ARCHIVED - Transcript, Hearing 20 June 2013

Volume 3, 20 June 2013

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

SUBJECT:

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

HELD AT:

High Country Inn & Yukon Convention Centre

4051- 4th Avenue

Whitehorse, Yukon

20 June 2013

Transcription

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

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

Canadian Radio-television and Telecommunications Commission

Transcription

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

BEFORE:

ALSO PRESENT:

HELD AT:

High Country Inn & Yukon Convention Centre

4051- 4th Avenue

Whitehorse, Yukon

20 June 2013

- iv -

TABLE OF CONTENTS

PAGE / PARA

PHASE I

PRESENTATION BY:

- v -

UNDERTAKINGS

PAGE / PARA

Whitehorse, Yukon

--- Upon resuming on Thursday, June 20, 2013 at 0907

4230   LE PRÉSIDENT : À l'ordre, s'il vous plaît. Order, please. We'll get started.

4231   We are now in Phase II of this oral hearing, which is the reply phase. It's an important part of the proceeding which allows parties, interveners to reply to the positions put forward by others so far in the process, but you should not be surprised if Commissioners have few or perhaps even no questions after your presentations. We might have some but don't be surprised if we do not.

4232   I would ask, however, that -- I know that we finished late last night, but to the extent possible if you can provide both electronic and printed versions to the Hearing Secretary of your presentation, it is very useful and helpful both for the Court Reporter's work and the Interpreters' work. As you know, we are streaming this and so some people are following the hearing in the interpreted version.

4233   The other thing I want to mention is that we asked parties, and I continue to ask, if you don't intend to appear in the reply phase to let us know.

4234   So far we have an indication from the following parties that they won't be appearing at this phase, and that is the Whitehorse Chamber of Commerce, DDC, Eeyou Communications and Falcon Communications.

4235   THE SECRETARY: And Association of Yukon Fire Chiefs, Mr. Chairman.

4236   THE CHAIRPERSON: Okay. And that one as well, so no Association of Yukon Fire Chiefs.

4237   All right. So the first -- and we will call up to the table -- is Juch-Tech. Please come up and make your presentation. Thank you.

REPLY

4238   MR. JUCHNIEWICZ: Good morning, Mr. Chairman, Commissioners.

4239   Some parties have described our alternative satellite proposal as inadequate for various reasons.

4240   Satellite operators such as SES and Satmex have continued to grow their global business because they learned to move capacity to meet market demand and to launch replacement satellites over markets where demand is growing. This is now happening over Canada's North.

4241   Satellite footprints, available on satellite operator websites, show that our alternatives are fully capable of providing excellent service.

4242   Thank you.

4243   THE CHAIRPERSON: Thank you. That was succinct.

--- Laughter

4244   MR. JUCHNIEWICZ: I appreciate that.

4245   THE CHAIRPERSON: It's a good way to start the day.

4246   MR. JUCHNIEWICZ: Yes.

4247   THE CHAIRPERSON: We will now hear from UCG Group. Please come up.

4248   Mr. Hopkins, I believe. Mr. Hopkins? Yes, okay, there you are.

REPLY

4249   MR. HOPKINS: Good morning, everyone.

4250   I just wanted to make a quick comment on something I heard the other day about 9-1-1 service.

4251   I just want to tell a quick story about a friend of mine in Tagish. His name is Warren. He was in a wheelchair. He was filling up his lighter and he covered himself in lighter fluid and then went to light a smoke. He burst into flames, covered in lighted fluid. He called 9-1-1 service and he said he had had a horrible accident. And so they said, okay, we're going to send an ambulance for you right now. So they sent an ambulance to his address in Alberta and over the next three days he died. The operator didn't know that he was actually in Tagish, Yukon Territory.

4252   The Fire Chief was here yesterday talking about, you know, trying to get 9-1-1 service enacted in the Yukon Territory. We only have 9-1-1 service in Whitehorse. Northwestel's been giving all kinds of numbers, can't be done, millions of dollars and whatnot.

4253   This is a very, very simple fix. The way to do this of course is to program the switches to call forward to 9-1-1 service that then gets redirected to a call centre in Vancouver that outsources these kinds of emergency services and whatnot.

4254   So there's this big issue about, you know, how 9-1-1 service cannot be accomplished in the Yukon Territory.

4255   The other issue that comes up -- or not issue but the other model, there's a service called 8-1-1 service. So if you pick up the phone in any community in the Yukon Territory and call 8-1-1, it will redirect you to a nurse who answers the phone out of Vancouver, B.C., says, what's your medical issue and gives you information and whatnot.

4256   So to say that 9-1-1 service can't be enacted without millions of dollars, that's completely false. It's a very simple system to set up.

4257   So that was my only comment.

4258   THE CHAIRPERSON: Thank you very much.

4259   On the 9-1-1, I think we mentioned yesterday that the Commission has in its three-year plan and we've already started with an inquiry officer to look at 9-1-1 service and the issue you've raised is certainly something that's on our radar screen as well.

4260   MR. HOPKINS: Right. Well, Warren, he died in his wheelchair over three days. That was 10 years ago and there's still no 9-1-1 service. There's been talk and talk and talk and talk, and nothing has happened from that. That's a very simple solution.

4261   My take on this is Northwestel isn't a service provider. They're withholding services. They're not providing services. They're withholding services. This is not a complex issue. It's not difficult. This 9-1-1 service could be enacted in the Yukon in less than five minutes.

4262   THE CHAIRPERSON: Right. Well, thank you, Mr. Hopkins.

4263   MR. HOPKINS: Okay. Thank you.

4264   THE CHAIRPERSON: Thank you.

4265   We will now hear form Total North Communications, please.

4266   I don't see Mr. Duncan in the room, I don't think. Okay. So let's give him another chance a little later on.

4267   Now, the Nunavut Broadband Development Corporation.

4268   I did see Miss -- take your time. Take your time.

--- Laughter

4269   MS SPINU: (Off microphone).

4270   THE CHAIRPERSON: Take your time. It's okay. We're moving more quickly than expected.

--- Pause

4271   MS SPINU: Good morning.

4272   THE CHAIRPERSON: Good morning. Go ahead.

REPLY

4273   MS SPINU: I would like to take this opportunity to better answer some of the Commission's questions from yesterday. I feel that there is room for improvement and clarity in my previous responses.

4274   To the Chairman's question: "Is Nunavut different? Should there be a solution just for Nunavut?

4275   In my remarks yesterday I set out how Nunavut was different from the other territories in Northwestel's service area, namely that the population is more evenly distributed among all the communities and that all communities are satellite served.

4276   While Nunavut might need a unique solution and while NBDC advocates foremost for Nunavut users, I believe there is a regional solidarity as we realize that we can accomplish more together for the entire region than just going it alone, territory by territory.

4277   To Commissioner Molnar's question: "Is it fair to use the National Contribution Fund?"

4278   While not all southern customers paying into the fund might have access to similar broadband services at similar prices relative to what the fund could be used to support in the North, the vast majority of those customers are much less isolated from the goods and services available in more populous areas that are often a car drive away.

4279   I think of former NBDC President Dave Smith, who has a home in a southern Ontario community in the Ottawa region. Years ago he mentioned that while there was fibre trenched along the highway passing by his community, his Internet service offerings were actually worse than what was available in Nunavut at the time.

4280   This situation has since changed but my point is that if you live with poor Internet access in a rural area one hour outside of Ottawa for example, you still have access to many more goods and services, much sooner, than if you lived with better Internet access in a community in Nunavut, or indeed, other parts of the North.

4281   As Jeff Philipp mentioned in SSi's presentation yesterday, the North, especially Nunavut, where there is absolutely no terrestrial connection between any community, does not have the same degree of transportation infrastructure investment as southern Canada.

4282   There is a history of national infrastructure initiatives where public funds are redistributed from one region to another.

4283   Look, for example, at Infrastructure Canada Gas Tax Fund. Although allocation is based on population, the allocation formula for the Northwest Territories, Yukon and Nunavut has been modified in the direction of being more generous for these more remote areas.

4284   There is also the example of the Canadian national railways and I submit that a sustainable and equitable solution for northern broadband could be the equivalent of the Canadian national railway for the 21st century.

4285   And last but certainly not least, one cannot talk about fairness without asking what is fair for the North, and specifically for the Inuit and First Nations peoples who inhabited the land long before the fur traders, whalers, gold miners, missionaries or Canadian government officials ever made contact. This part of Canada's history, including residential schools and more or less forced settlement, may never be celebrated in a Heritage Minute.

4286   As Grise Fiord is so often brought up as an example of a very hard to serve community because of its small population and extreme isolation, I'll ask what is fair for the residents of that community?

4287   Grise Fiord was not an area of regular Inuit settlement. Inuit from what is now Inukjuak were forcefully relocated there by the Canadian Government in the early fifties to establish Canada's presence at the far reaches of Canada's boundary, essentially "human flagpoles" to assert Canadian Arctic sovereignty during the Cold War.

4288   Given the current interest in the Arctic, its resources and waterways -- from Canada and other nations -- I think it is in the national interest to support healthy and strong communities in the North, and affordable and equitable broadband is a necessary requirement.

4289   So yes, I think it is fair to use revenue generated from telecommunication customers outside of the northern service area to support better telecommunication services, including broadband, in the North.

4290   And more broadly, I think it is the just thing to do to ensure that Arctic residents, and especially Inuit and First Nations residents, have the same opportunities for economic prosperity and social well-being as all Canadians.

4291   Thank you again for the opportunity to provide comments on this important issue before the Commission.

4292   THE CHAIRPERSON: Thank you very much. No questions. Thank you very much. Thanks. Sorry for making you run there.

4293   UNIDENTIFIED SPEAKER: You don't have to run away.

4294   THE CHAIRPERSON: You don't have to run away.

--- Laughter

4295   THE CHAIRPERSON: We'll take the time required.

4296   The next presenters will be ICE Wireless and Iristel. Please come up.

--- Pause

4297   THE CHAIRPERSON: So welcome back. Please go ahead.

REPLY

4298   MR. BISHAY: Good morning, Commissioners, ladies and gentlemen.

4299   We would like to first tell the Commission that we were pleased to hear during SSi Micro's detailed description yesterday of its Broadband Access Program subsidy, or BAP as SSi called it, that they have changed their position to also be content with a Transport Access Program or TAP.

4300   Initially, we believed SSi was missing the big picture by restricting its subsidy ideas to broadband and ignoring other services. This would provide an advantage to service providers whose revenue model was primarily Internet access. We understood yesterday that a TAP program addressing transport underlying all services is acceptable to SSi.

4301   Northerners need investment in long haul transport facilities and lower costs, not cancelled fibre-build projects from the incumbent.

4302   We would also like to note here, in response to the Fire Marshall, that 9-1-1 service has been part of the ICE/Iristel offering from the start in all locations and that's done via the triage through our VoIP network.

4303   We would like to briefly address the discussion of the dry loop as we called it, the "naked loop" as Northwestel and its parent Bell Canada call it, and the unbundled loop rates in the LNI tariff, in the context of our discussion of the impact of the PES subsidy in this situation.

4304   It seems that we created some confusion, I think, yesterday with the terminology and I would just like to clarify.

4305   Iristel wants a Northwestel customer to be able to call the incumbent and order DSL Internet service without subscribing to voice services so that the customer can then purchase IP-based products and telephony voice services from a competitor. It is the customer who calls the incumbent for an Internet connection without telco voice services required. We call the situation where the customer can do this "dry loop" and Northwestel and Bell call it "naked DSL." Currently, Northwestel DSL Internet access subscribers cannot request Internet access without voice service except through their cable network.

4306   The unbundled loop rates in the LNI tariff provide for service providers who want the unbundled loop to provide competitive Internet access service. In our original discussions with Northwestel, the treatment of the PES subsidy in determining a loop access charge became an issue. It was during these discussions that we verbally requested a GAS option.

4307   Under a GAS option, our business model would be different from our original request because we would be providing our own Internet access to the customer. And just to clarify, the GAS option would be a dry loop GAS option.

4308   From that time, Northwestel did not provide any further options. So we were just simply trying to see what options we had for getting an Internet-only type service whether it's naked DSL or GAS with a dry loop.

4309   We will undertake to document these definitions in more detail as well for the GAS.

Undertaking

4310   MR. BISHAY: There are two statements from Northwestel's comments in Inuvik on Monday that we must address here. They can be found in paragraphs 4 and 10 and they are related.

4311   The first is this:

"Our customers will be the ultimate judge of our respective success or failure."

4312   And the second is:

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

4313   First, how can customers be the ultimate judge when Northwestel's record shows that it has managed to kill off competition and regain dominant market power in several markets where the Commission has implemented competition in the past?

4314   Without choice, customers cannot judge. Northwestel's digital road kill includes independent ISPs who owned 90 per cent of the market before forbearance and cable competitors. More recently they found a subsidy to compete directly against the ICE Wireless mobile offering.

4315   Second, how can Northwestel toot their horn about the latest and greatest technology and services it brings to customers when this proceeding has been found necessary because Northwestel has allowed its network and service offerings to fall behind?

4316   They blame the Commission for their own inaction when it comes to fibre builds. They say it's the Commission's fault that they cancelled the fibre route from Stewart Crossing to Dawson City.

4317   From paragraph 57, I quote:

"The Dawson City route is a first-hand case where regulatory intervention has brought about dramatic changes in investment plans."

4318   Let us get this straight: Northwestel squanders tens of millions of subsidy dollars over the past decade and fails to see the coming new technologies that will require fibre backhaul, but it is the Commission's fault that people in Dawson City aren't getting fibre this year?

4319   Then, Northwestel says that competitors are the big losers from this because competitors will not be able to share in the spoils had they actually built the fibre link.

4320   Just as an aside, I think it's the mentality of the incumbents that they have to be subsidized for everything. Just use a quick example, we have been trying to deploy in Kuujjuaq, a satellite remote town under the Bell territory and we were told that we have to pay about $60,000 to upgrade Bell switches and my response was, "Why should I pay for your switch upgrade? We have to deploy our own switch as well."

4321   Northwestel stated it was the first to test mobile voice service over satellite backhaul. Ice Wireless tested mobile voice service over satellite at the same time. Once again, Northwestel acts as if it's the only game in town.

4322   Northwestel has justified its level of capital investment in the modernization plan on the basis of its capital investment ratio saying that it's relatively constant and in keeping with ILEC industry levels.

4323   Other parties have questioned whether the company places too much reliance on the ratio or whether the numbers were properly calculated. Ice/Iristel responds that a company that has fallen behind would be expected to invest more intensely, have higher CI ratios for a few years in order to catch up, even at the cost of lower shareholder returns for a few years.

4324   This is the pattern that one would expect when a modernization plan is implemented. Instead, Northwestel appears to want stable capital investment ratios and stable returns. It wants results like the days of rate base rate of return regulation, but not the review and reporting obligations and other regulatory burdens that used to go with it. Competitors, on the other hand, have to make substantial investments and wait several years before they see any return.

4325   Northwestel stated that it's now providing 4G LTE service in Inuvik and that its customers are getting as much as 21 megabits per second service. Twenty-one megabits per second is not 4G LTE speed. In fact, it is the top of 3G HSPA+ speed. More importantly, this once again raises the question of the amount of backhaul capacity to the south, particularly on the Dempster Highway microwave route in this example, and the price of that capacity that is reflected in Northwestel's pricing to its customers and to competitors. It will not take too many customers operating at 21 megabits to exhaust the capacity of the microwave route.

4326   Equally important for competitors who have to backhaul their 21 megabits customers on the basis of the Wholesale Connect tariff is the price of that backhaul. If the competitor is paying $6,286 per month for 10 megabits Wholesale Connect backhaul at Inuvik at the approved rates plus additional charges from High Level to Edmonton plus gateway services, it is reasonable to expect that Northwestel would have to build similar backhaul pricing into its service as opposed to filling up any spare capacity that currently exists on the route at no charge to the end user.

4327   Northwestel wants a price cap regime with rate ranges and de-averaging. Ice/Iristel has argued that the state of competition is too fragile to allow increased flexibility for the incumbent at this stage of the development of the competitive market. Northwestel has managed to regain dominant market share in the terrestrial ISP market, in the cable sector and to a significant degree in a long distance service. The degree of flexibility that Northwestel is requesting is more appropriate for the next regulatory framework after the one to be established in this proceeding.

4328   Throughout its presentation and question period, Northwestel seems to place blame everywhere but in its own lap when 2011-771 has already determined that we are dealing with problems that Northwestel's behaviour has caused.

4329   Northwestel blames the Commission for heavy-handed regulation; it blames competitors for wanting too much; it blames the climate, the geography, and the difficulties imposed by the small population of the North.

4330   Thank you, Mr. Chairman and Commissioners for the opportunity to participate in this proceeding.

4331   THE CHAIRPERSON: Vice-Chair Menzies...?

4332   COMMISSIONER MENZIES: Yes. When you referred to Northwestel -- it's on page 4, the first paragraph, last sentence, when you said:

"More recently they found a subsidy to compete directly against the Ice Wireless mobile offering."

4333   What are you referring to there? Is that Norman Wells? Is that government subsidy?

4334   MR. BISHAY: Okay. That's the Infrastructure Canada funding that we are referring to.

4335   COMMISSIONER MENZIES: Where was it applied? Which area? I'm just curious?

4336   MR. BISHAY: Do you want to go ahead?

4337   MR. RENNER: It's the $14.8 million funding that was provided by Infrastructure Canada to Northwestel and Falcon Communications announced in January 2013 and is supplied in part to the 4G mobile program upgrade in its entirety and in part to I think -- I believe it was 25 communities and there were another seven communities where there are upgrades.

4338   COMMISSIONER MENZIES: Have you had subsidy yourselves?

4339   MR. RENNER: No, not until this point at all.

4340   COMMISSIONER MENZIES: Okay. Thank you.

4341   THE CHAIRPERSON: Thank you.

4342   We are good. Thank you very much, no more the questions. Thank you.

4343   So we will now hear from SSi. If you could, please, thanks.

--- Pause

4344   THE CHAIRPERSON: Welcome back, gentlemen. Please go ahead.

REPLY

4345   MR. PROCTOR: Thank you.

4346   I am Dean Proctor, SSi's Chief Development Officer, and on our panel again today are Jeff Philipp, Founder and CEO of SSi, and Robert Yates, the Co-President of Lemay-Yates Associates. In the interest of being brief, I will be the only one speaking today.

4347   Our reply focuses on points coming out of the presentations in Inuvik and again here yesterday as they relate to the three key facets of SSi's intervention.

4348   To recall, these are as follows:

4349   One, the need for the Commission to adopt a truly holistic approach to address the communications needs for the North -- and this is the hearing to do so;

4350   Two, "it's the transport" and we recommend the adoption of Utility Backbone regulation for Northwestel's transport facilities; and

4351   Three, the Commission should seek to "empower the consumer" in the reform of the contribution system.

4352   So point one, the need for a truly holistic approach.

4353   In the Consultation Notice 2012-669 for this hearing, the Commission stated that the regulatory framework in place for the north had failed to produce expected benefits of choice, reliability and innovation for northern consumers.

4354   If the "old ways" of doing things do not work, then for SSi it is clear that a new and truly holistic approach is needed going forward to meet northern communications needs -- and those needs certainly include broadband.

4355   Given this, we were very concerned with the suggestion of TELUS in its comments yesterday that:

"TELUS is of the view that it would be premature for the Commission to make a determination on this [broadband] issue as part of the current proceeding."

4356   We respectfully and strongly disagree.

4357   We stress that the Commission stated in the Consultation Document for this hearing its intent:

"... to review in this proceeding the subsidy regime in Northwestel's operating territory, taking into consideration ... the unique challenges in providing telecommunications services in the North. The Commission intends to consider whether it is appropriate to ... modify the subsidy regime for funding telecommunications services in the North."

4358   This is a clear direction and there is an urgent need for the Commission to address assistance for backbone connectivity in the North, particularly given that broadband funding programs all end by 2016, and there are no new programs on the horizon. And these needs should not be underestimated, particularly in satellite communities. As noted by the Government of Nunavut, massively better connectivity and redundancy is needed.

4359   The time is now and we cite at length and with agreement the Government of the NWT from their presentation in Inuvik on June 17:

"... some parties have suggested that it would be inappropriate to approve new subsidies in this proceeding rather than in a national proceeding where the need for such subsidies can be considered for all areas of the country.
Our position is that if a need for new subsidies in southern Canada is demonstrated, then the GNWT would certainly support the provision of such subsidies. Just because it hasn't yet been done, the GNWT sees no reason why the demonstrated needs of the North should be ignored or delayed.
CRTC policies, such as the introduction of competition, have often been put in place in southern Canada and then subsequently considered for the North. There is no reason why on some occasions policies cannot first be developed for the North and then subsequently be considered for the south.
In this context, we also note that the CRTC in its new three-year plan released on May 2nd (of 2013) announced that in the 2014-2015 period it will hold a public hearing to consider an enhanced basic service objective ...
While we were pleased to see this announcement and will certainly participate in that hearing, we are also concerned that it should not delay the matters under consideration in the present proceeding which explicitly includes a consideration of the introduction of new subsidies including subsidies pertaining to broadband.
We believe that the record of this proceeding has demonstrated the need for the new subsidies we are proposing and would urge you not to defer your consideration of this important, and to us urgent, matter to a subsequent proceeding."

4360   And yes, it may cost something to accomplish the reform of the subsidy system in order to tackle the unique challenges in providing telecommunications services in the north but, to reassure the Commission, the costing exercise to scope out reform of the subsidy system in order to deliver affordable broadband is not necessarily complicated.

4361   However, we do need parameters to complete a costing exercise. We need to agree on the input in order to get an output. So for sake of illustration let's work with the Commission's 2015 broadband target of 5 meg down, 1 meg up, but we need more parameters. Those could include:

4362   - the over subscription rate, let's say 50 to 1;

4363   - the monthly usage caps as part of the package. Let's say 25 gigabytes per month.

4364   - the monthly retail rate for consumers of the package. Let's say $50.

4365   - and the time over which the offer must be available before the rates are reviewed. Let's say three years.

4366   With what we term the Consumer Broadband Offer, or the CBO, established -- that's the input -- we then need to know a little more: the markets and number of customers to be served, for example, as part of the costing exercise.

4367   It could be all households in the 25 satellite-served communities of Nunavut and the 9 satellite-served communities of the NWT.

4368   Or, another example, it could be all households in communities served by Northwestel's fibre Wholesale Connect service.

4369   In the case of the satellite communities, using the inputs above, SSi could readily do a costing exercise to determine the amount of assistance needed, if any, to meet the CBO.

4370   In the case of communities served by Northwestel's fibre Wholesale Connect service, the Wholesale Connect rates were just set by the Commission in Order 2013-93. To achieve delivery of the CBO, it is possible to cost out and determine if there is a need for a subsidy. To deliver the CBO described above, we suspect not, which would support the position of Northwestel, when they stated in Inuvik on June 17:

"With the introduction of Wholesale Connect service, there is no longer a barrier on the transport side for terrestrial communities where this service is offered."

4371   Unfortunately, Northwestel is appealing the Wholesale Connect rates, which would indicate that they want to re-establish the barriers on the transport side.

4372   We disagree profoundly with the Northwestel R&V of Wholesale Connect, and have expressed many times -- and we express again right now -- our concern with the prejudice that the delays and uncertainty are causing to consumers and competition.

4373   The second point is: "It's the transport."

4374   We believe that there should be an adoption of Utility Backbone regulation.

4375   Some parties remain uncertain if the time is right to reform the price cap regime for Northwestel. PIAC, for example, stated yesterday that "...customers simply cannot afford to wait...while the Commission...considers alternatives to price cap regulation."

4376   But, by the same token, PIAC also notes that they "...largely stayed away from discussions of wholesale services", because "...wholesale customers can probably best address issues related to their needs."

4377   For SSi, as a wholesale customer, our proposal for Utility Backbone regulation, which does involve amending the price cap regime, is integrally tied to effective competition in the North.

4378   A Utility Backbone regulatory approach would provide focus for investments and ensure open and fair access to the essential backbone connecting the North to the rest of the world. And, it would ensure that dominance in transport infrastructure is not used to constrain downstream retail markets. This is what will encourage greater choice, innovation and investment in the Northern communications market.

4379   To add a little more detail, our preferred approach would be similar to the split rate base regime implemented by the Commission prior to putting price cap regulation in place in the rest of the country.

4380   One advantage of this approach would be that it would ensure that all parties, including Northwestel, would pay for Utility Backbone services on the same basis and meeting the same specification. In other words, Northwestel would continue to earn a fair return on its backbone network infrastructure, while it would be free to compete at retail using the same backbone as its competitors.

4381   The regulatory remedies that we have proposed for Utility Backbone are specific to Northwestel, particularly given its monopoly control over the terrestrial transport infrastructure. But, our concept of Utility Backbone is not unique to Northwestel.

4382   Other owners and operators of backbone facilities would also be required to provide open and competitively neutral access to their backbone. This would be done by establishing one or more backbone gateway access points in each community. This could be a Northwestel CO, an SSi facility or a facility of another operator. All parties would be able to access the backbone at those gateways and pay the same price into that community.

4383   We feel that the structural approach of treating the backbone as a utility would provide the proper focus for investment, and it would bring all parties together to deal with backbone holistically and on a level playing field. Of course, then the important question is: What is the cost to each community and does it need to be subsidized.

4384   As we have seen with the Wholesale Connect debate, if the rates for backbone access can be correctly set as cost-based plus a markup, there may be no need for subsidies to some of those communities.

4385   If there are subsidies, they would have to be sufficient to ensure that adequate and reliable backbone capacity is made available, and also that the resultant cost for capacity to each community is affordable.

4386   Three, "Empower the consumer." Reform the current contribution system.

4387   The current contribution system for the North must be reformed, and this is the hearing to do it.

4388   In this regard, we certainly agreed with Mr. Flaherty of Northwestel when he stated that, for satellite-served communities, "...the cost of transport is extremely high and that's what we need to overcome collectively."

4389   SSi has proposed, in line with submissions by other intervenors, that the Commission create a new funding mechanism focused on overcoming collectively the high cost of transport in the North. That is what we call the Broadband or, probably more properly, the Backbone Assistance Program.

4390   Now, broadband/backbone assistance should not be exclusive. Any assistance should be open and portable, empowering the consumer to select the service provider of his or her choice.

4391   On this, we cite, favourably, the position of the NBDC, when Oana stated yesterday:

"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. It seems logical to look to reforming the National Contribution Fund to include funding for broadband services to make the subsidy portable."

4392   To close, the Commission has made a very positive step by initiating the current proceeding. A truly holistic approach is needed to meet the communications needs of Northerners going forward.

4393   This is the proceeding that can and should prove vital for the future of Canada's North and for those who live and work here.

4394   We thank the Commission again for having allowed us the opportunity to present before you, and if there are any questions, we would certainly be pleased to answer them.

4395   Thank you.

4396   THE CHAIRPERSON: Thank you.

4397   Commissioner Molnar...

4398   COMMISSIONER MOLNAR: Thank you.

4399   I am having some trouble, still -- and we are now at the last day -- understanding the concept of the Utility Backbone. You want it as a separate basket, I think.

4400   What I am not certain of is, if we were to ensure that all of the underlying facilities were available, all of the underlying facilities that are on a monopoly basis and required for competitors in order to provide competitive alternatives, if those services were available on a wholesale basis, costed and tariffed, what is the need for creating this particular basket of services?

4401   Doesn't that meet your needs?

4402   And I think the question we have asked a number of times in this hearing is: What besides Wholesale Connect is required?

4403   I'm sorry, we are kind of getting to the end of this, and I am still having trouble understanding why you believe there needs to be this Utility Backbone.

4404   MR. DEAN: I will actually allow Rob to close off on this, but I am going to start.

4405   I think the initial confusion came because of a Commission interrogatory asking how this would work within the price cap regime, what we are proposing, our Utility Backbone.

4406   Our preference is actually for the backbone portion of Northwestel's services to create structural separation.

4407   We see this in other countries around the world. British Telecom, for example, is structurally separated, regulated separately on its backbone, versus its retail offerings.

4408   Given the druthers, we would prefer a split rate base regime for backbone. It takes it out of the price cap baskets.

4409   If, in fact, everything has to remain within a price cap model, we believe that the most effective way to deal with this is to create a price cap for backbone services, and in that you could include, or it could be a separate basket --

4410   To be quite frank, if you are worried about how many services are within our Utility Backbone, you could limit the number that are in there to what is most essential for backbone.

4411   But, for us, it makes sense that all monopoly-essential, conditional-essential services, would fit within a basket and be regulated on the basis of an appropriate level of markup over cost -- 15 percent by preference, 25 percent in the worst case.

4412   In theory, there may not be a need for outright structural separation. Our concern has been that Northwestel has not stepped up to the plate to continue the investing activities that one would expect for transport facilities in the North.

4413   The example that we have to bring out, that is extremely recent and, frankly, unbelievable for us, is announcing that they will stop all future fibre builds.

4414   In a price cap regime, unless I am missing something, you can't force them to go out and build fibre.

4415   In a world of structural separation, where we are going at more of a rate-based rate of return, it would allow the Commission to direct investments, and they would be allowed to earn a reasonable rate of return on those investments.

4416   Now, maybe the solution goes even further, where any future transport build should be put up for public tender. Certainly, intervenors here have proposed that.

4417   Trying to get back at this, our preference is for structural separation, away from the price cap regulation, for the transport services and, most likely, other monopoly services.

4418   If it's in a price cap model, then there needs to be a separate basket. There could be two baskets for backbone products, which are available only on a monopoly basis, and other monopoly-essential and conditional-essential services.

4419   I am not sure if Rob wants to add to that.

4420   MR. YATES: If I might, I could add a bit more to that.

4421   Let me just back up half a step. Clearly, when we are talking about regulating Northwestel, there are different options, but there is probably a lot of -- or maybe too much focus on Northwestel, which I will come back to.

4422   But if we just look at the Northwestel regulatory structure, you could leave the price cap the way it is, if the Wholesale Connect is cost plus 15, and everything else works fine.

4423   Our view on that, initially, from a price cap perspective, was that, for SSi as a competitive operator, the services they need are scattered across a bunch of different baskets, and they are all treated one-off, or in some cases they may be retail or wholesale.

4424   So we thought that it might be simpler if you keep the price cap structure, which is what you asked us, but what else could we do within the price cap context. Then, yes, you could, maybe, create another basket to address the sort of utility concept that we had in mind initially.

4425   So, from a price cap perspective, just looking at Northwestel, yes, you could, in a sense, leave it the way it was and deal with them one by one for the different tariffs.

4426   But our view on the Utility Backbone idea actually came out not from thinking just about Northwestel, but from looking at the overall picture and trying to come up with an approach to the North that makes sense more holistically.

4427   Because, as you know, initially the proceeding was a holistic proceeding about the North, and it became a holistic proceeding about Northwestel, which is somewhat less holistic than one might have thought.

4428   So, our initial -- if we look at the last couple of days, we didn't really address them directly but, obviously, Northwestel invests, they continue to invest; SSi invests, Ice Wireless invests, Arctic Fibre invests.

4429   We've heard from a lot of different parties. We've heard from Juch-Tech, we've heard from all the territories of what they need and our sort of holistic view was, how do we kind of put all that into one big package and say, let's deal with it.

4430   And it's a very positive message and I think we're hearing a lot of stuff about ratios and mark-ups and stuff, but actually it's very positive; the people want to invest.

4431   So, our concept to the utility backbone, as Dean said, is not -- we're not just talking about Northwestel, they're a piece of the puzzle, but if you apply the whole -- think like the Swedes, for example, if we had a train station in every town in the North the fibre shows up there, right, anybody in the community goes there and connects to it, open access, cost-based rates. That's kind of what we're talking about. So, it doesn't -- so, it's not just a focus on Northwestel.

4432   Sorry, that's a bit long, but that's why -- that's how we distinguish the two approaches to it.

4433   COMMISSIONER MOLNAR: Thank you.

4434   And I think I heard yesterday, you agreed that you would tariff your backbone, so...

4435   MR. PHILIPP: I think we are trying to look at this holistically and, you know --

4436   COMMISSIONER MOLNAR: Mm-hmm.

4437   MR. PHILIPP: -- to throw in a very brief statement on it, I think the backbone, it depends on which community you're in.

4438   If you're in a market where SSi has a more effective backbone and if that backbone can be utilized and upgraded and invested in to the benefit of everybody in that market, if we become an aggregator in those communities of backbone services, that backbone is more efficient, that backbone is more cost effective.

4439   That's what I was saying yesterday about building separate networks for each client, makes no sense to build a separate backbone for every client. We are doing it, it makes no sense to me, but that is what's happening now.

4440   If we put all of those backbone functionalities into one basket, regulated them -- our backbone as well, that's fine -- I think that makes a stronger network in the North and will be better for consumers.

4441   And the last piece is -- and I think it was a little confusing yesterday and we didn't really touch on it again -- but Dean's point of the consumer offering.

4442   That really is a secondary step. If the backbone is a regulated backbone with investment and it's an aggregation point in the community, the next step is, well, what happens in Gris Fjord when nobody shows up to deliver last mile, even though we have a regulated backbone.

4443   COMMISSIONER MOLNAR: Yes, I know you did -- I know you did address that.

4444   MR. PHILIPP: Was that clear?

4445   COMMISSIONER MOLNAR: That was clear.

4446   MR. PHILIPP: Okay.

4447   COMMISSIONER MOLNAR: It's just -- it was just this notion that somehow we needed structural separation and a utility backbone that wasn't clear.

4448   So, thank you very much.

4449   MR. PHILIPP: Yes.

4450   THE CHAIRPERSON: Just one clarification. At paragraph 8 of your presentation today you make the point that as far as you know, we all know, there's no new programs on the horizon.

4451   You seem to make a lot of emphasis on the fact that this program is sunsetting in 2016.

4452   My experience in government circles, when I was in departments, was currently most -- certainly at the federal level -- most departments have a three-year outlook in any event that budgets are reviewed; in fact, even programs that receive ongoing funding have been reviewed and abolished. In other words, there's no certainty either way.

4453   And there could very well be at some point -- not that I'm aware of anything in particular -- but there could very well be new programs announced, new initiatives out of the other part of the Federal Government that's not the CRTC.

4454   And I was wondering how much weight are you putting on this particular aspect because, as opposed to other aspects, to drive the need for us to consider this issue immediately?

4455   MR. PROCTOR: The 2016 deadline is a very real one, so, we're putting quite a bit of emphasis on it.

4456   Now, again, that focuses on consumer broadband offerings. So, I don't want to keep using the word holistically, we look at the whole picture. Consumer broadband offerings are a very important component but, as you've heard from the government, as you've heard from wholesale purchasers, as you've heard from Northwestel themselves, there's a need for more than that.

4457   So, it's a very important component. The reason why it becomes a point of focus is that it's the most vulnerable who are going to get hurt if, in fact, there's nothing put in place to assist after 2016.

4458   Now, what you've also heard from us is a very deep concern over piecemeal approaches. We don't know if there's a new program going to come into place and we don't know what that new program might look like.

4459   We do know, and we do believe profoundly, that the Commission has the wherewithal and the tools at its disposal to do something about this now and to make it a long-term solution so that we're not constantly running after, as Ms Hollis has said, little band-aid solutions here and there and basically putting cap in hand to beg for further assistance.

4460   That's no way to run a modern economy, it's no way to allow for a society of information haves, that's a way to allow for a society of -- pardon me, a society of information have-nots going cap in hand and begging for assistance.

4461   We believe the Commission can actually put in place a more rational long-term equitable solution rather than one-off subsidies that right now don't exist.

4462   THE CHAIRPERSON: My second question is relating to the Policy Direction, and if you're not comfortable dealing with it here, that's fine, but perhaps your written reply phase is another opportunity to do so.

4463   But I'd really like to know your perspective, whether what you're proposing is, in your view, consistent with the Policy Direction and why so?

4464   MR. PROCTOR: Funny enough, we actually went into a bit of detail in CRTC-3 -- the Interrogatory -3 on that.

4465   And, in the interest of time, we'll certainly go into that in the final answer, but we do believe that not only is this going to assist in terms of competition, which is the overriding Policy Direction -- overriding theme of the Policy Direction, but we like to think, we do believe that this is actually a fairly minimalist way to go at resolving a very key item for Canada's future.

4466   So, we do think it's minimalizing regulations. So, the two components: is it maximizing competition, is it minimizing regulation?

4467   There's other aspects to the Direction, but we do believe that our proposal fits within that.

4468   THE CHAIRPERSON: Thank you.

4469   Those are our questions.

4470   Thank you very much, gentlemen.

4471   We'll now go to PIAC.

--- Pause

4472   THE CHAIRPERSON: Please, go ahead

REPLY

4473   MR. LÉGER: Good morning, Mr. Chairman, Panel.

4474   We're pleased to have this opportunity to provide oral reply comments. Now, we recognize that on 8th July we will have the opportunity to file written final reply comments, so we're striving to keep our remarks very brief today.

4475   One of the concerns that we've had throughout this proceeding relates to the depth of the commitments of Northwestel to modernization proposals it has made.

4476   As we and a number of other parties have pointed out at this hearing, Northwestel's Modernization Plans have seen significant changes. With each new iteration -- each new iteration has brought a reduction in the service improvements and network modernization that company's customers and, in particular, those customers in smaller communities could expect to see over the life of the plan.

4477   Perhaps most disturbing, however, are the conditions and qualifications which the company has attached to its service improvement proposals.

4478   The company has made the delivery of improvements conditional on the outcome of negotiations with third parties over which, it seems to us, the Commission has no authority.

4479   Equally frustrating has been the company's insistence on making the realization of plan components conditional on there being no evolution in effect in the competitive environment in which it operates or in relation to its revenues.

4480   Now, to counter this aspect of the company's proposals, we've invited the Commission to consider incentives, the purpose of which would be to ensure that management's attention remains focused on the timely delivery of plan benefits.

4481   We believe that such incentives are essential if the Commission is to avoid a situation in which we find ourselves once again before the Commission five years from now faced with unmet Northwestel network modernization commitments.

4482   Now, in their comments on Monday, Northwestel's hearing panel members attempted to discourage the Commission from considering our incentive suggestions by describing them as too complicated to implement.

4483   Well, we submit that Northwestel's assessment is incorrect. The incentives we've described -- and these are, in fact, merely suggestions put forward in an attempt to assist the Commission -- our proposal should be reasonably straightforward to implement.

4484   The company, as part of its modernization proposals, has already filed timelines for the delivery of defined capability to specific communities. Meeting these timelines should be the goal of Northwestel and our proposals would assist in ensuring that this occurs.

4485   With respect to the withholding of contribution, since contribution payments are calculated on a per-NAS basis based on specific locations, calculating the impact of the company's failure to deliver modernization benefits to a specific location should be relatively straightforward.

4486   Our second proposal which would set a trigger for the imposition of what we've referred to as a modernization factor would be even more straightforward to implement.

4487   Again, this proposal would be based on compliance with timelines developed by the company for the delivery of given functionality. The company's failure to meet its commitments would trigger the factor.

4488   In both cases we've built in flexibility to recognize that conditions in the North could give rise to delays in some cases beyond -- potentially beyond Northwestel's control.

4489   Now, in a price caps regime, the Commission has relatively few enforcement tools available to it to ensure that modernization commitments are met. This is perhaps not surprising. In a price caps regime, an incumbent would typically be facing competitive forces which would or should motivate it to update its network and services.

4490   This, however, has not been the case for Northwestel, perhaps because of the limited competition which the company has had to meet.

4491   Whether or not the Commission ultimately adopts, in whole or in part, any of our suggestions, the point we'd like to leave with the Commission is that, given all of the qualifications and uncertainties with which Northwestel has saddled its modernization proposals, if the Commission places no incentives on the company to comply with its undertakings, the important network modernization initiatives Northwestel needs to make to meet the Commission's objectives in TRP 2011-771 may never happen.

4492   Now, to promote the creation of additional competitive forces, we also encourage the Commission to be sensitive to competitor demands for wholesale service functionalities at rates which promote competition while enabling the company to recover its costs, as the Commission did in Order 2013-93.

4493   In view of Northwestel's poor record in responding to its customer's needs, fostering a more competitive environment could bring further service innovation and choices to consumers in the North. Competitors are in the best position to identify specifically what these wholesale services and service characteristics should be. Thank you.

4494   THE CHAIRPERSON: Thank you. That was clear. We'll now turn to First Mile Connectivity.

--- Pause

4495   DR. McMAHON: Good morning.

4496   THE CHAIRPERSON: Good morning. Welcome back.

4497   DR. McMAHON: We thought we'd -- thanks.

4498   THE CHAIRPERSON: Yeah, we thought we'd wait for the garbage truck before we went.

--- Laughter

4499   THE CHAIRPERSON: Doesn't like that will be the case today.

REPLY

4500   DR. McMAHON: Okay. Yeah, thank you. So we appreciate the opportunity to respond to several points raised in the hearing by interveners and the Commissioners.

4501   Communication needs of Aboriginal residents have been raised frequently in the hearing. We believe that, in many cases, Aboriginal people in the north can be providers of services and not just customers.

4502   Our testimony included examples of locally owned and operated Aboriginal community service providers who are working in remote regions. They train and hire local people for long term skilled jobs. They provide services for their residents and organizations that were not otherwise available or are less expensive than those from the incumbent provider.

4503   Further, they demonstrate that there is substantial revenue to be generated not only from residents but also from anchor tenants including public sector agencies, businesses, and non-profit organizations. For example, KO-KNET in northern Ontario provides distance education services, health networking facilities, and videoconferencing for agencies serving remote communities. It has helped communities such as Slate Falls to set up their own IP telephony and cable TV services and has provided mobile telephone service in communities that no major carrier was willing to serve.

4504   The Eeyou Communications Network also established a regional fibre optic network and plans to provide services to Aboriginal and non-Aboriginal communities and public service providers that were not otherwise available.

4505   Specific to Northwestel's service area, K'atl'odeeche First Nation demonstrates that Aboriginal organizations can install modern community networks that could lease capacity, such as dark fibre, to Northwestel and interconnect with other backbone providers.

4506   To expand this model in Northwestel territory, Aboriginal providers need the opportunity to compete and access the subsidies currently available only to Northwestel. They also require access to existing transport infrastructure that has been built using public and subsidized funds.

4507   We concur with several interveners that there are significant shortcomings in the modernization plan submitted by Northwestel. It fails to upgrade or extend services to all communities in its territory, makes many commitments contingent on raising additional funding, and proposes solutions and technologies that, in our opinion, are far from modern in many instances.

4508   Further, it is clear from testimony that many communities were not consulted on the plan and that its specifics and implications for customers are not widely understood.

4509   We think that simply requiring Northwestel to submit an annual report on its progress is not sufficient. There should be an annual external review or audit to document progress on the plan and specifics on how National Contribution Fund subsidies have been spent.

4510   Further, as is common with many contracts, as an incentive, payment should be linked to performance. A percentage of the payment allocated from the fund should be withheld until the work has been satisfactorily completed and facilities are in service.

4511   There also needs to be much more thorough monitoring of quality of service. There have been many complaints from interveners that the service provided does not reach even minimum advertised speeds.

4512   We were astounded to learn that, during peak usage times, a community radio station in Kugluktuk cannot obtain a stable 64 kilobyte per second upload link for streaming, which is a fraction of the minimum offered upload speed.

4513   Regular monitoring of actual upload and download speeds and services outages should be required.

4514   Meaningful and documented consultation with Aboriginal communities should be required as a condition for approval of any revised version of Northwestel's plan. We draw attention to the Federal Communication Commission's requirements in the U.S. that providers receiving subsidies to serve tribal lands must "meaningfully engage" with tribal governments.

4515   This engagement is required to include, one, a needs assessment and deployment planning with a focus on Tribal community anchor institutions; two, feasibility and sustainability planning; three, marketing services in a culturally sensitive manner; four, rights of way processes, land use permitting, facilities siting, environmental and cultural preservation review processes; and, five, compliance with Tribal businesses and licensing requirements.

4516   DR. HUDSON: What can the CRTC do now? Some interveners have suggested that action or perhaps even discussion of changes to subsidy schemes and requirements for broadband services should be deferred to a national policy review.

4517   Some have suggested that any changes could delay or derail implementation of Northwestel's modernization plan.

4518   We reject this argument and agree with Nunavut Broadcasting Development Corporation (NBDC) and others that addressing critical issues needs to begin now as part of this hearing. Northerners should not be forced to wait any longer.

4519   Several commissioners have pointed out that other federal government agencies need to be involved in a long term strategy for financing investment and addressing needs for operating subsidies across the remote North. We agree.

4520   We don't expect the CRTC alone to solve all of the funding problems but we do believe the CRTC has a mandate and opportunity to tackle some of these issues by implementing incentives for investment, efficiency, and innovation and instituting competitive subsidy programs available to all qualified providers.

4521   This hearing provides an opportunity to begin necessary reforms. Addressing issues clearly within the scope of this hearing does not preclude addressing national subsidy policies and obligations of providers at a future forum.

4522   As a first step, the CRTC should open the National Contribution Fund (NCF) in Northwestel's territory to competition from any provider able to provide the required services, including Aboriginal providers. A mechanism of competitive bids for least-cost subsidies could be used.

4523   To prevent the potential problem of excluding some very small communities, the bids should be structured for sub-regions including a group of communities. This model has been used in the past, for example, in the regional model deployed to service the 14 villages in Nunavik through the Kativik Regional Government's Tamaani Internet Project.

4524   The commission has questioned whether they are being asked to adopt regulations to address social policies rather than telecommunications policies. We reject this arbitrary distinction.

4525   As First Mile and KFN pointed out in their written submissions, Section 7 of the Telecom Act states that, among other objectives, the Commission is mandated to facilitate the development of a telecommunications system that serves to:

"...safeguard, enrich, and strengthen the social and economic fabric of Canada and its regions; render reliable and affordable telecommunications services of high quality, accessible to Canadians in both urban and rural areas in all regions of Canada; enhance the efficiency and competitiveness of Canadian telecommunications; and respond to the economic and social requirements of users of telecommunications services."

4526   DR. HUDSON: Many interveners have testified about the importance of reliable telecommunications, including broadband for northern social and economic development. The CRTC is simply being asked to fulfilled its mandate by implementing regulations that would contribute to achieving the objectives of the Act as they apply in the North.

4527   Concerning additional justification for action, in addition to the points made above, we believe the CRTC can justify proactive responses based on two additional considerations raised in the hearing.

4528   First, a case can be made that residents of Northwestel's territory do face discrimination in terms of service availability, quality of service, and pricing compared to residents in many other parts of Canada.

4529   There is also discrimination within Northwestel's territory, notably between services and prices offered to residents of communities served only by satellite and communities connected to terrestrial networks.

4530   Second, we believe that proactive regulatory responses can be justified on the grounds that Northwestel's territory is unique in the remoteness of a majority of the communities it serves. It's certainly true that there are areas of territories served by carriers in other parts of Canada that include small, isolated communities deserving special consideration in a comprehensive review. However, the CRTC can justify taking innovative responses to address problems that affect the majority of Northwestel's territory.

4531   To conclude, we would like to quote Former Assembly of First Nations National Chief Matthew Coon Come, speaking at the Indigenous Peoples Summit Of The Americas, in 2001:

"I believe that our children could be the agents of change. We can use technology. With access to new internet infrastructure that can be applied with the best networking capacities, we can connect our communities, our hospitals, our schools. We missed the Industrial Revolution; we will not miss the information technology revolution."

4532   DR. HUDSON: Thank you.

4533   THE CHAIRPERSON: Commissioner Simpson?

4534   COMMISSIONER SIMPSON: Good morning. I just have one question. In paragraph 11, the last sentence, item five, the compliance with travel business and licensing requirements, this is all within the basket of the FCC's utterances with respect to Aboriginal communities and participation in telecommunication systems.

4535   My question is this. We've heard a lot of conversation about the need for more coherence and across the board participation and what could be described as a backbone utility regime and, although a lot of the initial capital investment from troubled communities has been in the local service area, the projects are getting bigger and more ambitious, moving into backbone and ultimately into core services.

4536   Is there anything you're aware of that we need to know with respect to complications that might create mutual exclusivity? I'm thinking governance here that would have to be considered for you to become part of a wholesale or a backbone regime because of the objectives of ownership and governance from your communities.

4537   DR. McMAHON: Well, I think the Eeyou Communications Network would be a good example of -- that's a regional leased dark fibre network based on I believe it was Hydro-Québec fibre. And that serves both Aboriginal and non-Aboriginal communities.

4538   The Centre for the North, which is -- it's an office at the Conference Board of Canada, will be releasing a report specific to Northern connectivity later on this summer and that's one of the questions that they address in that report. So that might be a source of information.

4539   COMMISSIONER SIMPSON: What's your gut telling you though in terms of -- because you're experts on the subject matter. What's your gut telling us? Is financial cooperation in net participation likely?

4540   DR. HUDSON: It's -- yeah, it's possible to do. I think there are ways to work it out. I mean, yeah, you're asking a question about specifics that we don't have in front of us and I think this report would be quite useful, but I don't see any major impediments to going in that direction as well.

4541   COMMISSIONER SIMPSON: There's mutual objectives here.

4542   DR. HUDSON: Um-hm.

4543   COMMISSIONER SIMPSON: Okay. Thank you.

4544   THE CHAIRPERSON: Thank you very much. Those are our questions.

4545   Now we'll hear from Mr. Fabian from the K'atl' odeeche First Nation.

--- Pause

4546   THE CHAIRPERSON: Welcome back, Mr. Fabian. Please go ahead.

REPLY

4547   MR. FABIAN: Thank you.

4548   We'd like to -- to appreciate the opportunity to respond to several points raised by -- in the hearing by intervenors and the Commissioners.

4549   The "Aboriginal Communities as Providers as Services as well as Customers", you can just scratch that. That shouldn't be there, sorry.

4550   To better have an understanding of KFN's infrastructure, the main reason for installing our own fibre for the community, we approached Northwestel in early 2009 about why they bypassed the reserve when they were installing fibre optics and since they ran it alongside -- and since they ran it alongside our reserve, and that our community would like to have better redundant communications for our community for safety reasons. And we were told that it was not economically feasible to provide services to such a small community of less than 300 members.

4551   Currently KFN has -- is serviced through the river route from the town of Hay River. And during the summer of 2009, a house fire disrupted internet and phone services for everyone in the KFN community for approximately four days, which caused huge concerns with the community leadership regarding health and safety towards emergencies. During the emergency -- during the summer it takes emergency services at least 30 to 45 minutes to reach our community, and we were lucky that we had no emergencies during the outage.

4552   It is important for our community to look for alternatives, so, therefore, what you see today, we have taken it upon ourselves to learn about communication technologies and how far we can achieve our own goals. Currently we have installed a local 1 kilometre 48 strand dark fibre, as I mentioned before, and also this year we are continuing with an additional 14 kilometres to build a redundant communication along the community access road beyond the river route that the community has depended on for the past 30 years.

4553   Currently we have the capabilities to lease our dark fibre infrastructure to the incumbent to better serve our community, and more reliable redundant cost-effective services for our KFN membership. With this opportunity we will help Northwestel meet its CRTC mandate and help Northwestel save hundreds of thousands of dollars in infrastructure upgrades in our First Nation community. And we will also give Northwestel the opportunity to build a better meaningful relationship with our community that we have -- that has been strained for the past few years.

4554   I would like to thank the CRTC for this opportunity and thank Northwestel for rejecting our request to install new communications on our KFN reserve because it gave our community the drive to learn and build our own fibre optic communication infrastructure we have today. We have shown our determination to think in new innovative ways to help other -- and to help others see what can be achieved. Northwestel would lead others to believe that it costs too much to build and not achievable without public funds, and we have proven that it can be done with a team of 5 KFN members.

4555   Thank you.

4556   THE CHAIRPERSON: Thank you very much, Mr. Fabian. It doesn't appear we have any questions for you.

4557   MR. FABIAN: Thank you.

4558   THE CHAIRPERSON: Thank you very much, and safe travel back home. I know it's a long way.

4559   So, we'll now hear from Telus.

--- Pause

REPLY

4560   MR. SCHMIDT: Good morning. We thank you for the opportunity to make these brief oral remarks. I will try to speak quick enough for your tastes but slow enough to not give too much grief to the interpreter, who isn't benefitting from a written copy at the moment.

4561   We'd like to make three quick points this morning. The first will be about transport subsidies, the issue of transport subsidies. The second will be about your analytical approach to looking at the wholesale market in the Western Arctic and the Eastern Arctic. So, how to segment for analytical purposes and remedial purposes. And the third topic we'll touch on briefly is the question of satellite transport in the Eastern Arctic, and the Telesat question more fundamentally.

4562   So, first, on the issue of transport subsidies, there was certainly much talk yesterday and much questioning about the issue of subsidization for transport. But notwithstanding some quite probing questions from the panel, some quite probing questions from the Chair, we didn't emerge with a lot of clarity about quantum, we didn't emerge with a lot of clarity about mechanisms. And Telus at least is left with the impression of an indeterminate liability, you know, an indeterminate amount for an indeterminate time, and that is worrying and we don't think it's a basis on which we ought to move forward remedially. We strongly urge you to look at cost-based access to these facilities, which would be your standard remedial response in any event as a rate setter in the wholesale space.

4563   If we look at a competition law authority and your framework on the telecom side, competition loss authority analogy, and your framework on the telecom side is certainly substantially infused with competition law principles, the competition law authority looking at the situation of actual or potential market power, looking at this essential facility-like condition for transport in the Western Arctic, I wouldn't say that their remedy would be we need to pay more subsidies, we need to write a bigger cheque to the owner of that facility. They would be ordering access on a non-discriminatory basis. So we say absolutely the same thing and translate it back into the terms of your framework and the terms of your remedies. You ought to be, you know, looking at the rates for this and ensuring tariffed non-discriminatory access at a just and reasonable rate. So that's our simple point, not subsidies, but, rather, look at a standard rating approach to it.

4564   Our second point is about the West versus the East in the Arctic, and we'd urge you to adopt an analytical and a remedial approach that looks at the West and the East as, in effect, distinct markets, requiring distinct remedies. They certainly appear to be nonhomogeneous markets in the sense of the conditions of competition are vastly different, the conditions of supply are different, and probably, frankly, the possibility of competition and its ultimate nature are different as between the Western Arctic and the Eastern Arctic.

4565   This will in turn drive different thinking, we think, about remedies. The West is substantially more urban and you appear to be on a path towards developing a set of wholesale services that will act as a foundation for continued competitive entry at least in the more urban Western Arctic.

4566   The East, the Eastern Arctic is a vastly different circumstance, which presents vastly different challenges and we think you need to think about it differently remedially, which would lead us to our third and last point, which is the Telesat point.

4567   The middle mile, the transport issue in the Eastern Arctic represents a distinct and significant challenge for you. And we would say to the extent that you have a market power issue in wholesale, the sort of locus of that market power is that satellite transport provider, Telesat. And we would remind you that in your -- I mean remind you with humility. We would note for the record that in your 996 forbearance framework for fixed satellite services for Telesat you expressly retained your rate setting powers. You retained your 271 power and you said, at paragraph 53 of that decision, we are retaining it to intervene to ensure that rates are just and reasonable, and we're retaining this power to establish a price ceiling.

4568   So, you're fully seized with the powers to look at the problem. Unfortunately they're not in the room or in the proceeding at this time, but we urge you to think seriously about the Telesat issue and we say that you appear, based on the 996 decision, to have the full suite of remedial powers available to you. You in fact have a price ceiling in the market, but it just doesn't appear to have been revisited in the last 13 years.

4569   So, those are our submissions.

4570   THE CHAIRPERSON: Commissioner Molnar.

4571   COMMISSIONER MOLNAR: Just to be clear, where you made a distinction between the East and West Arctic, could we comfortably make the distinction or would there be a problem if we made the distinction based on satellite versus terrestrial? I mean, it's fundamentally the same, but you can also see -- we've heard some hope of potential fibre builds in some parts of the Eastern Arctic, which removes the issue or changes the issue. So are there any differences in treating it that way or concerns that you would see?

4572   MR. SCHMIDT: No. That's probably a fine way to look at it as well. I guess my top-line message is --

4573   COMMISSIONER MOLNAR: It's not all the same?

4574   MR. SCHMIDT: Yes. Yes. And we often -- we regulate things at the level of an ILEC typically, but in fact, I think we need to look at it a bit more granularly.

4575   And you have distinct, yes, absolute possibilities of actual or emerging competition on the terrestrial transport side but a very different situation on the satellite side. So if you sliced it that way instead, I think that would still take us -- that would be satisfactory, I think, analytically and remedially.

4576   COMMISSIONER MOLNAR: Thank you.

4577   THE CHAIRPERSON: Thank you, gentlemen. Those are our questions.

4578   Before we take a break, why don't we do the Government of Yukon, please.

--- Pause

4579   THE CHAIRPERSON: Welcome back. Please go ahead.

REPLY

4580   MS BADENHORST: Thank you.

4581   Yukon wishes to begin by underlining the momentous impact that the Commission's decision in this proceeding can have, not just for the future of telecommunications policy in the North but for the potential of establishing a gateway to a thriving northern economy and a pathway for growth.

4582   We will not attempt a comprehensive response to all of the issues arising from Phase I but instead will cover some of the highlights and points of emphasis which are deserving of comment.

4583   A reference was made during yesterday's session expressing the view that the proceeding ought not to be considered as "bashing Northwestel." The Yukon Government agrees wholeheartedly. The nature of this process has inevitably meant that Northwestel, being required to file a modernization plan, had to assume the position of "goalie" in responding to challenges to its proposals.

4584   As Yukon has taken pains to point out, there are some definite benefits in the Modernization Plan, but the test which we believe must be applied is not whether the plan is "good" or whether Northwestel's positive contributions to the economy and community are appropriately recognized but whether in fact the plan satisfies the requirements specified by the Commission in the previous decision.

4585   Yukon's position has been that the plan does not adequately address the deficiencies identified by the Commission, and the information put forward in Phase I has not changed our view.

4586   In response to the first question from the Chairman, Mr. Flaherty indicated that the company's vision for the plan was to provide next generation wireless and Internet "to everyone, where we could," a far more limited scope than what was envisioned in 2011-771.

4587   When asked in the second question if "such things as comparable services to the south, survivability, and redundancy, fostering sustainable competition" were evaluated in framing the plan, only LNP and wholesale connect were discussed.

4588   Clearly, the company's plan was not designed to address the requirements of 2011-771, which reflected the real concerns of many parties.

4589   A recurring topic in the hearing was whether Northwestel consulted with stakeholders prior to developing the plan. Despite efforts to show this, the evidence on the record demonstrates that consultation, where it occurred, was cursory and after the fact.

4590   Mr. Hopkins of UCG noted that when he was contacted to gain support for the plan it was the first time in 22 years that he had been contacted by Northwestel.

4591   Perusal of the many letters on the record shows that the bulk of support solicited by Northwestel came well after the Modernization Plan was filed with the Commission.

4592   The right size of the plan came in for some discussion, centering on the capital intensity factor used by the company to justify the appropriateness of the level. Yukon shares, to a certain extent, the sentiments of PIAC/CAC that the issue of the capital intensity ratio is a "red herring" and not a particularly useful measure of the success of the plan.

4593   As noted in response to questions from the Commission, Yukon's position is that, firstly, the relative level of Northwestel's CI indicates something less than an impressive effort to modernize, and, secondly, that the size of the 'funding envelope' has very little to do with whether the plan has the right priorities or is effective in meeting the intended purposes.

4594   One important priority missing from the plan is the provision for redundancy. Company testimony tries to deal with this by describing the fibre ring installed before the plan and applauding the "phenomenal" efforts of employees who stood guard on the fibre exposed by a washout. If there were sufficient redundant fibre routes in Northwestel's network, perhaps those employees might have been able to focus on other needs.

4595   Northwestel also testified that providing further redundancy would be very expensive, with the implication that that would be the reason for excluding the investment. In this regard, Yukon notes the suggestion from the Government of Nunavut testimony that redundancy could be addressed "in bits and pieces." Yukon suggests that the magnitude or expense of a worthy task should not be accepted as an excuse for excluding it as a priority or taking no action.

4596   It is worth noting that other northern governments, also large customers of Northwestel, have similar concerns. Presentations from other carriers, Arctic Fibre and Juch-Tech, made clear the importance of redundancy as part of their business plans.

4597   Yukon has expressed, in several places on the record, serious disappointment and dissatisfaction with Northwestel's decision to cancel fibre transport projects, particularly the planned route from Stewart Crossing to Dawson City.

4598   As the company explained to Vice Chair Menzies, the first half of the fibre route from Carmacks to Stewart Crossing was installed prior to the Wholesale Connect decision, presumably after a business case analysis. It is inconsistent then to cancel a planned fibre build to Dawson, the second largest community in Yukon with two and a half times the population of Carmacks, leaving it open to the troubling interpretation that the purpose of the cancellation was to make a point.

4599   In response to Commission questions, Yukon acknowledges that the concerns expressed on the effectiveness of the fixed wireless voice solution have been partially addressed by the commitment to maintain existing facilities while the new technology is tested. As noted in the hearing, Yukon feels that questions on the proposed technical fixes for missing features, whether the capacity is comparable and the potential for anticompetitive impacts should be resolved through the trials. We would ask that the trials be closely monitored by the Commission and that status reports be filed for public scrutiny and comment if necessary.

4600   Northwestel has identified the high cost of Telesat satellite backhaul as a significant obstacle to achieving service objectives, yet has not demonstrated efforts to address alternatives. Yukon acknowledges the sense of the TELUS point that Telesat's involvement would be useful and recommends that the Commission consider the possibility of a written phase of the proceeding to include Telesat. We would also recommend that Northwestel be directed to explore alternative satellite backhaul options like those referenced in this proceeding.

4601   Yukon has a serious concern with the implications raised by the suggestion in Northwestel's testimony that telecommunications users in the North should be prepared to pay higher prices because of where they live. This runs directly counter to the policy objective in section 7(b), and I quote:

"to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada."

4602   It is also inconsistent with several expressions by the Commission that northern users should have access to services comparable to those available in the rest of the country, and with Northwestel's position noted in Telecom Decision 2007-5 that -- and I quote:

"residents of the North require access to reasonably comparable services to those available elsewhere in Canada; and residents of the North should pay reasonably comparable prices to those elsewhere in Canada."

4603   There are many references in Northwestel's evidence to "business cases," usually in the context of why the company would not, or could not, proceed with an investment or offer service. The cancellation of fibre builds comes readily to mind once again.

4604   Yukon has noted that these are not objective determinations and submits that the variables used in Northwestel's business case analysis reflect the assumptions and expectations that have led to the financial returns noted on the record in this case and by the Commission in 2011-771. We submit that the Commission should look carefully at Northwestel's business case justification before accepting the proposed spending priorities in the Modernization Plan.

4605   Taking Northwestel's claims that certain projects or service areas are uneconomic to serve at face value, the conclusion is reached that the company has reached a limit in its ability to justify providing certain services to customers. If this is indeed the case, the Commission should consider the possibility that other providers might be able to find a business case where Northwestel cannot.

4606   Yukon suggests that the ideas proposed in the presentations by the First Mile Consortium and KFN offer intriguing possibilities for looking at the Basic Service Obligation and local service in a new way. Northern customers and northern economies might stand to benefit from a Commission decision which allows them to participate in the provision of local access, including the subsidy where justified.

4607   Yukon strongly supports the positions of Government of the Northwest Territories and SSi Micro that the review of the Basic Service Obligation for Northwestel territory must not be deferred to a further proceeding. The issue has been canvassed in this proceeding, including through interrogatories from the Commission. As demonstrated in the hearing, consideration of the BSO is closely linked to the determination of a subsidy mechanism.

4608   To assuage any concerns about the "precedent effect," the Commission decision should specify that this determination is specific to the circumstances of Northwestel. Yukon notes the position expressed by Mr. Schmidt yesterday that with the addition of conditions such as these, TELUS would find it acceptable.

4609   The issue of the effectiveness of Northwestel's Wholesale Connect service in providing competitors reasonable access to local service markets was a frequent topic in Phase I. It seems clear from competitor positions that if rates are reasonable and issues relating to the service definition (i.e. gateway access in High Level) are resolved, that local competition would be facilitated.

4610   We would ask, however, that in examining this question that the market structure in Yukon be carefully considered. The ownership by Northwestel of cable, telecom and wireless access in Whitehorse may pose an additional barrier to competition, perhaps in the ability of Northwestel to offer service bundles. Tariffing retail Internet access would assist in levelling this disadvantage.

4611   In its presentation yesterday, the Dakwakada Development Corporation took issue with Yukon's support for competition, specifically with respect to the areas served by Latitude Wireless, a partnership owned and operated by Bell/Northwestel, in which DDC has a 30-percent interest. As the Chairman's questions demonstrated, there is an incongruity in a for profit company controlled by Canada's largest telecom provider seeking regulatory protection from the idea of competition.

4612   Yukon notes Northwestel's evidence that Bell Mobility, Latitude, TELUS Mobility and now ICE Wireless are already present in the Yukon market and that the terms for competition in the wireless market are established independent of this proceeding.

4613   Yukon has proposed a subsidy mechanism that includes a collaborative approach to determining the projects and priorities. The idea of a collaborative approach to solving issues, led or coordinated by the Commission, is supported by a number of parties.

4614   Yukon would strongly recommend that the Commission take the opportunity to act on this proposal by establishing a working group even before finalizing the decision in this proceeding. This group might usefully offer assistance to the Commission in evaluating or designing possible solutions on specific topics.

4615   Thank you for the opportunity to provide our comments.

4616   THE CHAIRPERSON: Vice Chair Menzies?

4617   COMMISSIONER MENZIES: I just want to make sure I understand.

4618   Towards the end you're talking about, I think, structural separation so that -- you're suggesting that we not allow Northwestel to offer bundles, to bundle its services. Is that correct?

4619   MR. PRATT: No, Vice Chair Menzies. I think that was intended to just serve as a reminder of the structural issue. It's not clear whether or not the ability to bundle would be something that the company could do, whereas entrants could not. It would depend on what access, what terms of access might be provided.

4620   COMMISSIONER MENZIES: Okay. Thank you.

4621   MR. PRATT: So it's not structural separation.

4622   COMMISSIONER MENZIES: Thanks for clarifying.

4623   THE CHAIRPERSON: Thank you very much. Those are our questions.

4624   We'll take a short break and come back at five to 11:00 to continue with the interveners.

--- Upon recessing at 1039

--- Upon resuming at 1100

4625   THE CHAIRPERSON: Order, please. À l'ordre, s'il vous plaît.

4626   We will keep going here, so the next presenter is Geoff Batstone from Arctic Fibre.

4627   Please go ahead.

REPLY

4628   MR. BATSTONE: Thank you very much.

4629   Good morning, Commissioners. I will try to keep this brief. I would like to address three subjects this morning.

4630   The first is competition in the provision of backhaul transport and the benefits of fibre.

4631   The second is Arctic Fibre's views on how backhaul should be treated by the Commissioner.

4632   And the third thing I will do is just make a couple of quick comments on comments that were made about Arctic Fibre in the previous phase.

4633   So starting out on the benefits and competition, fibre backhaul is a scalable long-term solution that can match customers' evolving requirements.

4634   Yesterday the Government of Yukon said that targeted one-time funding does not keep up with the dynamic nature of telecommunications.

4635   We agree with that. We think the regulatory regime should seek to establish a sustainable situation that evolves as necessary. Fibre is the go-to choice for capacity and low latency in the south and should be in the north as well as it gives the necessary flexibility to have that evolution.

4636   While there is clearly a place for satellite backhaul, as long as the only backhaul option is satellite, customer expectations are going to continue to exceed what the technology can provide from both a cost and a latency perspective.

4637   Yesterday we heard SSi talk about the amount of bandwidth it would need and the cost alone associated with providing the amount they were talking about would be astronomical, assuming that that amount of capacity is even available, whereas on fibre it's relatively easy to provision those kind of levels of capacity at a lower cost.

4638   In short, we believe the subsidy mechanism should be flexible enough to fund fibre where fibre is not economical on its own. Directing all of the subsidy to satellite backhaul doesn't solve the issues on a long-term basis.

4639   Arctic Fibre will also dramatically reduce the high cost of backhaul. This should free up funds to increase the amount of bandwidth available, as well as potentially reduce rates to end-users. As several parties have noted, the objective of 5 megabits and 1 megabit down is already becoming obsolete. We agree with that as well.

4640   Without cheaper high-capacity backhaul, the cost of providing what customers want could be prohibitive and will continue to restrict what providers can offer to their customers.

4641   Fibre connectivity also permits the provision of services which are taken for granted in the south but still a stretch in the north. We had a very good example of this in the presentation by the First Mile Connectivity Consortium yesterday.

4642   With current backhaul video conferencing appears not to be a part reality today, even in Whitehorse, never mind the satellite communities. And the benefits of videoconferencing are even greater in the north. We heard from KFN about the cost reductions and increased access to services that they have been able to facilitate with videoconferencing.

4643   Current satellite backhaul frustrates that because of the high cost and latency.

4644   And videoconferencing is only one service. We don't even know what the next bandwidth-heavy killer application will be, what we do know is that customers in the north will want it, just as customers in the south do. This is another reason to encourage the rollout of competitive backhaul and fibre.

4645   Finally, we believe backhaul -- fibre backhaul will provide redundancy, or better redundancy, certainly to satellite and perhaps at some point it will be satellite that's providing redundancy to fibre.

4646   Various parties have raised the need for true redundancy. NBDC and others have cited the outage of Anik F2 as an example of that.

4647   I can't really speak to the redundancy that's available on satellite, however a fibre network in a ring configuration offers a great deal of redundancy. If there's a cut in one place, traffic is rerouted instantaneously in the other direction and in some cases customers won't even know there has been an outage.

4648   In addition to that, having fibre backhaul through more or ideally all of Northwestel's serving territory would provide a second entirely different form of backhaul. It's fine to have plans to use another satellite if the first one fails but, in my opinion anyways, it would be much better to have two distinct options for backhaul in that case.

4649   Finally, installing fibre will reduce costs enough that providers could increase satellite bandwidth to those communities still needing it and those that can't be served with fibre or use it as an additional form of redundancy to fibre transport.

4650   So what is Arctic Fibre asking for in this proceeding?

4651   We would like to see conditions which encourage investment in fibre. We would also like to see a subsidy regime which encourages the development of competitive backhaul alternatives.

4652   Even if you increase the subsidy for satellite services to make the cost issue go away, you don't solve the latency problem and you don't really fix anything on a long-term basis. You need a lower-cost alternative and, in our submission anyways, you need competition in backhaul transport to do that.

4653   We would like the Commission to make any subsidy for backhaul flexible enough that it can be directed to any efficient provider.

4654   We were asked yesterday whether Arctic Fibre would want to draw a subsidy to fund access to the communities in the secondary phase of its network. You know, we are not asking for subsidy in respect to the backbone network, but we would be happy to have subsidy provided to Arctic Fibre to reach the communities that are not currently economic to serve. It's in the nature of large capital projects that capital is needed up front, which means that in this case it would be most helpful to have that funding available up front, following which capacity could be provided to providers at rates that recognize only the remaining cost, plus a reasonable mark-up.

4655   However, if the timing of that doesn't work out, alternatively, assuming that the secondary network is already built -- and that would presumably be because government has provided the funds for that -- then the subsidy could go to ongoing costs.

4656   Finally, on Monday the panel representing the Government of Nunavut made some comments about Arctic Fibre and Ice. I just want to make sure there are no misunderstandings on this. In case there is any doubt about support for Arctic Fibre, I think it's worth noting that the Government of Nunavut has written a letter to Arctic Fibre expressing its support for the project.

4657   In terms of the Ice question, Arctic Fibre has done extensive engineering studies which prove the feasibility of the system. Both TE Sumcom and Alcatel Lucent Submarine Systems -- and these are sort of the top companies in the field -- have concluded that it can be done and they propose designs which mitigate the risks associated with running a cable through the Arctic.

4658   As Mr. Cunningham said yesterday, the usual causes of outages on subsea systems are fishing, anchors and underwater seismic events. The very good thing about running through the Arctic is that it's relatively free of these activities. Arctic Fibre is actually safer in this regard than a lot of cable systems in busier places like Singapore and the Suez Canal.

4659   Ice scour can be dealt with through the usual cable protection measures. Where necessary, heavier cable or armouring could be used and in areas prone to ice the cable will be buried in the seabed or there will be dual landings in areas of particular risk. If the risk is too high, the cable simply -- in a particular area, the cable simply won't be routed through that area.

4660   And, finally, the system is built as a ring so if there is a cut on the backbone traffic can be rerouted the other way around.

4661   Thank you once again for the opportunity to participate in this proceeding and I would be happy to answer any questions, if you have any.

4662   THE CHAIRPERSON: Commissioner Molnar...?

4663   COMMISSIONER MOLNAR: Hi.

4664   You perhaps heard our conversation about utility backbone. If you were to receive subsidies, would you be prepared to tariff your service?

4665   MR. BATSTONE: It's a bit of a difficult question for us and for me to answer right here. I think it might be wisest for me just to undertake to get back to you on that.

4666   The reality is, I think we have made a number of comments about the investment environment for fibre, right. I think that there is an expectation that a project like this is not going to be regulated by the Commission and regulation by the Commission could impact the ability to get the necessary investment in to build the network.

4667   Now, I appreciate that you are talking about the areas that are subsidized and that might make that answer a bit different, so I think -- and I think on that point I would be smartest to take that away and come back to you, if that's all right.

4668   COMMISSIONER MOLNAR: I would appreciate if you would take it away. I think there is a difference between where there is a business case and there is a potential to fund and have competitive backbone and there is another difference where it needs to be subsidized and it becomes more of a public --

4669   MR. BATSTONE: Understood, yes.

4670   COMMISSIONER MOLNAR: -- you know, there more of a public investment.

4671   So yes, undertake, please.

4672   MR. BATSTONE: Okay.

Undertaking

4673   THE CHAIRPERSON: The 25th, Tuesday.

4674   MR. BATSTONE: Right. Got it.

4675   THE CHAIRPERSON: Thank you. You are going to have a great weekend.

4676   So those are our questions. Thank you very much.

4677   MR. BATSTONE: Thank you.

4678   THE CHAIRPERSON: So the next presenter should be Aurora Technologies.

4679   THE SECRETARY: (Off microphone).

4680   THE CHAIRPERSON: Is Aurora Technologies in the Room? Going once, going twice, three times.

4681   How about -- who did we have earlier?

4682   THE SECRETARY: The next one would be Government of Nunavut.

4683   CHAIRPERSON: No, but we also had Total North earlier. Are they now here? Once, twice, thrice.

4684   Okay, so let's go to the Government of Nunavut then.

--- Pause

4685   THE CHAIRPERSON: So welcome back.

4686   When you are ready, please go ahead.

REPLY

4687   MS HOLLIS: Thank you.

4688   I just wanted to follow up first on that comment from Arctic Fibre. "Support" might be a bit of a strong word for the GN feels about Arctic Fibre.

4689   If fibre arrived it will be very, very welcome and it would definitely be a game changer. However, I was asked that question in the context of, "Why didn't you mention Arctic fibre?" And I suppose what I probably should have said is because it's premature to rely on that fibre arriving at this point, it's contingent on so many things.

4690   So that is -- I have the letter of support which basically says that. We can't really make a commitment to any given vendor without a procurement process.

4691   So I would like to say that if Arctic Fibre does manage to land a link or more in Nunavut, that would be very, very welcome, but we probably would never buy direct from Arctic Fibre, we would buy from an ISP.

4692   But now I will go back to my written.

4693   I would like to thank the Commission again for the opportunity to participate in this hearing and reiterate what I said on Monday, that what we need is massively more bandwidth and infrastructure to have truly modern broadband in Nunavut.

4694   One thing that was kind of troubling in the presentations of Northwestel was its insistence that every improvement, every move, had to have a positive business case. The insistence on a business case is, necessarily, going to create wider and wider gaps, because it is always going to be more cost effective to invest in a high-density area.

4695   It is unacceptable that Nunavut should be excluded from modernization because of the fact that we are a satellite-served community, and investments are never going to yield as high returns.

4696   The Government of Nunavut does not believe that its communities should be treated differently, where some get better service than others. Similarly, we ask both Northwestel and the Commission not to consider Nunavut as a second tier, or, I guess, listening to the people in Whitehorse complain about their service, which we find incredibly fast, a third tier territory.

4697   Nunavut -- I said this before, and I will say it again -- is the test case for rural and remote connectivity. What works in Nunavut will work elsewhere.

4698   Please do not exclude us from modernization simply because we pose greater challenges, with fewer financial rewards.

4699   We repeat that the rewards come in our increased ability to participate in the digital economy, exporting our culture and tradition, in our ability to connect Nunavummiut with each other, in supporting economic development, and also in supporting Canada's sovereignty aspirations in the North.

4700   The Commission raised a number of fairly specific questions following our presentation on Monday: Who should pay for upgrades in service. What subsidies or funding mechanisms are appropriate. What will it cost for redundancy.

4701   These questions warrant a lot of research and a thoughtful answer.

4702   The Government of Nunavut, of course, is one of the parties to the Northern Communication Information Systems Working Group, NCIS, and that group is currently putting together another -- well, they have hired someone to put together a follow-up to the Arctic Communication Infrastructure Assessment Report.

4703   We were hoping that that report would be available in time for this hearing. It won't be. It won't be even before the close on July 8th. But we do look forward to that, to have a lot of that kind of data and comparison, and we recommend that to you, sight unseen, I guess.

4704   That report will also provide a comparison of costs for implementing other transport networks, such as fibre, and a perspective on the cost of not implementing them, as well, which, I think, is the territory that we are into now. The costs of lost productivity in Nunavut, which have not yet been measured, are certainly adding up.

4705   On the question of whether a new funding mechanism or subsidy is appropriate, our position has always been that any subsidy must encourage a healthy competitive market, and ensure the continued delivery of the Basic Service Obligation in all Nunavut communities.

4706   The Commission is probably in the best position to determine what is fair competition, but I again emphasize that all Nunavut communities insist upon our position that we should all be treated comparably, if not equally.

4707   The Commission has raised the idea of whether a new subsidy is required to fund backhaul satellite costs. This is certainly a conversation that we would like to pursue, and we think that that subsidy would bring advantages to Nunavut. But we cannot prescribe what form it should take, as we are not a market player.

4708   And I really can't stress this enough -- we are government, we are not in the telecom industry.

4709   The Commission has set the goal of 5 and 1, up and down, and we feel that it is incumbent on the Commission and other stakeholders to take steps to make sure that is implemented.

4710   And it is worth repeating what other presenters have said, that while 5 and 1 may be an acceptable target now, and is in fact a stretch goal for satellite communities, it will not be five years from now, or even three years from now.

4711   We also agree with Northwestel when it says that a satellite is a very expensive transport medium to be able to provide service, and that we have to find a collective solution on how to overcome that.

4712   As we said in our presentation in Inuvik, the responsibility for upgrading Nunavut's network infrastructure to a more dynamic and responsive redundant and survivable system is not Northwestel's responsibility alone. It requires leadership and the involvement of many parties, including several levels of government, telecom providers, public partners and private industry.

4713   We would like to echo comments made in this proceeding that the Commission should take a leadership role in a forum for which pan-territorial discussion could take place, and funding arrangements and specific initiatives put into motion.

4714   There is one little thing that came up yesterday that I just wanted to mention. I forget who commented that airfare to the North seems to have gone down a lot.

4715   That may be true in Whitehorse, but it is certainly not true in the Eastern Arctic. And this really illustrates the value of competition, because when Air Canada pulled out of its Ottawa-Iqaluit service, a return ticket went from $1,200 return to $2,000 return.

4716   There are other questions which you have raised, which we hope to address in our undertaking and our final written submission.

4717   We again thank you for the opportunity to present. And, again, thank you for taking the plight of Nunavut as seriously as you have.

4718   THE CHAIRPERSON: Commissioner Simpson...

4719   COMMISSIONER SIMPSON: Good morning.

4720   I would just like to better understand -- this isn't a technical question, but a point of view question that will help me better grasp what type of solutions are most appealing to the Government of Nunavut.

4721   The other day I asked about fibre, and not to rehash your answer to the question, but more your statement today, fibre --

4722   You said something about if fibre was ever to be contemplated as part of your basket of services that you would take up as a government on behalf of your people, that you would likely approach it through an RFP process and deal with an ISP who would be riding on the network.

4723   And the question is this: You seem to be positioning yourself as more of a retail customer and not so much as a government that is promoting the creation of new infrastructure when you say that.

4724   I am wondering if you can sort of qualify that position for me, because you are asking for redundancy, which fibre would provide, at least to Iqaluit, and I think that it would be the government's role -- and you have a broadband corporation, unlike any other territory.

4725   I am just curious as to why you are backing off on the advocacy of something like fibre coming to your doorstep. You seem very tentative about it, and then, when you position yourself as a retail customer, it throws me.

4726   MS HOLLIS: The Government of Nunavut is a retail customer, no matter what.

4727   The inconsistency that I see is saying: Well, the governments should get together and maybe become a provider themselves.

4728   Is that the --

4729   COMMISSIONER SIMPSON: No, but governments usually advocate on behalf of infrastructure.

4730   For example, a municipality is always arguing for an on-ramp and an off-ramp from a super highway because they want to get their community connected.

4731   They don't want to be in the roadway business, but they certainly want the benefits from it.

4732   So usually there is always an economic development position that this type of service would be desirable, and I don't see the desire. I see you leaning back in your chair a lot.

4733   MS HOLLIS: Oh, let me say that, then. A fibre link would be highly desirable, absolutely. We are not backing off from that.

4734   What we are asking is, please don't say, "Oh, they are getting fibre, good, we don't need to worry about it."

4735   COMMISSIONER SIMPSON: Got it.

4736   MS HOLLIS: That's what we don't want to have happen.

4737   COMMISSIONER SIMPSON: Excellent distinction, thank you.

4738   That's it.

4739   THE CHAIRPERSON: Commissioner Duncan...

4740   COMMISSIONER DUNCAN: I have a point sort of along the same line as Commissioner Simpson's. I just want to make sure that I understood about Arctic Fibre; that you would not become a customer of Arctic Fibre?

4741   Is that what you said?

4742   MS HOLLIS: What we expect would happen is that it would be such a game changer that Northwestel would change its entire rate structure.

4743   We currently have a contract with Northwestel. We are not going to walk away from it. However, as Northwestel sees -- or as other --

4744   I say Northwestel just because it is the current provider, but the next time we go to market with an RFP, if what I have heard described as the back office -- if the backhaul were -- you know, if there were alternatives, it would so change what happened in the RFP.

4745   Now, if Arctic Fibre itself put in a proposal, then, yes, I suppose that we would be buying from them directly. But that is not how they have positioned themselves in the market.

4746   Does that answer the question?

4747   MR. ALEXANDER: I would just add that our Northwestel contract is for voice services, and our data services are through Broad Sky Communications, which is supported through SSi Micro.

4748   So there are two separate services that we have as a government.

4749   COMMISSIONER DUNCAN: So you would not be opposed if somebody came in -- when the contract expired, if there was a competitive process, you would consider all bidders?

4750   Is that correct?

4751   MS HOLLIS: Absolutely.

4752   COMMISSIONER DUNCAN: Okay. It just sounded more definite than that, that's why I wanted to clarify.

4753   Thank you.

4754   THE CHAIRPERSON: Thank you very much, those are our questions.

4755   Let's now hear from the Government of the Northwest Territories.

--- Pause

4756   THE CHAIRPERSON: Welcome back, and go ahead when you are ready.

REPLY

4757   MR. HEFFERNAN: Thank you.

4758   Good day, Mr. Chairman, Vice Chair, Commissioners, CRTC staff.

4759   My name is Dave Heffernan, Chief Information Officer for the Government of Northwest Territories.

4760   With me today is Linda Maljan, our Policy Analyst in our Department of Finance.

4761   Today, in our reply argument, we will respond to comments from some of the parties in these hearings and provide some further clarification on points raised in our question and answer session with the Commission in Inuvik.

4762   In doing this, I want to point out that there seems to be fairly wide agreement on many of the positions that have been put forward by the GNWT, particularly with respect to the need to expanding the proposed modernization plan and to initiating new subsidy programs.

4763   I also want to point out that despite our criticisms of Northwestel's plan, the plan contains many positive elements which will benefit Northerners.

4764   We appreciate the ongoing efforts Northwestel has made to meet with us, to talk about our concerns, explain their plan and the challenges that they face. We feel that we were consulted even if we do not always agree on the final outcomes.

4765   Because time is limited I'm going to focus my comments on just a few critical issues, those being high speed internet service in satellite communities, wholesale connect and Northwestel's fibre optic expenditures, the modernization plan approval process and the local service subsidy.

4766   I'll begin with high speed internet in satellite communities which seems to have been broadly recognized even by Northwestel as one of the major gaps in its plan.

4767   The highest speed in satellite communities with a maximum download of 2.5 megabits per second is offered through a Falcon partnership with Northwestel today. But even with that partnership project it is important to note that the job is not done, as was suggested on Monday in Inuvik.

4768   2.5 megabits per second is only half the Commission's target speed and service in satellite communities will revert to the even lower speed of 1.5 megabits per second when that Falcon funding arrangement expires in 2017.

4769   The appropriate response to this is not to just give up. We categorically reject the option raised during the questioning of the Government of Nunavut of establishing lower internet target speeds for satellite communities. Such an approach would be to effectively abandon the Telecommunications Act policy objectives and to instead accept the second-class status for satellite communities.

4770   The North's most remote communities are, if anything, the most dependent on our internet services. A policy of treating them as second-class with respect to internet service would only heighten the disparities they already face.

4771   Northwestel told you the critical barrier to meeting CRTC high speed internet target speeds in our satellite communities is the backhaul costs and that while technically such service could be offered in many satellite communities today, the prices required to recover costs would be at a level few could afford. In Northwestel's own words, there just isn't much of a business case for the service.

4772   But had Northwestel asked if there was a business case for offering high speed internet service throughout its serving territory at some uniform price, it might well have found the answer to that to be "yes".

4773   Instead, it chose to perform its analysis on a disaggregated basis consciously separating out those areas where new costs were highest and them saying they'll extend service to the areas where costs are low and deny service where costs are high.

4774   In the old days when Northwestel and other telcos were requiring or arguing against allowing competitive entry in their territories, the term they used for this type of behavior was screen scanning. You serve the areas where profits are high and abandon the lower no-profit areas.

4775   Of course this is opportunistic behavior which will yield the highest profits to Northwestel's shareholders. It does not, however, reflect a plan designed to meet its customary requirements.

4776   In Decision 2011-771 the Commission found that the benefits of price caps had accrued primarily to shareholders. Now, is the time to allow all northerners, including those living in the smallest and remotest communities to share in this prosperity.

4777   We again urge you to direct Northwestel to extend high speed internet service at CRTC target speeds to satellite communities without delay. Should you be unwilling to require Northwestel to do this, then we would ask that you instead introduce a new subsidy for this purpose. We note that even Northwestel stated that such a subsidy would be appropriate.

4778   Our view is that such a subsidy, which we'll call the high speed internet service extension subsidy, would be held through a competitive bidding process whereby for each satellite community a subsidy would be provided to the bidder requesting the smallest subsidy to provide the required service at a specified price.

4779   During questioning by Vice Chairman Menzies, we were asked whether this would not result in a number of local monopolies providing service in each of those communities. Possibly, but we would note that a local monopoly service provider is far better than having no service provider which is what we have now for high speed internet service at CRTC target speeds in those satellite communities.

4780   I'd also note that because the competitive bidding process would specify the service to be provided and its price, this could serve to effectively ensure the service provider did not exploit any local monopoly power it has.

4781   Finally, I don't think we have any quarrel with Professor Hudson's suggestion that competitive bidding need not be on a community by community basis, but could be done on a more aggregated basis by groups of communities.

4782   As to the price the service provider would be allowed to charge, we were asked by Vice Chairman Menzies what price we thought would be considered affordable or appropriate and how large a subsidy amount might be required to achieve this.

4783   Here we go back to our fundamental principle of comparable service and comparable rates. As an example, take a number perhaps in the order of $60 a month which would be in the same range, albeit marginally higher than rates available in urban regions in the south.

4784   While we don't have detailed information necessary for a more exact estimate, our back at the end envelope calculation, if you will, is that the annual costs of a subsidy to extent high speed internet at CRTC target speeds to satellite communities at a suggested price of $60 per month would be slightly less than $15 million annually.

4785   If that subsidy was expanded to lower the price of high speed internet at those same CRTC target speeds to $60 a month in our terrestrial communities as well, the further subsidy costs of that would be in the order of $6 million annually. Currently, Northwestel receives just over $20 million a year in National Contribution Fund financing.

4786   So introducing these two new subsidies would mean roughly a doubling of those costs. It would also represent an increase of approximately 15 percent in the overall required National Contribution Fund budget.

4787   One further issue with respect to subsidies is to state our strong opposition to PIAC's comments that any consideration of subsidy should be deferred to a later proceeding. The Commission explicitly included a consideration of a northern subsidy regime in the current proceeding and we believe that the need for further subsidies has been amply demonstrated.

4788   Just as the Commission has often established policies for southern Canada and subsequently considered whether or not they should apply it to the North, there is no reason why a policy should not now be established for the North with the Commission subsequently determining if it should or should not be made available to the South.

4789   With respect to transport you heard competing views about the appropriate rates for wholesale connect service. Our position is that it's important to ensure that these rates are set at a level that allows cost recovery by Northwestel but supports competitive entry. If you conclude the current rates are below costs then raise them. And if they are above costs then leave them where they are.

4790   In so long as rates are set to allow cost recovery, Northwestel should be directed to fully restore the $36 million in fibre optic spending it plans to cancel following the wholesale connect decision.

4791   Regarding the modernization plan approval process, our position remains that the plan should be subject to formal CRTC approval or disapproval and that its progress should be reviewed annually in a public process. While Northwestel states in its evidence that the plan should not be subject to CRTC approval, it does endorse monitoring through an annual review process and that the hearing in Inuvik agree that the process used with respect to the Service Improvement program had worked well.

4792   We would point out that that process involved not only CRTC approval of the original plan but at the annual review any proposed modifications were reviewed and either approved or disapproved.

4793   Finally, concerning the existing local service subsidy, Northwestel reiterated its position that it alone should be entitled to access subsidy funds and stated that the development of competition wouldn't generally be effected if subsidies weren't available to competitors. That's not what competitors have said. However, and we also note Northwestel's comments on Monday that this is not a massive issue for us.

4794   Our view remains that competitive equity requires that all competitors have equal access to local subsidy funds. And while we have some sympathy with the fact that Northwestel alone has an obligation to provide the local service, we would also note that Northwestel alone has many advantages of its incumbency.

4795   When local competition was introduced in the south, these funds were initially made available to all competitors and we believe the same approach should be followed here.

4796   Let me end my comments today by saying on behalf of the Government of the Northwest Territories how much we appreciate your having come to the North to hold this hearing and to hear the views of Northerners on issues that are of grave importance to us.

4797   Even more than that, let me thank you for having recognized in Decision 2011-771 that the Northern Telecommunications infrastructure was lagging and that a concrete plan of action was required to address those deficiencies.

4798   While we may have some specific concerns with Northwestel's modernization plan, we want to leave no doubt that we are very pleased that the CRTC directed Northwestel to develop such a plan and then instituted this public review process to consider it, together with Northwestel's regulatory framework and a northern subsidy regime.

4799   Thank you.

4800   THE CHAIRPERSON: Thank you. It doesn't look like we have any questions for you. Thank you very much.

4801   All right. So I think we're done, are we not, Madam Secretary, with all the interveners except --

4802   THE SECRETARY: We are, Mr. Chairman.

4803   THE CHAIRPERSON: -- except for Northwestel, correct?

4804   THE SECRETARY: Correct.

4805   THE CHAIRPERSON: Okay. So in fairness because we've moved a lot more quickly and to give a chance to Northwestel maybe to gather their thoughts and get prepared, we're going to adjourn now for a leisurely early lunch break, I believe.

4806   Why don't we come back at 12:45 to hear the final reply if that's okay for everyone? Okay, 12:45. Thank you.

--- Upon recessing at 1136

--- Upon resuming at 1248

4807   THE CHAIRPERSON: Okay. À l'ordre, s'il vous plait. Order, please.

4808   So, we'll reconvene now to -- and I see the Northwestel panel is all prepared to go.

4809   And, so, go ahead.

REPLY

4810   MR. FLAHERTY: Thank you very much, Mr. Chairman.

4811   THE CHAIRPERSON: Oh, the mic doesn't seem to work. The mics...

4812   We'll get the technicians up here.

4813   Do any of the other -- the mics in the front work?

4814   THE SECRETARY: No.

4815   THE CHAIRPERSON: None.

--- Pause

4816   THE CHAIRPERSON: So, do those work now?

4817   MR. FLAHERTY: Yes.

4818   THE CHAIRPERSON: Thank you.

4819   Go ahead. So, in conclusion... No.

--- Laughter

4820   MR. FLAHERTY: Good afternoon, Mr. Chairman and Commissioners.

4821   Thank you for allowing us to come back this afternoon and provide you with our reply comments reflecting on the last three days of discussion in this most important of proceedings for the North.

4822   Again, I'd just quickly introduce my panel.

4823   So, next to me is Curtis Shaw, our VP of Marketing, next to him is Don Pumphrey, our VP of Advanced Networks, on the other side to my left is Jonathan Daniels, VP of Regulatory Law at Bell, and Muriel Chalifoux, our former CFO and VP Regulatory.

4824   From this week's proceedings, we see the main issues as being: (i) the affordability of Internet Services; (ii) the availability or lack thereof of various services; (iii) subsidy and the basic service objective; (iv) the reliability of our network; and, (v) competition.

4825   So, I'll take those in turn.

4826   So, with respect to affordability of Internet services.

4827   Some have suggested that our Internet rates are excessively high compared to other service providers, particularly in southern Canada. This is at the same time we have almost universal acknowledgement that our costs of providing services in the North are inherently higher than in the south.

4828   In this regard, we direct you to the recent study you commissioned by Wall Communications. The April, 2012 Wall Communications Report provides international benchmarks for Internet services. If we benchmark our residential cable Internet offerings against the residential Internet tiers in that report, we're only seven percent up to 18 percent higher depending on the tier that you look at.

4829   Yesterday we heard from Dr. Heather Hudson discuss telecommunications services in Alaska. So, we've looked to see how we compare to residential Internet service offerings in that state which is, arguably, a more apples to apples comparison for Northwestel than service offerings in large urban centres in Canada.

4830   Alaska has similar climatic and geographic challenges as Northwestel, however, it's about one-third the size of our serving territory with a population of approximately six times larger and approximately 300,000 people residing in the largest city, Anchorage.

4831   We found that our DSL Internet rates compare favourably to what you find in rural Alaska, and I stress rural. Although there's always room for improvement, and we acknowledge that our services are often priced higher than in the rest of Canada, we strive to make them affordable.

4832   Internet adoption rates in Whitehorse and Yellowknife are among the highest in Canada, which we feel demonstrates that our Internet service is indeed affordable. We can file these adoption statistics in confidence with the Commission, if you would like that.

4833   We also note the Yukon Government's statement 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. They were not alone in this criticism.

4834   While we've reduced these charges by 50 percent in the last two years and expect further reductions to follow, it's important to understand why we have overage charges in the first place.

4835   When we design our residential Internet packages, we strive towards ensuring that no more than 10 percent of our customers exceed their usage caps in any month. This requires balancing the package limits so that the vast majority of the people taking a package never go over their limits, but also recognizing that a small percentage of people will always push their limit and incur overage charges.

4836   The key is to find the sweet spot, so that packages are not designed so that large number of subscribers are unnecessarily paying for more bandwidth than they need, while making higher usage packages available to those who routinely exceed their limit.

4837   Our philosophy is to try to reduce the triggering of overage charges by also continually monitoring Internet usage and adjusting our packages to right size our plans to typical usage patterns. We closely monitor the amount of people that maintain usage close to the limit.

4838   For example, we have recently upgraded our allotment usage by 30 percent for several of our packages because not only was there an increase in users paying overage, there was also an increase in users maintaining usage just below their allotted usage, thus, indicating that it was time for us to increase our usage allotments.

4839   With Internet traffic doubling every 18 months, overage caps are an important tool to help manage bandwidth consumption and network congestion. This, in turn, allows us for more effective and efficient capital planning.

4840   It's in this context and the roll-out of Wholesale Connect, we believe that the regulation of retail Internet is unnecessary.

4841   Next, with regard to availability of services. That's another key theme that's emerged this week. What people want depends on the party; whether it's more transport, 4G wireless services to even more communities, or more Internet, we want to do more as well. Our plan maximizes how much we can achieve with each capital dollar.

4842   While several interveners called for additional expenditures in the Modernization Plan, no party proposed to cut any investment contained in the Modernization Plan to make room in the capital budget. Parties generally took the position that the expenditures they were proposing were something that we should make, largely for public policy reasons, or to serve their own particular interests.

4843   No party expressed any concern whatsoever or whether their proposed additional investments were uneconomic or unsustainable and often suggested that Northwestel should make the investment, or they should be paid for by subsidy, without making any clear distinction between the two.

4844   Our position remains that creative third party solutions must be found with all federal departments and provincial and terrestrial governments coming together to solve the issue.

4845   The key issue in this is clearly the availability of high-speed Internet services meeting the Commission's target. From a terrestrial perspective, at the end of our plan, all communities will not only meet, but will exceed that target. As such, the real issue is satellite communities.

4846   SSi and Northwestel agree that in regard to the availability of 5 and 1 Internet service in satellite communities, the obstacle is the availability of affordable satellite transport services.

4847   We also agree that our respective terrestrial access facilities are fully capable of delivering the target speeds once this issue is resolved.

4848   So, that brings me to the issue of subsidies.

4849   Most parties seem to agree that some type of external funding is required for broadband. Many have proposed the establishment of a subsidy by the Commission. For the reasons noted by PIAC, we too are worried that by altering subsidy at this point we're, in effect, a bit making policy on-the-fly.

4850   What is the objective that we're trying to achieve? Is it simply a subsidy for 5 and 1 Internet to all Northern communities? Or, is it 5 and 1 with the implementation of redundancy to all communities? Or, further still, is it to ensure that there are two competitors providing 5 and 1 in all communities?

4851   Even once we determine the objective, questions still remain as to the mechanism of the subsidy or even the required amount.

4852   Let me now address subsidy and the existing contribution mechanism for voice services.

4853   Our position is simple that those who have the obligation are the ones who should get the contribution. To port a subsidy but not port the obligation is, in our view, unfair.

4854   On the other hand, it's unrealistic to consider porting the obligation. If it is ported, what happens after the end user moves to a new home? Does the CLEC have the obligation to serve the new home or the previous home or both?

4855   Even more unclear is the case of an over the top CLEC like Iristel. Why would they, in the case where they use the customer's Internet service to provide an over the top VoIP service, deserve a subsidy? After all, they're not providing the access facilities.

4856   Certain parties have raised the issue of network reliability and redundancy. We've already invested in our network to address many of our significant risks.

4857   In 2010, we completed a $10-million project to create a fibre ring encompassing Northern British Columbia, the southern part of the Northwest Territories and Northern Alberta to provide a redundant route in that part of the territory. While there have been several fibre cuts on this route since the completion of the project, the ring has done its job and customers have not suffered any service disruptions as a result.

4858   We have also invested several million dollars in our IP network, adding redundancy in our network systems, with further investment in infrastructure, for example, in our backup power systems. As a result of these investments, our IP transport network has been running at 99.994 percent availability for the first five months of 2013. Despite this achievement, we will continue to invest to further reduce the risk.

4859   We are engaged in ongoing discussions with various third parties to evaluate potential shared funding arrangements for specific transport projects that will add network diversity and capacity, including potential fibre rings in other parts of our territory. Assuming a favourable decision on our review and vary that allows us to recover our costs, we will restore the associated fibre investments in our Modernization Plan, including the Dawson City link.

4860   Next I turn to competition. We've seen some focus on the potential implementation of wholesale services that are comparable to the South, rather than focusing on wholesale services that meet the needs of Northern competitors. In the North, where communities are small, building an access network is not a barrier to entry. This is particularly true when your services are wireless or VOIP. The transport network, however, spans great distances and ultimately covers very few end users. Competitors accordingly require, as you've heard several times yesterday and today, access to the transport network. Wholesale Connect provides this access in our terrestrial communities.

4861   There was some questioning yesterday on whether the implementation of Wholesale Connect was meaningful given the number of communities that are not yet served. Again, we'd like to point out the size of our smaller communities. Wholesale Connect is currently available in 30 communities, but it represents 95 percent of the population of our terrestrial communities and will be available to another 18 communities, reflecting 98 percent of our terrestrial population by the end of this year. So by the end of this year 98 percent of all of our population terrestrial-wise will have access to Wholesale Connect. In fact, this year's rollout will quite possibly be complete before the decision regarding this proceeding is issued.

4862   As we indicated to you on Monday, Wholesale Connect was developed through negotiations with SSi and was designed to meet competitors' needs. Yesterday, Mr. Chair, you asked SSi, "Does, in your view, Northwestel currently, and 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?" To this Mr. Proctor answered, "Yes."

4863   To be fair, SSi also indicated that the service could be even cheaper, that the regulatory process was long, and that even now that the rates are subject to a review and vary application. In response, we note that when we negotiated this service with SSi, we also agreed to an interim rate of 1 dollar to allow them to implement the service as soon as possible. And you already know our position on the serious impacts of Wholesale Connect's decision on our ability to invest.

4864   The Commission also asked competitors to essentially provide their wish list of services or service options with regard to Wholesale Connect services. As the Commission considers these changes, it must also recognize that changes to the Wholesale Connect service or other services, or the introduction of new services will all have an affect on cost and the implementation timelines and capital requirements. These changes will not only affect available resources as they are implemented in terms of time and effort itself, the costs will affect the availability of capital for other projects or other priorities in our Modernization Plan due to the costs of implementation.

4865   We note that on the written record of this proceeding there has been no demand for gas or TPIA. The CRTC expanded the scope of this proceeding and asked competitors what they needed, and nobody asked for gas. Nevertheless, you asked us if we could provide gas and TPIA. We've spoken with experts at Bell about gas and with our product vendors about TPIA, and we believe we will be able to respond to our undertaking regarding the costs of implementing gas and TPIA next week, as you requested. We will submit these costs in confidence, but suffice it to say that we believe the number will be in the millions. As such, before redirecting CAPEX from the Modernization Plan to build gas and TPIA, we think it's prudent for the Commission to undertake a proper cost-benefit analysis.

4866   To put things in perspective, gas and TPIA would serve a residential market of only 15,000 NAS in our cable communities and 9,800 NAS in DSL terrestrial communities outside of our cable footprint. We will continue to assess the costs of implementing gas and TPIA over the course of the weekend; however, we have found out so far that the cost of implementing, and equally important the effort to build TPIA, is significantly lower than that of gas. TPIA, if offered, would reach 46 percent of our total customer base. Nonetheless, we question the need for such a service, especially with no -- virtually no proven demand and it being to early in the Wholesale Connect lifecycle.

4867   Our understanding is that the main issue for Iristel is the lack of availability of standalone or naked DSL for customers in our territory, residential customers in particular. Presently our DSL retail internet customer cannot subscribe to our internet services without also subscribing to our local service. Standalone or naked DSL would allow the retail end user to buy internet -- retail internet from us for an additional fee without having to buy our voice service. This would allow over-the-top service providers, like Iristel, to deliver voice service when we are providing internet to the retail customer directly.

4868   Standalone internet is already available in our cable territory, representing 46 percent of our residential NAS, but it's not currently available in our DSL footprint. We've looked at the issue and we are prepared to offer standalone DSL and will commit to developing this product.

4869   Finally, earlier this week Mr. Vice-Chairman Menzies asked competitors to comment on the number and size of LIRs, suggesting that competitors may prefer to have smaller LIRs. From our understanding, competitors usually desire larger and fewer LIRs. However, should competitors express any concerns in this regard, we are prepared to reduce the size and increase the number of LIRs.

4870   As we stated on Monday, building any business plan is about choices, so is the case with our Modernization Plan. It cannot be everything to everybody. Some will be pleased, while others will be disappointed. The key is finding the fair balance. Our chief goal was to maximize benefits to our customers while at the same time providing a reasonable return on investment. In our mind that is a fair balance. Despite certain parties' criticisms, which was far from unanimous, I think it's important to step back and remind ourselves about the Modernization -- what the Modernization Plan proposes to deliver.

4871   Assuming all contingent funding is secured, I've listed what the Modernization Plan will deliver and I won't repeat it for the benefit of all here.

4872   Our plan will deliver significant and concrete improvements to the North, which I strongly believe will strengthen the social and economic fabric of the North. More importantly, these improvements will be sustainable and do not rely on any new CRTC subsidy. In short, we believe that our plan strikes the fair balance.

4873   That brings me to the end of my reply comments.

4874   On another note, I just wanted to mention that you may or may not be aware, but tomorrow is National Aboriginal Day and there is a celebration. We're sponsoring a fish fry at the Kwanlin Dun Cultural Centre. So if you happen to be in town, please come and join the community for that celebration.

4875   Next I'll pass it over to Mr. Daniels. He has a procedural issue he'd like to raise.

4876   MR. DANIELS: With the Chair's permission I'd like to raise a procedural issue.

4877   Just we noticed that the Commission during questioning has asked parties to provide their comments or concerns with Wholesale Connect and that those -- that there's undertakings to do that, to file it on -- by Tuesday.

4878   In our view, the record of the proceeding -- or sorry, the public notice -- sorry, TNC, the TNC of the proceeding as extended was extending from Wholesale -- to cover Wholesale Connect in terms of our R&V and not the issues of extending the actual changing the nature of the service. Having said that, we don't have an objection to you looking at all this, I think Mr. Flaherty gave our comments on that, but what we would like to ask for is the right to reply to those -- to any comments that are received specifically on that undertaking.

4879   I imagine it's probably going to be a technical response and we only have a 25 page limit in the final. So what we would propose is the final, I think, is on the 8th of July it's due, the undertakings are due on the 25th, so we intend to turn around by the 27th, no later than the 28th a reply. Like, an undertaking responding, with your permission, to any issues that are raised in regards to the undertaking concerning the design of the Wholesale Connect service.

4880   THE CHAIRPERSON: And solely on that point?

4881   MR. DANIELS: Solely on that point.

4882   THE CHAIRPERSON: And you'll copy everyone in the process?

4883   MR. DANIELS: We'll copy everyone in the process so that they have time to see it before the 8th.

4884   THE CHAIRPERSON: Okay, good. That seems acceptable, so you can do that.

4885   All right. Vice-Chair Menzies.

4886   COMMISSIONER MENZIES: Yeah, I was just curious. I'm looking for a response to some of the -- PIAC's comments in terms of your costs are high but your revenues and dividends, according to PIAC's evidence, appeared to be robust. I'd like you to please comment or, if you wish, on PIAC's presentation, given that you said the other day that in terms -- when we were discussing portability, that we should be careful not to be subsidizing profits.

4887   MR. DANIELS: Just to make sure that we're going to answer properly, are you asking about in terms of PIAC's presentation regarding their comments about our profits and the C to I?

4888   COMMISSIONER MENZIES: Yes. Just that general --

4889   MR. DANIELS: Okay, that's what I thought.

4890   COMMISSIONER MENZIES: -- that general trend, yes.

4891   MR. DANIELS: So, I think we ...

--- Pause

4892   MS CHALIFOUX: I mean, we've looked at PIAC's evidence on their -- the C to I ratio in particular, and I believe we've noted that, first of all, they're including years in which we had a very extensive service improvement plan. And again, that is being funded, repaid if you will, via the National Contribution Fund. So if you were to exclude the Service Improvement Plan for those years, our C to I ratio is approximately an 18 and a half percent ratio. So again, our view is that the network Modernization Plan reflects a C to I that is comparable and, in fact, slightly better than the historical period.

4893   And as we've also noted, you know, even more importantly, within that capital envelope we've taken great care in prioritizing our plan to ensure that what we're focusing on is meeting the objectives of service delivery to our end customer and in so doing we significantly reduced a lot of traditional expenditures in core, deferred those, if you will, to later years so that we could maximize the delivery of services within the five-year Modernization Plan.

4894   MR. FLAHERTY: The other thing that is worth considering with respect to the CI, and I tend to agree with some of the comments, I'm not sure that is the be-all and the end-all, but one of the things that's different between Northwestel and many of our comparable ILECs in the South is generally ILECs would cover all their transport costs through capital expenditures.

4895   All of the satellite backhaul costs that we incur, they come into our operating expenditures. So if you actually classified those and treated them similar as to how other ILECs would treat their transport costs, it would actually drive the absolute value of CI up, probably in the neighbourhood of 3-4 percent, somewhere like that. So, again, there's always the risk of comparing apples to apples as well.

4896   MS CHALIFOUX: I also just wanted to comment on PIAC graphs, if you will, looking at C to I relative to our growth in revenues or our growth in income from operations.

4897   You know, what must be realized is over the last number of years Northwestel has undertaken a number of significant acquisitions. We've talked about it before. You know, we've -- yes, we've acquired cable properties. That's a significant growth in the business.

4898   And so you would see, on an absolute dollar perspective, income from operations growing. C to I is a ratio, you know. So in absolute dollars, likewise our capital is growing, but as C to I is a ratio, you know, you're not going to see that same curve, if you will.

4899   But all that said, as our operations grow, our absolute level of capital investment likewise is growing.

4900   COMMISSIONER MENZIES: Thank you.

4901   THE CHAIRPERSON: Commissioner Molnar?

4902   COMMISSIONER MOLNAR: Thank you.

4903   Just a follow-up from a discussion with SSi yesterday regarding the wholesale connect and I think there's some confusion maybe on our part as it regards wholesale connect and iGATE. Wholesale connect is a managed service and it has quality of service parameters with it; does it?

4904   MR. FLAHERTY: Yes, it does.

4905   COMMISSIONER MOLNAR: Yes, it does. Okay.

4906   MR. FLAHERTY: Yes, it does. Sorry.

4907   COMMISSIONER MOLNAR: Right.

4908   MR. DANIELS: Would it help to sort of give you -- take a step back and talk about the philosophy of the design behind wholesale connect? If you would like, I can explain what our approach to it is and what we think it's serving, if you would like.

4909   COMMISSIONER MOLNAR: Sure, I think you can if you like.

4910   MR. DANIELS: So, wholesale connect, the idea behind it was after -- as a result of applications and so on from SSi, we sat down to try to negotiate with them a service that would meet the objectives. And the objective that we're trying to meet is to address the backbone, the access to the backbone to serve all the communities.

4911   SSi has, in their case, access facilities in the communities. They didn't need -- it wasn't about access, it was about how do we get out of the community and how do we get back.

4912   Now, historically what they were buying was a service -- and again, I can say this because it's on the public record from their applications. I have to remind myself of that as I say it.

4913   Historically they were buying a service from us, which is iGATE in Yellowknife. You picked it up in Yellowknife and that gave you backbone from Yellowknife to actually the whole Internet. That was peering and so on.

4914   Technically it ran to Edmonton but it was actually -- we had the peering on top of that. So they would just hand it over to us in Yellowknife and we would deliver it to the Internet or better yet -- and vice versa.

4915   During our discussions and so on and part of looking at what we thought, we had the issue of where -- we had the backbone and the only backbone that was available that needed to be regulated. We sat down to talk about where should it go, where should it start, where should it end. It wasn't about access in the community, it was the backbone.

4916   And then we discussed about delivering it to -- where should it end in our view. And eventually, in agreement with SSi, is that it should end at our border from our ILEC territory, which technically had to be in High Level because the key was to get the competitor to an alternative facilities-based provider as soon as possible, because once you get to High Level, Alberta, from there we are not the facilities-based provider.

4917   In High Level there's SuperNet and there's TELUS. They're separate fibre facilities that come up from Edmonton, I guess, I'm not quite sure, but there's two separate fibre facilities that run from High Level down, and we, Northwestel, do not own facilities -- either of those facilities. In fact, Bell leases but doesn't own facilities in those cases. It's SuperNet/Axia and TELUS.

4918   And so the idea behind wholesale connect was to say let's get it to the point where you can get competitive alternative, because if you take it -- if we included the Edmonton portion into it, then that would have just been us putting a mark-up and putting our extra cost that we have to pay to another provider that they can negotiate alternatives with. So that was the philosophy behind the breakout at Edmonton -- excuse me, at High Level.

4919   At the same time, another issue around it was what about in the community, and the community was let's get whatever -- you tell us where, we will come and meet you wherever you are in that community. So we included a local access but only one local access in the community.

4920   And again, the reason for this is because we were designing a backbone service where we thought that was the issue that was being addressed and we were being asked to address.

4921   When it came to negotiations and so on -- and, you know, I can't tell you all about the negotiations, I can only tell you about our philosophy -- there's a question of what kind of service do you provide. Now that we've talked about what it covers, what kind of service.

4922   And it was ultimately agreed that it would be something -- I'm getting technical -- a layer 3 of quality of service associated with it, and I'm not saying -- and we obviously had to speak to the Commission about the nature of the quality of service. But this was the first time in Canada as far as I know, and we looked, that there had ever been a tariff for wholesale layer 3 service.

4923   But that was what the request -- that was the nature, that was the agreement that we would achieve, and this was viewed as making it easier for the competitors so that they didn't have to have extra equipment on top of it to provide their own. That was the philosophy around the negotiations and seemed to be where we came out.

4924   And so I think it just kind of helped to explain our approach because I hear some of the issues -- for example, we hear it didn't go all the way to Edmonton from Iristel, who were not involved in those negotiations, to be completely fair.

4925   But at least you can understand the philosophy behind it was because it we took it all the way to Edmonton we would just be putting our costs on top of someone else's costs and the idea was to get them to a competitive point as soon as possible.

4926   So I don't know if that helps but --

4927   COMMISSIONER MOLNAR: I read what you said here about there being no demand for access and the northern competitors can economically provide their own access through wireless. And that's the competitors that exist today and we're in a pretty infant stage, if you will, of most competition in this market.

4928   So why is it your view that we should be looking only at the competitors that exist today and not looking at the possibility -- I mean if you want forbearance of a service because competition exists or is emerging, why would you propose to foreclose emerging or the types of emerging competitors that might enter?

4929   MR. DANIELS: I think our approach is looking at this from a cost-benefit analysis. I don't know many other companies --

4930   COMMISSIONER MOLNAR: I think you said we need to look at it. It was more of a threat actually, but go ahead.

4931   MR. DANIELS: No, it's not a threat at all. It's really a statement that's saying that we don't -- we have a sense of what the costs are, we'll provide you details, and admittedly as well, the costs for TPIA appear to be a lot less than the costs for GAS. And so, we said, you know, in this we think that that's part of the analysis that needs to be.

4932   There's not a huge market here and so I take your point, you know, what about future competitors and are we foregoing an alternative. Our concern is spending a lot of money and building a lot of systems at the expense of other projects because there will be capital associated with this and time and effort associated with this that will affect other things in our Modernization Plan, and our concern of doing all of that without having -- for sure knowing that there's actually going to be customers at the end of it who really do want to come in.

4933   We're run this proceeding and there's been -- you know, at least on the written record there was no discussion about GAS. At one point you expanded and asked what other wholesale services and there was no interest shown from it. A little bit different today, but we think that naked DSL is the key concern from ICE/Iristel. Obviously they'll be able to evaluate what we were saying and let you know what their position is on it.

4934   But I guess our concern is spending the millions of dollars on it when there's not a proven case that someone is actually going to come and use it, and the distraction, at the cost of what else we could have done. I mean we haven't done an analysis of what we would take out of the plan because we don't even know the dollar figures or anything like that and we're not trying to do it in the -- oh, if you do this, it's at the cost of this. I don't know what that answer is because we don't even know what the costs are, but something has to give somewhere.

4935   THE CHAIRPERSON: Commissioner Simpson?

4936   COMMISSIONER SIMPSON: I was listening to your answer but it didn't get where I wanted it to go, so I'm going to weigh into this.

4937   You know, we're here because in a monopoly, in an incumbency, there's a service objective that just won't go away, and a couple of years ago we came to a decision that there wasn't sufficient investment that warranted the incumbency service levels that we thought that this northern territory should have, and as we open up some level of competition it just makes the business case get worse.

4938   If I follow your logic, it makes it even more difficult to determine whether there is a reasonable end point, is the customer going to be there or has a competitor picked it off at that point, whereas before you knew you have the customer.

4939   So I guess my question to you is this: If there is a floor that just won't go away, which is your basic service level objective, and there's a ceiling that seems to be in place that as a subsidiary of Bell Northwestel has to live within its means and produce some level of satisfactory return on its investment, we have all heard that this is an extraordinary problem, that there is not a business case for an entire territory I heard this week, so my question is this: Is Bell at any point willing to take an extraordinary view to investment into the north that is not proportionate to its normal expectations?

4940   I mean we are looking at -- I'm sorry for the run-on here, but we are looking at capital intensity that seems to be within a percentage point of the north. We are looking at what seems to be a balance sheet that has a revenue return by dividend that's is within the norm and yet we seem to be looking at a modernization plan that's being heavily criticized as a catch-up plan, not a go-forward plan.

4941   So do extraordinary needs and extraordinary times call for extraordinary measures?

4942   We saw some evidence of that with the appetite of Bell to put some tangible benefit money on the table, but that was sort of like you could pay the tax man or give it to a charity and I'm just wondering if Bell is putting Northwestel in a box, a 2 x 2 box, or whether there is some consideration for more voracious intensity in its capital planning in the future?

4943   MR. FLAHERTY: Well, I think it's important to recognize that Bell is doing something quite different for Northwestel than it does for itself, so it's capital intensity index as a corporation is around 16 percent. So under this plan it has us over 19. So there is a 3-plus percentage point difference in there.

4944   You know, I do take issue with the notion that somehow this plan is a catch-up plan. You know, there is technology evolving. I gave the example the other day of North Frontenac, 100 kilometres outside of Ottawa, it doesn't have services that we have put into Fort Resolution, Aklavik, Fort Simpson, Norman Wells, all communities that are much smaller than that.

4945   So I guess if it's viewed that somehow Northwestel is behind, then I would argue the country is behind. There are many places of similar sized geography that are in the same situation.

4946   I think we are going forward. We are putting in next-generation wireless networks that are easily expandable to new technologies that are envisioned on the horizon as well.

4947   So I don't agree with the comment that was made by some of the interveners that somehow it's catch-up, somehow we are using older technology.

4948   The technology -- there was a comment made that the technology that we are deploying in the Iqaluit for example is the same as our competitor. It's not. This technology has never been deployed in North America before. It's a brand-new technology. It's not made by Waway, as was suggested. We do use some of that technology in other communities, but that's not what we are using in the satellite communities. We are actually lab testing that, we have been doing it since last year.

4949   So again, I feel strongly that we are bringing forward next-generation services and that it's not just simply catch-up.

4950   But again, back to your first question, I do think the parent has stepped up and allowed us a level of investment obviously much greater than what they do within their market. Of course they also have northern Quebec, northern Labrador and they have those challenges to balance as well.

4951   MR. DANIELS: If I could just -- there was a comment just in the beginning of your comment I actually picked up something that maybe I didn't say in terms of how you may have interpreted something that I meant as opposed to...

4952   When I said the customer is not going to be there, I was referring to the wholesale customer willing to buy -- to come up like to TPIA or gas. It's not a question of a right about the end user, that we have a right to the end user. We don't have any right to the customer, we have to earn the customer. We understand that.

4953   Now, we have an obligation to provide service to the customer and that's a different issue, but I don't want to be misinterpreted as suggesting that the problem with wholesale -- of doing gas or TPIA is that it's going to affect us in terms of the actual customer loss or something like that. That's not the issue.

4954   The issue is the capital investment to do that when there is no wholesale ISP who has come here and said, "I am ready, willing and I have a business case to focus on the north, that's what I want to do." We will spend all that money and if no one really comes it's wasted money that we could have been deploying for what I think Paul described as -- we do not think it's a catch-up plan -- but an industry leading plan for the north.

4955   MS CHALIFOUX: I think if I could just add as well, I think as Arctic Fibre pointed out quite well, you know, you must realize that 50 percent of the market is in two communities, this one, Whitehorse, and over in Yellowknife and it's logical to assume, as we have already realized, where is competition focusing? Well, right here in the major centres.

4956   So, you know, as we move forward as a company, as a shareholder, you know, as our Board of Directors, we have very difficult choices to make and we have to make those limited budget decisions, if you will, and investment choices, based on financial reality in light of this emerging competitive market and, you know, that's what our modernization plan has done. We have to be cognizant that we have an obligation as a business to be reasoned in our thinking and really look for sustainable investments, and that's what we have done.

4957   COMMISSIONER SIMPSON: I appreciate your comments very much. You're right, there was some misinterpretation there, but I think where I have been trying to go with this is not to keep laying things that Northwestel's feet, to ask questions of the parent and also ask the question of us all that as we go forward into more competitiveness in the markets that the business case gets tougher and tougher for the parent company, which is a concern of mine because, you know, does it lose its appetite for -- and I'm using the word "wholesale" not in the telecom sense, but for wholesale investment, that if it had been made prior to the 2011 decision we probably wouldn't be here today and are we setting a course that becomes more difficult to the business case.

4958   And I guess the question of us all is: Does the incumbent feel that the lesson to be learned over these last two years since that decision is that it steps up in a way that is disproportionate to the business case. And I'm gathering that the answer to that is no.

4959   MR. FLAHERTY: Well, I think we feel that we are stepping up. As I said, we are putting 4G wireless in size of communities that don't exist in southern Canada. You know, I gave the example of Bob Quinn, you know, there is a community down the road that's eight times larger, only 400 people, but they don't have the services in that community.

4960   So I think it's unfair to somehow suggest that, you know, we should just go and serve all these very small remote communities regardless of the cost, but it doesn't apply to anyone else in the country. That's not a sustainable model for the long haul. You know, if we can't support it in the long term, you know, what happens, the service just slowly deteriorates over time.

4961   I also question the suggestion that, you know, somehow prior to the 2011 decision we should have been investing. You know, these 4G wireless networks are evolving as they are right now. So the world is changing rapidly, arguably. You could look at things like calling features.

4962   And I told the Chairman there on Monday that part of the reason we didn't do it is because it wasn't economic. Now, clearly you have said, "Hey, our expectation is you do it" and we are going to do it.

4963   But again, it was just ironic that when you controlled the purse strings it wasn't economic, but we should just do it when we control them. So I think that one is a fair example, but when you start talking about next generation Internet, we have heard from almost every intervener here there isn't an affordable solution for satellite, it requires some form of support to allow that to happen.

4964   MR. DANIELS: I guess I would also put out, in terms of the structure and the approach between BCE and Northwestel, I think we have -- there is a structure that I think works to the advantage of customers in the North in a way that is not apparent directly to everyone at first glance, which is, if you think about it, first of all, there are some benefits, you know, that Northwestel, being part of a larger company, is able to get that is reflected in terms of its costs and so on. It gets the advantage of buying some equipment at the same level with BCE, with Bell, and so on, and, you know, some of the other benefits. Maybe you could say like they are able to rely on some Bell resources, which sometimes may be a hindrance or a help, depending on your view of your regulatory advice that you are getting at any moment in time.

4965   But putting that aside, putting that aside, the structure also allows -- we have a separate Board of Directors -- the structure allows to focus on the north in a way that if it was -- if you just look at it from a Bell perspective would probably not have the same commitment of service. And I'm not trying to say that Bell is not committed to service, but Bell will think of things in a priority, in a way that -- and would never think of doing some of the things that Northwestel does because it's on the ground here, with employees here, with the management team here that's making decisions.

4966   And you can actually see that in terms of directly in the 4G plan. Northwestel provides 4G service in some communities that, you know, otherwise wouldn't be served if it was just strictly looking at it from a pure Bell Mobility perspective.

4967   You don't see Roger's up here in terms of doing it. They have partnered with a local provider so I'm not saying that it can't.

4968   So I guess what I'm trying to say is that there are a lot of advantages in the way that the parent company, as you put it, has set up with Northwestel to allow Northwestel to focus on things in addressing issues in the North and has allowed it to have a higher C to I and what is expected overall in the industry and supported that and supported a whole bunch of things that if this was looked at in a Bell level would not happen, but we actually set up a structure and a Board of Directors, and so on, in order to reflect that.

4969   So I actually think there is a lot of advantages that Bell has done in order to accommodate the specific nature of the concerns for BCE I should say.

4970   THE CHAIRPERSON: Commissioner Duncan...?

4971   COMMISSIONER DUNCAN: I just have one question with respect to the satellite communities.

4972   I notice in your summary here a recap of what the plan is going to be doing. You know, you are going to be able to deliver the higher speeds to the satellite communities, but people will probably find it too expensive to buy.

4973   But in light of what we have heard today, that there are satellite alternatives -- and I think there was a suggestion that there are lower rates perhaps possible from Telesat -- are you going to be making an effort to bring those rates down so that you could deliver the service? I mean is it possible?

4974   MR. FLAHERTY: I'm sorry. I guess a couple of points.

4975   Our plan actually doesn't say we will put 5 and 1 into satellite communities. So we had talked about -- when I was talking about it the other day I said if we were to offer it, it would be at a rate that I don't feel people could afford. So we didn't go ahead and propose that we would actually provide the 5 and 1.

4976   COMMISSIONER DUNCAN: Well, it says "have access facilities capable of". Is there a difference?

4977   MR. FLAHERTY: Access facilities, yes. So what we're saying is in the community if facilities were going to base there, just like SSi said the same thing, it has the capability of delivering 5 and 1 if you have the pipe that connects to the south that can provide that service. And we don't. That's the roadblock. That's the barrier.

4978   So we've built a local infrastructure that if we can solve that transport issue it's ready to go. So if we can either get a different form whether it's Arctic fibre and the kinds of rates they're talking about or whether it's some other satellite provider.

4979   So for your second question we're always open to look at other options with other providers. You know, we've talked to Juch-Tech initially but we're still waiting for some pricing from them on what we'll do.

4980   It's a little bit of a different model in that we built all of our earth stations on the ground, big satellite dishes to receive. They've actually put in their own so we potentially could go and strand all that investment as well. So you know, that's got to weigh into the equation too, is how does that all work.

4981   So are we interested in looking at others? Yes.

4982   And we're not standing still either. Telesat -- in 2106 we listed what the cost would be if we could get the funds to take on the proposal that Telesat made. So I think Mr. Cunningham mentioned that Telesat had proposed $120 million to get something like 15 transponders.

4983   So we're saying if one could get that deal, which arguably is a lower deal because you're buying a lot more volume, we've given the answer in 2106 as to what that price would be. It's lower than the price that we would otherwise be able to negotiate today from our perspective.

4984   But I know a lot of people are concerned about Telesat. You know, I have to admit they've been a pretty good supplier in that we've gotten much better pricing. You know, SSi can talk about their experience with Telesat. I don't know what their costs are, but I can see that their prices have come down over time and we have been able to negotiate more.

4985   Clearly, if you can step up to a very large volume -- but that's a big commitment. $120 million is not small and the question is, it's very difficult to recover. If you think about all of Northwestel operating area both residents, business, terrestrial, satellite, you know, our revenues are what, $230 million, so now you're checking about more than half of our revenues in satellite costs. That's a pricey -- it's a big price tag to pay.

4986   COMMISSIONER DUNCAN: So, really, the bottom line of what I'm hearing you saying is there is no solution without subsidy.

4987   MR. FLAHERTY: That's been our view and I think that's shared by SSi as well. You know, again, you could come with a price but it would be so high that we'd be fooling everyone by saying, oh, yeah, we have it check marked but the price is three, four, five hundred dollars a month.

4988   COMMISSIONER DUNCAN: I think I might have asked you this on Monday. So there's no possibility of you using one of these other satellite companies, SES or the other one that was mentioned.

4989   Did you tell me because you would require a lot of investment on the ground to change?

4990   MR. FLAHERTY: I think it's always worth looking at what those options may be, but it may require investment on the ground. As I said, we already have a significant investment in earth stations, like the dishes on the ground. Using their model all of that would be not required anymore.

4991   So there is a big investment that's already been made.

4992   COMMISSIONER DUNCAN: Okay.

4993   MR. FLAHERTY: So again, I'm not suggesting that they do or don't have a better model. I think that's something we need to look at.

4994   Again, they're in the process of evolving their model. Again, I remind you at this point it's one community hopefully later this fall. So it's not a solution.

4995   COMMISSIONER DUNCAN: I was thinking of it being something that you would use. I wasn't advocating that you take their deal or whatever the arrangement is there.

4996   I don't hear you saying that at this point there is anything that Northwestel is going to be doing to try to get lower prices. If something comes to you, you're going to look at it. That's what I'm hearing.

4997   MR. FLAHERTY: Sorry. I don't agree with that at all.

4998   COMMISSIONER DUNCAN: Oh, okay. So I misunderstood that.

4999   MR. FLAHERTY: You know, again, Telesat is not here and we wouldn't share our private conversations but we've been pretty aggressive in looking for improvements there. So one is on price.

5000   The other thing we have been doing collaboratively with Telesat is looking at ways to get more throughput out of the technology. So the example, I think, that was given by Juch-Tech of 160 megabytes that's, I would argue, a theoretical capacity. We're doing every one of the things that they talked about in that example today in Iqaluit. So we've got -- like, we're not standing idle. These are things we did last November when we lost our 5 megabit service in Iqaluit.

5001   COMMISSIONER DUNCAN: I'm sure you're not idle.

5002   MR. PUMPHREY: We had to do those things to be able to get to the 5 and 5 in '12 in Iqaluit, actually. So that's what made that service come to life for us.

5003   COMMISSIONER DUNCAN: Okay. Thank you very much. Thank you.

5004   THE CHAIRPERSON: Thank you very much gentleman and ladies. These are our questions.

5005   But don't quite move yet. I have a few final comments and then we'll be done for the day.

5006   So I just want to remind everyone that undertakings are due on the 25th of June and the final -- and you have the additional comments there coming in after that. We said the 28th of June, if I'm not mistaken. Is that correct?

5007   MR. DANIELS: Sorry, to give you our undertaking?

5008   THE CHAIRPERSON: Yes.

5009   MR. DANIELS: Our undertaking is -- I said no later than the 28th. We'll aim for the 27th and then reply on the 8th.

5010   THE CHAIRPERSON: Okay. Yes, the reply is on the 8th. I just wanted to confirm the date on the 28th.

5011   The final replies are due on July 8th, five p.m., Whitehorse time.

5012   I just want to remind everyone that on Monday it is a statutory holiday at our head offices in Gatineau. So you might have difficulty getting hold of people on Monday.

5013   So I have a few thank yous to express as we close. First of all, I'd like to thank the Elders for their welcome and their prayers who welcomed us on their traditional Territories, in Inuvik Mr. Albert Ellias and Mr. Winston Moses and here in Whitehorse yesterday, Ms Gayle Anderson.

5014   I'd also like to thank the court reporters, the interpreters and the audio-visual support who make these hearings possible.

5015   I'd also like to thank the CRTC staff. You know, when I had the idea a number of months ago that we were going to go to Inuvik and then pack up and then go to Whitehorse, there was a pause and then there was a can do attitude in the CRTC staff. So I appreciate that they were up to the logistical challenge to hold two hearings in very distant communities. So I would like to thank the Process and Planning Team for having been able to execute this challenge so well.

5016   I'd also like to thank our e-hearing staff who handle and post all the submissions we received; also thank the folks at Head Office that feed our CRTC Twitter feeds and post the various submissions so people who aren't necessarily in our hearing room can follow what we're doing.

5017   I'd also like to thank the CRTC Secretariat and Examination Room staff who supported us in both locations.

5018   There is also numerous CRTC policy and legal staff both here and back in our head offices.

5019   I'd like to thank as well for their work, and the work is not quite done but we will continue analysing the public record as it gets finalized.

5020   I'd like to thank the media here and in Inuvik who showed interest in this process and helped to ensure that the issues we were discussing in this hearing room were brought to the larger community here in the North and across the country.

5021   I'd also like to thank my colleagues here, my four colleagues up here on the Bench.

5022   But mostly I'd like to thank particularly the participants in our public process. We had over 300 or so businesses and individuals participate in this process and that enriches our public process.

5023   And just in closing, as Mr. Flaherty pointed out, tomorrow is National Aboriginal Day. I believe it's a holiday here as well. So for those of you that have a long weekend, enjoy. We certainly will try to enjoy ourselves in this community until we head back to our various homes across the country.

5024   So thank you and the hearing is adjourned.

5025   Thank you.

--- Whereupon the hearing concluded at 1346

REPORTERS

Johanne Morin

Monique Mahoney

Jean Desaulniers

Sue Villeneuve

Date modified:

2013-06-20