ARCHIVED - Transcript, Hearing 19 June 2013
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Volume 2, 19 June 2013
TRANSCRIPTION OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION
Review of Northwestel Inc.’s Regulatory Framework, Modernization Plan, and related matters
High Country Inn & Yukon Convention Centre
4051- 4th Avenue
19 June 2013
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
Review of Northwestel Inc.’s Regulatory Framework, Modernization Plan, and related matters
Emilia de SomaLegal Counsel
John MacriDirector of Telecommunications Policy
Christine BaileyHearing Manager
High Country Inn & Yukon Convention Centre
4051- 4th Avenue
19 June 2013
- iv -
TABLE OF CONTENTS
PAGE / PARA
8. Arctic Fibre369 / 2027
9. Government of Yukon401 / 2205
10. TELUS Communications Company443 / 2399
11. First Mile Connectivety Consortium478 / 2603
12. K'atl' odeeche First Nation521 / 2795
13. Public Interest Advocacy Centre537 / 2905
16. Nunavut Broadband Development Corporation570 / 3059
14. SSi Group of Companies595 / 3179
22. Whitehorse Chamber of Commerce670 / 3565
15. Ice Wireless & Iristel694 / 3706
17. Total North Communications733 / 3924
19. Dakwakada Development Corporation740 / 3963
20. Utilities Consumers' Group753 / 4019
18. Association of Yukon Fire Chiefs769 / 4094
21. Juch-Tech Inc.775 / 4132
- v -
PAGE / PARA
Undertaking433 / 2337
Undertaking441 / 2387
Undertaking471 / 2548
Undertaking472 / 2555
Undertaking507 / 2721
Undertaking658 / 3492
Undertaking659 / 3494
Undertaking666 / 3541
Undertaking721 / 3851
Undertaking731 / 3907
Undertaking731 / 3912
Undertaking732 / 3919
Undertaking739 / 3954
--- Upon resuming on Wednesday, June 19, 2013 at 0830
1980 LE PRÉSIDENT : À l'ordre, s'il vous plaît. Order, please.
1981 We will now start the formal part of the hearing.
1982 This is a continuation of the hearing we started in Inuvik and so, in a sense, I won't repeat my opening remarks, but for those of you who may not have been able to be with us on the first day of the hearing I just want to quickly introduce the panel who is in front of you this morning:
1983 - to my right we have Mr. Peter Menzies, who is the Vice Chair of Telecommunications;
1984 - to my left, Elizabeth Duncan, who is the Regional Commissioner for the Atlantic and Nunavut;
1985 - to her left is Mr. Steve Simpson, who is the Regional Commissioner for British Columbia and the Yukon;
1986 - to my far right is Candace Molnar, who is the Regional Commissioner for Manitoba and Saskatchewan; and
1987 - myself, Chairman of the CRTC, and I of course have been chairing the hearing.
1988 I also take the opportunity to present to you the Commission staff, the key Commission staff that are here:
1989 - Christine Bailey, who is the Hearing Manager;
1990 - John Macri, who is Director of Telecommunications Policy;
1991 - Emilia de Somma, who is Legal Counsel; and
1992 - Lynda Roy -- I did point out up in Inuvik that we would be changing Hearing Secretary. It was Jade Roy who was the doing the job. And I did mention that it is not an essential requirement to be named Roy to be a Hearing Secretary but it certainly helps, apparently. So Lynda Roy will be our Hearing Secretary.
1993 If you have any questions about the process of issues we invite you to contact the Commission staff for any clarifications.
1994 I'm going to pass it to Madame Roy to say a few opening statements -- or the other way around. Okay. Thank you. I should have read my --
1995 So we are very fortunate this morning to be able to call upon the Minister of Economic Development of Yukon to say a few opening comments.
1996 So, Minister, please go ahead.
1997 MR. DIXON: Thank you very much.
1998 Ladies and gentlemen, my name is Currie Dixon, I'm the Minister of Economic Development as well as the Minister of Environment for the Government of Yukon.
1999 Good morning, Mr. Chairman and Commissioners. I'm very happy to be able to welcome you and the Commission staff to Whitehorse on behalf of the Yukon Government, the people, the businesses and institutions of Yukon, all of whom are very much affected by the issues involved in your review of Northwestel's Modernization Plan and regulatory framework.
2000 As you've heard before and will most likely hear again, the northern telecommunications environment has unique characteristics, unique challenges and unique requirements for policy solutions. At the same time, northern consumers and businesses need to access telecommunication services that are just as capable, affordable and reliable as those available to all Canadians. In fact, because of the size and remoteness of our communities and the distance from major centres of commerce, education and health care, it is altogether likely that the needs of Northerners for advanced communications are greater.
2001 I am sure that you recognize, as do we, that Northwestel is a significant presence in Yukon and across the North in terms of its history, community involvement, economic impact and employment. As a result, a regulatory proceeding such as this which centres on Northwestel and its plans for the future development of telecommunications in the North is pivotal.
2002 While our Government has questioned some elements of Northwestel's Modernization Plan, we believe that there will be significant and ongoing benefits to Yukon as a result of infrastructure development like 4G wireless and upgraded Internet in every community.
2003 We applaud the Commission's efforts in undertaking this comprehensive review and believe that the holistic approach which had been adopted is of critical importance to Yukon because Northwestel is our predominant provider of regulated and unregulated telecommunication services as well as cable TV services.
2004 The progress that has been made in telecommunications development in the North would not have been possible without CRTC's support for local service subsidies, service improvement plan investments and the unique regulatory adaptations that have been developed for Northwestel.
2005 The Yukon Government has from time to time supported some of the policy proposals and opposed others based on our assessment to the outcomes that might best address the needs of all Yukoners.
2006 Overall, Commission decisions have been effective in introducing competition at a slow and measured pace while providing Northwestel with subsidy support and with regulatory latitude and pricing flexibility to enjoy significant financial performance.
2007 What we now recognize and what the Commission certainly understands and what we hope Northwestel appreciates is changes are required if Northerners are to be allowed the full opportunity to realize the economic, social, educational and healthcare benefits of the digital world.
2008 Yukon believes that telecommunications investment in the North must not languish but rather must be strengthened and that two broad policies must be pursued to achieve this.
2009 One is the comprehensive and collaborative approach to federal subsidy to enable development of our advanced telecommunications infrastructure and two is the commitment to fostering viable competitive choices across the whole spectrum of telecom, IT and entertainment services.
2010 The need for subsidy support for telecommunications infrastructure in sparsely populated and economically underdeveloped regions like Canada's North is widely recognized and there must be federal leadership to implement a mechanism which will address our needs.
2011 It is our view that competition benefits everyone, including Northwestel, and consequently that policies which pave the way for viable competition in telecommunications services are an important prerequisite to achieving this goal. While this means that changes must be experienced, including by Northwestel, we are confident that in the long run benefits for northern economies and for northern peoples are worthwhile.
2012 It is not my role today to go into the particulars of Yukon's proposals or to comment on specifics of other submissions. However, I do want to acknowledge the depth and breadth of interest in the issues in this proceeding and express appreciation for the care and attention taken by many parties who had addressed the Commission on these topics.
2013 You will certainly have a rich and diverse record to assist you in your deliberations and we very much look forward to your decision and to the opportunities to participate in implementing solutions that will benefit Yukoners, Northerners and the nation.
2014 Thank you very much, Mr. Chair.
2015 THE CHAIRPERSON: Thank you very much, Minister Dixon. We will of course hear the more formal presentation of the Government of Yukon in a few minutes. So thank you very much for those opening comments. We very much appreciate it.
2016 So now I'm going to pass it over to the Hearing Secretary.
2017 THE SECRETARY: Thank you very much.
2018 I will now invite Arctic Fibre to take place, and while they do this I will go over a few housekeeping matters with you before we start the hearing.
2019 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.
2020 The Whitehorse portion of the hearing will last two days. We will also begin tomorrow morning at 8:30 a.m. We will advise you of any scheduling changes as they occur.
2021 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.
2022 There is a verbatim transcript of this hearing being taken by the Court Reporter in front of me and which will be posted daily on the Commission's website. If you have any questions on how to obtain all or part of this transcript, please approach the Court Reporter during a break.
2023 Please note that the Commission will also be tweeting the documents during the hearing at //@CRTChearings using the hashtag number sign CRTC.
2024 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.
2025 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.
2026 Gentlemen, we are no ready to hear your presentation. Please introduce yourselves for the record and you may proceed with your 20-minute presentation.
2027 MR. CUNNINGHAM: Good morning, Mr. Chairman and Commissioners. My name is Douglas Cunningham. I'm the founder and Chief Executive Officer of Arctic Fibre.
2028 At my side is Geoff Batstone, who some of you may recognize as a former Legal Counsel to the Commission. For the past 12 years Geoff has worked in various capacities around the world for cable and wireless communications and joined Arctic Fibre late last year as Legal Counsel and Corporate Secretary.
2029 My involvement with the CRTC actually predates its evolution from the old BBG days to the CRTC more than 35 years ago.
2030 As a broadcast licensee I've appeared before the Commission on a number of occasions.
2031 As a consultant I spent the worst nine months of my life helping to write the first phase of the Cost Accounting Manual. I guess I get sworn at a lot at night.
2032 And as an investment banker I provided evidence to the Commission on capital markets, cost of capital matters over the years, including some that pertain to actually Northwestel.
2033 I believe that most of you -- we did file with the Commission electronically and in hard copy some slides that we have shown. I don't know if the Commission has them before them right now.
2034 Any of the maps or slides, are they there?
2035 THE CHAIRPERSON: Yes, we do.
2036 MR. CUNNINGHAM: Great!
2037 To begin with, there's an overview there of the Google map showing that the shortest route between Asia and Europe is over the Pole and that is one of the two secondary -- or two primary markets that we're concentrating on. We are concentrating on intercontinental traffic as well as to provide service to the North of Canada and to the Alaskan markets.
2038 We are putting in four fibre pairs in a single cable, 32 terabits theoretical capacity. It connects Northeast Asia to Northern Europe, Northeast Asia to the U.S. West Coast and to the U.S. Northeast.
2039 We will serve satellite-captive markets in Canadian Arctic and Alaska;
2040 We will also provide connectivity from central Canada to Asia and to the United States, eliminating the need for carriers to send their traffic through the United States, which is the case for 70 percent of the Europe-bound traffic from Canada and 100 percent in the case of traffic going to Asia.
2041 The longer ice-free window in the summer allows Arctic Fibre to develop the telecommunications infrastructure for the first time. It is optimally the best route. It's the shortest distance, it's politically stable, it's physically diverse and it avoids a lot of the other technical interruptive issues from fishermen or anchorages or political insurrection in Egypt.
2042 The international traffic is really what drives this project. It creates the requisite economies of scale to make the project economically viable.
2043 The map that you see there today is actually lacking one additional line that is under consideration at this point in time. We are also contemplating construction of a line from Harbor Pointe just north of Seattle, along the Aleutian Island chain out to Attu Island or just south of there where it would interconnect with our basic backbone.
2044 The reason for that is that we have had a lot of demand from U.S. Pacific Northwest and also from a number of the communities in Alaska through our Quintillion affiliate, Dutch Harbor / Unalaska, a number of those other places that you see on the Discovery Channel all the time, and actually that would be the fastest route between Seattle and Tokyo as well.
2045 As I said, we are going to be putting in a spur at Prudhoe Bay which will also go down the Dalton Highway to provide extra connectivity for Quintillion.
2046 We have a supply contract ready for execution with TE SubCom. Our capital cost for the entire project is going to be about $620 million, of which $400 million will be supplied at very attractive interest rates by the U.S. Ex-Im Bank.
2047 We have completed our Desk top studies completed last year. Our environmental assessment is underway by ACOM at the present time. Our landing site surveys will take place on a detailed basis the week beginning August 19th and we will have the backbone ready for service in November 2015. We would have liked to be a little bit earlier, but we have had a number of issues that we have had to deal with both from a technical standpoint, the logistics of building 31 kilometres across the Boothia Peninsula and also the fact that the federal government has amalgamated its telecommunications purchasing function from 54 or 56 different agencies into a single entity and we are still waiting some feedback as to where some of the government departments that want environment censors and military censors put on the ocean floor.
2048 We are conducting the construction in two phases. Phase 1 sis what you see on the map right now. It consists of the backbone network from Tokyo to London; spurs to Cambridge Bay, Gjoa Haven, Taloyoak, Igloolik, Hall Beach, Cape Dorset, Iqaluit and Chisasibi.
2049 We will serve 52 percent of the population of Nunavut without any government subsidy whatsoever.
2050 Phase 2 involves going to an additional 13 or 14 different communities directly and other communities via microwave spurs from that that will connect eventually 98 percent of the population of Nunavut and Nunavik.
2051 Phase 2 is not economic on its own and is going to require some form of government subsidy or support or some capital contribution towards the $237 million fibre or microwave cost. We filed a proposal with the Minister for Industry Canada on February 4th.
2052 The next slide is just fibre routing if you wanted to know where we are going, but in there I think it is incumbent to note that we are using a branching unit configuration as opposed to a festoon style so that if we go into a particular Arctic community and there was a problem with the landing spur, it doesn't take out or impact service to other communities or anywhere else in the backbone.
2053 The economic drivers of our project are really the fact that we can construct at a lower cost than anybody else due to the shorter polar route in the current systems. There are also the demand particularly from Asian carriers and the content delivery networks.
2054 It's not the traditional telcos, they are still ordering 10 gigabit wavelengths, sometimes 100 it's the Microsofts, it's the Amazon, it's the Googles, it's the Facebooks of this world who are ordering in 1 and 2 terabit increments.
2055 The customer base consists of some of the largest telcos and Internet companies in the world. Our fibre optic technology introduces a competitive alternative to satellite bandwidth at a lower cost base and much higher bandwidth. That's because, in essence, all of our cost is upfront.
2056 So whether we put through 1 gigabit to Arctic communities or 100 gigabits, our costs are essentially the same. So we get the economies of scale that flow straight through under out cost of service model to the consumers.
2057 I should note that our initial open season last year attracted sufficient demand at $390, we have increased that rate to $419 to accommodate the federal government's wish to put in some additional underwater branching units to allow Phase 2 to happen, because we cannot dig the cable up once it's in, it's there for 25 to 30 years.
2058 So $419 per meg per month, the initial going in rate, compares very, very favourably with rates of $3000 to $6000 per meg for satellite service.
2059 We are carrier neutral. We are independently owned by international carriers and will be by financial institutions. We have no Canadian carrier ownership, we believe in structural separation, and it ensures equal access to all carriers and non-discriminatory pricing.
2060 We believe that our presence will enable more entrants and carriers to start up their operations in the North.
2061 We identified 7.8 gigabits of demand initially during our open season process based upon, in some cases, the old Arctic Communications infrastructure assessment requirements of 256 down, 128K back. Obviously it's significantly higher if they go the CRTC threshold of 5 down and 1 back.
2062 We will be presenting our final proposals to our open season participants in the next four or five weeks I would expect and we are, as I said, moving along on this project.
2063 I'm going to turn it over to Geoff now to speak to our regulatory concerns. We don't expect to be regulated by the CRTC as an international carrier, but some of the decisions that you make with regard to Northwestel and regulatory structures will have a significant impact on Arctic Fibre.
2065 MR. BATSTONE: Thanks, Doug.
2066 You will see from our submissions thus far in the proceeding that we believe that the high cost of transport between the north and the south is key to solving many of the issues that are being discussed in this proceeding. As you know, backhaul to many locations in Northwestel's serving territory is currently provided on a monopoly basis and without a competitive alternative to that form of backhaul we believe that those costs are likely to remain very high as long as that remains the case.
2067 Unless bandwidth becomes cheaper, which is something that we think will not happen without another alternative, then it's going to be very difficult to supply the amount of bandwidth that's required to provide the types of services that the customers want.
2068 Like pretty much everybody else in the proceeding, we believe that customers in the north require the same services as customers in the south and that any subsidy regime which is developed or which is augmented or any changes to it will have to reflect that principle.
2069 What that means, though, of course, is that if you were to provide services that are equivalent or similar to those in the south, you are going to have to provide availability of backhaul, which is essentially the same as that in the south. And without better transport links between the north and the south we don't think that is going to be possible.
2070 We do believe that subsidies are still required in some cases.
2071 As you have heard, I think on numerous occasions so far, many of the communities in Northwestel's serving area are very small, they are very distant from facilities, they are not economical on their own.
2072 I think another thing that needs to be kept in mind is that technological development is going to mean more demand, not less demand. I think as time goes on we are going to see that technology doesn't decrease the bandwidth need, it's going to increase it, and any subsidy mechanism which seeks to simply reduce the cost of the existing options is not going to be able to keep up with the demand that's going to be there.
2073 I think to the extent that these services are provided over satellite you are always going to be chasing the expectations of the customers because satellite simply will not be able to deliver the amount of bandwidth at a cost that is sufficiently low that the customers can afford it.
2074 I think in that context of subsidy it's also worth noting that building fibre in the north is not easy, right. I think we agree with Northwestel to some extent on this point, that geography, population, weather, logistics, all of these things make it more difficult to build fibre in the north and in order to be able to build fibre you do have to present a compelling business case. The investors, whether it's Northwestel or whether it's Arctic Fibre, are going to expect that they will make a reasonable return before they will put the money in.
2075 We also believe that any subsidy towards backhaul has to be directed towards efficient backhaul. I think that it's not enough to simply take the existing situation and try to run with it. To be sustainable, any subsidy is going to have to be seen to be efficient, otherwise people are not going to want to pay in the long term.
2076 Satellite backhaul has its limitations, as I have mentioned. Simply the amount of backhaul you can provide for the dollars is limited by the cost but, similarly, the latency on satellite limits the applications that you can do over it. Fibre, on the other hand, provides essentially unlimited capacity with very low latency.
2077 Our position in this proceeding would be that whatever you do on the subsidy mechanism, if it's directed towards backhaul, it needs to be directed towards an alternative that provides the scalability on the bandwidth and allows those applications that the customers in the south are currently enjoying.
2078 Propping up existing satellite backhaul approach is simply not "future proof".
2079 So we do believe that the focus of current subsidy regime needs to change.
2080 Without a high-bandwidth transport network it doesn't matter how good your access network is, it won't be able to deliver the services that the customers want.
2081 We therefore believe that the regulatory priority should be placed on improving the transport network and we think that when you are considering the subsidy you should be taking into account both the local and long haul transport costs and you should be focusing on efficient costs or costs of an efficient form of backhaul.
2082 Perhaps the most important point for us I think is that whatever you do with the subsidy regime we believe that it should promote alternatives for transport. The existing approach is clearly not delivering the services to the extent that they are needed in all the places where they are needed.
2083 We believe that competitive alternatives like fibre will reduce the costs in the long term and therefore will be more sustainable.
2084 Reducing satellite prices to artificially low levels through subsidies is not going to solve the problem in the longer term. As I mentioned before, I think there will always be a disconnect between the expectations of the customers and what the providers are able to deliver, if they have to deliver it over satellite.
2085 I will turn it back at this point to Doug.
2086 MR. CUNNINGHAM: Right now subsidies are provided by various government organizations. In some cases it is CanNor, in some cases it is Industry Canada, through a couple of different programs, and sometimes it is the National Contribution Fund. We think that there is a real need to try to link all of these together in order to ensure equatability among all market participants.
2087 Right now I think that Northwestel gets about $11 million toward backhaul support. Aside from the SIP program, it gets about $11 million a year. Qiniq gets about $6 million to serve their customer base, and Tamaani gets about $4 million to serve their base in Northern Quebec. And we believe that there are a couple of other smaller grants that go out from CanNor as well.
2088 We really need to try to get that amount up dramatically. There needs to be, at least in my opinion, some review of the overall NCF costing regime. Maybe the high-cost serving territory definition, which I think was last established in 1998, needs to be reviewed, and in a different proceeding than this, because there are a lot of places in urban Ontario or semi-rural Ontario and Quebec, and the Prairies, that may not require the serving territory subsidies that they are presently getting.
2089 We need to make sure that there is no market distortion as a consequence of this, or discriminatory access, because some of the people who have some of the grants have differentiated pricing mechanisms, depending upon your residency.
2090 I think that the CRTC needs to take hold of this, but it needs to try to integrate this with the policy functions of Industry Canada. This is one of the things that I have talked to Commissioners separately about; that is to say, you see where the rubber meets the road, where the dial tone hits the receiver, and you have to try to influence what Industry Canada is or is not doing, and do it on a timely basis.
2091 We submitted an application on February 4th -- not an application, but a proposal, on an unsolicited basis, to compete with one that Telesat put in at $120 million, and SES put in at $118 million, for a very small amount of bandwidth, and we are going to give virtually unlimited bandwidth to 98 percent of the Canadian population up there for $237 million, and ours, as I said, lasts a quarter century.
2092 So we need to have that concentrated approach, and there needs to be a coordinated approach with Industry Canada in order to make anything that you do with these hearings and proceedings worthwhile.
2093 This proceeding has sometimes, I think -- some people might review it as a bit of an unjustified mugging of Northwestel. I think that one of the things I am concerned about, as a person that is in the process of raising $620 million -- or just about through that whole process -- is that we create an investment environment that attracts capital to the North.
2094 Northwestel, surely, is a convenient target, but they provided dial tone when nobody else would. They go to places that nobody else does, with the exception of Jeff Philipp and SSi. They have done a pretty good job of getting to some of the other communities. But, again, that has been heavily subsidized by the federal government.
2095 I think, as well, as a person putting on my old investment banker hat, that we have to be very, very mindful of the fact that -- I know that Northwestel may have lagged on your capital intensity ratios, but you have to take into account, if you are sitting on the Board of Directors, what they are facing right now. That is to say, yes, they are subject to competition.
2096 There are easy pickings in Whitehorse and Yellowknife, where 52, 55 percent of their demand is derived. And that kind of cream skimming wouldn't necessarily matter that much if it were in a Calgary or an Edmonton, or a Toronto or an Ottawa. But, up here, where you have such a small population base, and the lack of density, you have to look at it from the 30,000-foot level and take it down and look at the bottom line impact of what it would be on Northwestel after you take into account market share loss.
2097 The other part of it is, I think for all carriers, new entrants and otherwise, it is very difficult for them to make the investment decisions without knowing if it is going to be a satellite backhaul or if it is going to be a fibre backhaul, because the engineering is dramatically different. There are a lot of applications that work on fibre, and have been designed solely for fibre, that just will not work off satellite, with latency in excess of 600 milliseconds.
2098 So I think that you really have to kind of temper your views a little bit, in terms of that, in order to create an appropriate investment environment. Otherwise, the investment capital will just not flow, and the requisite network upgrades will not occur.
2099 I think, as well, that you could look to the United Kingdom or England or Ghana or Guyana and see places where a number of the harsh regulatory policies caused people, dominant carriers even, to almost abandon their wireline networks.
2100 People must be allowed to have a reasonable assurance over the longer term of an adequate return on capital and a return of the capital.
2101 And it is impossible for any of us to really look at this, given the way that everything is filed in confidence, with the amount of redaction in all of the filings, to be able to come to any meaningful conclusions. And I have been looking at telco financial statements -- I helped write the rules 30-plus years ago.
2102 We need Northwestel to be viable. We need SSi Micro to be viable, and all of the other new competitors to come in. We want to foster competition from the likes of them, plus the new market entrants, be it Ice Wireless, Coman, Tamaani Internet and Lynx Mobility.
2103 Quite frankly, Arctic Fibre solves many, many of the issues that you heard yesterday, and which you will hear again today, from a marketing, technical and competitive perspective.
2104 I just want to ensure that your decisions mesh with those of other government agencies, to ensure an end to this great Canadian tragedy, that is, the scarcity of affordable bandwidth in the North. We should all be ashamed of the situation that exists today.
2105 Thank you.
2106 THE CHAIRPERSON: Thank you very much, gentlemen.
2107 Just before I pass it on for questioning, I wanted to make a few comments.
2108 Of course, in an ideal state, we are seeking to be aligned not only with the Department of Industry, but all governments, at whatever level they are. However, we do have to operate, legislatively, at arm's length. I know that you appreciate that.
2109 The other comment, for those of you who were not at our first day of the hearing, is that we are using June 25th as the default date for written undertakings.
2110 So I am telling parties that if Commissioners are asking for written undertakings, we should go with that date.
2111 Of course, it is open to parties to suggest another, if, for whatever reason, they are not able to meet that deadline, and we will consider that. But, for the time being, that is the default date.
2112 I would now invite Vice-Chair Menzies to start the questioning. Thank you.
2113 COMMISSIONER MENZIES: Thanks. We have a long day, and you have a plane to catch, so I will try to be precise with the questions --
2114 MR. CUNNINGHAM: Thank you.
2115 COMMISSIONER MENZIES: -- and the more precise you are with the answers, the sooner you get on your plane.
2116 What are the dates for this being completed? You speak as if it is a done deal, but I am sure that there are many "what ifs".
2117 MR. CUNNINGHAM: Our plan of work with TE SubCom, which is our chosen contractor, calls for it to be finished in November of 2015.
2118 We would have been a little bit earlier, but, as I said, their scope of work and looking at and assessing all of the technical issues, plus some of the permitting issues, plus some of the changes that we are making to accommodate clients across the Pacific and in Ireland, and so on, will push us back to that date.
2119 COMMISSIONER MENZIES: And that is done? That is going to happen? It is not contingent on anything?
2120 MR. CUNNINGHAM: We still have to paper our contracts with a number of the carriers.
2121 COMMISSIONER MENZIES: But all of the financing is in place?
2122 MR. CUNNINGHAM: No, the financing falls into place when we paper all of the contracts, and that is happening over the next month or two.
2123 COMMISSIONER MENZIES: Okay. And that's the main route.
2124 MR. CUNNINGHAM: That's the backbone, yes. It services the seven communities from Cambridge Bay through to Iqaluit, and lays the branching units to go on for Phase 2, which would be constructed whenever the government provides adequate financing.
2125 COMMISSIONER MENZIES: And all of that work, then, will be done next summer?
2126 MR. CUNNINGHAM: We are actually going to be doing some of the civil work this year, and over the winter months -- it is better to actually lay some of the conduit and cable across the Boothia Peninsula in the winter months, as opposed to when it is not frozen.
2127 COMMISSIONER MENZIES: Okay. You quoted a rate of $419 a month. Just for the record, how does that compare with other rates?
2128 MR. CUNNINGHAM: Telesat rates are generally in the neighbourhood of $2,500 per megabyte per month. It depends on the level of management of services that you want with them, but we have seen pricing that exceeds $6,000.
2129 It depends on what they think they can get.
2130 And we said earlier that they have a monopoly. We realize that they don't have a monopoly, but they probably have 97 percent market share.
2131 It depends on the ability to pay, and, of course, they are subject only to sort of laissez-faire regulation under the Telesat Divestiture Act, and that rate was set 14 or 15 years ago, and it is still even sky-high.
2132 COMMISSIONER MENZIES: So that is, roughly, 20 percent of current costs, a minimum of 20 percent of current costs?
2133 MR. CUNNINGHAM: Initially it would be less than that, one-sixth.
2134 COMMISSIONER MENZIES: In terms of talking about subsidy, what exactly would be subsidized?
2135 MR. CUNNINGHAM: Nothing on the first half. We don't need it, because, again, it is the international traffic that helps carry the freight for those seven communities across the North.
2136 The second part of it, the $237 million, is going to require someplace in the neighbourhood of, I would say, $28 million to $30 million a year, inclusive of your capital costs and return and depreciation, to make that work.
2137 And, as I said, that gets to 98 percent of the people in Nunavut, virtually everybody, with the exception of Grise Fiord and Resolute -- a combined population of 347 are served by cable and microwave links -- and 98 percent of those living in Nunavik.
2138 COMMISSIONER MENZIES: So, to be specific, you are asking us to create a subsidy for that build-out?
2139 MR. CUNNINGHAM: Not specifically today, but it's something that the Commission has to look at or that Industry Canada really has to look at or together you have to look at.
2140 COMMISSIONER MENZIES: Right.
2141 MR. CUNNINGHAM: Because we solved the problem for 52 percent of the Nunavut population but we have created a problem for 48 of it.
2142 COMMISSIONER MENZIES: But just specifically for what we can do, I'm just trying to get a sense of when you're talking about -- one is a subsidized backhaul and I'm trying to get --
2143 MR. CUNNINGHAM: I would love to see the Commission, if they could raise that kind of money, to provide us with $30 million through the National Contingency Fund or some other form to finance Phase II operations to serve 98 percent of those living in the Canadian North.
2144 COMMISSIONER MENZIES: Okay. And you would be -- you are not going to compete on that network? You're not going to get into the telecommunications business in that sense? Like, you're not --
2145 MR. CUNNINGHAM: We're in the telecommunications business. Our investment in the North will be almost as big as Northwestel.
2146 COMMISSIONER MENZIES: You're not going to be an ISP.
2147 MR. CUNNINGHAM: Absolutely not. We believe in carrier neutrality absolutely and that's why we also went to the cost of service-type mechanism where the economies of scale do result over time in lower pricing, lower unit pricing that gets -- those economies of scale get flowed through to our carrier customers and hopefully they will pass them through to their subscribers.
2148 MR. BATSTONE: If I could just add, I think on the issue of what gets subsidized, I mean, it may be that today that question can't be answered, you know, with any definity.
2149 But I think what we would want to see is that an approach is taken which would allow if there is a subsidy available for backhaul transport that it could go to an alternative like Arctic Fibre, as opposed to just continuing along with the current system where, you know, it just all gets jumped at Telesat, for instance.
2150 MR. CUNNINGHAM: Or alternatively, if it doesn't permit, then you flow the -- you take your local service deficit and add the backhaul cost to it and allow the carriers a return on that. They can have a flow through mechanism. We, and our bankers, would prefer it being done directly but, you know, we'll accept a credit risk of going through Northwestel or Bell Aliant or Qiniq or whomever.
2151 COMMISSIONER MENZIES: Then this isn't -- this then is a subsidy that's just restricted to capital costs? It's not an operational subsidy you're talking about?
2152 MR. CUNNINGHAM: No. Our all-in costs -- in the case of the fibre-optic network probably in excess of 90 percent of the costs are capital related. Our incremental costs to operate Phase II, the secondary network, is de minimus, in the neighbourhood of a million to $2 million a year, largely for marine insurance because we won't be changing the way we monitor the network. The same guy will look at just an extra panel of screens. That's all.
2153 COMMISSIONER MENZIES: To what extent is the infrastructure at risk due to the environment compared to putting fibre down someplace else?
2154 MR. CUNNINGHAM: Well, actually, we have done a lot of statistical work on that. Our network is actually going to be one of the safest ones in the world.
2155 According to the International Submarine Cable Protection Organization or Committee, 80 percent of cable breaks are due to anchorages or fish trolling or human sabotage. So we don't figure we have got many of those risks in the Canadian North. There is another 7 or 8 percent due to subsea seismic issues. We don't have any of those in the Canadian North really to speak of. It's pretty easy territory from that perspective.
2156 We've designed the network so that we have amplifiers that are closely spaced, relative to most systems, i.e. 53 kilometres apart. So if one fails the next one takes over and we can compensate by adjusting the power from each of the cable landing stations.
2157 But I think you're probably referring to ice scour.
2158 COMMISSIONER MENZIES: Yes,
2159 MR. CUNNINGHAM: Well, you know, for more than a year and a half we posted a lot of information on our design on our website. I know that yesterday one of their -- on Monday one of the proponents did provide some information or some commentary that we think was, you know, a little bit outdated and maybe not reflective of our current efforts or what engineering has taken place at the expense of more than a million dollars at this point in time.
2160 We've been aware from the outset of the potential challenges provided by ice scour from pack ice to hummocks and the bannocks. You know, we would just note for the record, as follows that, firstly, you know, we're avoiding any vulnerable approaches. We'd go to different sites. There are some places we cannot go to.
2161 For example, we will not be able to get into Repulse Bay. The landing conditions are just too difficult to do that. So you have to work in a microwave from the next nearest solution which is either Coral Harbour to the southeast or Taloyoak to the northwest.
2162 We go to deep water approaches wherever possible. We put in dual landings if required at Cambridge Bay to make sure because that's a major cable landing station for us, so that until we get out to 40 metres depth of water we're having dual approaches. So if one of them gets nicked by pack ice we don't have to worry about it.
2163 The biggest thing is dig it deep and then go home. We will use articulated pipe. We will use ploughs that Tyco has now got that can go down generally to 3 -- 3.1 metres depth. So it's going to be ploughed in.
2164 Double-armoured fibre. I mean, Geoff, you've got the single-armoured fibre there to show.
2165 But you know, horizontal drilling. At Taloyoak we're probably going to have to do a horizontal drill from 1.1 kilometres to the west from the landing point because that is a particularly shallow harbour, and so on.
2166 So you know, we've done a lot of engineering work on this. We've done the full route, plot lines, the desktop surveys. We issued a detailed RFP that was 57 pages.
2167 We got back from Tyco and Alcatel proposals that were in excess of 1,000 pages long. And these are the two companies that have installed 90 percent of the world subsidy fibre. They've done it to places that are in ice-prone areas.
2168 COMMISSIONER MENZIES: I'll take it that you've got it covered.
2169 MR. CUNNINGHAM: Well, put it -- it's not me just having it covered. It's not just me that's having this covered. It's my bankers and the carriers. If the international carriers have approved it, then I think that you can rest assured that they are pretty informed people.
2170 COMMISSIONER MENZIES: Okay. One more question.
2171 What is the backup? What is the redundancy?
2172 MR. CUNNINGHAM: Well, the network is designed with OADM so that if a spur to a particular community goes out that community is offline until we get the repair boat back in there. In some cases if it's a very near-shore break we can do that without a boat even during the ice season.
2173 The issue is, you know, if there was a backbone break. This thing has been designed that in ice-prone waters, I think it's about 102 or 104 years is the predicted mean time between failure by the engineers. So it won't be in my lifetime.
2174 But the fact is that all of the other communities up to that point of the break get served either from the Tokyo landing site or from the London or Chisasibi landing sites and the latency differential is less than 140 or 150 milliseconds in the worst instance. So we will go up to that point of break on both sides, okay?
2175 In the east-west, the full east-west traffic that would go Tokyo to London won't go through, but anything that would go Tokyo up to Gjoa Haven and stop there if we had a break between Gjoa Haven and Taloyoak, everybody to the east and west of that point would be served.
2176 COMMISSIONER MENZIES: Okay, thank you.
2177 MR. BATSTONE: I think the point is too we would purchase backhaul or, sorry, purchase bandwidth on other systems from England back to Canada, from Tokyo back to Canada or to the United States, whatever, so that you have a ring configuration so that if you do have a break in one place because the traffic is moving at the speed of light, you just route it around the other way.
2178 MR. CUNNINGHAM: It's dynamic routing.
2179 COMMISSIONER MENZIES: Right. I take it there is plans to connect this with Mackenzie Valley fibre?
2180 MR. CUNNINGHAM: No.
2181 COMMISSIONER MENZIES: No?
2182 MR. CUNNINGHAM: No. We looked at going into Taloyoak in our original plan -- Tuktoyaktuk, rather. That was one of those communities where after we did the engineering survey, we said it's technically doable but the cost is prohibitive, because of the shifting sands of the Mackenzie Delta and the ice scour in that particular region.
2183 The other reason we didn't go there is because we got absolutely no demand from carriers wanting any connectivity at that point in time, presumably because Northwestel or the Mackenzie Valley fibre is going to be built up to Inuvik and then by microwave up to Tuk.
2184 So we're not building there. We are going to be putting an underwater branching unit offshore Tuktoyaktuk about 170 kilometres to serve the future long term demand from the petroleum industry.
2185 COMMISSIONER MENZIES: Okay. Thank you. Those are my questions. My colleagues might have some additional ones.
2186 MR. CUNNINGHAM: Thank you.
2187 THE CHAIRPERSON: Commissioner Duncan.
2188 COMMISSIONER DUNCAN: Good morning. It's a very interesting presentation, but I just want to make clear that I'm understanding.
2189 Your focus is on the international business and you said your completion date would be November 2015?
2190 MR. CUNNINGHAM: That's correct.
2191 COMMISSIONER DUNCAN: So will those communities, the 52 percent of population in Nunavut, be served, have access to this regardless of any decision we make here?
2192 They will?
2193 MR. CUNNINGHAM: Yes, they will.
2194 COMMISSIONER DUNCAN: And so November 2015 that backbone will be in place and accessible to any competitor?
2195 MR. CUNNINGHAM: Absolutely.
2196 COMMISSIONER DUNCAN: Okay. That's what I wanted to understand.
2197 MR. CUNNINGHAM: You don't send the boats out twice because it's $85,000 a day. So the mobilization charge to bring them from New Hampshire to the Canadian Arctic runs into the tens of millions.
2198 COMMISSIONER DUNCAN: So there is nothing that you're asking of us here. That's all in place?
2199 MR. CUNNINGHAM: Yes, ma'am.
2200 COMMISSIONER DUNCAN: Thank you. That's my question. Thanks.
2201 THE CHAIRPERSON: Thank you very much, gentlemen. Those were our questions.
2202 We will now hear from the Government of Yukon, so if you could -- thank you.
2203 If Government of Yukon representatives can come up to the table, set yourself up?
2204 THE CHAIRPERSON: So welcome. When you're ready please identify yourselves for the purposes of the transcript and please go ahead.
2205 MS BADENHORST: Good morning, Mr. Chairman.
2206 We would like to add our welcome to the Commission and Commission staff and acknowledge our appreciation for your visit here to Whitehorse.
2207 My name is Lisa Badenhorst. I am a Senior Policy Advisor in the Department of Economic Development. With me is Jim Pratt, our Consultant on Telecommunications Policy.
2208 We are pleased to be able to present to you the views of the Yukon Government on this tremendously important opportunity for improving the telecommunications policy framework for Northwestel and building strength in the northern telecommunications environment.
2209 In our time today we would like to address the context for this proceeding, why it matters so much to Northerners and particularly Yukoners, how Northwestel's modernization plan proposals will benefit Yukoners and the Yukon community, the status of the current regulatory framework and how we see that the Modernization Plan and the regulatory framework improved.
2210 Along the way, we will also offer our comments on the issues laid out by the Commission in the Notice of Consultation.
2211 In our view there are two major challenges for telecommunication policy in Northern Canada. One is how to encourage, enable and facilitate investment in telecommunications infrastructure, and the second is, how to foster viable competition in all aspects of telecommunications services.
2212 It is altogether likely that the solutions to these challenges will require commitments and determinations beyond the scope of this proceeding, but resolution of the issues defined by the Commission in this review can make a significant contribution to the solutions and should, in our submission, prescribe the pathway for Northern Canadians to realize the benefits envisioned by the policy objectives in the Telecommunications Act.
2213 The Yukon Government would like to emphasize at the outset how important telecommunications investment in the North is for the present and future wellbeing of our people, communities and economy.
2214 Northwestel has played a significant role in this through infrastructure investment, service upgrades, employment and community involvement.
2215 In this regard, the plan proposed by Northwestel would bring undoubtable benefits to many communities in the form of improved Internet access and wireless services.
2216 The Yukon Government believes that the appropriate starting point for consideration of the array of issues involved in this proceeding is the Commission's determination in Telecom Regulatory Policy Decision 2011-771, that Northwestel requires increased regulatory oversight, at least in the short term, to rectify what was clearly demonstrated to be an imbalance in functioning of the existing regulatory regime.
2217 The core questions to be considered in this hearing are:
2218 1. Does Northwestel's Modernization Plan sufficiently address the concerns identified in TRP 2011-771; and,
2219 2. What changes are required to Northwestel's regulatory framework to reach a more appropriate balance of interests among consumers, competitors and the company?
2220 MR. PRATT: I'd like to talk about the Modernization Plan for a couple of minutes.
2221 Northwestel was directed to file a comprehensive plan to modernize its network infrastructure to ensure that Northern customers received telecommunications services, both regulated and forborne, comparable to those available in southern Canada in terms of choice, quality and reliability.
2222 In the comments filed February 6th, Northwestel expressed the view that the real issue in this review is how to deploy more 4G wireless and high-speed Internet services.
2223 Yukon agrees with the concerns identified by the Commission and those expressed by many customers, as well as the issues raised by parties in this proceeding, all make very clear that the requirements for modernization are different.
2224 In our Reply comments on the Modernization Plan, Yukon identified four areas of concern: the size and scope of the plan, the priorities, the approach to funding and the effectiveness of the plan in meeting expectations.
2225 The evidence suggests that the size and scope of the Plan do not meet what might be generally expected as modernization. The average annual capital spending is within the range of the company's capital spending over the previous 10 years, which cannot be considered to have modernized the network, given the need for this review.
2226 Northwestel maintains that the resulting capital intensity ratio demonstrates this to be more than a conventional spending plan, but looking at how the scope of the proposed spending has been revised, that commitment to modernization comes into question.
2227 If we were to compare Northwestel's definition of project spending category which addresses innovation, growth and new customer services which might be considered as modernization projects when compared to the spending for ongoing service, maintenance and normal demand, and looking then at the revised $233-million which allocated 57 percent to project and 43 percent to core spending, by comparison, the revisions made on April 22nd that resulted in the $220-million plan, there's a reallocation of spending of 44 percent to project and 56 percent to core.
2228 In our view, this goes in the opposite direction of modernization.
2229 The Yukon government has, since our initial intervention, expressed concern about the conditional nature of commitments to the investment needed to modernize network infrastructure, particularly where the timing and indeed the actual execution of plans hang on the effectiveness of the company's revenue forecasting.
2230 This concern is exacerbated by the decision to cancel planned fibre transport projects in Yukon and to reallocate funds to the core category.
2231 This decision of Northwestel also raises the issue of whether the plan focuses on the appropriate priorities, given the widespread agreement in this proceeding that backhaul capacity and cost are critical dependencies in improving access to services for customers and competitors.
2232 This change in priorities also has significant negative ramifications for the whole telecommunications ecosystem.
2233 In TRP 2011-771 Northwestel was required to address how the Modernization Plan would be funded or financed, and through the course of revisions of the plan from the initial $273-million to $233-million and now to $220-million, the company has emphasized its limited financial capacity, an assertion which has been challenged by several parties.
2234 There would seem to be a sound basis for questioning the claimed limitations, first and foremost being the status as a wholly owned subsidiary of Canada's largest communication company.
2235 In the initial Modernization Plan, Northwestel's parent company was prepared to fund roll-out of a wireless network that has the spin-off benefit of improving telecommunications in the North and modernizing Northwestel's network in a manner requested by the Commission.
2236 And while the Commission's decision in the Astral case changed that funding proposal, it did not change the underlying rationale for the investment.
2237 Yukon would also note that the determination of what is uneconomic is not an objective one, but rather is dictated by the business priorities and underlying assumptions of the particular company.
2238 There have been a number of concerns raised by Yukon and by others as to the effectiveness of the plan in meeting the needs of users or the requirements outlined by the Commission. While the extension of wireless capability and the improvement in Internet speeds are undoubted benefits, there are unresolved concerns about the implementation of fixed wireless voice; more specifically, questions about the reduced functionality, potential limitations in capacity and the implications on the competitive landscape of applying the local service subsidy remain unanswered.
2239 The point that was made by PIAC-CAC in their Reply that Northwestel has implicitly altered the standard for the effectiveness of the plan by adopting an approach which delivers the maximum benefits to the most people in the most cost-effective manner given available funding, raises an important concern. It cannot be appropriate to measure the effectiveness of the plan by this self-referential standard.
2240 In Yukon's view, the Modernization Plan also falls short in addressing the requirement of improving reliability. There's been no indication that redundancy in the transport network, particularly in providing alternate routes for connecting with the south, has been given sufficient priority. In fact, the cancellation of planned fibre projects and the suspension of future fibre builds precludes the development of redundant rings which would provide Northern users with protection against a catastrophic failure on the single fibre route to the south.
2241 MS BADENHORST: The following are the Yukon Government's comments on regulatory framework.
2242 The Yukon Government agrees with Northwestel that the price cap regulation continues to be appropriate for the company's tariffed services, but also believes that changes are required to the framework to correct the present imbalance of benefits that were identified in TRP2011-771.
2243 In the proceeding leading up to that decision, Yukon noted that the Commission's stated purpose for price caps was to promote incentives for operational efficiencies and provide adequate protection for consumers. The decision made clear that shareholders have benefitted to a far greater extent than consumers. Northwestel has proposed nothing to alleviate this concern.
2244 The effectiveness of a price cap formula is dependent on the presence of competition and presumes that the extent of competition will increase over the price cap period. In the absence of market pressures, the incumbent has no incentive to reduce prices on higher margin services and is able to utilize the available pricing flexibility on services where there are no alternatives.
2245 The absence of competition also affects the incumbent's incentive to invest in any projects that do not reflect a short-term or immediate return, which would seem to be borne out in Northwestel's decision to cancel fibre transport projects.
2246 Yukon has recommended that the price cap formula be modified to include a productivity factor to address the imbalance of consumer benefits. Northwestel maintains that frozen rate baskets have the implicit effect of providing a consumer benefit equivalent to the rate of inflation, but has made no proposal of its own to address the shareholder benefits imbalance.
2247 Yukon has also proposed the addition of an Internet services price basket to address the peculiar situation where Northwestel provides retail internet access through both its Telco and cable operations.
2248 The fundamental fact of separate ownership of cable and telecom businesses, each with an Internet access service that customers want, has enabled real competition in local communications services everywhere in the country, except in Yukon.
2249 This provision would require the company to tariff all retail internet services and provide consumers the protection of capped prices. Without it, there are no controls on prices.
2250 In the absence of such a measure, the only alternative for protection of consumer interests would be for the Commission to order structural separation of the cable and telecom businesses, which would have much more Draconian consequence for the company.
2251 There are communities in Northwestel's territory that have now waited more than 10 years for enhanced calling features that would bring their basic service up to the level of other telecommunications users in Canada.
2252 Northwestel has committed to deliver ECF to all communities and should be held to this commitment.
2253 In our view, the concept of the basic service obligation must be revised to recognize both the increasing expectation of consumers and the multiplication of possible solutions to meeting that standard.
2254 The Yukon Government believes that the concept of basic service should include broadband access and that there must be flexibility in determining how that standard will be achieved in particular communities, including the extent to which subsidy funding is needed.
2255 Consistent with allowing the maximum possible operation of market forces, the service standard could be met by any service provider and perhaps even by multiple service providers.
2256 MR. PRATT: The need for subsidy support for telecommunications services in the North is beyond dispute. The issue is addressed by many parties with different proposals for meeting the needs of investing in infrastructure and providing service in uneconomic or high cost areas.
2257 The current HCSA subsidy will remain an important protection for the affordability of basic service to Northerners for the foreseeable future. Yukon believes that there may be room for improvement in this aspect of subsidy support.
2258 It's inherent in the findings of TRP 2011-771 that the current subsidy regime has failed to provide the incentives for the company to fully extend basic service to all customers or modernize network infrastructure, and has not contributed to furthering competitive entry.
2259 Suggestions have been put forward in this proceeding regarding the portability of this subsidy, which could foster the growth of local competition. Yukon supports this concept and would recommend that it be considered as part of a more flexible approach to subsidies for telecommunications in the North generally.
2260 Consistent with our views on the inclusion of the broadband capability in the concept of basic service, the subsidy regime should be actively managed to extend and enhance service to regions where market forces will not soon deliver the same capabilities, while providing a platform for increasing access by customers to competitive choices.
2261 Yukon has proposed a consultative approach to identify the need and priority of projects, how they might be funded, managed and monitored. This might involve a working group approach similar to the CISC model or possibly supplemented by CPCC or similar group under CRTC's auspices.
2262 The operations subsidy would be handled along the lines of the current approach to the HCSA subsidies and therefore appropriately the responsibility of the NCF administrator. Funding for this subsidy would be from a general fund but could be supplemented on a project by project basis as part of the planning process.
2263 This would allow for the interjection of competitive forces through a bidding process or simply through negotiating the project parameters.
2264 MS BADENHORST: Our concern about forbearance, from a policy perspective, is that Northwestel has enjoyed more freedom from regulatory oversight than is warranted by the absence of competitive alternatives in Yukon. Without market forces to discipline pricing, service or quality, consumers are left unprotected.
2265 In the view of the Yukon government, forbearance is a regulatory tool which allows an incumbent facing legitimate competition in a defined market the freedom necessary to fully compete. The predicate for forbearance must therefore be effective competition in the market for which forbearance is requested.
2266 The Yukon government submits it has been more than amply demonstrated that the balance between freedom from regulatory intervention and the market discipline of competitive choice is skewed in favour of Northwestel, to the detriment of consumers and competitors.
2267 Northwestel has benefited from forbearance in areas of its operations where competition is either minuscule or non-existent.
2268 In Yukon the wireless market is occupied almost exclusively by Northwestel or affiliates of the company. Ice Wireless is only starting to enter the Whitehorse market and TELUS does not offer retail wireless service in Yukon.
2269 In Yukon, there are no terrestrial suppliers of internet access other than Northwestel.
2270 Because customer perceptions of service make no distinction between regulated and unregulated suppliers of a service like internet access, the relevant market should not be defined by the underlying technology or by the legacy legislative framework but rather by what choices of supply are available to customers.
2271 Furthermore, as stated in the Yukon government Intervention:
"If the company does not distinguish between facilities used, the businesses operated, or the revenues earned, it is no longer appropriate to apply separate regulatory treatment."
2272 MS BADENHORST: When regulation of Northwestel retail internet services was forborne, there were multiple independent ISPs operating in Yukon, all of which relied on Northwestel as the wholesale provider of connectivity.
2273 Today, Northwestel provides both DSL and cable modem access to the internet through the same corporate entity and there are no independent ISPs operating in Yukon. Either their businesses failed because of the high cost of bandwidth left them unable to compete with Northwestel or their operations were acquired by Northwestel.
2274 There is no basis for further forbearance of Northwestel local services at this time and a strong basis for retracting the forbearance of retail internet services.
2275 MR. PRATT: Turning to the topic of competitor services, one measure that has been the subject of debate in this proceeding and on which the Commission has specifically requested input is the level of mark-up applied by Northwestel in pricing competitor services.
2276 It is clear from submissions by the company and by interveners that setting the level of mark-up is a policy decision which is intended to achieve a specific result in the marketplace.
2277 As a guiding principle, the solution adopted for mark-ups on competitor services should facilitate the advancement of competition in Yukon, providing an on ramp for entrants to counterbalance the inherent advantages and protections of the incumbent.
2278 The level of mark-up should reflect the goal of encouraging competition. Many positions have been expressed regarding the appropriate percentage. Yukon government suggests that the Commission and the Commission staff are in the best position to determine what mark-up is appropriate, having access not only to all of the data filed in confidence in this proceeding but also the data relating to competitor services mark-ups throughout the country.
2279 In our Intervention, Yukon government suggested a graduated mark-up starting at five percent and increasing over time. Those numbers should be considered as illustrative rather than absolute values. The point here is to provide a specific mechanism for the competitive on ramp.
2280 At the same time, Northwestel should not be placed permanently in the position of competitive disadvantage although it may be necessary to experience some temporary competitive discomfort.
2281 It was to address this transition that the Yukon government recommended a graduated approach to provide incentives to both the incumbent and the new entrants to establish their businesses on sound economic fundamentals.
2282 With respect to the issues added to this proceeding relative to Northwestel's Wholesale Connect tariff, the same principles would, in our view, apply. The appropriate level of mark-up should be determined by the Commission as a matter of policy, recognizing the need to balance the contending interests of enabling competitors to establish a competitive market presence and the need of the incumbent to make a successful transition to the new realm.
2283 MS BADENHORST: In conclusion, the Yukon government believes there are four factors that will determine success in resolving the policy and regulatory challenges that are subscribed by this proceeding.
2284 One is the investment in advanced telecommunication infrastructure to enable the growth and development, especially of the applications-layer competition.
2285 There is a strong need for a definitive policy vision that establishes a pathway for infrastructure development to encompass the needs of all: customers, competitors and incumbents. This must go beyond just modernization which only implies bringing the existing facilities up to date. Ideally, there would be a commitment to developing a next plus generation network in Yukon, and throughout the North.
2286 Two is the need to establish real competitive choices in Yukon, because competition brings benefits to all: consumers have access to options for service, price and innovation; providers -- including the incumbent -- have more accountability to customers; market forces improve efficiency of service providers, particularly the incumbent; and adding service providers has potential to grow the market, increasing employment and economic impact.
2287 Three is that subsidy support is needed to encourage and enable competitive entry and private investment because it is clear that market forces alone cannot bring the benefits of choice and innovation to all communities in the North. It is, however, critical that subsidies do not become substitutes for the market and should therefore be conceived with the expectation that they may not be permanent unless the requirement of affordability dictates it, in which case accommodations should be made -- such as making the subsidy portable by community -- to discourage provider complacency.
2288 Finally, there should be recognition that the voice of customers in the development and implementation of telecommunications policy measures is required until they can effectively speak for themselves through market choices. This must include quality of service measures that are customer-driven, not engineering-driven; input on capacity needs so that an incumbent cannot unilaterally determine what is enough; and that customers are genuinely satisfied with the choices available.
2289 The test for success in the regulatory framework is one that delivers benefits enshrined in the policy objectives of the Act to end users. As the Commission has identified, there is an imbalance of benefits between customers and shareholders of Northwestel which needs to be corrected through measures like those we have recommended.
2290 Whatever solutions are developed to address the needs of infrastructure development, competition, and subsidies, the continuing benchmark for success will be access to comparable services at comparable prices for Yukoners. The measure of comparability must include service quality, capacity, reliability and affordability.
2291 If anything, policies should lean towards providing more to Northern communities because of their greater need for, and benefit of, access to advanced communications.
2292 The decision in this case will go a long way towards making progress in these challenges but Yukon believes that coordination and leadership in the design and implementation of telecommunications policies for the North are critically required.
2293 The policy framework that has been successful in realizing progress in the rest of the country must be customized to provide the similar degree of benefits to Northerners. The Northern market is too fragile and in need of protection to simply turn market forces loose but, at the same time, the risk of incumbent dominance is real and could permanently thwart telecom policy aims to the detriment of Northern consumers, if not contained.
2294 The CRTC is best positioned to take responsibility for leadership and coordination but there must be a strong federal commitment to making this happen. The Yukon government is committed to engaging and supporting this. We look forward to the success of our collective endeavours. Thank you.
2295 THE CHAIRPERSON: Thank you very much, you both, for that presentation. Vice-chair Menzies will have some questions to start off.
2296 COMMISSIONER MENZIES: Thank you. You expressed some concern that -- quite a bit of concern around Northwestel's capital intensity ratio was insufficient.
2297 What do you think would be sufficient?
2298 MR. PRATT: I am tempted to quote Oliver Twist, "Please, could we have more." I'm not sure, Commissioner, that there is an absolute or correct number.
2299 It is, I think, a relative determination that can only be judged successful or not in the effects. So, I think that's why we looked at the historical trend and said, if we're trying to take an important or significant step forward in modernization, that conducting the same level of spending is probably not going to get us there.
2300 So, that's the kind of framework. I guess the next shoe to fall there would be as to whether it's the capital envelope that's driving the priorities or the priorities are building up to deride the capital envelope.
2301 COMMISSIONER MENZIES: Right. So what I was kind of looking for is even a rough ballpark. If 19 percent isn't enough, is 20 enough? Is 21 enough? Is...
2302 MR. PRATT: Well, it's not necessarily even just the amount. The -- as we've said, it's a question of priorities, a question of what the timetable is for delivering as well.
2303 COMMISSIONER MENZIES: Okay.
2304 Northwestel suggested on Monday that its -- the extent of its dividends are set by its own management, not by Bell. And do you still believe that Northwestel's shareholders are overindulged, and, if so, what do you base that on?
2305 MR. PRATT: I -- whether they're overindulged or not is a -- is not really a determination, I think, for us to speak on. What we do know is from the evidence that's on the record in this proceeding is the trend, once again, that once price caps were initiated the returns were higher and the -- there was actually a diminution in the capital spending as well. So, it's -- I apologize for not being able to be more precise, but it is --
2306 COMMISSIONER MENZIES: Okay. This has been quoted -- you quoted from our last decision with some degree of agreement regarding that and I just wanted to know if your views had changed at all, but I'll take it that they haven't, that they're consistent with your past view.
2307 MR. PRATT: I would say that is correct, yes.
2308 COMMISSIONER MENZIES: Okay.
2309 You're critical of Northwestel for making services that you say are tied to the Basic Service Objective conditional on third party funding, most of which appears to be public money. Is there something specific or in particular that you suggest we do to address that concern?
2310 MR. PRATT: I -- specifically I believe that referred to initially the wording that was used for enhanced calling features and whether or not that that commitment was subject to achieving financial targets. And as I think we heard on Monday, that was clearly not the company's intent. So with respect to the Basic Service Objectives, it sounds to us like the company is prepared to make that commitment unconditionally.
2311 COMMISSIONER MENZIES: Thank you.
2312 Okay. So, much of the intervention, the written I'm referring mostly to, although they're not too dissimilar, is concerned with regulatory features dealing with affordable competitive entry, which in turn relates to affordability for consumers. So when it comes to internet access, which specifically to, say, speeds of 5 and 1, how would you define "affordability" for the people of the Yukon?
2313 MS BADENHORST: Well, I think we said in our presentation that we're looking for comparable services and costs for Yukoners as for Southerners. So what is considered affordable down south is what we would consider affordable up here as well.
2314 COMMISSIONER MENZIES: So if high-speed internet was $48 a month, you would expect it to be $48 a month here? I mean, things do cost more here.
2315 MS BADENHORST: I mean, you start getting into this kind of slicing of the onion a bit. I would like to find out that the issue for internet services in the Yukon is the cost of overage fees, it's not the cost of the actual service itself, so ... We believe we have a very strong case for Northerners and Yukoners particularly have needs for similar, if not better communication services to that what's in the south, and that there will be benefits for everyone, including down south as well.
2316 COMMISSIONER MENZIES: Okay. That's -- I'm just trying to... I understand that position. I mean, we kind of are onion slicers when it comes to that, those sorts of things. So one of the things maybe give some thought to is we're just trying to get our head around what people mean when they say "affordable", but I think you were clear that you want what Whitehorse should have, what Edmonton has.
2317 MR. PRATT: Well, within some margin. I think we have said really for a number of years that comparable is a -- probably should have a reasonability factor injected in there as well so that in terms of principle we -- we are absolutely committed to not deviating from that principle, that the objective is comparability. Now, there may be circumstances at a margin where it's justifiable and reasonable that the comparability is not exact. I wouldn't want to be advocating a position that says there must be numerical parity between the north and the south.
2318 COMMISSIONER MENZIES: Okay. The next question is sort of why do you think a broadband investment subsidy would be a more efficient mechanism than the sort of targeted funding we heard Falcon talk about Monday, where they are getting funding from a variety of providers and from the sounds of it have managed to somewhat efficiently build out a somewhat efficient network? It's not like it hasn't been working from what -- in terms of what they said, so why would -- why wouldn't an investment subsidy be more efficient than that?
2319 MR. PRATT: I think that's a great point and what we didn't go into in detail here this morning but hopefully was more clearly explained in some of the written material is that the concept we would recommend for subsidies should incorporate just those kinds of options, by making -- making it possible for collaboration and cooperation we should be able to target, first of all, the needs, looking at where the needs are greatest, but, secondly, what the most appropriate types of solutions would be. So that in a circumstance where Falcon is able and willing to deliver to satisfy that objective, terrific. Where others may not be as able or as willing, there could be a case to be made for engagement by a national fund, like the Contribution Fund, or through governments, and I say governments in the broadest sense, who could have interest in a particular project or a particular area. And that's essentially what we're getting at when we're asking for the condition to coordinate those kinds of interests in a way to come up with creative solutions to the subsidy, not to necessarily have a bulldozer-type approach to making sure that everything is done the same way.
2320 MS BADENHORST: I'd just like to add I didn't hear Falcon's presentation, so I'm not exactly sure what they were recommending, but one of the things to keep in mind is that when you have targeted one-time funding, it doesn't keep up with the dynamic nature of telecommunications. And that's one thing we've ran into is that at one point Yukon used to be kind of the bastion of telecommunications availability in Canada. We're no longer there. And the reason we got there is because we did a one-time funding and now it's, you know, 10, 15 years later and it's we need to do this again. So, figuring out a way that the funding is done on a dynamic sustainable way I think is very important, especially with broadband.
2321 COMMISSIONER MENZIES: Okay. Sort of keeping on the theme of subsidy funding for broadband build-out and/or operations. History suggests -- or at least there's a view out there that history suggests that unless -- if you create a subsidy fund, unless it's completely restricted to capital build-out in terms of sort of you will get this much this year depending on how much you build this year and it gets into operations, and you expressed some concern about this, is that it just becomes a permanent revenue stream, which in, to use your terms, can just create an entitlement. So are you looking here at restricting anything to infrastructure build-out, rather, or you like to see it -- any fund be involved in infrastructure maintenance as well?
2322 MS BADENHORST: We definitely need to see funding for infrastructure maintenance as well. I mean, there is the real probability of it becoming an entitlement. It's something we need to deal with. It's something that needs big minds to think about and figure out how to get around that. I mean, we look at telecom monopolies in general, when they started they were a really great idea, the best way to do it, so "we need to figure out", but after a while you get complacent. So how do we get back to that it was a really great idea and really use it? But I -- you know, in the North the reality is is that operations and maintenance in order to keep telecommunications in the same line as the rest of the country is probably going to require O&M subsidies.
2323 MR. PRATT: And I think, just to build on that, that that concern, I agree with Lisa's observation about what we needed. We thought about that a little and said, well, in order to try and prevent that complacency, maybe we can have a sunset provision on some subsidies, maybe we can have -- use incentive measures, as you observed, and that could apply equally on the operations side. It could be a -- it could be a term where the -- if it -- if the subsidy was awarded through an RFP process was another suggestion that came up, that that could come up for being reviewed and reissued.
2324 COMMISSIONER MENZIES: Okay. The current PES subsidy comes with an obligation to serve. What sort of an obligation do you think would be appropriate for a broadband subsidy recipient?
2325 MR. PRATT: Obligation generally or?
2326 COMMISSIONER MENZIES: Well, if you get something, what do you give? What do you undertake? I mean the current subsidy Northwestel receives, but it undertakes a considerable burden with the obligation to serve, and so what's the exchange for the recipient, if any -- I mean the answer can be you don't see any, it can be you see something.
2327 MR. PRATT: Right. I guess the -- I end up flipping back and forth in trying to consider the subsidy and the BSO separately, because by the way we have defined and operated the BSO, subsidy is the next thing that flows from that. It's essentially automatic.
2328 So if we were reflective and said, okay, we're going to include more broadband subsidy, then almost by definition you would say then there must be the parallel obligation applied in the BSO, which is, I think, what you're saying.
2329 We had thought about and talked about a little in our materials maybe thinking differently about how that BSO might be achieved and, instead of using my bulldozer analogy, applying it right across the board to see if maybe that could be parcelled out so that there might be some areas or some providers who would have the obligation applied to them and then the subsidy would match with the obligation.
2330 COMMISSIONER MENZIES: I don't want to put words in your mouth, but broadband would become part of the basic service objective and things that were measurable would be measured in terms of service performance, in terms of whether advertised speeds are true speeds, because there's in the past been some controversy and probably will continue to be, whether if you're advertising 5 and 1 whether you're actually getting 5 and 1 or 3 and 1/2 or something. Is that the sort of thing you're thinking about?
2331 MR. PRATT: I think that's correct. Maybe I want to think further about what else falls out from that, including the quality of service.
2332 COMMISSIONER MENZIES: Right.
2333 MR. PRATT: But I think conceptually we're in the same place.
2334 COMMISSIONER MENZIES: Okay.
2335 Were you going to say something?
2336 MS BADENHORST: I just wanted to say with the 5 and 1, I think it's really important that -- I'm wondering if we should take this as a bit of an undertaking, because it's a really great question, and come back with a little bit more detail around what we think should be included in a broadband BSO.
2337 But, you know, when you set the standards of 5 and 1, they're really great today but they're not so great tomorrow and they're definitely not great five years from now. So there's got to be a dynamic aspect to it as well. So it makes it a little bit different and a little bit trickier than doing like the telephone BSO. So I just wanted to make that --
2338 COMMISSIONER MENZIES: Okay. If you want to get back to us on that, I think June 25th was the date. That would be fine to undertake that.
2339 Now, still on subsidy, you suggest that the current subsidy as it's structured should be portable and I just want to know your views on where the obligation to serve plays into that. So if the subsidy becomes portable, the recipient -- again, the recipient of that subsidy, what do they take on, if anything, in exchange for winning the subsidy and Northwestel remains with the obligation to serve?
2340 MR. PRATT: To be consistent with the answer a moment ago, the obligation should follow the subsidy.
2341 COMMISSIONER MENZIES: Okay.
2342 And portability by community, I'm curious about that. I asked GNWT about this yesterday.
2343 Are you concerned that -- I mean you would -- I'm assuming competing companies would bid for the community. In that sense, the companies are not competing for the consumers' loyalty, they're competing for whoever is receiving the bids, they're competing for their loyalty in that sense.
2344 Aren't you concerned that what you would simply do is replace a monopoly structure in one community with the same monopoly structure just operated by a different company?
2345 MR. PRATT: That's a very appropriate question.
2346 Our goal or the rationale behind that suggestion was really directed at the concern about communities being uneconomic to serve. So if there's a small pie and it's going to be divided competitively, maybe we can improve the economics by almost considering it as a franchise and having the -- with respect to the subsidy be portable by community.
2347 But in order to address that concern you're raised -- I think we did mention it in one of our filings -- there would have to be something like an opportunity for an individual, should they choose to, to opt out of the franchise, so still be able to retain service but it would have to be at an unsubsidized rate.
2348 COMMISSIONER MENZIES: That is one of the concerns, I think, that Northwestel mentioned the other day too, is that once you lose a community, particularly the smaller ones, an uneconomic community, you basically have to abandon your infrastructure there and it doesn't get any more economic to try to revive it at a later point. In some sense, economically from business operations, there might be communities that you would prefer to abandon and give to somebody else and they would leave them there.
2349 That wasn't really a very good question, that was a bit of a ramble, but if you want to address that concern.
2350 MR. PRATT: I know that there's others here who may be able to speak more directly to that, but I was personally intrigued to read about options where a small community-based organization may be prepared to take on the local service obligation so that, once again, we may have the opportunity for more creative solutions and to do that collaboratively by having someone else assume that obligation because it may be economic for them where it's not economic for a much larger provider who has a different set of financial expectations.
2351 COMMISSIONER MENZIES: Okay, thank you. Those are my questions.
2352 THE CHAIRPERSON: Commissioner Duncan?
2353 COMMISSIONER DUNCAN: Thank you.
2354 I just have a couple of questions.
2355 With respect to your response a moment ago to the Vice Chair, you spoke about not expecting -- I think you said -- numerical equality from one community to another. So that brings me to a discussion about your comments about the fixed wireless solution and the communities that would receive that.
2356 So I just want to understand why you think that would be an inappropriate solution. I believe on Monday Northwestel responded to the Chair's questions that any of the limitations were being addressed, the fax and the other -- there was a piece of equipment that the consumer might have, I believe they were going to provide.
2357 MR. PRATT: Equal access.
2358 COMMISSIONER DUNCAN: So I'm just wondering what it is that you still have a concern about there.
2359 MR. PRATT: Well, I don't want to use my reply opportunity right now.
2360 COMMISSIONER DUNCAN: Okay.
2361 MR. PRATT: So I'll maybe try and be brief.
2362 But what we did say, I think, was that we felt there were open questions remaining as to -- I'm not sure that we said fixed wireless was inappropriate, but we were unsure based on the record and the track record of the technology.
2363 And indeed, Northwestel has committed to running both systems in parallel and the results of time may well solve some of those apprehensions.
2364 COMMISSIONER DUNCAN: So it seems then you would accept that for some communities, smaller communities, another solution might be practical and acceptable?
2365 MS BADENHORST: Sorry, I am just going to jump in just because of the comment you made at the beginning.
2366 I just want to clarify that from a policy position we believe that we should have comparable services and costs and availability and reliability as southern communities. Logically, we can understand that, you know, the smoking hot speeds and the super cheap prices that they get in downtown Vancouver is not going to be what you're going to get in Inuvik. But in the Yukon, it is our firm belief that all communities have to have the same type of access to services at the same prices.
2367 COMMISSIONER DUNCAN: Okay.
2368 MS BADENHORST: So we're not willing to say, oh, you're a smaller community, so, you know, you don't have the minimum standard that Whitehorse has.
2369 COMMISSIONER DUNCAN: Okay. So whatever standard is available in Whitehorse, which, of course, you have an expectation there, should be throughout the whole territory?
2370 MS BADENHORST: Right.
2371 COMMISSIONER DUNCAN: Okay.
2372 MR. PRATT: Right.
2373 And just to bring it back to the fixed wireless voice, I think the reservation was whether or not that was possible, whether or not that technical solution would allow us to achieve the comparability that we would like to see.
2374 COMMISSIONER DUNCAN: Okay. And I understood from their comments that they were still researching it. So we'll see what your reply -- okay.
2375 And the other question I have is on what your view is of what the minimum requirement should be -- not the minimum but what the requirement should be for annual reporting and the type of monitoring that we should do once the Modernization Plan is given the go-ahead.
2376 MR. PRATT: We hadn't really taken a position on that. The answer that I would give you now is that obviously we want to balance the regulatory obligation on us all versus the need to have transparency and certainty that the objectives are being met.
2377 I would say here and now that I think an annual filing with the opportunity to have public examination and the option to either request information or request action by the Commission would be sufficient. I don't believe that it's essential that there needs to be an annual review.
2378 COMMISSIONER DUNCAN: Okay. Thank you. Thank you very much.
2379 Those are my questions. Thank you.
2380 THE CHAIRPERSON: Just a quick follow-up to the answer you gave to Commissioner Duncan about comparable services throughout communities in Yukon. You said it was from a policy perspective. I just want to understand exactly what you mean by that.
2381 Is it your view that it would be inconsistent with section 27 of the services of the Telecommunications Act if the services were somehow different from community to community, or is it a different kind of policy concern you are expressing?
2382 MR. PRATT: I think Lisa was thinking first of the Yukon Government policy and the policy principles that have guided our submissions to you for a number of years.
2383 On the section 27 question, if I'm understanding what you are interested in, I think our view would be that we would look to the reasonableness factor to say if there is a difference in the way customers in one area, or a smaller area, are treated, if that discrimination is unreasonable, then it should not be permitted, but if it's within the bounds of reasonable, then we have another discussion. But that would be the way I would suggest it be resolved.
2384 THE CHAIRPERSON: I had an exchange with the Government of Nunavut on something quite similar and through poor questioning on my part I think we didn't quite understand each other as to what we meant by unreasonable discrimination or distinctions from community to community, but I think you put your finger on it.
2385 I was wondering if you would have -- when we try to interpret the word "reasonable" or "unreasonable", whether you have some suggestions on how we could frame that? What sort of factors should we be looking at?
2386 It may be a big question that seems simple. You might want to take it away as an undertaking.
2387 MR. PRATT: I would like to do that, Mr. Chair, if that's okay with you.
2388 THE CHAIRPERSON: Okay. So for the 25th.
2389 It's just that I think it's going to be an ongoing issue from, you know, we have a variety of sizes of communities and although we don't want to leave anybody behind, there are realities and I was looking for your help, and the help of others perhaps as the proceeding goes forward, on how we can frame that distinction from community-to-community.
2390 MR. PRATT: Right. We would be happy to give you our thoughts on that.
2391 THE CHAIRPERSON: Okay. Excellent.
2392 Thank you very much. So that's for the 25th of June.
2393 We are going to hear from TELUS. We will ask them to make their presentation at this point and then we will take a break. Just because we have a long day and I want to make sure that we get everything done in time.
2394 So thank you very much, those are our questions.
2395 THE CHAIRPERSON: So welcome, gentlemen. Take the time to set yourself up, get yourself a drink of water. I know when we change panels like that it's a bit -- you need to get yourself organized, but when you are ready please go ahead, including identify yourselves for the purpose of the transcript.
2396 Do we have copies of your presentation? Just hold on.
2397 MR. SCHMIDT: We have handed them in.
2398 THE CHAIRPERSON: We are all good; go ahead.
2399 MR. SCHMIDT: Okay. Thank you very much.
2400 Good morning, Chairman Blais; good morning, Vice-Chair Menzies, fellow Commissioners, CRTC staff, my name is Stephen Schmidt. I am Chief Regulatory Legal Counsel with TELUS. Appearing with me today is my colleague Hal Reirson, Senior Regulatory Policy Advisor, with TELUS.
2401 We thank you for the opportunity to appear before the Commission this morning in order to add our voice and perspective to the important matters under consideration in this proceeding.
2402 It is helpful at the outset to explain the nature of TELUS' interest in this proceeding. This will provide context and rationale for our key submissions and explain how the particular interests of the company and our customers can be accommodated in a principled way within the larger public interest you have to pursue here.
2403 Our first interest flows from the fact that TELUS serves national customers, including the Government of Canada, that have locations in Northwestel's operating territory. TELUS accordingly requires access to certain Northwestel services in order to be able to adequately serve these large national customers.
2404 At present, there are services that TELUS and other competitors require, but these services are not available on a tariffed basis, notwithstanding the absence of any applicable forbearance order. The absence of access to these services, on a tariffed and non-discriminatory basis, and at rates established according to transparent pricing principles, undermines competition and, ultimately, harms the interests of customers in the north.
2405 We will be asking you to direct Northwestel to file various tariffs as a result of this proceeding, including tariffs for WAN services, including E-WAN.
2406 Our second interest flows from the fact that TELUS exchanges a very high volume of voice traffic with Northwestel. TELUS is the largest non-affiliated toll interconnector with Northwestel. The practical effect of this fact is that the interconnection rates charged by Northwestel, which are the highest in Canada, are significantly funded by TELUS customers in Alberta, British Columbia and across Canada. And, as we just noted, certain service components required for effective toll interconnection are currently provisioned by Northwestel absent any applicable forbearance order and indeed absent any applicable tariff.
2407 We will be asking you, in the course of these comments, to direct Northwestel to tariff those toll interconnection service components provided to interexchange carriers so that the exchange of traffic occurs with Northwestel on the same basis and with the same regulatory oversight and protections as in the rest of Canada.
2408 The Commission's goal of ensuring that northern customers receive telecommunications services comparable to those available in southern Canada in terms of choice, quality and reliability, cannot be fulfilled if the building blocks to support interconnected competition are absent or compromised. Competition is the essential foundation to choice for customers in the north.
2409 Our third interest flows from the fact that TELUS is the largest contributor to the National Contribution Fund that is not affiliated with Northwestel or the BCE family.
2410 In practical terms, this means that any costs that Northwestel seeks to recover other than through rates charged to its customers will, if allowed by the Commission, result in an increase to the subsidy requirement which, at bottom, is significantly funded by TELUS customers in Alberta, British Columbia, Quebec and elsewhere.
2411 We will be asking you, in the course of these comments, to approve Northwestel's modernization plan, but on the express condition that the fulfilment of the plan not require additional subsidies now or later. The Commission should be on guard against the possibility that Northwestel will return to the Commission in a few years requesting subsidies to complete a plan that it represented to you as self-funding based on existing rates and subsidies.
2412 MR. REIRSON: Good morning.
2413 Our comments today are presented in the order of issues from the Notice of Consultation, and its amendments, with a focus on TELUS' interests, as just enumerated.
2414 Modernization Plan. TELUS generally supports Northwestel's modernization plan related to the provision of regulated services. However, our support is conditional on there being no additional subsidy or rate increases for its implementation.
2415 We state this condition for two reasons.
2416 The first relates to a concern that Northwestel will seek to recover, in the future, costs that were already funded in the past. The Commission has seriously reviewed and approved the rates and subsidies that Northwestel has received over years and decades to provide regulated services. The approved rates and subsidy levels included revenues both for the cost of providing service and for the cost of renewing the network. Northwestel should not now be seeking to be paid again for something it was already paid to do, that is to provide service and maintain and renew its network.
2417 Our second concern relates to the possibility that Northwestel will, at some point in the future, on the basis of some as of yet unarticulated contingency, seek increases in rates or subsidies to fund portions of the modernization plan. Simply put, Northwestel is no longer under rate of return regulation.
2418 Northwestel does not have the option of coming back and saying, "this is more expensive than we thought, please give us more money." The Commission should not hold out the option to Northwestel of funding portions of the modernization plan, now or later, through rate or subsidy increases beyond those permitted by the price caps framework. That framework has established a level and trajectory for rates and Northwestel should be required to provide service and renew its network within the envelope of rates and subsidies provided by the current framework.
2419 They have not asked for increases to rates or subsidies to implement the plan and the Commission should hold Northwestel to that bargain, absent some extraordinary event that would justify revisiting that conclusion.
2420 TELUS supports Northwestel's plan to replace wireline switches with wireless switches in order to provide an array of services, including fixed-wireless voice as a replacement to traditional wireline voice. TELUS submits that fixed-wireless voice is a viable substitute and a cost-effective means of providing voice services going forward which, at the same time, enables Northwestel to provide other advanced services desired by customers.
2421 As to the portion of Northwestel's modernization plan that is aimed at increasing the speed and availability of forborne services, namely retail wireless and retail high-speed Internet services, TELUS is of the view that such modernization is not one that requires regulatory oversight or approval, to the extent that it is being undertaken in respect of forborne services. Northwestel may elect to undertake these service improvements and the Commission can take positive notice of this fact. The Commission does not, however, need to approve or direct this aspect of the modernization plan.
2422 Regulatory Framework for Tariffed Services:
2423 On the issue of the regulatory framework for Northwestel's tariffed services, TELUS continues to support price cap regulation for Northwestel. Price cap regulation has been pervasively adopted in Canada, and elsewhere. Indeed, price cap regulation is the standard form of regulation for ILECs of all sizes in Canada, including those in remote and rural areas.
2424 In addition, price cap regulation provides Northwestel with the flexibility and proper incentives to meet the telecommunications needs of its customers.
2425 In TELUS' view, there is no compelling rationale to change the price cap regulatory regime that has been applied to Northwestel since 2007.
2426 Subsidy Regime:
2427 On the subsidy regime, TELUS supports the ongoing use of the National Contribution Fund mechanism to ensure access to basic services. TELUS notes three minor modifications in this regard.
2428 First, while TELUS supports extending the already approved $10.1 million provided annually to Northwestel for its previous service improvement plan, this funding should continue only until such time as the approved costs of those previous improvements have been fully recovered, that is, until 2021.
2429 Second, while TELUS also supports extending the NCF funding that Northwestel receives for the provision of residential local exchange services in high-cost serving areas, such funding must be based on the number of NAS that Northwestel actually serves. This figure must be calculated on a monthly basis, as opposed to annually, as is the current practice.
2430 In addition, should the Commission establish a local forbearance framework, Northwestel should cease to receive subsidy for NAS served in a given exchange, once it is granted forbearance for residential local exchange service, in order to align with the subsidy regime applicable in all other parts of Canada.
2431 Third, in light of Northwestel's plan to replace wireline switches with wireless switches, and hence provide fixed-wireless voice instead of traditional wireline voice, the cost component to provide residential local exchange service in Northwestel's HCSAs -- Band H1 -- should be updated accordingly, once the transition is completed.
2432 Ice Wireless/Iristel's Subsidy Proposal:
2433 Ice Wireless and Iristel proposed a different subsidy mechanism to support telecommunications services in Northwestel's serving territory.
2434 The first component of this proposal would provide financial support for long-haul terrestrial transport facilities to southern Canada, down the Mackenzie Valley, as well as satellite capacity to serve remote communities.
2435 Although TELUS initially provided support for this proposal, TELUS is now of the view that it should be rejected.
2436 Directing funds to subsidize transport services, provided by competitors, to serve a variety of end users -- including large enterprises, governments, and small businesses -- seems too far removed from the type of universal service funding envisaged by section 46.5 of the Act, which provides the authority to create a fund to support continuing access by Canadians to basic services.
2437 The better remedy, in the circumstances, is to ensure that these transport services are tariffed and made available at Phase II plus 25 percent.
2438 The second component of Ice Wireless and Iristel's proposal would provide financial support for serving very small remote communities, which would be open to all competitors, including Northwestel. TELUS does not support this proposal.
2439 The Commission has contemplated subsidy mechanisms based on a competitive bid process in the past and has rejected this approach.
2440 SSi Micro's Proposal for a Utility/Backbone Subsidy:
2441 SSi Micro proposed to create a utility backbone service category that would be subject to industry-funded subsidies. TELUS opposes this proposal.
2442 In TELUS' view, the current price cap framework and the recent approval of tariffed rates for Northwestel's wholesale terrestrial transport service renders any industry-funded subsidy mechanism unwarranted and unnecessary. The Commission has taken sufficient action in this regard.
2443 MR. SCHMIDT: On the question of satellite backhaul, this issue has loomed large, both in the written submissions and in the hearing this morning and on Monday.
2444 Northwestel and other parties have raised the issue of the high cost for satellite backhaul services. This, in turn, prompted discussions during the first day of the hearing about the possibility of price controls -- tariffing -- for Northwestel's retail Internet access service and/or the establishment of subsidies in respect of high speed Internet access service.
2445 TELUS is concerned about these proposals, and we say this for two basic reasons. First, the high cost of satellite backhaul is something that is substantially not within the control of Northwestel or SSi. This is not Northwestel's network -- the satellite network, that is. Both parties purchase satellite backhaul from Telesat.
2446 Telesat is a Canadian carrier, but they are not in the room with us today, they are not a party to the proceeding, and no one has put a single question to them about this issue.
2447 It may well be that we are devising remedies targeted at the wrong party. And, whatever the ultimate remedy, it seems troubling to be proceeding in the absence of this key protagonist. Telesat should be involved in explaining the problem and in proposing appropriate solutions.
2448 Our second source of concern arises from the fact that market-based alternatives for high speed Internet access do exist and are further developing. Providers like Barrett Xplore offer alternatives now in many parts of the North. Falcon Communications is looking to provide an alternative in the near future.
2449 Given this actual and imminent market entry for high speed Internet access, even in very difficult serving circumstances, the Commission needs to be careful in the development and deployment of subsidy arrangements that could have the effect of harming this nascent entry. Indeed, the Commission ought to be wary about the result of distributing subsidies that would have the effect of simply entrenching monopoly supply and entrenching subsidies on an enduring basis.
2450 The market, including the voluntary commitments made by Northwestel in this proceeding, must be given a reasonable chance to work. If, in a couple of years from now, there appears to be a situation of enduring market failure, the Commission will have a decisive mandate to act, and should act in a focused manner to address the issue.
2451 Finally, in respect of this issue, as to the source of subsidies in the satellite context, Northwestel submitted that external funding may be required, but that such funding should come from targeted government initiatives, rather than industry-funded mechanisms such as the NCF. TELUS agrees with Northwestel on this issue.
2452 The Falcon Communications initiatives are evidence that government funding is working, or is viable in some circumstances. This could be extended to address other issues, including the high cost of satellite backhaul.
2453 The Commission is but one government actor in this space, and there is a need to take coherent account of all the actors and all the sources of funding before having recourse to the National Contribution Fund.
2454 On the question of broadband as part of Northwestel's Basic Service Objective, or BSO, SSi and other parties have suggested that broadband should be declared essential in the North and included in Northwestel's BSO.
2455 TELUS is of the view that it would be premature for the Commission to make a determination on this issue in the context of the current proceeding, and we say this for the following reasons.
2456 This issue is not just about the North. It has a national dimension and it ought not to be determined, in our submission, in isolation from the interests or views of other Canadians and industry participants, including those who may well end up funding the provision of the BSO in regulated exchanges here or across Canada.
2457 In 2011, the Commission made findings on the Basic Service Objective, on broadband and on the setting of target speeds on a national basis, including Northwestel's territory. Our submission would be that the Commission should proceed, again, on this basis. A premature determination of this issue, for Northwestel, could have impacts on the entire country and industry, without having involved all stakeholders in a broad, national conversation.
2458 Again, with respect to broadband in satellite communities, the absence of the key player, namely Telesat, would make any determination for the North, including whether and how to fund, challenging to arrive at.
2459 In our submission, the BSO for Northwestel should be reviewed as part of the Enhanced Basic Service Objective proceeding, announced by the Commission to take place in the 2014 framework.
2460 On the question of a forbearance framework for local services, while TELUS had initially urged the adoption of the test for the larger ILECs in 2006-15, as amended, upon reflection we are of the view that it is unnecessary to deal with this issue at this time. It is not obvious that it would be productive to try to articulate a bright line test now, in the absence of concrete facts about the precise nature of local entry.
2461 So our sense would be that it is a matter that can be deferred until you have the right facts before you and an application from Northwestel for forbearance.
2462 On the issue of services to be tariffed, specifically with respect to E-WAN, in November 2012, the Commission concluded that Northwestel was not subject to any applicable forbearance order for the provision of WAN, Wide Area Network services, in its territory, notwithstanding the fact that it had been providing those services for a long time as if it were subject to forbearance.
2463 The Commission concluded that Northwestel's WAN services cannot be forborne at this time because Northwestel has market power in respect of these services.
2464 Given this, TELUS requests that all of Northwestel's WAN services, including, in particular, E-WAN, must be subject to tariffing under section 25 of the Act.
2465 To be clear, TELUS understands that E-WAN is a retail service and it is not proposing that it be converted through some alchemy into a competitor service; rather that it be tariffed as a retail service, but be available for resale.
2466 On the question of interexchange transport for toll interconnection, TELUS requests that the Commission, as part of this proceeding, direct Northwestel to tariff all toll interconnection service components, and specifically all of Northwestel's per-minute interexchange transport services provided to interexchange carriers.
2467 No current forbearance order in this territory applies to the provision of per-minute interexchange transport provided by Northwestel. In fact, one per-minute transport service provided to IXCs in the Eastern Arctic has been tariffed for many years, while another, using a slightly different network configuration, has not.
2468 As a result, TELUS asks that the Commission order tariffing of these non-forborne per-minute transport services under section 25 of the Act.
2469 Finally, with respect to the pricing policy for wholesale services, TELUS does not suggest any changes to the current pricing policy for Northwestel's wholesale essential and interconnection services, including the current 25 percent markup.
2470 Though it might seem counterintuitive that we are not saying it should be as cheap as possible, we are mindful of the need to maintain a regulatory environment that is hospitable to the construction of facilities, hospitable to the operation of networks, and takes into account the large risks and big capital investments that must be made up here.
2471 As for wholesale non-essential services, TELUS submits that the pricing policy should continue on a case-by-case basis.
2472 As to the level of markup for these non-essential services, TELUS submits that they should be set at levels that provide the incumbent, in this case Northwestel, with: a proportionate recovery of fixed and common costs, with compensation for the risks of investments made in network facilities, and an adequate return to shareholders, including the return of capital and a return on capital.
2473 TELUS is very thankful for the opportunity to add our voice to the important issues under consideration. We thank you for your consideration, and we would welcome any questions that you may have.
2474 THE CHAIRPERSON: Thank you very much, gentlemen.
2475 As I said earlier, I think we are due for our morning break. It is 10:40, official Chair time, so we will take a 15-minute break and come back at 10:55 for questions.
2476 Thank you.
--- Upon recessing at 1040
--- Upon resuming at 1058
2477 THE CHAIRPERSON: À l'ordre, s'il vous plaît. Order, please.
2478 So Commissioner Molnar will have some questions for you, gentlemen.
2479 COMMISSIONER MOLNAR: Good morning.
2480 I want to start by thanking you for laying out your interests in this proceeding because it wasn't always clear what your activity in the North was. So predominantly you are terminating national customers here in the North.
2481 MR. SCHMIDT: Yes.
2482 COMMISSIONER MOLNAR: Okay. And generally you are comfortable using tariffed retail services to do that?
2483 MR. SCHMIDT: Well, to terminate voice traffic in the North we have access to a suite of voice tariff services which we can live with and, you know, it's expensive but we can live with it, I suppose.
2484 But once upset of those services in the Western Arctic, like permitted interexchange voice transport isn't tariffed and we're forced kind of into the invidious position of "negotiating" with --
2485 COMMISSIONER MOLNAR: Just to be clear that I understand your position on the IX interconnection and there has been a court decision on that. So that isn't what we're talking about here today.
2486 But I'm talking about other elements.
2487 MR. SCHMIDT: I am trying to just answer you fully and accountably, yeah.
2488 COMMISSIONER MOLNAR: Yeah. Okay.
2489 I want to ask you about something you said regarding the modernization plan. Essentially, you said you should hold him to it and not anticipate that they should come back with further costs. You made the comment that they've been collecting a contribution subsidy for some time.
2490 I have to say I've always had that same kind of thought niggling in my head. I mean, I think over the last 10 years it's been over $120 million or something to that effect and proposing to continue 10-plus million every year thereafter.
2491 So their modernization plan has come to us with a number of contingencies, with contingency financing to complete some elements and they've also not made any commitments as to when they'll actually complete that modernization plan.
2492 Is it your view that the way that the contribution has been calculated and has worked over the last number of years that they should be able to meet the BSO in all territories, in all areas of their market, given the subsidy that they have collected and will collect in the future?
2493 MR. REIRSON: To the extent that there are communities with switches that are sort of beyond their life, I would argue that the subsidy mechanism that they have had in place for the last number of years should have allowed those switches to then be replaced after their service life, their normal service life had been concluded.
2494 But I'm sure it's challenging too especially when a switch is still performing and performing quite well to actually go in and replace it with a newer switch. But that's what costing would allow for, that replacement to happen at the end of a switch's useful life.
2495 COMMISSIONER MOLNAR: Do you have any thoughts at all on how we might hold them accountable for achieving the modernization plan in the timeframes that they have indicated? I mean, if you're not meeting BSO is it possible that it would make sense to withhold subsidy until you achieve it, as an example?
2496 MR. REIRSON: Except that the subsidy is a bit separate. Like, the current subsidy is for basic services in existing locations and the modernization plan is sort of a layer above that.
2497 Some of it has to do with switching and enhanced calling features but so much of the modernization plan is for other things, to the extent that for the portion of the modernization plan that deals with basic services, I would agree. It could be linked to the subsidy. But for those other portions like wireless and broadband, no, I would not agree that it should be tied to subsidy.
2498 COMMISSIONER MOLNAR: Yeah. Fair enough. And to the extent that the costs or investments are in transport or, as you noted, wireless and so on, under a price cap would you see any mechanism where we have the ability to incent them to complete that modernization?
2499 MR. REIRSON: Not within the current price cap structure, no.
2500 COMMISSIONER MOLNAR: So, just going through your comments, you had supported a transport subsidy. You no longer support a transport subsidy?
2501 MR. REIRSON: We have supported the transport subsidy to the extent that we thought a portion of that funding would actually reduce the current subsidy. We thought that there were costs in the current residential subsidy that could be diverted towards transport.
2502 It was -- I believe it was in Northwestel's reply comments. They said that was not the case that there was nothing in a transport subsidy that would reduce the current high cost subsidy.
2503 And based on that information, that update from them, we withdrew our support for the transport subsidy because we didn't want to see the overall envelope of subsidy increase.
2504 COMMISSIONER MOLNAR: Okay. And so your conclusion is all transport at cost plus 25 percent?
2505 MR. REIRSON: Correct.
2506 COMMISSIONER MOLNAR: In satellite and terrestrial communities.
2507 MR. REIRSON: Correct.
2508 COMMISSIONER MOLNAR: So how do you respond or how should we respond to the fact that at cost plus 25 percent, certainly in satellite communities, services become essentially unaffordable?
2509 MR. REIRSON: But we don't know.
2510 COMMISSIONER MOLNAR: You don't know?
2511 MR. REIRSON: We don't know what Telesat's costs are.
2512 COMMISSIONER MOLNAR: I guess what we do know -- and I agree with you fully that there is a player who is missing from this proceeding who should have been here.
2513 Having put that aside, the costs to the carriers today, we do know. We know their costs and we know the costs that they have to incorporate into their -- into their rating and at those costs, as we talked about on Monday, services become hugely, you know, far out of the reach of most consumers in satellite communities.
2514 Any response or you still submit just cost everything at cost plus 25?
2515 MR. SCHMIDT: We are not minimizing that problem you face. In fact, we're much happier to be sitting on this side of the table than yours. We have a narrower set of issues to face than you do.
2516 It's worth recalling when we sat together in 2006 in this room and established a price cap which started to run in 2007, at that time Telesat was still a BCE company and people were complaining about the high costs and intractability of it all. But it was a BCE company.
2517 It's not now, but it was at the outset of the last price cap period and that sort of gets baked into the circumstances you face now when you have to ask yourselves if there is some legacy effects that you have to look at whether it wasn't incentive to use another provider at the time or there wasn't an incentive to hammer down input costs because it was all inside the same family.
2518 So you may be dealing with some legacy effects. The costs might not be as intractable as you think. There is other people who do business with Telesat and may not in fact be paying the same rates. But we don't have the facts here before us so it's hard to answer.
2519 COMMISSIONER MOLNAR: Okay, fair enough.
2520 Your services to be tariffed that you have identified, I just want to note that we believe the record is complete on those.
2521 MR. SCHMIDT: That's delightful. That makes my day.
2522 COMMISSIONER MOLNAR: But I want to talk about other services that you didn't identify.
2523 I think in your comments you speak a little bit about retail internet, high speed internet access. It appears from your comments today that you would be concerned with any price controls being placed on Northwestel's retail internet access. Is that true?
2524 MR. SCHMIDT: We are hesitant about that move but I suppose I'm more hesitant, frankly, about the decision to subsidize. So putting price controls is one thing; deciding to issue a blank cheque in perpetuity to BCE to get to a "affordable" rate is probably a larger issue for us. So if I had to tier them, maybe I don't entirely object to the tariffing thing if you find there is not competition sufficient to protect the interests of users in those specific communities in the Eastern Arctic.
2525 COMMISSIONER MOLNAR: Yeah, fair enough. I see them as two separate issues.
2526 MR. SCHMIDT: I am articulating them as two separate issues. I'm kind of unbundling them.
2527 COMMISSIONER MOLNAR: Right. I mean, whether the conditions today suggest that there is sufficient competition to continue the forbearance of retail internet service, I think, is separate as to whether or not there should be any kind of subsidies for broadband or transport --
2528 MR. SCHMIDT: I absolutely agree. I may have cautiously blended the issues -- bundling. But I'm unbundling them now. I agree they are distinct issues.
2529 Indeed, the question of your rate actions if any or whatever actions if any towards Telesat is a distinct issue.
2530 COMMISSIONER MOLNAR: Yes, I agree.
2531 So I'm sure you're very aware of the conditions under which forbearance can and should be granted, 94-19 and otherwise. So can I ask if Northewestel was required to provide sufficient wholesale services within their serving territory such that competitors could provide competitive alternatives to Northwestel's retail internet, do you believe under those conditions that Northwestel's retail internet service should be tariffed? Why or why not?
2532 And so essentially what I'm saying is, obviously there is two prices. Is there competition today in the market to support continued forbearance and, if not, can we put in place wholesale services that would give us some assurance that competition could emerge?
2533 MR. SCHMIDT: I guess on the first part of the question is there competition now, I mean we would have to highly segment our analysis. Places like Yukon are more urban than many provinces in the east of Canada.
2534 COMMISSIONER MOLNAR: Right. And I'm sorry that I sort of mixed those but I just wanted to -- you know, we are looking and if you listened on Monday you may have heard us requesting an undertaking to look at what is the status of competition today.
2535 So what I'm asking you more -- recognizing your activity in this market is not, do you know what the status of competition today but under kind of a regulatory framework? Would you agree that regardless of the status of competition today if the wholesale services that were to enable competition were in place that forbearance could and should be continued; essentially that, is there competition or can there be competition?
2536 MR. REIRSON: I think many of the retail Internet forbearances in other parts of the country in the late 90s were predicated on the existence of building blocks to make competition actually possible or contestable.
2537 So, I suppose my answer would be yes on that piece, that having the right building blocks in place would give you some comfort as a policy-maker on the factual question of the level of competition. We're missing people like Barrett again from the room who are -- you know, they're an important alternative and there's others that are emerging.
2538 COMMISSIONER MOLNAR: Do you know anything at all about the wholesale services that are available, Wholesale Connect is one recently being made available here in Northwestel's territory?
2539 MR. REIRSON: Yes.
2540 COMMISSIONER MOLNAR: Yes. I take it you actually don't subscribe to that service today?
2541 MR. REIRSON: At this point our -- the people who have looked at it said it doesn't meet their needs.
2542 COMMISSIONER MOLNAR: Do you have any details as to why it doesn't meet their needs?
2543 MR. REIRSON: Yes.
2544 COMMISSIONER MOLNAR: Or could you undertake to provide those, if you don't?
2545 MR. REIRSON: We could undertake to provide those, yeah. It gets very technical.
2546 COMMISSIONER MOLNAR: Yeah, fair enough. But we did hear it was essentially developed for one customer and have on the record of this proceeding other potential customers who are suggesting it isn't --
2547 MR. REIRSON: Correct.
2548 COMMISSIONER MOLNAR: -- it won't meet their needs. So, if you have something, yeah, I would appreciate.
2549 COMMISSIONER MOLNAR: How about iGATE, do you use IGATE?
2550 MR. REIRSON: No. In fact, e-Wan was the service that we were most interested in using. That seemed to be the best fit for -- to meet the needs of our customers or potential customers.
2551 COMMISSIONER MOLNAR: Are you comfortable telling me what service you use as a transport service for your national customers?
2552 MR. REIRSON: Hold on a sec. We can undertake to provide that. I don't know.
2553 COMMISSIONER MOLNAR: Okay.
2554 MR. REIRSON: We're not engineers, we're regulatory guys. So, we'll have to -- we'll find out.
2555 MR. SCHMIDT: Um-hm.
2556 COMMISSIONER MOLNAR: Okay. Well, those are my questions. Thank you.
2557 THE CHAIRPERSON: Vice Chair Menzies, please.
2558 COMMISSIONER MENZIES: Just quickly on the LIRs. When Northwestel spoke to us Monday they said that they had added I think it was Carmacks, Fort Good Hope, Iskut and Jean Marie in response to other peoples.
2559 Were you satisfied with that, with their position on LIRs or were you aware of their comments? The BC interconnection regions.
2560 MR. REIRSON: What is the acronym you're using?
2561 COMMISSIONER MENZIES: Sorry, I didn't hear you.
2562 MR. REIRSON: What is the acronym you're using, "Ears"?
2563 COMMISSIONER MENZIES: L-I-R.
2564 MR. REIRSON: Oh, LIRs.
2565 I think the only -- we are satisfied with their position at this point. I think the only issue we had with LIRs was in satellite communities and I think that's where Northwestel was very reluctant to add any satellite communities into LIRs and it relates to the problem with satellite hops and not wanting to create communities with -- where there would be any double hopping involved in a call and that was the one problem area.
2566 So, in that scenario, a local intraconnection within the satellite community would have to be established in order for realistic competition to take place.
2567 COMMISSIONER MENZIES: Okay. Thank you.
2568 THE CHAIRPERSON: Commissioner Duncan.
2569 COMMISSIONER DUNCAN: Just two quick questions.
2570 The first one is with respect to your comments this morning on the BSO and that I gather you feel it's inappropriate at this point to expand it for the North.
2571 But I am interested in your view. Don't you think that there'd be an argument to make that the North is sufficiently unique that we could make some type of a decision in this proceeding and still proceed with the follow-up BSO as planned?
2572 I think -- so, the question revolves around the uniqueness of the North and...
2573 MR. SCHMIDT: So, if I was like perfectly candid with you --
2574 COMMISSIONER DUNCAN: Yeah.
2575 MR. SCHMIDT: -- which I'm probably supposed to be at all times.
2576 COMMISSIONER DUNCAN: Yeah, please be.
2577 MR. SCHMIDT: But I've got to be extra candid. I'm concerned about the 2014 and 2015 being tried and determined here. You know, lawyers, we say hard facts make -- hard cases make bad law. I'm concerned about that proceeding being tried up here.
2578 But if you feel you have to establish it and you do so on a kind of firewall basis and then say, but I'm still going to have that proceeding in 2014, I'm still going to listen to the issues in the highly urban environment in the south with an open mind, okay.
2579 COMMISSIONER DUNCAN: Okay. All right, thank you. That's good. Thanks.
2580 My other question is with regards to what incentives, if any, are necessary to ensure that Northwestel follows through on the implementation plan.
2581 Do you have any view on -- some parties I think have talked about penalties or rate reductions or...
2582 MR. REIRSON: Well, I think as we talked about earlier, I think you have a good hammer to help them complete the services related to basic exchange service, but when it comes to wireless or Internet service, to me, it's far more nebulous how you could force those activities to be completed because of their untariffed and forborne nature.
2583 COMMISSIONER DUNCAN: Okay. So, I see your position.
2584 So, they were going to submit annual reports for our review. I believe the Yukon Government's position was -- well, it seemed to me that they wanted to have an opportunity to make comment on those, or their progress, but you don't have a view on that, or it's still not necessary, in your view, because they're forborne?
2585 MR. REIRSON: I just see that update, that annual update report as information from our perspective.
2586 COMMISSIONER DUNCAN: Okay.
2587 MR. SCHMIDT: So, and I think we said it in our comments this morning, in respect of the forborne services, we would contemplate an updating process that you would monitor.
2588 In respect of rate-regulated services, you're in a different space. You've said in the past, in the midst of time, in a 1982 decision, B.C. Tel, for example that, you know, a particular level of quality is implicit in the south with the establishment of a just and reasonable rate and if you're dropping the level of quality you're arrogating greater profits to yourself.
2589 So, you have some kind of hook or justification for caring about their level, caring about their network level to the extent that you're setting a rate and concerned about their quality, et cetera.
2590 It becomes more challenging and maybe you take on a different role in respect of forborne service.
2591 COMMISSIONER DUNCAN: Good. Thank you very much.
2592 Those are my questions.
2593 THE CHAIRPERSON: Thank you very much. Those are our questions.
2594 Thank you.
2595 We'll take a short five-minute break, merely to allow us to do a teleconference set-up right after. So, don't go too far away anyone.
2596 The next intervener will be First Mile Connectivity Consortium.
2597 So, just a five-minute break.
--- Upon recessing at 1120
--- Upon resuming at 1124
2598 THE SECRETARY: Order, please. À l'ordre, s'il vous plaît.
2599 THE CHAIRPERSON: Getting started again, thanks. So the next presenter are First Mile Connectivity Consortium. I know there's -- you've got various people on the line in different locations.
2600 For the purposes of us up here and the transcript, could you just tell us exactly who's where and, as well, when you present, it'd be easier if people on the line, if you're hearing us right now, could identify themselves as they speak. It makes it easier for all of us.
2601 So, please, go ahead in identifying yourself. And, by the way, I've looked at sort of the written submissions you've put forward. I've done this a number of times. This looks much longer than 20 minutes so you do only have 20 minutes and we are also concerned that you might be trying to put in evidence late in the day.
2602 So you might want to address that as well. Thank you.
2603 DR. McMAHON: Okay. Thank you. So, good morning, Mr. Chairman and members of the commission. My name is Rob McMahon and I represent the First Mile Connectivity Consortium and also recently completed a Ph.D. in communications at Simon Fraser University.
2604 With me in the room today are Dr. Heather Hudson from the University of Alaska, Anchorage, and Lyle Fabian, former Band counsellor and IT manager from K'atl'odeeche First Nation near Hay River in the Northwest Territories.
2605 Lyle will be speaking following our presentation.
2606 Joining us by teleconference are Brian Beaton, former manager of the Kuhkenah Network in Northwest Ontario, known as KNET, and Norm Leech, Executive Director of the First Nations Technology Council in British Columbia, which includes several reserve communities in Northwestel's service area.
2607 We thank the Commission for the opportunity to speak today. The First Mile Connectivity Consortium is a group of university- based researchers, First Nations regional technology organizations, and individual First Nations.
2608 Our membership extends across Canada but is concentrated in rural and remote regions and, in particular, the high-cost serving areas of northern Ontario, Quebec, British Columbia, Northwest Territories, and Atlantic Canada.
2609 Our common interest is in showcasing community development projects. Along with highlighting this innovation at the "First Mile" -- a term we use to describe last-mile or local connectivity -- we also research the barriers and challenges these projects face.
2610 Our work builds on that undertaken by organizations linked to the Assembly of First Nations. For years, these organizations have developed and delivered infrastructure and services to support remote, dispersed, low-population communities.
2611 Through the First Nations Innovation Project, our team has published over 50 articles, some of which are available in French. The First Mile.ca website showcases almost 80 community stories. And, finally, in late 2010, we produced a comprehensive report that included interviews with 23 stakeholders from First Nations and Inuit regional technology organizations.
2612 The report's overriding message was that these diverse groups sought to reframe broadband development policy to enable community development. This flips the focus of broadband development from the last mile to the First Mile.
2613 The private sector act as partners in these initiatives. Without affordable and accessible links to transport networks, these communities are locked out of the emergent digital economy.
2614 In this context, we felt it was important to intervene in these hearings. We are concerned that Northwestel's proposed modernization plan is based on an assumption of the people of the North as customers of services.
2615 Our testimony seeks to overturn this assumption and we provide empirical evidence from comparable cases from across Canada, both inside Northwestel's service area and beyond, to demonstrate how First Nations community networks provide services to residential and institutional customers, leverage public/private partnerships and support local economic development and public services in remote areas.
2616 The presenters today will discuss issues of IT services, competition and affordability.
2617 We are generally in favour of modernization in the North and we recognize any plan will be comprehensive, ambitious and expensive. However, we have concerns about some details of Northwestel's proposed plan and the current subsidy scheme.
2618 If the plan is approved as is, we believe that it limits the abilities of communities to benefit from development opportunities as service providers, not just customers.
2619 Our testimony contributes information from Northern communities and user groups that demonstrates what worked and what didn't work in Northwestel's territory and other remote regions of Canada.
2620 Our submission highlights three key points. First, open access to transport infrastructure. It is our opinion that a regulatory framework that encourages open access to publicly subsidized transport facilities is in the best interests of local communities who can leverage this infrastructure in various ways.
2621 Second, we draw the Commission's attention to the potential of First Nations Community Networks. Locally owned and operated last mile networks can help fulfil mandated service requirements and also generate opportunities in remote and rural communities.
2622 That is because they provide a platform for innovation, economic development, local employment, and the provision of broadband-enabled public services. Our research and professional experience offers many examples of such projects and we will speak to these issues today.
2623 This innovative work is also recognized by other organizations in Canada. For example, in recent testimony to Parliament, the Canadian Chamber of Commerce referred to the not-for-profit Northern Indigenous Community Satellite Network as a success story. The source of that information was the aforementioned First Mile report and one of the three partners in the Joint Venture, Brian Beaton from KNET, is here today.
2624 We believe the Commission might play a role in supporting such initiatives today by opening the National Contribution Fund to applicants from First Nations community networks.
2625 Finally, we wish to highlight the importance of consultations in these plans. The physical infrastructures, organizational arrangements, regulatory frameworks, and partnerships put in place now will have long-lasting impacts for Northern residents. They will shape their future opportunities as both consumers and producers in the digital economy but individuals and organizations in remote communities lack a voice in these decisions.
2626 Even at this hearing, several factors restricted the ability of remote participants to join. The cost of transportation inside Canada's far North is prohibitive for many people. This means that telecommunications and broadband networks act as necessary proxies for face-to-face communication.
2627 However, when we requested a videoconferencing link today, our request was turned down because of the prohibitive cost and limited availability of the service.
2628 This is just one example of the many barriers, financial, technical, logistical, that individuals, businesses, governments, and organizations in the North face every day.
2629 We now turn to our first speaker, Professor Heather Hudson from the University of Alaska Anchorage. She is an internationally renowned expert in communications policy and planning for rural and remote communities and has extensive experience in Alaska, the Canadian North, and many other isolated and indigenous regions.
2630 DR. HUDSON: Thank you. My name is Heather Hudson. I am Professor of Public Policy and former Director of the Institute of Social and Economic Research at the University of Alaska Anchorage and I'm a dual Canadian and U.S. citizen.
2631 And the testimony that I'm going to present supports evidence already submitted on behalf of the First Mile Consortium and I'm going to try to summarize very briefly because we do have other presenters on the phone and some material has already been covered earlier in this hearing.
2632 As the CRTC and many interveners have noted, reliable and affordable communication is critical for northern social and economic development and today this include broadband.
2633 Indeed, Finland, which also has many small isolated northern communities and is a member of the Arctic Council, was the first country to declare broadband internet access a legal right.
2634 The OECD points out that:
"Broadband is viewed as an enabler of productivity and economic growth but its impact on economies will depend on broadband being used by business and consumers, which requires access to broadband at low prices and good quality."
2635 DR. HUDSON: However, it is clear that Northwestel services do not meet the OECD's requirements of sufficient bandwidth, low prices and good quality.
2636 You've heard many examples so I will skip some but one that we would like to point out is the radio station in Kugluktuk, a hamlet at the mouth of the Coppermine River that's served by satellite, who said that they can't an affordable and stable 64 kilobit per second upload link, not 384, not 728, to stream their content. They even offered to contribute $100,000 toward the costs of a dedicated link between their station and the provider's equipment but were told there was no business case to sustain their initiative.
2637 Also, with the proliferation of smartphones, tablets, and other portable devices, mobile broadband is increasingly important and access remains limited, as you've heard.
2638 You've also heard about pricing so I will skip over that but it is a very serious issue.
2639 Concerning the need for skilled jobs, our testimony includes managers of networks who have hired and trained Aboriginal employees. However, by Northwestel's own admission, only 11 to 12 percent of its employees self-identify as Aboriginals and there's not a single Aboriginal employee on its engineering or leadership teams.
2640 Clearly, modernization is called for. Numerous letters to the CRTC from Northern residents supported modernizing facilities and services. However, many thought that simply implementing Northwestel's modernization plan was the best or perhaps the only means of doing so. We disagree.
2641 We believe that competition, coupled with new approaches to subsidies, can result in modernizing facilities and services that are both available and affordable throughout the North.
2642 I'd like to skip over the Commission's request.
2643 I'd like to bring the Commission's attention to several innovative approaches recently introduced in the U.S. that are designed to extend broadband to remote and Tribal regions.
2644 These policies are influencing availability and affordability of broadband in remote Native villages in Alaska, which are very similar to the indigenous communities in the Canadian North.
2645 Access to telecommunications consists of three major components: availability, affordability, and sustainability, which you have identified affordability and I'd just like to point out that the ITU, OECD, FCC, and others have developed various metrics to assess affordability that include household income and cost of living.
2646 And that research we did in northern villages in Alaska, cost of access to broadband was of a very high concern to them. There are similar concerns in Canadian aboriginal communities where family incomes are low and the cost of living is high.
2647 In the U.S., the FCC has established an Office of Native Affairs and Policy to promote deployment and adoption of communications services throughout tribal lands and native communities. And also funded several initiatives to extend broadband facilities and services in rural and tribal regions, including a Remote Areas Fund with a budget of at least $100 million annually to ensure that even Americans living in the most remote areas can obtain service.
2648 Connect America Mobility Fund that provides licences through a reverse auction. The first auction, held in 2012, awarded licenses for broadband mobile coverage for much of rural Alaska.
2649 A mobile fund specifically for tribal areas with $50 million capital plus up to $100 million per year to support the build-out of current and next-generation mobile networks on tribal lands.
2650 These funds provide both capital and operating support and employ reverse auctions. Indigenous operators can participate and the FCC encourages them to do so.
2651 There is also a pilot program addressing whether lifeline support for voice service, a subsidy in the U.S., should be extended to broadband and to tribally-owned carriers who are participating in that program.
2652 The FCC has established a rule making proceeding design to improve tribal access to spectrum and to promote greater utilization of spectrum over tribal lands, and it seeks to foster the establishment of tribally-owned wireless carriers. It also encourages tribal entities to become certified eligible telecom carriers and is providing training so they can participate in these programs.
2653 In 2012 the FCC implemented a requirement that communication providers receiving subsidies to serve tribal lands must meaningfully engage with the tribal governments of these lands, and Alaska carriers must now consult with the tribal governments and Native organizations. It also established the Native American Broadband Task Force, which includes Alaska natives.
2654 It's also worth pointing out that there are other universal service fund components that provide additional revenue in remote and tribal regions. They include the relatively new Connect America Fund that is replacing the former high cost voice subsidy and emphasizes broadband, a schools and library fund known as the E-rate for internet connectivity, and a subsidy for connectivity for rural health facilities, and Lifeline and Link-Up programs that subsidize low income users for voice services.
2655 These programs have been really important in Alaska and I can elaborate on that. Schools and rural clinics have become anchor tenants, providing a business case to extend internet services to remote villages. The rural health care subsidy is used to connect more than 250 sites, including links between more than 150 village clinics and regional hospitals.
2656 Universal service funds have been established in at least 52 other countries and I have written extensively on that if you're interested. I'll skip the rest of that paragraph and say that the approach of providing subsidies to carriers of last resort has been used in Canada. However, Northwestel is the incumbent -- where Northwestel has the obligation to serve in this region. However, the carrier may have little incentive to be efficient even with price caps.
2657 For example, during the 2010 CRTC hearing on the obligation to serve, Northwestel stated that it would cost $425,000 to upgrade its switch in Gjoa Haven. It's proposing similar upgrades in other remote communities as part of the Modernization Plan. During the 2010 hearings I was able to get two quotes for similar equipment, including estimated tax, shipping, and installation costs that were from 35 to 40 percent less expensive.
2658 To summarize, subsidy programs in the U.S. and some other countries offer many models that could be adopted in the Canadian North: competitive bids, reverse auctions, special programs for rural and tribal regions, strategies to foster tribal and Aboriginal providers, support for anchor tenants, awards to users so that they become customers and rather than just supplicants, and technological neutrality.
2659 Thank you for the opportunity and I'd be pleased to answer any questions afterwards, and I'll turn it over to our remote participants.
2660 DR. McMAHON: Yes. Our next speaker is Brian Beaton, former manager of K-Net Services in Northwest Ontario. Brian's testimony will show how First Nations community networks in remote parts of Canada work with regional intermediary organizations and other partners to provide services to government agencies and local residents. We believe these kinds of projects can also be undertaken in Northwestel's service area.
2661 MR. BEATON: Thank you very much, Rob and Heather. I -- greetings from New Brunswick to everyone in attendance in the room.
2662 I want to begin my short presentation by recognizing the traditional lands of the Tagish Kwan people where this meeting is taking place. I thank them for allowing this meeting to take place on their land.
2663 Until a month ago I worked for Keewaytinook Okimakanak's Kuh-ke-nah network as the coordinator of the First Nation owned and managed broadband network in Northern Ontario. Keewaytinook Okimakanak is a not-for-profit First Nation second level support organization established and governed by the chiefs of six small remote First Nations, much like many of the communities in the far north that we're talking about here. I worked there for 20 years before moving here to the University of New Brunswick, where I am doing graduate work at the Faculty of Education.
2664 When these hearings were being planned, I understood that videoconferencing would be available, as Rob mentioned. K-Net uses videoconferencing extensively in all the work being done across the North in these remote communities, both satellite and terrestrial-served communities. Videoconferencing of health services, education programs, court sessions, meetings, and countless other purposes require on-site equipment and a robust broadband connection that is affordable and easily configured by everyone, much like anyone would use the internet today.
2665 My presentation today to the commissioners is intended to offer another CRTC investment or development option for your consideration in your rulings on the Northwestel's Modernization Plan for Canada's northern region. I'd like to call this new option the "community option" that is contrast to the traditionally expensive corporate technical option that Northwestel is proposing.
2666 When K-Net developed its development strategy in the mid-1990s, the chiefs and the First Nations, they identified the need for meaningful sustained local employment, healthy environments that supported local choices for families and organizations, and the protection of the lands and resources that sustain their traditional ways of life, along with the respect for the treaties and the ability to own and control and use the tools that support these goals.
2667 The K-Net story that I'm sharing in this is a potential model for community-owned and managed networks across the far north. Owning, controlling, accessing, and possessing are the four principles of OCAP that the Assembly of First Nations recognizes are essential requirements for any data. I want to suggest that the same principles need to be applied by the CRTC to telecommunications infrastructure when communities wish to have their own network. The OCAP principles that K-Net employs result in this collection of small remote First Nations establishing and operating their local broadband network.
2668 The Northern Indigenous Community Satellite Network that Rob mentioned is a creative result of this flexible approach to building and managing a carrier-class satellite network that supports all the applications and services available to other communities served by terrestrial connection. Back in 2000, when K-Net was able to access the funding for local broadband infrastructure, the incumbent telecom provider in Northern Ontario presented an option to contract them to upgrade their transport, their local connections, and manage their network services. This development strategy sounds to be very similar to what the Northwestel Modernization Plan is proposing.
2669 K-Net took the position that the communities needed to own and manage their own infrastructure and this was done to create local employment and training and support services and applications in an affordable and sustainable manner. The key with all these developments is that communities can now plan and develop their own services and prioritise the traffic and usage.
2670 Similarly, purchasing the satellite transport bandwidth at commercial rates from the telecom provider proved to be too expensive for the online applications that the satellite-served communities required in terms of equitable access to services. The business case showed that in one year they could pay for the infrastructure required to put it in place themselves to be able to manage their own traffic.
2671 So, being able to use the existing resources that Industry Canada and Telesat had on their public benefit transponder, we developed that expertise and the ability to do it, and that now has been expanded to include other regions in Northern Quebec and other satellite-served communities across Manitoba as well. And so we formed this consortium, the Northern Indigenous Community Satellite Network. And it provides connectivity, broadband connectivity in 40 remote satellite-served communities.
2672 In Northern Ontario, two documented cases, Fort Severn and Slate Falls, provide great examples of how they have been able to utilize and capitalize on the -- on this investment. And this -- these examples can be used across the North and they are being used across Canada now as examples and are documented in the presentation.
2673 In Slate Falls, they -- when they did get the -- Bell Aliant came in with their fibre network that is publicly funded, the community refused to allow them to build out their telephone -- telephony service because they had already been operating for five years on a voice over IP network. And so they wanted to maintain that network, rather than have that business -- that local enterprise be transferred over to Bell. The savings that are incurred are obvious from all that.
2674 The data that Rob referenced, the publications, the international publications have been pointing to the viability and the economic benefits of strategically supporting remote and rural communities in developing telecom solutions that address their needs while providing benefits such as local employment, access to services, and contributions to their local economic base.
2675 When far away government officials get involved in managing these projects, communities often remain unserved for many years, as the written example that I provide in there demonstrates. We're experiencing that today in Northwestern Ontario, where communities now are going to be left off the grid. This is in contrast to cases where the projects are situated in the communities, where the funding is provided to the communities and organizations to ensure they are successfully completed and operated. Their survival depends on it.
2676 I want to return to the topic of videoconferencing at this hearing. I would have preferred to address everyone by video so you could see me and I could see you. As I mentioned, K-Net has a lengthy history of making videoconferencing work in many challenging environments at very low cost. The K-Net team could have easily made videoconferencing happen at this event. Instead I understand the technical solution proposed proved to be too expensive, so this option was abandoned in favour of this telephone connection. Hopefully one lesson to take from this experience is that leaving things in the hands of the technicians, who are often far removed from the local realities in remote and rural communities, more often than not result in undesired outcomes.
2677 I hope my presentation helps everyone understand the value of investing in these communities and so that they can work with whoever they wish to work with to support the applications needed for their children and all their future generations. Thank you.
2678 DR. McMAHON: Thank you, Brian.
2679 So to introduce the last speaker, Norm Leech. At present the National Contribution Fund is only available to Northwestel. Our next speaker, Norm Leech from the First Nations Technology Council in B.C., which includes several First Nations communities served by Northwestel, he will point out how First Nations can benefit from access to subsidies that support community networks. These projects provide jobs and economic development opportunities, help address Basic Service Objectives, and support competition in challenging-to-service areas.
2680 Thanks, Norm.
2681 MR. LEECH: Good morning, Mr. Chairman and members of the Commission. My name is Norm Leech and I am the Executive Director for the First Nations Technology Council here in British Columbia. I thank you for the opportunity to speak today.
2682 The FNTC was created of, by and for the 203 First Nations of B.C. Some of the northern ones fall within the service areas of Northwestel. The mandates of the First Nations of B.C. include connectivity, capacity-building, information systems and other technology services and support. We promote the use of technology as a valuable tool that can assist First Nations in all their activities and to generally improve quality of life for all their citizens and communities.
2683 I don't want to read my submission and to reiterate some of the comments that were made by some of our colleagues today. I would just like to hit on some of the points, recognizing our bit of time crunch this morning.
2684 We really want to advocate for a framework that preserves and promotes opportunities for First Nations communities and that's the opportunity available for the CRTC today.
2685 We've heard many examples of what is possible and what is already being done not only in Canada but in the U.S., other countries like New Zealand and Australia where First Nations and indigenous people have an opportunity to participate and other benefits that accrue from that participation go beyond the mere provision of basic consumer services.
2686 First Nations, unfortunately, start from a position somewhat behind but technology gives us an opportunity to perhaps leapfrog from where we are to where business and industry and even government are already achieving tremendous results with technologies and innovation now.
2687 We simply want to have a real place at that table and we hope that the CRTC can help preserve that place and even assist in that.
2688 The opportunity is limited really only by the imagination that's already been demonstrated, the imagination of First Nations communities in implementing technology and finding other benefits and spinoff benefits from that technology and building the solutions for many of the issues that face these communities as well.
2689 The CRTC itself has demonstrated a great deal of imagination in developing methods of increasing competition and serving the public good and I would simply ask that they continue that role but more specifically in addressing participation by First Nations and other Aboriginal groups in Canada.
2690 So with that, we simply say that -- well, and I guess the final point I would really like to make is that an investment in First Nations participation in technology and telecom is not at the expense of anything else.
2691 First Nations have always been the most permanent residents of their territories. They cannot take their territory to the Caribbean. They stay where they are and they actually spend almost all of their money exactly where they are and they invest in their people, their communities and their territories.
2692 So any investment in First Nations ends up being an investment in the region and that ends up being a permanent investment. There is very little chance or risk of any of that investment flowing anywhere else or not being implemented or benefitting that region specifically.
2693 So we simply want to reiterate our support and our alliance with our co-presenters here today and ask the CRTC to maintain their focus on competition and the public good but more specifically consider First Nations participating in that competition and recognizing that the public good is served by assisting First Nations to achieve health, prosperity and independence.
2694 With that, I thank you for your consideration and your time and I thank you for listening to us. All my relations.
2695 DR. McMAHON: Great! Thank you, Norm.
2696 We invite any questions from the Commissioners.
2697 THE CHAIRPERSON: Okay, thank you very much.
2698 The disadvantage of not being here is that you don't necessarily have a video conference. The advantage is I've been very indulgent in the time for the presentation and we are also competing against waste removal.
2699 Do feel free to reopen the windows if that will help the ventilation. And, by the way, if people wish to remove jackets, I don't think any of us will be offended as well because I see the heat is building up in the midday here.
2700 So I will pass it on to Commissioner Simpson.
2701 COMMISSIONER SIMPSON: Does that include ties?
2702 COMMISSIONER SIMPSON: I didn't think so.
2703 First off, I would like to say that it's gratifying to see as much work as has been done put forward and in a very coherent manner. It's just unfortunate that it's hard to drink from a fire hose. But nonetheless, it's great that the fire hose is fully charged with ideas.
2704 I'm going to try and be very succinct in the interest of time because I want to make sure that there's sufficient time for the second presenter.
2705 First of all, Professor Hudson, I have right in front of me actually a copy of your report, that I found very interesting -- but I would like to say, Mr. Beaton, that if you want to play traffic cop with respect to who should be answering what questions -- sorry, Mr. McMahon, I would appreciate you stickhandling it.
2706 But my first question is for you, Ms Hudson. You've taken a very high-level view to what is needed and I can't help but remark on the -- make an observation that so much of what you're advocating from a very sharp and clinical perspective still is largely social policy as opposed to telecom policy.
2707 Would you comment on that, please?
2708 DR. HUDSON: Thank you very much for the question.
2709 I guess I quite strongly disagree, although I must say that the Telecom Policy is to some extent intended to try to achieve broader socioeconomic goals, which I think is the reason why you're here as well.
2710 But I specifically limited the examples that I used to the FCC in the U.S. because I wanted to be as comparable as possible to the CRTC, and I realize that there's not complete comparability in terms of their mandates but there are certainly many other initiatives and programs that you could refer to that have a broader scope and are outside your mandate.
2711 Also, I tried very hard to include some specific recommendations that I think could be part of the changes that are made and recommendations that are implemented as part of this particular hearing on the Northwestel Modernization Plan.
2712 And one of them, which I think you'll hear also from Mr. Fabian and you heard from our remote speakers, involves providing more opportunities for other providers, including indigenous providers but there could be others as well, and opening the Contribution Fund would be one way of doing that and that's why I included the U.S. examples which are trying very hard to help indigenous people who are interested become licensed carriers and contribute and participate in providing services and are using reverse auctions to try to deal with some of the concerns that you and your colleagues have raised about, well, is there really an incentive to serve these communities where revenue is obviously limited and costs are high.
2713 And I could elaborate on that but that was my intent.
2714 COMMISSIONER SIMPSON: It may be in this wealth of information, but in a succinct manner if you don't mind, on the issue of affordability we all have, I think, mutual concerns on affordability and you had referenced that -- I think it was on paragraph 12 of your submission -- that there have been metrics applied to what is an affordable rate.
2715 Do I assume from this that it's applying to indigenous peoples, First Nations if that is the appropriate reference to the Alaska model, but is there a different affordability rate for Aboriginal peoples and households versus an affordable rate for everyone else in your studies?
2716 DR. HUDSON: Okay. I think there's a couple of ways of addressing that.
2717 One, I tried to refer to these other studies because some of your predecessors had questioned whether -- how would you think about affordability and in fact several agencies around the world have thought about this. They typically use some proxy or indicator of household income, something about the cost of living and often a basket of services. So I'm not trying to tell you that the number here should be "X" but that those indicators, you know, could be used to help come up with an answer to the question that you keep raising.
2718 The U.S. has particular consumer subsidies for low -- not just for tribal people at all but for -- the Lifeline Program is designed for low-income households and now it applies to cell phone service. So you can have a discounted cell phone, basic cell phone service too because they considered that voice was a very important service. And now, as I pointed out, there's some pilot programs to decide whether that should be extended to broadband.
2719 I think that, you know, the Telecom Act of '96 in the U.S. talks about its services in rural areas should be reasonably comparable and the prices should be reasonably comparable to urban areas. Now, as lawyers, we could drive a truck through that, but the point is that I think it's not, in the big picture, such a bad indicator, as some of your previous dialogue went on. You know, the Yukon Government was saying, well, it doesn't have to be identical to the South but we don't think that there should be incredible disparities in quality of service, bandwidth and pricing.
2720 So, you know, I think we could come up with a more precise answer but I was trying to pull some examples to help you think that through.
2721 COMMISSIONER SIMPSON: Well, if you have any thoughts between now and June 25th an undertaking would always be gratefully received, if you want to put your thoughts on paper.
2722 COMMISSIONER SIMPSON: My last question -- I think it's for you, Ms Hudson, but I think it will also carry over to the group -- there wasn't a lot of reference to the backbone accessibility and I'm curious to know in Alaska -- I should probably know this, but how is Alaska being served predominantly in its backbone structure.
2723 DR. HUDSON: Okay. So the backbone in the U.S. terminology is divided into I guess the very long distance backhaul and what people call the middle mile and the middle mile, as in the Canadian north, has been a problem. It's been primarily by satellite and satellite is certainly much better than not satellite, but it has the same problems as we have heard about here, certainly latency, but also although the prices are not as high definitely as what has been quote here and by your non-existent presenter as well that was referred to, but definitely the prices are higher than terrestrial.
2724 So the effort in Alaska has been to try to take the middle mile service off satellite and put it on the ground and that has been done.
2725 The study refers to the first stimulus-funded project, it's now being extended up part of the coast of Alaska using a combination of fibre where they could put fibre in, which was only part way, and then microwave.
2726 COMMISSIONER SIMPSON: Is there more satellite competition in Alaska than there is here in our jurisdiction?
2727 DR. HUDSON: I don't think --
2728 COMMISSIONER SIMPSON: Is that what's causing the price to come down?
2729 DR. HUDSON: No. In fact, I would say that there used to be more satellite competition than there is now.
2730 There is satellite competition in that we found that for individual subscribers we found that a significant percentage of subscribers in that region, with the 65 rural communities, had put in their own VSATs to put in their own Internet connectivity, so there are a couple of ways and Xplornet perhaps is comparable here. I mean, some have gone out on their own, but they tend to be small businesses.
2731 So in terms of satellite as backbone, no. In fact, I think that there was more effort in the past to be sure that multiple fixed service satellites covered Alaska than we have seen recently, so it's a problem there as well.
2732 COMMISSIONER SIMPSON: But more fibre is going into Alaska?
2733 DR. HUDSON: It's going in where -- yes. I mean, the problems are similar, there is fibre certainly down the peninsula and across under a lake and out part way, but the carriers face the same problem of tundra and mountains as parts of the region here, so they have relied in some areas on microwave.
2734 COMMISSIONER SIMPSON: I can't help but note that the population of Alaska is somewhere just south of 750,000 compared to -- well, almost three-quarters of the population of Saskatchewan and so there is obviously some different economics in play here.
2735 But I would like to ask you the last question, which has to do with the FCC's approach to this was very holistic and exhaustive by the amount of approaches they took, but in generality did the funding that came as a result of their determinations involve redistribution of existing telecom funding or was this new money that came from -- again, back to that first question, social policy direction?
2736 DR. HUDSON: Yes, that's an interesting question.
2737 How shall I answer that?
2738 Not exactly. The funding -- so the universal service funds, the schools and libraries, low-income and high-cost, have been going on for some time. They say that the money for some of these new programs for tribal areas and rural mobility have come from savings in the this cost fund, savings in implementing the Connect America Fund and they are able to redeploy that.
2739 There has been some discussion about using some money from options for other services, but I don't believe they have touched that. So in a sense it's a redistribution of funding and it's a recognition that rural and now the Commission is -- the FCC is aware of what remote is, they too had to perhaps learn that -- is a problem that needs significant attention and they are very also committed to tribal and indigenous populations.
2740 COMMISSIONER SIMPSON: My last question to you, following through on the funding, so if this is a redistribution of -- in generality -- existing funds, how does that redistribution, whether it's coming from the industry through assessment or coming from the taxpayer, how does that funding square with respect to how it ultimately applies to residential consumer cost? Is there a differential?
2741 This could go back to your undertaking so you may not choose to answer this, but if there is a general application of funding, is the FFC contemplating different regimes to deal with the economics of indigenous households versus the rest of the market?
2742 DR. HUDSON: I think the answer to that is no. What they are saying is that the program, in terms of low income programs, it took quite a bit of education and outreach to get a lot of tribal regions participating in the lifeline programs themselves and they realize that has been really important and that the incomes are low in tribal lands and many areas.
2743 So part of it is that outreach activity -- the interesting part, which kind of comes perhaps to your question of what's a basic service -- which I think the FCC is also groping toward -- is whether those subsidies should also be available to low income consumers for broadband.
2744 I tend to think that they will go in that direction, but what they are trying to do is fund 10 trials to get some idea whether adoption -- how much adoption is related to price and if that's the direction that they should go.
2745 But those funds are not tribal-specific, they just realize that tribal people tend to fall disproportionately into low income categories.
2746 COMMISSIONER SIMPSON: Okay.
2747 Mr. McMahon, I'm going to ask you to again just stream the questions to whomever is most appropriate to answer.
2748 Going back to holistic -- I'm taking a holistic approach to the rest of the submissions that are before us in this presentation this morning.
2749 The prime motivating factor behind the thrust of what you are bringing forward to us today, is it access, affordability or perhaps is it that the markets that you are paying attention to are not getting services in a timely manner for some other reason that requires an initiative from First Nations?
2750 DR. HUDSON: Okay. Speaking on behalf of the group, I think, I think that there are a couple of things going on here.
2751 One is, definitely we are concerned about -- and you have heard from some other interveners and you will certainly hear more about services, the quality of service and availability of services in this region has not been what it should be and we are not convinced that the modernization plan as proposed by Northwestel adequately addresses that,
2752 But the issue that I think was brought out very much by Brian Beaton and will be from Lyle Fabian is that we are talking about something past customers, we are talking past residential customers to services for business and government users that we believe is both an important need and also a source of revenue, and we are talking about participation at the community level and at the local level in providing those services, not simply getting better service, which I think everybody agrees is needed as I said.
2753 Many people have said nobody is really close to modernization, it's just that this is the best or the only way to go about it. How can we be sure that the goals are met and it becomes a more conclusive and participatory process? And I think that, you know, the contribution fund that has been referred to several times, opening that fund for example so that there would be ways to compete for those subsidies would be one way to do so.
2754 Another point was made by one of your colleagues I think concerning, well, what about picking off individual communities, and I think that's probably not the right way to think about it. You know, you could have a package of communities, not just do you want to serve community Old Crow, but not Faro. But is there a package of communities for which there would be a competition for at least cost subsidy to deliver those services.
2755 So we are trying to think through how do you create incentives that involve more competition, but with local providers as well as improving the service in Northwestel's service area.
2756 COMMISSIONER SIMPSON: Please...?
2757 DR. McMAHON: I just wanted to follow up. If you wanted any more details around some examples from that, Brian Beaton from K-Net could probably speak to both that community aggregator approach or the delivery of services, public services.
2758 COMMISSIONER SIMPSON: Why I'm asking the question the way I am is, I'm trying to understand whether First Nations are rightfully taking issues into their own hands for the purpose of trying to be part of the solution that we are all seeking here or whether there is a different problem requiring a different solution. That question is being asked in context to something I also don't understand in generality, which is are you bringing -- because of the mature of First Nations and their status and their access to funding, are you bringing new money to the table or asking for access to existing money, which in effect almost puts you into competition. Because in other parts of the submission that I think we are going to hear later on there is the issue of not just the build-out, but the ownership like things like local loops in the local service areas.
2759 So are you asking for public money to build private networks?
2760 DR. HUDSON: Okay.
2761 MR. BEATON: I would like to jump in here, Heather.
2762 DR. HUDSON: Yes, let Brian answer.
2763 MR. BEATON: This is Brian in New Brunswick.
2764 Like it's more a question of the work is not getting done and the communities need to see it done today to be able to offer -- to sustain their communities and they are taking the onus to move forward with it.
2765 It has been project-based and so therefore, yes, it's new money that would have, like you know, in the past has just gone to the telco to do the build, but now the communities are saying, "Hold it a minute, the job isn't getting done when the monies are put into the hands of the telcos directly from the government, from the public purse." We have lots of examples of that, as Rob said.
2766 What I'm saying is that, like you know, the communities need to have affordable and control of the networks and, therefore, the only way they can do that is by owning those networks.
2767 That is what I think Norm alluded to, and the communities -- if it is the public purse, then they should have access to that, and then they can choose whether they want to work with Northwestel or whether they want to work with another provider. Or, if they want to build it themselves, as Lyle talked about.
2768 COMMISSIONER SIMPSON: Sorry, I am trying to keep things moving here, but we have seen several examples of partnerships where First Nations have partnered with Northwestel to get projects going.
2769 Are you saying that that model doesn't work, or is it just that there are not enough of them?
2770 MR. BEATON: There are not enough of them, obviously. That's the main thing.
2771 And in terms of having those choices, if the community chooses to partner with Northwestel, great. That's up to the community.
2772 But if the community chooses to do it themselves and offer their services as required, they need to have equal access to the resources, equitable access to the same resources and to the transport.
2773 You mentioned transport, too, but the transport needs to be -- like, it's being funded anyway by the public purse.
2774 DR. HUDSON: If I might, I think that when we get to Mr. Fabian, he will be able to elaborate quite a bit and address some of those questions that you have --
2775 COMMISSIONER SIMPSON: I just have one more question, and then I am going to open the floor to my colleagues.
2776 I noticed in the original submission -- and I hope it was yours. If not, it can be answered in the next presentation. I noticed that in the declaration of the importance of ownership of local service areas, local loops, that it was tied with -- in quotation marks -- First Nations that enjoy politically autonomous status.
2777 Can you unpack that for me? Is it simply that only politically autonomous First Nations groups are interested in ownership, or is that a requirement for ownership?
2778 DR. McMAHON: I think that both Brian and Norm could speak to that, but just briefly, First Nations, of course, operate differently from other governments, local governments, municipal governments, that sort of thing. So I think that statement was kind of tied into that, whereby there are different considerations around things like the provision of health services and education, which might be through an Aboriginal service provider.
2779 K-NET has examples of, for example, an Internet high school that would be an anchor tenant on the network, that is also an Aboriginal educational service provider. So you get sort of some synergies there between the delivery of service, but also the delivery of public service, as an example of education.
2780 I don't know if you want to add anything, Brian or Norm?
2781 MR. BEATON: I will jump in and say that I think the model is transferable to any community, whether it is a First Nation or just an unserved rural community.
2782 The model that is being proposed here, and hopefully that the CRTC -- the Commissioners are able to support in their deliberations and in their unbundling of some of these services -- or some of the revenue sources -- like, I think it is available to anybody who has the capacity and access to the resources to do it locally.
2783 It means jobs. The big thing is jobs and economic and social opportunities, so that the members of the community have choices, which they don't have today, because it is too costly to access.
2784 Thank you.
2785 COMMISSIONER SIMPSON: Those are my questions. I will share the wealth with my colleagues.
2786 THE CHAIRPERSON: Thank you very much.
2787 I know, Mr. Fabian, that you have travelled very far to get here. We will get to you in a second. I just want to double-check that your colleagues on the phone don't have anything to add, because sometimes it is a little harder to get in on answering the questions.
2788 Mr. Beaton, are you okay?
2789 MR. BEATON: Yes, thank you.
2790 THE CHAIRPERSON: And Mr. Leech?
2791 MR. LEECH: Yes, I'm fine, thanks.
2792 THE CHAIRPERSON: Okay, thank you.
2793 Mr. Fabian, do you want to make your presentation at this point?
2794 Thank you.
2795 MR. FABIAN: Yes, thank you.
2796 Good morning, Mr. Chairman and Members of the Commission. My name is Lyle Fabian and I am a former KFN Band Council member, and I am the current IT Manager at K'atl'odeeche First Nation.
2797 Thank you for the opportunity to speak today. I will focus on IT services and infrastructure in KFN.
2798 We are an Aboriginal community of 600 Band members and approximately 325 people living on an Indian Act, 52-square mile reserve, near the town of Hay River, with a population of 3,000 people, in the Northwest Territories.
2799 Our community houses several local public services and businesses, and we see broadband infrastructure and services as a means to support local economic and community development.
2800 K'atl'odeeche First Nation has a traditional territory within the southern part of Great Slave Lake and northern Alberta, which covers approximately 30,000 square kilometres of traditional lands.
2801 In 2006, Northwestel placed fibre optic infrastructure within our traditional territory, without meaningful participation, informed consent, and thwarting long-term economic opportunity.
2802 KFN has resided in these traditional lands for many generations, being the first economic driver for the fur trade industry in the 1800s, up to the late 1970s, with the Hudson's Bay company, where KFN traditional hunters and trappers had meaningful participation and were the primary drivers with Canada's first economic economy.
2803 You are wondering why I am bringing up the fur trade. The reason is that Aboriginal people are the primary drivers and the backbone to the long-term economy of the Northwest Territories, and large businesses have built their wealth on the backs of the Dene people within the Northwest Territories.
2804 KFN can participate within the new economy, such as the telecommunications industry, and we feel that Northwestel has overlooked building meaningful and long-term economic relationships with KFN.
2805 I will begin with an overview of the high cost for KFN services. This slide shows the costs for KFN Band administration, and specifically the costs for basic phone and Internet service in 2007. These figures include 20 -- with all Band services throughout the community. We had to pay $15,000 a year for IT services and a website administrator, and those services were very limited.
2806 At the same time, we had to pay $10,000 for Band equipment, for expenses such as printers, computers, and networking devices. In one year we paid up to $65,000, in that particular year, just for telecommunications services for the whole community. And that was just for Band administration services, for us to provide services to the community.
2807 In 2008, KFN decided to look into alternative service options to reduce these costs and the technical problems associated with services at that time. We combined funding allocations in several areas to pay for aggregated Internet fees, and to purchase equipment like switches, routers, and Wi-Fi equipment.
2808 We then used this equipment to set up a local network that shared several Internet accounts throughout KFN administration workstations, which were linked over a 1 kilometre distance.
2809 As a result of these changes, Band expenses for Internet services dropped somewhat significantly in 2008. We spent half of that on equipment, for toners and computers. Instead of using individual printers, we saved $5,000 by buying a network printer.
2810 We still spent $63,000 for telecommunications services.
2811 Due to these results, KFN approached CanNor to apply for funding to build our own network infrastructure. This was based on what we saw as the huge economic potential of such a system.
2812 In 2009, KFN received a grant through CanNor, which we used to: train and educate community members as network technicians through Cisco certification; connect all KFN administration buildings through a single robust and secure wireless network; network all computers to a single backup server; build the new KFN community website and train a local website developer to manage it; and introduce videoconferencing capabilities within our Band office administration.
2813 Also, we conducted a feasibility study for a community fibre network, which would enable local data transfer speeds of 54 megabytes per second, over a 1 kilometre distance.
2814 In 2011, KFN received additional funding from CanNor to undertake the local fibre network, with a project estimate of $275,000 over two years. This project involved engineering and designing a fibre network through partnerships with the Keewatin Career Development Corporation and Earth Visions Systems.
2815 It also involved developing ICT curriculum for the delivery of Cisco Certification courses at the local KFN adult learning centre.
2816 Right now we are still working on these endeavours.
2817 Other outcomes included: hiring and training 5 KFN members on heavy equipment to trench and lay conduit and pull fibre within the community network; adding two additional servers to the community network; and linking all KFN administration buildings through a single 48-strand dark fibre infrastructure, which enables unlimited future upgrades.
2818 Local data transfers on this network are 1 gigabyte, symmetrical over a 1 kilometre distance.
2819 What does local ownership of this network mean for the future? At KFN, we see several benefits from our community-owned and operated fibre network.
2820 The first is health and wellness. We can deliver and access core health services through videoconferencing equipment. This enables community members to access counselling and other off-reserve specialists and medical staff. This will also help save travel costs.
2821 The second is education. The system will allow K-12 students to access better education. This will be done through online education options that will help to mitigate inequalities in accessing existing programs and resources.
2822 Online education for higher learning has become an option for KFN members who want to study but do not want to leave their community to do so. As the examples from K-NET in Ontario showed, videoconferencing systems can support interactive classrooms in areas that otherwise lack on-site teachers. This enables local schools to share teachers located hundreds of kilometres apart.
2823 We also see these connections supporting training for highly skilled and technical workers.
2824 The third is economic development. KFN can build and own its own local data centres. The network will also support long-term training and education initiatives. Local business opportunities stemming from the network include the potential for the Band to operate its own community ISP.
2825 Potentially, the Band might also lease community-owned infrastructure to outside ISPs, telcos, and cell phone providers.
2826 The community network provides better local services, while bringing down costs for KFN's band administration. Higher bandwidth will provide greater access to opportunities and services that will attract residents and businesses, including home-based businesses, to stay or relocate back to the reserve.
2827 Fourth, government. The community network supports the effective delivery of community services and programs. It supports the Band in managing on both -- the Band in management in both regional and local community issues.
2828 It will cover costs by utilizing videoconferencing and support connections with the community members geographically located outside the reserve.
2829 Finally, it will decentralize government services to enable delivery of core services over broadband.
2830 You can see right there on that current slide that is just Band Administration, Chief and Council travel. We can go back to 15 years and you'll see that when we started to implement videoconferencing capabilities on the KFN reserve, for the first time in 15 years we went from, at one point, to $139,000 and we have implemented videoconferencing capabilities in 2011. It was under, for the first time, $35,000. And last year it was under, for the first time, $20,000.
2831 So I will conclude with a brief overview of KFN's current fibre project in 2013 and 2014. KFN has recently received funding from CanNor of $279,000 for the next two years to build and operate 12 km of 48-strand fibre; 80 percent of funding which came from CanNor and 20 percent from KFN. KFN sees several long-term economic opportunities in this project, including leasing infrastructure to telcos or cell phone companies.
2832 The existing copper infrastructure owned and operated by the incumbent has several drawbacks for the KFN community. It is slow and expensive and requires high maintenance due to DSL or other aging equipment; provides limited bandwidth at high prices, sets prices for leasing and provides profits for the incumbent as opposed to the community.
2833 KFN is concerned that the costs for future developments on this infrastructure include high leasing costs, high investments for infrastructure upgrades, high costs for legal fees and regulatory fees, and affordability issues for consumers due to the lack of local competition.
2834 In comparison, it is KFN's opinion that the Community Open Access Fibre infrastructure provides a model for economic development in our community. It involves partnerships between government and private sector entities to support the construction and operations of a fibre-optic infrastructure.
2835 While fibre technology holds expensive up-front or capital costs, it is extremely fast, low maintenance requirements over many years and provides unlimited bandwidth at competitive prices. It also supports local economic development opportunities.
2836 The community can lease its infrastructure to businesses and to other organizations.
2837 KFN believes that future telco business on this infrastructure would provide huge returns to the community. A small leasing cost paid to the community network could save millions of dollars for upgrade costs, support local competition, lower prices for customers and provide a long-term business opportunity inside the community. We are considering leasing strands of this fibre infrastructure to anybody that wants it.
2838 I want to thank you for the opportunity to present today, and I welcome any questions regarding my presentation.
2839 THE CHAIRPERSON: Thank you very much, Mr. Fabian.
2840 I just ask you for -- I know you were probably making some last minute changes to your deck, but if you could give a copy of that to the Secretary for the public record that would be much appreciated.
2841 MR. FABIAN: Sure.
2842 THE CHAIRPERSON: Am I correct in assuming that you also have some colleagues on line with you?
2843 MR. FABIAN: No, just the same colleagues that are here.
2844 THE CHAIRPERSON: Okay. I was led to believe that there may have been other names on the -- and I just want to make sure that that wasn't the case.
2845 Okay. So Commissioner Duncan will start off the questions for you. Thank you.
2846 COMMISSIONER DUNCAN: Thank you, Mr. Fabian.
2847 MR. FABIAN: Thank you.
2848 COMMISSIONER DUNCAN: You've certainly provided us with a lot of detail. And so in the context of the Northwestel hearing I'm just trying to really understand what it is you're asking for. They have their existing as you know -- we know the National Contribution Fund.
2849 So it seems to me you're talking about setting up a network. You have done that in the community that you refer to here which is operating. Is it operating in competition with the copper network provided by Northwestel?
2850 MR. FABIAN: No.
2851 COMMISSIONER DUNCAN: It's not?
2852 MR. FABIAN: No.
2853 COMMISSIONER DUNCAN: So it's just providing internals?
2854 MR. FABIAN: Correct.
2855 COMMISSIONER DUNCAN: So are you proposing -- what is it that Northwestel would do for you in that community, just starting right there?
2856 MR. FABIAN: Well, what it can do for the community is that we can offset the huge potential costs for Northwestel to come to modernize the community. We can save Northwestel thousands if not millions of dollars to upgrade the community.
2857 COMMISSIONER DUNCAN: I hope you didn't think I meant for you to stop. Sorry, I'm just sort of thinking.
2858 Your system is in place in this community so Northwestel doesn't have to upgrade it. It could just poke into your system and pay leasing, if you like, to use your system. Is that correct?
2859 MR. FABIAN: Correct.
2860 COMMISSIONER DUNCAN: Okay. So then that community was upgraded using funds from -- you said here CanNor, right?
2861 MR. FABIAN: Correct.
2862 COMMISSIONER DUNCAN: So on an ongoing basis in the other communities in the Yukon, and I gather you're concerned with more than just the Yukon, but in rebuilding the networks in those communities is there still potential for access to CanNor funds?
2863 MR. FABIAN: I can't really comment on that for now. All I know is that, you know, there needs to be some sort of public fund and an infrastructure fund for Aboriginal communities to offset huge infrastructure costs within these Aboriginal communities.
2864 COMMISSIONER DUNCAN: So Northwestel is coming up with a plan to upgrade the service in all of these communities because of all of the communities that we're talking about. What I understand you to be saying is, "Work with us and we would like to own that structure and we'd like you, Northwestel and any other party that wants access to people in our community, the businesses in our community, to lease the service from us." Is that correct?
2865 MR. FABIAN: Well, just to lease the infrastructure, correct, and at the same time not to -- you know, we're not looking at wanting to compete. We just want to own the infrastructure and at the same time lease that infrastructure to anybody that's willing to pay for it.
2866 We're not asking for huge returns because, you know, you'll know that we did get public dollars too for the huge upfront costs for the infrastructure. So therefore it is not fair for us to charge exorbitant amounts for an infrastructure that we already put in place.
2867 COMMISSIONER DUNCAN: So you would -- you're speaking of the existing community right now but -- a network that is in place. Northwestel would use it, but did I understand you to say then you might lease capacity on that network, for example, to SSi or --
2868 MR. FABIAN: Correct.
2869 COMMISSIONER DUNCAN: -- Ice Wireless or whoever might?
2870 MR. FABIAN: Correct.
2871 COMMISSIONER DUNCAN: Okay. And so they would be competing with Northwestel?
2872 MR. FABIAN: If that's the nature of competition then, yes.
2873 COMMISSIONER DUNCAN: So in another instance and this, I think, is where the rub is, you're asking Northwestel to put that money up, to give you that money. Is that correct?
2874 MR. FABIAN: No. We're not asking -- if what I'm hearing you say is that we're asking for the infrastructure costs back, no.
2875 What we are asking is that we do have infrastructure in place, that we do feel that we would like to share --
2876 COMMISSIONER DUNCAN: Okay.
2877 MR. FABIAN: -- with anybody that's willing to access or provide services to our KFN members.
2878 COMMISSIONER DUNCAN: Okay. And so that's speaking of this community alone.
2879 MR. FABIAN: That's correct.
2880 COMMISSIONER DUNCAN: Okay. So your remarks are they -- and I gather even from the previous comments that what you want is Northwestel to be more consultative with the communities as their plan evolves.
2881 MR. FABIAN: Correct.
2882 COMMISSIONER DUNCAN: And that's the shortcoming that you're seeing.
2883 MR. FABIAN: That's it, yes.
2884 COMMISSIONER DUNCAN: So it wouldn't necessarily be a repeat of the circumstances in your community where you got money from CanNor and built it yourself. It could be in another community that Northwestel would still own it but own the facility, but the community would have more input perhaps in the services that are offered?
2885 MR. FABIAN: Potentially. You know, the way that I believe that -- you know, the Aboriginal communities within the Northwestel service area can potentially, hugely contribute to Northwestel's modernization plan.
2886 COMMISSIONER DUNCAN: And have you attempted to contact Northwestel and say just this type of thing to them and they have refused --
2887 MR. FABIAN: Correct.
2888 COMMISSIONER DUNCAN: You have?
2889 MR. FABIAN: Yes.
2890 COMMISSIONER DUNCAN: Okay, all right. All right. I understand.
2891 No, I think it's clear. I think those are my questions.
2892 MR. FABIAN: Thank you.
2893 COMMISSIONER DUNCAN: That was very helpful. It was very helpful.
2894 MR. FABIAN: Thank you very much.
2895 THE CHAIRPERSON: Thank you very much. Lots of food for thought in this hearing as we struggle with a lot of these issues. So it's been very helpful and I take it you'll be able to add to the various positions as we go to the next phases of this proceeding. Is that correct?
2896 MR. FABIAN: Correct.
2897 THE CHAIRPERSON: Okay, good. Thank you very much.
2898 MR. FABIAN: Thank you.
2899 THE CHAIRPERSON: Those are our questions.
2900 I think we're going to take our lunch break at this point. So why don't we adjourn until 1:30 and we will continue at that point with PIAC.
2901 So thank you very much for your participation.
--- Upon recessing at 1234
--- Upon resuming at 1335
2902 THE CHAIRPERSON: Okay. Order, please. À l'ordre, s'il vous plait.
2903 So, our next presenter will be the Public Interest Advocacy Centre representing a group of interests.
2904 So, please identify yourself and go ahead.
2905 MR. LÉGER: Good afternoon. My name is Jean-François Léger and I am acting as legal counsel for the Public Interest Advocacy Centre and the Consumers' Association of Canada, PIAC-CAC. With me is Andrew Briggs, President of Agbriggs Consulting Inc.
2906 PIAC-CAC are grateful for this opportunity to appear before the Commission in what we consider to be a very important proceeding.
2907 This proceeding is the culmination of a process the Commission initiated over two years ago to assess Northwestel's performance during the first price caps regime and to identify what changes, if any, should be made to the regulatory regime applicable to Northwestel.
2908 The record of the TNC 2011-302 proceeding showed that while Northwestel and its shareholders had done very well and, indeed, appeared to have prospered under price caps, the results for Northwestel's customers and, in particular, for those customers located in smaller communities were much less impressive.
2909 As an outcome of the TNC 2011-302 proceeding, the Commission directed Northwestel to put forward a plan to modernize its network.
2910 Now, the Commission gave Northwestel a specific objective, namely:
"...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."
2911 In our view, therefore, the question before the Commission is, has Northwestel met this objective?
2912 Northwestel's initial proposal filed in July 2012 appeared, in our initial opinion at least, to be promising. Using a range of technologies, the company was going to extend modern wireless services to all 96 communities in its serving territory. It was going to improve high-speed Internet services throughout the North. It was going to install switching equipment that would support enhanced calling features, as well as provide local number portability and local network interconnection. It was going to upgrade its transport network and provide diversity in relation to backbone facilities. It was going to replace obsolete fixed wireless and satellite telephony systems with modern Internet protocol-based facilities.
2913 When it issued this Modernization Plan, the company stated that it would:
"...be in a position to deliver the same types and levels of services to remote Northern communities as are now available in the largest urban markets in Southern Canada."
2914 The picture since July, 2012, however, has substantially deteriorated.
2915 In our written comments filed in May, 2013, we developed a table setting out our understanding of the changes in each of the versions of the Modernization Plan the company has filed with the Commission. A copy of this table, Table 1, can be found in the package of materials we've provided as an attachment to this presentation.
2916 Now, incidentally, we apologize for the size of our font in our presentation, but there was quite a lot of material to put in there.
2917 Now, we're not proposing go through all of the changes the company has made, but we can safely summarize the changes as a steady whittling down of the company's proposals.
2918 The overall result is that for residents and businesses in smaller communities, the objective the Commission set for the company of ensuring that Northern customers receive regulated as well as forborne services comparable to those available in Southern Canada remains just a dream.
2919 Indeed, as we've become more familiar with the company's proposals it appears that significant portions of what the company has undertaken to do in each of the proposals it has filed after July, 2012 have been made subject to conditions and qualifications which make their realization ever more uncertain.
2920 A recent example of this is the company's response to Order 2013-93. Not satisfied with wholesale rates approved by the Commission, the company has simply decided to cancel the deployment of fibre optic facilities in its network.
2921 Now, the company itself has described fibre optic facilities as, in its words, the optimum choice for many network applications as it provides superior bandwidth, scalability, flexibility for accommodating future services.
2922 The company goes on to say:
"In other words, fibre is seen as an integral part of how the Company's network should evolve."
2923 Yet, despite this endorsement, the company has put a stop to fibre deployment unless the Commission gives it the relief it is seeking.
2924 However, even if the company is successful with its review and vary application, it's not clear, to us at least, exactly which investments would be restored.
2925 It seems to us, as we've followed the development of this proceeding that there appears to be some confusion in Northwestel's management as to who is the regulator and who is the regulated entity. In our view, the Commission sets objectives for the company and the company implements them.
2926 In this proceeding the company has raised a significant roadblock to meeting the Commission's objectives in the form of its focus, we would describe it as an obsession with a set level of capital intensity. Northwestel's principal argument, seemingly derived from an observation made by the Commission in TRP 2011-771, has been that the investments it has proposed to make to modernize its network have been designed to maintain a level of capital intensity which it describes as consistent with other large ILECs.
2927 Now, we've already demonstrated, using publicly available information, that the company's comparison with other carriers is incorrect. For 2012, for example, Bell Aliant reported a capital intensity of 21.4 percent. For its wire line segment, Bell Canada reported a capital intensity of 21.5 percent and TELUS, for its wire line segment, reported 24.2 percent.
2928 In these circumstances, Northwestel's current performance and its proposed performance under its modernization proposals appear to be mediocre.
2929 More fundamentally perhaps, we also question the relevance of the capital intensity comparison Northwestel relies upon.
2930 An important difference between Northwestel and other companies such as Bell Canada, Bell Aliant and TELUS is that, by its own admission, Northwestel is at a much earlier phase in its deployment of fibre. Moreover, Northwestel is currently operating with a network significant portions of which are, by the company's own admission, obsolete.
2931 In these circumstances, it would be reasonable to expect that Northwestel at this stage in its development should be displaying a significantly higher capital intensity than carriers which are much further ahead in the deployment of technology such as fibre optics and Internet protocol platforms.
2932 If the company is to catch up with other North American carriers in terms of the functionality it delivers to its customers, it seems to us that maintaining a business-as-usual approach to network investment is unlikely to be sufficient. Yet, business-as-usual is what Northwestel contends should apply to its network investment strategy.
2933 In our earlier submissions in this proceeding, we produced a table which charts Northwestel's capital intensity over a period of years. This table is labelled Table 2 in the attachment to this presentation. As can be seen, under Northwestel's Modernization Plans, the company's capital intensity levels would not increase. In fact, in comparison with earlier years, the relevant figures appear to be low.
2934 We believe that Northwestel can do better than what it is currently proposing, much better.
2935 We continue to cite Northwestel's July, 2012 modernization proposal because, in our view, it came closest to meeting the Commission's objective in TRP 2011-771. Northwestel will likely object and contend that the company could simply not afford to invest an additional $40-million in network modernization. Well, we question this.
2936 Northwestel's case relies almost entirely on the contention that the company must maintain a capital intensity level it has arbitrarily chosen.
2937 We submit that the Commission's focus in this proceeding should be on improving services for the company's customers and not on maintaining an arbitrary level of capital intensity.
2938 As the Commission found in TRP 2011-771, the company has been very generous with its shareholder. In one of our submissions earlier in this proceeding we produced a chart setting out on an annual basis the dividends paid by Northwestel to its shareholder over the last decade. We've reproduced this chart as Table 3 in the attachment to this presentation.
2939 As Table 3 shows, the implementation of price caps appears to have coincided with a significant increase in the dividends paid by Northwestel to its shareholder. Under price caps, the company determines what return it should achieve for its investors.
2940 And we're not asking the Commission to attempt to set the level of dividends paid by Northwestel to its shareholder. Our point, however, is that for both the company and its shareholder a more substantial level of investment by the company in its network for the benefit of its customers appears to be readily feasible. We also note in this respect that when BCE made its original proposal to acquire the Astral assets it appeared to recognize the wisdom of investing in communications facilities in the North to improve services for Northwestel's customers.
2941 Now, we've also reproduced three more tables filed earlier in this proceeding. The first of these, Table 4, sets out Northwestel's revenues over the last decade. This period has been characterized by a steady and significant increase in revenues.
2942 The next table, Table 5, sets out Northwestel's income from operations. Here we see an even more dramatic increase since 2003.
2943 The next table, Table 6, sets out operating margins over the same 2003-2012 period. The company's operating margins appear to have increased substantially in the last several years.
2944 Now, in a price caps regime, the company determines on an ongoing basis its operating margins and we're not asking the Commission to attempt to set the company's operating margins.
2945 As the company's revenues and income from operations have grown, and as it has become more efficient; that is, as exemplified through operating margins, we submit that the company's customers as well as its investors should benefit.
2946 The company's substantially improved operating margins appear to allow for some additional spending flexibility to improve and modernize the services it provides.
2947 Now this, however, would require a change in thinking on the company's management. And based on what we have read from the company in this proceeding, and indeed what we've heard earlier this week, we are not optimistic that this is likely to happen.
2948 In our view, only firm Commission action can generate the network improvements Northwestel needs to make if it's to deliver service to Northern customers which are comparable to those provided in the South.
2949 Northwestel's customers in many smaller communities under all of the plans submitted by the company after the July, 2012 plan would continue to be denied access to levels of services which have been commonplace for other Canadians for many years.
2950 When the Commission assesses the company's modernization proposals, it is also important not to forget that the Commission has already set performance objectives for the ILECs, including Northwestel, in areas such as Internet access speeds. It did so in Telecom Regulatory Policy CRTC 2011-291.
2951 In our view, the performance objectives for services such as Internet access are bare minimums and may well already be obsolete, given the substantial increases in retail Internet service performance seen in recent years and increases in the requirements of the applications customers use.
2952 Now, we're not asking the Commission at this time to update the performance standards. It's set in TRP 2011-291. We understand that this is for another proceeding. We caution the Commission, however, against watering down the current objectives so that Northwestel can maintain its arbitrary capital intensity targets.
2953 Now, with respect to implementation, when, at the outcome of this proceeding, the Commission approves a modernization plan for Northwestel, it will be important for the Commission to put in place mechanisms to ensure that the Commission's determinations are followed on a timely basis.
2954 Northwestel has made clear, on several occasions in this proceeding, the very limited depth of its commitments to the modernization objectives it has put forward.
2955 In response to Commission questioning, the company is on record stating that:
"Should any competitive or regulatory pressures result in significantly lower revenues than the Company currently projects, the Company might have to scale back CAPEX as a result."
2956 MR. LÉGER: As we discussed earlier and in our previous submissions in this proceeding, many of the company's commitments also appear to have been made subject to third party initiatives.
2957 Also, as discussed earlier, the company's unilateral alteration of its modernization plan, in response to Order 2013-93, provides a striking example of the relative ease with which the company appears to be prepared to walk away from its proposals.
2958 In our submissions in this proceeding, we've made a number of suggestions for means to ensure that the company meets its commitments. Our objectives in making these suggestions have been, one, to ensure that the Commission and the company's customers are kept aware of the company's progress or lack thereof in the delivery of the benefits of modernization; and, two, to provide for the Commission's consideration mechanisms which would set tangible consequences for the company in the event that it failed to meet deliverables on a timely basis.
2959 Now, we do not propose to reproduce, in this presentation, the descriptions of the performance incentives we've suggested in earlier submissions and then described in more detail in our answers to Commission interrogatories, though we would certainly be pleased to answer additional questions if the Commission has any at this time.
2960 Combined with these incentives, we encourage the Commission to set periodic reporting requirements on the company. We have advocated quarterly reporting. Periodic reporting is essential, in our view, in order to track performance, recognize problems before it's too late and maintain the attention of the company's management.
2961 With specific reference to price caps regulation, our view in this proceeding has been, and continues to be, that Northwestel's customers simply cannot afford to wait for network modernization through yet another regulatory proceeding while the Commission and interested parties consider alternatives to price caps regulation.
2962 Our review of the interventions filed by Northern residents and businesses in this proceeding confirms that even supporters of the company's proposal acknowledge the importance of modernization of the company's network.
2963 We continue to be of the view that what is needed at this time is a set of clear directives regarding the service functionality the company must deliver to its customers, including clear timelines, supported by effective incentives to help ensure that company's management remains focused on the achievement of these objectives.
2964 With respect to the subsidy regime, Northwestel currently receives an annual subsidy of approximately $11 million to support the provision of residential local exchange service in High Cost Serving Areas. The subsidy amount payable to the company is based on a subsidy per network access service.
2965 In our submissions, we've expressed support for the maintenance of subsidy for Northwestel to the point at which competitor presence, in a forborne exchange, has reached the same threshold as that for the large ILECs.
2966 As we've stated in our written submissions, we consider that the primary purpose of this proceeding should be to ensure that the modernization plan of the Company meets the objectives set by the Commission in TRP 2011-771.
2967 It is our view that, at this time, the Commission's immediate priority should be to address service issues for Northwestel. If the Commission ultimately determines that the company has not or will not meet those objectives, then the Commission could reconsider re-examining the local subsidy regime.
2968 It's our understanding on this subject that, in the CRTC's latest three-year plan for 2013 to 2016, released last month, the Commission has stated its intention to examine basic service obligation and the subsidy regime.
2969 In our view, the timing of the review the Commission has announced in its three-year plan could provide an opportunity to consider proposals regarding subsidy for Northwestel and, potentially, for other service providers in the company's serving territory.
2970 The timing of the review could also provide the Commission an opportunity to consider subsidy proposals in light of Northwestel's progress, or lack thereof, in implementing the modernization program adopted at the conclusion of the current proceeding.
2971 Regarding the Commission's forbearance framework, our focus in this proceeding, in relation to forbearance, is upon residential local service. Our proposals regarding forbearance for Northwestel are based on the current framework adapted to the specific circumstances of Northwestel, as appropriate.
2972 In Northwestel's specific circumstances, we consider that a competitor presence test, based on a 50% threshold, would be appropriate. We have also proposed that requiring the presence of at least two independent facilities-based telecommunications service providers, including providers of mobile wireless services, is appropriate.
2973 However, we have invited the Commission to consider removing the requirement that at least one service provider, in addition to the ILEC, be a fixed-line telecommunications service provider. This reflects circumstances in Northwestel's serving territory.
2974 To protect consumers, we support the establishment of a price ceiling imposed on standalone residential PES, based on most recently approved rates at the time of forbearance or $30 per month, whichever is greater.
2975 We've also invited the Commission to apply the 18 month grace period in Northwestel's territory to ensure that competition is securely established prior to forbearance.
2976 With specific reference to the R&V of Order 2013-93, we have largely stayed away from discussions of wholesale services in this proceeding. In our view, Northwestel's customers can probably best address issues related to their wholesale service needs.
2977 However, as mentioned earlier, we found the ease with which the company appears to be prepared to walk away from a key aspect of the modernization of its network, namely the deployment of transport fibre, to be disturbing.
2978 Northwestel has itself described fibre optics as technology which provides considerable flexibility for the future and, indeed, as an integral part of how the company's network should evolve.
2979 Our understanding of the company's reasoning behind its decision to put a stop to the deployment of this technology is that, in the absence of the wholesale mark-ups it's seeking, there is no longer sufficient incentive for it to invest in technology.
2980 Well, to this we ask whether the ability to make possible future services for its retail, as well as its wholesale, customers has a significant place in the company's planning process and investment decisions. Seemingly not, based on the company's behaviour.
2981 In our view, the company's response to Order 2013-93 underscores the importance for the Commission of ensuring that modernization plans indeed meet the objective set out in TRP 2011-771.
2982 Whatever the modernization plan the Commission ultimately adopts, however, adequate reporting mechanisms and incentives must be built in from the outset. Otherwise, whenever company management considers that its capital intensity objectives may be threatened, the company's customers, in particular those in smaller communities, could find that hoped for improvements in the telecommunications services they depend upon have vanished. Thank you.
2983 THE CHAIRPERSON: Thank you very much. Commissioner Molnar will start some questions.
2984 COMMISSIONER MOLNAR: Good afternoon.
2985 MR. LÉGER: Good afternoon.
2986 COMMISSIONER MOLNAR: I want to talk to you about the modernization plan but, first, I just want to talk a little bit about your proposal here.
2987 I believe what you've said is that -- and just to make sure I do understand this -- that, in this hearing, we should be focusing on improving service and we shouldn't be so focused on whether we need to change the subsidy mechanisms and so on, that there's a future time to do so.
2988 MR. LÉGER: You summarize our position. Now, we recognize that this is not quite what the Commission has been saying in the public notice but it just seems to us that there's an opportunity that's coming very soon for the Commission to examine subsidy, to examine the obligation to serve and, as we have been following the submissions, particularly this week, we see that a lot of different parties have different -- and this is only the parties who are before you this week -- have different conceptions of what subsidy should look like and what the obligation to serve should look like.
2989 And our sense is that, I guess we're worried that, by altering subsidy at this point, we're, in effect, a bit making policy on the fly.
2990 Now, I think it may have been Commissioner Duncan who, at one point, asked another party, "Well, what about if we fence in Northwestel?" And that may well be possible but, as we look at these issues, it's hard for us not to come to the conclusion, if the Commission makes a determination on, for example, the importance of providing broadband, makes a determination with respect to Northwestel that this is not going to become an issue and almost a fait accompli in subsequent proceedings.
2991 Now, the Commission may be vastly more skilful than -- clearly is, vastly more skilful than we are at fencing off its decisions but I guess we're concerned that some of the parties that should perhaps be here addressing some of these issues, we had the discussion this morning, I think, from what we've seen in the last couple of days, that it looks like -- I'm not sure how I should put this but perhaps Telesat owns a part of the issue behind broadband deployment by Northwestel.
2992 Well, Telesat isn't here and so, with respect to whether it's subsidy or obligation to serve, our sense is that it almost calls for, you know, a properly structured proceeding focused on that and, moreover, given our nervousness about Northwestel's customers having to wait yet who knows how many more years to get the functionality that we think they should have been receiving for many years, I guess we wonder why there isn't, you know, an immediate urgency to get the Northwestel quality of service and reliability of service issues dealt with and then the Commission, in the context of its announced other proceedings, could then deal with these what are very fundamental issues regarding things such as subsidy and obligation to serve.
2993 I'm sorry, that's a -- kind of a longwinded answer to -- but that's our thinking.
2994 COMMISSIONER MOLNAR: No, and thank you for that answer, and let me ask you one more thing. As we talk about the Modernization Plan, I think it would be fair if you're asking a company to invest 200-and-some million dollars that they know the rules.
2995 MR. LEGER: So that they?
2996 COMMISSIONER MOLNAR: That they know the rules. And so, talking about potentially changing subsidy mechanisms in two or three years down the road, how does that align with asking them to make long-term investments in their network? You know, particularly in some of these high-cost areas where, I mean, there's many parties here who want to -- who have suggested different means of subsidy, that, you know, they'll auction it, they'll port it, whatever that might be. That all changes the dynamics and the --
2997 MR. LEGER: Well --
2998 COMMISSIONER MOLNAR: -- feasibility. So, you know, I'm struggling a little bit.
2999 MR. LEGER: Well, we already face that problem, though, because in a sense we're looking at what we've described as sort of a whittling away of Northwestel's service undertakings as the months have gone on. And I guess the question we ask ourselves is, okay, so the Commission comes up with a different subsidy regime which now sort of pulls a certain amount of subsidy from -- away from Northwestel, well, what's that going to mean? Are they -- are we now then going to be into another yearlong proceeding? Because Northwestel is going to say, well, hang on, guys, you know, we were prepared to invest whether it's 233, 273 or 198 million, we were prepared to invest that based on what we were -- we understood to be the rules then. So you're doing this to us now and our -- all our bets are -- you know, the bets are off; we're not going to do this. So what happens then to the Northern customers, who are the folks who were really at issue at the outset here? Well, they're going to be left waiting again for a plan.
3000 Now, having said that, yeah, we under-- we're sensitive to your point about Northwestel potentially having to face changes in the future, but that arguably applies to all the other carriers who receive subsidy today. When the rules change, they may be subject to different subsidy regimes. And now, you'll tell me, yeah, but Northwestel is a bit more sensitive to that given the size of the subsidy payments and the importance. Fair enough.
3001 COMMISSIONER MOLNAR: Perhaps they will tell you that. I ...
3002 MR. LEGER: Yeah. Perhaps. But I guess we're saying, well, again, two, three years down the road there'll be potentially another subsidy regime, perhaps not. Northwestel will have an opportunity then to argue its case for whatever subsidy regime it wants to see. And if the rules change, well, they'll change for everyone and it isn't really a case where Northwestel will have been singled out. It just happens that Northwestel's modernization process has lasted -- I don't know if you would agree, but we certainly feel that it's been a very long drawn out, dragged out process, and so time -- as time gone by, perhaps, you know, through whatever reasons they're now closer to the next subsidy regime re-examination.
3003 COMMISSIONER MOLNAR: Okay.
3004 So, you've spoke about the whittling away of the Modernization Plan.
3005 MR. LEGER: Right.
3006 COMMISSIONER MOLNAR: Their capital intensity ratio, I'm not sure, do you see some way that we as a commission can enforce a different --
3007 MR. LEGER: No.
3008 COMMISSIONER MOLNAR: No. You agree we can't.
3009 MR. LEGER: No, we don't. And as we pointed out --
3010 COMMISSIONER MOLNAR: But we could set priorities within that, would you agree with that?
3011 MR. LEGER: Well, we've come to think that this capital intensity issue, it's a bit of a red herring because it -- I'm sure capital intensity is important from the company's management standpoint, it's a way that they measure their performance probably in relation to a number of things, but at the end of the day, first of all, we -- it seems to us that the way they look at it, we think there's perhaps a slightly misleading aspect to it and we saw an indication of that the other day when we were told, oh, well, the costs to handle a backhaul aren't included and they're not capital investments, they're ongoing expenditures. And so we're looking at this and thinking to ourselves, oh, boy. So the capital intensity there had -- clearly has no relevance because they're now saying to us, well, the cost of hauling that traffic doesn't even go into our capital intensity ratio, it's an entirely different thing altogether.
3012 And that's why we've tried to draw, to bring folks' attention back to Northwestel's apparent performance, particularly in the way it treats its shareholder and its -- the growth in its business and the growth in its efficiency, which it seems to us provides at least -- and we don't have -- you know, again, we don't have numbers, very detailed numbers because a lot of this data is confidential. But when we look at what's publicly available, it seems to us that, well, this is a company that's doing very well; it's certainly treating its shareholder very well, maybe there's an opportunity for a slightly different sharing. But does the Commission need to do that? In our view, no, the Commission doesn't. And under a price cap regime, I think one would argue that it shouldn't be attempting to tell Northwestel what benefits it will pay to its shareholders or what its operating margins will be, but the Commission can certainly take into consideration the flexibility that the company may have, which perhaps is greater than the company is suggesting to the Commission it actually has. And that's really our point.
3013 COMMISSIONER MOLNAR: Okay, thank you. So you believe we can oversee the entire -- all the elements of their proposed modernization?
3014 MR. LEGER: You can oversee?
3015 COMMISSIONER MOLNAR: All of the elements under price cap regulation, under the framework in place, that we can --
3016 MR. LEGER: Well --
3017 COMMISSIONER MOLNAR: -- set them with all the elements?
3018 MR. LEGER: Well, the -- we're really talking here about a number of things. Under the Act, the Commission certainly has the ability to impose conditions on the provision of service that Northwestel -- or the provision of services that Northwestel provides, so ...
3019 Now, we realize that under price caps these -- the determination of margins and dividends is -- that is not part of the Commission's jurisdiction, but that's what we're saying, that as part of when the Commission evaluates the modernization proposal or the things that need to be done in the public interest for Northwestel's customers, well, at that point the Commission will presumably or the company certainly has told the Commission it has to look at what Northwestel can reasonably do, and we recognize that. But beyond that, I'm not sure that this necessarily affects the price caps regime. That's why we've said that current rules under price caps, we don't see significant changes right now, but the Commission could nonetheless mandate the company to implement certain functionalities.
3020 And let the company -- you know, we think that there may be room -- a number of parties have said, you know, these rates, we don't know what they're paying to Telus at, but, you know, maybe there might be opportunities to look at getting better prices or they're ... Now, that's not the Commission's job. But if Northwestel is given specific objectives, specific deliverables with specific timelines, well, it may be up to them to make themselves more efficient and to find lower costs or more efficient ways of delivering those functionalities. We have heard a number of people who have said, I mean including just before the break, that, you know, they've built -- we may have misunderstood, but what we thought we had heard is basically they built a -- what looks like a very large LAN in their community and they're looking for somebody to connect into it and to lease access to it. Well, you know, maybe -- that might be -- I'm not saying that's a solution, but --
3021 COMMISSIONER MOLNAR: Yeah. Fair enough.
3022 MR. LEGER: -- you know --
3023 COMMISSIONER MOLNAR: I hear what you say.
3024 MR. LEGER: Okay.
3025 COMMISSIONER MOLNAR: They can find their own solutions for cost efficiency and ...
3026 MR. LEGER: That's right.
3027 COMMISSIONER MOLNAR: Yeah. You have suggested some penalties, if you will, for not achieving the modernization, such as withholding subsidy and so on.
3028 MR. LEGER: Well, we've -- the Commission invited and we were a bit surprised because -- now, I'm -- we -- I may be wrong about this, but I think we're about the only party that's put forward actual incentives, I prefer to call them incentives, and the Commission --
3029 COMMISSIONER MOLNAR: But I have to say that was going to be my question because I wondered if there were any incentives, if anybody could think of an incentive to have somebody, you know, complete their plan instead of kind of a penalty if you don't.
3030 MR. LEGER: So we've look at -- we've looked at the deliverables. We have looked at precedents. We have looked at previous proceedings, including proposals that were made by the cable companies, for example, I think it was one or two years ago, with respect to a certain problem they were having with independents. We looked at -- well, we did a bit of research and we came up with these ideas. We tried to be careful not to position them as penalties in the sense that ... Well, in one case the company would get the money back anyway; it might just be held up. And in another case, well, they could -- they would regain the ability to generate the income.
3031 But, you know, I guess we look at this and we ask ourselves, okay, what does it take to get the company's management's attention if you've got objectives? And we've listened with some interest to Northwestel's comments earlier this week about, well, if you have a prob-- we'll report annually for your information, and if you have a problem you can initiate a proceeding. Well, you know, we're thinking about this and, oh, yeah, okay, here's a good -- like, a big, deep quicksand pit for the Commission. So it finds that there's a problem, it takes us a few months to issue some kind of notice or conduct a proceeding. Then the Commission has to conduct the proceeding. Then it could be a year then before the Commission decides or determines what it can do to get Northwestel to catch up. And in the meanwhile, all these customers in small communities in the North are still -- you know, are still without the services that the Commission -- that the company said it would deliver within the five year period.
3032 So, that's a reflection, I think, a bit of the -- I'm not -- I shouldn't say frustration, but the concern that we have that you need -- you know, you need fairly clear tools so that even Northwestel, in fairness, can't come back and say, well, we didn't really understand what you were asking us to do. That needs all to be set out at the outset so that they know what will happen if they don't deliver a given level of service in community X at the date that they said they would. What happens then? And we've suggested that this is as good a time as any for the Commission to set that out for them to consider.
3033 MR. BRIGGS: That's right.
3034 I just would like to add. The other challenge I think you have in terms of putting up incentives, financial incentives are probably the most likely thing. It's a company that's doing very well. So to provide them with another financial incentive to do something that they should be doing anyway didn't seem to us to make sense.
3035 MR. LÉGER: That's right. Thank you.
3036 COMMISSIONER MOLNAR: Okay.
3037 Just one more question.
3038 MR. LÉGER: Sure.
3039 COMMISSIONER MOLNAR: You have proposed in forborne markets that there be a price ceiling. I don't --
3040 MR. LÉGER: We're proposing no change to what --
3041 COMMISSIONER MOLNAR: Sorry, maybe I didn't say that correctly, but that the local service rate, there be -- isn't it called a price ceiling, the cap?
3042 MR. LÉGER: It's the same --
3043 COMMISSIONER MOLNAR: Standalone cap, yeah, that exists everywhere else.
3044 MR. LÉGER: It's the same for residential --
3045 COMMISSIONER MOLNAR: Right.
3046 MR. LÉGER: -- the same regime that is in place today.
3047 COMMISSIONER MOLNAR: Right. In high-cost serving areas in other parts of Canada the rates are allowed to rise by inflation.
3048 MR. LÉGER: Um-hm.
3049 COMMISSIONER MOLNAR: You support -- that makes sense to you?
3050 MR. LÉGER: Again, we didn't want to use all our time to sort of reiterate the regime that the Commission has in place. But we looked at the regime that the Commission has in place for other carriers. The only changes we are proposing are the ones we've described and they're very minor.
3051 COMMISSIONER MOLNAR: Okay, thank you. Those are my questions.
3052 THE CHAIRPERSON: Those are our questions. Thank you very much.
3053 MR. LÉGER: Thank you.
3054 THE CHAIRPERSON: We're going to change the order a little bit to accommodate some personal issues. So the next presenter will be the Nunavut Broadband Development Corporation.
3055 THE CHAIRPERSON: Good afternoon. Welcome. When you're ready, please go ahead.
3056 Your last name is Spinu?
3057 MS SPINU: Yes.
3058 THE CHAIRPERSON: Okay, great, thank you. So please go ahead.
3059 MS SPINU: Thank you, Mr. Chair and your fellow Commissioners.
3060 I would like to thank the Commission for the opportunity to participate in this proceeding.
3061 My name is Oana Spinu and I am the Executive Director of the Nunavut Broadband Development Corporation, NBDC.
3062 NBDC is unique among the interveners for several reasons and I'd like to briefly explain who we are and what interests we represent, to provide a clear context for our comments.
3063 NBDC is a federally incorporated not-for-profit organization governed by a volunteer board of Nunavut residents from across the territory. The majority of our membership and of our Board of Directors are Inuit or beneficiaries of the Nunavut Land Claims Agreement. NBDC is a community champion and consumer advocate, we are not a service provider.
3064 I would like to especially make the point that while NBDC was the driving force in getting affordable and reliable Internet services into every Nunavut community through the creation of the territory-wide Qiniq network, we do not benefit financially from Qiniq's operations.
3065 NBDC relies on government funding to operate and to carry out projects and receives no operating revenue from any projects we initiate and manage. Again, we are a non-profit and we work for the public good.
3066 The mandate of NBDC is:
3067 - to ensure that all Nunavut communities have access to affordable and reliable Internet services;
3068 - to advocate for service parity within Nunavut and between Nunavut and southern Canada; and
3069 - to foster the development of ICT capacity at the community level.
3070 I don't think it needs to be stated that adequate telecommunication services in the North are a challenge for governments, large industry such as mining, oil and gas, the military and the public alike. However, rare has been the case, at least in Nunavut, where solutions for government, industry or military needs have benefitted the public or even been accessible to the public.
3071 There is the added risk that, with increased demand on all fronts, a finite amount of satellite capacity available -- at least in the near term -- and the end of public subsidies for affordable broadband access in 2016, the interests and purchasing power of government, industry and the military could overpower those of the public.
3072 NBDC serves the role of a vendor and technology-neutral consumer advocate and industry watchdog. We are based in Nunavut, governed by Nunavut residents and represent the collective interests of Nunavut users, including residents, small businesses, organizations and municipal governments, users not served by government networks or other large, private networks.
3073 Essentially, we advocate for users that have the most to gain or to lose from a modernization of the telecommunications regime in the North and the least power to influence the direction taken.
3074 Now, other interveners have commented on the shortcomings of Northwestel's Modernization Plan in regards to the availability and affordability of services in all communities, especially in the smallest and most remote communities that are often reliant on satellite backhaul. I would specifically like to address the proposed improvements for high-speed Internet services in Nunavut.
3075 As I mentioned, the NBDC office is based in Iqaluit and Iqaluit has a fairly large government presence. There's a large population that comes into the territory to work in Nunavut, but in Iqaluit, and there's often the sentiment that Iqaluit is different and it should get better services than the rest of the territory because it is the seat of the capital. And I kind of think of the George Orwell quote, "All animals are equal but some animals are more equal than others" and NBDC's position is that all communities deserve the same level of service.
3076 So why is service party, or equitable services in all communities, essential in Nunavut?
3077 The population in Nunavut is more evenly spread out than in other parts of Canada's North. The capital city of Iqaluit represents just over 20 percent of the total population. Together with the two other regional capitals, Rankin Inlet and Cambridge Bay, the three largest communities still account for only a third of the territory's population.
3078 According to the 2011 census, the community with the greatest population growth between 2006 and 2011 was Repulse Bay, with an astounding 26.3 percent increase in population compared to Iqaluit's relatively modest 8.3 percent. Indeed, the regional capitals were in the bottom 10 for population growth from 2006 to 2011, and 12 smaller communities posted double digit population growth since 2006.
3079 If you compare Nunavut to the Northwest Territories, where nearly half of NWT's population lives in Yellowknife and the largest four communities account for almost 70 percent of the territory's population, or if you compare Nunavut to the Yukon, where nearly 70 percent of the territory's population lives in Whitehorse alone, you can see that Nunavut's population is more evenly spread out between all 25 communities, as is the territory's population growth, with the implication being that a solution that only delivers Internet services to the three regional centres ignores the majority of the population.
3080 NBDC firmly believes that all 25 communities need equitable telecommunication services. This is a principle that NBDC advocated for almost 10 years ago and one that we continue to advocate strongly for today.
3081 The Modernization Plan does mention the possible expansion of mobile voice and data, although it is unclear which Nunavut communities would get the services or when the services would become available. Mobile data is a premium service for the consumer and provides higher profit margins to the service provider.
3082 While NBDC recognizes the appeal to both consumer and vendor, I respectfully submit that mobile broadband as proposed in the Modernization Plan is not an adequate substitute for fixed broadband services.
3083 To summarize, all communities in Nunavut deserve and indeed require the same level of telecommunication services and any plan that would see some services only available in some communities is incomplete, inadequate and inequitable.
3084 As I'm sure many of us in the room recall, on October 6, 2011 Telesat's Anik F2 satellite malfunctioned, resulting in a loss of satellite services for approximately 16 hours. While the failure was an inconvenience for customers in other parts of Canada -- causing, for example, limited access to certain satellite television channels -- the one-day outage had far-reaching impacts in Nunavut: Internet access, cellular service and long distance telephone service were unavailable, banks were closed, ATMs were not working, stores operated on a cash-only basis and all flights were grounded.
3085 As the saying goes, make lemonade from lemons, and indeed, NBDC did. We used the opportunity of the outage to examine the impact of an almost total failure of Nunavut's communications infrastructure.
3086 Through an online survey which was widely deployed we collected qualitative and quantitative data on the impact of the outage on productivity. Not surprisingly, Internet access was cited as the most used and the most necessary telecommunication service in a normal workday in Nunavut.
3087 I would venture to say that for personal use, Internet access would also be at the top of the list. Yet, while accessible and affordable landline phone service in the North is recognized as a "basic service" and supported through the National Contribution Fund, broadband access in the North has been supported by a series of finite and discrete government programs, the last of which is set to expire in 2016.
3088 NBDC recognizes that the Commission has on several occasions reviewed the inclusion of broadband access in the basic service objective and has chosen to not classify it as an essential service, but I respectfully submit that a holistic review and modernization of northern telecommunications needs to address broadband access if northern customers are to, in the Commission's own words, "receive telecommunication services, both regulated and forborne, comparable to those available to Southern Canada in terms of choice, quality and reliability." And I would also add affordability.
3089 NBDC therefore strongly encourages the Commission to recognize broadband as a basic service and to revise the regulatory and funding frameworks for telecommunication services in the North to support the availability and affordability of broadband access in all northern communities, alongside voice service.
3090 While services in the South have improved significantly over the past decade, service offerings in the North have seen only incremental improvements and these are often timed with new funding programs. The current telecommunications regime is not adequately meeting the evolving needs and aspirations of northern users and unless significant change is realized, the digital divide within the North and between North and South will continue to widen.
3091 No single technology, no single vendor or service provider will meet all of Nunavut's needs or indeed all of the North's needs. The challenge is to develop a funding model with a sustainable source of funds to support equitable, affordable and reliable service delivery, including broadband, in all northern communities, using the best backhaul technology in the best location and encouraging competition and innovation in the last mile.
3092 It seams logical to look to reforming the National Contribution Fund to include funding for broadband services and to make the subsidy portable. NBDC is, however, concerned that a particular challenge in moving away from the current duopoly situation is the possible erosion of internal cross-subsidization which has enabled service providers to offset the costs of service provision in the smaller communities or markets with revenue from the larger communities or markets.
3093 So while NBDC supports actions to spur innovation and competition, we also believe it's important to have a mechanism in place to ensure that all communities will have service regardless of the subsidy regime used to support it.
3094 I want to just add another comment following what PIAC said.
3095 I think that two or three years down the road is too late to examine this question of whether broadband access should be included, because two or three years down the road the current subsidies will expire and it will take quite a bit of time to figure out what comes next, so I think now is really the time to look at this question.
3096 Thank you again for the opportunity to address the Commission. I will be happy to answer questions.
3097 THE CHAIRPERSON: Thank you very much.
3098 Your position is very clear so I don't have a lot of questions for you, but I was about to ask you that point you have added at the end, whether or not this is the right proceeding to deal with the sort of issues you are raising with respect to broadband and basic service obligations and framing it.
3099 Is it your view that the situation in Nunavut is so unique that it doesn't necessarily create a precedent for either the other areas of the service -- operating territory of Northwestel or even the operating territories of other telecommunication companies in the country or are you saying it's just -- I'm trying to figure out whether we can isolate the situation in Nunavut or is it one that bleeds over into the rest of the operating territory and then throughout the country?
3100 MS SPINU: As the Nunavut Broadband Development Corporation I'm making comments in regard to Nunavut but I do think that there are more similarities than differences. A large tangent on demographics aside --
3101 THE CHAIRPERSON: Right.
3102 MS SPINU: -- I do think that the challenges in rural and remote areas, whether it's in Nunavut, the Northwest Territories, Yukon or even the provincial north, such as Nunavik, I think there are more similarities than differences and I think there needs to be a solution that addresses them collectively.
3103 THE CHAIRPERSON: That may be the point that PIAC was raising, is that there are -- if we potentially make a decision on broadband for instance going forward some sort of essential service, a basic service obligation and having to figure out what regime goes along with that, if we do it in the context of this proceeding it may actually have a ricochet impact on others.
3104 I take your point about regulatory delay, but wouldn't you agree to a certain degree with PIAC that there is a risk of us doing a policy that is impacting people that aren't at this hearing?
3105 MS SPINU: I will reiterate my point that I think we can't really wait two or three years to decide whether broadband is an essential service. I think it is an essential service, it's just whether it is recognized as an essential service and has access to more stable funding to support it.
3106 I think in the larger Canadian context Canada doesn't have a national broadband strategy. The digital economy strategy is still in development and looking at other OECD countries that have spent a lot of time developing national broadband strategies and investments to support national deployment of broadband. So I think from my perspective it wouldn't be a danger to kind of take a step in that direction.
3107 THE CHAIRPERSON: Is your point that Nunavut is particularly susceptible if we don't make a decision more so than other areas in the country?
3108 MS SPINU: I think because the subsidies expire in 2016 and because we are the only jurisdiction that is entirely satellite served and satellite backhaul is one of the major expenses in providing Internet access to the population, it would probably be in greater risk, especially given the fact that the population is more widely distributed.
3109 THE CHAIRPERSON: Okay. Now I asked this on the first day of the hearing of Northwestel and I was just wondering from your perspective, to what extent were you consulted prior to various iterations of the plan being finalized by Northwestel? Was there any level of engagement, either in the original plan or the updated plan?
3110 MS SPINU: NBDC was not consulted, at least not from the period of October 2009 when I joined the organization up until now.
3111 THE CHAIRPERSON: Okay. And they didn't come and see you. Did you make any attempts to contact them, particularly after the 2011 decision which said we wanted a plan?
3112 I'm just trying to understand what kind of level of dialogue had occurred. If there is none, that's what it is.
3113 MS SPINU: Yes. I mean NBDC has tried to develop a dialogue with Northwestel and indeed with other companies that want to provide service in the north.
3114 I think because of our position right now having an agreement with SSi to operate the Qiniq Network there is this perception that somehow there is a favouritism or a bias towards one particular vendor or one particular backhaul solution and I can say it until I'm blue in the face that we are vendor and technology neutral, but I'm not sure everyone believes me to the point that they would come with information that they consider business confidential or something that they want to play close to their chest.
3115 THE CHAIRPERSON: Right. Now, earlier the Yukon Government stated that from a policy perspective from where they sat on the issue that they would require reasonable equality -- perhaps not the right word, but these comparable services throughout all the communities within the territory.
3116 Is it your view that that should also be a framing factor for the modernization plan from your perspective?
3117 MS SPINU: Yes. I think that all communities deserve the same level of service for the same price. I think there is a --
3118 THE CHAIRPERSON: The same price?
3119 MS SPINU: Yes.
3120 THE CHAIRPERSON: Okay. Does that --
3121 MS SPINU: Well, potentially differences from one territory to another, but I think within -- say within Nunavut I think that there should be the same option whether you are in Iqaluit or Grise Fiord or Sanikikuaq or wherever you are that you have the same level of service at the same price.
3122 THE CHAIRPERSON: And you believe that to be reasonable even though there may be much higher costs to deliver services in certain parts of the territory compared to others?
3123 MS SPINU: I think that's a public policy decision that -- certainly that is what NBDC is advocating, that all Nunavut citizens should have the same level of service for the same price.
3124 THE CHAIRPERSON: Okay. You know we have this target of 5 and 1 for upload and download and I am very aware that in some parts of the country it's not a particularly compelling stretch target, we have managed to do a lot better particularly in large urban centres, but from your perspective to what extent should it have been a target, a framing factor in the modernization plan?
3125 MS SPINU: I'm not sure if I understand what you mean by "framing factor".
3126 THE CHAIRPERSON: That is that I asked on the first day of the hearing whether or not when Northwestel was sort of developing its plan and trying to establish what the outcomes would be, they thought that 1 in 5 was more aspirational and they didn't seem to view it as a solid outcome that they should be endeavouring to reach, even though it is the Commission's target policy.
3127 MS SPINU: I think, as the Yukon government had mentioned, that goal is very relevant now, but the danger is that if it's set in stone, if this is the ultimate target that you are supposed to meet, depending on how long it takes Northwestel to deploy the service, and depending on what's happening in the rest of the world, that level may or may not be relevant by the time it is experienced by a given user in a particular community.
3128 I just want to back up to your previous question, if I may.
3129 THE CHAIRPERSON: Yes. Sure.
3130 MS SPINU: So on the question of service parity, the Crown Corporation in Greenland, TELE Greenland, that runs their network and provides service, it is a Crown corporation and they have a hybrid network, they have satellite, they have fibre and they have microwave and even for years after fibre was deployed they made the political decision that all communities had the same plans available at the same cost. It was only recently that they deployed two -- they deployed additional higher capacity plans in the larger communities and at the same time they resold a service as a wholesale service to competitors that would offer the service as ISPs or as mobile data and voice service providers.
3131 I think earlier there was a question of is it a Telecom policy or is it a social policy and I think definitely it's a social policy issue whether you think that access to the same level of service is a priority or not.
3132 THE CHAIRPERSON: Right. I certainly respect that perspective and we have a certain jurisdiction here, we have to look at the Telecommunications Act, but I also point out -- and I said this at the first day of the hearing -- we often forget that Northwestel is not a Crown corporation, it's a private corporation and we are stuck sort of having to balance the objectives on the one hand of reaching these policy outcomes that you are speaking about, but on the other hand making sure that this private company has a fair return.
3133 Now, we can disagree as to where the cutting -- the line is on that continuum, but that's what we are trying to do through this process.
3134 So why do you think that particular situation of a Crown corporation is relevant in this particular instance?
3135 MS SPINU: I think one of the major questions is how do you actually support competition and service provision in that last mile, but also account for the fact that there is this huge cost that all service providers will have to face, which is at the moment satellite backhaul, at least in Nunavut.
3136 I think one possible approach is that there is not necessarily a Crown Corporation approach to it but, for example, having the birthright corporations that actually have some financial stake in the infrastructure in the backhaul and then have private sector companies that are providing the service on top of it as a kind of long term idealistic outcome.
3137 THE CHAIRPERSON: Fair enough. I believe those are my questions. Well, I know those are my questions. I'm not sure if others -- at least you, Commissioner Simpson.
3138 COMMISSIONER SIMPSON: Good afternoon. I just have a very specific question or questions that was asked of the Government of Nunavut on Monday.
3139 When the motivation to embark on this 26 community satellite link -- it was, I would presume, in an attempt to not only develop a better access framework for the territory as a whole but it would have had to have been on some kind of an economic measure as well that would improve the cost of satellite.
3140 Has Qiniq been successful in this objective in reducing the cost of satellite broadband over what was offered previously by Northwestel?
3141 MS SPINU: As we are not the network operator I have -- I don't know what the cost of the capacity is or whether it's changed over the years.
3142 I think the main goal of Qiniq was to make sure that every community had access. Prior to 2005 you had access in some communities, dial-up, and some communities you had frame relay. So there wasn't really a service that was available to the general public at an affordable price.
3143 I hate to pass it off but, really, I can't comment on whether the price for a megabit or megahertz has changed in the past eight years.
3144 COMMISSIONER SIMPSON: Okay. We have already asked the Government of Nunavut to file an undertaking with respect to costs.
3145 MS SPINU: Okay.
3146 COMMISSIONER SIMPSON: But my next question has to do with the way the network was designed. It eliminated the -- it created the single hop system which improved, I would imagine, performance and latency and the like.
3147 Is this system something that, in your opinion because you are the broadband advocate for the territory -- is this system something that can be built on and expanded, given that it's a managed system by SSi right now? But is it designed for growth and increased capacity beyond what it's doing now?
3148 MS SPINU: I think that is more of a technical question. I know that our current agreements under Infrastructure Canada mandate that it's open access. If there is another service provider that wants to come and take advantage of the infrastructure that's there, they can. And I think that it is built to evolve.
3149 But I think I'd like to focus more on -- there's the technical accomplishments of the Qiniq network and the mesh networks single hop. Architecture is definitely important but another very important component for Qiniq was the use of community service providers. So in every community you have a local business that is the frontline person. That's who you go to, to get service if you have problems to pay your bills, et cetera.
3150 And of those 25 community service providers the vast majority are Inuit-owned businesses. Since the launch of the Qiniq network there has been over $5 million paid back into those community-owned businesses. I think that is an important approach to continue that if you have an extra-territorial company that's providing service that there's at least a clear community economic return on the ground.
3151 COMMISSIONER SIMPSON: No. That sort of goes back to my first question.
3152 I'm trying to -- in asking questions of the specific objectives of your territory, being that you are a captive market by satellite, I was trying to understand what motivated you to take the initiative to go your own way with the development of this particular system because I would assume you wouldn't have done it to build a system that doesn't perform as well or have poorer access or higher costs than what you had currently. So that was the essence of my second question.
3153 So the last question is, what has your organization -- going forward, I attended your broadband summit. What are you trying to do beyond holding Telesat and Northwestel's feet to the fire in terms of your objectives, what are you trying to do, using the system that you developed?
3154 What's the next step as far as you're concerned? Again, is it a growth strategy or a cost improvement strategy or both?
3155 MS SPINU: In the past, NBDC has served the role as a community champion so we've been intermediary between a federal government program and the private sector network operator. I personally look forward to a day when we no longer play that role because I think it's a very hard position to be in if you want to be an independent advocate for people to see you as an independent advocate.
3156 So I think what NBDC would like to do going forward is focus more on policy issues so that we're not directly involved in the delivery of funding but we advocate for the availability and continued support of funding for broadband service provision --
3157 COMMISSIONER SIMPSON: So your policy objective is?
3158 MS SPINU: Continue funding it and make sure that service is available in every community.
3159 COMMISSIONER SIMPSON: Okay.
3160 MS SPINU: I think there's also -- I make a distinction between availability and adoption and because the service is available even if it's affordable, however affordable is defined, that doesn't mean that it will necessarily be adopted or be adopted equally by all segments of the population.
3161 So you look at the household -- internet access household penetration rates. In Nunavut the average is about 59 percent but that spans from 76 percent in Resolute Bay or Iqaluit to 36 percent in Sanikiluaq. So you have a 40 percent spread there.
3162 You also have in Nunavut issues like poverty, digital literacy, unilingualism or the lack of Inuktitut language content online. So it's not just about making sure that the hardware is there and the bandwidth is there and everyone will use it. How do you actually promote adoption and get those social and economic benefits?
3163 THE CHAIRPERSON: Commissioner Molnar?
3164 COMMISSIONER MOLNAR: Thank you.
3165 We've heard about the problems with Nunavut and I think everybody agrees there is a challenge there. But I want to talk about your solution. And you had a conversation with the Chair that, you know, it's social policy as much as anything.
3166 So I'm reading your solution and you want sustainable funds; equitable, affordable, reliable, includes broadband, best backhaul technology, best location, supports competition, supports innovation. And then you say -- and you want it equivalent for all communities. And then you say it's logical that the National Contribution Fund should fund that.
3167 So you know the National Contribution Fund is paid for by telecommunications subscribers throughout the country who don't have equivalent in all communities and necessarily -- well, they don't have any broadband subsidy at all. So tell me if it's logical why you think it is from a social policy perspective, fair.
3168 MS SPINU: I think that the federal government has already addressed other cost of living expenses in the North. I look at the Nutrition North program where they have specifically said the cost of nutritious food in these remote areas is more expensive and we will develop a subsidy program to make those foods more affordable.
3169 So I think in terms of fairness Nunavut has actually been very lucky in terms of having had the level of investment that we've had and where we can boast that we have 100 percent coverage that not all jurisdictions can say they have.
3170 However, I think that if there are these kind of national goals for the Arctic then Nunavut residents have to be part of those goals. We have to be able to participate and have meaningful contributions. In order to do that people need broadband access for all the reasons that have been stated in multiple interventions around education, health, economic development.
3171 COMMISSIONER MOLNAR: I am very sorry, I was just kind of speaking of the source of the funding. Would the source of the funding be other telecommunications users?
3172 MS SPINU: I guess it's -- that comment was made in the context that right now the current funding for broadband is targeted government programs that will have a life span.
3173 One of the challenges is really to have a funding solution that is not -- that doesn't have an end date because broadband will need to be a service that's supported in the North. It's not something that at a certain point it'll be, I don't think, able to -- the customers will be able to pay for the true cost of service on their own.
3174 So essentially, I mean, it's a cross-subsidization scheme between southern telecommunication customers and northern customers.
3175 THE CHAIRPERSON: Thank you very much. Those are our questions.
3176 We'll now hear from SSi. Please, could you come up to the table?
3177 THE CHAIRPERSON: All right, gentlemen. Welcome.
3178 When you're ready, please go ahead.
3179 MR. PHILIPP: Good morning.
3180 My name is Jeff Philipp. I'm the founder and CEO of SSi Micro and on the panel with me today are Dean Proctor, our Chief Development Officer, and Rob Yates, the co-President of Lemay-Yates.
3181 Before I begin my remarks, I want to take a moment to thank the Commission for this follow-up proceeding into the review of Northwestel's regulatory framework and the communication needs of the North.
3182 I believe the Commission benefits from holding hearings outside the National Capital region and I assure you that the North benefits as well.
3183 By taking the time to visit the markets affected by your decisions and listening in person to the wide variety of concerns expressed, adds significantly to the credibility of the process and strengthens our hope that the needs of the North are being taken seriously.
3184 So, thanks again for making the trip and I trust it will be worthwhile.
3185 We're here today because all of us have a stake in the outcome of the process and, while we may not all agree on the solution, we, or perhaps I should say most of us agree the framework of the past or the status quo cannot continue.
3186 Ultimately this process is about more than just how to regulate Northwestel; the outcome of these hearings could quite literally determine the future of our smallest communities and the opportunities available to the people living in them.
3187 And, as dramatic as it sounds, the first step -- in fact, the critical step is figuring out how we can deliver affordable backbone connectivity to every Nunavut community -- I should say, to every Northern community.
3188 With the short time available to us, I'd like to cover three topics and, with luck, I won't go too far off script and will leave some time for Dean to review the details of the intervention.
3189 First, I want to talk a little of our company's history in the North and I hope by sharing some of the SSi story you'll better understand why this process is so important to me.
3190 Second, the importance of backbone connectivity in the North and why this proceeding is both timely and essential.
3191 And, last, a brief update on our activities in the field since we presented to you in Yellowknife.
3192 To begin, let me touch on our Northern roots, they do run deep. My father escaped East Germany after World War II and immigrated to Canada in 1956. After working various jobs, he settled in Fort Providence which is a small Aboriginal town of about 750 people, 300 kilometres west of Yellowknife.
3193 My mother was born in rural Saskatchewan and moved to Fort Providence in 1963 on her first teaching assignment.
3194 My folks met one winter evening and apparently hit it off as my brother Les was born under a year later.
3195 By the time I was born in 1967, I had an adopted older brother, Dennis, and sister, Lois, making me the youngest in a family of four.
3196 The Snowshoe Inn, our family business, evolved over time to include a variety of services ranging from bulk fuel to hotel, restaurant, contracting, construction and marine operations which ran the ferry across the Mackenzie River until quite recently when the bridge was built, to name just a few.
3197 My wife and I purchased the business in the 90s and added computer sales and service. In the second year of business, we expanded to build a 16,000 square foot facility in my home town of Fort Providence.
3198 This expansion allowed the introduction of a training centre, which was Microsoft and Novell certified training and testing centre and the new venture was eventually spun off into its own company called SSi Micro.
3199 After the first three years it was obvious that to grow the IT side of the business we needed to move to a larger community and we chose Yellowknife where connectivity, staffing, housing, shipping were easier than a small town where mail was received once a week and where dial-up Internet was costing a dollar a minute for long distance and the best you could get was 9,600 baud.
3200 Fast forward to 2008 and history repeated itself. With the high charges for terrestrial backbone connectivity from Yellowknife to the south, it made no economic sense to send packets all the way North before uplinking them into a satellite to reach into the further North, the remote and rural satellite served communities.
3201 Today the SSi Group has invested over $6-million in a new office, teleport and research centre in Ottawa. We've also moved several key staff and their families to Ottawa from Yellowknife and are hiring many more. These investments and jobs are gone from the North for ever.
3202 The fact is, had terrestrial backbone prices allowed us to uplink data in Yellowknife, we would have invested that $6-million in the North and it would have created new jobs and opportunities for Northerners.
3203 Today the SSi Group of companies has staff and facilities in three provinces and two territories, each focused on different aspects of the telecommunications industry and our activities are global, but our interests and passions are local.
3204 I'm very proud of our contribution over the decades to the North, both in terms of direct investment, but also in terms of downstream benefits and opportunities made possible through these investments.
3205 Our heavy investment in broadband infrastructure in the North, and although we weren't the first Internet provider, we were the only company to offer the same broadband packages at the same price in every market, no matter how small, and today we're still the only provider in many of those communities.
3206 In addition to consumer retail services, we also serve larger enterprise-scale customers like the Government of Nunavut, the Government of the Northwest Territories, National Defence and others, without subsidies I might add.
3207 We truly believe, and have said from the start, the Commission's rulings coming out of these proceedings must focus on what is most important for the North and, that is, the cost and availability of backbone access.
3208 All three territories require significantly more capacity than is even available and they need it at far lower rates. This is essential if we hope to deliver critical services such as healthcare, education, banking, policing, emergency response, just to name a few.
3209 And a lot has happened since the framework hearings in Yellowknife 18 months ago. From a regulatory perspective, the Commission has issued a number of key and much appreciated decisions affecting the North. Of particular note are Telecom Policy 2011-771 from December of 2011 which opened the North to local competition and set the stage for this holistic review.
3210 Order 2013-93 from this past February established more reasonable rates for Northwestel's Wholesale Connectivity -- or Wholesale Connect backbone transport service, and when I say more reasonable, I'm frankly suggesting there's still room for improvement.
3211 That said, the ruling was exactly what was needed to foster competition and ultimately greater consumer choice.
3212 Unfortunately, we're not done yet. Backbone demand is growing exponentially and we need a sustainable solution for long-term capacity. That will mean significant new investment, far more than Northwestel is proposing through its capital intensity tied to revenues based on projections, all of which could change.
3213 And through all of this we have to ensure that effective local competition becomes a reality and is not just encouraged.
3214 The situation is even more pressing when you consider the current federal assistance programs, as Oana mentioned, which enable affordable broadband in these remote markets will run out in 2016 and there are no new plans on the horizon.
3215 Without change, the Commission's 2015 target for affordable consumer broadband delivering 5 megabit down, a target we support, will never be possible in the North, not without solving the availability and high cost of backbone capacity.
3216 And to be clear, it's not at all about subsidies for local access infrastructure. Our current network available today is capable of meeting the 5 megabit download speeds and can be field upgraded to provide more speed and capacity if required. Unfortunately, consumers will not be able to afford the greater speeds without increased assistance on the backbone costs.
3217 Northwestel's latest attempt at the Modernization Plan proposes subsidizing local access network upgrades and yet they have no plan for how they will deliver affordable capacity once the network is upgraded. And this approach, quite simply, misses the point.
3218 Northwestel itself identified the main impediment to the modernization of Northern telecommunications as the cost of backbone transport, not local access, and yet they continue to defend the regulatory status quo.
3219 Looking holistically at the challenges of the North means more than, to draw from the Government of Nunavut, proposing little band-aids of this subsidy here and that grant there; we need a coherent plan for the whole thing.
3220 The Commission must break this cycle and chart a new course that addresses the problem holistically. Public funds must be used effectively and to the greatest benefit of all stakeholders through fair and open processes.
3221 I've probably repeated words like 'holistic', 'subsidy' and 'Northwestel', so I'll move on to what we've been doing in the field since the North was opened to local competition in December, 2011.
3222 Within two weeks of the local competition decision, SSi applied for a CLEC status. This was approved by the CRTC in June of 2012 and we've been working actively since to complete interconnection agreements with Northwestel. Once complete, we will be in a position to offer local voice competition across the North and our first market should be ready before the end of the year.
3223 In May of 2012, we began work with Telesat to provide diverse and redundant connectivity for Nunavut and the Northwest Territories' governments via Anik F3. This is in response to the failure of F2 as Oana mentioned in her speech. This project will be complete by the end of July, at which time both territories will benefit from additional capacity, redundancy and diversity.
3224 In June of 2012, with support from Broadband Canada, we upgraded capacity on the Qiniq backbone to provide consumers in every Nunavut community with affordable access to 1.5 meg download speeds and three times the usage. The upgrade was a huge success and it's worth noting that we offer this in every community, not just the largest.
3225 And this is an important point to consider -- or, as we consider how to deliver the same level of service in every community going forward. As Oana mentioned that ubiquitous and equal access in every community, I fully support as well.
3226 In February of this year we added three new service packages extending download speeds to 2.5 megabit and even greater usage and we, again, offer all of these packages in every Nunavut community.
3227 In February, the Wholesale Connect decision was released, greatly reducing the rates Northwestel is allowed to charge competitors for backbone access.
3228 In response to the price decrease, SSi increased usage caps by 250 percent and reduced the cost of excess usage by 50 percent in markets where facilities are connected via Wholesale Connect. The service improvement went into effect automatically with no customer intervention and was very well received.
3229 Unfortunately, Northwestel is now appealing the Wholesale Connect decision, causing further delays and uncertainty for all competitors.
3230 In April of this year, NBDC and McGill University began a trial in Nunavut to test video phone service for the hearing impaired and, as has been mentioned earlier in this, it is a full-meshed network supporting those single hop links which makes this possible.
3231 The service uses the Qiniq network and video technology developed in house at SSi. This new service is yet another example of something made possible through broadband and with a service provider willing to innovate.
3232 Leaving technology for a moment, I hope some of you may recall that, when we presented before the Commission in Yellowknife, I spoke of a new program we had named TIMS and TIMS stands for Technical, Installation, Maintenance and Support.
3233 It's geared towards generating local jobs and building capacity in the communities and ultimately has the goal of being able to provide higher levels of service for more advanced technologies that we wish to deploy.
3234 Beginning in 2012, trials of the program were carried out on the ground in Cape Dorset and Igloolik and we learned a lot through these projects. The end result is that we now have seven TIMS associates trained and delivering technical services locally and generating an income that did not exist before. We believe this model could be extended to enable other customers, RCMP, CBC, NAV Canada, Telesat, Northwestel, any organization with infrastructure in one of these remote communities to use local associates for their work as well.
3235 Minister Aglukkaq, who is now the Chair of the Arctic Council, recently said that, in the North:
"...there is an untapped work force that, with targeted training, want to make a living and invest in local communities, because this is their home."
3236 MR. PHILIPP: We really believe that and we're working to make a difference.
3237 Lastly, I want to stress the importance of concluding these hearings with clear decisions in early timelines.
3238 After nine months of failed attempts to "negotiate" (and I use that word loosely) "reasonable" (and I use that loosely) backbone pricing with Northwestel, we were forced to launch a formal Part 1 application with the CRTC. That's now over two years ago and the decision's been appealed.
3239 Today, we are before you in Whitehorse, having spent tremendous time and resources, and yet the decision our business was most dependent on, Wholesale Connect, is under appeal, and has even been made part of this proceeding.
3240 Worse, Northwestel has used up the last 30 plus months to actively build market share, adjust their rates in anticipation of the Commission decisions, and lock customers in. Frankly, I'm amazed.
3241 If there is one message I could convey, one lesson learned, it's that we need firm and timely decisions from the Commission. There is an urgent need for direction on backbone funding and there is a need to avoid further regulatory games that benefit the incumbent but harm consumers and competition.
3242 The outcome of this proceeding must ensure residents of the North become full participants in Canadian society and that increasingly requires broadband.
3243 The issue has been studied, reports describing the growing gap between south and north have been written, and you're hearing much of the detail and concern again in this proceeding. Now we need to act.
3244 With that, let me turn it over to Dean to continue the presentation.
3245 MR. PROCTOR: Thank you.
3246 I'd like to take you through just some of the main elements of our submissions and I'll do that in the context of the questions asked by the Commission concerning the modernization plan, price cap regulation and modifications to the existing subsidy regime.
3247 I will also touch on the pricing policy for competitor services and Northwestel's application to review and vary Wholesale Connect.
3248 So let's start with the modernization plan.
3249 One key point of agreement for all parties to this proceeding, including Northwestel, is that the major limitation on broadband in the North is the cost of backhaul transport, particularly in satellite communities.
3250 Consumers and businesses in the North are not able to fully participate in the digital economy and governments cannot offer many essential services reliant on broadband that are taken for granted elsewhere.
3251 But the latest iteration of the modernization plan still contains inadequate commitments. There's a continued unhealthy emphasis on thwarting competitors, and it does not focus on the major limitation to development, which is affordable backhaul.
3252 That's why we've said that Northwestel has the wrong focus for the modernization plan.
3253 One can simply look to the recent words and actions of Northwestel where they threatened to stop all deployment of fibre in the North.
3254 This really points to the fundamental need for the Commission to develop solutions and a framework that involves all Northern stakeholders.
3255 In our submissions, we propose a regulated "Utility Backbone" approach, which would provide focus for investments and ensure open and fair access to essential backbone services. It would also ensure that dominance in transport infrastructure is not used to thwart retail competition.
3256 There are different ways the Commission could implement utility backbone regulation, which we detail in our evidence. Our approach would ensure that all parties, including Northwestel, pay for utility backbone services on the same basis.
3257 Turning to subsidies, the key issue is the cost of backbone access in each community. Where subsidies are needed, they must ensure adequate capacity is available and that the resulting price is affordable.
3258 We suggest a new mechanism be developed and be managed as part of the national contribution fund and we've deemed that the Broadband Assistance Program. It could also be called the Backbone Assistance Program or BAP, a funding mechanism.
3259 The funds would be separate from the current primary exchange service subsidy and it would be distinct from the service improvement plan funding.
3260 Our proposal for the BAP would be that all service providers in the North, and, as a result, all consumers in the North, should benefit. The Commission would determine the necessary level of funding. The resultant price for backbone access, regardless of whether it is satellite or terrestrial, would enable real competition in every community.
3261 While the BAP mechanism would serve to provide a consistent price for connectivity across the North, there could still be communities which remain underserved after the cost for connectivity has been established.
3262 So, to address this, we propose, if necessary, a second level mechanism, whereby the Commission set a retail price for broadband access, call that the "Consumer Broadband Offer" or the CBO, in each underserved market, and call for tenders offering retail subsidies for providers willing to enter the markets.
3263 A competitively neutral reverse auction could be used to determine the subsidy per subscriber. Just to emphasize this, the winning bidder would have an obligation to serve for a period that was set in the auction process but any service provider entering the market would have access to the same subsidy.
3264 Now to turn to mark-ups and Northwestel's application for the R&V of the Wholesale Connect decision.
3265 In terms of competitor services, we believes the Commission should apply its existing approach whereby services are tariffed based on Phase II costs plus a mark-up and, where the mark-up that is applied is 15 percent or 25 percent, depending on the degree of essentiality of the service. A disproportionate benefit from high mark-ups is not warranted.
3266 Lastly, a very brief word on Wholesale Connect, and that's already touched on by Jeff.
3267 We do express concern with the extensive process, the lengthy delays and the regulatory gaming engaged in by Northwestel to the detriment of SSi and other competitors. Wholesale Connect was born of a process initiated by SSi in a Part I application now over two years ago and delays serve only to benefit the incumbent and cause the North to fall ever further behind.
3268 So, to conclude our presentation, I would like to cite the Commission Chair, if I may, from last week in Banff:
"Canadians today have access to a whole new set of broadband-based technologies that inform and entertain us, connecting us to each other and to the world. They are a window to their neighbourhood and the world. These technologies transport us where news and fantasy coexist, where truth and dreams collide."
3269 MR. PROCTOR: And SSi certainly agrees.
3270 But, in the North, the cost of backbone transport prevents effective use of broadband-based technologies even though those technologies are available to us.
3271 That is not acceptable and it need not continue. The Commission has the means and the ability to help address the shortcomings.
3272 We believe the key is to focus on long-term solutions for affordable backbone in the North, along with a dynamically competitive local telecoms sector. In fact, one begets the other.
3273 This will encourage greater choice, innovation and investment in the Northern communications market and spur on the benefits of a knowledge economy.
3274 And to again quote the Chairman:
"All Canadians, regardless of their postal code, employment status or level of ability, need to be able to participate in today's digital world. Income, education or just having broadband access should not be a barrier. We need to make sure no citizen is left behind."
3275 MR. PROCTOR: And, Mr. Chairman, we could not have said it better.
3276 Merci beaucoup. We appreciate the opportunity to present today and Rob, Jeff and I would be pleased to answer any questions you may have.
3277 THE CHAIRPERSON: Thank you very much for presentation. I have a number of questions and maybe I'll start at the highest level and then we'll whittle down to some more detailed questions.
3278 You've mentioned, in your presentation, as many others have, about the holistic approach that is best in the circumstances.
3279 But would you agree with me that, in a sense, in terms of those that might have part of the solution, everybody's looking to the CRTC but there should be other partners at the table, whether it's provincial or federal governments or territorial governments. Would you agree with that?
3280 MR. PHILIPP: Absolutely. I think that the governments certainly play a role in this as well. The provincial, territorial governments should play a role in this or should have a stake in this but I think, ultimately, in the Northern territories, which are not provinces, don't benefit the same as provinces do from their tax base and other revenues.
3281 It is more of a federal jurisdiction and I think the funding, to date, that has come in patchwork programs has all been public tendered money. We've bid on every one of them, as has Northwestel, and we've been successful in building this infrastructure.
3282 But we've also invested personally, our company's invested significantly where the government didn't have money in Nunavut to do it, where the Northwest Territories government doesn't have the funding to build it.
3283 So, while I agree with you wholeheartedly that the territories need to be involved in that, the funding, at this point, or the only funding at this point seems to come through federal programs or the funding to date has only come from federal programs.
3284 THE CHAIRPERSON: You see, but even if we concentrate just on the federal arm, and, quite frankly, from administration of the federal government, we're part of the executive arm, we're arms length but we're part of the executive, but we're not the entire federal executive.
3285 There is departments and a number of departments have responsibility for this area.
3286 And my point was more that I'm getting the feeling, I don't know if I'm misunderstanding your point, that somehow all the solutions are within the scope and power of the Commission whereas, you know, we have a legislative mandate given to us by Parliament that is defined by the Telecommunication Act. I certainly don't have -- and none of my colleagues have -- powers of compelling the federal government to do -- the other parts of the federal government to do any particular thing.
3287 MR. PHILIPP: A decade ago, I approached Northwestel and said, "You know, if backbone rates in all of these communities were competitive, I would be there delivering services."
3288 So what do we have to do to get the rate down? There was nothing that could be done. We asked for a certain level of discount. We were told it wasn't possible so we went and built our own network before any funding was available. We built our network into the largest centres and we deployed internet in those centres competitively. We were the first broadband providers in Nunavut.
3289 And to Commissioner Simpson's question, there was no broadband before Qiniq. So it wasn't that we unseated anything.
3290 Now, the CRTC has the ability to direct Northwestel's investments or to direct Northwestel to deliver certain levels of service. If the backbone connectivity into these communities had been regulated a decade ago, we would be happily using them. And the funding that Northwestel has gotten over the last years, tens of millions of dollars a year, if those funds had been directed and reinvested, if the profits from those investments had been reinvested, we wouldn't be sitting here today looking for more competitive rates and looking for funding for it.
3291 I think a bigger challenge is going forward the growth of broadband is outpacing the funding certainly that Northwestel gets. And to clarify a point raised earlier by somebody when they were talking about funding, somebody said Northwestel gets 10 and a half million dollars a year and SSi gets 6-. SSi got 6- for a five year program. That's $1.2 million a year to deliver broadband into 25 communities in Nunavut. And that funding expires in 2016, and those residents in those communities will not afford broadband without that funding bringing the retail price down.
3292 So I think something has to happen. I don't envy you the position as the CRTC and the Chair of the CRTC, that we all look at you and say how are you going to fix this. I think these hearings and this opportunity for us to say that there is a challenge in the North and that challenge today is that Northwestel has not been a good corporate citizen. We do not have reasonable backbone rates into these communities. Even the new Wholesale Connect. You know, where our proposed numbers were and our cost study, what it said, and you saw Northwestel's. And the Commission rightly decided somewhere in between on the lower end of that, but it's under appeal now. Realistically these rates should be lower than that and Northwestel could make them lower, they just wouldn't be able to return as high a dividend to their parent organization.
3293 So, something has to change and part of that is Northwestel has to change or a new framework has to be put in place to force Northwestel to change, and we're calling that a utility backbone, a regulated backbone which is subsidized, which allows every competitor access to that market to compete on a fair and equal basis. That's all we've ever wanted.
3294 I think that that challenge has to be met by somebody. If you look at the ACIA report and in the words of Lorraine Thomas when she presented it to the NCIS Working Group in Yellowknife, I think she had it exactly right. She said we as Canadians have to decide do we want people living in these communities or not? If they don't, if we don't care about the Northwest Passage, we don't care about Northern sovereignty, we don't care about the resource royalties that we're going to get from the North, then let's move everyone to a suburb in Ontario and just call it a day because it'd be a lot cheaper. But realistically, there needs to be 10 times the subsidies dedicated to this problem.
3295 And it's not just the government's problem. I would say that this is a problem that should be bringing the mining sector into it, the governments, the territorial governments for sure, and the federal government for sure because they all have a part to play. And part of this is we can't build separate networks for every operator. You know, we won the Government of Nunavut business because we were more competitive. We built them a private network for them. And frankly, I argued with the CIO at the time and said, look, let's not build you a private network, let's build you into the public network that we've already built because then the public will benefit from your capacity on a second-by-second basis when you're not using it and vice versa. You, the government, will benefit.
3296 So today we have an autobahn called Qiniq. It has 350 megabit allocated to it. The government has about 50, and there's a big divider between the two that says they can never use ours and we can never use theirs, or the public can't use the private. And that really is -- it's wrong and it is one of the pieces to this solution.
3297 And I could carry on, but I'll just stop there in case --
3298 THE CHAIRPERSON: Yeah, because we may be here for a very long time. But in a sense you've just made my point by suggesting that there should be other people at the table. I mean, the Commission is fully able to fully occupy its jurisdiction, but as far as I know we don't have jurisdiction over mining companies or Arctic sovereignty at this point.
3299 MR. PHILIPP: I believe that those problems would resolve themselves, though. The challenge right now is that we are building separate networks with every beauty contest that we hold for funding. We build a new network, a new competitor at the edge, we mess up the previous one that got funded. Same problem Northwestel faces today. They lost the beauty pageant when Qiniq or when Nunavut Broadband Development Corp. put out funding for a network and we won it. I don't think that's a good long-term solution. I'm not here to compete or win Northwestel's business. I'm here because I believe the North needs a better solution. These small communities will not benefit from technology, from communications unless there is a strategy that is broader than just these individual funding programs.
3300 And, you know, I've heard people today talk about, you know, it's the cost of satellite, we should have Telesat here. That's not the challenge. The challenge is not to take Telesat to task and say we need better capacity. And we've talked to Telesat, we've negotiated. They're -- don't get me wrong, I have a love-hate relationship with Telesat, but we've talked to every other provider of satellite capacity as well and, frankly, we get a more competitive price from Telesat than any other competitor has brought us yet.
3301 The second point of that is that Telesat has back-- may have redundancy in Anik F2 and F3. They have capacity over the North. Every other satellite operator out there that talks about lots of capacity is talking about older satellites or end of life, or they're going to, you know, invert the signal to give more capacity in the North. They can't provide 300 megabit today. The ACIA report calls for a gigabit worth of capacity for the public sector. The private sector internet, companies like Qiniq, we need -- if we were to deliver 5 and 1, I did the math on it, with our current customer base to deliver
3302 5 meg down, 1 meg up at the Industry Canada 50 to 1 oversubscription -- because again it's not
3303 5 meg down, 1 meg up, that's like saying my Ferrari goes to 400 miles an hour - we don't have a Ferrari, just to be clear, but --
3304 MR. PHILIPP: -- if it did it wouldn't matter because you couldn't drive it that fast. So this say we have 20 meg down and 5 meg up means nothing without the context of what is the oversubscription, how many users are there and what do you get regularly for speed.
3305 But to answer the question of what would it take, about 900 megabit today to deliver 6 megabits worth of capacity on a 51 oversubscription on just the Qiniq network. It's a gigabit. And in five years it'll be 3 gigabit. And the public sector need is growing as well.
3306 So how do we solve that problem? There are no satellites today in space over the North with that kind of capacity, so there has to be an investment, much like the federal government made when Telesat launched the original satellites and the Ka satellites, I think it was F2 and F3, each had an investment by the feds which guaranteed them capacity on it. I think something like that, an IRU for that capacity so that we're not talking about the price per megabit, we're talking about 15 Ka band, 2 gigabit spot beams that cover the North and provide redundancy for people like Arctic Fibre when their fibre does break, that's the kind of solution which will take capital investment three times what Northwestel is proposing in the Modernization Plan. And frankly, Northwestel should be investing that because their margins are good enough to do it, but it isn't happening.
3307 THE CHAIRPERSON: Mr. Proctor, did you want to add something?
3308 MR. PROCTOR: It's -- compared to that, it's a minor point. But to get to the narrow level of your question, the Commission shouldn't run away from its jurisdiction. Can there be other parties at play? Absolutely. And the BAP, the backbone or broadband assistance program that we're suggesting is something that can be readily done by the Commission through the jurisdiction it has available to it today.
3309 What we'd also put into our evidence is to the extent that other parties, be they federal, provincial, territorial, believe it is necessary or appropriate or desirable to top up the amount that the Commission is able to or believes is the right amount, that should be allowed. What we need the Commission to do, seize this jurisdiction, put in place the mechanism. And again, we're suggesting the CPCC can do that. But once the mechanism is in place and the systems, the beneficiaries, those who can tap into it is established, that can be done under the Commission's jurisdiction, other parties can certainly contribute to that.
3310 THE CHAIRPERSON: Okay.
3311 MR. PROCTOR: Don't run away from the jurisdiction.
3312 THE CHAIRPERSON: That's not -- that wasn't the point of my question. Now, I will ask you, however, to be more focused in your answers. I don't want to be here when long nights come back, as important as it is to be here.
3313 MR. PHILIPP: Certainly.
3314 THE CHAIRPERSON: Because it's -- we have to be -- we have a lot more intervenors and parties to hear from.
3315 The first question I had asked -- one of the first questions I asked of Northwestel on Monday was what -- in very few words what should be the specific outcomes of the Modernization Plan?
3316 MR. PHILIPP: I'll let Dean answer that so that we get it in on time.
3317 MR. PROCTOR: The outcomes of the Modernization Plan, the items that should be regulated should be regulated. So, in other words, to the extent that the Commission as they saw in Yellowknife with respect to certain upgrades to some of the switching facilities, et cetera, those are certainly a normal part of the Modernization Plan outcome that the Commission should see to. Where we are more concerned is the extent that the Modernization Plan is seeking to put in place without what we view as proper public process, public funding for access facilities meant to compete with -- Ice Wireless meant to compete with ourselves, we don't see that as properly being part of the Modernization Plan.
3318 And unfortunately, the Wholesale Connect decision, which was originally outside of the realm of this proceeding, is now very much part of this proceeding. And ironically enough, back in 2011 we weren't supposed to talk about that, but now we do. So certainly the outcome of the Modernization Plan has to be equitable access through utility backbone form of regulation to the terrestrial backbone that is owned and operated by Northwestel.
3319 THE CHAIRPERSON: Which is what you say, for instance, in your preparation today at paragraph 22, you talk about that issue, of backbone connectivity, but I just want to make sure that I understand and I think your answer says this, that there -- we also have to be concerned about other outcomes. It's -- that's, in your view, one of the most important ones but it's not the sole outcome?
3320 MR. PROCTOR: That's right.
3321 THE CHAIRPERSON: Okay. I think I need your help to understand better the subsidy regime because oftentimes the devil is in the details. And, you know, I've read the documents, but I'm still left not fully understanding how it would work because it's a pretty fundamental change of the current subsidy program. Perhaps you can help me. Today you made it clear to me that your view is that whoever benefits from that subsidy would also inherit the obligation to serve. So how would it work?
3322 MR. PROCTOR: Two -- I see the confusion. There's two different levels. The first -- and there are other intervenors who have put in place similar proposals. The -- there's one level to look at, which is the backbone itself. So that's the transport. If in fact the transport costs via satellite, via microwave, via fibre are at such a level that it's clear that an acceptable level of broadband connectivity, local competition in terms of voice, mobile and so forth can take place at the end in a given community, that's it, there's no more to do. But to the extent that the cost of backbone is too high, there's a need for assistance to bring down that cost of backbone for any number of given communities. And everybody, every local service provider has access to those same subsidies -- or that same, if you want, assisted cost of backbone.
3323 It's only if the Commission finds that there are communities that remain underserved despite the fact that there's a cost to the backbone that has been set at a level where the Commission believes and most parties -- I guess that would be part of the determination of that price -- believe can allow for full competition at the end that you would have to establish what we call the broadband offer.
3324 You would set a minimum offer for broadband to make certain that those communities -- let's take Grise Fiord because that's the most likely example where this would happen.
3325 To the extent that somebody can't serve Grise Fiord with broadband pricing and a broadband package that is acceptable as per the Commission's determination, then you would open it up to a negative auction where a company could say, I can offer whatever that package is, 5 down/1 up, 50 to 1 over subscription, and you say at $50 a month just to take an example of a price.
3326 You would have a negative auction to see what is the minimum amount of subsidy that would be needed to deliver that to the consumers in Grise Fiord. The winner of that negative auction would then have an obligation to provide on demand, within a certain timeframe to the extent that the facilities are in place, that service to any customer who comes a wanting.
3327 But part of the problem that we have seen and that we even live is when you have exclusive subsidies. When somebody is the only recipient of the funding but there's better technologies that come along, there's better abilities that come along to serve that same market and they aren't really allowed to because there's that artificial barrier of an exclusive subsidy.
3328 So to the extent that somebody says they need $100 a month to bring it down to $50 a month for the basic package, anybody who comes along should be able to have that same $100 a month when they survey a customer.
3329 So again, it's two different levels. I hope I'm making this a little clearer but there's actually two different levels to this.
3330 The second level, which is that obligation to serve, might never be hit. If in fact competition does what it's supposed to do and because everybody has access to the same backbone pricing, people actually enter into a market and provide pricing at the level that the Commission deems appropriate, there is no need for that next level of obligation.
3331 THE CHAIRPERSON: So you envisage a potential future, even the smallest communities, that there would be two competitors in those?
3332 Because if you don't go down that route and you're building this local network on this negative auction basis, there's a risk of just replacing one single incumbent by another and the party that had been there beforehand might not continue to invest, in fact may decide to pull out because they have no obligation to serve and therefore you've just switched out one monopoly for another.
3333 MR. PROCTOR: I would never be so brave to say that there will always be competitive offerings in any market in Canada, but the point being that by allowing a broadband provider into the market you are meeting that obligation. The Commission, if they see in fact the obligation isn't being met, at that point would enter into that next level of okay, we have a problem here because nobody is providing the broadband that we thought would happen and at that point you have to go through that negative auction because it's clear that there's a need for extra incentives.
3334 THE CHAIRPERSON: Right. But you would agree with me there is a risk that the previous incumbent might pull out?
3335 MR. PROCTOR: Well, again, the previous incumbent of what? It's broadband we're talking about. We're not talking about local voice. So this is a first-time occurrence now. We're putting an obligation on broadband. This isn't about voice. We're not talking about voice.
3336 So the primary exchange service is not part of what we're suggesting for the second-level broadband assistance. The backbone assistance program is for any kind of communication service in the community.
3337 THE CHAIRPERSON: All right.
3338 MR. PROCTOR: I hope that's clear.
3339 THE CHAIRPERSON: Not 100 percent but let's soldier on.
3340 And that's one of the problems in this process. I've seen a lot of people holding back on what their positions are and it makes it really difficult for the Commission to tackle with this.
3341 So it's a complete distinct approach in your view from the existing subsidy for high-cost serving areas; is that correct?
3342 MR. PROCTOR: What we're saying is that you don't need to play around with the funding, redistribute -- I forget the terms that you were using this morning. There's one of the Commissioners -- actually, it may have been you who was talking about a reallocation of funding from a primary exchange service over to broadband.
3343 We aren't suggesting that but we are suggesting, unlike what Northwestel was talking about in Inuvik, that as customers move off of Northwestel's local voice service that those subsidies should disappear. You should not hang onto a subsidy just in case.
3344 If there's a second player in the market and that player is meeting the primary exchange service requirements of a given customer, well, then that's a subsidized customer loss to Northwestel and there shouldn't be a subsidy remaining.
3345 So the way we're seeing this, the SIP funding will wind down with time, and the primary exchange service, you can leave that in place but we do believe that that too will wind down with time.
3346 I think that Northwestel, given what their proposals are with respect to wireless switching, I would suggest to you that they too will move their primary exchange, switch voice service customers over to broadband, meaning that there shouldn't be a switched primary exchange service subsidy going to a customer that will never ever reappear.
3347 THE CHAIRPERSON: Okay. That being said, therefore, your view would be that the amount being harvested to feed the subsidy amount doesn't grow, is that correct, because the local exchange for voice deepens?
3348 MR. PROCTOR: It will be under regular review by the Commission. Hopefully, it will actually diminish over time, but again, given the cost of broadband in the North, we don't know. But it will certainly be under regular review by the Commission to determine what that level should be and I would love to tell you that it will stay stable, it will disappear, but I think that needs regular reviews.
3349 If in fact the objective five years from now has changed from 5 down/1 up to 200 down/50 up, that changes the dynamic of the cost structure.
3350 THE CHAIRPERSON: And it's your view that because the funding for this comes from subscribers generally elsewhere in Canada that that's an appropriate approach?
3351 MR. PROCTOR: On that point, those subscribers elsewhere in Canada are taxpayers and of course we today are paying into the Contribution Fund as well. So our subscribers today in the North are paying into the Contribution Fund.
3352 But if you take a look at it on that level alone, I think I'll let Jeff talk about this one a bit, despite trying to keep this brief.
3353 There is the aspect that this is a general base of taxpayers contributing to a fund that in fact expands the size of the net, if you want, or the network. So when you take a look at networking itself, people are actually paying for a greater benefit because there's more people that will be contributing into the net that they're part of.
3354 MR. PHILIPP: Just to add to that and I will be brief on it.
3355 You know, I've heard that and I've thought that as well, living in the North for a long time, that we were very fortunate that the rest of Canada subsidized our living in the North, our high-cost serving area, and I think that's changing as more and more resources are being discovered.
3356 I mean we have, you know, I think the second-largest production of diamonds in the world comes out of the North, we have huge gold reserves, we have oil and gas reserves, we have iron ore reserves on the northern tip of Baffin Island, the largest reserve seen and of the highest quality.
3357 So the resource royalties that the federal government and that Canada in general receive from the North for the next decades and decades is significant and I think is the reason -- is one of the reasons why we as Canadians all across the country want to hold onto the North, the Northwest Passage, our Canadian Sovereignty.
3358 I think that we're seeing this and have seen it for the last -- well, since the federal government established a presence in the North, we've been subsidizing the North to a very large extent -- housing, travel, food, fuel, power -- because we call those basic services that are required for residents.
3359 And I think the question, and Oana brought it up, is it's not whether we believe broadband is really a basic service anymore, a requirement. I certainly do not believe -- I believe strongly that it is and I think that, you know, we need to consider that if we want education, health care, the ability for people to live in those communities and enjoy income and a rewarding lifestyle, there will be subsidies.
3360 We don't have roads, we don't have bridges, as we do in the rest of Canada. We don't get funding for maintenance of those things and the amount of funding going into the North, I would say, is really quite small given the benefit that Canada derives from two-thirds of the land mass being the North.
3361 THE CHAIRPERSON: Um-hm. I get your argument at the 20,000-foot level, but we're not Parliament. We're not the ones that control the taxation power of this country. We only have a small part of it and so I'm asking with respect to that very target aspect of one group of subscribers versus another group of subscribers why you think that that should occur, keeping in mind as well that in the context of this proceeding we're very much looking at Northwestel's operating territory.
3362 But an argument similar to this could be made elsewhere, and high-cost areas that may not be receiving high-level broadband services elsewhere in the country aren't at the table, aren't part of this discussion.
3363 MR. PHILIPP: Granted, and I remember 15 years ago sitting at Industry Canada as one of the blue ribbon members talking about how we were going to get dial-up into all parts of Canada and the fact that we were going to fund that as the Canadian government in Industry Canada to get that, to make that a reality for Canada.
3364 We have lots of parts of the country that should have broadband. I believe that the whole country should have it. I happen to be born and raised in the North and have a passion for the North and right now my mission is to see that the North gets it.
3365 Now, as far as the small amount of funding, you know, right now we're spending $10.5 million a year on what I'll call black and white TV and that's a voice subsidy. You know, I mean we wouldn't do that anymore. We have colour TV available but the subsidy is no good for it. You can run Skype, you can run voice over your broadband Internet connection.
3366 Allow Northwestel to move even that subsidy to provide broadband. I mean if Northwestel had that ability to use that for their mobile switches, to use it for their broadband, I think they would as well agree that that's a good idea because the old voice POTS lines are going to go away and there will need to be a subsidy.
3367 Now, whether it's within the CRTC's purse to cover that whole thing or not, I mean the first step is this hearing.
3368 MR. PROCTOR: Just one item to add because I've been hearing a lot over the last -- well, in Inuvik and then again today, a lot about how this should really be punted to 2014-2015 and I'm getting a little confused. You can maybe correct me, tell me that I missed something.
3369 But back in August of 2012 -- and, for that matter, even back in December of 2011 when the holistic review was put in place -- but in August 2012 when Ice Wireless filed their Part 1 application to establish or to try to adjust the subsidy regime, it was very clearly indicated by the Commission that that would be dealt with as part of this review and of course reviewing the -- revising the subsidy regime would include discussion of broadband being part of that.
3370 So we have certainly been working on that level.
3371 Now, the fact that there is a hearing in 2014-15 I think should be viewed as opportune if for no other reason than to maybe fine-tune or use as a model what could come out of this hearing. So in fact I think you should take this as a wonderful opportunity to put in place something that can actually then be fine-tuned a couple of years down the road, but I do think that the first steps, in fact the very key, pivotal step should begin with this hearing.
3372 THE CHAIRPERSON: Right. But it gets directly to the point TELUS was making earlier, it's one thing to make a policy framework pronouncement with respect to the specificity of the serving territory here and doing it just for that and then that's one issue, and then there's an issue of using that precedent, I guess, that then morphs into a bigger national policy, which I think that is the concern.
3373 MR. PROCTOR: And of course -- well, they are here, by the by, but 2011-291 carved out the north for a lot of it as well. So we can't play it both ways. I mean, the obligation to serve decision that in many ways is what's going to be under review in 2014-15 was in fact a decision that carved out the north as well. So you are doing it.
3374 You can certainly make decisions that affect one area of the country and, personally, if it's the right decision and if things are working, that's great, that should be viewed as not necessarily the precedent, but certainly something that people can rally around and look to when that discussion happens three years down the road from now or two years down the road.
3375 THE CHAIRPERSON: In terms of your broadband assistance fund, do you have a sense of quantum?
3376 MR. PHILIPP: Quantum of...?
3377 THE CHAIRPERSON: How much money would be involved in that? I mean how do you foresee it?
3378 MR. PHILIPP: Oh, the Broadband Assistance Program?
3379 THE CHAIRPERSON: Yes. Program now, okay.
3380 MR. PHILIPP: The fund for -- the BAP, as Dean calls it.
3381 I think it depends how far you go. To your point of all of these other markets in Canada and how do you do this in the north and not address them, I think they all have the same problem, they all need a model like this. So every small rural community that does not have a service provider willing to put in a backbone that allows competition at the local level requires something like a regulated utility backbone that would encourage competition and if no competition comes, it requires that second level funding Dean was talking about to encourage competition, which is what put us into the broadband game in Nunavut.
3382 The feds said, "You know what" -- actually Nunavut Broadband Development Corp. said we need to get broadband here, it doesn't exist today, so they put out an RFP that said, "Would somebody build a backbone and would somebody deliver local service?" We bid on both and won both, the backbone and the local service. I would propose the same thing.
3383 Now, the cost of that? I don't see this as being limited to just the north. I think Northern Quebec, as was mentioned earlier, like Nunavik has the same problem, Labrador has the same problem, 600 small aboriginal communities across Canada that fall under the federal mandate or oversight have that same problem, there is no broadband, there is no good healthcare, there is no good education services, they would also benefit from a program or a service like this that every other service provider should be able to take advantage of, too, meaning that they would get a subsidy for providing a regulated backbone that everybody could access, including themselves, but then the retail services could be competitive.
3384 THE CHAIRPERSON: Right. But to go back Mr. Proctor, we are only here on Northwestel.
3385 MR. PROCTOR: Yes.
3386 MR. PHILIPP: Well, that's true and if we could open it up to the rest of the country I would be happy to be back to bring the same views, but that is the mandate that is out there today is the north.
3387 MR. YATES: If I could add just one small point to that?
3388 I think one of the things that I think becomes apparent from thinking through some of these things is that the basic objective is far more apparent here as a problem than it is broadly nationally.
3389 So if we take the 5-1 objective right now, even Northwestel said yesterday that all the terrestrial communities will be 15 and 1 anyway, so the 5-1 objective isn't really the point. However, it is in certain places like Nunavut and it could be in other parts of Canada where there are isolated communities.
3390 But the fact is, we know that problem exists right now and we know that 5-1 is inadequate to be a real objective for participation in the digital economy and the bump-ups in GDP that Commissioner Simpson talked about yesterday.
3391 THE CHAIRPERSON: Okay.
3392 MR. YATES: So I think we know it's here today, I think that's part of why we are saying let's not -- we don't need to wait until 2014, not because it's national or not but because we know it's here and this is where the rubber hits the road in a sense.
3393 MR. PROCTOR: If I can perhaps clarify what Jeff was saying, the point is: What are you trying to achieve? Is it only Nunavut? Fine. If it's only Nunavut and if it's 5 down, 1 up, 50 to one over subscription, here's what it's going to cost.
3394 So to ask the open question, "What will this cost?", well, what do you want to accomplish? That's the dialogue I guess that has to take place.
3395 THE CHAIRPERSON: I was asking the question within the scope of the proceeding you had just defined and it was just about Northwestel.
3396 MR. PROCTOR: No, it was just about the north again -- sorry, Northwestel's serving territory is what we are here about today.
3397 THE CHAIRPERSON: Serving territory, of course, yes.
3398 MR. PROCTOR: And as I was also saying, to the extent that we can set something up now, in 2014-15 when the rest of the country comes into the review, that's when you will actually have something in place that hopefully is working well and you can see the scope of the problem or the scope of the challenge and the scope of the opportunity, however you want to put that in context --
3399 THE CHAIRPERSON: Sure.
3400 MR. PROCTOR: And how that has expanded.
3401 THE CHAIRPERSON: Okay, fair enough.
3402 Let me move on now to another area and that is the form of regulation.
3403 So in your written submissions you talk about, you know, if we continue price caps you would like to create a new basket for all backbone and related services and then you have the other idea that was in your written submission about a split rate base regime.
3404 I take it that your preference now is clearly the first one from your oral submission, that you would prefer that we create a basket within the price cap?
3405 MR. PROCTOR: I may have misspoke in the presentation, but no, we think split rate base would be the cleanest and the most effective.
3406 THE CHAIRPERSON: Okay. I'm glad I asked the question.
3407 So what's the cost benefit analysis of going that route rather than maintaining a number of parties that put forward the fact that most of the telcos are under a price cap regime and that any other form of regulation for the number of subscribers may be prohibitive in a cost benefit analysis.
3408 MR. PROCTOR: Yes. The most vivid example I guess is the fact that Northwestel has recently stopped all fibre builds in the north, so at least under a split rate base, if you can put a more hands-on direct form of regulation on the transport side -- and again, this is not on the access side --
3409 THE CHAIRPERSON: Yes.
3410 MR. PROCTOR: -- that would help direct certain investments.
3411 Rob, I don't know if you --
3412 MR. YATES: I think that's fair. The response I think that we made on the price cap was more in response to the interrogatory. I think our original input was that the back one should be a utility regulation structure. In a sense maybe using other words for it, it's almost like a structural separation idea so that everybody on the utility side, including Northwestel's retail side, would in fact access the same utility set of services. In another case where SSi had a backbone, a utility portion, then Northwestel could access it's backbone utility at that same point.
3413 So that was our, I guess, base idea was that in a sense you kind of have to carve it out. It can still be the same company, but as a loosely speaking structurally separate, but you have a utility side and a competitive side.
3414 Then I think some of our your questions as well about duplicate infrastructure kind of go away.
3415 Obviously on the utility side we don't duplicate infrastructure for the very reason it's in the utility side, because it's monopoly or not economic to duplicate it.
3416 Once everybody accesses, I think at that point if it's economically viable for you to access the rate at that point, for whatever the rate is for megabit per second, and build duplicate local infrastructure, you can go ahead and do it; if it's not you don't. So I don't think it does create that issue.
3417 THE CHAIRPERSON: Okay.
3418 Now assuming a price cap regime going forward -- I take your point, but assuming a price cap regime and having this utility backbone basket, it seems to be that on the wholesale side there seems to be both currently a mix of retail and wholesale services.
3419 Am I taking your point to say that both those categories of services would form part of the basket or not?
3420 MR. YATES: Yes and no. I think what we had said, I believe, was that --
3421 THE CHAIRPERSON: That's a yes and no.
3422 MR. YATES: Are we allowed to say yes and no?
3423 THE CHAIRPERSON: You will have to explain which is yes and which is no.
3424 MR. YATES: No. But part of the confusion I think comes in as if you talk about a Wholesale Connect and Wholesale Connect is -- by definition it's a wholesale service used by wholesaler.
3425 But iGATE I think we heard from Northwestel on Monday apparently is retail which is news to some of us, but let's say it's retail, but the fact is that in both cases --
3426 THE CHAIRPERSON: Well, I think that's the point --
3427 MR. YATES: Right.
3428 THE CHAIRPERSON: -- is that there is a view that there are some services that may have for some customers a retail aspect to it --
3429 MR. YATES: Sure.
3430 THE CHAIRPERSON: -- but to others have been used on a wholesale basis.
3431 MR. YATES: Right. But I think the base point, though, in it -- and I'm not sure we have all the definitive answers to it, but clearly in both cases the vast majority of the costs underneath those services are the backbone.
3432 So I think actually Commissioner Molnar the other day was asking about disassociating like the gateway portion from the backbone portion and that's exactly the same point. If you did take iGATE there are certainly some functionalities that don't related to backbone, but the cost is still 90 percent backbone whereas Wholesale Connect maybe it's 95, so the difference is whatever it is. But I think that was our thought, was that that basket idea takes account of those things that are basically monopoly supplied.
3433 THE CHAIRPERSON: Right. Which of course now opens the door to the questions I was going to ask about wholesale services for competitors.
3434 So does, in your view, Northwestel currently -- I'm not talking about prices, I'm talking about the description of services, have the sorts of wholesale services in place that you need to provide retail Internet services in the serving territory?
3435 MR. PROCTOR: Yes.
3436 THE CHAIRPERSON: Okay. So there is nothing missing from your perspective, other than the cost -- there is a cost issue I get, but in terms of its availability?
3437 MR. PHILIPP: Yes. It's beyond the cost issue. It came up earlier today. You know V-Connect, we were on iGATE, which we understood was the negotiated wholesale rate for competitors until we brought the Part 1. We thought it would be V-Connect that we would go to. Wholesale Connect came out of those discussions and Wholesale Connect is the best option available today for competitors.
3438 Now, what's missing from it or what are some of the downsides, yes, you still only get dropped off in High Level and although they could offer you IP gateway out of High Level it isn't an offering, so you then go to somebody like TELUS and you buy a link from High Level to somewhere else in Alberta where you can rent space in a data centre and put in your services and put in the Internet connection and should that link to High Level go down there is no re-routing through the -- you know, the back of the circular, the redundant backbone that Northwestel might have because that's only an iGATE feature.
3439 So yes, if you're on iGATE you would get the benefit of the redundant network out through Fort Nelson, for example. But if you're on wholesale connect, though, that's up to you to build your own redundancy should you want that.
3440 So it is the best that there is available today and we'll take it gladly, because it's the only way we can stay in the retail market in those communities.
3441 THE CHAIRPERSON: But that's a functionality. If I were to ask you the question that's a functionality that you feel is missing at wholesale connect.
3442 MR. PHILIPP: Quality of service is another one that we've debated long and hard until we just couldn't come to agreement. We left it as it was when it went to the Commission in submissions.
3443 But quality of service today is, I would say, in the South if you don't like the quality of service you switch vendors and the price is cheap enough that it doesn't really matter if you've signed a 24-month contract. If the QoS is terrible you go somewhere else.
3444 In the North you have no choice. There is one backbone. The QoS is, arguably, not good enough to provide competitive voice services in those markets in the North. So there are challenges still but it is a lot better than it was a year ago.
3445 THE CHAIRPERSON: And so your view on iGATE versus wholesale connect would be that the functionalities there are incompatible or they don't provide the same level?
3446 MR. PHILIPP: I believe that Northwestel provided the very bare minimum that they could with wholesale connect so that this -- so that we could move on. But are those features there? No.
3447 In the discussions, you know, about what do we need for technical services, and I think it's one of the points that TELUS makes, you know, we want to be able to connect across town. We want to be able to have more than one point that we can drop that service off. The network is there. The network is paid for. The network is funded through public funding.
3448 But what happens is we're being told, no, no, you can have a fork from there to there. That's what wholesale connect includes.
3449 So would there be other services that competitors would like? Absolutely.
3450 Should they be in there? Absolutely.
3451 Are they required to offer competitive voice services in the markets? Absolutely.
3452 Could we start without them? Sure, and we are.
3453 But are they required to really introduce competition in the northern market? Yeah, they will be.
3454 THE CHAIRPERSON: Would you be willing to put an undertaking to describe more precisely just for the sake of time --
3455 MR. PHILIPP: Quality of service; redundancy. Two points, very simple.
3456 MR. PROCTOR: Probably the most detailed descriptions actually in the record that led to 2013-93 and the wholesale connect tariff proceeding.
3457 THE CHAIRPERSON: That's where you think that that --
3458 MR. PROCTOR: That's where it is.
3459 THE CHAIRPERSON: Okay.
3460 MR. PHILIPP: Two years' worth or so we think --
3461 THE CHAIRPERSON: Okay. So we can incorporate it there.
3462 So Commissioner Molnar also had a discussion with Northwestel about gateway access services, GAS. Again, it doesn't seem like anyone is asking for that. Why not?
3463 MR. PROCTOR: Gateway access is an internet access at the end of the wholesale connect pipe?
3464 THE CHAIRPERSON: Yes.
3465 MR. PROCTOR: Well, wholesale connect, first of all, is available to approved competitors, I believe is the wording, is it? So there are not that many competitors in the market.
3466 In fact, in the Yukon a decade ago there were over 12 competitors. Today there are none.
3467 So there is nobody here looking for that service just yet and the pricing has only just been finalized and it's under review. So don't expect any competitors to come along rushing to invest a significant amount of infrastructure in the Yukon until that's settled.
3468 In the Northwest Territories a decade ago there were a dozen competitors. We were the first internet provider. Today there is one competitor and that's SSi.
3469 And we did ask for gateway services. There were none available as part of wholesale connect so we literally had to rent space in Lethbridge and then lease a line from high level to Lethbridge and buy a gateway service in Lethbridge, which we've done. So we've put it in.
3470 Is wholesale connect the price that is tariffed now, the price that you have to pay to be a competitor? Absolutely not. There's all kinds of additional costs to add to that which Northwestel will say is what iGATE is.
3471 Now, if you truly want a large amount of bandwidth that is cheaper to buy at wholesale connect, in the longer term it's a better choice for us, for sure.
3472 Are there other things that we think Northwestel could sell to their wholesale customers should they choose? Sure, we would buy it. There would be no reason for us to buy our own internet gateway in Lethbridge and rent space and put in that equipment. But it was not available to us so we did that. So there are other things yet that are going to be required.
3473 And the price. You know what? The price in Yellowknife, we haven't applied for wholesale connect in any of the other communities because as soon as you get into a small market and all of a sudden you're faced with whatever, $5,000 for a small community for that port, that one port, but then you need also the connection from high level to Lethbridge and you need a closet and you need an internet gateway, I don't expect a lot of people to come rushing forward to become competitors in these markets even with the way wholesale connect is today.
3474 The utility backbone proposal that we put forward would be all of that and should be all of that, those things where it makes no sense to duplicate the infrastructure. We own satellite infrastructure in 50 remote communities. It makes no sense that we've invested that much money in alternative backbones.
3475 If there was one backbone that had a reasonable regulated price where we could go to somebody when we weren't being treated fairly we would have built last mile. We would have built cellular in all of these communities with the millions and millions of our hard-earned dollars we have put into backbone.
3476 THE CHAIRPERSON: Okay. I have got two other questions. One is a question. One is an undertaking. So we'll see how we go,.
3477 So in the South retail internet services are not tariffed. And I was wondering from your perspective if there was any uniqueness in the situation in the North or parts of the North that should lead to a different conclusion.
3478 MR. PROCTOR: I don't believe so. I believe that the competitive market forces will bring about the right pricing in those markets provided the barrier to entry of those markets, the backbone of the facilities in the community, the IP, gateway, quality of service are looked after.
3479 And as we said in our proposal, if the subsidized backbone price, regulated subsidized backbone is not enough to encourage competition in the last mile then we believe, much like the brand program and the Industry Canada program after that, our groups of communities get put out to a tender and somebody says, "Look who is interested. Here is a market that we want served" and put it out to reverse auction where we can all bid on it. I say, "Hey, if you give me 100 bucks a sub I'll do it."
3480 THE CHAIRPERSON: I understand. We are regulated today on our internet. I know that.
3481 But I was asking whether there was a specificity of the North that would make it different from the South, going forward from a policy perspective. I think I've got the answer to that.
3482 So there is an undertaking I wouldn't mind you giving some thought to. Of course, you can file it in confidence answering the following questions:
3483 - Where do you currently offer retail internet services in Northwestel's operating territory?
3484 - Indicate per community if it's delivered wireline, fixed wireless or mobile wireless.
3485 - If you could indicate the annual revenue from that and a total.
3486 MR. PROCTOR: Sorry, per community or total?
3487 THE CHAIRPERSON: Total, and then breaking it down by community specifying specifically three baskets, Whitehorse, Yellowknife and of course the math brings us to the total, the difference from the total for the other communities.
3488 - Provide your best estimate of the current total retail internet services revenues globally in the operating territory of Northwestel.
3489 MR. PHILIPP: (Off microphone)
3490 THE CHAIRPERSON: Your best, yes, for all. Not just yours, but your best estimate. It is, I realize, not something you control entirely but your presence in the marketplace should be able to bring you to be able to estimate the total.
3491 As well, who are the other retail internet service providers? You started answering that, but if you can do it in an undertaking that would be good, of the service providers in the territory.
3492 MR. PROCTOR: We can certainly take that on. I'm happy to say that a lot of those answers are already in some of the interrog responses both to the CRTC and to JNWT but, yeah.
3493 THE CHAIRPERSON: Okay. With respect to the conversation we had earlier about you saying all the answers were in 2003-93, that record of that proceeding is not technically part of this. So if you could provide an undertaking to that effect that would be appreciated.
3494 MR. PROCTOR: We can do that.
3495 THE CHAIRPERSON: Okay.
3496 MR. PROCTOR: Could I be so brave as to ask precisely for the question once again? Could I --
3497 THE CHAIRPERSON: Well, I --
3498 MR. PROCTOR: I can go back to the transcript. That's okay if it's easier.
3499 THE CHAIRPERSON: Well, I was asking you specifically what functionalities weren't otherwise available in wholesale connect and you had provided me two answers, quality of service and redundancy. If there are others?
3500 MR. PROCTOR: Okay.
3501 THE CHAIRPERSON: We have been using the 25th of June as the deadline for that.
3502 MR. PROCTOR: I'll talk to legal counsel about that after, if that's okay.
3503 THE CHAIRPERSON: All right. We do believe the opening, if it created an undue hardship, we can manage that.
3504 MR. PROCTOR: We'll make all efforts to make it to the 25th.
3505 THE CHAIRPERSON: Understood.
3506 Commissioner Molnar.
3507 COMMISSIONER MOLNAR: Thank you.
3508 I just want to follow up. I think even the Chair had a bit of a discussion because it was surprising to me. You may have heard that Northwestel said that they designed wholesale connect specifically for you.
3509 So to hear that you feel that there are limitations it's a bit surprising since all the other parties feel there is limitations. But I thought you were going to be really happy with that service because it sounded like they designed it on your behalf.
3510 MR. PROCTOR: Yeah, but let me be clear. We are happy. We could be happier.
3511 COMMISSIONER MOLNAR: You could be happier, yeah.
3512 MR. PROCTOR: And who we could be happier with was within the Commission's control in the decision. So back to --
3513 COMMISSIONER MOLNAR: Okay. Price aside, I'm really talking functionality now. If we were to want to ensure that sufficient facilities were available to enable competition within the retail internet services market, the underlying backbone facilities, the wholesale facilities priced at wholesale rates; please be, you know, encompassing and not necessarily speak of services because I think this record is full of a discussion of different services and we have somehow lost view of the actual functionality that's required.
3514 So if you could be very specific on the functionality and whether it's wholesale connect or something else that would be required to enable, you know, full competition.
3515 MR. PROCTOR: Sure.
3516 COMMISSIONER MOLNAR: And I just wanted to follow up on there was a bit of a discussion of gateway and we -- you know, we use the terms a bit differently. In Bell's territory the gateway access services, actually the local loop, it's the DSL, access to DSL and aggregation and right through the network.
3517 So my question is about access. And I understand that you have your wireless access provider, but you did make a comment about Wholesale Connect where you would rather have had more than one point of presence within a local exchange and one might think that some kind of wholesale access arrangement would make that possible.
3518 MR. PHILIPP: I think that's also one of the reasons for Telus' interest in EMAN because currently Northwestel services in those communities for cross community access are not available on a wholesale basis.
3519 So Wholesale Connect has limits to how many points you can connect to at a remote -- and if you want to go beyond that, you buy a retail service to do that.
3520 COMMISSIONER MOLNAR: Yes...
3521 MR. PHILIPP: Or an EMAN type service that you --
3522 COMMISSIONER MOLNAR: And if you just would be clear an -- yeah, to the extent that there are retail services that might enable it. That's interesting but I'd like to know what are the functionalities you would require as a wholesale customer of services that are, in some way, you know, there is not a multiple supply, I don't want to say monopoly, and maybe it's a monopoly and maybe not, but they do have a significant market power over those facilities. So be clear.
3523 MR. PROCTOR: Yes, and really what you're looking for, again, we function with Wholesale Connect. Let's be clear with that. And it works. But there are functions attached to iGATE, which we used to use, that we don't have with Wholesale Connect. Jeff described a bunch of those.
3524 COMMISSIONER MOLNAR: Right. Put it all in one package for us and it's going to make us --
3525 MR. PROCTOR: There's functionality attached to V-Connect. Yeah.
3526 COMMISSIONER MOLNAR: -- very happy to better understand.
3527 MR. PROCTOR: We can do that. iGATE, V-Connect, Wholesale Connect, private line service, all have different functionalities and we could make use of all of them, right? Wholesale Connect works.
3528 COMMISSIONER MOLNAR: Right. And that's where, I think, as I said, I think we've had some difficulty in trying to scramble through what are the characteristics or definitions of certain services, you know?
3529 There's, I guess, we heard iGATE has peering in Edmonton and Wholesale Connect has nothing in High River.
3530 COMMISSIONER MOLNAR: But whatever that is. So if you're more clear as to what is the service characteristics within that service that you could make use of and why you can only get it from Northwestel would be useful.
3531 MR. PROCTOR: Yeah, again, it goes back to the backbone. I mean, all of these are backbone services. They're all backbone connectivity.
3532 COMMISSIONER MOLNAR: I know. I know. Yes, we agree. It's backbone. One more question on your proposal of utility backbone. Is it your proposal that only Northwestel have any regulated backbone services? Or to the extent that you have built network -- you would be prepared to tariff yours as well?
3533 MR. PHILIPP: Absolutely. I believe -- this is not about SSi, it's not about our internet business in the North. It's about the livelihood of these communities, the people in these communities who live and work there. And, yeah, regulate the heck out of our backbone if it means that we are going to end up with better services and competition in those markets.
3534 We would have not built this backbone if we didn't have to, if there was one. Much like ten years ago, I approached Northwestel and said, "Why don't you let us re-sell your cable and DSL? The CRTC, I believe, has even mandated that at a certain discount off retail."
3535 And the answer was, "Because we want to own the customer." And I said, "But that's -- nobody -- you know, they don't own me as the guy that pumps my gas, he doesn't own me as a customer any more. It's about service."
3536 And the response was, "Well, you know what? That's the way it is. We want to own the customer and, no, you can't re-sell our cable, you can't resell our DSL." And I said, "Well, if you don't let us, we will build our own access infrastructure."
3537 And, today, it's in 56 communities and we spent a lot of money getting it there because we had to or those services would not exist in any of these markets in the North.
3538 COMMISSIONER MOLNAR: Thank you very much. Those are my questions.
3539 THE CHAIRPERSON: Vice-chair Menzies?
3540 COMMISSIONER MENZIES: Yeah. One quick question on local interconnection regions. Do you think the number proposed by Northwestel is overly large and could result in increased transport interconnection costs or increase in loss of service?
3541 MR. PROCTOR: We best, unfortunately, take that one on an undertaking because we'd have to revisit the size of the LARs that are being proposed by Northwestel. I apologize for that. And we should have an answer ready for that one...
3542 COMMISSIONER MENZIES: Okay. And my other -- no need to apologize. My other question, well, sounds a little cranky and it's not technical at all but might as well be blunt.
3543 Sitting here thinking of a couple of years ago when everybody wanted competition and everybody was more or less, "Put me in, coach, I'm ready." And now we've got a room full of people who want subsidies to compete.
3544 And I'm just trying to get my head around how much money we're talking about. If there's 17/18,000 NAS in the North, people in Zama City, which is just south of 60, pay $100 a month for 1.5, 500 bucks for installation, and that sort of stuff. They're going to be among the people that have to -- and as will people in the North -- that have to contribute.
3545 So, anyway, say, 17/18,000 NAS, $100 a month worth of subsidy required for each of those in the North. I'm just throwing this out there because, if you want the same fares as people have in Edmonton and Calgary, it's going to be at least that, that's about $21 million a year right there.
3546 And then, if maybe it's $200 a month, that's $42 million a year because nobody's told us how much it is. And, when you're spending other people's money, it's probably a good idea to know how much that is.
3547 So can you tell us how much that would be?
3548 MR. PHILIPP: Just one quick comment on that. I've thought about that. I was hoping to be able to give you a better sense of that.
3549 One of the challenges is how you implement it. If we talk about buying megabits or megahertz of satellite capacity on the available transponders on the current satellites spread across two satellites and two poles on each one, which means you need a lot of infrastructure on the ground, it's not efficient. The cost is going to be a lot higher.
3550 If you talk about an investment in an IRU, in buying transponder capacity on satellites that don't exist today because there is not enough capacity to do what we want today.
3551 So we're talking about net new satellites and, I think, to Telesat's point, they're saying, "Well, look, we can sell you the capacity, how much do you want?" There needs to be some direction as to how that should be costed because, just on a price per megabit, it's very, very difficult and the number will be very high.
3552 But, as an IRU, maybe it's $80 million a satellite, $160 million, which gives us 15 years worth of capacity that, as more and more communities come onto fibre, they will not use as much broadband satellite, which means the other communities, whose usage is rising for the same price over those 15 years, will have that capacity available.
3553 COMMISSIONER MENZIES: How much?
3554 MR. PHILIPP: I believe there's a requirement for about three-quarters of a billion dollars worth of investment, which is why I said Northwestel's proposal is too small but that really is to build a lot of infrastructure, not just a little. That's a utility backbone in 100 and some communities.
3555 The operational cost? I believe that, if we were Northwestel with $230 plus million worth of revenue and the margins they have, a lot of that would subsidize that backbone operationally because those margins are very lucrative.
3556 So has it all got to be the feds or Canada subsidizing it? No. I think that maybe the margins could be a little lower, too.
3557 COMMISSIONER MENZIES: Okay. You'll think about it if somebody can come up with a number, it would be helpful. They're useful things. Thanks.
3558 THE CHAIRPERSON: Thank you very much. I think those are our questions. We'll take a short break until 4:20. It's a little past 4:05 right now and we'll go with the -- never mind, the Whitehorse Chamber of Commerce is the next intervener to accommodate a scheduling issue. Thank you.
--- Upon recessing at 1608
--- Upon resuming at 1624
3559 THE CHAIRPERSON: À l'ordre, s'il vous plaît. Order, please.
3560 I must say that it reminds me of my youth. In Quebec, when I was going to school, this last day of the school year was whatever the Friday was before the 24th of June. And those last few weeks of June were unbearably warm. I feel like I am reliving that anyhow.
3561 Our next presenters are --
3562 THE SECRETARY: Chamber of Commerce.
3563 THE CHAIRPERSON: Sorry about that, I got lost in my papers here.
3564 So, gentlemen, please present yourself and go ahead.
3565 MR. KARP: Thank you. My name is Rick Karp, President of the Whitehorse Chamber of Commerce. To my right is Philip Fitzgerald, the Chair of the Whitehorse Chamber of Commerce, and to my left Peter Turner, the President of the Yukon Chamber of Commerce.
3566 Thank you very much for facilitating our time constraints and fitting us in.
3567 Mr. Chair, when we submitted our original letter May 6th requesting to be able to present today item 7 mentioned that we will be doing a survey of our membership. And if it is all right with you, we completed that survey last week, and I believe you each have a copy of it.
3568 I would like to have your permission to make reference to that and to enter it into the proceedings?
3569 THE CHAIRPERSON: You can make reference to it, but we will take it under advisement whether we are adding it to the record at this point.
3570 MR. KARP: Fine. Thank you very much.
3571 Let us be clear from the start, that we recognize the importance of Northwestel as an employer in Whitehorse, of close to 300 employees, and the corporate contribution the company has made through the years.
3572 The Festival of Trees, the support for the arts community, the presence of the company on boards of nonprofits and many contributions they have made through the years. We recognize and appreciate that contribution as well as the fact that Northwestel headquarters is in Whitehorse.
3573 Having said that, let us also be clear that the business community and indeed the future economic development of Whitehorse in the Yukon, as my friend from the Yukon Chamber Mr. Peter Turner will speak to, relies heavily on the modernization of our telecommunications infrastructure, technology upgrades, the reliability, and the burden of cost to the consumer of the service.
3574 The Whitehorse Chamber of Commerce completed a survey of our members last week and the results of that survey with close to a 30 per cent return are as follows. We asked seven questions and we will go through them very quickly.
3575 Question one. What Northwestel products do you currently subscribe to? And digital cable, internet; internet was close to 100 per cent at 96.12 per cent, landlines 78.29 per cent, cellular phones 55.04 per cent.
3576 We then asked the question, are you satisfied with the products, internet packages, cable, landline being offered by Northwestel? Yes 34.65 per cent, no 65.35 per cent unsatisfied.
3577 We asked also the question, are you satisfied with the customer service being offered by Northwestel? Yes came in at 48.03 per cent, no 51.97 per cent.
3578 Now, this is the interesting question that we asked. Please rank the following as they apply to Northwestel, 1 is poor and 5 is outstanding. The average score on the total was 2 out of 5.
3579 The first question was the cost. Replying to 1 and 2. Number 1 being poor, 5 being outstanding. Number 1 and 2, 73.44 per cent were critical of the cost.
3580 Internet speed, 51.02 per cent were critical of the speed of internet. Internet packages, the 1 and 2 rating 65.36 per cent were critical, were unsatisfied.
3581 Cell phone service, 50.45 per cent scored 1 or 2 on the survey. Phone options, a little bit better, 1 and 2 rating, 38.02 per cent. And customer service, 1 and 2 ratings, totalled 36.72 per cent.
3582 When the cable service came up, the score out of 5 there was a little higher, a 3.13 satisfaction. And cable packages, it was 2.78 and those were the two highest scores that Northwestel achieved.
3583 When we talk about technology, 49.58 per cent were critical, scoring a 1 or a 2. And when we dealt with infrastructure, 55.18 per cent were critical of the infrastructure for Northwestel.
3584 Question 5 was, do you understand Northwestel's modernization plan? Yes 33.3 per cent, no 31.78 percent, and somewhat 34.88 per cent. So from that we determined that there was a communication issue with the modernization plan and getting the details across to their subscribers.
3585 And then we asked the question, do you think the government should be doing more to improve telecommunications infrastructure outside of Whitehorse? 85.47 per cent responded yes, and 14.53 per cent responded no.
3586 And the final question that we asked, do you believe that competition will improve telecommunications in the Yukon Territory? 67.97 per cent said yes, 32 per cent responded no.
3587 From this survey we have six comments that we would like to share with you, and Mr. Fitzgerald will read those comments.
3588 MR. FITZGERALD: Thank you.
3589 The Whitehorse Chamber of Commerce represents close to 500 businesses in Whitehorse and the Yukon. And membership has been concerned about the quality, the cost, the reliability and the capacity of their telecommunication services for several years.
3590 The technical modernization of Northwestel systems is a priority for our members because of the importance of connecting with their customers, whether local visitors to our region or located anywhere in the world.
3591 There are a number of important business issues our membership consider pertinent at this time. The cost of internet services, the affordability, the timelines for the modernization plan. After five years will we be in the same position as we are now?
3592 The reliability of services offered by Northwestel. Redundancy of the fibre optic connection to the south, the speed and capacity of internet services. That the old technology or equipment being used is a bottleneck and its reliability is questionable.
3593 The question arises, will the modernization plan introduce technology that is state of the art or will the north always be a generation behind the south?
3594 The modernization plan should project the future needs of business and proactively be prepared for those needs. Poor bandwidth slows and often interrupts business in the north.
3595 Access to advanced services offered in the provinces but not in the Yukon impedes economic growth.
3596 The Whitehorse Chamber of Commerce and their members recognize the importance of upgrading telecommunications infrastructure and modernizing the technology to bringing telecommunication services to a standard comparable with that of the southern regions and to pave the way for future economic development and activity in the four key sectors with mining, tourism, retail and the knowledge sector.
3597 The Whitehorse Chamber of Commerce also believes that the plan to modernize telecommunication systems and equipment in the Yukon must create reliable redundancy, improved capacity, be affordable and focused on priorities that will assist economic growth.
3598 We also recommend that the project must have a set of prioritized actions that are communicated to stakeholders, including the business community, so that progress can be monitored and have timely completion dates.
3599 And finally, the Whitehorse Chamber of Commerce supports the principle of increasing competitive choices for telecommunications in the Yukon where it makes economic sense and requests that the modernization plan be designed to make the market more friendly for competition, especially where local business opportunities can be created.
3600 Thank you.
3601 MR. KARP: Peter?
3602 MR. TURNER: I would like to thank the Commission for the opportunity to speak at today's hearings and my colleagues from the Whitehorse Chamber of Commerce for their insightful survey information and comments.
3603 The Yukon Chamber of Commerce represents the four community chambers of commerce and their member businesses in Whitehorse, Dawson City, Watson Lake and the Silver Trail as well as 150 individual Yukon businesses who are direct Yukon Chamber members.
3604 The Yukon Chamber would like to convey to the Commission some of the telecommunications realities for businesses and private citizens in the 15 communities outside of Whitehorse. Of those 15 communities, three of them, Watson Lake, Haines Junction, and Dawson City, now have 4G service, at least in their town centres.
3605 Yukon businesses and consumers who own a 4G Smartphone much purchase a second CDMA phone if they wish to use cellular service in the 12 Yukon communities beyond Whitehorse, Watson Lake, Haines Junction or parts of Dawson City.
3606 If a business or government organization conducts commerce or works across the Yukon, that organization must choose between accepting the limitations of CDMA-only cellular service, carrying and paying for two cellular phones, or doing without cellular service outside of the four aforementioned markets.
3607 The Yukon Chamber of Commerce supports efforts to modernize cellular infrastructure to bring all our Yukon communities onto a common platform with uniform services and calling features for all users.
3608 The Yukon Chamber and community members have commented, and the Chamber agrees, that the implementation timeframe being proposed in the modernization plan is too long, and that the Yukon runs the very serious risk of having an obsolete cellular platform by the time the last Yukon communities are provisioned with 4G service.
3609 Furthermore, while Yukon Chamber supports modernization of Yukon telecommunications infrastructure, and recognizes the importance of Northwestel as an employer and good corporate citizen across the North, the Chamber wants to ensure that nothing in either the Modernization Plan or any regulatory decisions, serves to "lock out" future competition. The Chamber believes that Yukoners, other Northern citizens and businesses, and ultimately Northwestel itself are best served when competition is encouraged, and Northern businesses and consumers have telecommunications choices.
3610 Our Whitehorse Chamber colleagues cited the need for reliable and redundant internet
3611 access. The Yukon Chamber sees the lack of redundant network capability as significantly impacting Yukon businesses, putting them at a competitive disadvantage. Outages have the effect of shutting down virtually all commerce in communities. Nonfunctioning Moneris units and cash machines instantly cause entire communities to devolve to an IOU or barter-based economy.
3612 The Yukon Chamber member businesses believe that service costs put them at a competitive disadvantage compared to the South. Reviewing the 2012 CRTC "Price Comparisons of Wireline, Wireless and Internet Services in Canada and with Foreign Jurisdictions" study, Northerners are being served up only at what CRTC defines as Level One Internet Service basket speeds (Level 2 in Yellowknife, Whitehorse and Hay River), but being charged two to three times the national average for that service.
3613 The Yukon Chamber of Commerce supports modernization of telecommunications services to provide a common cellular platform, suite of voice services, and affordable, reliable internet service for all Yukon communities. It would also ask the CRTC to direct that such modernization be completed on a more aggressive timeline.
3614 Thank you for your time this afternoon.
3615 THE CHAIRPERSON: Thank you, gentlemen. So, Commissioner Simpson will ask you a few questions.
3616 COMMISSIONER SIMPSON: Good afternoon. Mr. Karp, good to see you again.
3617 I'm going to ask questions in three parts. As far as the survey is concerned, until we have determined whether it's going to be taken into the Commission findings as a submission, I'll just refer to it anecdotally, if you don't mind, but, I'll leave that for later, the -- one of your last points, sir, was that the plan as a whole is going to take too long to implement. Do you have a specific part of the plan that concerns you or is this statement a generality? Yes, any of you. Yeah.
3618 MR. TURNER: Yeah. Our concern would basically be that we understand the Modernization Plan to, I believe, have a four year timeline at this point. And with the progression of technology, it would be our expectation four years from now 4G will not be state of the art, and we've to a certain extent seen that in the implementation of the Latitudes Wireless implementation here in the North, which by the time it rolled out CDMA to all the --
3619 COMMISSIONER SIMPSON: Um-hm.
3620 MR. TURNER: -- the communities in the Yukon, we were seeing iPhones out on the marketplace that wouldn't function on any of that network.
3621 COMMISSIONER SIMPSON: Okay. So this is a catch-up plan, not a --
3622 MR. TURNER: Yes.
3623 COMMISSIONER SIMPSON: -- get-ahead plan?
3624 MR. TURNER: Exactly.
3625 COMMISSIONER SIMPSON: Yeah.
3626 MR. KARP: Yes, an the other part of that is the technology, and that is we have concerns from our membership that next generation technology is going to come up here that's redundant somewhere else and it's just going to be sent up here, rather than state-of-the-art technology. And the longer we delay implementation of the Modernization Plan and the longer it takes, then the more likelihood of that happening.
3627 COMMISSIONER SIMPSON: A comment that was made at Monday's hearing struck me, and I think this is what you're saying, that it can be said that a 4G phone will work in the new architecture being planned, but it won't necessarily offer 4G services, it'll simply just communicate with the network.
3628 MR. KARP: Um-hm. Yes.
3629 COMMISSIONER SIMPSON: Okay.
3630 In your assessment of the services used by the -- your members, internet by far was the dominant service. And I couldn't help but reflect back on the questions regarding service features that -- you know, I couldn't really determine from your study whether -- and I'm going to sort of an essentiality question here, whether reliability, speed, or cost was the dominant concern regarding internet. Because internet is the throughput of all the commerce, whether it's a Moneris machine or it's somebody being able to place an order with an online service or one of your members. But from what you have had in conversations anecdotally with your members, what of the three is the most prime concern, assuming that your members have access to internet? Is it reliability, which I suppose goes to the redundancy question, speed, or cost? If you were to rank them.
3631 MR. FITZGERALD: Cost first, yeah.
3632 COMMISSIONER SIMPSON: Okay.
3633 I noticed a comment, and I just want to clarify it, from one of the respondents that a second internet connection to the South is required. That, I guess, is the redundancy issue. From your understanding, there -- satellite is not a backup to fibre right now?
3634 MR. KARP: Not a sufficient backup to the fibre.
3635 COMMISSIONER SIMPSON: Not a sufficient backup.
3636 MR. KARP: We also have a lone wolf consulting group in the Whitehorse area and oftentimes they're sending large files -- and we hear this often, they're sending large files to Toronto, Ottawa, Vancouver, Edmonton, or other parts of the world, and all of a sudden it stops, or they're receiving a large file and all of a sudden it stops and they don't know if the other end ... And so there's time delays and there's real serious problems with that.
3637 COMMISSIONER SIMPSON: So satellite is not a redundant --
3638 MR. KARP: It's certainly not an option for them.
3639 COMMISSIONER SIMPSON: -- suitable redundancy, it's a last -- it's a last resort.
3640 MR. KARP: Yes.
3641 COMMISSIONER SIMPSON: A question that the Chair asked earlier, which I thought was a great one so I'm going to rip it off, is with respect to consultation. Two parts to the question. First is from your experience - Mr. Karp, you've been a long time in your position - what is the consultative relationship from your perspective, your Chambers perspective, with respect to how the business community, and I presume your members, is consulted on an ongoing basis? This is not specifically to do with the Service Improvement Plan but just the ongoing relationship with understanding the needs of the business community, planning for its needs and attending those needs. What is Northwestel's reputation in your perspective?
3642 MR. KARP: Not good. I think it's on an individual basis rather than a collective basis. We have periodically put out questionnaires on behalf of Northwestel, but it's seldom. This is one issue that I have shared with Northwestel about the Modernization Plan, that perhaps their level of communication with the business community could certainly improve substantially. And this is another point about the implementation of the Modernization Plan, that there should be more consultation with the business community because this is the community that will certainly benefit economically from this Modernization Plan. And the needs of certain sectors in the business community vary and have not had an opportunity to communicate sufficiently, in our opinion, their needs.
3643 COMMISSIONER SIMPSON: This is obviously going to be a question that -- in tomorrow's session that we'll be going back to Northwestel on, but with respect to service planning, you're then saying that there was not a formalized process by which your business community, your membership, who you represent, was engaged in how that plan was formed to the extent that they had input? There may have been -- I'm assuming -- and we'll here tomorrow there may have been one-on-one customer-by-customer consultations. But as far as approaching the Chamber or the Chamber membership with a -- with some kind of a focus group, research, study, survey, are you aware of anything to do with how they engaged the community regarding their plan?
3644 MR. FITZGERALD: I work in several different industries in town. Northwestel, I can say they consulted different businesses formally and informally. I think what their comment was about the communication of the plan, there was a missing link from the consultation to the final product, but I -- Northwestel has done quite a bit to consult with the business community over --
3645 COMMISSIONER SIMPSON: Um-hm.
3646 MR. FITZGERALD: -- and not just the Modernization Plan but just with the normal day-to-day affairs of business interacting.
3647 COMMISSIONER SIMPSON: Okay. I'm going to move on to the issue of costs and -- but I ask it in an entirely different way than has been asked in the hearing. Consumers, when they get a rate increase, whether it's gasoline, fuel for their homes, electricity, or in this case communication expenses, they've got no way to pass it on. All they can do is go back and ask for a raise from their bosses or work harder if they're self-employed. Businesses have a little more flexibility. We know that they're squeezed. But in markets that are bigger, less -- I'm thinking here again on the basis that there's not a huge selection of services available, even in a market as big as Whitehorse, business would have the opportunity to pass on costs if costs were presented to them, just like the rent going up. You know, then if your aggregate costs go up, your costs for your services to your customer has got to go up. So, here's the question: Why didn't you ask your members if they would be willing to pay more to get more in your survey?
3648 MR. KARP: Okay. Philip will start and I'll respond as well.
3649 MR. FITZGERALD: To answer the first part of your question on the ability to pass on Internet or telecommunication costs, we operate in a global marketplace. This hotel, for example, we pay Internet, we think, considerably more than what a comparable hotel would pay down south.
3650 Our customers here refuse to pay for the same level of Internet service as they get down south. There's no -- we have no ability to charge a premium.
3651 And I think, you know, speaking for our members, or our service providers or our consultants, et cetera, they're competing against, again, in a global marketplace.
3652 The Yukon, and I suspect the rest of the North, is a highly cosmopolitan community and we have a lot of people coming and going and capital is fleeting.
3653 So, to answer the first part of the question, I don't -- there is not a lot of opportunity for us to pass on their cost.
3654 We also have to pay a premium for energy, wages, for location as well, so, we're getting squeezed on every single avenue to deliver basically the same level of service or goods as someone down south.
3655 COMMISSIONER SIMPSON: Prior to our decision in 2011, in a monopoly, everyone's cost would have -- you know, the rising tide would have floated all boats.
3656 And so, therefore, if you were presented with a rate increase or if you as a business community chose to put reliability and speed ahead of cost, Northwestel services, all businesses in this community, so, therefore, you would all be presented with the same requirement to raise your cost.
3657 So, how would that affect your competitiveness?
3658 COMMISSIONER SIMPSON: Or, are you talking on a -- they would go to Yellowknife as opposed to come to Whitehorse, as a customer.
3659 MR. FITZGERALD: Or we're faced to eat their cost yet again and we'd become more uncompetitive, or weakened, right.
3660 I -- as a business we would pay more for high level service or -- I mean, I think it's pretty reasonable to assume that if someone wants to use a 4G phone in a community of 200 people that it's going to cost, everything else being equal, slightly more than a southern community.
3661 COMMISSIONER SIMPSON: Yeah.
3662 MR. FITZGERALD: But at the moment we don't have that.
3663 COMMISSIONER SIMPSON: I don't mean to make this an academic exercise, it's just that, you know, cost is an issue, but essentiality, redundancy is an issue and sometimes you have to make decisions between which is more important. That's all I'm trying to probe.
3664 MR. KARP: There's also the issue of threshold; there's a cost of doing business in Whitehorse.
3665 Most of our businesses, our SMEs are very small businesses of 10 or less employees and every dollar has to be accounted for.
3666 And when you have Internet shopping, then a clothing store or a store where one can go on the Internet and get something shipped up, it has a huge impact.
3667 So, charging more becomes a limit, there's a threshold of as to how far you can go on an essential item that you have. So, thresholds are important for all of our really small businesses that we have throughout Yukon.
3668 MR. TURNER: If I may add to that, we have a publisher here in town who has recently moved all their back issues and content onto the Cloud and they looked at what the cost would be to put it onto the Cloud in Whitehorse and they decided instead to load up a bunch of hard drives and have one of their employees fly down to Ontario and upload them on the Cloud there because it was more cost effective for this small publisher here in town than to do it locally.
3669 So, I mean, that strikes me as being a little bit into the area, the realm of the absurd.
3670 COMMISSIONER SIMPSON: Um-hm, Um-hm.
3671 Just to finish this off, and then I just have one more question.
3672 It is interesting, as I become more experienced in the needs of the North, that as the market evolves it too evolves from need-to-have to nice-to-have and then the nice-to-have become need-to-have and then they wind up in a different category of -- a different basket, if you like, and I think this is part of the dilemma that we're all facing.
3673 I guess I have pretty well exhausted the idea of raising rates. I was going to ask why you didn't ask if the business owners would be interested in paying more taxes to see their government be able to be more of a contributor to the --
3674 MR. KARP: We have.
3675 COMMISSIONER SIMPSON: You have?
3676 MR. KARP: Yes.
3677 COMMISSIONER SIMPSON: They had an overwhelming response, let me say --
3678 COMMISSIONER SIMPSON: I'll do a Kreskin thing here. The answer is no.
3679 MR. KARP: Right.
3680 COMMISSIONER SIMPSON: I'm sorry, will you please tell me what the answer is. My testimony doesn't count.
3681 MR. KARP: The answer was a resounding no.
3682 MR. TURNER: Competition.
3683 COMMISSIONER SIMPSON: Okay.
3684 This is a curiosity, but I think it goes to where a lot of the appetite for the demand for new services is coming from.
3685 A question that a lot of us have asked ourselves is, what has happened to airline pricing that's made Northerners so much more mobile and much more aware of what is available to their brethren and sisters in the south, because it used to cost -- when I used to come up here, you know, eight years ago to go fishing it was 12 or 1,500 to $1,800 bill and I'm hearing stories now about, you know, return fares to Vancouver at 400 bucks.
3686 What's happened?
3687 MR. TURNER: Competition.
3688 COMMISSIONER SIMPSON: Huh.
3689 MR. KARP: Which is also regulated.
3690 COMMISSIONER SIMPSON: Hm...
3691 MR. KARP: Efficiency. Air North has done a loyalty. Many, many Yukoners are shareholders in Air North and are loyal to Air North, so they're able to fly with certain levels of capacity that allow them to do reasonable rates and, as Peter was saying, competition --
3692 COMMISSIONER SIMPSON: Um-hm.
3693 MR. KARP: -- has done that.
3694 I think, just if I can, the CRTC has to look at the needs of business and the expansion of the economy into the North. It's been mentioned by several presenters that the North, upwards of 30 percent of Canada, has so much to offer the south and rather than having the transfer payments there can be transition.
3695 When we did a report looking at the key elements of economic development in the North, energy and telecommunications were at the top of the list.
3696 And if we're truly and if Ottawa is truly concerned about developing the North economically, then telecommunications has to be at the top of their list.
3697 And I know you've been struggling with this with several presenters today, with subsidies and with other elements with that, but please keep in mind, and that's why it was so important for us to be here today because we need to get that message across that, please, consider the business element and economic growth in the North and connectivity and telecommunications is absolutely critical.
3698 COMMISSIONER SIMPSON: Thank you very much.
3699 Those are my questions.
3700 THE CHAIRPERSON: Thank you, gentlemen.
3701 Those are our questions.
3702 We'll now hear from Ice Wireless and Iristel. Please, can you come up.
3703 THE CHAIRPERSON: So, good afternoon, gentlemen. When you're all ready, please go ahead.
3704 And I do ask you, as you know, to identify the members of your panel, it makes it easier for the court reporter to take the transcripts, okay.
3705 Thank you.
3706 MR. RENNER: Good afternoon, Mr. Chairman, Commissioners, ladies and gentlemen.
3707 My name is Roland Renner. Allow me to introduce our senior management at Iristel and Ice Wireless.
3708 To my immediate right is Cameron Zubko, Executive Vice President of Ice Wireless. To his right is Samer Bishay, President and Chief Executive Officer of both Iristel and Ice Wireless. To Samer's right is Maged Bishara, Vice President of Operations at both Iristel and Ice Wireless. And next to him is Tom Zubko, Founder of Ice Wireless.
3709 Northwestel has been competing with Tom since 1999.
3710 Iristel is Canada's largest and fastest growing facilities-based carrier proving OTT, voice service provider and carrier customers a full suite of domestic and international local voice, wholesale voice, 911, SMS and platform services.
3711 With our launch of service last year in the Northwest Territories, Iristel is now Canada's first coast-to-coast-to-coast telecom carrier.
3712 ICE, which is now majority owned by Iristel, provides cellular and data service in six communities in the Yukon and Northwest Territories and is the Rogers roaming partner in the North.
3713 Our Nunavut service and UMTS HSPA+3G upgrades across our entire mobile network will launch within several weeks.
3714 We will be in 10 communities this year and 16 next year providing voice and full mobile wireless Internet service. Our customers will be able to use iPhones and all the other latest Smartphones. They will be using YouTube and other video services as long as the backhaul is available at a reasonable price.
3715 Ice Wireless and Iristel have the people, the technology, the facilities and the experience in the North needed to become a key competitive force in Northern telecommunications.
3716 Now I would like to hand it over to President, Samer Bishay.
3717 MR. BISHAY: Thank you, Roland.
3718 Good afternoon Mr. Chairman and Commissioners. It is a pleasure to be before you again, especially with this being such an important hearing toward bridging the digital divide between Northern Canadians and the South.
3719 We are at a historical point in time for Canada's North. We need to build advanced communications infrastructure that plugs all Northerners into the rest of the world and, as we've seen in the rest of Canada and in other parts of the world, it is healthy competition which delivers innovation and affordable prices.
3720 Beyond building the fastest-growing VoIP network in Canada's South, we at Iristel have built networks around the world, in Eastern Europe, the Middle East and Africa. We have an extensive track record building successful business cases in difficult areas. And just like Northwestel uses resources from its owner Bell, we are using resources from across our networks around the world to bring better service to Northerners.
3721 The incumbent phone company pulls out its old saws:
3722 - The land is vast, the climate is harsh, the small population is dispersed, and this makes it so costly to serve.
3723 - The market is too small to build business cases for many potential services and too small to support competition.
3724 Its owner, Bell Canada, said similar things 20 years ago when the South was opened to competition.
3725 Though this hearing is formally called a Review of Northwestel's Regulatory Framework and Modernization Plan, we think it boils down to two words: fairness and choice.
3726 Fairness for Northerners who are starved for reasonably priced communications services that Canadians below the 60th parallel have long enjoyed.
3727 Fairness for competitors who want to build businesses and offer innovative services to customers at the best possible prices.
3728 And fairness to Northwestel, a telco struggling to shed its monopoly garb just like other incumbents in North America did some 20 years ago.
3729 Like those former monopolies, including its parent Bell Canada, Northwestel can thrive in a competitive environment. It just needs to free itself from its monopoly mindset.
3730 And that brings us to choice.
3731 Choice for Northerners to get advanced wireless service, dependable high-speed Internet, enhanced calling features like call display and affordable toll-free service just like the rest of Canada. We can deliver that, but for that to happen there must be choices made here today, tomorrow and in the coming months.
3732 The choice between which regulatory paths we take to achieve long-term, sustainable competition.
3733 We know things cost more in the North, but some of Northwestel's cost claims are simply not credible. A technology research firm dubbed the company the "Pirates of the Arctic" after finding their wholesale prices astronomically higher than anywhere else.
3734 Our own comparisons, based on ICE's 10 years of service in the North and Iristel's 15 years in the global telecom industry, also show Northwestel's northern mark-up is way too high.
3735 So, when it comes to their cost claims, who do we believe, Northwestel or our own expertise in building next-generation networks?
3736 We know Canada's North is a huge geographical area with an incredibly harsh climate. We've built telecom systems in other harsh environments around the world, sometimes in unstable war-torn areas. We know what things cost. We know what can be built in various environments.
3737 We (Iristel) are now offering services in Whitehorse, Yellowknife, Inuvik and Iqaluit, as Bell and Northwestel pointed out on Monday at the hearing in Inuvik.
3738 We can only expand as quickly as Northwestel upgrades its switches to SS7 and LNP capability. Northwestel's aging switches, one of the main reasons why the Commission launched this proceeding, are a key obstacle to the pace of our expansion. It is impractical and costly to use obsolete line side interconnection on the old switches. And yes, we have been asking for GAS access for over half a year now.
3739 More can be done with less today, especially with the price of new technologies coming way down. We know how interconnection works with other carriers, incumbents and competitors alike, in Canada and elsewhere, how long it takes and what it costs.
3740 There is a choice between forbearance now for retail Internet, local competition, V-Connect in satellite communities and other network and transport services, and forbearance in two, three, or five years after competitors get a sustainable foothold in the market.
3741 There is a choice between protecting twentieth-century telco monopoly jobs and creating an environment of state-of-the-art communications services to spur the growth of lucrative new jobs in all sectors of the vibrant northern economy.
3742 I have a few other specific points to raise, but before I do, let me turn to Cameron to briefly tell you about ICE Wireless and what we've been doing since we were last before the Commission in September.
3743 MR. CAMERON ZUBKO: Thank you, Samer.
3744 Good afternoon, Commissioners.
3745 We have been very busy building up our network since we appeared before another CRTC panel in Montreal last September. We've spent millions of dollars on advanced telecom equipment to be utilized by both ICE and Iristel in the North.
3746 We've been in Iqaluit building one of our state-of-the-art Huawei wireless base stations, providing UMTS HSPA+ 3G and LTE mobile capability.
3747 Bringing innovation in several respects, we conducted the first ever satellite backhaul trials with SES and Juch-Tech for our 3G mobile voice and Internet service in October 2012.
3748 As described by the Nunavut Government in Inuvik on Monday, Northwestel had allowed its mobile service in Iqaluit to become obsolete, providing what amounts to 1G service.
3749 While in Iqaluit we were constantly approached on the street, in restaurants and in stores by people who noticed our ICE jackets and asked us when our service would be available. I can assure you there is pent-up demand for competition and we're excited by the prospects.
3750 As you know, we currently serve six communities here in the Yukon and the Northwest Territories covering about 75 percent of the population, even without a modernization plan.
3751 By the end of the year, we will be in 10 communities, all with 3G service.
3752 By next year, our investment plans call for us to be in 16 communities covering 80 percent of the population of the Yukon and Northwest Territories plus Iqaluit.
3753 Our investment plan that we have filed in this proceeding describes how we are going to achieve our goals in more detail. The plan also proposes objectives that we could achieve in a sustainable competitive environment with access to a competitively neutral subsidy regime. These objectives include serving additional communities and undertaking construction and operation of regional transport facilities.
3754 The Arctic Communications Infrastructure Assessment report said only Yellowknife and Whitehorse offer economically viable markets for telecommunications, but we have already managed to do much more.
3755 That is not to say subsidies are not needed for the smaller communities and long-haul transport.
3756 But we have already proven that when you don't think like a monopoly and you don't spend like a monopoly, more can be done with less.
3757 It has not been easy facing an incumbent that receives $20 million a year from the National Contribution Fund and other subsidies which Samer will address. It has been difficult.
3758 But we're proud to say that Rogers Wireless, FIDO and a number of international phone carriers using GSM have chosen ICE Wireless to provide roaming for their customers in the North. We have the ideas, the technology and the facilities to serve customers across the North.
3759 Our investment plan provides 3G mobile service and Northwestel's is 4G. I would like to raise the point that there is little practical difference between the two in this market. 3G is capable of about 21 Mbps and 4G LTE is capable of about 100 Mbps and more, but the price of transport to the North is far too high to deliver these speeds to customers.
3760 Meanwhile, we can deliver the same user experience, possibly at a better price. So there really will be no immediate difference in the service capability between the telcos' 4G service, whether it is provided by Bell, Northwestel or Latitude, and the Ice Wireless 3G offering. In fact, both companies have bought the same equipment from the same supplier, Huawei. Once again, the choke point is transport to the North.
3761 Now, I would like to hand it back to Samer. Thank you.
3762 MR. BISHAY: Thank you, Cam.
3763 Since Iristel applied to compete in the local service market, Northwestel has reduced prices and upgraded service features. Even the threat of emerging competition has improved Northwestel's performance to the benefit of the entire North.
3764 However, the transition to a competitive environment has been painfully slow. The date when Northerners were supposed to have an option for local service was May 1, 2012, but it has taken much longer than that.
3765 Northwestel filed the Wholesale Connect Service tariff notices in March-April 2012. It is now June 2013 and we are still not finished. As Commissioner Molnar pointed out in Inuvik on Monday, Ice/Iristel found more and more issues with the tariff as we assessed it during 2012. TELUS and SSi Micro also found problems from their perspectives.
3766 From a service delivery perspective, the Wholesale Connect Service experience has been like the wooden Russian dolls that contain another doll within the doll and then another one, et cetera. We kept finding another problem and then another one and then another one.
3767 These problems were difficult to identify by reading the tariff. In some cases, we identified a problem only when our engineers started designing specific interconnections.
3768 First, we saw that price was lower than our previous V-Connect (non-tariffed) quotes. This was good and led us to believe that perhaps in the end the wholesale rates would be lower than the resale rates.
3769 But then we saw that the service stops at High Level, Alberta. We had to go and arrange our own interconnection from High Level to Edmonton and find out how much that was going to cost. But the retail customers continued to go all the way to Edmonton. This seemingly innocuous change added significantly to our projected costs and required more analysis to assess the final impact on our competitive status under the tariff.
3770 Then we found that the demarcation point was a single retail grade router, not a peer-to-peer interconnection. This presented another network bottleneck, a possible single point of failure and a potential capacity-planning problem.
3771 Then the Commission issued its order on Wholesale Connect Service tariff. The Commission ordered very large rate reductions. At these rates, most of the issues that we had found with the tariff, while still valid, had a lower potential impact on the business case.
3772 Then Northwestel issued its R&V application. The rates are in question and consequently, the business case must be assessed once more.
3773 It is no wonder, given this experience with Northwestel's delays and other examples such as excessive wholesale Internet rates, that almost every independent terrestrial ISP has been driven out of the Yukon and Northwest Territories. When the Commission granted forbearance for retail Internet, Northwestel had less than 10 percent market share and many independent ISPs had launched to provide service where Northwestel had not. The independents have almost all disappeared since the forbearance decision in 1997.
3774 Long distance competition is limited, and independent cable, unlike anywhere else in Canada, is not here to compete with the incumbent telco, except in Inuvik where our group of companies provides cable services.
3775 Northwestel has a history of protecting and regaining dominant market share in important markets where the Commission has introduced competition in the past. The Wholesale Connect Service R&V application came after a long and rigorous process during which the Commission asked detailed questions and Northwestel had full opportunity to explain its position and rating analysis.
3776 It should be noted that Northwestel's proposed R&V rates now are about 50 percent less than what they originally filed. Why then did they file the original inflated rate proposals in the first place?
3777 The impact of those rates would have been to put local competition and mobile wireless competition in jeopardy, just like wireline ISP, cable and, to a large extent, long distance. In all these markets, Northwestel has either managed to regain a dominant position or transfer traffic to Bell.
3778 That is why we have recommended increased vigilance by the Commission for the next several years. It also explains why we changed our mind on our SRB recommendation and why we found the Wholesale Connect service acceptable after the CRTC order to reduce rates.
3779 Overall however, in terms of the adequacy of the modernization plan, BCE's subsidiary Northwestel has made the most important problem, long haul transport, worse.
3780 Northerners need investment in long haul transport facilities and lower costs. Instead, Northwestel cancelled projects and changed its plans to use inferior, obsolete technology.
3781 Northwestel poured more subsidized dollars into protecting market share and fending off entry into end user markets that competitors are capable of serving. Unbelievable.
3782 I would now like to briefly touch upon the subsidy regime. It is fragmented and programs have come and gone. We need a competitively neutral, long-term co-ordinated subsidy regime.
3783 For example, as we began rolling out our 3G upgrade we learned that Northwestel is deploying 3G with the help of a $14.8 million grant from Infrastructure Canada, while Bell serves the larger markets directly. Does BCE, a company with a market cap of $34 billion, really need this subsidy? We don't think so.
3784 More of these types of unfair subsidies to the incumbent will be the death knell to sustainable competition.
3785 Northwestel's modernization plan calls for an ongoing capex subsidy of about 40 percent. If that money is used in competitively neutral ways like long-haul transport and for service to smaller communities, that's fine, but are we sure that under the price cap regime Northwestel cannot use financial support to compete unfairly?
3786 Again, it goes back to who do we believe, Northwestel or our own experiences?
3787 Subsidies for service to small communities should be available to competitors.
3788 A key point is that subsidy programs must be co-ordinated and designed for the long term so that competitors can plan their businesses in a stable environment.
3789 SSi Micro has proposed a broadband-only subsidy program. This suits its principal service revenue model, but to look at broadband alone misses the big picture.
3790 The transport subsidy, as recommended by Iristel and ICE, provides for all telecommunications services whether Broadband Internet or voice. As all services become IP-based, the remaining distinctions will diminish.
3791 Finally, Northwestel's contentions regarding the problems of the small market in the North must be addressed.
3792 Northwestel has stated in several places in this proceeding and in the media that the market is small and difficult to service and that this creates higher costs.
3793 Iristel and ICE agree up to a point. But where Northwestel errs is by ignoring the fact that telecom technology has been changing rapidly and will continue to do so. A monopolist has an incentive to use equipment until it can no longer physically provide service. For example, Northwestel's 1G mobile service in lqaluit; use it until it breaks.
3794 The consequence of following this monopoly-era incentive is to fall rapidly behind the service capability and pricing levels enabled by leading advanced technology, which was what the Commission found in 2011-771, even after helping to fund large Northwestel Service Improvement Programs over the previous decade.
3795 In a competitive market, companies that fall behind expire or are taken over. In this market the incumbent keeps coming back for more subsidy dollars.
3796 A great deal more is possible in small markets than was the case even five years ago. We know this because we are the fastest-growing facilities-based carrier in Canada. Over the past 15 years we have built our network with Class 4 and 5 Tier 1 telco grade switches using new technology at every step. We use the same equipment as 75 percent of Canadian carriers.
3797 Iristel has become known in the industry as "the carriers' carrier" for moving billions of voice minutes per year. We are constantly upgrading our networks, as shown last month when Iristel became the first carrier in Canada to deploy Sonus' PSX Centralized Policy and Routing Server to support a converged VoIP and IMS-based Mobile Network.
3798 That may sound like a lot of industry jargon but, believe me, the telecom industry took notice when we were first to upgrade to that equipment.
3799 With fair rules in place we will compete against this BCE-owned incumbent. The Northern economy is ready to grow at a faster clip. Still, we are constantly asked why we are bothering to tackle such an entrenched incumbent in such a small market. Our answer is always the same: We believe there is opportunity and last time we checked the 60th parallel was not a border.
3800 We are a Canadian company, licensed by the CRTC, and we want to offer service to all Canadians. Modern, competitive communications infrastructure is needed now to accelerate economic activity and development in Canada's North. We need a healthy competitive marketplace to help this region reach its vast potential.
3801 Thank you for the opportunity to appear before you today. At this point, we would be happy to answer any questions. Thanks.
3802 THE CHAIRPERSON: Thank you, gentlemen.
3803 Commissioner Molnar will start the questions for you.
3804 COMMISSIONER MOLNAR: Good afternoon, everyone.
3805 I'm going to try to be as efficient as I can with this questioning because it has been a long day for everyone in the room. I have read your submissions and, as I said, I'm going to try to stay quite targeted.
3806 I know that in your submission you covered all of the elements that were part of this Public Notice and if it is okay with you I would like to have us focus right now on the issue of backhaul and competitive services in the retail Internet services market.
3807 It seems to me that those are your key areas, as well as any subsidies that might go with that.
3808 Let me just begin with your issues around the subsidy.
3809 We had SSi up just before you and they were talking about the fact that there is a subsidy that we provide, as you know, through the National Subsidy Fund, it's $10 or $11 million a year, that is intended particularly and specifically to support voice services within high cost areas. SSi made the comment that, well, you know, we don't really need to worry about that, we can let Northwestel continue to address that market because over time it's going to diminish naturally as people move to IP or they move to mobility services and fall off of sort of that old PSTN.
3810 What is your thought on that?
3811 MR. BISHAY: My thought on it is the subsidy has to -- it is going to be a unified platform very soon. It already is actually today. The incumbents have not adopted that model yet.
3812 So to be subsidized by calling it voice while we are offering the voice using a different method puts a huge unfair advantage against us in a way, because we are doing exactly the same thing but using different -- let's say different piping.
3813 COMMISSIONER MOLNAR: I need to ask you a question because I have been thinking about this for awhile.
3814 You can go into those markets and offer the complete suite of services over IP without subsidy. Is it your sense that perhaps that subsidy is not required?
3815 I know you are talking about a competitive disadvantage, but I have wondered a little bit as they speak of putting in this new IP-based fixed wireless solution where all of a sudden you have access to cellular revenue and broadband IP revenues, and so on, that didn't occur before.
3816 MR. BISHAY: Maybe I will let Roland --
3817 COMMISSIONER MOLNAR: Is the best solution to remove that subsidy to make it competitively equal or at least go back to test whether that subsidy is still required under the new technology?
3818 MR. BISHAY: Maybe I will let Roland take over before I continue on that one.
3819 COMMISSIONER MOLNAR: Did you want to just say yes?
3820 MR. BISHAY: I will pass to Roland and then I will continue.
3821 MR. RENNER: I think in the high cost serving areas Northwestel said that the growth technology is going to be a version of fixed wireless and I think that is the direction that SSi is headed and we would do it probably on a mobile basis and in the larger communities on a fixed line basis as you just described.
3822 In that sense I think the PES component of the NCF subsidy should be gradually transferred to a version that suits that model of serving customers because it's no longer going to be wireline customer-by-customer and getting PES to go, you know, another mile farther out. It's going to be we put the fixed wireless capacity in there and everybody is served with full service capability.
3823 So there needs to be some new thinking around that and a transfer gradually towards that new model.
3824 COMMISSIONER MOLNAR: But you can go into those communities without subsidy?
3825 MR. RENNER: We can go into some of those communities without subsidy. (Off microphone). Sorry.
3826 We can go into some of those communities without subsidy. In the high cost serving areas we run into the dry loop problem, which was also brought up on Monday, and basically --
3827 COMMISSIONER MOLNAR: I'm sorry, just tell me -- I missed what you said. What problem?
3828 MR. RENNER: The dry loop question. And on Monday that was discussed under various terms.
3829 So if we go into a high-cost serving area, first of all the Northwestel service plans say that the customer has to take phone service if they want DSL Internet access, so on that basis the customer cannot choose to use our service currently.
3830 If we move away and allow that, then we run into the PES subsidy question where if we use the numbers roughly that they talked about on Monday, and if the revenue for PES to Northwestel is $30 a month and the cost is determined to be $60 a month, then the PES subsidy is also $30 a month, what is the loop access charge that we would have to pay if a customer moved towards our service, and if that does not include any of the PES subsidy that currently exists, then the information we have from Northwestel would be that roughly they would be charging us the equivalent of $30 a month, so it's not going to happen, the customer has no incentive to change at that basis.
3831 So that's a two-step problem on that level which is where we got into the issue with Northwestel as to, is that portion of the PES subsidy in that circumstance in those markets transferable and portable?
3832 COMMISSIONER MOLNAR: Okay. Because it is kind of late in the day I think some of what you said just kind of went over my head.
3833 But let me ask a different way, because I'm going to kind of go back to your submission where you said if there is a subsidy the value of that subsidy should be reflected in the price of services that are available to you, right?
3834 So if you say it's $60 and the loop is $50, so if they have a subsidy do you want access -- if you were to be allowed to have access to the loop at 25, like the net of subsidy amount for the loop and the DSL the same, do you use the DSL?
3835 Is that what this is about or what is it you need? What is it you need to be competitively equitable without us having to port the subsidy?
3836 MR. RENNER: Without having to port the subsidy we would need a loop access charge that still left enough room for the competitor or, sorry, for the customer to get internet service from Northwestel and phone service from us and to have that number work for the customer.
3837 MR. BISHAY: Just to add on that, if I may, part of our problem is we've asked -- we've been asking Northwestel for over six months for dry loops because we need to be able to give access to the customer without a dial tone so that we can put our own devices on the network and supply the dial tone using the IP. So it's kind of like a dry loop GAS. A GAS but using our -- like a dry loop, not an activated phone line.
3838 And we haven't got any answers. That's why I was surprised on Monday to hear that Bell is saying there has been no request for GAS. Obviously, there is some lack of communication between what's happening at Bell.
3839 COMMISSIONER MOLNAR: Okay, I am going to get into GAS and so on, in a minute. I just want to cover off on this issue of subsidy, the other part of it.
3840 In your submission you talked about the long haul transport and the need to coordinate with next version of Northern Canada's support programs. Tell me what exactly you mean by that. We have heard of all kinds of support programs and, I mean, there's lots of money being put into the North. So is that -- what is it you want us to do?
3841 MR. RENNER: Let me start with we understand, of course, that the Commission controls the National Contribution Fund but the Commission does not control what infrastructure Canada does. It does not control what Industry Canada does with, for example, the Broadband Canada program or the National Satellite initiative or potentially what CanNor might be developing in terms of the next round.
3842 We also understand that the government and the various departments and agencies is looking at right now at how those new programs might work.
3843 So I guess we are calling for, in spite of the fact that the Commission controls only its portion of this through the National Contribution Fund and is limited by the Act to what purposes it can apply it, that out of this, because all of those other agencies and departments are looking at and reading these proceedings and following these proceedings, that coming out of it is a coordination of those programs with what the Commission chooses to do and that, hopefully, the Commission can point a chosen direction that it would like to see even in areas that are outside of its jurisdiction.
3844 We understand that this is a very difficult situation, that coordinating among four different departments and agencies and the federal government, let alone then coordinating that with the territorial governments, is a huge and daunting challenge. But, I think, one of the ways that we might make some progress on this is if the Commission drew a picture based on, this is what we can do but we really need this, this and this over here as part of this proceeding, that would be helpful.
3845 COMMISSIONER MOLNAR: Okay. So you are not actually requesting any kind of long haul transport or back haul subsidy from us. You want us to coordinate and, if I could say, maybe from you and from others, you want to ensure that any subsidies that have been put in place in the North flow through to the wholesale services so all carriers can benefit. Is that fair?
3846 MR. RENNER: Yes, that is fair, and we also support a transition towards a transport subsidy which we would see on the satellite side. And if the Commission can see over time some kind of transfer to that on the satellite side and on the long haul transport side that would also be helpful.
3847 But meanwhile, I think as some of the other parties today have also stated, the wholesale connect service decision or order, rather, that had a huge impact on our assessment of the overall business case for providing service already. That was a major step forward.
3848 COMMISSIONER MOLNAR: Okay, very good.
3849 Let's talk about wholesale connect because what you're saying now sounds a little different than what you wrote when you said this is a service nobody wants.
3850 MR. RENNER: Yes.
3851 COMMISSIONER MOLNAR: Are there limitations? What do you view to be the limitations of this service? I'm also happy to let you do this as an undertaking which will allow you to be more specific.
3852 MR. RENNER: Okay. We will be happy to do some of that as an undertaking and be more specific on it.
3853 However, I think we can here today say a few things on it. And when we wrote that it was a service that nobody wanted and that -- I think we touched on that in our presentation today to some point but let me go into it.
3854 SSi, as they earlier stated and I think you asked them, Northwestel claimed to have designed the wholesale connect service specifically for them so there was some consultation there. And, yet, they later found problems and issues which they complained about. We found a number of problems and, I guess, when you read a tariff notice --
3855 COMMISSIONER MOLNAR: Fair enough. Do you have specifics as to what is the limitations or would you like to do that as an undertaking?
3856 MR. RENNER: No. I'll give you a couple of very specific limitations.
3857 COMMISSIONER MOLNAR: Thank you.
3858 MR. RENNER: One is that it went to high level Alberta instead of to Edmonton. That was a big one for us.
3859 And the second one is the demarcation point which is what we would describe as a retail grade or maybe slightly better than retail grade rudder and the inability to get a peer-to-peer connection on that level.
3860 And Sam has got a few more.
3861 MR. BISHAY: I actually lived the experience personally. It's been about four months now and we still don't have the service active.
3862 It gets dropped off in high level Alberta. I haven't figured out why high level. Okay, Northwestel has facilities there. I get it. But then the connection between high level to any -- to the next building is unknown. It has to be checked by facility personnel that are not onsite which is the Axia SuperNet and then the Axia SuperNet now has to quote us another charge to go back to Edmonton to their facilities.
3863 There is no coordination whatsoever. It's not a service that you can actually go and deploy. Even if you had the equipment and let's say we're going to invest in, you know, a quadrant of her route and put it in, even if we had that ready it's just there is a huge disconnection between Northwestel and the other half of it which is the Axia SuperNet.
3864 The two buildings, it took us a week to figure out which fibre is going to go where. It's as if -- like, from my point of view, it's as if they picked high level on purpose.
3865 COMMISSIONER MOLNAR: So you use the service now or you are still trying to coordinate to make it work?
3866 MR. BISHAY: We're trying to coordinate to make it work. It's been four months, yes.
3867 COMMISSIONER MOLNAR: Okay. As I said, if there is more that you would like to add as it regards the limitations as to what's required.
3868 And the reason I'm focused on this is because for the last -- since we have been at this hearing this wholesale connect which, I think, is only available in 20-some centres right now, has been laid out as the promise of full competition in the future, right? It's the backhaul. That's how on the terrestrial side competition is going to be enabled through this wholesale connect.
3869 And, yet, I'm a little confused because you and others have come and said, "Well, it doesn't work. You know, we've been battling this for months and years and we don't have the service and we don't have the backhaul we need". So please be specific as to what you need.
3870 Can I go onto the issue of iGATE? iGATE, as I understand, allows peering in Edmonton, unlike this one. Are there other benefits to iGATE or is there other functionality that's available with iGATE that would not be available with the wholesale connect?
3871 MR. TOM ZUBKO: We asked for internet gateway services in Inuvik for many, many years and the answer was simply, "No, there is no business case. You can buy a loop to Whitehorse and we'll give it to you there". Other than that, go away.
3872 So as far as I know, iGATE service is only available in Whitehorse and Yellowknife at this time. So from a network point of view it's highly irrelevant.
3873 COMMISSIONER MOLNAR: And I believe you requested that it be tariffed. Your reasons for that if it's not relevant from a carrier perspective?
3874 MR. BISHAY: Just to add, as well, from what I know about the iGATE is that we needed something in Iqaluit to get us up and running and iGATE was not -- it wasn't available as a service that we could leverage from a satellite connectivity perspective.
3875 COMMISSIONER MOLNAR: Before I move off of -- I guess I did kind of move off of Wholesale Connect and I want to move back because you spoke of one of the limitations being the inability to connect peer to peer.
3876 Others have spoke of the limitations in having only one point of termination within the end, like, you go out to your point of presence and there's only one versus having more than one customer, for example. Is that an issue for you folks?
3877 MR. RENNER: Yes, it is.
3878 COMMISSIONER MOLNAR: So, is this where you looked at things such as dry loops or GAS or something to that extent to try and extend the service?
3879 MR. RENNER: Well, no, in that situation, it's more in terms of the redundancy within the Wholesale Connect service and there appeared to be more redundancy in some of the retail services in terms of the networking.
3880 COMMISSIONER MOLNAR: Yeah. I am going to just go on to the issue of GAS, the Gateway Access Service, and I believe you folks know what that is in -- yeah, you do? Within, for example, Bell's territory? Do you sell access, aggregation, to a single point?
3881 MR. BISHAY: Yes.
3882 COMMISSIONER MOLNAR: And you have requested that?
3883 MR. BISHAY: Yes, we requested it on a dry loop basis, though. It's totally useless for us on a wet loop because the whole idea is we're offering a full -- a turnkey solution to the end user, to voice and data. And I believe Maged actually has firsthand experience with that. Maybe --
3884 COMMISSIONER MOLNAR: So they would allow you to take the dry loop with that functionality?
3885 MR. BISHAY: They don't have a dry loop service.
3886 COMMISSIONER MOLNAR: Oh, I thought they did. Okay. Sorry.
3887 MR. BISHARA: Hi. Actually, that's one of our major problems to provide local residential voice competition up North. It's the lack of GAS dry loop services, which is similar to what's being offered down south, Bell Canada or any of the other incumbents.
3888 DSL dry loop service essentially means it's a local loop used exclusively for data services without the requirement of bundling it with a voice product. So, essentially, a wet loop, like, what Samer was saying.
3889 So, as it stands now, our competitive residential voice services are being blocked and competitive VoIP services are relegated to a secondary line type status because, if you have to purchase a telephone line to enable DSL connectivity to your household, then there is no use purchasing a competitive VoIP line which is, say, less expensive, right?
3890 Now, what we're hoping for is dry loop services directly to the client at a reasonable dry loop rate, as Roland was mentioning before. What we were quoted was -- and it went back and forth since beginning of December, 2012, but what we were quoted was some type of dry loop rate that was actually more expensive than the wet loop rate, which didn't make sense.
3891 So, there are regulatory blockages or barriers that enable monopoly type environments and there are these types of barriers. They're what I consider competitive barriers. And this is a really --
3892 COMMISSIONER MOLNAR: Fair enough, but I believe that is a tariff service and they are required to make that available under tariff. It is one of the unbundled components of local competition. So, I'm a little confused as to why you're telling me they haven't made it available.
3893 But, in reply, hopefully, they will reply to that.
3894 MR. BISHAY: I hope so.
3895 COMMISSIONER MOLNAR: Yeah.
3896 MR. BISHARA: If I will just answer one more point. Making it readily available shouldn't be available to us. It should be available to their end users directly on their website as part of their regular service offerings.
3897 So, an end user, everybody should know that they're able to order a dry loop. We're not the ones offering that service.
3898 MR. BISHAY: So, Maged, I think, is referring to the GAS, offering GAS versus a consumer picking up the phone and just getting a dry loop, which they should be entitled to as well.
3899 And both here are -- as far as the end user is concerned, it's not available and we were actually referred to getting cable instead. But then cable was not in all the communities.
3900 So that was exactly the sequence of events that occurred and it's been occurring for the last six months.
3901 COMMISSIONER MOLNAR: The last thing I just wanted to cover with you folks is you had made the point that you believe that retail internet services at this point should be re-tariffed, re-regulated.
3902 I have an undertaking for you and you may have heard us ask others. This is something for June 25th. I'll just read this out if you don't mind.
3903 To look at the status of competition today within the retail internet services market. So, first, can you provide us information as to where does your company provide retail internet services in Northwestel serving area today? And indicate, by community, whether your company provides such services by wire line, fixed wireless and/or mobile wireless technology.
3904 Also, could you provide us with your company's total annual revenue in the retail internet services market in Northwestel's serving territory?
3905 And also provide your company's annual revenue by breaking that revenue down into the following markets: Whitehorse, Yellowknife, and all other communities but broken down by terrestrial and satellite.
3906 Finally, just to be consistent with the undertaking of others, could you provide your best estimate of the total annual revenue of the retail internet services market in Northwestel serving territory?
3908 MR. RENNER: Yes.
3909 COMMISSIONER MOLNAR: Okay. Thank you very much. Those are my questions.
3910 THE CHAIRPERSON: Thank you very much. Vice-chair Menzies?
3911 COMMISSIONER MENZIES: Just one and you can take it as an undertaking, too, if you wish.
3912 Do you have any concerns that the proposed local interconnection regions are overly large and could result in increased transport interconnection costs or an increased loss of service?
3913 MR. BISHAY: I will comment on it before I pass it to Roland. Just the LIR region right now is not limited by so much what will be defined by Northwestel as much as the technology that's behind the LIRs that are out there.
3914 For example, we've only launched in these communities that we launched in because of SS7 switching that's only available in these communities and we proposed that the LIR should be based on that so that we don't have to bother with all the translations that happen between the MFR2, that technology that's being used in some of the other communities, and the SS7.
3915 That way, we interface with one point. We will let the incumbent deal with the translations that they should have been doing all along, upgrading their switches. And then, when the time comes, then we can look at reassessing the model.
3916 And that's why we proposed, I believe, only five regions, which are the five switches that they have.
3917 THE CHAIRPERSON: Thank you very much. Commissioner Duncan?
3918 COMMISSIONER DUNCAN: Just one question. With respect to the manner in which we might incent Northwestel to deliver on the modernization plan as they have proposed, do you have any suggestions?
3919 MR. RENNER: Generally, we'd do that as an undertaking.
3920 COMMISSIONER DUNCAN: That's fine. Thank you.
3921 THE CHAIRPERSON: Thank you very much, gentlemen. Those are our questions for you. Thank you.
3922 We'll now hear from Total North Communications. Switch out the panels, please.
3923 THE CHAIRPERSON: Welcome, gentlemen. When you're ready, please go ahead.
3924 MR. DUNCAN: Okay, thanks. Pretty hot and dry in here. Thank you for the opportunity.
3925 A little bit of a background and then kind of go around the horn with the mine map here.
3926 My name's Gord Duncan. I'm President of Total North Communications. Like some of the others, long history in the North. Arrived here in '64 and gone on high school, UBC, returned to the Yukon, got involved in the telecom sector with Total North in 1979 and ended up in an ownership position in 1988.
3927 Before I go any further, I should introduce Dan Johnson, who is vice-president of Total North and leads up our technical and operations end of things.
3928 So a number of activities that kind of parallel kind of what you're doing here.
3929 I served on the Utilities Board for the Yukon Chamber of Commerce, some familiarity. I don't envy you your task and what you have in front of you but you're there, we're here.
3930 Total North, a little bit of background. We confirmed, again, that we don't want to be a telephone company but I think that there are a number of issues that are before the Commission that, on a second level, have a very big impact on the overall picture for both economics, technology and the overall communication sector in the north.
3931 So, you know, this is the single biggest investment that is going to be made in the North. And it is pretty important, I think, that not only are the nitty-gritty competitive issues heard, but I think probably some of the second level things that are going to have a big impact on the development of the north and where it goes.
3932 Specifically I guess to give just a little bit of background on what we do, it started as a traditional two-way radio shop. But about five years ago we saw a pretty significant change in the marketplace here. Both from a technology viewpoint and I think perhaps more importantly from the impact of the technology on our customer base.
3933 And in a nutshell, the customers are moving away from a strictly technically-based or box-based solution to a service-based solution.
3934 Where it was once pretty important what brad was on your box, that went away. And it became very important what service levels were delivered. And in our wheelhouse we had traditional two-way radio customers, but we also had a lot of customers who were beyond the last mile, and some of them were small, but some of them were pretty big. Some of them were in the area of developing mines, into advanced exploration or construction.
3935 So effectively, we were delivering full services to operations of 200 or more people. And those services included telephone, internet. And we received all the calls; if the lights went out, if the switches went red, we were the guys that showed up. So got an appreciation for the service requirements that are out there in that realm.
3936 I think from our viewpoint there, we had benefited greatly from the economic upturn that happened in the Yukon, specifically in the mining area. And it allowed us to build a lot of expertise and capacity in this area. And we had enough work that we were pretty happy with what was going on there.
3937 But we ended up building behind the scenes capacity, both in terms of personnel and equipment, to be able to monitor and supply service to these operations on a 24-hour a day seven-day a week basis.
3938 So part of that I guess background opened our eyes a little bit to the opportunities that are there and the challenges that are there in terms of northern telecommunications.
3939 And as part of our submission, we engaged in a dialogue with Northwestel to see whether there might be opportunities. It became pretty clear that there isn't a single entity that is going to provide all the answers that are before the Commission.
3940 We felt confident enough in our capability that we could fulfil some of those areas and start to pick off, I guess, areas and opportunities that were just outside the realm of some of the regulated monopoly and perhaps some that might be inside the realm of the regulated monopoly.
3941 We have done that without sort of wanting to get into the telco business, but we do want to have the access to those opportunities. And I think the thrust of my argument here, my submission to the Commission is that it is critically important to make sure that that investment is given in a manner that allows the capacity to be built in the north.
3942 And one of the commissioners asked about the Air North example. And I think that is a very direct example of what can happen when there is the recognition that capacity can be built at a northern level by northerners.
3943 I think -- let's see, I have wandered around the map, let's see if I have ticked off most of the boxes here. Yes, I think that the environment -- I guess two other points. I think we would encourage -- we understand the box you guys are in in terms of which dials you can turn and which you can't turn, which you can get your hands on and which you can't, not at a detailed level, but at a high level.
3944 But I think we would encourage the Commission to look outside the box where you do have the opportunity and to be creative in terms of how you approach this decision.
3945 The other thing I think that is happening is in the background exists disruptive technologies. They are a reality, they go on all the time, and timing is pretty critical if you are in a position where you are asked to make a five-year investment and your technology window is 18 months, pretty tough to regulate that, pretty tough to ask the incumbent to make that investment.
3946 At the same time, there are big dollars out ahead of you that are required. And I think right now those look like they are all in one basket. And it is pretty hard to have the oversight and I guess the capacity to deal with some of those issues where you have on one front a disruptive technology environment. Because, you know, that is the business and that it is the reality of the world. And on the other hand you are asking to make regulated long-term investment decisions.
3947 So hopefully I have covered most of this off. I think it is probably time for me to conclude and then see if you might have any questions for me.
3948 Thank you.
3949 THE CHAIRPERSON: Thank you.
3950 Vice-Chair Menzies?
3951 COMMISSIONER MENZIES: Thank you.
3952 Your written submission was well written. But, as with this one, I am struggling to know what exactly you want us to do.
3953 It would be helpful for us -- and I enjoy your plea for us to be creative, although I am sure that makes many people nervous. Creative regulation isn't necessarily what a lot of people are looking for. But creative thinking probably is.
3954 Is there something specific that you are looking for that would make sure those opportunities that you spoke of are available to you and others?
3955 MR. DUNCAN: I think I would like to address that more in an undertaking rather than off the cuff.
3956 We deliberately stayed away from a deliberate ask in this, because I think part of it is that there needs to be room for that. But, yes, we will take that as an undertaking and get back to you on it.
3957 COMMISSIONER MENZIES: Okay. Thank you very much.
3958 THE CHAIRPERSON: As we have been mentioning, that is for the 25th of June. Okay, thank you.
3959 So why don't we take a short break, stretch our legs a little bit, take some fresh air. So let's come back at about 6:10.
3960 We will be going with DDC when we come back.
3961 THE SECRETARY: Dakwakada, Mr. Chairman. It will be Dakwakada. Oh, okay, thank you.
--- Upon recessing at 1857
--- Upon resuming at 1815
3962 THE CHAIRPERSON: Okay. Running out of energy here. So let's keep going. Welcome, gentlemen. Please go ahead when you're ready.
3963 MR. MacDONALD: Thank you very much. My name is -- I'll jump right into it here, skip the niceties at this point just to move it forward.
3964 Good afternoon, Mr. Chair and commissioners. I am Brian MacDonald, Chair of the Board of Directors, of the Dakwakada Development Corporation. I am a citizen of the Champagne and Aishihik First Nations, and live here in Whitehorse.
3965 Joining me today is Greg Fekete, one of the Directors of the Dakwakada Development Corporation. And on behalf of my board, I would like to extend an appreciation to the Commission for holding these regulatory hearings here in the North, and providing us an opportunity to appear before you today.
3966 Dakwakada Development Corporation, which I will refer to as "DOC", is a partner with Northwestel in Latitude Wireless Incorporated, a cell phone provider for rural Yukon. We have a 30 percent ownership position in Latitude Wireless Incorporated, with the other 70 percent owned by Northwestellnc. Latitude Wireless Inc. currently provides wireless services in 19 Yukon communities.
3967 We are here today to speak in support of the Modernization Plan filed by
3968 Northwestel, to highlight some factors that should be taken into consideration by the Commission, and to express our concern with some of the positions put forward by the Yukon Government.
3969 DDC recognizes that the Modernization Plan is intended to have a broad application across the North. And here are aspects of the Plan that will have a direct effect on our partnership with Northwestel.
3970 Before speaking to these factors, it is helpful to explain DDC and how the partnership with Northwestel came to be. DDC, is the private equity investment arm of the Champagne and Aishihik Trust. The Trust and DDC are responsible for investing the Compensation Funds received by the Champagne and Aishihik First Nations citizens and their government, which resulted from the settlement of their comprehensive land claim.
3971 DDC has been entrusted by the Champagne and Aishihik community to help protect and to generate wealth for the people of Champagne and Aishihik First Nations. It is an honour that all of the members of our board take extremely serious. In fact, Dakwakada means "high cache" in Southern Tutchone and was historically where we would store our valuable food and supplies. The investments undertaken by the board of DDC are done so understanding the expectations of our shareholders and the First Nation.
3972 DDC currently holds a wide variety of investments, and is the single largest investor and owner in the construction sector in the Yukon, with investments in deep utility construction, paving, window manufacturing and other areas, and a significant owner in real estate. Latitude Wireless is part of its portfolio. All of these investments operate in the Yukon and have yielded solid returns for us. I would suggest that the track record of our board, and the scope of DDC's investments demonstrate a sound understanding of, and commitment to the Yukon's economy.
3973 The creation of Latitude Wireless began as a result of discussions between Champagne and Aishihik's Chief, James Allen, and the President of Northwestel, Paul Flaherty, in response to a Request for Proposes - Yukon Mobile Communications Solutions Project: Cellular Services August 4th, 2005, which was tendered by the Yukon Government. These discussions resulted in DDC being approached to partner with Northwestel, to create a proposal for a plan to provide mobile communications to the communities of the Yukon outside of the City of Whitehorse.
3974 The RFP required a plan that provided an opportunity to partner with a Yukon First Nation to provide for local employment opportunities, local suppliers, retail and maintenance. It is our view that this described an intention and an appreciation by the Yukon Government to support and promote local businesses and the involvement of Yukon First Nations in the Yukon's economy. The establishment of Latitude Wireless is a direct result of this vision.
3975 This is an excellent example of a proactive approach by the Yukon Government, at that time, to support and promote the participation of Yukon First Nations in the Yukon's economy. And it is DDC's opinion that it is likely that DDC, and by extension the Champagne and Aishihik First Nation, would not have had been able to successfully participate in this industry without this condition being set out in the RFP. DDC appreciated the foresight of the government of the day.
3976 It is also our opinion that the position set out by the Yukon Government in their intervention, which actively seeks competition by non-Yukon businesses is inconsistent with the original objectives set out by the Yukon Government.
3977 The RFP, and Latitude itself, was an opportunity to address the objectives of section 22.214.171.124 of the Umbrella Final Agreement, so as "To provide Yukon Indian People with [an opportunity] to participate in the Yukon's economy." DDC took that opportunity, and welcomed Northwestel's invitation to provide cellular service. It has involved substantial investments. Introducing competition to the -- in the cellphone market will undermine these investments and Latitude itself. It does not appear sensible and will certainly lead to less service over time in the communities Latitude serves. It could be viewed at best as being inconsistent with Champagne and Aishihik's Land Claim Agreement.
3978 Most importantly, most of the Yukon's communities cannot support cell service due to small populations and geographic location. The majority of the communities in which Latitude operates are uneconomical. Many of these cannot even support operations, let alone infrastructure investment. Inviting competition, as suggested by the Yukon Government, will only weaken the economics of cellphone coverage in these communities. It is our submission that the approval of any competitor must address these rural costs.
3979 As I have stated, DDC is an aboriginal business linked to the Champagne and Aishihik First Nations. Champagne and Aishihik First Nation is one of 14 Yukon First Nations. And as a Yukon company and a Yukon First Nation business, we have a keen understanding and awareness of the importance of supporting local service providers. As a successful company, we have built our reputation on appreciating the importance of insuring that customers receive quality of service and products at completive rates.
3980 While we appreciate the value that competition often brings to an economy, proactively supporting competition in the context of rural Yukon mobile communications is a short-sighted solution that fails to appreciate the economic realities of what is actually a small, geographically diverse customer base.
3981 DDC, as a partner in Latitude, has actively encouraged and supported upgrades and service improvements by Latitude. While this has come at a cost to the shareholders' returns, it has allowed greater access to current technology and a high level of service at competitive rates.
3982 Rural Yukon communities represent a significant portion of Yukon's First Nations. DDC, as an aboriginal business, understands that for Yukon First Nations and Yukon Indian people to fully participate in the Yukon's economy, they must have the opportunity to access similar services and technology that those in Whitehorse and larger communities are able to benefit from. DDC and Latitude are in a unique position to understand these needs.
3983 DOC has supported, and in some cases insisted, on a plan for upgrading Latitude's towers to ensure 4G compatibility. We have done so at an economic cost, having given up a substantial portion of our investment return in the last two years. Most cellphone towers are not economical. But Latitude has upgraded and has done so at an expense to our bottom line and profit margins. We have done so because it is good for Yukon First Nations, the communities in which they operate, and other remote and rural communities -- it is simply good corporate and social responsibility and demonstrates our understanding of Yukon's economic realities.
3984 This is very much an unquantifiable aspect that a local business provides to Yukon users. DDC doubts that other competitors would voluntarily share this sense of corporate social responsibility and reinvest earnings to such an extent.
3985 We are concerned with the potential economic realities that could face our partner should there be significant alteration to their proposed modernization plan. A key portion of the success of our partnership is a direct result of the local connection we have with Northwestel. Latitude has direct access to highly skilled management and technology. Both of these skill sets are required for our company.
3986 Should Northwestel be required to scale back or consolidate services outside of the Yukon, that will have a highly detrimental impact on the operations of Latitude Wireless and service to the communities in which it operates.
3987 We welcome the Yukon Government's proposal as set forth in its intervention, paragraph 68, to have the Commission act as organizer and chair of a group of stakeholders and review some of the issues related to investment subsidies and to better consider operating costs in rural Yukon communities.
3988 It is our view that both investment (infrastructure and related) costs and operating costs of Latitude must be considered in allowing any new entrants into the marketplace so as to maintain adequate customer service in areas outside of Whitehorse.
3989 Mr. Chair, we believe that Northwestel's Modernization Plan addresses many of the needs of the communities outside of the City of Whitehorse. This Plan reflects many of the priorities of our partnership and is a continuation of the business model and service that our partnership in Latitude Wireless currently focuses on: providing access to current technology, quality customer service and competitive pricing.
3990 Thank you again for this opportunity to present before you and we would welcome any questions or comments that the Commission may have for us. Thank you.
3991 THE CHAIRPERSON: Thank you very much, gentlemen. Your position is very clear, so I only have two quick questions for you.
3992 The first one is from your presentation globally. I'm wondering if there's not -- tell me if I'm wrong in maybe drawing an inference from one of your perspectives.
3993 The first inference would be -- and it relates to the RFP back in 2005. One could infer from that that without government intervention the market would not have led to that solution of having a wireless provider partially Aboriginal-owned and serving your communities. Is that fair, that one couldn't rely purely on market forces to achieve that result?
3994 MR. FEKETE: Well, eight years ago the market was considerably different, I think. In Yukon we were just on the cusp of a boom. Things were changing here. A big factor was eight years ago there was no cell service whatsoever in those communities that we are serving now. We are now in 19 communities in Yukon.
3995 Would it have happened without the government? Probably not. It did need a spark. That spark happened and we've run with it since, and to keep going and to upgrade we do require those investments of profit, a substantial reinvestment of profit at the cost of profit margin.
3996 So yes, a spark was required, that spark happened, but we are where we are today, moving forward as an advanced company.
3997 THE CHAIRPERSON: Right.
3998 Which brings me to my second potential inference from what your presentation seems to suggest, is that going forward now with that understanding, you present the fact that you are making choices, you're an entity that obviously has to return investments to the trust as a land claims arrangement, but you're making decisions because of the nature of your undertaking, because it makes sense not just from a bottom line perspective, a narrow bottom line perspective, you're also trying to give a broader social benefit, creating employment opportunities and so forth. Would that be correct as well?
3999 MR. FEKETE: Yes. We consider corporate social responsibility as part of our mandate in this context. Definitely, you know, there's two issues, is getting the services the communities require. You know, our First Nation is based in Haines Junction, which is quite a small community, and the reality is for most of these communities, you know, you have a tower, you might have 100 subscribers. Some of these towers, just on the infrastructure cost to put the tower in is, you know, approaching $100,000. Those numbers don't work. So the only logical reason to invest is not an economic reason, it's a social reason.
4000 THE CHAIRPERSON: Right.
4001 So, then from those two facts, it seems to me that one could conclude that -- let me just pull back for a second here.
4002 The Commission usually could either rely on market forces to achieve a public policy objective or it can intervene a little bit more on a regulatory perspective in a variety of ways and it has in the past, but the two inferences I'm drawing from the beginning, the fact that you needed the government to do the spark and there are sometimes social issues at play here that go beyond bottom line considerations of a purely private sector company leads me to believe that globally it may invite the Commission to rely less on market forces and have to intervene more to achieve the objectives you're talking about, service to those communities.
4003 MR. FEKETE: Well, we're not here looking for money. That is not our objective. Our point is with the configuration we have there is an ability to return some profit here and some of the villages and towns that we are in are profitable. So I don't think it's just an issue of what worked for subsidies or otherwise or intervention. It's can we compete with what we've got.
4004 THE CHAIRPERSON: Right.
4005 MR. FEKETE: And to some extent we are. There is some need for maybe some market intervention and our point here is that by having a competitor come in, cream off Whitehorse and maybe some of the small areas around Whitehorse, it does make it harder to provide support for those communities.
4006 THE CHAIRPERSON: Right.
4007 MR. FEKETE: You know, if a competitor wants to come in, obviously they will. Our point is, you know, it's like the airplane analogy again. Creaming off the Whitehorse to Vancouver route is quite easy to do. When you have to throw Old Crow into that route system, it makes it a little bit more difficult to make money.
4008 THE CHAIRPERSON: Right. I wasn't speaking so much about you as the partner in your undertaking might have to face a little bit more regulatory oversight to achieve the objectives you find are very important.
4009 MR. FEKETE: That's quite possible, yes.
4010 THE CHAIRPERSON: Okay. That's what I was wondering about in light of what I was hearing from you, that maybe sometimes to achieve public policy we can't entirely rely on market forces. Would you agree?
4011 MR. FEKETE: Well, put it this way specifically, if really Yukon wants LTE services and full 4G and they want it quickly, then definitely some more spark on the regulatory side, let's say, would definitely be required.
4012 THE CHAIRPERSON: Okay. Thank you very much for that. Those are our questions, I believe. Yes. Thank you.
4013 We will now hear from -- we'll go back. I believe Mr. Regimbal from the Association of Yukon Fire Chiefs is back.
4014 Are you there? No. Okay. Then we'll try again later.
4015 The UCG, Utilities Consumers' Group, please. Please come up.
4016 THE CHAIRPERSON: Mr. Hopkins, I presume.
4017 MR. HOPKINS: Yes, Radio Rob.
4018 THE CHAIRPERSON: Okay. Good to see you. Please go ahead.
4019 MR. HOPKINS: I would just like to welcome all the CRTC. Nice to see some friendly faces here. And congratulations, Mr. Menzies, on your promotion. And thank you very much for all the support that you provide to these hearings and whatnot.
4020 My name is Rob Hopkins and I am the chair of the Utilities Consumers' Group Telecommunication Committee. UCG was formed in 1993 to educate, represent and help protect consumers and ratepayers from utilities such as power and communication.
4021 Corporate secrecy
4022 An upfront recipient of a grant would normally be expected to come to the table with full disclosure if money from the public purse was being made available. If Northwestel was just running a regular business and wanted to keep trade secrets, Utilities Consumers' Group doesn't have any issue with that. It's a free world to compete in. Where UCG is insisting on full disclosure is when a company is seeking special subsidies.
4023 An example is the secretive nature of providing redacted "fluff." You know, whenever we get figures in tables, all the zeros are all X'ed out and whatnot. If somebody was getting a second opinion on a medical question and whatnot, if somebody came out with a chart and all the numbers were all wiped out, you would be really having questions about making an informed decision on that.
4024 So during public proceedings, hiding behind old school thinking as if they were a "too big to fail monopoly" is what we have an issue with. Northwestel, while pretending to be inclusive, is anything but.
4025 We sample our members who are active in the community and Northwestel is generally invisible in meaningful discussions, except when it comes to asking for money of course. One of UCG's executives who was just here earlier, Florence Roberts, sat on Whitehorse Council for six years and never had a glimpse of Northwestel.
4026 Public misinformation and stall tactics
4027 Northwestel does not provide truthful statements about ongoing rate increases. I was surprised to see another recent rate increase on this month's bill right while Northwestel announces they are not seeking any further rate increases. Our local telephone rates just went up $3 a month in June, apparently to facilitate competition. We must now be the highest local rates in the country. We always thought competition was supposed to lower consumer rates while giving us better service.
4028 At every opportunity Northwestel shows their true colours with stall tactics. The most recent is the modernization plan that has now been years in the discussion stages.
4029 You know, the rest of the world is overtaking Canada in communications and innovation capacity and yet we in the north get more ongoing discussions which is creating an uncertain investment environment for the north.
4030 One issue that has come up repeatedly is that of cross town packet charges. We should remind the CRTC and Northwestel of the very public Association of Yukon Communities resolution (2012) about cross town packet charges.
4031 Northwestel charges very high packet charges to even send something, for example from this location, High Country Inn, down the street to the Gold Rush Hotel. The rate that Northwestel sets for data is about $5.00 per gigabyte, per subscriber line.
4032 So I can go to Staples and I can buy a 3 terabyte hard drive for a couple of hundred bucks and I can take that and set it up in my computer and if I want to back up my computers across town it will cost me about $30,000 for an overnight file transfer. That's $15,000 at one end of the line and $15,000 at the other end of the line to back up one single computer hard drive.
4033 So this doesn't make the north look very desirable to do business, let alone set up a data centre, attract new business if we have to pay those very expensive cross town packet charges. And those packet charges don't go use the fibre optic link to the south and whatnot, this is just going from right across the street to back up a 3 terabyte drive, $30,000. Right.
4034 So it's kind of sickening to follow the money path where Northwestel is rewarded with a guaranteed rate of return for not keeping their business assets and corporate workflow current. Instead, they are allowed to price gouge on Internet bandwidth charges that are in turn used to pay for executive bonuses.
4035 The question: How much did Northwestel pay its executive bonuses last year from Internet overage charges? If Northwestel is so much in control of their network, how much cross town bandwidth charges, at 100 percent profit, were generated in Whitehorse and Yukon. So how many of those $30,000 hard drives have been made in Whitehorse and the Yukon -- or Whitehorse and Yellowknife?
4036 Another point to consider is the undereducated workforce of Northwestel.
4037 One of the reasons why Northwestel is asking for exclusive subsidies is because they claim to be one of the largest private workforce employers in the north. We need to look carefully at the skill sets of these workers.
4038 By Northwestel's admission, their network is very antiqued with 30-year-old switches manufactured by companies long out of business, like Nortel. So how is Northwestel going to afford to retrain their workforce to become familiar with modern communications equipment? How much resources are going to be needed to retrain these workers? And at what cost to industry and competition is it going to be to allow an inexperienced company to learn by trial and error how to manage a modern computer network?
4039 One would think Northwestel would have had the foresight to establish and support education programs in academia. Instead, these young minds have been scooped by other local businesses, leaving Northwestel to outsource to other southern regions in Canada.
4040 I was recently redirected by the Northwestel Call Centre to another call centre in Atlantic Canada who were advising me that Northwestel was doing some kind of an upgrade on their system and that is why their call centre was being answered in eastern Canada. So the capacity wasn't here to be able to answer the telephone.
4041 Are we really going to subsidize Northwestel to retrain their aging workforce to play catch up with industry?
4042 Another issue that comes up is what I describe as phantom services.
4043 So subscribers must pay for a physical telephone line to get DSL Internet service. I heard somebody talking about that before, dry loops and whatnot. Dry loop costs are like negative billing, they are charging for a service that doesn't exist. So this makes competitive LNP, local number portability, even less attractive in the communities. You know, having to pay for redundant VoIP and a hardwired connection, you know, I'm just going to say, "The heck with it, I'm not going to go with one of these new entrants, I'll just stick with the Northwestel one if that's the way that it's sent.
4044 And another thing that Northwestel could have done to prevent losing some of this market, especially in the rural places is to put out those services like caller ID. Iristel, for example, their service works out where I live in Tagish, I got a regular VoIP phone, it's got caller ID, all the modern features that Northwestel has not been able to come up with.
4045 You know, another example of these phantom price gouging is the 9-1-1 service fees charged to mobile users for 9-1-1 service when this service didn't even exist. In the area where Northwestel generated subsidized profit on phantom bandwidth charges, there should be a repayment schedule. Northwestel should be required to refund customers these charges for phantom bandwidth charges.
4046 All the time I get asked what is going on with my Internet bandwidth, why is my Internet so expensive.
4047 I work with a company in town, we did an audit on one of the larger hotels in Whitehorse, and they were getting overcharged on their bandwidth on a package where they weren't supposed to be getting overages and whatnot, so we did some investigating and found out that Northwestel's bandwidth counter was charging that customer twice.
4048 So we were able to provide that customer with some information, who then went back to Northwestel and said, "Hey, the reason why my bill has been so high is because you have been charging me twice on my bandwidth." So Northwestel looked at it and said, "Oh, that was a mistake, we have corrected the charges and whatnot."
4049 So how many other consumers and businesses are getting overcharged on bandwidth? There are lots of issues around this town. Umpteen people have been charged over $100 a month for overages.
4050 Another example, somebody moved into Whitehorse, they had a kid with them, the kid goes on the Internet, played video games. You know, this is somebody that just got here, hasn't even been here a month, they get their bill $1000 in overages, right. They go to Northwestel and say, "Oh, my kid did this and the big charges". They said, "Welcome to the Yukon, how will you be paying, cash or credit card."
4051 Right. So results from stifling of competition. So this is a long game that's been going on here, you know, the stall tactics and whatnot.
4052 So Northwestel lost the opportunity, or squandered it, to build meaningful relationships with local business in the face of competition which was on its way many years ago. Instead, they wasted this time and put resources into putting businesses and communities at a disadvantage.
4053 One only looks at what Northwestel did with the ISP industry in the north, you know, in the Yukon. There was 20 of them 15 years ago, now there is one. Northwestel is the only game in town, all the rest of them went out of business, you know, specifically for high bandwidth cards. Clay Perreault, a $400,000 Internet bill for example, on and on and on.
4054 You know, Northwestel didn't have the foresight to build any meaningful bridges with the business community who would have supported Northwestel at this hearing right now if they have been, you know, receptive to helping other business out and whatnot. Instead, you know, they made sure that businesses wouldn't succeed and whatnot. So they spent their resources to stop these bridges from being built.
4055 So now the competition is coming from everywhere and Northwestel would have had a better chance of survival if it had done something to make more friends in the north.
4056 In conclusion, Northwestel's modernization plan, it's not modern anymore. You know, we have been talking about this plan, it's been going on and on, technology has changed, new people have come, new money has come into the thing, this isn't a modern plan, this is an old plan, right. You know, a modern plan is something forward-thinking in the future, this is a thing that's been talked about for years now, right. So the modernization plan is not -- anything but modern.
4057 We should listen to the modernization plans from the next generation of communication providers, some of them in this room, that are interested in doing business here and allow Northwestel the opportunity to compete for a subsidy.
4058 So that's all I have to add right now on behalf of the Utilities Consumers' Group and if you had any questions I would be glad to answer those.
4059 THE CHAIRPERSON: Thank you, Mr. Hopkins.
4060 Commissioner Simpson will have a few questions for you.
4061 COMMISSIONER SIMPSON: Thank you very much, Mr. Hopkins.
4062 You have been at this a long time. The UCG has been around since '93, how long have you been involved with the Utility Group?
4063 MR. HOPKINS: I got involved with the Utilities Group just after I set up my long distance telephone network into Whitehorse in 1996. I set that service up October 11, 1996 so I was with UCG just before that.
4064 COMMISSIONER SIMPSON: The group was established obviously to hold essential services in check speaking on behalf of consumers and my question is this: Have things since 1993 gotten better or have they stayed the same or are they getting worse?
4065 MR. HOPKINS: Up until about two years ago it was fairly predictable what was happening as far as not just the telephone but the electrical rates, very, very predictable. You know, you could win the bet every time for beer.
4066 But the last two years, especially since Yellowknife last year, things have changed a lot.
4067 Another example of this was Curtis Shaw of Northwestel called me up the other day last week, he wanted to talk about this hearing and whatnot. It's the first time anybody from Northwestel ever contacted me in 22 years, so that just tells me a little bit about what Northwestel is thinking and whatnot.
4068 COMMISSIONER SIMPSON: Well, I was just going to ask you -- you know, the Utility Group is extremely well-known to all parties and I was going to ask you whether you are actively involved or engaged in sitting on committees, groups, you know, bringing your voice to working groups with territorial government, with suppliers, or are you just -- and I hate to say this, knowing that you are from Tagish -- a voice in the wilderness?
4069 MR. HOPKINS: Yes. Hey, I'm a legend in my spare time down on the Atlin Road, that's for sure.
4070 Actually, UCG does quite a few things in public education. One of the more innovative things that we did was approach the CRTC for a developmental radio licence many years ago and some of the programming that we provide on the community radio station in Whitehorse is information about high bandwidth costs, electrical hearings, committees and whatnot.
4071 COMMISSIONER SIMPSON: But within the scope of this hearing, are you engaged other than -- are you on the outside of the glass house looking in or are you invited in with respect to the subject of this hearing?
4072 MR. HOPKINS: In what respect, please?
4073 COMMISSIONER SIMPSON: You are here intervening because you have an opinion on the state of the incumbent provider on telecommunications. We've heard from other groups who are authorities in the community. Are you working with them actively in advising or having an opinion on what changes are needed or is your group autonomous and working independently from the other groups that we've heard from?
4074 MR. HOPKINS: We have done some work with other groups and whatnot. As far as the UCG goes, on occasion Yukon government will ask us for opinions and views on things and will also ask us to facilitate meetings and whatnot and discuss electrical issues.
4075 COMMISSIONER SIMPSON: Yes, you are. Okay.
4076 Just two more questions. You're saying that we shouldn't be listening or we shouldn't be looking at the modernization plan as it's currently presented.
4077 Would you be looking at other avenues that are being presented that -- oh, here you said we should "listen to the modernization plan from the next generation of communication providers." Are we not doing that in the scope of this hearing?
4078 MR. HOPKINS: In the past we have been listening to those plans and whatnot. They have come and gone, telling them whatnot.
4079 So what's happening now, in my opinion, is we're talking a lot about Northwestel who is the 867 pound gorilla in the room but, you know, really we should be involving all the other communications people. There is an awful lot of others --
4080 COMMISSIONER SIMPSON: Others are participating. You know, we've heard proposals from Iristel and so on. I was just trying to qualify whether or not you thought that this hearing was listening to other parties.
4081 MR. HOPKINS: Yeah, and this hearing has been listening to other parties, and it's been inclusive as well.
4082 COMMISSIONER SIMPSON: Thank you for that.
4083 The last question is, I would like to get a statement on behalf of the group you're representing with respect to subsidy. Do you feel that subsidies as are presently provided for, core plans and service improvement plans, should those subsidies be more -- should be portable?
4084 In another -- I'll put it to you this way: Should the basic service objective of the incumbent provider be maintained if the subsidies become portable so that others can take advantage of them enhance or add to local service?
4085 MR. HOPKINS: I think, you know, any subsidies out there should be available to other parties and whatnot that are trying to work towards a common goal of providing excellent communication services for the residents of the North.
4086 COMMISSIONER SIMPSON: Okay, thank you.
4087 MR. HOPKINS: So not just Northwestel having exclusive access to those subsidies.
4088 COMMISSIONER SIMPSON: Okay. Thank you very much. That's it.
4089 THE CHAIRPERSON: Thank you, Mr. Hopkins, for having participated in our hearings.
4090 MR. HOPKINS: Always a pleasure. Thank you.
4091 THE CHAIRPERSON: Thank you very much.
4092 So now we'll go to the Association of Yukon Fire Chiefs.
4093 THE CHAIRPERSON: Welcome. When you're ready, please go ahead.
4094 MR. REGIMBAL: Thanks for having me. I come from a little bit of a different perspective. I sat through this all day and I appreciate your patience. It's been a long day for all of us. So I'll keep this very brief.
4095 Jim Regimbal, Association of Yukon Fire Chiefs President and Fire Chief in Dawson City, Yukon.
4096 Northwestel made the case for its $233 million network modernization plan for communication services across the far North at a hearing of the country's telecom regulator.
4097 As this modernization plan moves forward, we in the North should have access to services that are comparable to the rest of the country. The Association of Yukon Fire Chiefs considers that it is imperative for the safety of residents of and visitors to the Yukon to have access to a modern and efficient 911 service. The provision of access to 911 services to all telephone users will provide a more effective and efficient response from the emergency responders through the capabilities of enhanced 911.
4098 Other than the far North, the remainder of Canada has access to, at the very least, basic 911 service and in most cases to enhanced 911 services as well as moving towards NG911 service.
4099 911 services are what are expected by visitors to the Yukon as this is what they have in their home communities. Simply put, "911 Saves Lives".
4100 The Association of Yukon Fire Chiefs believes that Northwestel has the technical capability to provide basic 911 services almost immediately to all phone subscribers in the Yukon.
4101 The Association also believes that Northwestel has the ability to provide enhanced 911 services within a reasonable timeframe.
4102 The Association believes that all telephones in the Yukon should have access to enhanced 911 services within five years. The Association understands that there is a cost to providing these services and that a reasonable monthly charge for every telephone landline and cell phone would provide Northwestel with the ability to upgrade and maintain enhanced 911 services to the Yukon.
4103 In addition, there will need to be support from the Territorial Government to ensure that the 911 enhanced services are provided to the residents and the visitors in the Yukon.
4104 Without expanding and improving our 911 services, the Yukon and the rest of the far North are not being provided with what is the normal and expected method of contacting the emergency services.
4105 The current system for all areas of the Yukon outside of the greater Whitehorse area requires the users to remember at least three different telephone numbers in order to receive emergency service. Most visitors to the Yukon do not know that these different numbers are required and are often surprised that 911 is not the standard. This can lead to significant delays to the response of the emergency services to someone in distress.
4106 Even basic 911 services will allow for a coordinated response of all emergency agencies to a request for service when required. Provision of 911 services throughout the Yukon will also provide the opportunity for centralized dispatch services that will also improve the efficiency of the emergency response agencies.
4107 As the representative of the Association of Yukon Fire Chiefs, thank you for the opportunity to present to this committee. The Association is willing to working with any agencies to move towards enhanced 911 services throughout the Yukon and to answer any questions you may have at this time.
4108 Thanks again.
4109 THE CHAIRPERSON: Thank you very much. Sorry for having made you wait all day in the room but we were trying to hear as many people as we can.
4110 Commissioner Simpson.
4111 COMMISSIONER SIMPSON: Thank you very much, Mr. Regimbal.
4112 With respect to the topical nature of some other issues involving 911 I would -- I'm just going to let the court decision speak for itself.
4113 MR. REGIMBAL: Absolutely.
4114 COMMISSIONER SIMPSON: But I'd like to talk to you more about -- well, actually, just engage in the discussion of mutual interest. This Commission recognizes and supports your view with respect to the importance to wrestle the 911 issue to the ground. It is complex.
4115 We, under the new Chair -- it was one of the first items on his agenda and he pulled one of the commissioners out of active duty. I don't know whether you were engaged in this process, but we've had a commissioner for the last six months working exclusively on the 911 issue and he's travelled far and wide.
4116 MR. REGIMBAL: No, I wasn't, but that's nice to hear.
4117 COMMISSIONER SIMPSON: And he has gone as far afield as Europe as well as the Americas.
4118 The specific issue is to understand the more complex problem of not how do you get 911 incorporated into the telephony part of the equation, because that is relatively straightforward either through regulation or technical issues, but it's more who answers because it's been a jurisdictional issue.
4119 Everywhere you go across the country there is a different formula and there is a surprising lack of standardization with respect to how peace apps are built, designed and managed and that lack of consistency, as the engineers love to call exogenous variables, is met with another huge set of variables with respect to the different telecommunications systems and how they interact with each other.
4120 So it's something that you have my assurance on that we're working on, on a very universal overview right across this country.
4121 MR. REGIMBAL: Thank you.
4122 COMMISSIONER SIMPSON: But I very much appreciate the fact that you did wait around all day.
4123 I'm sorry, I have to -- as corny as this is, you know, I was asked if you have a professional opinion on the temperature required to instigate spontaneous combustion of a commissioner.
4124 MR. REGIMBAL: I think the answer is just get the fans to the opposite direction.
4125 COMMISSIONER SIMPSON: Thank you very, very much for waiting and presenting.
4126 THE CHAIRPERSON: Which is what I've been saying all day. Thanks very much. Yes, because these are designed right now for winter conditions, not summer conditions.
4127 Thank you very much.
4128 So we'll now hear from our last presenter, I believe, from Juch-Tech Inc. Please come up.
4129 THE CHAIRPERSON: I gave a bench ruling earlier that you're not required to wear jackets.
4130 MR. JUCHNIEWICZ: I'll keep mine on, though.
4131 THE CHAIRPERSON: If you wish.
4132 MR. JUCHNIEWICZ: Well, good evening. I am actually proud to say that I will not do most of the talking so we will be on time.
4133 Commissioners and ladies and gentleman, my name is Walt Juchniewicz and I am the founder, CEO and president of Juch-Tech Inc. of Hamilton, Ontario.
4134 On my right is Ted Boyle, a long-time friend and now our Strategic Advisor.
4135 On Ted's right is Heather Coman.
4136 And on my left is Christopher Callahan, Vice President of Coman Arctic.
4137 Next to Chris is Ken Spencer, Chief Operating Officer.
4138 Of course all of Coman Arctic, with whom we have built the satellite-based internet access service in Iqaluit. It was done as a demonstration project using an alternative satellite provider to obtain a true high-speed customer experience.
4139 I would also like to make acknowledgement to the attendance today of Mr. Brent Perrot of Hunter Communications, responsible for making Satmex 5 available for Service in the North. He's just back there.
4140 This proceeding has been convened to deal with Northwestel's Modernization Plan and many aspects of the regulatory framework for the competitive telecom industry in the North. We are here today to tell you about our alternative satellite solutions and how they can contribute to an innovative and competitive telecom environment.
4141 Juch-Tech provides middle-mile satellite telecommunications solutions based out of our Hamilton Teleport. Since 1986, we have provided service to broadcasters, satellite network operators and even helped build ExpressVu.
4142 With the end of Teleglobe's monopoly, we combined space segment and multiple satellite operators with satellite dish equipment to provide cost-effective and reliable service in Canada, Africa and the Middle East.
4143 With new satellite service providers now positioned to provide service in Canada's North, we are here to encourage competition among all players to improve service for customers in the North.
4145 MR. BOYLE: Thank you, Walt.
4146 Satellite communications will continue to fill an essential need in Canada's North for the foreseeable future. Although new fibre routes will displace satellite as the primary technology where they are built, they will not go everywhere.
4147 Canada has been -- or has had, rather, open skies with respect to most satellite communication services since 1999. Since that time, however, service providers such as Northwestel and SSi Micro have continued to use only Telesat space segment. It is time to enable competition in this crucial, middle-mile sector as well.
4148 There seems to have been a general assumption that only Telesat satellites are capable of serving Canada's North. We have been working hard to show that this is not the case.
4149 Indeed, other providers can and will provide service. By leaving Telesat with a de facto monopoly, northern Canadians are not taking advantage of new technical innovation and northern Canadians are paying too much for their service.
4150 Competition will reduce prices and improve service in this sector as it has in other areas. We have seen this demonstrated in our markets in Africa and we're now seeing it in the North.
4151 Furthermore, satellite telecommunications services can be interconnected just like other telecommunications networks. So, alternative providers allow real redundancy; in other words, two middlemen providers connected to service providers such as -- or, and commercial customers offer effective backup and true alternate routing capability, helping to avoid the long outages that have been the subject of many complaints from northern telecom customers in the past.
4152 There have been, and there will continue to be, significant improvements in satellite technology; upgrades that have increased throughput, reduced costs and improved service.
4153 For example, we can now drive 160 megabits through a single satellite transponder instead of only 45 ten years ago. The cost of dedicated megabits can now be as low as $1,500 per month instead of as much as $6,000 in the recent past.
4154 Although such improvements will never put satellite into the same league as fibre and other terrestrial methods of delivery, they will provide important improvements and cost reductions for remote and underserved communities. And, of equal importance, get more value for the limited subsidy dollars provided by the federal and territorial governments.
4155 Heather will now tell you more about our project.
4156 MS COMAN: Thank you, Ted.
4157 Good evening, everyone. My name is Heather Coman, President and CEO of Coman Arctic Limited. First and foremost, I would like to take this opportunity and thank the CRTC for allotting us time to present.
4158 Coman Arctic has been in existence for 50 years in the Arctic. My late father, Fred Coman, had such a passion for the North. Through his many charitable works, civic duties and diverse business operations, he quietly exercised tremendous influence on Iqaluit's social and economic development.
4159 The factors that have contributed to the success by Coman include using common sense to develop a reputation for good service, a reasonable pricing strategy, relying on personal experience and taking pride in delivering high-quality service.
4160 Fred has made the policies of his company a reflection of his personal attitude about the way he would like to be treated. Working by his side for over 15 years before his passing, I have been instilled with the same approach, passion, love for the North and for the people of Iqaluit.
4161 Christopher Callahan started an initiative over four years ago; how Iqalummiut could receive better Internet services.
4162 Fast forward to October, 2012 during the NCIS Working Group Meeting in Iqaluit, Coman, in collaboration with Juch-Tech, SES, NovelSat, XipLink and Atop demonstrated for the first time in history a true high-speed Internet service in Iqaluit.
4163 During January and February, 2013 we launched a public free Wi-Fi demonstration using C-Band satellite capacity in key locations in Iqaluit. We received lots of feedback, all of it extremely positive and that the service was better than any consumer had ever experienced in Iqaluit. The service is very reliable and always on, even in extreme weather.
4164 We have demonstrated to the private sector, local businesses and government the possibilities and capabilities of what Coman Communications can bring to the North and we have been empowered by the people to help make a change.
4165 Our current business plan is simple. Our intention is to provide large capacity bandwidth to various cellular and Internet service providers within Iqaluit and the remaining 25 communities. So, in essence, we are a bandwidth provider. We welcome the competition within our territory and value the ongoing working relationships we currently have.
4166 Our initiative is to better not only the socio-economic strengths of Nunavut, but to better the lives of individual residents of Nunavut as a whole. Across the entire spectrum of residents and businesses within our territory, we are in all desperate need of more reliable service.
4167 From education to justice, from policing to the private sector and in every single household in Nunavut are people who are entitled to the same level of service that our southern neighbours already have in their hands.
4168 We at Coman are quite confident that we will be able to build a successful bandwidth service business in Nunavut for the benefit of all our citizens and now we're hard at work with our partners developing a business model that makes the most sense for everyone.
4169 Key members of Coman Communications and Juch-Tech are experienced telecommunications professionals who together have over 100 years of experience in the telecom business, domestically and internationally.
4170 We are Nunavut based, Inuit owned and we are focused on the needs of Nunavummiut. Coman Communications, in conjunction with our partners, will bring forth a viable and sustainable solution to the current problem of lack of efficient bandwidth in Nunavut which is outlined in the CRTC's own report as the lowest in the entire country.
4172 MR. BOYLE: The important change that has enabled competitive satellite communications in the North, besides satellite deregulation, has been the increase in demand for Internet access.
4173 Residents, businesses, schools, hospitals, government agencies are all moving ever increasing amounts of data.
4174 There is more business to have now in the North and greater expectation of service quality; so, new, competitive providers are coming into the market with aggressive pricing and the offer of always-on redundancy.
4175 Competitive satellite middle-mile providers will be a part of the solution to improved telecommunications services in the North. With Coman Communication and our other project partners we have shown that we can provide such a service.
4176 Thank you.
4177 We now are ready to take your questions.
4178 THE CHAIRPERSON: Ms Coman, gentlemen, thank you for that presentation.
4179 Commissioner Molnar will have some questions for you.
4180 COMMISSIONER MOLNAR: Good evening.
4181 I'm just wanting to make sure that I do understand. You are looking to be a bandwidth provider and you are not marketing to any -- direct to any customers, just wholesale customers?
4182 So, you're not looking to the governments or to any large business, you're looking simply to deliver to ISPs or other carriers?
4183 MR. SPENCER: No, we're selling bandwidth to anyone who needs augmentation to their current bandwidth. So, this could be governments, it could be businesses within Nunavut, our focus is Nunavut.
4184 And we have expressed interest from groups within Nunavut to entertain, or to accept our offer of bandwidth. So, it isn't just with customers, it's with the governments and both federal/territorial links, so...
4185 COMMISSIONER MOLNAR: Okay, thank you.
4186 It is a little bit of a nice ending to our long, long day to have someone tell us satellite is actually going down in price and is innovative and there's opportunities because, you know, we've heard for a long time the problems of Nunavut and the satellite and the high costs and so on. So, it's a nice ending.
4187 But tell me, is it just a matter of timing when you've begun or is there other reasons that you are not at this point supplying to some of the carriers and ISPs in Nunavut?
4188 MR. SPENCER: We're a start-up --
4189 COMMISSIONER MOLNAR: You're a start-up.
4190 MR. SPENCER: -- and consequently we had to purchase the equipment. And we started with a small dish, 2.3 metre dish, and did our trial to prove the concept to prove that it was feasible. We have purchased a 9.4 metre dish, it's on it's way up to Iqaluit, with the confidence that we have proved ourselves and we have put together a business plan to provide services to those customers that want them. And we're also very confident that there's such a pent up demand in Nunavut that the businesses there, and because of recent negotiations with several customers, who we have confidentiality agreements with, we feel very confident that we can move this forward.
4191 As a start-up, one step at a time. We're a small company and fortunately supported by Juch-Tech, fortunately supported by SES, but we do have the confidence that we can build this.
4192 The other thing that comes along with being a 50-year-old Inuit-owned company in Nunavut is the amount of influence and knowledge -- or I should say community respect that goes along with the business name of Coman Arctic. And we have people that are paying attention because we are a 50-year-old company and because Coman Arctic has a very strong history.
4193 COMMISSIONER MOLNAR: Okay, thank you. So when is it we could expect that you would be looking to deliver some of your solutions to the ISPs and other carriers within Nunavut?
4194 MR. SPENCER: We are -- as I said, we have customers who are ready to sign. And once we sign, then we can handle them with our current setup of the smaller dish. Once the bigger dish comes up on Sealift, everything relies on Sealift in Nunavut, and once it comes up, we mount it, then we can go into larger capacities. Fortunately, once again, we have the support of Juch-Tech, we have the support of SES to help us along.
4195 COMMISSIONER MOLNAR: Just help me out because all I wanted was really a date.
4196 MR. JUCHNIEWICZ: I would say September.
4197 COMMISSIONER MOLNAR: This September?
4198 MR. JUCHNIEWICZ: Well, our problem right now is actually to get the dish. It's -- a 9.3 metre dish is quite an undertaking.
4199 COMMISSIONER MOLNAR: Okay.
4200 MR. JUCHNIEWICZ: To --
4201 COMMISSIONER MOLNAR: So there will be some competitive options available in Nunavut by September?
4202 MR. SPENCER: Yes.
4203 MR. JUCHNIEWICZ: Yes, we're --
4204 COMMISSIONER MOLNAR: Well, that's good news to finish our --
4205 MR. JUCHNIEWICZ: -- we're hoping.
4206 COMMISSIONER MOLNAR: -- finish our day today. Thank you. Those are my questions.
4207 THE CHAIRPERSON: Thank you.
4208 Commissioner Duncan.
4209 COMMISSIONER DUNCAN: I have a couple of questions, just quick questions. Because this is the review -- framework review for Northwestel, are you just -- you're here, I guess, to provide us this really important information, but is there anything you're asking or commenting on with respect to Northwestel's proposals?
4210 MR. BOYLE: I think we have all been surprised that after months of discussion that the principal players, Northwestel and SSi Micro, have not showed much interest yet in competitive satellite middle mile solutions, that there is a -- there's a reticence to move away from the long-time formerly Canadian supplier, Telesat, which is now, of course, internationally owned or American owned, to other suppliers. And we believe that -- and you've heard it in what we've said, that it would, we think, for redundancy reasons, having an alternative in case of an outage, and, secondly, for pricing reasons, having a second supplier so that you can negotiate between two separate companies and not one company that may have two satellites or more, that it might behove the two larger players to consider using satellite capacity from both SatNEx and from SES, companies that we have been long working with in other parts of the world, especially Africa.
4211 It's -- it was mentioned earlier that there isn't much capacity. That is anything but true. There's tons of capacity. There's over a gig of capacity on the SatNEx satellite that has currently been repositioned from being over Mexico to now being over Canada's North. And even more capacity to follow in two years when its replacement satellite goes up that is aimed at Northern Canada.
4212 So, this is all news that for some inexplicable reason hasn't quite gotten out yet. We're trying to deliver it to you as the Commission because no doubt you're interested in the costs that are presented to you by the -- by -- well, in this particular proceeding by Northwestel. And we think that they can be lowered significantly if they were to look at having second source, true second source provision of middle mile satellite solutions.
4213 COMMISSIONER DUNCAN: I'm just wondering your intentions with respect to the other communities within Nunavut.
4214 MS COMAN: As we did mention, we are small right now.
4215 COMMISSIONER DUNCAN: Um-hm.
4216 MS COMAN: Our main focus currently is to get Iqaluit up and running. And when our larger dish shows up and we get more customers, then we will grow and we will grow into the communities. That is our long-term plan.
4217 COMMISSIONER DUNCAN: That's great. Thank you very much. Those are my questions, Mr. Chair.
4218 THE CHAIRPERSON: Thank you.
4219 Commissioner Simpson.
4220 COMMISSIONER SIMPSON: Thank you very much. I had two questions and I think that one has been answered by Mr. Boyle with respect to his answer on satellite. But I'm curious, Coman is a very broadly-based organization. Now, you're based in Iqaluit, but does your company -- because I've noticed you have construction capabilities. Have you a presence anywhere else in Nunavut in terms of operations or construction experience, or, you know, how broad is your footprint in Nunavut?
4221 MR. CALLAHAN: Yes, good afternoon. Nunavut is a focus point of Coman Arctic and has been for many years. The secret of our success has been diversification. So to answer your question directly, we do have close relationships with other organizations, as you know, as we diversify, as well as with ongoing government. Nunavut Power Corp. as well is somebody that's really entertained the outlook of possibly working with us down the road. So, to answer that question, yes, we have sustainable influence in other communities.
4222 COMMISSIONER SIMPSON: Whoops. Thank you very much.
4223 THE CHAIRPERSON: Thank you. Those are our questions after a very long day. Thank you very much for being there.
4224 So, in light of our late finish today, I think we won't -- after we adjourn we'll only gather back here at 9 o'clock tomorrow morning. We'll just give a little bit of extra time for people to prepare.
4225 And I just would like -- because this ends Phase I of the hearing, we're going to do Phase II in reverse order. So if anybody does not wish to appear in Phase II, I'd ask you to tell the hearing secretary so that we can manage the schedule.
4226 So, thank you very much, gentlemen, Ms Coman.
4227 MR. JUCHNIEWICZ: Thank you very much.
4228 THE CHAIRPERSON: Thank you. So, tomorrow.
--- Whereupon the hearing adjourned at 1921, to resume at 0900 on Thursday, June 20, 2013
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