ARCHIVED - Transcript, Hearing 1 October 2014
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Volume 3, 1 October 2014
TRANSCRIPTION OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION
Review of wholesale mobile wireless services
140 Promenade du Portage
1 October 2014
In order to meet the requirements of the Official Languages Act, transcripts of proceedings before the Commission will be bilingual as to their covers, the listing of the CRTC members and staff attending the public hearings, and the Table of Contents.
However, the aforementioned publication is the recorded verbatim transcript and, as such, is taped and transcribed in either of the official languages, depending on the language spoken by the participant at the public hearing.
Canadian Radio-television and Telecommunications Commission
Review of wholesale mobile wireless services
Crystal HulleyLegal Counsel
John MacriHearing Managers
140 Promenade du Portage
1 October 2014
- iv -
TABLE OF CONTENTS
PAGE / PARA
9. Roslyn Layton579 / 3372
10. Rogers Communications613 / 3530
11. Mobilexchange Ltd.745 / 4364
12. Tucows Inc.772 / 4493
13. Canadian Cable Systems Alliance Inc.814 / 4767
- v -
PAGE / PARA
Undertaking693 / 4004
Undertaking697 / 4032
Undertaking730 / 4266
Undertaking734 / 4294
Undertaking788 / 4572
Undertaking790 / 4587
Undertaking791 / 4603
Undertaking830 / 4860
Undertaking832 / 4875
Undertaking849 / 4982
--- Upon resuming on Wednesday, October 1, 2014 at 0900
3364 LE PRÉSIDENT : Donc, à l'ordre.
3365 Madame la Secrétaire, s'il vous plaît.
3366 LA SECRÉTAIRE : Merci, Monsieur le Président.
3367 Our first presenter of the day is Mrs. Roslyn Layton from Aalborg University, item 9 of the Agenda. She is appearing by Skype from Denmark.
3368 Good morning, Mrs. Layton.
3369 MS LAYTON: Yes. Good morning. Thank you, Miss Roy.
3370 THE SECRETARY: All right. So if there is any problem with the sound or anything, just let us know.
3371 The Panel is here and ready to hear your presentation. You can go ahead.
3372 MS LAYTON: Thank you.
3373 Good morning. Thank you, Chairman Blais, Vice-Chairs and members of the Commission for the opportunity to present. Allow me to express my gratitude to the administrative and technical staff of the CRTC who have facilitated my remote participation.
3374 My name is Roslyn Layton. I am an American citizen and a PhD Fellow at the Center for Communication, Media and Information Studies at Aalborg University in Copenhagen, Denmark. I am also a Visiting Fellow at the American Enterprise Institute in Washington, D.C. Previously I worked in the IT industry in Silicon Valley, India and Europe. I moved to academe because I wanted to understand why wireless technologies were changing my industry.
3375 My research focuses on international comparisons of broadband and wireless policies. I have published articles about the U.S. and EU. My university hosts leading Canadian academics for seminars on these topics. It is clear that Canadian and U.S. communications policies have many similarities and a few differences. To that end, I now include Canada in my research for an additional perspective.
3376 Being an American academic based in Europe, I am invited to comment in policy discussions in the United States. This year I participated in a hearing on wireless competition convened by the U.S. Senate and a roundtable on mobile broadband held by the FCC. I am active in the process to update America's Communications Act of 1934, led by the House of Representatives. I have also participated in discussions on the wireless industry held by the UN Secretariat.
3377 I thought my research could be helpful to the CRTC's inquiry, so I submitted my comments. However, the views I express do not necessarily reflect those of the institutes with which I am affiliated.
3378 It is frequently observed that Americans are "benevolently ignorant" about Canada. However, Americans and people in the rest of the world can learn many positive lessons about the wireless market by looking at Canada.
3379 There is no doubt that the U.S. and Canadian wireless economies are linked. Although the two countries have just 5 percent of the world's population, they account for 45 percent of the world's 4G LTE connections and a quarter of the world's mobile data consumption. This fact is even more staggering when considering that these levels have been achieved in just two and a half years.
3380 It is not surprising that BlackBerry, Android and Apple have emerged from the U.S. and Canada. Wireless networks power an ecosystem that is driving 3 percent of the economy of these two countries, more than half a trillion dollars per year. Some 11 million jobs are directly related to the wireless sector, and the governments of the two nations recover more than $60 billion a year in taxes from the industry. Spectrum and other fees add further revenue. Americans and Canadians are number 2 and number 3, respectively, in the world for consumption of Internet data, and this is largely enabled by ubiquitous networks and devices. There is no doubt that Canada has one of the most dynamic, competitive and advanced wireless markets.
3381 Yet, in spite of this success, a number of critics in both the U.S. and Canada malign their countries' wireless policies, saying that the nations are falling behind, that prices are too high, that the market is uncompetitive and so on. They even assert that "things are better in Europe." In any case, the evidence clearly points to the opposite, and EU leaders have recognized the failings of their policies. In fact, they are looking to American and Canadian approaches to stimulate investment and growth.
3382 I have tried to understand this disconnect, so let me offer a few explanations of these misunderstandings about Europe, namely that service-based competition is a success and that the EU has better prices and networks.
3383 I will make some generalizations about the European and North American approaches to wireless policy, but bear in mind that each country has its own policy, history, market composition and so on. I'm also going to give some specific examples about Denmark.
3384 We can say in general that the U.S. and Canada have taken a dynamic, facilities-based approach in which technologies and networks compete. Europe has largely chosen a static, service-based approach where network providers compete against resellers on the same network.
3385 The seminal theory of this regime is the "Ladder of Investment" proposed by Martin Cave in 2004. Regulators and policymakers frequently use Cave to justify wholesale regulation, but they miss many of the requirements he stipulates. To get it right, regulators must set forth clear expectations and an exit strategy for entrants and then enforce those requirements. Cave said that climbing the ladder should be "demanding but feasible."
3386 His ultimate goal is to get to dynamic, facilities-based competition. He wants to see different networks competing because that's what drives innovation. A world of service-based competition was not what Cave had in mind.
3387 This model has been applied to wireline, and in limited cases to wireless in Europe, for example to specific incumbents, but not necessarily to the wireless sector as a whole. But in either case, entrants have not climbed the ladder. They are content to stay at the first rung.
3388 I want to share the case of Denmark, where some of the world's first MVNOs emerged. Denmark had wholesale wireless regulation, but then the telecom regulator removed it.
3389 Denmark is exceptional to other EU countries. It is a small nation of just 5.5 million people, but when Greenland is included, it is the second...
--- Technical difficulties
3390 THE SECRETARY: Sorry about that. We probably lost the connection.
3391 THE CHAIRPERSON: Can you hear us, Miss Layton?
3392 MS LAYTON: Yes.
3393 THE CHAIRPERSON: Okay. Good.
3394 MS LAYTON: Yes. I apologize.
3395 THE CHAIRPERSON: No, no, it might have been on our end.
3396 MS LAYTON: Okay.
3397 THE CHAIRPERSON: Anyhow, we lost you when you were just starting to talk about the size of Greenland.
3398 MS LAYTON: Okay.
3399 So, at any rate, when you include Greenland, Denmark is the second largest country in Europe. It has a number of similarities to Canada in this way.
3400 If we think back to around the year 2000 and the 3G auctions, governments and operators saw a lot of dollar signs. Operators had a dream to double their ARPU through wireless services and governments made a lot of money by selling the spectrum licences.
3401 The Danish market included incumbent TDC and Norwegian Telenor and then Telia emerged from Sweden, Orange from France, and Hutchinson 3 from Hong Kong. All told, there were five network operators, but wholesale wireless regulation was placed only TDC and Telenor, and this was applied with the rationale that it would help the operators 3-5 to build their networks.
3402 It was clear within a couple of years that the 3G boom was a bust and the high ARPU would not be realized. It was at about this time that the first MVNOs and service providers emerged in Denmark and Germany as they could take advantage of the wholesale wireless regulation.
3403 Already by 2004 the unintended consequences of wholesale regulation became apparent in Denmark. Orange, which had purchased spectrum licences and made network investments, could not offer services at a price that could compete with the asset-light, service-based competitors such as Telmore and CBB, the very successful MVNOs. Therefore, Orange exited the market and its assets were acquired by Telia.
3404 Discount MVNO Telmore was launched in Denmark in the early 2000s. With only 67 employees, it reached 13 percent market share and 540,000 customers. At the same time, Orange had 1,600 employees in Denmark at its peak and only reached 11 percent market share or half a million customers. Telmore owned no spectrum, infrastructure, or even brick and mortar stores. It just sold SIM cards online. Their concept was simple: one price for voice at any time.
3405 The success of the two MNVOs, Telmore and CBB, which could use the wholesale regulation to their advantage, ultimately spelled the end of Orange. This gave the Danish wireless market the dubious moniker of the "Danish disease."
3406 In 2006, the Danish telecom regulator decided to remove the wholesale regulation because it felt the market, with three wireless networks, was competitive for wholesale. Furthermore, the policy it hoped would create competition was instead deterring investment in networks and punishing network entrants. Furthermore, the service providers did not climb the ladder of investment. They were happy to remain resellers.
3407 Hutchinson 3 opposed the regulator's decision, saying that it couldn't survive without wholesale regulation. It fought the regulator in court, but lost. In fact, today, 3 is stronger as a result of this deregulation.
3408 In summary, there were five network operators in Denmark. Wholesale regulation was applied to the two leading network providers and it had the opposite of the intended effect. It discouraged the new network entrants from growing. No wireless networks have been built by any service provider or MVNO in Denmark at any time. Moreover, there have been no complaints to the regulator since the removal of wholesale regulation.
3409 When we look at Europe today, we see the number of wireless network providers decreasing, not increasing. Countries thought they could sustain five networks. That didn't prove true. Nations with four network operators are moving down to three, and some even down to two, as we see in Norway. In fact, in Denmark it is likely that Telenor and Telia will merge, leaving three networks in the marketplace. Even with their network sharing agreement, they have a hard time to deliver sustainable margins.
3410 In fact, Canada has succeeded where other countries have not. Whereas most countries have just one or two strong network providers, Canada has three and each with a nearly equal market share. Also, Canada has a viable fourth player and a number of regional players and I hope the CRTC could take stock of this success.
3411 We don't need to be afraid of having fewer wireless networks. It's not the number of competitors that creates competition, but the level of technology. What drives competition in wireless markets today is technological development. This is not an outcome of regulation, but rather market forces when they are allowed to work.
3412 We can see competition from different technologies in a number of ways. For example, people have jettisoned telephony from the phone company in favour of VoIP bundled with cable. Wi-Fi is now widely available through unlicensed spectrum. Voice over Wi-Fi, the new standard for most 4G phones. Cable provider Comcast is bringing a neighbourhood Wi-Fi program across America by leveraging its subscribers' homes into hotspots. Over-the-top providers offer free substitutes for voice and SMS.
3413 It's also not surprising that we see wireline players trying to make their offerings more attractive as wireless offers the very compelling advantages of usability and mobility.
3414 I appreciate that regulators are concerned about how these changes impact consumers, but these issues frequently work themselves out on their own. However, regulatory mistakes can take longer to undo. I would like to quote the 10th Anniversary Edition of the Telecom Regulations Handbook which was published for the world community by the World Bank. Incidentally, one of the authors is an alumna of my university.
3415 She notes, regulation has potentially high costs. The regulatory process is inherently time consuming to administer and requires considerable expenditure of resources. In addition, it can have unintended consequences which may be detrimental to the "public interest". No matter how capable and well-intentioned the regulators are, they can't produce an outcome as efficient as a well-functioning market.
3416 Over time the handbook advises that the regulator should transition away from sector specific regulations toward a general ex post competition framework.
3417 The EU transition from dynamic to static competition is a failed experiment from which we should learn and by all means avoid. Originally EU leaders embraced the idea that there should be dynamic competition between different network technologies. There was a belief that more networks could create more competition, despite the fact that operators three and four had the same costs of building a network as operators one and two, but fewer customers to finance it.
3418 It was then thought that increasing the number of service-based competitors through the ladder of investment would improve the outcome but, as we have seen, entrants don't climb the ladder. They are attracted only to the first rung and that's where they stay. Needless to say, incumbents and established providers are reluctant to invest in networks because they have to lease it to competitors at a regulated rate. So new networks are not built, the market never becomes "competitive" enough and regulators have to manage it in perpetuity.
3419 I observe that successful MVNOs and service providers never intend to invest in infrastructure in the first place. The kinds of entrepreneurs and management groups that are attracted to these business models are largely marketers or retailers from other industries. They know how to sell wireless services by setting up web-shops and they want to be infrastructure light.
3420 When people talk about things being better in Europe they generally don't understand the underlying dynamics. If price is all you care about, then you should be happy with the European case where you get less data on an older and slower network. However, the focus on controlling prices in the short term hurts consumers the in the long term: they don't get best in class networks, nor the wireless ecosystem that comes along with it. Outside of a few exceptions, the EU has little wireless innovation to show for its policies.
3421 Yes, consumers in Canada pay more, but they get more. Compared to Europeans, Canadians consume five times as much voice, twice as much SMS, and one-third more data because they have newer networks offering faster speeds and more capacity. This means more value for money. Plus, the U.S. and Canada are the hotbed of wireless innovation, built on state-of-the-art wireless networks.
3422 The conclusion of my research on the U.S. and Canadian approach on the one hand and the EU on the other is clear and it has been corroborated by a number of American and European scholars. Dynamic, facilities-based competition provides higher investment and greater coverage in next generation networks.
3423 Simply put, 10 years ago the EU accounted for one-third of the world's private communications capital expenditure, or CAPEX. That amount has plummeted to less than one-fifth today. Meanwhile the people of the U.S. and Canada, just 5 percent of the world's population, have enjoyed a quarter of the world's communications CAPEX for a decade. This is a success of dynamic competition of which Canadians should be proud.
3424 Moreover, the EU thought it would lead the world in wireless. It thought that having agreed to the GSM standard and having six major phone manufacturers, including Nokia, which at one time made more phones than the current amount of Apple and Android devices put together, would assure it global leadership in wireless. But the EU is not in a leadership position today and it still has not emerged from the financial crisis. Unfortunately, regulatory intervention has not created the advanced networks and dynamic competition that has been hoped for.
3425 This is why the new EU government is decidedly pro-telecom and deregulatory and will look for ways to reinvigorate the telecom sector with much needed reforms. This it hopes will add 500 billion Euros the moribund EU economy over the term of the new government.
3426 The evidence weighs against regulation improving the upon the status quo in Canada. There is an abundance of infrastructure, but it's difficult and expensive to attract and maintain customers. There are many choices in the marketplace and customers are not loyal. The value of a customer base is higher than infrastructure and, hence, wholesale regulation tends to favour service-based providers at the expense of network providers.
3427 While I'm still researching the question why there is a discrepancy between popular perceptions about the wireless market and the facts, I can say anecdotally there are strong ideological and political differences about about how wireless markets should work. I can appreciate the challenge and difficulty this creates for an agency such as the CRTC.
3428 The policy debate tends to focus on a dichotomy between industry and consumers. There is a notion that the regulator, or the government, can only serve one and not the other and that industry and consumers are inherently at odds. I don't believe this. The truth of the matter is that there is no group more incentivized if not dictated by consumers than the wireless industry itself.
3429 The things that support competition and investment also support consumers. No company can survive if it doesn't satisfy the needs of its customers. Moreover, where we see the most impact through lowered prices comes not from regulation but from market forces, namely disruptive technologies.
3430 It is not uncommon when a society is in the midst of change, as we are today as we shift to an all-Internet protocol world, that there is a backlash. People long to return to a time with more certainty, even if it is less innovative, dynamic or competitive.
3431 However, we cannot stop progress. To be sure, there were always advantages and disadvantages as we moved from era into a new technology. Electricity, the camera, the telephone, the radio, the television, the mobile phone, the Internet, all of these things change our society irrevocably, but on balance they increase the welfare for a greater number of people than than era before.
3432 I daresay that critics want a world where consumers can get all the benefits of competition, innovation and efficiency, but don't want to allow the market forces that create them. Whether consumers pay themselves or the government pays, people have to pay in the end and there is no such thing as something for nothing, but on balance the market tends to deliver these goods more efficiently than government.
3433 A decade ago if you wanted to watch a movie on your phone it would have taken you thousands of dollars and a week to download. Now you can do it for a fraction of the cost and time. It is innovation, not regulation, that improves human welfare.
3434 Canadians should be proud of their networks, they were built by risk-takers with the hopes that they can recover costs in a competitive market. The decision on the table here is whether risk-takers that invest in infrastructure will be rewarded or punished. Indeed, many services want to come to Canada to take advantage of its high-speed networks and attractive subscriber base. The balance should not be tipped in favour of service providers by imposing regulation that makes it less attractive to invest in Canada.
3435 I believe that this Commission has the interest of Canadian consumers at heart. I urge you to take the difficult road to forebear and not implement additional regulation to this dynamic wireless market which is clearly working.
3436 I thank you very much for your attention and I look forward to your questions.
3437 THE CHAIRPERSON: Thank you very much, Ms Layton.
3438 Certainly the Commission always appreciates when members of academia participate in its proceedings, it certainly helps bring fresh lanterns in our quest to find the public interest. In fact, it is a lot more useful than publishing studies outside our hearing room and doing press releases, but not bringing them formally into our processes, like certain think tanks have done recently. So I appreciate your participation.
3439 Commissioner Dupras will start us off with some questions, if that's all right. Thanks.
3440 COMMISSIONER DUPRAS: Good afternoon.
3441 MS LAYTON: Thank you. Good afternoon. Good morning.
3442 COMMISSIONER DUPRAS: Good morning for us, yes.
3443 In your presentation this morning you say that:
"Dynamic, facilities-based competition provides higher investment and greater coverage in next generation networks."
3444 That's one thing, but what does improve prices in a market?
3445 MS LAYTON: Can you hear me okay?
3446 THE CHAIRPERSON: Yes. Yes, we can. Thanks.
3447 MS LAYTON: Okay.
3448 So that's a very -- I don't know how much time we have for this question.
3449 If we look at what's available to Canadian consumers today, they have a variety of products in the marketplace and we see prices improving through technological development and change. For example, because of innovations in different kinds of networks we can bundle more services.
3450 So in the past you had a twisted pair of copper to your house and that was available for telephone, now on the same piece of network you can get a variety of services that you couldn't get before. So you may pay more than in the past than you paid for pure telephone, but maybe today you are getting four or five things. So that's a technological improvement.
3451 We also see business models as a way to improve prices. For example, I'm not sure if we talked about the prepaid market very much during the proceeding but there are different operators who decide to segment and focus on selling prepaid service, for example, to you know, a particular market segment.
3452 So we can see this through business models. We can see this through technological differentiation and we certainly see it through -- you know, you can see it through what you might call the networks themselves.
3453 If you have 2G connection and then you enter the market and you say, "Well, I'm going to offer 3G", you know, that is a way to compete. Now, maybe you offer your 3G service higher but it's a faster connection. It offers more data. The customer gets the better value.
3454 So that would be how I would answer the question. Does that make sense?
3455 COMMISSIONER DUPRAS: Okay, thank you.
3456 In a market like Canada which is well established where carriers have had decades to build their networks and when we look at the U.S. where there's also some MVNOs operating -- in fact, there is one which I think is number five in the market with about 15 million subscribers, if I'm correct, don't you think that the characteristics of our market is different than the ones you were referring to in Europe?
3457 MS LAYTON: Sure. Well as I said at the outset, I think, you know, it is helpful to look at generalizations and, I mean, to look at the big picture. I also respect that every market has its own situation and market composition, history and situations. So I agree with you and this is about Canada. Of course, you posed a question here about the United States.
3458 So I don't have a problem with MVNOs and service-based providers in the case where they are allowed to operate where commercially-negotiated agreements -- where they can find, you know, operators who may have excess capacity, who may realize there are certain segments where they don't want to serve. You know, there is no problem with that.
3459 I mean, we have seen MVNOs serving ethnic segments for long distance, some supermarket resellers, you know, and also SIM-only products over the internet. Now, those are fine provided that they are at will and allowed to where the parties can decide upon it at their rate between the two of them, not imposed in such a way where the government sets the price.
3460 So when you talk about the United States there is not a mandated regime for MVNOs. I think that it has a place in that market. Where we see most of -- but in terms of the innovation that's going on, it's largely being driven by major operators who are investing billions of dollars in our network and looking to create the next generation kinds of technologies whether it's neighbourhood WiFi or VDSL, you know, and things like that.
3461 COMMISSIONER DUPRAS: Okay.
3462 MS LAYTON: So you know, I definitely embrace different kinds of models in the marketplace but not because the regulator, you know, tips the balance one way or the other.
3463 COMMISSIONER DUPRAS: Okay.
3464 So I understand that regulation of wholesale markets that you're talking about, those you're -- the type of regulations you're against is for service-based competitors, mainly MVNOs. Is that correct?
3465 MS LAYTON: I mean --
3466 COMMISSIONER DUPRAS: If there were some -- where I want to get is if it was to encourage facilities-based competition would you have the same view against wholesale regulation to provide access to roaming and tower sharing at more realistic prices?
3467 MS LAYTON: Yeah. Well, I will definitely say I have a bias. You know, I'm the classic liberal where, you know, I try -- my goal is to try to find a market or a technological solution for a problem you know where at first possible and if that cannot be found then to look for regulatory solutions. I'm not sure that -- I guess, you know, if you could give me an example.
3468 What I could say as an example now is with regards to tower sharing in Denmark and serving rural areas, we have a multistakeholder approach which is not being required. It's not being mandated through regulation. But it's being -- how would you say -- it's a kind of a community-based approach where it's coming from the top, from the political leaders and local leaders, operators as well as the site owners where everybody is saying we want to get together to fast track deployment of infrastructure in rural areas. This is not being done to say, you know, if you don't do it you're punished or it has to be done at this rate.
3469 It is essentially a very cooperative multistakeholder-driven approach because the society agrees that quickly deploying the infrastructure in rural areas without delays and without extra costs is a benefit.
3470 So I guess what I would say is where possible first to try to find a multistakeholder approach that doesn't require regulation.
3471 COMMISSIONER DUPRAS: Okay. In the example you cite in your presentation this morning, in paragraph 22 when you refer to Hutchison3, you say there were some wholesale regulation. Again, here you're referring to wholesale regulation which covers service-based providers mainly?
3472 MS LAYTON: Yes. Yes, there in fact was at the time -- and in my May filing I have a detailed -- I provided detail of this case. It's been translated from Danish where it discusses the process of what was the regulation before and what was the decision and then how it changed afterwards.
3473 So at the time prior to 2006 there was wholesale regulation on the two largest operators. It did include a certain amount of roaming regulation under the idea that it would help operators numbers 3 through 5 build their networks.
3474 And at the time of 2006 the regulator decided that they didn't -- that because there were three operators; TDC, Telenor and Telia, who all offered wholesale agreements to entrants whether they were service based or network based that they didn't need to maintain the regulation anymore, that essentially having those three networks was enough to ensure a competitive outcome.
3475 So that regulation -- both the roaming and the wholesale regulations were vacated. Of course they made the decision in 2006. It didn't happen until 2009 because they had to have a lawsuit in between.
3476 COMMISSIONER DUPRAS: Okay. It's interesting you talk that the authorities decided to deregulate because there were three networks. As you know, in Canada some say that in reality -- really there is two networks that are national for roaming. Do you think that's sufficient to ensure a proper wholesale market?
3477 MS LAYTON: Yes. Yes, well, it's interesting. I mean, when I've listened to this hearing I have heard things both ways. I've heard, well, the number doesn't matter and then I've heard the number does matter. And also interestingly, through time, we may change our opinion about what is -- about what is the acceptable number.
3478 In my opinion you can have two networks and still have an extremely competitive marketplace. If you have a 2G and a 3G network you can still have viable competition.
3479 COMMISSIONER DUPRAS: At the retail market?
3480 MS LAYTON: No. I mean, I believe you can -- now again, is it a situation where there is you could have -- if there is just two competitors would they be foreclosing in a wholesale situation? You could also manage that should it happen through competition law. Do you necessarily have to have regulation? Again, I apologize for speaking in hypotheticals.
3481 In the case, and this is the Danish case in 2006 where this was what was deemed under the EU framework. It was looked by the competition authority, by the regulators themselves. They fully admit the market was not perfect. There were some imperfections on the spectrum side but, in general, they believed that this situation was competitive.
3482 Now, bear in mind that two of the three operators have a network-sharing agreement. Telia and Telenor had network sharing. So you could say that that would be similar to Canada in that you had three operators where two have network sharing.
3483 So you know, I don't mean to split hairs but this was the situation that the regulator -- the conclusion that they came to.
3484 COMMISSIONER DUPRAS: Well, thank you very much. Those are my questions.
3485 THE CHAIRPERSON: Ms Layton, maybe just another area of inquiry.
3486 You're very much advocating that the Commission should do nothing and, frankly, you know, there is nobody in this Commission that actually wants regulations just for the sake of regulation. We only -- and despite what commentators often say out there because they don't believe us, but we actually only regulate where necessary. And we've repeated it -- I certainly have -- on a number of occasions.
3487 But here's the problem. Doing nothing in this particular case results in a very strange result. We have forborne in this area. We've done some fact-based inquiries, inquired about the situation because there was some concerns raised.
3488 But in the meantime Parliament has adopted a piece of legislation by amending section 27 of the -- by adding section 27.1 to the Telecommunications Act. So here's Parliament that represents Canadians that has adopted the wholesale cap. Doing nothing leaves that cap in place. Any advice?
3489 MS LAYTON: If I could -- well, first can I say I feel your pain. I don't know who in the world probably has a tougher job than regulators. I know this having -- I spent two weeks with the FCC in a series of meetings over the last month and I've never seen a group of people who were ever damned if you do, damned if you don't. You know, no one will ever be happy with the outcome.
3490 What I can offer at the first level, it is a -- it's a long time academic debate about the independence of the telecom regulator. How can you ensure the quality of the decision-making if it's constantly being influenced by political or social public opinion and what have you?
3491 So I would certainly say I agree with the difficulty of the position about: how do you do the right thing when the government is mandating these things?
3492 I might give you a bit of inspiration for, again, we can -- my research -- I will just give you a small slice of -- here's -- and maybe -- I don't necessarily say this is -- you have to take the radical approach, but it's an educational point you could offer to the Canadian government.
3493 There is a movement amongst the developed countries of the world to transition away from what they call the regulatory state to the developmental state. This is a notion that comes out of the Japanese Economic Miracle. You can read about it in Chalmers Johnson. He wrote this book about how did Japan evolve.
3494 THE CHAIRPERSON: Well, from Greenland to Japan, I guess.
3495 Could we try just to finish off? I think it's frozen again.
--- Technical difficulties
3496 MS LAYTON: I can see you.
3497 THE CHAIRPERSON: Ah, good, and we can hear you.
3498 MS LAYTON: Okay.
3499 THE CHAIRPERSON: This time we lost you in Japan.
3500 MS LAYTON: Okay, so it was simply saying I have a -- I'm going to suggest to you a notion which is a kind of -- what could we say? -- a new mode of thinking amongst regulatory scholars about transitioning to developmental policies, and how did this play out.
3501 How has it played out in Denmark?
3502 In 2011, the new centre-left government dismantled the telecom regulator. All the employees were put in four different agencies. The communications law is still in place, but they have a new mandate to ensure that broadband enables the societal goals: economic growth, education, health, and what have you. The idea is that telecom regulators have a lot of expertise that can be utilized in various different functions.
3503 And, in fact, the country now is embarking on a new communications law which is incorporating the role of Over the Top technologies into competition and is, in many ways, kind of a revolutionary notion. But it's perhaps appropriate, given the change that we're seeing, you know, how the Internet's driving changes in the world.
3504 So I don't have an answer for you to what -- you know, I mean, to tell the Canadian government, other than there are different approaches, that a number of modern nations are looking at ways that they can use their telecom regulatory expertise more effectively to achieve the goals of the society, and that another important part of having a viable telecom regulator is independence, and very often that means that it is a difficult road to do nothing, but in some cases that's the right thing to do.
3505 THE CHAIRPERSON: Okay.
3506 Well, just one final question. And if ever you get cut off, perhaps you can just complete your answer in writing and we'll do it like that because we've got to move on to others.
3507 But I was wondering, from your experience, this disconnect that you refer to, and from your experience in Europe, and the actions, for instance, of the European Parliament wanting certain results that maybe brought the European Commission in the early day to push in a certain direction, and now we see a shift, do you have any insights, from your perspective, looking at the European market, of that tension between elected officials trying to meet the needs of voters, electors, the conflict between that and trying to think about things in the longer term --
3508 MS LAYTON: Yes.
3509 THE CHAIRPERSON: -- that sometimes we struggle with?
3510 MS LAYTON: Well, it's an excellent question. I would love to undertake to provide a written answer to that. I think it's a -- it sounds like you could -- someone could get a PhD on that particular topic.
3511 But maybe I'll say very briefly, we also -- it shouldn't be a problem in modern democracies that we have today that there are tensions. I think that's a natural and good thing. If everything was always yes, you know we all agree, I think we should be concerned about the state of our democracy.
3512 We know that we have a kind of a -- this federalist sort of setup between a Parliament, the Council of Ministers and the EU Commission was defined with an idea of a balance in power in mind. This is not to say that there are not challenges in Europe. We know that a number of countries even want to leave the EU altogether. They don't feel it's relevant. I mean these are small countries that want to split off. But even in every major European country there are certain segments of the population who believe that the EU doesn't do very much for them.
3513 On another level, you could say that the EU has been extremely successful as a peace project. The fact that we could incorporate the eastern European nations into the EU is quite an accomplishment. I mean I think that should be recognized.
3514 The EU is trying now to focus on economic concerns, and this is -- there is across the board at every level a concern that the economic growth is not where it should be, and the issue is: how does the EU step up to do this? And they have come up -- there's a sort of a -- the new government is looking at a five-point plan, which includes infrastructure investment, something on the order of $250 billion over the next five years. They want to address level-playing-field issues with Over the Top technologies, creating incentives for ICT adoption in various, you know, businesses. Whether that's through tax breaks or tax returns, things like that, I'm not exactly sure just yet.
3515 The other area is the EU is looking for improving privacy insecurity measures. That's how they feel that they want to compete against, let's say, American, if you will, services, which they don't see as so robust on this front. You know, that remains to be seen.
3516 And then they want to promote a regime of digital literacy, which -- about 40 per cent of the workforce of the EU is not prepared today for the kinds of jobs that are Internet-enabled, so there's definitely issues around digital literacy.
3517 So in terms of the question: does this make voters happy?, I would hope so. I mean I think that those are definitely the areas where they need to move forward.
3518 You could criticize that in many cases the EU may go through politics of desperation. You know, we've had rounds on net neutrality and mobile roaming and, you know, these are on the table, they're off the table. But we're still coming back to the fundamental things: if we don't get these big issues right -- the education issues, the infrastructure issues, the investment issues -- the rest of those things don't matter.
3519 So there is definitely an understanding that now is the time to do it.
3520 THE CHAIRPERSON: Thank you very much, Ms Layton.
3521 We certainly appreciate your empathy with our pain, and thank you for having contributed to the proceeding up to date.
3522 Thank you very much.
3523 MS LAYTON: My pleasure. Bye.
3524 THE CHAIRPERSON: Thank you.
3525 Madame la Secrétaire.
3526 LA SECRÉTAIRE: Merci, monsieur le Président.
3527 We are now ready to hear Rogers Communications' presentation.
3528 I would ask that you please introduce yourselves for the record.
3529 You have 20 minutes.
3530 MR. ENGELHART: Thank you, Mr. Chairman and Commissioners.
3531 My name is Ken Engelhart.
3532 To my left is Guy Laurence, President and CEO of Rogers Communications. Mr. Laurence has over 30 years of global experience in telecommunications, pay television and media. Before joining Rogers, he was CEO of Vodafone in the U.K., and prior to that CEO of Vodafone Netherlands. Vodafone operates in 30 countries and serves over 400 million customers.
3533 To my right is Dawn Hunt. To Dawn's right is Sylvain Roy, Senior Vice-President, Wholesale, and to his right is Howard Slawner.
3534 Behind me, staring on my left, is Charit Katoch, and to his right is Joel Thorp.
3535 To Guy's immediate left is Mr. Richard Feasay. Mr. Feasay has almost 25 years of experience in regulatory matters, across 20 markets in Europe, Asia and the Americas.
3536 To Mr. Feasay's left is Ambassador David Gross, who is a partner with Wiley Rein, a law firm based in Washington, D.C. Mr. Gross has over 30 years of communications law experience, including serving as ambassador and the United States' Coordinator for International Communications and Information Policy between 2001 and 2009.
3537 Behind Mr. Feasay is Dr. Andy Andy Baziliauskas, who is an economist with Charles River Associates, and specializes in competition economics, policy and regulation.
3538 To his right is Mr. Jeff Hunter, who is a consultant with nearly 20 years' experience in the telecommunications industry, including the negotiation of U.S. domestic and international wholesale roaming agreements.
3540 MR. LAURENCE: Good morning, Mr. Chairman and Commissioners.
3541 Sorry, microphone on.
3542 Good morning, Mr. Chairman, and Commissioners.
3543 Thank you for giving us the opportunity to attend today.
3544 When I arrived in Canada last December, I remember thinking that the weather was colder than I expected, but the welcome was warmer. I have to say, though, the biggest surprise of moving countries was the difference in the quality of the mobile networks between the UK and Canada.
3545 The network I ran in the UK covered less than 50 per cent of the population with LTE, whereas Rogers covers over 75 per cent. Video streaming is twice as fast in Canada and indoor coverage is excellent, and the number of times a customer drops a call is less than a third of the UK rate.
3546 I think Canadians, and perhaps policy makers, take all of this for granted. Let me be clear, I think that is a mistake.
3547 In this proceeding, we're not dealing with a device that is a toy, a minor discretionary purchase or a "nice to have". We are talking about a tool that is woven into the social fabric of this country.
3548 Mobile services have become a central part of our lives. We keep in contact with our friends and family through mobile services. We use it to access the internet and keep up to date with events.
3549 We use it to plan journeys, to guide us, and we use it in times of peril. About 14,000 911 calls are made on a mobile phone in Canada on a daily basis.
3550 Business and government cannot operate without mobile services. They make Canadian business more nimble and efficient. There is no other business tool that can replace the advantage that mobile services provide.
3551 Mobile networks are not like buildings which, once built, only need maintenance. They are more like living organisms that need to be refreshed and expanded as demand grows.
3552 To compete in this market, I need to spend over $28 million per week refining and expanding the capabilities of my network. And as the demands of Canadians grow, I need to acquire more spectrum to service their needs.
3553 The quality they demand comes at a price, and the truth is that the UK consumers are unlikely, at least for the next decade, to enjoy the quality we enjoy in Canada today.
3554 Many parties at these hearings are telling you that the regulatory measures proposed in this proceeding will not stop large carriers from investing in mobile networks. This is what the European regulators were told in the mid-2000s, and they believed it, but they were wrong and it went downhill very quickly, over the next five to seven years.
3555 Once financial returns dry up, capital markets demand a response, and this generally involves reducing operating and capital expenses. But Phone UK, for instance, had 2G services that covered 99 percent of the population, and 3G coverage that only reached 80 percent of the population after 10 years of operations. LTE is years late in the UK, and Vodafone covers less than 50 percent of the population.
3556 If you repeat the same mistakes that Europe's regulators made, you could destroy Canada's mobile network advantage. This is why we are here today urging the CRTC not to impose any further regulatory requirements on the mobile wireless market.
3557 Once the damage is done, it's almost impossible to recover from.
3558 MR. ENGELHART: In this proceeding, the CRTC asks whether the wholesale mobile wireless market is sufficiently competitive.
3559 In order to properly address that issue, the Commission should first ask whether the retail market is competitive. This is the approach used by the CRTC when it examined the competitiveness of the wholesale wire line market.
3560 If the downstream retail market is competitive, then additional regulatory action in the wholesale market is unnecessary, will be harmful and will simply shift profits between firms rather than benefiting consumers.
3561 The Competition Bureau agrees with Rogers that retail competition must be examined before considering whether further regulatory action is required in the wholesale market. The Bureau claims that the incumbents possess market power in the wireless retail market.
3562 The Bureau arrives at this conclusion based on its view that the incumbent carriers will earn above normal profits and that wireless consumption in Canada is low.
3563 Neither conclusion is supported by the evidence. According to the Competition Bureau's merger enforcement guidelines, it should also have looked at changes in market share and evidence of a rivalry, including price changes, and we will examine these factors as well.
3564 It appears that these factors were left out of the Bureau's analysis because they undermine the Bureau's argument.
3565 The Bureau has said that wireless incumbents are earning above normal profits, but their own evidence contradicts this. Above normal profits are profits that exceed a firm's cost of capital.
3566 A report by the Bureau's expert, the Brattle Group, shows that Rogers invested $14 billion over the first 25 years of its operation up to 2013 and had returns on that investment that were below its cost of capital.
3567 Despite showing that Rogers had a shortfall below its cost of capital, the Brattle Group conducts a highly speculative projection which assumes that Rogers' free cash flow will grow by two percent every year until 2030 and that Rogers will earn $15 billion in profits.
3568 In the first two years of their forecast, the Brattle Group is already wrong, as Rogers has seen a six percent drop in its free cash flow for 2013 and expects a three to eight percent decrease for full year 2014.
3569 TELUS has seen a 21 percent drop in its free cash flow for 2013, and a nine percent drop in the first half of 2014.
3570 Furthermore, the Brattle Group's prediction excludes, for example, the $3.3 billion that Rogers spent this year in the 700 auction, and similarly fails to capture the material expenditures that Rogers may make in future spectrum auctions and investments for future generations of wireless technology.
3571 The only basis for the Bureau's claim regarding above normal profits is the imaginary forecast of the Brattle Group. Nowhere does the Brattle Group explain why the same market forces that led to a loss in the first 25 years will lead to a $15 billion profit in the next 18 years.
3572 The Bureau states that wireless penetration is low, but penetration is a highly inaccurate measure of wireless consumption. Wireless penetration measures wireless subscriptions as a percentage of the population.
3573 Penetration is widely reported because it is easy to calculate. However, in many countries, penetration is far in excess of 100 percent, which only means that a single user has multiple SIM cards or subscriptions.
3574 Multiple SIM cards can be an inconvenience for consumers and do not indicate a greater level of competition The better measure of wireless consumption is average usage per capita since it shows the extent to which consumers actually use wireless services.
3575 On the basis of this more accurate measure, Canadians consume a lot of wireless services. For wireless voice use per capita, Canada is third-highest in the G8. For monthly mobile data traffic per capita, Canada is fourth in the G8.
3576 The real-world profitability data and the extent to which Canadians use wireless services demonstrate the competitiveness of the Canadian wireless market.
3577 Churn in the Canadian wireless retail market indicates that barriers to switching are low. Let's be clear. During the course of the proceedings this week, 92,000 wireless customers will change their wireless carrier, and this happens every week of the year.
3578 Because of the low barriers to switching, wireless market shares have significantly shifted in most provinces since 2006. For example, between 2006 and 2013, Bell shares went down by 31 points in Nova Scotia.
3579 The competitiveness of the Canadian wireless market is also clearly evidenced by the high degree of rivalry that exists between competitors. Very different spectrum auction strategies, different adjacent businesses where competitors bundle, vigorous advertising and a multiplicity of pricing options are all evidence of rivalry.
3580 The CRTC's own study of wireless retail rates shows that prices are falling.
3581 Interestingly, the biggest decreases are in the higher-end packages where the main competition is between Bell, Rogers and TELUS.
3582 The Bureau has uncharacteristically ignored share changes and rivalry in its competition analysis. A proper analysis demonstrates that the retail market is competitive.
3583 Since the retail market is competitive, the CRTC does not need to inquire whether the wholesale market is competitive. However, the wholesale market is competitive. All carriers, national and regional, are required to provide wholesale roaming, and these services are available to all of the new entrants.
3584 Eastlink has roaming agreements with two of the three major competitors and is negotiating with a third regional carrier.
3585 If the market were not competitive, why would Rogers have agreed to an MVNO agreement in 2005 that allowed Quebecor to attract a very large number of wireless customers? Why, also, would Rogers have entered into a joint build and spectrum pooling arrangement with Quebecor? We did so even though Quebecor will be much better off because we believe that we needed to do it in order to more effectively compete with Bell and TELUS.
3586 You have heard that Bell and TELUS have divided the country, and roamers can only roam on one of these networks in a given area. Since they operate a MOCN network, there is no technical reason for this. You should require both Bell and TELUS to offer roaming across the entire country. This will make the wholesale market even more competitive.
3588 MS HUNT: The CRTC has also asked what other regulatory measures are required if the wholesale wireless market is not competitive. Although it is competitive, we submit that Canada is one of the most heavily-regulated wholesale wireless markets in the world.
3589 In 2008, Industry Canada put in place conditions of licence, a detailed policy for mandated roaming and tower sharing, and a process with strict time lines for binding arbitration if parties are unable to conclude an agreement.
3590 These rules ensured that roaming was available at commercial rates.
3591 Contrary to what they are now saying, the new entrants freely entered into domestic roaming agreements with Rogers. Although they had ample time to have an arbitration, none of them completed one.
3592 Canada initially regulated in territory roaming for new entrants for five years. However, it made regulated roaming permanent for all carriers in 2013. Then, in 2014, the federal government enacted Section 27(1) of the Telecommunications Act which caps voice, text and data wholesale domestic roaming rates at average retail price levels well below commercially negotiated roaming rates in Canada and the U.S.
3593 The Competition Bureau admits that Section 27(1) of the Act has reduced the incumbents' ability to raise downstream rivals' costs, and it has not recommended a further decrease in these rates. In fact, they warned this week that rates set too low will reduce the incentive to invest.
3594 The Bureau suggests, however, that non-price terms in wholesale roaming agreements are not protected by the rate caps and should, therefore, be regulated by the CRTC.
3595 Industry Canada's conditions of licence already prevent non-price elements from being discriminatory and Rogers has no objection to the CRTC issuing a similar requirement.
3596 The only specific non-price term raised by the Competition Bureau is seamless handover and this has already been examined and rejected by Industry Canada and the CRTC on four occasions.
3597 With respect to new entrants' allegations regarding tower and site sharing, it is important to understand that because they are primarily in urban areas, most new entrant radio antenna systems are not located on towers. Instead, they are situated on rooftops and other similar structures controlled by non-carriers and private landlords. For instance, rooftop sites make up almost three quarters of WIND's total towers and sites.
3598 Industry Canada has conducted three separate consultations regarding tower and site sharing in the past six years to clarify and further refine the process. Rogers and other wireless carriers are also required to file detailed tower and site sharing reports with Industry Canada every six months. There is no need for further regulation of tower and site sharing.
3599 In this proceeding, a number of parties have stated that they do not want to invest the billions of dollars that Rogers has invested in radio spectrum and wireless networks. Instead, they simply want access to other companies' networks as an MVNO.
3600 All of the new entrants are opposed to mandated MVNOs, presumably because they will cut into new entrant revenues and reduce the value of owning networks. Mandating MVNOs would therefore likely jeopardize the sustainability of the fourth carrier.
3601 There is a temptation to mandate MVNOs because of the possibility that it could lead to a short-term reduction in retail rates that consumers pay. However, in the medium and longer term, mandated MVNOs will reduce the incentive to invest so that consumers will not be able to enjoy the next generation of technology, expanded coverage in new geographic areas or improvements to network quality.
3602 For the same reasons, competitors should not be permitted to use domestic roaming as a form of resale. This is what Quebecor has requested. While opposing mandated MVNOs, Quebecor seeks to be an MVNO in areas where it has not built a network. This would seriously undermine the objective of facilities-based competition and would be inconsistent with Industry Canada's definition of roaming, which expressly excludes resale.
3603 The new entrants and others argue that wholesale roaming rates should be set below the average retail price that carriers charge their own customers. What these parties are really saying is that they want to have the ability to make a profit without making further network investments and without taking any risks. This will weaken both the new entrants' and incumbents' incentive to make network investments.
3604 In no event should roaming rates be set lower than ARP. We recommend that you set wholesale roaming rate caps that are higher than the rate caps set out in section 27.1 of the Telecommunications Act. This will maintain the incentive for carriers to invest in networks. If you require both Bell and TELUS to compete for national wholesale roaming, market forces will set a competitive rate below this cap.
3606 MR. LAURENCE: Europe provides a valuable, if distressing, case study in how consumers suffer when regulation reduces incentives to invest. In Europe, regulators have attempted to increase retail competition by using spectrum set-asides or preferential spectrum fees and have lowered termination and international roaming charges. In a few cases, regulators have mandated MVNOs. All of these measures have led to the current crisis in Europe, with regulators admitting that Europe is falling behind the rest of the world for investing in new wireless broadband technologies such as LTE. As a result, some European countries now favour reducing the number of network competitors from four to three.
3607 With wireless revenues declining, European wireless operators have been unable to invest to capture the benefits of the mobile data revolution that has occurred over the last decade. The inflection point was the introduction of the iPhone in 2007, which unleashed a tsunami of mobile broadband usage. Yet, in its wake, the difference between European and Canadian investment levels has been staggering. Wireless CAPEX overall has fallen in Europe since 2007, while growing by 40 percent in Canada over the same period. Only 5 percent of wireless connections in Europe were on LTE at the end of 2013, compared to almost 30 percent of connections in Canada and the U.S.
3608 Canadian consumers and businesses would not be satisfied with the levels of investment seen in Europe. If Europe's conditions applied here, only the largest cities in Canada would benefit from LTE. The rest of Canada would be limited to 3G.
3609 Not only did European regulators impose heavy costs as a result of their attempts to reduce unit prices but they did not even achieve their primary aim. Per minute prices for voice today are still 20 percent lower in Canada than in Europe.
3610 As European Commissioner Neelie Kroes told regulators:
"Europe was once the home of huge telecoms innovation. From the GSM standard itself to the handsets that use it. But now we are sliding behind. We have a market that is fragmented, lacking dynamism and scale; and we have an economy that suffers accordingly. The result is our networks are slower and less widespread than international competitors. For example, the U.S., Japan and South Korea have 88 percent of the world's 4G connections, while Europe has just 6."
3611 Europe's wireless investment and performance troubles have been described by the Chairman of the GSMA, who represents mobile operators in over 220 countries, in the following terms:
"[W]e have seen Europe falling behind other regions in mobile leadership. The U.S. has opened up a large lead in deployment of next-generation technologies... Mobile investment in the U.S. has outpaced that in Europe, with capital expenditure in the U.S. growing by 70 per cent since 2007 while declining in the EU and the gap continues to widen."
3612 I can't help but feel that these hearings should have been held in the U.K. because if you experienced the real quality of U.K. mobile networks for just one week, you would understand straight away. I have been a customer and a network operator in both countries, so I know the difference.
3613 Don't let the failed policies of Europe erode Canada's success. The only losers of over-intrusive regulation will be Canadian consumers and businesses -- the very people we both serve.
3614 Thank you for your time.
3615 MR. ENGELHART: We would be very happy to answer any questions you may have.
3616 THE CHAIRPERSON: Well, thank you very much. Mr. Laurence, I believe this is your first appearance at a CRTC hearing, so welcome. We always appreciate when CEOs take the time to participate in our hearings as often actions speak louder than words and your participation is very good. So I just invite you to relax. This won't hurt a bit.
3617 THE CHAIRPERSON: I'll pass you on to the Vice-Chair of Broadcasting who will start off the questions.
3618 COMMISSIONER PENTEFOUNTAS: Thank you, Mr. Chairman. Welcome, Mr. Laurence and the entire Rogers team.
3619 I don't know if we kept losing Mrs. Layton because of a disinvestment in Europe or in Canada. I suspect you would plead for the prior of the two.
3620 That being said, a lot has been bantered around. First of all, I'd like to say there's about 250 pages that you've submitted between your two interventions, appendices, expertise. So there's a fair bit of information and data already on file, and you're aware of that, Mr. Engelhart. So let's try to take a look at a couple of issues that may have arisen and give you a chance to sort of expand on them.
3621 A lot has been said about vertical foreclosure this week and the fact that there is an incentive for wholesale providers to increase the costs of their competitors in an attempt to retain market share. A lot was said about a year and a half ago in this same room, or it might have been in Montreal, by a panel member who mentioned the word "girth" in that market power and size has its privileges. You get to move people around.
3622 Isn't that not only commercial nature but human nature that given your size and strength it would be in your best interest and in your shareholders' best interests to make the new entrants' life as difficult as possible to maintain your share of the market?
3623 MR. ENGELHART: Well, I think certainly companies have an incentive to maximize profits of course, but the system builds in competitive choices and those competitive choices restrain those incentives and lead to a competitive outcome.
3624 And where the competitive alternatives are not enough to restrain foreclosure or to prevent foreclosure, you can have a regulatory solution such as, for example, the arbitration that Industry Canada gave to parties. In the event that there weren't enough competitive choices, you could have an arbitrator impose the competitive choice.
3625 COMMISSIONER PENTEFOUNTAS: If the Commission were to decide or find and conclude that there was inappropriate behaviour and that there was competition being prevented in the downstream retail market, would the Commission not be forced to act?
3626 MR. ENGELHART: Yes, but I would urge you to not make that finding. Would it be helpful for me to discuss the way the roaming rates have arisen in Canada or is that -- am I going to jump ahead to one of your later questions?
3627 COMMISSIONER PENTEFOUNTAS: No, please feel free.
3628 MR. ENGELHART: Okay. Because I think this is sort of the central issue that people are talking about.
3629 Industry Canada in 2008 said: All the new entrants can roam and they have five years of roaming and they have to have commercial rates.
3630 So commercial rates, how do we figure out what commercial rates are for roaming?
3631 I've heard a lot of the people this week saying, well, there's asymmetric information, the big guys have the information and we don't. Sort of no one has good information about domestic roaming. You know, in a world where people are forever knowing everything about everyone else, roaming is one of the deepest secrets you can ever find. Roaming rates, people jealously guard them and won't disclose them.
3632 So what we did was we thought, well, there isn't much of a market in Canada. Hardly anybody roamed on us. We knew the CDMA guys roamed on each other but we have no idea what those rates are. So how are we going to come up with the commercial rate, the market rate?
3633 So we looked to the United States because there, there is kind of a market for domestic roaming. It happens there. There was, particularly then but also now, big carriers and small, different rates being paid, different actions being taken. And the FCC sort of supervises it and they have a possibility of arbitrating, but they haven't. As far as we know, there's no cases.
3634 So we spoke to Mr. Hunter, who has negotiated a ton or roaming agreements in the States, and he said: "Well, I can't give you names but I can give you the ranges."
3635 So he told us what the range was for domestic roaming and that's what we took -- Mr. Roy and I took into our negotiations: "Here's what American carriers similarly situated are paying for domestic roaming. Here's what we want."
3636 And to cut a long story short, we had a vigorous negotiation. We came down quite a bit in our price. They went up quite a bit from where they thought they would be. I think they ended up getting rates that were quite comparable, if not better -- well, better than what Americans were paying. So I think they got a commercial rate.
3637 And now, five years later, it's even better because they can roam on us, they can roam on Bell, they can roam on TELUS, and as we mentioned in our opening remarks, we do think that's a way that you could even improve the system further.
3638 So we know from seeking roaming on Bell and TELUS, they say, "Well, this is TELUS territory, you roam on them there, this is Bell territory, you roam on them there." There's no reason for that. They have a shared MOCN network. You should order both of them to provide roaming across the entire country. Then a new entrant has three people offering them service.
3639 So, yes. Do companies have an ability -- or sorry, not an ability, an incentive to want to charge more? Yes. Yes. So I would like to charge 10 cents but I know that I'm going to get all the competitive damage and none of the roaming revenue if they roam on Bell. So I might as well get the revenue. And so I'm going to come down and TELUS is going to come down and you're going to get a competitive market.
3640 So I would urge you to try and put market remedies in place to control that incentive to foreclose and I think that that's a better solution than overregulation, a less intrusive solution.
3641 COMMISSIONER PENTEFOUNTAS: We took note of your point as regards the TELUS and Bell networks. How feasible would that be to impose that roaming be opened up on areas of the network that are not -- that are shared, that are already shared between Bell and TELUS and that are not specific to them individually?
3642 MR. ENGELHART: Well, I'll ask Mr. Roy if he wants to add, but we have a shared MOCN network with Videotron --
3643 COMMISSIONER PENTEFOUNTAS: Yeah.
3644 MR. ENGELHART: -- and they can offer roaming and we can offer roaming. So we're walking the walk.
3645 COMMISSIONER PENTEFOUNTAS: On a much smaller scale, you would agree? And I want to get into details of --
3646 MR. ROY: Well, you can define what's small. Our arrangement in Quebec includes thousands of cell sites, so it's not a small network coverage.
3647 CONSEILLER PENTEFOUNTAS : Ça va. Merci.
3648 You mentioned the U.S. and you brought a U.S. example. MVNOs, by the last count, account for roughly 10 percent of the market. In Canada they're nonexistent. Why?
3649 MR. ENGELHART: I am going to answer that question. I don't know, Guy, if you had something to add on the MOCN networks.
3650 MR. LAURENCE: Yeah. If I could just take you back the previous question just for a second.
3651 COMMISSIONER PENTEFOUNTAS: Sure.
3652 MR. LAURENCE: So in the U.K. I had a joint -- the way that the U.K. industry is constructed is that there are four operators but there are only two networks, and that's a very important point.
3653 So I had a shared network with Telefonica nationally. So they had parts -- I had the West, they had the East, and then we shared London, North and South. There is no technical reason why -- you know, so Telefonica offered wholesale, I offered wholesale. We competed against each other.
3654 There is no technical reason, on a small geography, large geography, global basis, why that can't be done, just to be absolutely clear on that point.
3655 COMMISSIONER PENTEFOUNTAS: So there is a prototype there?
3656 MR. LAURENCE: There is more than just the U.K., to be clear. This is a non-issue, okay.
3657 COMMISSIONER PENTEFOUNTAS: Very good.
3658 MR. ENGELHART: Thanks, Guy. So --
3659 COMMISSIONER PENTEFOUNTAS: You mentioned the rates in the U.S. --
3660 MR. ENGELHART: Yeah.
3661 COMMISSIONER PENTEFOUNTAS: -- and the question was on MVNOs.
3662 MR. ENGELHART: Right. So we have looked at this and I guess we were more active in the MVNO business than others. And again, I'm going to ask Sylvain if he wants to add anything.
3663 But we had, for example, an MVNO arrangement with Videotron. They started as an MVNO. We had an MVNO with a company called Cityfone, which was actually kind of an MVNE. So they provided service to a whole bunch of different brands operating off our network. We had an MVNO with another company called Star and we still have that with Star.
3664 What happened in many countries, including the U.S., the MVNOs are sort of operating at the bottom end of the market. They're providing cheap and cheerful service to people who want cheap and cheerful service. That space sort of got occupied by the new entrants in 2008. They began offering the cheap and cheerful service.
3665 COMMISSIONER PENTEFOUNTAS: Through flanker brands, Mr. Engelhart?
3666 MR. ENGELHART: Well, WIND through their own brand, and then, you're absolutely correct, sir, we provided chatr as a competing service. So now there's all these facilities-based alternatives to serve that low end of the market. Cityfone came to us and said: "We don't think we have a future. Would you buy us out?" We did.
3667 So what we have found since then is that the better place for us to put our MVNO energies is in data, M2M. So we have seven M2M MVNOs.
3668 But I'm going to ask Sylvain if he wants to add.
3669 COMMISSIONER PENTEFOUNTAS: Just to get back to the answer, Mr. Engelhart, at the end of the day, MVNOs have not flourished in Canada to the extent that they have in the U.S. primarily because flanker brands have offered the "cheap and cheerful," as you put it, option?
3670 MR. ENGELHART: Not the flanker brands. The new entrants --
3671 COMMISSIONER PENTEFOUNTAS: The new entrants.
3672 MR. ENGELHART: -- is one of the unintended consequences of regulation, you know. By incenting four carriers into a Canadian market that might not have naturally evolved there through the market, you end up unexpectedly changing something else, which is to make MVNOs less attractive.
3673 COMMISSIONER PENTEFOUNTAS: Just a clarification now that we are on the MVNO subject.
3674 Page 158 of your May 15th intervention, you stated that:
"Rogers has signed 15 resale agreements since '98."
3675 Would they all be considered resellers, agreements with resellers? Save your recent agreement with Videotron, would the rest all be pure play MVNOs?
3676 MR. ROY: Yes. They would be resellers or MVNOs, yes.
3677 COMMISSIONER PENTEFOUNTAS: Strictly speaking. Okay.
3678 And you wanted to add something else? Je pense que monsieur...
3679 MR. ROY: Yes. What I wanted to add is obviously we receive regular requests for MVNOs and we engage in conversations with those potential partners. And we have a pretty detailed process of qualifying what it needs to be successful as an MVNO.
3680 When we bought Microcell we inherited about 10 MVNOs. Most of them either went bankrupt or quit the market for lack of scale. So we would make sure -- we need to make sure that we get a confidence level that they have a chance of success and reach the appropriate scale because the cost on the Rogers side to set a voice MVNO is close to $2 million. So for us, we need really to qualify the quality of the potential partners.
3681 On the machine-to-machine, through a partner with Jasper, we have actually an automated process which is much cheaper, so easier for us to take that risk.
3682 I was a bit intrigued actually earlier this week when I heard Cogeco, for example, saying that they could not get an MVNO, because I've been managing MVNO wholesale for Rogers for seven years and I couldn't remember Cogeco approaching me for a wholesale agreement.
3683 So I had my team in Toronto go through the file and find out that actually the last time we had a conversation it was Rogers who had approached Cogeco and made an offer that they had rejected. And this offer was actually prompted directly on a note -- after Cogeco had made a public mention that they could have an interest in wireless, where Ted Rogers himself sent a note to my predecessor asking him to sign a deal with them.
3684 COMMISSIONER PENTEFOUNTAS: Okay. Again, now, we are sort of on the MVNO front. Let's try to maybe close up on that.
3685 Much has also been said, and Cogeco raised the issue as well, Monsieur Roy, as regards the idea that if you're offering everything else but the RAN, you would be considered a facilities-based provider. And I'm going to refer you to page 12 of the Lemay-Yates report, and everyone has sort of seen that diagram. Would you agree with that statement?
3686 MR. ROY: You could. Technically there's different types of MVNOs and most MVNOs are in the light hybrid or hybrid model.
3687 COMMISSIONER PENTEFOUNTAS: And if you were a full MVNO, would you consider that to be a facilities-based provider?
3688 MR. ROY: No.
3689 COMMISSIONER PENTEFOUNTAS: You need the RAN?
3690 MR. ROY: You need the RAN, which is -- and the spectrum, which is the bulk of the investment.
3691 COMMISSIONER PENTEFOUNTAS: Right. Okay.
3692 We also talked earlier in the week about penetration -- and you mentioned it as well in your presentation today -- as a measure of competitiveness. You talked about Europe and we talked about the SIM cards and the smaller borders in Europe. And back in the day -- I think that's no longer the case -- but back in the day, Mr. Laurence, if you moved from country to country you would do well to have another SIM card and you keep sort of replacing the SIM card and that may have played around with the figures, and the penetration rates would be north of 100 percent obviously.
3693 But as regards the U.S., why do we have a lower penetration rate than our American colleagues?
3694 MR. LAURENCE: I'll answer the question about Europe because I think that's --
3695 COMMISSIONER PENTEFOUNTAS: Sure.
3696 MR. LAURENCE: -- and I think it's important to understand why people have multiple SIM cards in the European market.
3697 So if I take somewhere like Italy, if you're on Network A and you call another customer on Network A, it's cheaper than if you call one on Network B. So it wouldn't be uncommon to have four SIM cards and in your address contacts you would actually know which contact was on which network so you could maximize your price as a consumer.
3698 The second thing is that in some markets like France for instance, it's gone now, but there used to be day parts for pricing and therefore you would have to be paid SIMS, one you would use during the day, one you would use after 6 o'clock because again it was different prices.
3699 So I think you have to bear that in mind because it significantly skews the figures.
3700 The other thing is, the proportion of prepay customers in Europe I believe is higher than Canada by some margin and this phenomenon I'm talking about is primarily a prepaid phenomenon.
3701 So that's the European picture shall we say.
3703 COMMISSIONER PENTEFOUNTAS: Thank you.
3704 The U.S. picture, Mr. Engelhart?
3705 MR. ENGELHART: Yes. So Canadian penetration is about 80 percent, U.S. penetration is about 104 percent. This question of yours was bugging me a lot and I asked Mr. Katoch, who is here on the panel, to try and figure it out and he went looking through the U.S. annual reports for a lot of the carriers and they count machine-to-machine as part of their penetration numbers. So it really is purely a statistical artefact for half of that difference.
3706 So 12 percent of the SIM cards in the U.S. are machine-to-machine SIM cards. We don't put machine-to-machine SIM cards into our penetration totals, so that 24 percent gap between Canada and the U.S. is really only 12 percent.
3707 As one of TELUS' experts said, there is a subsidy program that subsidizes about 5 percent of those U.S. SIM cards, so that gap is probably down to maybe 7 percent.
3708 And part of that subsidy phenomenon in the U.S. is that their wireline penetration is lower. We have more wireline penetration. So presumably there is some segment of the population that needs a connection. In Canada they are using wireline because it's cheap, huge calling areas; in the U.S. they might be using subsidized wireless.
3709 Then there are different reasons that could account for some proportion of the remaining 7 percent.
3710 I know that initially in Canada we let people tether their tablets on their phone for free, the Americans charge you for tethering. Well, if you get charged for tethering, then you buy a separate SIM card for the tablet and so now you have an extra SIM card. So there are a bunch of other reasons.
3711 But I guess the bottom line is, I totally disagree with the Competition Bureau when they say that the difference in penetration numbers represents a lack of competitiveness in Canada. They are artefacts of different ways of counting and different social programs, but they are not a measure of competitiveness.
3712 COMMISSIONER PENTEFOUNTAS: Would you also include the national calling plans on the wireless network in the U.S. that drove people more towards wireless telephony as opposed to wireline?
3713 MR. ENGELHART: Yes, I think you are right. And in a way that is something that the Americans adopted earlier than we did. We have now caught up so I expect to see more wireless substitution in Canada as we go forward.
3714 COMMISSIONER PENTEFOUNTAS: Your position is clear, but if the Commission were to decide otherwise, that some regulatory intervention would be necessary -- you are quite aware of the legislated dispute mechanism under IC rules -- is that a more efficient system as opposed to rate-setting in advance through tariffs?
3715 MR. ENGELHART: For towers? On the --
3716 COMMISSIONER PENTEFOUNTAS: We can split the towers and roaming, as you wish.
3717 MR. ENGELHART: Sure.
3718 I have to say, you know, I think a lot of the complaining about towers at this proceeding has really been classic rent seeking by people who want to pay less. We have no tower problem in Canada, the rates are competitive, they are market rates, people can get access.
3719 Is it annoying sometimes to get access on someone else's tower, yes. Like we are a tenant on lots of towers, it's annoying, but you save a ton of money because you don't have to build the thing. You also don't have to go to those meetings where the local residents are throwing things at you and accusing you of all sorts of atrocities. So, you know, the tower market in Canada works. I don't think there's a problem, I don't think there's a rate problem, I don't think there's an access problem.
3720 However, your question is: Is the Industry Canada arbitration mechanism a good solution if there is a tower problem? Probably not. I mean you end up hiring expensive lawyers, you go to one of these expensive arbitral tribunals, it's sort of killing a fly with a sledgehammer.
3721 COMMISSIONER PENTEFOUNTAS: If you had your druthers, you would rather have rates set in advance of tariff?
3722 MR. ENGELHART: No.
3723 COMMISSIONER PENTEFOUNTAS: You wouldn't have that either?
3724 MR. ENGELHART: I would rather have the free market. I don't think we have a problem.
3725 COMMISSIONER PENTEFOUNTAS: We understand that, but if you did.
3726 MR. ENGELHART: If you think we need a solution, I think we should stay with commercial rates totally, don't need tariffs, but I would be perfectly fine with the Commission being the arbitrator because you are a less expensive, kinder, gentler arbitrator than the ones out there.
3727 COMMISSIONER PENTEFOUNTAS: I don't know if flattery will get you everywhere or nowhere, but it was worth the try.
3728 COMMISSIONER PENTEFOUNTAS: Do you anticipate, that being said, in the creation of sort of parallel regimes, that there would be -- having been accused of judge shopping in a previous life, there would be some forum shopping and duplication conflicts. How could we address those issues? Would there be a chevauchement? Would there be sort of crossing over and, if so, how do we design a system that minimizes that?
3729 MR. ENGELHART: Are we still on towers?
3730 COMMISSIONER PENTEFOUNTAS: Yes. Yes.
3731 MR. ENGELHART: If you said you were available as an arbitrator for commercial disputes on towers, I don't think anyone is going to go to the arbitral tribunal because they are so expensive.
3732 COMMISSIONER PENTEFOUNTAS: Okay. Okay.
3733 If we can perhaps move to roaming services and wholesale roaming services.
3734 Under 27.1 you would agree that when we arrive at the caps all expenses are put in the bundle before we create that average, and that includes retail expenses.
3735 It was argued in many documents, and reiterated earlier in the week, that that improperly skews and improperly inflates the caps and that if we are to be fair we should remove those retail rates in determining the caps.
3736 I understand from your presentation today you would rather see an increase in the caps. This would, in effect, reduce the caps and wouldn't that be a better way of determining the caps by relieving retail rates from the calculation?
3737 MR. ENGELHART: Yes. I think you are trying to get to a market rate. I doubt that in any country or in many countries you would have a domestic roaming rate as low as ARP. I think it's already an incredibly low rate. So if you are trying to simulate a market rate I think ARP is already too low. If you lower it even further you will get a situation where, quite frankly, people are not going to build networks properly.
3738 I mean we heard that yesterday with Bragg. They said, "Oh, this is so terrible, we don't like the roaming rates we are paying so we had to properly build out Nova Scotia and PEI before we could move on."
3739 Well, I'm thinking that's kind of how the system was set up. It was set up that you would have facilities-based competition.
3740 And then they said, "With the roaming rates the way they are now as we move across the country we are going to have to build an entire community before we move on to the next one, but if you give us really cheap roaming we will just build the downtown core and we will use roaming for the rest of it and then we will move on to the next city."
3741 And I'm thinking, "That's not really a sensible way for a network to be built." In every country in the world you build a community, you build the whole community. The idea that you would just build the downtown core, then use someone else's network and make a profit roaming on someone else's network, it seems like a -- it seems like a strange outcome.
3742 So your question is: Is it fair to put in all of the marketing costs? If you are looking to some sort of non-market fairness standard I get that point, but on the other side of the coin is the point we made in our evidence, costs are way higher in the areas that they are roaming than they are in the areas where they are building. So in fact I think you could also argue you should be adding costs to reflect the fact that the rural networks are more expensive than the cities.
3743 But ultimately I guess, Commissioner, it shouldn't be sort of a metaphysical fairness question, it should be a question of market rates.
3744 COMMISSIONER PENTEFOUNTAS: Well it's not a metaphysical fairness question, I mean warranty, repair, retail, in-market customer support, bad debt, advertising, promotions, there is an argument to be put forward, and it's legitimate, that these should not be included in the calculation of caps because they don't go to the network.
3745 Monsieur Roy...?
3746 MR. ROY: Yes. If I may intervene?
3747 People refer to this as a traditional wholesale retail market when your main business is to retail what you are buying wholesale. The new entrants are facilities-based carriers, their main business is to sell service on their network. The roaming is either just temporary or solving an inconvenience for their customers, it is supposed to be incidental ad hoc roaming. That's not their main business.
3748 So I think to use those analogies that would be used in a pure wholesale retail model is actually an adequate. I think, as mentioned, as we mentioned, the rate needs to be high enough to facilitate incentive to facilities-based carriers to actually build networks.
3749 COMMISSIONER PENTEFOUNTAS: Well, new entrants will tell you they are still incentive because they want to control costs, they want to control quality, there remains an incentive to build out. That is their first argument.
3750 Another option that we should perhaps examine is the in-territory as opposed to the out-of-territory rate. Speak to me on that issue, Mr. Engelhart.
3751 Wouldn't that incite new entrants to continue their build out if they were paying more for their in-territory roaming rates as opposed to the out-of-territory rates?
3752 MR. ENGELHART: Yes. And if I could just return for one sec to your previous question, which was the avoidable costs.
3753 To some extent of course you don't really avoid them, so when I sell that minute to a roamer he has built downtown Sudbury, he hasn't built the suburbs, he's using my network, he buys a minute from me, probably my advertising expenses in Sudbury aren't really going down, probably my marketing expenses aren't really going down just because I'm selling him that minute. So that's why I say it's a bit metaphysical to think you are really avoiding those costs.
3754 I think that the distinction between in-territory and out-of-territory is one that's a little bit more appealing, but I just think it might be kind of a headache because someone else's in-territory is my out-of-territory and everything sort of overlaps. And I sort of get the point that out-of-territory -- let me put it a different way.
3755 There are two incentives to invest that are harmed by excessively or artificially low rates. The person who is roaming says, "Well, I'm not going to bother building, I will just roam." The person who is being roamed on maybe thinks, "Huh, with these artificially low rates I'm kind of building this thing so that someone else can profit. I'm not earning all of the return." So for the out-of-territory you don't have the first problem, but I think you still have the second problem.
3756 COMMISSIONER PENTEFOUNTAS: You talked about roaming and you have mentioned yourselves -- and I think it was in the context of an MVNO -- in your initial document and even today that, you know, money is money and we are not going to leave money on the table and if I can sell I will sell.
3757 You are never selling at a loss.
3758 MR. ENGELHART: At a loss.
3759 COMMISSIONER PENTEFOUNTAS: Yes.
3760 MR. ENGELHART: To who?
3761 COMMISSIONER PENTEFOUNTAS: It would be to a new entrant or a potential MVNO?
3762 MR. ENGELHART: Well, true. But in this business, this is a very high fixed cost business so the word "loss" has kind of a different meaning here than it has in a normal business.
3763 In a high fixed cost business you spend $3.3 billion buying some spectrum, you spend billions of dollars on a new network, your marginal costs at this point are very, very low.
3764 COMMISSIONER PENTEFOUNTAS: So you are only recuperating cost of capital on your network when you are selling your package and not necessarily when you are selling wholesale; is that...?
3765 MR. ENGELHART: Right. And even then you might not.
3766 Like people think, "Oh, those Rogers guys are so smart they spend $3.3 billion on spectrum, I'm sure that will pay off handsomely for them." Well, I hope they are right. I mean, you make of these massive bets and either it works or it doesn't.
3767 So to say that we are always making money and that it's never below cost, no, that's not true in a fixed cost business. You need to get those customers on that network. You need to get a sufficient range of revenue from all sorts of different customers to pay that investment off and that's the nature of the business.
3768 COMMISSIONER PENTEFOUNTAS: And if you have miscalculated and overpaid for spectrum, does the Commission have responsibility to keep you profitable?
3769 MR. ENGELHART: Absolutely not. But if you give people roaming rates that are close to marginal cost or variable cost, you are making it really, really hard for us to ever recover those big bets.
3770 So the whole nature of facilities-based competition is to let people make the big gambles and it's up to them whether it works out or not, but it sure doesn't work out if your competitors are using it at marginal cost.
3771 COMMISSIONER PENTEFOUNTAS: Yes.
3772 You mentioned the spectrum purchase and it brought me back to a point that was raised yesterday, Mr. Laurence, as regards hypothetical overpayment for spectrum and that that was the root cause of the demise of the European wireless market.
3773 How would you respond to that? Did you and your colleagues overpay?
3774 MR. LAURENCE: I can pick up that one.
3775 So the crisis that's in Europe is a death by 20 cuts, okay. I would suggest that in a small number of countries there was overpayment for spectrum. So for instance the 3G spectrum, which was 14 years ago now in the UK, that might have been one of the 20 cuts, but it's not 19 out of the 20 cuts, it's one out of the 20 cuts and it only applies to a small number of countries and the crisis in Europe is across the whole of Europe and not just in those countries where they overpaid.
3776 COMMISSIONER PENTEFOUNTAS: And the 19 of the 20 cuts remaining, that would be the MVNO regime?
3777 MR. LAURENCE: No, no, all kinds of different regulatory interventions.
3778 Perhaps Mr. Feasey could add to this.
3779 MR. FEASEY: I think the principal things are there is obviously a macro economic effect going on in Europe which has had some impact, but in terms of regulation actually, as we put in our evidence, it's a bit of a myth that there is extensive wholesale regulation of either roaming or MVNO access in Europe. There isn't, but there has been extensive intervention in many other areas that have directly affected the same sort of investment incentives that we have been talking about.
3780 I think, as you know, the principal ones would be the charges that operate as pay each other in Europe but not, as I understand, here for what we would call interconnection or termination, which have fallen by about 80 percent since 2006, so a massive reduction driven by regulation.
3781 COMMISSIONER PENTEFOUNTAS: So roaming and tower and site sharing are not the root cause of all evil in the European market.
3782 MR. FEASEY: No.
3783 COMMISSIONER PENTEFOUNTAS: Okay.
3784 MR. FEASEY: But regulation of wholesale pricing charged between firms has had a major impact.
3785 COMMISSIONER PENTEFOUNTAS: Thank you.
3786 I understand that accent but, Mr. Laurence, you have been here a year, you should have sort of worked on your Canadian accent.
3787 COMMISSIONER PENTEFOUNTAS: Just a little comic relief in continuing with the Chair's statement about how it would be very painful.
3788 We also talked about rural briefly, Mr. Engelhart, and WIND early on in their August 20th intervention talk about the fact that rural costs have been artificially inflated and, yes, there are certain costs that are greater than building out in an urban area or suburban, but rural has its efficiency as well, obviously the real estate is cheaper and perhaps the building of towers is less expensive.
3789 I gather you don't buy that argument?
3790 MR. ENGELHART: No, you don't --
3791 COMMISSIONER PENTEFOUNTAS: Are there any savings to be had in rural network building?
3792 MR. ENGELHART: Sure. Let me explain.
3793 We did an exercise as part of this proceeding where we looked at the costs and the costs for the rural towers are a little bit bigger, but that's not the thing that really jumps out at you from the analysis. They are little bit more expensive in the rural areas just because they are these great big beefy towers, you build these big monsters whenever you build one, and yes, the land is cheaper.
3794 But the thing that drives the differential is the minutes and the megabytes. You just have so few minutes and megabytes on some of these rural towers. It's pathetic sometimes, particularly where you build something to connect a transportation corridor.
3795 The other thing about the rural market that everyone leaves out if they are not a wireless carrier is backhaul. It is very expensive to get there because, great news, you have a tower and the people are on it, but then you have to connect that power back to your core network. It's very, very expensive with fibre and it is very, very expensive with microwave.
3796 So for those reasons there is no doubt about it on a per-unit basis rural is way more expensive than urban.
3797 COMMISSIONER PENTEFOUNTAS: And given the fact that new entrants want to roam on the rural network, wouldn't that be a great way of recouping and increasing profits for Rogers to make that available?
3798 MR. ENGELHART: Well, of course it is and it does.
3799 You know, I think that that is something that -- that's one of the reasons why we wanted to get the roaming revenue. You know, when I gave you my little story before about the 2008 process I should have said that we wanted the revenue. We were trying to get it all. We were given an instruction by our President, "We want that roaming revenue because" -- you know, everyone says, "Well, Bell and TELUS weren't suitable partners". We didn't know that. We thought the way their HSP network was going, the handset manufacturers would have a solution, we thought by 2009 or 2010 they would be perfectly good roaming partners, so we wanted the revenue.
3800 I guess where I'm troubled is not so much the pure rural that you're talking about, but this notion of building half a city. I find that deeply troubling. It's sort of what WIND has done in Toronto. They stop at Major Mackenzie and so there is the whole GTA, they are providing service in it, but in a big chunk of it they are using our network. So I find that -- if the roaming rates are artificially low, I find that disturbing.
3801 COMMISSIONER PENTEFOUNTAS: Does that create any capacity issues?
3802 TELUS writes to the fact that they have 30 percent of the market and 19 percent of the spectrum; is that an issue for you?
3803 MR. ENGELHART: Let me just say --
3804 COMMISSIONER PENTEFOUNTAS: Speak from the heart there, Mr. Laurence.
3805 MR. LAURENCE: Yes.
3806 COMMISSIONER PENTEFOUNTAS: Don't fight it. Let it go. The truth will set you free, et cetera, et cetera.
3807 MR. LAURENCE: I think it was good to hear that TELUS don't know how to run a network.
3808 COMMISSIONER PENTEFOUNTAS: Okay.
3809 MR. LAURENCE: I don't believe it.
3810 MR. ENGELHART: Among other things, picking up on what Guy said, TELUS is pretending that they don't share a radio access network with Bell. They do share a radio access network with Bell. So the calculation isn't their percentage of spectrum divided by their percentage of customers, it's Bell's spectrum plus TELUS' spectrum divided by the combined customers. So I really question his arithmetic.
3811 However, yes, obviously more customers is more expense and you have to augment your network to get there, but as long as you have enough notice you augment. So I don't really think this capacity argument is the thing you should be concerned about.
3812 COMMISSIONER PENTEFOUNTAS: Okay. So let's get back to network investment.
3813 Some have suggested that you have already curtailed your investment. Perhaps as a consequence of the IC caps there has already been a drive towards a lowering of investment in networks and more network sharing agreements and TELUS also raised the possibility that the first area that will be affected will be the rural and perhaps sub rural, if we can use that term.
3814 Have you decreased your investment and are the rural areas of this country the first to be impacted by the IC caps?
3815 MR. ENGELHART: It's early days. The IC caps just came in. I guess my answer would be maybe, you know.
3816 We're certainly now roaming on people to provide coverage in some of those rural areas that we -- where we don't currently provide coverage. And will that affect our capital plans for next year? I think it will because you always have 300 percent of your capital budget occupied by request. And then you have to -- Mr. Laurence has to go through the painful process of winnowing it down. And I would think that next year some of the rural sprawl projects will get winnowed out of the total and have been winnowed out of the total.
3817 Does that mean we'll end up spending less in rural? It is quite possible. We haven't actually done it yet but, yes, it could happen.
3818 MR. LAURENCE: Could I, if I may, put this in a broader context, though?
3819 If my overall company -- because I think it's important to understand why Mr. Engelhart has said what he said. So I have a number of different opportunities in my company that I need to explore. For instance, I need to improve the customer service that we offer to our customers. That in itself requires IT capex. I wish to upgrade some of my shops. That requires property capex and so on and so forth. And I have other divisions such as my cable division that also has needs for capex.
3820 Within the overall way that we run the company we have a certain capital intensity that we commit to with the markets and therefore that's a fixed number. Therefore, what I have to do is I have to move capex around between the different departments to serve the macro needs of the company.
3821 And therefore what we do on a 12-week rolling basis is to look at the demand from the departments which is -- Mr. Engelhart says roughly is about 33 percent above my total budget. And then we have to prioritize depending on the commercial needs.
3822 And therefore, you can't view our expenditure on wireless which is a subset of the business and then rural which is a subset of wireless in a vacuum. You have to look at the total commercial strategy of a corporation.
3823 COMMISSIONER PENTEFOUNTAS: I had a question on the commercialization that was put forward by Videotron, but I heard your answer and they returned your generosity by asking for MVNO status. I won't continue there. It was quite clear your answer on that, on that issue.
3824 You were asked to define product market and geographic market on the roaming market and that wasn't in your document. You can do it now or you can think about it and bring it back as an undertaking, but if you want to begin answering that question today, please do.
3825 MR. ENGELHART: Sure.
3826 So for retail, you know, when the Bureau analysed the market in 2004 when we acquired Microcell they said the geographic market is less than national, more than local. So they said let's assume it's provincial because that sounds about right.
3827 So I would say the provincial -- I would say the retail geographic market is provincial. I would say the product market is wireless services; mobile wireless services, rather.
3828 For wholesale, I think, and I think the market is really national because you end up with people wanting roaming throughout the whole country and MVNOs throughout the whole country. So I think the wholesale market is really national and, again, the product market is the same mobile wireless services.
3829 COMMISSIONER PENTEFOUNTAS: Okay. It is your position and you are sticking to it. It's fine.
3830 Much has been said of microsites also in the documents we have looked at. Is the appearance of microsites in the tower sharing space, is that going to make -- is that going to make it easier? What will the impact be of microsites, if any?
3831 MR. ENGELHART: So with microsites there really isn't tower sharing, right, because they are too small. They are more kind of like poles. So the bad news is, no, they can't be shared. The good news is you can -- you can put a lot more of them in there.
3832 And we have -- we have been working with microsites with some municipalities. For example, street lamp poles. We have been rebuilding street lamp poles.
3833 Does that answer your question?
3834 COMMISSIONER PENTEFOUNTAS: Basically my -- absolutely.
3835 What I want to know is what the impact on facilities deployment of microsites, the impact that they will have on facilities deployment and the entirety of the site sharing and tower market. Is that a game changer?
3836 MR. ENGELHART: Well, yeah. You have to densify. You have to densify much more than you used to in the old days because people want that ubiquitous broadband experience everywhere so you end up having to densify.
3837 The other thing is that you can get people, you know, building these energy-efficient buildings with protective coating on the gas so now the wireless signal doesn't go in and you have to build a gas system in there.
3838 COMMISSIONER PENTEFOUNTAS: You have also got them building gardens and grass on the rooftop. You have to figure out how to put your tower, your site up there.
3839 MR. ENGELHART: So it means a lot more building, yes.
3840 COMMISSIONER PENTEFOUNTAS: A lot more building.
3841 I mean, I understand that you don't think it's a real issue, tower and site sharing that you can come to commercial agreements with your colleagues in the wireless business.
3842 But would microsites, the arrival of microsites, would that make it easier? Would that take some of the tension and some of the need for relief on the tower and site sharing balance sheet of this hearing, if you will?
3843 MR. ENGELHART: A lot of the microsites are going to be in urban areas where there is the rooftops anyway. The tower battle or the tower problems are kind of in the suburbs, kind of the deep suburbs where there's nothing tall. So you have to build a tower and then people get upset. I mean, if you look in a fairly urban part of Toronto where I live, I mean, there is an antenna every block or two but it's always on a building. So people don't sort of see it.
3844 Going to that suburban area you put up a tower. The protest marches start. Everyone gets angry. So it takes a long time to build those things and that's where the need is.
3845 COMMISSIONER PENTEFOUNTAS: I have been asked for a break, from what I understand.
3846 It's been two hours, sir.
3847 THE CHAIRPERSON: I suspect that we probably need a health break. I just didn't want to cut off if you were -- but before maybe starting another subject matter?
3848 COMMISSIONER PENTEFOUNTAS: Yeah, thank you.
3849 THE CHAIRPERSON: Okay. So why don't we take our mid-morning break now till 11:15? Thank you.
--- Upon recessing at 1055
--- Upon resuming at 1115
3850 LE PRÉSIDENT : Donc, à l'ordre, s'il vous plaît.
3851 Mr. Vice-Chair, please.
3852 CONSEILLER PENTEFOUNTAS : Merci. Merci, Monsieur le Président.
3853 I just want to bring you back -- we've kind of moved on to tour and site sharing -- just bring you back a bit on the roaming end of the equation, Mr. Engelhart.
3854 I understand you prefer commercially-negotiated arrangements, but the legislated caps are there and they're going to keep on being there, as was ably mentioned this morning by the Chair to the first intervenor. I mean, what would be your solution?
3855 MR. ENGELHART: Yes, thank you.
3856 So you are allowed under the 27.1 to raise or lower those caps. So our idea is you would raise them to, say, two times ARPM and then you would bring in our solution of ensuring at least three roaming providers in all regions. And then the market would establish its own levels south of that cap somewhere.
3857 So we think that would work best and you might end up with some arrangements and some deals and some places where it's even below ARP, but you're going to let the market work that out by raising the cap.
3858 COMMISSIONER PENTEFOUNTAS: New entrants, and you've heard some of them earlier this week, already find those cap rates too expensive. And we need not go back to our 2014 Decision. So is that really a viable, plausible solution?
3859 MR. ENGELHART: I don't mind going back to your 2014 Decision.
3860 MR. ENGELHART: I mean just to speak about that decision for a moment --
3861 COMMISSIONER PENTEFOUNTAS: I didn't bring you back there. I brought you back somewhere else.
3862 MR. ENGELHART: I don't have to if you don't want me to.
3863 The new entrants want to make a margin from roaming. That's not really the purpose of roaming. The purpose of roaming is to expand your network.
3864 If you look at what Videotron did, even at these higher rates that everyone is complaining about, Videotron built a huge network in Quebec. Okay, it's not all of Quebec but it's a big network and they did not pass on in-truck Quebec roaming charges to their customers. They absorbed them. Their payments to us have not been large. You know what they are from the confidential material that we filed and that Videotron filed.
3865 The system works. The system works really well when people build networks. That's the system that Industry Canada designed five years ago.
3866 In territory domestic roaming was only supposed to last for five years. It was supposed to be over already. Now, it was expanded by Industry Canada to be permanent and I'm not -- I'm not here objecting to that.
3867 But the design of the system should be that people build their own networks. It's a network business. Some of the new entrants are coming at you saying, "I want to be in the network business and I don't want to have a network. Solve that problem for me". Well, that's like saying, "I want to be in the shoe business and I don't want to make shoes". You have to.
3868 If people are prepared to build a network this whole roaming problem goes away. What they are really saying to you is, "I want to not just use that person's network until I can build one. I want to profit on that person's network forever".
3869 I think that is a problem that you shouldn't give yourself to solve. At ARP, average revenue per whatever, they're not losing any money with the roaming. So they're making money where they are and they're breaking even everywhere else.
3870 And you've heard it from the parties from both WIND and from Bragg that most of the roaming is on the outskirts of the places they've built. If you build those outskirts like Videotron does, the whole problem goes away.
3871 MR. LAURENCE: Can I add something, please, Commissioner?
3872 COMMISSIONER PENTEFOUNTAS: Sure.
3873 MR. LAURENCE: I think there seems to be some fear and trepidation of raising the rates and I'm curious to why that is. But I think there are some precedents here that are worth taking into account.
3874 Mr. Feasey...?
3875 MR. FEASEY: Yes. I mean, I think again, Europe may unfortunately provide some helpful evidence for the Commission.
3876 So in Europe we have seen a similar attempt to do what we are proposing which is a combination of a structural change to the market to try and promote more effective competition to make the market work better with safeguards in terms of caps whilst the market is transitioning to make sure that buyers aren't exploited. That's exactly the aim of the proposals around your international roaming prices in Europe which I'm sure you've heard a great deal about over the years.
3877 And what happened was that in the end the wholesale caps and the retail caps were set for various reasons pretty aggressively. And the expectation was that, nonetheless, competition would lead over time competitive prices to fall below the caps and these caps would simply be a safeguard.
3878 But what happens is, and what we found at least in Europe, is if you do that then the caps essentially crowd out any opportunity for people to really compete and everybody's pricing aligns around the cap. The cap becomes a sort of focus and you stifle the very thing you're trying to promote which is the opportunity for people to differentiate and for competition.
3879 So there is, I think, good evidence to say you should be concerned if you're trying to promote competition. If you've given up on competition it's another issue, but if you're trying to promote competition in the wholesale market then a more -- you know, less aggressive approach to caps creates room and gives you -- gives it some oxygen in order to be able to prosper.
3880 COMMISSIONER PENTEFOUNTAS: Caps under that model would become a floor, not a ceiling?
3881 MR. FEASEY: No, they would be a ceiling, not a floor.
3882 COMMISSIONER PENTEFOUNTAS: Sorry, a ceiling, not a floor. And that would not help feed the competitive environment. And that's the European experience?
3883 MR. FEASEY: No, if you set caps too low then it stifles the development of a competitive market and the development of different pricing and different models and different forms of competition. What it doesn't state --
3884 COMMISSIONER PENTEFOUNTAS: It keeps the price artificially high?
3885 MR. FEASEY: It is unclear.
3886 COMMISSIONER PENTEFOUNTAS: Wow.
3887 MR. FEASEY: But it -- what it tends to do in practice is all operations will converge on the regulated caps. Instead of competition setting a price and finding a price, the regulator will essentially set the price on the market.
3888 COMMISSIONER PENTEFOUNTAS: My question is would competition set the lower price?
3889 MR. FEASEY: And the experience in some parts of roaming in Europe has been absolutely.
3890 So for data pricing where the caps were less restrictive the market has found prices far below what the regulator expected pricing to be because the market has developed in ways that couldn't possibly be anticipated when you're setting prices.
3891 COMMISSIONER PENTEFOUNTAS: And you would apply that to the Canadian model?
3892 MR. FEASEY: I think if you take the combination of our proposal that you seek to promote greater competition between Bell and TELUS, then that has consequences for the way that you think about setting price caps and I would take a more expansive view on price caps in order to allow that competition to develop.
3893 COMMISSIONER PENTEFOUNTAS: Has that been your experience, Mr. Engelhart, in your shared network with Videotron?
3894 MR. ENGELHART: Well, I mean, it's early days yet.
3895 You know, we had the first round of roaming that happened in 2008.
3896 COMMISSIONER PENTEFOUNTAS: I understand it's early days, but you're proposing it as a solution to a problem.
3897 MR. ENGELHART: Yeah.
3898 COMMISSIONER PENTEFOUNTAS: Based on what? Is that -- yeah, go ahead.
3899 MR. ENGELHART: Well, it's the basic economics of the way companies operate in a marketplace.
3900 So Bell and TELUS and Rogers are looking, hmm, here's a new entrant. They want to roam. They're -- right now, they're roaming on Rogers, so they're doing all the competitive harm that they're going to do or the competition that they're going to do and those sons of guns at Rogers are getting all the wholesale revenue. That doesn't seem right. Why don't I under-price Rogers by 10 percent?
3901 It's the same process that Mr. Woodhead told you about how he argued that competition between Bell and TELUS gave public mobile a good price.
3902 This is how markets work. This is how wholesale markets work.
3903 So I think what we're saying is now that the handset ecosystem has evolved so that Bell, Rogers and TELUS are pretty much able to handle most of the traffic for the new entrants, that's two. Then you do our structural solution. That's three. That should be a competitive market.
3904 But as Mr. Feasey says, don't trust me completely. Leave a cap in place. Just make it a bit higher, and you'll see if those competitive forces can get you there, which is less intrusive.
3905 COMMISSIONER PENTEFOUNTAS: Is the roaming occurring at prices below the cap right now?
3906 MR. ENGELHART: There is one case where it is, yes, with one of our larger partners. And they are getting a voice rate below the cap, yes.
3907 COMMISSIONER PENTEFOUNTAS: In -- back to your shared network with Videotron.
3908 You state that one of the potential solutions and the biggest piece of this puzzle would be forcing Bell and TELUS to allow roaming on the shared part of the network.
3909 Is that the case with respect to Rogers and Videotron on the shared network today?
3910 MR. ENGELHART: Yes. They can sell roaming and we can sell roaming.
3911 COMMISSIONER PENTEFOUNTAS: And has that shown a decrease in roaming rates?
3912 MR. ENGELHART: I don't know if anyone's approached Videotron yet. I don't know. You'll have to ask them.
3913 MR. ROY: Mr. Commissioner, we launched the joint network two weeks ago.
3914 The joint network was launched two weeks ago.
3915 COMMISSIONER PENTEFOUNTAS: Two weeks ago, okay.
3916 MR. LAURENCE: Commissioner, if I may, I think we have to be careful to compare a single deal in a market very early in its stages with multiple European countries over half a decade or more.
3917 COMMISSIONER PENTEFOUNTAS: But I'm trying to see how we transpose that European experience and how well that fits on the Canadian model. And I haven't seen anything substantive on that front --
3918 MR. LAURENCE: No, that's true.
3919 COMMISSIONER PENTEFOUNTAS: -- that would assure the Commission and the Canadian public that that would be the case.
3920 MR. LAURENCE: Welcome, capitalism is the same the world over, so I don't understand why the capitalist forces in each of the European countries that applied and worked so well would not apply to capitalists in Canada, but maybe it's just a language thing.
3921 COMMISSIONER PENTEFOUNTAS: Maybe it's just an accent thing.
3922 Let's -- oh, the other issue that may have been raised --
3923 MR. ROY: Mr. Commissioner, if I may -- sorry.
3924 What we're saying is with the -- going forward in Quebec right now, there's potentially three or four options for a new entrant to roam. There is Videotron, there's Rogers, there's TELUS and potentially Bell if -- because they do operate a network in Quebec as well. So that's our position.
3925 So in areas of the country right now, there's only one wholesale -- source of wholesale available, there would be a minimum of two and there will be, actually, three or four in 94 percent of the population.
3926 COMMISSIONER PENTEFOUNTAS: On the roaming front, everyone, including new entrants, should make their network available to roaming. You would agree?
3927 MR. ENGELHART: Yes.
3928 COMMISSIONER PENTEFOUNTAS: Would you also foresee the value in something resembling a sunset clause as it regards new entrants on the roaming front?
3929 MR. ENGELHART: I don't think the sunset ever comes in the regulatory world. You put these -- like don't forget, there was a five-year sunset on in-territory roaming with Industry Canada's rules, and the new entrants, at some point, stopped building and said, "We need this sunset to last forever".
3930 So I think it's very, very dangerous if you do something that you're a bit worried about but say, oh, but don't worry; I'm going to get rid of it in five years because then five years comes and the lobbying starts and you end up extending it.
3931 COMMISSIONER PENTEFOUNTAS: Okay. I think we can move on to site sharing at this point, and even with shoe analogy -- I think they want you to keep manufacturing the shoes, and they'll sort of retail the shoes, but that's fine.
3932 Is there a difference in the rates that are charged between the incumbents and the new entrants as in regards tower and site sharing?
3933 MR. ENGELHART: I think they're pretty --
3934 COMMISSIONER PENTEFOUNTAS: For similar configuration and location, obviously, all things being equal.
3935 MR. ENGELHART: They are pretty much the same.
3936 Oddly enough, some of the non-carriers have the highest prices. The hydroelectric companies, the CBC, they have the nastiest prices and the most difficult terms and conditions sometimes.
3937 But the amounts that Rogers pays to be on other carriers and the amount that we rent our towers out from other carriers are about the same.
3938 COMMISSIONER PENTEFOUNTAS: Be they incumbents or new entrants.
3939 MR. ENGELHART: Correct.
3940 COMMISSIONER PENTEFOUNTAS: There was a discussion, I think it was, in Wind's piece about what they call the premium rate. I take it out of their May 15th submission, paragraph 119, where the incumbents' rate cards is quite different from that to new entrants.
3941 So they spoke of premium rates that are applied on an arbitrary basis, making it impossible for them to compete. And you mentioned in your March document premium charge.
3942 Are those one and the same?
3943 MR. ENGELHART: Yes. Let me explain.
3944 COMMISSIONER PENTEFOUNTAS: Okay.
3945 MR. ENGELHART: And you know, we've had a bunch of questions these week that you're probably going to come to about poles and the analogy with poles.
3946 The nice thing, if you're a phone company, is, of course, you don't pay rent for where you put those poles. You got the city rights-of-way free of charge.
3947 The difference between that and towers is you have to rent the land. Some of the land is cheap, some of it's expensive, some of it's very expensive and some of it's super expensive.
3948 So we have organized our rate card with regular and premium urban, regular and premium rural and special.
3949 Special are places like ski hills where you need to put that tower there, but there isn't a lot of available place and they really don't want you to put another one up if you run out of room, and they kind of charge you through the nose.
3950 So we have, on our rate card, different amounts, and even those amounts are ranges that reflect the different rent that you pay for the land.
3951 COMMISSIONER PENTEFOUNTAS: Okay. So there's obviously no difference -- no differentiation made between new entrants and incumbents.
3952 MR. ENGELHART: Well, you've got to realize your new entrants don't have many towers and they don't have them on ski hills. You know, they're just starting, so they don't have a ton.
3953 But oddly enough, you know, when we started this -- we started looking at it, some of the cable companies who have now become wireless carriers had very onerous tower-sharing agreements when they were cable companies, but I digress.
3954 So yeah, there isn't a big difference between what we pay and what we collect, and that's exactly how we set the rate card. We looked at what we were paying and said if we're ever hauled to an arbitration, we can justify these rates because that's what we're paying.
3955 COMMISSIONER PENTEFOUNTAS: The fact that new entrants can't participate in the horse trading to the extent that the incumbents can, that doesn't change the rate for them at the end of the day?
3956 MR. ENGELHART: No. And I should point out that the horse trading -- that we're very bad horse traders with Bell and TELUS. They are on more of our towers than we are on theirs, and I find it very irritating.
3957 But Industry Canada changed the rules.
3958 If I had my druthers, I would like the horse trading to still be in effect, but Industry Canada changed those rules. They said there is no more of this trading. You simply have to give people access to your towers. It is a public good.
3959 We're a regulated company. We get that. And so we no longer worry about who's out of balance and who's in balance. We just give them access as best we can.
3960 COMMISSIONER PENTEFOUNTAS: You're bad horse traders anyways, and I notice Mr. Laurence took note of that as you mentioned it.
3961 Just to close on the issue, Eastlink have put forward the idea that it wouldn't be that complicated, that we can do costing and set rates -- do a rate-setting exercise by aggregating certain towers if they had similar characteristics.
3962 How would you respond to that?
3963 MR. ENGELHART: Well, as Commissioner --
3964 COMMISSIONER PENTEFOUNTAS: If we were to participate in that. I understand you disagree with the general notion, but if the Commission were.
3965 MR. ENGELHART: As Commissioner Molnar said in -- or observed in one of her questions ,if you can set a rate card, you can set a tariff. And you do it the same way, by, as you said, Commissioner, averaging.
3966 So of course it could be done. You would have to bring in that land rent as a factor that would make it a bit more complicated.
3967 I guess my point is it is not really a Phase 2 costing exercise. It is a market. There are tons of towers, there are tons of providers, there are tons of suppliers.
3968 Of course it's annoying to be a tenant. I don't disagree with that. It is annoying. But you save so much money when you're not the person who has to build it.
3969 I don't think this needs a costing exercise, but could you do on? Yes.
3970 MR. LAURENCE: Could I add to that, please, Commissioner?
3971 COMMISSIONER PENTEFOUNTAS: Yes.
3972 MR. LAURENCE: I think the -- I think, again, the view may be that we're always looking at kind of a fixed -- a large fixed asset on the side of a building or a stand-alone or all the rest of it. We have to anticipate the needs of towers changing dramatically over coming years, so we're going down more to a street furniture level. So I'm thinking of bus stops and things like that where masts will be put into those all the way down to a household level where you could have something like a femtocell, which happens in the UK today.
3973 There are hundreds of thousands of houses, particularly basement flats, that have a femtocell. Now, is that a mast, is that not a mast?
3974 Some of those we would buy in from technology providers like Alcatel-Lucent. Others, we might develop through our own R&D.
3975 Some of the existing sites that they would go on would have power. In other cases, we would have to dig up the streets to put the power in.
3976 I mean, so my question is, is if you take the sheer proliferation of towers that would exist or, depending on your definition of towers, over the coming decade, I don't understand how you could get to a formula even if you tried.
3977 COMMISSIONER PENTEFOUNTAS: Clear answer.
3978 We talked about homes and towers, and that raised another issue that was raised in many interventions in that there's anti-competitive behaviour going on in malls, in public buildings. The Air Canada Centre is sort of a classic that keeps coming to the fore.
3979 How would you respond to that?
3980 And Rogers has sort of been -- Siblet has been targeted, thank you, as engaging in such ungentleman-like conduct -- and unlady-like, I should say, as well.
3981 MR. ENGELHART: Well, Mr. Roy is the gentleman who's been leading those negotiations, so I'll let him answer.
3982 But generally speaking, it's a shared cost thing and, if they pay their costs -- but I'll let --
3983 MR. ROY: The so-called DAS market for distributed antenna system that are being deployed in building is pretty recent, and there's different players. There's third party players.
3984 I would say the industry in general is trying to avoid duplication of structure. And one good example would be the Montreal subway, where we -- Rogers, Bell, TELUS, and Videotron -- did a shared proposition to provide coverage to our customers and each bear the cost of the network.
3985 COMMISSIONER PENTEFOUNTAS: But speaking to the issue of malls that are not state-owned, arenas -- and again, I mention the Air Canada Centre whereby you're authorizing the owner and circumventing the rights of potential new entrants to set up shop there.
3986 The owner, at the end of the day, charges usurious rates and there's no oversight on that, on the owner, whereas there would have been oversight on Rogers, Bell, TELUS.
3987 How would you respond to those allegations and accusations?
3988 MR. ROY: Of landlord being -- charging usurious rates?
3989 COMMISSIONER PENTEFOUNTAS: Yeah. That you would be cutting deals with the landlords in malls, in arenas --
3990 MR. ROY: So certainly not cutting deals with the landlords so that they would charge usurious rates. They try this on us sometimes, and we're working hard to try to make them -- keep them reasonable offering the service. But I have no knowledge that we would have a deal that would force the landlord to charge higher rates to somebody else.
3991 COMMISSIONER PENTEFOUNTAS: Okay. If the Commission were to decide to establish tariffs for tower and site sharing, there's a series of questions in terms of how that would work out. And you've answered it partially.
3992 Above and beyond that, if you would undertake to give us more details on what that would potentially look like before the 9th and, you know, what type of towers would be involved, types of antennas.
3993 The other issue is would a costing principle as proposed by Videotron and Eastlink similar to that on support structure services, would that be appropriate?
3994 You can answer in part today and we can sort of continue later on.
3995 MR. ENGELHART: Yeah. I mean, one of -- and we will do that. Thank you, sir.
3996 One of the things that is common to both support structures and to towers is what are called in the support structure world make ready charges.
3997 So if a bunch of telephone poles cannot support another Rogers strand, we have to rebuild the whole bunch of poles and then it's the same sort of thing with towers. We have to sometimes -- the tenant has to do massive rebuilding.
3998 So all of that would --
3999 COMMISSIONER PENTEFOUNTAS: The tenant would obviously pay for that.
4000 MR. ENGELHART: Yeah.
4001 COMMISSIONER PENTEFOUNTAS: That's not --
4002 MR. ENGELHART: So we --
4003 COMMISSIONER PENTEFOUNTAS: That's not an issue.
4004 MR. ENGELHART: We can write that up, sort of the broad outlines of what it would look like.
4005 COMMISSIONER PENTEFOUNTAS: Including the possibility that every tower and site sharing agreement be approved by the Commission, including periodic reports summarizing the agreements to be filed --
4006 MR. ENGELHART: Can we --
4007 COMMISSIONER PENTEFOUNTAS: -- and potentially an entire template, sort of standard terms, conditions and procedures to be followed.
4008 MR. ENGELHART: Can we send you the reports we sent Industry Canada already, or do we have to do two sets of reports?
4009 Yes, we will answer that question, sir.
4010 COMMISSIONER PENTEFOUNTAS: Okay. At the end of the day, should we mandate all terms. I mean, that's kind of -- look at it holistically and drill down to the details of what that would look like if that were to be the case.
4011 And we understand that you do not believe it's necessary. You've made that position quite clear.
4012 A question I asked earlier on the roaming side of the equation, and I think we have to also apply -- I know we have to apply it to tower and site sharing, and that's relevant geographic market for tower and site sharing, if you would care to define that.
4013 MR. ENGELHART: I think it would be local, Commissioner.
4014 COMMISSIONER PENTEFOUNTAS: It would be site specific?
4015 MR. ENGELHART: Maybe not site specific, but quite local.
4016 Yeah, I could -- I would see it as no bigger than the local market.
4017 Certainly --
4018 COMMISSIONER PENTEFOUNTAS: The local market and the definition of local market as regards towers and sites?
4019 MR. ENGELHART: Yeah. I mean, you've asked me a good question, and I'm just sort of thinking out loud. But it is absolutely true that in a cellular you arrange your towers in a sort of checkerboard pattern.
4020 COMMISSIONER PENTEFOUNTAS: Right.
4021 MR. ENGELHART: And as capacity gets filled, you try and put another piece in between the other four that are already there and you fill in in an ever-decreasing checkerboard.
4022 And so there's a certain finite area where that thing can go or it's not serving an additional need and it's not efficient. And so that is quite a constrained area, you know.
4023 Sometimes we go to municipalities and say, "Well, why don't you go out to the suburbs and put it there?" Well, that's not where the demand is.
4024 So I suppose, thinking out loud here, it might be almost site specific, the market for towers.
4025 COMMISSIONER PENTEFOUNTAS: I'll let you sort of think about that and come back to us before the 9th because there was a question that was asked on the notice, and it was not answered, so perhaps take that back.
4026 Mr. Laurence?
4027 MR. LAURENCE: Yeah. My worry is with this, this is a rear-view mirror line of questioning to me because of the future technologies that will come through, so as you get to -- if we take a small part of a town or a city, you'll get macro coverage in the outside.
4028 Then, as demand for video grows, which it is growing rapidly, then what you'll see is demand by consumers to consume video inside buildings. And therefore, you might have macro outside coverage but you don't have the good enough quality indoor coverage. And that will get solved by maybe a distributed antenna scheme or more powerful antennae.
4029 Then you get to a point where it doesn't work underground very well. Then you get to the point where it doesn't work in an elevator.
4030 The problem is the consumer is moving to a point where they want ubiquitous coverage and they want it at a certain quality, so my worry about the principle of local is we're going to get down to a point where the market's defined as by elevator, by sub-basement and all the rest of it. And that's happening very quickly, so we only take the outside macro coverage.
4031 My view is that that line of thinking is already outdated.
4032 COMMISSIONER PENTEFOUNTAS: You can add that to the record, but the point is, Mr. Engelhart, is we have to complete the record and this is part of what was asked. And in the interests of completing that record, we need an answer and we need your position on that.
4033 COMMISSIONER PENTEFOUNTAS: Again, is it site specific or are we better off circumventing that around the tower sharing market that the carrier has spectrum in, national, regional, provincial?
4034 We leave that up to you, and once the record is complete -- and feel free, Mr. Laurence, to add your position that it may very shortly be a moot point because we're moving beyond that. There's nothing wrong with that, either.
4035 As I mentioned earlier, we've got 350 pages and there's some expert analysis there.
4036 Did you grant access to confidential information to your experts in allowing them to put together the submissions they put together for us?
4037 Again, speak from the heart.
4038 MR. ENGELHART: No. No.
4039 COMMISSIONER PENTEFOUNTAS: No.
4040 You don't think that that would have been -- that would have been helpful and would have given us a better picture?
4041 MR. ENGELHART: I really don't understand what the Competition Bureau was suggesting when they thought that the expert should have access to some internal document.
4042 I don't know what it is that's lurking in our -- I was going to say filing cabinets, but I guess we don't have those -- lurking in our hard drives that would be useful.
4043 Certainly Mr. Bazilauskas asked us questions, how does this work, how does that work and we explained that to him so that he could have a context.
4044 Mr. Hunter has a huge amount of confidential information from a bunch of different companies that he anonymized to use as the basis of his report, and he has also been our witness on arbitration where he would have seen some confidential information as well.
4045 But for the most part, there was nothing in the reports that needed them to have access to confidential information.
4046 COMMISSIONER PENTEFOUNTAS: Why don't we ask your experts, would your analysis have been different, more reliable had you had access to that information?
4047 MR. FEASEY: I think certainly not from my part because I was commenting essentially on the situation outside of Canada, so I felt no need to -- I was very clear that I wasn't taking views on the Canadian situation.
4048 COMMISSIONER PENTEFOUNTAS: Okay.
4049 MR. GROSS: I would agree completely with what Mr. Feasey said.
4050 MR. BAZILAUSKAS: We -- like Mr. Engelhart said, we had many discussions about how the markets worked and we were quite satisfied with the information that was provided. We didn't think that there was anything more that we needed at the time.
4051 MR. HUNTER: Yes. I was tasked with benchmarking domestic roaming rates in the U.S. market. I know what those are, and I was able to speak to operators and contacts within that market to benchmark those.
4052 I didn't need access to confidential information from Rogers in order to do that.
4053 COMMISSIONER PENTEFOUNTAS: And you're all comfortable with your conclusions notwithstanding the fact that you did not have the entirety of the picture before you, and you have no problem signing your names on the bottom line?
4054 MR. HUNTER: Yes.
4055 COMMISSIONER PENTEFOUNTAS: All four of you?
4056 MR. GROSS: Yes.
4057 MR. FEASEY: Yes.
4058 COMMISSIONER PENTEFOUNTAS: Okay.
4059 MR. ENGELHART: I'm sorry. That was a bit of a loaded question if you're satisfied --
4060 THE CHAIRPERSON: Mr. Engelhart, just before, I didn't -- there's one yes I didn't hear, for the record.
4061 MR. FEASEY: Yes.
4062 THE CHAIRPERSON: Thank you very much. Just so there's no confusion.
4063 MR. ENGELHART: The question was, you're satisfied even though you didn't have all the information. I think their answer was that they didn't there was any more information that they needed.
4064 COMMISSIONER PENTEFOUNTAS: Well, the subsequent question was, "Well, so be it." But now that they know that there was other information that they did not have access to, does that change their opinion and the reliability of the conclusions in their documents --
4065 MR. ENGELHART: What --
4066 COMMISSIONER PENTEFOUNTAS: -- as deposited?
4067 MR. ENGELHART: I'm sorry, Commissioner, what other information didn't they have?
4068 COMMISSIONER PENTEFOUNTAS: Well, the confidential information that you did not make available to them.
4069 MR. ENGELHART: On what topic?
4070 COMMISSIONER PENTEFOUNTAS: Well, exactly, we don't know, and had there been information that is not available to the public that they would have had access to in terms of all kinds of issues: as to, you know, what you spend, what you've maybe spent traditionally, what you plan on spending, what your outlook is going forward.
4071 MR. ENGELHART: Yeah, I -- I didn't think that was terribly relevant to the --
4072 COMMISSIONER PENTEFOUNTAS: Well, you decided --
4073 MR. ENGELHART: Yeah.
4074 COMMISSIONER PENTEFOUNTAS: -- what information was necessary and not necessary.
4075 MR. ENGELHART: I did feel that, with an understanding of how the market works and an understanding of the way we operate --
4076 COMMISSIONER PENTEFOUNTAS: Yeah.
4077 MR. ENGELHART: -- that the public information could --
4078 COMMISSIONER PENTEFOUNTAS: Yeah.
4079 MR. ENGELHART: -- satisfy the subject matter --
4080 COMMISSIONER PENTEFOUNTAS: You decided that.
4081 MR. ENGELHART: -- of the reports.
4082 COMMISSIONER PENTEFOUNTAS: You decided that. And it may have been a more judicious approach to allow them to decide what information was and wasn't necessary. Certainly if the inputs change, the conclusions may change.
4083 MR. ENGELHART: I -- I --
4084 COMMISSIONER PENTEFOUNTAS: And the expert usually decides what information is pertinent and what information is not.
4085 MR. ENGELHART: If they ask for something, I'm going to give it to them, of course. If they said, "Gee, we really need to know this and this and this beyond the level of disclosure that you make to the markets," of course I'd have given them that.
4086 But I just don't think we denied them any information. I just -- I think it's kind of a non-issue.
4087 MR. BAZILIAUSKAS: Could I just add that we weren't -- we weren't denied any information from Rogers. We asked them for the information that we thought we needed for our report, and we were provided with that information.
4088 COMMISSIONER PENTEFOUNTAS: I understand: you were content with that information and didn't wish to go further.
4089 MR. ENGELHART: Yeah.
4090 COMMISSIONER PENTEFOUNTAS: That it's not an issue.
4091 MR. BAZILIAUSKAS: Yeah.
4092 COMMISSIONER PENTEFOUNTAS: Yeah.
4093 Thank you.
4094 Monsieur le président?
4095 THE CHAIRPERSON: Merci.
4096 Monsieur le vice-président des télécommunications.
4097 COMMISSIONER MENZIES: Thank you.
4098 There's just a couple of areas that I need to deepen my understanding on, and one is how you come to establish the cost of roaming, the wholesale rate that you charge.
4099 You indicated in your answers to the vice-chairman that you had looked at U.S. prices because you didn't know where to go. I kind of would have thought that you might have examined the costs that were causal to the provision of the service, in a sense, and looked at that.
4100 So what I'm trying to get at is that, if we're ending up looking at this price, we need to understand what the real cost of the provision of that service is. So can you play that out for me a little bit, or you -- now you may not be able to do it here, but could you provide it to us in some form?
4101 MR. ENGELHART: Sure.
4102 Let me give it a try, and I have had the pleasure of doing costing in the telecommunications market now for almost 30 years.
4103 So costing is kind of an artificial process when you're dealing with a high fixed-costs business. When you spend billions and billions of dollars on something, like our networks and our IT systems, the incremental cost of using it is very small until the point where you get to exhaust and you need to augment.
4104 Telecommunications costing models tend to be driven by that augmentation process, but it really is (a) very inaccurate; (b) kind of artificial; and (c) it's not the real issue you're trying to solve. The issue you're trying to solve is: I've spent $15 billion on this thing. How am I going to get a return on it amongst all the different customers, all the different applications, all the different services and all the different plans? So that's why I don't think costing is terribly useful.
4105 If I had to do something like costing, I would start with where the federal government started, which is ARPM. Because you sort of figure average retail price, that's either covering all their costs plus their cost of capital or they're stupid.
4106 So average retail price is probably -- if I was going down that path -- as reasonable a start as anything.
4107 I think in the case of roaming, what you look at -- as we said, we started by looking at the U.S., but then, frankly, you know, we came down a lot from the prices that Mr. Hunter told us American companies pay for domestic roaming. So you're thinking, Am I going to lose all this revenue? You're looking at volume. The person who gives you more volume is going to get a better unit price than the person who gives you less volume. You look at, umm -- you look at other factors like --
4108 COMMISSIONER MENZIES: Excuse me --
4109 MR. ENGELHART: Yeah.
4110 COMMISSIONER MENZIES: -- do you have a rate card?
4111 MR. ENGELHART: For roaming? No, we don't have a rate card because the other factor is that prices tend to be declining rapidly, so the -- for example, one of the new entrants signed with us in 2012. They got a much cheaper rate than the people who signed in 2008 because retail data prices are going down, down, down per unit, and wholesale prices are, too.
4112 So those are the factors that go into how we set the rates, and, no, we don't have a rate card.
4113 COMMISSIONER MENZIES: So, as the chairman explained earlier, to a certain extent our choices are limited to leaving the price as it is or changing it, to a certain extent, in terms of that, so the amount of information we can have about what the appropriate price is because -- I mean this mobile industry is the future of pretty much everything, right, so it's important that we have as much good information as we can have regarding that.
4114 So if you can get back in your reply with as much information as you might be able to provide us on that, that would be much appreciated.
4115 One of things related to that I was trying to get to in terms of how those prices were established is the -- you know, we heard Eastlink and WIND both indicate -- Eastlink put a number on it -- that they ended up doing a business plan to get into this industry and finding out that the cost of roaming was -- I mean not even close to what they'd anticipated. And the Braggs are not unsophisticated business people, right?
4116 So I'm trying to figure out how people could get into this business anticipating something that they thought would cost them $1 is costing them $4.50, and how that gap could have occurred in there, right, in terms of what they ended up paying you, as opposed to what they had originally built a business plan on, which I'm going to assume they built on what they anticipated the actual cost is of accessing that service, which is, after all -- the whole reason you have to sell it is because it's a public resource that they're using, right?
4117 MR. ENGELHART: Thank you for that question, Commissioner, because it brings out an issue that I found a little bit frustrating.
4118 This notion that high roaming charges are in some way influencing the investment decisions that they made or the outcome of their business plan is, quite frankly, baloney. You know, we -- and you know this from the confidential information that we filed about how much these roaming charges, revenues that we collect each year, are.
4119 If you take the amount of money they paid for the spectrum, the amount of money they spent to build out the network, the roaming charges that they paid to us are tiny, tiny, tiny. They're trivial. So this idea that somehow, because they paid more than they thought, has affected their business plan, I disagree with that fundamentally.
4120 The other thing is that's sort of how a negotiation works: you come into it thinking, Gee, I can get it for this price. We thought we were going to get a much higher price and we ended up sawing it off somewhere in the middle because nobody wanted to go to arbitration.
4121 So they were surprised, we were surprised that they were surprised, but, ultimately, it is -- it is impossible, as the Bureau alleges, for this to be foreclosing anybody, because the costs are just too small compared to the cost of the network and the cost of the spectrum.
4122 COMMISSIONER MENZIES: How big a factor is the cost of spectrum in coming to these prices?
4123 MR. ENGELHART: Well, it's huge.
4124 And, you know, I think -- I think WIND spent over $400 million, so that's, you know, an amount of money -- and, of course, we've spent more -- that's an amount of money that dwarfs any payments they would make for roaming or tower sharing, which is why this whole discussion of foreclosure I find very artificial.
4125 MR. LAURENCE: Commissioner, could I --
4126 COMMISSIONER MENZIES: I'm curious to know about that without going too far into it, but the cost of spectrum, it strikes me, would be a major factor in the cost of the entire industry in terms of this, right --
4127 MR. ENGELHART: Yes.
4128 COMMISSIONER MENZIES: -- both at the wholesale and the retail level?
4129 MR. LAURENCE: Yeah. I mean in your total non-operational costs -- well, if you -- let me back it out.
4130 Since 1996, we've spent $67 billion in building and operating our networks in Canada -- that's $67 billion -- and out of that $20 billion was investment in capital such as networks and spectrum. I don't know the split between networks and spectrum exactly, but the spectrum number is considerable. This year alone we spent $3.3 billion in spectrum.
4131 Could I just -- would you mind if I went back half a step, though, because I think we're --
4132 COMMISSIONER MENZIES: Sure, quickly. I'm conscious of the time, and my --
4133 MR. LAURENCE: Apologies, then. I'll try and do it quickly.
4134 So the assumption in the way you asked the question was that you -- there needs to be -- you need to set a rate based on cost, right, and my assumption is that's going to be extremely difficult to actually determine. In fact, to actually work out the cost to carry a megabyte across the network has been a debate in the telecoms industry for the best part of 14 years that I've been involved in the industry and nobody's actually landed it.
4135 And the reason they can't land it is because the network is a living organism because you are changing and upgrading the network every day. So we might do over a thousand upgrades or changes to the network in the space of a week. We might introduce a new cell site that uses 700 spectrum that has wider propagation rights in terms of how the spectrum works. It might have lower power consumption per hour on that tower because it's a new tower than a different tower that's using 2,100 and is an older tower.
4136 So the point is the cost base is moving the whole time. It's not a static thing like you're producing a widget in a factory. It is moving in realtime, depending on how you're deploying your capex.
4137 Whereas the provision that my colleague suggested, which is where you raise the cap to a higher level and then allow the market to operate, creates an environment where the three major carriers can compete against each other without getting into the issue of: how do you determine what the correct or real cost is?
4138 COMMISSIONER MENZIES: I'm not presuming the outcome of the methodology, I'm just trying to make sure we have as much information as we can surrounding the reality, being it's an area in which we, obviously, have forborne for some time.
4139 MR. ENGELHART: Commissioner, at the --
4140 COMMISSIONER MENZIES: So the greater our knowledge base on all the factors that are involved in coming to this, and trying to develop some form of objective criterion or -- I mean you don't want to solve this by throwing darts at a dartboard, right, so...
4141 MR. ENGELHART: No.
4142 If I could just make one more addition, and I apologize if we're going on, but economists who look at this issue of: how do you price out a high fixed-cost network?, talk about something called the "option value." Economists warn that the way that regulators often price these things ignores the option value.
4143 The option value means: I spend $3.3 billion, I build an ITE network, that money is sunk and either it turns out to be a good investment or a bad investment. But when you're the roamer, when you're the MVNO, you have a free option. If it works out, great, I'll take it at a cheap rate. If it doesn't work out, I won't.
4144 So that is another reason why traditional telecom costing methodologies are very imperfect solutions, because you need to build something in for the option value.
4145 COMMISSIONER MENZIES: Okay.
4146 In another area, it's still fuzzy, and we get a lot of answers that say, "It depends." But trying to figure out how many national networks there are, are there two or are there three?
4147 MR. ENGELHART: Bell and TELUS share a radio access network and they have separate core networks. We have our own radio access network and our own core network except in Manitoba and Quebec, where we share a radio access network.
4148 COMMISSIONER MENZIES: But how many points of negotiation are there for a person wishing to purchase wholesale roaming?
4149 MR. ENGELHART: As we said, and as Mr. Feasey explained, for Bell and TELUS, they say, Well, if you want to roam in Newfoundland, you talk to Bell, if you want to roam in Alberta, you talk to TELUS. There's no reason for that. Technically, you could authorize TELUS to offer roaming in Newfoundland because they have -- they share the radio access network. It's a MoCA network, which means the two are as one.
4150 So right now in Quebec, to answer your question, you could talk to us, you could talk to Videotron or you could talk to -- I guess it's TELUS in Quebec, right?
4151 MR. ROY: TELUS -- yes it is, sorry, TELUS in Quebec.
4152 MR. ENGELHART: But we're saying you should make that four options in Quebec.
4153 COMMISSIONER MENZIES: So --
4154 MR. ROY: But just -- sorry, just to be clear, they don't need to be authorized to do it, right? What we're asking is them to be instructed -- like, we didn't need any special authorization to let Videotron offer roaming in Quebec, for example.
4155 COMMISSIONER MENZIES: You're saying, though, that because -- I mean because they have a shared network that TELUS should be able to be the wholesaler for Bell's services as well as Bell in Newfoundland?
4156 MR. LAURENCE: No, I think -- if I can just characterize it a different way.
4157 So TELUS can -- has a customer in Newfoundland, right? If that customer is a retail customer or it happens to be a wholesale customer, it is blind to Bell. It's just traffic. Yeah, it's just megabytes. It's just -- whether the megabytes are coming from a wholesale customer or a retail customer is utterly irrelevant.
4158 COMMISSIONER MENZIES: Yeah. Okay, I guess that.
4159 So what's the difference between their network sharing agreement and your network sharing agreement with Videotron?
4160 MR. ENGELHART: There isn't one. They're the same MoCA networks.
4161 COMMISSIONER MENZIES: So if I'm...but you sell differently, right?
4162 MR. ENGELHART: Yeah, they've made a business decision --
4163 COMMISSIONER MENZIES: There's a difference -- you indicated earlier that there's a difference, that we can -- if I'm in Montreal, I can -- Rogers and Videotron are still competing for my wholesale business --
4164 MR. ENGELHART: Right.
4165 COMMISSIONER MENZIES: -- right? And you're saying that, obviously, with the Bell and TELUS network, that the same doesn't exist?
4166 MR. ENGELHART: That's a business decision they've made, and we're saying that it's something that you could do in this process to increase competition, which would be minimally intrusive.
4167 COMMISSIONER MENZIES: So why wouldn't we -- if we went down that path, why wouldn't we mandate that anybody with a shared network must offer the services --
4168 MR. ENGELHART: We're good with that.
4169 COMMISSIONER MENZIES: -- so that we wouldn't have to be going back and picking people.
4170 Okay, thank you for that.
4171 I didn't quite understand your analogy on shoes --
4172 COMMISSIONER MENZIES: -- and shoe manufacturers, because it implied that in order to be in the shoe business you have to be vertically integrated, right --
4173 MR. ENGELHART: Right.
4174 COMMISSIONER MENZIES: -- that you have to be a wholesaler and a retailer? I mean surely you can sell -- you can be shoe manufacturer or you can be a shoe retailer without having to be both.
4175 MR. ENGELHART: Well --
4176 COMMISSIONER MENZIES: So if that was -- I mean sometimes we just pick analogies out of the air, and I'm very good at mixing metaphors, so I just wanted to further understand what you were trying to get at there.
4177 MR. ENGELHART: Let me hang in with my analogy.
4178 So the new entrants are carriers. They're shoe manufacturers. An MVNO you could consider to be a shoe retailer. I'm not talking about those. I'm talking about the shoe manufacturers. They're in the network business. That's what we do: we build networks. Yes, we are also marketeers and, umm -- but at the core of what we do, we are network providers and we are trying to come up with a package of services and customers that will pay for those networks and give us a return.
4179 So what I was saying is a typical roaming problem in a typical country is these people are new entrants, they're building a network, how can they start selling in the whole country while they're building that network out? That's a typical arrangement.
4180 In the U.S. they have a different set of arrangements, where anybody can roam on anybody else. That encourages regional players because they never have to building out in the whole country, they can just be in one region. So everyone in the States can roam on everyone else.
4181 But for the most part in the U.S. you're not roaming within your region. You're not roaming within your -- the area that you're providing service. There are some exceptions. In Canada, the problem that you're being presented with is: I'm a network provider, but I don't want to build a network. I only want to build it in this very dense area and that very dense area, but I want to sell in the entire community.
4182 And they're saying, "Listen, at the rates these Rogers' guys are charging me, and even at the rates of section 27.1 of the Telecom Act, I can't do that. If I'm paying average revenue per minute, well, I'm going to have to build the whole community or I won't have a business case.
4183 I'm saying don't take that on as a problem to be solved. If they're in the network business, they should build the whole community.
4184 And you heard Bragg say and you heard WIND say, and I can confirm it, the amount of roaming outside of the community is quite small. So it's a --
4185 COMMISSIONER MENZIES: Okay. So without dragging it on too long --
4186 MR. ENGELHART: Sorry.
4187 COMMISSIONER MENZIES: -- how does Industry Canada's new rules about tower and site sharing impact that?
4188 MR. ENGELHART: Well, yeah, they've -- they've created a problem --
4189 COMMISSIONER MENZIES: You're actually being asked to not build unless you have to build.
4190 MR. ENGELHART: I beg your pardon, sir?
4191 COMMISSIONER MENZIES: You're generally being asked to not build where you can share.
4192 MR. ENGELHART: Oh, for towers I would agree with you. Towers and roaming are kind of wholly separate issues.
4193 COMMISSIONER MENZIES: Okay, so you're -- okay, that's fine --
4194 MR. ENGELHART: Yes, sir.
4195 COMMISSIONER MENZIES: -- you don't need to go -- I don't want to drag it out on that.
4196 MR. ENGELHART: Sorry.
4197 COMMISSIONER MENZIES: I had just one -- no, it's not your fault, it's mine.
4198 I enjoyed the fact that, much like Her Majesty's empire, the sun never sets on the regulatory world, in that sense, but I just wanted to get your thoughts or options on.
4199 In some areas the suggestion's been brought up that there could be -- the sun might set based on market shares. In terms of foreign ownership, for instance, there's the 10 per cent ceiling on that.
4200 Would you foresee anything regarding, you know, creating beachhead opportunities for a set percentage to allow for new entries to establish themselves and begin builds, and then retreat from regulation after a certain point on that?
4201 You know, you can just say no --
4202 MR. ENGELHART: Well --
4203 COMMISSIONER MENZIES: -- or you can say yes, or you can say yes, but or no, but.
4204 MR. ENGELHART: I think it's a very good question.
4205 So rather than set a sunset, rather than say, "We're going to have this low rate, and then in 10 years, trust me, we'll raise it," you might want to start -- if you were going to go down this sunset path, which I'm not endorsing, you should really do it annually, and you should set it right away.
4206 So we will go at ARPM this year, ARPM plus x percentage next year, so you could build in a regime that would have the caps going up, in the hope that, as we have said, the marketplace will establish itself.
4207 So I think an annual adjustment, if you're going to go down this path, is better than saying, "In 10 years, this will happen," because it never happens in 10 years.
4208 COMMISSIONER MENZIES: Okay.
4209 Thank you for your time. Those are my questions.
4210 THE CHAIRPERSON: Yeah, and we have some more questions, so please don't feel rushed. We'll take the time necessary.
4211 Good public policy, especially when it's evidenced-based, requires the time it takes, especially when billions of dollars are at stake. I have yet to be persuaded that 146 characters leads to sustainable public policy.
4212 Commissioner Molnar may have some questions.
4213 COMMISSIONER MOLNAR: Thank you.
4214 Good afternoon.
4215 I want to start just by understanding. I look at your panel and I think that this is a very important issue for you folks, so -- and yet I look at your -- at what you have stated in your opening remarks, which states the retail market is fully competitive. The wholesale market is competitive. Caps are in place. There might be an issue now and then related to towers, but Industry Canada has that all covered through their arbitration, so all is well.
4216 So what is the big risk? What is it we could do wrong in this proceeding?
4217 MR. ENGELHART: Well, you know, as Guy mentioned, you can have a scenario, and I would say the best analogy might be what happened in France, where Free was able to use Orange's network and they were able to use that network to launch a service more cheaply than Orange could itself, using their own network. So they took Orange's customers and the customers of the other two providers and it led to a situation where nobody is investing now.
4218 So the big risk is that if you enable someone to make a nice profit on my network, it doesn't incent them to build one, and equally or more damaging, I don't have the incentive to invest in that network, and you end up with perhaps a short-term price benefit for consumers but a long-term destruction in the incentive to invest.
4219 COMMISSIONER MOLNAR: And so, just to be clear, because I need things in black and white in my little mind, so is that the MVNO model you're concerned with or is that roaming at some rate less than what you believe would incent investment?
4220 MR. ENGELHART: It is both. And in the case of roaming, the Competition Bureau -- that I didn't entirely agree with everything they said -- they said you're looking for that Goldilocks rate, that if it's too high there won't be enough competition, if it's too low there won't be enough investment, and you have to pick that Goldilocks level.
4221 And I guess what we're saying is it would be very dangerous to go below ARPM. We think you should go up but we don't think you should go down.
4222 COMMISSIONER MOLNAR: Yeah. And I know you explained that, and maybe you could explain it to me again, when there was the discussion of roaming in territory versus out of territory and you said at the rates today, average retail, it removes the incentive to invest in territory -- roaming rates at the average retail rate remove the incentive to invest for both new entrants and you; is that what you said?
4223 MR. ENGELHART: I would say going below ARP removes the incentive a lot more because at ARP the new entrant really isn't making money when they roam. They're not losing money, they're sort of breaking even, but they're not making a margin.
4224 And I'll quote Bragg again. They said: "If the rates stay at ARP, we're going to build the entire community when we expand and what we would like is a rate below ARP so that we can just build the downtown core and roam everywhere else."
4225 So a rate below ARP is certainly a powerful disincentive to invest. I don't think it's a coincidence the government picked the rate they did because I think they're also worried about the incentive to invest.
4226 But of course, even at ARP, you will get less building. That's just a fact, you know, because there's -- and I see Richard wants to add. I'm going to let him add. There's some places where if you couldn't roam at ARP, you would have to build for competitive reasons, and you don't because you can roam instead.
4227 MR. FEASEY: Maybe just to add a quick comment, which is I think quite a lot of this discussion is based on a sort of implicit assumption that the operators can control the ARP, that somehow Rogers can ensure that retail prices in this market will be sustained at a level that allows the operators to recover their cost.
4228 And at least experience of competitive markets, wireless markets elsewhere in the world, is that would be a terrific assumption to make but it's not true, and the French example that Ken has suggested shows that there can be competitive behaviour. The rate is not set by you. There can be all sorts of disruptive, unexpected competitive behaviour that can drive these prices to very low levels potentially. And indeed, the people who are benefiting from the roaming rates may themselves have incentives to drive the retail market in a way that then affects what they would be paying.
4229 So I think one of the concerns about why are we here and what are our concerns about the risk is also the way in which --
4230 COMMISSIONER MOLNAR: So, excuse me, I just want to make sure I understood what you just said. You said within a competitive market there would be sustainable prices under cost?
4231 MR. FEASEY: There can be. I mean Austria is a --
4232 COMMISSIONER MOLNAR: Sustainable?
4233 MR. FEASEY: No, not sustainable.
4234 COMMISSIONER MOLNAR: No.
4235 MR. FEASEY: But for long periods of time you've seen it. I think you saw the example of Austria yesterday. So there is no assumption -- I don't think you can assume that prices will be set above cost.
4236 COMMISSIONER MOLNAR: So would you therefore say that the appropriate means of establishing roaming rates is based on cost?
4237 MR. FEASEY: No.
4238 COMMISSIONER MOLNAR: No?
4239 MR. FEASEY: I think the appropriate means of establishing roaming rates is to try and create a competitive environment in which competition will establish an efficient price for you, and that is what is done pretty much everywhere else in the world.
4240 COMMISSIONER MOLNAR: And your solution for establishing that competitive market is to mandate that both Bell and TELUS provide separate roaming, where today they're providing it as a single network? Somehow that will solve the problem, is if we mandate what today is not mandated in an environment where it is market-driven, they have elected not to both provide separate roaming services?
4241 MR. ENGELHART: Well, they have one network and they are pretending they don't. They're pretending that this is the TELUS network and this is the Bell network, and it's not true. It's a shared network and we're just saying you should recognize that and that will solve this -- it will be a very valuable thing for this wholesale market.
4242 I should also point out, Commissioner Molnar, don't forget data volumes are growing and growing and growing. So for data, average revenue per megabyte, even if you don't lower it, it's going to fall.
4243 COMMISSIONER MOLNAR: I am sorry, just explain. What do you mean by that?
4244 MR. ENGELHARD: Well, sure.
4245 COMMISSIONER MOLNAR: I mean I understand data is going down, the cost of delivering it is going down, prices are going down --
4246 MR. ENGELHART: Right.
4247 COMMISSIONER MOLNAR: -- but what's -- tell me what you meant relative to this.
4248 MR. ENGELHART: Right. So people are buying bigger data packages and they're using more data but the revenue is not going up commensurately. So we're selling more and more data at a lower per unit price.
4249 COMMISSIONER MOLNAR: M'hmm.
4250 MR. ENGELHART: So you will see next year more data being sold and so the average revenue per megabyte will drop because there will be so many more megabytes. Yes, there will be more average revenue but not as much as the megabytes are going to grow. So the roaming price will drop every year for data even if you don't do anything.
4251 COMMISSIONER MOLNAR: M'hmm. Okay. I have only one other question.
4252 If we were to accept sort of the ex ante approach, you mentioned that perhaps we may be an easier arbitrator or a less costly arbitrator than Industry Canada, and similar comments were made by TELUS and by Bell.
4253 Bell put in their submission that they thought it might be reasonable if we were to accept that role or undertake that role as an arbitrator, that perhaps we could set out some guidelines similar to what was done on the broadcasting side for the VI undertakings, set out some guidelines as to what we would consider to be appropriate in establishing commercially reasonable rates.
4254 And TELUS yesterday undertook to do something similar in laying out what those guidelines might be.
4255 I wonder if you would be willing to do the same or, you know, you're very welcome to give me your thoughts on the notion first and then, despite your notion, I'm wondering if you could undertake to do the same.
4256 MR. ENGELHART: Commissioner, I take it that for this part of your question we're really talking about towers, not roaming?
4257 COMMISSIONER MOLNAR: Yes, we're talking about towers here. Sorry.
4258 MR. ENGELHART: Yes. Sure, we can put something like that together. I mean Industry Canada has a pretty comprehensive set of rules on tower sharing, so I'm not sure if that isn't already entirely a code of conduct.
4259 COMMISSIONER MOLNAR: Including how to establish reasonable rates?
4260 MR. ENGELHART: No. No. But --
4261 COMMISSIONER MOLNAR: Well, that's --
4262 MR. ENGELHART: That's what you're interested in.
4263 COMMISSIONER MOLNAR: That's what we are looking at.
4264 MR. ENGELHART: Okay. We will give that some thought, subject to my earlier caveats that there really is no problem here.
4265 COMMISSIONER MOLNAR: Well, fair enough, it's ex ante, and, you know, one of the things that came up yesterday with TELUS, and I'm very certain you were listening to that, is their expert noted that while there may be not a problem in the market in aggregate, there are always situations where there's an incentive for vertical foreclosure, right? There are situations. It can exist and that's why you want an ex ante approach. That's why arbitration is there as a backstop.
4266 MR. ENGELHART: Yeah. I don't think you can foreclose someone with a tower. It just seems so artificial to me to talk about foreclosure. Yes, you can make them spend 10 months building one and you can -- and Industry Canada, people do write angry letters to Industry Canada saying, I'm being kept off this tower, and they investigate. But yes, we will answer your question.
4267 COMMISSIONER MOLNAR: And I accept what you say as well, that maybe it is the wrong term to use, you're not going to foreclose them from their business, but the incentive that exists between somebody who's integrated in both the wholesale and retail is. So --
4268 MR. ENGELHART: Let me just respond very briefly to that.
4269 There is an incentive really to keep those towers for yourself, not because you're trying to foreclose anybody else but so that you can deploy the next generation of technology more quickly. That's the incentive. Forget about the other guys. It's just when the next generation comes out and you've got a spot ready, that's so great. If you've given your last spot away to someone else and now you have to go through the whole municipal process and spend three years to build another tower because you just gave your last one away, that's the overwhelming incentive.
4270 However, I get it, we're not allowed to keep those anymore. Industry Canada changed the rules. We are playing by the rules, we are abiding by the rules.
4271 COMMISSIONER MOLNAR: Right. Then you won't need our arbitration? So all you really need to do is set out the terms and you will never have to live by them because you play by the rules.
4272 MR. ENGELHART: Yes, Commissioner.
4273 COMMISSIONER MOLNAR: Okay. You know what, I know I said that was my last question but I do have one more, and it was brought up already, the notion of exclusive access to sites.
--- Cell phone ringing
4274 COMMISSIONER MOLNAR: Oops, I think I'm ringing.
4275 Anyway, could you just remind me what your position is if we were to prohibit exclusive access to site locations?
4276 MR. ENGELHART: Sure.
4277 COMMISSIONER MOLNAR: I might have to shut that off.
4278 MR. ENGELHART: So just definitionally, we think of towers as being that antenna structure. We think of sites as being typically a rooftop. There are other things that are sites, typically water towers, for example. Often in a community, the water tower is this great place.
4279 COMMISSIONER MOLNAR: And can we include -- and maybe my terms are wrong but I am also thinking in building sites.
4280 MR. ENGELHART: Ah, in building sites, DAS systems.
4281 COMMISSIONER MOLNAR: So Air Canada building, as was brought up by the Vice-Chair, or maybe, you know, somewhere in a subway or something like that.
4282 MR. ENGELHART: So your question is for those --
4283 COMMISSIONER MOLNAR: Prohibiting exclusive access to sites and locations.
4284 MR. ENGELHART: Okay. And I guess what I would say is, are these people willing to pay their fair share? If there's four of us, does everyone pay a quarter?
4285 COMMISSIONER MOLNAR: Are you asking me that right now?
4286 MR. ENGELHART: If that is the arrangement, we're okay with it.
4287 COMMISSIONER MOLNAR: Okay.
4288 MR. ENGELHART: Of course we would let someone else in. And the landlord wants that. They don't want to have two DAS systems --
4289 COMMISSIONER MOLNAR: So you have no exclusive arrangements?
4290 MR. ENGELHART: We have lots because we --
4291 COMMISSIONER MOLNAR: But you are willing to give up those exclusive arrangements --
4292 MR. ENGELHART: Well, for the most part --
4293 COMMISSIONER MOLNAR: -- without us mandating it or if we mandate it, it's okay?
4294 MR. ENGELHART: Let me talk to my colleagues and we will give you that in the undertakings.
4295 COMMISSIONER MOLNAR: Okay. Thank you.
4296 THE CHAIRPERSON: Just two areas I think I would like to explore with you and one builds on the exchange you had with the Vice-Chair of Telecom about the cost of networks and spectrum versus the cost of roaming. I just want to understand what you're saying. Are you suggesting that the high cost of spectrum is actually having a greater impact on the affordability in the retail market?
4297 MR. ENGELHART: I don't think I am saying that. I'm saying if I look at someone that has spent half a billion dollars on spectrum, a billion dollars on their network, and then they're spending $4 million a year on roaming and they're saying, "I've been foreclosed, I expected to only spend $2 million on roaming," I'm finding that whole discussion preposterous in the --
4298 THE CHAIRPERSON: From a business planning perspective, is that what --
4299 MR. ENGELHART: Yeah.
4300 THE CHAIRPERSON: Okay.
4301 MR. ENGELHART: Yeah.
4302 THE CHAIRPERSON: Okay. I just was unclear where you were going with that and so I think I understand now.
4303 In your oral presentation today at paragraph 20 -- and others have asked questions about it -- and this is with respect to us requiring both Bell and TELUS to offer roaming across the entire country, first of all, I take it that your perspective is that if we are to find remedies, we are better to find non-price remedies as opposed to price remedies? That would be a preferable route if we had to do something; is that correct?
4304 MR. ENGELHART: For roaming?
4305 THE CHAIRPERSON: Yes.
4306 MR. ENGELHART: Yes. If you can have a less intrusive, structural solution, that's better than regulating rates, yes.
4307 THE CHAIRPERSON: And you would agree with me that this would be sort of a non-price remedy?
4308 MR. ENGELHART: Yeah. I would call it a structural remedy rather than a -- yeah, a price cap. Yes.
4309 THE CHAIRPERSON: Right.
4310 MR. LAURENCE: Chairman, if I may add to that. I think if you look at, again, the European context, which is rich in failures, you'll see that regulators attempted to set rates and their success track record was just not very high and it's not because they're bad regulators, it's just very difficult to get it right.
4311 THE CHAIRPERSON: Right.
4312 MR. LAURENCE: And therefore, if you can pursue a route that doesn't require that, your chances of success are higher.
4313 THE CHAIRPERSON: I understand. And you heard the question I asked to Ms Layton earlier as well about, you know, we're unfortunately stuck with this situation. There used to be -- I'm not sure if it's still there -- in the Quebec Civil Code that judges were prohibited from refusing to decide because it was hard or words to that effect.
4314 THE CHAIRPERSON: So we're sort of in the same situation in this case. We can't really avoid the lot that has been delivered to us.
4315 But building on this Bell-TELUS suggestion you've got, and presumably they will have an opportunity to respond whether they think that's a good idea or not, but it does fall within the basket of non-price remedies that you think it would be appropriate for us to take from time to time?
4316 MR. ENGELHART: Right. And you can -- as you say, you're stuck with 27(1). So you've either got to keep it, raise it or lower it. So you could raise it. Now, you've got a ceiling, so you've still got a safeguard. So if my idea doesn't work, it's not like roaming rates are going to go too high.
4317 THE CHAIRPERSON: Right. And in terms of non-price remedy, we of course had to go down that route in Decision 2014-398. So it's a variation on non-price remedies as well, right? You wouldn't contest our ability to use those types of remedies when we think it's appropriate on the facts of the case?
4318 MR. ENGELHART: You mean getting rid of exclusives?
4319 THE CHAIRPERSON: Yes. That's what that 398 was about, wasn't it?
4320 MR. ENGELHART: Well, I would just point out again, with the law of unintended consequences, that most of the new entrants had already got rid of their exclusives by the time that decision came out. So the only real impact of that decision was two very large, very well-funded carriers that we had comprehensive agreements with no longer gave us an exclusive for roaming.
4321 So I think things like that can be disincentives to people to invest -- or to contract because the rules change. But yes, we did not object to your remedy but I'm not sure it solved the problem in the way that you were thinking it would.
4322 THE CHAIRPERSON: Okay. Fair enough. But we only make as good a decision as the evidence and arguments you put before us, in a sense.
4323 MR. ENGELHART: Well, yes. And I take your point that it is a non-price solution. You're saying no more exclusives. But let me just say one more thing, and I should quit already but --
4324 MR. ENGELHART: The theory of foreclosure, the economist theory of foreclosure is I don't make a deal with this new entrant to give them roaming because if I do, the other carriers will punish me, they will retaliate. That's the theory of coordinated foreclosure.
4325 An exclusive agreement is actually a way to prevent foreclosure because I give a cheaper rate to the new entrant and I sign a long-term exclusive and now it's too late for the other people to retaliate.
4326 I'm not saying there's any foreclosure anywhere, I'm not saying there's any coordination, but if you are worried about foreclosure, if you are worried about coordination, paradoxically getting rid of exclusives, I think a lot of economists would tell you, is not the way to do it. And now, I'll quit.
4327 THE CHAIRPERSON: Fair enough.
4328 Legal might have some questions.
4329 Me STEWART : Merci, Monsieur le Président.
4330 I will be very brief. The hour is late and the stomachs are rumbling.
4331 I believe it was you, Mr. Engelhart, in responding to the Vice-Chair of Broadcasting, you said that the voice roaming rate in one case was below the cap. Now, what about the data and text in that particular situation; does the same situation apply?
4332 MR. ENGELHART: Sylvain.
4333 MR. ROY: In this case the text and data are above the cap.
4334 MR. STEWART: We're above the cap. Now, what point in time are we talking about? Because obviously you can't be above the cap --
4335 MR. ROY: No, sorry. I thought your question was -- so I guess our point was that the rate went down over the last five years due to market and technology. Even the five-year exclusive contract had up to a 50-percent drop in the rate in year five versus year one. Those who were negotiated later at a rate -- this particular example is a 10-year exclusive agreement. Prior to 27.1, the voice rate was already lower than average revenue per minute. Since 27.1, that rate stayed there. Obviously the data and text had to be adjusted, the caps, so that we would respect the law.
4336 MR. STEWART: Okay. Fair enough. Thank you.
4337 What evidence can you provide that you, Rogers, compete with Bell/TELUS with respect to roaming? And if you want to answer that in the form of an undertaking, I'm quite happy for you to do so, subject to the Chair's --
4338 MR. ENGELHART: Sure. But I mean oddly enough this five-year exclusive that got us into trouble was precisely because we were trying to compete with Bell and TELUS.
4339 We knew that they were building their HSPA networks out and we wanted to keep getting the roaming revenue and not have Bell and TELUS get it after their HSPA networks were complete. So we offered lower rates and, as Sylvain said, automatic rate decreases throughout the contract in order to keep that -- or win that roaming revenue and not let Bell and TELUS. So I would give that as the most concrete example of how we compete with them.
4340 MR. STEWART: Thank you.
4341 And I note -- and the Chair has mentioned this -- in paragraph 20 of your oral presentation, you referred to that there's no technical reason why Bell and TELUS could not offer roaming in competition with each other.
4342 Now, you're aware presumably of the interrog responses that both Bell and TELUS have put on the public record of this proceeding to explain their arrangements. Is there anything there -- and obviously Bell will get a chance to respond, but is there anything in those interrog responses that would be sort of inconsistent with your view that they should be mandated to compete against each other?
4343 MR. ENGELHART: I mean I suspect it is a contractual thing that explains why they don't but you seem to have the powers to overcome that.
4344 MR. LAURENCE: If I could ask -- I just have one little snippet I think might help. If there was some grand technical reason why it couldn't be done, I don't understand why we were able to do it in the U.K. between us and Telefonica. And I make one last point which might be relevant and that is that my CTO that made that happen used to be TELUS' CTO. So I don't understand why he can do it in the U.K. but it can't be done in Canada.
4345 Me STEWART : Merci, Monsieur le Président. Ce sont mes questions.
4346 THE CHAIRPERSON: Just one final clean-up question. Why would an incumbent not allow an entrant to identify whose network they are riding on?
4347 MR. ENGELHART: Yeah. I don't -- I remember this went back and forth. We were thinking maybe we want them to identify that they're on us because then their customers will know what a good network is like and then they'll leave. And then other people in the room thought, well, maybe we don't want that because then they're going to kind of sell our network as their network.
4348 Sylvain, I don't know if you have anything to add.
4349 MR. ROY: Those were the two opposing forces and we decided we wanted to say silent on who their provider was. But definitely, the association of a good, well-established network with a pretty shaky network experience, especially initially, with the new entrant was of concern to us.
4350 THE CHAIRPERSON: So it is not because you're not proud of your network?
4351 MR. ROY: We wanted to avoid any confusion in the customer's mind.
4352 THE CHAIRPERSON: From a trademark perspective?
4353 MR. ROY: From trademark and quality of experience. Again, when the new entrants launched, in some cases some of them even had to issue a credit to their customers because the service was just not adequate. Some new entrants took more time and launched a quality service. Some were in a hurry to launch and we didn't want to be associated with a poor network experience and create confusion in the customer's mind.
4354 THE CHAIRPERSON: And at what point would the sort of early day concerns no longer be relevant?
4355 MR. ROY: I am not sure if there is a point in time. It would have to be revisited based on the quality of network. Obviously, we have no concern with Videotron's quality of network. That's one of the reasons why we share a network with them.
4356 MR. ENGELHART: I believe too, Chairman -- Sylvain will correct me if I am wrong -- some of our contracts said in a similar way: "You can't tell people this is the Rogers network." We didn't want them saying, look, it's Rogers, you don't have to worry, and look, we're cheaper, this is so great. So I think that was the thinking behind it.
4357 THE CHAIRPERSON: Okay. Well, that provides you an opportunity to put your views on the record then. Thank you.
4358 Those are our questions. We will take a break till 1:45. Thank you very much.
--- Upon recessing at 1239
--- Upon resuming at 1346
4359 THE SECRETARY: À l'ordre, s'il vous plaît.
4360 Mr. Chairman...?
4361 THE CHAIRPERSON: Oui, merci. Madam la Sécretaire...?
4362 THE SECRETARY: We will now hear Mr. Mike Kedar from Mobilexchange Ltd.
4363 Mr. Kedar, you can go ahead.
4364 MR. KEDAR: Thank you very much. Good morning, or good afternoon actually. Mr. Chairman and Commissioners, my name is Mike Kedar and thank you very much for hearing me.
4365 Being here again after nearly 25 years recalls earlier telecom policy battles. Some of you with long memories may recall that my company Call Net, operating under Sprint Canada name, back in 1980 started a service which changed the telecom landscape in Canada. Call Net bought long-distance services in bulk, added records' enhancements which were not available and sold them in retail undercutting what was then a monopoly of voice long-distance services. You may not recall the proceeding, but you know how it turned out.
4366 We have had long-distance competition in Canada since 1992 followed by local loop competition and consumers have prospered with the change. Consumers, service providers and large carrier, all of them it was a win/win decision.
4367 At the time, the usual suspect predicted that ordinary consumers would lose if long-distance competition were allowed. The Commission itself, under different management -- so I'm not accusing you -- tried several times to shut us down. I hope the knowledge of how things were predicted to go at the time and how they eventually turned out will guide you in your deliberations as you analyze what is to be done to introduce wholesale mobile wireless competition into Canada.
4368 The argument may change, but the defence of economic entitlement, as we heard earlier, remains steady from one generation to another; on that we can count.
4369 This week you are hearing from those who propose that economic prosperity and consumer satisfaction will increase by permitting wholesale access to the facility of large carriers.
4370 You have also heard from those who think that competition in Canada is just fine, thank you very much, leave the current state of affairs alone.
4371 The changes, however, since 1992 have been characterized by a huge increase proportion of calling being accomplished through wireless means. As one of the Commissioners says, mobile is everything today. And most wireline telephony reaches our handset through short-range radio transmission from a base station in the home, in case of cordless, or in the case of mobile telephony, the base station is outside of the home on a cell tower, but in each case the telephony is reached through wireless radio transmission.
4372 This leads me to the theme of my argument, that the same regime we have worked out for wire telephony which has proven so successful should be applied to the mobile services.
4373 In order to replicate the success Canada has enjoyed in wireless in the wired telephony, we need to create a mobile wholesale market, a real one in this country.
4374 By the way, I use the term "telephony" because this is the basis on which infrastructure we build. The content, of course, is voice, data, video, texting, access to the internet, access to the cloud of private data centres.
4375 There are a number of beneficial steps that should be taken or have already been taken by the Commission, has been discussed here, which in my opinion do not amount to a creation of a mobile wholesale market.
4376 For the sake of clarity, let me speak of them for a moment. Tower sharing is very important, it is not unlike co-location in the wireline. In other words, the base of a tower is a place whereby the wireline theory I should be allowed to co-locate my equipment. Sharing and backhaul of facilities should be encouraged by appropriate rules and pricing and it's already part of the fixed regulatory regime.
4377 Also allowing mobile virtual network operator that is pure resale to exist is a useful step and I argue, and urge you actually, to allow the market to provide it.
4378 Lowering roaming rate will do very little to encourage new innovation, it's purely resale of the other guy's service. Nevertheless, in my opinion, these measures which you are discussing here will be laudible and do not suffice to create real wholesale mobile access competition as I think it should be defined. As matters stand, all transmission elements -- and this is very important -- at and beyond the cell sites, are already available in an unbundled open access regime.
4379 The wireless air interface, also called RAN, is the bottleneck which prevents competition. Some may not be familiar with the term air interface, it's called RAN, so let me explain what it signifies.
4380 In the wireless mobile world, the air interface is the connection between the mobile handset and the cell site. Beyond the cell site, the backhaul transmission network a part of the fixed network.
4381 The air interface is exactly similar to the connection between your telephone or your computer to the nearest port or point of presence. The difference is that in the mobile world the connection goes over radio frequency link which usually requires a licensed spectrum. In the fixed world, the connection goes over wires.
4382 We have a fixed local loop and we have a wireless local loop, but they are both local loops. The inability to connect at any point in a system renders null or severely degrades the usefulness of being able to lease all other points in the system. In the terms of the trade we call them bottlenecks and bottlenecks evolve with technology. A large dominant carrier always finds a way to create new bottlenecks.
4383 I am not introducing a new issue into the discussion of mobile telecom policy in Canada. The question of air interface has already been raised before the Commission, although years before the appointment of any of you today. It is time to review some of the history of wireless mobile telecom regulatory, or lack thereof, so we can place this issue in perspective.
4384 Similar telephony systems were licensed in '85 on the basis of roughly two competitors in each market; one based in the local telephone company that had all the local access to customers, and the other was based on the cable television system which also has access to consumers, not so much to business.
4385 Ten years later two more entrants were licensed, Microcell and Clearnet. Their licensing was accompanied by the first approval by Industry Canada of an open access approach which has been proposed by Microcell. I'm not sure how many of you know that, but one of the basis for getting the licence was Microcell's proposal to create an open access network and allow anybody to access it, of course, covering their cost. It was never implemented or enforced because of lack of regulation.
4386 In 1996 my company, AIReach, Sprint and others applied to the CRTC for the creation of an equal access regime and were turned down in 1998.
4387 AIReach's proposal was that customers once having open access to the incumbent wireless network should have a choice of carrier for the wireline portion of any mobile call. In other words, AIReach would have the option to carry from and to a cell site the traffic on its own or leased facilities and manage all customer authentication, billing, network management, new APPs, et cetera.
4388 The incumbent's proposal opposed this for being contrary to the general policy of wireless mobile de-regulation that prevailed at the time and claimed that the three major similar carriers were highly competitive among themselves. Those who favoured the idea of greater access to competitive land line services pointed out that de-regulation allowed the incumbent to foreclose the market to new entrants.
4389 Sixteen years later, today, we hear the same arguments again because nothing has changed.
4390 The federal government recently declared, as you know, that the wireless industry was not sufficiently competitive. New entrants have been encouraged by allocating to them of reserved block of spectrum, but with absence of appropriate level of regulation to open air interface, RAN, tower sharing, interconnection, roaming and other matters, the new entrants tend to go broke and are bought up subsequently, if allowed, by the incumbents.
4391 Attempts to increase competition have constantly failed in the absence of appropriate kind of regulation. Thus, it is time to reconsider the policy of not regulating the cellular telephone company.
4392 The mobile telephone market, as we discussed and you have stated yourself, continues to be essentially a duopoly national infrastructure with three national incumbent service providers that hold over 85 per cent of the assigned spectrum and 90 per cent of the national market.
4393 By contrast, Canada achieved a sustainable wireline competition industry structure; it did so because the Commission took the active regulatory approach to wireline competition. By Decision taken in 1992 and subsequently 1997, the Commission established a sustainable competitive industry structure. We have the model. How we got there, by opening up incumbent monopoly networks to equal access and network unbundling.
4394 In 1996 the CRTC was presented with the question of making the wireless more like the wireline regime in a proceeding announced by Telecom Public Notice 96-18 and resolved two years later in Telecom Decision 98-1092.
4395 The CRTC was asked to consider assimilating the regulatory approach taken for wireline and wireless telecom segment under an open access regulatory framework. It concluded, however, that unlike wireline no such assimilation of regulatory treatment should ensue, and I'm quoting very quickly what the Commission said.
"The Commission considered that cellular and PCS market are sufficiently competitive, such that it cannot be said that facilities are monopoly controlled or cannot be economically or technically duplicated. As a result, none of the wireless providers can be said to have dominant market power or control bottleneck or essential facilities. Accordingly, the Commission considers that wireless networks are not essential facilities as suggested by certain parties."
4396 I'm not sure about the legal meaning of "essential", but you admit -- we discussed this earlier -- mobile is everything, it's essential to our life; without it, imagine if we stop the carriers one day without any mobile communication, I think there's going to be a revolution. So it is essential.
4397 And continues to quote:
"Mandating such access would run contrary to the Commission's general approach of fostering the growth of a competitive market and, wherever possible, leaving rates, terms and conditions for the provision of services to the discipline of competitive market."
4398 Most of the discussion we have is how this discipline does not work. Thus, Canadian consumers were left to switch from one identical over-priced wireless carrier to another unaware that their option for more fundamental form of competition have been limited by a narrow interpretation of the essential facility doctrine, that great friend of the market power, the type of facilities-based competition in wireless has been found not to be sufficiently competitive by the Government of Canada. They keep setting up new companies under an old formula rather than increasing interconnection rights. The new companies keep failing to bring the competitions that the government wants. Why then do we persist in applying more of the same?
4399 One has observed that the definition of fantasy is doing the same thing over and over again and expecting different results. So far that is a reasonable description of what we have been doing in Canada with cellular policy; spectrum set aside, alone do not suffice to create competition.
4400 It makes no sense to maintain the prohibition against access to the wireless bottleneck controlled by the licensed carriers, while the backhaul and all other transmission network elements are unbundled and competitively available at cost-based rates. It is illogical. It is an illogical phenomenon that part of my call from my mobile to the tower is not essential and therefore is not regulated and is a bottleneck. Yet, on the other side, and to the internet, and to my calling party it is essential and is regulated and is openly available to everybody. It's the same call. Part of it is essential, and part isn't.
4401 We have achieved in Canada a dual policy approach to wireline and wireless services. One is governed by an equal access rule, and the other persists in maintaining a bottleneck. This regime was upheld by the Commission sixteen years ago on grounds that, I submit, have been proven wrong by objective measures: by higher prices, lack of entrepreneurial innovation, lower quality of service and customer dissatisfaction. And this is why we are here today.
4402 So, where does this bring me? Is there a way forward? And, I believe there is. I look at the example of the Israeli government in this area. You may ask me why Israel? Israel is a modern high-tech economy which believes its future is in the digital economy. Its government has come to the conclusion about mobile competition that most Canadians have also reached. It has run the experiment and the evidence is clear. The Minister of Communication of Israel recently adopted the kind of approach I have been proposing for Canada, namely an integrated approach to wireline and wireless regulation.
4403 I recommend it to you to really study, not so an intermediary academic, but really interface with the government of Israel, talk to their regulators and find out how they did it.
4404 I will draw a portion of what followed from the presentation given by Daniel Rosenne, a presentation that I have a link to in my presentation, but I also have a hard copy for your review.
4405 Their reasoning for integrating their approach to wired -- between wired and wireless makes a lot of sense.
4406 The Israeli Minister of Communications concluded:
4407 Competition in telecommunication services is still limited and should be promoted.
4408 In the context of "Fixed-Mobile Convergence", the regulators' role is to prevent abuse of market power by discrimination and unfair practises.
4409 The key issues were described as:
4410 Cost-based interconnection;
4411 Symmetrical airtime, meaning prices for mobile are kept close to those for fixed;
4412 Open network access;
4413 The prevention of discriminatory bundling.
4414 The Ministry also determined that mobile will not be a true substitute to fixed -- and that's the case in Canada -- unless:
4415 Mobile prices will be similar to fixed.
4416 Mobile service offerings will be similar to fixed, including data services; and, more importantly,
4417 Mobile will offer the quality of service available to fixed networks.
4418 The incumbent cellular companies in Canada I am sure would be shocked -- shocked and appalled that such an advanced industrial state like Israel would embark upon a policy so contrary to their own interests, so friendly to consumers, and so unconcerned with the previous Canadian wireless regulatory policy.
4419 I imagine some of you at the Commission must be wondering how this policy was decided upon and how it was achieved. And, the truth is, that great results have been achieved. And there is a link for you to review.
4420 I can hear already the claim that Canada is too big, that we have enough competition already, that everything is just hunky-dory in the state of telecommunications in Canada. But, clearly, we are here because many people feel, including and apparently the federal government itself, that our mobile policy has produced inadequate results. It is evident that licensing new carriers under existing interconnection rules, and maintaining a policy of non-intervention does not work no matter how cheaply spectrum is made available.
4421 In my submission, it is time to stop repeating failed policies and to try something new.
4422 The results of our aggregated regulatory intervention -- sorry, the result of aggressive regulated interventions in Israel have been highly successful: Consumers have benefitted. The new entrants are thriving. The incumbents have improved their quality of service in order to attract the new entrants. And the Israeli entrants can be called full MVNOs.
4423 And if the example were followed in Canada, new players would be able to introduce innovations far beyond tower access and roaming rates. Product and technological new offerings will be generated as operators compete on service differentiations. They include innovations such as wireless virtual private line, session management, IP address management, customer IP priority services, etcetera, which are all not available today.
4424 In conclusion, Commissioners and Mr. Chairman, I propose that it is time to engage on a new approach to the competition, that competition could look -- to a new approach to what competition could look like in mobile communications. It would involved the following elements:
4425 Unbundled access to all elements of existing systems, including the air interface;
4426 Cost-based wholesale services;
4427 Applying the approaches adopted by land line to wireless; and
4428 A prevention of discriminatory bundling.
4429 If such policies were adopted, then mobile rates would quickly fall to something more in line with wired prices. This kind of mobile competition will also solve the quality of service issue. Where suppliers can respond to the demand with different qualities of service, rather than just resell the incumbents' services the market will find the appropriate blend of quality and price. In order -- in other words, I do not think we need to aim to symmetrical pricing from wireless to wire; that would result from the kind of competition that would be sustained if these policies were followed.
4430 Canadians would experience significantly more innovation in wireless services, because competitors would be able to use network elements in a much more intelligent way. The incumbent mobile carriers will compete between themselves for the business of the full MVNOs, and will provide competitive access pricing and quality of service.
4431 We have been following a policy that says that competition among incumbents is sufficient and that regulation is not needed. Yet, the wireless sector continues to be concentrated with an absence of real consumer choice decade after decade.
4432 Instead of doing the same thing again, why not embark upon a policy that sees wireless and wireline as essentially similar, and adopt the policies that have made wired long distance competition such a success.
4433 I thank you for hearing me, and I will answer your questions.
4434 Thank you.
4435 THE CHAIRPERSON: Great. Thank you very much. Just with respect to the deck you have attached this morning.
4436 MR. KEDAR: Yes.
4437 THE CHAIRPERSON: This was not part of your original submission; is that correct?
4438 MR. KEDAR: No, it is not, but it's -- I'm quoting from it in my presentation.
4439 THE CHAIRPERSON: Right. And it's --
4440 MR. KEDAR: And I'm showing a link into it, so instead of you having to go on the computer to look it up --
4441 THE CHAIRPERSON: I understand. I'm just trying to -- and it's a summary of publically available information, is it?
4442 MR. KEDAR: Yes.
4443 THE CHAIRPERSON: Okay.
4444 MR. KEDAR: I got it from the internet.
4445 THE CHAIRPERSON: And so you are asking us to add it to the record of the proceeding?
4446 MR. KEDAR: Yes, please.
4447 THE CHAIRPERSON: So we will take that under advisement. Thank you very much.
4448 Vice-chair of Telecom will start off the questions, thanks.
4449 COMMISSIONER MENZIES: Thank you. First of all, just a quick question on MVNOs. In your written submission and in here you sort of suggest that we should allow them, right? We do. I mean, we're agnostic in terms of that. So, is there something specific that you think we should do in terms of MVNOs?
4450 MR. KEDAR: Yes. The definition of MVNO that I see as the real sustainable way for competition is the full MVNO. That means that already at the tower and everything behind it or before it should be built as a facility of this MVNO service provider. All he will get is the RAN, the air interface. That is a full MVNO that will compete effectively in the marketplace without having to have a spectrum.
4451 COMMISSIONER MENZIES: Thanks. In your main presentation, you know it was fairly clear that you think the framework for fixed should be -- and the framework for wireless should be under the same regime, and that that's appropriate and suitable.
4452 So, this is a bit more of a philosophical question because this is what I don't understand about that: In terms of the technological difference between this, there's been more change, innovation and addition and expansion within the mobile world because it is increasingly the internet word, it's not a telephony world in the last ten years, than there probably was in telephony, fixed telephony in the previous hundred years, right.
4453 So, one is very dynamic and I'm just trying to figure out how a regulatory framework that was used for a relatively static -- and I used the term relatively -- industrial age product would be appropriate to apply to a very dynamic technological age product?
4454 MR. KEDAR: If I may, the definition of mobile -- mobile does not live in isolation of fixed. As I said in my presentation, every single mobile call or access to the internet from your handset goes over both an air interface portion and a fixed portion. So all the innovation that you see in the end to end include both segments, the wireline and the wireless.
4455 So, the advantage over the last ten years is that we move to more and more communication over wireless. The access to the network became more and more over wireless, but each one of the -- all that access to the wireless network has a termination continuum of wireline, and that portion is de-regulated.
4456 The best example for that is that the people earlier today, Rogers, who acquired Call Net or Sprint, who now operate in the commercial market and provide telephony, well, they used wires from Bell which go into the buildings, okay. And they provide the internet service over those wires that they lease from Bell Canada.
4457 We did not expect, in 1992, to duplicate the local loop and create two or three sub -- you know, layers of local loop. We said the hundred year telephony local loop should be available to anybody who wants to provide service on it. If it is access to a tower, if it is access to a POP, if it is a connection. So, --
4458 COMMISSIONER MENZIES: So, those are the principles that you're trying to apply?
4459 MR. KEDAR: Yes. So, I'm saying all the evolution in wireless could not have happened if we didn't have the fixed part of it.
4460 COMMISSIONER MENZIES: What about in terms of this, like your history is about introducing access in competition, right? And, the industry being discussed here has developed over the last thirty years largely without our involvement. Not without regulatory involvement at all, but without the same level of involvement as in other areas in terms of that. And the question before us is whether intervention is required to ensure a competitive framework, but there's a somewhat -- and you know it's a matter for debate about how much competition there was, but a -- and even though this is debatable too, among many interveners, it's some what acceptance that this is -- Canadians actually have a pretty good system, even very good, even excellent. There's obviously varieties of opinion on it, but it has developed without our interference. And the question before us is, is interference required to help continue its development, I think, to even better.
4461 So, in one sense you were getting de-regulation to free something up in the 1990s, and you're suggesting we use regulation to get --
4462 MR. KEDAR: No, I got the regulation in 1992. The regulation was to impose on Bell who was the monopoly or the telephone companies who were a monopoly to open up the networks for access and to be able to compete on the local loop and long distance. That happened in `92 and `97, okay.
4463 COMMISSIONER MENZIES: Right. But nobody today is suggesting the framework we're looking at today is a monopoly. The term duopoly has been used, the term oligarchy has been used but --
4464 MR. KEDAR: I am not saying it is a monopoly, I'm just saying it is not sufficiently competitive and because of that, you know, it only came to this because of what happened in `92 and `97. If we didn't have this regulation to open up the networks of the telephone companies, we would never have come to where we are today on the wireless side. So, the carriers themselves benefit every day from what happened on the other side of the tower.
4465 So now they're saying, `We're going to lock the bottleneck from the handset to the tower, you can't access that, it's ours, you know, we spent all this money.' Well, Bell, in `92 said the same thing, `We built the network for a hundred years.' Why should we have access to it? Well, the logic was because it doesn't make sense to duplicate it.
4466 And I don't think it makes sense to keep duplicating the access, the wireless access because what we need is to improve it maybe two or three, and allow everybody to access it.
4467 On the quality of service, I want to just mention, because you said that I heard here that only 16 or 19% of home phones are replaced by wireless. And that is because, from my experience, and I don't know about you, but many of our homes do not have good coverage. And you get -- never mind dropped calls, you can't even access the carrier. So, to improve that we need alternatives.
4468 A consumer doesn't have to be locked in for two years and not being able to move. He needs at least a best quality filter where his call goes to either this carrier or this carrier in real time. Now, that's an innovation that's available on the long distance, it's available on local; I can choose whose carrier I'm going to terminate on.
4469 Why shouldn't a consumer have the same right to get a better service?
4470 COMMISSIONER MENZIES: But, why wouldn't the market demand that has driven the market growth of availability so far continue into those areas? I mean, we just had a report out that the number of land lines has now declined by 6% to 10 million.
4471 MR. KEDAR: Yeah.
4472 COMMISSIONER MENZIES: So, as you suggested in your written report it's at the same state of its evolution as newspapers are, which is not a growth period in that sense. But the market has driven the expansion of wireless availability. Why wouldn't it continue to do so particularly with the generation of people to whom a land line makes no more sense than a newspaper?
4473 MR. KEDAR: Well, because of quality of service. That is the biggest concern.
4474 I think in the US you have a much bigger penetration into the homes, and maybe it's because there's more competition or more choices, but in Canada you basically have a choice of two networks wherever you are, and they are both more or less the same. I'm not even talking about pricing now, I'm talking about quality of service.
4475 So, if you don't have a better choice, you live with what you've got, and basically you keep your land line.
4476 And, by the way, there is a real conflict of interest when the telephone company and the cable companies are also in the business of the private lines to the home, and they say, well, why should be use the forty bucks a month and allow people to use their cell phone; we'll maintain low penetration.
4477 I'm not saying they're doing it on purpose, but they're not bringing the level of service that we should expect in Canada as far as penetration to the basement and to -- and look at hospitals. Look at the need of having coverage everywhere. It's not -- today, it's not available.
4478 COMMISSIONER MENZIES: One of the things that has changed in terms of, well, everything, but particularly in fixed, is the policy directive that we have to us that directs us to -- that market forces work to the greatest extent possible. And so because of that we've forborne in a lot of areas in terms of fixed with a test of where competition exists, which if we applied to this industry, we would be forbearing. And so how do we get around that policy?
4479 MR. KEDAR: I just read to you -- I'll explain to you. I just read to you what the Commission said 16 years ago about let the market decide; let them make their own arrangement, it will work out. Well, it didn't work out, okay.
4480 So you have the proof that in the last 16 years since the Commission last looked into regulating the wireless industry, it has the proof that it did not work. The concentration remained the way it is. The choices to consumers are limited, both in price and quality.
4481 We have not seen the equivalent alternatives and quality that we have on the wireline where it's wide open, mandated to be wide open to anybody who wants to pay and access the network.
4482 COMMISSIONER MENZIES: Okay, I understand your point of view. I'll let others -- it's not my job to argue with you.
4483 MR. KEDAR: That's okay. No, no, I don't argue. I'm just telling you. By the way, I'm very emotional about this because I lived the long distance between `85 when we started Call Net until `92, I lived part-time in Ottawa. We went all the way -- you may know that -- to the Supreme Court trying to save our business and really prove that the enhancements that they provided to our small businesses is valuable.
4484 And finally the Commission agreed that there's no sense to keep a monopoly in the wireline side, and they opened it up.
4485 I'm not saying they have a monopoly in wireless, but pretty close.
4486 COMMISSIONER MENZIES: Thank you. Your position is clear to me. I have no more questions.
4487 THE CHAIRPERSON: Thank you very much. Those are our questions.
4488 MR. KEDAR: Thank you.
4489 THE CHAIRPERSON: Thanks.
4490 Madame la Secrétaire, je crois qu'on va passer à la prochaine intervention.
4491 THE SECRETARY: Yes. I would now invite Mr. Elliot Noss to take place, please.
4492 Please go ahead when you're ready.
4493 MR. NOSS: Thank you.
4494 Commissioners, first let me thank you for allowing me the time to speak with you on this issue today. I am here as a Canadian shoe retailer who has had great success retailing shoes in the United States but is unable to retail shoes in Canada.
4495 I would start by letting you know that for us, for Tucows, I am -- you know, I've had the pleasure of serving in the same seat, I'm the CEO of a company called Tucows. We're a Canadian company. I've been doing the same job for eighteen years. Towards the end, that time frame will become relevant. We've been deeply involved in the internet and are Canada's oldest and largest internet company.
4496 We have been for the last four years two and a half in the market, running an MVNO called Ting in the United States on the Sprint Network.
4497 But I am here today as a Canadian and primarily because I am not satisfied with the state of the wireless market in Canada. I say that as a consumer in that market, I say that as a parent in that market, I say that as somebody who has tried to enter into this market.
4498 We do, indeed, as Commissioner Menzies pointed out, have quite a good network in this country, but we don't have a successful wireless market. The Canadian wireless market is occasion to buy the highest wireless prices in the world.
4499 I understand that earlier this week the Montreal Economic Institute presented a study that said the United States and Australia, two markets that have robust MVNO competition in them, were actually more expensive than Canada. I would challenge anyone to present me with any usage, any wireless usage up and down the stack, and in five minutes I can find them a better price in Australia or in the United States than they could in Canada.
4500 I sat here this morning, and following the results from the first couple of days, and heard how there was "plenty" of competition in Canada. I think we need to think about what the basis for competition is.
4501 There is virtually no competition at the level of the network. There is certainly no competition at the level of price. There is no competition at the level of device. And, by the way, as a participant in the mobile market, network price and device are the only three places where people make their purchasing decisions. There's no competition in any of those levels in Canada. There is, I guess, competition in how clever one person's commercial is versus another.
4502 You know, we heard this morning that 92,000 people a week change wireless providers, and that that was somehow evidence of competition. I think what it's evidence of is that 92,000 Canadians a week are so unhappy with their service that they're going to change to someone else, knowing it's going to be identical, just because the previous person is the one who's upset them so much and they have no other recourse.
4503 I've stated both in our submissions and, you know, in a CBC interview, various other Canadian media, that we have tried to come to Canada. People ask us to come to Canada all the time. And I was lucky that I came here today because until this morning I had no idea why I had been refused, why we, Tucows, had been refused, the opportunity to be an MVNO in Canada. I did find out this morning from Rogers that apparently we're too small and fly-by-night, not serious enough, and we're just in it to steal their customers and then sell them back to them.
4504 I can tell you that my experience in trying to buy network access in Canada was essentially to be told, "We're not interested." After the CBC interview, one of the two networks -- one of the major mobile wireless networks contacted me, and said, "Hey, I'm..." -- it happened to be somebody who had gone to university with me. I didn't remember, but they reminded me.
4505 They said, "Hey, you know, I've been running the wholesale business and you've never asked us."
4506 I said, "Great, will you sell me a network?"
4507 "Well, no, but, you know, you've never asked us."
4508 "Okay, great."
4509 I will tell you that my experience with Rogers -- which I wasn't going to provide in detail until I heard Rogers talk about the Ted Rogers conversation with, you know, the CEO of Cogeco in great painful detail.
4510 I contacted Rogers, went from one person to another to another, and was told -- all I wanted was a price and to find out what the API access would be like, what the technical access would be like. I was told I was unlikely to be given an answer for 18 months, but, if I was interested, I could fill in this form, and proceeded to fill in a very long, detailed set of questions, and they were -- they exceeded the expectations that they'd set because they told me no within four months. There was no explanation or a word, just no, not interested.
4511 I think it's very important when we're looking at this problem, you know, to hearken back to a couple of points that Mr. Kedar made.
4512 Networks are infrastructure. You know, we've heard again, I think, from the previous couple of days and this morning about how networks are about innovation. They are not about innovation. Networks are infrastructure that facilitate innovation.
4513 We heard about the disasters in Europe. Those disasters are Nokia and Ericsson, device companies.
4514 You know the telecoms in Europe who are complaining about their situation, what they want -- and I heard this from CEO of Telia Sonera directly, speaking on a panel -- they think that Angry Birds should be paying them for access to their network.
4515 We're all sitting with these magical devices in our pockets, these small powerful computers that are filled with applications. The innovation sits on all of those applications. There is no more connection between the network and innovation at that level than there is between electricity and innovation at an appliance level.
4516 It's very important then, if you take that view of networks -- and I don't trivialize them. You know, we've run and operated networks for all of my professional life, since the dawn of the Internet. Building a network is real work, running a network is real work, but it's not work that's about innovation.
4517 There is room. All over the world you see successful examples of structural separation. And I do think that that view of looking at the wireless networks like we've historically looked at the fixed networks has a lot of merit.
4518 It's important to understand what we're talking about. I don't want to talk about wireless networks. It's the wrong terminology. It's the wrong nomenclature. We should think about mobile networks.
4519 We're always on wireless networks. I'm on a wireless network right now on this laptop, but it's a fixed network. Right now I'm on a wireless network on this smaller computer in my pocket, but that's a mobile network. The difference is mobility. As I move around on this network, it'll hold state. On this network, this fixed network, I better stay within the range of the WiFi router. That's the difference, and that's the only difference.
4520 Wherever there are MVNOs, we have seen lowering prices, increasing innovation and increasing customer satisfaction. I want to talk a little bit about the U.S. experience that we've been part of.
4521 You know first it's important to note a change in the market. So, historically, MVNOs were not successful in the U.S. When I had to convince my board to come along and launch Ting, I was told: Time Warner has failed, ESPN has failed, Disney has failed, on and on and on, EarthLink, numerous big companies, why are you going to be a success?
4522 I explained that things had changed. It was no longer telephones on a voice network. It was now small computers on a data network. What this was was an ISP business, and what we new how to do was to be good ISPs. We brought that thinking, and luckily we're part of what's been called in the U.S. an MVNO renaissance.
4523 So historically -- you know, Commissioner, I believe it's Dupras, mentioned earlier -- TracFone is, I think, the brand in the U.S. you were talking about. They actually have 25 million subscribers as of their last quarterly results. That's across a few different brands. They primarily serve the Latino market. It's Carlos Slim and Telmex, América Móvil who are behind that company.
4524 In the U.S. between 20 and 30 per cent of wireless customers, the mobile customers, are unbanked, and they've innovated both through their product and pricing and through their distribution methods in a way to address that market.
4525 There's a company called Republic Wireless. They've done really innovative things with Wi-Fi Calling. There's some constraints around the devices you can use, some limitations, but they've used innovation around fixed mobile convergence to drive down prices.
4526 What we've done at Ting is we've innovated primarily in two areas. We call it a "right down the centre of the highway" mobile service. This is an AT&T or Verizon replacement. But where we've innovated is in our pricing model and, most importantly, in our customer service and customer experience, and that's, you know, the fact that we have much more customer control on our website, a way better customer experience. With first-ring pickup, you can ask them any question from the population of Gatineau to what is the best mobile music service for you to use. We've taken our roots in the ISP business and we've applied it to a different problem set.
4527 So when we hear about competition in the Canadian mobile business, we need to think back to that very wise comment that Commissioner Menzies made about vertical integration. Companies can absolutely excel at building and running networks and be lousy at acquiring customers and servicing customers. Those things are in no way connected as skill sets.
4528 And very importantly, because it is the case that in the U.S. and in many other markets, MVNOs are only a small percentage of the market. It's going to be important for two reasons. The first is that what invariably happens is the incumbents respond. We have a joke of a blog post from about six months ago laying out all of the things that we did in the market that T-Mobile copied. You know, T-Mobile is now the uncarrier. You know, they took innovation after innovation from us. And that's great. You know, we live -- we've lived in the Internet world. That's flattery. We're quite happy with that. You've also seen in the last year the most significant price competition in the U.S. market as there's been in the last 10.
4529 The second reason why that market share number is important is because there is no incumbent who still has to build and run a great network for the bulk of their business today that is going to stop investing because of some -- you know, in the Canadian market, which is the cozy third, third, third oligopoly, for -- if MVNOs were to get to 10 per cent, they're not going to stop investing because of the 3 per cent loss when they've lost their share to MVNOs.
4530 So that is a threat that I do not believe is a real threat at all, and we haven't seen that elsewhere in the world.
4531 And I do want to note that in the U.S., where it is a commercial arrangement, you know it's not a mandated MVNO, it's because of the market structure. You had, you know, kind of two large companies, in AT&T and Verizon, two much more competitive companies in Sprint and T-Mobile, and you also had in Sprint a company that had wholesale roots in their fixed business. So it's that particular market structure. Hear it demonstrably: we will never see MVNOs.
4532 I do want you, you know, just by frame. You know, we launched at the beginning of 2012, a little over two years, 150,000-plus devices in the field, a $30-million run rate. Our customers, very importantly, are paying less than $22 a device. These are smartphones. We have a higher smartphone percentage in our user base than any Canadian mobile carrier, and less than $22. And it's not at all because they're using in a way that's disadvantaging them. There's an amazing thing in behavioural economics: when you're paying for what you use, you do things, like turn on WiFi on your phone.
4533 You know, a very important characteristic of fixed mobile convergence is we use mobile when we have to and fixed whenever we can. We all are living in WiFi clouds more and more of time: at home, at work and in other places we go. Turn on WiFi, watch your wireless -- or your mobile consumption of data go way down.
4534 You know, I think when we hear about the threats and the risks of MVNO, we need to look at where we are in this market. You know, Rogers' wireless last reported quarter -- I just pulled this off the Internet while I was sitting there -- net operating margins greater than 50 per cent. For somebody to call that a competitive market and have net operating margins of greater than 50 per cent that's -- what does it take? It takes courage.
4535 You know, I think that if we're worried about investment, you know maybe there may have to be less investment in hockey teams or in, you know, perhaps the purchasing of rights of, you know, Canada's greatest cultural treasure, Hockey Night in Canada. You know those things, hopefully, would suffer before investment in the mobile network.
4536 When we hear about, you know, again, the terrible European experience, we heard, we heard from experts, that it wasn't really about the MVNOs, that it was about a number of other regulations. And it was also, to a great extent -- you know, you can look at report after report, the 3G auctions were massive in Europe in general and in the UK in particular, where they had the highest rates in the world.
4537 And look at what European telcos have done. What they have done is competed around the world. They've gone to more closed markets in Africa, you know, where Orange and a number of others are dominant. You know, Vodafone and Hutch are all over Asia, Latin America is Telefonica, Telecom Italia, others, those are not companies that are suffering.
4538 You know, you've heard me speak very passionately about, you know, what I would want here, which is a mandated MVNO regime. But I do need to make an important point: maybe more important than instituting an MVNO regime is enforcing one.
4539 I mentioned earlier that I'm in the eighteenth year in the same job. I met my current employer -- well, I met the person who gave -- the people who gave me that job at the same time I met Mr. Engelhart, which was in 1996, when third-party Internet access had first been mandated as part of a group with CAIP, the Canadian Association of Internet Providers, who were negotiating third-party access from Rogers at the time.
4540 It took 16 years before the first ISP offered third-party Internet access on that cable network. First it was IOS, which was the Cisco operating system at the time. Then it was DOCSIS version 1, then DOCSIS 1.1, and on and on and on it went. I say all the time, you know, "Don't hate the player, hate the game." I don't in any way begrudge the incumbents for what they do, but what they do they do very well.
4541 So if we do something with MVNO, please -- please -- also couple that with some real enforcement.
4542 You know --
4543 THE SECRETARY: Excuse me, Mr. Noss, you have one minute remaining.
4544 MR. NOSS: Thank you.
4545 THE SECRETARY: Please conclude.
4546 MR. NOSS: Perfect. I'm right there.
4547 What we would like to see is a simple solution. The billing system for every single carrier today comes from third-party suppliers that support MVNOs elsewhere in the world. There are third-party APIs available. A simple out-of-the-box pricing mechanism can be developed simply. If it's a little bit too painful, then we can be sure that they'll let us know.
4548 I do want to point out that we make money for Sprint. We're more efficient, we acquire customers less expensively and we service them less expensively. We are able to do more for less. They know, Sprint knows, my supplier, that they make more on a dollar of wholesale revenue than they do on a dollar of retail revenue.
4549 So it would be my dream that one of the Canadian mobile carriers would recognize that they could focus on what they do really well, which is build and run networks, and let others innovate on top of them.
4550 Thank you.
4551 THE CHAIRPERSON: Thank you very much.
4552 Vice-Chair Menzies will start us off. Thanks.
4553 COMMISSIONER MENZIES: Thank you.
4554 I have a few questions, some of them more technical than others.
4555 So when we look at the retail market as it exists right now, why should we look at the market share of the three major companies as if they were a single company, like collectively?
4556 I mean they've supplied -- I mean you've made your views knows, and in your written submission there's some detail of your structure. But, I mean, they've put on the record a fair bit of evidence showing, you know, their volumes of advertising, where new entrants are picking up on turnovers and churn and that sort of stuff.
4557 You know, I mean they say x number of people changes their provider each week, and that's a sign of this, and you say it's a sign of that. Do you have any numbers for us, like some facts, some research that you can give us, because otherwise it's he said, she said, he said, right, back and forth? Although, it's not a lot of she said, but there's a lot of he said and he said in this room.
4558 But go ahead.
4559 MR. NOSS: Yes, we have -- I'm here alone today. I don't have experts from all over the world.
4560 COMMISSIONER MENZIES: You don't have to do it right now --
4561 MR. NOSS: No, I understand.
4562 And I want to make the point, Commissioner Menzies, that I understand that, and I will take away, you know, at least an undertaking to see what we could come up with. But I do want to make a point to you: everyone one of you up here, every one of you over here, everybody in the room, when we walk out of the room tonight, are customers of these mobile networks. Every one of us has had to at some point shop for ourselves, our spouses, our children. Every one of us has sat with friends at dinner who -- and have heard the complaints and the lamenting.
4563 All you have to do is look at any newspaper article, any reddit thread, any blog post on this topic. Don't read the post, read the comments. They will --
4564 COMMISSIONER MENZIES: I understand, but lamenting is a very poor foundation for a regulator system, right, so it's --
4565 MR. NOSS: I lament your position in that regard.
4566 COMMISSIONER MENZIES: Thank you.
4567 MR. NOSS: And I am sensitive to it --
4568 COMMISSIONER MENZIES: Well, that's a great basis for --
4569 MR. NOSS: -- I don't want you to hear me not hearing.
4570 COMMISSIONER MENZIES: -- a regulatory system.
4571 MR. NOSS: Yes.
4572 COMMISSIONER MENZIES: But if you could, then, undertake to provide any data you have on that.
4573 COMMISSIONER MENZIES: And I have another request that might have to go as an undertaking, too.
4574 When you suggested that we have the highest prices in the world and that you could -- I think you put out a bit of challenge, which I'm not really taking up, but can you source that data? You suggested that you could -- words to the effect that -- because you -- we're were working from slides, so --
4575 MR. NOSS: Yes.
4576 COMMISSIONER MENZIES: -- let me repeat back to you what I heard, and you can --
4577 MR. NOSS: Great.
4578 COMMISSIONER MENZIES: -- confirm whether I heard correctly words to the effect that you dared anybody to show you their plan and you wouldn't be able to find a plan in Australia or the United States that provided the same level of quality --
4579 MR. NOSS: Yeah.
4580 COMMISSIONER MENZIES: -- and service and was cheaper.
4581 MR. NOSS: That's right. Show any usage profile --
4582 COMMISSIONER MENZIES: Right.
4583 MR. NOSS: -- small, medium or large.
4584 COMMISSIONER MENZIES: So can you pick three of those, small, medium and large --
4585 MR. NOSS: Absolutely.
4586 COMMISSIONER MENZIES: -- from the incumbent carriers, and get back to us and show us where, if I was Australian or living in Australia, or if I was living in the United States, it would be different.
4587 MR. NOSS: I can do that for you, yes.
4588 COMMISSIONER MENZIES: Thank you. Thank you, that would be great.
4589 And you gave a fairly broad reasoning about -- I mean you're a Canadian company, an ISP in Canada, right, but you're --
4590 MR. NOSS: Actually, our roots are in the ISP business. Our largest business is domain registration, where we supply web-hosting companies and ISPs all over the world, yeah, and a few other things.
4591 COMMISSIONER MENZIES: Right, but you're --
4592 MR. NOSS: Yeah.
4593 COMMISSIONER MENZIES: -- operating as an MVNO in the United States.
4594 MR. NOSS: That's right.
4595 COMMISSIONER MENZIES: Right.
4596 Basically, what I took from what you're saying in your submission is that you've had -- no one has taken you up on your offer to buy their services wholesale in Canada; is that correct?
4597 MR. NOSS: In fact, they have refused us.
4598 COMMISSIONER MENZIES: Do you have any correspondence from them that can confirm that --
4599 MR. NOSS: Sure. Yes.
4600 COMMISSIONER MENZIES: -- that you could file with us too as an undertaking?
4601 MR. NOSS: I believe so. I'd have to check my NDAs but I think I could --
4602 COMMISSIONER MENZIES: Sure.
4603 MR. NOSS: -- at worst, sort of under confidentiality. That's right. Yes.
4604 COMMISSIONER MENZIES: Okay. And in terms of -- so what was the different with Sprint? Describe, briefly if you can, what happened there when you made them your pitch --
4605 MR. NOSS: Sure. We --
4606 COMMISSIONER MENZIES: -- and what's in it for them.
4607 MR. NOSS: Yeah. Those are two great questions.
4608 So, first, we connected with them into an existing wholesale group. We had exploratory phone calls, here's who we are, here's what we're about, here's what we would like to do. We were provided at a very early juncture with economics -- that, by the way, had no volume commitments associated with them -- as well as technical details around what integration would look like.
4609 And we were then able to take that away and in very short order do an economic assessment as to whether it made sense for us to go into this market. We took a look at it, we took a look at what pricing we could come out with, at what we could do technically. We saw that we thought it was going to be very attractive and we pursued it.
4610 We went through a process. I think our first contact with them was in July of 2010. By December of 2010, we were deep in the contracting process. October of 2011, we launched a beta. February of 2012, we launched in general availability.
4611 So it was a -- what would I call it? It was a straight business process.
4612 What's in it for them is -- you know, I hear all the time about it being excess capacity. You know, Mr. Engelhart has it right, these are huge fixed cost, low variable cost networks, assets.
4613 What's in it for them is they reach greater capacity and importantly, you know, a point I tried to tuck in there, what's in it for them is that we are able -- we have a much more efficient cost structure than they do. We're able to acquire customers, service customers, manage customers, put customers through their lifecycle at a much higher level of customer service, a much better Web experience, a better control panel and a much lower cost.
4614 COMMISSIONER MENZIES: Your customer base -- MVNOs have been described throughout the week as being offering to niche markets.
4615 MR. NOSS: Yes.
4616 COMMISSIONER MENZIES: So does your customer base define itself demographically or psychographically or geographically in any way? I mean from what you talked about Wi-Fi, I took it that what you have is a -- you have people who are very conscious of their equipment and how they use it, are discriminating in terms of making sure they're accessing Wi-Fi and that sort of stuff, but that may or may not speak to a particular demographic of psychographic. So maybe you could fill that in a little bit for me.
4617 MR. NOSS: Yeah. So, as I mentioned earlier, it is right down the centre of the highway. So we have no demographic particular skew or niche. It is not down-market or up-market.
4618 Psychographic is an interesting way to look at it. We do appeal much more to an empowered customer. We do appeal much more to -- we like to -- one of the examples we would give is people who like Zipcar or car sharing tended to like our service. People who are into the quantified self or who are just, you know, more informed and aware consumers tend to be more comfortable with our service.
4619 Because one of the great fictions of the mobile market throughout North America is all you can eat or unlimited, because that's a situation where you have 95+ percent of the market who are subsidizing a very small percentage of very high volume users. You know, everybody is overbuying.
4620 Some people don't care to even think about that. But that psychographic that I'm describing, the quantified self, the empowered customer, is growing every year.
4621 COMMISSIONER MENZIES: Why should we care how much money somebody makes? It comes up a couple of times. People say, well, so-and-so makes 20 percent or he makes 30 percent or he makes 40, whatever. Why should we care? Why does that -- like why should we care how much you make?
4622 MR. NOSS: Yeah. Two reasons.
4623 One is as evidence of competition. So I put out the net operating margins of Rogers as evidence that these were not competitive markets, that in fact they were markets where significant excess profitability was present. That's one reason.
4624 The second reason is because these are -- this is infrastructure. These are on some level -- as one of the two of you mentioned earlier, these are public goods and they are the stewards of those public goods. I do not begrudge them their profitability at all -- I do not -- but when everybody in the country is overpaying demonstrably relative to the rest of the world, what you in effect have is the Canadian public subsidizing the company and the shareholders and you should care about that.
4625 COMMISSIONER MENZIES: So what would be the sort of rates of return that we would gauge a healthy MVNO market on? Like if you had an MVNO business in Canada --
4626 MR. NOSS: Yeah.
4627 COMMISSIONER MENZIES: -- what would we say was a healthy profit for you to make so that we could look at it and say, oh, the MVNO market is thriving, we're happy, you know, Tucows is making 50 percent or 20 percent or 5 percent?
4628 MR. NOSS: Yeah. I think that is the wrong -- again, I put it out as evidence of competition and so I think it's the wrong question. I think the way that you as a regulator should measure whether it's a healthy market is to look at the levels of price, the levels of network and the levels of service that the public is getting.
4629 You know, I come from a market, an industry, a domain registration industry that has extremely low net operating margins, you know, in the low to mid single digits. You know, if you're selling computer equipment, you're starting at 5 or 8 points before you have any operating costs. So I don't have a -- you know, I think that that's the wrong filter.
4630 Where you can see it is where you have these oligopolies, these excess profits, you can see those as evidence of the lack of competition.
4631 COMMISSIONER MENZIES: Okay. And as you know, we have to -- because we haven't made a decision yet regarding --
4632 MR. NOSS: Yes.
4633 COMMISSIONER MENZIES: -- market power and that sort of stuff. We have some examination to do on that. So could you define for us exactly what you think the product market is that we're talking about here?
4634 MR. NOSS: Sure. I think it is the end user -- by the way, I don't differentiate much between consumer and business -- the end user purchaser of access to the mobile network.
4635 COMMISSIONER MENZIES: Okay. So all mobile networks --
4636 MR. NOSS: So it's somebody buying minutes, messages and megabytes as an end user on that mobile network. I do think that the Internet of Things and M2M is a separate market if --
4637 COMMISSIONER MENZIES: Okay. And do you see this as being -- the geographic market is...?
4638 MR. NOSS: Canada.
4639 COMMISSIONER MENZIES: Just national?
4640 MR. NOSS: Yeah.
4641 COMMISSIONER MENZIES: Okay. What do you think are the two or three most important indicators of competition in the retail markets that we should be examining?
4642 MR. NOSS: Yeah. So, to me, I think it's that the level of price is the first one and that then you sort of look at that, you know, almost in a seesaw with the net operating margins.
4643 And, you know, one of the great things about the fact that the incumbents are public companies is they can put studies in front of you all day and all night but they will not misrepresent their positions to their shareholders. So I really encourage you to read those submissions with as much eye as you do the ones that come before you.
4644 COMMISSIONER MENZIES: Was that three, two or three measures?
4645 MR. NOSS: Those would be the two that I would most look at. I mean you certainly look -- you know, I hesitate to say level of service --
4646 COMMISSIONER MENZIES: No, that's fine.
4647 MR. NOSS: -- just because I can't -- you know, I've undertaken to try and provide you with something there. I know it's -- you know, we all know how bad it is as human beings, but it's difficult for me to demonstrate.
4648 COMMISSIONER MENZIES: Right.
4649 Now, one thing I was a little confused about was the specific remedy or regulatory measure you were looking for.
4650 MR. NOSS: Yeah.
4651 COMMISSIONER MENZIES: There's a sort of general "let my people go" theme, but what specifically would we do for -- would we do --
4652 MR. NOSS: Yes.
4653 COMMISSIONER MENZIES: -- that you think we can do that you think would produce the sort of outcomes you like?
4654 MR. NOSS: Yes. I apologize for that. I was in my one-minute warning and so I --
4655 COMMISSIONER MENZIES: No, you did mention the third-party billing system --
4656 MR. NOSS: Yes.
4657 COMMISSIONER MENZIES: -- as the one thing you were asking for and I was -- I don't understand exactly how that would give you the outcome you're looking for.
4658 MR. NOSS: Yes. So I'll explain. I rushed through that at the end.
4659 You know, I think that really what -- so, first of all, I do think that, sadly, we need a mandated MVNO regime, that the two most important characteristics are price and technical integration, that what I fear is again another 16-year TPIA, you know, delay process, and so for that reason, as I thought about coming here today, I thought about those two measures.
4660 And in terms of price, I think you have some very strong analogs in the U.S. market that could give you a baseline for price. Price is typically per minute, per message, per meg. And there are models all over the world, and that's something that, you know, if there was a process, we could get you input on.
4661 And the second part was the technical integration and the point I wanted to make there was that all of the incumbents use, as I understand it, third-party billing systems that are the big brands. All of those big brands support MVNOs in other of their customers.
4662 When we talk to other networks about potentially -- and we've talked to other networks in other countries. When we talk to them, they'll talk to us about the Amdocs API or one of the other big vendors, the Oracle API, as what they use as their MVNO platform.
4663 So what I'm saying is it would not be difficult for somebody who is using Amdocs as their billing provider to simply also use that same MVNO platform or MVNO API that's being used in many other countries around the world. You know, again, that's to obviate the 10 years of development and how difficult it will be.
4664 COMMISSIONER MENZIES: So you think that regulating the wholesale price for the three services you mentioned would be sufficient to create entry for MVNOs such as yourself?
4665 MR. NOSS: I think if you regulate it, the price and the time when they had to offer service in a prescribed manner, that that would be sufficient.
4666 COMMISSIONER MENZIES: Okay. Thank you very much. Those are my questions.
4667 MR. NOSS: Thank you.
4668 THE CHAIRPERSON: Thank you.
4669 Mr. Vice-Chair of Broadcasting.
4670 COMMISSIONER PENTEFOUNTAS: Good afternoon, Mr. Noss. Thank you very much.
4671 It's interesting you talked about using U.S. rates as a baseline and Mr. Engelhart told us earlier today that he used those rates to try and come to a negotiated agreement with MVNOs or roamers in general. I gather one of you -- I gather you don't agree?
4672 MR. NOSS: Well, no. I think there are probably three points I would make there.
4673 The first is, you know, I think what he was doing, using U.S. rates as a baseline, is a good idea. As I've said, you know, I think it's a good idea. You know, we have roaming. We have the U.S. roaming agreements that he uses as a baseline.
4674 There's a very important difference in the U.S. market. We're one of the very few MVNOs in the U.S. -- we might be the only MVNO that allows roaming for free. So with the Ting package you get Verizon roaming for free.
4675 Verizon has, you know, sadly from our perspective, the best network and the best network coverage in the U.S. and that's because what we had to do is estimate what percent of our minutes on the Sprint network would roam onto the Verizon network. That number was estimated in the 2-3 percent range.
4676 COMMISSIONER PENTEFOUNTAS: Okay.
4677 MR. NOSS: There is no situation in Canada where it's even close to that. So it's one thing when you're kind of estimating and it's 2 percent. It's another when that's going to be 20 or 30 or 50 or 70.
4678 COMMISSIONER PENTEFOUNTAS: Right. Right. Right.
4679 MR. NOSS: And the second thing is, you know, one of the great roaming stories that I like to tell, and it's one that blew my mind and made me sad as a Canadian. It has two elements to it. We pay at a wholesale level more than five times as much for a minute to Canada as we do for a minute to China. And I'll let that sink in -- five times as much.
4680 COMMISSIONER PENTEFOUNTAS: That would be Sprint --
4681 MR. NOSS: That would be -- which is based on --
4682 COMMISSIONER PENTEFOUNTAS: -- because you're running their network. Yeah.
4683 MR. NOSS: -- which is based on the rate that Sprint gets from the Canadian mobile partner.
4684 COMMISSIONER PENTEFOUNTAS: Right. And that would be the rate plus what, Mr. Noss?
4685 MR. NOSS: Well, that's going to be --
4686 COMMISSIONER PENTEFOUNTAS: You can file it in confidence if you wish, but --
4687 MR. NOSS: That would be with a relatively uniform margin. So Sprint is not making more on one than the other, as far as we know, and we've seen the rates across all --
4688 COMMISSIONER PENTEFOUNTAS: They're not charging you four times their rate?
4689 MR. NOSS: Correct.
4690 COMMISSIONER PENTEFOUNTAS: Right. Okay.
4691 MR. NOSS: Correct.
4692 And the other element of that, if you're a Ting customer, you have this Ting U.S. phone, you bring it into Canada, you're a U.S. customer, you pay 15 cents a minute, minute 1. That is five cents less than you pay on a prepaid package from Bell, Rogers or TELUS for minute 1. You know, go into a 7-Eleven and buy a prepaid SIM, you're paying 20 cents a minute.
4693 So with a U.S. deal, I charge 25 percent less than when they're charging for their own network.
4694 COMMISSIONER PENTEFOUNTAS: So they're above retail?
4695 MR. NOSS: They're above my long distance roaming rate with a mark-up.
4696 COMMISSIONER PENTEFOUNTAS: Right.
4697 I also gather you don't agree that they did not make their WACC, I mean their weighted average cost of capital? You don't agree with that argument that was made quite vehemently this morning?
4698 MR. NOSS: I do not, no. No. I don't have -- and let me be clear, I don't have access to the data. I haven't deeply dived into their numbers. So no, I don't believe that.
4699 COMMISSIONER PENTEFOUNTAS: Okay. Are you riding a 4G LTE network --
4700 MR. NOSS: Yes.
4701 COMMISSIONER PENTEFOUNTAS: -- in the U.S.?
4702 MR. NOSS: Yes.
4703 COMMISSIONER PENTEFOUNTAS: You are, eh?
4704 MR. NOSS: Yes.
4705 COMMISSIONER PENTEFOUNTAS: You talked about the European situation --
4706 MR. NOSS: Yes.
4707 COMMISSIONER PENTEFOUNTAS: -- and you raised a couple of examples, one, that Nokia and Ericsson are the ones that are in trouble and the catastrophe is in the devices, and two, you talked about Angry Birds, but that's more a net neutrality issue.
4708 The question is the network and the quality of the network and the fact that there's a 4G LTE in single digits over most of Europe and a large part of that problem came from the MVNO regime. Do you want to address that issue that was raised this morning?
4709 MR. NOSS: Yeah. I think it's a correlation, not causation. It's a red herring and I say it for the following reasons. I think that, you know, why are the -- you have to look at the broader landscape. You know, we heard about the disaster of Free in France, you know, the disaster that is Free. Free is a disaster -- you know, this is Iliad. It's a disaster as long as you're not a customer, because if you're a customer, you're pretty darn happy about what they've done in both the fixed and the mobile markets in France.
4710 COMMISSIONER PENTEFOUNTAS: But doesn't that disincent investment in the network?
4711 MR. NOSS: What it does --
4712 COMMISSIONER PENTEFOUNTAS: The catastrophe is the quality of the network. If you can speak to that issue --
4713 MR. NOSS: Yes.
4714 COMMISSIONER PENTEFOUNTAS: -- as you compare the networks in Canada and the U.S. with the networks in Europe.
4715 MR. NOSS: Yes. So I do think we have better networks in North America. What I don't believe is that the reason is because of MVNOs.
4716 Again, I mentioned earlier, you know, let's look at Orange in France. They're investing like crazy in networks. They're just not in France. Telefonica is investing like crazy in networks. They're just not in Spain. And, by the way, it will be only another two or three years and we're seeing those investments ramp up.
4717 You know, I go to Europe two or three times a year, and there's two things.
4718 When I go to Europe and I go country to country, it is a pleasure to take my unlocked phone, land at the airport, buy a cheap data SIM and stick it in. When I'm going to Europe, I am not feeling constrained as a customer.
4719 And the other side of that, you know, I'm very involved in the ICANN process, which is, you know, three times a year people from all over the world. So next month is in L.A. You know, there will be dozens and dozens of my European friends coming over. There are all kinds of threads now lamenting how terrible it is, coming from Europe how much they're used to paying and what they're going to have to pay for their week or two weeks in the United States. So this disaster is a disaster of the carriers, not of the users, not of the customers.
4720 And there's another important element of this. There's an implication that they're not profitable enough but there's an important finish to that sentence: They're not profitable enough given their cost structures. If they chose -- and it's a choice -- to focus on network operations and not engage in the parts of the business or engage less in parts of the business that they're way less efficient in, they wouldn't have nearly these problems.
4721 COMMISSIONER PENTEFOUNTAS: And one of those areas is retail, if you go back --
4722 MR. NOSS: Retail, customer acquisition, customer service.
4723 COMMISSIONER PENTEFOUNTAS: Yeah.
4724 MR. NOSS: I had a meeting with -- I had a beer with a guy who's in the strategy group at one of the large European telcos that we've talked about. So we had met each other in a different context because Tucows has these other businesses. And then he found out we were Ting and he's like: "You know, we've been studying you guys, and you're doing this and you're doing this and you're doing this. You know, it's great." And I said: "Yeah. You know, why don't you guys do this?" And he said: "To do this little part of what you're doing, it would take us six months, you know, and it took you guys two weeks."
4725 So that inefficiency --
4726 COMMISSIONER PENTEFOUNTAS: So just stick to their knitting --
4727 MR. NOSS: Right.
4728 COMMISSIONER PENTEFOUNTAS: -- and go back to their core business.
4729 MR. NOSS: Right. And we, as consumers, as users, as Canadians, as citizens, don't have an obligation to subsidize inefficient operations.
4730 COMMISSIONER PENTEFOUNTAS: You do open the door to a disincentive to invest when you say that if the MVNO market takes off too quickly and takes up too big a share, there will be a disincentive to invest. How quickly and at what share does that disincentive kick in?
4731 MR. NOSS: Yeah. So my argument was in math and I just laid out very simple math, not a study but math. I said very simply, you have an oligopoly, it's a third, a third, a third. You know, at 10 percent, if MVNOs get to 10 percent of the market -- which it's taken, I don't know, 15-20 years in the U.S. to get there -- then that's a 3-percent loss to each of the incumbents. They're not going to change their capital investment for 3 percent. Are they going to change it for 6 percent? I don't think so. So now we're at 20 percent.
4732 I think that we're a really efficient operator. We're down in the U.S. I know what my growth plans are. I don't think in my wildest dreams -- you let me come to Canada tomorrow -- that in 10 years the MVNO market is going to get to 20 percent.
4733 COMMISSIONER PENTEFOUNTAS: Thank you.
4734 MR. NOSS: But I do want to note that people will have choice, and, most importantly, the incumbents will change their behaviours. They will innovate faster, they will lower their prices, they will raise their level of service.
4735 COMMISSIONER PENTEFOUNTAS: Thank you, Mr. Noss. Mr. Chairman, thank you.
4736 THE CHAIRPERSON: I believe those are our questions. Thank you very much. Oh, Legal has questions. I keep forgetting. Yes, go ahead, please.
4737 MS HULLEY: Just a few questions.
4738 The hearing secretary is bringing you the chart from the Lemay-Yates report. Are you familiar with this chart? It's the table of the types of MVNOs on a spectrum, from reseller to --
4739 MR. NOSS: Yes. I haven't seen it but I'm familiar with some of these concepts.
4740 MS HULLEY: Okay. Could you please confirm for the record where on the spectrum Ting's offering in the United States would fall?
4741 MR. NOSS: Sure. It is from billing and customer care out. That's all that's available to us.
4742 MS HULLEY: Okay. Thank you.
4743 If you entered Canada, at what level -- would it be the same level that you would wish to enter at?
4744 MR. NOSS: Yeah. We would be happy at anything from that level to the left. We don't know that it's necessary, but boy, we'd love to run our own backhaul and we'd love to be able to differentiate around the network too. But we don't think it's necessary to achieve the innovation that I've talked about.
4745 MS HULLEY: Thank you.
4746 And in response to the arguments on the record with respect to ladder of investment, if you entered into Canada, would you intend to move towards the farther left of the spectrum if possible?
4747 MR. NOSS: No. You said farther left of the spectrum. So I want to be clear, that ladder of investment really talks about moving into becoming facilities-based, which is, I think, separate from some of these concepts. You know, they have elements of being facilities-based but it's not really what I think is sort of strategically talked about with ladder of investment.
4748 And no, we wouldn't. You know, I think that we looked, I mean I kicked the tires on the spectrum auction, et cetera. I'm a big believer in networks as infrastructure. You know, I don't -- two networks, three networks efficiently run, with fair regimes on top of them, that's fantastic.
4749 MS HULLEY: Thank you. Just two more questions.
4750 MR. NOSS: Yes.
4751 MS HULLEY: With respect to your U.S. operations, did you approach other U.S. carriers before you entered into negotiations with Sprint?
4752 MR. NOSS: Sprint was the first one we approached. Over our time in the market we've spoken to them all.
4753 MS HULLEY: And what has your experience been with the other carriers in the United States?
4754 MR. NOSS: So it's -- T-Mobile is the one that's most competitive. With Verizon -- AT&T is not very receptive. With Verizon, for example, they won't sell you LTE. So in other words, you could go into the market but you're a crippled MVNO and you really need to be down-market at that point. So, you know, we're not interested in that.
4755 MS HULLEY: Thank you. One more line of questioning.
4756 In terms of your desire to come to Canada as an MVNO, have you approached any of the regional carriers or the new entrants?
4757 MR. NOSS: No.
4758 MS HULLEY: Would you consider doing so?
4759 MR. NOSS: Oh, absolutely, especially if they've got fair roaming deals and could resell them.
4760 MS HULLEY: Thank you.
4761 Mr. Chair, those are all of my questions.
4762 THE CHAIRPERSON: Thank you very much. Those are our questions for you. Thank you very much.
4763 MR. NOSS: Thank you again.
4764 THE CHAIRPERSON: We'll adjourn till 3:30 and come and hear the last presenter for the day, which is the CCSA. Thank you.
--- Upon recessing at 1514
--- Upon resuming at 1531
4765 THE CHAIRPERSON: A l'ordre s'il vous plait. So when you are ready, please go ahead.
4766 Thank you.
4767 MS TOWNSEND: Good afternoon. Thank you very much for the opportunity to speak. I am Alyson Townsend and I am President and CEO of the Canadian Cable Systems Alliance. You would think I have never said that before.
4768 With me to my left are Dave Baxter, President and CEO of Westman Communications Group and CCSA Board Chair, Jim Deane, President and CEO of Access Communications Cooperative and David McKeown, CCSA Consultant and President of View Communications.
4769 The purpose of this proceeding, as the Notice of Consultation put it, is to determine whether the wholesale mobile wireless services market is sufficiently competitive and, if not, what regulatory measures are required.
4770 CCSA has been trying for years to secure some form of partnership with the incumbents. We have not succeeded. The pattern of our discussions with Rogers and Bell has been to get to a point where we provide valuable competitive information on our customers. Once we get to that point, the incumbents have shut the conversation down.
4771 Our members, many of whom want very badly to offer a quadruple play, have been summarily shut out of the game. So no, the wholesale wireless services market is not competitive. The new entrants have been too preoccupied with their own survival to give such partnerships any attention.
4772 So the major incumbents won't deal with us and, from our point of view, have also been blocking the growth of new entrants with whom we might eventually be able to partner.
4773 Just how many of our members would introduce mobile service would depend on the model, ranging from pure resale to full MVNO options that were supported by a new wholesale regime.
4774 I can say that when I scan our current membership list I can see at least 30 companies, one-third of our membership that would jump at the chance to launch a mobile service.
4775 Two of our members are here today and I will turn it over to them to tell you what they would need to offer enhanced competition in their markets.
4776 MR. BAXTER: Thanks, Alyson. I am Dave Baxter, President and CEO of Westman Communications Group and CCSA Chair.
4777 Westman is a community cooperative based in Brandon, Manitoba. We serve approximately 20,000 customers and 36 systems throughout western Manitoba.
4778 As a customer-owned cooperative, we invest our earnings into our networks and operations to provide the best possible communication services and customer experience to our members at the lowest possible cost.
4779 That enables us to innovate and we are often a leader amongst smaller distributors introducing new products and services to the communities we serve. As an example, when we launched telephone services in 2008, we deployed our own switch which had only been done by the large MSOs.
4780 Today we offer a full range of services, including HDTV, video on demand, whole-home entertainment, Internet at speeds over 100 MBs per second, home Wi-Fi support and telephone services. So we offer a robust triple-play service, but to date have not been able to offer a quad-play package like our provincial competitor, MTS.
4781 That is not for lack of trying. I am a founding member of CCSA's mobile wireless committee which was formed many years ago and I can tell you it has been very frustrating.
4782 As an association with extensive experience in group purchasing, we have spent many years trying to obtain wholesale wireless agreements with the incumbents; in the end, they are not interested.
4783 We need regulatory support to get into the wireless business and offer a competitive quad-play of services to our customers. The incumbents have clearly demonstrated that otherwise they will not work with us.
4784 As we said in our written submission, the existing mandated wholesale arrangements on the wireline side of the business have proven to be very successful in promoting competition for the benefit of Canadian consumers. We believe that application of a similar framework to mobile wireless services would produce similar benefits.
4785 So what should that framework include? I see the following elements as being required:
4786 The option of obtaining a tariff price of the same phones sold or leased by the incumbent wireless carriers to retail customers at the time they become available to the incumbents;
4787 The ability to obtain phones from an alternate provider without any requirement for testing or approvals by the incumbent;
4788 Call detail records;
4789 Electronic interface;
4790 The ability to report numbers within intervals equal or comparable to the reporting end of those used by the incumbents for their own customers;
4791 Ranges of telephone numbers at tariffed rates;
4792 Services to satisfy regulatory obligations such as 911;
4793 Access to all technologies such as HSPA and LTE;
4794 Detection reporting by the incumbent wireless carrier of fraudulent use;
4795 The ability to provide end customers with voice, data and text message services;
4796 The option of providing our own SIM cards;
4797 Use of existing roaming arrangements at tariffed rates;
4798 Connection arrangements enabling MVNEs to connect feature service to the incumbents' networks; and,
4799 Volumes of minutes and data at tariffed rates for resale by MVNOs.
4800 With respect to the handsets, we really need access to the latest phones through the incumbents. We simply won't get out of the gate without access to their purchasing scale. Manufacturers such as Apple and Samsung won't sell to smaller players like us.
4801 We submit that the Commission should introduce wholesale competition by requiring incumbents to provide wholesale services by marking down retail rates by at least 25 per cent.
4802 This approach to discount retail rates is consistent with the Commission's previous decisions, including competitive digital network services and third party internet access services which were introduced by Decision 99-11; basic payphone access line service which was introduced at 25 per cent off the business line retail rate by Order 2000-858; and, usage-based billing for Gateway Access Service which was initially introduced at 15 per cent off the rate for equivalent retail service by Decision 2011-44.
4803 The specific elements that should be available to competitors in this manner under a mobile wireless wholesale framework are identified in CCSA's written submission.
4804 We also submit that the Commission should implement a default standard agreement for use between MVNOs and incumbent wireless carriers. While parties should be free to negotiate terms that differ from the standard agreement, if negotiation of an agreement cannot be completed within 60 days the wholesale customer should be permitted to request arbitration by the Commission.
4805 So what would we do if we had access to these services under a mobile wireless wholesale regime? Well, I can tell you that Westman would be offering a quad-play bundle to as many of its customers as we could just as soon as we possibly could.
4806 To get to market quickly we may have to start with a reseller model perhaps for the first year. And I should mention, when I refer to a reseller model, we can provide a lot of the elements such as the branding, distribution of handsets, bill and customer care as well as backhaul and interconnection with the incumbents. This will allow us time to make the necessary changes to our systems and to develop an interface with the wireless carrier. As well I expect that determining tariffs for the various aspects of an MVNO regulatory framework will take time. A mandated reseller model could be put in place immediately. W would likely transition to an MVNO model which would include buying bulk minutes, data blocks and similar service elements so that we can package the way we see fit in order to appeal to our own target markets.
4807 MR. DEANE: Good afternoon. I am Jim Deane, President and CEO of Access Communications Cooperative. Access is a non-profit community owned cooperative serving about 70,000 Canadians with over 200 systems in Regina and throughout rural Saskatchewan.
4808 Our products and services have grown to include Internet, home phone, digital and hi-definition television and home security.
4809 With respect to mobile wireless service, my company's situation is exactly the same as Westman's, except that our quad-play competition comes from SaskTel.
4810 Our needs and our plans if a new wholesale framework is implemented would also be the same as Westman's; that is, we would start out with our own simple resale model, and as Dave said, it is really more a light hybrid partial MVNO according to the chart referred to earlier, but the important thing for us is to be able to offer a competitive quad-play bundle.
4811 Dave's given you an outline of what CCSA members need and I would like to speak more to the policy reasons for implementing the framework that he recommends.
4812 We know that a big part of this proceeding is about how to incentivize investment in facilities so that all Canadians benefit from a robust, modern and innovative telecommunications infrastructure. I expect that when you hear us talk about entering the market as resellers, you are wondering how that contributes to the development of a Canadian-owned facilities-based system.
4813 We have read Cogeco's submission which, as you know, strongly supports a framework designed to enable market entry by so-called full MVNOs, companies that will build their own infrastructure and rely on the major incumbents for access to unbundled RAN services at tariffed rates.
4814 We agree with Cogego's view that true effective and sustainable competition in the mobile wireless sector wholesale regime that enables entry by full MVNOs is required. However, branded resellers are also an important component of competition in the wireless market, particularly in terms of consumer choice, customer service and price.
4815 The ability of our CCSA members to offer quadruple play will enable us to maintain our investments in our existing networks and enable expansion of those networks to new areas and new communities.
4816 So from our point of view, the objective of encouraging investment in facilities isn't strictly about investment in mobile wireless transmission networks, it's also important to encourage investment in the networks over which we deliver all of our communication services; broadcasting, Internet and telephone.
4817 That ability to invest is absolutely crucial to many of the communities that our CCSA members serve. For many, we are their communications lifeline and when I say critical I'm thinking of the growing importance of such communication services to citizens in accessing things like government services and healthcare; I'm thinking about the ability of businesses to locate and flourish in smaller communities across the country at a time when access to up-to-date communication services is a key input to that success.
4818 Canadians should not be denied access to the kind of connectivity simply because they represent only a modest return on investment. I can tell you that our CCSA members want the job and are eager to run with it.
4819 We already have facilities-based wholesale competition in the long-distance, local exchange and hi-speed Internet markets. Contrary to the arguments of the incumbents, the wholesale regimes have promoted competition in prices, price structure and services, technological innovation and responsiveness to customer request. Most importantly, it's not hampered innovation and investment.
4820 Such a framework in the wireless market will provide the means for CCSA members to offer a quad-play in competition with the incumbent ILECs. Customers benefit from such competition because bundled rates provide improved consumer choice and deliver customer savings. Bundled services provide the potential for integration of user features such as single voice mailbox for wireless and wireline and a single point of contact and a single bill for their communication services.
4821 In view of those benefits, it seems obvious that implementation of an effective wholesale framework for mobile wireless services would be entirely consistent with the objectives of the Telecommunications Act and policy direction. The system is designed to facilitate the orderly development throughout Canada of a telecommunications system that serves to safeguard, enrich and strengthen the social and economic fabric of Canada and its regions.
4822 The inclusion of smaller locally based providers is very consistent with the regional focus of that objective. The system is designed to render reliable and affordable telecommunication services of high quality, accessible to Canadians in both urban and rural areas in all regions of Canada.
4823 Offering a competitive quad-play will enable us to invest in our existing networks, the networks that serve rural Canadians in all regions.
4824 We want to compete, but right now the door is shut tight against us. As Alyson said at the beginning, from where we stand, it is very clear that the wholesale mobile wireless service market as it exists today is not sufficiently competitive, far from it.
4825 If the door were open, our company would jump through it in a heartbeat. Our customers and the communities that we serve would benefit.
4826 MS TOWNSEND: That's our presentation. Thank you very much for your time and attention. Our panel will be happy to answer any questions you might have.
4827 THE CHAIRPERSON: Thank you very much. Commissioner Molnar will start us off.
4828 COMMISSIONER MOLNAR: Thanks, and welcome here. You have actually answered a lot of the questions I had.
4829 But I want to go through, you noted that you had been disappointed in the discussions you had with Rogers and Bell. Have you had conversations with TELUS, you know, I see folks in front of me, but NTS and SaskTel, how about the new entrants? Tell me what your conversations have been with all of the holders of spectrum?
4830 MR. BAXTER: We have had discussions with all of the incumbent carriers. Now obviously, in Manitoba it's a non-starter for us to have that conversation with MTS and similarly for Jim to have that discussion with SaskTel in Saskatchewan.
4831 We have had discussions, though, with Rogers, TELUS, Bell, you know, and pretty much any player that might have the remotest interest. There is either no interest at all or there is initial interest that quickly dissipates and it just -- and we have gone back many times and it is not like we asked them four years ago and then just stopped, we are persistent that way.
4832 MS TOWNSEND: It actually has been my unfortunate experience to have my Board of Directors give me that as a goal to create such a partnership for the last six years and I have been unable to gain any success.
4833 COMMISSIONER MOLNAR: You mentioned you have a mobile wireless committee, so this has been for six years you have had --
4834 MS TOWNSEND: That's correct.
4835 COMMISSIONER MOLNAR: -- a goal and a committee and have been trying to pursue any type of arrangements.
4836 MS TOWNSEND: That's correct.
4837 COMMISSIONER MOLNAR: I hear from your remarks you were willing to start even as just rebranding --
4838 MS TOWNSEND: As anything.
4839 COMMISSIONER MOLNAR: -- resellers?
4840 MS TOWNSEND: As anything. We could not get one single offer on the table. TELUS in fact refused to meet with us, though we have never had any success whatsoever but I try and the committee tries continuously.
4841 COMMISSIONER MOLNAR: And just remind me, you have met with the new entrants you said?
4842 MS TOWNSEND: Yes, we have or we have spoken with them or their representatives and they --
4843 COMMISSIONER MOLNAR: And their response?
4844 MS TOWNSEND: They were essentially too preoccupied with their own existence at the time that they felt that it was too early for them to enter into such discussions.
4845 COMMISSIONER MOLNAR: Okay, fair enough. And I think you say in here that you have some hope that eventually they may be a partner, so...
4846 MS TOWNSEND: One can only hope.
4847 COMMISSINER MOLNAR: Yes, okay.
4848 So I wanted to know about your experience. I wanted to know what you would offer. And, you have covered a lot of that.
4849 Now, one of the things you suggested in here, which frankly I found quite surprising is that you suggested you needed access to phones. Do you know if that is -- like, is that some kind of reseller model that exists somewhere else?
4850 MR. BAXTER: Well, perhaps David could speak, in a moment, to whether that exists somewhere else, but in this -- in this business, though, if you don't have access to the latest handsets -- and for example I mean Apple and Samsung seem to be the most popular lately -- then you're at quite a competitive disadvantage.
4851 We simply do not have the scale to enter into agreements to acquire phones from companies like that.
4852 COMMISSIONER MOLNAR: M'hmm. I don't dispute your scale, I am still just surprised. I mean, it's kind of like regulating -- regulating terminal equipment that I don't know. That's even before my time when the Commission regulated terminal equipment, so --
4853 MR. BAXTER: I mean, it's my understanding that it does happen, although not regulated. MTS and Rogers have an exclusive sharing -- network sharing agreement in Manitoba, and part of that arrangement is that Rogers lends its access to phones to MTS. So, you know, others have seen the benefit of it.
4854 COMMISSIONER MOLNAR: I think that might be a little bit different as a reciprocal commercial agreement covering many elements.
4855 MR. BAXTER: I understand.
4856 COMMISSIONER MOLNAR: But tell me if you have any examples where this would be a mandated requirement?
4857 MR. BAXTER: Are you aware of any?
4858 MR. McKEOWN: I understand that that is the case in the US but we would have to get back to you on any specifics, if they are available. And, I have no problem --
4859 COMMISSIONER MOLNAR: If you don't mind maybe undertake to find, if you can, where that might be a requirement?
4860 MR. McKEOWN: Yes, I will.
4861 COMMISSIONER MOLNAR: I am not aware that the US mandates resale or MVNO type arrangements.
4862 One more question regarding the types of arrangements that you're requesting. You may or may not -- have you seen this diagram, it's from the Lemay-Yates -- you have it? Okay, very good, just so that we can ensure we're all talking about the same thing, because you talk about resale. So, when you're talking about resale, are you talking about branding and distribution as it would show there? Plus -- plus telephones?
4863 MR. BAXTER: Yes. We, I guess would go as far to the left inclusive of network backhaul and interconnection. We have our own fibre networks -- a lot of our CCSA companies, but not all, it really depends on the size of the systems we're talking about. But, certainly Westman and Access would have the ability to provide backhaul capacity for a wireless wholesale arrangement.
4864 COMMISSIONER MOLNAR: You would have the capacity to do the full MVNO?
4865 MR. BAXTER: Yes, we would.
4866 COMMISSIONER MOLNAR: Past backhaul, the data and voice core?
4867 MR. BAXTER: Not the data core or anything sort of to the left of that, no, we would not have that capability, no.
4868 COMMISSIONER MOLNAR: Okay. Can you undertake just to look at what these mean? I mean, that's essentially the Wireline network.
4869 MR. BAXTER: The Wireline network?
4870 COMMISSIONER MOLNAR: Right. Yeah. The Radio Access network.
4871 MR. BAXTER: Yeah, I mean the Radio Access network would obviously be key.
4872 COMMISSIONER MOLNAR: You don't have that, and I understand that.
4873 MR. BAXTER: That's right. That would be the key piece, yes.
4874 COMMISSIONER MOLNAR: Everything past that is Wireline?
4875 MR. BAXTER: Yes.
4876 COMMISSIONER MOLNAR: Yeah. So essentially you are asking that the full suite of resale MVNO type of arrangements be made available in amongst your what -- thirty -- thirty interested players. They may go anywhere in there.
4877 You also make reference to MVNEs. So, do you see, or are you thinking of some kind of an arrangement between the CCSA where you would operate as an MVNE somewhere, somehow?
4878 MR. BAXTER: It potentially could be CCSA companies working together to provide that back office infrastructure. It could also be a third party, perhaps another Canadian MVNO should there -- should there be one.
4879 COMMISSIONER MOLNAR: Okay.
4880 MR. BAXTER: So, it would give us some added scale brought to the service.
4881 COMMISSIONER MOLNAR: So it is not like you have a plan today that requires that. You're just saying it potentially could unroll that way sometime?
4882 MR. BAXTER: That is correct.
4883 COMMISSIONER MOLNAR: Okay. I just have one more question for you. When we talk about competition in the wholesale market, we have tests we do to determine whether or not to make facilities available, mandate wholesale access to facilities, and the test is the essential services test. So, any of you folks familiar with that test?
4884 MR. McKEOWN: I am familiar with the test.
4885 COMMISSIONER MOLNAR: Okay. So my question is, the MVNO model, the test requires that to be essential it is not practical or feasible for competitors to duplicate the functionality of the facility. So, where you have the presence of new entrants, three to four incumbents within each territory, and now the presence of new entrants who have moved in, does not the presence of those new entrants in some ways indicate that in fact it is practical and feasible to duplicate the facility?
4886 That facility, by the way, just to be clear, that I'm talking about is the RAN.
4887 MR. McKEOWN: Yes, I understand. One of the components in the test is defining the relevant market, and I'm going to ask either Dave or Jim to comment on that in a minute. But, we were talking --
4888 COMMISSIONER MOLNAR: Okay. You are going to talk about the relevant market for MVNO?
4889 MR. McKEOWN: That is a component of the 94-19 test.
4890 COMMISSIONER MOLNAR: Yeah. Fair. Yeah.
4891 MR. McKEOWN: So when we'd look at whether it's feasible to duplicate the facilities, we have to take the specific market into consideration. And the RAN, of course, relies on spectrum, so the question is, whether or not it is feasible for the CCSA members to duplicate the RAN, in other words, to obtain access to that spectrum. And at least --
4892 COMMISSIONER MOLNAR: Okay, but the relevant market is not the market in which you choose to operate. The relevant market, for purposes of this essential services test, and it's actually the 94-19 test, the relevant market is the smallest geographic market in which you can sustain a price.
4893 MR. McKEOWN: Exactly.
4894 COMMISSIONER MOLNAR: And that is what you are going to speak to me about?
4895 MR. McKEOWN: Well, your question was about --
4896 COMMISSIONER MOLNAR: Is it essential.
4897 MR. MCKEOWN: -- is it essential, given the nature of the facilities. Can they be feasibly duplicated; correct?
4898 COMMISSIONER MOLNAR: Right.
4899 MR. McKEOWN: I want to make sure I am responsive.
4900 So, the answer is, no, it's not feasible to duplicate the RAN. It's not feasible because one of the companies would need to buy the spectrum which is proven to be very expensive. And the spectrum no longer exists sufficiently for companies to enter. It may have at one time, but one of our members has had some experience participating in an auction and found that very difficult.
4901 The other components are not as difficult to duplicate. In fact, many of the members, including the two here, do have those underlying facilities, the fibre access to rural areas that can be used. But, it's the spectrum that really prevents them from entering the market.
4902 MR. BAXTER: I should mention that we are the member that actually qualified for the Industry Canada spectrum auction several years ago. And it quickly got out of our price range. I think the proceeds from the auction were much higher than anybody anticipated. But certainly we had done our business case on as far as what we could afford to pay for spectrum covering Brandon and area. There was probably at least a couple of zeros at the end of that when it was finally sold.
4903 And there's other reasons why those bids are higher. If you're an incumbent you have -- as a defensive measure you're going to want to retain as much of that spectrum as possible and not make it available to a new entrant.
4904 And, in the case of Manitoba there wasn't any set aside as far as the provincial telephone company is concerned because they were not a national carrier. There was no restriction on access to the auction in any way. So, we had quite a lot of competition for the auction, in the auction for spectrum in our area.
4905 So, it wasn't for lack of trying.
4906 COMMISSIONER MOLNAR: Okay. Fair enough. I just wanted to confirm. I just looked at the AWS auction and it was -- it was awarded to Rogers, MTS, Shaw, which we know is vacant, Globe Alive, TELUS, so there were more than just MTS who acquired that spectrum.
4907 Anyway, those are my questions, thank you.
4908 THE CHAIRPERSON: Thank you.
4909 Vice-Chair Telecom had some questions?
4910 COMMISSIONER MENZIES: Thank you. I am sorry if I missed it someplace along the line, but I was wondering you had any data you could provide us with on what you anticipated the impact on price of a basic mobile device would be if you were successful to enter the market, because much of this is about -- has been regarding the further downstream impact on the consumers and being able to access mobile devices and services at affordable prices, or good prices and that sort of stuff.
4911 Do you have anything on that, that shows from other jurisdictions, or estimates, yourself, that you might be offered to and create downward pressure on prices for basic services?
4912 MS TOWNSEND: We have no such data that I am aware of, but we can look into it for you.
4913 COMMISSIONER MENZIES: Okay. If you had anything that would be helpful. Typically you know when change happens and competition happens there's an expectation among the public that things will get less expensive.
4914 MS TOWNSEND: Yes.
4915 COMMISSIONER MENZIES: And that expectation if rarely fulfilled. You get things like better customer service which can mean a lot, and you get things like more services at the same price, or at a, you know, not so much higher price. But, I haven't actually seen anything where prices go down.
4916 MS TOWNSEND: And I am not certain we could provide such a study. But maybe David McKeown could give you a little bit of history on what happened in other areas concerning price. That might be relevant to your question.
4917 COMMISSIONER MENZIES: Yeah, because, I mean, I get how this works for you. I'm just trying to --
4918 MS TOWNSEND: Yeah, what works for the customer.
4919 COMMISSIONER MENZIES: Yes.
4920 MS TOWNSEND: So are we.
4921 MR. MCKEOWN: Alyson is referring to other decisions by the Commission to introduce a wholesale arrangements not related to wireless. So, in those cases we've seen, for example, on long distance we have wholesale arrangements.
4922 The resellers are effective in driving down long distance prices. Certainly, long distance prices are much lower than they were prior to competition. Certainly, the effectiveness of those resellers have made long distance prices lower.
4923 We have wholesale arrangements in data or broadband services. The Commission has recognized that independent ISPs have been effective in putting pressure on the incumbents to lower rates, or keep rates competitive.
4924 And, we have wholesale arrangements in local telephone service, and the number of competitors in local telephone service similarly has put significant downward pressures on local rates. You can buy local telephone service for $10 or less, sometimes, as a VoIP service.
4925 I'm not sure that I can answer your question specifically as the --
4926 COMMISSIONER MENZIES: That is actually very helpful in just helping frame the discussion, because it puts a little depth to it in terms of that, because it gets lost a little bit, sometimes.
4927 MR. BAXTER: Yeah. If I could just add a couple of comments. It's somewhat speculative at this point, but you know, obviously, we wouldn't be interested in getting to the wireless business unless we were going in as a real competitive alternative. We're not going to get many customers if we just go in at the same prices and offer the same things as the incumbent is offering.
4928 I'll give you an example of when we launched a phone service. The incumbent was offering sort of an all you can eat local and long distance package, and we went where -- to the part of the market where they weren't focussing on, and we unbundled our services but included a lot of the features that they had had separate, and offered separately and charged more for.
4929 So, there's a lot of different things you can do specific to your market. A lot of that depends on, I guess, the outcome of this hearing, and what sort of tariff rates there would be and what kind of margins we'd have, and what sort of offers were in the market at that time.
4930 But, certainly, our intent would be as the second quad-player in the province, to be able to offer something very compelling for our customers.
4931 COMMISSIONER MENZIES: Okay, thank you. That's all I wanted to ask about.
4932 MR. DEANE: If I could add, too. I get calls from customers every day, and certainly price is an issue. But consumers are already asking me why they can't get their cell phone from my company. And, choice is an issue. Customer care is an issue. And, convenience, I think, is an issue, as well, for consumers. So, while the price is an important consideration, customers are asking to do business with our companies, our member companies, and we'd like to accommodate them.
4933 THE CHAIRPERSON: I need to delve into that a little more because you represent a lot of companies across the country, and I get why you, from a business perspective, would want to enter this business. I'm not begrudging you that.
4934 I'm trying to figure out what the public policy aspect to it is. And, I'm reading, let's say starting at page 35-36 you talk about the public policy benefits in providing connectivity. Are you saying that -- I hear you just said that some people would like to deal with you. I understand that, that's also good, you have a good reputation.
4935 What I'm trying to figure out is, are you saying that there are people that currently have no wireless connectivity that you would somehow provide it, because it's not otherwise available by anyone else?
4936 MR. DEANE: No, we recognize we're not saying that.
4937 THE CHAIRPERSON: Okay.
4938 MR. DEANE: We need to go where existing facilities are.
4939 THE CHAIRPERSON: So, in a sense, because at paragraph 41 you say, you know, as long as the system provides the social benefits in Canada and it's regions, if we can otherwise ensure -- perhaps we already have it -- a healthy wireless market, otherwise everybody in the country will eventually have access to this sort of connectivity. You just want to have it coming from you?
4940 MR. DEANE: I think initially we do. You know, we talked to our members, as well, and I think what Dave said, to get into the business, I think this hybrid MVNO model that we've talked about here would be a good start. That wouldn't preclude members from erecting facilities at some point in the future. We've all got tower sites and we've all got head-end sites where we've got existing towers. And if there's a business model --
4941 THE CHAIRPERSON: The famous ladder of investment.
4942 MR. DEANE: Right.
4943 THE CHAIRPERSON: Yeah, okay.
4944 MR. DEANE: I think the other thing we have noticed is that bundles are increasingly popular and some of the reporting that we've seen is, there's fifteen or -- 15% growth rate in bundles. And it does drive down the pricing.
4945 I think that's the other observation that we've seen, as well, that prices, not necessarily for one component of those bundles but in general the prices are driven down, or the rate of growth is capped.
4946 THE CHAIRPERSON: And, again, I understand that perspective, that in a competitive market where a lot of people are competing with bundles, you want to have your full bundle to do --
4947 But I was curious as to whether you're making the case that somehow people didn't have that connectivity -- they just don't have that connectivity necessary with you, with the quality of service and price that you think you would be able to provide them; is that correct?
4948 MR. DEANE: Initially, yes, that is correct.
4949 THE CHAIRPERSON: Okay, thank you.
4950 MR. MCKEOWN: Excuse me. The members also have the ability to facilitate servicing those areas that do not have service. They can do that through their own existing fibre network, so they've got extensive fibre networks into rural areas which the wireless carriers find difficult to access without access to those remote locations, so that they have, in effect, the facilities that the wireless carriers need in order to serve remote.
4951 THE CHAIRPERSON: And despite the fact that you have that to bring to the table, you're saying you're not able to come to negotiated arrangements?
4952 MR. MCKEOWN: Exactly.
4953 THE CHAIRPERSON: Because that's something that's got value.
4954 MR. MCKEOWN: You would think so, right.
4955 THE CHAIRPERSON: All right, thank you. Does legal have any questions? Yes. Thanks.
4956 MR. STEWART: Merci monsieur le président.)
4957 I wonder if you could just be a little bit more specific about the response you have had from the incumbents when you have approached them with respect to the resale or the MVNO arrangements that you've been interested in?
4958 MS TOWNSEND: Sure. Well, we would have approached all three starting about six years ago. We were informed at TELUS that they were simply not interested in an MVNO arrangement or anything of that kind, and there was no point in meeting.
4959 MR. STEWART: Can I just interrupt you there. Did they say why they weren't interested?
4960 MS TOWNSEND: No. They really didn't need to.
4961 Then we had some conversations with Bell. Initially that looked like that might go somewhere, but then they asked us to agree that we would not talk to any of the competitors before we -- before they would give us any information about the costs or the deal. So, in other words, we had to agree up front that we would never go to an alternate provider. But, we didn't know the substance of the deal.
4962 Our response to that was, well, that's difficult but tell us how you would see us doing something like that.
4963 And that's where the emails and the telephone calls stopped. And that would have been -- it would have started probably, like I say, six years ago. It got quite heated up until 2013 and then ended.
4964 From Rogers we dealt with every level at Rogers, which is quite a number, over four years. We were hoping that we were progressing up the levels. Then, in the end we were asked for market studies, which we did and we provided them to them. And then it was probably four months ago that they told us that their plans had changed and they intended to do it themselves.
4965 MR. STEWART: Thank you. And, were you expecting or were you surprised that the Commission, when it issued its Notice of Consultation, would be addressing this issue?
4966 MS TOWNSEND: Were we surprised by it? We were thankful for it. It gave us an opportunity to tell the story that we're telling here today.
4967 I thought it was unusual that they would refuse -- like, this was -- they continue to refuse now, even in light of the fact this hearing is going on, to talk to us. So, it isn't like it's made a major impact to them, although we're hoping it will make some kind of an impact for us.
4968 MR. STEWART: Thank you.
4969 And, in the event that the Commission were to mandate an MVNO access arrangement, would you be targeting specifically your present -- your current customers, or would you be thinking of going a bit further afield?
4970 MR. BAXTER: Our focus is on the regions where we currently operate, and that could include, obviously, current customers, but also attracting new customers with our quad-play bundle, which we think would be a benefit to consumers. So, that may attract more customers to our services, including wireless.
4971 MR. DEANE: And I would agree with Dave that we would confine this to areas that we currently serve, with the other three services that we provide.
4972 MR. STEWART: Thank you.
4973 And, my last question is, I'm just interested to know why you didn't file a further intervention in August?
4974 I believe it was you just had the one intervention in May.
4975 MS TOWNSEND: We're a small organization and once you get into that particular regulatory game with large, large vertically integrated companies, the time drain and the return -- the potential of a return is remote, so this particular hearing afforded us the ability to come before the Commission and talk about our situation. So, we are relying on the outcome of this proceeding to give us some relief.
4976 MR. STEWART: Thank you. Merci monsieur le président. Those are my questions.
4977 THE CHAIRPERSON: Ms Townsend, you obviously had a good exchange about, you know, he various attempts you've had. I take it you keep rather good records and you will be able to give us more details about dates?
4978 MS TOWNSEND: I do, sir.
4979 THE CHAIRPERSON: What level of people you were dealing with. The response. So, just do a detailed -- I know you're small, and you don't have lots of resources.
4980 MS TOWNSEND: I would be very happy to do that.
4981 THE CHAIRPERSON: But, I think it might be useful for us to fully understand the nature and timing and levels of refusals you were getting.
4982 MS TOWNSEND: I would be pleased to do that.
4983 THE CHAIRPERSON: So by the 9th of October, as well. Thank you.
4984 So, thank you very much, those are our questions for us today, and I think that ends our interveners for today, thank you.
4985 And, so we're adjourned until nine o'clock tomorrow morning.
4986 Merci. À demain, 9 h 00.
--- Whereupon the hearing adjourned at 1614, to resume on Thursday, October 2, 2014 at 0900
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