ARCHIVED - Transcript, Hearing 17 June 2013

Volume 1, 17 June 2013

TRANSCRIPTION OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION

SUBJECT:

Review of Northwestel Inc.’s Regulatory Framework, Modernization Plan, and related matters

HELD AT:

Midnight Sun Complex

95 Gwich’in Road

Inuvik, Northwest Territories

17 June 2013

Transcription

In order to meet the requirements of the Official Languages Act, transcripts of proceedings before the Commission will be bilingual as to their covers, the listing of the CRTC members and staff attending the public hearings, and the Table of Contents.

However, the aforementioned publication is the recorded verbatim transcript and, as such, is taped and transcribed in either of the official languages, depending on the language spoken by the participant at the public hearing.

Canadian Radio-television and Telecommunications Commission

Transcription

Review of Northwestel Inc.’s Regulatory Framework, Modernization Plan, and related matters

BEFORE:

ALSO PRESENT:

HELD AT:

Midnight Sun Complex

95 Gwich’in Road

Inuvik, Northwest Territories

17 June 2013

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TABLE OF CONTENTS

PAGE / PARA

PHASE I

PRESENTATION BY:

- v -

UNDERTAKINGS

PAGE / PARA

Inuvik, NWT

--- Upon commencing on Monday, June 17, 2013 at 0830

1   THE SECRETARY: Welcome, everybody.

2   We will get started in a few minutes. We have asked local elders to provide an opening prayer. Please stand.

3   First I would like to ask Mr. Albert Elias to provide a prayer in Inuvialuktun.

4   Mr. ELIAS: Thank you.

5   THE SECRETARY: Thank you.

6   MR. ELIAS: Good morning, everyone. I'm just going to say a prayer in Inuvialuktun to ask for guidance and help today.

--- Aboriginal language spoken

7   THE CHAIRPERSON: Thank you very much.

8   THE SECRETARY: I would now ask Mr. Winston Moses to provide a prayer in Gwich'in.

9   Mr. MOSES: Good morning to all and have a nice day. A prayer in Gwich'in language.

--- Aboriginal language spoken

10   THE CHAIRPERSON: Thank you.

11   Good morning, everyone and thank you again, Mr. Elias and Mr. Moses for your welcoming prayers.

12   Those of you more used to our CRTC hearing know here's another fact that when we go up North it's a bit different and we're trying to adapt to local customs.

13   Before I do my formal remarks, of course we also have to adapt to changing circumstances, having landed, some of us, on Saturday morning in balmy heat, only now to be blessed with some fresher winds this morning. So we're very pleased to be here.

14   So let me start, ladies and gentlemen, with a few opening remarks.

15   So good morning. We are holding this hearing as part of a holistic review of the telecommunications services provided by Northwestel as well as the regulations that the company must follow. The hearing will continue on June 19th in Whitehorse.

16   In 2011, the CRTC expressed concern with the level of network investment by the company and the level, quality and reliability of telecommunications services available in the North. We required Northwestel to develop a plan to address these concerns and to modernize its aging network for the benefit of all northern Canadians.

17   The company has since filed a plan in which it proposes to invest over $200 million in capital expenditures during the next four years to:

18   - first, upgrade equipment in order to support enhanced calling services such as call display and call waiting as well as local number portability and local network interconnection;

19   - second, upgrade and expand its high-speed Internet service offering;

20   - third, extend wireless services to many additional communities;

21   - fourth, replace its satellite voice network with an Internet Protocol-based network; and

22   - fifth, make various other improvements to its network.

23   As we study Northwestel's modernization plan, the hearing panel will be looking at the degree to which it will provide northern Canadians with access to services that are comparable to the rest of the country. We will also want to make sure that the modernization plan can be implemented in a timely manner so that the company's customers can benefit from improvements to choice, quality and reliability as soon as possible.

24   Also in 2011, the CRTC opened the North to local telephone competition in order to give residents a choice of service providers. The panel will consider the current status of local competition and how it may be expected to develop.

25   In particular, competitors purchase services from Northwestel in order to serve their customers at the retail level. We will examine whether any changes to the services used by Northwestel's competitors are needed to ensure sustainable competition in the coming years.

26   We will also examine the infrastructure needed by all providers to transport traffic across the North. Ces services de transport sont utilisés non seulement par Norouestel mais aussi par les concurrents, ce qui aide ces derniers à fournir des services et, en fin de compte, d'offrir un choix accru aux Canadiens.

27   Finally, we will review the regulatory framework that applies to Northwestel for its services, including basic telephone service, and whether any changes should be made.

28   This will include a review of the existing subsidies that Northwestel receives to provide local telephone service in areas where costs are higher, such as in small and remote communities.    The panel will also review the need for subsidies for other services, such as transport and broadband, as suggested by several parties.

29   So, before we begin, I would like to thank you all for the hospitality you have shown us. We are glad to have this opportunity to meet with northern Canadians and to hear from you directly.

30   Many of the submissions we received in advance of the hearing were very clear, and so, as a result, we may not have questions for everyone who is presenting in the course of this hearing, but we nevertheless thank you very much for those submissions.

31   The CRTC recognizes the importance of reliable, affordable and high-quality communication services for northern Canadians given your unique challenges and the many opportunities for economic growth. This review will attempt to strike the right balance between market forces, network investment and regulatory intervention to meet these goals for the North.

32   I would also like to provide a few introductions.

33   The panel for this hearing consists of:

34   - to my right, Mr. Peter Menzies, who is Regional Commissioner for Alberta and the Northwest Territories;

35   - Ms Elizabeth Duncan, to my left, who is Regional Commissioner for the Atlantic and Nunavut;

36   - Mr. Steve Simpson, who is Regional Commissioner for British Columbia and the Yukon;

37   - to my far right, Ms Candice Molnar, who is Regional Commissioner for Manitoba and Saskatchewan; and

38   - myself, Jean-Pierre Blais, Chairman of the CRTC. I will be presiding over this hearing.

39   The Commission team assisting us includes:

40   - Christine Bailey, who is the Hearing Manager;

41   - John Macri, Director of Telecommunications Policy;

42   - Emilia de Somma, who is Legal Counsel; and

43   - Jade Roy and Lynda Roy, who will be the Hearing Secretaries and Public Hearing Supervisors. Here in Inuvik it will be Madame Jade Roy and in Whitehorse it will be Lynda Roy.

44   And don't worry, you don't have to have the last name Roy to work at the CRTC as a Hearing Secretary. It just appears that way.

45   So, I would now invite Jade Roy, the Hearing Secretary for this part of the hearing, to explain the procedures that we will be following.

46   Madam Secretary.

47   THE SECRETARY: Thank you, Mr. Chairman, and welcome, everyone.

48   Before we start I would like to go over a few housekeeping matters to ensure the proper conduct of the hearing.

49   When you are in the hearing room, we would ask that you please turn off your cell phones as they are an unwelcome distraction and they cause interference on the internal communication systems used by our translators.

50   The Inuvik portion of the hearing will last one day and we will reconvene in Whitehorse on Wednesday, June 19, at 8:30 a.m.

51   We would like to remind participants that during their oral presentation they should provide for a reasonable delay for the interpretation while respecting their allocated presentation time.

52   There is a verbatim transcript of this hearing being taken by the court reporter, which will be posted daily on the Commission's website.

53   Please note that the Commission will also be tweeting the documents during the hearing at //@CRTChearings using the hashtag number sign CRTC.

54   Just a reminder that pursuant to section 41 of the Rules of Practice and Procedures, you must not submit evidence at the hearing unless it supports statements already on the public record. If you wish to introduce new evidence as an exception to this rule, you must ask permission of the Panel of the hearing before you do so.

55   Please note that if parties undertake to file information with the Commission in response to questioning by the panel, these undertakings will be confirmed on the record through the transcript of the hearing. If necessary, parties may speak with Commission legal counsel at a break following their presentation to confirm the undertakings.

56   We will now begin with the presentation by Northwestel. Please introduce yourself and your colleagues and you have 30 minutes. Thank you.

PRESENTATION

57   MR. FLAHERTY: Thank you, Madam Secretary.

58   Good morning, Mr. Chairman and Commissioners. I am Paul Flaherty, President and CEO of Northwestel, and I am pleased to welcome the Commission to Inuvik, the land of the midnight sun -- not today though -- and a vibrant community of about 3500 people located on the Mackenzie River Delta in the Northwest Territories. Inuvik is the sixth largest community in our ILEC serving territory. To our knowledge, this proceeding is the first time a regulatory hearing has been held in Canada's Far North, inside the Arctic Circle, and we welcome the opportunity to appear before you today.

59   I as well would like to thank the elders for their opening prayers.

60   I am pleased to introduce Northwestel's panel.

61   Joining me:

62   - on my immediate right is Curtis Shaw, the VP of Marketing;

63   - next to Curtis is Don Pumphrey, the Vice President Advanced Networks;

64   - to my immediate left, Jonathan Daniels, VP Regulatory Law, Bell Canada; and

65   - to his left, Muriel Chalifoux, our former CFO and VP of Regulatory and Carrier Services.

66   We are here today largely due to the Commission's findings in respect to our network investments and the Commission's view that certain services were not available to the same extent as in the rest of Canada.

67   Through consultations with our customers we have developed an innovative and purpose-designed Modernization Plan to address the unique service needs of the North. Our plan has been filed with the Commission and we are very pleased to have the opportunity to discuss it with you here this morning.

68   While our plan responds directly to the Commission's concerns, it is designed to serve the Canadians who live and work in the North. Without our customers, none of us would have a reason to be here today. Our customers will be the ultimate judge of our respective success or failure.

69   We have reached out and engaged our customers to understand how we can better serve them. We have met with political leaders and government officials at all levels. We have listened to the business community. And of course we have reviewed the record of this proceeding and the customer comments we've received. We have heard from our customers and our mission is to deliver as much as we possibly can to meet their needs and satisfy their wants.

70   Before we speak specifically to our Modernization Plan, I would first like to share some insights into our Company -- who we are, what drives us, our commitment to the North and the challenges we continuously strive to overcome.

71   If there is one overriding attribute of our company and employees, it is our passion for the North. And I am quite deliberate in specifically mentioning our employees as they are the true lifeblood of our company and have pride in and commitment to this region that is unsurpassed. We, the employees of Northwestel, all live, work and play in the North.

72   Northwestel believes we have a social responsibility to enrich northern life through rewarding and meaningful employment, spending and investment in our communities, partnering with Aboriginal and other local groups, volunteering and providing direct financial support to cultural activities.

73   I also want to highlight some of the work we have been doing in recent years with the Beaufort Delta Education Council here in Inuvik. Our work involves promoting E-learning in high schools where it is difficult to access the broad scope of educational and learning opportunities that are available to students in larger communities.

74   Through this partnership we have been able to provide video conferencing links and high-speed data lines between high schools in the Beaufort Delta Region to allow students here to have full access to the most current and challenging educational courses in mathematics, science, language arts and other programs.

75   We seek to help propel the northern economy however we can, by bringing the latest technologies and services to our business customers, strengthening the local economy to our collective benefit.

76   We see opportunity for Canada's Aboriginal communities, which have expressed the need for enhanced communications services as a means to further education and economic opportunity for their people. Aboriginal peoples represent more than 50 percent of the northern population. We recognize the importance of working with our Aboriginal communities and have developed a number of partnerships over the years.

77   For example, we have a 70-percent ownership position in Latitude Wireless, with the remaining 30 percent owned by the Dakwakada Development Corporation, the business arm of the Champagne and Aishihik First Nations. Latitude Wireless currently provides wireless services to 19 communities in the Yukon.

78   We have formed several other partnerships, including through Tundra Communications with the Inuvialuit here in Inuvik, through Borealis Communications with Aurora Communications from the Sahtu region south of us, and through ARDICOM Digital Communications with two Aboriginal organizations, Arctic Cooperatives Limited and Northern Aboriginal Services Company.

79   These partnerships allow Aboriginal organizations to participate in their local economies, and support the growth and development of the telecommunications services that serve their region.

80   Next I would like to talk about the four main factors that define our operating environment.

81   The first is customers.

82   When it comes to telecommunications, our customers are really no different than any other Canadians. They have the same needs and want the same products as anyone else. They want to use the latest and greatest smart phones. They want high-speed Internet, Skype and YouTube, not just on their desktop but also on their tablet. Simply put, they want to experience and participate in the digital world just like everyone else.

83   The second factor is geography.

84   We serve a huge area with relatively few people. We span the Yukon, Northwest Territories, Nunavut and Northern British Columbia. Despite that huge area, we have a mere 72,000 network access lines serving a population of 121,000 people spread across 96 communities as illustrated in Attachment 1.

85   We operate in the Far North. This means we must contend with months of extended darkness, extreme weather, a very short construction season, limited and costly power and transportation services, new complications arising from climate change and much higher operating costs than almost anywhere else in the country.

86   It is indeed a diverse and challenging environment but one that we face with spirit and determination.

87   The third factor is economic reality.

88   Customers justifiably want the same range of services as one would see in the densely populated urban markets in Southern Canada and they also want to pay the same price. Therein is the constant challenge we face. In many cases it is simply impossible to create a viable business case due to the high cost of provisioning and maintaining service and the small number of customers from whom the investment can be recovered.

89   There is also the terrestrial versus satellite divide.

90   We use the term "terrestrial" to refer to the 58 communities where we have our own fibre or microwave backhaul transport facilities connecting those communities.

91   In the remaining 38 communities, our only backhaul option is satellite. We call these "satellite" communities. In all satellite communities, we have copper access infrastructure that we use to provide voice services. In some of these communities, we even have DSL infrastructure, enabling us to provide high speed Internet. But the backhaul is satellite, which is provided over transponder space we lease from Telesat. As such, we have little control over the costs of the backhaul. Even in communities where we have DSL and we could technically offer higher speeds, we have to limit our offerings to only 1.5 Mbps down and 384 Kbps up as a result of the backhaul costs.

92   The inherently high operating costs in the North require subsidies. Ninety-four of 96 communities we serve are designated "high cost" and our local residential service is subsidized through the National Contribution Fund.

93   Outside of regulated local service, various service providers, including Northwestel, have received third party funding from the federal and territorial governments and their agencies, as well as other non-governmental entities such as Aboriginal development organizations. These funding schemes have mainly subsidized broadband services, but there have also been funding arrangements for wireless expansion.

94   If all Northerners are to receive the full range of modern affordable services as our neighbours in Southern Canada enjoy, external funding is required.

95   The fourth factor is competition.

96   Competition is in our serving territory, albeit in its early stages for some regions and services. For example, local competition is just getting underway, with Iristel already having launched in Whitehorse, Yellowknife, Iqaluit and Inuvik. Such competition is expected to grow, given that the Commission only opened up the region to local competition in December 2011.

97   For other services like Internet, what is not widely known is that SSi is the incumbent high speed Internet provider in most communities in Nunavut, and has won a large multimillion dollar contract from the Government of Nunavut for WAN services.

98   Building any business plan is all about choices. The Modernization Plan cannot be everything to everybody. The key is finding the fair balance. Achieving the best result that delivers the most benefit for the most people while ensuring a positive business case which enables sustainable development for the North.

99   Our chief goal was to maximize benefits to our customers and we wanted to be bold and creative. With this in mind, we sought to think out of the box and consider novel solutions to difficult problems. We also wanted to stretch each capital dollar to maximize the benefits of our plan. The decision to use a fixed wireless voice solution for example allowed for the replacement of switches, while delivering new 4G wireless and high speed Internet capabilities. To us this is not only innovative, but also very efficient, which will benefit customers.

100   Mr. Chairman, similar to what you said in your speech at the Telecom Summit, we have approached our Modernization Plan as a venture that serves the public interest, while at the same time providing a reasonable return on investment. In our mind, that is a fair balance.

101   I will now address the details of the Modernization Plan.

102   Our vision was to deliver voice services, 4G wireless and high speed Internet to all communities across the North.

103   However, we realized that we could not do all that we wanted to do without help. We had to actively seek out partnerships and third party funding arrangements and what we call contingent funding to extend the reach of advanced services into additional communities. Assuming all contingent funding is secured, this is what our Modernization Plan will deliver:

104   In terms of wireless: 83 communities or 99 percent of the population will have 4G wireless service.

105   In regard to Broadband: 58 terrestrial communities will see substantially increased Internet speeds which vastly exceed the Commission's targets of 5 down and 1 up.

106   38 satellite communities will have access to high speed Internet, either served by Northwestel or SSi, although, for reasons discussed below, at lower speeds than the Commission's targets of 5 down and 1 up.

107   In terms of Voice: Enhanced Calling Features in all 96 communities, 100 percent of the population.

108   Local Number Portability would be available in 73 communities, representing 84 percent of the population.

109   Switches will be replaced in 63 communities, reducing the average switch age by half.

110   Next, in terms of Transport, our plan is to increase transport capacity by 150 percent.

111   Wholesale Connect, a new transport service, will be delivered to 57 of 58 terrestrial communities.

112   These are significant accomplishments that go a long way towards achieving our vision for the North.

113   We will now address each of these services separately, beginning with Wireless Services.

114   By the end of our Modernization Plan, 83 communities, or 99 percent of our service population, will have 4G wireless service as compared to 16 today, enabling access to the latest devices available on the market.

115   But we can't do this alone. In the case of the Northwest Territories, we have partnered with Falcon Communications, and through that partnership have secured funding to deploy 4G wireless in 25 communities, making it available in all communities in the territory.

116   In the case of the Yukon, where Latitude is the provider, 10 communities have a positive business case, whereas 12 do not. Of these 12, Northwestel is prepared to fund its share for 10 of these communities and, with our partner, we are actively seeking funding for their share of the investment, which is why those are listed as contingent communities. Given that funding, at the end of the plan, all but two communities -- with only a combined population of 35 people -- will have 4G service in the Yukon.

117   In the case of Nunavut, the nine communities that currently have 2G service will be upgraded to 4G, with the remaining 16 being contingent on third party funding.

118   Next, with respect to High Speed Internet Services, we provide broadband in both terrestrial and satellite communities.

119   Fifty-seven of our 58 terrestrial communities have high speed Internet from Northwestel either on DSL or cable. Of our terrestrial communities, only Good Hope Lake in Northern British Columbia, with a population of 75, does not have high speed Internet, but if contingent funding is successful, it will.

120   In terrestrial communities, we will also upgrade High Speed Internet DSL to speeds of up to 15 megs down and 1 megabit up. Cable-based communities will see speeds of up to 50 megabits down and 2 megabits up, with several communities also seeing speeds of up to 100 megabits down and 5 megabits up.

121   Turning to satellite, 36 of our 38 communities already have access to high-speed Internet either through Northwestel or SSi. In the case of the remaining 2, they are listed as contingent and we are actively seeking third-party funding to provide them service.

122   Next I will speak of Voice Services. We are completing the achievement of the Basic Service Objective in the North with the delivery of enhanced calling features to the remaining 26 unserved communities without any contingent funding arrangements.

123   Local Number Portability, which allows customers to take their phone number with them as they switch providers, is available in six communities today. Assuming contingent funding for 16 communities is obtained, it will be available in a total of 73 communities at the end of the plan.

124   In terms of switches, there will be a total of 63 new switches reducing the average age of our switches from 17 years to 8 years. Of the 63 new switches, 21 will be traditional wireline switches, while in 42 communities, with populations under 700, we will use fixed wireless switches. While larger communities can support the business case for separate wireless and wireline switches, smaller communities cannot.

125   The fixed wireless option is attractive because it uses an IP network that delivers voice, high speed Internet and 4G wireless services today, with an evolution path to other next generation services in the future.

126   We want to assure the Commission and our customers that there is no additional equipment to be purchased by the customer where we have fixed wireless switches. The customer uses his or her existing telephone and we, at no additional charge to the customer, will put in the interface to connect them to the network.

127   With regard to the loss of fax service over fixed wireless switches, we are investigating a potential solution using a terminal adapter to solve this issue, which we would propose to provide at no cost to the customer upon request. While more research is needed, if this investigation proves positive, it should address the issue.

128   In response to concerns raised about larger business requirements and the fixed wireless solution, we commit to work with customers to deliver their services on wireline access facilities where necessary.

129   Regarding our roll-out plans, the network technology for fixed wireless is still in the design phase with implementation to start in 2014. We will run the two networks in parallel until the end of 2017. The transition of a community from wireline to fixed wireless service will not begin until 2018.

130   Next I will discuss Transport Services. During the Modernization Plan we will upgrade the capacity of existing terrestrial facilities by 150 percent. This upgrade will extend the reach of Wholesale Connect from 30 communities today to 57 of 58 terrestrial communities by the end of the plan. The only community excluded from Wholesale Connect, other than satellite communities, is Keno City in the Yukon, with a population of 20 people.

131   In addition to Wholesale Connect and in response to competitor concerns on interconnection, we have revised our LIR proposal so that now all 46 of our CCS7 terrestrial exchanges will be assigned to one of 10 LIRs.

132   Over the course of the Modernization Plan, we propose to file annual reports for the Commission to monitor our progress, and take appropriate action if necessary.

133   Our plan delivers for competitors. With the recent approvals of local interconnection and local loop tariffs, the Commission has reduced barriers to entry and set the stage for a fully competitive marketplace to develop. With the introduction of Wholesale Connect service, there is no longer a barrier on the transport side for terrestrial communities where this service is offered. The Modernization Plan will see the expansion of Wholesale Connect and LNP to the majority of communities.

134   What's important to us, however, are the benefits afforded to our customers.

135   Are there still some service gaps remaining? Absolutely. While we would have liked to extend 4G wireless and high-speed internet coverage to the full 96 communities in the North, this is currently not possible. Given this economic reality we are proud of what we will accomplish for the North.

136   And we are not alone in this regard. We are grateful for the considerable community and public support expressed throughout this proceeding. We are very pleased to note that over the past several months we have received 1,192 names on a petition, signed online and by postcards, in support of our Modernization Plan. This support was widely spread over 64 of our communities.

137   Attachment 2 has a copy of the postcard.

138   The Commission has asked what type of regulatory regime should apply. In our view, what is needed is a regime that protects customers from unwarranted price increases and competitors from anticompetitive price decreases.

139   At the same time, it has to allow Northwestel to respond to competition.

140   In that regard, we support the continuation of existing price cap rules, modified to allow us to de-average and have rate ranges in the same manner as every other ILEC and SILEC in the country.

141   This type of regime is clearly consistent with the policy direction.

142   Further, unlike the other price cap regimes for the ILECs and SILECs, which do not have a finite period, we propose a four-year price cap regime, which ensures a review in 2017, thus providing additional regulatory protection.

143   We now want to turn your attention to the Wholesale Connect Order, which set out, among other things, the level of markup and the fibre cost factor. Never did we envision rates being set so low.

144   Somehow, in setting the rates in that decision, the balance of our interests with the competitors' was lost. The business case for building fibre instead of microwave was simply no longer there.

145   The Wholesale Connect Decision was issued in late February. It had an immediate impact on our fibre transport build-out from Whitehorse to Dawson City. Our fibre network already extended from Whitehorse to Carmacks. Our plan was to build the rest of the route, from Carmacks to Dawson City, over two years.

146   Last year we built the first half, Carmacks to Stewart Crossing, with the plan to build the rest, Stewart Crossing to Dawson City, this year.

147   The Dawson City route is a firsthand case where regulatory intervention has brought about dramatic changes in investment plans. While facilities-based providers have often denounced the potential negative impact on their investments in response to threats of regulation, here we have an actual case study on the impact of regulation on investment.

148   Our forecast shows that this route would run out of capacity by 2014. In other parts of the country, perhaps an ILEC could delay its construction while it appealed the Commission's ruling. However, we could not wait, given our short construction season and growing customer demand on that route. Waiting for a regulatory decision would have meant failing to meet customer demands. This was not a viable option.

149   So we had no choice but to cancel the fibre build and, instead, expand existing microwave capacity on this route. Customers will still be served, but not by the optimal long-term solution.

150   We need to restore the fair balance in Wholesale Connect rates, as put forward in the R&V. Rates cannot be so high that new competitors are unable to enter the market.

151   Conversely, rates cannot be so low that we are unable to make a reasonable return on our investments.

152   In our view, the rate levels for Wholesale Connect must be adjusted to allow recovery of our capital investment.

153   Next I would like to talk about our quality of service record.

154   We operate in a very challenging environment, with our many towns dispersed across our territory. There are infrequent flight schedules, and these are often disrupted by severe weather conditions.

155   Technicians will, at times, make several attempts to get into a remote community, but have to turn back due to cancelled flights.

156   When travelling in small aircraft, weight capacity can also be an issue, and it is not uncommon for a repair technician to make it to his or her destination only to find that his or her tools were removed from the aircraft to save weight.

157   To overcome the costs and travel challenges of undertaking repairs in remote communities, a number of years ago we initiated the establishment of Community Service Technicians, who reside in many remote communities.

158   Today we have 45 such technicians. Except for three full-timers, all are part-timers, many of whom are members of the local Aboriginal population.

159   Despite all of these challenges, we have filed evidence showing that our quality of service performance is comparable to that of southern companies. There is no noticeable difference in our performance under price caps versus rate of return regulation.

160   So, on a historical basis, we believe that our performance record is good.

161   What is not acceptable is our performance in the second half of 2012, where, with the implementation of a new order, billing and dispatch system, we failed to meet our quality of service standards.

162   We are pleased to report that these issues have now been resolved. For the four quality of service indicators tracked over five months for this year, we have achieved the standard for 19 of 20 data points, a 95 percent pass rate for this year.

163   Attachment 3 shows the monthly results for 2013.

164   Next I would like to address the broadband challenge, with the first piece being Internet pricing.

165   Much customer feedback has been focused on Internet pricing and options. We have made improvements to pricing and usage allotments.

166   In February, we reduced the overage charge for cable and DSL customers, both residential and business, by 33 percent. It is now $5 per gigabyte, compared to the previous charge of $7.50.

167   In two years the overage charge has been reduced by 50 percent, from $10 per gigabyte to $5.

168   In April, we introduced new packages for residential and small-business customers, providing additional usage allotments.

169   We have plans to do more, and are also prepared to respond to the evolving competitive market.

170   Rate reductions have also been applied in satellite communities. For example, in Iqaluit we reduced overage rates for some packages by 40 percent in November.

171   The second broadband challenge is meeting the Commission's target of 5 down and 1 up.

172   As noted earlier, by the end of the Modernization Plan, all terrestrial communities will exceed the Commission's broadband target. As such, there is no need for a broadband subsidy in our terrestrial communities.

173   In regard to satellite communities, between Northwestel and SSI, the access facilities are in place to deliver high speed Internet in 36 of 38 communities, with the two remaining communities being contingent in our plan.

174   In the case of Northwestel, those access facilities are capable of meeting the Commission's targets of 5 down and 1 up, but we cannot afford to offer those services because of the satellite transport costs. We have little control over those costs. External funding would be required to solve this problem.

175   We believe that targeted government funding is preferable to an industry-specific funding mechanism, such as the National Contribution Fund. Governments have recognized that it is not economic to provide high speed Internet in all rural and remote areas of the country, and have developed targeted programs to address these situations.

176   Competitors are also free to pursue third party funding opportunities to expand broadband service, as we are presently doing, or to participate in an open bidding process that a funding source may initiate.

177   Solving the digital divide is a national issue. The record of this proceeding has offered some ideas and different approaches; however, the record has not been adequately developed to allow a fully informed decision without broader input from other industry participants who have a stake in these matters.

178   In this regard, the Commission announced that it will evaluate the inclusion of broadband in the Basic Service Objective in 2014-15, and consider whether it should be eligible for subsidy from the National Contribution Fund.

179   In closing, here are some interesting facts. The North is larger than India. Put another way, it is twice the size of France, Germany, Spain, Italy and the U.K. combined. But its population is less than half of that of the City of Gatineau.

180   It has a population density lower than that of the Sahara Desert, and, I would argue, weather conditions that pose equal, if not more significant challenges.

181   This may sound like a series of excuses, but here is the other side of the coin. Forty-eight percent of the North's population already has access to broadband speeds of up to 50 megabytes per second, and 56 percent have access to 4G wireless.

182   As you can see, we have been investing, and we believe that this is something to be proud of. But we appreciate that there is more to be done, and that is what our Modernization Plan is all about.

183   Clearly, this is not business as usual. Our plan will significantly strengthen the social and economic fabric of the North, while ensuring that such investments are sustainable and can be built upon for years to come.

184   That brings me to the end of our opening statement. We thank you for your attention and would welcome any questions that you may have.

185   THE CHAIRPERSON: Thank you very much, Mr. Flaherty, and welcome to you and your team to our hearing.

186   As you can well imagine, we have a number of questions for you, and Commissioners will divide the questioning as between us for that, exploring different subject matters.

187   But I will start off, and I am going to start off perhaps at a very high level, at almost a philosophical level, or a vision level.

188   If you had to define the desired outcome, in just a few words, of what you were setting out to do when you framed your Modernization Plan, what would that be?

189   MR. FLAHERTY: Of course, the most important factor was trying to understand what customers were looking for and how we could deliver that, and the message that we heard very loud and clear was that services such as Next Generation Wireless and Internet services are what people are looking for.

190   So our vision, as I stated in my opening comments, was to provide that to everyone, where we could. And therein lies the rub, if you like, "where we could".

191   That is really a case where, now, we have to try and come up with a fair balance: how do we make sure that we provide the service to as many people as possible, but also make sure that it is sustainable, that there is a return that encourages investment to support that going forward.

192   THE CHAIRPERSON: I read with interest the documents, and obviously I noted in some places that switch replacement wasn't the outcome you were looking for, it is, maybe, an accident of the plan.

193   To what extent were you evaluating, in framing the plan, such things as comparable services in the South -- survivability and redundancy, fostering sustainable competition?

194   I think that a fair return on investment was something that you thought about, but what about those other factors?

195   MR. FLAHERTY: We are very pleased with the plan that we put forward, in that it tries to balance the needs of consumers, in terms of the services I just spoke about, but also our competitors.

196   There are two important benefits to competitors in this program. One is the significant expansion of the availability of Local Number Portability.

197   Today there are 6 communities that have Local Number Portability available to them, and subject to us achieving the contingent funding, there would be 73 communities out of 96. So it is a very significant increase in Local Number Portability.

198   The other one is Wholesale Connect. That is the service, of course, that competitors are using to be able to access communities, if you like, and connect them to the South or other communities.

199   Today we have 30 terrestrial communities that have that service. At the end of our plan, 57 of 58 would have that service.

200   So, again, I think very much that we try to balance the needs of what competitors were looking for, for them to move forward and create more investment from their perspective, but also the needs of the average consumer and the services that they were looking for as well.

201   THE CHAIRPERSON: You know, I hear you talk about meeting the needs of consumers and I'll just give you an example of a "for instance" and give you an opportunity to respond because some listening to this might come to the conclusion that you may be saying that but they're not convinced that you're meeting the needs of consumers.

202   And you talked about it. You talked about the target speeds for high speed internet. Now, the Commission has set national standards of 5.0 down and 1.5 up by 2015. So I fully appreciate in urban areas that's not a real stretch. We know that we have overachieved already by the 2015 target but, certainly, in remote areas, less populated areas which define a lot of your serving territory that is a stretch, though.

203   And some might ask, well, why was this not one of the factors shaping your plan as an outcome that you were at all costs trying to achieve because it had been set as a goal and perhaps customers were expecting it in the end.

204   Why was that particular outcome less present in the framing of your plan?

205   MR. FLAHERTY: So I will break it into two parts. It's back to the discussion about terrestrial versus satellite.

206   Some indeed, in the terrestrial communities that exactly is what we put forward as a plan to achieve that in every single terrestrial community. There is one community that's contingent on funding that has a population of 75 people. But our expectation is that will be in every single terrestrial community from the smallest to the largest.

207   The challenge becomes more in the satellite communities. As I said in my remarks, in a portion of the satellite communities we are the provider. In the other portion our competitor, SSi Micro, is the provider. That's in large part because of other funding programs that had been available to them.

208   So in those cases the key limiting factor is the satellite backhaul. The cost of being able to do that is extraordinary. So we could in theory put together a service, but the price that we would have to charge no one would be able to afford to do so -- be able to afford to purchase it, I should say.

209   So I think in CRTC 2106 we highlighted what the average cost per customer would be. That's just for the satellite. That's not for any of the local access equipment or the billing or the aggregation equipment. And the cost there, I would think if you -- but we filed it in confidence -- but if you look, it would be so extraordinary that people wouldn't be able to afford it.

210   So we didn't see to just going and putting something on paper that no one could actually access because of the cost being so high. The big challenge there is the satellite backhaul cost.

211   MR. PUMPHREY: Maybe, Mr. Chair -- sorry, Jon -- Mr. Chairman, I might add to Paul's comments.

212   The access part of the satellite communities or, in other words, the delivery system to the customers in those communities has been thought of in the plan and is capable of delivering the Commission's targeted speeds. It is, as Paul said, adding the transport to that that drives the cost to a place where we can't do it.

213   MR. DANIELS: Well, one of the things, not knowing much about the North because I worked at Bell coming into this, that I was surprised to learn in terms of the satellite communities -- I've always heard the term "satellite communities" and I hadn't appreciated that that's referring to the backhaul as opposed to actually in the community -- and so in a number of our satellite communities we actually have DSL infrastructure and already offer internet.

214   And the only -- so to provide 5 and 1 we can switch on -- turn on 5 and 1 in terms of the ability within the community to do that. The only thing stopping us is the backhaul which is something that we pay to Telesat.

215   We think that's the same issue that our competitor faces where it's an incumbent in Nunavut as well. Yet, under our plan we're going to make sure that between us and them all the communities, I think, will have the capability to do that other than a price that's beyond their control.

216   THE CHAIRPERSON: Okay. So I will get back to that in a second.

217   Perhaps you can help me understand because you did mention the fact that for you it was very important that you meet the needs of your customers in framing your plan and you certainly mentioned the fact that you -- the support, your post guards and stuff.

218   I was wondering what kind of process did you engage before finalizing the plan? How did you engage in external stakeholders in framing the plan?

219   And here I'm thinking of both residential and business subscribers and territorial governments, municipal governments, Aboriginal communities and probably even competitors which, in many respects, are also service recipients from you.

220   MR. FLAHERTY: Sure. Thank you for the question.

221   We have approached those in a variety of different ways. So the average consumer -- we actually conduct monthly surveys of our consumers. So we get input through that mechanism. Of course, through our call centres and retail stores our employees are hearing from customers day in and day out. Our last proceeding of course had the benefit of input from customers as well.

222   So from the broad customer base, I would say it's a combination of all those factors; a combination of surveys, a combination of the input that we receive through our day-to-day interaction as well as the input that we heard in the last round of hearings.

223   In terms of the governments, we went out and specifically had discussions with each of the three governments to talk about our plan and what our plan was proposing to do.

224   Competitors would be probably more like our regular customers. It's through the interaction that we have with them on a day in and day out basis. So we didn't specifically sit down with them and say, "Here is the detailed plan". It was more of the kinds of things that we are hearing from them through our carrier services group what were the kinds of things that they were looking for as they go forward.

225   MR. DANIELS: I suspect the one exception to that may be wholesale connect where, in fact, wholesale connect and partly -- I'm not going to say it had nothing to do with the regulatory intervention and the regulatory play, but in that one the service was designed in negotiations, not the price. It was never agreed to on the price.

226   But in terms of the nature of the service that was sat down with -- specifically with SSi we sat down and went through the parameters because we had that long regulatory proceeding up until that point. We had filed something and they weren't satisfied.

227   We sat down to actually come up with the nature of the service. So that one, which I think is the key competitor service, was actually done in design with them.

228   THE CHAIRPERSON: Okay. So, as well, when you had to adjust between the original plan and the updated plan, what kind of engagement did you have in that context?

229   MR. FLAHERTY: Again, we sat with governments in particular to talk about that, in some cases municipalities and the like. That's probably the main part of that type of engagement. So we didn't go back to the consumer groups and go and say, "Well, what do you think of this versus the previous plan?"

230   But in terms of governments in particular, we would have gone back and talked to them about that. So very much in approaching the modified plan, if you like, what we tried to do is make sure we could do as much for as many people as possible, recognizing that we did have finite constraints in terms of where business cases could actually be made to provide services.

231   THE CHAIRPERSON: Right. We will hear from the other intervenors and governments and so forth, later on in the hearing.

232   But from your perspective, both that original engagement and the engagement to update the plan, is it your view that you have taken into account fully their perspectives and where would you admit that you're falling short of their expectations?

233   MR. FLAHERTY: I think we have done a very good job in terms of acknowledging their expectations. I think if we are falling short it's just the fact that we aren't able to do it in every community. You know, I think people are very much, as I said in my opening comments, looking for next generation services whether it be internet or next generation wireless.

234   The challenge we have, of course, though, is the size of communities that we're talking about. I mentioned that one community there in Cold Lake, 75 people. Like, we're talking about some communities that are very, very small.

235   Another one, Bob Quinn Lake, is on the very southern corner of our territory in British Columbia and the services that we're talking about putting in there, high speed internet for example, is contingent. It's a satellite-served community serving a population of 50 people. So you've got the challenge of overcoming the high satellite costs and a very, very low population. It's a very isolated community.

236   Conversely, if you go down the highway about an hour and a half, you're into TELUS territory in B.C. A community of about 400 people in Stewart, B.C. doesn't have those features either.

237   You know, we're trying to bring things to a community that's much smaller than a larger community less than two hours away that doesn't even have these services. So I think that we have done a good job in trying to, again, create that balance of, you know, let's try and get it to as many people as we possibly can.

238   The notion of having 4G wireless to 99 percent of the population in Northern Canada, I think, is very, very significant and unprecedented. I would say, if you go across the country, I'm sure you'll find places in Ontario, Quebec and other provinces that have communities that are larger than the ones -- some of the ones we're serving that don't have these services.

239   An example is North Frontenac. It's about 100 kilometres outside of Ottawa. They have no cellular service there today. So it's 1,900 people in that location. Yet, we're talking about bringing services to communities that have as small as 75 or 50 people.

240   THE CHAIRPERSON: I don't want to put words in your mouth. Are you suggesting therefore that some of these very micro communities, perhaps the expectations are unrealistic that we would be able to deliver that sort of service to a community of 50 inhabitants?

241   MR. FLAHERTY: I think that's exactly right. Clearly, the expectations of the people are there who live there. But in terms of being able to do that and do so economically, that is the challenge, is we're not able to do that economically.

242   You know, I was thinking about if I drive through parts of Ontario and I think of how many small roads you may be on where you come to an intersection and there is 10 or 15 houses in Ontario, having lived there most of my life I wouldn't have called that a community. In Northern Canada we call that a community. Those are the types of areas that we're looking at.

243   So now spread those out with thousands of kilometers between them or hundreds in some cases, and it becomes a real challenge to do so economically.

244   THE CHAIRPERSON: Right.

245   Now, a number of parties in this proceeding have made comments about the transport aspect of this plan. They have commented that maybe the transport rather than access is probably more important to the North and made comments that the balance you chose and are proposing in this plan is inadequate in terms of making sure that that transport aspect is met. So what would you say to that?

246   MR. FLAHERTY: I would disagree in that the transport side we always make sure that we have the capacity required to meet the demands and the expected demands going forward. So we talked within the document, the opening document, about increasing our transport capacity by 150 percent. So I don't think there is any issue around capacity.

247   Then you start to get into things and the nature of -- you mentioned earlier in one of your questions survivability. So every single community will be survivable from a local switch perspective. So we're very proud of that.

248   The next thing, I think you mentioned redundancy and therein lies a big challenge in Northern Canada in redundancy and part of that is the distances that are involved.

249   In 2011, we invested $10-million to go from Fort Nelson, British Columbia to Hay River, the Northwest Territories and that created a fibre ring in the southern part of our territory.

250   In 2010, we had something in the neighbourhood of four or five fibre cuts in that southern part of Canada that affected those communities, basically took out telecommunications services.

251   I'm pleased to report that there hasn't been a fibre cut that's affected Whitehorse or Yellowknife since we invested that ring. We've had cuts, but the ring has done what it's supposed to do.

252   So, we've also spent a lot of time with the territorial governments in terms of better protecting the fibre within the territory where it's a single thread. So, a perfect example of that would have been last year when you may have read in the media about the very severe flooding that we had in the Yukon, it actually washed the highway out completely. There's a picture in one of the media outlets that shows our cable actually in the air, it's buried cable, but it's in the air.

253   And the coordination between our people and the highways people was just phenomenal to make sure to protect that particular piece of infrastructure. So, as I say, we've done a very good job of maintaining that.

254   In terms of the cost of creating redundancy for every single community, we're talking hundreds and hundreds of millions of dollars to be able to put duplicate infrastructure into every single community.

255   You know, the cost of putting in fibre just to Whitehorse from the south was in the neighbourhood of 40 to $50-million to do the first route and, arguably, we went the easiest way we could. So, to go the second time is going to be much, much more significant and there are no additional revenues generated from that as well.

256   So, I think we've done a good job of creating balance investing, as I say, that $10-million investment has served us well and served the people of the North well. So, we'll continue to look for opportunities there and look for opportunities to partner with others.

257   THE CHAIRPERSON: So, you reject the allegations that the transport side is inappropriate, so, not much use me asking what possible improvements you could put to it.

258   MR. FLAHERTY: Well, I know the desire would be to have more redundancy, obviously the more redundancy we have the better it is but, as I say, I think the investments we've made have done us well.

259   You know, I continue to hear from people, particularly in Whitehorse where I live, about fibre cuts and yet we haven't had a fibre cut since 2010 since we made that investment.

260   So, I think the investment was well worth making. You know, we're starting to get to a fairly significant sum of money given the population we serve, but the next investments are even greater.

261   So, you know, do I understand the need and the desire for people to have more redundancy? Yes, but I think we've done a good job in trying to mitigate with what we have available to us.

262   MR. DANIELS: I think it would also be fair to say that during the discussions the issue you said, how did we approach it first and foremost with looking at what we could do for consumers who didn't have service.

263   So, in terms of the fair balance aspect, in terms of looking at even transport as -- I mean, of course transport is included, and I think Paul's talked about that, but our first was looking at, well, what communities don't have 4G and how can we get that to them, what communities don't have Internet, or how can we introduce the Internet and so on and so forth. So, I think those were our primary drivers.    And I notice that, of course, people are concerned about transport, and I think Paul's talked about that, especially from a competitor perspective, from the interventions we've noticed there's been a lot of discussion on that and that makes perfect sense, when you're looking at them you're not necessarily looking at them as us, as a competitor if you're -- you know, you don't really care or even want us to build out 4G to other communities, you want us to build out transport so they can have the opportunity.

264   But we -- our approach, I think first and foremost, was from the customer perspective and I think that went into the equation, so, as a starting point and the transport discussion flowed from there.

265   THE CHAIRPERSON: Some parties, and I'm thinking here specifically of the Government of Nunavut -- and, you know, I'm grossly simplifying their position -- but are saying that the absence of reliable and redundant services goes to your inability to meet your basic service obligations because there's a risk, for instance, of long distance not being able to be provided and that would be at the heart of your BSOs.

266   MR. FLAHERTY: Absolutely, and we obviously take that very, very seriously.

267   In the time that I've been with Northwestel, 13 years, we've had one incident that affected us, I think it was shortly after the hearing that we had in Yellowknife in 2011, coincidentally.

268   So, part of the challenge there, of course, is we aren't the backbone provider there, we aren't the transport provider, we purchase the services from Telesat to be able to do that. So, we duplicate all of the infrastructure on the ground; the piece we, of course, don't have duplicated is the satellite in the sky that our provider provides.

269   So, I think we've done a good job in doing that. Do we have situations where that occurs from time to time? Absolutely, but it's not for extended periods of time.

270   We have local survivability, as we talked about earlier, within the communities so the people have access to local calling.

271   But it is a bigger issue to talk about, okay, if we want to invest in terms of creating duplicate infrastructure into all of the northern communities, we've got the case of either fibre, microwave in the terrestrial communities to cover the very large distances, but in the satellite communities, of course, you have satellite infrastructure and, again, we're talking about very significant investments, whether it's a new satellite or a different satellite, you know, we're talking tens if not hundreds of millions of dollars to duplicate that infrastructure.

272   And, again, that's not something the customer base in the north can support from an economic perspective.

273   THE CHAIRPERSON: Throughout the written process and, of course, going back to our original decision in 2011, we talked about comparable services available in the south.

274   And, of course, the south is buried in itself, right, there's some large highly populated metropolitan areas, but there's also remote and very expensive areas in the south, so that's south as well.

275   So, how would you define comparable services available to the south?

276   MR. FLAHERTY: I think having access to services that have similar functionality in particular, prices that are similar for similar jurisdictions -- prices is the big rub I think, you know.

277   I live in the Yukon and I obviously purchase electricity just like you would where you live and I'd love to have it at a lower rate than what I pay today, but it reflects the environment that I'm in.

278   So, I think the first thing is, you know, do I have access to services that have similar features or functionality, that would be number one.

279   Then number two, recognizing the environment that I live in, I have to expect that I'm going to have to pay some form of premium to be able to access that service.

280   So, I think that we can't be so far off that, you know, people can't afford the service, otherwise it serves no purpose for us to offering it, but make sure that there's a balance in there between having the service and functionality available, but potentially having to pay more for it.

281   You know, I think of things like a cost per kilowatt hour. You know, I probably pay somewhere between two to three times what you could pay in Montreal for a cost per kilowatt hour in Whitehorse, and Whitehorse is our largest centre.

282   Now, you start to move out across the Northwest Territories or Nunavut, for that matter, and it becomes multiple times more expensive for a cost per kilowatt hour.

283   So, I think we have to recognize that the costs of providing services, whether they be food services, whether they be energy, whether they be transportation or telecommunications, they're going to cost more, but we have to try and find a balance so that it's not so cost prohibitive that no one can take the service.

284   And if I look at the penetration rate that we have on services today, I think by and large we're at a fairly good place. You know, do people want to see rates come down? Absolutely. Are we committed to doing that over time? Absolutely as well.

285   But I think that's what I would call a reasonable balance.

286   THE CHAIRPERSON: I'm going to give you a 'for instance' to understand if this is sort of the comparable lens applicable at work.

287   And, so, as I understand, in a number of the smaller communities you are proposing to install fixed wireless switches instead of wire line switches. Is that an example of comparable, in your view?

288   MR. FLAHERTY: I think so, and I think it's a prudent use of funding. As I said in my opening comments, if you were going to go into a community like that and say, well, let's go replace the wire line switch and let's go replace or add a new wireless switch, you know, we could be talking in the neighbourhood of six, $700-thousand and if we're talking about a community like Good Hope Lake that has 75 people, you know, to spend that kind of investment in that community doesn't make a lot of sense.

289   I don't believe you're giving up much in terms of having it all integrated on one technology solution. I go to other parts of the world, and even other parts of Canada that the Commission has approved the use of fixed wireless technology. We use fixed wireless voice today in our operating territory, we use -- and that's our telecom protocol, that's our 500 to provide voice service over wireless.

290   So, I think it very much is a way in which it's making it more comparable by not only addressing the voice side of it in terms of providing features in those communities who don't have it, but we're actually bringing next generation wireless and wireless handsets to the community and the potential for broadband as well.

291   So, I think it's an innovative approach to try and expand the level of services that are available to customers with a single technology versus putting in two technologies which would be cost prohibitive.

292   THE CHAIRPERSON: As I understand, the cut-off point you use was 700 in the population as to whether you go wireless or wire line.

293   Can you help me understand the magic behind 700 and is it an economic driver or is it, it was a nice line because there there were clearly people above -- communities above and communities clearly below and how does it link to the comparable, that 700 number?

294   MR. FLAHERTY: I think in terms of 700, there's not a lot of exact science to it. It was largely tied or broadly tied to economics.

295   We felt that trying to put in one switch -- if the community gets to be much larger than that, you may have to put in multiple cell towers, for example, to serve the broader community. So, we chose the 700 somewhat arbitrarily.

296   But, again, in terms of comparable, I think it's quite comparable. You know, in terms of data services, some have questioned about whether the fixed wireless may have lesser data services. You may or may not have experienced the LTE service that's here in Inuvik now but, you know, I think consistently, as some of my folks were telling me, they're seeing up to 25 megabytes per second that they're seeing on that service.

297   So, there's no -- in my mind, no sacrifice being made in terms of things like broadband with the technology that we're going to deploy and just the converse, as I say, it provides technology that they wouldn't otherwise be able to get if we simply went into the community to upgrade for a wire line switch for features, very clearly it may not be sufficient to then -- there may not be sufficient revenue in the community to also then be able to come in and provide a separate stand-alone wireless service.

298   So, I, again, think that it's quite innovative in that it's providing one single technology that can provide this variety of services in a cost-effective manner.

299   So, if anything, from an end user perspective, it's providing everything that they have today more or less. I gave the example of fax, that we're trying to work out a solution for that, but it more or less provides everything today plus more, plus now access to mobile services, mobile devices, plus access to broadband where they may not have it today in the smallest communities.

300   THE CHAIRPERSON: All right. I wasn't part of the hearing last time around as you, as some of my colleagues were.

301   As I was reading the file and hearing you this morning about the sparsely populated territory, the hugeness of the geography, the difficulty of the terrain in terms of space but also in terms of climate and all those changes, I couldn't help but wonder whether you wouldn't have preferred the CRTC, because of that uniqueness, to define a unique, as well, basic service obligation for the north.

302   MR. FLAHERTY: In some ways, in 2001, when we went into this, the Commission, at that time, more or less did, in that we talked about providing all of the elements of the basic service objective back then, including calling features. And I think there was a lot of discussion through 2000 -- in 2000 and 2002 and in 2004, around that and the high cost of providing those features and three times we talked about those items and it was agreed that it didn't make a lot of sense to go and do that because of the high cost of doing it.

303   So, de facto, from that period of 2001 through 2006, there was a slightly different basic service objective for the north.

304   In terms of other services, like, if you're thinking of things like internet or wireless, I think it would be hard for people who live in Stewart, BC, to understand how they, living two hours from Bob Quinn Lake and being eight times larger at 400 versus 50, should have dramatically different services.

305   So, there may be cases where we need to think about things differently but I think we need to think about the people who are adjacent to us. I think of northern Quebec, the Inuit of northern Quebec in Nunavik, you know, many of them are related to the people in Nunavut and they're right across the bay there.

306   And so to have an objective that would meet one and not the other, I think it's something that really needs to be thought about carefully.

307   THE CHAIRPERSON: As I was reading the file, I noticed, in a number of places, you referred to the enhanced calling features and linked them to the basic service objective. The impression I was left with, in reading that, was that it was almost that you were frustrated that we were putting a lot of emphasis on the enhanced calling features and that, in fact, if you'd had your druthers, that wouldn't have been the driver.

308   Am I reading that correctly? And we should be focusing more on high speed internet service enhancement 4G?

309   MR. FLAHERTY: You are correct. And part of the frustration goes back to what I was speaking about a moment ago. So, three times in the period between 2000 and 2006, we came before the CRTC to talk about calling features and three times the Commission took the view that it was just too expensive to do it so it wasn't appropriate to move forward.

310   So, then we switched a form of regulation and went through a price caps period and, at the end, culminating in the review in 2011, it appeared that we were being criticized for not having done it.

311   And so, on one hand, I find it hard to understand, well, if the Commission controls the capital spending, it's not economic; but when we control it, it all of a sudden magically becomes economic.

312   So, that was probably the biggest frustration.

313   I will say that there have been communities in the north who have been very anxious to get that service. So, for example, in Nunavut, it has been a hugely popular service and the reason for it is there's been problems in local communities with abusive calling.

314   So, the last community that had been quite vocal about this was Gjoa Haven in Nunavut and we did that in 2012. So, the remaining 26, I don't have any kind of long list of letters from customers saying, "We need this feature or this service."

315   So, in a way, I feel we're going to put this service in to check a box, not so much because there's a lot of demand for it in those communities necessarily.

316   So, you're quite right in your assertation.

317   THE CHAIRPERSON: Then, I have to ask, how different would the plan have looked like if you had put less emphasis on your perceived view of what we were asking for in terms of enhanced calling features?

--- Pause

318   MR. FLAHERTY: I think the big thing, though, is, as you mentioned earlier, the need for balance in the proceeding and in the plan so balance goes back to your comments about consumers versus competitors. So, one of the added benefits in those communities, of course, is it will add LNP as well.

319   So, if we're going to provide those features, we're not going to save any money necessarily by just removing the features component alone. If we decided to reduce the footprint of LNP, then there may be something but we're not proposing that.

320   MR. DANIELS: If I could just add, I think it's fair to say because I've been part of some of the discussions about specifically meeting the BSO and so on, I think, initially, when the Commission said, "We expect it in six communities," as a result of the last application, sorry, last decision and the plan to do the rest and we had concern about just putting it right into the six communities right away, which would have meant just doing -- if I get this right, Don -- just a software update to the community to the existing switch.

321   What we prefer to do is look at how to solve this as part of the modernization plan and the proposal we've put forward to you solves this by looking at replacing switches over the modernization period and doing it in what we believe is a smart way so that not only are you getting enhanced calling features, you're getting LNP and, in smaller communities, you're doing it through the fixed wireless switch so you're getting 4G.

322   So, it's not necessarily -- I think kind of Paul gave you the description about if we looked at this strictly as a standalone ECF issue, which is how I think we initially interpreted it, especially the expectation for the six communities, but looked at it and came back again and said, "Rather than just doing a software upgrade to an existing switch, how can we update switches? How can we bring you services? How can we do this and achieve that objective over the modernization plan?"

323   So, I think now we achieved that objective but do it in a way that really gets to the wants and needs as well of the consumers who are getting the benefit.

324   THE CHAIRPERSON: Okay. Let me now turn to when you updated the original plan, the 2012 plan, versus after the Commission decision on the BCE-Astral, you had to scale back.

325   You talked earlier and I asked you about how you engage people. But, beyond that, because the original plan actually provided for more broadband internet and deployment of 4G more broadly and had greater outcomes, better outcomes.

326   When you were updating, what other factors or options did you consider? Did you consider doing a plan over a longer period of time? Moving funding around? Increasing the level of funding?

327   MR. FLAHERTY: The challenge that we've run into is we've put forward a plan of the investments that we believe are economic, that can be justified. In some cases, we're doing it with a contingent funding and, even in some of those cases, there are some elements of an economic component of it.

328   So, the struggle we run into now is what remains are the investments that are remaining to get the remaining pieces that you're speaking of are the ones that are uneconomic.

329   So, again, I go back to the satellite component of it, for example, in that CRTC 21.06, we highlighted how many millions of dollars would be required and, to be open and honest with you, we gained more knowledge between the initial plan and the subsequent plan. So, we launched a five megabit internet service in Iqualuit back in November of this year. It's not one up. I think it's 768 or 512 up.

330   MR. DANIELS: 512.

331   MR. FLAHERTY: 512. So, through that, we've gained a lot of knowledge and experience as to how much bandwidth is going to be required. And Iqualuit, of course, being the largest of our satellite communities, we have technology that we can deploy there that's not -- wouldn't be equally able to do it in the other communities because it just wouldn't be cost effective.

332   In other words, we can get some efficiencies in Iqualuit because of the larger scale of the community.

333   So, based on that, in 21.06, we've revised what we believe it's going to cost from a transponder perspective and, again, without talking about the numbers as they're in confidence, there was a very, very substantial ongoing cost that would have to be paid year after year after year and there is no business case to do that today.

334   That's why, in our plan, we talk about that is one area that I do think that subsidy will be required going into the future and that may be a place that there's something more unique for the north and other parts of Canada.

335   THE CHAIRPERSON: Okay.

336   You're going to have to help me understand some of the transition then in your thinking because there were cases under the original Astral plan that some upgrades were to be made but as part of the base component in some of the satellite communities, not under the tangible benefits aspect to it yet, in eight of those satellite communities, under the updated plan, those upgrades were cancelled when the tangible benefits fell through.

337   So, I'm not sure -- help me understand how you're thinking because, if it was part of the base originally not linked to the tangible benefits, the logic, I would have thought, would have been it would have been carried through and yet that wasn't the case in at least eight communities.

338   MR. FLAHERTY: So, when we went back and looked at the plan, we recognized we were not going to be able to do nearly as much without the $40 million that we proposed.

339   Now, as I just explained a moment ago, one of the challenges we've since figured out is that it was actually going to cost significantly more than $40 million so that's a big element.

340   But, more importantly, what we did was went back and looked at the base and said, "Okay, how do we restructure our plan," because if you looked up what the base had in the Astral proposal and what the base has now, we substantially increased the numbers of wireless communities we're going to do, the upgrade of internet speeds in the terrestrial communities.

341   So, what we did was try to go back and look at the base plan and say, "How can we do more than what we were going to do in the base plan within Astral?" So, you may find some situations that you've highlighted that we've actually removed some element. But, on the other side, we substantially increased it and I don't know if Muriel has that chart that basically highlights how much of a change occurred from the old base to the new plan.

342   MS CHALIFOUX: Yes. I will just add to what Paul was saying, you know, as an example, in the base plan, initially, we were just planning to deploy 4G wireless in 34 communities. Now, in our updated plan, we're deploying it in 57 communities and an additional 26 communities, assuming successful in third party contingent funding. So, that's certainly one area.

343   With regards to internet in terrestrial communities, again, there we had, in the base plan, 17 communities where we were upgrading high speed internet and now we're doing that, of course, in all 58 terrestrial communities with only one of those communities being contingent for high speed internet.

344   So I think you've picked the one area, of course, where we do have the challenge and where you did see the change. And as Paul alluded, the eight satellite communities, it was, you know, really removed from our plan really based on a better understanding of the real cost of satellite backhaul to provision 5 and 1 speeds in satellite communities and based on, you know, further analysis, empirical evidence, studying our Iqaluit situation, you know, and really learning from that, that unfortunately we did have to, you know, back off that.

345   THE CHAIRPERSON: But some interveners, though, are looking at this and they're saying, well, in some communities that already had the objective of 5 and 1 being met, you're putting even more speed, and in communities that did not there are no investments, and, therefore, yeah, it's great for those in the communities that are getting even faster speeds, but you're not even bringing up the service gaps for the communities that have -- when you end the transition from the original to the updated plan.

346   MR. FLAHERTY: So in the case of the terrestrial communities actually, as Muriel highlighted, we actually are improving it over what the original plan was. The original plan, I think --

347   THE CHAIRPERSON: That's the point and they're saying why are you going further there when that you already meet the 5 and 1.

348   MR. FLAHERTY: Sorry, just to be clear, in the terrestrial communities we have -- I think there's four or five that have 5 or 1 today, maybe six --

349   THE CHAIRPERSON: Right.

350   MR. FLAHERTY: -- I stand corrected. So out of 58 there's six. So 52 don't have 5 and 1 today. So what we're proposing, on the original base plan we were proposing that 17 of them would go to 5 and 1, beyond the six. In the new plan we're proposing all 58 go to 15 and 1. So I don't think it's that we're investing more in those other communities. We are bringing the service up to services they don't have today. Where the challenge is, to be honest with you, is in the satellite communities and it's the satellite backhaul issue that is the one that's causing us grief.

351   THE CHAIRPERSON: And what would you respond to the argument some are making that that might be an unreasonable disadvantage you're imposing on part of your customer base, those that aren't meeting?

352   MR. FLAHERTY: I think it still comes back to the transport side of the equation. Like, the cost of transport is extremely high and that's what we need to overcome collectively. You know, how do we bring the cost of transport down. The fact that there is internet throughout all of Nunavut today is largely because the federal government stepped in and helped to provide funding. And I'm sure if you were to ask SSi Micro, they will tell you that they need more funding in the future. It's not sustainable today. So there will have to be more funding when the current funding runs out, and that's the nature of serving those satellite communities, particularly with high bandwidth-type services is that we've got to overcome this satellite transponder issue.

353   THE CHAIRPERSON: And you don't feel that you're justly challenged by saying that you're exasper-- vais-je le dire, exacerbating the existing disparities by creating even better high speed in those communities? I mean, the risk is -- here, I'll put it in a simple term. The risk is that in an attempt to give the North comparable services we're actually creating an east-west divide.

354   MR. FLAHERTY: Very much so and, again, it's more a function of the technology that's required to be able to operate these particular areas. You know, satellite is, as I said earlier, a very expensive transport medium to be able to provide service and we've got to find a collective solution on how to overcome that. To just go and invest in a community there, as I said, you know, I'm sure I could come up with a price point today that would provide 5 and 1 to the satellite communities. But if you look in CRTC 2106, the costs that we showed per subscriber is only the cost of the transport. It doesn't include any of the local access. It doesn't include any of the aggregation, any of the billing and common costs. And I would wager that that price is already beyond the reach of most people in those jurisdictions today. So to do it and invest a whole bunch of money in something that isn't sustainable, well, first off, it won't last long term. You know, first, no one will be able to really afford it or very, very few people, and then we'll have costs that -- with no revenues to cover them and we haven't got a sustainable model into the future.

355   MR. SHAW: I can maybe give you one example in Nunavut right now on affordability. Iqaluit is probably our lowest cost satellite market. In the residential segment, Paul alluded to last November we did launch a 5 meg service. It doesn't meet the Commission's objectives. It's 5 megs down, 512 up. The retail price right now is $179.95 in Nunavut for that service. So if we start looking at deployment of 5 megs in the other communities, the price point is going to be higher and I do think there's a bit of an affordability challenge just looking at the technical speed target that the Commission has established.

356   THE CHAIRPERSON: Okay. I'll now turn at this time to contingent funding. So as you pointed out, there's a number of places it's contingent on third party funding to expand even beyond what your plan is. Now, there's a risk that contingent funding falls through and as a consequence of that a portion of your funding would, in a sense, have to be redistributed. You may want to do this in writing, but could you give us an update on the various contingent fundings and undertake to do that as we keep going? Because this will -- I think will be a moving target as a first question.

357   MR. FLAHERTY: The reality is we're kind of in a catch-22 right at the moment.

358   THE CHAIRPERSON: Okay.

359   MR. FLAHERTY: There are some parties that we've been approaching to talk about contingent funding, but now I'm getting the sense they want to see the outcome of this proceeding before they're going to commit their dollars. So, in other words, if someone else will bring other dollars, why would they bring their dollars? So --

360   THE CHAIRPERSON: So that's the case in every instance where there's contingent funding?

361   MR. FLAHERTY: Not every instance.

362   THE CHAIRPERSON: Okay.

363   MR. FLAHERTY: There are -- there is -- I can think of one instance in particular that involves more than one community that active discussions are underway. I still don't have a firm commitment, but active discussions are underway. There hasn't been any talk of it being contingent on the outcome of the hearing, but I would say in other areas people are very much stepping back and saying, okay, well, let's see what the outcome of this was.

364   THE CHAIRPERSON: Okay. For those that aren't waiting for the outcome, would it be possible for you to undertake to keep us abreast of that when there are developments?

365   MR. FLAHERTY: Sure. It may be over the next number of months as --

366   THE CHAIRPERSON: Absolutely. Yes, it's an ongoing --

367   MR. FLAHERTY: Sure.

368   THE CHAIRPERSON: -- undertaking --

369   MR. FLAHERTY: Yes.

370   THE CHAIRPERSON: -- until we get to our final determination on this, but I think it would be useful to have that information on file.

371   MR. FLAHERTY: Absolutely.

372   THE CHAIRPERSON: Okay.

373   And as I mentioned earlier, you'd have to redistribute some funds as well, right? How would you prioritise the redistribution if some of that contingent funding fell through?

Undertaking

374   MR. FLAHERTY: If it's okay with you, we'd undertake to come back to you with an understanding of that.

375   THE CHAIRPERSON: Sure. Just for everybody's -- it makes it easier if we choose one date for everyone in terms of undertaking. That way there's no confusion as to when it is. So I'm going to propose June 25th, which is Tuesday of next week.

376   MR. PUMPHREY: That's fine.

377   THE CHAIRPERSON: Okay. And we'll be using that for others unless there's some reason and somebody could make the case why that that would be the case that somehow it would be unfair to wait until the 25th, but we'll use that as the default date for undertakings.

378   It's been said in the -- by some parties that in terms of the basic service obligations, that it shouldn't be and cannot be contingent on third party funding. Your views on that.

Undertaking

379   MR. FLAHERTY: I'm sorry, service obligation?

380   THE CHAIRPERSON: The basic service obligations. Some people are arguing that it is inappropriate for basic service obligations to be contingent on third party funding, that that should be your first obligations.

381   MR. FLAHERTY: I -- to my knowledge there are no contingencies on basic services in our plan. The contingencies that we've talked about are around wireless, 4G wireless, as well as internet services.

382   MS. CHALIFOUX: If I may, Paul, just add to that. We did have some poorly wording, I'll admit that. So we did attempt to clarify on the record a couple of times that our commitment to ensure that we fully meet the BSO, including the provision of enhanced calling features is not contingent at all on third party funding. So where the confusion came in is -- I think as Mr. Daniels explained, that, you know, in some of those communities we chose to do, say, a fixed wireless voice solution to provide enhanced calling features, but, again, you know, a hundred percent the commitment is there to make sure that we do that, meet the BSO.

383   THE CHAIRPERSON: Okay.

384   MR. PUMPHREY: And maybe I can add, Muriel. There's four communities that fall into that category and those four would be wire line switch if the fixed wireless voice didn't go forward with contingency.

385   THE CHAIRPERSON: Okay. Thank you for that. So, capital plans change over time and year to year. In fact, if you look at this plan, it's changed a number of times over -- less than a 12 month period, so all kinds of factors go into that, consumer demand, technology, economic conditions, competitive environment, all kinds of reasons. So, just so it's clear for everyone, is it your intent to meet all the deliverables in the latest iteration despite potential changes in factors? I take it your answer will be no.

386   MR. FLAHERTY: In terms of the deliverables, for example, in 4G wireless, in terms of internet services in particular, our plans are to go forward and do that. It may take us a little longer depending on what happens from a revenue perspective. Obviously the revenues help to be able to fund some of those, but we are committed to doing those. Enhanced calling features would be another one that we would be doing as well. So I think all of those elements, as well as the local number portability component and the wholesale connect component, I think those pieces that -- those are pieces that we would be committing to. As I say, it may take a little bit longer depending on whether our revenues are where we project them to be, but those pieces we would be committed to going forward with.

387   THE CHAIRPERSON: Are there any deliverables you are not -- I'll ask it the other way around, that you would not -- even if it took a little longer, you would not be committing to?

388   MR. FLAHERTY: The overall dollar value of the plan, of course, includes many, many other things beyond those specific things. So it would be difficult to say that all the rest of the things we would do would fall in that. You know, another one I didn't mention but would fall in that same category of something we would do is the conversion of our satellite voice network from a TDM service today to an IP-type based service. So that would be another example. But there might be other investments that we put within the plan around, let's say, building renovations or power upgrades or things like that, those might change depending on the circumstances. But in terms of the core benefits that we've been citing and the ones I spoke of in the opening statement, no, we wouldn't see changing those.

389   THE CHAIRPERSON: And I take it your view is that we shouldn't be approving and reapproving this plan as it evolves? Your view is that you should be reporting; is that correct?

390   MR. FLAHERTY: Yes, in 2001 we undertook an 85 million dollar service improvement program between 2001 and 2006, and I thought that process worked really well, that we had highlighted an initial plan on what we would be doing over that five-year period and then each year we reported to the CRTC on the progress that we made and where things changed, either the timing or the nature. We provided the rationale and the explanation and give the Commission the opportunity to come back and question us. So we would see the same kind of process going in place. As I said, from everything that I had understood, the CRTC was pleased with the outcomes of that process, so we'd like to see that continue.

391   THE CHAIRPERSON: And not that I'm suggesting we would do this, but would I be -- would you be in agreement that as we look at those annual plans we could jump back in if we had an area of concern?

392   MR. FLAHERTY: I think that's always your opportunity.

393   THE CHAIRPERSON: Okay.

394   The preamble might be a little bit long here, but, you know, we've got on the wireless side a number of plans with respect to, for instance, wireless. All but 13 communities, if I understand correctly, would not have 4G. Similarly for a local number portability, that wouldn't be available everywhere as well. Using those two examples, how do you put that through a filter of comparable to the south?

395   MR. FLAHERTY: Well, in fact, if I step back and used the example I gave you earlier, North Frontenac, so a hundred kilometres outside of Ottawa, so that's a community of 1900 people, they don't have wireless, period, let alone next generation wireless. We're talking about going into communities that in some cases have 50 or a hundred people. So arguably if I were talking to the people in North Frontenac, I would -- they would arguably say it's not comparable. In other words, you're providing a higher level of service in Northern Canada than what you are in Southern Canada. So I think by and large people would see the ability to get those kinds of services in the types of communities we're talking about as quite positive. There are some that are even smaller and I would be fairly confident in saying many, many communities of that size and even larger in Southern Canada don't have those services today. So, I think the 13 communities that wouldn't see them, they would easily be comparable with similar communities of similar size in Southern Canada.

396   THE CHAIRPERSON: But by the same token, the isolation may not be as great, but you can, through other communications, devices, roads and so forth, you could have access to services. It may be here the nature of those communities make it even more important to have connectivity.

397   MR. FLAHERTY: Again, just by the nature of our geography, our country, of course, there is Northern Quebec, Northern Ontario, Northern Manitoba, Northern Labrador, that have exactly the same characteristics and they don't have those services either. So I think it is -- again, people -- many people I talk to want to talk about Toronto and want to talk about Vancouver and that's natural for them to want to do that. But if -- again, if I go to similar-sized jurisdictions that have remote characteristics, maybe not quite as dramatic as ours but still fairly remote characteristics, those same challenges exist there as well.

398   THE CHAIRPERSON: Right. Just one final area before I pass it on. The fixed wireless switches, obviously you readily admit that there will be some loss of capabilities for people in that area. You mentioned in your opening statement that you're trying to fix the loss of fax services and it was contingent on some technical solution, which you don't expect -- you don't have an answer for today. What's the -- your time proviso?

399   MR. FLAHERTY: So in fact there is an adapter that is on the market today. So we're in the process of actually evaluating and testing that now. So I would say over the next year or so we would see that.

400   The other thing to keep in mind is that what we've talked about doing is running these networks in parallel to the end of 2017. And I'm not a great visionary, but by 2017, you know, it'll be interesting to see how much fax will even be used. Even today fax is becoming less and less and less available to people or less used by people. You're seeing more fax over internet, if you like, versus that, so... But we do have a solution that we're trialing now and I would think within the next year we'll know very quickly whether that works or doesn't work. But I also expect that innovation will continue to happen.

401   So, fax was one. Another one was equal access. We haven't had a request for equal access since 2000, I think, was the last time we had a request for equal access. So I'm not seeing that necessarily as a big loss and not being able to have equal access functionality in there.

402   And the third one escapes me. Do you recall, Don?

403   THE CHAIRPERSON: It's dial-up internet.

404   MR. PUMPHREY: Dial-up internet.

405   MR. FLAHERTY: Dial-up internet, yes.

406   MR. PUMPHREY: Dial-up, and we are proposing now a solution for that, offering a high-speed package over fixed wireless voice at the same price point for a low bandwidth offering, so ...

407   THE CHAIRPERSON: And I take it, since you're going to be running both in parallel, so I understand your answer that there's also going to be some support and information provided with customers so they can make that transition; is that correct?

408   MR. FLAHERTY: Absolutely.

409   THE CHAIRPERSON: With respect to the trial you're doing on the fax, would it be possible for you to take an undertaking to update us as that develops so that we fully appreciate where you're at with that?

410   MR. FLAHERTY: Absolutely.

411   THE CHAIRPERSON: So this will be an ongoing undertaking.

412   MR. FLAHERTY: Yes.

413   THE CHAIRPERSON: Thank you.

414   For now that's -- those are my questions. I might come back later on, but I'm going to pass it on Commissioner Duncan.

Undertaking

--- Pause

415   THE CHAIRPERSON: Okay. I just realized that maybe it's a good time for a break. So why don't we take a short break. We have a lot of work to do. Let's just take a 10 minute break, if that's fine. So let's come back at -- I've got -- we'll use the clock at the back as the official time of the hearing. Let's come back at 20 past. Thank you.

--- Upon recessing at 1006

--- Upon resuming at 1021

416   LE PRÉSIDENT : À l'ordre, s'il vous plaît. Order, please.

417   Commissioner Duncan, please.

418   COMMISSIONER DUNCAN: Thank you.

419   Good morning. I have a number of questions and hopefully not too many that will be repetitive of what the Chairman asked. At any rate, I appreciate your answers. It's important to us so that we understand fully.

420   First of all, with respect to your dependence on external funding, the word that you use is contingent funding. Could you provide a list of the outside funding that you received over the past five years, specifying whether they were capital or expense and including the amounts and the project descriptions?

421   So you can see what I'm interested in is just seeing what the dependence is on this type of funding.

422   MR. FLAHERTY: Sure, we can put that together for you.

423   COMMISSIONER DUNCAN: So just as an undertaking for --

424   MR. FLAHERTY: For again that June 25th date?

425   COMMISSIONER DUNCAN: Sure. Great. Thank you.

Undertaking

426   COMMISSIONER DUNCAN: And I want to understand how the funds are accounted for that you get from these third parties. I think I read somewhere that you retain the title to the assets but I'm curious to know how they're accounted for.

427   MR. FLAHERTY: Yes, we do retain title to the assets in -- I think in -- yes. I'm trying to think back through some of the examples in my mind and yes, we do retain title.

428   So in most cases -- it's not always the case. I guess we've had two different versions that I can think of.

429   One would be funding that may be given as a one-time payment up front and that, we would net against our capital expenditures. So we might spend -- let's say, an investment costs $10 and $5 of it was Northwestel and $5 was a third party, so we would record the $10 less than the $5. So the net would be $5 that we would record in our books on the capital side.

430   In some cases we receive funding that has been more of an ongoing fund and so that's been more recorded as revenue. So it might be amortized over the life of the asset in that case.

431   COMMISSIONER DUNCAN: So where I'm coming from with this is understanding the impact on the capital intensity ratio. So I think I would be right then if you've netted the cost against the asset, then the capital intensity ratio would be lower, right?

432   MR. FLAHERTY: That's correct. That's correct.

433   COMMISSIONER DUNCAN: So perhaps when you list those projects that you have you could indicate how those were recorded just so it might give us some indication what impact overall it would have on that ratio.

434   MR. FLAHERTY: Can I just seek clarification? So, of course, we have many projects that deal with individual customers as well. Are you talking more about projects related to, say, the rollout of broadband to areas or the rollout of cellular, a bit more of those --

435   COMMISSIONER DUNCAN: I'm talking about these major projects that you take on.

436   MR. FLAHERTY: Major projects. Like an example of a private project would be the building of the Diamond Mine microwave but that's not really -- it's more for a specific customer. I'm assuming that's not so much what you're interested in.

437   COMMISSIONER DUNCAN: Well, I did have a sheet that I took off the Internet from a 2011 report from yourself and it referred to partnerships that you've made with Aboriginal organizations and I think it said seven in total at that point. So that type of thing.

438   I'm curious because the capital intensity ratio is a key number and so I'm just trying to better understand the ratio and how it's calculated. So those would be examples. Many of these appear to be related to specific resource development initiatives.

439   MR. FLAHERTY: Yes. So again, in the Aboriginal partnership realm I can think of a couple but many of the other partnerships aren't necessarily related to infrastructure. So I just want to make you aware --

440   COMMISSIONER DUNCAN: Okay.

441   MR. FLAHERTY: -- that when you see them you may not see every partnership and then a capital injection because many of those partnerships don't have capital injections.

442   COMMISSIONER DUNCAN: Okay.

443   MR. FLAHERTY: Some do but many don't. So it would be -- an example I'll give you of I think what you're interested in is Industry Canada a number of years ago, maybe three years ago, gave us funding to go and put broadband Internet into four or five communities. I'm thinking that's the kind of thing that you're looking for. Is that correct?

444   COMMISSIONER DUNCAN: Well, what I want to come up with at the end is how reliable or accurate -- and you'll see I have another question here later on, which I guess I could ask right now -- is why should we be satisfied that 19.3 or 5, whatever it is, is the right number for Northwestel?

445   So following along on that question, just let me jump ahead here in my notes just so that we can get the information that I want there.

446   I'm interested to know, first of all, if the capital intensity ratio determined the size of the modernization plan or if it was calculated after the fact. I see that you've rolled it out -- it looks like the ratio is going to be the same percentage each year as a way, I guess, of managing your expenditures.

447   But I'm just wondering, did you say we want to keep this ratio, we're projecting our revenues are going to be this, therefore we have $225 million to spend, so then we'll see how we're going to spend it or did you identify all the needs, price them up and pick and choose? How do you go about doing this?

448   MR. FLAHERTY: Initially we started with the needs, trying to understand where were the needs and where was there a business case to invest, and that's of course the biggest thing.

449   I use the example of, say, a small community of 50 people. There may be no business case to invest. So again, to go and spend capital on something that's not sustainable, you know, at the end of the day it's not going to be able to be maintained and managed in that community.

450   So I think we started with that element. Of course, you have to temper it with how are you going to be able to fund it and so one element is through revenues that we get as a company. Another element could be through subsidies, as you've alluded to as well. So those are the different elements of it.

451   You may have noticed that in the plan, the base component of the Astral plan, the total number that we put forward was $233 million and that turned out to be a capital intensity, I think, of 18.5 percent.

452   So when we came back in the revised plan, also, our revenue forecast had changed. This is before the Wholesale Connect decision.

453   COMMISSIONER DUNCAN: Okay.

454   MR. FLAHERTY: So our revenue forecast had changed and we talked about it and we said, no, I think it's more important to stay with the $233 million. So then the capital intensity index, if you like, stepped up to 19.3 percent.

455   I think there might be a little bit of variation between a couple of years. Like some years it might be 19.2 or in one 19.5, but the average is 19.3.

456   COMMISSIONER DUNCAN: So did I read where -- sorry.

457   MR. DANIELS: Commissioner Duncan, I just want to clarify something that may relate to your earlier question, which is the $233 that we're talking about is from Northwestel in terms of the capital they have put in. So the way we've treated it in the plan is that any additional contingent funding is on top of that.

458   COMMISSIONER DUNCAN: Yes.

459   MR. DANIELS: And it depends on the kind of arrangement from an accounting -- which I'll let other people talk about, but my understanding is if it's made up front, then it's just netted out. If it's paid over time, then it would actually make our CII look higher, but our commitment from Northwestel in terms of investing, from our perspective we did it looking at it without taking into the -- the 19.3 is not based on receiving external funding. It's our share.

460   External funding would actually, if you looked at the total, result in a higher capital intensity but we didn't think that would be fair to articulate it that way because that's not our portion that we would be putting in.

461   Does that answer -- I think that --

462   COMMISSIONER DUNCAN: No, I understood that.

463   MR. DANIELS: Okay.

464   COMMISSIONER DUNCAN: That's okay. That's fine, I did understand that.

465   So I think I had read that you felt that your capital intensity ratio was comparable to other ILECs. Is that correct?

466   MR. FLAHERTY: That's correct. In 2011 and 2012, for example, the only company that we saw, through looking at annual reports, that were higher was Bell Aliant. And Bell Aliant of course is going through a special period where when they made the switch from an income trust back to a company they enjoyed some special tax status. That tax status will run out, I believe it's next year, I think, and from what we're told, their capital intensity index will come back down.

467   So, if you like, because of that tax status they have more cash available to them and so they're at a higher capital intensity index on a temporary basis. So we would be the second-highest in the country with the exception of them and their unusual circumstance.

468   COMMISSIONER DUNCAN: So would it be a problem to give us a list of the companies that you referred to and the reference where you found it? It can be an undertaking. It doesn't have to be right now.

469   MS CHALIFOUX: We provided the list in our response to Interrogatory Yukon Government 23 --

470   COMMISSIONER DUNCAN: Okay.

471   MS CHALIFOUX: -- and the source was noted as -- you know, it was the annual reports filed on the various companies' websites.

472   COMMISSIONER DUNCAN: And so it's listed. Okay. All right, that's fine. I can look there.

473   So the question then is: Should the capital intensity ratio be higher in the North given the state of competitiveness in the operating territory, customer expectations, the state of your network, the fact that of course we had felt that there hadn't been sufficient capital investment in the previous five years or the previous period we reviewed? I mean is that the right number for Northwestel?

474   MR. FLAHERTY: The multimillion-dollar question. Even in the decision, I guess, you acknowledged that the capital spending was on par with the others. You also said there was perhaps some areas that we needed to invest in that we hadn't invested in.

475   So whether that necessarily implied that the capital intensity index was too low or that we needed to make a choice, a different choice in the investments we made, you know, one could debate that element of it.

476   You know, I think what we're looking at right now is the projects that are economically viable to do, and within that pot, as I said, of $233 million we think we've identified the ones that have some kind of return or can have a foreseeable return.

477   There's a small element of some of the contingent ones that arguably we don't have a full return, but I think we're highlighting that we've done the things that we think we can make business cases to do.

478   So it's also a case of we don't see more profitable ventures or more profitable projects, shall we say, that we can undertake without going into a loss situation on those projects.

479   MS CHALIFOUX: If I may just add to what Paul is saying.

480   Some of the discussion we had before the break, you know, the most significant gap, I think we would all agree, is the broadband challenge in the satellite communities, and, as we noted, that is an operating expense issue and we're certainly investing capital dollars in the access infrastructure, and really, you know, a capital intensity debate, if you will, won't solve that dilemma.

481   COMMISSIONER DUNCAN: Because you are thinking that you need outside funding, some government funding or --

482   MR. FLAHERTY: No. It's operating expense. Like all the satellite transponder space, it's recorded as operating expense, not as capital and it's an ongoing expenditure year after year after year after year.

483   COMMISSIONER DUNCAN: So you are saying it doesn't affect the ratio in that respect?

484   MS CHALIFOUX: Yes.

485   COMMISSIONER DUNCAN: Okay. Thank you. I understand then. Thanks.

486   I noticed that further to a question that the Chair asked this morning that in your response to Interrogatory -- it's a CRTC one, April 24th -- number 2102, and it's in confidence, that there doesn't appear to be a large amount of contingent funding that still remains to be committed and I'm just wondering why we wouldn't expect, because it is relatively small, why we wouldn't expect Northwestel would just do that.

487   MR. FLAHERTY: I think it comes back to, you know, it's not an economic investment. So then I guess the question is, is the Commission simply going to order uneconomic investments? You know, at least in the past there has sort of been a quid pro quo that we make an investment with the idea that there's a return with it. To do so without any of that funding, it's still not insignificant, the amount of money that we're talking about.

488   COMMISSIONER DUNCAN: No.

489   MR. FLAHERTY: And so essentially you would be having us undertake an uneconomic investment with no return.

490   MR. DANIELS: If I could just add.

491   From that perspective, the type of investments you're talking about are for wireless and broadband. That's the primary benefit. That's what we're looking for partners to do.

492   And so, as Paul said, traditionally the Commission has looked at things like the Basic Service Objective and said, we expect you to continue to provide service, you have an obligation, and we'll give you a subsidy to fund that obligation.

493   We're looking for partners to try to fund that uneconomic obligation but I don't think the Commission has traditionally even just imposed an obligation to say do something uneconomic. Especially in wireless or Internet, I'm not familiar that it's ever done that.

494   And certainly, I'm not saying that it can't in terms of looking forward and I have a feeling that's what is going to be front and centre in next year's proceeding. But that's generally how we approach.

495   Having said that, obviously we're actively looking to try to do it outside of that, which is what the whole contingent is and talking to partners who we think might be able to do that.

496   COMMISSIONER DUNCAN: I guess one of the big considerations or maybe more emphasis is just not on the basic service but in serving Canadians and so people don't want -- as you said on a number of occasions in your opening remarks, they want more service and so we are trying to see how we can get there. So I take your point, but we do want to see if they can be better served.

497   The Chairman asked a number of questions on how you prioritize your projects and I just have a few others.

498   How did you determine the amount to be spent in each territory or in the communities in Northern British Columbia or Northern Alberta for example? Let me just maybe be more specific. Did you start out considering where is the greatest need or is your first consideration -- obviously you are a business, I respect that -- the business case?

499   MR. FLAHERTY: I think it was a bit of a combination. Obviously the business case is influenced by the number of people and the more people that we can do arguably is for the better good as well. So if we are choosing a community of 1,200 over a community of 50, arguably for those 50 it's not as attractive, but we are doing a larger group of people, more people are enjoying the benefits from it, so I think the two are related in terms of the number of people and the business case.

500   So I would say we tried to make sure that we were trying to get as many people as we possibly could for the dollar that we were going to put forward.

501   COMMISSIONER DUNCAN: Okay. So your thinking is not one territory or the northern part of one province over another, it's the individual community, the size of the community?

502   MR. FLAHERTY: Individual communities. In the Northwest Territories, though, we were fortunate to be able to sign a partnership deal with Falcon Communications and that obviously was very significant and now basically provides high-speed Internet to every community as well as 4G wireless to every community. We haven't been able to strike those same arrangements in the other territories as well.

503   So in some cases it is broader than just the community basis, it's what we have been able to do more broadly.

504   But the philosophy was, how do we make sure we make the dollars go and do the maximum they can do. So again, if we chose to spend a whole bunch of money on the very, very smallest communities it would mean some of the larger communities wouldn't be able to get upgrades because it would be disproportionately spent there.

505   COMMISSIONER DUNCAN: I'm just wondering, you know recently the Chairman and I were in Iqaluit and my Bell phone didn't work. I think this would have been probably after your trial on the upgrade service that you have.

506   So I don't understand. I guess I would like to understand, aside from my own selfish reason right there, but what services, if I live in Iqaluit, don't I get that I would get if I lived in Yellowknife for example?

507   In that maybe you could answer my Bell cell phone problem.

508   MR. FLAHERTY: You know, the trial you are referring to was exactly that, it was a trial, so as part of our modernization plan the plan is to roll-out next generation cellular. So that's part of the plan. That hasn't been done yet.

509   COMMISSIONER DUNCAN: So we may not have been there during the trial period then, is that the idea?

510   MR. FLAHERTY: That's correct.

511   COMMISSIONER DUNCAN: Okay.

512   MR. FLAHERTY: And the trial was really trying to make sure that the interconnectivity worked, in other words, a call could be processed. We still had a lot of work to do in terms of back office systems in terms of how are we going to be able to bill, how are we going to be able to have different plans and use the different technology to do it.

513   To our knowledge, the technology that we are deploying in those satellite communities has never been deployed in North America, so it very much was a stepped approach, the first step is, okay, can we actually talk to someone at the end of the phone and can we see data flow across the network and that's what that trial was.

514   But no, it hasn't been upgraded at this point. So today it's basically 2G cellular that's available in Iqaluit whereas in Yellowknife of course they would have HSPA and now LTE as well. So when we are done and we deploy the plan in Iqaluit we will provide an HSPA service with an evolution path to LTE as well.

515   COMMISSIONER DUNCAN: So if I lived in Iqaluit once that upgrade is done I will get the same service?

516   MR. FLAHERTY: That's correct.

517   So all the devices -- so that one of the troubles that we have today in those communities, in Nunavut and, to be honest, in rural Yukon as well and a couple of communities in the NWT, is that they are 2G communities, so the Apple iPhone, the Galaxy S4, BlackBerry Q10, none of those devices work there.

518   As we upgrade and implement the modernization plan, all of those devices will work there. So for example we have launched service in Aklavik, which is fairly close to here, now you can use an iPhone in Aklavik, so that works in the community now.

519   COMMISSIONER DUNCAN: Oh, okay.

520   MR. FLAHERTY: So it's just the timing.

521   COMMISSIONER DUNCAN: Yes, I have been using my phone here. My phone works fine here.

522   MR. FLAHERTY: They work fine here. So it's just a timing thing as when the plan is done we will have that outcome that you are looking for.

523   COMMISSIONER DUNCAN: So then if I lived again in Nunavut then, if I lived in Cambridge Bay or Gjoa Haven -- I just pulled two communities -- how would that service compare then? Obviously they are not -- when the upgrade is finished what will my service look like as compared to Iqaluit then?

524   MR. FLAHERTY: Same thing. So those phones that will work in Iqaluit will work in Cambridge Bay. Gjoa Haven, I believe, subject to check, I think it's a contingent community --

525   COMMISSIONER DUNCAN: Oh, yes.

526   MR. FLAHERTY: -- so that one is contingent. Cambridge Bay is not, so Cambridge Bay is a commitment that we have made within the plan and that will get the same functionality as Iqaluit.

527   COMMISSIONER DUNCAN: Okay. So then if I have the same functionality, then I'm getting the same service as Yellowknife.

528   MR. FLAHERTY: Yes. Just to be perfectly clear, so the same handset will work in both communities. What will be different, though, is the backhaul. So the transport network that serves Yellowknife of course is a terrestrial network; the transport service that serves either Iqaluit or Gjoa Haven or Cambridge Bay is satellite-based and, as we talked about earlier one of the challenges with that is the high cost of satellite bandwidth.

529   COMMISSIONER DUNCAN: Right.

530   MR. FLAHERTY: So the bandwidth will be more restricted in there. So you will still have the same phone, you will be able to do the same things, but arguably it might be somewhat slower.

531   COMMISSIONER DUNCAN: Or cost more money is that correct, or just plain not available to me?

532   MR. FLAHERTY: Plain not available to you I think in terms of -- like you are not going to get 21 or 30 megabits per second as you may be getting here in Inuvik, you won't see that. I think the average user experience we are expecting is somewhere in the 1.5 to 2 megabits per second, but it can peak at something higher than that, maybe 7, 8, 9 megabits per second or something of that nature. But that's entirely a function of the satellite backhaul.

533   So again I refer to CRTC 21-06. In there we have highlighted what it would take to be able to have a faster speed. Again, unfortunately we are talking millions of dollars in annual operating costs to fund the satellite transponders base.

534   MR. DANIELS: If I could just jump in here to sort of explain this as it has been explained to me a couple of times and so I get it coming at it cold, it's when you go into a community and you put in -- let's just talk wireless for a moment, a 4G switch.

535   So here in Inuvik -- I'm hoping you are still with Bell --

536   COMMISSIONER DUNCAN: Yes.

537   MR. DANIELS: -- and I'm hoping you are pretty satisfied because I'm getting -- I'm fine here in Inuvik.

538   COMMISSIONER DUNCAN: You have to say you're fine, but I'm fine, too. It's working fine.

--- Laughter

539   MR. DANIELS: Which is great. I mean, I think it's a testament to say there has been investment, but putting that aside.

540   So here in Inuvik for example, the wireless service is working and there is no issue from that perspective. When you look at a satellite community we can put that same wireless in, same service will work in the only -- so everything will work and from a mobile perspective I think largely we are expecting that you won't really notice a difference.

541   The issue that comes up in what Paul has been talking about this if we want to use that infrastructure to start providing a fixed wireless service using that same infrastructure by putting that switch in that tower, and so on, and that's really what we start to get into saying: Hey, we have the infrastructure to be able to do it in the local community, but we can't afford the backhaul to support it.

542   So like I think part of our conversation, it depends what service you are comparing to. Correct me if I'm wrong, I mean there might be some noticeable difference on mobile, I'm not quite sure, but the real issue for us is where you would notice the difference is on a fixed wireless service because that is the kind of service -- maybe, Curtis, you can talk a little bit about that -- that's the kind of service that people buy based on speed. You don't really buy your mobile service in the same way that you do a fixed one.

543   So if we are comparing, I guess what I'm trying to do is say let's make sure we are talking about -- if you want to compare to Yellowknife or Toronto what service are you talking about, because on a mobile experience I don't think it's a vastly different and maybe Curtis can...

544   MR. SHAW: Yes. So the mobile experience over a satellite network, you know, mobile technology is typically marketed on how many gigs you use in a month, how many megs you use in a month. About the only noticeable difference from a customer standpoint, when you make a long distance call over a satellite network and you are calling back home, you are going to see a half second delay. So that's what you will notice in your handset, you know, if you have an iPhone for instance in that community, but data, data marketing, it's going to feel and look a lot like you would see in southern Canada.

545   COMMISSIONER DUNCAN: So then just to make sure that I am understanding, then, I think many people want to use their phones to access the Internet and so then how does that comment is that's related to the cost.

546   Because when I came this morning in the cab, the cab driver complained to me about the price, which of course I mean you have confirmed in your comments earlier, too.

547   So is that the issue then, you can get the quality service if you could afford to pay the price?

548   MR. SHAW: Absolutely. I think the big issue on mobile if you have an iPhone and you are surfing the net on it, you are not using a lot of bandwidth.

549   What Jonathan was just referring to is when you set up a fixed wireless substitute in the home and you are using it for wireline Internet replacement so if you put for instance a turbo hub in your home and you are sharing it with a laptop, a desktop, three or four tablets and you have kids that are watching TV on it, that's where you are going to see a difference in the service and that is the 5 in 1 challenge that we spoke about earlier.

550   COMMISSIONER DUNCAN: Okay. So just sort of segueing then, or continuing on with the satellite problem and the backhaul, are you obligated to buy from Telesat or do you look around?

551   I understand there are other satellite companies that offer service -- they are not necessarily Canadian, I'm not sure Telesat is any longer a Canadian company, I don't know about that -- so maybe you could just tell me how you negotiate to get the best price for that?

552   MR. FLAHERTY: So there are other satellites there, they don't all have the same characteristics necessarily. For example, I think SES has a satellite that may reach into perhaps not all but a good chunk of our operating territory.

553   He challenge is that the infrastructure we would have to put in place would require us to create more power to be able to access that satellite and it's more network power.

554   I don't know if you can describe it better than that?

555   MR. PUMPHREY: Yes. So Industry Canada regulates the satellite spots in the sky, that satellites are allowed to park basically and a company would apply and get permission to use those spots. Telesat has the optimal spots right now for serving northern Canada.

556   What Paul was explaining is, you can use a satellite that is a little farther on the horizon than Telesat's is, and it will work, but what you need to do is increase the power, because the signal strength is different.

557   So, basically, we have to look at optimizing our operating costs and the amount of power that you have to put in versus the costs that you would pay a provider for that transponder space.

558   So those are the things that we trade off all the time.

559   COMMISSIONER DUNCAN: Would it be a possibility that you could use SES for some communities and not for others?

560   Like, is it an all or nothing?

561   Does it have to be an all or nothing?

562   MR. PUMPHREY: That's a really great question. In the past, in order to provide the voice satellite network, what we had to do in order to minimize what we call double-hopping of voice calls -- that means not having a call come down and get translated somewhere and then sent back up and then down to where you ultimately want to call to -- we had to build a network that uses single hops. And, in order to have that mesh network, you need to be operating off the same satellite.

563   So that is one of the limitations that we have.

564   As we modernize the network, as we have talked about, we are going to get that meshing capability through IP, as we modernize the voice network there. So that will open up opportunities for us when we get there.

565   COMMISSIONER DUNCAN: So something further down the road, then.

566   MR. PUMPHREY: Right.

567   MR. FLAHERTY: And we have asked for quotes from SES, as well, to be able to compare. So we are not wedded to one.

568   In some cases we have longer term contracts, but as we need more incremental capacity, we are not forced to go in one direction.

569   It is a question of what is the cost and, as Mr. Pumphrey mentioned, does it require us to spend more capital to be able to access it, and what is the business case to do it.

570   So it comes down to the economics of it.

571   COMMISSIONER DUNCAN: Okay. Just continuing on with the roll-out of the plan, I was interested to know how you prioritize the projects, because there might be a more urgent situation in some communities than in others.

572   It might be that a 500-population community has a more urgent need than a 1,200.

573   Is that a type of consideration that you took?

574   MR. PUMPHREY: I guess, as Paul has been mentioning, we looked at how we could get the biggest bang for our buck in the capital expenditures, to the most people, and get it in their hands.

575   I think that was one of the guiding principles of how we put the plan together, really looking at getting the capital.

576   And, again, Fixed Wireless Voice, that innovative solution, is another attempt to try to get to those smaller communities and to provide all of the services that people are looking for.

577   Minimizing the capital input that we need and maximizing the technologies that are available to us today.

578   COMMISSIONER DUNCAN: In your response to Interrogatory Northwestel/PIAC, February 27-03, you provided various costing information pertaining to the 13 communities that will remain unserved by 4G under the Modernization Plan.

579   For those 13 communities, and for any others that would not be at the targeted Internet access speeds set out in the Obligation to Serve Decision, could you provide detailed information on what would be involved in terms of network requirements and the cost of getting these communities to the targeted speed?

580   I think the Chairman may have asked a similar question, but it's the detail we are after.

581   MR. FLAHERTY: Just to clarify, those 13 communities all will have Internet service, and the only ones that wouldn't have --

582   Sorry, let me just look at the list.

583   The 13 communities refer to wireless. That's where my hesitation is. It is not referring to broadband.

584   So we are proposing that every community in northern Canada, between ourselves and SSi Micro, would have broadband service. One hundred percent of the terrestrial communities -- all 58 -- would have the Commission-targeted speeds, but in the remainder we wouldn't have the targeted speeds. The satellite communities, they wouldn't.

585   So there is no community left undone, subject to contingent funding.

586   There are 3 communities that are contingent on funding for Internet, 1 terrestrial, 2 satellite. So there are no communities that wouldn't be done, if the contingent funding happens, for Internet.

587   The only place that 5 and 1 is not achieved is in the satellite communities, all of them. But all of the terrestrial communities will have -- our plan is to have 15 and 1, not 5 and 1.

588   So the 13 is wireless, it's not Internet. It doesn't have anything to do, per se --

589   COMMISSIONER DUNCAN: Okay. All right, then. So the confusion is on my part.

590   MR. DANIELS: Well, I think, to be fair, some of the confusion may come from the way we have presented, in terms of aspect.

591   Like, we have described the 13 as wireless, but we have also talked about that in a community --

592   There are some communities where we are going to achieve Internet by providing a fixed wireless solution using the wireless infrastructure.

593   It's the fact that we are trying to use our dollar in more than one place to try to put it together that, I think, may be behind some of the confusion. But the short of it is, our approach to Nunavut is that the 13 are contingent, and there are other communities --

594   I'm sorry, the 13 are not in the plan at all, but that's just wireless. But from an Internet perspective, SSi has local infrastructure in all Nunavut communities. And I think the gaining issue -- and you will have to check it with them, in terms of their ability to do 5 and 1 -- I think is the transponder cost.

595   Like, they have the infrastructure, I assume. But, again, that would have to be checked with them, I can't speak to their network.

596   From our network perspective, when you are looking at the 13, that is just us bringing 4G, because there is no 4G in those communities. There is no wireless option in terms of a mobile -- I shouldn't really use the word "mobile", because it's confusing, because SSi does their Internet through a fixed wireless solution, and when we are talking 4G, I am talking mobile phones, tablets, that kind of thing. That's what we don't -- that's not what -- those 13 are not in our plan to bring wireless 4G service.

597   I hope that clarifies it.

598   COMMISSIONER DUNCAN: Maybe.

--- Laughter

599   MR. FLAHERTY: Okay. I will try it again.

600   Again, back to Internet -- and that is your concern, I think -- every terrestrial community, once contingent, will have 15 and 1. So assuming that we get the contingency, everyone has it.

601   Every satellite community will have Internet service, but not 5 and 1, and that is all about the satellite backhaul issue.

602   COMMISSIONER DUNCAN: Okay. Is that where you talk about 22 being served by SSi?

603   MR. FLAHERTY: Well, in Nunavut, I believe -- and SSi could tell you better than I -- I think they serve all 25, it just happens that we are in 3 of the same 25.

604   So there are 22 other communities that we don't serve that they serve.

605   COMMISSIONER DUNCAN: Okay. The Government of the Northwest Territories, in its May 9th comments, at paragraph 8, states that the Government of the Northwest Territories is of the view that the single greatest deficiency in the proposed Modernization Plan is the failure to expand high speed Internet service at the target speeds established in the Obligation to Serve.

606   The Government goes on to state that it believes Northwestel should be directed to provide high speed Internet service in those communities of at least the 5 megabytes downstream by the end of the Modernization Plan -- I notice that it didn't refer to upstream -- if not earlier.

607   It believes, given that Northwestel's operating income increased from $36 million the year that price caps were introduced to $45 million in the first year, to $71 million in 2012, that it may well be -- and I am quoting -- in Northwestel's capacity to do so.

608   I am interested to know how you respond to the Government's statement, as it goes on to say that Northwestel -- and I am sure you have read this -- has done extremely well under the price cap regime, and may well be able to afford to increase its capital expenditures to allow additional benefits to its subscribers.

609   MR. FLAHERTY: Again, the issue that we keep coming back to on the satellite piece is the one of sustainability, the one of affordability, the one of the business case to do it.

610   Again, I go back to 21-06. You can see the average cost per subscriber for satellite only.

611   So even if we could put that out there, without any other form of funding, the price we would have to charge for the service would be beyond the reach of the majority of people in the community.

612   So there I would have incurred a whole bunch of cost, and get almost no revenue for it. It is not a sustainable model in the long run.

613   So it's back to the economics of the situation. There is no return on that investment, and people, generally, can't make investments that don't have a return, because there is no sustainability to it.

614   There may be one thing where you say, "Well, if I can overcome the capital cost, then I will be able to make a go of it with the operating." In these communities, the revenues won't even cover the operating cost because the satellite costs are so high.

615   COMMISSIONER DUNCAN: Now, this is the Government of the Northwest Territories. But, through Falcon, you did tell me that the whole of the territory was going to be served.

616   Is that correct?

617   MR. FLAHERTY: That's correct.

618   I think that their concern is the speeds that we have committed to, and Falcon is actually offering a 2.5 megabyte service, I believe, right now, down, and 384 up.

619   So it's not the 5, but it's more than the 1.5.

620   I think what they would like to see is -- I think you used the term "obligation" before. I wasn't aware that there was an obligation around the 5 and 1, but rather that it was a target to be striving to achieve.

621   COMMISSIONER DUNCAN: It is a target, that's correct.

622   MR. FLAHERTY: So they would like to see that target achieved, and therein lies the challenge.

623   Again, I go back to 21-06. You can see very clearly the cost per customer of the satellite backhaul, and that is the prohibitive factor here, that satellite backhaul cost.

624   As Jonathan mentioned earlier, I suspect that SSi would highlight the same concern. Several of our competitors have talked about "the issue is transport".

625   Now, we think that the issue is really satellite transport; not so much terrestrial transport, but satellite transport.

626   COMMISSIONER DUNCAN: Okay. The Government of the Northwest Territories also, in Footnote No. 17, on page 7 of its May 9th comments, indicates that income is as important, if not a more important factor in assessing appropriate capital expenditure levels than the capital intensity ratio.

627   And, according to its calculations, the ratio of capital expenditures to income from operations in 2007 was close to 1, but in 2012 it had fallen to, approximately, .65.

628   So I would just be interested in your comments on that, either as an undertaking, if you haven't had a chance to consider that, or --

629   MR. FLAHERTY: The other thing that you have to keep in mind is that income from operations doesn't deal with the issues of interest and taxes, as well. There are still taxes to pay.

630   In 2012, I think, our comprehensive net income was $31 million.

631   If you look at 2011, it bumped up a little bit. That was because of some corporate tax planning that we did with ourselves and our parent.

632   But, then, if you go back to 2010, it was about $31 million, as well.

633   Though, in the period 2007 through 2012, Northwestel grew significantly in terms of revenues. 85 percent of that growth occurred in wireless internet as well as cable. So we purchased two cable companies during that period of time.

634   We launched cellular service in close to 30 communities during that period of time including a project with the Yukon government to expand cellular to all the territory and we rolled out internet to about 25 to 30 more communities as well.

635   So that growth has all occurred in, I'll call it, in today's world the forborne-type services that we have and was a result of all that expansion that we just talked about, that's where that came from.

636   If you looked at the regulated revenues associated with the price caps framework that we were under, there is almost no change in those revenues at all throughout that whole period.

637   COMMISSIONER DUNCAN: But, you know, now that we're going forward and we obviously recognize that the North is unique and a lot of the facilities are -- the services are delivered over the same flange, you know, maybe we shouldn't be making that distinction. Maybe this would be a better measure.

638   MR. DANIELS: If I could just jump in, I don't think it would be a better measure. But probably, looking outside of Northwestel for two main reasons, number one --

639   COMMISSIONER DUNCAN: Bearing in mind I said that the North might be considered unique, you know.

640   MR. DANIELS: Fair enough, but I'm going to say that from our perspective as an investment tool and so on, what the industry uses throughout the industry is reports on capital intensity ratio. You see that in all the reports we were able to compare ours to other companies because that's the factor upon which investors look at in terms of investing, is they use it compared to capital intensity by looking at revenues.

641   But I also think from your perspective, looking at it from a regulator, that the benefit is that it's indisputable as to what the revenues are. It's an easy, measureable number.

642   And whether we are less efficient or more efficient, whether there is tax issues, whether there is profit, whether there is pay, like whatever it is that won't change the "C". Whereas, if you start to -- start using any sort of profit measure, and I'm not sure that would be the right one, but any sort of profit measure you start going down from revenue. And then you're going to get into an evaluation of the acceptability of the actual accounting treatment.

643   You avoid all of that by sticking to the top line indisputable number which is revenue. That's what is the standard of investment criteria. So I actually think it's better for you as something to follow to see that we're actually adhering to and it's what investors expect generally, not just ours. I mean generally.

644   COMMISSIONER DUNCAN: That's fine. I don't disagree with that. I think I'm just looking how we're going to get better services and still maintain a reasonable business case for Northwestel.

645   That's fine. I appreciate what you have said.

646   MR. FLAHERTY: Well, I think in our view the modernization plan does exactly that. To think that 99 percent of northerners -- you know, I gave those comparisons to the five countries in Europe. So 99 percent of the population in this area is going to have access to next generation wireless.

647   You know, I gave the example 100 kilometres outside of Ottawa you can't even get that service today. So I think that we are doing a very good job in bringing forward a plan that is going to make a significant difference to Northerners.

648   COMMISSIONER DUNCAN: Excellent. Okay, thank you.

649   I'd like to confirm my understanding on the April 11th, the R&D application regarding wholesale connect. It indicated that it would no longer be economic to introduce new fibre builds and that Northwestel's planned transport expenditures would be reduced by 36.5 million.

650   As an offset, $24 million is indicated in their response to Interrogatory Northwestel to CRTC February 27th, 1102 at page 7, paragraph two, is now proposed to be directed back to core activities of access, power, support and product development. But you noted in your response that the sub-category detail could not be determined at that time.

651   So I'm just wondering if you can explain why -- your reasoning why you wouldn't want to invest that $24 million in other modernization projects rather than put the money into core activities. Even if you couldn't do it all, why wouldn't you do some?

652   MR. FLAHERTY: The challenge comes back to the business case on those other projects. As I said, the modernization plan that we put forward was very much aimed at where we could make a return on the investment that we have made.

653   So the projects that remain outstanding, like you used the example of 13 communities. So those 13 communities have a grand total of 1,200 people. So it's 100 and whatever, about 100 people, if you like, roughly per community.

654   That's how small the communities that we're talking about and that's for 4G wireless. So they would have internet service but they wouldn't have 4G wireless. So there is no business case there.

655   In coming up with, as the Chair was asking earlier, we talked about the base plan under the Astral and what our current plan is. We took a lot of effort to make sure that we could create maximum benefits. It means that we're taking risk.

656   We're deferring some of those core activities. So what we thought we would do is then go back and de-risk some of those core activities. But the issue of putting them into another project like a 4G cellular in another community, it's not economic to do so and that's why it's --

657   COMMISSIONER DUNCAN: Okay.

658   MR. DANIELS: I think the one thing I I wanted to just say on that is we haven't spent a lot of time on it because we're hopeful, hopeful that we've made a good case to explain our concern around wholesale connect and that that money is coming back into the plan as originally proposed.

659   COMMISSIONER DUNCAN: I am just wondering then, are you able to provide the details on the $24 million?

660   MR. FLAHERTY: At this time we haven't gotten down to that detail.

661   COMMISSIONER DUNCAN: Still not?

662   And when would you expect to have that identified?

663   MR. FLAHERTY: Well, as the Chairman was indicating, there is lots of things that are moving in dynamic year to year. So I would think some of it would be a case of understanding as we approach the coming year. So it could be a case of each year really evaluating, okay, what's changed in environment and how we have to do it?

664   You know, we could take a very crude look at the five years, but I think it would probably be more relevant as we get much closer to the individual years to look at it.

665   COMMISSIONER DUNCAN: Okay. Now just let me have a quick look at this question here.

666   So we noted that the capital intensity ratio for 2008 to 2012 was 18.9. Do you agree with that number and as compared to 19.3 now?

667   MR. FLAHERTY: And probably -- this sort of relates a little bit back to some of your questions earlier.

668   So in 2007 for example -- I'm sorry. You used the years 2000 and...?

669   COMMISSIONER DUNCAN: '08 to '12.

670   MR. FLAHERTY: '08 to '12. There are some things that are in that capital that relate to other factors.

671   For example, I think it was in 2009, if I remember correctly, we made an acquisition of a cable company. So there was revenues that are there for the future but require upgraded spending. So we increased our capital intensity index there temporarily for that. So you're going to see some anomalies in there.

672   I think when we tried to strip some of those out and I think in 2008 -- was it 16 percent, Muriel, that we stripped out some of those numbers?

673   MS CHALIFOUX: 18 and a half, yeah.

674   MR. FLAHERTY: But if you stripped -- no, if you stripped out some of those extraordinary events that we had to deal with like the acquisition --

675   MS CHALIFOUX: 18 and a half percent, yes, Paul, when you kind of take out some of those larger, sort of unusual projects.

676   MR. FLAHERTY: That's the average over that period of time, is that correct?

677   MS CHALIFOUX: Yes.

678   COMMISSIONER DUNCAN: Taking out the unusual.

679   So I guess where we're coming from is that, you know, the network needs updating. I mean you have a plan in place. We're in agreement on that. That does need to be updated.

680   So we're just wondering if the increase from now -- you're saying it's 18.5 -- to 19.3 is a significant upward movement.

681   MR. FLAHERTY: I think one of the pieces that needs to be understood is that in doing so we change what we're going to spend on the core. So it's the mix within the plan that's changing significantly.

682   An example of that is simply to compare the base Astral program, what was going to be delivered there, as we discussed earlier, with what the new plan delivers. So you see quite a significant increase in, say, the number of 4G wireless communities --

683   COMMISSIONER DUNCAN: Okay.

684   MR. FLAHERTY: -- significantly increasing. So it's the shift that's occurring. In doing so, we're taking some risk in the core but we're re-investing more money into the new services. It still comes back to, as I said earlier, 99 percent of Northerners will have access to 4G cellular.

685   COMMISSIONER DUNCAN: I am just -- this is another.

686   In response to Interrogatory Northwestel/PIAC February 27th, number 07 you provided a table of regular and special dividends which shows a significant increase accruing to shareholders from some -- I hope this is not confidential. It's not marked as confidential, your dividends. Well, they'd be published like investments. That's fine -- accruing the shareholders of 11.5 million in 2007 and '08 up to 42.1 million in 2011 and 29.4 million in 2012.

687   You also, I know, benefited from significant tax credits in those years which I understand. But how do you reconcile significant outflows to the south and to your shareholders in recent years when the company's capital investment under the current organization plan, whether considered in terms of annual capital expenditures or changes to capital intensity ratios, does not appear to provide consumers in Northwestel's territories with services comparable to those in the rest of Canada especially in some of the remote locations?

688   MR. FLAHERTY: So as I said in my opening, I think we obviously don't necessarily agree on that point. Today, in Northern Canada, 48 percent of Northerners have access to 50 Mbps or more.

689   COMMISSIONER DUNCAN: What was the percentage again? Sorry.

690   MR. FLAHERTY: I think it was 48 I quoted in the opening statement.

691   COMMISSIONER DUNCAN: Yes.

692   MR. FLAHERTY: And 56 percent of Northerners have access to 4G cellular today. That's because of the investments that we've been making over the last number of years. So it's a place where we perhaps don't necessarily share the same view that there is quite a difference.

693   In terms of the dividends, the dividends aren't paid until after we have made all of our investing decisions. So we've got our revenues. Obviously you've got your expenses. You've got your taxes that you have to deal with. You've got your interest, plus you have all the capital expenditures. It's only after that that dividends are paid.

694   Some of the fluctuating numbers you see there are because of tax planning, corporate tax planning. Some of those dividends associated with corporate tax planning are quite significant at the end of the day.

695   Do those are sort of special circumstances, if you like.

696   COMMISSIONER DUNCAN: So from my understanding of what you say there is that you make all of these other considerations and then you consider what you can pay to the shareholders.

697   MR. FLAHERTY: That's correct and that's the agreement we have with the shareholders that any portion of dividends is after -- from a free cash flow perspective, is after we have made all of those things.

698   COMMISSIONER DUNCAN: All the other decisions?

699   MR. FLAHERTY: That's right.

700   COMMISSIONER DUNCAN: Okay. The company has a program referred to as revenue generation under the core category, 30.4 million capital over five years. And I'd just like to understand what that involves.

701   MR. FLAHERTY: I think it could involve a variety of different projects.

702   For example, it could involve an acquisition like we did in Fort Smith in 2009 I think it was.

703   It could involve bringing out new services to a specific client. For example, we have a lot of oil and gas activity occurring in our area, so there may be capital expenditures required to get to a specific location to be able to provide that client with service. So, that could be another example.

704   It could be roll-out of a brand new service that we may not have previously had. So, for example, we launched prepaid wireless in Northern Canada in 2012 and that would be an example of a new service that was being launched.

705   So, those would be examples of different projects that --

706   COMMISSIONER DUNCAN: And, of course, I'm gathering then it's probably difficult, impossible to be specific because you're talking about if they happen.

707   So, if none of them happened, you'd had $30-million to invest elsewhere, but history has told you that you will need money for some of these purposes, even though you can't explain today necessarily what they might be; is that...?

708   MR. FLAHERTY: That's correct. I'm sorry, were you looking at actuals or were you looking at forecast?

709   COMMISSIONER DUNCAN: Forecast, yeah.

710   MR. FLAHERTY: Oh, okay. Historically we've seen numbers like that.

711   COMMISSIONER DUNCAN: And, so, that's the basis for your 30.4-million because you don't have specific projects attached to it.

712   MR. SHAW: Yeah, that's correct, it's funded developments, service developments. So, there is services like cloud services. We've just launched integrated wireless modems for customers. So, any of the product development we do in that space, you know, hits the residential segment, small business customers as well as the enterprise market that Paul was referring to.

713   We've done a lot of product development in the oil and gas sector, the mining vertical, you know, to meet customer demands.

714   So, you know, we plan a line of sight over the next six, 12, 18 months and then when you start looking at the future it becomes a little more speculative and we've looked at more historicals.

715   COMMISSIONER DUNCAN: So, of the 233-million in total that 30 percent is, and probably there's others, but a projection?

716   MR. SHAW: Yeah, absolutely.

717   COMMISSIONER DUNCAN: Yeah. Okay. All right then.

718   I was taken with the business systems evolution, the 24.9-million, and I just wondered -- first of all, I thought that was a lot of money, but maybe I just don't know, but it did seem like a lot of money.

719   And I believe in the last hearing we were talking about the evolution of your business systems and updating it to give better service for customers, and I think that 2011 report I looked at you were talking about it then.

720   So, is it still another $25-million needed to get to this one-stop customer service?

721   MR. FLAHERTY: Well, of course, things are changing as we progress. So, in 2011 we put all of our wireless platforms onto that new system, in 2012 we put the Telco onto that system, we still have the cable piece to do.

722   So, just to put it into practical terms for an average customer, prior to the completion of this project you would actually receive three different bills, you potentially could talk to three different call centre representatives as well.

723   COMMISSIONER DUNCAN: Mm-hmm.

724   MR. FLAHERTY: So, we concluded that that wasn't an effective way to provide good customer service to our customers, so, we're in the process of making that happen.

725   But the needs of customers are also evolving. So, people are looking for ways to be able to order services online, to be able to have chats, things of that nature, get online billing. So, the scope is growing, shall we say, based on the needs of customers.

726   So, it's very much looking at, okay, what had we talked about initially when we spoke in 2011 and what are the incremental things, like some of the ones I just mentioned, that are adding to that.

727   One of the things, unfortunately, I have learned over the years, any time you begin an IT project, it's like an endless pit it seems.

728   But I think these things are very well laid out in terms of the kinds of benefits we're looking to bring to customers over the next number of years.

729   COMMISSIONER DUNCAN: And do they involve outside contractors, or do you do a lot of that in-house, or...?

730   MR. FLAHERTY: A combination. So, for example, the product that we're using is Suite Solution, it's offered by a company called Hickory Tech, so, they have the main software. So, they would help us to some degree with the integration, then we would also use internal people to do that and we may have some third party project management people that help us as well. So, it's a combination.

731   COMMISSIONER DUNCAN: And I suppose being part of the Bell Group, you have access to resources there or experiences they have?

732   MR. FLAHERTY: We have some of them. We have actually looked to see whether it would be more economical for us to try and use the Bell systems and we've determined that it's not.

733   COMMISSIONER DUNCAN: Ah.

734   MR. FLAHERTY: It would cost us actually more money to be able to try and do some of that.

735   So, in this particular case, the one I'm talking about, is the customer care and billing system, we've actually gone to a product that they don't use.

736   So, Thunder Bay Tel uses it. So, if you think about a company that's more similar to our size, and Hickory Tech is a company in the U.S. and they're similar to us in size as well.

737   So, it's kind of trying to put in a system that gives you the functionality you're looking for, but is appropriate for the scale that we have as a company.

738   COMMISSIONER DUNCAN: Perfect. I appreciate that.

739   Thank you very much for your answers.

740   Thank you.

741   THE CHAIRPERSON: Thank you.

742   I believe the next questioner is Commissioner Molnar.

743   COMMISSIONER MOLNAR: Good morning, everyone.

744   I want to talk to you about the state of retail Internet competition and services to competitors.

745   But I just have one question on the modernization before, because I know you've talked for quite a long time and I have something that's kind of I don't understand and, so, maybe you could just clarify for me before I go on to the other stuff.

746   You said, I think you said it today and certainly you've said it in your submission, that the modernization plan is contingent on achieving your revenue forecasts.

747   And, so, the outcomes look a little bit soft, if you will, or at least the timing, and yet today you've said that all of the projects are business positive -- business case positive.

748   So, why is it contingent on achieving corporate revenues or something if each of the projects that you've proposed is business case positive?

749   MR. FLAHERTY: So, a few things I'll try and answer in your question.

750   So, the modernization plan isn't contingent on our revenues, the modernization timing, as you rightly said, that's what -- that's the issue.

751   So, basically the way in which we fund these projects is through, as I said earlier, the revenues that we make as a company or, in the case of subsidies, the subsidies that we may get to do that.

752   So, it's really coming back to, okay, if the revenues are changing significantly in a negative direction, obviously you have less funds to be able to use and that's going to impact your financial wherewithal in any given year to provide the funding.

753   So, it's really that that it's tied to, is if the revenues are reducing, the source of funds are reducing and, therefore, the output that can be provided with that revenue is less.

754   So, again, to be clear, the commitment that I was saying earlier in answer to the Chairman's question is that we are committed to those projects that I highlighted. They may take a little bit longer, that's all.

755   MR. DANIELS: If I could jump in. Just looking at it not from Northwestel but from, you know, the overall corporate perspective. I have the privilege in my job of sitting in all sorts of discussions about competing projects that have positive NPVs, net present -- you know, so, they look at it and say, hey, we can make a business case of this, we can make a business case of that.

756   And what happens is, you know, on a corporate scale is everything competes based on, well, you have a limited capital envelope and every year there's debates about the limited capital envelope; if we do this it's at the expense of what other project and so on and so forth.

757   So, the legating feature generally, even for tons of different positive business cases, is what you can fund based on your cashflow which the industry measures generally as CIDA.

758   And what we're doing here is treating -- Northwestel is making that decision exactly like any other company does, positive business cases with legating feature and it's not being affected by anyone else's, it's looking at it as a stand-alone, what's the CIDA, which is working off its own revenue stream which puts us back to my discussion with Commissioner Duncan, so...

759   COMMISSIONER MOLNAR: Okay, fair enough. That's okay. I thought I misunderstood that you said that your capital intensity ratio wasn't pre-determined, that it was in fact a consequence of your investment decisions, but maybe I misunderstood.

760   So, I'll go on to my other questions.

761   I want to begin just on the state of retail Internet competition. I'm sure you're aware that there's parties to this proceeding who have suggested that there is not significant competition in the retail services market and your retail Internet services should be regulated, should be tariffed.

762   MR. FLAHERTY: So, in terms of just generally, first of all, talk about competition, and Curtis and Jonathan may have comments, Jonathan --

763   COMMISSIONER MOLNAR: I tell you what. I have some specific questions. I'm just saying you're aware of that, right, you're aware that that's an issue that's been brought up at this --

764   MR. FLAHERTY: Yes, I'm aware people have made that comment.

765   COMMISSIONER MOLNAR: Okay. First of all, we just want to gather a little bit of detail and I will ask these questions, if necessary, you can answer as an undertaking, either because it's detailed or it's confidential. This is just gathering information.

766   Can you provide us information as it regards where Northwestel provides retail Internet services in its serving territory and indicate by community whether your company provides such services by wire line, fixed wireless or mobile wireless technology, and that's as of today -- or, I mean, pick a date, right, it's the current state of competition, not what's going to happen after modernization or anything like that.

767   MR. FLAHERTY: So, can I just clarify?

768   So, you're looking for just Northwestel where we provide Internet and, if so, which technology we provide it on by community.

769   COMMISSIONER MOLNAR: And technology, right.

770   MR. FLAHERTY: By community. Okay.

Undertaking

771   COMMISSIONER MOLNAR: And can you also provide us your total annual revenue in the retail Internet service market within your serving territory?

772   MS CHALIFOUX: We did provide forecast or actual revenue detailed breakdown.

773   COMMISSIONER MOLNAR: Then you would have it and you could just reproduce it.

774   MS CHALIFOUX: Yeah, and we can just --

775   COMMISSIONER MOLNAR: Thank you very much.

776   MS CHALIFOUX: We filed it in confidence, so I'll provide it.

777   COMMISSIONER MOLNAR: Yeah, sure, you can file any of this in confidence that you feel you need to.

778   MS CHALIFOUX: Yeah. We'll add it to the report.

779   COMMISSIONER MOLNAR: Thank you.

Undertaking

780   COMMISSIONER MOLNAR: Also, can you provide your annual revenue as well as the total estimated revenue for the location of Whitehorse, for the location of Yellowknife and for all other communities in your serving territory.

Undertaking

781   COMMISSIONER MOLNAR: And I would also ask for all other communities, if you could break that between terrestrial and satellite?

782   MR. FLAHERTY: So, just to be clear, you're talking Internet again?

783   COMMISSIONER MOLNAR: Retail Internet services, right. So, your revenue and an estimate of total revenue available within those marketplaces?

784   MR. FLAHERTY: I see. So, revenues, that would include our competitors, our estimate of that as well?

785   COMMISSIONER MOLNAR: Right.

786   MR. FLAHERTY: Okay.

787   COMMISSIONER MOLNAR: Is that okay, an undertaking by I think our Chair said June 25th or whatever that date is?

788   MR. FLAHERTY: Yes.

789   COMMISSIONER MOLNAR: Okay, thanks.

Undertaking

790   COMMISSIONER MOLNAR: So, just to go on, on the assumption, and there has been some information, I know you did file on the record, that you are either the only provider or you are dominant provider within at least some of those marketplaces in the retail internet services market.

791   Tell me if you believe if there are sufficient wholesale services provided by Northwestel in your serving territory such that competitors could provide competitive alternatives to your retail internet services market. Is it necessary that Northwestel's retail internet services be tariffed?

792   MR. SHAW: Yeah, I don't believe --

793   COMMISSIONER MOLNAR: So, essentially, on the condition that wholesale services are available? Despite the state of competition today, is it necessary for us to consider tariffing retail internet services?

794   MR. SHAW: I think a lot of the feedback you've seen in the market is one of the barriers that our competitors have talked about extensively is the barrier around transport services.

795   And with the Wholesale Connect decision, one of the things we've done, Commissioner, is actually reduced our retail internet outlooks.

796   You know, with the Wholesale Connects decision and prices coming in much lower than we anticipated and even, you know, when the R&V is looked at, price is dramatically lower than we were expecting.

797   You know, the last remaining barrier on the internet market has been removed. So, in my view, right now, we're going to see, you know, really no barrier to entry with the exception of pure economics in terrestrial communities.

798   And when I say economics, you know, if we have a community of 25 people, would a competitor go in from a private investment standpoint, put in a DSLAM, put in a fixed, wireless solution? Perhaps. Perhaps not.

799   But I think, in the larger communities in the north, we're headed for a state of more internet competition, especially in our terrestrial communities.

800   COMMISSIONER MOLNAR: Okay. Let me give you another chance at this question because you're talking about you're heading for a state of more competition and people are talking about the state of competition today.

801   So, just to be clear, I think that you said that Wholesale Connect is available in 30 communities and it's going to take, what, until 2017 until it's available in 57 or 59?

802   So, that's a long time until that happens. So, do you have a response to that? When those wholesale services may be available?

803   MR. SHAW: So, in terms of the 33 communities, I don't know what the population estimate is, if someone has that handy, but it is the majority of our population today, if you look at the 33 communities in the population.

804   You know, if you just look at places like Whitehorse and Yellowknife, that is almost half the northern population. So, in Wholesale Connect, if you look at it from a market sizing standpoint, you know, we've basically removed barriers in the majority of our market.

805   You know, in terms of competition today, it varies from west to east, you know? In the Yukon, there isn't a lot of competition. I think the Yukon government would concur with that.

806   In the Northwest Territories, it is more split. SSi has fixed wireless in most of the Northwest Territories where we have ADSL facilities in the market. There's at least two providers and there's other alternatives like turbo sticks, turbo hubs, Telus Mobility, Xplornet, Galaxy Broadband, and there are other providers operating in that market.

807   And then, to Paul's earlier point, in the Nunavut market, 22 out of 25 communities, there's not a lot of competition. SSi is the only provider.

808   So, it really depends on jurisdiction, you know, what territory we're talking about. But, in the different markets, I think you are seeing competition evolve differently in the three territories based on, you know, historical government funding patterns.

809   COMMISSIONER MOLNAR: Okay. If you want to provide any of those details to flush that out, please feel free to do it where you said well, right now, you are covering the majority of the population, you know?

Undertaking

810   MR. SHAW: Yeah, so for Wholesale --

811   COMMISSIONER MOLNAR: Specific information and, again, undertake, if you like.

812   MR. SHAW: Yes. So, for Wholesale Connect, we can give you some stats in terms of what the population served is on the existing 33 communities.

813   COMMISSIONER MOLNAR: Sure, you can just undertake to do that. That's great.

814   MR. SHAW: Just to give you a sense of where the barriers have come down in the last number of months.

Undertaking

815   COMMISSIONER MOLNAR: Okay. I do have a couple questions on Wholesale Connect and I just want to let you know you will have an opportunity later to speak to your R&V so, right now, we're just talking about the service definition.

816   This service, we did the final tariff in February but could you just remind me when it first became available?

817   MR. FLAHERTY: I think -- I can't recall exactly. I think it was around April of 2012. I think we put in place a tariff of one dollar on an interim basis, somewhere around that timeframe.

818   COMMISSIONER MOLNAR: And would you be prepared to tell me how many customers you have for that service?

819   MR. FLAHERTY: Is that confidential?

820   MR. DANIELS: I think we have to undertake that because I think we can't publicly answer that question.

Undertaking

821   COMMISSIONER MOLNAR: I'm not asking who but, if you want to undertake --

822   MR. DANIELS: By the nature of my answer, I can't --

823   COMMISSIONER MOLNAR: All right. Okay. Well, then let me just go on. You mentioned earlier that essentially it was a service designed with SSi.

824   MR. DANIELS: That's correct.

825   COMMISSIONER MOLNAR: Right. So, there are other parties in this market who have suggested, Ice Wireless, for example, that Wholesale Connect is a service without demand and, essentially, it does not meet -- I wish I could -- I should find their actual words for you. It was kind of -- do you want me to? Trust me that, essentially, he said it's a service that doesn't cut it.

826   MR. DANIELS: I also think that they later revised and, I guess, I wish I could find my words to quote back to you. But, after your decision came out, they talked about -- they removed a whole bunch of their proposals in terms of the way we should be regulated in light of the revised rates for Wholesale Connect.

827   So, I'm not sure that they said that -- based on the revised rates, that they would have no interest because they actually took the position, originally, I think they were calling for some form of rate of return or a split rate base and then they said, in light of that, oh, after your decision, no, that takes away our concern there because of -- so --

828   COMMISSIONER MOLNAR: So, it was price. Yeah, I did find their words here. It said:

"The Wholesale Connect Service turned out to be a service that nobody wanted, at least in its existing form."

829   COMMISSIONER MOLNAR: And they did, in this proceeding, speak of different design characteristics that they might want in a wholesale service, as I think you saw MTS did as well.

830   So, if you've designed a service for SSI, do you have any thoughts or considerations of designing a service that would meet the needs of other competitors?

831   MR. DANIELS: So, I think when we designed it -- I think there was actually -- I'm trying to remember, like, in the response, I remember, in our reply document, we actually went through specifically a couple features that Ice raised as concerns about it.

832   And my recollection, in going through those elements of those service, is there was a couple things that we actually couldn't agree to, from a service description standpoint, and there was others that we said, "That's something we could sit down and we'd be able to actually do." Of course, that could affect, like, those are costs that weren't included in the service.

833   So, high level, simple answer is, yes, we'd be prepared to sit down. Yes, we've actually indicated that there are certain aspects that we would.

834   There was a couple things that I remember that they were asking for that we said we actually -- we didn't see that that could work with the service and, if you want, I can take a minute to get into the detail of that but --

835   COMMISSIONER MOLNAR: Maybe useful as well is they are coming before us so we'll have them talk about it and you could have an opportunity in reply? If that would work?

836   MR. DANIELS: I think that'd be the most efficient way to do it.

837   COMMISSIONER MOLNAR: Right. Okay. Very good.

838   MR. DANIELS: Because they would have had a chance to see our response already in writing on this issue.

839   COMMISSIONER MOLNAR: Right. Very good. So, I just want to make sure that I do fully understand the Wholesale Connect service that you have out there today because you're relying on it quite significantly as the one and only wholesale service that supports competition.

840   So, could you tell me specifically whether or not the Wholesale Connect service provides wholesale access? Just to a customer's point of presence. Or does it provide access to end customers?

841   MR. FLAHERTY: So, the Wholesale Connect service, the way it's designed, is it goes from a point of presence in one community to a point of presence in another community.

842   We have other services like the Local Area Network tariff that the Commission's approved. That can take you from that point of presence to individual customers in a community.

843   Of course, the competitor has the option of putting in their own facilities so, in the case of SSI, they may use a wireless link.

844   But, if people so choose, they could use a land service, they could use an un-bundled local loop if they wanted to put their own equipment on it but it is point of interconnection in one community to point of interconnection in another community.

845   It is in our operating area as well. So, it takes you to the edge of our operating area down to high level Alberta and then the option there exists for people to interconnect with other carriers, whether it be Telus, it could be SuperNet, it could be others.

846   So, depending on where they're going, in the territory point of interconnection to point of interconnection, and then, when they get to the high level point of interconnection, they can then choose as to who do they want to go with to go wherever they may be interested in going elsewhere in the country.

847   MR. DANIELS: If I can sort of explain because I was involved in the actual discussions around Wholesale Connect in terms of with SSi so I have a little bit of understanding of the service and especially the difference about the issues in the north from the rest of Canada.

848   Generally, the local provider such as SSi or Ice, if it's looking at it from a wireless -- their wireless arm or whatever, they have their local infrastructure. They have the local access.

849   And what was of interest to them was finding the backhaul, of finding a way to do efficiently and cheaply to have the backhaul because that's the biggest gating feature for them, which is, as you know, and I've been before you on a number of times, is not the same issue that we face in the rest of the south where you have a completely different model in terms of how it's developed.

850   The ones, to be fair, who have sort of looked at it more like the south sort of notion of saying, "I'm concerned about access," the focus that you've seen in the comments have been on the national providers. They are the ones who are looking at it because they're not looking at, I think -- I think their approach is not to look at the issues about what wholesale service they need in order to provide and come in and compete locally or regionally for the customers, it's about winning a national contract and just filling whatever gap is in the enterprise space on it.

851   So, in that sense that's the only real demand we've seen for a wholesale access that's been measured, and Wholesale Connect has the -- has for many of the communities, though, if you win a customer, even a big national customer, they probably only have one point of presence in most of the smaller communities. And Wholesale Connect will cover that because it will give you one access wherever you want in each of our 96 communities. We'll go to wherever you want for that 96 communities. It's a little different, though, if you want to have multiple locations in one of those communities. Then you can buy other services from us or you can build your own and so on. And our local competitors are -- you know, that we're talking about, they have their own infrastructure. So I don't know if that helps explain sort of how we approached and why that's kind of a unique service.

852   COMMISSIONER MOLNAR: Yeah, fair enough. And just to be clear, the access, should they not have their own local facilities, should they be a national provider or perhaps somebody who seeks to enter the market who isn't here today, you're saying that the options for access are land services, unbundled local loops. Do you have an ADSL unbundled DSL service, anything like that? What else? How would somebody get access, a wholesale access?

853   MS CHALIFOUX: I think that -- sorry. I believe the --

854   COMMISSIONER MOLNAR: If they needed it.

855   MS CHALIFOUX: -- the primary service that we've been discussing with carriers who are looking to serve national accounts, like to provide a national VPN service, would be E-MAN, so a combination of our Ethernet MAN tariff and Wholesale Connect. And then the other alternative, of course, being our V-Connect service for them, which is a retail service..

856   MR. DANIELS: But the -- and the answer to your question, we do not have a ... And the answer to your question, we do not have an ADSL like a gas-type service, if that's offered, and we've actually had no demand from anyone to have that kind of service here. That's what I'm saying it's a different -- that was my surprise in terms of the local market. So, there's just been no requests for it. And in fact, I don't even think on the record of this proceeding there's been any mention about this other than Telus' misinterpretation of something we said.

857   COMMISSIONER MOLNAR: Okay. I want to get back to the issue of gas and wholesale access in a minute, but I think some of the misinterpretation you were mentioning related to the I-Gate service.

858   MR. DANIELS: That's right.

859   COMMISSIONER MOLNAR: And I just want to understand, first off, can you just clarify for me under what forbearance order you believe your I-Gate service is currently forborne?.

860   MR. DANIELS: Retail -- our -- I don't have the exact number here of our own, but -- for Northwestel because they have (indiscernible) but it's a retail internet forbearance decision.

861   COMMISSIONER MOLNAR: So it's a retail internet service and --

862   MR. DANIELS: Right.

863   COMMISSIONER MOLNAR: -- it wasn't a packet data service? I think that -- okay, fair enough.

864   MR. DANIELS: No, we --

865   COMMISSIONER MOLNAR: I just wanted to clarify because --

866   MR. DANIELS: Because I-Gate includes --

867   COMMISSIONER MOLNAR: -- I think early on you were talking it was forborne as a packet data.

868   MR. DANIELS: Right. I don't know. And when you say earlier on, if we said that, in my view I-Gate includes access to the internet. It, like, takes you right through. It's not like gas. It's -- it includes the actual it's like the internet peering kind of services that Bell sells in the South, that's included in that, and, therefore, we view that as a retail internet service in the same way that the rest of the ILECs in the country believe they're forborne on that service.

869   COMMISSIONER MOLNAR: So are there any elements, is there anything with I-Gate that would make it superior to Wholesale Connect? For a competitor who was seeking --

870   MR. FLAHERTY: Just the other way -- just the other way around. One of the significant things that our competitor in our negotiations was looking for --

871   COMMISSIONER MOLNAR: Managed.

872   MR. FLAHERTY: -- was quality of service.

873   COMMISSIONER MOLNAR: Yeah.

874   MR. FLAHERTY: And there is no quality of service on the I-Gate service. So it's the other way around. The Wholesale Connect is a more value-added service. The other pieces that Jonathan mentioned is the I-Gate service does provide peering in Edmonton to other carriers, whereas the Wholesale Connect doesn't. But it does provide the opportunity for people to get from the edge of our operating territory to Edmonton, Calgary, Vancouver, Toronto, wherever they want to go and establish their own peering arrangements. And so we take it to the edge of our operating territory, but in terms of Wholesale Connect.

875   MR. DANIELS: It may help to just tell you because the approach we took to sort of creating Wholesale Connect and how it's compared to I-Gateway in that sense because it's true, one of the things that I-Gateway -- I-Gate? I-Gate, right. I-Gate would take -- it would take you to -- it connects you to Edmonton and then it connects you to the whole world from wherever we pick it up. So to answer your question, maybe that's the advantage a competitor may be interested in.

876   But when we sat down to create Wholesale Connect, we sat down to say, all right, what is it that the Commission is trying to regulate? It's backhaul. Where do we have the backhaul advantage? You know, where should we -- in terms of -- well, it's to all of our terrestrial communities, high-speed microwave, bring it back. And where is the point where competitive alternatives kick in? And that's why we set it up to be to -- to stop -- Wholesale Connect connects on High Level. And we spent a lot of time looking at and trying to say -- to make sure that there would be alternatives to get from High Level to the rest of the world, get to -- I-Gate provides all of that aspect, but the second half, what I-Gate has is stuff that a competitor can buy from all sorts of different people around, you know, getting from High Level to Edmonton and then to the rest of -- to the world in terms of all the peering arrangements. Very competitive. So we try to do -- Wholesale Connect is to make sure that we were regulating and providing a cost-based service to the area that only -- that we had the competitive advantage at in order to level the playing field.

877   COMMISSIONER MOLNAR: I just think I need to understand for my own understanding here. So you're -- you essentially put the Gateway at High Level, Alberta? Because that's the end of your serving territory. So where do they go from there?

878   MR. FLAHERTY: So --

879   COMMISSIONER MOLNAR: Who do they -- who are their options from there?

880   MR. FLAHERTY: So from the options there could be the Alberta SuperNet exists within High Level, Alberta. Telus obviously exists there as well. And actually, our parent company has facilities to that area as well, but they wholesale services on. So there's three different carriers there that could take that traffic elsewhere.

881   COMMISSIONER MOLNAR: Okay. Do you offer any unbundled Gateway services or just with the transport?

882   MR. DANIELS: Can you explain what you mean by "unbundled Gateway services"?

883   COMMISSIONER MOLNAR: You offer -- Wholesale Connect is essentially the transport and the Gateway, right? In High Level is there any other Gateway services available besides -- to go -- I guess they have to go from your network. Maybe there's no benefit to unbundling. If they're not on Wholesale Connect, can they take any of your other services and use your Gateway?

884   MR. DANIELS: Okay. If they -- let's put it this way. So we have a little hut in High Level, Alberta, and then there's facilities that connects us to both the ability or we set up the arrangements that would allow a competitor to connect us over to either the SuperNet or the Telus fibre that can take you out of there. So I'm not sure exactly in terms of are you asking would we sell the backhaul ourselves from there or is there -- the only way to get to High Level generally is Wholesale Connect. I suppose there could be a DPL -- DPLS.

885   COMMISSIONER MOLNAR: Like -- yeah, I was going to -- like an IXPL or something like that. Regardless, it'll be your facilities? And if somebody was on your facilities and wanted to Gateway onto Axia, you'd do it?

886   MR. DANIELS: Yeah. I mean -- I think yes. Like, I think --

887   COMMISSIONER MOLNAR: Yeah. Okay.

888   MR. DANIELS: -- we do have IXPL too.

889   MR. FLAHERTY: We can do it --

890   MS. CHALIFOUX: Yeah, we --

891   MR. DANIELS: Yeah, so in terms of the tariff --

892   COMMISSIONER MOLNAR: Okay. I just want to get back to the issue of the internet access and I did hear what you said. This is a unique environment, there's different competitors, and by the sounds of it today all of those competitors are wireless, they use wireless access. So are there any -- do you have competitors that use a terrestrial access for retail internet?

893   MR. SHAW: There's a cable company right here in Inuvik and I can't talk to the state of their internet offering today, but there is a cable company here. I think the competition that we've seen emerge over the course of the last number of years in Northern Canada has typically been fixed wireless access in over 50 communities in the Northwest Territories and Inuvik.

894   COMMISSIONER MOLNAR: So despite the fact there's no demand, and I did hear you there's no demand and we've seen in this record there was not a demand for a gas type of service, given your cable and your Telco access, you're essentially virtually the sole provider of terrestrial access facilities in the North?

895   MR. FLAHERTY: I wouldn't necessarily agree. As Curtis indicated, here in Inuvik there's --

896   COMMISSIONER MOLNAR: Okay, not in Inuvik.

897   MR. FLAHERTY: -- a provider. In Yellowknife, SSi Micro provides services in Yellowknife.

898   COMMISSIONER MOLNAR: Terrestrial?

899   MR. FLAHERTY: Yes.

900   COMMISSIONER MOLNAR: Oh, okay.

901   MR. FLAHERTY: So it's wireless. When you say "terrestrial", that's just a term.

902   COMMISSIONER MOLNAR: Oh, I'm sorry, sorry.

903   MR. FLAHERTY: Did you mean wire line?

904   COMMISSIONER MOLNAR: I mean wire line.

905   MR. FLAHERTY: Yes.

906   COMMISSIONER MOLNAR: I --

907   MR. FLAHERTY: But again, I dont' know --

908   COMMISSIONER MOLNAR: Yeah.

909   MR. FLAHERTY: -- why we would differentiate --

910   COMMISSIONER MOLNAR: My mistake.

911   MR. FLAHERTY: -- now wire line to wireless. There are many young people in the world today and many of them here in Canada that aren't using a wire line service at all. So they're doing all of their data services, as well as voice services over -- so I'm not sure -- in the past having wire lines alternatives was important. I'm thinking of the way things are evolving in the North. Like, in Yellowknife today, probably 30 percent of all households don't have a wire line phone. So there's quite a large number of people there who are going wireless anyway, so ...

912   COMMISSIONER MOLNAR: So -- and it's position that those people who don't have a wire line phone do not have a wire line-based internet access?

913   MR. FLAHERTY: Sorry. No, I think it could be either one. I'm saying there are a number of people who are going all wireless as well.

914   COMMISSIONER MOLNAR: Yeah, okay.

915   I heard what you said, but just answer my question here regardless. Would there be any limitations, technical or otherwise, that would prevent you from providing a service such as a Gateway access service or a TPIA service within your serving territory?

916   MR. FLAHERTY: Could we take that one as an undertaking? Because I think I have to explain a lot of detail about that in order for them to properly answer. To be quite honest, we haven't spent a lot of time looking at that issue because there was no demand.

917   So yes, I know what TPIA is.

918   COMMISSIONER MOLNAR: Okay. So you can take it as an undertaking and let me just throw some more at you while you are undertaking to determine if you would be able to offer it with matching speed and centralized aggregation points for both telecom and cable.

919   MR. DANIELS: I understand the question.

920   COMMISSIONER MOLNAR: Okay. Very good.

921   MR. DANIELS: So we will answer the interrogatory and I will get on a whiteboard and explain this.

Undertaking

922   COMMISSIONER MOLNAR: Very good.

923   So that the second, which I'm sure you are also going to undertake, it's just more on that same thing, assuming that you were mandated to provide a gateway access-type service, how many aggregation points would you provide in your territory? And you can include in there any issues as it regards the provision of aggregation points or how that works within this territory as well.

924   MR. DANIELS: Understood.

925   Just so I'm clear, this is for the terrestrial, so this would be an ADSL or, on the cable plant, the TPIA?

926   COMMISSIONER MOLNAR: Yes. I'm sorry, I used "terrestrial" when I shouldn't have. This is wired.

927   MR. DANIELS: Wired.

928   COMMISSIONER MOLNAR: Wired facilities exist.

929   MR. DANIELS: So the terrestrial community as opposed to in the backhaul satellite, which is how we make the distinction.

930   COMMISSIONER MOLNAR: Well, you can talk about those two separate if you like.

931   MR. DANIELS: Okay.

Undertaking

932   COMMISSIONER MOLNAR: Because I think you said you have DSL and satellite-served communities.

933   MR. DANIELS: Yes, we do.

934   COMMISSIONER MOLNAR: So go ahead and talk about those separately. Since it's an undertaking you will have time to get on your whiteboard and fill in all the pieces.

935   Okay, those are my questions. Thank you.

936   THE CHAIRPERSON: Commissioner Duncan has a few follow-up questions.

937   Just so people know, we will take a break in a few minutes for lunch, but we will try to get through this little bit.

938   COMMISSIONER DUNCAN: Okay. Thank you.

939   So you had proposed the next price cap period be four years with monitoring throughout the roll-out period and we are just wondering as an alternative, do you think it would be appropriate to implement a shorter period, for example two years, with a review initiated in the second year, which would include a review of the implementation of the plan and consideration of changes?

940   Because, as we discussed when we were talking earlier, a lot of the things are not known today. You know, when we were talking about the $30 million, those projects are not specified yet, they are not identified.

941   MR. FLAHERTY: It's possible. Obviously our feeling was to try and strike the right balance.

942   These hearings are quite consuming and for a company like ours it's taking us a huge amount of effort to be able to do these types of things. So I guess I would just ask that we try and weigh the amount of regulation and process that we are going to go through to the benefit.

943   The reason we picked the four-year period was that's when by and large the majority of the modernization plan would be complete. Of course there is the opportunities, as I was discussing with the Chairman earlier, for the reviews annually to offer comment.

944   So if we do what you are suggesting it seems that we will have had a hearing almost every two years and it's quite time-consuming and, to be honest, with the company of our size of 600 people, it's a huge undertaking for us and a huge expense and it takes us away from serving our customers.

945   So if you ask me my preference, it obviously would be four years versus two.

946   COMMISSIONER DUNCAN: Okay.

947   I'm just wondering if it was set at four years and the roll-out -- and perhaps you covered this with the Chairman because you said that we could do what we wanted in effect, but if the roll-out of the plan didn't meet the expected implementation milestones, so that's anticipating that we will put implementation milestones in place, then would you agree it would be appropriate to launch a review earlier in advance?

948   MR. FLAHERTY: In terms of your ability to do that, obviously you have that ability to do it.

949   I guess what I was suggesting is, we went through a five-year service improvement program through 2001 through 2006 and we had a plan that laid out which projects we were going to do in what time frames and we reported on that plan and in some cases we weren't able to do it.

950   I will give you a great example. We were building the microwave here to Inuvik and we encountered winter and it got much colder much faster and it became unsafe for our people to work on those towers so we filed that with the CRTC saying we are delaying this project until the spring time. I think everybody understood it was for the public safety of the people involved and it was accepted and we moved on.

951   So I would fully expect to have something similar like that occurring, that we would look at case-by-case.

952   As I say, we have a strong track record of delivering on this. You will hear from one of the companies we partnered with this afternoon I think, Falcon Communications, and I think they can comment on our commitment to meet dates and deliver. So I think we have a strong track record. That doesn't mean things won't come up and happen, but I think, as we did through the service improvement program, we could use that same process.

953   COMMISSIONER DUNCAN: Okay.

954   MR. FLAHERTY: But again, should you feel the need to do something different, obviously you would have that ability.

955   COMMISSIONER DUNCAN: The way the plan is set out now I don't believe that there are milestones set out. I mean you have so much money per year you expect to spend, I have seen that, but are there actual milestones that you --

956   MR. FLAHERTY: In the modernization plan, in the attachments to the actual plan we filed on February 16th, for example wireless, it would tell you every single community --

957   COMMISSIONER DUNCAN: Yes, okay.

958   MR. FLAHERTY: -- as to which year it would be delivered.

959   COMMISSIONER DUNCAN: Okay. I did see that, okay.

960   MR. FLAHERTY: So there are milestones.

961   COMMISSIONER DUNCAN: Perfect. Okay.

--- Pause

962   COMMISSIONER DUNCAN: Various parties have stated that they don't consider annual reporting to be sufficient and proposed measures to incent the implementation of the modernization plan should be put in place.

963   For example, PIAC proposed withholding subsidy and reducing rates for consumers if you didn't meet the milestones. I understand of course you have replied that that would hinder the progress of the implementation of the plan if you had less money to work with, as I understand that's your answer, but what alternative measure or measures could you propose to ensure that it does get done on schedule, or to the extent possible allowing for the exceptions that you just referred to?

964   MR. FLAHERTY: Well, again, I think we need to put things in that are appropriate for the circumstances we are involved in.

965   As I said, you know, we went through a 5-year, $85 million service improvement program and the Commission was pleased with the outcome of that work, so I think we have a track record.

966   Again, as I mentioned earlier, you could talk with the Falcon Communications people, I think they would tell you they have been pleased with the work we have done there.

967   So I guess I don't see the need to put in place some kind of measure for a problem that doesn't exist. We have a track record of delivery.

968   MR. DANIELS: I would add just I mean if you look at something like the PIAC proposal, in order to do that what you would actually have to do is you would have to take our milestones and you would have to score every single milestones and that you would have to put a number on it in terms of, you know, like so it's did you meet X amount of communities on wireless, did you meet X amount of communities on Internet, and so on, and you have to -- what about your terrestrial backhaul, like there are all sorts of different things going on in this plan. In order to set up some sort of regime, a penalty-type regime or something like that, you are going to actually do score each one of those aspects ahead of time now as part of this proceeding and then evaluate us each year annually on the basis.

969   I think where we are coming from and saying what we would propose, we will file updates. If there is a problem in those updates obviously we will describe what those problems are. If it's viewed as inadequate, you know, let's go to -- I imagine you will go to a show cause and you will say let's look at here and call us -- despite us wanting to not come back here for another four years and whatever -- and say let's get an answer on exactly this.

970   Now, it could be that one of the reasons we missed for example could be something that everyone knows about, I mean maybe some natural disaster affects all of -- you know, when Japan had their things and you couldn't get certain pieces of equipment, well, if that happened to equipment vendors or something like that and there's a worldwide....

971   So that's why we don't think that a pure formula makes sense, because a quick -- but you clearly need the discretion to say, well, if there's a problem let's call you in front of us, hold you before the mat and say what's going on here and adjust it at that point.

972   So that's why we think that's the better way to go.

973   COMMISSIONER DUNCAN: I must seem hard to convince, that's a very fulsome answer. That's good. Thank you. That's good, thanks.

974   One last question. With respect to the bundling and marketing trials and promotions there's a little bit of a misunderstanding, I gather, as to whether you qualified or didn't to do those, whether you were covered by the decisions and so we are just wondering if you could make a filing that would tell us all of the promotions, bundling market trials that you have done since those decisions were in place, that's 2008-41 and 2011-117?

975   MR. DANIELS: Could you just give us one minute?

976   COMMISSIONER DUNCAN: Sure.

--- Pause

977   MR. DANIELS: What I was just talking to Curtis about is our ability actually to answer since 2008 for every market trial and promotion, but I think it -- would it be okay if we actually did the last 12 months? I think that's something that we feel more confident making sure that we are not going to miss anything, or is there some specific requirement --

Undertaking

978   COMMISSIONER DUNCAN: No, I think that's fine, and if staff feels differently we can certainly let you know.

979   That's fine; thank you.

980   MR. DANIELS: Thank you.

981   COMMISSIONER DUNCAN: Those are my questions, Mr. Chairman.

982   THE CHAIRPERSON: And that would be for the 25th and we will come back after the break to find out if that actually is satisfactory from our perspective, okay.

983   So as it turns out it's exactly noon, so why don't we take a lunch break until about 1:15 and reconvene at that point and we will have more questions for you at that point, okay.

984   So we are adjourned until 1:15.

985   Thank you. Merci.

--- Upon recessing at 1200

--- Upon resuming at 1315

986   LE PRÉSIDENT : Donc, à l'ordre, s'il vous plaît. Order, please.

987   So there's a couple of things I wanted just to clean up and I think you have something with respect to an undertaking as well.

988   But the final undertaking just before the lunch break with Commissioner Duncan with respect to the promotions, if you could just indicate -- 12 months is fine but also indicate which ones are still active in those.

989   And I believe you had an issue as well with one of the undertakings.

990   MR. DANIELS: That's right.

991   So no problem on indicating which ones are still active.

Undertaking

992   MR. DANIELS: We're not sure we have an issue yet on the undertaking regarding TPIA and gas. Our concern is -- it would be just fair to say we're going to see what we can do and we thought maybe we could update you on Thursday in terms of the timing, whether we would be able to answer this on the 25th.

993   The reason why is from -- let me break it down. You asked us about gas and TPIA.

994   On gas that's something that Bell does. But our network is -- we were discussing a lot over lunch and we've got people already starting to work on it. But our network is different. They don't authenticate. They don't set up the same way in terms of how gas works. Like even for our retail customers here it's different.

995   So as a result -- it doesn't mean it can't be done, don't get me wrong, I'm just -- we're going to have to dive into it and we're not exactly sure what we're going to find out in the next few days.

996   On TPIA we don't have any expertise at Bell at all in that --

997   THE CHAIRPERSON: Okay.

998   MR. DANIELS: -- and so this means we're going to have to try to talk to vendors, we're going to have to try --

999   So I'm just a little concerned about being able to properly answer that question by the 25th. I think we'll have a better idea on Thursday because we're going to get working right on it and we may require an extension and I appreciate that that's -- so I just sort of thought we would let you know.

1000   THE CHAIRPERSON: Okay. So we'll be able to talk about that again on Thursday.

1001   MR. DANIELS: If that's okay.

1002   THE CHAIRPERSON: Of course, ideally, even if you can't make the 25th, it would be ideally before the 8th of July so that final comments, anybody -- to the extent that any information there is not confidential that they will be able to take that into consideration as well. But we'll talk about this again on Thursday. Is that okay?

1003   Is there anything else?

1004   MR. DANIELS: No, that's the only one that was -- in terms of the timing.

1005   THE CHAIRPERSON: Okay. Perfect!

1006   So we are now at -- I'm going to ask Commissioner Menzies.

1007   And those of you that are well plugged in are no doubt aware that Mr. Menzies -- the Minister of Canadian Heritage has just announced his appointment as Vice Chair of Telecom. So we're very fortunate to have Mr. Menzies with us in his new role as Vice Chair.

1008   Mr. Vice Chair.

1009   COMMISSIONER MENZIES: Thank you.

1010   Just let me arrange this.

--- Pause

1011   COMMISSIONER MENZIES: So I have some questions starting with LIRs. So I just need a few things for the record and then we'll move into subsidy and the review on vary and some other questions.

1012   So with LIRs, in your initial filing you proposed LIRs in Destruction Bay, Fort Nelson, Hay River, Inuvik, Whitehorse and Yellowknife. In your reply you added Lower Post, Carmacks, Fort Good Hope, Iskut and Jean Marie River.

1013   So for the record, what prompted you to expand from 6 to 10?

1014   MR. DANIELS: Our approach in terms of looking was there's a number of comments and we wanted to cleanly explain why we haven't included what we hadn't included. So when you mentioned those other four, those are other fours that we created new LIRs.

1015   And what we did is we looked and decided that based on the competitor comments -- primarily TELUS was the one who was concerned about LIRs -- we looked at and said, well, ultimately if it's not a satellite community and it has -- and it's going to be upgraded to be able to handle SS7 interconnect, then it should be in a LIR. And so therefore we went back and said let's make more LIRs to accommodate that issue and be consistent with our principles.

1016   COMMISSIONER MENZIES: So the interventions convinced you to make a different choice?

1017   MR. DANIELS: Yes. Well, I don't think the interventions were specific on that issue. It was making us concentrate in justifying exactly our approach to LIR.

1018   COMMISSIONER MENZIES: Right.

1019   MR. DANIELS: But yes.

1020   COMMISSIONER MENZIES: Okay. Thank you.

1021   Now, speaking of TELUS, they argued in favour of including Iqaluit, which in terms of being a defined administrative region might make sense to the average citizen, but in your reply you suggest that TELUS' LIR criteria are not reasonable.

1022   So please explain for the record why Iqaluit should not be included.

1023   MR. DANIELS: So the idea behind a LIR is that -- first, just to be clear, whether you have a LIR or don't have a LIR you can have local interconnection between a competitor and ourselves.

1024   So by excluding Iqaluit does not mean that a local competitor in Iqaluit would not be able to interconnect with us in Iqaluit and that they're going to be local competition. In fact, we actually have LNP in Iqaluit right now and a competitor already operating. I guess they can talk more about that in a sense.

1025   So it's not -- it's just we have to be careful that when we look at the LIR issue that's not a local interconnection in terms of on the ground whether you can have local competition.

1026   What is a LIR? A LIR is -- take a bunch -- we have 96 communities that are each separate exchanges and what a LIR is, you take a bunch of communities and you lump them together into a local interconnection region and then you say, now, when a new competitor goes anywhere in that region he only has to interconnect with us in one location and we exchange all the traffic for those multiple exchanges together.

1027   So the reason why we're not proposing Iqaluit to have a LIR is because it's the backhaul of satellite and if you have interconnections -- so again, within Iqaluit, exchange traffic all you like, but if you're talking a LIR of Iqaluit that would mean another satellite community being included in that same LIR of Iqaluit and that would mean local calls from that other satellite community would have to go through double-hopping.

1028   And that's why I think SSi also took the position that LIRs don't make sense for satellite communities because it actually creates a quality of service issue. You will notice the difference when you're talking to a customer because the switching would take place in Iqaluit as opposed to in that satellite community and you'll have a double hop.

1029   Again, I could go more into this.

1030   COMMISSIONER MENZIES: No, that's fine. We just needed to get that for the record on that and it didn't appear to be a terribly contentious area anyway.

1031   So with your proposal there will be 50 communities, 5-0, that remain excluded from LIRs at the end of the modernization plan. Twelve of those currently have terrestrial service.

1032   What can you say, without revealing competitive data, to the people living within those communities, particularly the 12 with terrestrial, about when they can expect service or if they will have service comparable to other LIR-included northern communities?

1033   MR. DANIELS: I am sorry, you said we excluded 50...?

1034   COMMISSIONER MENZIES: Fifty communities will still be outside of LIRs.

1035   MR. DANIELS: Outside of LIRs?

1036   COMMISSIONER MENZIES: Yes.

1037   MR. DANIELS: Okay. So the --

1038   COMMISSIONER MENZIES: At the end of the modernization plan.

1039   MR. DANIELS: Right. So --

1040   COMMISSIONER MENZIES: And what I'm talking specifically to is the 12 that have terrestrial service.

1041   MR. DANIELS: Right. So the issue there is the cost of upgrading to be able to handle SS7. So in order to do local number portability and have local interconnection on a trunk-side basis -- and I realize I'm getting very technical -- you have to upgrade your network to be able to handle that.

1042   So we have plans to upgrade most of our network to do that but there's 12 communities -- that doesn't mean they won't have local competition. They have an option which is the Commission determined in the Local Interconnection decision to do something called line-side interconnection. So they can still have local competition. The competitor can still come into that community.

1043   What it won't be able to do in that community, it won't have local number portability and if it doesn't have local number portability they'll have to interconnect to us in a line side as opposed to a trunk-side basis.

1044   But local competition, if a competitor chooses to go there can happen, and is available. That was in your decision when you approved our local interconnection carriage. We specifically noted that as a line-side option.

1045   COMMISSIONER MENZIES: Sure. Just what I was trying to get at, was if you were talking to the people in those communities at what point down the road, five years, 10 years, 15 years could they expect to have number portability.

1046   This isn't something you have to, you know, sign your life away for. I'm just trying to get a ballpark estimate of what we're looking for.

1047   MR. PUMPHREY: So I guess the real question is: When would the upgrades happen for their communities beyond the life of this plan?

1048   COMMISSIONER MENZIES: Yes.

1049   MR. PUMPHREY: That's the question.

1050   Could I take it as an undertaking but get back to you on it?

1051   COMMISSIONER MENZIES: Sure.

Undertaking

1052   MR. PUMPHREY: Yeah, that maybe -- just to let me think about it.

1053   COMMISSIONER MENZIES: Yeah, okay, that's fine.

1054   MR. PUMPHREY: Thank you.

--- Pause

1055   COMMISSIONER MENZIES: Okay, on subsidy, you said earlier in response to the Chairman -- and I'm paraphrasing so you can correct any of this if it's not exactly what you said -- that it must be understood that there will be higher costs in some parts of the country for services.

1056   So that as context, do you want to maintain current RES/PES subsidy costs for the next four years and maintain rates because costs are adjusted annually for inflation? This strategy appears to allow you to maintain RES/PES below inflation while drawing more each year from subsidy.

1057   It could be argued that this strategy allows you to use subsidy to give you an advantage to keep your rates lower for competitive purposes. What would be your response to that argument?

1058   MR. DANIELS: So our view when we came for the modernization proposal was to say -- and also the price cap regime was not to propose any price increases over the next five years. The regime that exists in the rest of Canada is to take the prices up in high-cost areas by inflation and then take the subsidy. So the subsidy increases as well by inflation.

1059   And so we're not opposed to the notion in our answers to say if you wanted to adopt that regime. But we didn't come forward and propose that regime because that regime involves price increases to individual end-users. That's not what we wanted.

1060   COMMISSIONER MENZIES: You want us to increase?

1061   MR. DANIELS: We don't. We actually -- but we're not -- we understand if the decision is made to apply the same regime in the rest of Canada to the North in this area.

1062   COMMISSIONER MENZIES: Because it's a wash for you, right?

1063   MR. DANIELS: Pardon?

1064   COMMISSIONER MENZIES: It's a wash for you.

1065   MR. DANIELS: Well, they're still -- the increase in cost of inflation for the costs, because the costs exceed the retail rate it actually causes the contribution level to go up. Because the way it works if the -- I'm just making --

1066   COMMISSIONER MENZIES: If you're going to draw on the subsidy.

1067   MR. DANIELS: Pardon?

1068   COMMISSIONER MENZIES: If you maintain costs as they are, your draw on the subsidy would grow each year for those four or five years.

1069   MR. DANIELS: Right. Our portion of the subsidy, that's right.

1070   COMMISSIONER MENZIES: Right, so it's a wash for you.

1071   MR. DANIELS: In terms of the rate increase? I'm just saying that if the costs on an individual line basis is $60 for example -- I'm just making up a figure now -- but if it's $60 the cost goes up by inflation and our retail rate goes up by inflation, and our retail rate is $32 or whatever by inflation, there is still an actual difference that happens in terms of the overall increase.

1072   MR. FLAHERTY: Simple math, 10 percent. I realize that's a ridiculous number, but 10 percent of $60 is six dollars. 10 percent of $31 is three dollars. So it would go up by three dollars, the base rate, and so the other wouldn't go up by six anymore. You take that away and you still go up by three dollars.

1073   It's because the costs are more than the residential rate that we charge.

1074   COMMISSIONER MENZIES: Right, which is why you're drawing on subsidy.

1075   MR. FLAHERTY: Right. But even if you adopted the regime in the south -- I guess I just want to be clear -- you're right.

1076   Some of it would be offset by increases in the residential rate in my example of the three dollars and my really strange example of 10 percent. But there would still be three dollars that would be missing on the contribution side that would still, also by the rules applied in the south, would go forward. So rather than seeing six dollars on the subsidy you'd see three on the subsidy and three on the residential rate typically.

1077   COMNMISSIONER MENZIES: Okay. To get back to the original question then, this is not a competitive strategy and this is not a hill for you to die on. Whatever we want to do with it, you're fine with?

1078   MR. DANIELS: Absolutely, I agree with that. The only issue for us is that we would require the ability to de-average our non-high costs from our high-cost areas because right now we have one rate across all of our territory. If you're going to start talking about rate increases in this manner then you'd have to have a different rate for -- the ability to have a different rate for Yellowknife and Whitehorse from all of our other territories.

1079   COMMISSIONER MENZIES: How different would those rates be?

1080   MR. DANIELS: Well, it would be -- we would not propose a rate increase in Yellowknife and -- Yellowknife and Whitehorse because the regime would be that it would be frozen and it would be an inflationary increase for the other 94 communities, which is the regime in the south. It only applies to --

1081   COMMISSIONER MENZIES: You would want to keep Yellowknife and Whitehorse without a rate increase because those are the most competitive areas?

1082   MR. DANIELS: No, I'm just saying we wouldn't be -- right now we can't distinguish between those cost factors. So legally I'm not allowed to raise my rate even if you gave me permission unless you allowed me to raise it only in high-cost areas.

1083   That's the issue, is that right now I have one rate.

1084   COMMISSIONER MENZIES: Right.

1085   MR. DANIELS: And you don't allow me to make the distinction.

1086   If you're going to allow me inflationary increases in high-cost areas, fine. Then I'll just increase it in high-cost areas. So you just have to just exercise it.

1087   COMMISSIONER MENZIES: Okay, understood. Thanks.

1088   Your argument regarding the maintenance of subsidy residential PES costs is based among other things on the fact you don't anticipate a transition from fixed wireline to fixed wireless until late 2017, is that correct?

1089   MR. FLAHERTY: That's correct.

1090   COMMISSIONER MENZIES: Okay. So that's late in the plan, obviously. Maybe even beyond the plan.

1091   So why won't customers be modernized earlier than that?

1092   MR. DANIELS: Maybe I could just clarify. Customers would have the option in any place that we had fixed wireless voice, for example, if we launched. Because that's what I think you're talking about, the communities that have fixed wireless voice service.

1093   COMMISSIONER MENZIES: Yeah.

1094   MR. DANIELS: I think there is -- we talked about 42 communities that are slated and that's 4,000 residential mass that we're talking about.

1095   So I think, if I understand correctly, that they would have the option in those communities of being able to sign up, for example, if we launch enhanced calling features and they wanted an enhanced calling feature. We could do it with the fixed wireless. They could choose to switch.

1096   So it's not that we're going to wait four years --

1097   COMMISSIONER MENZIES: Okay.

1098   MR. DANIELS:    -- to deploy. We're planning to deploy. But what we're promising is that we're not going to force anyone to move off or shut down the old wireline switch until we're back before you in the next proceedings.

1099   So that there is no issue of us doing that and so that you can look at the transition plan. Because right now we don't have a transition plan because we don't have the experience with the technology and so on. We haven't worked it all out.

1100   So we would launch the new service as per our schedule, if you look. We have them coming in for the five years. Customers will be able, if they want to, to switch over. New customers would be put on those new switches but they -- we wouldn't force anyone to move until we came back to you and talked about how to do that in 2017.

1101   COMNMISSIONER MENZIES: Okay. Thank you for clarifying.

1102   Now, your proposal is that you would absorb any new costs between now and then -- between now and the next framework review in 2017 at which point we would review costing, right?

1103   So for the record, are we agreed that you would not attempt to recover costs incurred between now and the new costing exercise and that costing in 2017 or another date would be determined on a go forward basis only?

--- Pause

1104   MR. DANIELS: Could you just do us a favour and just before I say "yes" to it, could you -- I want to make sure very carefully, being the lawyer here.

1105   COMMISSIONER MENZIES: Do you want me to read it again? Okay.

1106   MR. DANIELS: That's what I'm on here to do. That's why they invited me here.

1107   COMMISSIONER MENZIES: It's okay. You can take notes if you want.

1108   Your proposal is that you would absorb any new costs incurred between now and the next framework review in 2017, at which point we would review costing. So for the record, are we agreed that you would not attempt to recover any costs incurred between now and a new costing exercise and that costing in 2017 or another date would be determined on a go forward basis only?

1109   So any costs incurred between now and the new costing exercise you would absorb, because that's your offer, right? That's how we're reading your offer right now.

1110   In other words, we don't want you to say -- we don't want to leave the impression that you're just -- you're absorbing costs right now but then when we get to 2017 you're going to say, "Okay, well, we have to include the costs we've already incurred since 2013."

1111   MR. FLAHERTY: Well, the one obvious example is inflation because we've talked about inflation.

1112   MR. DANIELS: I think kind of like our R&V on network initially, I think, is where we put a whole bunch of costs upfront and you're saying how you were only going to do this on a going forward Phase II basis from then up. Is that basically the nature of the question?

1113   COMMISSIONER MENZIES: It's not to do with the R&V. It's to do with --

1114   MR. DANIELS: No, no, sorry. It wasn't -- I'm thinking Bell here. I'm thinking ahead -- I'm sorry. I'm way off into the specifics.

1115   So you know what? I want to answer this very carefully.

1116   COMMISSIONER MENZIES: Yeah. So, take your time and when you get back to us, I don't...

--- Pause

1117   MR. DANIELS: I think we're best to take this one away, just because --

1118   COMMISSIONER MENZIES: Yeah.

1119   MR. DANIELS: -- I want to make sure that --

1120   COMMISSIONER MENZIES: That's fine. It's important for 2017, if not for the moment, right, so --

1121   MR. DANIELS: Right.

1122   COMMISSIONER MENZIES: -- whatever gets decided -- is decided.

1123   MR. DANIELS: I don't -- conceptually I think we're in agreement. I think what I'm just a little worried about and, therefore, I want to just talk about costing these just exactly, because what you're saying is, just think about it on a going forward basis and don't talk to me about what you did before, but we just want to make sure we --

1124   COMMISSIONER MENZIES: When we get to 2017 we don't want to be talking about --

1125   MR. DANIELS: The costs we spent in --

1126   COMMISSIONER MENZIES: -- costs in 2015, we just want to be costing forward, what the costs will be, not what the costs were.

1127   MR. DANIELS: Right.

1128   COMMISSIONER MENZIES: So to speak.

1129   MR. DANIELS: So, conceptually I understand. Then I just want to make sure that we write the answer in the way that costing --

1130   COMMISSIONER MENZIES: Understood.

1131   MR. DANIELS: -- will say we've written it right.

1132   COMMISSIONER MENZIES: Yes. No, I mean, the best information is usually the best. So, thanks.

Undertaking

1133   COMMISSIONER MENZIES: Now, just on the implicit contribution amount, your plans call for the roll-out of a number of new features in the year ahead.

1134   Why is the $4 implicit contribution from NAS still appropriate and wouldn't it not be more appropriate to adjust -- let me change that, I said two negatives -- would it not be more appropriate to adjust the pre-NAS amount gradually each year as enhanced calling features are rolled out?

1135   MS CHALIFOUX: Well, I guess the first part is, just to put it into context, the NAS that we --- or the enhanced called features that we are rolling out to the 26 remaining communities only accounts for about three percent of our high cost serving area in NAS. So, it's a small amount.

1136   The other thing is we provided on the record some evidence of the average revenue from features -- optional local features on a per NAS basis and if you deem an implicit contribution of $5, in essence, it's saying that, you know, contribution is a hundred percent of revenues. A little high, you know, in our view.

1137   So, given that, you know, the costs are higher and putting in the switches and the maintenance costs that, you know, mathematically it works out to a very -- deeming of a very high unrealistic level of contribution.

1138   COMMISSIONER MENZIES: So, the roll-out -- just so we can have it right -- the roll-out is just for three percent of your current NAS; right? Everything else is already -- and that's because everything else is already covered?

1139   MS CHALIFOUX: That's right. Because even though it's 26 communities, they're obviously the very smallest of communities.

1140   COMMISSIONER MENZIES: Right. So, yes, understood. Those would be communities of less than 200 people, 300 people or 400 people?

1141   MS CHALIFOUX: Yes.

1142   COMMISSIONER MENZIES: In a defined area.

1143   MS CHALIFOUX: Yes. On average, yes.

1144   COMMISSIONER MENZIES: On average?

1145   MS CHALIFOUX: Yeah.

1146   COMMISSIONER MENZIES: Somewhere around that size?

1147   MS CHALIFOUX: Yes.

1148   COMMISSIONER MENZIES: Okay, thank you. That's very helpful.

1149   Okay. So, if we were to adjust the implicit contribution amount, what would be your preference for adjustment, at the end of the -- I mean, this is -- I think I know your answer, but I need to get it anyway -- at the end of the term or gradually over the course of the term and why is that better?

--- Pause

1150   MS CHALIFOUX: I think our expectation is that revenues from optional features are going to be declining over the next period given the availability of, well, existing competitive alternatives to features and the emergence of new competition and, as well, new alternatives.

1151   So, you know, it's our view that going to $5 is inappropriate and that, you know, if we wanted to look at it again at the next review and indeed see what the revenues from optional features are, that it would be appropriate to do so at that time.

1152   COMMISSIONER MENZIES: Okay, thank you.

1153   On calculating annual subsidy, now your position is that it should be calculated -- your annual subsidy should be calculated annually, but given the presence of competitors, doesn't it make more sense, particularly -- particularly if, if subsidy portability is approved to do it monthly, and isn't there a risk after all of without portability we subsidize you for a NAS that's being served by a competitor?

1154   MR. FLAHERTY: So, of course, the company is the only one that has the obligation to serve that customer. The competitor can choose --

1155   COMMISSIONER MENZIES: We'll get to that.

1156   MR. FLAHERTY: But the competitor can choose to go under today's rules or not go, they can choose to withdraw service when they want to withdraw service.

1157   So, the company needs to be able to keep that facility in place in case the customer wants to come back and make use of it. So, there is a cost associated with keeping that facility as well.

1158   So, my colleagues may have more to add.

1159   COMMISSIONER MENZIES: Okay, thank you.

--- Pause

1160   MS CHALIFOUX: Yes. Can we take that one away as well, just looking at the complexity of going from an annual reporting to a monthly reporting process?

1161   COMMISSIONER MENZIES: Yes.

1162   But maybe you want to include in that because there sort of is a supplementary, it's not just about necessarily losing customers but it might be about gaining them too, you know.

1163   So, if you're concerned about, as Mr. Flaherty said, maintaining the facilities even when a customer is lost, is there a loss to you if you're not getting subsidy for a customer you gain? Just both sides of the up and down.

Undertaking

1164   COMMISSIONER MENZIES: I want you to be able to expand on this a little bit because there is a number of interveners who favour portability of subsidy in a variety of structures.

1165   And your position is very clear, is that subsidies should only apply to you as you're the only one with the burden of the obligation to serve.

1166   So, I know you think that, but I'd like you to explain beyond the competitive structure what you think the impact would be of portable subsidy on citizens and telecommunication subscribers in the North? In other words, what would be the impact on the ground for the average person?

1167   MR. DANIELS: I guess it really depends on how it's designed, right, in terms of would that be -- just in terms of the portability, if it's only for a facilities-based provider, or how does it work if someone's actually using, like providing -- like ours still does, which is just an over-the-top where the Internet comes and they want to provide that service if they got a subsidy associated with the fixed lines when they don't provide the fixed line in that case.

1168   So, I think it really -- like, it's hard to answer that without full knowing what the nature of the regime would be. So, I don't really have an answer for you in that regard.

1169   I guess I would have to -- it really would kind of depend how it would play out in terms of what the rule were.

1170   COMMISSIONER MENZIES: I think it's kind of an important question in the sense that, if we're building a regulatory framework, we want one that, you know, incents people to invest, gives them a return on investment, but ultimately it's making sure we have a system that best serves the needs of its citizens.

1171   So, that's sort of the grounding of that question is, what sort of a system, non-portable subsidy with maintenance of an obligation to serve or portability of subsidy to others, whatever best serves the people of the North, which I don't deny all the service providers are trying to do, but that's really what we're trying to get at here.

1172   MR. DANIELS: I guess -- I think the Commission has got a lot of history in this area because if you go back and look at it, the Commission did mandate portable subsidy when they created local competition in 1997 and it existed for well over a decade, I guess, at which point the Commission had the obligation to preserve -- an obligation to serve proceeding and examined these issues.

1173   And I think the evidence of that record showed that the portable contribution was not the basis upon which any competition really developed.

1174   At the same time the Commission also went back to first principles in ILEC and said, what is it that we're giving the subsidy for and that relates to the obligation to serve.

1175   And even went so far as to say, if we forebear from the ILEC from the obligation to serve ceases and so does your subsidy end at that point in time.

1176   So, I think the Commission has sort of the history of looking at this and saying, is portable subsidy really going to result in the creation of competition and have the investment or drive greater competition, as was thought would be the case in 1997, and it evolved from that proceeding, granted not for the North, but looking at it from Bell at that point and I think we said, it really hasn't made any dent to have the portable subsidy. People don't really build their business plans on a potential of a subsidy that could change, that's tied to someone else's costs that could be and so on, and determined that it wasn't having the outcome.

1177   So I think that lesson is applicable here. This is not, you know, a massive issue for us in terms of -- I'm not sure if you guys want to --

1178   COMMISSIONER MENZIES: Well, part of that maybe if we go back to the 1997 project but that was designed to encourage build-out of competition and some of the actors in that play were more cable companies.

1179   We've got kind of a different scenario here where at least one of your leading competitors is using the competition for landlines, for want of a better word, as an up-sell to an infrastructure that they've already built based on internet.

1180   So, it's a different type of structure, some would argue, and that's -- I throw that out for your comment to see if this is -- if you can see similarities between the designs of the competitors in that sense and the designs of the competitors in this sense.

1181   MR. FLAHERTY: I guess one question that would concern me a little bit is you used the term portable but I would assume, like, if you think about our subsidy, it's to capture a shortfall associated with a specific technology.

1182   So, would it make sense? Let's pick a number and say it's $40. But if our competitors' costs aren't $40, does it make sense to just port $40? Like, shouldn't the subsidy -- the way in which the subsidy is calculated, as Jonathan said, is based on our cost, not on someone else's cost.

1183   So, you'd have to go away and say, "Does it make sense to just port that amount, even though the costs may not be that amount?" If it is, then you're absolutely -- you're actually doing more than subsidizing. You're actually subsidizing potential profits as well.

1184   So, I think you'd have to think very carefully of how would you actually go about doing it?

1185   The other thing that Jonathan mentioned, I think you'd have to think about the competitor. So, he used the example of voice over IP provider. So, if they're going to simply ride on the internet service that we provide, they're actually not paying for any costs of the local loop.

1186   So, to go and give them that 40-some dollar subsidy and they don't have any costs associated with the loop, per se.

1187   So, I think it's, you know, there's lots of detail that would need to be worked through before you could ever get to a point and say, "Well, what's the appropriate piece?"

1188   Our position still remains is that we're the one that has the obligation throughout the territory and, therefore, given that obligation, it's appropriate that we receive that subsidy.

1189   COMMISSIONER MENZIES: Thank you very much. That answered my question.

1190   Just maybe to continue on that, one more question on that. Just to get your position, why couldn't subsidy be portable through a competitive bidding process in which the winner would access subsidy for a community?

1191   MR. DANIELS: So, are we talking here about the existing voice subsidy or are we talking about in future, like, a broadband subsidy in case the Commission --

1192   COMMISSIONER MENZIES: No, I'm just talking about the existing subsidy. There's another guy going to talk to you about future possibilities.

1193   MR. DANIELS: Okay. So, I think the simple answer to that is are we relieved of the obligation to serve as part of that? And are you prepared -- are we all prepared for what that would really mean in terms of the relief and the obligation?

1194   COMMISSIONER MENZIES: Yeah, and for the record, which is kind of what I was trying to get at before, what would that really mean?

1195   MR. DANIELS: If we didn't have the obligation to serve?

1196   COMMISSIONER MENZIES: If somebody created something with a portable subsidy through a competitive bid process for a community and you lost and you obviously would have to be or perhaps would be relieved of the obligation to serve unless the obligation to serve was portable, too.

1197   Anyway, what would the impact on the community be?

1198   MR. FLAHERTY: Even before getting to the community, I'm thinking of all the investment that's been placed into the ground there now. You potentially would strand all that investment.

1199   COMMISSIONER MENZIES: Right.

1200   MR. FLAHERTY: So, I think that there's a huge consequence of that.

1201   COMMISSIONER MENZIES: Yes, thank you. That answered the question.

1202   Okay. Hang on a sec. I probably have -- R&V. Why is it incorrect to calculate the fibre cost factor based on three past and two future years as the Commission has proposed? Pose that in an interrogatory then using the past five years only as you argue.

1203   MR. FLAHERTY: Within the R&V, we tried to highlight a specific example of how the rates that are established have a real impact on a real-life situation; hence, the fibre to Dawson City in the Yukon.

1204   So, within the interrog response, I think we illustrated either two or three ways that you could get to the outcome. But, in order to just have a break even number, on a 10 meg circuit in a Type B community, we had a rate of $1,700 just to have a break even.

1205   So, it could be a combination of using the three and two with a different mark-up or it could be a combination of using the fibre factor of six with a lower mark-up.

1206   So, I think we didn't indicate necessarily a preference one way or another. We were simply trying to illustrate, though, if we want to get to a situation where we're incented to invest, the breakeven number needs to get to $1,700 for that example that I gave.

1207   MR. DANIELS: If I may, maybe I can just take it. I think Paul's done a good job in explaining how we went about it.

1208   I think your question is relating to a specific costing about the fibre cost factor and how you calculate the cost factor and I think what Paul's saying is, it's not that three and two is incorrect any more than using five historical maybe as a better --

1209   COMMISSIONER MENZIES: Because we've used both.

1210   MR. DANIELS: You've used both, right? And so it's not -- our answer was not three and two is inappropriate. It was just simply to say, at the end of the day, it's not really what the fibre cost factor is. It's not really about the mark-up or any other. What we did is just looked at what the final rate is because that's the business decision that's made.

1211   And so I don't want to get hung up, from our perspective, that's what we were trying to say is we're not stuck on it's got to be three and two. We had a big problem with the number chosen and the methodology chosen. There's no perfect solution but we were looking at it and saying, "Practically speaking, the fibre cost factor could be a three and two and, therefore -- but then we would need a higher mark-up in order to get to the breakeven point" on that one study that we showed you.

1212   COMMISSIONER MENZIES: And the breakeven point is?

1213   MR. DANIELS: Well, the specific study we looked at was the $1,700 for that route and that was really just trying to say, like, that's where you have the CRTC's costing rules and you have the actual real reality of making a business decision on a specific route. Because the CRTC costing rules looks at recovering your whole network on a going forward basis, incremental and all that things but the actual decision, "Do I build this one route here?" just looked at what revenue will I get based on that rate and what's my breakeven point?

1214   COMMISSIONER MENZIES: Right. And just sort of on that, what sort of formula was used when you built out to Carmacks and Stewart Crossing and how is that different? How did that -- how did the numbers work differently that caused you to hold off on the build out to Dawson City from there?

1215   MR. FLAHERTY: Yeah, I think the big difference is Wholesale Connect rates weren't established at that time. So, we had proposals of Connect rates that were substantially higher as well.

1216   So, in our mind, in the first phase of it, we hadn't even contemplated Wholesale Connect. In the second phase, we were going through the process, like, the piece from -- the first phase being Whitehorse to Carmacks. The second phase being Carmacks to Stewart Crossing last year.

1217   So, we're in the middle of the process, the procedure to establish what those rates were. Now, we proposed rates, of course, that we were substantially higher and, at those rates, there wouldn't have been an issue.

1218   COMMISSIONER MENZIES: Okay, thanks. I think you have made that clear. I have a couple of technical questions to help staff with costing on the costing part.

1219   So, what, in your view, is the mark-up intended to recover? Fixed and common costs or other cost elements? And, if other cost elements, what would those be?

1220   MR. DANIELS: I think, traditionally, the CRTC has said it's to recover fixed and common costs as well as the embedded cost differential. I'm not sure that we have an embedded cost differential here so I think we would -- it's mostly fixed and common costs.

1221   I'm not really able to go much deeper than to say I know that there's also the invented cost differential has been historical, the other historical justification for it. If you'd like, we can dive more into it but I'm not really sure. I'm out of my element.

--- Laughter

1222   COMMISSIONER MENZIES: Okay. We will go through these and, if you want to take longer time to get back to us, that's fine. Here's the question, does Northwestel consider that a higher mark-up is intended to provide risk premiums?

1223   If so, what specifically are the risk factors? And wouldn't such risk factors be accounted for in the cost of capital?

1224   MS CHALIFOUX: Particularly in the case of Wholesale Connect, yes, we did argue that there is -- should be a ten percent risk premium. Again, it's well illustrated when you look at the example of extending fibre to Dawson City, as an example, where it's an extensive undertaking, cost-wise, and that, at the very end of the route, it's a very small market.

1225   So, the inherent risk of investing in the north and investing in fibre in the north in particular is the ability of, you know, fully able to fill the pipe, if you will, given our very limited market here and that's generally the primary risk that we have in the case of investing in our backbone.

1226   COMMISSIONER MENZIES: Thank you. Sorry, I think you've answered the fibre cost factor and mark-up thing, that it really doesn't matter what one is or the other is as long as it adds up to, in that example, $1,700 or another example is whatever, thank you.

1227   MS CHALIFOUX: Just a little bit to add to that, though. I mean, it -- as long as it is some reflection of our -- your know, our costs, like, the -- versus the initial fibre cost factor and the decision, you know, was just a single point in time. So what we're saying is, you know, a fibre cost factor based on five years of actuals or three years of actuals, two years of forecast as long as it's based on the Northwestel experience over an adequate period of time, then, you know, again, we're looking at two scenarios that -- where we're just trying to make the business case equal, if you will. So the combination of a fibre cost factor and appropriate markup, you know, we have provided two scenarios that give us that same level of rate that we're looking for from a break even perspective.

1228   COMMISSIONER MENZIES: Okay. So if we were to grant the R&V, what do you think the record would be -- or the impact, sorry. What do you think the impact would be on competitive entry --

1229   MR. SHAW: I think it's still --

1230   COMMISSIONER MENZIES: -- and why?

1231   MR. SHAW: -- in terms of competitive entry, the rates are still dramatically lower than our retail rates. Like, right now our retail V-Connect service is about 10 times higher on a month-to-month contract when you prove V-Connect rates. And, you know, we look at the R&V, there's still going to be a 600 percent pricing differential between retail and wholesale rates.

1232   One of the other things I'd maybe add is the current pricing that we've got out in the market and even if the R&V is approved, we're going to have rates running from Whitehorse to Yellowknife, which is probably on fibre about 2,500 kilometres that are actually less than Calgary to Vancouver. And we had another benchmark that going from Regina to Moosejaw would actually have rates lower than, you know, the R&V rates that we've proposed.

1233   So I think in the industry, you know, comparators that we have and the benchmarks that we have --

1234   COMMISSIONER MENZIES: Sorry, your rates would be lower than the Regina to Moosejaw?

1235   MR. SHAW: Yes, that's correct.

1236   COMMISSIONER MENZIES: Okay.

1237   MR. SHAW: And that's just a carrier benchmark we did recently, so ...

1238   COMMISSIONER MENZIES: What's their rate, Regina to Moosejaw?

1239   MR. SHAW: Stand by one.

1240   So it'd be looking at about $2,900 for a 10 meg circuit between the two locations.

1241   COMMISSIONER MENZIES: Thank you.

1242   Sorry, was somebody else going to say something?

1243   MR. DANIELS: Yeah, I was just going to say that obviously you'll hear from the competitors, so they can give you a better indication in terms of obviously they'll want the lowest rate possible, but I think if you look at it from a --

1244   COMMISSIONER MENZIES: Everybody does.

1245   MR. DANIELS: Well, exactly. So if you look at it from a holistic perspective, in the long run I think competitors will be served in terms of because we'll -- as long as we continue to invest, that means more fibre locations, which means that it's better backbone for them in the long run as well as for us and especially for our consumers. So we think as long -- you've got to get what we call the fair balance, get to the point, where it's going to have the long-term benefits. But I think if I were a competitor, I'd be looking at this and saying the amount that fibre -- future bills you're going to do compared to any price decrease that I could get now for existing fibre, that makes it kind of kind of attractive to try to get the rate as low as possible. So, I don't expect them to be sympathetic to this -- you know, to doing it even though they may have some long-term benefits because the short term -- any rate reduction they get, the lower the better.

1246   COMMISSIONER MENZIES: Right. Okay. Thanks.

1247   I have a request for an undertaking here that I think you've -- have you received a copy of it yet? I think you'll get one. And I'm just going to read it into the record so that it can be translated, if you wish.

1248   Okay. So in -- refer to the response to interrogatory Northwestel CRTC 28 May, 1303, refer to footnote 1 in the response to Part B on page 2 of 4, where it is indicated that updating 2012 forecasting data with actual expenditures would yield a five year historical fibre cost factor of 5.5, provide revised rates based on updating the fibre cost factor to use actual 2012 expenditures for transport fibre and electronics using the markup in the footnote. The response should provide the monthly costs by community type, by bandwidth speed using the format of interrogatory Northwestel CRTC 30 July, 2016, modified to include the end of study value and the present worth of demand.

Undertaking

1249   MR. DANIELS: Shockingly, we understand that.

--- Laughter

1250   We're learning too much about fibre cost factors in the last month; I actually know what they mean.

1251   COMMISSIONER MENZIES: Thank you.

--- Pause

1252   COMMISSIONER MENZIES: Those are sort of my questions on that area. I had a couple more, but you incidentally answered them, I believe. But --

1253   MR. DANIELS: That's the new efficiency.

1254   COMMISSIONER MENZIES: And you're getting back to us on a number of things. I just had another question on the modernization plan actually, so while I'm -- I have your attention.

1255   When you're talking about the high cost of satellite services and the rates, and I think you mentioned 179.95 in Iqaluit to get to the CRT-- the 5 and 1, so people basically -- what I heard was that people are just going to have to live with 1.5 and 385. And then in the broader discussion we're talking about funding and third party funding, that sort of stuff. How much money would it take to make one 5 and 1 work?

1256   MR. FLAHERTY: So if you --

1257   COMMISSIONER MENZIES: In whatever form. And it could happen in a subsidy form, it could happen in a direct funding form or whatever. How much money are we talking about to make Nunavut 5 and 1?

1258   MR. FLAHERTY: So I'm assuming we'd go beyond Nunavut to all satellite communities, but --

1259   COMMISSIONER MENZIES: Yes. Right.

1260   MR. FLAHERTY: -- in the CRTC 21.06 we've highlighted the cost per subscriber that would be required and we've also highlighted the number of transponders and the costs per transponder. And so the math can be derived there. We could give it to you -- we could do the calculation for you if you would prefer, but it would be on an annual basis that that would be required.

1261   COMMISSIONER MENZIES: Okay, thank you.

1262   MR. FLAHERTY: So it's not a one time number. It's an annual basis --

1263   COMMISSIONER MENZIES: Right. Yes.

1264   MR. FLAHERTY: -- indefinitely.

1265   COMMISSIONER MENZIES: Yeah.

1266   MR. DANIELS: Can I just -- the one --

1267   COMMISSIONER MENZIES: Maybe just in case, the thing is sometimes our math differs. Just in case you could do the math and send it to us, and then hopefully your math and our math are the same. One wouldn't think math is contentious, but it can be.

1268   MR. FLAHERTY: Where there's a difference, and there could be, in that interrog, of course, all we gave was the transponder costs. We didn't give any of the other costs that go with it as well.

1269   COMMISSIONER MENZIES: Okay.

1270   MR. FLAHERTY: So we'll contemplate those and highlight them separately to the degree there are other costs.

1271   COMMISSIONER MENZIES: Okay.

1272   MR. DANIELS: The one aspect, and it's no problem to undertake what you just said, but we have a cost input, as you know, from a third party. As you see in the way we answered that interrogatory, we're guessing what the cost input would be to us if we had -- we bought more transponders to accommodate all this, we're assuming some sort of discount, we'd use what we could. My real suggestion in this regard is if there was really -- when we come to discuss that as a -- to resolve that issue, you'd want to have to be able to review the cost provider as well to see -- to make sure --

1273   COMMISSIONER MENZIES: Yeah.

1274   MR. DANIELS: -- they're providing their best lowest costs as well for if you're going to go to a subsidy type of regime because it's an external factor that we're just buying from someone else in the same way that SSi is.

1275   COMMISSIONER MENZIES: Yes.

1276   MR. DANIELS: And that's different from any other CRTC costing we generally do.

1277   COMMISSIONER MENZIES: Yes, and defining affordability is a challenge. All what we're trying to get to here is sort of defining the difference between ambition and reality so that we can grasp that and make sure that we can be ambitious but realistic, as everybody would like to be.

1278   MR. FLAHERTY: So just to be clear, what we would provide is the transport costs to do that. We wouldn't provide the costs of overbuilding our competitors' network.

1279   COMMISSIONER MENZIES: Yes, because transport costs are the issue.

1280   MR. FLAHERTY: Yeah.

1281   COMMISSIONER MENZIES: Thank you very much. Those are my questions.

1282   THE CHAIRPERSON: Thank you. Mr. Shaw, you referred to the Regina and Moosejaw situation and obviously this would involve some calculations and some assumptions. Would it be possible for you to share that with us in the form of an undertaking?

1283   MR. SHAW: Yeah, absolutely. And I was also, just for point of correct, I don't think that includes the access charges, but I can put that in an undertaking for you.

1284   THE CHAIRPERSON: Okay. Thank you.

1285   MR. FLAHERTY: So just to be clear, Mr. Chairman, those are rates. I don't know that there's calculations, but we can give you the rate schedule.

1286   THE CHAIRPERSON: Okay. Sorry, I had -- it went by quickly and so I didn't hear exactly what it was, but I'm not -- I wasn't sure we had all the details behind that, so if you can add some specificity, that would be useful.

1287   Commissioner Simpson.

Undertaking

1288   COMMISSIONER SIMPSON: Thank you very much. I'm going to ask some questions regarding new funding proposals for broadband and for transport, and for dessert I just have a few questions regarding forbearance, very important.

1289   But before I get into those, I'd just like to ask a follow-up question from Commissioner Menzies and it's with respect to the contingency plans. There are gaping holes in your submission that have been redacted with respect to your contingent funding plans for many of your service improvements, and my question is this: You made it in your submission several times the observation that a lot of your previous funding plans were denied because of our -- I presume our costing rules with respect to your applications, and I'm curious if the observation made by a few intervenors, such as PIAC, that the projects that you have identified for contingent funding are projects that are, let's say, not necessarily mainstream but tertiary -- of tertiary importance. Is there any argument or do you have any comment to that criticism that you may have selected these markets for contingent funding because of the possibility that they may fail and if they do they won't necessarily impact your plan?

1290   MR. FLAHERTY: No, I would reject that outright. The plans that we've put forward are based on the needs and concerns that people have expressed.

1291   Take the Yukon for example, in my opening I identified that there is 19 communities today served by Latitude Wireless, 10 of those communities the partnership is deemed to be either breakeven or positive and we are going forward and doing those. That leaves a remaining -- in terms of all the communities in the Yukon -- 12 communities. Of those 12 communities, nine have self-service today. So absent getting contingent funding they would lose access to cell service once CDMA technology dies.

1292   So I don't think there is any suggestion that we are putting in something superfluous. We are not by any means doing that. That's very important to those people in those communities that happen.

1293   You make reference to funding that we request and it has been denied. The one that I was referring to earlier was really around calling features and I think really the Commission had taken the pragmatic view, I think, that the cost per NAS was just too high to justify it. In the three times it occurred between 2000 and 2007 it was more of that. It wasn't so much that the costing was wrong or you didn't agree with it, it was just that the cost per was just too high to make it.

1294   COMMISSIONER SIMPSON: So that would be previous to price cap?

1295   MR. FLAHERTY: That's correct.

1296   COMMISSIONER SIMPSON: Okay. Thanks.

1297   I have two sections here, broadband and transport and it's a little difficult for me to bifurcate the two because when you look at all the commentary of the interveners, everyone seems to be saying in generality that broadband is reaching a state of essentiality equivalent to voice -- to dial tone, but I'm going to do my best to try and pull the two apart.

1298   It has been said that on transport -- which I would like to tackle first and I would like to try to understand the accuracy of the statement -- it was said that you are the only provider of terrestrial capacity for backhaul.

1299   Is that correct?

1300   MR. FLAHERTY: I would say in the great majority of cases. In Northern British Columbia there are alternatives for TELUS, but by and large I would say yes, that's correct.

1301   COMMISSIONER SIMPSON: It has also been said that when it comes to terrestrial capacity that you are the only game in town and my first question is: With respect to the National Contribution Fund you have taken a position that you don't feel that that fund is appropriate for subsidy of terrestrial backbone.

1302   Is that correct?

1303   MR. FLAHERTY: I think at this point we don't see the need for subsidy on terrestrial backbone. Obviously you have deemed it as a very important facility for our competitors and hence you approve the wholesale connect tariff which had very, very low rates, we would argue maybe too low.

1304   So on that side of the equation, you know there is sufficient capacity. We do have a wholesale tariff, we will expand it from 30 communities today to 57 of 58 so our view has been that we don't see the need for a subsidy on the terrestrial side, it's really the satellite transport side as the conversation we have been having today. That's really where the issue is.

1305   COMMISSIONER SIMPSON: But in several of the interventions, while they have all voiced similar concern, the satellite is extremely prohibitive cost-wise with respect to all communication services. It has also been said that they found that your terrestrial site was equally prohibitively expensive, which may have stimulated the review in vary.

1306   But I go back to your point on the National Contribution Fund. Do you feel that because of who would be asking for use of that fund who aren't -- because they are not contributors to the fund given its current structure, that also contributes to your view that its' inappropriate for use?

1307   MR. DANIELS: Perhaps I can take this one.

1308   I think our position in the terrestrial, right now the fund doesn't cover broadband. I'm going to work on your supposition that the Commission determines that some point, either now or in the next year --

1309   COMMISSIONER SIMPSON: Yes.

1310   MR. DANIELS: -- that it should be extended for broadband, I wouldn't think that there would be any need to subsidize any community anywhere in Canada that already met the target. We are going to meet the target without any external funding and in fact what I think you heard in our terrestrial communities is we are going to exceed the target considerably. So it's not even like just purely meeting it.

1311   So in that sense we don't see any need to look to the fund. We have one community, to be fair, that is contingent on it and I suppose if there was going to be a broadband subsidy and we weren't able to attain it or something like that, maybe that community you could look at from that perspective, but generally speaking we just don't see a terrestrial as an issue, we are going to deliver broadband without any need for subsidy and therefore the only reason that you would look at subsidy would be to have competitive alternatives and we strongly, strongly reject any notion that we are going to create a subsidy regime to create, you know, for alternatives. A subsidy regime should be to make sure customers have broadband.

1312   COMMISSIONER SIMPSON: You have said that one of the strengths of your argument is that if that money was used for that, for building backbone, you are duplicating infrastructure.

1313   MR. DANIELS: Well, I think just fundamentally we just don't think that we need to start creating subsidies. Then you are not worrying about meeting the 5 and 1, you are saying out new objective is we want to have two alternatives everywhere in the country for broadband and therefore we are going to subsidize a second alternative.

1314   I don't think that is consistent good public policy. I don't think that's necessary and I don't think that is consistent with the policy direction. That's my view.

1315   COMMISSIONER SIMPSON: But the territorial governments are saying that one of the biggest concerns they have is not just reliability, quality of service, but a looming issue constantly is redundancy. You know, in the revision that you made to your Astral plan you removed fibre from -- you know, I would say a major chunk of your backbone plan was axed. So why wouldn't competitors have access to keep building the backbone for everyone to use through a subsidy regime like the NCF?

1316   MR. FLAHERTY: Just to clarify, in the Astral proposal we had $35 million worth of investment for potential fibre projects.

1317   COMMISSIONER SIMPSON: Yes.

1318   MR. FLAHERTY: In this plan prior to the wholesale connect decision we had $35 million. So we didn't change the amounts.

1319   Those amounts weren't enough to go and do projects on our own, there were at least four different projects that were out there that we would potentially share in with other funding parties. So to the degree you are talking about subsidies to enable that to happen, sure, we would be supportive of that notion.

1320   We are looking for partners today. Some examples could be a second fibre link to Whitehorse. You know, we have done some preliminary costing, we think to go to Juneau is probably about $30 million, then you would have to lease on an annual basis undersea fibre from the carriers down the west coast of Canada to the States. You would have to lease facilities all the way back up to Edmonton to create the fibre ring. So it's not an inexpensive proposition and there is a lot of ongoing costs, not just one-time costs. So that would be one example.,

1321   Another example would be Yellowknife. We have suggested that one option could be to put an undersea fibre under Great Slave Lake, assuming we could get the appropriate regulatory approvals. Again, a very expensive proposition and one that the revenues aren't there to support, but we would be prepared to put some of the $35 million to it.

1322   So there were at least four or five hypothetical projects that we put forward that could do that. None of them were to do the project on our own. Those projects were really to do in partnership with others. So to the degree that there was funding to help assist with that, absolutely we would support that.

1323   COMMISSIONER SIMPSON: So this is what you are referring to when you talk about supporting the idea of targeted funding?

1324   MR. FLAHERTY: Well, what Mr. Daniels was talking about specifically with respect to broadband, we were talking about satellite Internet.

1325   COMMISSIONER SIMPSON: Yes.

1326   MR. FLAHERTY: Like I guess the question is, would we jump ahead -- I think we had a question earlier from one of the Commissioners about do we risk creating a divide east and west. So if we go and spend a whole bunch of money on terrestrial redundancy in the west but don't address the situation in the east, you know, I wouldn't necessarily be in favour of that.

1327   I think if we are going to put subsidy, we should do it to the satellite transport in the east and at least try to level the playing field or make it more level. To go and create a whole bunch of redundancy in the west and not even address the broadband shortcomings, shall we say, in the satellite community, I think that would be wrong also. Our preference would be to tackle that problem first.

1328   COMMISSIONER SIMPSON: Okay. Go ahead.

1329   MR. DANIELS: I appreciate you actually said right at the beginning, Commissioner Simpson, that it's kind of hard to divide these two issues.

1330   COMMISSIONER SIMPSON: Yes.

1331   MR. DANIELS: I think Paul has given you an answer of looking at it in terms of does it make sense for governments to come in to subsidize and look in terms of to fund alternative backbone networks, and so on. I think we totally see a role for that, we think that's an important objective, and so on.

1332   I was answering the question in the more narrow focus of the National Contribution Fund and would the National Contribution Fund actually start looking to someone who already has service and say: Oh, we think that person already has service, we are concerned and we want to fund diversity or an alternative competitor, or do we want to fund under the way you have asked the question, just a slightly different way than I was thinking about it, which is: Do we want to fund a second backbone in order for redundancy.

1333   I think that's like we have not really had, to be fair, the discussion, that would have to be something we would have to really explore and look into, whether we say if we are going to extend the BSO to Internet to cover broadband, would that also mean our definition of a basic service objective include not just a target of some speed, perhaps 5 and 1, but also that there be redundant facilities to service it, and so on, so that's what the eligible criteria would be, I don't know. Those are big questions. There are big dollars associated with all of that.

1334   I guess I'm trying to separate the issue from a purely national contribution fund where I think it's just about making sure, to the extent that that ever happens in the future -- in the next proceeding probably that you look at it -- that the examination and the question at that point in time is do we bring it to that individual. But it could be that we expand the definition along the lines that you are thinking of.

1335   COMMISSIONER SIMPSON: Thank you. That was a great answer.

1336   I just want to get one thing clear, though, with respect to your appetite for or willingness to endorse funding for broadband, going back to the targeted question of targeted funding.

1337   You are okay with subsidy regimes that would support the building out of broadband infrastructure, but are you okay with it in your service area or do you draw the line at it being outside your service area?

1338   MR. FLAHERTY: Again, just to clarify, at the end of our plan, assuming the contingent communities -- I think there is two satellite and one terrestrial community -- at the end of our plan, between ourselves and SSi, every community in northern Canada has access to broadband.

1339   COMMISSIONER SIMPSON: Right.

1340   MR. FLAHERTY: The issue then becomes -- and the terrestrial ones, again assuming the one contingent in the terrestrial, are all at 15 and 1.

1341   So the issue then becomes the satellite ones, where right now we're suggesting -- and SSi would have to speak for themselves -- but we're suggesting it's probably more like today 1.5 and 3.84, maybe 2, 2.5. It's not 5 and 1.

1342   So the shortfall really becomes in that satellite backhaul. What's it going to take to be able to get to 5 and 1? And Commissioner Menzies had asked the question on the cost. It's millions of dollars in satellite transponder costs per year.

1343   And really, I think that's -- we're in favour of that. I think I clarified with the question we wouldn't provide a number that says, well, we'll overbuild our competitor. So we're simply saying, what we think from our perspective, here's what it would take in satellite backhaul costs to be able to use our network in our communities, theirs and theirs, and we'd have to sort out the three that we overlap in. But essentially that's what it would take.

1344   So I think we're in support of that. Again, we're talking about our operating territory. To your question, I think we would say yes, we're in support of that.

1345   COMMISSIONER SIMPSON: Just to put a finer point on it, Mr. Flaherty, throughout the morning it has become apparent, not just from previous submissions but from testimony this morning, that satellite is a problem.

1346   Should a funding regime that supports broadband be targeted to satellite only if that's possible or does it have to contemplate all delivery systems of broadband that include fibre and terrestrial side?

1347   Because obviously given the veracity that you brought forward the satellite problem this morning, you've given some thought to the fact that somehow there has to be a financial subsidy to satellite, but is it a companion or is it a parallel or a larger plan?

1348   MR. FLAHERTY: I think it comes back to what's the objective that we're trying to achieve. Everything has to start there. Is the objective at a minimum 5 and 1 in every community? So that's an objective.

1349   A secondary objective could be to have redundancy to every community. Now, we're not talking, I don't think, just Northern Canada, we're talking about a national policy, and that second one, even in just Northern Canada, if you were to go after redundancy in every single community for every form of transport we're talking hundreds and hundreds and hundreds of millions of dollars.

1350   So I think that's really ambitious. I think trying to get to 5 and 1 for the satellite communities is ambitious enough. But I think that's the first thing, is we have to really narrow in on what is the objective.

1351   I think, as Jonathan said earlier, the notion that we would build -- I think if we're talking redundancy that's one thing, but another notion, a third one, could be do we want two competitors in every single market regardless of how big or how small. Again, if you want it on separate infrastructure, add some more dollars to that picture.

1352   So I really think it needs to come back to what is the goal that we're striving to achieve at the end of the day.

1353   COMMISSIONER SIMPSON: Thank you.

1354   So, if I recall, you had thrown a figure out on a calculation of achieving 5 and 1 is something like $179 a month; is that right?

1355   MR. FLAHERTY: No. Today in Iqaluit we offer a retail service that's 5 megs down, 512 up, I believe, for a hundred and -- so it doesn't meet the 5 and 1 today and that's only in Iqaluit. So we've been able to do some things in Iqaluit with technology that aren't easily replicated in small communities.

1356   So the cost of doing is the number that I committed to provide to Commissioner Simpson -- or, sorry, Commissioner Menzies as to what the total is, but it's -- let's say it's millions of dollars a year.

1357   COMMISSIONER SIMPSON: I hoped you had a better answer. We all do.

1358   I'm going to go over to forbearance for a second. The reason why I'm touching on this, I think it's pretty universally understood that forbearance in local service areas is not really -- no one really has any appetite for it at this point, but my question to you is this: If not now, when? When do you think we should be reviewing forbearance?

1359   MR. DANIELS: In four years, in the next proceeding.

1360   COMMISSIONER SIMPSON: Okay. When we do this --

1361   MR. DANIELS: I should say -- and Paul's right, he's reminding me -- we did preserve the -- you know, if we thought we had a lot of market share loss and wanted to apply, we always thought -- I think anyone always has the right to apply for 94-19 criteria applying in that, but to set up the streamline tests or whatever, we think in four years.

1362   COMMISSIONER SIMPSON: Have you had any thoughts that you're willing to share with respect to what the framework might look like? Do you have any opinions?

1363   MR. DANIELS: We really haven't spent time. We sort of thought it would be -- we didn't want to come in here and talk about the fact though, let's talk about forbearance when local competition is just starting. I suspect that the regime will probably have to be something different from what is in the south because of the nature of the -- that the facilities-based providers are wireless, but as to exactly what the test would be, we don't really know. So we really haven't developed any thinking on that.

1364   COMMISSIONER SIMPSON: If some smart person came up with a hybrid solution, what would be your opinion if that solution included -- again, back to Commissioner Menzies' questions of portability of some subsidy in the interim while still maintaining your basic service objective requirements?

1365   MR. DANIELS: I'm not sure I see the connection. There would be portability and yet there would be forbearance? I'm not exactly following.

1366   COMMISSIONER SIMPSON: Well, I think it's because it's a poorly worded question or a badly conceived thought.

1367   But either way, what would your reaction be, although it may be predictable, if a hybrid solution of you maintaining your regulated status and basic service objective but we were to contemplate some form of subsidy that you enjoy exclusively right now as an interim measure to try and defray the costs in those service areas? I know your answer. I just want to hear it.

1368   MR. DANIELS: Are you talking about that would be the basis upon which forbearance would be granted or is this --

1369   COMMISSIONER SIMPSON: No.

1370   MR. DANIELS: -- separate from forbearance? Oh, I see. That's where I was lost. Okay. You're just asking what's our position about having a portable subsidy regime.

1371   COMMISSIONER SIMPSON: I said it was a hybrid.

1372   MR. DANIELS: Yes. We would be opposed to that.

1373   COMMISSIONER SIMPSON: Thank you very much.

1374   Last question and I think one of the reasons why I ask this is that I was really intrigued by -- it was almost a footnote from one of the interveners who said that you have a competitive advantage with respect to your ability to deliver DSL into some households because of the Res PES subsidy that exists, and this gets into that whole crossover thing again.

1375   But do you have any comment as to the legitimacy of the belief that you enjoy a benefit because you're basically subsidized to get into the household and that opens the door for you to be able to deliver DSL?

1376   MR. SHAW: So I think your question is really looking at the dry loop issue for DSL and you're right, in our high-cost serving areas we do have a challenge because the loop cost exceeds the cost of NAS. So, you know, it is something we've looked at. We're continuing to look at it.

1377   There is a little more complexity than just the financial one. There are some operational considerations and some process work we need to do, billing work that we need to do.

1378   We actually saw it from a few retail customers as part of this proceeding, so it's something we are examining. But right now we don't have an easy answer on what that would look like to, say, make it happen in our highest-cost communities.

1379   MR. FLAHERTY: So the loop costs are generally in the $40 to $50 range. So that's the loop cost. So the DSL service for example today in the small communities doesn't include the loop cost. So the risk is you might actually have to charge somebody more than the local access rate if you didn't have any subsidy for it.

1380   COMMISSIONER SIMPSON: Really?

1381   MR. FLAHERTY: Because the cost of the loop is more than we charge for local access.

1382   COMMISSIONER SIMPSON: M'hmm. M'hmm.

1383   MR. DANIELS: So the issue, I think -- and correct me if I'm wrong, guys -- but I believe in all of our cable communities you can buy Internet on a standalone basis. So this is in all high-cost areas where we don't have a cable plan and the only way to offer Internet service is over DSL. In that case the assumption is that the end user takes local exchange service from us.

1384   And I think the footnote you're probably referring to is saying, well, that's an advantage that we have because we're taking the Internet service too along with the phone service -- cell phone service.

1385   If we sell the Internet on a standalone basis we don't get the subsidy associated with the loop and that's the problem, where the economics start to fall apart on doing it on a standalone basis. So that's the issue.

1386   COMMISSIONER SIMPSON: Well, I just enjoyed the structure of the thought in terms of another avenue for accessing the subsidy that wasn't necessarily -- that the subsidy was designed for, but it's an anomaly to the North.

1387   Those are my questions, Mr. Chair.

1388   THE CHAIRPERSON: We have no more questions for you at this time. So why don't we take a short break till 2:45, which will allow the Government of Northwest Territories to get settled at the table.

1389   Thank you very much. We'll see you later on in the process.

--- Upon recessing at 1434

--- Upon resuming at 1448

1390   THE CHAIRPERSON: À l'ordre, s'il vous plaît. Order, please.

1391   So we will now hear from representatives of the Government of the Northwest Territories. So welcome. You know, you probably are going to identify your panels for the purposes of the transcript. Please go ahead.

PRESENTATION

1392   MR. AUMOND: Good afternoon and welcome to the Beaufort Delta Region and welcome to Inuvik.

1393   My name is Mike Aumend and I'm the Deputy Minister of Finance, Secretary of the Financial Management Board for the Government of the Northwest Territories.

1394   Today I have with me to my left Dave Heffernan who is our Chief Information Officer and to my right is Ms Linda Maljan who is a Policy Analyst in our department who works on telecommunications issues.

1395   I'm guessing that for many of you, if not all of you, this is your first visit to Inuvik. Inuvik is one of my favourite places in the North. It is our third largest community, with a population of approximately 3,600 people. It is also the most northerly community to have road access, at least until the Inuvik to Tuktoyaktuk Highway is built.

1396   With respect to telecommunications, Inuvik is far better served than many other Northwest Territories communities. It has:

1397   - Wireless service provided by Bell Mobility and Ice Wireless.

1398   - DSL internet service provided by Northwestel at the CRTC target speed at 5 Mbps download though the upload speed at 512 Kbps is below the present target of 1.

1399   - Dial up and cable internet access is provided by New North Networks and;

1400   - Enhanced service features such as call display and call waiting are available as is local number portability.

1401   This level of service is not comparable to that available in southern Canada, but is and under Northwestel's modernization plan, will remain far better than in northern communities that are served by satellite. Furthermore, the prices paid for services are greatly in excess of those in southern Canada.

1402   For example, for its 5 Mbps download speed internet service Northwestel charges $89.95 a month with an 80 Gb usage allowance. For service with an advertised download speed of 2.5 Mbps and upload speed of 384 Kbps it charges $69.95 a month with $5 per Gb being charged for usage in excess of the 20 Gb monthly usage allowance.

1403   Under Northwestel's modernization plan, internet speeds in Inuvik will double or triple, though we don't yet know what the associated prices will be. It is also possible that transport capacity into and out of Inuvik may be changed, but because that information was filed in confidence with the Commission, we ourselves don't know what changes will be.

1404   We do know, however, that transport capacity into and out of Inuvik and all the way along the Mackenzie Valley is a concern and that is why we as a government are moving forward with a major project to build a fibre optic link in the valley. I'll speak more about that later.

1405   I'd like to start by taking a bit of time about how we as the government approached our analysis of the plan. The first step was to begin with our core principles. In this context there are two key principles that have driven our consideration.

1406   First, we believe that all northerners should have access to a suite of telecommunications services comparable to those available in southern Canada and at comparable prices.

1407   In support of this principle, I note that policy objectives 7(a) and 7 (b) of the Telecommunications Act speak to the need for, and I quote:

"...a telecommunications system that serves to safeguard, enrich and strengthen the social and economic fabric of Canada and its regions..."

1408   And:

"...to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada."

1409   While this may not require that all Canadians have identical services or pay identical prices, I would suggest that any serious discrepancies in the availability or price of services in particular regions such as the North would contradict this objective.

1410   The CRTC itself took this position at paragraph 87 of Telecom Decision 2007-5 where it stated:

"The Commission considers, for example, that Northwestel's proposed objectives, that residents of the North require access to reasonably comparable services, and should pay reasonably comparable prices, to those services available elsewhere in Canada, fall within sections 7(a) and (b) of the Act."

1411   And at Paragraph 40 of Telecom Regulatory Policy 2011-771 which directed Northwestel to file its modernization plan, you stated:

"The plan is to address how Northwestel intends to update its infrastructure in a timely manner to ensure that northern customers receive telecommunications services, both regulated and forborne, comparable to those available to Southern Canada in terms of choice, quality, and reliability as well as how the company intends to fund or finance the costs to modernize its network."

1412   Our second key principle is also one that is widely accepted and that is that full and fair competition should always be encouraged. Not only is this principle reflective of Telecommunications Act policy objective 7(f) which is:

"to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective,..."

1413   And with the federal government policy direction requiring that:

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

1414   It is also a principle that our government espouses and has strongly supported throughout the nearly two decades in which we have participated in CRTC regulatory proceedings.

1415   Starting from those principles we took a long and hard look at the modernization plan that Northwestel originally filed in July of last year and we liked what we saw. The plan promised:

1416   - 4G wireless services in all Northwestel communities;

1417   - high speed internet service at CRTC target speeds in all Northwestel communities;

1418   - enhanced calling features in all Northwestel communities;

1419   - local number portability in all Northwestel communities.

1420   - extensive modernization of the company's switching network and increased backbone transport capacity.

1421   The plan wasn't perfect. It didn't include everything we wanted. For example, the version of 4G service being offered by Northwestel is substantially inferior to that available in many southern locations. It was however a major improvement and we felt we could support it.

1422   Unfortunately, when Northwestel filed a revised modernization plan in January 2013 it began to pull the plug on some of these projects. In April 2013 after the CRTC approved the wholesale connect rates substantially below those Northwestel had proposed, it cut back even more. Except for the extension of enhanced services to all Northwestel communities, every single one of the above proposed upgrades has now been cut back.

1423   In our view, doing this was not only inappropriate but unnecessary. When in 2011 the CRTC directed Northwestel to file this modernization plan it explicitly noted that Northwestel had lagged behind in its efforts to modernize its network and expand service options available to Northerners, and that it had done so at a time when its annual income had increased very significantly.

1424   Let me remind you of what you said in this regard, and I'm quoting here from the first page of Telecom Regulatory Policy CRTC 2011-771:

"The Commission recognizes the importance of telecommunications services in the North and the investments needed to address northern residents' desire for a telecommunications network that offers parity with the rest of the country, supports Arctic sovereignty and national security, and provides opportunities for economic development.
The Commission also recognizes that Northern communities require innovative solutions for the provision of telecommunications services comparable to those available in the rest of the country and for applications to access services such as health care, education, government programs, public safety and banking.
The Commission is concerned that Northwestel's shareholders have benefited from the price cap regulatory framework to a far greater extent than its customers. Since 2007, Northwestel has received over $20 million in annual subsidy for the provision of service in remote communities and its annual income from operations has nearly doubled to $69.3 million in 2010. Despite this, the company has failed to make the necessary investments in its network.
Northwestel's infrastructure is aging and services comparable to those provided in the rest of Canada are unavailable in many remote communities. The Commission is also concerned that this situation has likely affected the quality, reliability, and choice of services available to customers, as evidenced by a number of outages in various communities and the lack of service options."

1425   Those increases in annual income were maintained in 2011 and 2012 and while we do not have access to the Company's detailed financial data, it is our belief that Northwestel's finances are sufficiently healthy to allow it to complete the modernization plan initially proposed.

1426   In this context let me also say that I fully agree with the analysis in the PIAC/CAC reply comments of May 9th to the effect that Northwestel's focus should be on achieving required levels of service improvement and not on maintaining some arbitrary level of capital intensity.

1427   In summary, we think the company can spend and invest more and must spend and invest more. That said, there are some specific changes proposed by Northwestel to its original modernization plan that are of particular concern to the Government of the Northwest Territories. Of these, the two that concern us most are Northwestel's decision to not upgrade internet speeds in satellite communities and its plans to cut back on transport expenditures.

1428   With respect to internet services, the highest speed available in the 10 satellite communities in the Northwest Territories is expected to be well below the target speed established by the CRTC. At the end of the day, these satellite communities will have "high speed" internet access of 1.5 Mbps download and 384 Kbps upload.

1429   This is not acceptable now and will even be less acceptable in 2017 when the plan is to be completed, especially when NWT satellite communities have recently been offered the ability to purchase internet packages at 2.5 Mbps upload and 384 Kbps download speeds. We believe these speeds are only being offered now due to the Falcon Communications/Northwestel broadband project with third party funding that will end in 2015. At that time, if we understand the modernization plan correctly, NWT satellite-served communities will revert to the 1.5 Mbps download speeds.

1430   This is not modernization but it does point to the tenuous nature of service built on finite funding commitments. Modernization plans must be sustainable.

1431   The proposed 1.5 megabyte service in satellite communities under Northwestel's Modernization Plan entails speeds that is substantially below the target set by the Commission over two years ago in Telecom Regulatory Policy 2011-291. So, does the 2.5 megabyte service that has just begun to be offered in NWT's satellite communities, albeit perhaps only for a short time.

1432   At such low speeds you rapidly run into difficulties if more than one user in a household wants to access the Internet at the same time, if you want to download a song or watch a movie which could take a really long time. The younger generation lives on high bandwidth content: gaming, movies, photos, streaming audio. They use YouTube to support their school assignments and experience the weird and wonderful in today's world. That will not change. More bandwidth is also needed for applications such as videoconferencing and for sharing large files in applications such as telemedicine or distance learning.

1433   should we be satisfied with a proposed 1.5 megabyte service in satellite communities where it can take more than 30 minutes to share a 1 megabyte file?

1434   Ironically, the outcome of all this is that the very communities, the small remote communities that often do not have physical access to advanced medical, educational and other services that could most benefit from the advances made possible by high-speed Internet. are the very communities that are going to continue to miss out under Northwestel's Modernization Plan.

1435   And this is occurring at a time when Northwestel's finances are healthier than ever.

1436   In 2003 you directed Northwestel to roll-out dial-up Internet access to those communities that didn't have it. We urge you to now take the same step with respect to high-speed Internet service and direct Northwestel to offer service with a minimum 5 megabyte download and 1 megabyte upload speed to all its communities.

1437   And while in 2003 you provided Northwestel with subsidy funding for this purpose, we believe that at this time Northwestel is probably fully capable of doing this without further funding support.

1438   In the case of backhaul transport, it is somewhat harder to specify exactly what should be done. And the reason for that is that very little information about either existing or planned transport facilities has been put on the record of this proceeding, except in confidence to the Commission.

1439   We do know, however, that many of the interveners to this proceeding have complained about the lack of adequate transport facilities. We do know that in reaction to the Commission's Wholesale Connect Decision, Northwestel has cancelled all planned fibre optics expenditures and reduced its total planned transport expenditures by $36.5 million.

1440   And, we do know that our government is looking to build a fibre link through the Mackenzie Valley because the area is inadequately served by Northwestel's existing microwave network.

1441   Our position is that at a minimum the Commission should order Northwestel to restore all transport expenditures contained in the updated Modernization Plan filed in January 2013.    If the rates established in the Wholesale Connect Order are judged to be compensatory, then there is simply no reason to eliminate the needed expenditures. If the rates are found to be too low, then they should be raised to compensatory levels, thereby removing any rationale for reducing the transport expenditures.

1442   Looking past the Modernization Plan, the two other key issues raised by the CRTC in this proceeding are the appropriate regulatory framework for Northwestel and the appropriate subsidy regime for its operating territory.

1443   With respect to Northwestel's regulatory framework, if you have read our intervention of February 6th and our May 9th reply comments, you will know that we have not yet taken a final position on this matter and probably won't until prior to our final argument.

1444   I can, however, tell you that we think that moving away from a price cap model would raise a number of problems. At this point, we think it would be best to stay with a price cap model if it can be modified to address existing deficiencies.

1445   The modifications we would propose in that context are as follows:

1446   First, the Commission should reinstate an annual process to consider Northwestel's planned expenditures and require a formal approval of such expenditures. As part of this process, the Commission should also consider if any new technologies are emerging that could assist in addressing the concerns of the North.

1447   Second, the Commission should adopt strict financial reporting requirements, including opportunities for public review, to ensure that the benefits of having moved from rate of return to price cap regulation do not accrue solely to shareholders.

1448   Third, in light of the limited competition in this market, the Commission should revoke its decision to forebear on re-regulating retail Internet services in the North.

1449   And, fourth, the Commission should be particularly vigorous in regulating the rates for services relied on by competitors.

1450   When we submit our final argument I expect we will also have more detailed comments on a number of specific proposals raised by other parties as to how to improve or modify the existing regulatory regime.

1451   Turning now to the question of subsidies, I wish I could say here that in the North we just didn't need them, but the truth is that we do. If Northerners are to have access to a comparable array of services at comparable prices to those available in the south, then the very high cost of providing the service here means that we have to rely more heavily on subsidies than we, and probably just about anyone else, would wish.

1452   t the current time this means that some new subsidies are needed.

1453   At the same time, we believe that in the long run the best chance of getting costs down and reducing our reliance on subsidies is to allow increased competition to emerge, and we think that one of the things we need to do is to let competition flourish is to ensure that any subsidies provided are available not only to Northwestel but to its emerging competitors as well.

1454   Our specific positions in this regard and with regard to subsidies are as follows:

1455   First, the existing local residential subsidy should be retained in its current form except that it should be made fully portable as was originally the case in Southern Canada.    Denying competitors fair and equal access to these funds, particularly in the early days of emerging competition, would both be unfair to competitors and ultimately could threaten the emergence of competition, something which we see as being essential to the long run improvement of efficiency and lowering of costs.

1456   Second, the existing Service Improvement Subsidy to Northwestel that assisted in financing its 2001 to 2005 Service Improvement Program should be retained. The program was mandated by the Commission and the Commission found that the annual subsidy funding was necessary to support its ongoing costs.

1457   Those ongoing costs for maintenance, depreciation and other associated expenses continue to be incurred each year by Northwestel, so, the requirement for subsidy financing remains.

1458   Third, we believe that the Internet prices in the North are simply too high. Too little service is offered for far too much money with rates in many cases being double or more the rates in southern Canada.

1459   To address this issue we believe that a new subsidy for high-speed Internet service at or above CRTC target speeds should be introduced and should be modelled on the existing residential local service subsidy. This subsidy would be provided on a per customer basis and would be fully portable as between Northwestel and its competitors.

1460   Fourth, if the CRTC declines to order Northwestel to extend high-speed Internet service at CRTC target speeds to all satellite communities, then a new subsidy should be introduced to fund such service extension. This subsidy would be awarded through a competitive bidding process on a community-by-community basis to the service provider submitting the lowest bid to extend the service at approved price levels.    Fifth, we believe a working group of service providers, territorial governments and other interested parties could be convened by the CRTC to determine what, if any, backhaul transport projects require subsidy funding.

1461   One alternative would be for this process to be established in conjunction with the proposed annual review of Northwestel's capital expenditures.

1462   Any new subsidies will, of course, require money and our position is that such funding should come from the National Contribution Fund which collects its funds through a small levy on telecommunications service revenues. We believe this model is appropriate for two reasons.

1463   First, that telecommunications is a federal responsibility and these subsidies are proposed in furtherance of Telecommunications Act objectives.

1464   Second, that the National Contribution Fund levy on telecommunications revenues is currently only 0.63 percent, or less than half what it was just 10 years ago. So, we think small increases such as we're proposing would not be unduly burdensome.

1465   Lastly, there are two more issues I'd like to address with respect to subsidies.

1466   The first of these is that some parties have suggested that it would be inappropriate to approve new subsidies in this proceeding rather than in a national proceeding where the need for such subsidies can be considered for all areas of the country.

1467   Our position is that if a need for new subsidies in southern Canada is demonstrated, then the GNWT would certainly support the provision of such subsidies. Just because it hasn't yet been done, the GNWT sees no reason why the demonstrated needs of the North should be ignored or delayed.    CRTC policies, such as the introduction of competition, have often been put in place in southern Canada and then subsequently considered for the North. There is no reason why on some occasions policies cannot first be developed for the North and then subsequently be considered for the south.

1468   In this context, we also note that the CRTC in its new three-year plan released on May 2nd announced that in the 2014-2015 period it will hold a public hearing to consider an enhanced basic service objective and to, and I quote:

"Determine what services (example, voice and broadband) are required by all Canadians to fully participate in the digital economy and whether there should be changes to the subsidy regime and national contribution mechanism."

1469   While we were pleased to see this announcement and will certainly participate in that hearing, we are also concerned that it should not delay the matters under consideration in the present proceeding which explicitly includes a consideration of the introduction of new subsidies including subsidies pertaining to broadband.

1470   We believe that the record of this proceeding has demonstrated the need for the new subsidies we are proposing and would urge you not to defer your consideration of this important, and to us urgent, matter to a subsequent proceeding.

1471   We thank you for your attention and are now available to respond to any questions you might have for us.

1472   Thank you.

1473   THE CHAIRPERSON: Thank you very much.

1474   Commissioner Duncan will start off the questions.

1475   COMMISSIONER DUNCAN: Thank you very much.

1476   Your presentation today and your submissions were very detailed. I understand you still have some final points to lend, but you covered a lot of material quite clearly and I have a lot of questions.

--- Technical difficulties

1477   COMMISSIONER DUNCAN: I think you ought to turn yours off. That's okay, thanks.

1478   I am interested, if you were here today and listened to Northwestel's comments, it seems to me that a lot of their decisions are based on, is it a viable business solution for them to do some of these extensions, improvements that you're looking for.

1479   And, so, I'm interested if you have, you know, considered their comments and if it has had any influence on what you've written here.

1480   MR. AUMOND: Thank you.

1481   And, well, I have listened very carefully to the dialogue between yourselves and Northwestel, the simple answer is no, it has not.

1482   I understand the requirement for a business case but, from our perspective, we would like to see those communities that I mentioned in my statement, who are by far the most rural, most remote communities, participate in the digital economy of the 21st century.

1483   And, you know, if I look back at the policy objectives of the Telecom Act, what we are suggesting and what we are submitting is that, well, there might not be a business case from a pure profit operations in providing high speed internet services to those communities at the targets that the CRTC itself has suggested, then perhaps, if we want those ten satellite communities that we have in the Northwest Territories, we don't want to see them -- the disparity between them and the rest of the territory grow even further than it already is.

1484   And we think they are just as important as the communities in the Northwest Territories or across the country that have access to those services and are needed to participate in the economy today about why we should have to continue to wait and, if a subsidy is required, we'd be happy to participate in that dialogue.

1485   But I'm not going to accept the case that it has to be because Northwestel doesn't seem to think there's a business case.

1486   COMMISSIONER DUNCAN: Sorry, it's really the matter of the subsidy, then? If they can't afford it, it's a matter of a subsidy?

1487   And so you have no problem with the subsidy but the subsidy actually is paid for by the Canadians who get telephone services from telephone companies who have revenues in excess of $10 million a year.

1488   They are obviously charging their customers. So not all Canadians pay for that.

1489   I think what I'm hearing, you're saying is that your view is that all Canadians should be paying for the service.

1490   So I'm not sure that an increase in the national contribution fund subsidies would accomplish that.

1491   MR. AUMOND: Well, I guess my first point would be, and I think I mentioned this in my statement as well, is that I think it needs to be determined that there is no business case for Northwestel to provide high speed internet at those speeds. That has not been proven to us yet.

1492   And then I would also note that, you know, despite what Mr. Flaherty has suggested, I'm not convinced about what the size of that subsidy would be.

1493   And I think, you know, at this point, I think the size of the Northern Telecom subsidy is sufficiently small that, even very substantial increases might be easy to accommodate.

1494   If you go back 25 years, the subsidy from toll to local service in Canada exceeded $2 billion. Well, in 2012, the total subsidy administered by the NCF is less than $150 million.

1495   So this existing subsidy to the north is probably even less than about $20 million.

1496   So we don't think that even, you know, it would be very hard for the system to absorb, considering the huge territory of, you know, one-third of the size of Canada's land mass. Thank you.

1497   COMMISSIONER DUNCAN: So I am sure that you're intending, although you're speaking of the ten communities in the Northwest Territories that are reliant on satellite service, that you're also considering all the satellite communities in the north?

1498   So it couldn't just be a matter of making sure that the remote communities -- satellite-dependent communities in the Northwest Territories are covered, it would be all of the satellite communities?

1499   MR. AUMOND: Thank you. Well, certainly my primary focus here is the ten satellite communities for the Northwest Territories and I'm sure my colleagues from Nunavut will speak adequately for themselves but I would assume that, if it was fair for the communities in the Northwest Territories, it would apply for Nunavut as well.

1500   COMMISSIONER DUNCAN: Referring to your suggestion that financial penalties should be imposed if Northwestel doesn't accomplish the rollout, it doesn't roll out their modernization plan as they proposed, I'm just wondering if you considered the impact that that might have on their ability to roll out the plan. If they do have financial penalties imposed on them, they presumably have less money to carry out the task?

1501   And so I think that's a concern.

1502   Also, if you've considered any other means of ensuring that the plan is accomplished.

1503   MR. AUMOND: Well, I guess, first of all, I would, like I said, I would point out that, you know, we're not wed to the financial penalties. I think the system of review needs to be fair.

1504   But, at the same time, you know, one of the reasons that we're here today to talk about this is because what they had proposed in the past wasn't acceptable, either, so I think, you know, we have also called for an annual review. I think Northwestel has actually agreed to that, to a large degree.

1505   But there ought to be some sort of, I guess, for lack of a better word, a penalty or a price to pay for Northwestel if it doesn't complete its modernization plan and give us the results that they say they're going to.

1506   COMMISSIONER DUNCAN: I think, from the discussion we had this morning, it appeared that what they were saying was that they'd like to have the four years and, if we saw that it wasn't rolling out the way it was committed, that we could call them to another hearing. But it would have to -- are you satisfied that that would be sufficient?

1507   MR. AUMOND: Well, I think we would like to have the annual review approved by the Commission on the rollout of the plan. That's our view.

1508   COMMISSIONER DUNCAN: And I think, in your submission, you mentioned that that should be made public and --

1509   MR. AUMOND: Correct.

1510   COMMISSIONER DUNCAN: -- available for public comment? Thank you.

1511   I just want to ask you a question about the -- if you have comment on the amount of the subsidy that they should receive should be established as a difference between the estimated costs of providing the service and the service rates which would be capped at a level charged for the same service in southern Canada?

1512   We did hear this morning Mr. Flaherty mentioning that we really have to consider communities of not necessarily the same, for example, not necessarily the same as Toronto, but similar size service centres, services available in the small communities?

1513   He gave the example of a community that they were being asked to service that had, I believe, a population of 50, where a community not too far down the road had a population of 400 and didn't have the services that they were considering proposing.

1514   So I just wonder how you think that would be established.

1515   MS MALJAN: I don't think we have all the answers on that. It was really used as an illustration to say, if we were going to go to this type of new subsidy, we'd have to take a look at all of the factors and certainly Mr. Flaherty brought up some good points. So it would need to be looked at in order to be fair for all Canadians, you know?

1516   COMMISSIONER DUNCAN: Okay. So, in your final comments, you'll probably want to address that. Okay.

1517   Some parties in the proceeding have requested that Northwestel's retail internet services rates be tariffed. And, first of all, I'm just wondering your view on that, if they should be -- why do you think they should be or why not? Do you think it should be just left to a competitive market or...?

--- Pause

1518   COMMISSIONER DUNCAN: I think you might have said today that you thought they should be regulated.

--- Pause

1519   MR. AUMOND: Well, I guess I will make my answer very straightforward and simple as, I mean, due to the essential nature of the product involved and the very limited competition or the over-dominance of Northwestel in the market, we feel that's reason enough for it to be regulated.

1520   COMMISSIONER DUNCAN: Can you provide us with an undertaking perhaps to give us a list of who the competitors are in the Northwest Territories for retail internet? Who's offering it and where?

1521   MR. AUMOND: Yes.

Undertaking

1522   COMMISSIONER DUNCAN: Okay. Thank you.

1523   THE CHAIRPERSON: To be clear, you'll do that for the 25th? Thank you.

1524   MR. AUMOND: Yes.

1525   COMMISSIONER DUNCAN: And your proposed internet subsidy, I am just wondering if it should be based on the number of internet subscribers in high cost serving areas at the end of the previous calendar month or the previous calendar year? Did you have a view on that?

1526   MR. AUMOND: We never really thought about it to that level of detail.

1527   COMMISSIONER DUNCAN: Okay. Fine. That's fine. If you have a thought when you're filing your final comments, that's...

1528   MR. AUMOND: Sure.

1529   COMMISSIONER DUNCAN: Okay. And on the question of having multiple subsidies, I'm just curious to know, I guess I'm thinking that it would be better to give all the subsidy to one provider and then regulate the rates, the wholesale rates so the competitors could get the best rates and offer a service on a competitive basis rather than giving this company a subsidy and this company a subsidy. I'm curious.

1530   I don't see that the consumers get the maximum benefit doing it that way. I would think that it would be better to give the subsidy to one company and have the rates regulated, the wholesale rates.

1531   So I'm just curious to know what your thoughts are on that. What would be best for consumers, that's what I'm driving at?

1532   MR. AUMOND: Well, from our perspective, we want to see competition emerge and hopefully flourish and which is why we're proposing to, I guess, allocate that subsidy on a low cost basis, on a bidding basis, given that they're -- you know, at least in the -- in our territory the -- if you look at who owns the facilities already, who is in a better position. So from our perspective we think by allocating the subsidy on a comparative basis will actually provide for the incentive we need for competition.

1533   COMMISSIONER DUNCAN: In Mr. Flaherty's comments today, he mentioned about the obligation to serve. And an interesting perspective on that, that even if a customer, who he has currently a subsidy for leaves to go to the competitor, he still has to maintain his plant so the customer can come back if they choose. And he also, of course, as you know, has the overall obligation to provide service. So you don't think -- or maybe you didn't think that could be reflected in the subsidies in some other manner, but to take the subsidy away from him when he has those obligations, away from Northwestel when they have those obligations, does that seem equitable?

1534   MR. AUMOND: Well, I guess -- I mean, he has a point to a certain degree, but I can't help but think that if you look five years out into the future what the world might look like. And even though he may have an obligation to provide voice, what the internet world might look like with respect to satellite or terrestrial. And so --

1535   COMMISSIONER DUNCAN: M'hmm.

1536   MR. AUMOND: -- I'm -- I would be concerned, although I take his point and I do think it needs to merit some consideration. You know, over the time given how rapidly the technology is changing, that I would want to make sure that they don't just maintain a dominant position and being able to keep their near monopoly due to the fact that they have an obligation to serve. But I do take his point and I do think that sort of has to be taken into consideration and how you design the subsidy, but I haven't really given it that much thought to date.

1537   COMMISSIONER DUNCAN: I'm just wondering about tele-health and tele-education and -- I think you touched on that in your comments here today, but I had understood that there were -- the services here at least in Inuvik were -- I don't want to say -- adequate, I guess. I had understood that they -- there was -- those services -- the community did benefit from access to those services, and I'm just concerned -- just interested generally in Northwest Territories if tele-health and tele-medicine is -- and education if -- what limitations there are.

1538   MR. AUMOND: Well, I mean there are limitations and I think the -- and I can be corrected and will undertake to confirm, but I believe the scenario that Mr. Flaherty described today was a sort of a pilot project between the Beaufort Delta Education Authority and some communities in the Beaufort Delta. I'm not sure how long that's going to go or what the cost was, but from a -- the delivery of tele-health and education programming, that's the main reason we're getting into the fibre line business up the Mackenzie Valley is we -- in the longer term it's going to cost us less money, we believe, to deliver medicine and health services for sure and education. Through the -- through technology the limitations we have now, you know, is really about bandwidth and latency. These are replies to satellite communities. But, you know, we can't -- for example, speech pathology, you need to be able to see the person and be able to hear them clearly, and so we require the technology to do that. So really, you know, in our thinking in the forefront in terms of becoming a more service delivery-orientated government and bringing access of government services closer to the people, we have to be able to deliver that online in many respects or else bring specialty services directly to the communities rather than flying them into the larger centres.

1539   COMMISSIONER DUNCAN: Those are all the questions that I have for you. My colleagues might have some others as well, but I think you for your very detailed submissions and presentation today.

1540   THE CHAIRPERSON: Mr. Vice Chair?

1541   COMMISSIONER MENZIES: Thank you. I just -- I had a question about your -- the competitive bidding process for high-speed internet subsidy, and you wanted to do it community by community. I was wondering if that wouldn't just establish local monopolies in place of a regional monopoly. You know, in the desire to get -- to battle what is seen as -- but isn't but is seen as regional monopoly, if you wouldn't just end up shutting down competition community by community and you compete for the right to be the local monopoly, and whether you had considered that and whether that was in the best interests of customers in those areas.

1542   MR. AUMOND: You know, I think that's -- you're raising a good point. You know, I guess it depends on how you design the subsidy and for the term of the subsidy, and really how do you account for, you know, whoever is the incumbent and should they lose their market, whether or not they've recovered their costs in plant and equipment prior to getting there. You know, this is something, I think, that, you know, I guess at this point I would just make the commitment to undertake that and get back to you on that because I don't think we've quite considered it to the extent that you're issuing here, but I think we would -- we want to make sure that, you know, folks have a choice, first of all, and so that's why I think that the design of how you would roll that out and maintain it would be important. So your point's a good one.

Undertaking

1543   COMMISSIONER MENZIES: And what's the -- what's going to be the operating structure of the Mackenzie Valley fibre line? Is -- who is it going to be owned by and who is it going to be operated by? Will the operator be able to compete with customers on it or will it more or less just be a toll road in that sense, with somebody operating the line and selling access but not competing as an ISP on it? And to the extent that you can explain that, what do you think the impact of it would be under whatever structure you have in mind on the communications framework in the Territories and perhaps beyond.

1544   MR. AUMOND: Thank you. Well, our -- we're just going to be releasing probably a request for qualifications in the next couple of weeks, so we're going to be undertaking this is a P3 project and we are in discussions with, I guess, three aboriginal governments up and down the Valley to be partners with us. So when we own it, we will be contracting somebody to design, build, operate and maintain it on our behalf. And the idea is to provide equal access to whoever wants to use the line for whatever services they wish to provide. So, you know, that means Northwestel can use it. In fact, I expect Northwestel may be a proponent in the process as well and we welcome their participation, along with anybody else who is interested. But the idea is to provide equal access to try to keep the rates as affordable as possible and sustainable. We have not yet flushed out the model, as we have not quite concluded our partnership discussions with the aboriginal governments, nor have we got to the point where we've selected a contractor yet.

1545   COMMISSIONER MENZIES: And do you have a number on -- or an estimate on how much subsidy would be required for high-speed internet for satellite communities to make it affordable? And maybe in there you can give me some idea of what you think of as affordable because we don't really have a definition of "affordable". It's an aspiration but it's not defined. So "affordable", is that 30 bucks a month, 50, 100, 150?

1546   MR. AUMOND: Yeah, well, I mean we're, I guess, uncertain at that point because we don't have the direct access to the data to be able to tell you, but, you know, we would think for -- if you go back to the policy objective, comparable services at comparable prices. So depending on what service you are talking about, so we would think if you wanted to have a 5 and 1 service it should be comparable to what you were -- what we would be paying in Southern Canada. Marginally speaking there would be some discretion at the margin, but, you know, it can't be so unaffordable that people won't use it. But we don't know -- in terms of what the total cost is, we are -- we're not certain at this point in time. But we have requested that that information be provided to you.

1547   COMMISSIONER MENZIES: Okay. Because I -- the -- I think we had a -- Northwestel indicated that 5 and 1 would be well in excess of $200 a month. And if we compare that to Edmonton at, say, $48 a month or less for 5 and 1, I guess, you're talking about a sort of monthly subsidy of -- if you wanted the same, of 150 to -- 150, $160 a month, I'll just throw that out for guessing, times how many satellite communities, it adds up to quite a bit of money. And how do we -- so, how do we justify that for communities North of 60 when there are still plenty of communities South of 60 in similar situations and very similar conditions, quite rural and remote socially and culturally.

1548   MR. AUMOND: Thank you. Well, as I said yesterday, I don't think we're -- I don't think anybody would expect the price to be what you would pay in Edmonton. It could be marginally higher.

1549   I would also argue that, you know, I don't believe you have ever been to Sachs Harbour, but it's not like any other community you would have in the south. There was a reference made earlier that there was a community just outside of Gatineau that didn't have cell services, but they can drive 20 kilometres and get cell service and get high-speed Internet. There are no roads to Sachs Harbour. You are 1,000 miles away from anywhere. So I don't think it's quite the same, but I do think that --

1550   First of all, it needs to be available and it needs to be affordable. I go back to the policy objective of the Act, which is comparable prices at comparable rates.

1551   And we go back to my comment at the beginning of my presentation today where, you know, we don't know yet what the price is Northwestel is going to be offering these new services at, whether they will be deemed affordable or not.

1552   So I don't know exactly what it is it would cost, but given the small number of subscribers in some of these communities, I don't think the subsidy in total would be all that arduous.

1553   COMMISSIONER MENZIES: If you can possibly give some idea or some estimate of the sort of numbers we are looking after it would be helpful, because before we start considering spending other people's money we should know how much we are asking them for.

1554   Thanks.

1555   THE CHAIRPERSON: Thank you.

1556   I have one comment and one high-level question for you.

1557   My comment is, I fully appreciate that the matters we have in front of us are extremely complex and you almost have to be an expert in regulatory law to fully -- so there is some natural iteration as you follow this hearing. But of course if you wait until the very end to make your comment, for instance final reply, it makes those issues that you are bringing forward less subject to scrutiny by other parties and therefore may have less weight.

1558   So any ability you might have -- and I realize having been in government sometimes it's a bit complex to get positions approved, but to the extent that you can, even by Thursday in oral reply, any positions you could harden up would be to our advantage and I believe to your advantage as well, to the extent possible that you can do that.

1559   So that was the comment, you don't have to react to it.

1560   The question I have is more a philosophical one and there are -- you mentioned in your comments obviously younger generations want to have access to music and film and all those sorts of things, and we can well understand that, but in terms of the hierarchy from a public policy perspective, I take it you are more concerned about eHealth and eLearning and economic development and maybe videoconferencing for all kinds of other reasons, whether it's related to health or anything else like that, but the structure we have right now is for the most part those public goods, those public interest outcomes rely on private companies to deliver on, and they also have shareholders to deliver benefits to, right, there's that balancing point, so I just wanted to have your perspective.

1561   We might disagree as to whether or not -- and I think you are taking the position that in some respects this particular private company may not have done enough and could probably do more, but would you agree with me that we, as an entity that has to balance things, yes, the outcomes desired by these smaller communities are valid, but we do have to balance that off with the interests of this private company that also has to have a fair return on its investments and also have incentive to invest.

1562   Would you agree with that?

1563   MR. AUMOND: Yes. In principle I would agree with that.

1564   THE CHAIRPERSON: What we might disagree on is how far along that spectrum we are.

1565   Would that be fair?

1566   MR. AUMOND: Yes.

1567   THE CHAIRPERSON: Okay, good. So as long as we understand this. And of course that throws a very difficult hot potato on our laps to try to balance as to what that fair point is. Okay. I just wanted to make sure I fully understood your position.

1568   So I believe those are our questions at this stage and we will see you again -- you or colleagues, I'm not sure if you are appearing in the final reply or not, but those are our questions at this stage.

1569   Thank you.

1570   Madam Secretary...

1571   LA SECRÉTAIRE : Merci.

1572   I will now ask the Government of Nunavut to come to the presentation table.

--- Pause

1573   THE CHAIRPERSON: So take your time to set up there and change the glasses around and let us know when you are ready.

--- Pause

1574   THE CHAIRPERSON: So welcome.

1575   As you know, we just ask you to identify yourselves for the purposes of the transcripts and the court reporter and please go ahead.

PRESENTATION

1576   MR. ALEXANDER: Unnusakkut, arnait amma angutiit. Quviasuttugut maniirunnaratta nunavut miksaanut uqarviqaqtilluta.

1577   MS HOLLIS: Good afternoon, ladies and gentlemen. We are very pleased to have the opportunity to be here and speak to you today about Nunavut.

1578   The remainder of our submissions will be in English.

1579   THE CHAIRPERSON: Thank you.

1580   MS HOLLIS: I am Margaret Hollis, Legal Counsel for the Government of Nunavut.

1581   To my right is Chris Fraser, who is a Senior Policy Analyst with our Department of Economic Development and Transportation.

1582   To my left is Nathaniel Alexander, who is -- I have to keep reading this, it's so many words -- Senior Technical Specialist, Telecommunications Lead for the Department of Community and Government Services.

1583   In other words, the economist and the techie.

1584   First we propose to bring you up to date on recent developments in Nunavut and then we will focus on three main areas:

1585   Northwestel's Modernization Plan and the regulatory framework issues as they relate to Nunavut;

1586   the need for more backbone; and

1587   finally, some thoughts on going forward.

1588   Nathaniel will speak about ongoing telecommunications issues and recent improvements and Chris will speak about social and economic development and the need for greater connectivity in the North.

1589   As the Commission will recall, I present in Yellowknife in October of 2011 and at that time I gave you some background on Nunavut. I was going to sort of do it again, but you seem to be quite clued into our satellite-only and we don't really have any other way of communicating so I'm just going to skip that part in the interest of time.

1590   I told you at that time that many things that southerners take for granted we simply cannot do, and I listed them: unreliable service; the fact that Smartphones do not work in Nunavut, as you have discovered; and downloading videos; online banking, because the bank pages time out before they have fully loaded.

1591   And of course things like streaming video, downloading video, you know. If you really wanted to download a show, like a TV show, you could set your computer to download at night and go to bed and wake up in the morning and it might be done, maybe not. It would probably have stopped actually. I gave up doing that, it's too expensive.

1592   I said at that time in 2011 that we needed a coherent plan for communications in the North and that the plan needs to be developed holistically. I cannot tell you how happy we are that you heard us. That isn't just those of us at the table, that is the people of Nunavut. That decision really was heard in Nunavut and we thank you.

1593   The Government of Nunavut has been moving forward on telecommunications services and infrastructure on its own and I'm going to ask Nathaniel to bring you up to date there.

1594   MR. ALEXANDER: Thank you, Margaret.

1595   I would like to take a moment to introduce myself.

1596   I was born in Frobisher Bay, now known as Iqaluit and was raised in Nunavut. I learned Inuktitut as a child in Pangniqtuuq and I didn't start to speak English until I was in grade 4.

1597   My father worked for Bell and Northwestel and he was a key inspiration to me into the career I'm in now.

1598   So since the last hearing there have been some positive changes to the ICT sector in Nunavut and some continuing familiar old issues.

1599   The first good news item I would like to share with you is that we have a second active cellular provider now in Nunavut. They have entered into Sanikiluaq and Cape Dorset.

1600   The second item is our expanded higher speed internet connections. Throughout Nunavut we now have access up to 3 megabits throughout the territory; and in Iqaluit, up to 5 megabits down. The cost for these service packages, however, amount to hundreds of dollars per month. And there is a caveat, prime time access is congested and these peak speeds are not achievable.

1601   The third good news story is that we have had a second satellite provider enter into the Iqaluit and a secondary link now out of Iqaluit is available.

1602   In our submissions we spoke about Quality of Service issues. We chose Cambridge Bay, Gjoa Haven and Clyde River as our examples. We highlighted delays on Northwestel's part to acknowledge and resolve service issues in a timely fashion. While improvements have since been made, quality of service issues still remain a concern.

1603   With your permission, I would like to submit Exhibit 1, which is attached to the back of our comments. It is a recent story that CBC ran last week regarding poor quality of service in Igloolik. Northwestel states that they are not aware of this issue and it's not being reported. The government has, on multiple occasions, put in tickets or work orders to Northwestel regarding these issues, as highlighted in the report that Northwestel creates and sends to the government attached with the exhibit.

1604   Within the government we have performed our own modernization. In the past couple of years we have upgraded our WAN infrastructure, we've upgraded all core government switches and installed dark fibre in all communities. As upgrades are still ongoing, we are still installing and improving services for the government.

1605   The WAN upgrade has allowed the government to expand the deployment of our eHealth system. We have increased capacity to now allow remote learning possibilities such as webinars for training and we have increased access to our core government applications such as our financial systems and human resource systems.

1606   As part of these upgrades we have also begun upgrading our voice switches. We have replaced all core government switches within the territory. We have also installed 80 additional switches throughout the territory to take advantage of the new hardware and new network. In some buildings this was a major accomplishment due to the limited service being provided with traditional analog lines. These upgrades also allow for four digit dialing within government buildings, centralized voicemail and the ability to deploy the Voice over IP handsets to these buildings.

1607   The final major update that I'd like to share is that the government has installed single mode fibre, or dark fibre, within all communities. We have connected all of the core government buildings together in each of the communities to increase capacity within the community. The installation of this fibre has provided greater access for core government services such as email and network folders within the community and the long-term growth of the government's applications will not be hindered due to capacity issues within the community.

1608   Finally, the government looked into the possibility of the private sector installing this service but found it was not cost-feasible at the time.

1609   Margaret.

1610   MS HOLLIS: Thank you, Nathaniel.

1611   This is heartening and much has been accomplished, but there is much, much more that is necessary for modernization, which brings us to the subject of modernization and Northwestel's plan of the same name.

1612   As others have noted, the plan has changed over time. However, the total planned capital investment seems to vary around the same level of spending that has been made historically, plus or minus 5 or 10 percent. So, plainly put, Northwestel is planning to do a little more in the way of equipment upgrades than it has done in the past, or maybe a little less, and this is not what it was asked to do. It was asked to prepare a comprehensive plan to modernize.

1613   Modernization in this world means having access to date in your hand. It means having real downloads, being able to download a movie, being able to upload a movie. That is what modern is now. We see it. And we get television. We see the commercials. We know what people can do with 4G. We can't do it.

1614   So the Government of the Northwest Territories actually read the quote that I was going to read, Mr. Chairman, from your recent speech about failing to make the necessary investments in its network that Northwestel hasn't. That was the state then. That appears to be what they continue to plan to do as far as we can see.

1615   They have used all these exciting words like "modernization" and "4G" but they're just words. I mean they're putting out that, what is it, 58 percent of our customers have 4G cellular, we expect everybody to have 4G cellular, but that doesn't mean what you see on the television. It means that your southern telephone will work in our system. Our switches were so old and so bad that you couldn't use a southern telephone, it wouldn't connect.

1616   This is not 4G service. This is the ability to use a telephone that also functions in a 4G environment. That's all it is and there are an awful lot of people in Nunavut who are going to be very, very disappointed when they find that out.

1617   The problem is that Northwestel still has no plan to deal with the current unmet needs for broadband and imminent explosive growth in a way that really matters. We need more bandwidth, more backbone, more connectivity, cheaper backhaul. Whatever you want to call it, we need massively more. We are operating at just a trickle of what everybody else has a flow.

1618   We're not even asking that it be the gusher that you can get in Toronto. We know that's not going to happen. But we need something that is going on right now. We need to be able to communicate with people.

1619   We will return to the issue of Northwestel shortly, but I'm asking Chris to address a few of the issues around economic development.

1620   Chris.

1621   MR. FRASER: Thanks, Margaret.

1622   Just like Nathaniel, I too was born and raised in Nunavut, experiencing firsthand the development of telecommunication services in the North. I remember when dial-up Internet first arrived and the newly expanded world the Internet provided me. I could easily communicate with people from around the world and learn new things which I otherwise would never have heard of. The arrival of cellular and high-speed Internet also brought with them the revelations of what technology could do for our lives.

1623   Information and communication technologies have not only improved our lives by introducing new capabilities and ideas, they have also enhanced the traditional lives of Nunavummiut. This improvement must not be allowed to stagnate or fall behind the progress made in other parts of Canada. We must ensure all Northerners have equitable access to modern technologies and this necessity is growing relentlessly. Please allow me to explain why.

1624   Nunavut's reliance on ICTs will only continue to grow as Nunavut's economy expands considerably over the short- to medium-term horizon. This expansion, driven by increased mining activity and growth within the private sector, will mean a requirement for improved information technologies with less latency and more bandwidth. Population growth, coupled with greater wealth within Nunavut, will mean consumers will demand better services and have an even greater readiness to participate in the business economy.

1625   Improving connectivity enables Nunavummiut to be entrepreneurs in their own communities, giving them another means to improve the lives of the people around them.

1626   Climate change will bring about adventure tourism in the North, a longer shipping season within Nunavut and commercial shipping through the Northwest Passage. This means an increase in the need for the monitoring of marine transportation and search and rescue requirements.

1627   In order to assert Arctic sovereignty and national security and to enhance public safety across the North, governments must be able to communicate. What we have now is woefully inadequate.

1628   Culturally, information technologies should play a greater role in disseminating traditional Inuit knowledge, enhancing the availability of Inuit languages in digital media and provide new grounds for Nunavummiut to create and distribute new Inuit culture created for a digital age. Nunavut's telecommunications network does not support this to the extent required. Most Nunavummiut don't have access to enough bandwidth to stream a movie, let alone upload one for distribution.

1629   How can we expect Nunavummiut to create and share digital art, music and literature if they do not have the technological means to do it? Nunavut is bursting with creativity; we need the ability to share it with each other and the rest of the world.

1630   The regulations governing Nunavut's ICT sector must encourage or provide incentives for greater broadband availability in the North, access comparable to those available in the South at affordable rates. Improved regulatory oversight through the Commission is required to ensure that Nunavummiut have affordable access to a modern and robust telecommunications network.

1631   It must also provide for survivable and reliable inter-community telecommunications systems which are linked to southern Internet and long-distance networks. This will only be possible if the Commission continues regulatory oversight of the telecommunications market in the North.

1632   Margaret.

1633   MS HOLLIS: Thanks, Chris.

1634   I am going to scoot ahead here since there's a lot of we need, we need, we need, and I think you have that message.

1635   The responsibility for upgrading Nunavut's network infrastructure is not Northwestel's responsibility alone. We are not expecting them to have come up with the whole solution. It will require -- to solve this problem is going to require the leadership and involvement of many partners, including absolutely the territorial governments, hopefully the federal government, maybe some other provincial governments.

1636   Because the North doesn't start at 60. You know, we've heard about Northwestel's service area in northern British Columbia. I'm sure that there are many, many Canadians south of 60 who experience what we experience. Basically the 60th is an artificial line.

1637   So there may well be other governments interested in a northern remote solution as well and we submit that the Commission has a role to play to ensure that adequate targets for connectivity are not only made but implemented, and that includes of course the targets that the Commission itself has set.

1638   We are asking that the Commission -- and I know you're going to ask us what will we do if they don't meet their targets. We don't really know but we do think that there needs to be some follow-through on these targets. They can't just blow them off and say, well, Nunavut is the exception.

1639   The real problem here is that Northwestel's planned network upgrades will not bring Nunavut any closer, or not very much closer, to achieving the goals of 5 down and 1 up.

1640   But it actually gets worse than that because in 2014 the federal funding through Broadband Canada comes to an end and that's going to have a significant impact on our ability to provide connectivity to communities in Nunavut through programs like the Community Services Network and the Classroom Connect program, which are funded through Broadband Canada, and that is going to put us even further behind. At that point we're either going to have to forego those services or pay much, much more.

1641   So how are we going to move into that digital world? Where will the leadership come from?

1642   The one thing that this proceeding up till now, the last several months, has made very clear to us anyway is that leadership is not going to come from Northwestel. It does not want to assume that mantle. It was in a marvellous position to do so. It was the incumbent, it was directed by the CRTC to file a modernization plan, and it really hasn't in our opinion.

1643   So leadership into the new era, whatever it is, is going to have to proceed by working around or possibly imposing itself on Northwestel, which has shown itself to be very resistant to change, disinclined to cooperate with other parties and fiercely loyal to a monopolistic business model.

1644   Both the Yukon Government and the Government of the Northwest Territories propose that multiple stakeholders and territorial governments might work together. A multi-government group could organize funding, define projects and priorities, conduct procurement processes. The Commission could lead that. It could recommend it. The recommendation will probably add moral support. It will be of some value.

1645   We do expect that the three territories are going to get together in any event. We are already drifting that way. We form a kind of territorial caucus within the Northern Communications Infrastructure Working Group and it's also one of the -- telecommunications is one of the recurring topics on the agenda at the meetings of our premiers. But we hope that the Commission might get involved and accelerate that process.

1646   Mr. Chairman, we were so pleased to read your statement earlier this month when you spoke to the Canadian Telecommunication Summit that we need:

"...initiatives that look out for the interests of all Canadians, regardless of their postal codes."

1647   And those of us up in the Xs and the Ys and the Zs really, really appreciated that. We do "want to participate fully in today's digital society" taking that again from your statement.

1648   The importance of this cannot be overstated. It's so important in the North. For us, so many things, online access is the only access we have. That's where the comparison to North Frontenac of whatever it is falls down, is that North Frontenac can get in a car and drive to a hospital. They can get in a car and drive to a store. We don't have those options -- that's not true. We have a store.

1649   Nunavut illustrates the challenges of serving remote areas in its purest form. I encourage you to think of Nunavut not as an annoying exception to an otherwise more or less acceptable Canadian standard but as the test case, the standard that has to be met. Whatever we can figure out that works for Nunavut will work for the rest of -- you know, the remote solution will work for other remote areas.

1650   We thank you for your attention, and we thank you for the opportunity to be part of this debate of national importance. We look forward to your questions.

1651   THE CHAIRPERSON: Before I pass it on to Commissioner Simpson I was wondering -- and I'll bring it to a very high level. I mean, I've been fortunate. It's not my first trip here to Inuvik but I've been fortunate travelling North at different times. I was struck perhaps more in Nunavut and here in the Northwest Territories about the consensus form of government. It's a different way of looking at issues.

1652   So when we're talking about, in your analysis here of finding the path forward with the specific challenges, is there any wisdom we can draw from that way of noodling issues and coming to solutions?

1653   MS HOLLIS: The consensus form of government might better be described as a non-partisan form of government. I assure you that it can be quite fractional.

1654   THE CHAIRPERSON: Okay.

1655   MS HOLLIS: However, there is something I heard that I wanted to say when the question of the east-west divide came up, is that Northerners feel quite a lot of familialness across the North.

1656   We are more cohesive culturally and we care about each other more than our southern counterparts who are equitas and apart. Partly that's because at least among the Inuit and Innu -- well, the Inuit peoples. I'll collect them together. Almost everybody is related to almost everybody else by blood or marriage. And those of us who work in the North have often -- some of us have worked in more than one territory. I have.

1657   We're looking for a Pan-Northern solution. We're not looking for a new solution. We're not looking for a Whitehorse and Yellowknife-only solution. We're not even looking for an Iqaluit solution.

1658   The Government of Nunavut is committed to all of its communities moving forward at the same time. We do not want to have, have and have not communities.

1659   Now, because we have to have regional centres, obviously, there are some communities that are better served than others. But we want to limit that to the extent possible. I think that's part of the consensus model is that we all go together. We all go forward together.

1660   THE CHAIRPERSON: Okay.

1661   MS HOLLIS: When the Inuit were starving, when there wasn't enough food, they all starved together. If there was food they all ate.

1662   THE CHAIRPERSON: Good.

1663   Commissioner Simpson?

1664   COMMISSIONER SIMPSON: Thank you very much.

1665   An excellent segue. Thank you, Mr. Chair.

1666   Now, as you were talking to the Chair and I was reflecting on a similar or parallel thought that in spite of the fact that you are saying that you are looking for a Pan-Northern solution, it's been my experience as well that people from Nunavut find their own solutions.

1667   Sometimes your greatest weakness is your greatest strength and that you may be technologically further behind the curve but, you know, the same could be said for a lot of places in this world. Like China that went from no phones to cell phones unfortunately, what you're missing is about a billion Nunavummiut to make the economics work.

1668   Where I would like to go with my questions, cutting right to the heart of things, throughout your written submission and, again, today, although you didn't pick it up as extensively as you did in your previous submission, you talked about the importance of redundancy and survivability of networks. I'm going to get to that first because I think it's not a "nice to have"; it's a "need to have".

1669   I'm trying to extract from you your thoughts with respect to what a redundant satellite system would provide or whether you've got thoughts that involve fibre.

1670   What struck me -- I used to be a hunter and a fisherman and I've been up to Cambridge Bay and all around in the North. What struck me was that when you set out, you go out with one rifle, one boat and one airplane. You don't have redundancy. Yet, the economy of a territory such as yours is demanding and a redundancy that is in the cost factor of hundreds of millions of dollars to have a second bird in the air.

1671   So with respect to the importance you place on redundancy, what is your thought behind how that can economically work when basic services are economically challenged? How do you go about finding a redundant satellite solution or a fibre solution that is achievable when it is as important as you say it is to have redundancy?

1672   MS HOLLIS: I think we are going to want to think about that question and come back to it. One thing I can say right now is that the redundancy doesn't need to be a complete full --

1673   COMMISSIONER SIMPSON: It could be a blended solution.

1674   MS HOLLIS: It could be a spot -- for example, right after the Anik F2 problem which happened, as you recall, the day after the last hearing in Yellowknife, we were able to -- it turns out that the channel that broadcast the proceedings of the legislature was on Anik F3.

1675   And if Anik F2 ever goes out again we now have a plan to switch over and use the -- I think we had to get permission from the Commission -- we can switch over to the legislature channel as an emergency broadcast channel. So that -- I mean, redundancy may end up being built up in bits and pieces.

1676   Another example is that when we had -- now, this had nothing to do with Northwestel. We had an outage because our server room overheated. It was really ironic because it was kind of a blizzard outside so we needed to figure out some way to use that cold.

1677   But I had a big deal to close that day and what I ended up doing was using the fax machine. When normally I would have been sending back documents with the scanner we used the -- I mean, the fax machine. We had to brush the dust off.

1678   But there are little bits and pieces of redundancy that will keep us going in emergency situations. So redundancy doesn't have to be complete.

1679   But I would like to reserve the right to answer that a little more fully when I have talked to my extremely knowledgeable colleagues.

Undertaking

1680   COMMISSIONER SIMPSON: Well, I asked the question the way I did because it seems even with your recent contract to SSi, it's my understanding that even SSi is using the same satellite service. So what you've got is duplicity of supplier but not duplicity of backbone.

1681   And, yet, you were very definitive in your submission that redundancy is an imperative -- is essential because everything comes grinding to a halt. It isn't just a question of not being able to use your bank card but it's not being able to instigate a search and rescue or a Medevac. So that's why I'm trying to put it as important a feature on it as you have to us and see what your thoughts are.

1682   The second thought I've got is, in your written submission and in your oral, you've got the potential of a new service coming right by your doorstep in Arctic fibre and I'm wondering why you haven't referenced it at all.

1683   MS HOLLIS: A couple of reasons. One is that -- and I don't know this myself. I have it from the tech people that the engineering -- that they haven't really done the engineering yet on how to solve the ice scour problem. We have some of the highest tides in the world and we have ice for very long periods of the year. The forces are really considerable.

1684   We asked Mr. Cunningham about that and he said that they had done desk engineering and all the people who had done real engineering in the North sort of went "Oh!". So that's one reason.

1685   And the other reason is that -- well, in a way I think I have referred to it implicitly which is that if we were to do -- suppose -- and this is blue skying. This is not the Government of Nunavut speaking here.

1686   If the Territories and maybe any other governments that were interested, formed a consortium to bring, you know, modern connectivity to the North, it would then run a procurement process and a request for qualifications would -- you know, what is your tech? What is your ball park? How would it work? How would you manage it?

1687   I wouldn't rule out fibre at that point. By that time, it may well have evolved. I would hate to rule out fibre.

1688   There's also talk of a road from Churchill to Rankin, which would bring fibre into the middle of Nunavut. Whether more links could be developed with, you know, troposcatter and so forth, microwave towers, whatever other technologies are available if possible but I think -- the thing is that the other horrible fact is Nunavut just doesn't have the buying power right now. And partly that's because we're heavily involved in a P3 to build a new airport in Iqualuit and, if you come to Iqualuit, you'll know that's really, really necessary.

1689   But, down the road, that might well be a solution.

1690   COMMISISONER SIMPSON: Okay. Big question is to do with your decision to go to SSi. I think the contract put a 26 community fibre link system together, is that correct? Am I using the correct term?

1691   MR. ALEXANDER: The government itself installed the fibre links within the community. It wasn't part of the deal with SSi.

1692   COMMISISONER SIMPSON: Okay. The big attraction, though, you know, if the back room of SSi is the same as Northwestel -- which is the satellite service that they're both using -- are you aware or were there any determinations that there was a different economy of scale in terms of the backhaul costs? Was that a driver at all in the decision? Or was it all quality of service?

1693   If their wholesale supplier of transport is the same as Northwestel's, was there a different cost to that transport that you were aware of? Or was the decision strictly based on quality of service and other attributes? I'm trying to get right to the cost issue of satellite.

--- Pause

1694   MS HOLLIS: We're going to have to figure out who was involved in that procurement and find out how they dealt with that and what the weighting was.

1695   COMMISISONER SIMPSON: Would it be reasonable to file it as a submission at the end of the hearing? I think June 25th was the strike date and it can be in confidence?

1696   THE CHAIRMAN: So, the undertaking -- could you file it as an undertaking for the 25th? I think that's the deadline.

Undertaking

1697   MS HOLLIS: We have two of us going on holiday so I think we can and, yes, we will give that undertaking and it will have to be in confidence.

1698   COMMISISONER SIMPSON: I think we can, I think we can.

1699   MS HOLLIS: Okay. It's an undertaking.

1700   COMMISISONER SIMPSON: Yeah. Okay. That would be very much appreciated.

1701   The next line of questioning has to do with funding mechanisms. We've heard loud and clear from any satellite community that costs are prohibitive with respect to the backhaul and transport because of satellite costs.

1702   We have heard that, if parity with other communities in the south and even in the north were to be maintained as an objective at five and one, that satellite costs would put the costs to the consumer well north of $180, somewhere well beyond that. We don't even know if it's technically achievable but let's pretend it is and that it's strictly a cost issue.

1703   So, with that said, if the Commission was to consider a broadband regime for funding for the north, would it be appropriate to look at it only as a subsidy regime for satellite communities? And, if so, do you have an idea for the Commission of what an affordable rate would be for a five and one service?

1704   Because we've heard a lot about affordability but we always hear it in tandem to slow speed. So, is there an amount of money you have in mind that you think is an affordable amount for Nunavut that would allow satellite to deliver five and one in a subsidy regime?

1705   I'm trying to get some kind of economy of scale.

Undertaking

1706   MS HOLLIS: That would be definitely something we would have to get back to you on later and I don't know if we could do that for July 25. I mean, I don't think we can.

1707   There is a third factor, though and that is caps, right? I have a 15 gig service with my telephone. It comes to $155 unless I go over the 15 gigs, in which case they come and take my firstborn child. It's very, very expensive to go over your limits.

1708   So, that is also a factor. It isn't just speed and it isn't just the cost of the basic program. It's not like the south.

1709   MR. FRASER: I was wondering if you could tell me if you want an answer as the end user sees it, as a consumer sees the price or do you mean the cost of backhaul?

1710   COMMISISONER SIMPSON: Well, affordability to the customer has been of prime concern with respect to your testimony and your written submissions. But what I picked up on in your presentation today is you said that, throughout all of Nunavut, we now have access to up to three megabits per second and, in Iqualuit, up to five megs per second.

1711   So, it's giving me a pretty good sense that you have an idea that, if you have that kind of speed, what the costs are.

1712   MR. FRASER: Okay. Thanks.

1713   COMMISISONER SIMPSON: Okay? What are the costs on a per megabit basis? Do you have that right now?

1714   MR. ALEXANDER: In what context? For end user or for --   

1715   COMMISISONER SIMPSON: End user. Do you have a sense? Because, now that I've asked the question, do you have it at hand? No? Okay.

1716   MS HOLLIS: Sorry, do you mean Northwestel's various price plans?

1717   COMMISISONER SIMPSON: Well, I'm just reflecting on the fact that you said, in Iqualuit, service is available up to five megabits per second. I don't know -- I'm assuming it's --

1718   MS HOLLIS: Okay. We can certainly get that for you.

Undertaking

1719   COMMISISONER SIMPSON: Okay. It's just -- the business case. I was asking a lot of questions about funding earlier and the cost issue or the costings issue in a community is something we look at pretty stringently with respect to cost recovery.

1720   And, in many parts of Nunavut, the cost recovery just falls off the table, you know? It just isn't there.

1721   So, here is my question. Is there a threshold that you feel is reasonable in terms of community size that would be a way for us to be able to gauge a stair step approach, five megabit Iqualuit, three megabit in other, larger communities and then -- so the stair step of bandwidth and speed relates to community size in the event that the cost of a program to subsidize satellite would be just too much to handle on a universal five to one basis?

1722   And would you be able to submit that?

1723   MS HOLLIS: The government of Nunavut will not engage in discussions about which communities we're going to prefer.

1724   COMMISISONER SIMPSON: Okay. I had to ask that question. Because I understand the universality but, you know, I'm trying to look at the economics of it and service cost to community can be a non-starter. As you say, if one starves, all starve. And I respect that and I understand it but I still had to ask the question.

1725   MS HOLLIS: May I say something about the business case?

1726   COMMISISONER SIMPSON: Yes.

1727   MS HOLLIS: Northwestel's emphasis on a business case? In one way, there's no business case for Nunavut. It's so expensive. It's so expensive to run.

1728   But it's a commitment that Canada made and it made it because it wanted sovereignty and the best way to get sovereignty was that the Inuit, the people who lived on the land and had the real claim to it, become Canadians.

1729   I don't think there's a business case for Nunavut, truly. If you really wanted to save money, you'd fly us all down, build a new city like Kanata and North Gower or something, you know? It would be so much cheaper.

1730   That isn't the way it is. To say there has to be a business case before we bring service in is in another reality from Nunavut. It's a parallel world. It doesn't work.

1731   COMMISISONER SIMPSON: I'm glad that you were so forthright because, you know, we're struggling to tilt the table back to a level playing field and it is extremely difficult because economics enter into it.

1732   I couldn't help but also comment, though, and I'd like your reaction to this, that it seems that, as easy as it might be to place the problem of parity at the feet of any supplier, whether it was Northwestel or SSi, your message is very clear that you are saying that this is only solvable by a higher authority, really. And that is a subsidy that has to come from beyond a supplier. It has to come from a federal government.

1733   And I'm trying to ascertain, from your perspective, what the order of magnitude is in terms of how much it would cost and how it would work and whether that subsidy should be isolated to satellite communities, isolated to Nunavut and we struggle with satellite communities in other territories separately?

1734   You're the expert on your geography and the costs of servicing it.

1735   I mean, as I said, you went your own way so far in what you did with your contract with SSi, what you've done with the Nunavut Broadband Corporation, you know? You've taken matters into your own hands and I'm trying to work with you here on solutions that are equitable from our standpoint financially and equitable from a societal standpoint in your view.

1736   MS HOLLIS: I should probably add that, once the gold and diamond mines actually get working, there may well be a fabulous business case for Nunavut, just not at the moment.

1737   COMMISISONER SIMPSON: On that very subject, my next question, this is an economics question for you, you had referenced a return on investment or an economic throughput as a result of introduction of broadband and it came from the Lemay-Yates study that was done, and I haven't got it in front of me -- well, actually I probably do -- but in it it sort of referenced a ratio or an equation that said -- oh, here it is:

"Studies have shown that every increase of 10 percent in broadband penetration has a positive economic impact in the range of one percent of GDP."

1738   COMMISSIONER SIMPSON: Now, does that hold true in Nunavut; is that a totally translatable statement?

1739   MR. FRASER: I would very much say yes. Our economy is very much developing still and you can look at our economy as you would look at developing economies in undeveloped countries.

1740   Businesses grow at a much faster pace when they have access to faster Internet, better telecommunication services. And another thing is, is we are expanding rapidly like those other developing economies.

1741   So, yeah, I would say that it very much parallels what is happening in other ones.

1742   And another one comes to mind, an OECD -- I believe an OECD Study and it's really quite well done.

1743   COMMISSIONER SIMPSON: Okay. I think those are my questions, Mr. Chair.

1744   THE CHAIRPERSON: Commissioner Duncan.

1745   COMMISSIONER DUNCAN: I'm curious to know the -- if you could describe, I'm not asking you to pick one company over another, but if you could -- if I'm a resident in Nunavut the service that I get served by SSi in one of those 22 communities that Northwestel refers to versus what I get from Northwestel and any communities served by them; is it the very same service?

1746   MR. ALEXANDER: Sure. This is not necessarily the stance of the government to speak on behalf of this, but for service access wise in a community where Northwestel is not providing high speed service, where if you wanted to get a 2.5 meg service from the SSi Qiniq front-end application, it rounds out to 5 megs down, 384 up and it's $369 a month.

1747   COMMISSIONER DUNCAN: So, and compared to Northwestel then?

1748   MR. ALEXANDER: It does not have any.

1749   COMMISSIONER DUNCAN: In that particular community.

1750   MR. ALEXANDER: In that particular community. If we went to a place like Iqaluit where it's 5 meg down from Northwestel and 512 up, that's 179, but for the Qiniq package for 2.5 down and 384 up is $369.

1751   COMMISSIONER DUNCAN: So, can you give me an example of a Northwestel-served community that would be a similar size to the Qiniq example that you gave me?

1752   MR. ALEXANDER: Rankin Inlet would be a comparable size. The running service there -- Northwestel is running higher speed DSL there, it's a 2.5 meg service and it's $129 a month.

1753   COMMISSIONER DUNCAN: Thank you.

1754   THE CHAIRPERSON: I just have one question for you, and it's a good thing you're a lawyer because it has a legal component to it.

1755   MS HOLLIS: Yeah.

1756   THE CHAIRPERSON: One of the filters we have to put our decision-making through is the possibility of unreasonable discrimination, and certainly when you look at this there's disparity, and I think it perhaps hits the operating territory within Nunavut a little harder, one could question whether there's a reasonable or an unreasonable discrimination vis-à-vis the subscribers and the citizens that are there.

1757   What are your views on whether the particular economic realities of that serving territory relating to building and maintenance, infrastructure, geography; how far do they go to justify a potential discrimination?

1758   MS HOLLIS: I'm sorry, I'm not sure, how far does who go?

1759   THE CHAIRPERSON: That those realities --

1760   MS HOLLIS: Mm-hmm.

1761   THE CHAIRPERSON: -- economic, geography, distance, the fact it's relying on satellite; how far does that go to justify that, notwithstanding our test normally is that there should not be unreasonable discrimination, one could argue -- and I'd like to see what your view is -- that those factors actually could build a case for that these are not unreasonable, they just are and, therefore, there is a reasonable ground for an outcome that's not the same as perhaps residents in other parts of the serving territory?

1762   MS HOLLIS: Well, certainly there's -- I mean, the economic justification is real.

1763   The way I take it is, is the discrimination case as strong as the economic case or, you know, in the same league?

1764   The discrimination, to the extent that it is discrimination, is more about their geography I think than who lives there.

1765   However, that having been said, I do -- speaking as a Canadian now and someone who does not feel that our Aboriginal population is other but that they are part of us --

1766   THE CHAIRPERSON: Right. Oh, it's not --

1767   MS HOLLIS: We are all part of us.

1768   THE CHAIRPERSON: When I use the term 'unjust discrimination', I mean it purely within the realm of telecommunications law where some subscribers cannot be unreasonably discriminated against versus other subscribers.

1769   MS HOLLIS: Ah.

1770   THE CHAIRPERSON: Sorry, I should have explained that in more detail. It's not based on anything other than one class of subscribers versus another class of subscribers because they're getting different service.

1771   MS HOLLIS: Well, I do think that there is sort of a historical case to be made that the Aboriginals, including Inuit, were not welcome in the built-up areas of Canada and, in fact, in some Nunavut communities were forcibly relocated to places.

1772   One of the things we get tired of hearing is, well, if you find it's too expensive, why don't you come back down here where everybody else lives?

1773   And that is so offensive to someone whose family has forcibly been relocated to where they are now and has managed to make a home for themselves despite that.

1774   That we have consigned, we as Canada, have consigned Aboriginals to the margins in terms of industry and density and then -- well, let me put it this way.

1775   If we continue to have a divide between the services available in urbanized areas and services available in rural and remote areas, we are unjustly discriminating.

1776   THE CHAIRPERSON: Okay. Just to be clear, it's not Aboriginal/non-Aboriginal, the question is purely based on section 27.2 of the Telecommunications Act that says that we could find, in certain circumstances, situations of undue preference or unreasonable disadvantage.

1777   And this goes back to the east-west issue, and I wanted to have your views on this, that is there an argument; are you making the case, and maybe you're not -- I don't want to put words in your mouth -- there is a reality there and maybe it is a discrimination but it is maybe a reasonable discrimination because of geography, distance, economics, whatever, and it's not a question of being unreasonable in the fact that somebody in the east is getting a different level of service than in the west.

1778   MS HOLLIS: If there were no subsidies, yes, it would be, it would be -- I mean, because we would paying $500 for a phone line or something like that. Yes, that would be -- that would trigger that.

1779   The trouble is that it's a slope, it's hard to know when does it become unreasonable. And, you know, are we flirting with that? Yeah, I think so.

1780   THE CHAIRPERSON: Fair enough. Well, there will be other opportunities in the process if you want to reflect on that, you're more than welcome to do that.

1781   So, those are our questions.

1782   We look forward to seeing you I believe again down in the process in a few days.

1783   So, why don't we take a short 10-minute break before we hear from the few remaining interveners for today.

1784   So, thank you very much.

1785   We'll come back at a quarter to five.

--- Upon recessing at 1633

--- Upon resuming at 1650

1786   THE CHAIRPERSON: A l'ordre s'il vous plaît. Order, please.

--- Technical difficulties

1787   Please go ahead.

PRESENTATION

1788   MR. BEAULIEU: Thank you very much. First of all, I'd like to welcome you to the Northwest Territories and I hear some of you have been already here, so obviously you like it and you'll be back.

1789   My name is Darrell Beaulieu. I am the president of Falcon Communications, and I am here to speak in support of NWT -- or Northwestel's Modernization Plan. And I'd like to present Falcon's perspective as a community champion for the federal government's NWT broadband project that Northwestel is working with us on.

1790   A little bit about myself. I was born in Yellowknife and grew up along Great Slave Lake and lived there most of my life. I've seen a lot of changes and I'm probably proud to say that, you know, I've been a part of some of those good ones. And I continue to live in Yellowknife's Dene community of Ndilo with my wife, my three children have grown up, and my -- they've left the nest and with my grandchildren.

1791   A little bit about me. I am the past director and president of Deton'Cho Corporation, of which I was CEO for about five years. And also a director on Denendeh Development Corporation for a couple of years back in the mid-'90s. And I was one of two chiefs of the Yellowknife's Dene First Nation for about 10 years. And prior to that I spent about 17 years in the mining exploration business as an employee and being self-employed. And served as a director with the NWT Nunavut Chamber of Mines for one term. At this point I am also the Chair of the NWT Business Development Investment Corporation. It's a Crown corporation of the government of the Northwest Territories. And I also serve on the board of Northland Utilities. And I'm a director on the NWT Law Foundation since 2004.

1792   So I just thought I'd give you a little bit of a history of my participation in the economy and social aspects of the NWT here.

1793   And some early history, I guess. In October of 2002, seven independent applications from the NWT were filed with the federal government's Brand Program. The vision for that program was to revolutionize communications in the North with a network spanning 1.2 million miles, square miles, bringing high-speed internet services to the -- for the first time to a population of more than 20,000 people in all of the NWT communities.

1794   The focus has since expanded to mobile internet, which you might expect has generated quite a bit of excitement here in the North.

1795   In 2003 five applicants from the NWT were chosen to lead the project. They formed a group of community champions called the Broadband Business Alliance, with Falcon Communications as the general partner managing the business on behalf of the limited partnership.

1796   The current partners in the Broadband Business Alliance represent communities across the NWT. That's the Deton'Cho Economic Corporation, the Akaitcho Regional Investment Corporation, the Tetlit Gwich'in Council, and Denendeh Investments Incorporated, which represents 27 First Nation communities across the NWT.

1797   In 2005, in competition with over 100 other applications, the Broadband Business Alliance launched the largest brand -- or Broadband for Rural and Northern Development Project in Canada from both a geographical and a financial perspective. Under the Canada-Falcon Phase 1 Agreement, Infrastructure Canada provided $7 million in funding to subsidize the purchase of satellite broadband -- or bandwidth, I should say, for high-speed internet network to serve the communities in the NWT over 10 years, from 2005 to 2015.

1798   In 2011 Falcon finalized a new Canada-Falcon Phase 2 Agreement in which Infrastructure Canada committed an additional $14,814,120 helping Falcon contract with Northwestel for more backbone transport capacity; switches in its microwave network for higher DSL speeds to enable 4G mobile services in 15 NWT communities at rates in line with the rest of Canada; broadband speed, DSL and mobile internet capacity to 10 satellite communities at customer rates comparable to the rest of the NWT; 4G mobile services to seven NWT communities by March 31st, 2013, with mobile services to the remaining 18 communities served by this project by December 31st, 2014.

1799   All communities in the NWT now have access to high-speed internet service from Northwestel, minimum download speeds of up to 2.5 megabits at uniform affordable prices. Up to 21 megabits per second of download data transfer capacity is available to mobile internet devices, ranging from smartphones to rocket sticks, providing excellent adaptability and flexibility.

1800   With Telus' and Bell's national network, compatible equipment used across the vast majority of Canada will also now work in the North.

1801   The new Northwestel mobile network also supports international roaming in the U.S. via a roaming agreement with AT&T, plus 200 other countries. Mobile internet service should be available in every NWT community by December 31st, 2014, with many already receiving services by March -- as of March 31st, 2013.

1802   In terms of benefits, household broadband availability approaching -- is approaching 99 percent full -- plus full community coverage of mobile technology is a major economic advantage for the NWT. Modern networks remove a big deterrent to the attractiveness of NWT as a place to live and work. It creates significant opportunities for small business, distance learning, tele-health, video conferencing opportunities will help capacity building. 4G mobile internet enables greater public safety, mobile computing, economic development in IT and knowledge-based sectors, and video surveillance and monitoring.

1803   In terms of enhancement and sustainability, a portion of the federal funding to be matched by Northwestel will be available for investments to improve features and/or capacity. The new network will be largely sustainable for the foreseeable future; however, challenges in the satellite communities will likely require more bandwidth funding after March 2017 to continue service at comparable rates to the rest of the NWT, and a longer term solution being examined is to move larger sites to microwave.

1804   What Northwestel is like to do business with. A key part of our funding agreement with Infrastructure Canada is the vendor has to match all contributions 100 percent. Northwestel has done that plus provided additional funds for project management and communication.

1805   Northwestel's expertise and vision have been essential to the success of the project to date.

1806   I wanted to throw one little additional example. A couple of months ago the Tlicho language developed an ap so now youth can utilize their Smartphones and iPhones for learning their language.

1807   They have also worked very hard to ensure every target date has been met and in many cases they have beaten the target, for example putting in 4G.

1808   Northwestel has been open and professional in all our dealings with them, which is important in satisfying the federal government and our auditors that everything is on track.

1809   If we go past all the history, all the dollars, and all the technical specifications, what does the project really mean to us here in the NWT?

1810   As community champion, Falcon's job is to understand the region's needs and try to meet them as far and as fast as possible.

1811   I can tell you that Internet and mobile services coming here to the NWT, something the rest of Canada has been able to take for granted since Internet was first invented, is a huge and exciting success story in the communities in the Northwest Territories.

1812   Let me share a couple of examples to show what I mean:

1813   Two years ago we invited Infrastructure Canada's Director General and his team to Yellowknife for a meeting with Falcon. At that time their BlackBerrys wouldn't work here. Their panic that day was a powerful lesson to them about what Internet services mean to people in the NWT.

1814   Last November, residents all across the NWT followed the U.S. presidential campaign and election results on the Internet.

1815   This past Christmas, as the excitement about 4G really got going, the best gift in many of the communities was a cell phone or an iPad.

1816   Subscriber rates are high and Internet is changing our lives. Like everywhere else in Canada, people are e-mailing, they are texting, they are tweeting, they are getting the latest news, they are buying online, they are downloading movies and music. And, like everywhere else in Canada, parents are complaining about their kids data usage and we now have a distracted driving law.

1817   In terms of last thoughts, I wanted to thank the Commission for allowing me to speak today on this very important subject. Before answering questions, I would like to leave you with a couple of things:

1818   First is a map showing the NWT communities. Consider the distance between them and how challenging it is to provide telecommunications infrastructure here.

1819   Second is a list of the communities served by this project. Consider the range of populations and how difficult it is to make a business case for providing access to small remote communities.

1820   Last are a couple of community photos. Consider our residents who treasure their heritage and culture and want to enjoy the benefits of economic development and share information with the rest of the world.

1821   THE CHAIRPERSON: Thank you very much.

1822   Vice-Chair Menzies will ask you a few questions I believe.

1823   COMMISSIONER MENZIES: Hi. It sounds like our work here is done. Listening to your presentation I had the impression that in terms of Internet, at least in the NWT, everything has been working just fine and this has been building out.

1824   So can you help me understand how many federal agencies are involved in this funding mechanism which is you partnering with Northwestel and then accessing funding from Industry Canada or Infrastructure Canada?

1825   It would help us greatly if we were to understand how many conversations are going on and what the future opportunities might look like for you in continuing your build-out.

1826   MR. BEAULIEU: Currently I would like to maybe just give a brief history as I started in 2002. Industry Canada, prior to INFC taking over the bandwidth component, provided dollars for infrastructure through the BRAND program, then later on Infrastructure Canada came along and provided funding for bandwidth and now Phase 2, they are doing bandwidth and infrastructure up to 2017.

1827   Now, the Government of the Northwest Territories has been very helpful and been a partner in promoting bandwidth and infrastructure in the Northwest Territories and of course that is the purpose to open up the north and to allow investment, whether in resource development or in oil and gas or in the mining sector or in the energy sector.

1828   So partnerships in the north is critical for the development of the north. And partnerships with the federal government, especially on infrastructure and bandwidth investment here in the north is welcome and is definitely good for small business, it's good for competition and at the end of the day it's good for the end users if we want to keep up with technology that the rest of Canada does get.

1829   COMMISSIONER MENZIES: So is it primarily Infrastructure Canada and Industry Canada that have been providing money?

1830   MR. BEAULIEU: Yes.

1831   COMMISSIONER MENZIES: Okay.

1832   How many communities do you have left to build out in terms of Internet services to reach the CRTC's objective of 5 down and 1 up in the Northwest Territories?

1833   MR. BEAULIEU: Sorry, I missed the first part of the question.

1834   COMMISSIONER MENZIES: I'm sorry. How many communities are still short of meeting the target of 5 down and 1 up?

1835   MR. BEAULIEU: I can't answer that question, but our vendor, who is Northwestel, provides a minimum of 2.5 -- or a minimum of 1.5 in the contracts that we have with them.

1836   In terms of the other services, I don't know the exact numbers. They are available, but I would have to dig them up.

1837   COMMISSIONER MENZIES: Okay. And just sort of one last question. Is Northwestel the only partner that you work with, the only one with the capacity to do your plan or is it just a preference?

1838   MR. BEAULIEU: No. We worked with SSi and we have worked with Northwestel also.

1839   COMMISSIONER MENZIES: Okay. Why is this modernization plan necessary as is? Could it be modified in some way and still work for the build-out?

1840   MR. BEAULIEU: I think the modernization plan is important for the north like the Mackenzie Valley Highway is important for the north, like the Mackenzie gas pipeline is important for the north.

1841   If there is somebody that wants to upgrade and modernize their communications systems, then I think it's very, very important we support that, unless there is somebody else that is going to step up and spend $233 million. I haven't heard anybody else step up to the plate yet.

1842   COMMISSIONER MENZIES: Thank you.

1843   Thank you, those are my questions.

1844   MR. BEAULIEU: Thank you.

1845   THE CHAIRPERSON: Thank you very much, Mr. Beaulieu, for your participation in the hearing.

1846   Those are all our questions I believe. Thank you.

1847   MR. BEAULIEU: Thank you.

1848   THE CHAIRPERSON: We will now hear from the next presenter, which is Aurora Technologies.

1849   Thank you.

--- Pause

1850   THE CHAIRPERSON: So welcome and when you are ready please go ahead, Mr. McCauley.

PRESENTATION

1851   MR. McCAULEY: Thank you, Mr. Chairman. You are going to have to bear with me, I left a 30 degree temperature yesterday and I'm not adjusting to it very well here.

1852   THE CHAIRPERSON: Tell us about it.

--- Laughter

1853   MR. McCAULEY: Good afternoon, Commissioners and thank you for allowing me to speak at this hearing.

1854   My name is Todd McCauley and I am the President of Aurora Technologies, an aboriginally owned and operated company based in Norman Wells that was started in 1998 and it's operated by my wife and myself.

1855   I have been working in the communications industry for 28 years. Interestingly, I started my first job here in Inuvik at the age of 15 working for Inuvik TV. I have served as President of the Norman wells Land Corporation and the Norman Wells Claimant Corporation, and as Director for the Sahtu Land and Water Board and the Sahtu Secretariat Incorporated. I am currently the President of the Tulita District Land corporation. All of these organizations were derived from the Sahtu Comprehensive Land Claim Agreement.

1856   Norman Wells is a town of about 800 residents in the Sahtu Settlement Region and, until recently, residents were mostly employed by government or Imperial Oil.

1857   My understanding is that you are here to gather input from northerners about the state of telecommunications service and where it's going in the future, and I thank you for providing this opportunity to share my views in person.

1858   I will start by sharing with you some of my experience as a provider of communications services in the Sahtu Region, both as an independent business owner of Aurora Technologies and as a partner with Northwestel in a joint venture, Borealis Communications.

1859   Prior to Borealis Communications and in the last decade there was a proposed pipeline project in the Mackenzie Valley, which shall remain nameless. In 2004, Northwestel and Aurora Technologies signed a short-term MOU and together we worked on the project.

1860   Aurora Technologies and Northwestel focus on providing communications services to companies in the resource sector, including mining operations and oil and gas exploration. Often, this means providing communications services that meet the needs of 80 to 120 people located at remote camps. Some of these camps are mobile and move daily.

1861   The services we provide include portable radios, air-to-ground communications, cell phone boosters, repeaters, satellite phones, rig intercoms, GPS's, Internet, portable microwave towers, cable TV systems in the camps and even satellite TV receivers and the sets themselves, all the services these camps both want and need to function in today's world, giving their workers the finest comforts of home. All of the camps we support get public telephones with no long distance charges to the workers, public computers for personal use and pay-per-view events.

1862   To install and maintain these services we rely on teams of contract employees. We usually hire these teams on a seasonal basis. They are trained and skilled technicians who are willing and able to dedicate themselves to long hours in remote locations in harsh and cold conditions. They are difficult to find and are needed due to the short window of opportunity and quick response time.

1863   Communications at the rig site is considered essential and when there is an issue, it needs to be resolved quickly at any hour of the day. This is where we excel. In short, our business requires a lot of technical know-how combined with the ability to deliver on a moment's notice.

1864   It also depends on having a strong network service provider to partner with, a company that can also bring expertise and resources to the table when they are needed, whether it's to set up a new microwave link, provide cellular service or manage the backhaul network.

1865   Northwestel provides this and that's the main reason why we have entered into partnerships with them. Our capabilities complement each other and as the oil and gas sector moves forward with a 2011 commitment of $576 million towards exploration in the Sahtu Region, having a strong partner like Northwestel is the best way to continue providing the services the resource businesses need.

1866   There are a number of other points I would like to make about Northwestel.

1867   The first is that I know this company has a strong commitment to Aboriginal people in the North. For example, in our shareholder agreement with them for Borealis Communications, one of our specific objectives is to employ qualified Tulita Dene and Métis businesses as subcontractors to the greatest extent possible. We have not had a lot of success doing this so far because it's hard to find qualified technicians from anywhere that are willing to do the work we do, but we are hopeful more opportunities will emerge as we further develop the business.

1868   Second, any additional investment included in Northwestel's Modernization Plan that will add microwave and fibre to the existing network will improve how companies like Aurora Technologies and Borealis Communications are able to serve the resource sector in Canada's North. The demands of the resource sector are growing and so must our capabilities if we are going to provide the communications services they need to operate, whether it's sharing massive amounts of data or helping to make working conditions safer and living conditions more enjoyable.

1869   And third, communities like Norman Wells and neighbouring Tulita may be small but they are very important to the future economic development of the Sahtu Region. This is an area known to be resource rich and it is therefore important to the Northwest Territories and to Canada as well. We need strong companies like Northwestel that have invested in advanced services and infrastructure and that are committed to continuing with those investments in the years ahead if we are to continue enjoying success on the path towards greater development.

1870   Finally, I know that Northwestel has made a commitment to rolling out 4G wireless service to most communities. I can tell you that I have seen firsthand what the availability of this service means to people in communities like Norman Wells and Tulita because we now have it and the best way I can summarize the impact is this. It opens us up to the world and it brings the world to us, and everyone I know is very happy to have it.

1871   This past winter, in the midst of our three-month window of exploration, Northwestel turned on 4g on Bear Rock in Tulita. The feedback was not remarkable but astronomic. The people of Tulita already had cell phones, whether it was Bell, Latitude or TELUS. Instantly, people had communication with their families. There is now cell phone coverage between Tulita and Norman Wells, both on the river and the winter road, with few, if any, dead spots.

1872   Boating is a major transportation method in our region, and while there may be three boats equipped with marine radios, most have cell phones. And in Inuvik -- I tried last night -- if you dial *16 you get Emergency Coast Guard. This is not available in our region but I will be talking with Northwestel to provide this in Norman wells and Tulita, and knowing the management of Northwestel it will happen. The safety aspect for travelers is priceless.

1873   For these reasons I believe you should support Northwestel's Modernization Plan.

1874   Thank you for the opportunity to appear and I would be very pleased to answer any questions.

1875   THE CHAIRPERSON: Thank you very much, Mr. McCauley. Because you're supportive of the plan and you're very clear in your submissions, it becomes less fertile ground for me to ask questions in the context of the hearing, but I'm going to take the opportunity of your presence here because of particularly the beginning of your presentation which expands on your written intervention you sent earlier and the work you've done with the resource sector.

1876   I take it that when you provide these services to the camp -- and quite rightly, you point out that the vast array of communication services have become now pretty much essential to provide to the workers in those camps -- I take it that it's mostly the resource companies that are providing for that service. Is that correct?

1877   MR. McCAULEY: Yes.

1878   THE CHAIRPERSON: Okay. And in a sense, those resource companies have somewhat deeper pockets than individual residents throughout the serving territory of Northwestel; wouldn't you agree?

1879   MR. McCAULEY: Yes.

1880   THE CHAIRPERSON: I'm wondering because you're in the community but you obviously travel elsewhere from time to time, from your perspective as somebody who lives in those communities and travels around, what would your view be on the perception of individual residents about the quality and the direction this plan is setting for individual residents as opposed to business residents?

1881   MR. McCAULEY: I have family in both Norman Wells and Tulita and when 3G was turned on -- when 4G was turned on, on Bear Rock, this winter there was no complaints about the price, there was no complaints about the service. Everybody was happy to have the service.

1882   And the majority -- I don't know if you picked up on it -- the majority of people already had cell phones in Tulita even though there was no cell phone coverage. They had iPhones, they had agreements -- because they travel.

1883   So no, it was -- I got the call from Northwestel saying they were going to be testing the site on Bear Rock, but because they were testing it to not say anything, and I emailed them back and said, it's already on Facebook, the site's on. So everybody in the camps knew. As soon as the coverage was up their phones lit up and people were ecstatic.

1884   THE CHAIRPERSON: And I take it the service being provided at that point was -- and tell me if I'm wrong -- that it was related to voice and text and that sort of service or were you also able to access some broadband access to the Internet concurrently?

1885   MR. McCAULEY: No, just voice data and text.

1886   THE CHAIRPERSON: And even that was a major advancement and welcome by the community; is that correct?

1887   MR. McCAULEY: Yes.

1888   THE CHAIRPERSON: Okay. Good. Thank you very much. That's very helpful. It helps us understand. As I said earlier, your presentation was very clear and helps us very much understand what's happening on the ground and sometimes it's -- we don't want to come to these issues thinking that even the sorts of advancements that you're talking about aren't enough because we know that some people want even more and we have to balance that out.

1889   So thank you very much, Mr. McCauley, for participating in our hearings. We very much appreciate it. Thank you.

1890   MR. McCAULEY: Great! Thank you.

1891   THE CHAIRPERSON: Thank you.

1892   Madam Secretary.

1893   THE SECRETARY: Yes.

1894   Just for the record, I would like to mention that Jeanine Omingmak will not be appearing at the hearing.

1895   We will now hear the presentation of Eeyou Communications Network.

1896   Mr. Glustein, can you hear me?

1897   MR. GLUSTEIN: Yes, I can. Thank you.

1898   THE SECRETARY: Thank you.

1899   You may introduce your colleague and you have 10 minutes for your presentation.

PRESENTATION

1900   MR. GLUSTEIN: Thank you very much.

1901   Mr. Chairman, Members of the Commission, my name is Hyman Glustein. With me today are Cédric Melançon, who is the Director General of the Eeyou Communications Network/le Réseau de Communications Eeyou, and its president, Alfred Loon.

1902   Our intervention in this application pertains to the issues raised by the First Mile Consortium on CRTC policy regarding community networks in outlying areas, specifically in high-cost service areas. Our concern is that the Commission should consider overall service improvements for broadband delivery as a policy issue and that telecommunications policy should encourage the promotion of digital literacy.

1903   Different parts of Northern Canada such as the areas served by Northwestel and the James Bay in Northern Quebec have remarkable similarities: the social impact of the resource sector, high food prices, distance from the closest supply centre, a large youth population and in many cases a locally managed fibre telecom network requiring a costly feed to reach even the next community. For the southern-based telcos, serving the north is a low-priority issue, except when the location is considered as a supply centre for natural resources.

1904   Most of all, they are is Aboriginal and has a very high percentage of young people. Overall it is poorly served by the licensed dominant carrier.

1905   Mr. Melançon will provide you with a brief overview of the ECN and Mr. Loon will explain our proposal for service improvement.

1906   Now, Cédric Melançon.

1907   MR. MELANÇON: Hi. I am Cédric Melançon, Director General of the Eeyou Communications Network, ECN.

1908   First, I'd like to thank the Commission for giving us the opportunity to speak today.

1909   ECN is a not-for-profit organization operating a 1,500 km fibre optic transport network in the James-Bay/Eeyou Istchee region, serving a population of over 15,000 Crees and 15,000 non-Aboriginal residents, over an area 50 percent larger than the Dehcho lands of the Dene, even larger than the U.K.

1910   ECN is also a wholesaler of data and Internet transit services through this fibre-optic network.

1911   ECN's mission is to eliminate the digital divide in our region. This started March 2012 by providing broadband services to various ISPs and organizations at unprecedentedly low tariffs. This enables local organizations to reap the benefits of the evolving digital economy with cloud computing as an example.

1912   Our network also decreases the isolation of our region by making available alternative means of communications such as videoconferencing over the internet.

1913   Finally, as a non-profit, our revenues reflect our expenses. Although our tariffs are a significant improvement over what was previously available, they are still not at par with what could be expected in high population density areas.

1914   For this reason, we ask this Commission to consider developing policies to allow alternative networks in remote regions such as ours to provide contemporary telecommunications services at rates comparable to what is available to most Canadians.

1915   Alfred?

1916   MR. LOON: Thank you. Thank you, Mr. Glustein and Mr. Melançon.

1917   Hello. My name is Alfred Loon and I am the President of the Eeyou Communications Network,

1918   First, let me begin by thanking the Commission for its fine work in reporting that every year more and more Canadians are adopting broadband internet services. We read it in CRTC annual reports. We read the studies and as operators of the Eeyou Communications Network, we know it first-hand. What you have said is what we have experienced.

1919   In our remote communities landlines are becoming less important every year. Even Northwestel has confirmed in its comments that it agrees with this assessment.

1920   In big cities and in high-cost areas, wherever broadband service is available, people and businesses alike use Skype, YouTube, Facebook, and IP phone services. They text their information and email data. Landline telephones, like the overnight letter carrier and the fax machine, are no longer their first choice.

1921   Networks like ours, the Eeyou Communications Network, are the digital highways and, in our area, for the Cree School Board and the Commission Scolaire de la Baie-James, with their Smart Boards, teleconference facilities, distance learning and digital literacy classes, ECN is the backbone for communications and for education.

1922   For years, the CRTC has supported landline services for rural and remote communities with the National Contribution Fund. When this policy was introduced it was aimed to reduce the disparities in pricing and in service and it was before IP and broadband became part of the telecom delivery system. It is now time that this type of support is adapted to the modern telecommunications services that also aim to address the same disparities.

1923   As the First Mile group stated in their intervention, other countries have weighed the merits of support and reacted positively. They noted that the FCC have had programs to support regional broadband networks, even specific programs to support Aboriginal networks such as ours.

1924   And from past experience, we know policies to support community and cultural advancements are not beyond the normal reach of the CRTC.

1925   This Commission has supported significant Canadian cultural endeavours such as community radio stations with subsidies from a Tangible Benefits fund. In that particular example, the Commission set out a policy to support communities, provided a funding formula and licensed an independent body to manage the fund. We believe that is a very good model.

1926   The Commission also promoted and advanced the Canadian music industry substantially with subsidy policies. And the Commission has supported a set-aside policy to insure that small cellular companies can continue to exist in Canada

1927   The time for allowing phone companies alone to benefit from high-cost service area subsidies has passed. Service improvement should apply to everyone in Canada and that benchmark should be well beyond landline services. Consider this. In our James Bay area, the ILEC, in our case it's Telebec, apportions its services unfairly:

1928   - It sells, for example, in Chibougamau, a residential combination of landline telephone, 5 mgs of internet and a multi-channel TV service for one highly populated community for about $140 a month and one meg of commercial internet for $65;

1929   - To the James Bay Cree communities, it does not offer bundled packages, and sells 1 meg of commercial internet for between $1,750 to up to $2,200.

1930   As Canadians, we deserve better.

1931   But we are not here today to seek government intervention against Telebec. We are here:

1932   - To stress that local networks can provide the same services, often more reliably, more efficiently, at less cost and more capable of creating jobs in the local environment;

1933   - And to ask that local networks and Canadian consumers be treated in a fair and equitable manner no matter what their location.

1934   The Telecommunications Act says that all Canadians should be treated fairly:

"To render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada."

1935   And this Commission has endorsed that view repeatedly in its decisions.

1936   Even so, the Crees of Eeyou Istchee have not waited for others to improve our situation. Together with our neighbours in non-Aboriginal communities, we have partnered to build a new transport network, one linked with other telecom providers.

1937   But unlike many telcos, even though we have a quality of service that surpasses standards, we have no subsidies for operational costs. Now, we are in the final steps of reaching every home and business in our area to access our network for service. At the moment we deliver a reliable and secure service.

1938   To serve all Canadians fairly with high quality services, our suggestions are:

1939   - That the CRTC, as it has between large and small cellular companies, encourage broadband competition between independent networks and telcos by sharing fairly available infrastructure resources and subsidies;

1940   - That the CRTC, as it has done in the past with radio and the Canadian music industry, consider a policy to support an independent fund for broadband services in Aboriginal, rural and isolated communities;

1941   - And that the CRTC, as it has already done in licensing the Community Radio Fund of Canada, consider calling for an independent licensee to review and fund non-profit broadband projects based on quality of service and on serving residents.

1942   We ask that this Commission consider:

1943   - that the telcos network is not more important than ours;

1944   - that we merit fair consideration as a provider of service to a high-cost area;

1945   - that a policy to promote these services be considered -- just as it was in place for the monopoly providers for years;

1946   - and that an independent agency be licensed to provide funds to Aboriginal and community networks.

1947   Members of the Commission, thank you for hearing us today. We would be pleased to answer any questions. Thank you.

1948   Megwich.

1949   THE CHAIRPERSON: Thank you very much -- it's Jean-Pierre Blais speaking here -- for participating in our hearings.

1950   I am going to pass you over to Commissioner Duncan who will have some questions for you.

1951   COMMISSIONER DUNCAN: Good afternoon, gentlemen.

1952   I think what -- we're here to review the situation with Northwestel. I don't see that you're raising any issues specifically to deal with Northwestel. What I'm understanding from your presentation is that you would like access to the National Contribution Fund. Is that correct?

1953   MR. LOON: Yes, Madam. Like I said before, when this one was created there was no broadband service available. So now that they are there, I think that that's -- that the funds should also cover the broadband services.

1954   COMMISSIONER DUNCAN: Okay. I think it's clear to me what you're asking for and I don't think I have any further questions. We can certainly note this and take this into consideration. The Chair or others on the Panel may have some questions.

1955   But I appreciate your participation. Thank you.

1956   MR. GLUSTEIN: Excuse me, Madam Commissioner, if I could just -- it's Hyman Glustein. If I could just add a point here?

1957   COMMISSIONER DUNCAN: Sure.

1958   MR. GLUSTEIN: The issue of subsidies was raised by Northwestel and, further, it was raised previously in the Astral-Bell business arrangement in the sale of radio stations in that it was the first time that there was a proposal to use subsidies for broadband services.

1959   Our interest in this application was because they had raised an issue that broadband could be financed. As well as today, earlier in the day, Northwestel raised the issue that this fund be used for transport networks. These are issues that not only pertain to the Northwest Territories. I mean, they pertain anywhere in Canada that the local community networks can actually deliver service comparable to what these telcos are delivering.

1960   Our issue in this hearing is that, you know, we feel that the situation between -- that Northwestel is facing in the Northwest Territories is not unlike the situation that other companies are facing.

1961   COMMISSIONER DUNCAN: I think I understand your point and I think if we were here to expand the National Contribution Fund outside of the North, which I don't believe we are here to discuss today, that you know, your points would be maybe more applicable. But, certainly, we understand what you're saying and that they can be taken into consideration perhaps in another forum.

1962   Mr. Chairman, I don't know if you might have other...?

1963   THE CHAIRPERSON: Just to be clear, I understand your position. I'm wondering if you're suggesting that we, in the context of this proceeding, we should be considering your request.

1964   I have heard others, and I have read other submissions suggesting that the sort of issues you're bringing to the fore would best be dealt with in a more national proceeding and a policy proceeding perhaps even, to look at this issue more broadly.

1965   What would your views on that be?

1966   MR. GLUSTEIN: Well, if I could answer, Mr. Chairman, I think you just about hit the button, hit the right button on that one.

1967   The issue is what we're hoping the CRTC will do, will be to consider establishing, you know, a policy framework a lot in the way it has done for community radio which is first by issuing a -- you know, by discussing with the various parties the situation and examining different options, and then by issuing a policy that actually calls for, you know, an independent body to manage the fund.

1968   This is basically what we're proposing.

1969   THE CHAIRPERSON: So I am glad that we understand each other. Certainly, as we struggle with this particular company's plans for this particular serving territory we are quite cognizant that similar issues and similar challenges present themselves elsewhere in remote and high-cost areas.

1970   We therefore thank you very much for expanding that perspective to us and, certainly, we'll have to have it at the back of our minds as we deal with this particular application from you.

1971   So thank you very much, gentlemen, for participating. We heard you loud and clear. It's always very good for participants who participate in our proceedings even if it has to be done through telecommunication links.

1972   So thank you very much for your participation.

1973   MR. GLUSTEIN: Thank you.

1974   MR. MELANÇON: Thank you.

1975   MR. LOON: Thank you.

1976   THE CHAIRPERSON: Thank you very much.

1977   So this concludes our agenda for today. And unless the Secretary tells me otherwise, I think we're going to adjourn and reconvene on the 19th of June at 8:30 in Whitehorse.

1978   So thank you very much, everyone. To those of you we won't see again, thank you for your hospitality. And for those of you -- we'll see you a little later on in the week -- safe travels.

1979   So thank you very much.

--- Whereupon the hearing adjourned at 1739, to resume at 0830 on Wednesday, June 19, 2013

REPORTERS

Johanne Morin

Monique Mahoney

Jean Desaulniers

Sue Villeneuve

Date modified:

2013-06-17