They were old, from the Cold War that we have refurbished but they just need to be replaced. There is lots of money we are going to need to put out there to keep that service going.

8382   THE CHAIRPERSON: But let us stay with -- I picked Ivujivik just because you suggested that.

8383   So if I understand you correctly, Mr. Henry -- I want to make sure I don't miss what you say -- if worst comes to worst, you basically would provide them local telephone service so they can talk to each other but no long distance?

8384   MR. HENRY: That is the worst-case scenario and we would hope that you and --

8385   THE CHAIRPERSON: No, that's not something I want. Let's make that absolutely clear. I just wanted to know what it is.

8386   MR. HENRY: Right, that is the worst-case scenario.

8387   THE CHAIRPERSON: Okay. At page 10, the second paragraph, you read it out. I listened to you and frankly, under 44, the second bullet, you want to walk me through it and tell me what the issue here is?

8388   MR. HENRY: Paragraph 44?

8389   THE CHAIRPERSON: Second bullet.

"It would not be impute margins from long distance or other services."

8390   MR. HENRY: Okay.


8392   MR. HENRY: As I said, I think there is broad agreement from at least the carriers that are serving rural territory to -- our competitors do not -- our long distance competitors of Primus or whoever does not -- this would be the equivalent of saying that every profit you make you have to throw into the contribution pot.

8393   So that's what you are doing. If you take all the margins it gives us no incentive to introduce new long distance services to make them more profitable because it just -- what it does is, it reduces subsidy.

8394   Now, the features that's different. The features you can only get if you get local service. But long distance you can get from anybody.

8395   So it's competitively neutral. We have to take all our long distance profits and just subsidize local service. Competitors don't have to do that.

8396   THE CHAIRPERSON: I also want to clear up some confusion regarding the network access charges or NAC. Is that the same point or a separate point?

8397   MR. HENRY: It is a point to illustrate that. I think there was some confusion. Some people, and maybe some parties if this is the case -- some people, I think, thought that the network access charge was a charge you paid for getting local service. It was an extra charge. Just like the old system access fee on mobile service, you paid it to get mobile service.

8398   I think there was some confusion and it may be that with some parties that this is the case, that you paid a network access charge to get local service. You don't. If you get local service from us you do not pay a network access charge.

8399   If you get long distance service from us, you pay it for some services. You could get local service from Rogers and long distance service from us. You pay it. You get local service from us and long distance from Primus, you don't pay it.

8400   THE CHAIRPERSON: And in paragraph 49 where you are talking about "G" Band and you say:

"We need to address this current shortfall...arising from the operation of our long haul facilities..."

8401   But you are not suggesting any solution. You are -- is this a call for a follow-up hearing to deal with Band "G"?

8402   MR. HENRY: I think so. I mean we have given you a number. I think it's realistic to say I don't expect you to just take that and write that into your decision. What I would like is a principle that says we understand there may be special circumstances here to look at this particular issue because of the north, because it's unique.

8403   But I think you could -- you know, we are talking a very finite problem here, something that I think could be dealt with fairly expeditiously. And there may be other carriers that have the same problem. I don't know. We could just look at Band "G" and look at that issue, but I think it could be done expeditiously.

8404   THE CHAIRPERSON: Okay. And lastly, you haven't -- you only talked about the issue of subsidy, obviously. You didn't at all address the issue of an objective or a goal for broadband service, et cetera. You have heard over the last two days --

8405   MR. HENRY: Yeah.

8406   THE CHAIRPERSON: -- of a lot of people mentioning 5 Mbps as an appropriate target. Can I have your views on this?

8407   MR. HENRY: Yes, absolutely. I don't want you to think that we don't this is an important issue. I wanted to do justice to the one issue --

8408   THE CHAIRPERSON: No, I understand that.

8409   MR. HENRY: I think I'm quite prepared to accept aspirational targets. I think -- I hesitate to say I think there is almost a consensus developing around that. And I have no problem with looking at an aspirational target.

8410   When we are talking ubiquity now I will say 3 to 5, 4, measure ourselves against the U.S.

8411   But I think what we should be focused on is the ubiquity part of it. Other targets like 75 percent of people having 100 Megs or whatever, I mean, you can do that and, again, if it's aspirational I guess it's not particularly harmful. But I thought we were here to talk about ubiquity.

8412   THE CHAIRPERSON: No, I'm with you there, minimal across the country.

8413   MR. HENRY: Yeah, exactly.

8414   THE CHAIRPERSON: There is this sort of two classes, et cetera like the Australians seem to be willing to accept or the Americans, I think. It's not the way we do it in this country.

8415   MR. HENRY: Right.

8416   THE CHAIRPERSON: So I just want to know national minimal.

8417   MR. HENRY: Yeah, again, if it's aspirational then we revisit it and without any mandatory obligations or subsidies. I'm fine with that.


8419   Len, you have a question?

8420   COMMISSIONER KATZ: Thank you, Mr. Chairman. I have got a couple of questions.

8421   I want to refer you to page 10, paragraph 43 of your remarks this morning. You conclude that paragraph by saying:

"We have proposed a package whereby subsidies, the obligation to serve and the standalone price ceiling would all be eliminated in forborne areas."

8422   And I want to pick up on the obligation to serve. Yesterday or the day before, there was a discussion about examples where carriers may have walked away from markets.

8423   One example was Milton, Ontario where Futureway was operating and seized to operate. I guess -- I think it was probably Bell Canada that went in there or Rogers, one of the two. I would like to hear from either one of them as to what happened there and were the customers inconvenienced.

8424   The reason I ask the question is so you can think about how you are going to answer it when Mr. Bibic responds to it, is: If, in fact, there is a walk-away, what happens to the customers if we remove the obligation to serve?

8425   And so, Mr. Bibic, maybe you could talk about what happened in Milton, or someone can.

8426   MR. ABBOTT: Good morning, Vice-Chairman Katz. I'm Bill Abbott, from Bell Canada.

8427   With respect to the situation in Milton with Futureway, there was no disruption of service. It is a rare example of a carrier walking away from their facilities, but more importantly, it's an example of how the market facilitates a seamless transition of service, with no disruption of service, and without the obligation to serve.

8428   Futureway had six subdivisions that it was slated to serve in Milton. For some of them there was an agreement, but no facilities in the ground. For some of them there were facilities, but no customers. And in at least one case, the facilities were in the ground, ready to go, and there were customers receiving service.

8429   Futureway, to the best of my understanding, decided not to serve as a result of the expense of the backhaul from Milton to Vaughn, where their switch was, and also because of difficulties getting rights-of-way from Hydro.

8430   Futureway, Bell Canada and Cogeco worked together to ensure that the customers who were receiving service continued to receive service, without any disruption, and to ensure that the developers, who had previously been relying upon Futureway to provide service, could continue to promise service to their prospective customers.

8431   For the most part, Bell was unable to reuse the facilities that Futureway had in place due to different cabling technologies.

8432   However, I think the important thing here is that there was no disruption of service, nobody had to change their phone number, and to the extent that people were receiving high-speed, there was no disruption there.

8433   So it is a rare example of a carrier walking away from their facilities, but the market took care of the situation, and there was no obligation to serve, and that, in fact, demonstrates that there is no need for the obligation to serve in a competitive environment.

8434   COMMISSIONER KATZ: That wasn't the question. Did Bell Canada have an obligation to serve at that time, regardless, under either the PES, the basic service objective, or the Bell Canada Act?

8435   MR. ABBOTT: That would depend. I would say, for the most part, no, but I would have to actually look at the maps and the facilities that were in place, because it depends very much on how far a premise is from our facilities.

8436   MR. DANIELS: Commissioner Katz, it's Jonathan Daniels here from Bell Canada.

8437   Just to put it in context, not that I was with Bell at the time, but I remember the situation because Bell had applied -- at the time, Futureway was associated with the developer who was actually building some of these subdivisions, and Bell wasn't allowed in to some of these subdivisions during the construction phase.

8438   If I recall correctly, there was an application by Bell to the CRTC to be allowed in during the construction phase of the subdivisions, and the CRTC ultimately decided that it was up to the developer to make that decision.

8439   So it was possible in some areas. Bell Canada wasn't even allowed, originally, to put facilities in some of these subdivisions.

8440   But what I think my colleague was describing to you was, Bell was still interested, went in, built facilities, didn't have an obligation, was able to serve those customers, and in the other areas it made negotiations and there was a hand-off. There was a seamless hand-off that the market worked out without the obligation to serve playing any role in it.

8441   COMMISSIONER KATZ: Mr. Daniels, the fact that a developer didn't allow somebody in while he owned the land is one issue. Notwithstanding the fact that Bell was denied the right to put their fibre into the trench or whatever, once that land reverted over to the city and it became public property, the question is: Did Bell Canada -- does Bell Canada -- have an obligation to serve that customer if he called up and said, "I want service"?

8442   MR. DANIELS: The answer, in that case, is no, unless we have facilities within 62 metres fronting that house.

8443   If we aren't in that subdivision in the first place, because we didn't build-in, then we don't have facilities, so there is no obligation to serve.

8444   Having said that, in the one circumstance that Mr. Abbott referred to, we actually went in and still built the facilities, despite the fact that we didn't have an obligation to serve, and we were able to serve those customers.

8445   In the other areas, we made arrangements with Futureway to make sure that we had the facilities done in construction. So there was the hand-off that he talked about, but that's with Cogeco.

8446   COMMISSIONER KATZ: Mr. Henry, if I look at this Ivujivik map and your suggestion, or your allegation, that the worst case scenario is that there would be no long distance service, would that be contrary at all to your obligations?

8447   MR. HENRY: To the extent that long distance is forborne, perhaps not. But we do have access tandem tariffs, so we would have to come to you to deal with and remove those access tandem tariffs.

8448   I am not suggesting -- again, I think we are in this together. I don't think we would do it without coming to you.

8449   COMMISSIONER KATZ: Okay. There is a comment from the back, on the same topic hopefully.

8450   MR. HOLMES: It's Jonathan Holmes from OTA.

8451   I don't think that Milton was a high-cost serving area, and I wonder whether Bell Canada would have gone into Milton if it wasn't in a fairly built-up area and was in a high-cost serving area.

8452   We have, since yesterday, been able to locate an example of where a cable company, actually just last year, pulled out of a place called Lansdowne, Ontario. They actually pulled their plant out of that area. So we found another example of a carrier that has actually left in a high-cost serving area.

8453   COMMISSIONER KATZ: Thank you.

8454   MR. BIBIC: Vice-Chairman Katz, if I may, I think the bottom line is, where we have facilities we will serve. We want customers, and regardless of whether or not there is a regulatory obligation to serve, if the plant is there, we will serve the customer.

8455   Marketing people wouldn't let us deny service so that Mirko Bibic could make some kind of high-minded regulatory point.

8456   We will serve.

8457   THE CHAIRPERSON: That's not what Mr. Henry said, with all due respect. He just said, exactly to the question posed by both me and Mr. Katz, that at that point in time he has to contemplate discontinuing service, or at least long distance, and he will come to us and talk to us. Effectively, he puts it on the table.

8458   MR. BIBIC: Mr. Chairman, a completely different situation. Vice-Chairman Katz is asking us about Milton. If you go back to --

8459   THE CHAIRPERSON: No, I'm not talking about Milton, I just --

8460   MR. BIBIC: Let's move away from Milton. Let's go back to our proposal. No obligation to serve where forborne. We are forborne where there is competitive choice. It's not the situation that Mr. Henry is talking about, in the far north, where there is no competitive choice. That is the fundamental difference between the situation that Mr. Henry highlights and the debate we are now having, which started with the Milton example.

8461   THE CHAIRPERSON: Okay. So, basically, your comments are restricted totally to forborne areas, and you are basically saying that, as a corollary to having introduced competition and having declared the area forborne, we don't have to worry any more about somebody getting service.

8462   That's really what the bottom line is.

8463   MR. BIBIC: That's the bottom line.

8464   THE CHAIRPERSON: The competitive forces will provide service, one way or another.

8465   MR. BIBIC: And that's why I interjected.

8466   COMMISSIONER KATZ: Mr. Hennessy?

8467   MR. HENNESSY: Thank you, Mr. Katz; Michael Hennessy from TELUS.

8468   I should remind the Commission that, like so many things in this proceeding, nothing is the same, and you will find that, depending on the company, their obligation to serve is defined differently.

8469   Bell Canada, for instance, has this 62 metres, I think it is, test. In TELUS territory, for instance, we have to serve within the exchange, but only up to the first $2,500.

8470   So, in those extreme cases, say, that Mr. Henry was talking about, where it might cost $1 million, we put the first $2,500 in.

8471   Other companies may have different rules, again because of history. There is no standard, defined obligation.

8472   COMMISSIONER KATZ: Thank you.

8473   Mr. Meldrum, Saskatchewan?

8474   MR. MELDRUM: Mr. Vice-Chairman, it's John Meldrum from SaskTel.

8475   Further to the point that Mr. Hennessy made, we recently got forbearance for the Melville exchange. We are only sitting with something like 76 percent of the people within the Melville exchange -- within the City of Melville itself. The other 24, 23 percent are all in high-cost rural areas.

8476   Again, I don't know how you can take away the obligation to serve and the subsidy that comes to keep those rates affordable.

8477   COMMISSIONER KATZ: Thank you.

8478   I am going to move on.

8479   THE CHAIRPERSON: Before you do that; Mr. Hennessy, can you clarify your statement?

8480   You are saying that the obligation to serve is not uniform, that there are various companies --

8481   MR. HENNESSY: Yes, that's right.

8482   Bell's obligation, which I believe derived originally from the Bell Canada Act, is based on the distance from the last facility, as to whether or not you have to serve.

8483   What we operate under, recently, I guess, with adjustments from the CRTC, is that you have to serve in the exchange, but only up to the first $2,500 of cost.

8484   So if somebody can't afford -- you know, if it's very expensive and they can't afford it, we are not obliged to deliver that service beyond the $2,500.

8485   THE CHAIRPERSON: That's a minor distinction. The fact is, within specified parameters, whatever they are, you have an obligation to serve these folks.

8486   It may be slightly different from company to company --

8487   MR. HENNESSY: No, I don't want to debate with you on the minor distinction, I just think that there are differences.

8488   It's not that minor, actually, because you can have large chunks of an exchange where facilities don't go down a road, and therefore, potentially, Bell is not required to serve that full exchange, and under our rules we are.

8489   So it could be a big difference, it depends on the characteristics of the customer at a particular point in time.


8491   COMMISSIONER KATZ: Mr. Henry, I asked you in Phase I about whether there was a balancing of the subsidies between Bell Canada and Bell Aliant when the transfer took place, and you were kind enough to file an interrogatory -- I guess it was yesterday -- and I was reading it over last night, and you chose to use double negatives in a lot of places. Maybe you did that purposely, I don't know, but --

8492   I will refer everyone to this document. It was dated November 1st, and it's "Response to Undertaking: Bell Aliant - CRTC - 26 October 10-2, TNC 2010-43".

8493   It is page 2 of the document that I was referring to.

8494   Do you have it in front of you?

8495   MR. HENRY: I do.

8496   COMMISSIONER KATZ: The second-last paragraph says: "There is a positive impact on Bell Aliant and a negative impact on Bell Canada."

8497   Then it says: "The positive impact on Bell Aliant is that the reduction in net subsidy from 2009 to 2010 is approximately $7 million less than it would have been without the averaging."

8498   And then: "The negative impact on Bell Canada is that the reduction is $3 million more than it would have been without the averaging."

8499   Do you want to peel back the onion and tell me what the net of all of this says?

8500   MR. HENRY: Seven minus three is four.

8501   COMMISSIONER KATZ: So there was a $4 million subsidy increase because Bell Canada sold the assets to you.

8502   MR. HENRY: Yes, and the reason for the double negative -- I just want to make it absolutely clear that we are not actually getting more subsidy, the whole pool is going down.

8503   You saw my other chart; we are going down and Bell is going down, but relative to what it would have been, the net is $4 million more.

8504   Bell loses 3, we gain 7. Relative to status quo, there is a positive 4.

8505   And this is to correct, actually, an inequity that has been going on since 2006, because we didn't de-average those lines, and what it means is that there are more lines that fall off the cliff, as we like to call it, that don't receive subsidy any more. And we would have had more lines fall off that cliff this year if we hadn't done the de-averaging.

8506   So we were able to stem the tide just a tiny bit, using these old, outdated costs. This didn't fix the major problem.

8507   And, again, you can see my chart, it's still seven times more in the west than in the east.

8508   COMMISSIONER KATZ: Yes, but the point I am trying to understand is, if this transaction had not taken place, somebody in Vancouver, British Columbia would have had to have subsidized less.

8509   MR. HENRY: That's right, and 56 percent of my shareholders would have been hurt.

8510   COMMISSIONER KATZ: I guess my only point is, when Bell Canada and Bell Aliant came to the CRTC, it was a zero-sum game, and what it looks like here is that there was a $4 million difference in the outcome from the subsidy regime as a result of it.

8511   That's all I am trying to understand.

8512   MR. HENRY: You say it was a zero-sum game. Staff knew all these numbers, and similar things have been done in the past.

8513   It's a zero-sum game in terms of the cost de-averaging, which was absolutely cost neutral. The weighted average of the costs before was the weighted average afterwards.

8514   The only reason there is more net is because there are fewer lines getting subsidy than before, so it corrects the inequity.

8515   COMMISSIONER KATZ: Okay. I don't think that's the case, personally, simply because, if it was a zero-sum game, whatever subsidy in that same market that Bell Canada was getting, you're getting, and vice versa. The fact that the averages may have changed, and therefore the subsidy across the entire band changed, is what caused this, presumably.

8516   But one would assume that if you are getting a subsidy, or they are getting a subsidy, it should be the same subsidy, and it obviously wasn't.

8517   MR. HENRY: I don't accept that proposition.

8518   You might have a point if these were two units, both 100 percent owned by the same owners. Then you might say, "You have done something here to get $4 million more."

8519   But we have different ownership.

8520   If this was a transaction between any other companies, this would happen in a minute, and the only reason -- if we were both receiving subsidies, and nobody was near the zero line, the change would have been zero. The only reason is because Bell already wasn't receiving some subsidies, so we were able to save some subsidies from dropping off that cliff. That's the only reason there is a minor -- it's minor, it's $4 million on a $175 million base.

8521   COMMISSIONER KATZ: Yes, but it's still $4 million coming out of someone's pocket. That's all I am saying.

8522   MR. HENRY: Absolutely, and rightly so.

8523   COMMISSIONER KATZ: Okay. Let me turn to the next double negative. It's two pages over, and it has to do with your discussion with the Chairman on the network access charge, or NAC, which you responded to, as well, and you explained the issue using a double negative.

8524   You say: "It does not apply to customers who do not purchase long distance from Bell Aliant."

8525   If I turn that around and simply say, "It does apply to customers who do purchase long distance from Bell Aliant," I would argue that, therefore, it does come under the implicit contribution concept that exists right now in the subsidy regime.

8526   I mean, the fact that you used a double negative and said that it doesn't apply to those that don't buy it, means that it's not part of the local service regime.

8527   MR. HENRY: You have to buy long distance. You don't have to buy local. Whereas, with options and features, you have to buy local to get options and features.

8528   So I entirely disagree with that point.

8529   This is no different than long distance. In fact, it doesn't even apply to all of our long distance. There are certain plans where you don't get it. But it only applies to long distance.

8530   If you are going to start imputing those margins, you may as well start imputing margins from any other service.

8531   COMMISSIONER KATZ: If the customer is a customer of Bell Aliant and you choose to charge him a network access charge to have access to the long distance network, from which he gets his local service --

8532   MR. HENRY: He doesn't get his local service from the long distance network.

8533   COMMISSIONER KATZ: He gets it from the local service from Bell Aliant.

8534   MR. HENRY: Okay.

8535   COMMISSIONER KATZ: Okay? He is a customer of Bell Aliant for local. You have chosen to charge him a network access charge to also get long distance from that local infrastructure. Therefore, I would argue that it's part and parcel of the same philosophy that was used to create the implicit contribution.

8536   MR. HENRY: But why is the NAC any different than any other part of the long distance charge?

8537   COMMISSIONER KATZ: I am not talking about the toll rates, I am talking about the NAC. The NAC gives access to the long distance network.

8538   What is your NAC supposed to recover if not access to your infrastructure?

8539   MR. HENRY: It's just another piece of long distance.

8540   COMMISSIONER KATZ: It's not long distance at all.

8541   MR. HARITON: Let me try that, if I may, in a different way.

8542   The price for long distance usually is a permanent charge, or there are plans where -- bundles, minutes. But the NAC is really -- it's like a two-part tariff. If you want long distance from Bell Aliant, you pay an entry fee, which is the NAC, and then you pay a per-minute fee, or they may have bundled it into buckets of minutes.

8543   So it's really the long distance price. It's part of the long distance price, it's not part of the local price.

8544   It goes together with long distance. If you take long distance, you pay a NAC. If you don't take long distance, you don't pay a NAC. The NAC is tied to long distance.

8545   COMMISSIONER KATZ: That's how you interpret it.

8546   MR. HARITON: That's how I interpret it.

8547   COMMISSIONER KATZ: Because you have decided to split them into two components.

8548   If you wanted to leave them as one component and got rid of the NAC, then I guess we wouldn't have an issue here. The fact that you have created this NAC --

8549   MR. HARITON: Well, yes, the wording may be -- the terminology is in marketing, it's not my domain, but the idea of a two-part tariff --

8550   You know, if I go to an amusement park, I pay and entry fee and then I pay so much per ride.

8551   There are many other places in the economy where I pay a flat fee and then so much per unit of what I actually consume, and I think you should look at the NAC as no different than that.

8552   COMMISSIONER KATZ: That's your view.

8553   Mr. Hennessy?

8554   MR. HENNESSY: Yes, Mr. Katz, if you wouldn't mind, just for a point of clarity, to make sure I am following.

8555   I think you are suggesting, at least, in your opinion, that the NAC is essentially a local -- is tied to local and provides access to toll, and the revenues from the NAC should, therefore, be imputed. I think that's Step 1, and I followed that, if I'm correct.

8556   What I am not sure of is, then, if you are saying, therefore, that all other toll revenues should be equally imputed because of that. If that's the question --

8557   COMMISSIONER KATZ: No, I was just looking at -- in fact, this came about in Phase I, when I asked the question: What additional services have been introduced since 2001, when the implicit contribution regime was first contemplated? Were there any other services that were introduced over the nine-year period?

8558   MR. HENNESSY: Okay. No, no, fair enough.

8559   COMMISSIONER KATZ: And that came up.

8560   MR. HENNESSY: Thanks for that clarification.

8561   COMMISSIONER KATZ: There is someone at the back of the room...

8562   MR. STEVENS: Keith Stevens from the OTA.

8563   I think there still is confusion over the NAC. The NAC is simply a subscription fee. Most carriers have some long distance plans that have a subscription fee and a low per-minute rate. Others have plans that have a high per-minute rate and no subscription fee.

8564   Some of our customers, if they take long distance from us, they may pay a NAC on some plans, and they won't on others.

8565   If some of our customers take long distance from Bell Canada, even though we are providing the local service, they still can be charged a NAC.

8566   It was a very poor term by the marketers to call it that, because it has nothing to do with access to local service, it is simply a subscription fee.

8567   There are also some toll providers that have a flat rate, unlimited calling for a subscription fee for the whole part.

8568   It has nothing to do with local, it's all to do with toll.

8569   MR. McKAY: It's Andrew McKay from SaskTel.

8570   We strongly agree with that, as well. You pay this fee to us, if you want one of our plans and you are a local customer.

8571   We have a very small number of customers who are not our local customers who can get long distance from us, and do pay this fee. It's totally an LD charge.

8572   MR. ROMANIUK: Orest Romaniuk from TELUS.

8573   As we can see, there are different programs. In our pricing plans, if you belong to any LD, say, bundle or package, you don't pay the NAC. We do not charge NAC where our long distance customer belongs to an LD plan.

8574   You don't pay the NAC if you are not a TELUS LD customer.

8575   So there are various layers, as you go down, as to when and where you pay the NAC. If you don't make an LD call in a non-forborne exchange, you don't pay the NAC.

8576   MR. DANIELS: Jonathan Daniels, Bell Canada.

8577   I disagree -- or, at least, I want to go back to first principles, but I disagree with Bell Aliant on its position here.

8578   The issue here is really about access to a long distance network; and coming back, I want to reiterate the statistic I said yesterday out of context, answering the wrong question at the time. It's 87 percent of our customers in high-cost serving areas that take toll from Bell Canada.

8579   Now, comparing that to options and features, everyone's position is, I think, that, yes, you should have an implicit subsidy for options and features. In Bell Canada high-cost serving areas that is only 61 percent.

8580   Now, Mr. Henry makes the distinction on the basis of: Well, wait, the difference is that the options and features are tied to the local service, because only the local provider is the one who can sell those features; whereas, with toll, another carrier can offer it.

8581   Now, practically speaking, as I just told you, that only happens in 13 percent of the cases in high-cost areas.

8582   But putting that practical situation aside, just think about, as I mentioned yesterday, the voicemail decision that you just made. That's an option/feature, it's part of the implicit subsidy, and yet the Commission just determined that competitive alternatives exist -- a whole bunch of them -- that are not tied to local service. There's the internet, there's call-answering machines at home.

8583   You have already made the determination that all of these other services are in the same market and form an alternative to the customers who take local service.

8584   So you have already made that determination, and yet everyone continues to support keeping STS, such as voicemail, an implicit subsidy, and they are only making a distinction now on toll because, for some reason, it hasn't been included and they want to keep the implicit subsidy low. We think that the implicit subsidy should really be used to reflect the profit that can be made by serving that customer, and toll is part of that; not in every case, but we are saying, on average -- look at what the average ILEC makes. You have that information. You have to take that into account.

8585   Thank you.

8586   COMMISSIONER KATZ: This seems to be a hot topic.

8587   Mr. Lawford...

8588   MR. LAWFORD: Thank you. This is the chickens coming home to roost, because the Commission allowed this charge to be put on when it was really an element of the basic service objective. So now you have a separate charge, and rates were not lowered when this separate charge was allowed to be levied on top, to take into account that now it's optional.

8589   This is why all of this has come about, because you have started allowing them to charge for elements of the basic service objective.

8590   COMMISSIONER KATZ: We are not here to discuss whether the charge should or shouldn't be there, we are discussing how to deal with the charge.

8591   Mr. Choquette...

8592   MR. CHOQUETTE: I hate to introduce another wrinkle to this, but in ACTQ SILEC territories, generally speaking, Bell Canada is the toll provider. The NAC, in the context of ACTQ SILECs, is the charge that is levied on the toll carrier for access to our local network.

8593   And the end user, in terms of a SILEC end user who has local service, does not see that. The amount is paid by the toll carrier to the SILEC.


8595   MR. WITTAL: Yes, I would jump in on Mr. Daniels' point and the question of whether the toll margin should be imputed or not. We strongly feel that it should not. We feel that the Commission severed the relationship between toll and local, as far as contribution goes, back in 2007-45, when it got rid of the per-minute charge and went to a revenue percent charge.

8596   We think that toll, as a competitive service, has to stand on its own, and as indicated by Aliant, sometimes it may not.

8597   The voicemail decision, which Mr. Daniels references, we would actually suggest that rather than revising a previous decision to mean that now toll should be included, perhaps that indicates that the optional imputation should be lowered because voicemail is not required.

8598   But we are not asking for that at this time.

8599   COMMISSIONER KATZ: Mr. Stevens...

8600   THE CHAIRPERSON: May I interrupt? I think we have exhausted this point. I think we have heard from everyone. Can we move on?

8601   COMMISSIONER KATZ: I have no more questions, Mr. Chairman.

8602   THE CHAIRPERSON: Okay. Suzanne...

8603   COMMISSIONER LAMARRE: Thank you, Mr. Chairman.

8604   Just a few points of precision, but before I ask those points I would like to profess my questions for your benefit, Mr. Henry, and for everyone else's benefit.

8605   I need to echo the Chairman's earlier allusion to some kind of discomfort. With the discussions we have been having for the past few days, I sense that we are not going to be able to get out of the hearing without increasing rates for everybody across the country, and yet we have a roomful of people who are making the apology of competition and how good it is for the customer and the consumer.

8606   Just keep that in mind, that's where I am coming from. I am trying to shake off that uncomfortable feeling, but somehow, the more we discuss it, the less I can.

8607   On more specific points, in paragraph 45 of your presentation this morning, Mr. Henry, you state again that you want to eliminate the subsidies in Bands "E" and "F". Just to be sure I understand your position, does that include the SILEC territories in Ontario, Quebec and B.C.?

8608   MR. HENRY: The short answer is yes.

8609   COMMISSIONER LAMARRE: Okay, fair enough. That's your position, and that's what I wanted to know.

8610   Now, about the obligation to serve, we have heard from the cablecos, in opposition to the SILECs' position, that the obligation to serve is not a burdensome obligation, so we really should not be arguing about this.

8611   If it's not burdensome, as the cablecos would like us to believe, for SILECs, certainly it's not burdensome for large companies like Bell Aliant or Bell.

8612   So why should we remove the obligation to serve in forborne areas?

8613   MR. HENRY: Well, I think first of all, legally, it is tied to a monopoly --

8614   COMMISSIONER LAMARRE: It is tied to?

8615   MR. HENRY: A monopoly. It only applies legally where there is a monopoly. Philosophically, we don't see why you need one when you have competition. And --

8616   COMMISSIONER LAMARRE: But let me stop you right there. Yes, you are saying you don't need one when there is competition. But if I remember correctly, SaskTel pointed out earlier you may get forborne areas, and within those areas there are locations where you do not have competition. The test is not 100 per cent.

8617   MR. HENRY: You know, that is a very interesting theoretical proposition. We don't see it. In practice, the cable companies come in. We have looked at it, typically they cover over 98 per cent of our exchange. Then you have wireless competition. So in practice, we don't see it.

8618   Let me give you another analogy. You forbore from long-distance many years ago on the basis that equal access was implemented. There are some switches in this country that still don't have equal access. The customers are captive to one long-distance provider. That didn't stop you from deregulating long-distance and, to my knowledge, there has been no uproar about it.

8619   So if we are talking about cable companies coming in with 98 per cent coverage in an exchange, wireless being increasingly a substitute and we are going to keep regulation just in case somebody thinks that we can search out and find those couple of customers that might be captive today, and there is no guarantee they are going to stay captive, it is unrealistic. We shouldn't keep regulation just in case that happens.

8620   COMMISSIONER LAMARRE: But can't we just keep it because, as the cablecos have said, it is not burdensome? And Mr. Bibic or Mr. Daniels also pointed out, look, we have facilities, we are going to serve.

8621   So on one hand you are telling us do not keep that obligation, it is not needed because we are already doing it. Well, if you are already doing it, what harm is there to keep it?

8622   MR. HENRY: Well, I have a slightly different answer. I don't agree with those who say the plant is sunk and it will never have to do anything more with it. This stuff does wear out, it does need replacing. You know, it is like somebody said to me, it is like the plumbing in your house, eventually it goes, but when it does it is messy.

8623   You know, these things are going to wear out eventually. You saw the towers we have to replace, you saw the copper -- sure, it is extended where the original lives -- but it is going to have to be replaced.

8624   Now the answer to that, in my view, is we are prepared to forego contribution in those areas provided we get pricing flexibility. Because we need the pricing flexibility to address those kinds of issues.

8625   I think, you know, having said what I said, you don't replace the network all at once, you know, you are going to replace pieces of it here and there.

8626   COMMISSIONER LAMARRE: I appreciate that very much.

8627   MR. HENRY: Right. So we think if you give us the pricing flexibility, move the price ceiling, that we should be able to manage that and, in the end, we probably won't pull out as somebody said. And I agree, our marketing people are not going to want us to pull out. But my only disagreement with the others is we will have some increased costs, we think we can manage it if we get the increased pricing flexibility.

8628   CONSEILLÈRE LAMARRE : O.K. Monsieur Bibic, Bell. Après ça, I see PIAC or is it SaskTel -- SaskTel and OTA.

8629   Monsieur Bibic.

8630   MR. BIBIC: Commissioner Lamarre, the only point I want to make is in response to the preface to your questions at the beginning. And you highlighted in your mind a potential tension in our positions between our request to increase prices and our usual arguments that competition delivers more value for customers.

8631   I don't think there is any inconsistency or tension in our position. We are fundamentally saying, and I believe -- I am going to go so far as to suggest that the cablecos agree and TELUS certainly agrees that where there is competition as manifested by forbearance, the obligation should be removed and we will let the market sort out where the prices go through competition.

8632   We are not asking for -- the only place where Bell anyway is asking for prices to rise to affordable levels is in Band "G". And there we are not -- going back to the questions that the Chairman asked Mr. Henry, our perspective on one of the suggestions the Chairman made is this. We are not asking you to order us to raise those prices in Band "G" where subsidy is needed, we are saying give us the flexibility.

8633   And it is up to the carrier to then decide whether or not it wants to increase price and, whether or not it does, for subsidy calculation purposes you would assume that it had. And this would be a way, you know, to relieve the overreliance on subsidy because prices have been kept artificially low.

8634   Mr. Chairman, I am sensitive to your point about the notion is what do you tell customers across the country whose prices will rise? I am saying they are not necessarily going to rise but sometimes, you know, the right thing isn't the most convenient thing. And carriers will have to decide in Band "G" under our proposal where prices go.


8636   MR. MELDRUM: Thanks, it is John Meldrum.

8637   So I hear Bell Aliant saying there is no fundamental difference between Saskatchewan and rural Ontario. And in the same breath they say when cable comes in they serve 100 per cent of the exchange. Well, the average exchange in Saskatchewan has 500 to 600 square kilometres with the people spread out over that entire 500 to 600 square kilometres. And where cable is covers about 3 or 4 square kilometres.

8638   COMMISSIONER LAMARRE: You made your point.

8639   MR. MELDRUM: I just find it incredulous that it is being suggested that our costs should be similar, because he is saying that when cable comes in they are able to serve everybody, probably because it is a low-cost area.

8640   COMMISSIONER LAMARRE: Okay, so you have put your point on the record.

8641   OTA.

8642   MR. STEVENS: Yes, we would agree with that point. We have actually filed with the Commission the percentage of customers served by the cable companies in our territories and they are much lower, they are not anywhere near the 98 per cent. And if you look at the territory covered, it is even smaller yet.

8643   So the point is that it just makes -- there is no argument that they don't have to worry about those customers. There is a large number of customers have to be worried about even when there is forbearance.

8644   COMMISSIONER LAMARRE: Thank you. The other questions I had, Mr. Katz asked them.

8645   Thank you, Mr. Chairman.

8646   THE CHAIRPERSON: Okay. Tim.

8647   COMMISSIONER DENTON: I had this feeling that perhaps a large proposition advanced by Bell Aliant was not coming in under any comments. So I would just be interested in the views of the room.

8648   In paragraph 40 and 39 they propose that we move to affordable prices without regard for costs, and predicated that on the Telecom Act and changes in the Telecom Act.

8649   And then in paragraph 40 stated, "The only alternative to eliminating subsidies would be to try to fix the costing. That would not only take too long, but it is not clear that you would ever get the right answer.

8650   I would just be interested in any comment that members of the room might wish to have on that proposition.

8651   Mr. Hennessy.

8652   MR. HENNESSY: On the first part -- Michael Hennessy, TELUS -- I think would agree with that, you don't need to measure affordability by a cost basis. There are other ways you can do it.

8653   For instance, if you look at something that was deemed affordable 10 years ago and applied a cost of living factor to take into account inflation, you could arrive at a rate, you know, a price today that was no different, once you adjust it for inflation, without going through humungous, you know, Phase 2 costing exercises. So there are alternatives to, you know, the traditional game to try to figure those things out.

8654   COMMISSIONER DENTON: Thank you, Mr. Hennessy.

8655   There is two in the back. I'll do the closest to me and then I'll do Consumers.

8656   MR. McKAY: Andrew McKay from SaskTel. I am guessing I am the closest to you.

8657   I guess I will start off by noting a couple of points related to costing where we actually agree with Bell Aliant, and it is perhaps refreshing.

8658   We agree that the --

8659   THE CHAIRPERSON: Can we keep this a bit focused please? This is rebuttal, it is not a regurgitation of the hearing, so it was a very specific question from Mr. Denton, so answer that question only.

8660   MR. McKAY: Certainly. Well, Commissioner Denton was asking about the paragraph referring to fixing the costing. We say if that is a solution, then you should take the solution. Go ahead, fix the costing, examine everyone's if you decide to, and then you will have an answer.

8661   Commissioner Molnar asked about ways to do things quicker, easier, without the full hearing, and we suggest that perhaps Bell Aliant's loop filing provides a way for them to fix their costing which they have indicated is broken.

8662   And just my other smaller point, is that we also agree productivity can't be achieved in perpetuity and the X factor should be removed.

8663   COMMISSIONER DENTON: Thank you.

8664   The gentleman from the PIAC.

8665   MR. LAWFORD: Thank you.

8666   I think Bell is trying to ask the Commission to do a very fanciful -- they are saying the way you can set prices is any method, except that you have to do it and set just and reasonable rates. So they are saying you don't have to cost and you don't have to do any affordability study at all either.

8667   So they are saying, for those reasons it is not worthwhile doing costing to make the rates reasonable for the companies. But then they are not following up with keeping the rates just for customers, and I think that is what was being discussed in the preamble to Madam Lamarre's question.

8668   Thank you.


8670   MR. TACIT: Thank you, Commissioner Denton.

8671   We have an addition to the consumer concern which we share a competitive concern. When we talk about increasing these rates to so-called affordable levels and the most price in elastic markets in Canada we get to a situation where we are almost approving monopoly revenues without any underlying cost basis. And the danger of that is that the revenues raised by those rates could be used to cross-subsidize competitive activities to the detriment of the marketplace.

8672   So there is a big concern there on our part.

8673   COMMISSIONER DENTON: A gentleman I think from TELUS.

8674   MR. ROMANIUK: Yes. I just want to go back to a point that was just said and I absolutely agree with it, and it was by Bell.

8675   COMMISSIONER DENTON: Can you introduce yourself?

8676   MR. ROMANIUK: Oh sorry, it is Orest Romaniuk from TELUS.

8677   COMMISSIONER DENTON: Thank you.

8678   MR. ROMANIUK: And the comment was the right thing is not the most convenient thing. We totally absolutely agree in terms of cost. The right thing to do is not the most convenient, and that was just said by Bell.

8679   COMMISSIONER DENTON: Are you saying that there should be costing studies?

8680   MR. ROMANIUK: Absolutely. Convenience is maybe taking a national cost, that is not the right thing.

8681   THE CHAIRPERSON: Let me intervene here. We are way over time. So I think you got the feeling of the whole...

8682   Before I call a break, Mr. Bibic, just so I understand what you said. You said us authorizing the price increases, as requested by Bell Aliant, doesn't necessarily mean they will do it. They will then have the authority to do it, but essentially you suggest they will be guided by their own marketing decision.

8683   Did I get that right?

8684   MR. BIBIC: That is correct. You wouldn't say thou shalt increase the price to $36. You have the flexibility to do so, but you are going to assume for calculating subsidy that you have.

8685   THE CHAIRPERSON: What would restrain them not to do it, given that you are talking about high-cost serving areas which are not forborne? I mean, what incentive would they have not to go that way?

8686   MR. BIBIC: It is the model that has already been adopted, actually implemented by the Commission in the 2007 price cap decision in respect of high-cost areas where price is allowed to go up by inflation up to $30.00 and for subsidy purposes you assume that the price does go up regardless of what the provider does.

8687   One of the factors could be there is some measure of competition there or there is a worry about NAS laws and price versus NAS laws. There is a whole bunch of factors.

8688   THE CHAIRPERSON: I understand the theory.

8689   In practice, Mr. Henry, maybe I should ask you -- or Bell, I don't care, either one of you -- do you have some cases where you actually have authority to go up to a certain limit and you have not done it but it is counted for subsidy purposes as Mr. Bibic suggests?

8690   MR. HENRY: I believe that is the case. But I agree 100 per cent with what Mr. Bibic just said. We are asking for the flexibility to do it. There is no guarantee whatsoever, and what I can probably guarantee you is we probably wouldn't go there everywhere.

8691   We are going to have to assess wireless substitution, competitive entry, may be not sufficient to justify forbearance, but there is competitive entry, and if there isn't competitive entry there is the possibility of competitive entry by putting those rates there.

8692   So by all means, we are not asking that you dictate that they go there, but rather you give the flexibility for them to go there.

8693   MR. BIBIC: Mr. Chairman, Mr. Bibic from Bell.

8694   Bell Canada, not Bell Aliant, but Bell Canada in some of our high-cost serving areas we face that situation where we haven't increased the price up to the maximum allowable level due to the 2007 price cap decision.

8695   THE CHAIRPERSON: Okay, thank you very much.

8696   Let's take a 10-minute break.

--- Upon recessing at 1045

--- Upon resuming at 1059

8697   THE SECRETARY: Order please, à l'ordre s'il vous plait.

8698   Mr. Chairman, we will continue with now the oral rebuttal argument of Bell Canada.

8699   Please re-introduce yourselves for the record, and you have 15 minutes.


8700   MR. BIBIC: Thank you, Madam Secretary, good morning Commissioners.

8701   I am Mirko Bibic from Bell Canada, to my right Bill Abbott, to my left Jonathan Daniels, and to his left Judy Bodnar, all from Bell Canada.

8702   We start our reply from the same premise we did our opening statement, that connecting rural areas to the digital world is a social public policy and economic goal.

8703   Starting from that premise, the scope of the broader public policy debate must be to identify those areas that are actually unserved and are likely to remain unserved, to determine exactly what it means to be served, to determine the quantum of required funds and who should receive them and, finally, to identify the best source of funds to finish the job.

8704   To us, for a rural community to be served it should have ubiquitous access to a broadband service from at least one provider that permits common internet activities at a reasonable speed, such as email, online banking, social networking, video downloading, ecommerce and other similar applications.

8705   Mr. Chairman, I was certainly encouraged to hear you say this morning you agree with the notion that it is ubiquitous access that we are striving for.

8706   So even though we agree with all that and we framed the issue as we did in paragraph 1, it doesn't mean we agree that the way to get the job done is to create or expand a contribution regime for broadband.

8707   So where are we today? Well, today we have 1.5 megabits per second service pretty much everywhere and we feel it delivers what is needed today, but we nevertheless support aspirational targets of 3 to 5 megabits per second in the coming years to meet future demand.

8708   We are also more persuaded than ever, especially after hearing the testimony of Barrett Xplore, that ongoing private sector efforts will ensure the universal broadband access we seek.

8709   And I think we have come a long way in the nine or 10 days that everyone has been together in this hearing. I think probably the tone of the hearing at the beginning when it came to broadband was probably around, well, does satellite really do the job, is it for real, if it is for real when will it really be ready for primetime? And we have gone from that kind of a feeling to the kind of discussion we had yesterday where we are now moving to, okay, well is it 5 days to provide service or is it some longer days?

8710   And I think when we have got down to that kind of detail, it pretty much confirms that the job is done. Because when we went from a situation a couple of years ago where we were worried about how communities would get service to now worrying about whether or not it is 5 days or 15 days or 30 days, doesn't that tell us that, you know, we are there?

8711   If you have a community where you have nothing and you have to wait 5 or 30 days, I mean obviously 5 is better than 30, but aren't they both good?

8712   So you know, the point is that speeds, capacity and coverage are increasing due to a number of technologies and prices are coming down across the board as a result. And the bottom line is that there are very few gaps left or likely to be left in a fairly short period of time as the market continues to get the job done, combined with targeted government funding.

8713   In terms of broadband subsidies, it is evident to us that where there is service, satellite or otherwise, inefficient subsidies should not be implemented to allow over-building of or enhancements to competitor networks, be they the competitive networks of ILECs, cablecos, wireless or satellite providers. For this reason alone the proposals of PIAC, MTS and SaskTel must be rejected.

8714   PIAC's top proposal is very complicated. By the time the Commission sorts through all the issues with the proposal, market forces and ongoing targeted government funding will have already filled the gaps that PIAC's proposal is trying to address.

8715   As for MTS and SaskTel, the simple fact is that Canada does not need contribution-style funding to promote the ongoing deployment of broadband. From a dollar perspective, the SaskTel and MTS proposals would result in a significant increase to the size of the national contribution fund.

8716   For Bell Canada alone, the dollar impact would be massive. Based on the 2009 subsidy fund at a .81 per cent tax rate Bell's contribution payment into the fund was $64 million. These payments would increase to $203 million for Bell alone under SaskTel's 2 per cent tax rate, and to $274 million for Bell alone under MTS's 2.7 per cent tax rate, and this would include internet and text messaging revenues in the contribution eligible revenue base.

8717   To us, this highlights the tremendous inequities inherent in the contribution regime, whether it is currently designed now for voice or if it were expanded to include broadband.

8718   What sorts of inequities are we talking about? Well, while Bell can't know exactly how much other companies pay into the subsidy regime we can make some informed estimates. And if I could turn you to the attachment at the back that has the coloured pie charts. There are three figures there, two on the top, one on the bottom.

8719   If I could direct your attention first to Figure 1, top left. These are estimates, we know what we pay, we are estimating what others are paying. You can see there that Bell Canada, there is the $64 million and we think Rogers is around $40 million.

8720   In and of itself, I don't think that is particularly shocking, it is a flat revenue tax in 2009 was .81, it has now been reduced as a result of your decision last week. It is a flat tax, we are the biggest in terms of revenues, so we pay the most, so we understand that. But raising that to over $200 million, to us, is certainly not acceptable and is especially not needed.

8721   What I really want to draw your attention to is Figure 3, the bottom one. This is a net figure, so there are payments into the system and there are receipts that come out of the system to various carriers. And you can see that really the two providers who are net payers are Bell and Rogers. TELUS, by our estimation, is as small net payer. And Rogers on this looks to be a bigger net payer than Bell and that is simply because we have added in to the Bell number the Northwestel receipts. If you took out Northwestel, Bell would be actually a net payer to the tune of $59 million a year. To us, this is what highlights the inequities.

8722   You know, it is the fact that the urban customers, primarily in Ontario in Quebec, are subsidizing voice service everywhere else across the country simply because prices aren't at the right levels and there is an issue with cost. This is what we are seeing to redress with our proposal in this proceeding, and this is why we object to, you know, another exhaustive multi-year lengthy costing review which is just going to exacerbate this and not solve the problem in any short period of time.

8723   THE CHAIRPERSON: In fairness, shouldn't these figures be adjusted since you are part owner of Bell Aliant?

8724   MR. BIBIC: Well, you could do that. Actually, Vice-Chairman Katz kind of asked me the same question a couple of days ago. We are still net negative.

8725   THE CHAIRPERSON: Yes, undoubtedly.

8726   MR. BIBIC: Right, and we would still take exactly the same position. To their credit, take Bell Aliant's position, I think we got a flavour this morning of where we disagree in some areas with Bell Aliant. But where we do agree is that in Bands "E" and "F" let's let prices rise and eliminate subsidies.

8727   So here is one of the companies who is one of the largest net recipients, and it is willing to step away from subsidy in much of Bands "E" and "F" by allowing subsidy to disappear in forborne areas and by providing for the flexibility to increase price in those areas of "E" and "F" which are still regulated, despite the fact that it is a net recipient.

8728   So back to the text here, I am at paragraph 11 now.

8729   The inequities in the current voice subsidy regime cannot be meaningfully remedied by broadening the base to include internet revenues. Broadening the revenue base is, as Vice-Chairman Katz suggested in his questioning of PIAC earlier this week, a mug's game. It is a change that makes no real difference to the regime, as the same parties will end up paying roughly the same disproportionate share to fund unnecessary subsidies.

8730   The continuation of an unfair and inequitable subsidy system cannot be justified based on the fact that it has been around for a long time. It must be reformed.

8731   Jonathan.

8732   MR. DANIELS: Thank you, Mirko.

8733   There are two simple solutions to bringing much-needed reform to the local voice subsidy regime. First and foremost, it is through forbearance. Where we are forborne there should be no obligation to serve, no subsidy and no standalone price cap. Second, even in regulated areas, and that is whether those are in Bands "E", "F" or "G" and not only Band "G", unlike I think we sort of misdirected you earlier about our position when we answered a question, subsidies can be reduced or eliminated by making adjustments to the retail price.

8734   Let me start with forbearance. The cable industry used to have an obligation to serve complete with an obligation to build and rate caps. However, when they were deregulated, as we heard yesterday, the obligations and the rate caps disappeared. There was no reason to preserve either their obligation or rate regulation and there is no longer a rationale to preserve ours.

8735   The simple reality is that when we have network facilities and offer service, regulated or not, we will serve any customer who desires telephony. Regulatory symmetry requires that we have the same commercial flexibility that cable has today for telecom and broadcasting.

8736   Turning then to price. There can be little doubt that PES rates have been kept artificially low in high-cost serving areas and that there is significant room for those rates to rise while continuing to be affordable. The Commission has approved a variety of rates between $30.00 and $36.20 and even $37.83 as being just and reasonable. And these rates are deemed affordable for all customers, not just cottagers. There is no evidence and no reason to think that such rates would not be just, reasonable and affordable for all regulated high-cost serving areas.

8737   Now, we realize that in many cases the increases required to bring rates to the highest affordable level may be significant and a transition period may be necessary. Bell notes that in the past the Commission has permitted one-time rate increases of $6.00, $5.00 and $4.00. In our view, a transition period of no more than two to three years is appropriate.

8738   For subsidy calculation purposes, the increase would be imputed regardless of whether a particular company actually implemented the increase. During the transition period the subsidy entitlement would be calculated based on the difference between the imputed increase rate and the final target rates in Bands "E" and "F" or the average cost, as is in the case of Band "G".

8739   Now, Mr. Chairman, I wasn't going to discuss cost, but I wanted to respond to the question you asked Bell Aliant regarding our expert use of density as the only variable in terms of the model. And I am no expert on the models, but we filed two expert reports. We had one which was our Canadian experts looking at the Canadian data.

8740   But we also attached an American expert report, FTI. What they did is they were talking about in their experience and said that basically density is the most important factor. That is why we filed, and we wanted them to talk about their experience in the U.S. and to justify or to support the conclusions that were being made by our Canadian experts looking at Canadian data.

8741   And they told us that density was the key variable and said so in the report. But they also looked at the same U.S. cost data from the FCC that Dr. Crandall used in his analysis. They looked at two other key variables. They tested route distance, which is a proxy for loop length, and terrain. When they added it to their model -- they ran a model using the FCC data -- they found that both contributed very little, less than 4 per cent to the explanatory power of the model.

8742   Now, I just read that as exactly -- but that means is 80 per cent of the variation can be explained by density. And then when they layered on top terrain and route distance, because they actually don't have loop length, so they used the roads looking at those, it only explained an extra 4 per cent on top of the 80 per cent of the differences in cost, and that is looking at the same FCC data.

8743   I am going to turn back to the text, paragraph 17.

8744   The issue of the doughnut effect has been raised throughout this proceeding. We believe the impact of the doughnut effect, to the extent it exists, is vastly overstated. By adopting our proposed rate increases and recognizing the true value of the implicit subsidy, we note that subsidies would no longer be required for the large ILECs in Bands "E" and "F", ILECs will continue to serve customers in the timbits, although they may possibly lose market share to competitors.

8745   Outside those areas ILECs will be able to pass through rate increase to reduce or eliminate the reliance on subsidies. Of course, the net effect of this change may be revenue loss as the ILEC loses customers, that is the impact of competition and no one should be subsidizing ILECs for those losses.

8746   Now, others take a different view. ACTQ said they should be paid for each customer that they lose. And I think Vice-Chairman Katz correctly deduced the logical extension of their proposal.

8747   But SaskTel made a similar yesterday. SaskTel's solution to the doughnut effect is that they should keep all the subsidy receipts, regardless of the number of customers they serve in a high-cost serving area.

8748   SaskTel in essence seeks 100 per cent of the subsidy currently available in high-cost serving areas, regardless of competitor presence or actual cost by notionally reassigning every single dollar of that subsidy to the outer edge of the doughnut where only they provide service.

8749   This is really no different than ACTQ. Both proposals look for the subsidy regime to compensate the incumbent for market share losses suffered in the core, without ever establishing that the subsidy is actually needed.

8750   Turning then to the SILECs. Bell's approach to the SILEC issue is to apply its proposals for the ILECs to the SILECs, but making appropriate modifications where warranted.

8751   SILECs, like ILECs, have retail rates that are too low. There is no reason why they should not be able to charge rates similar to ILECs, and thus we propose that their retail rates too should rise to the highest affordable level, again as determined by you. Their implicit subsidy should match the amount the Commission applies to ILECs. Further, they should be mandated to face competition like any other ILEC.

8752   But there are three areas where we believe special treatment is warranted and two of which differ from our original proposal. So we are changing something based on what we have heard for the last week and a half..

8753   The first relates to the subsidy regime which is set at $23 million today.

8754   Normally, when an ILEC or SILEC receiving subsidy increases its retail rate it is required to take a corresponding decrease in subsidy for the exact same amount of the rate increase. But to address the impact of the doughnut effect, last year the SILECs and Bell proposed that for every dollar of increase in retail rates, the SILECs would only reduce their subsidy requirement by $0.75 -- so a 75 percent impute -- an idea that is found in the SILEC/Bell joint proposal for SILEC regulation from 2009.

8755   If the Commission is concerned about the impact of the doughnut effect on the SILECs, given their small size and potential vulnerability, then the Commission could adopt this approach. Keep in mind that the SILEC forbearance test is actually lighter than the test applied to ILECs -- the SILECs only have to demonstrate 50 percent of their territory is subject to competition, not the 75 percent -- thus without this change the SILECs would be at risk of losing subsidy faster than ILECs under Bell's original proposal.

8756   Now, this is a far cry from the ACTQ proposal of paying the SILEC for each customer it loses to a competitor, but yet recognizes the unique vulnerability of the SILECs as it relates to the doughnut effect.

8757   The second area for special treatment deals with toll interconnection. I think I have stated our position on that so I won't repeat it here. However, I do note that MTS stated yesterday that they support the proposal, but with SILEC costs rather than using Bell costs. Of course, there are no SILEC costs, the Commission always uses ILEC costs as a proxy for SILEC costs.

8758   In this case, it makes sense to use Bell costs given that almost all of the SILECs are located adjacent to Bell and Bell Aliant territory. By reducing the rates to match those of Bell, the Commission will, in the words of the SILECs, "further promote residential subscriber choice of long distance networks" in their territories.

8759   The final area for special treatment relates to the issue of allowing competition in SILEC territories.

8760   Our solution in our original proposal was to allow competition, but attempt to reduce the start-up costs of local competition by removing the obligation for the SILEC to offer local number portability for any SILEC with less than 20,000 NAS.

8761   From this hearing we can see that the problem is really related to the smallest SILECs of less than 2500 NAS. The OTA has proposed that they be exempted from competition, at least for four years.

8762   But that proposal is especially problematic to us in the case where a SILEC has become a CLEC and is able to use monopoly funds to compete outside its territories. Such a SILEC does not appear to need protection, especially because it is already offering LNP.

8763   That is why we think the Bragg proposal that we heard yesterday has merit and we support their proposal with one important caveat. We believe in bright line tests, whereas Bragg stated that their test only led to a prima facie presumption. In our view, if the ILEC meets at least two of those criteria found in paragraph 18 of Bragg's Reply -- for ease of reference we have put it as Attachment 2 here, that one paragraph -- then competition complete with LNP paid for by the SILEC must be mandated.

8764   Thank you and we welcome your questions.

8765   THE CHAIRPERSON: Thank you.

8766   Like you I was impressed with the Bragg proposal. I thought that it was something really new that came out of this hearing. Whether we adopt it is a different question, but the value of these hearings is people actually bring new ideas to the table.

8767   Can you explain to me in paragraph 23 what you are talking about? You stated your position, I'm sure you did, but just for my memory refresh me what your position is

8768   MR. DANIELS: Sure. We are talking here about not the charges, not what the SILECs charge for their retail customers for toll, but the SILECs right now, as part of interconnection regime, have very high rates for when anyone wants to terminate toll calls. So if you are making a long distance call from Toronto to a SILEC territory and you are the long distance carrier, if Bell is the long distance carrier bringing it into the SILEC territory, the actual cost of terminating that call is very high. I don't have the exact figure, but it's in order of magnitude much larger, perhaps two cents a minute as opposed to point one cent a minute. I'm making up the figure here.

8769   THE CHAIRPERSON: Right.

8770   MR. DANIELS: So the reason those rates are high, it's on the per-minute, it's also on the trunks that we use to connect to them, those two services. The reason that it is high is that it was set high because it's really a form of an implicit subsidy, it is a subsidy to help the SILEC overall.

8771   It was set originally -- I'm not quite sure of the whole history behind it, but it has been a number of years that it has been high and it has caused distortions in the market and we have had some problems with it.

8772   So when we met with the SILECs last year to try to come up with a joint proposal of how their whole SILEC regulatory regime should work we raised this as an issue and we said: Look, we understand that you need the money, we are not focused on the fact that -- we are not saying you don't need the money, but our issue is that we shouldn't be paying it for toll because it is affecting toll. If this is a subsidy that you need it's not a question of toll providers or it's not related to toll, we should actually take that amount, quantify that subsidy and put it into the contribution fund which is, you know, the fairest way to share a telecom subsidy to the extent like we do with local.

8773   So they quantified it -- the SILECs quantified it about $11 million last year -- and they agreed that we should lower the cost of interconnecting with them and the question is: Well, what rates should we use? Because the SILECs are all spread out at Bell territory we are proposing that they should use Bell rates for the similar services for the interconnection and the difference, which is $11 million, would go into the subsidy fund.

8774   THE CHAIRPERSON: Are you the primary provider of long distance for the SILECs?

8775   MR. DANIELS: We are the primary terminator of bringing -- between us and Bell Aliant bringing -- we are the ones who pay the vast majority of that money.

8776   THE CHAIRPERSON: Right. So rather than you paying it would come out of the subsidy fund of which you are the major contributor? So it's a net reduction for you.

8777   MR. DANIELS: It isn't -- I mean I think Mr. Bibic showed you the figures of we pay about 31 percent of the fund, but we pay a much higher -- we terminate much more toll calls in their territory than what we pay into the fund, between us and Bell Aliant.

8778   THE CHAIRPERSON: But this proposal still would be a net benefit to you?

8779   MR. DANIELS: It certainly would be a net benefit to us. And also, from the SILECs perspective, which is why I quoted them there, it would lower the long distance offers to customers.

8780   THE CHAIRPERSON: Now, at the very beginning you are saying in paragraph 4:

"In terms of broadband subsidies, it is evident to us that where there is service, satellite or otherwise, inefficient subsidies should not be implemented to allow overbuilding of, or enhancements to, competitor networks, be they the competitive networks of ILECs, cablecos, wireless or satellite providers."

8781   Now, MTS made the statement yesterday that's all fine and dandy as long as there is a business case for it, but for some of these areas there is no business case for it. If there is no business case for it, obviously competition will not provide the answer.

8782   So I guess the implication from you is that given satellite is ubiquitous and can reach everywhere that's in effect a business case for every part of Canada.

8783   MR. BIBIC: So I will take that in two stages.

8784   So what this is really addressing is the notion -- when we talk about overbuilding it is to fund or subsidize MTS or SaskTel for building where satellite really is.


8786   MR. BIBIC: That's one.


8788   MR. BIBIC: Enhancements refers to -- I think it's the proposal again of both MTS and SaskTel, certainly SaskTel -- we need subsidies to go from 1.5 megs, which we have ubiquitously across Saskatchewan, to the next level. So this paragraph aims directly at those two notions.

8789   Now, if there are cases where we can really show -- I think through monitoring activities we can get more detail on this, but over time we can really show that an area cannot be served with satellite in a reasonable way, then let's talk about subsidy.

8790   I happen to think that it shouldn't be the CRTC's contribution fund that subsidizes that, but going back to our appearance on Monday I think it was, that it should be targeted government subsidies.

8791   I don't object to subsidizing that way areas that truly won't get service in any manner, shape or form.

8792   THE CHAIRPERSON: I apologize, I referred you to the wrong paragraph. I meant paragraph 3, in which you say:

"... ongoing private sector efforts will ensure the universal broadband access we seek."

8793   This I guess is subject to the qualification you just stated. If indeed there are some areas that do not, then they should be subject to a specific subsidy, but we should not use the regulatory mechanism of subsidy that we have right now to reach those areas?

8794   MR. BIBIC: Correct, Chairman. Same answer.

8795   THE CHAIRPERSON: Okay. Thank you.

8796   Len, you have some questions?

8797   COMMISSIONER KATZ: Yes. Thank you, Mr. Chairman.

8798   I'm going to stick to paragraph 4 for a minute and just pursue the statement of "inefficient subsidies".

8799   I guess the question I have is: Are you suggesting that the contribution regime as a subsidy model is inefficient or adding to it the broadband component would make it inefficient? Because I have always understood that to date everybody believes that the contribution regime has achieved the purpose for which it was intended.

8800   MR. BIBIC: We believe that it's inefficient for voice and broadband. I'm not saying that it's not -- let's focus on voice for a second.

8801   We are saying it's inefficient. We are not saying it wasn't appropriate, we are not saying it wasn't a good objective, but what we are saying is: Okay, look, we want to subsidize voice in high cost areas, that's fine -- we understand that Bell in any model will probably end up being the largest payer, given that we have the largest revenue base -- our issue is it's inefficient when prices are kept artificially low by regulations -- Bell Aliant gave you multiple examples of that so I won't repeat them -- and where the costs are all wonky.

8802   I think Bell Aliant gave some pretty compelling evidence on the cost disparities between east and west and we have the expert reports. I have been saying this all week privately, we can all try to razzle-dazzle you with competing experts from everywhere and argue about 80 percent and 4 percent, et cetera, but at the end of the day nothing replaces good judgment and it just doesn't make sense.

8803   If you look at the difference in costs for parallel bands which were designed at the beginning to be more or less the same, how can we have such a huge disparity in costs.

8804   So it's because of the price and the cost that we say it's inefficient.


8806   In paragraph 16 on page 3 I guess you rationalize that increases in rates of a magnitude that you quote in here have been done in the past, obviously.

8807   Each one of those dates predate forbearance and so I guess I ask you how in a non-monopoly regime could the CRTC create an incentive for rate increases to Canadians in order to reduce the subsidy?

8808   MR. BIBIC: This goes back to the comment I made earlier in response to something that Commissioner Lamarre had suggested. We are saying that you would give us the flexibility to go up in regulated areas, whether or not they are in Bands "E", "F" or "G", but it's in regulated areas.

8809   In forborne areas our proposal is no obligation to serve, no subsidy, no standalone price cap. The market will sort it out, but no subsidy.

8810   COMMISSIONER KATZ: So the only place that rates would go up would be in non-forborne regulated markets?

--- Pause

8811   MR. BIBIC: But in terms of what you would -- in forborne markets the rates would find their level based on competitive market forces and the only place where you would permit the flexibility or the authority to raise rates up to $36.20, or $37.83 under our proposal, is in regulated areas, because you don't set prices in forborne areas.

8812   COMMISSIONER KATZ: You do currently have a PES rate -- you are obligated to provide primary exchange service even in forborne markets, are you not?

8813   MR. BIBIC: That is correct and we are asking that that be eliminated.

8814   COMMISSIONER KATZ: As opposed to that rate rising as well to the same rate as you would ask us to increase the rates in remaining regulated territories?

8815   MR. BIBIC: You could do that and that would certainly be better than the situation today, but that would not be symmetrical.

8816   Mr. Engelhart gave a very clear, concise answer yesterday in response to I think it was the ACTQ providing a regulatory history 101 on the cable side. There was an obligation to serve, an obligation to build and regulated basis rate caps on the cable side. Deregulation came along, the obligation to serve melted away, the obligation to build melted away and regulation of prices melted away. Regulatory symmetry I would think would dictate that we be given the same flexibility for standalone service.

8817   Now, where prices go, well, the market will decide that, but if we are forborne, shouldn't we be forborne and have the same flexibility to do what needs to be done?

8818   COMMISSIONER KATZ: I guess from a symmetry perspective one could argue that the rates that someone pays for basic local exchange service in a forborne market should be the same as in a non-forborne market or if there is a risk that there is a subsidy and an excess profit coming out of the regulated side, in the absence of costs, which I think I have heard you say you don't want to get into a costing exercise.

8819   MR. DANIELS: If I understand correctly the proposition, you are suggesting that one should argue that a rate for example in an urban area that is forborne should be the same as a rate in a rural area that is not forborne that continues to be regulated. That is something that I tried to address in our original appearance.

8820   We don't agree with that proposition because I think the key issue is affordability, it's not matching the rates between an urban area and a forborne area. I say that because should we be having subsidies in a rural area if the rate could be affordable and a subsidy is no longer required just so that they can match the rates in urban areas? We don't think that is good public policy.

8821   I do agree that is the regime today, that is the consequence. It's not everywhere today, as Bell Aliant took you through, but that is the regime today where we have subsidies flowing to ensure that rates -- it's a hodge-podge, but that rates in some areas, in rural areas, match those in urban areas despite the fact that they can be higher.

8822   Our starting proposition is in terms of a subsidy regime is there should be no subsidy other than above to make sure that rates are affordable. So I guess we disagree with that proposition.

8823   COMMISSIONER KATZ: Okay. But you are arguing the regime today is the regime today. I know you are looking to remove the PES rate, but right now that is the regime. Even in forborne areas there is an obligation to provide a basic exchange service at a rate that was set the day that you were forborne.

8824   MR. DANIELS: That is the regime and we are arguing, you know, that in forborne areas it should be removed in terms of that, but I think that --

8825   COMMISSIONER KATZ: I'm asking you, if the Commission chooses not to forbear it but also considers the issue of allowing for rates to rise to affordable levels, whatever that number becomes, do you see the symmetry argument there saying that the rate for basic PES in unregulated territories should rise as well?

8826   MR. BIBIC: Well, that would not be symmetrical. It would be an acceptable option, but not our preferred option.

8827   COMMISSIONER KATZ: Okay. Thank you.

8828   Those are my questions.

8829   THE CHAIRPERSON: Suzanne...?

8830   CONSEILLÈRE LAMARRE : Merci, Monsieur le Président.

8831   On va commencer en parlant du paragraphe 25 de votre présentation. Je veux surtout vous poser des questions sur votre position vis-à-vis les petites compagnies titulaires.

8832   Je vais vous avouer que je suis un peu surprise de voir votre position se radicaliser par rapport à votre position initiale, mais vous allez pouvoir me l'expliquer.

8833   A la première ligne, je veux juste qu'on soit clair, vous dites que :

"From this hearing, we can see that the problem is really related to the smallest SILECs of less than 2500 NAS."

8834   Moi, je vais vous dire, ce n'est pas ça que j'ai entendu. Moi, ce que j'ai entendu, c'est que le problème était beaucoup plus aigu pour les toutes petites qui ont moins de 2 500 abonnés. Je n'ai pas entendu qu'il n'y avait pas de problème pour les autres. Alors, je veux juste qu'on soit clair là-dessus.

8835   Maintenant, en ce qui concerne la proposition de Bragg au niveau des critères qui devraient être utilisés pour établir ou non de la concurrence dans le territoire d'une petite titulaire, à prime abord, bon, il y a quasiment une dizaine de critères qui sont proposés, et un d'entre ces critères, vous le reprenez ici, c'est le fait qu'une petite titulaire serait devenue compétitrice dans un autre marché à l'extérieur de son territoire initial, et ça, vous l'avez mentionné, et c'est un élément qui a été répété souvent.

8836   Lorsqu'on dit que vous voudriez qu'il y ait actuellement deux de ces critères de la liste des critères qui soient rencontrés, est-ce qu'il n'y a pas des critères qui sont plus importants que d'autres, celui-là en étant un, et qui devraient être nécessairement présents avant qu'on considère ouvrir la compétition dans le territoire des petites titulaires?

8837   MR. DANIELS: I have a lot to respond to in that.

8838   Let me begin by saying that it's your impression that our position is more radical. That is certainly not the impression that we were trying to give and that's not my view.

8839   When we first approached this proceeding before the benefit of the oral proceeding we sensed that the Commission was struggling with the notion that the biggest issue about allowing local competition in SILEC territories was the cost of LNP, that that was sort of the gating factor to determine whether you should allow it or not.

8840   So what we tried to do is we designed a proposal that said: Well, if that's the biggest problem why don't you allow competition and then say 20,000 or more NAS you have to pay for it -- those are the big players, there are only two or three of them, we are not quite sure exactly -- and under that there would be no LNP, you can still have competition and people don't -- but unfortunately it's better to have the benefit of competition without LNP than to have no competition. So that was our original thinking.

8841   We sat here in this proceeding and we have heard a number of people say, no, if you have competition you absolutely need LNP. Again, I'm not sure 100 percent based for the small players, so we wanted to reflect what we were hearing.

8842   I guess our sense was that most of the focus was about the 2,500 threshold -- that was nine companies in the OTA and the five in the ACTQ -- and yet one of the benefits that I thought from the EastLink or Bragg proposal in Attachment 2 was that they didn't make it strictly related to the 2,500. That is one of the factors.

8843   So it's possible that you could have a SILEC that has more than 2,500, but if it doesn't meet any of the other criteria then it too would not have competition in its area. That's, as we understand it, the Bragg proposal, although granted our difference from them is we think it should be a bright line test as opposed to a prima facie case because I think that is just going to lead to big arguments before the Commission and we are going to have 36 cases of whether you should or shouldn't. So we like the bright line test.

8844   As to which ones are more important, and so on, we can go away and think about that in terms of this, but I mean obviously the 2,500 -- I mean we think the list is very good, it's comprehensive, but when we look down there we can go away and say is there one or two that are less important than the others, clearly we have been focused on the fact that we strongly belief if a SILEC has less than 2,500 but is going to compete in other territories and has spent the money on LNP, then it shouldn't be protected. But even then, it's still possible under their test.

8845   So we thought this was quite an innovative test, but if you would like we can take an undertaking to just see is there one or two elements that maybe are less important.

8846   CONSEILLÈRE LAMARRE : Et, en fait, c'est plutôt dans le sens que, est-ce qu'il n'y a pas des critères qui sont plus déterminants que d'autres? Donc, certains le seraient moins, et je vais vous dire franchement que moi, à prime abord, je trouve que le test qui est proposé par Bragg a du mérite, mais je trouve qu'il est un peu facile à rencontrer, et c'est dans ce sens-là que j'estime qu'il y a peut-être des éléments qui sont plus déterminants, et la question à l'effet que certaines petites titulaires sont devenues compétitrices dans d'autres territoires, ça semble être un facteur d'agacement assez important parmi les autres titulaires.

8847   Alors, c'est pour ça que je relevais celui-là plus que d'autres, Monsieur Bibic.

8848   M. BIBIC : On vous fournira une réponse à notre réplique écrite, sinon, plutôt.


8849   CONSEILLÈRE LAMARRE : C'est ça. En tout cas, pensez-y. C'est ce que je vous demande.

8850   Maintenant, l'autre côté de la médaille de l'argument à l'effet que si une petite titulaire est devenue compétitrice dans un autre territoire, au fond, elle n'a pas besoin de protection, l'ACTQ a présenté l'argument en disant, écoutez, ça été une décision défensive pour palier au fait que le montant de la subvention diminuait pour qu'on puisse desservir nos abonnés résidentiels, et, au fond, on n'a fait que ce que le Conseil et l'ensemble de l'industrie nous demandait de faire, c'est-à-dire trouver des nouvelles sources de financement.

8851   Et maintenant, on se retrouve face à une situation où on leur reproche d'avoir fait ce qui semblait totalement logique, justement pour diminuer leur dépendance vis-à-vis de la subvention qui n'augmentait pas, alors que les dépenses augmentaient.

8852   Qu'est-ce que vous répondez à ça?

8853   MR. DANIELS: I don't think for a moment they should be blamed for going out of their territory. Again, I support that they should be encouraged on that.

8854   So competition is good, but it's a question of whether they should -- there is a reason to deny the benefits of competition to a small SILEC with less than 2,500 who has already shown the capability of LNP and expanded outside of its territory.

8855   To be quite honest with you, this is more of a concept of principal than practice. We are talking about nine SILECs in Ontario, 2,500. What we have tried to address in our proposal today is to say: Look, we understand that they have unique circumstances and it's why maybe the test should be different about allowing competition and we will take away and think about your points, which I totally understand, and we will come back to you in writing with something, but also we are still proposing, unlike with the ILEC regime, that they would continue to get subsidies -- as a whole we are talking about even though they get to do rate increases, 25 percent of the rate increase would now still continue to be a subsidy under our proposal, so that actually puts them ahead to deal with the doughnut effect.

8856   Our other proposal for them is that the toll becomes explicit and they get that subsidy as well which is exempted from a rate increase proposal.

8857   So they continue to get subsidies even though they are Bands "E" and "F" under our proposal, unlike the ILECs.

8858   So we actually think we have addressed and moved a long way, but I take your point and we will come back on the written with the test.


8859   CONSEILLÈRE LAMARRE : O.K. Monsieur Daniels, vous me faites plaisir en pointant sur la question... sur la différence entre le principe et la pratique, et je vous explique pourquoi.

8860   J'ai calculé rapidement. Les petites titulaires qui ont moins de 2 500 abonnés, j'en compte 13 là, Québec/Ontario, pour un total d'à peu près 20 000 abonnés. Si je pousse le calcul un petit peu plus loin, si je vais à ceux qui ont 5 000 abonnés au moins, là, j'en compte 21, réparties Ontario/Québec encore, pour un total d'à peu près 51 000 abonnés.

8861   Pourtant, surtout dans les deux dernières journées, on a l'impression que ces 51 000 ou 21 000 abonnés-là, que pour les compagnies de câble c'est le Klondike et que pour les grosses titulaires c'est la différence entre la rentabilité et la faillite.

8862   Bon, j'exagère un peu, mais quand on regarde toutes les discussions qu'on a eues autour de cas, j'ai de la difficulté à saisir où est le problème et quelle est l'ampleur du problème.

8863   Alors, je vous re-pose la question, parce que vous avez aussi fait allusion -- je ne dirais pas que je suis d'accord ou pas -- au fait que présentement, le système de subventions qui existe dans l'ensemble du pays équivaut à un transfert de fonds entre le Québec et l'Ontario et le Manitoba et la Saskatchewan et la Colombie-Britannique.

8864   Bon, on peut être d'accord ou non que ça soit une bonne chose ou non, le Conseil le décidera, mais quand on parle les petites titulaires, il faut bien rappeler que les petites titulaires existent parce qu'à une certaine époque où Bell avait un monopole, malgré les conditions de monopole, le service n'est pas arrivé assez vite dans ces régions-là et qu'il n'y a personne qui, depuis, se bat pour aller servir résidentiellement ces abonnés-là.

8865   Alors, je dois vous dire que venant de Bell, je m'attends justement à plus de flexibilité vis-à-vis les petites titulaires que de la part des autres grosses titulaires.

8866   Alors, dites-moi une chose : Sur mon compte que je reçois... puis j'en reçois deux, en plus de ça, j'en reçois un à la maison et j'en reçois un au chalet. Sur les comptes que je reçois à tous les mois, la subvention que Bell... les fonds qui sont transférés vers Bell aux petites titulaires en Ontario et le Québec, ça représente quoi sur ma facture?

8867   Si vous n'avez pas le chiffre, vous pouvez répondre plus tard là, mais...

8868   MR. DANIELS: Well, maybe the best way I can do this to answer part of your question is if we go back to the chart that Mr. Bibic was talking about which talks about the total subsidy amounts.

8869   This is 2009. The subsidy amounts have gone down, so the portion that goes to the SILECs, though, is frozen at $23 million in terms of every year. So although the total subsidy amount in Figure 2, which is the subsidy receipts, is $207 million in 2009 -- I think it's $175 million in 2010 -- but in both 2009 and in 2010 the SILECs would receive from the subsidy fund $23 million.

8870   So in terms of the portion -- the amount that is going to be SILECs has gone up every year as a portion so in 2009 would be roughly 10 percent, that's $23 million over $207 million -- it's now slightly higher because it would be $23 million over $175 million. Like how much of the total subsidy amount.

8871   So to the extent that we are paying a subsidy you could say, you know, we pay 10 percent of it, you know. If you look at Figure 1 our $64 million, 10 percent of it in 2009, that would be $6 million, went to the SILECs. That's the direct subsidy, plus, as I think I was discussing with the Chairman before, we pay -- we terminate the vast majority of toll into their territories, it's well in excess of our 40 percent between us and Bell Aliant. I don't have to breakdown between the two of us. So we are also planning explicit subsidies on the toll termination so you put those together.

8872   So I hope that answers in terms of giving you a sense of the percentage.

8873   Again, I agree with you that there are sort of radical positions at both ends. I hope you see it the way we see it, which is that we have tried to come up and tried to address how to put what we suggest for the ILECs and where to make changes for the SILECs and come up with a special regime for them, not just ourselves, we adopt it, as you know.

8874   The EastLink proposal, we took something we negotiated with the SILECs last year in terms of the 75 percent ratio and the toll, so we think we have tried to put the two together.

8875   Fundamentally we do believe that they should see rate increases to the same extent like anyone else because that doesn't matter if you are a SILEC or an ILEC in terms of the rate increase, that's the consumer.

8876   So I hope I have addressed it.

8877   CONSEILLÈRE LAMARRE : Avant que j'aille aux compagnies de câble, je voudrais juste préciser, oui, vous avez répondu à ma question en partie, mais j'aimerais quand même que vous puissiez répondre spécifiquement.

8878   Compte tenu de ce que vous devez sortir de l'ensemble de vos fonds pour soutenir les petites compagnies de téléphone dans l'ensemble au Québec et en Ontario, je veux savoir, moi, ce que ça représente sur la facture de l'ensemble de vos clients, en moyenne.

8879   Donc, je ne veux pas le détail, mais en moyenne qu'est-ce que ça fait, pour qu'on ait vraiment une idée de l'ampleur de la situation présentement avant de décider de la changer ou non dans un sens ou l'autre.

8880   M. BIBIC : On fera le calcul.


8881   CONSEILLÈRE LAMARRE : Merci beaucoup.

8882   Les compagnies de câble, Monsieur Messier?

8883   M. MESSIER : Étant donnée la discussion sur le critère au niveau des SILEC, qui est un des critères fondamentaux à notre avis, je voudrais passer seulement le commentaire suivant.

8884   Je pense, ce critère-là, il est primordial dans la reconnaissance de permettre immédiatement de la concurrence dans le territoire des petites SILEC pour la raison suivante.

8885   CONSEILLÈRE LAMARRE : De quel critère en particulier?

8886   M. MESSIER : Le critère d'avoir une... une petite ESLT ait une affiliée qui opère comme entreprise concurrentielle dans un autre marché.

8887   CONSEILLÈRE LAMARRE : Une affiliée ou elle-même là?

8888   M. MESSIER : Une affiliée ou elle-même -- en général, c'est une affiliée -- crée une corporation qui va...

8889   Prenons l'exemple de Téléphone Guèvremont.


8891   M. MESSIER : Téléphone Guèvremont opère à Sainte-Rosalie et a créé Maskatel qui est directement à Saint-Hyacinthe.


8893   M. MESSIER : Je pense que ce cas illustre... je pense, dans ces cas-là, le fait d'avoir des affiliées, vous avez déjà eu une expertise, il y a du transfert de connaissances qui peut se faire, il y a une certaine économie d'échelle qui peut se faire. Donc, il y a une expertise qui a été acquise qui peut se transférer, un.

8894   Mais fondamentalement, c'est un critère d'équité. Prenez ce cas-là que je viens de vous donner, celui de Saint-Hyacinthe, celui de Maskatel et Guèvremont. Sainte-Rosalie est située... c'était un ancien village qui est maintenant à proximité de Saint-Hyacinthe.

8895   CONSEILLÈRE LAMARRE : Je connais bien la région, Monsieur Messier.

8896   M. MESSIER : Bon. Comme vous le savez, Maskatel est un concurrent très important à Saint-Hyacinthe. Ils ont réussi à accaparer une grande part de marché. Ils font face... les gens de Saint-Hyacinthe font face à une offre de marché qui vient de Bell, de Cogeco, de Maskatel.

8897   Lorsqu'on arrive à Sainte-Rosalie, là, tout d'un coup, d'un bord de la rue, on peut avoir un choix; l'autre côté, impossible d'avoir un choix puisque Cogeco ne peut pas entrer dans ce territoire-là.

8898   CONSEILLÈRE LAMARRE : Pour la téléphonie...

8899   M. MESSIER : Alors, je pense qu'en termes...

8900   CONSEILLÈRE LAMARRE : Monsieur Messier, je vais vous arrêter ici.

8901   M. MESSIER : Oui.

8902   CONSEILLÈRE LAMARRE : Je vais vous dire pourquoi, parce qu'on va entendre l'ACTQ plus tard. Donc, on va en parler un peu plus. Et on va entendre aussi les compagnies de câble plus tard aujourd'hui. Alors, gardez votre argument pour ce moment-là. Vous l'avez bien ouvert.

8903   Mais je vais vous demander de réfléchir aussi à quelque chose, je préfère vous avertir d'avance, parce que vous avez parlé de facteur d'équité.

8904   M. MESSIER : Oui.

8905   CONSEILLÈRE LAMARRE : Quand on parle de facteur d'équité, moi, ce qui me vient à l'esprit aussi, c'est l'obligation de servir dans l'ensemble, sur l'ensemble du territoire et non pas seulement sur la partie la plus rentable.

8906   Alors, vous y penserez là avant cet après-midi, puis je vais revenir avec mes questions pour Bell.

8907   Vous avez fait... Monsieur Bibic, Monsieur Daniels, si vous me permettez, tout à l'heure et dans votre présentation, vous avez fait remarquer que lorsque la déréglementation a eu lieu pour le câble, bien, ça s'est fait par étapes, et, au bout du compte, il n'y avait plus d'obligations qui étaient reliées parce que c'était déréglementé.

8908   Et vous dites, bon, pour une question de... pas d'asymétrie, mais pour une question de symétrie de réglementation, vous estimez qu'on devrait faire la même chose en téléphonie.

8909   Mais il y a quelque chose qui existe, selon moi, en cablôdistribution et qui n'existe pas en téléphonie résidentielle, même lorsqu'on parle de déréglementation. C'est-à-dire qu'il n'y a pas en téléphonie la présence omniprésente -- excusez l'expression -- d'un compétiteur disponible.

8910   Dans le cas de la cablô, peu importe où vous allez au Canada, dans quelque secteur ou quelque région où est-ce que c'est déréglementé -- c'est déréglementé partout -- mais il y a deux compétiteurs qui sont disponibles tout le temps : c'est Shaw Direct et Bell TV. Ils sont toujours là.

8911   En téléphonie locale, même lorsqu'on déréglemente, il y a toujours une partie d'un secteur, d'une circonscription qui ne sera pas nécessairement ouverte et qui n'aura pas nécessairement accès à un autre compétiteur.

8912   Est-ce que ce n'est pas une différence qu'on devrait considérer avant de parler de symétrie de réglementation?

8913   M. BIBIC : Je ne suis pas d'accord du tout. Ça, c'est une perspective... avec respect, c'est une perspective qui date de 2005.

8914   Dans tous les territoires où on offre le service aujourd'hui, les citoyens ou les abonnés ont accès à Bell Mobilité, TELUS Mobilité, Rogers Wireless, maintenant, on a Vidéotron à Québec, Wind, Public Mobile, Mobilicity. Ça, c'est les joueurs sans fil.

8915   En ce qui concerne les joueurs filaires, notre expérience dans notre territoire, c'est qu'il y a très peu de régions ou d'endroits qui sont desservis seulement avec la téléphonie traditionnelle de Bell, et même dans ces endroits-là, on n'a pas les moyens de déterminer exactement, ah, voilà madame Lamarre, elle demeure dans un endroit où Vidéotron n'offre pas le service, et ce qu'on va faire, c'est on va augmenter son tarif tout de suite et seulement qu'à madame Lamarre et sa voisine. On n'a pas les moyens. Ce n'est pas ce qu'on fait.

8916   Donc, pour ces deux raisons-là... ces trois raisons-là, c'est une préoccupation qu'on avait en 2005 qui n'existe plus. C'est tout.

8917   CONSEILLÈRE LAMARRE : Si je peux extrapoler peut-être sur votre réponse, ce que j'en comprends, au fond, c'est que vous estimez que la présence du sans-fil est peut-être l'équivalant en téléphonie est peut-être l'équivalant de la présence du service satellite en câblo...

8918   M. BIBIC : Absolument.

8919   CONSEILLÈRE LAMARRE : ...en termes de services alternatifs?

8920   M. BIBIC : Et on voit la substitution qui se passe tous les jours dans nos marchés.

8921   CONSEILLÈRE LAMARRE : Ce sont toutes mes questions. Merci beaucoup.

8922   THE CHAIRPERSON: Marc...?

8923   COMMISSIONER PATRONE: Thank you, Mr. Chairman.

8924   Good morning. I have two questions, Mr. Bibic and team.

8925   Could you elaborate on your statement during the Bell Aliant rebuttal and in answering a question to Mr. Katz concerning in high-cost areas where you have the flexibility to raise rates you have declined to do so?

8926   MS BODNAR: Yes. We had the flexibility to raise the touchtone rate as an example and we have not raised the price to the permissible level yet for subsidies, we do use the imputed rate.

8927   COMMISSIONER PATRONE: Do you have any specific examples of exchanges where that has taken place?

8928   MS BODNAR: That's all through the territory in all Bands "E" and "F".

8929   COMMISSIONER PATRONE: So throughout those bands where you have had the flexibility to raise rates you have declined to do so?

8930   MS BODNAR: For touchtone service, yes.

8931   COMMISSIONER PATRONE: So there are exchanges I would assume where you have exercised that flexibility.

8932   Is that right?

8933   MS BODNAR: We have uniformly not exercised the flexibility. Our rate is $2.80 and the flexibility would permit us to put it at $3.04.

8934   COMMISSIONER PATRONE: I'm sorry, I don't understand.

8935   Have you exercised that flexibility in all the exchanges in which you have had the flexibility to do so?

8936   MR. BIBIC: So Bands "E" and "F" today we have the ability to charge $3.04 for touchtone service; we charge $2.80. So there is a gap there of $.24 of permitted price where we could raise the rates in regulated areas according to the CRTC. We haven't done it, but for calculation -- for subsidy calculation purposes the CRTC assumes that we charge $3.04.

8937   COMMISSIONER PATRONE: What was the rationale for not exercising that flexibility?

8938   Was that uniform as well or has that varied from exchange to exchange?

8939   MR. BIBIC: No, it's in all exchanges across "E" and "F" we haven't taken that rate increase and I would have to get back to you on the rationale. I don't know.

8940   COMMISSIONER PATRONE: Okay. I'm just curious. If you could get back to me I would appreciate it.

8941   MR. BIBIC: We will ask the marketing people.


8942   COMMISSIONER PATRONE: The other question I had was during the oral rebuttal statement, Mr. Bibic, you deleted from the written text, speaking I believe about urban customers subsidizing -- I'm paraphrasing mind you -- paying artificially high rates to subsidize those in high-cost areas.

8943   MR. BIBIC: That's correct.

8944   So the point I was making is -- you know our position, you understand our position -- we feel rates should be allowed to rise in regulated high-cost serving areas and they have been kept artificially low. So that's one.

8945   I think the costs are all wrong, as I said -- I think I used the word "wonky" -- and that's another inefficiency.

8946   The end result of all that is that Bell and Rogers, according to our estimates using '09 data -- I don't think they change very much using 2010 data -- our respective subscribers bear pretty much the entire burden of the subsidy regime and of course those funds are being used to subsidize voice service in SaskTel, Bell Aliant, MTS territory to a large degree. So there you see the cross subsidy.

8947   I'm not saying that for voice where it's truly a high-cost area where the costs to serve are above an affordable rate that there should not be a subsidy regime. That's not what I'm saying. I'm not disputing or quarrelling with a reasonable tax rate that's uniform across all providers.

8948   The end result of that obviously is that Bell will always be the single biggest payer because we are the biggest in terms of revenues, but it's the proportionality is just not right.

8949   COMMISSIONER PATRONE: I was interested in the rural/urban divide as I believe you mentioned it during a point at which you somewhat deviated from your text.

8950   MR. BIBIC: And that's because Rogers I would imagine -- well I think Rogers is, other than on the wireless case, primarily an urban provider. We certainly are in the wireline side after 2006 primarily an urban provider. So when the two largest urban providers are paying, you know, their disproportionate share of the subsidy regime you have an urban/rural subsidy.

8951   Again, there is nothing in principle wrong with that now and I was also making the point that let's not compound that by having our ratepayers or our subscribers in Québec, urban areas of Ontario and Québec, subsidize MTS in its desire to upgrade its already broadband-enabled network in Manitoba, or SaskTel, which has a government-owned network by the way, which is 100 percent broadband-enabled, to allow it to go from 1.5 to 4 using subsidy extracted from urban customers in Ontario and Québec.

8952   COMMISSIONER PATRONE: Would you anticipate a corresponding reduction in urban rates in a situation where those artificially low levels, I guess, in the rural areas would be, say, no longer applied? In other words, if a proposed fix was applied on the rural side, would you see opportunities for lower prices in urban centres where you serve?

8953   MR. BIBIC: Lower costs always provide the ability to lower rates, add more value, add different services and ultimately benefit the customer.

8954   So is there a direct link? Certainly regulatory costs, whether it's this subsidy, whether it's Part 1, Part 2 fees, whether it's LPIF in broadcasting or everything else, they add to the cost burden. In fact, they are one of the top two or three largest expense items at Bell Canada, regulatory items writ large.

8955   So obviously the amplitude or the heaviness of those costs has an impact on our prices.

8956   Will there be a direct link in this case, certainly it will give us more flexibility to either invest, lower price, compete better and the same go, I would imagine, for those of their competitors who would face a lower tax burden.

8957   COMMISSIONER PATRONE: I believe Bell Aliant was mentioning that a level of flexibility would allow them to address facilities-based fixes to their networks and so forth. In your case that's why I was wondering whether or not urban customers would see some kind of filter through.

8958   MR. BIBIC: Lower costs tend to lead to more competitive zeal and hopefully lower prices and higher value.

8959   COMMISSIONER PATRONE: Thank you very much.

8960   Those are my questions.

8961   THE CHAIRPERSON: Candice...?

8962   COMMISSIONER MOLNAR: Thank you.

8963   I just want to follow up a little bit on this conversation about disproportionate. I believe you said that there was a disproportionate share of the subsidy paid for by your urban subscribers.

8964   Did you say that?

8965   MR. BIBIC: I did say that and I think that's largely as a result of the costs.

8966   COMMISSIONER MOLNAR: But you would agree that all urban subscribers, assuming the revenue charge is flowed through to prices, that all urban subscribers, regardless of where they live in Canada, potentially have the same obligation?

8967   MR. BIBIC: Oh, I agree with that and that's Figure 1.

8968   COMMISSIONER MOLNAR: So people within Regina, despite the fact it's in Saskatchewan, we have the same obligation -- and I'm going to take my neighbour beside me who lives in Toronto -- her and I potentially are sharing that burden at the same rate.

8969   MR. BIBIC: I don't think there is a gotcha there, Commissioner Molnar.

8970   COMMISSIONER MOLNAR: It's not a gotcha.

8971   MR. BIBIC: I never disputed that.

8972   What I'm saying is that money -- sure, every customer is paying that, every ILEC or -- sorry, every TSP who must pay into contribution pays the same tax rate, sure -- I completely agree with that -- but it's going to areas where subsidy is not needed or not needed to the degree it's getting today because of the cost and the price issue.

8973   COMMISSIONER MOLNAR: Yes, and I understand those two points. I just thought I heard something different.

8974   I want to move on to your SILEC proposal just make sure I understand it.

8975   In paragraph 22 where you put forward this proposal of 75 percent of the subsidy requirement would be used -- of any local rate increase would be used to reduce the subsidy requirement.

8976   I thought I heard yesterday that you proposed in SILEC territories, as in ILEC territories, rates would increase and once there is a competitor the contribution -- or once it's forborne contribution is eliminated.

8977   Is that correct?

8978   MR. DANIELS: That was correct. That is correct

8979   COMMISSIONER MOLNAR: So you have changed it?

8980   MR. DANIELS: But we are changing our position. That's what I was trying to say here --


8982   MR. DANIELS: -- in terms of we are proposing that to address the unique nature of SILECs for the doughnut effect, especially considering that their forbearance test is different and it's lighter, as well as the concerns of the doughnut effect, we are suggesting that subsidy would continue to the extent that they would be much smaller -- they would still be required to raise rates, but even if they were forborne they would still get subsidy, not only from the toll of the $11 million, but a portion of the $23 million that -- as a result of rate increases, that that portion would come down whatever -- 25 percent of it would still continue to go despite forbearance for SILECs, recognizing their unique circumstance.

8983   So we are changing our position and that's what I was saying based on what we have heard here.

8984   COMMISSIONER MOLNAR: Okay, thank you. I was a bit confused by that. Okay.

8985   I want to ask you -- and you may or may not have a position on this, but it was a question I brought up a couple of times in Timmins -- all SILECs are not created equal is one of the things I have learned in this. You have proposed this due to the unique vulnerability of SILECS.

8986   The ownership structure of SILECs does not all appear to be equal. Have you looked at whether or not you propose this for all SILECs as they are defined today or if there are any other criteria with that?

8987   MR. DANIELS: So this applies to all SILECs regardless of ownership today, tomorrow, future.

8988   I think it's an important point to think about this, that if you actually start making distinctions of a SILEC based on their ownership, the consequence is that you are actually devaluing all SILECs because, you know, some SILECs are privately owned and they may want to sell themselves, and some of them did, they sold to Bragg for example, they sold to KMTS, they sold to Bell Aliant.

8989   If you are saying that by the fact that a large cable company or a large ILEC buys a SILEC that that actually changes the regulatory status and therefore the amount of subsidy or whatever, that means that all SILECs will be devalued because they will be worth less depending on who owns them. So even if they don't sell themselves in terms of one day when they want to come to sell themselves they will be worth less. It will be: Well, because if I sell it to a guy who's just an individual I keep the status, but if I sell it to a big player it's worth less to him because the regulatory regime is going to change and the amount of subsidy.

8990   So our position is all SILECs, regardless of ownership.

8991   COMMISSIONER MOLNAR: Okay. I understand your position and I do also understand your notion that that could affect the market valuation, but I'm not certain I understand that a SILEC owned by Bell Aliant would have the same unique vulnerabilities as an independent.

8992   I want to just move on, then, to the second area of your proposal.

8993   When I talked to the SILECs, the OTA group about this and ask whether this was a proposal in this proceeding or something that should be dealt with in a separate proceeding, they said that they thought it could reasonably be addressed in a separate proceeding.

8994   Do you agree?

8995   MR. DANIELS: I'm sorry, are you talking specifically about the change in the toll?


8997   MR. DANIELS: I could be wrong, I don't remember that.

8998   We think that it's part of this proceeding because it's all part of the subsidy regime and it's making it explicit about the subsidy regime. So we thought that it is in scope in this proceeding and we thought they supported it in this proceeding and they proposed it in this proceeding, as did we.

8999   COMMISSIONER MOLNAR: They have their hands up so we probably can have that clarified.

9000   MR. DANIELS: Yes, so let's check with them.

9001   But our position, just so we are clear, this proceeding.

9002   MR. HOLMES: Thank you, Commissioner.

9003   Yes, we agree this is a proposal that's within scope for this proceeding as well.

9004   Jonathan Holmes from the OTA.

9005   COMMISSIONER MOLNAR: Okay. So then you need to help me out with this if we are going to be deciding on it here.

9006   This is the DC connect rate; is that right?

9007   MR. DANIELS: It's two things, it's DC connect rate and it's the toll trunking rate that they charge for like the DNA connection to be able to have the trunk to connect. So it's both of those.

9008   COMMISSIONER MOLNAR: Okay. So it's based on their costs to enable equal access?

9009   MR. DANIELS: Well, I'm not sure I'm the best person to answer that, I don't think it's based on any -- I don't think it has historically been based on any costs because I don't think they have ever filed it on costs.

9010   But I can say that there is a huge, huge discrepancy between us.

9011   COMMISSIONER MOLNAR: Fair enough.

9012   But it isn't a local service subsidy, because the local service subsidy in theory is based upon the average costs that they had taken from the companies and the shortfall between that and their rate, just like everyone else on the local side. So this is related to something else?

9013   MR. DANIELS: Well, our view is that the actual rates that were chosen for it are way above their costs.

9014   Now, I don't have costing to prove it, I don't think anyone has costing to prove it, but the discrepancies are so huge. When you are talking for example the DC, it's just the switching cost.

9015   The switching costs that you use for local and toll in ILECs are the same -- in ILEC territories, roughly the same, you know the bill and keep and balance. I know I'm getting technically detailed, but I think you may be familiar with what I'm talking about. It roughly comes to the same rate, the underlying costs.

9016   Whereas in the SILECs there is a big discrepancy between local -- which is on the switching side which is treated on the same basis when we have -- you know, we basically have a bill and keep regime when we terminate to them -- but the toll has this $.02 per minute for example -- and again, I'm making up to figure, I don't know what the actual figure is and the person who knows it is not passing it to me because they are not in the room, so I apologize for that.

9017   So there is a big difference there. I don't think it's cost based and I think what we came to conclusion during our negotiations last year is yes, this money is needed. It's probably part of their overall requirement to provide local service, but it has never been specifically identified for that because, you know, the price cap regime takes all costs and says overall you are recovering it.

9018   So if you are going to lower it down you have to increase their subsidy because it's really a local subsidy for the most part. We can't determine the exact amount and that's why we are seeing use the proxy of Bell, of its costs and fund the difference.

9019   Perhaps the OTA can do a better job than I did.

9020   THE CHAIRPERSON: I see several hands up on this. We will come to you.

9021   But just because both you and the OTA think we should deal with it in this proceeding, let's remember we don't have to deal with it. We could make it a separate proceeding.

9022   I don't want anybody to get the impression that it is understood that we will deal with this issue in this proceeding. You have made the valid point that the terms of reference are wide enough so we can encompass it here, but it is really a very special point that we may or may not choose not to address.

9023   But let's hear what the other people have to say in regard to what we just heard.

9024   Let's start with the man in the back, OTA.

9025   MR. HOLMES: Jonathan Holmes, from the OTA.

9026   We basically agree with how Mr. Daniels has portrayed this. We view the fact that the rates for toll interconnection services right now are so high above industry norms that it has really over time been reflected as an implicit subsidy.

9027   One of the reasons we used to justify moving it over into the subsidy fund is that access to toll service is part of the basic service objective that we support in our operating territories.

9028   THE CHAIRPERSON: MTS, you had your hand up.

9029   MS GRIFFIN-MUIR: Yes. Teresa Muir, MTS Allstream.

9030   I just want to clarify a couple of things going back first of all to the fact that Mr. Daniels wants to continue to use the Bell rate.

9031   It seems just a bit inconsistent. We would prefer to reduce the direct connect and toll trunk rate to whatever the OTA's costs are, but certainly Bell has the lowest switching and aggregation cost across Canada so at least if we are doing a quick fix it should be the average cost of everybody across Canada.

9032   Separate from that, Bell wants to add -- and I'm assuming so does the OTA -- the difference between those two, the price reduction and the cost today, into the national subsidy.

9033   I'm just trying to balance that with Bell's position with respect to imputing toll revenues for each of the ILECs as part of reducing our contribution shortfall and the fact that we are reducing this rate to the lowest level in the country and adding the total amount into the subsidy so that the OTA can reduce their total rates.

9034   It seems really, really inconsistent to me, because if you think we should add the margin or the difference, isn't there a bit of a premium that every terminator should pay, every competitor should pay on the switching and aggregation portion then? Like why is it only the ILECs who should do that?

9035   MR. DANIELS: Mr. Chairman, would you like me to respond to that?

9036   THE CHAIRPERSON: We have another hand up. Let's get that one and then we will come back to you.

9037   I saw somebody. Yes...?

9038   M. SAMSON : Je voudrais juste vous demander, Monsieur le Président, si on aura l'occasion à un moment donné, soit avant le lunch, soit après, de revenir sur la question de large bande. Je veux juste m'assurer qu'on puisse le faire.

9039   THE CHAIRPERSON: Okay. We are not on that subject right now.

9040   Okay, Mr. Daniels, go ahead.

9041   MR. DANIELS: So I don't think it's inconsistent, in fact it's not inconsistent at all in terms -- because our proposition is that the SILECs too should have implicit subsidy in terms of the toll. We said actually in the statement here that it should be the national average of what's used.

9042   So like ILECs and SILECs when you are determining the amount of subsidy required you have to impute the subsidies -- excuse me, the implicit subsidies they get from toll in that direction. That's on the revenue side.

9043   We are talking about the cost side and we are admitting, wait a minute, there are some costs here that are overstated, there is implicit subsidy that's going on -- different implicit subsidy. It's not a revenue it's a cost and it's coming from toll charges, interconnection, not retail rates, and so you should move that over, recognize that it's a true subsidy and then we say the SILECs, just like ILECs, should have the -- and I know it's the same word, but it's a completely different concept in this context, the implicit subsidy from retail toll services that they sold taken into account.

9044   So it's perfectly symmetrical. It's treating the two identical, in contrast to, I think, how MTS has characterized it.

9045   THE CHAIRPERSON: Candice, do you have any more questions for Bell?

9046   COMMISSIONER MOLNAR: I don't have questions on this at this time. Thank you.

9047   THE CHAIRPERSON: And maybe we want to hear from the SILECs on the two proposals that Bell put on the table, basically the revised Bragg test that they suggest you should apply and, secondly, the issue of the 75 percent imputed subsidy that would remain for SILECs in forborne even if the area is forborne.

9048   I obviously know your position. I would like to hear the position of others.

9049   MR. HOLMES: Jonathan Holmes, from the OTA.

9050   That was part of the 2009 proposal, the 75 percent that we talked about with Bell. We still support that. We have gone on the record of this proceeding.

9051   With regards to the Bragg proposal, we have taken a very quick --

9052   THE CHAIRPERSON: The amended Bragg proposal as put forward by Bell.

9053   MR. HOLMES: Thank you. We are going to have to take that away and look at it in reply. We have got, you know, 19 member companies to review it over.


9055   MR. HOLMES: But we will get back to you in writing on that.


9057   MR. STEVENS: It is Keith Stevens.

9058   I just wanted to add to that. I mean, very quickly, of the tests they say two items. All of our members have high-speed internet so, really, they are saying one test is what they are saying. And we find some real problems with that.

9059   But we will get back to the Commission with our thoughts.


9061   MR. CHOQUETTE: Roger Choquette, ACTQ.

9062   We are due up right after lunch. If you wish we can comment on those items.

9063   THE CHAIRPERSON: Okay. Well, comment on it after lunch. That's fine.

9064   MR. CHOQUETTE: Thank you.

9065   THE CHAIRPERSON: Anybody else?

9066   Yes, Bell Aliant.

9067   MR. HENRY: Yes, Mr. Chairman.

9068   I said this morning in answer to a question that our proposal was the same for SILECs as ILECs but, having heard the Bell proposal, we too would support it, including the incorporation of the Bragg test.

9069   And we also very much support the interconnection point. We are the largest interconnector and the largest payer of these, what I would call inflated interconnection rates, so we are quite anxious to get the local subsidy portion of those interconnection rates into the contribution fund where they belong.

9070   THE CHAIRPERSON: Okay, thank you.

9071   Go ahead.

9072   MR. HOLMES: I have got -- just I wanted to respond to one other paragraph in Bell Canada's application. Is it a good time to do it now?

9073   THE CHAIRPERSON: I'm trying to get us to lunch so make it quick.

--- Laughter

9074   MR. HOLMES: Okay. I will make it very quick.

9075   Notwithstanding all this agreement that's floating around the room between us right now, in paragraph 17 they say that "the impact of the doughnut fact is vastly overstated". We disagree with that obviously for a whole number of reasons which we have told you about.

9076   But I just wanted to highlight the one paragraph where we said "outside these areas" and I think that's the core areas, "ILECs" which means SILECs "will be able to pass through rate increases to reduce or eliminate their reliance on subsidies".

9077   So that really portrays a picture of keeping rates low within the core of a competitive market which is essentially an exchange, and passing on rate increases to areas outside the core. That, I think we talked a little bit about that yesterday.

9078   We have companies, though, that are cooperatives that are essentially subscriber-owned entities where I don't think it would be doable from the perspective of increasing rates in the core -- or not increasing rates in the core but increasing them in the doughnut. Just it wouldn't work for cooperatives especially.

9079   THE CHAIRPERSON: Monsieur Lauzon, you wanted to say something about broadband?

9080   M. SAMSON : Samson.

9081   LE PRÉSIDENT : Je m'excuse.

9082   M. SAMSON : De la MRC Papineau.

9083   Dans la réplique de Bell Canada, on fait spécifiquement... Je vous ramène aux trois premiers paragraphes de leur document, celui qui commence par le texte "broadband." Je voudrais vous ramener plus spécifiquement au point 3.

9084   Je vais le citer en anglais pour les interprètes. Ne paniquez pas.

"We are more persuaded than ever, especially after hearing the testimony of Barrett Xplore, that ongoing private sector efforts will ensure the universal broadband access we seek."

9085   Dans un premier temps, je vous dirais, c'est bien la première fois de ma vie professionnelle où je vois Bell Canada aller se cacher derrière un concurrent, Barrett dans les circonstances, pour justifier une condition de marché, tel qu'il le fait présentement.

9086   Je pense à la dernière phrase. Je la cite en anglais, toujours pour nos amis les interprètes :

"The bottom line is that there are very few gaps left or likely to be left in a fairly short period of time as the market continues to get the job done combined with target government funding."

9087   Ça, je vous avoue, dans cette phrase-là, surtout vu de notre point de vue, on est un peu dans le territoire d'Alice au pays des merveilles.

9088   J'aimerais entendre les gens de Bell être un plus spécifique sur ce qu'ils entendent faire, surtout qu'ils interviennent dans notre territoire, le long de la 148, la route 148, de même que les gens de Bell Aliant...

9089   THE CHAIRPERSON: Just a second.

9090   M. SAMSON : Oui.

9091   THE CHAIRPERSON: We seem to have lost our translation.

9092   M. SAMSON : Ah! Je m'excuse.

9093   A quel point avez-vous perdu la traduction? Je peux reprendre.

9094   THE CHAIRPERSON: Is it back now? Translator, are you back online?

9095   Okay, then start -- recommencez, s'il vous plaît, après votre citation en anglais.

9096   M. SAMSON : La citation en anglais.

9097   Bon, tout ce que je dis, c'est que j'ai l'impression d'être un peu à la frontière du territoire d'Alice au pays des merveilles dans la mesure où ni pour Bell Aliant, ni pour Bell Canada, je vois vraiment quelque chose de consistant au niveau des problématiques qu'on a posées à l'égard de l'Internet haute vitesse en ruralité, Bell Canada parce que c'est le ILEC ou la compagnie qui dessert les municipalités le long de la route 146, et Télébec de Bell Aliant parce que c'est la compagnie qui dessert le nord de la MRC de Papineau.

9098   Alors, ma question, c'est : Est-ce qu'on pourrait être un petit peu plus précis sur ce qu'on entend faire au niveau de ces deux compagnies là en Internet haute vitesse en ruralité?

9099   LE PRÉSIDENT : Monsieur Bibic.

9100   M. BIBIC : Bon, le premier point qui a été soulevé par monsieur Samson en ce qui concerne la première phrase du paragraphe 3, je n'ai aucune intention de répondre. En ce qui concerne l'allégation que c'est la première fois qu'on se cache derrière un concurrent, ça ne mérite aucune réponse.

9101   En ce qui concerne le deuxième point, ce qu'on a l'intention de faire, ce qu'on a l'intention de faire, c'est ce qu'on fait. On a investi au-delà de 1 milliard de dollars pour déployer un des meilleurs, sinon le meilleur, réseaux 3G au monde, qui permet aux gens dans les ruralités d'avoir accès à des appareils comme le iPad, les iPhone, qui donnent... Monsieur Engelhart de Rogers a discuté de l'appareil Turbo, nous, on l'appelle le Turbo Hub, et tous ces appareils fonctionnent sur le réseau sans fil 3G qui est disponible à 93 pour cent de la population canadienne, et c'est un service de large bande à haut débit.

9102   On prend la fourniture de service à large bande aux abonnés très sérieusement et on livre la marchandise.

9103   THE CHAIRPERSON: SaskTel, you have some questions there?

9104   MR. MELDRUM: Mr. Chairman, are we coming back after lunch to talk more about Bell or is this our last shot?

9105   THE CHAIRPERSON: I would hope this is the last shot.

9106   MR. MELDRUM: Then I do have something.

9107   THE CHAIRPERSON: Okay, go.

9108   MR. MELDRUM: It's with respect to paragraph 19 of their rebuttal. They had indicated that SaskTel is just trying to keep all the subsidy to avoid competitive losses and I guess maybe our position hasn't been clear.

9109   We want a cost review. We welcome a cost review and that's our primary fundamental position. Our proposal to reassign the current cost to rural areas was made in response to the very strong assertions, some might say squawking by Bell and others, that a cost review is too much work. So fundamentally we want a cost review.

9110   THE CHAIRPERSON: Okay, thank you.

9111   TELUS.

9112   MR. ROMANIUK: Orest Romanium with TELUS.

9113   We totally agree with that position. We have also a couple of other questions or comments.

9114   Specifically, in respect to Bell's proposal on the implicit subsidies, as we know they are $5.00 today. Those are based on a decision in 2000. Is the $5.00 as decided back then -- was that 100 percent of the subsidy from enhanced services or was that a portion thereof?

9115   And, secondly, at that time Bell in their argument, paragraphs, I believe 136 to 40, they specifically indicated that if we are to have implicit subsidies they have to be from services that can generate and can continue to generate margins. So would the proposal that Bell is saying today, is the $15 a level of subsidy that can be generated today and can continue to be generated in future given competitive pressures?

9116   THE CHAIRPERSON: Bell, do you want to answer that?

9117   MR. DANIELS: So our position when we said -- we think it's in order of $15 but our first position is you have the data. We don't have the data. We know what our numbers are. We suspect that everyone else has similar numbers.

9118   Yes, the answer is we think it should be 100 percent of the margins. Just like you did before, you have seen that the margins have increased over the number of years and told remains profitable for companies.

9119   THE CHAIRPERSON: One last question I have to ask you. My lawyers insist I ask you this question.

9120   Under the Bell Canada Act you have an obligation to serve. So even if do away with the obligation to serve in forborne areas you are still bound by the Bell Canada Act. Would you then seek amendments to the Bell Canada Act?

9121   MR. BIBIC: No, we will not. The Bell Canada Act will still govern. It will require us to serve when a plant is within -- or when the request is within 62 metres of our plant.

9122   However, the obligation to serve, it is part of the basic service objective as ruled on by the Commission. That would go away under our proposal and that's significant because that leads to subsidy and it also leads directly to the standalone price cap and we think both of those should go.

9123   So the two are not in conflict in any way in my mind.

9124   And the last point, Mr. Chairman -- I don't think this will require anybody to get upset and respond -- the revised Bragg proposal, I suspect, we are going to hear a lot of commentary on that this afternoon when the SILECs are up. Just to be clear, we thought the concept was a great concept. We wanted to add the prima facie notion to it.

9125   I think Commissioner Lamarre made a very, very good point about, "Well, think about you know, factors that would rank in precedence". Already we have heard about high-speed internet.

9126   We are all ears, like we are not -- to us these factors aren't fixed in stone and we are really quite open-minded about it.

9127   THE CHAIRPERSON: Your principal point, you want a bright-line test, yeah.

9128   Okay. Well, then thank you very much everybody. It's 12:30 now. We will break and we will resume at two o'clock.

9129   Thank you.

--- Upon recessing at 1227

--- Upon resuming at 1400

9130   THE SECRETARY: Order, please. A l'ordre, s'il vous plaît.

9131   Alors, Monsieur le Président, nous allons poursuivre avec l'Association des Compagnies de Téléphone du Québec, et je vous inviterais à vous re-présenter aux fins du dossier et à procéder avec votre présentation de 15 minutes.


9132   M. DÉSY : Merci, Madame.

9133   Bonjour, Monsieur le Président, membres du Conseil et Commissaires. Mon nom est Serge Désy, PDG de l'ACTQ, pour les compagnies indépendantes du Québec.

9134   Je vous présente les membres qui m'accompagnent :

9135   - assis à ma droite, messieurs Roger Choquette et Sylvain Bellerive;

9136   - et à ma gauche, messieurs Claude Beauregard, Michel Couture et Jean-François Mathieu.

9137   Nous allons, dans cette réfutation orale, adresser des arguments précis et des propositions qui ont été faites par certaines parties concernant le marché des PESLT et le cadre réglementaire approprié qui devrait être appliqué aux PESLT.

9138   En général, Bell Aliant et Bell Canada font valoir que, à une exception près liée aux PESLT avec moins de 20 000 SAR et la mise en ouvre de la portabilité des numéros locaux, le même cadre réglementaire qui s'applique à elles devraient aussi s'appliquer aux PESLT, au moins dans la mesure où la concurrence locale et la subvention locale sont concernées.

9139   Plus précisément :

9140   a. Bell Aliant prétend que les PESLT sont similaires à elle en termes de ZDCE et qu'elle n'est pas convaincue que les PESLT vont subir les conséquences de l'effet du trou de beigne à un degré matériel quelconque différent de celles des grandes ESLT.

9141   b. Bell Aliant et Bell Canada font également valoir que l'obligation de servir devrait être supprimée dans les marchés faisant l'objet d'abstention de réglementation, mais conservée dans les marchés réglementés et que cette obligation dans ces marchés réglementés doit être conservée par l'opérateur titulaire historique pour éviter la redondance.

9142   c. Finalement, Bell Aliant et Bell Canada proposent que les subventions locales soient éliminées dans toutes les PESLT de l'ACTQ, des territoires ZDCE pour les bandes E et F, en augmentant (1) les tarifs locaux résidentiels jusqu'au plus haut niveau de services abordables -- on a parlé ici entre 30 et 36 dollars -- et (2) Bell Canada qui mentionne en augmentant les revenus implicites associés avec les services locaux optionnels dans la formule de subvention locale.

9143   Soyons c1airs sur certains faits.

9144   Tout d'abord, nous notons que 100 pour cent des SAR résidentiels des PESLT de l'ACTQ sont considérés à coût élevé, alors que dans le cas de Bell Aliant et Bell Canada, les pourcentages équivalents sont de 50 pour cent et 7 pour cent, respectivement.

9145   Du point de vue de l'ACTQ, tel que discuté lors la phase de questions et réponses lors de la présentation de l'ACTQ, la statistique principale à examiner sur les conséquences financières globales de l'effet trou de beigne sur un opérateur historique titulaire est le nombre de SAR résidentiels situés dans les zones de desserte non à coût élevé, donc, les non-ZDCE.

9146   Dans le cas de Bell Canada et Bell Aliant ces chiffres, basés sur des informations fournies dans la présente instance, sont estimés à 4,5 millions et 750 000, respectivement. Dans le cas des membres de l'ACTQ, ce nombre est égal à zéro.

9147   II est donc évident que les conséquences financières de l'effet du trou de beigne dans les ZDCE des PESLT de l'ACTQ sont beaucoup plus graves que pour les grandes ESLT comme Bell Canada et Bell Aliant.

9148   Alors, permettez-nous de mettre fin à cette allégation, une fois pour toutes. Les PESLT ne sont nullement comparables aux grandes ESLT en ce qui concerne les conséquences financières négatives de l'effet du trou de beigne sur les compagnies situées dans les ZDCE.

9149   Monsieur Choquette.

9150   MR. CHOQUETTE: I would like to go off text briefly here based on the information provided by Bell Canada and Bell Aliant this morning. We will therefore -- and that relates to the proposal by Bell that a service subsidy would be retained in SILEC operating territories even if those territories were forborne.

9151   I will therefore move away from paragraphs 4, 5 and 6 which dealt with that issue and move to paragraph 7, which addresses the local subsidy in areas that are, in fact, non-forborne.

9152   Bell Canada has proposed that local subsidies be eliminated in all non-forborne ACTQ HCSA bands, Bands "E" and "F", by increasing local residential rates up to the highest affordable level and raising the implicit revenue associated with optional local services in the local subsidy formula.

9153   Even if this were implemented over a multi-year transition period, the reality in the SILEC operating environment is that individual companies cannot generally de-average basic residential rates in their operating areas. This is because the SILEC communities are small and the SILEC consumer expects as equitable a treatment from his phone service supplier as the treatment provided to his neighbour in the serving exchange.

9154   The net consequence of this reality is that the SILEC would not be in a position to actually implement the rate increase contemplated by Bell and would consequently be required to absorb the difference between the highest affordable rate and the competitive rate charged in the core of the exchange. Of course this is due to the reduction of the SILEC local service subsidy as calculated in the existing local subsidy formula.

9155   On the matter of the implicit revenue element associated with local optional services in the subsidy formula, the Bell Canada proposal is not only predicated upon the increase of margins associated with optional local services but is also based upon the inclusion of additional margins associated with network access and toll services.

9156   We would first of all note that in a competitive SILEC environment, the margins related to optional local services are expected to diminish, as optional local services are literally bundled into the voice service offering at little if any cost to the consumer.

9157   In fact, as provided in our response to a Commission interrogatory on this matter, the weighted average optional local service pricing today in ACTQ's SILEC territories, let alone margins, is less than the $5.00 per month imputed amount, and is at a level of $4.50 per month.

9158   On the matter of network access and toll margins, I realize that there was an extensive amount of discussion about this, this morning.

9159   The ACTQ would note that on the record of this proceeding, in the case of network access revenues, the latter margins for SILECs are expected to become extremely narrow, especially as network access rates are proposed to be reduced to the equivalent rates of Bell Canada.

9160   On the matter of the margins of toll services, again they are expected to be very narrow, consistent with the highly competitive market for toll services.

9161   We would therefore conclude the implicit $5.00 per month revenue contained in the subsidy formula is more than adequate in reflecting the margins related to optional services as well as network access and tolls.

9162   There have also been suggestions, by several parties, including the cable companies, that any potential business failures in the SILEC industry would be of little consequence to consumers since another company, presumably a TSP, would acquire the assets of the failed company since -- I quote -- "Il existe dans l'industrie un marché viable pour les actifs de télécommunications."

9163   Indeed, the failed SILEC scenario has also been raised by the Commission on at least two occasions, in the question periods following the separate presentations of the OTA and the ACTQ; in one instance, in the same context as that raised by the Cable companies, and in the other instance in the context of a perverse result where a SILEC has no customers left yet continues to collect local subsidy.

9164   Any failure scenario, contemplated by parties or the Commission, in the context of this proceeding and the ACTQ proposal, should be informed by the reality that the ACTQ proposal contemplates that any local subsidy should be tied to a carrier's obligation to serve.

9165   It is therefore clear that any potential and theoretical scenario where the SILEC's customer base would be reduced to zero and would still draw any subsidy, would only be possible if the Commission insisted that this SILEC retain its obligation to serve, even though the new entrant would in this situation cover the entire SILEC serving area and have 100 percent of the market.

9166   With respect to the concept of a viable market for SILEC telecommunications assets in the advent of a SILEC financial failure, we would simply note that it would not appear that any of the SILEC sales in the Province of Quebec over the last five years -- five sales -- have drawn any competitive bids from large TSPs.

9167   We would therefore conclude that this telecommunications acquisition market may be somewhat different than advertised by the cable companies, at least insofar as the market for SILEC high-cost operating areas located in the Province of Quebec.

9168   The cable companies have also argued in their opening remarks that "there is no evidence that any rational telecom company would stop providing service where facilities exists" since they say there is no evidence whatsoever to indicate that facilities in the less dense parts of the incumbent territories represent an ongoing financial burden since they are sunk costs.

9169   This argument is clearly flawed since it is only focused on the short-term capital recovery component of a SILEC's operating costs.

9170   Barrett Xplore has for example referred to "windshield time" as an important factor in the provision of satellite service in rural high-cost areas.

9171   Further, although this expense element, capital recovery, may be material, it is not determinative. For example, in the case of the operating costs of the typical 1,500 line SILEC operating company described in the in the ACTQ's presentation earlier this week, capital recovery costs represent less than 20 percent of the company's total operating costs in 2009.

9172   This argument also ignores the reality of SILEC operating costs in a competitive service environment. These costs are not variable. They are, for all practical purposes, fixed.

9173   Accordingly, under the reasonable assumption that a SILEC is financially viable on day one of the introduction of local competition and even under the assumption that all SILEC facilities costs were sunk on that day, the point is that the SILECs operating costs, including its capital recovery costs, will not diminish unless the SILEC retires plant and equipment.

9174   This scenario of retiring plant could only be contemplated if the SILEC's obligation to serve was removed. Otherwise these costs remain fixed even though revenues associated with the recovery of these fixed costs decline.

9175   We would now like to turn to the matter of local number portability in SILEC territories.

9176   TELUS has proposed that fixed call route forwarding be considered as an option in SILEC territories. The cable companies have also indicated their support for a "porting out" only option for SILECs in order to reduce local competition implementation costs.

9177   The ACTQ would first of all note that the porting out option is not feasible in a competitive environment since such an option would restrict a SILEC's LNP capability to the porting out of numbers. As noted by our colleagues of the OTA in their rebuttal presentation earlier this week, I quote:

"LNP both porting in and porting out should be a requirement wherever local competition is introduced. It only makes sense that we would want the maximum opportunity to win back customers and let them keep their original phone number."

9178   On the matter of the fixed call forwarding option proposed by TELUS the ACTQ notes that in addition to the issues raised by the OTA, as related to this option, this option would not permit SILEC access to numbers of the new entrant operating with a distinct CLEC NNX.

9179   A number of interveners, including the cable companies, argue that the mere presence of some SILECs as CLECs in the adjacent operating territories of large ILECs is evidence that SILECs have no need for any additional financial support in the event that local competition is implemented in the SILEC's incumbent territory.

9180   The ACTQ would note that, notwithstanding that ACTQ SILECs' CLEC activity is only currently restricted to the operations of two SILECs in their own right with modest numbers, and one SILEC with an indirect affiliation through a common holding company, the notion that competitive services revenues obtained by a SILEC through a CLEC company should somehow cross-subsidize shortfalls in its role as an ILEC is clearly inappropriate.

9181   Further, as noted earlier on the matter of the consequences of the doughnut effect, the financial vulnerability of SILECs is in no way alleviated in the shorter term by its CLEC activities simply on the basis of the relative size and financial capabilities of large ILECs versus small ILECs.

9182   Finally, on the matter of broadband expansion, as raised by a number of intervenors, the ACTQ would simply note that any requirements to expand broadband to currently underserved areas of SILEC rural networks must consider needed funding requirements.

9183   Merci, Monsieur le Président. Nous sommes prêts pour des questions, si vous en avez.

9184   THE CHAIRPERSON: Mr. Choquette, you didn't at all comment on Bell's proposal just before lunch about -- the SILECs' idea would reduce their subsidy requirement by 75 percent if there is competition in the market.

9185   This was a change in Bell's position from previously.

9186   What does that do for you, that 75 percent?

9187   MR. CHOQUETTE: The problem we have with this -- oh, I'm sorry.

9188   M. DÉSY : On a un problème ici, Monsieur le Président, avec l'écoute.

9189   THE CHAIRPERSON: Okay. I'm sorry. Let me repeat the question.

9190   Bell was before you at lunchtime --

9191   Can you hear me?

9192   M. DÉSY : C'est parce qu'on n'a pas la traduction en français.

9193   LE PRÉSIDENT : Vous n'avez pas la traduction?

--- Pause

9194   M. DÉSY : O.K. Merci.

9195   LE PRÉSIDENT : O.K. Je vais recommencer. Est-ce que vous m'écoutez maintenant, Monsieur Désy? Oui. O.K.

9196   Alors, avant le lunch, Bell a fait une proposition. Dans le paragraphe 22, ils ont fait une nouvelle proposition vis-à-vis les conséquences de l'entrée de la concurrence dans le territoire d'une SILEC, et, selon eux, ça adresse le problème des beignes.

9197   Quelle est votre position vis-à-vis la proposition de Bell?

9198   MR. CHOQUETTE: In terms of the 75 percent -- as I understand the proposal from Bell, if there is a rate increase in a SILEC territory, we would be required to, essentially, only absorb 75 percent of that rate increase in the subsidy formula.

9199   That's the way we understand it.

9200   We have a couple of problems --

9201   THE CHAIRPERSON: I think what they are suggesting is that you keep 25 percent of the subsidy.

9202   MR. CHOQUETTE: Right, yes. We either keep 25 or absorb 75, correct.

9203   THE CHAIRPERSON: Okay, right.

9204   MR. CHOQUETTE: Now, we have a few problems with that proposal. One is the fact that, in many cases, the rate increase, which potentially could be up to rates that are considered affordable -- and we have seen numbers ranging in the $36 range -- in many cases, we will not be able to actually put those rates into effect, as explained in our rebuttal here this afternoon, simply because of the fact that we have small exchanges. Everybody knows everyone else. We are going to end up with a competitive core, which is quite appropriate. We support local competition full hilt. However, we are not going to be able to suddenly take that $36, which, in theory, could be applicable to those consumers outside of the core, and actually apply them.

9205   So when somebody says, "I am going to raise your rate from $26, or $25, to $32, and I am going to let you keep 25 percent of that," it's only relevant if you can actually put the $32 rate into effect, and we don't think that's the case in SILEC territories.

9206   The other question that we have with respect to that proposal is that we have tried to tie the local subsidy formula to a recovery of our fixed costs, in the context of local competition. That is why we proposed what we called the top-up approach, which really is simply saying that because of the way the local service subsidy formula is constructed, the implicit revenue element is, in fact, causing a significant problem if you apply it on a per NAS basis. I think we presented that in our presentation.

9207   So for those basic two reasons, we don't support the 75 percent proposal tabled by Bell as a superior solution to what we have proposed.

9208   THE CHAIRPERSON: That wasn't quite my question. I am sure that you like your proposal better than Bell's, but can you live with the Bell proposal? Would it alleviate the pain or not? That's really what I want to know.

9209   MR. CHOQUETTE: I guess the short answer to that is, it's only a relevant proposal if you can actually put in place the rate increase, and in most cases we will not be able to put the rate increase in place.

9210   Seventy-five percent of nothing is nothing. It doesn't matter. Or, 25 percent of nothing is nothing.

9211   If we have an exchange where we are competing with Cogeco, who is the probable competitor, and we have to keep rates very competitive -- and that could possibly be at current rate levels, which in our territory is about $25 a month -- and the Commission says, "Well, I am going to authorize you to go up to $30, we think that's an affordable rate," and we say, "Well, that's nice," for Bell or anybody else it's okay, because they can de-average over hundreds of exchanges. We cannot de-average over our exchanges.

9212   There may be the odd exception where de-averaging is possible, but we can't.

9213   THE CHAIRPERSON: The other thing that came up yesterday was that Bragg made a proposal regarding number portability and when the SILECs should be responsible for the cost of number portability and when not. Basically, two of those factors were met: if they felt that the SILEC was ready to meet number portability; if not, there would have to be a negotiation between the SILEC and the CLEC before we would allow the entry of competition.

9214   Bell picked that up this morning and tightened it up a bit, et cetera. I didn't hear you mention at all in your presentation what you think about the Bragg proposal, as amended by Bell, or the original Bragg proposal, whichever one you want to talk about.

9215   MR. CHOQUETTE: Are you referring, Mr. Chairman, to the attachment to the Bell presentation, where they had a series of criteria, and two of them would apply?

9216   THE CHAIRPERSON: Yes, the same as Bragg did yesterday.

9217   MR. CHOQUETTE: The problem we have with that is that it's anti-competitive. It is basically saying: Anybody who is less than 2,500 NAS, you don't have to compete.

9218   In fact, that was one of the basic criteria, that anybody under 2,500 NAS would not have to compete, especially if they didn't have any fibre-to-the-home, if they didn't have IPTV, et cetera.

9219   So where does that put that particular small ILEC? It puts it in the situation where it is incented not to modernize, because it knows that if it modernizes, competition can come in.

9220   We don't think that's the right solution. We are looking for a solution that's long-term and viable for the small companies, as well.

9221   That's why what we have proposed is based on costs -- real costs, real numbers.

9222   And we want two things, as you know. We want the recovery of those local implementation costs, and we want a top-up based on the fact that our costs are fixed.

9223   THE CHAIRPERSON: Okay. But you are fixing on one criterion. The other criterion was that the SILEC has a local number capability, that it has the access or ability to operate as a CLEC. It offers HSI. It offers IPTV. It offers a cellular service. It has built fibre-to-the-home. It has a sharing arrangement for key equipment or facilities that would ease competitive entry.

9224   MR. CHOQUETTE: Right.

9225   THE CHAIRPERSON: It strikes, obviously Bell, and us, at first glance, that those are actually good criteria to --

9226   MR. CHOQUETTE: What about the SILEC with less than 2,500 NAS --

9227   THE CHAIRPERSON: I said apart from that.

9228   MR. CHOQUETTE: -- who doesn't have fibre-to-the-home, and doesn't have high-speed internet?

9229   Or, he just has high-speed internet. He doesn't have cellular. He doesn't have fibre-to-the-home. He doesn't have LNP. What happens to him?

9230   He is now some kind of isolated island with no competition.

9231   THE CHAIRPERSON: No. I think the proposal, as put forward, was, if there is someone who doesn't meet the two of those, then we would not authorize competition in that market, unless there was a deal between the SILEC and the party wanting to enter, in terms of picking up part of the costs of number portability.

9232   MR. CHOQUETTE: My understanding of the proposal -- and I will stand corrected, if needed -- is that this would apply to the situation where a SILEC has less than 2,500 NAS. That is the last item on the list, I believe, is that 2,500 NAS.

9233   If you have less than 2,500 NAS, you are going to be, potentially, subject to a regime where there is no competition, depending on --

9234   THE CHAIRPERSON: Mr. Choquette, follow my thought, please.

9235   MR. CHOQUETTE: Okay.


9237   That's what it states, you are absolutely right. I think --

9238   Maybe I misunderstood it, or maybe it's just my wilful misreading. I thought yesterday, when Ms MacDonald from Bragg explained it, the idea was that people who do not meet two of those criteria, or who have less than 2,500 -- in that case, in either of those eventualities, we would not allow competition unless there was a deal between the SILEC and the party wanting to enter in order to deal with the cost of --

9239   MR. CHOQUETTE: I understand what you are saying, Mr. Chairman, and I apologize for going off on the wrong path for a few minutes.

9240   Here is the problem. First of all, you are saying that in some SILEC areas there is the potential for no local competition. We think that, in the long run, that is the wrong approach.

9241   Our companies cannot be isolated for four years in the next framework, or five years, and then suddenly realize that they haven't competed in the last five years, they don't know how to compete, and they go out of business. We just don't want that happening.

9242   We believe that local competition is good for SILECs; however, to the extent that we can recover our costs.

9243   Going to the subject of negotiating LNP costs with EastLink or another carrier, LNP costs represent -- and this is based on information that we provided to the Commission -- roughly 30 percent of the costs associated with implementing local competition in the SILEC territory in Quebec, and that's on the record.

9244   Number two, the local number portability costs that we have provided to the Commission are based on extensive negotiations with suppliers to reduce those costs.

9245   There are two major components in LNP. One is the software upgrade -- the switch -- and that is just based on your supplier. That's fine. But a bigger component, and an ongoing component, is what they call SS7 transiting costs, for dipping at the database.

9246   We have negotiated that -- except for two companies, we have been able to negotiate that down to a number significantly lower than the tariff rates.

9247   So that's fine, we have solved that problem, we think, at least to the extent of finding a smaller number.

9248   And three, the problem we have is that the criteria, as exposed -- and it goes back to our position that I quoted a few minutes earlier. If on Day 1 -- you are a SILEC with no competition, but on Day 1 of competition you are a SILEC with a reasonable rate of return, similar to what you had in 2001, et cetera. We have shown that, in many cases, the companies have implemented fibre-to-the-home. They have implemented high-speed internet, et cetera.

9249   So, to the extent that the so-called formula or menu does not address the revenue component of these services, and does not address the cost component -- the fixed cost component -- of the SILEC, then it really doesn't solve the problem for most SILECs.

9250   It simply is a convenient menu and a convenient rule, which really is not encouraging competition, and it's not solving the problem in terms of the recovery of the company's fixed costs.

9251   THE CHAIRPERSON: Bragg has a flag up. I obviously misrepresented their position, so here is your chance.

9252   MS MacDONALD: I would like to clarify that although the Bell submission has an excerpt from EastLink, there is another paragraph at the end, which states: "If a SILEC has less than 2,500 NAS and does not meet at least two of these conditions, then we would be open to the Commission considering alternate solutions regarding SILEC entry."

9253   Of course we would fully support any SILEC with less than 2,500 subscribers looking at ways to allow competition, and that's why we would be open to a flexible approach for those SILECs.

9254   I just wanted to provide that clarification for the Commission.

9255   THE CHAIRPERSON: And I believe yesterday, when I questioned you, you said you expected that it would be worked out between the party entering and the SILEC, in some form.

9256   MS MacDONALD: I don't actually recall specifically saying how it would be worked out, but I would say that there may be any number of solutions, depending upon the circumstances of the SILEC. That may involve call forwarding, or some other solution, but there would be a discussion, I would expect, with the parties.

9257   THE CHAIRPERSON: Okay, thank you.

9258   Suzanne, you have some questions?

9259   CONSEILLÈRE LAMARRE : Merci, Monsieur le Président.

9260   Donc, j'ai bien compris que vous n'êtes pas disposés à envisager que les territoires des petites compagnies de téléphone qui ont 2 500 abonnés ou moins soient exclus de la réglementation visant à introduire la concurrence dans ces marchés-là, mais ce que vous voulez, c'est que les modalités qui sont décidées pour introduire la concurrence dans ces marchés-là le soient d'une manière à ce que les entreprises, les petites titulaires puissent absorber le choc, pour pouvoir, par la suite, continuer à concurrencer sur des bases équitables avec le concurrent qui serait venu s'installer?

9261   M. CHOQUETTE : Oui, c'est notre position. Nous, on considère qu'un règlement qui mettrait de côté les petites entreprises à moins de 2 500 SAR, c'est comme les mettre en prison. Essentiellement, elles n'ont pas la capacité de faire concurrence dans le marché canadien.


9263   Maintenant, il y a une chose que je veux peut-être rectifier dans votre présentation au paragraphe 19, lorsqu'on a parlé -- et ça, ça été discuté à quelques reprises -- du fait que certaines petites titulaires avaient commencé à être concurrentes dans d'autres territoires et que, de ce fait, on estimait qu'il devrait y avoir de la concurrence dans ces territoires-là.

9264   De la façon que vous le présentez au paragraphe 19, vous avez l'air de dire que la discussion qui a eu lieu, c'était à l'effet qu'à partir du moment où une titulaire devenait concurrente qu'elle n'aurait plus nécessairement de subvention.

9265   Mais moi, ce n'est pas ça que j'ai compris. Ce que j'ai plutôt compris, c'est que les gens chez qui vous concurrencez présentement disent, écoutez, s'ils sont capables de venir concurrencer chez nous, s'ils sont capables de venir jouer dans notre cour, on devrait pouvoir, nous aussi, avoir le droit d'aller jouer dans leur cour. Donc, c'était plus dans ce sens d'équité là, moi, que je l'entendais.

9266   M. CHOQUETTE : Pour la question d'équité, aucun problème parce qu'on veut la concurrence locale. Ça, ce n'est pas un problème.

9267   Nous, on a interprété ça comme un argument qui indiquait qu'on n'avait pas besoin de subvention ou de traitement spécial en fonction de nos coûts de mise en ouvre.

9268   CONSEILLÈRE LAMARRE : O.K. C'est peut-être ça qu'ils ont voulu dire aussi là, mais je n'ai pas compris que ça, moi, dans les explications qu'on nous a données. Je pense que l'agacement plus important, c'était du fait que, bon, ils peuvent concurrencer, nous aussi, on peut aller concurrencer chez eux. C'était plus dans ce sens-là.

9269   Maintenant, en répondant à monsieur le président, j'ai compris où vous aviez une difficulté à augmenter les tarifs dans votre secteur, en disant, écoutez, on ne pourra pas augmenter dans le secteur où est-ce qu'il y a de la compétition parce qu'il y a de la compétition à l'avantage du consommateur. Là, où il n'y a pas de compétition, les gens vont être vexés de voir les tarifs augmenter, alors que le cousin ou le beau-frère, lui, a toujours un tarif avantageux. Je comprends.

9270   En même temps, il y a une autre chose qui a été discutée, c'est que quand on vit en périphérie, on a des avantages qu'on n'a pas nécessairement quand on vit dans un milieu plus populeux ou plus urbain. A l'inverse, ça vient avec des inconvénients.

9271   L'exemple que j'avais utilisé en parlant avec monsieur Samson hier ou avant-hier -- je ne me rappelle plus -- c'était que, écoutez, les gens qui sont au village, ils ont l'aqueduc et l'égout. Les gens qui sont en périphérie, ils ont une fosse septique et un champ d'épuration, et ça, ça entraîne des coûts d'entretien que les gens n'ont pas en ville. Par contre, les taxes ne sont pas nécessairement les mêmes.

9272   Donc, je comprends que c'est un problème, mais en même temps, je comprends l'argument qui est fait qu'un moment donné il faut payer pour le service qu'on a.

9273   Alors, est-ce que ce n'est pas possible pour vous d'envisager quand même une approche qui pourrait tenir compte de ça?

9274   M. CHOQUETTE : Écoutez, je veux dire, dans le cas extrême, le nouvel entrant, le nouveau venu pourrait tout simplement mettre ses installations dans ces zones-là aussi et puis charger les mêmes tarifs à 36 dollars. Ça, c'est une notion.

9275   CONSEILLÈRE LAMARRE : O.K. Donc, vous, vous estimez qu'une des modalités d'introduction de la concurrence dans vos territoires, ça pourrait être d'exiger de la concurrence qu'ils couvrent le territoire au complet, comme les titulaires le font?

9276   M. CHOQUETTE : Oui, exactement. C'est certainement une modalité.


9278   Monsieur Messier, vous avez sûrement envie de commenter là-dessus ou peut-être monsieur Engelhart ou vous préférez attendre?

9279   M. MESSIER : Non. Je pense qu'on peut émettre dès maintenant un commentaire. Peut-être Ken pourrait compléter.

9280   De penser qu'on... D'imposer un test où est-ce qu'on devrait rencontrer... desservir toute l'échange desservie présentement par une petite ESLT, on l'a dit dans notre présentation, c'est comme mettre une barrière carrément à l'entrée.

9281   Je veux dire, les coûts de construire et d'étendre le réseau, les coûts de construire ça sont sans proportion par rapport à les desservir.

9282   Notre position est dire ce que l'on veut, nous, c'est pouvoir desservir là où on est déjà présent, offrir, étendre notre service, alors, l'offrir partout à travers nos installations, ce qui laisse, je pense, une bonne proportion de leur territoire qui sera peut-être moins contesté, sauf peut-être les fournisseurs cellulaires, où est-ce qu'il y aura de la marge pour les petites ESLT d'aller peut-être en augmentation de leur tarif pour aller recouvrir des revenus suivant la proposition que Bell a faite aussi.

9283   CONSEILLÈRE LAMARRE : Mais le fait demeure, et corrigez-moi si je me trompe, Monsieur Messier, présentement, quand même, dans les zones où vous êtes déjà installé, il y en a de la concurrence. Il y en a pour Internet. Il y en a pour la distribution de la programmation de télévision. Mais il n'y en a pas pour la téléphonie.

9284   M. MESSIER : Exact.

9285   CONSEILLÈRE LAMARRE : Bon, alors, je me permets de revenir un petit peu sur ce que je disais plus tôt aujourd'hui.

9286   Quand je regarde le nombre d'abonnés potentiels que vous pouvez aller chercher, et donc les revenus qui sont associés à ça, j'avoue que je suis perplexe quand je compare ça à l'effort que vous mettez pour justement essayer d'obtenir... l'effort réglementaire que vous mettez en ce moment et depuis deux semaines là pour essayer de les obtenir, et je me dis que compte tenu de l'augmentation de revenus que ça fait pour une entreprise comme Cogeco ou comme Rogers que ça semble être tellement une bonne affaire que j'en deviens presque suspecte -- j'ai dit presque -- suspecte parce que je me dis, il y a une bonne affaire là que je ne comprends pas.

9287   M. MESSIER : Mais la bonne affaire, elle est très simple. La bonne affaire, c'est de fournir à nos clients qui nous demandent d'obtenir le service. Comme j'ai expliqué, les consommateurs sont bien au fait de la concurrence. Il y a des situations paradoxales, comme j'ai expliqué ce matin...


9289   M. MESSIER : Exactement. Comme d'un côté de la rue, vous avez la concurrence qui est là, trois fournisseurs, dont Maskatel. Les gens savent en grande partie que Maskatel est une affiliée de Téléphone Guèvremont, et les gens de Sainte-Rosalie, qui sont l'autre côté de la rue, eux disent, pourquoi on ne peut pas avoir le service de Cogeco? Parce qu'on ne peut pas offrir ici.

9290   Donc, je pense que dans tous les territoires... Même chose, je dirais, à Trois-Rivières versus Nicolet ou versus Saint-Paulin ou autre.

9291   Là où on est, où on offre le service, les gens demandent, mais pourquoi là où on peut obtenir de Cogeco un service de distribution de télévision, là où on peut obtenir de Cogeco l'Internet, vous offrez la téléphonie partout, pourquoi on ne peut pas avoir la téléphonie ici?

9292   Et je pense qu'il y a eu... La seule réponse qu'on peut donner, bien, c'est parce qu'on ne peut pas, sur le plan réglementaire, entrer.

9293   Il a été un temps où est-ce qu'on disait à nos clients, bien, écoutez, on a fait des applications, on attend de voir. Les gens appelaient au CRTC, puis on leur disait, bien, ils ont juste à appliquer. Finalement, on a été obligé de changer la réponse que le CRTC donnait, en disant, bien, écoutez, ça va dépendre de l'issu de la présente décision.

9294   Mais le motif principal est vraiment celui-là, celui d'offrir la même offre de service qu'on offre dans d'autres territoires dans ces territoires-là aussi, ce qui fait un sens parce que nous, quand on dessert, on ne dessert pas en fonction des territoires des compagnies de téléphone. On dessert en fonction de là où on a notre réseau.

9295   CONSEILLÈRE LAMARRE : Bon, ce qui m'amène sur un autre point.

9296   Quand on parle justement de modalités d'introduction de la concurrence, vous faites grand état de la question d'équité.

9297   Mais dans la mesure où on prévoit que c'est la compagnie de téléphone titulaire qui doit débourser pour vous permettre de venir concurrencer, il n'y a pas un problème d'équité là?

9298   M. MESSIER : Bien, il n'y a pas un problème d'équité. Pour rentrer dans ces territoires-là, nous aussi, il faut faire des investissements. On a un business case à construire puisqu'on a de l'interconnexion à fournir. Il faut aussi prendre des arrangements pour fournir le 9-1-1. Il faut mettre en place ce qu'il faut pour offrir ce service-là. On a des coûts à rencontrer.

9299   Donc, je pense que la question... un peu comme ce qui se passe du côté des petites entreprises, bien, pour moi, les obligations qu'on met et les coûts qu'il y a à rencontrer pour permettre la concurrence qui est donnée dans l'intérêt public, c'est un... comme on dit en anglais, un cost of doing business.

9300   C'est un peu la même chose que nous offrir au niveau... l'equal access par rapport à nos services locaux. On n'y voit aucun retour sur les coûts qu'on va rencontrer là-dedans, mais c'est une obligation réglementaire qu'on a à rencontrer et on la rencontre, puis on encoure des coûts. Je pense que c'est la même chose ici.

9301   CONSEILLÈRE LAMARRE : Mais il demeure qu'il y a un coût qui reste avec les petites titulaires et que vous ne voulez pas absorber ou qui, dans l'état actuel des choses, ne va pas chez vous. C'est celui d'offrir le service à l'ensemble des citoyens sur le même territoire.

9302   M. MESSIER : Bien, encore là, je reviens, comme je l'ai expliqué tantôt, la question pour nous, ce n'est pas d'offrir sur le même territoire, parce que là, ça voudrait dire construire des installations et les desservir.


9304   M. MESSIER : Bon, il y a un coût pour ça et un retour. Ce qu'on veut, nous, c'est pouvoir desservir, offrir le service là où on a déjà des installations, traiter nos clients à travers... dans ces territoires-là de la même façon qu'on... leur offrir la même offre de service qu'on offre ailleurs. C'est ça qui est notre but principal.

9305   CONSEILLÈRE LAMARRE : O.K. O.K. On va laisser ça de côté pour le moment.

9306   Monsieur Désy, je veux revenir avec vous sur la proposition qui a été faite avec Bragg de changer le test pour déterminer si oui ou non on devrait permettre la concurrence dans le territoire d'une petite titulaire. Bon, il y a une série de critères.

9307   Je comprends là que vous n'aimez pas dans l'état actuel, comme elle est faite, la proposition telle qu'elle est, mais disons qu'on essaie de s'en inspirer pour arriver à quelque chose de créatif et qui soit équitable.

9308   Est-ce que s'il fallait que, d'une part, la titulaire soit déjà concurrente et que cette question-là, ce critère-là, soit fatal dans un sens ou l'autre, c'est-à-dire que si la titulaire, elle n'est pas déjà concurrente, le test n'est pas rencontré, et que si elle est concurrente dans un autre secteur, le test pourra être rencontré, mais qu'on rajoute plus qu'un seul ou deux autres critères à cette formule-là, est-ce qu'il y aurait moyen pour vous de réfléchir à comment un test semblable pourrait être applicable dans les territoires des entreprises que vous représentez?

9309   M. CHOQUETTE : Premièrement, notre principe de base, c'est qu'on veut la concurrence locale. Donc, étant dit, si, pour une raison ou une autre, le Conseil prévoit que les coûts qui seraient absorbés par certaines des entreprises sont trop élevés et qu'ils ne sont pas prêtes à demander à Cogeco d'absorber ces coûts-là ou à demander au fonds national d'absorber ces coûts-là, bien, ça revient tout simplement à une question de politique.

9310   Tout simplement, ça revient à la question... Monsieur Messier parlait du business case. Il dit, je n'ai pas de rendement parce que j'ai fait ces dépenses-là, puis mes revenus ne sont pas assez... ne sont pas suffisants pour couvrir les coûts. Bien, dans notre cas, nous, notre business case, c'est, je dois absorber des coûts, puis mes revenus sont négatifs. Je veux dire, il n'y a pas de business case du tout.

9311   Si on veut avoir de l'équité entre les deux, il est très facile de le faire. Quand on parle d'installations qui seraient construites dans les zones extérieures du cour, c'est des gros coûts. Ça, on l'admet. Ça, c'est vrai. Pour le câblo, c'est vrai. Mais ce sont des beaucoup plus gros coûts que ce qu'on propose.

9312   Nous, on propose seulement, écoutez, absorbez nos coûts de mise en ouvre, puis on a dit que c'est à peu près 1 million par année pour neuf compagnies. Cinq millions, on propose des augmentations de tarif qui recouvreraient une grosse proportion de ces coûts-là.

9313   On ne voit pas pourquoi ça, c'est une barrière à la concurrence. On ne voit pas. Il n'y a pas de barrière à la concurrence. Ce qu'il y a, c'est un droit que les câblos semblent avoir. C'est que moi, je peux rentrer dans un territoire d'un telco, et puis, je peux le faire à un coût très très bas, puis moi, je veux avoir des revenus, puis je veux avoir un business case, puis le telco, bien, on s'en fout.

9314   Mais dans le passé, ça marché parce que le telco, c'était Bell Canada puis TELUS. Il y avait... comme Bell, c'est 7 pour cent de résidences dans ces zones-là, et puis, même Bell Aliant, c'est 50 pour cent.

9315   Mais nous là, on est 100 pour cent à coûts élevés. On ne peut pas supporter un tel scénario où on doit absorber ces coûts-là.

9316   CONSEILLÈRE LAMARRE : Donc, ce que vous êtes en train de me dire, c'est que la prémisse de base que l'on ne devrait jamais oublier, c'est qu'au départ, 100 pour cent de vos abonnés sont dans des zones à coûts élevés, il y a zéro pour cent dans d'autres zones, et qu'à partir de là, ça va fausser toute analyse qu'on pourrait essayer de faire de façon comparative avec ce qui se passe dans les territoires des grosses titulaires?

9317   M. CHOQUETTE : Exactement.

9318   CONSEILLÈRE LAMARRE : O.K. Je ne vous dis pas que je suis d'accord ou pas là. Je vous dis seulement là que je comprends votre position.

9319   Alors, Monsieur Messier?

9320   M. MESSIER : Peut-être un dernier commentaire sur la question de construire et desservir l'ensemble du territoire d'une SILEC.

9321   Écoutez, c'est comme si... Quand j'écoute monsieur Choquette, c'est comme si on était le seul concurrent qui allait entrer et desservir ces clients-là.

9322   Écoutez, je pense qu'il faut reconnaître, et plusieurs l'ont dit durant toute l'instance, il y aura l'entrée des fournisseurs cellulaires qui viennent apporter une alternative dans un avenir... déjà maintenant et dans un avenir plus encore prévisible. Donc, je pense que la question...

9323   CONSEILLÈRE LAMARRE : Mais, Monsieur Messier, vous seriez d'accord avec moi qu'un opérateur cellulaire ne cause pas de coûts supplémentaires aux installations de la petite titulaire qui est déjà en place.

9324   Je veux dire, que Bell Mob ou Vidéotron offre un service de téléphonie de base cellulaire à Sainte-Rosalie, ça ne change rien aux coûts d'exploitation ni d'immobilisations des petites titulaires qui sont dans le secteur?

9325   M. MESSIER : Non, mais ça va changer quelque chose avec le succès que peuvent avoir les fournisseurs cellulaires en termes de perte de revenus, et c'est le problème principal que j'entends ici.

9326   CONSEILLÈRE LAMARRE : Moi, j'entends les deux. J'entends la question de la perte de revenus et la question aussi des frais d'immobilisation au départ pour permettre l'introduction de la concurrence.

9327   M. CHOQUETTE : J'aurais seulement un commentaire, Madame et Monsieur Messier. Ils sont déjà là.

9328   CONSEILLÈRE LAMARRE : Bon. Mais au niveau de la téléphonie résidentielle de base, Monsieur Messier et vos collègues, je pense que, de la façon que vous l'expliquez, on est d'accord que le business case qui peut être fait, il peut être fait par la compagnie de câblo qui existe déjà.

9329   Autrement dit, à Sainte-Rosalie, où vous êtes, Cogeco est là, on peut difficilement s'attendre à ce que Vidéotron se mette à dérouler du câble. Il va plutôt essayer d'offrir des services cellulaires dans le même secteur.

9330   Oui, non, peut-être?

9331   M. MESSIER : Non, mais je pense que c'est une question, effectivement, d'efficacité d'entrée dans le marché.


9333   M. MESSIER : Point final.

9334   CONSEILLÈRE LAMARRE : O.K. Et compte tenu des installations qui existent déjà, qui ont été développées au cours des années, compte tenu des situations de monopole dans lesquelles les câblos vivaient, dans lesquelles les compagnies de téléphone vivaient, maintenant, bien, on ne peut pas réécrire l'histoire, il faut qu'on parte avec ce qu'on a maintenant. C'est ça?

9335   M. MESSIER : Effectivement.

9336   CONSEILLÈRE LAMARRE : O.K. O.K. Ça marche. Donc, je comprends bien ce que vous dites.

9337   Maintenant, au niveau de la fameuse subvention, je veux revenir un petit peu sur la discussion que vous avez eue avec monsieur Katz et que vous avez repris, vous aussi, dans votre présentation cet après-midi en disant, écoutez, monsieur Katz nous a amenés jusqu'à la limite du raisonnement, disant ce que vous demandez, ça revient à dire que vous pourriez vous retrouver sans aucun abonné, avec toujours l'ensemble de la subvention.

9338   Vous nous dites, écoutez, ça ne pourra jamais arriver parce qu'il va toujours nous rester des abonnés, à moins qu'il y a des gens qui décident de desservir des clients qui présentement ne sont pas rejoignables ou autrement.

9339   Mais à ce moment-là, est-ce que, plutôt que... pouvez-vous réenvisager votre proposition de manière à ce que justement on l'empêche de facto cette situation-là ou est-ce qu'un moment donné il va falloir rééquilibrer là?

9340   On ne peut pas... C'est difficile conceptuellement, je vais vous dire très franchement là, de dire, je perds un client, je ne perds jamais la subvention, peu importe combien de clients je perds.

9341   Effectivement, on se demande, comme vous y faites allusion, vous aussi, s'il n'y a pas de compétition dans un marché, il n'y a pas d'incitatif pour innover, il n'y a pas d'incitatif pour offrir un meilleur service.

9342   Alors, conceptuellement, c'est un petit peu difficile là d'accepter que vous puissiez continuer à bénéficier d'une subvention "éternellement" -- je le dis entre guillemets -- même si vous perdez des clients.

9343   M. CHOQUETTE : Bien, premièrement, ce qu'on a dit dans notre présentation cet après-midi, c'est que le scénario proposé par le vice-président, ce n'est pas possible parce qu'on n'aurait plus l'obligation de servir, et puis, aussitôt qu'on perd l'obligation de servir, puis ça, on en a discuté avec le président, on perd la subvention. Ça, c'est garantit.

9344   Donc, il n'y a pas de subvention s'il n'y a pas d'obligation de service, numéro un.

9345   CONSEILLÈRE LAMARRE : Donc, pour vous, les deux viennent ensemble?

9346   M. CHOQUETTE : Absolument.


9348   M. CHOQUETTE : Cent pour cent.

9349   Numéro deux, pour la question de... on ne peut pas vraiment contempler un scénario où vous obtenez une subvention de, disons, 25 dollars par mois par SAR perdu à la concurrence.

9350   Bien, écoutez, c'est vous qui avez prononcé sur les coûts dans nos secteurs. Vous nous avez dit que c'est 45 dollars par mois. Vous avez autorisé des tarifs à 25. Vous, ensuite, ajoutez un revenu implicite de 5 dollars. La subvention, c'est seulement un net des revenus. Le vrai coût, c'est 45 dollars.

9351   Donc, quand vous nous dites, écoutez, vos coûts sont fixes, vous avez une obligation de service, et puis, vous allez perdre le 25 piastres, plus que le 25 piastres, vous allez perdre 65 piastres, qui est la moyenne des abonnés dans ton secteur, et puis là, bien écoutez, plus de subvention et plus de revenus de ce client-là.

9352   Et puis là, nous, on dit, bien, on est pris avec des coûts fixes, qu'est-ce qu'on va faire?

9353   Et puis là, si on pousse le scénario à ce point-là, bien, nous, on a tout simplement proposé une solution que l'on pensait serait raisonnable, pas trop chère, et puis qui, au moins, évitait la solution où il fallait qu'on propose que non, on ne peut pas supporter la concurrence locale parce qu'on veut que les câblos construisent au complet dans notre réseau.

9354   On a réalisé que ces coûts-là, même si on avait gagné cette proposition-là, on ne l'aurait pas aimée parce que le seul concurrent qui veut rentrer dans notre territoire, c'est le câblo, parce qu'il est déjà là, numéro un. Ça, c'est garantit.

9355   Numéro deux, si, en effet, on a une situation où on doit -- je le sais pas -- on doit proposer quelque chose où on est assuré qu'il n'y aura pas de concurrence locale, ça ne nous intéresse pas. On veut proposer quelque chose qui est viable.

9356   On a proposé quelque chose de viable, qui ne coûte pas cher, et puis si le Conseil décide, écoutez là, Monsieur Choquette, 1 million par année, 5 millions sur cinq ans, puis vous voulez que Cogeco absorbe ces coûts-là à un certain point pour rentrer dans certains de vos territoires... parce que si Cogeco décide, bien, je rentre seulement dans ce territoire-là, ce n'est pas 1 million, c'est peut-être 200 000, 300 000 piastres par année.


9358   M. CHOQUETTE : Là, on se dit, bien, écoute, c'est parce que le business case de Cogeco n'est pas suffisant ou on dit, bien, c'est parce que le fonds national n'a pas assez d'argent pour couvrir ça. Ça revient à ça.

9359   CONSEILLÈRE LAMARRE : Bon. Je pense qu'on ne pourra pas continuer à débattre de cette question-là, mais je vais vous demander une chose.

9360   Quand vous allez écrire vos commentaires finaux, pensez à voir dans quelle mesure... parce que je pense que vous le détectez là, votre position dans l'état actuel des choses, elle crée un malaise. Alors, je vous le dis très franchement, ça crée un malaise, alors qu'il y a d'autres propositions qui ont été mises sur le tapis.

9361   Essayez de voir ce que vous pouvez adapter, compte tenu de votre réalité à vous, et nous faire part de nouveaux commentaires dans la phase finale, voir s'il n'y aura pas d'autre moyen d'aborder le problème.

9362   Plutôt que dire, on accepte votre solution telle quelle ou on accepte la solution proposée de quelqu'un d'autre telle quelle, voir s'il n'y aurait pas une solution, je ne dirais même pas mitoyenne, mais je dirais une solution plus créative que toutes celles qui ont été proposées jusqu'à maintenant.

9363   M. CHOQUETTE : Oui, on va prendre cette direction-là, Madame.


9364   CONSEILLÈRE LAMARRE : Merci beaucoup.

9365   Je n'ai plus d'autre question, Monsieur le Président.

9366   THE CHAIRPERSON: Okay. I think those are all our questions for you. Thank you for your submission.

9367   Madam Secretary, who will be presenting the next intervention?

9368   THE SECRETARY: PIAC, Mr. Chairman.

9369   I would invite PIAC to come forward.

--- Pause

9370   THE SECRETARY: Mr. Chairman, we will now proceed with PIAC for Consumer Groups.

9371   Please reintroduce yourselves for the record. You will have 15 minutes for your oral rebuttal.


9372   MR. LAWFORD: Good afternoon. My name is John Lawford, for the Public Interest Advocacy Centre, on behalf of the Consumer Groups.

9373   With me today, again, are Heather Hudson, John Todd and Barbara Cherry.

9374   Mr. Chair, we wish to clarify certain matters from our initial oral presentation, and then move to commentary on the positions of other parties.

9375   First, at the close of our presentation, you mentioned that we should check our law in relation to the obligation to serve and its application to CLECs. I am happy to report that we did, and that we are both right.

--- Laughter

9376   MR. LAWFORD: It will take a little bit of explaining, so I have some assistance with that, and I would ask Dr. Cherry to take you through the chart which is on the next page, which we think simplifies the matter.

9377   DR. CHERRY: This chart is being offered as a means to help clarify the positions of the various parties, and the various meanings of "obligation to serve", and why there can be confusion as to what people mean when they are referring to different dimensions.

9378   The legal analysis supporting this chart is provided in my legal opinions, and I will only provide highlights here for purposes of clarifying the discussion that took place two days ago.

9379   I want to emphasize here that the term "obligation to serve" has evolved over time, and what the associated duties are that underlie it.

9380   The duties evolved to address differing circumstances.

9381   THE CHAIRPERSON: My questions, Mr. Lawford, had nothing to do with common law whatsoever. I was speaking specifically on the regulations that we have.

9382   DR. CHERRY: His answer to you, however, did make reference to this, so if you just bear with me for a moment, I will clarify.

9383   The first stage of the obligation to serve had to do with common carriers where they did not provide any infrastructure. They simply were providing service, for example, on roads that were provided and built by someone else. And there were certain obligations that attached by, really, just holding yourself out to provide a service. That is what originally occurred during the medieval period.

9384   It was during the 19th Century, when we had new technologies, new network technologies, where now service could be provided that actually required that infrastructure be built. It was under this change in circumstances that a different legal framework was utilized to enable the infrastructure to be built.

9385   So rather than the government building it itself, what it did was, it gave certain powers to private entities to, in fact, build out the infrastructure.

9386   Then, certain obligations attached to that, to provide an essential service.

9387   It is in the third phase -- and both of the first two phases only addressed obligations when the company was being obligated to serve people at compensatory rates.

9388   It is only at the third phase --

9389   THE CHAIRPERSON: Can we not go to where we are today? We now have competition and we have an Act and we have regulation, and I said, under those -- a competitive carrier entering into an area doesn't have an obligation to serve.

9390   DR. CHERRY: I will answer your question, sir, if you would just bear with me one more moment.

9391   THE CHAIRPERSON: I am not prepared to bear with you if you are going to walk me through the history and then answer the question that I posed.

9392   DR. CHERRY: Then I will answer the question.

9393   On the transcript, at line 5554, you asked John Lawford: "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?"

9394   And where Mr. Lawford answered, "Yes, it is," his answer was in the context of the first two rows of this table, which have been retained under the statutory regime.

9395   Then, Mr. Chair, you made your comment at transcript line No. 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 a subsidy."

9396   In that regard, sir, you were referring to what is depicted on this table as the third row, and in that respect PIAC totally agrees with you; that with regard to that aspect of the obligation to serve, that entails a subsidy when you are trying to provide service, or require a company to provide service, where the rates would otherwise be non-compensatory.

9397   PIAC totally agrees with you, sir, that that's exactly right. All PIAC is trying to do is clarify that, in fact, there are other dimensions about the obligation to serve that are reflected in the first two lines, that are retained by the statutory law, and that the concern is, if we don't clarify that, perhaps unintentionally the obligations associated with the first two, that do apply and have long applied, when you are just talking about compensatory rates, might inadvertently be thrown out and considered inapplicable.

9398   That is just the clarification that we were trying to make.

9399   THE CHAIRPERSON: I don't think that we have -- we have no argument on this, it was purely in terms of entitlement to subsidy that I was talking about.

9400   Okay, go on.

9401   MR. LAWFORD: Thank you.

9402   Secondly, we cannot accept the Bell companies' suggestions that the maximum affordable rate -- and those are their words -- for primary exchange service could rise in high-cost service areas to $36.20 or even $37.83, where the present rate can be as low as $22, whether this happens overnight, within three years, or as Mr. Daniels mentioned this morning, two years.

9403   This would be a profound rate shock and, to our knowledge, this would be the second largest residential rate increase ever allowed by the Commission.

9404   This stupendous rise in price would be justified only on the Bell companies' bare word that they would like a raise, that their rates are too low, and that captive customers with no real choice would just have to pay it.

9405   They provide you with no evidence whatsoever. Bell Canada and Bell Aliant stated, both in this hearing and in the interrogatories, that they have done absolutely no affordability studies.

9406   I would just refer, off-text, to Bell Canada's presentation of this morning at paragraph 15. It was, again, double-negative language. They are saying that there is no evidence to believe that it is not affordable. It should have been asked: Do you have any evidence that it is affordable?

9407   I would like to turn it over now to Dr. Hudson.

9408   MS HUDSON: Thank you.

9409   We would like to sort out any confusion about affordability and its relevance for adoption. One of these issues is inelasticity of demand. In other words, if consumers believe that a service is important enough, they will continue to pay for it, even if they must cut back on some other important expenditures.

9410   And I would add that I have received confirmation of that from people in First Nations communities during this week.

9411   So consumers may continue to pay for phone service if prices are increased, because they feel that they cannot do without it and there is no available substitute. That does not make it affordable.

9412   Also, variations in income need to be considered. A measure for comparing affordability -- and this was something raised in the questions we received earlier -- across countries used by the International Telecommunications Union provides a price basket by per capita income.

9413   We realize that in Canada there needs to be much more granularity in the approach. For example, in many First Nations communities, the majority of households have a low fixed income that leaves little money for discretionary expenditures.

9414   In rural areas -- and we have heard about them during this proceeding -- there is often variation, ranging from part-time residents who own second homes to year-round residents with only seasonal employment or fixed incomes.

9415   In the United States, the FCC carried out a study in 2009 to examine broadband adoption and use. The top reason given by non-users for not subscribing to the internet or to broadband services was affordability.

9416   We are not implying that these findings would be identical in Canada. We are saying that the CRTC should commission a similar study in Canada, to gain a better understanding of affordability and other barriers to adoption of communications services, including broadband.

9417   MR. LAWFORD: Mr. Chair, we will now change gears and discuss our subsidy proposal, and I will turn it over to John Todd.

9418   MR. TODD: In this proceeding, three proposals are on the record for adopting a broadband HCSA contribution and subsidy regime in order to make it economic for the telecom industry to realize the goal of universal access to broadband internet at a price that will be affordable for most households in all parts of Canada, including rural and remote areas, including those areas where family incomes are far below the Canadian average.

9419   We believe that our proposal has three important advantages over the MTS and SaskTel -- which was sort of a sketched-out proposal -- proposal that was provided.

9420   First, the proposal of the Consumer Groups does not give the ILECs a monopoly on provisioning broadband service, supported by the subsidy regime, in high-cost areas. It allows competitive alternatives, so the cheapest alternative can proceed.

9421   Second, the proposal of the Consumer Groups is truly neutral with respect to the technology used. If the regime supports only ILECs, the choice of technology will be based on the technology that is cheapest to layer on top of the ILEC's existing facilities.

9422   The Consumer Groups proposal will support the lowest cost alternative among all available options, regardless of the LEC that is providing it, even if the least cost option is to totally bypass the ILEC's existing network.

9423   Third, by relying on the lowest cost technology and using competition to be the first mover to encourage innovation in delivering broadband service in high-cost areas, the proposal of the Consumer Groups will result in a subsidy regime that is far less expensive. I will expand on the issue of the total cost of the subsidy regime in a moment.

9424   However, I would first like to address the claim that the proposal of the Consumer Groups is excessively complicated. In fact, it is quite simple, for a number of reasons.

9425   First, a costing study will not be required. The proposed regime relies on the revealed preferences of all service providers to demonstrate what is economic, rather than detailed costing studies.

9426   Second, the mechanics of the proposed connection subsidy are, essentially, identical to the existing HCSA subsidy regime. Hence, that cannot be a source of complexity.

9427   Third, the access subsidy, which some people say appears to be complex because it involves a couple of mathematical calculations, has a concept that is actually quite simple, definitely not complex.

9428   So what does our model show?

9429   To demonstrate that I developed a model spreadsheet last night. A printout of it is attached. I won't go through the details, but it is meant to make a few assumptions, because going forward the take-up rate would obviously be unclear. The bottom line is that it suggests that using MTS' numbers, which are based on MTS' proposed speed target of 5 megabytes per second -- under our access subsidy, the total access subsidy would average $713 million a year over the first ten years, which is roughly equivalent to MTS' number. They quoted, I think, $700 million.

9430   By contrast, if you use Barrett's numbers -- and their proposal, as I understand it, had proposed speed ranges of 1.5 to 5 -- when I say their proposal, what I am doing is using the numbers that they quoted with respect to the roll-out in New Brunswick, where they indicated that they receive a subsidy of $333 per line, which was provided with access. Under our access subsidy, the average cost over the first ten years would have been only $88 million, a very small fraction compared to the overall subsidy regime.

9431   Attached as Appendix A is the worksheet, with a brief description of the assumptions, methodology and results, which can be perused at your leisure.

9432   We have also provided to the Commission, and other parties if they want, the spreadsheet itself, if they want to look at the Excel model to see the formulas.

9433   MR. LAWFORD: I am going to turn now to aspirational targets.

9434   Having an aspirational target for broadband speed is like having an aspirational constitution. Just imagine it: We hope you have the following rights -- life, liberty, security of the person -- if people feel like giving them to you, if things are going well financially, and, oh, there's an agency that will report if you are getting your rights.

9435   Yet, this is the result that the Commission will achieve if it approves an aspirational target for broadband. To which you might say: But is broadband a right under the Telecommunications Act? To which we have to say: Based on the comments in the online consultations with real Canadians, Canadians view affordable broadband as a right.

9436   Therefore, we urge the CRTC to adopt real targets, with enforceable benchmarks, and to provide Canadians with affordable broadband and a workable means to achieve it.

9437   Thank you, and we look forward to your questions.

9438   THE CHAIRPERSON: As you know, we are under explicit instructions from the government to only regulate and intervene where there is market failure, in shorthand; where the market isn't producing the desired result.

9439   You have been here, and you have listened to the presentations this week and last week in Timmins, and everybody in the industry is telling me: We are getting there. The market is actually working.

9440   It is obviously uneven, and it obviously concentrates on the most dense areas first, and the remote ones will be the last ones. But we have heard extensively from Barrett, the only satellite company who appeared, who suggests that every part of Canada can be served, et cetera.

9441   So, if I accepted your proposal, I would basically have to say: We are convinced that the market isn't working. We are not going to, let's say, for argument's sake, 5 megabytes as a target. We have not heard evidence that we are going to get there. On the contrary, from what we heard last week and this week, we are convinced that it will not happen. Therefore, we have to mandate the scheme proposed by Mr. Lawford.

9442   How can I say that on the basis of what you have heard and what I have heard?

9443   MR. LAWFORD: I think what we have heard, and what you have heard, is that access is rolling out under various platforms, but it's not affordable access.

9444   You have the ability to implement the policy direction under your Act, and to do that social regulation, the policy direction will allow you to make regulation.

9445   What we are saying is, the affordable access in 7(b) of the Act is a social objective, and there are people who will not be able to afford what is being rolled out now, or in two years, or in five years; and it's not just those that can't pay a compensable rate, as is being talked about even with a subsidy, we don't believe that the rates are falling quickly enough for those people to be able to afford it for the foreseeable future.

9446   So that's our concern, and that is why we are saying: Yes, you do have the ability to regulate.

9447   It's the same thing that was done for rolling out telephone service, under the contribution scheme for telephone service.

9448   THE CHAIRPERSON: You say "we believe", but where is the evidence?

9449   MR. LAWFORD: Well, it's the same as: Who has the evidence to say that it is affordable or it's not affordable?

9450   That's where we have to ask that the Commission finds out if people can afford this, whether it's in a hearing like this, asking for evidence, or whether it's in a future, follow-up study.

9451   But at the moment there is no way to know that those last people will be reached with affordable broadband. They might have satellite coverage at $300 a month, for 5 megabytes per second, but I don't believe, in my experience, that they can afford that.

9452   MS HUDSON: That's why we tried to include for you some examples, which I don't think are completely transferable, but which show how both the ITU and, in fact, also the OECD have come up with price baskets and affordability targets, and some way of looking at that.

9453   I don't think we think that it's impossible to provide universal broadband. That is a goal, and we have talked about the targets, so we don't need to revisit those.

9454   But there is the question of ability to pay, and I would say, also, incentives to create innovative solutions to get the service out there, and keep the costs down, and therefore the prices that are available to consumers.

9455   There really is a CAPEX versus OPEX question here. I think that the CAPEX is moving, but the sustainability of some of those services in remote areas, from the provider's point of view, and therefore pricing and affordability from the user's point of view, is an open question.

9456   THE CHAIRPERSON: Secondly, you sort of take issue with an aspirational target. Obviously, a concrete target is preferable to an aspirational target, but I am not sure that I agree with your -- first of all, your comparison to human rights, and secondly, the connotation that, basically, this is of no use.

9457   If nothing else, an aspirational target allows you to, first of all, share with the industry where you think they should be going, and where you expect them to go.

9458   Secondly, as you monitor it, you have a reference point as to where -- this is what we set out -- whatever that target is -- and here we can track that.

9459   And, then, the question I just asked you: Is the market getting us there or not?

9460   Unless you specify the goal beforehand, it is really very hard to come to a conclusion, saying, you know: There is market failure here.

9461   If you set that goal out, you measure it and you say -- say that in three years we should be there. If after Year 1 or Year 2 you say, "On this line there is just no way you can do it," then, surely, that gives you the justification to step in.

9462   That's the purpose of an aspirational goal. You are basically ridiculing it, saying: Oh, it would be nice if you had an aspirational right to liberty, but you don't have it.

9463   I think that misses the point. It seems to me that an aspirational goal has a very valid purpose of, in effect, focusing the minds of everybody, knowing what is to be expected, and also allowing you to measure against it.

9464   MR. LAWFORD: I am not saying that keeping track of what is going on with broadband is useless, because, absolutely, as you say, it will help us to decide if the industry is actually delivering. But it has to come -- and I think I hear you saying that, if there are problems, you will follow up, there will be consideration.   

9465   Our concern is that, in the meantime, two, three, four or five years go by, and those folks who were promised affordable broadband don't have it in all that time, Canada is farther behind, and then we start the engine running.

9466   That is our concern, and I am sorry if I put it in language that was a little too extreme.

9467   MS HUDSON: I think that our concern is with the word "aspirational". I think what you have just defined in the past minute is exactly what we were thinking of, something with real targets, metrics and measures, to see are we getting there.

9468   If I use the U.S. analogy, I would say, as you and others have quoted, that 4 megabytes per second down and 1 up is a real target with metrics.

9469   The aspirational goal in the U.S. is 100 million households with 100 gigabytes per second by 2020. That is clearly aspirational. You know, we hope to do that, but -- let's put it out there.

9470   But we are not disputing the idea of a firm target with metrics, we were just hoping that you would more than aspire to it, that you would actually set it and measure how you are getting there.

9471   THE CHAIRPERSON: I think that you read too much into the word "aspirational". I meant it exactly the way you are using it, as a target that we want to achieve and that we want to measure against.

9472   TELUS, you had your hand up?

9473   MR. HENNESSY: Just without trying to confuse things again, it is more my confusion. But when people are talking about -- we can use the word target and let's use, you know, 4 meg as the target, is it as Mr. Bibic suggested this morning, that the goal is to ensure that every Canadian has access to at least 4 meg from at least one provider as opposed to every provider must offer at least 4 meg? Because that is a very critical distinction.

9474   THE CHAIRPERSON: Well, obviously, it is something we have to decide I would have thought. You are the first -- what was the answer, you want to make sure that every Canadian has access to whatever the goal is, 4 or 5 by at least one provider, you know, by date X so that it is quite absolutely clear. And obviously it is a minimum. People will have a lot more access in downtown Toronto, but we want to make sure that at least in the remote regions you can...

9475   I remember in the discussion that we had one of the things we mentioned is, in Timmins, was telehealth, you know, and what is it you need for telehealth, because obviously in this country -- and I gather 5 may or may not do it, depending what you are using it for, et cetera, and 10 would be preferable, et cetera.

9476   So you see the need of setting targets so that they be reached for the betterment of society generally so that they can take advantage of the benefits that that kind of access to the internet will bring.

9477   MR. LAWFORD: Yes, with the caveat that it has to be affordable access. And the way that we were trying to get that access out to people was by proposing a contribution scheme, yes.

9478   THE CHAIRPERSON: Peter.

9479   COMMISSIONER MENZIES: I actually don't have anything to add. I think that pretty much covered it. Thank you.

9480   THE CHAIRPERSON: My other colleagues? Yes?

9481   MS HUDSON: May I add one more comment?

9482   THE CHAIRPERSON: Absolutely.

9483   MS HUDSON: Since the question did come up yesterday and then I think it was Bell who somewhat said that we were sceptical about mobile broadband. And I just wanted t point out that what we were trying to say, quite clearly, was that the benchmarks and metrics that you have just described should apply to any technology, including fixed and mobile wireless.

9484   However, I guess this morning we have to wonder about any future commitments for broadband service quality since what we saw this morning in terms of examples of obsolete towers and satellite dishes and ice-encrusted equipment that is compromising current quality of service for voice services made us wonder about enforceable targets for quality of service in general.

9485   Thank you.

9486   THE CHAIRPERSON: Suzanne.

9487   CONSEILLÈRE LAMARRE : Oui, une question.

9488   Monsieur Lawford, je ne peux pas m'empêcher de relever ce que je pense être un paradoxe là. Vous me direz si je me trompe.

9489   Au début de votre présentation, vous objectez à ce que les tarifs pour le service résidentiel de base augmentent de façon, vous estimez, indue. Vous dites, s'il fallait qu'on passe de 22 dollars à 38-39 dollars, même à l'intérieur de trois ans, ça serait franchement exagéré.

9490   Bon, je comprends d'où vous venez pour dire ça. On peut être d'accord ou non, mais on comprend bien.

9491   Maintenant, à la page 8, lorsque vous parlez de l'accès Internet haute vitesse, vous préconisez -- et c'était le cas aussi au début de la semaine -- vous préconisez quand même qu'il y a un système de subvention qui, vous estimez, coûterait 88 millions de dollars, j'imagine, par année.

9492   M. LAWFORD : Oui.

9493   CONSEILLÈRE LAMARRE : On va le chercher dans les poches de qui, ce 88 millions de dollars là?

9494   M. LAWFORD : C'est toujours tous les abonnés de tous les services de télécommunication au Canada.

9495   CONSEILLÈRE LAMARRE : O.K. Mais vous réalisez que, d'un côté, vous vous opposez à une hausse de tarif qui reflèterait plus le coût du service, mais que vous êtes prêt à accepter une hausse de tarif dans un autre contexte?

9496   M. LAWFORD : Oui, mais c'est beaucoup moins pour l'augmentation, si vous voulez.

9497   CONSEILLÈRE LAMARRE : Pour l'augmentation.

9498   M. LAWFORD : Et aussi, on a, avec notre système, éliminé la contribution aux abonnés du service téléphonique, parce que, avec notre basic service objective, là, vous devez livrer et l'Internet et aussi le service téléphonique local.

9499   CONSEILLÈRE LAMARRE : O.K. O.K. Je comprends. Merci.

9500   THE CHAIRPERSON: Dr. Cherry, I am sorry if I was short with you at the beginning, I didn't want to get -- but your basic point is that the common -- law obligation of common carriers attach to everybody in the business regardless of what specific arrangement we have under the Telecommunication Act regarding access to subsidy, et cetera. That is what you are saying, right?

9501   DR. CHERRY: Yes. We are just saying that there is some dimensions or duties associated with an obligation to serve that should attach to all carriers regardless of how many there are, and it is fundamental to the type of service it is.

9502   We wholeheartedly agree with you about that dimension where the subsidy -- and that was a different development. We just want to make clear that the first doesn't get thrown out with the second.

9503   THE CHAIRPERSON: When you said "should," I mean I guess you -- should attach, they do attach, but what you are --

9504   DR. CHERRY: Yes, they do, and what we are saying is they should continue to do so and not be thrown out.

9505   THE CHAIRPERSON: Okay, thank you.

9506   Let's take a 10-minute break and then we will proceed with the next one.

9507   MS GRIFFIN-MUIR: Excuse me, Mr. Chairman, it is Teresa Griffin-Muir from MTS Allstream.

9508   THE CHAIRPERSON: I am sorry, did you have your hand up?

9509   MS GRIFFIN-MUIR: I did.

9510   THE CHAIRPERSON: I didn't see it, I apologize. Go ahead.

9511   MS GRIFFIN-MUIR: Okay, no problem.

9512   I just have a quick question.


9514   MS GRIFFIN-MUIR: Just in terms of the analysis that I believe Mr. Todd did, I am just curious as to the per monthly price point that you are gearing towards with the Barrett Xplore.

9515   MR. TODD: I was using the level of subsidy that Barrett had. They did not mention the price point that they were using. They did mention that they had three levels of service I believe, 1.5, 3 and 5 meg. But I am not aware of what their price point is.

9516   So in running, if you look at the numbers -- the subsidy is $333, but we don't know what the price point was for the service itself.

9517   You will see that the way I ran the numbers you would sort of assume that that was at the very low end of costs and, therefore, in the simulation that I ran the starting point would have produced a subsidy of $380 or a present value equivalent of $380 which is actually above their level of subsidy, and would go up from there.

9518   So it was assumed to be, shall we say, at the lower or below the low end of producing affordable prices. What we do know is that the prices were set through agreement with the New Brunswick Government, hopefully they were not excessive relative to a reasonable affordable level.

9519   GRIFFIN-MUIR: Yes, actually I believe he gave us prices of 1.6 at $120 per month and 5 meg at $300 per month roughly, give or take, coming down, in fairness to Barrett, coming down with his new satellite to an unspecified point.

9520   And I just wanted to clarify because your take rates are identical irrespective of price.

9521   Just now that I am keeping everyone from their break, I just want to mention that we also are providing the secretary with an undertaking as per my conversation with Commissioner Menzies, which outlines where we derived the underserved/unserved 1.4 million from the record, including the interrogatories that we extracted them from. As well, we provided a breakdown of the deferral costs and the associated per-company subsidy just for clarity.

9522   Thank you.


9523   MR. TODD: Yes. I think there is also some undertakings to provide information in confidence to the Commission, so they are clearly in a far better position to do some of these calculations than we are. There is a spreadsheet that can be used to run any set of numbers they wish.

9524   This is more of an illustration to identify the kinds of ranges and indicate that at a lower end of $88 million per year, that is small compared to the existing $200 million subsidy that is in place for the existing HCSA.

9525   THE CHAIRPERSON: Barrett, did you have your hand up?

9526   MR. DUNBAR: Thank you, Mr. Chairman. Laurence Dunbar for Barrett.

9527   I had a question for Professor Hudson following up from her comment about quality of service. I think she was referring to the pictures of the crumpled towers. It is a point that Mr. Maduri made yesterday in his testimony, that terrestrial facilities suffer from failures as well as I think he contrasted it with less failure rate in satellites.

9528   In Professor Hudson's original evidence she talked about the five nines, 99.999 per cent availability, and compared that with the satellite rate of 9.9 that Mr. Maduri mentioned yesterday.

9529   She referred there to the general standard in the industry and I am wondering whether she has looked at the standard in the remote areas like Canada's far north where you do have these extreme conditions and you may have a lesser level of service?

9530   MS HUDSON: Yes, certainly. It is certainly true that it is more difficult to maintain high quality of service in remote areas and I think that point has been well made by the companies serving those areas.

9531   But I think there is a fallacy here that something is better than nothing, I heard that this morning also in terms of well, if it take five days or if takes three weeks, isn't that better than nothing? Well, it is better than nothing. But surely, that is not what the aspiration, to use your word, should be.

9532   And in fact, what was I was groping toward was measureable benchmarks for quality of service for existing services and that is what seemed dismaying, because we have other information that there are switches that don't have enough lines to serve existing customers in the north as well as degraded service.

9533   So the point is well taken that it is not easy to provide high quality of service in the north, but I don't think that that should be used as an excuse not to provide the best possible quality of service and to collect measurements regularly on how everybody is doing in meeting demand, in meeting those targets.

9534   THE CHAIRPERSON: Okay, is there another intervention? Yes, Execulink.

9535   MR. STEVENS: Yes, Keith Stevens from the OTA.

9536   Just a question for PIAC regarding what affordable is. There has been a lot of discussion the last few days about what is affordable and not. And I take your point well that unless a study is done, we won't be able to exactly know what affordability is, and it may be variable across the country. But I know the Commission may not have the benefit of that before they make a decision.

9537   I wonder if you have any thoughts on what is closer to affordable? Is $30.00 affordable, $22.00, $36.00? Do you have any thoughts of where it would fall on that gradient?

9538   MR. LAWFORD: I think we will start with the proposition at $36.20 is too high. I am very loathe to say that we can speak on behalf of consumers and say that $30.00 is okay. No, we would have to go through the whole exercise. As Dr. Hudson laid out, there are some metrics you can use to try to determine affordability, and we would have to go and figure it out for all the census metropolitan areas and non-census metropolitan areas, all the high-cost areas, and do it right. And we can't say at this point, there is not enough evidence on the record.

9539   MS HUDSON: I would just add to that, that what the FCC did in addition to asking the supply side, you know, what does it cost, was a sample -- so you can use sample survey techniques.

9540   They did a survey of about 5,000 individuals in various demographic groups and asked them a series of questions about adoption and in terms of what the barriers were and then segmented from those who use the internet and those who use the internet and broadband, and those who didn't and what the barriers were. That is where the self-reporting of affordability, as a very important issue came up there.

9541   Again, I am not saying that that would be the issue here. But I think you have to get information that can be used and that one price target doesn't fit all for the very reasons that we have stated.


9543   MR. HENNESSY: Thank you, Mr. Chairman. Mr. Hennessy.

9544   Just to refer back to an earlier conversation with Commissioner Menzies, the problem with going down the affordability path in terms of trying to define metrics is that, as I suggested the other day, the Commission has never assessed affordability on a measurable basis beyond taking out of penetration generally.

9545   So rates are set generally low to ensure high penetration. That is as far, in regulatory history, as we have ever really defined affordability. And as I said, that doesn't mean that there aren't people left off because of poverty, but there is no system to fall back on. So trying to come up with a very statistically detailed approach to affordability is a substantial undertaking.

9546   MR. LAWFORD: If I can quickly answer that.

9547   I think we are obviously talking about affordability in regards to telephone service. And take the point, however, the Commission did use whatever they could use for proxies. We are saying take it up a level. Take it up a level, especially if you are going to be doing anything about affordability of broadband. We say affordability of broadband is what is holding back its adoption in its last higher percentage in rural and high-cost areas and that is why we need more involved metrics.

9548   MS HUDSON: I think the issue of equity, which has been raised by some of the providers, is worth thinking about in this context as well. There was a question this morning about what am I paying for subsidies to SILECs? It is hard for me to see who asked that.

9549   As far as I can calculate, every person is paying about 9.5 cents a month. And the total $200 million subsidy works out to about 83 cents a month per subscriber per line in Canada. So you know, we are talking about a few cents a month on the one hand from everybody versus major increases and impact on affordability or an un-understood affordability on the other.

9550   Thank you.

9551   THE CHAIRPERSON: Okay. Before my bladder bursts we are going to take a break.

9552   We are taking a 10-minute break.

--- Upon recessing at 1531

--- Upon resuming at 1544

9553   LA SECRÉTAIRE: A l'ordre, s'il vous plaît.

9554   Order, please.

9555   LE PRÉSIDENT: O.K. Madame la Secrétaire, commençons.

9556   LA SECRÉTAIRE: Merci, Monsieur le Président.

9557   I would just like, in order to facilitate the court reporters and interpreters, I would ask you that when you raise your hand to indicate to the panel members your intention to intervene, please hold your nameplate as well. It will be much easier for us to identify you.

9558   Thank you.

9559   THE CHAIRPERSON: You wanted to make an announcement about tomorrow, too?

9560   THE SECRETARY: Yes. Tomorrow we will be starting at 8:30 tomorrow morning.

9561   THE CHAIRPERSON: Thank you.

9562   Mr. Béland.


9563   MR. BÉLAND: Thank you, Mr. Chairman.

9564   There is ample evidence that competition in basic telephony and broadband are meeting the needs of consumers in the vast majority of markets. Competition will continue to encourage service providers to seek out new technologies and service innovations to gain market advantage. Our proposals promote competition and reduce regulation. In our brief rebuttal remarks we address criticisms of these proposals and identify key weaknesses in the proposals of other parties.

9565   First, fulfilling the obligation to serve in the so-called doughnut area of exchanges is not a tremendous burden on the ILECs. Incumbency is an advantage, not a burden.

9566   Second, markets where there is both an incumbent and a competitor providing service do not require an obligation to serve or a subsidy.

9567   Third, to the extent a local service subsidy remains in competitive markets which we do not support the subsidy must remain portable.

9568   Fourth, the basic service objective does not require changes in order to be technologically neutral or reflect current service levels. More importantly, it does not need to incorporate a mandate to provide broadband.

9569   Fifth, local competition must proceed in the SILEC territories without resorting to the flawed proposals of OTA and ATCQ.

9570   Finally, we will briefly address some issues we undertook to respond to during our presentation on November 1.

9571   L'obligation de servir en périphérie des secteurs plus densément peuplés en milieu rural ne représente pas un fardeau. Les ESLT et les petites ESLT prétendent que leurs territoires de desserte comprennent des zones moins densément peuplées coûtant beaucoup plus cher à desservir (la fameuse notion de doughnut).

9572   Ils perçoivent l'imposition d'une obligation de servir dans de telles zones comme représentant un fardeau. Ces zones ne constituent pas un fardeau à la charge des entreprises titulaires, puisque ces dernières y sont virtuellement en position de monopole.

9573   Les clients à l'intérieur de ces zones sont une source de revenus aussi fiable que prévisible. Les services sont fournis au moyen d'installations qui ont été construites il y a plusieurs années grâce à des tarifs qui assuraient le recouvrement de l'ensemble des coûts, y compris un retour sur l'investissement. Les coûts pour ces installations ont maintenant été absorbés.

9574   Depuis, les entreprises titulaires ont lancé des services additionnels tels que l'Internet, la télévision, ainsi que d'autres fonctionnalités optionnelles, tous distribués par le biais des installations existantes. Ces dernières génèrent donc un revenu par abonné accru, ce qui en augmente d'autant la valeur. Il n'y a aucun risque que des actifs aussi profitables soient abandonnés.

9575   Dans le cadre de notre proposition, les zones non-concurrentielles continueront d'être desservies par les entreprises titulaires. Et ces dernières continueront de recevoir une subvention.

9576   Pour ce qui est des zones concurrentielles, les entreprises titulaires pourront augmenter leurs tarifs de manière à les compenser pour la perte de la subvention. De telles conditions ne peuvent être considérées comme étant déraisonnables.

9577   Competitive markets do not require detailed regulation. The cable carriers have proposed reducing regulation in competitive markets by eliminating the obligation to serve, basic service objective and local service subsidy in these markets. Others have made similar proposals for reducing regulation with the distinction that the regulations would be lifted only in markets where local service has been forborne.

9578   We agree with the legal opinions provided by Bell Canada that a carrier only has an obligation to serve where there is a practical monopoly on the supply of service. This is not the case in competitive markets. We have defined a competitive market as one where there is at least one independent facilities-based alternative available to consumers, this could include a wireless provider.

9579   To the extent the Commission may be concerned about the degree of wireless coverage, it could address this concern by setting an appropriate coverage criterion. For example, coverage criterion of 90 per cent instead of 75 per cent could be employed.

9580   There is no demonstrable need to provide a subsidy to any LEC in a competitive market. The presence of another facilities-based service provider proves that a subsidy is not justified. This approach relies on market-based rather than cost-based evidence to indicate where a subsidy is appropriate.

9581   Subsidies should not exist in competitive markets but, if so, must be portable. We believe that subsidies are no longer required in any competitive market. However, if the subsidy remains in competitive markets it must be portable.

9582   This is about competitive equity, competitive efficiency and keeping the ILECs honest. If the subsidy was available to ILECs, but not CLECs in competitive markets, it would provide the ILECs with an incentive to exaggerate their subsidy requirements. Evidence of this risk can already be seen in the various cost-shifting and restructuring proposals put forward in the current proceeding. Our objective here should be to reduce subsidies, not to incite parties to expand them.

9583   Basic service objective is technologically neutral. The cable carriers believe that the basic service objective is sufficiently flexible to reflect current service levels and the objectives of the Telecommunications Act. It does not require any change in order to be technologically neutral.

9584   Wireless services can fully meet the basic service objective in every respect. When a wireless service provider becomes a CLEC they current basic service objective is met. As Bell Canada indicated, when ILECs use wireless facilities to provide basic local telephone service the BSO is satisfied.

9585   Today, a small minority of consumers still use local telephone lines to connect to the internet. This has led some parties to propose that the Commission change the BSO and apply this to a host of services and service providers competing in the broadband internet market. The cable carriers do not think imposing a new regulatory measure is warranted, nor would it be efficient.

9586   The provision of broadband internet services is a highly competitive market and has not been regulated. These services no longer have anything to do with making a phone call. It would be contrary to the policy direction to establish a new BSO that mandated a connection to the internet at a specific technical speed.

9587   Michel.

9588   M. MESSIER: Les propositions des petites ESLT présentent de sérieuses lacunes.

9589   L'OTA et l'ACTQ ont mis de l'avant des propositions visant à modifier le régime de concurrence locale actuel qui empêcherait la concurrence dans certains marchés ou qui la rendrait possible dans certains autres, mais en y faussant le libre jeu des forces du marché.

9590   L'OTA a proposé de placer les petites ESLT dans une catégorie distincte où la concurrence ne serait pas autorisée, en se basant sur le nombre de lignes.

9591   Cette proposition aurait pour effet d'exclure près du tiers des petites ESLT. Au nombre de celles-ci où la concurrence serait exclue sur leurs territoires se trouvent les petites ESLT qui sont déjà devenues des ESLC ou encore, qui ont investi dans de nouveaux secteurs d'activités.

9592   Ces entreprises ne devraient pas se voir accorder un monopole protégé qui leur permettrait de financer leurs activités concurrentielles dans d'autres marchés.

9593   L'ACTQ a demandé à ce qu'une indemnité lui soit octroyée afin de pallier à la perte de marché provoquée par la concurrence locale. Les petites ESLT se verraient ainsi accorder un complément de paiement visant à remplacer les revenus perdus aux ESLC.

9594   Ce paiement serait en sus de la subvention qu'elle reçoit déjà du Fonds de contribution national. Une telle subvention viendrait essentiellement garantir les revenus des petites ESLT, peu importe leur réaction à la concurrence. Un scénario extrême pourrait même voir une petite ESLT desservant un nombre très réduit d'abonnés maintenir ses revenus à des niveaux comparables à celui prévalant avant l'avènement de la concurrence sur son territoire de desserte.

9595   Les petites ESLT ne devraient pas être compensées intégralement pour les parts de marché perdues, non plus qu'il ne revient à leurs concurrents de supporter les coûts de la mise en oeuvre de la concurrence locale sur les territoires de ces dernières. Proposer d'accorder une compensation pour la perte de parts de marché perdues, soit aux ESLC ou à l'ensemble des fournisseurs de télécommunications participant au Fonds de contribution national est une proposition présentant de graves lacunes. Elle devrait être rejetée séance tenante.

9596   Le Conseil doit immédiatement approuver les plans de mise en oeuvre de la concurrence pour toutes les petites ESLT qui, dans le cas échéant est une affiliée d'une ESLT, d'une... opère en tant d'ESLC à l'extérieur de son territoire historique ou offre des forfaits de services multiples incluant des services de distribution de radiodiffusion.

9597   Pour ce qui est des ESLT desservant moins de 2 500 SAR, calculé sur une base corporative, et n'étant pas visées par les critères décrits ci-haut, le Conseil devrait permettre la concurrence sur demande en utilisant de façon transitoire des sommes disponibles à même le Fonds de contribution afin d'acquitter les coûts de la mise en oeuvre de la concurrence locale approuvée par le Conseil pour les petites ESLT concernées, y compris les coûts afférents à la mise en oeuvre intégrale de la transférabilité bidirectionnelle des numéros locaux.

9598   Les câblodistributeurs sont d'avis qu'un tel financement transitoire pourrait avoir une durée maximale de trois ans.

9599   Et avant de passer la parole à Dennis, j'aimerais vous donner notre position, comme vous nous l'avez demandé, sur la proposition de Bell Canada.

9600   Alors, en ce qui concerne leur proposition au niveau du bright-line test (avec les différents critères qui est un aménagement, en fait, de la proposition de Bragg), nous pensons que le test que nous venons de vous présenter est simple, c'est directement un bright-line test. Vous avez simplement trois critères... un des trois critères à rencontrer.

9601   Je pense qu'il focusse sur les trois critères qui nous apparaissent les plus importants et, en même temps, il propose une certaine accommodation pour les petites ESLT les plus... peut-être les plus vulnérables, c'est-à-dire qui n'ont pas introduit la concurrence depuis que celle-ci... qui n'ont pas réagi comme les autres.

9602   Donc, notre objectif étant de favoriser l'entrée en concurrence, nous pensons que cette aide-là serait justifiée. Et c'est une aide qui serait modeste; probablement sur les 13 identifiées, environ la moitié. C'est très difficile, selon l'information au dossier ou selon l'information qu'on a combien, mais peut-être environ la moitié.

9603   Pour ce qui est du premier aspect, maintenant, de la proposition de Bell, celle-ci présente selon nous deux problèmes majeurs. Le premier est le fait qu'on fait une exception au test que nous proposons ou au test de forbearance qu'ils ont proposé pour éliminer la subvention. Nous ne pensons pas, pour les raisons qu'on a amenées, que cette proposition-là, dans ce sens-là, doit être retenue.

9604   La deuxième, si jamais vous la considériez comme étant acceptable, ou du moins appropriée... le deuxième problème qu'elle nous pose, c'est celle ou... elle semble être accordée pour une période... comme cette subvention serait accordée pour une période indéfinie. Bell n'a pas proposé de période de temps limitée pour ça. Nous pensons que si cela devait être maintenu, ça devrait être maintenu seulement pour une période limitée. Et on pense qu'une période de trois ans serait un objectif raisonnable.

9605   Dennis.

9606   MR. BÉLAND: I will now quickly review some other responses to undertakings that we took no November 1.

9607   Broadband upload targets. We indicated on Monday that upload traffic trends are difficult to predict. CRTC data indicates about 750 kilobits per second upstream is provided with download speeds ranging from 5 to 15 megabits per second.

9608   Based on current information, we estimate that the following upload targets would be reasonable over a five-year timeframe: 1 megabit per second for a 5 megabit per second download service; 2 megabits per second for a 10 megabit per second download service; and 5 megabits per second for a 100 megabit per second download service.

9609   Monitoring of achievement of targets. Information requirements that are currently in place provide the CRTC with the means to collect detailed information from ISPs on service availability and take-up by technology type and service tiers.

9610   This could be supplemented by independent sources on actual service speeds achieved. Measuring the actual end user performance encompasses the whole supply chain and therefore mitigates the requirements for additional information gathering regarding the performance of the backbone.

9611   Subsidy fund for installation costs for broadband satellite service. This raises issues of adoption and the question of affordability. First, contrary to statements made by a witness with the consumer groups, affordability is not the most frequently cited reason for non-adoption. Rather, it is other barriers such as lack of interest or relevance, digital literacy and access to a computer.

9612   Subsidizing the cost of satellite equipment would not remove these barriers.

9613   In addition, there are marketplace alternatives that could allow the consumer to spread the upfront costs over a period of time. As we have seen in other satellite-based services such as television distribution, the cost of the equipment can drop rapidly as services mature.

9614   Alternatives to full implementation of local number portability.

9615   As we outlined a few moments ago, a more direct means for addressing the LNP implementation cost burden for the affected SILECs would be to provide time-limited transitional funding from the contribution fund. This approach would also eliminate the need to consider alternative portability arrangements such as call forwarding based, solutions which are inherently inefficient and have the further disadvantage of leaving competitor service quality partially dependent upon the incumbent's network.

9616   Finally, SILECs operating as CLECs.

9617   Of the 36 SILECs 16 are currently operating as CLECs and an additional two are proposed CLECs according to the Commission's list. The names of these SILECs are attached to our presentation.

9618   Thank you very much.

9619   THE CHAIRPERSON: Thank you.

9620   First of all, Monsieur Messier, you gave orally your reaction to the Bell proposal that we heard this morning. I presume you want to put that in writing, too?

9621   Maintenant, le paragraphe 31, combien est votre solution pour les ESLT avec moins de 2 500 SAR? Combien ça va coûter? Est-ce que vous avez une idée combien?

9622   M. MESSIER : Nous n'avons pas fait les calculs. On peut peut-être vous présenter un estimé dans la version finale, basé sur les propositions qui ont été faites dans les plans de mise en ouvre des entreprises, mais c'est très difficile, dépendamment de la situation de chacune des ESLT. Alors, je pense qu'on pourrait peut-être fournir un ordre de grandeur.

9623   LE PRÉSIDENT : Quel mécanisme envisagez-vous pour donner aux ESLT accès au fonds de contribution? Comment on ferait ça?

9624   M. MESSIER : La façon qu'on envisageait, c'est que suite à l'étude des coûts présentés devant vous, la proportion que vous jugeriez admissible à ce fonds-là, qu'il y ait une ordonnance du Conseil que le fonds de contribution puisse couvrir ces coûts-là.

9625   THE CHAIRPERSON: Sort of a one-time payment?

9626   M. MESSIER : Peut-être pas un one-time. On prévoit trois ans puisqu'il y a certains coûts qui sont des coûts récurrents, comme qui ont été mentionnés, la signalisation numéro 7 ou bien les requêtes qui sont faites dans la base de données MPAC, qui sont des coûts qui reviennent chaque année.

9627   Donc, ce sera à vous de déterminer. Peut-être sur une phase de trois ans pour donner une transition, toujours ici dans le cas où on fait face à une ESLT, une petite ESLT qui n'a aucune entreprise... pas de revenus, dans le fond, diversification de revenus.

9628   LE PRÉSIDENT : Mais la proposition des ESLT, ça va être fait en confidence. On ne veut pas partager ces chiffres avec ses compétiteurs. Ça veut dire que c'est seulement nous qui allons juger si c'est une somme raisonnable ou non.

9629   M. MESSIER : En grande partie, ça sera vous à juger. Si je regarde les dossiers qui ont été déposés, certains coûts ont été déposés sur le dossier public. Certains autres ont été déposés en confidentialité. Alors...


9631   In the front part, your paragraphs 14, 15 and 16, et cetera, where you are talking about basically:

"We have defined a competitive market as one where there is at least one independent facilities-based alternative available to consumers. This could include a wireless provider."

9632   Aren't you in effect rewriting the forbearance test?

9633   I mean the net effect -- I got what you are saying here is basically there is one competitor in the SILEC's territory, it can be a wireless one, and therefore we are treating the market as if it was forborne.

9634   MR. BÉLAND: We are not rewriting the forbearance test because it's --

9635   THE CHAIRPERSON: I said "in effect". In effect that's what you are doing.

9636   MR. BÉLAND: We would be removing several important obligations and also the access to subsidy. Whether that is a close equation to forbearance I don't think it's precise, but certainly we are taking a step towards it, yes.

9637   THE CHAIRPERSON: Well, I fail to see the distinction.

9638   You no longer have a basic service obligation, you no longer have a BSO and you have only one cellular provider in the market. Even if I adopt your criteria that should be 90 percent rather than 75 percent. Effectively it replaces the existing forbearance test.

9639   MR. ENGELHART: Let me take a try, Mr. Chair.

9640   I guess the idea behind the forbearance test was at what point will the market be so competitive that we don't have to worry about the incumbents removing competition by lowering rates, because in fact when forbearance was granted the rates couldn't be raised, they were frozen. So it really was a test based on at what point is this market up and running and cannot be stopped.

9641   The idea here is a little different. We are saying if you look at the purpose of a subsidy, whether it's in the telecom industry or any other industry, you are saying you subsidize something because otherwise it just wouldn't exist. Without this subsidy people in this area wouldn't have phone service.

9642   We sort of agree with Bell that in Bands "E" and "F" that's not really true; in Band "G" it probably is.

9643   But rather than relying on the costing, because there are some anomalies where Bands "E" and "F" probably do need to subsidy and Band "G" probably doesn't, we are saying the presence of someone else with facilities sort of puts a lie to the idea that you have to have a subsidy to build facilities there. If wireless people have built it with no subsidies, if cable people are there in a sufficiently large part of the exchange, it really makes you think that a subsidy isn't required.

9644   So it's that reasoning that is behind our proposal.

9645   I take your point that in a way forbearance seems like a bigger deal than this and so you would expect -- sorry, this seems like a bigger deal than forbearance so why would forbearance have a more rigorous test?

9646   I have the same consciousness of an apparent inconsistency that you do. Nonetheless, I also don't think that where somebody else shows up with facilities you can seriously make the argument that there wouldn't be a service without a subsidy.

9647   THE CHAIRPERSON: But doesn't it have the perverse effect that you need three providers to get forbearance in most markets, but in the SILECs you only need two?

9648   MR. ENGELHART: You need three to get forbearance, you need two to remove the subsidy, yes -- remove the subsidy and the obligation to serve.

9649   But bear in mind that when the subsidy goes the rates can go up, so we are not leaving the carrier worse off.


9651   Rita... ?

9652   COMMISSIONER CUGINI: Yes. Thank you.

9653   Just a couple of questions of clarification.

9654   I understand your point where you say in paragraph 5:

" the extent a local service subsidy remains in competitive markets, which we do not support, the subsidy must remain portable."

9655   Is that your worst-case scenario? Is that your compromise, in other words, if we don't agree with removing the subsidy in those markets?

9656   MR. BÉLAND: First of all, what we hope is clear from our package of proposals taken together is we are not a group of companies clamouring for subsidies, that if our proposals are followed we would likely not see a cent of subsidies, or maybe a tiny amount in some transitional areas.

9657   That's the first point and I think that's very important to make. We are entirely ready to compete without subsidies.

9658   Our concern is that if you do not accept the full sweep of our proposals that if subsidies remain in some areas that are competitive and that we are one of the competitors, that the only way you can have truly fair and efficient competition is by providing the subsidy to all carriers that are operating in there, efficient competition in the sense of not tilting the playing field towards one technology or another.

9659   We have also mentioned what we think is an added and important advantage, that once you declare a subsidy to be exclusive to someone you have given that someone a very large incentive to exaggerate that subsidy. I think that's a risk that's mitigated if you retain the notion of portability. Even if the circumstances in which the competitors are receiving the subsidy are rare, the portability itself provides an important incentive not to exaggerate those costs.

9660   COMMISSIONER CUGINI: And just so I understand your point, as long as that subsidy remains exclusive, that area isn't as attractive to competitors. Is that...?

9661   MR. BÉLAND: No, I don't think declaring the subsidy exclusive or not is so much an area of whether you are attracting the competitor. Declaring the subsidy exclusive is creating a situation where you have favoured one player or one technology over others in a dynamic concept where everyone is really evolving their networks and evolving their services all the time.

9662   COMMISSIONER CUGINI: Okay. Thank you.

9663   THE CHAIRPERSON: TELUS, did you want to interject on this one?

9664   MR. HENNESSY: Yes, Mr. Chairman.

9665   Michael Hennessy, with TELUS.

9666   I think we have to be careful again when we are talking about this concern about if the subsidy only goes to a carrier with obligation to serve that somehow there is a competitive inequity.

9667   As you know, the reverse argument from me ILEC side of course is that there is a competitive inequity when one carrier can focus on the lowest cost, highest margin part of the market and the other carrier has to assume as they gain market share an ever escalating costs for the remaining longer loops.

9668   I recognize the cable carriers have caveated their position by saying there shouldn't be any obligation to serve. Of course that doesn't do very much for the long loops that still exist and have been hollowed out without any recovery of their costs.

9669   COMMISSIONER CUGINI: Paragraph 10 where you talk about the obligation to serve is not a burden, again just so I understand, is this your response to the whole issue of cross subsidization that has been talked about quite frequently over the last few days and that those companies that serve the core are essentially -- that service to the core is cross subsidizing their service to rural areas?

9670   MR. BÉLAND: I guess, in an indirect way.

9671   What we are focusing on specifically here are the suggestions that the provision of service out in the so-called doughnut is a burden on the incumbent and because of that burden they should be afforded certain advantages such as exclusive access to subsidies.

9672   What we are saying again is, let's look at the situation from the perspective of two carriers, one is the incumbent and one is the new entrant which may already be present in a portion of the exchange or may not be. Let's look objectively at the situation that those two carriers are in.

9673   Here the incumbent has the installations in the ground, the copper has been buried; they have all the customers in these areas, they have the relationship with all these customers; they have the ability to keep adding services and making more revenue with these customers. You now look at the new entrant, who has no customers, who is coming in and making fresh builds and what we object to is -- in a very risky context because they are making --

9674   THE CHAIRPERSON: Certainly he does have customers. He has cable customers. He has a lot of cable customers. So saying he has no other -- just they are not telephone customers, he does have customers.

9675   MR. BÉLAND: But what I stated at the beginning is we are talking about the doughnut. So the allegation is that the incumbent --

9676   THE CHAIRPERSON: I'm sorry. Even in the heart of the doughnut aren't you there as a cable company? You are not there as a telco, but you are already there as a cable company, so you do have customers. You have customer relationships, they just don't extend to telephony right now.

9677   MR. BÉLAND: But the scenario that has been put to us is that we should have the obligation to also build out into that doughnut.

9678   The distinction I'm trying to make is that you have one player who is already there with all the customers in the doughnut and the suggestion is made that we should be the ones building out with fresh installations, facilities into that doughnut and that somehow it's the other one that has the burden.

9679   So we are building into an area where we have no customers and it's all fresh construction investment, the other one has all the customers and the copper in the ground and somehow it's portrayed that they have the burden in that area. That's what we contest.

9680   MR. ENGELHART: If I could add, Chairman?

9681   Yes of course we have cable and Internet customers, but any time you are a new entrant, even when you have an established business relationship with that customer, you are still in a new entrant position. It's still a slow, arduous, tough process to get customers.

9682   We probably have, after several years of very successful entry, 25 percent penetration in the telephony market in the areas we serve and that's probably higher in the urban areas than in the rural areas.

9683   You know, the slogan we had before about incumbency having its advantages, it's true there is an enormous inertia factor. These companies that we are competing against do a pretty good job, they have pretty high customer satisfaction, they have been doing it for 100 years, they are in a better position -- the incumbent is always in a better position than the new entrant.

9684   So the theme of this proceeding has been that new entrants are in a preferable position to incumbents and I agree with Mr. Béland, I don't believe that reflects the real world.

9685   COMMISSIONER CUGINI: I think we have the Ontario Telecom Association who wants to respond.

9686   MR. STEVENS: Yes. Keith Stevens. I just wanted to challenge one point.

9687   The cable companies are saying that we consider it a burden to have the obligation to serve in the doughnut of the exchange.

9688   It's not a burden to us, it's an obligation that we are happy to take on, but it's an expensive obligation. It's not a burden.

9689   COMMISSIONER CUGINI: I'm going to refer back actually to your original written submission and ask if you still maintain that we should remove -- I think you suggested that we should remove dial-up Internet access from the basic service objective. No?

9690   MR. BÉLAND: I don't believe we recommended any change to the basic service rate.

9691   COMMISSIONER CUGINI: Okay. Thank you. Thanks for correcting me.

9692   Paragraph 22 when you talk about the targets, and I do appreciate the fact that you have included upload.

9693   Do you still maintain what you presented to us on Monday and that is 100 megabytes to 75 percent of the population, 10 to 90 and 5 to 100?

9694   MR. BÉLAND: Yes, we do.

9695   COMMISSIONER CUGINI: You do, okay. Thank you.

9696   Those are all my questions.

9697   THE CHAIRPERSON: Len...?

9698   COMMISSIONER KATZ: Thank you, Mr. Chairman.

9699   I have a couple of questions.

9700   In your paragraphs 19 and 20 you recognized or you submit that subsidies should not exist in competitive markets, but if so they must be portable.

9701   Are you prepared to use the word "succumb" to costing. No doubt your costing would be very different than the costing of the ILECs so if we were going to do this and carry that portability it would be based on your costs, not on the ILEC's costs.

9702   MR. BÉLAND: The problem with that proposal is again a problem of whether you are promoting efficient competition. Because if you extend that proposal to its logical conclusion, imagine we have four competitors and they are using four different technologies, one would get a subsidy of $20 based on his real costs, another would get a subsidy of $15 based on his real costs, another would get a subsidy of $10 and the other one would get maybe $5.00 $0.00 based on a cost study of their own real network cost.

9703   I think what you are doing there is you are then creating a structure which is rather than encouraging competition -- and efficient competition, whoever has the best service and network and evolution plan, et cetera, wins -- you are creating a structure which will just freeze in time the relative positions of the players.

9704   That is managed competition, that's not efficient competition.

9705   COMMISSIONER KATZ: I would argue that what we would be doing if we did that is using a least cost technology and awarding the subsidy based on the lowest cost and if someone cannot achieve that lowest cost then I guess they are going to have to find a way of becoming more efficient.

9706   MR. BÉLAND: I would disagree with you strongly on that point, because to encourage the success of low-cost technologies what you need to do is make sure that everybody is getting the same subsidy.

9707   Now, am I perhaps misunderstanding your question?

9708   COMMISSIONER KATZ: The whole reason for a subsidy is because the cost structure is such that it's higher than what the affordable consumers can afford to pay. So the whole idea of the subsidy is to make sure that you can drive the cost to a point where you don't need a subsidy at all. If someone else can come in and offer the service at lower cost, presumably the subsidy should be borne to that level. If someone else can't reach that level, I guess they have a uncompetitive product.

9709   MR. BÉLAND: I think I misunderstood your initial question. I understand it now.

9710   What you are saying is not that each player has a different subsidy --


9712   MR. BÉLAND: -- it's that the subsidy for every one is calculated based on the least cost network.

9713   COMMISSIONER KATZ: Yes, but we would have to look at your costs before we can award to a subsidy.

9714   MR. BÉLAND: I would say we would probably agree rather strongly with that model and if you actually did apply it you would find that there would be very few parts of Canada that are subsidized. In fact, you would get to where we are really trying to go, which is you would find that probably the only part of Canada that should be subsidized or needs to be subsidized is Band "G".

9715   THE CHAIRPERSON: TELUS, you had an interjection?

9716   MR. HENNESSY: Yes. Michael Hennessy, TELUS.

9717   I think the discussion actually, without being critical of anybody, really strikes at the heart of what we are trying to talk about in the proceeding here, because if the goal at the end of the day is to ensure access by all Canadians no matter where they live, then the intent of the subsidy should be to extend or maintain service.

9718   If the intent of the subsidy is really to encourage competition, then I agree with Mr. Béland.

9719   I think the problem is, if you say that you should use the least cost technology when the competitor -- which may or may not have a lower cost, but is only competing in the lowest cost regions and therefore will have a lower cost -- doesn't need to go into the higher cost areas to compete, you will distort it. So you will still end up with a subsidy regime that is biased towards competition as opposed to the goal of service.

9720   Maybe that's just something we need to think about, what is the object of a subsidy in the first place.

9721   THE CHAIRPERSON: SaskTel... ?

9722   MR. MELDRUM: Thanks, Mr. Chairman. It's John Meldrum.

9723   I would like to just address the proposition that we keep hearing that the doughnut is very tasty territory.

9724   If we look at the town of Raymore, that I think one of our Commissioners is quite familiar with, it is a Band "E" location for SaskTel, and for Band "E", those are the small towns with fairly large exchanges in the tasty part of that doughnut, the Timbit as people like to call it. Our average loop is only 650 metres. So that's the distance from the central office to each customer. That is the average distance.

9725   Outside of that base rate area the average loop length is 10.34 kilometres. It is not tasty territory. The cable operators aren't going to go anywhere near that place.

9726   And I know I keep repeating myself, but that's why we are pushing the doughnut and pushing that the subsidy should be following the costs, otherwise it's very inefficient and leads to inefficient entry and the subsidy being available to others when it doesn't make any sense.

9727   COMMISSIONER KATZ: My next question -- and I just need clarification here because we talk about things and I want to make sure there is something really live about this.

9728   Are there markets today where the SILEC offers a bundle of cable and telephony services and the cable companies cannot offer a bundle of cable and telephony? Does that anomaly really exist today and where?

9729   MR. BRAZEAU: We have one in a service area that we are in and that's Kenora.

9730   COMMISSIONER KATZ: So you can't provide telephony services?

9731   MR. BRAZEAU: That's correct.

9732   COMMISSIONER KATZ: But Kenora can provide both cable and telephony?

9733   MR. BRAZEAU: And wireless.


9735   MR. GILBERT: Michel Gilbert.

9736   Bell Aliant Kenora does not offer actually TV. KMTS does not offer TV.

9737   COMMISSIONER KATZ: So there aren't any?

9738   Michel...?

9739   MR. BRAZEAU: Well, we are just going from the website and on the website there was --


9741   M. MESSIER : Alors, je ne connais pas très bien la réalité en Ontario par rapport à ça.

9742   Là où on l'a fait, sur les différentes compagnies indépendantes du Québec, je peux vous dire que Guèvremont offre un bundle de services de trois services. Sogetel offre aussi dans certaines parties, la plus grande partie. Vous avez aussi CoopTel qui offre des services.

9743   Vous avez même des petites compagnies comme Courcelles qui annonce ça présentement, et, à notre connaissance, je pense qu'il y a aussi... je suis moins sûr, mais je pense Saint-Éphrem et Sainte-Victoire aussi.

9744   Je pense que Milot, qui a été acheté par Sogetel, ne l'offre pas présentement, mais est en train... s'en vient.

9745   Warwick, on m'a dit qu'il l'offrait depuis mai 2010. D'ailleurs, je pense que c'est un des problèmes pour le cablôdistributeur qui est là, qui opère dans cette zone-là.

9746   LE PRÉSIDENT : Mais on a l'ACTQ ici. Est-ce qu'on peut confirmer ces consultations?

9747   M. CHOQUETTE : Roger Choquette de l'ACTQ.

9748   Tous les membres de l'ACTQ offrent l'IPTV, sans exception. Donc, s'il y a un problème à ce point de vue là... Tous les membres offrent l'IPTV sur leur territoire... sur leur territoire, en autres mots, sur les territoires où il y a environ 50 000 abonnés.

9749   COMMISSIONER KATZ: Michel, how does your marketing and sales department respond to the customer who calls you up and says, "The guys across the street can sell me a bundle, can you do the same thing" and you say no?

9750   Does the customer end up leaving? You have to incent him to stay? What happens?

9751   M. MESSIER : Ce qui se passe actuellement, c'est que ces clients-là qui nous demandent pourquoi on ne peut pas l'offrir, il faut leur expliquer que nous ne sommes pas en mesure d'offrir ce service-là présentement.

9752   Deuxièmement, la réalité est... nous avons aussi nos statistiques. C'est que depuis un an ou un an et demi ou deux que les entreprises, les membres de la CTC offrent des services de distribution de radiodiffusion de télé. Nous, on regarde nos stats, et puis on voit qu'on est impacté directement actuellement.

9753   Donc, il y aurait un besoin de pouvoir répondre, puisqu'on n'est pas en mesure de répondre, en offrant aussi un forfait de services incluant les trois services, et c'est en ce sens-là que l'on trouve que c'est une concurrence qui est assez déloyale de notre côté.

9754   COMMISSIONER KATZ: So do you have to incent them to stay or do they actually leave?

9755   M. MESSIER : La réalité est que certains partent, oui. On voit une perte actuellement de clients. L'incitatif pour rester est parce qu'on offre un service Internet, je pense, qui est très intéressant. On continue à essayer d'augmenter, d'améliorer notre service télé.

9756   Il nous manque un service pour compléter, mais la réalité est que, si je regarde mes statistiques sur la dernière année, sur les trois dernières années, j'ai une perte de croissance et une perte de clients.

9757   THE CHAIRPERSON: Bragg, you had your hand up.

9758   MS MacDONALD: Yes. I would just like to clarify as well that we had the same experience. There are a number of territories where we have sought entry where the incumbent is offering multiple services and we have cable and we cannot offer phone, and in fact we are experiencing some customer loss associated with that. So it is a concern for us as well.

9759   COMMISSIONER KATZ: Can I ask both yourself, Ms MacDonald, and the cable folks to file in confidence with us by independent company territory the number of customers that you had and how many you lost so we can see it as a percent?

9760   MS MacDONALD: Sure.

9761   M. MESSIER : Certainement. Oui


9762   COMMISSIONER KATZ: My last question is one of affordability. You didn't really talk to it specifically in your Phase II response at all as to how we deal with the notion of what is affordable for a consumer in a high-cost service area.

9763   Do you have any views at all on that or are you just leaving it up to us to come up with a view?

--- Pause

9764   MR. ENGELHART: We really think it's one of those things where no amount of surveys or mathematical equations will really get you there. You have to take a look at the marketplace and give it a try.

9765   So our proposal is, you know, let the market go for five years, see where you end up. If at the end of the five years you find out that, for example, the satellite service is broadly available but the subscription is very low, price is a barrier then you would take action.

9766   But I don't think there is any evidence now to suggest that consumers aren't willing to pay quite a bit for high-speed internet because it's such a valuable service.

9767   COMMISSIONER KATZ: I am looking at telephony services. I'm looking at the subsidy model for telephony.

9768   MR. ENGELHART: Yes. I am sorry, Vice Chairman Katz.

9769   Yeah, for that we really have no great insight other than what we have put in our evidence and what other parties have said, which is that if some people are paying $36 that it's probably affordable.

9770   COMMISSIONER KATZ: Can I just ask ACTQ. I'm looking at the screen here that has rates for Téléphone Milot which was bought by Sogetel and these are PES rates, primary exchange service rates. Now, when I look at it in seven markets here, Baie-de-Favre is $24.98, Charette is $24.98, Saint-Barnabé is $24.98, Saint-Alexis is $24.85, Saint-Paulin is $24.85 and someplace called Nantes it's $31.98.

9771   Is there an anomaly there or is there a reason why in that market $31.98 is affordable for people?

9772   MR. CHOQUETTE: This is Roger Choquette.

9773   I will ask Monsieur Sylvain Bellerive of Sogetel to maybe try and answer the question and, if not, possibly we could try and find out.


9775   M. BELLERIVE : Sylvain Bellerive pour ACTQ.

9776   Alors, lorsque nous avons acheté Téléphone Nantes, le tarif avait déjà été approuvé à 31,98 suite à une modernisation du commutateur.

9777   MR. CHOQUETTE: I would just like to add that Nantes has about 250 subs. So I mean we are talking a real anomaly here.

9778   COMMISSIONER KATZ: But people can afford it because they are paying for it, presumably. There isn't a difference in penetration or adoption for those people in that market than in the other ones?

9779   MR. CHOQUETTE: Well, the problem with Nantes, if we want to go back in the history of it, is that it had to upgrade from, believe it or not, a step-by-step switch not that long ago and the only alternative was a refurbished DMS-10 which became available -- it was only a couple of hundred thousand bucks. But because the subscriber base was so small it came to point where the number stabilized and was approved by the Commission at $31 knowing the circumstances.

9780   Of course, it was not economic even at that rate and of course that's one of the reasons why Sogetel had to buy them.

9781   COMMISSIONER KATZ: So Mr. Choquette, how much did the rate go up?

9782   MR. CHOQUETTE: I have -- we will check that out. I can't recall.


9784   My last question is actually to Ms MacDonald in the back.

9785   I noticed that in telecom People's have a rate of $30.75. Did you inherit that or was the rate that it got moved to subsequent to you purchasing it?

9786   MS MacDONALD: No, we actually inherited it. The rate hadn't changed in a number of years.

9787   COMMISSIONER KATZ: Okay, thank you.

9788   I will let Mr. Hennessy.

9789   MR. HENNESSY: Yes, hopefully to be helpful on affordability again.

9790   When we try to look at, say, you know, is $31 affordable in one place when we know $36 is perhaps in another place, another way just in terms of ultimately trying to figure out how to measure this is to try to figure out how many people don't take say multi-channel television service which is often priced higher and has a higher ARPU and a penetration around 90 percent along with telephone service or along with internet service because that then starts to give you a sense of the affordability debate.

9791   You know if you find that there are people that you know struggle at $30 or more on telephone service and, you know, there is a group of people that don't pay significantly more for internet and cable, you know if you can find that you begin to target them. But if you can find that people actually pay for -- most people pay for telephone and subscribe to internet and cable -- then that would suggest a very different way to measure affordability.

9792   THE CHAIRPERSON: Suzanne.

9793   Mr. Daniels...?

9794   CONSEILLÈRE LAMARRE : Merci, Monsieur le Président.

9795   THE CHAIRPERSON: Hang on. I have an intervention here.

9796   MR. DANIELS: I just thought we have the answer to the question for ACTQ for not. It was a $6.00 increase effective January 1, 2002 and another $6.00 increase effective January 1, 2003. The original PES rate was $19.85 prior to those two increases.

9797   I just thought, considering I had it, I thought I would save some people some time.

9798   THE CHAIRPERSON: Thank you.

9799   Suzanne...?

9800   COMMISSIONER LAMARRE: How kind of you, Mr. Daniels.

--- Laughter


9802   Juste une précision en partant. Dans votre texte, à plusieurs endroits, vous faites référence au marché concurrentiel.

9803   Est-ce que je dois lire marché concurrentiel réglementé ou non?

9804   M. BÉLAND : Mais nous, notre définition de marché concurrentiel, c'est lorsqu'il y a un concurrent avec installations présent.

9805   CONSEILLÈRE LAMARRE : Donc, le marché peut quand même être encore réglementé ou il peut avoir été déréglementé?

9806   M. BÉLAND : Justement, c'est la discussion qu'on a eue avec le président au début, qu'il est possible qu'un marché serait toujours...

9807   CONSEILLÈRE LAMARRE : Réglementé, tout en étant concurrentiel.

9808   M. BÉLAND : ...réglementé, tout en étant concurrentiel. Oui.

9809   CONSEILLÈRE LAMARRE : En fait, c'est souvent la norme, mais, au départ, le marché devient concurrentiel tout en restant réglementé. Ce n'est pas automatique, la déréglementation quand c'est concurrentiel?

9810   M. BÉLAND : Oui. Oui.

9811   CONSEILLÈRE LAMARRE : Bon. Monsieur Brazeau hoche du bonnet. Donc, ça signifie oui. Merci.

9812   Maintenant, on a... en tout cas, je trouve que moi personnellement, en tout cas, j'ai assez mis d'emphase aujourd'hui et peut-être même hier sur les désaccords entre les compagnies de câble et les petites titulaires.

9813   Alors, pour bien terminer aujourd'hui, je vais mettre l'emphase sur ce sur quoi vous êtes d'accord, et ce qui ressort de ce que j'ai entendu aujourd'hui clairement, c'est autant les compagnies de câble que les petites titulaires sont d'accord qu'il faut de la compétition, de la concurrence dans leur marché.

9814   Là où on a plus de difficulté à arriver à une conclusion, c'est sur les modalités pour y arriver. Alors, parlons-en des modalités que je vois ici que vous énumérez du paragraphe 29 au paragraphe 31. Et là, peut-être que je vais être obligée de vous faire répéter, Monsieur Messier, parce que vous l'avez peut-être déjà dit puis je n'ai pas compris. Donc, ça sera bénéfique.

9815   Lorsqu'on parle des coûts inhérents à l'introduction de la concurrence dans un marché pour une petite ESLT, vous dites que, bon, il ne devrait pas avoir de compensation pour les coûts, et je ne parle pas de perte de marché là, je parle uniquement de coûts d'immobilisations, coûts d'exploitation récurrents, ces deux choses-là.

9816   Donc, vous dites non, ce n'est pas... D'abord, vous dites, ce n'est pas au concurrent à payer. Ensuite, vous dites, dans certains cas, on pourrait envisager que le fonds national puisse défrayer sur une période de temps les coûts qui ont été approuvés par le Conseil.

9817   Bon, dans un cas comme dans l'autre, le concurrent, il dépense quoi exactement pour s'établir dans le marché, lorsqu'il est déjà installé là, comme une compagnie de câble comme vous et vos collègues à vie là?

9818   M. MESSIER : Bien là, pour offrir un service dans une échange particulière, il faut établir une interconnexion directement avec l'autre entreprise, donc, l'entreprise qui est titulaire qui est déjà là présente. Donc, ça veut dire qu'il faut établir un point... Il faut se rencontrer sur un point d'interconnexion.

9819   Il faut aussi établir, nous, des liens pour être capables d'offrir le service 9-1-1, donc, nos interconnexions vers le 9-1-1.

9820   Il faut aussi mettre en place ce qu'il faut au niveau de la portabilité pour rencontrer cette... desservir cette nouvelle échange-là.

9821   Ce sont les coûts, je pense, les plus importants.

9822   CONSEILLÈRE LAMARRE : O.K. Donc, ce sera à nous de regarder les détails de ce que ça représente pour vous comme concurrent dans les cas où il y aura des demandes spécifiques et ce que ça représente pour la titulaire en question, établir si les frais sont...

9823   M. MESSIER : En grande partie, ce sont les mêmes choses tout simplement.

9824   CONSEILLÈRE LAMARRE : D'un côté comme de l'autre.

9825   M. MESSIER : Parce que nous aussi, il faut établir... nous aussi, il faut...


9827   M. MESSIER : ...offrir la portabilité. Donc, il faut encourir les coûts pour... au niveau de nos commutateurs, être membre aussi du fonds de contribution, pouvoir accéder à la base de données MPAC, ainsi de suite.

9828   Donc, il faut rencontrer ces coûts-là. Il faut rencontrer un même point, donc, ce qu'on appelle un shared cost facility, un coût partagé, une installation à coût partagé. Donc, on détermine un point où est-ce qu'on va se rencontrer, où est-ce qu'on va échanger le trafic.

9829   Il faut pouvoir offrir le 9-1-1. Donc, il faut avoir aussi des interconnexions au niveau des tandems qui nous permettront de pouvoir rejoindre les centres de réponse 9-1-1. Ça, c'est nos coûts, comme eux ont leurs coûts.

9830   Alors, c'est pour ça que dans les coûts d'interconnexion, ce qui a été défini dans le cadre réglementaire, c'est d'avoir des coûts qui sont partagés. Donc, on a nos coûts, ils ont leurs coûts. Ça fait partie d'établissement de la concurrente.

9831   COMMISSIONER LAMARRE: Bragg, in the back you had your hand up.

9832   MS MacDONALD: Yes, I would also like to add to that.

9833   In the case of our systems in the SILEC territories where we saw an entry they were cable systems where the cable plant really needed upgrading. So in addition to the costs we would incur to actually enter and perform all the interconnections and other processes, we also needed to put significant investments into the cable plant as well. So that's over and above the entry costs.

9834   COMMISSIONER LAMARRE: Okay, but that -- over and above wouldn't that be qualified as the cost of doing business?

9835   MS MacDONALD: Well, yes, it would.


9837   MS MacDONALD: I just wanted to point out that it was additional investments we have made in those areas as well.

9838   COMMISSIONER LAMARRE: I appreciate because in the case of, you know equipment costs, I am very visual, so I am assimilating here.

9839   M. MESSIER : Si je peux ajouter, Madame Lamarre, pour être très clair en fonction de la proposition qu'on a faite, quand vous dites, il y a une partie où est-ce qu'on dit chacun doit assumer, l'autre partie, où est-ce qu'on dit, certaines petites ESLT qui ne rencontreraient pas les critères, on pense qu'une contribution du fonds de contribution pourrait être...

9840   Dans ce cas-ci, on ne parle pas de couvrir les coûts du concurrent là. On parle seulement...

9841   CONSEILLÈRE LAMARRE : Vous parlez seulement des coûts de la titulaire?

9842   M. MESSIER : De la titulaire dans ses conditions à elle.

9843   CONSEILLÈRE LAMARRE : O.K. C'est bien de clarifier.

9844   Maintenant, pour les critères que vous établissez au paragraphe 30, vous, ce sont des critères qui ne sont pas cumulatifs, si j'ai bien compris? C'est si un ou l'autre de ces critères-là est rencontré?

9845   M. MESSIER : Exact.

9846   CONSEILLÈRE LAMARRE : Je vais vous demander de considérer s'il n'y aurait pas certains de ces critères-là qui devraient être, en fait, obligatoires, autrement dit, que si le critère n'est pas rencontré, à toute fin pratique, ça remet en question l'établissement de la concurrence, sauf s'il y a entente?

9847   Vous n'êtes pas obligé de me répondre maintenant là, mais pensez-y parce que c'est à ça que je faisais allusion plus tôt quand je parlais avec l'ACTQ, à savoir, particulièrement en ce qui concerne le critère B, c'est-à-dire que si une titulaire est concurrente à l'extérieur de son territoire que l'absence de ce critère-là faisait que le test était fatal pour établir la concurrence. Alors, je vous demande d'y réfléchir.

9848   M. MESSIER : D'accord.

9849   CONSEILLÈRE LAMARRE : Je sais qu'à prime abord, vous n'êtes pas content, mais je vous demande d'y réfléchir quand même.

9850   Maintenant, le critère A, bon, vous nous demandez de considérer le fait que la petite titulaire serait affiliée avec une grande. O.K. Je comprends, mais ça me fait penser à autre chose.

9851   Ça me fait penser qu'un critère qui a été discuté indirectement avec l'ACTQ, c'est le fait de considérer le fait que, initialement, lorsque la question de la concurrence est arrivée sur le tapis, c'était pour permettre à des plus petites entreprises d'entrer dans le territoire des plus grosses.

9852   Donc, est-ce qu'on devrait, en fait, considérer le rapport entre les grosseurs relatives du concurrent qui veut entrer et de la titulaire où est-ce que le concurrent veut entrer?

9853   Parce que c'est un peu ça que vous faites là avec le critère A. Vous dites que la taille de la titulaire devrait compter, mais si la taille de la titulaire compte, est-ce que la taille du concurrent devrait compter aussi?

9854   M. MESSIER : Je pense que... pour le critère A, je pense qu'il est très clair dans notre tête, c'est qu'une affiliée qui est... une petite ESLT qui est l'affiliée d'une grande ESLT, comme le cas, je pense, auquel... Kenora, dont la propriété est de Bell Canada, devrait immédiatement être considérée comme étant admissible à la concurrence.

9855   C'est vraiment le point qu'on veut faire avec le critère A.


9857   Maintenant, pour conclure, je vais vous dire la même chose que j'ai dit à l'ACTQ. Malgré l'ouverture, et je reconnais qu'il y en a une ici qui est faite ici dans votre proposition finale, il reste qu'il demeure un malaise, compte tenu des modalités que vous voudriez voir implantées vis-à-vis, à tout le moins, les petites titulaires.

9858   Alors, je vais vous demander à vous aussi de réfléchir d'ici vos commentaires finaux à voir s'il n'y aurait pas moyen de sortir de ce cadre-là, d'avoir une solution plus créative, parce que dans le cas de ce que l'ACTQ propose, comme dans le cas de ce que vous, vous proposez, je n'ai pas encore vu la situation idéale... la solution idéale à ce qui se passe présentement.

9859   THE CHAIRPERSON: Okay. Before we conclude this presentation here by the cable companies, paragraph 31, what is the treatment for the small ILECs of less than 2,500? I haven't heard anything from either OTA or ACTQ, what they feel about this. Could we have some reaction, please?

9860   MR. CHOQUETTE: This is Roger Choquette of the ACTQ.

9861   I would like to first of all touch upon the notion that the costs of implementation for the new entrant as a cableco somehow compares with those of a small incumbent.

9862   If, in fact, you were to ask the cablecos the following questions -- question, I'm sorry -- to the effect, what is the incremental costs of you to get into the territory to provide local competition?

9863   And you could ask the same question to the small ILEC and in fact we have in fact filed those numbers with you in confidence.

9864   You could then have a sense of whether there is any inequality with respect to the fact that not only is the new entrant large but may have already incurred many of these costs as a CLEC in other parts of Canada.

9865   THE CHAIRPERSON: Monsieur Choquette, I asked you a very specific question, what is your reaction of paragraph 31 and the suggestion that SILECs under 2,500, basically their LNP costs would be paid out of the fund after they prove the amount that they need to do it and be able to do it over a period of three years.

9866   MR. CHOQUETTE: Well, I think, Mr. Chairman, this goes back to the discussion we had earlier this afternoon, is that we have no sense of why you would -- first of all, no one would qualify according to paragraph 30. Of course, paragraph 31 is -- it was predicated on the conditions of paragraph 30 so it becomes a theoretical situation for us because --

9867   THE CHAIRPERSON: Okay. Do me a favour and look at 31 alone without 30. What there is, is a very specific proposal. Forget about 30. Assume we will do whatever for 30, but there is a special treatment for SILECs under 2,500 here and I just wondered what your reaction was to that.

9868   MR. CHOQUETTE: Just so I understand, you are asking for our views on paragraph 31 but ignoring the criteria of 30?


9870   MR. CHOQUETTE: We will do that, Mr. Chairman. Thank you.



9872   MR. HOLMES: Thank you, Mr. Chairman. Jonathan Holmes from the OTA.

9873   I would just like to highlight the fact that the 2,500 it's a company-wide total, so we are talking a very small company here in terms of total NAS.

9874   We would like to also say that one of the reasons we have proposed the four-year moratorium for companies like this is that implementation costs are not the only way that local competition is going to impact on these companies. So there is the ongoing costs that are a concern to us.

9875   So we still think we would like to see the complete moratorium for these types of companies for the four years.

9876   THE CHAIRPERSON: On your first point, I thought you said you had nine companies. He said they had six companies which fall into this category.

9877   MR. CHOQUETTE: Five companies, Mr. Chairman.

9878   THE CHAIRPERSON: Five, okay.

9879   MR. HOLMES: And nine for OTA.

9880   THE CHAIRPERSON: Right. And so those 14 companies we are talking about and basically what the cable companies says is treat them separately and treat them special, pay their number portability out of the fund as long as you have satisfied yourself that these are reasonable minimal costs that they need.

9881   So if you want to give their reaction in writing by all means do so.

9882   Okay. That's it for today. We will be tomorrow at 8:30 here. Thank you.

--- Whereupon the hearing adjourned at 1648, to resume on Friday, November 5, 2010 at 0830


____________________      ____________________

Johanne Morin         Jean Desaulniers

____________________      ____________________

Monique Mahoney         Sue Villeneuve

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