ARCHIVED - Transcript, Hearing 1 December 2014
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Volume 6, 1 December 2014
TRANSCRIPTION OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION
Review of wholesale service and associated policies
140 Promenade du Portage
1 December 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 service and associated policies
Eric BowlesLegal Counsel
Lyne RenaudHearing Manager
140 Promenade du Portage
1 December 2014
- iv -
TABLE OF CONTENTS
PAGE / PARA
18. TELUS Communications Company1252 / 7133
19. Public Interest Advocacy Centre and the Consumers’ Association of Canada1399 / 8065
20. OpenMedia.ca1442 / 8294
17. School District #67 (Okanagan Skaha) 1504 / 8584
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PAGE / PARA
Undertaking1312 / 7464
Undertaking1322 / 7534
Undertaking1359 / 7814
Undertaking1461 / 8365
Undertaking1491 / 8502
--- Upon resuming on Monday, December 1, 2014 at 0900
7129 LE PRÉSIDENT : À l'ordre, s'il vous plaît. Order, please.
7130 Madame la Secrétaire.
7131 LA SECRÉTAIRE : Merci, Monsieur le Président.
7132 We will start this morning with TELUS' presentation. We will start with a short video presentation and then TELUS will introduce its panel.
--- Video presentation
7133 MR. WOODHEAD: Good morning, Mr. Chairman, Vice-Chairman, Commissioners. My name is Ted Woodhead and I am Senior Vice-President, Federal Government and Regulatory Affairs at TELUS. We are pleased to have the opportunity to appear as part of this important proceeding.
7134 I will start by introducing the TELUS panel.
7135 Starting from my far left, your right, are:
7136 - Orest Romaniuk, Vice President, Controller, Corporate Financial Planning and Analysis & Regulatory Finance;
7137 - Brent Allison, Vice-President, Partner Solutions Sales & Marketing;
7138 - Zainul Mawji, Vice-President, Marketing Strategy & Execution, Broadband Networks; and
7139 - Tony Geheran, Senior Vice-President and President, Broadband Networks.
7140 On my far right, your left, are:
7141 - Dr. Dennis Weisman, Professor Emeritus, Department of Economics, Kansas State University;
7142 - Dr. Robert Crandall, Non-Resident Senior Fellow in Economic Studies, Brookings Institution;
7143 - Eros Spadotto, Executive Vice-President, Technology Strategy; and
7144 - Stephen Schmidt, Vice-President, Telecom Policy & Chief Regulatory Legal Counsel.
7145 Behind me in the second row, from your right to left, are:
7146 - Roger Jelley, Controller, Economic Decision Support;
7147 - Eric Edora, Director, Regulatory Affairs;
7148 - Craig McTaggart, Director, Broadband Policy; and
7149 - Bob Sinclair, Access Network Architect.
7150 The Commission should be proud of its accomplishments in overseeing the transition from monopoly to competition in telecommunications, but it's time to recognize that the transition is largely complete. Facilities-based competition has firmly taken hold and carriers of all sizes and using different technologies are investing and reinvesting in broadband facilities to respond to Canadian consumers' seemingly insatiable appetite for data. The regulatory tools of yesteryear have now become a drag on competition, rather than an enabler.
7151 There is no longer any serious challenge to the fact that transitional policies like unbundling and forced sharing of facilities are harmful to consumers in the long run because they discourage innovation and investment in new competitive facilities. Canada faces a simple choice between adopting policies that have failed across Europe or embracing policies that have stimulated world-leading levels of fibre-based broadband deployment in Japan, South Korea and the United States, for example. Canadian consumers and businesses deserve policies based on real-world evidence, and the evidence on the record is that mandated wholesale access reduces investment and deployment of new facilities, leaving consumers with poor quality networks and older technology.
7152 This proceeding presents the Commission with the opportunity to shape Canada's future as a digital society. Achieving the vision of a digital Canada requires enormous investments in advanced broadband networks. Such networks have the capacity to transform the foundational institutions of our society: schools, hospitals, government and industry.
7153 Unbundling policies will not build these networks. Unbundling policies will not deliver the anticipated social dividends. Only network construction will do that. Accordingly, we ask that the Commission make a commitment to support Canada as a digital society by encouraging the construction of advanced broadband networks -- not just by TELUS but by everyone who has the will to try. The Commission can do this by definitively confirming that fibre-based access facilities will not be subject to mandated wholesale obligations and beginning the transition to the provision of all non-essential wholesale services on commercial terms.
7154 I will now ask Dr. Crandall to speak to the international evidence on the impact of forced sharing on broadband investment.
7155 DR. CRANDALL: My January 31 report stressed that the accumulated empirical evidence on the effects of mandated wholesale access to incumbent telecommunications companies' networks is clear: such access suppresses network investment and has very little effect on broadband penetration. It is clear that a reversal of course by the Commission from a policy that relies on platform competition to one that requires network unbundling of new or even yet-to-be-built facilities will reduce the incentives to invest for incumbents and entrants alike and harm consumers in the long run by depriving them of the most advanced high-speed network technologies in the future.
7156 Most of the evidence on the effect of mandated wholesale access is based on the effects of copper loop unbundling. In those countries with aggressive unbundling policies, overall network investment in telecom facilities has been suppressed and investment in advanced fibre networks has been delayed. This is especially true of the European Union, where telecom investment has lagged behind their North American counterparts for years, as Figure 1 -- a version of which appeared in my January 31 report -- clearly shows, thereby depriving large numbers of consumers of high-speed broadband, particularly in rural areas.
7157 The two countries with the most FTTP deployment, Japan and Korea, have relied on platform competition, not network unbundling. Though Japan announced a fibre unbundling policy, the actual regulatory framework that was adopted established high wholesale rates and costly conditions that made it very difficult for ISPs to lease NTT's fibre. As a result, the incumbent, NTT, could pursue an aggressive fibre deployment strategy, spurred by competition from other platform-based carriers. In Korea, the regulator exempted fibre networks from unbundling obligations, unleashing vigorous platform competition.
7158 In the U.S., Verizon only began deploying fibre when it was assured by regulators that such facilities would not be subject to any mandatory wholesale obligations. Perhaps most telling is the recent experience in Europe: ILEC deployment of FTTP has finally begun in Spain and Portugal, but only after their state regulatory authorities granted them exemptions from unbundling these new facilities.
7159 I have found no refutation of this accumulating evidence on the adverse effects of mandated wholesale access on network investment in any of the filings in this proceeding. Advocates for a stronger policy of mandated wholesale access, including access to (even unbuilt) fibre networks, do not contest these findings. Rather, they hang their advocacy on a very thin reed -- the possibility that network unbundling can improve the "quality" of broadband services in the short run. However, no study has shown that unbundling has had any effect on broadband quality in Canada.
7160 The advocates of a more aggressive mandated wholesale access policy also attempt to show that Canada lags behind its OECD colleagues, but they fail badly in this attempt. As Figure 2 -- drawn from my October 24 report -- shows, Canadian broadband prices are below the OECD average, contrary to the impression provided by the Wall Communications report with its small sample of countries.
7161 In addition, Canadians generally have access to very high-speed broadband and, as the Commission's 2014 Monitoring Report shows, they are rapidly increasing their subscriptions to these very high-speed services. The Analysis Group Report submitted by CNOC showed that in 2012 only 37 percent of Canadian broadband subscribers chose a service with a download speed of at least 10 Mbps. However, the 2014 Monitoring Report shows that the share of subscribers choosing such services rose to 57 percent in 2013, a remarkable increase in just one year.
7162 These results are all the more remarkable given that Canada's population density is much lower than the OECD average, making it more costly to deploy advanced fixed-wire facilities. In addition, Canadian carriers are much smaller than the national carriers in most OECD countries. Finally, Canadian residential demand for super-fast broadband is not likely to be as strong as it is in other OECD countries because many of these countries have much more meagre video offerings due to a lack of cable television. Canadian consumers, by contrast, enjoy a far richer choice of video from cable, satellite, IPTV, and even FTTP offerings.
7163 In short, Canada does not lag behind other advanced economies in terms of broadband deployment and broadband quality. All of this could change, of course, if the Commission were to abandon its policy of relying on platform competition by imposing new investment-suppressing rules on the Canadian communications sector.
7164 MR. WOODHEAD: Fibre-based access facilities were left outside the scope of mandated access in Decision 2008-17, and again in 2010 in the speed-matching decision, and providers of all sizes have responded by making the capital investments necessary to build fibre-based access facilities to homes and businesses.
7165 For TELUS, these are large and ongoing investments. They are generational in magnitude. They involve a complete rebuilding of our network and our systems. The expense and complexity is compounded by the need to continue to run a legacy network in parallel to this new network for the foreseeable future. We are making these investments as a new entrant for both HSIA and broadcast distribution. (In 2000, TELUS had an 8-percent market share for HSIA compared to 80 percent for our largest competitor and no market share for TV). The costs are predominantly construction costs and are increasing over time, particularly in the context of the construction labour market in Western Canada. The payback period for these investments is measured in decades, not months or years.
7166 Further, these investments are being made into fast-moving competitive markets that offer no guarantee of a return on capital, let alone a return of capital. In this context, the imposition of unbundling would make an already very challenging business case even more difficult, particularly in the small towns and rural areas where the case for deployment is already difficult even absent the risk of unbundling. Unbundling will have the foreseeable effect of concentrating broadband investments in urban centres, to the detriment of Canadians living in remote or rural communities.
7167 Regarding copper facilities, TELUS endorses the Competition Bureau's recommendation that the Commission refrain from forcing the telephone and cable companies to share their residential access facilities because neither has market power and the facilities are clearly not essential. Nor is there any justification for treating those facilities as "conditional mandated non-essential," a classification that recognizes that these are not essential facilities but treats them as if they are, without economic justification.
7168 Instead of focusing on the competitiveness of the wholesale Internet access market -- which incidentally is alive and well on a commercially negotiated basis -- the Commission should take into account the Competition Bureau's view that the competitiveness of the retail market makes it unnecessary to regulate the wholesale market. If the market is performing well, there is no principled or practical justification for intervention at the wholesale level. As the Bureau has explained, no player has market power in retail residential markets, incumbent access facilities are not essential, and in light of its economic cost, mandated access to them should be withdrawn.
7169 I will now ask Dr. Weisman to explain how mandated access harms consumers' interests in such circumstances.
7170 DR. WEISMAN: TELUS requested that I develop a set of economic principles to assist the Commission in its deliberations on the proper scope of forced sharing obligations. I focus on three specific policy issues underscored by these principles:
7171 - First, competitive handicapping policies designed to protect a certain class of competitors harm consumers by sustaining prices at artificially high levels and undermining the competitive process;
7172 Second, the Commission should recognize the various tradeoffs between static efficiency and dynamic efficiency in maximizing consumer benefits over time;
7173 - Third, the substantive changes to the essential facilities test proposed by CNOC will significantly weaken incentives for investment and discourage innovation.
7174 The ISPs in this proceeding have made a number of proposals that fall under the general heading of competitive handicapping and asymmetric regulation. The purpose of these proposals is to protect the ISPs from the rigours of a competitive marketplace by saddling incumbent providers with asymmetrical forced sharing obligations and pricing constraints. For example, proposals to maintain minimum margins in order to protect the financial viability of ISPs translate into artificially high prices for consumers. These types of infant-industry protections are supposed to provide fledgling firms with an opportunity to grow so that they may someday stand on an equal footing with entrenched incumbents.
7175 There is no evidence that the social benefits of protecting "infant firms" exceed the costs. The weight of the evidence is very much to the contrary. This is not to suggest that some competitors will not fail; they have and they will. The critical point is that failure is an essential part of the competitive process in all industries in which market forces reign. Regulators can attempt to protect firms from failure, but such protections do not strengthen the competitive process to the benefit of consumers but rather weaken the competitive process to the detriment of consumers. The key policy implication is that ISPs should not be treated as a protected class whose financial viability is underwritten by the CRTC. Maintaining an upstream wholesale market by regulatory decree is required only to the extent that the downstream retail market is not sufficiently competitive in its absence.
7176 THE CHAIRPERSON: I'm going to ask you to just slow down a little bit. The interpretation --
7177 DR. WEISMAN: Okay.
7178 THE CHAIRPERSON: It makes it very difficult for them to follow along. Thanks. It's not a race to read fast.
7179 DR. WEISMAN: The Commission must strike the appropriate balance between static and dynamic efficiency in seeking to emulate competitive market outcomes. An exclusive focus on whether short-run prices are too high can discourage investment and innovation that would have otherwise conferred substantial net benefits on consumers. For example, as both the FCC and the United States Department of Justice have recognized in finding that forced sharing of next-generation networks is not warranted, allowing higher short-run prices can be socially beneficial in encouraging infrastructure investment. The Commission's role is therefore not to indiscriminately treat every instance in which prices for new services reside above competitive levels like a game of Whac-A-Mole at the arcade. A far more nuanced and thoughtful approach is required, one that requires properly configuring the various policy levers and duly recognizing that a one-size-fits-all approach to pricing fails to strike the appropriate balance between static and dynamic efficiency. As Professor Joseph Schumpeter emphasized, competition is multidimensional in the sense that firms compete on the basis of price but, even more importantly, also on the basis of innovation in the form of new products and services.
7180 The Commission should also recognize that investment, risk-taking and innovation are essential to the competitive process and do not constitute pernicious behaviour. A price that temporarily resides above competitive levels is the manner in which the market rewards a firm that introduces a genuinely innovative service. Conversely, a firm that introduces a new service that is innovative in name only is penalized by the market with financial losses because it will be unable to sustain prices, even temporarily, above competitive levels. The ability to profit from genuine innovation is what enables companies to bear risk. The key policy implication is that the introduction of new services cannot harm consumers but forced sharing can by undermining the competitive process and weakening incentives to innovate.
7181 CNOC's proposed changes to the essential facilities test would allow the ISPs instantaneous access to the network elements underlying all legacy and next-generation retail services at artificially low, and possibly even subsidized, rates even when the ISPs are technically and economically capable of duplicating the facility or functionality in question. In essence, the ISPs seek to appropriate the rewards of successful product and process innovation that sound competition policy has traditionally reserved for the innovator rather than the imitator, essentially an anti-patent. This is not real competition in any meaningful sense, but rather the antithesis of it. Canadian consumers are the real losers.
7182 The instantaneous sharing of innovation undermines the competitive process by destroying incentives to "build better mousetraps" and cannot be reconciled with the objective of maximizing consumer welfare over time. No firm can outrun its own shadow and therefore will be discouraged from innovating in order to secure a transitory competitive advantage because no such advantage is possible. What is more, a company that is forced to eat all its losses when innovation fails, but is forced to share its gains with rivals when innovation succeeds, will quickly discover that the game is not worth the candle.
7183 It is widely recognized that the unique contribution of market innovation requires that it be accorded special status by competition authorities and industry-specific regulators. As the Commissioner of Competition observes:
"In general, given the negative effects that imposing regulation on new products and services will have on the incentives for innovation, the Commission should resist the imposition or extension of wholesale regulation to inputs for new services."
7184 The economics literature establishes that innovation is a principal driver of the growth in GNP and consumer welfare over time. Professor Robert Solow, the recipient of the 1987 Nobel Prize in Economics for his pioneering work on the sources of economic growth, observed that:
"...the rate of growth ... depends entirely on the rate of technological progress."
7185 In other words, as goes investment and innovation, so goes the wealth of a nation. The key policy implication, particularly with respect to new services, is that the Commission should focus less on controlling market power and more on unleashing the power of markets.
7186 MR. WOODHEAD: Network policy is social and economic policy in a digital age. Regulatory policies that suppress investment and innovation deprive Canadian citizens and Canadian companies of the benefits that flow from advanced networks. This is most acutely illustrated in healthcare. Across the developed world, there is an urgent need to deliver better health outcomes, at a lower cost, to an aging population. Broadband networks are crucial to meeting this challenge. These networks figure centrally in the delivery of better health outcomes, at a lower cost, for all Canadians. The Commission has a great responsibility in the circumstances. Advanced networks need to be built to respond to Canada's healthcare challenge. These networks will need to be ubiquitous wideband deployments. But unbundling policies do not build networks. That has been conclusively and serially demonstrated by the international evidence.
7187 The Commission can enable these transformational and high-risk network investments by giving builders, risks-takers and investors a clear signal that their networks won't be conferred on non-builders, non-investors and non-risk-takers at deeply discounted regulated rates. A policy of not unbundling FTTP investments will send that signal. A contrary policy will discourage new FTTP investments and concentrate such investments that do occur in urban areas, to the detriment of remote or rural communities.
7188 With respect to the business market, commercial negotiations are working. TELUS has in recent days completed a comprehensive commercial wholesale arrangement with Allstream that my colleague Brent Allison would be happy to discuss with you. The agreement is a model of what can be achieved when markets are given a chance to work.
7189 In conclusion, we urge the Commission to move beyond the transitional unbundling policies of the monopoly era to wholesale policies that recognize that pervasive platform competition has been achieved. In such an environment, unbundling is an archaic and counterproductive remedy -- a cure in search of a disease. Going forward, forbearance will be the Commission's primary policy tool to drive network investment and expansion. That said, less wholesale regulation does not mean no wholesale regulation. Focused tasks will remain, such as ensuring the interconnection of networks and access to "public good" facilities and services such as support structures. It will also be important for the Commission to monitor retail market performance on an ongoing basis, particularly with a view to understanding broadband outcomes.
7190 We appreciate this opportunity to discuss the wholesale services framework and how it can be improved to better serve the interests of Canadian consumers and businesses and look forward to your questions. We respectfully ask that as you deliberate on the important questions in this proceeding you take into account the need for clear, sound and certain rules that can provide a foundation for building tomorrow's networks. Thank you.
7191 THE CHAIRPERSON: Thank you very much. The Vice-Chair of Broadcasting will start us off.
7192 COMMISSIONER PENTEFOUNTAS: Thank you. Boy, those are the fastest expert readers I have ever experienced. You obviously are not getting paid by the hour.
7193 COMMISSIONER PENTEFOUNTAS: When I was in private practice I specifically used to take my time. We will try to go a bit slower just to give the interpreters a chance to catch up.
7194 I just want to touch upon some of the issues that were raised in today's document and then we will go back and loop around to some of the questions that arose after reading your written submissions.
7195 First of all, you spent an awful lot of your time today on the oral presentation discussing international models, and I think it's safe to say -- and I'm going to sort of reuse the words mentioned by the Chair last week in that international comparisons are interesting academically, not that there is anything wrong with academic exercises, intellectual and otherwise, but we have to decide what the probative value of these comparisons are given that specific conditions from one country to another change.
7196 How easy is it to superimpose what's happening in one part of the world to another part of the world?
7197 MR. WOODHEAD: Perhaps I will start, Vice Chair, and then I will pass off to Dr. Crandall.
7198 The reason for using the international comparisons is because others on the record of this proceeding have pointed to international situations to prove fallaciously, in my view, that unbundling policies have led to greater innovation, adoption and competition in broadband facilities internationally, point number one.
7199 Point number two is that I mean, the Commission, as the Chair himself has said, I think, on a number of occasions in terms of building an evidence-based record, the Commission itself looks to expert economists in putting out reports that compare OCD averages, performance pricing, that sort of thing. And I think that's the right thing to do.
7200 It's not to suggest that, you know, this particular country you should do as they did or they did. It's to look at over a long period of time what certain sorts of regulatory prescriptions or prescriptions, how they worked out in the long run. So that was it. It's not to try and muddy the record with things, but I think there are some learnings that can be taken from this stuff.
7201 Ultimately, I appreciate it's up to you to weigh, obviously based on the real facts that you face here in Canada, but there can be learnings that can be had through the lens of looking at what other jurisdictions have done. So if I may, I will just ask Dr. Crandall to comment.
7202 DR. CRANDALL: Well, it's hard to imagine how you would find out what the effects of different regulatory decisions might be without examining how these regulatory decisions have affected the important variables such as network investment in other countries. It is not that the studies that we have on the record don't account for differences across countries. They surely do.
7203 And the empirical evidence on this has become much more sophisticated over time. The methods have become much more sophisticated over time, and as new studies arrive we get more conclusive results. One that appeared after my January 31st report concludes that every 10 percent increase in unbundled lines leads to a 20 percent decrease in fibre deployment, or fibre subscriptions.
7204 COMMISSIONER PENTEFOUNTAS: Is that a worldwide phenomenon, Doctor?
7205 DR. CRANDALL: This is a study which uses international data across many countries, yes, and corrects for differences in population density, differences in income, and all sorts of things. But you have to ask yourself, do these results meet a common sense test?
7206 If you impose mandatory wholesale obligations or regulated rates on carriage, surely it is likely to reduce their cash flows in the future. Any reduction in prospective cash flows has to have an effect upon private investment in network industries and surely the results are consistent with that surmise.
7207 COMMISSIONER PENTEFOUNTAS: Well, let's go to Japan briefly and then we will exit the international comparisons. You yourself mentioned, first of all, the position of TELUS is that there would be no mandating whatsoever of FTTP, but it was mandated in Japan.
7208 Wouldn't that show some kind of evidence that there is a formula by which you can have a mandated access to FTTP and still encourage investment?
7209 DR. CRANDALL: Yes. As my testimony suggested, you could do that by setting prohibitive, very high rates and making it very difficult to connect to the incumbents' networks so you can prevent unbundling.
7210 In fact, that's what happened in Japan. We don't know why because the Japanese regulatory process is a good deal less transparent than the one here in Canada or in the United States. But what we do know is that they set the prices so high and required that the entrants, the ISPs, lease so much fibre at a time -- eight fibres at a time or something like that -- that there was no network unbundling. NTT knew this and they could go ahead and invest, confident in the fact that they would not be subject to much network unbundling or any for a number of years. It was, I think, more than a decade before those rates were reduced.
7211 COMMISSIONER PENTEFOUNTAS: Dr. Crandall, would you be familiar with what percentage of the market independent ISPs occupy in Japan?
7212 DR. CRANDALL: It's very hard to get that number. The number that I know, and I have been able to find is that 70 percent of the fibre subscriptions in Japan are accounted for by NTT East and NTT West. Most of the other is accounted for by platform-based competitors such as KDDI and the Osaka Electric Company, and so forth.
7213 There seems to be relatively little fibre subscription accounted for by ISPs using access to NTT networks, but it's very hard to get that information.
7214 COMMISSIONER PENTEFOUNTAS: And just briefly, Dr. Weisman, before we get to other issues, you mentioned that or you let it be inferred that we had an approach that lacked thought and nuance and I will refer you to paragraph 26 following your reference to the all too infamous Whac-A-Mole that keeps coming up during these fall hearings.
7215 We have six different wholesale categories. We have different pricing schemes. How could you put forth that we are sort of uni-dimensional and a one-size-fits-all approach? Is that not the case?
7216 DR. WEISMAN: I'm not attributing that to you. I'm looking forward and basically saying that through the course of the various statements by the various parties, both in the written record and in live proceedings, the idea has been put forward that any time there is market power, whether it's a legacy service or a brand-new service, the Commission has a role.
7217 And what I have suggested in my written statement and my own articles is the idea that if you look at competitive markets, legacy services are treated differently than next-generation or new services and the Commission has a similar role. I wasn't attributing that to you. I'm looking forward about the proper regulatory regime, going forward, should seek to differentiate between legacy and new services and adjust the appropriate regulation accordingly.
7218 COMMISSIONER PENTEFOUNTAS: So there is a formula that can ensure static and dynamic efficiency?
7219 DR. WEISMAN: Well, I'm not sure I could write it down mathematically for you, but there are ways to approach it, yes.
7220 COMMISSIONER PENTEFOUNTAS: Okay, great. So in terms of requests in this proceeding, we have sort of TELUS on one extreme and CNOC at another extreme. So CNOC seems to ask that all wholesale services be deemed essential and mandated in addition to implementing EOI. TELUS is suggesting that almost no wholesale services are essential and should therefore not be mandated.
7221 So the Vice Chair Telecom asked this question earlier last week and I'm going to ask it again. He asked it to CNOC and I'm going to ask it to TELUS: If you had to prioritize your requests, how would you go about doing that?
7222 MR. WOODHEAD: I'm sorry. I don't understand what you mean by prioritize our requests.
7223 COMMISSIONER PENTEFOUNTAS: If the Commission were to mandate certain services and not mandate other services.
7224 MR. WOODHEAD: Okay. I mean I think our evidence is -- well, I know our evidence is interconnection in public good services, absolutely. There is an ongoing role for what I call, for lack of a better term, social regulation, but in the context of these services there is no need for economic regulation or the use of wholesale remedies.
7225 The retail market is -- and I think you have heard from, for example, the B.C. Broadband Association that appeared. You know, I thought they offered credible evidence of the intensity of the competitive market, certainly in B.C. and in Western Canada. I think other witnesses have mentioned this as well. But I mean, sorry, naturally or, sorry, nationally, I think relatively the same conditions apply.
7226 So in terms of prioritizing, I mean, our essential and fundamental point is that retail competition is of such an intensity that wholesale remedies -- there is no market failure and wholesale remedies are not necessary. I did mention in the statement that, you know, that's not to say that there won't be arrangements made with competitors because there are.
7227 I may invite Mr. Allison to talk to you about -- you know, the Allstream agreement to me is a rather singular piece of evidence that we can do this and we do this all the time. We enter into these agreements all the time.
7228 Perhaps Mr. Allison can sort of illuminate or amplify on that a little bit.
7229 MR. ALLISON: Sure. Thanks, Ted.
7230 So I think it's important to know that we are a commercially motivated wholesale group. Over 75 percent of what we do today is considered forborne, non-mandated. And the best example I can say, not in to get into specifics about any single agreement, on the Ethernet side right now we have 53 customer agreements in place. That is a forborne Ethernet and conditional mandated non-essential. That compares to 23 customers on the high-speed CDN side.
7231 So it gives you an idea, we are highly motivated to go after the wholesale business, and it's an important business for TELUS.
7232 MR. WOODHEAD: And if I could just add one thing, just quickly?
7233 COMMISSIONER PENTEFOUNTAS: Sure. Yes.
7234 MR. WOODHEAD: Because I was struggling, I must admit, with the priority. But in the context of what we have been discussing these fibre investments are far and away, compared to the legacy elements, the priority. They are what Canada needs, in our view, and these are the riskiest investments we have made probably in 100 years.
7235 COMMISSIONER PENTEFOUNTAS: Okay. I just want to speak briefly about the essentiality test.
7236 Would you agree that the way you have sort of described it in your written document, that you are kind of returning to a monopolistic test similar to what we used to use back in the nineties based on sort of monopoly control of a facility and that the environment today is vastly different? Would you agree first and foremost that that is your position, the essentiality test?
7237 MR. WOODHEAD: Yes.
7238 COMMISSIONER PENTEFOUNTAS: Okay. Now, no other party in these proceedings, no incumbent, not the Competition Bureau, have applied so strict a test. Why would we want to go back to that kind of definition and that kind of test and how is that in the interest of good public policy today?
7239 MR. WOODHEAD: I'm going to pass off to Dr. Weisman in a moment, but I'm curious as to the characterization that you put on that. Throughout our evidence, you know, we made clear that we preferred the original 97-8 test, the local competition test, but the Commission -- that horse has left the barn. We ended up with a slightly modified version and we are happy to live with it, even though, you know, maybe in 1997-98 we didn't like it.
7240 But the fact of the matter is that in the 2008-17 test which, you know, we are okay with that. So it's not that we are trying to turn back the clock here to some yesteryear when it was monopoly, which it clearly isn't now. But perhaps I will ask Dr. Weisman if he has something to add there.
7241 DR. WEISMAN: Mr. Vice Chair, when you characterize the --
7242 COMMISSIONER PENTEFOUNTAS: Yeah. I will just ask you to be brief because, following the answer, I think it was nuanced in terms of the position, TELUS' position.
7243 But please go ahead, Doctor.
7244 DR. WEISMAN: Well, I will give you a first point and I will follow it up if you like.
7245 COMMISSIONER PENTEFOUNTAS: Thank you.
7246 DR. WEISMAN: You characterized the test back in the 97-8 framework as coming out of monopoly, but the same issues were on the table. We're moving from one environment to another and we're asking -- sharing when it should be required. If you look at, for example, the essential facilities literature, the 97-8 test specifically pointed out that the determination of when a facility is deemed essential should not turn on market power. In 2008 that was changed; okay?
7247 Now, that's okay to change it, but if we are going to change it we need to be true to the definition. For example, one of the substantive changes was substantially lessening competition. If you look at the Merger Enforcement Guidelines, if you look at the Abuse of Dominance Guidelines, and we talk about market power; market power is multidimensional, price going up, quality going down, innovation foregone. So if you are going to use the current definition, it should be expansive.
7248 So, for example, when you decide to grant or order forced sharing, the focus is generally on increasing rivalry, but competition is much broader than that. So if you are going to look at the benefits of increasing rivalry, perhaps in reducing prices, you also have to consider the other dimension of competition, which is foregone innovation.
7249 So I submit to you that if you take a more expansive view of truly what competition means, you could be increasing rivalry and simultaneously reducing competition, and particularly in a technologically dynamic industry that's a trade-off that I don't think you want to make.
7250 COMMISSIONER PENTEFOUNTAS: Dr. Weisman and Mr. Woodhead, didn't we hear similar arguments, '08-2010? Wasn't the sky falling then as well? How is this different?
7251 MR. WOODHEAD: I don't think the sky was falling.
7252 COMMISSIONER PENTEFOUNTAS: But the fear and the threat was that innovation and investment would cease if we allowed matching speeds as an example in 2010. We heard similar arguments in '08 and 2010.
7253 MR. WOODHEAD: Well, I think --
7254 COMMISSIONER PENTEFOUNTAS: And none of that has come to pass, you will agree?
7255 MR. WOODHEAD: Well, I'm not sure that it has -- hasn't.
7256 COMMISSIONER PENTEFOUNTAS: Okay.
7257 MR. WOODHEAD: You know, at the edges of the network -- I'm not suggesting, Vice Chair, that investment will cease. Investment will continue, but the real question is when you impose unbundling policies where will you make investments? I would ask if Mr. Geheran might want to weigh in here on this because he is obviously President of Broadband Networks and responsible for our broadband bills and if he could explain.
7258 COMMISSIONER PENTEFOUNTAS: We are going to get to -- I think we will just wait.
7259 MR. WOODHEAD: Okay.
7260 COMMISSIONER PENTEFOUNTAS: But on that specific issue, what is different about today as opposed to 2008-2010? Why should we be more fearful?
7261 MR. WOODHEAD: Because the level of investment and the level of risk in these is greater.
7262 COMMISSIONER PENTEFOUNTAS: Okay.
7263 MR. WOODHEAD: It's greater by orders of magnitude at a cost --
7264 COMMISSIONER PENTEFOUNTAS: So we will get into risk evaluation data later on.
7265 MR. WOODHEAD: Yes. And we are happy to show you those numbers.
7266 COMMISSIONER PENTEFOUNTAS: Yes. We will speak to that.
7267 If the Commission were to adopt sort of TELUS' view and stop mandating virtually all wholesale services, what would happen to the ISPs' 8 or 9 percent market share?
7268 MR. WOODHEAD: Nothing would happen to them. They would have access to the same services that they have access today, other than fibre, unless they came with a compelling value proposition which, you know, we would commercially negotiate, but by and large -- well, one way or the other, either by commercial negotiation or whatever you leave tariffed, we would reach commercial agreements with them and they would have access to the same facilities they have access to today.
7269 COMMISSIONER PENTEFOUNTAS: Including FTTP? You would make that available?
7270 MR. WOODHEAD: If we could reach a commercial agreement on it.
7271 COMMISSIONER PENTEFOUNTAS: Would we not require some kind of a backstop to ensure that that would happen?
7272 MR. WOODHEAD: No.
7273 COMMISSIONER PENTEFOUNTAS: Would a dispute resolution mechanism --
7274 MR. WOODHEAD: I have heard -- it's interesting, and thank you for asking me that because I have been sort of considering that over the last couple of weeks. You know, I have seen -- I have heard other proposals around arbitration and, you know, as a possible different way of doing this.
7275 Frankly, I think it's a bit of a red herring because people always have the opportunity to bring an application to the Commission based on, you know, that there is an unjust discrimination and undue preference. I think there could be a more expedited process for that.
7276 Is arbitration the -- it seems to be people think of it -- it's the panacea of all evils. I'm not sure that it is and I'm not sure that it necessarily appropriately uses your resources in the most efficient manner.
7277 COMMISSIONER PENTEFOUNTAS: We are not sure either, but as an --
7278 MR. WOODHEAD: No.
7279 COMMISSIONER PENTEFOUNTAS: -- either/or, if you don't have a tariff would you need a dispute resolution mechanism?
7280 MR. WOODHEAD: Well, you have one. The people can --
7281 COMMISSIONER PENTEFOUNTAS: What's in place now?
7282 MR. WOODHEAD: -- bring an application to the Commission and say I negotiated in good faith and, you know, I haven't been able to reach an agreement.
7283 I mean the evidence that Mister -- that Brent was referring to and is it dispositive of this? Probably not, but I think it's highly indicative that 53 requests have been made, 53 agreements have been reached without the need of any Commission intervention. But the ability to approach the Commission, by virtue of the nature of the openness of the Commission in the Act, people can come to you and request relief.
7284 COMMISSIONER PENTEFOUNTAS: So the mandate -- the position of the Commission thus far has, would you admit, created a competitive retail market 2008-2010?
7285 MR. WOODHEAD: I think absolutely. And I think, frankly -- I think that goes back to some very, very important decisions that the Commission made beginning -- and it's a long way back; 1979, 1992, 1994, 1997. That set the stage for a profound -- a profound result which was facilities-based competition. And that wasn't always pretty. It hasn't been always pretty.
7286 But, at the end of the day, with all of the comings and goings of the competitive process, that is why Canada stands where it does today at the forefront of these services.
7287 COMMISSIONER PENTEFOUNTAS: You raised duplicability and I just want to sort of touch upon that if we are going to be talking essentiality. You understand CNOC's position and you understand that they have a certain reading of the third leg and you even mentioned it -- I think Dr. Weisman mentioned it in paragraph 28. I took note, because CNOC's proposal is that we change the "it is not practical or feasible for competitors to duplicate" to "it's not economically efficient for competitors to duplicate".
7288 MR. WOODHEAD: I will start and then I will ask Dr. Weisman to comment.
7289 COMMISSIONER PENTEFOUNTAS: Sure. Great.
7290 MR. WOODHEAD: To be honest with you, I view that change -- it seems like it's quite clever. It appears that it is not much really of a change. When I was thinking about it, it finally dawned on me that what that really means is it becomes very much more subjective test.
7291 It is that -- and you have seen them say it, it's like that's not a firm efficiency issue. It's a market efficiency issue. The fact that someone else can do it doesn't mean I can do it and therefore I get to decide, you know, what is efficient or isn't, as opposed to looking at the very fact that something has been duplicated is proof in one wire centre to the next wire centre, to the next wire centre, to the next wire centre.
7292 We had this debate beginning in the late 90s and into the early 2000s. No one believed that the cable industry would be able to break this local market, or break into it and have the success that it did.
7293 When you say -- and I mean this only from the point of, I get a little passionate about this one because I believed it so strongly at the time and I still do, the cable industry was able to absolutely crack the code at a cheaper cost and bring a whole pile of innovation and platform contention to that market and that's why we have it today.
7294 Anyway, I can blather on, but I'm going to ask Dr. Weisman if he may want to supplement.
7295 DR. WEISMAN: Let me --
7296 COMMISSIONER PENTEFOUNTAS: I'll just refer you, Doctor, to Paragraph 28 where you talk about the economic capability to duplicate.
7297 DR. WEISMAN: Right.
7298 COMMISSIONER PENTEFOUNTAS: And doesn't that line up with CNOC's proposed definition of the third link?
7299 DR. WEISMAN: Well, I think CNOC's proposal goes much further and I think it's a complete disconnect between their proposal and the law and economics literature on essential facilities, and let me give you an example.
7300 Some of the research that I do looks at various costs of operations and one research agenda of mine was to look at Ford Motor Company's ability to produce cars relative to GM and Ford produced cars with 37 per cent less labour than General Motors.
7301 So imagine, if you will, General Motors saying, you know, Ford's better at this than we are, so we're just going to petition the government and have them produce cars for us.
7302 That's essentially what CNOC is asking here. If you're more efficient than I am, I should be able to take care of that.
7303 The problem with that is, it ignores the entire competitive dynamic in a technologically advanced industry.
7304 COMMISSIONER PENTEFOUNTAS: Right.
7305 DR. WEISMAN: For example, what incentive would any firm have to be efficient if the reward for being efficient was you had to share it with your rivals. The answer is, none at all.
7306 COMMISSIONER PENTEFOUNTAS: But aren't you comparing apples with apples? You can make that argument between TELUS and Bell, as an example, but can you make that comparison with what we call competitors or independent ISPs that do not have incumbency, do not have the infrastructure already in place to not have a client base?
7307 DR. WEISMAN: Yes, I think you can because I think the issue is, again, what you want to create in this market is a competitive dynamic, this leap frogging between the cable companies and the telephone companies investing.
7308 FTTP is leap frogging FTTN. You want to create that dynamic so you have a race between them. If you're going to basically say there's no race at all; if you're faster than I am, I should get your speed or whatever, that robs the competitive vitality, takes it completely out of the market.
7309 It's the use of the essential facilities test to arrive at an anti-competitive outcome.
7310 MR. WOODHEAD: Mr. Vice-Chair, if I could just add, just quickly.
7311 COMMISSIONER PENTEFOUNTAS: Certainly.
7312 MR. WOODHEAD: And, you know, no one will believe it, but I'm going to say it anyway. In these facilities that we're talking about we are not an incumbent, we are all at the starting line together.
7313 If what you're getting at is that, you know, our revenues are more than their revenues, yeah, that's true, but that does not -- I think you saw -- I think we heard earlier last week from Mr. Cohen. He's built a business and been in it for 30 some years and he started from nothing, but you know, has he become as big as TELUS? No. I mean, that took TELUS 140 years to do that, or 120 some odd years to do that.
7314 It takes a long time, it's not -- and there will be failures and successes.
7315 COMMISSIONER PENTEFOUNTAS: M'hmm.
7316 I understand that Bell and TELUS are not incumbents.
7317 MR. WOODHEAD: We are not an incumbent in -- we're not an incumbent in two of the -- in the investment in these facilities because we are building a brand new network.
7318 We're not using legacy components, we are -- 14 years ago we had eight per cent market share versus 80 per cent for Shaw.
7319 So you know, like in the BDU operation, that was five years -- five years we've been in that business.
7320 COMMISSIONER PENTEFOUNTAS: Yeah, yeah.
7321 MR. WOODHEAD: We're not an incumbent, we're an entrant.
7322 COMMISSIONER PENTEFOUNTAS: What do you say to the City of Calgary that spoke just last week about support structures, they're wonderful, they're not desirable by the citizenry and from a municipality's perspective incumbents have a distinct advantage with their current ownership, their customer base, their support structures and a right-of-way?
7323 How does somebody else get into that playground?
7324 MR. WOODHEAD: Well, there is no issue that cannot be surmounted on support structures. If I can take a sec --
7325 COMMISSIONER PENTEFOUNTAS: Sure.
7326 MR. WOODHEAD: -- on Calgary. I was absolutely astonished by that presentation.
7327 On the one hand there is a whole regime around accessing support structures. The cities don't like it on rights-of-way, they don't like the fact that there's a federal jurisdiction over and a statutory right to access by telephone companies those rights-of-way, they don't like it because they like to, you know, charge more for it and so on and so forth.
7328 But over time -- in their sort of capacity issue, over time as the legacy networks are retired that copper will be pulled and that will free up more space and conduits and support structures.
7329 Second, the point that was made by the representative from Calgary that somehow there was a Shaw -- sorry, Shaw envisioned, Shaw, TELUS support structures, somehow somebody conveniently forgot over lashing, use of brackets, all other ways to enhance TSPs' access to those rights-of-way.
7330 The third point with Calgary that I found particularly gollied was that they were, in essence, proposing through their fibre build, which is for municipal services apparently, that they in fact, and that you allow them to, become a monopoly within the precinct of Calgary, that TSPs be required to use their fibre --
7331 COMMISSIONER PENTEFOUNTAS: The fibre, yeah.
7332 MR. WOODHEAD: -- fibre assets. And, you know, I think the Commission has had a great deal of experience with that particular formulation over the years and I leave it to you.
7333 COMMISSIONER PENTEFOUNTAS: Yeah. I didn't want to go in there, but there was an esthetic argument made last week and it was clearly illustrated by some of the pictures and citizens, it was suggested, aren't happy to see sort of your box, someone else's box and the other competitor's box and maybe there should be a sharing of that network as opposed to almost an overbuild.
7334 How do you respond to that? It's come up in the past as you've deployed.
7335 MR. WOODHEAD: I mean, it comes up -- you're right, I mean, it comes up. I'm not familiar -- I certainly saw the diagram and I asked but we were not able to identify that particular location, but perhaps Calgary will speak to that in reply.
7336 And obviously, this issue about telephone poles for a hundred and some years, they are -- you know, people don't like them. We constantly get requests, as do other ILECs I'm sure and Cablecos too -- or not Cablecos, but incumbent telephone companies and utilities otherwise to bury facilities and we do that where it makes sense.
7337 It, of course, is an issue in cellphones and I'll get to the point with the mobile networks, people don't like towers.
7338 The fact is that, you know, there is a tension there, but people don't like these things, but they like the things that these things provide.
7339 COMMISSIONER PENTEFOUNTAS: Okay.
7340 MR. WOODHEAD: And I don't think there's any problem that can't be overcome.
7341 And in terms of sharing, that -- I mean, that will be accommodated at some point when it makes sense, but I don't think the whole world is littered with those cabinets in every laneway in Calgary.
7342 COMMISSIONER PENTEFOUNTAS: Thank you. Some of them are found on people's lawns as well, but that's a whole different issue. I understand your answer on the question of esthetics.
7343 If the Commission were to maintain an essentiality test, to what degree should a service be duplicable for it to be deemed non-essential? Are we looking at local, regional, national?
7344 MR. WOODHEAD: I'm sorry, I was just conferring with my colleague. Could you repeat the question, please?
7345 COMMISSIONER PENTEFOUNTAS: As regards the essentiality test once again and its duplicability, should the test be based on local, regional, national to determine whether it should be deemed essential or non-essential?
7346 MR. WOODHEAD: I think I'd ask Dr. Weisman to take a crack at that.
7347 DR. WEISMAN: I believe the Commission in CRTC 94-19 established that if it was duplicable in one part of the band it was duplicable throughout the band and that what that would suggest is that if you can duplicate it where it's hard you can duplicate it where it's equally hard or easier, and I think that provides the requisite guidance.
7348 COMMISSIONER PENTEFOUNTAS: Local, regional or national?
7349 DR. WEISMAN: Well, within -- yeah, the bands would be within the local area I believe.
7350 COMMISSIONER PENTEFOUNTAS: Okay.
7351 MR. WOODHEAD: Same as 97-08.
7352 COMMISSIONER PENTEFOUNTAS: You're comfortable with that?
7353 MR. WOODHEAD: Sure.
7354 MR. SCHMIDT: To assess I'd command paragraphs 75 to 78 of the local competition decision to you, 97-08. There the Commission confronted this question about duplicability of essential facilities and they looked at the rate band as the relevant unit of analysis because the Commission said, well, we've established rate bands on the basis of common cost characteristics, common density, common loop length, so there's homogeneity there.
7355 The Commission said, if there's a competitive supply of a facility in a particular rate band then it follows that it is not subject to monopoly control and it can be technically duplicated.
7356 If the facility is economically duplicable in one part of the band, then in the Commission's view it is likely to be so elsewhere given that the band itself is defined by reference to common characteristics.
7357 So band A downtown core Ottawa, if you have entry there on Wellington Street you can probably get it on Slater Street, or band A in Montreal or Winnipeg.
7358 COMMISSIONER PENTEFOUNTAS: If you can make it there, you can make it everywhere. That is fine, thanks. Good, got it.
7359 Bundles, they have come up, you have certainly had a chance to think about it, how should the presence of a triple or quad inform decisions regarding either wholesale or retail product markets?
7360 MR. WOODHEAD: We don't believe that it is a distinct product market. And I think all you need to do is look to the evidence. They are duplicable. And I think you have had ISPs before you that actually have triple plays.
7361 COMMISSIONER PENTEFOUNTAS: Okay. We have heard from many parties that if the Commission were to mandate FTTP, and you are sort of -- that the impact would be significant.
7362 Where do incentives to invest fit into the Commission's essentiality test? You know, some may argue that the test rooted in comp law, as we have heard this morning, doesn't appear to include considerations of investment concerns.
7363 MR. WOODHEAD: The investment would come from Section 7 of the Act in the policy objectives. And the essentiality test is a method for ensuring that forced sharing is not imposed on facilities that can be duplicated.
7364 And it is a recognition, I think, of the Commission's foresight, beginning in 1979 and through a whole host of other decisions that facilities based-competition is the way to go.
7365 COMMISSIONER PENTEFOUNTAS: Paragraph 39 of the document that you mentioned earlier, your submission, stated that the advent of large-scale FTTP deployments by competitors is yet another example of why the Commission needs to stop imposing costly and distortive wholesale regulations.
7366 I won't ask you to explain costly and distortive, but maybe define what you consider to be large-scale FTTP deployments.
7367 MR. WOODHEAD: Well, perhaps I would ask Mr. McTaggart if he would like to comment on that.
7368 MR. McTAGGART: Yes, Mr. Vice-Chairman, TELUS has undertaken since the mid-2013 substantive investment build in FTTP. And we can give you factual data to show that the costs are significant --
7369 COMMISSIONER PENTEFOUNTAS: Well, I understand -- I want you to speak to me about the deployment by competitors of FTTP. The advent of large-scale FTTP deployment by competitors.
7370 MR. WOODHEAD: Obviously there are other competitors of ours that have invested in FTTP, including the larger telephone companies.
7371 But in Appendix C, I believe, of our reply argument we listed out the deployments that we have identified by other --
7372 I'm sorry?
7373 COMMISSIONER PENTEFOUNTAS: I don't know if your colleague wants to speak to you...?
7374 I am speaking strictly about independent high speeds. But where do you see large-scale deployment of FTTP --
7375 MR. McTAGGART: Okay, sorry, Mr. Vice-Chair, I didn't understand the reference, the paragraph reference.
7376 COMMISSIONER PENTEFOUNTAS: Okay.
7377 MR. McTAGGART: So the Appendix C list of companies that we had in our first intervention and then we updated in the reply, you are right, none of them strike you as the names of the independent ISPs, such as members of CNOC.
7378 COMMISSIONER PENTEFOUNTAS: Yes?
7379 MR. McTAGGART: Rather, they are other smaller competitors that have done what CNOC says is not feasible or rational, and they have actually built their own fibre-based access networks.
7380 COMMISSIONER PENTEFOUNTAS: And they are deploying in your territory? They are deploying FTTP in your territory?
7381 MR. McTAGGART: There are some; Axia, Kamloops Community Network, Olds Fibre, CityWest in Terrace and Kitimat --
7382 COMMISSIONER PENTEFOUNTAS: And how much of your territory has competitors deploying fibre?
7383 MR. McTAGGART: Those are small local areas.
7384 COMMISSIONER PENTEFOUNTAS: Right.
7385 When you compare it to the entirety of your territory, it would be less than 1 per cent?
7386 MR. McTAGGART: I would think so, yes.
7387 COMMISSIONER PENTEFOUNTAS: Okay.
7388 MR. McTAGGART: But I think the point that we are trying to raise is there are a number of companies doing it, showing that it is feasible to do.
7389 MR. WOODHEAD: And they are ahead of us.
7390 COMMISSIONER PENTEFOUNTAS: And that is what would qualify it as large-scale?
7391 MR. WOODHEAD: They are ahead of us.
7392 COMMISSIONER PENTEFOUNTAS: Okay. And that is what you would qualify as large-scale FTTP deployment by competitors?
7393 DR. CRANDALL: Mr. Vice-Chair, I think here is where some international comparisons might be useful.
7394 COMMISSIONER PENTEFOUNTAS: Before we get to that, just in terms of definition. Is that what you define as large-scale FTTP deployment by competitors?
7395 MR. McTAGGART: Could you give me the reference again to large-scale?
7396 COMMISSIONER PENTEFOUNTAS: Paragraph 39.
7397 MR. McTAGGART: Of...?
7398 COMMISSIONER PENTEFOUNTAS: Your first intervention.
7399 MR. McTAGGART: But to your point, fair point, those are not large-scale deployments.
7400 COMMISSIONER PENTEFOUNTAS: Okay, great.
7401 DR. CRANDALL: I just wanted to add one thing here. Keep in mind that Canada is a difficult place to deploy FTTP to start with. Secondly, it has a very widespread deployment of high speed broadband now.
7402 In Europe, something like 50-53 per cent of households have access to 25-30 Mbps speeds. In Canada it is, by your own numbers, 82 per cent. So it is a less attractive place to deploy.
7403 Where it is more attractive to deploy, in Europe, there have been non-traditional telecommunications carriers, ISPs, independent ISPs deploy on a large-scale basis. Not companies like Deutsche Telecom or France Telecom, but companies you may never have heard of, like Fastweb or Reggefiber, who have deployed large amounts of fibre in major European cities; in Italy and the Netherlands in that case, respectively.
7404 The reason you don't have large-scale deployment here is that it is not very attractive because of the very considerable rollout of DOCSIS 3.0 and VDSL in Canada.
7405 COMMISSIONER PENTEFOUNTAS: That goes to my point, there is no large-scale competitor of deployment of FTTP.
7406 MR. McTAGGART: In Western Canada there aren't --
7407 COMMISSIONER PENTEFOUNTAS: Thank you --
7408 MR. McTAGGART: -- some of the ones on the list in Ontario and Quebec are large --
7409 COMMISSIONER PENTEFOUNTAS: Any plans to deploy out of territory, FTTP? It was a question raised last week as well.
7410 MR. WOODHEAD: No, not at this time.
7411 COMMISSIONER PENTEFOUNTAS: No, eh?
7412 MR. WOODHEAD: Certainly not in the residential market.
7413 MR. McTAGGART: Although, I will tell you that we have evaluated it, it has been on our radar screen.
7414 COMMISSIONER PENTEFOUNTAS: Okay.
7415 Correct me if I am wrong, but my sense in reading your document and other statements you have made is that the management team sort of seems to indicate that it will cease investing in FTTP if mandated.
7416 I think it is a more nuance position that I heard from Mr. Woodhead today. But be that as it may, while the management team indicates that FTTP investment will cease or be dramatically curtailed.
7417 Other parties suggested that there is intense rivalry, particularly out west. And, consequently, in order to continue to compete against Shaw, you have to deploy your FTTP.
7418 MR. WOODHEAD: If I may, I am going to hand off to Eros and then I would ask Tony to comment.
7419 I would say that it is categorically false that we have to do FTTP to compete with cable. We, you know, we compete with cable very well with a 50 Mg profile. And, in fact, we are taking customers.
7420 And if you look at our, you know quarterly statements you will see the impact of that. So fibre-to-the premises is not required to compete with cable at the present time.
7421 COMMISSIONER PENTEFOUNTAS: All right.
7422 MR. WOODHEAD: But I would ask Eros if he could just top up a little bit on the capital.
7423 COMMISSIONER PENTEFOUNTAS: Sure.
7424 MR. SPADOTTO: Absolutely, thank you. And thank you for having us back today.
7425 COMMISSIONER PENTEFOUNTAS: No, problem.
7426 MR. WOODHEAD: Yes, thanks.
7427 MR. SPADOTTO: I think what is the question here is not will we stop investing in broadband. Of course we are in the business of broadband, that is what we do.
7428 What is a question is how will you do it, where, and what speed?
7429 We have a vigorous competition with our friends at Shaw and we will continue to do that. As Mr. Woodhead has already stated, we compete fairly well without fibre-to-the-node technologies --
7430 COMMISSIONER PENTEFOUNTAS: That in and of itself will not incent deployment of FTTP?
7431 MR. SPADOTTO: No. I mean, I think there is certainly a roadmap in FTTN if we needed to continue. FTTP is a better place, you know, for us as Canadians to be in the long run.
7432 And hence, as you would expect, in our own company where we certainly spend billions of dollars, we have started some call it, you know, technology strategy experiments in what the cost structure is for FTTP.
7433 And that is exactly what is going on right now under the guidance of my good friend Tony right across the table.
7434 When we actually make investment decisions, and perhaps if I am allowed I will repeat myself for the state of people in this room on what I said during the wireless --
7435 COMMISSIONER PENTEFOUNTAS: We have a whole section coming on investment decisions, but go ahead.
7436 MR. SPADOTTO: Okay. So, you know, how do we make investment decisions as a company? And as I mentioned in the wireless proceedings, it is not --
7437 COMMISSIONER PENTEFOUNTAS: Before you do that, can I ask you question?
7438 MR. SPADOTTO: Please.
7439 COMMISSIONER PENTEFOUNTAS: And anyone can answer this question. If ILECs themselves are facing considerable risk with FTTP investment, why would new entrants without customers, without a customer-base or infrastructure to leverage, decide to prioritize their capital in such a high-risk investment?
7440 If you can't do it, why would the competitors, the independent ISPs, how would they find the pockets to do that?
7441 And then we will get into your sort of --
7442 MR. WOODHEAD: We are not suggesting that we can't do it and haven't done it, it just comes with a tremendous amount of risk. And that risk would be the same for them as it is for us; risk/reward.
7443 MR. SPADOTTO: And if I could top up. You know, one of the things that becomes very clear as you deploy networks anywhere in the world, but certainly especially in Canada, if you look to deploy economically you seek density.
7444 And as independents, my personal belief is they should seek density. And we see that happen in many forms in many different ways.
7445 Mr. Allison can add some comments on that, how he see it through his wholesale kind of work.
7446 So the issue for me here is what is the outcome? Can they invest? And the answer is absolutely, yes. They will seek density. That is actually the worry.
7447 If I actually take a look at how one independent can actually deploy and therefore we regulate, we are actually going to come against the density problem. And if you cause a disincentive in our investment, we will also seek density.
7448 So very much like you have heard before, there'll be places in the network that we will choose not to invest, we won't be able to afford to invest. The first places that come to mind is, you have heard us before, is you pull out of the rural centres.
7449 But I think the bigger danger is not the rural centres, because people can kind of understand that. The bigger danger is actually the neighbourhood level. We can start looking at communities and cities and look at where there is density on a city basis.
7450 And whether it is an independent ISP or whether it is us, we will all seek density. And so the have and have nots will not be rural versus urban. The have and have nots will be neighbourhood to neighbourhood.
7451 COMMISSIONER PENTEFOUNTAS: Is there a risk in Canada? I just sort of question that if we don't deploy, if Canadian companies don't deploy, is there any risk that foreign companies may come in and deploy?
7452 I don't want to mention Google by name, but we have seen some of the deployment south of the border.
7453 COMMISSIONER PENTEFOUNTAS: Starting with Kansas City. Is there elsewhere?
7454 MR. WOODHEAD: Is there a risk of it?
7455 COMMISSIONER PENTEFOUNTAS: Yes?
7456 MR. WOODHEAD: I don't that it is a risk. It is, you know, they are free to enter if they want.
7457 Where I do see a risk is if, in mandating unbundling, why would they build? They could just appropriate our innovation.
7458 COMMISSIONER PENTEFOUNTAS: We talked about the drop as well last week. And it was suggested that one-third of the cost is the actual drop. Would that make sense from TELUS's perspective?
7459 MR. WOODHEAD: I am going to let Tony and Zainul take a crack at this one. And, as I say, I think, as I said earlier, we have, and Tony can get into this, we have done some communities, we are in the early stages of doing communities and we are doing it in a way that is different. As always, TELUS is a little different.
7460 COMMISSIONER PENTEFOUNTAS: The future is friendly.
7461 MR. WOODHEAD: The future is friendly.
7462 And these are small relatively remote western communities -- relatively rural, I should say, western communities. And we have the actual costs that we would be more than happy to share with you in confidence.
7463 But I will let Tony and Zainul explain what they are up to.
7464 COMMISSIONER PENTEFOUNTAS: So we will accept that undertaking in terms of sharing in confidence about those costs. And if you want to speak more globally following what you heard last week, please.
7465 MR. WOODHEAD: Yes.
7466 MR. GEHERAN: Just briefly, Mr. Vice-Chairman.
7467 It certainly -- a substantial portion of the cost is the success-based cost. So the final drop, assuming you connect the customer. And we heard from some of I will call our peers in the industry last week that they don't actually provide that until they get a customer.
7468 In the examples that we were submitting, we have actually gone to communities and offered a drop free of charge, no obligation to take the service, to the whole community.
7469 So that adds substantial cost to the build out, but it then makes a community-wide build that gives customers choice. And ultimately, assuming you do the build well and safeguard your brand and reputation, a platform to build on successfully should the community enjoy the benefits or seek to enjoy the benefits of the network you have provided.
7470 And we have done that in a number of small communities across Alberta and British Columbia and in Eastern Quebec.
7471 COMMISSIONER PENTEFOUNTAS: Okay. It sounds like a model that I mentioned earlier where we deploy and hopefully everyone sort of takes up.
7472 MR. GEHERAN: No. We make a business justification on every build we do, an individual business case, and we make some risk profiles, suggesting degrees of penetration which effect a payback.
7473 There is cost of labour, there is geography and geology that are included that might affect us, aerial or buried --
7474 COMMISSIONER PENTEFOUNTAS: Be it aerial or burial drop, it makes no difference?
7475 MR. GEHERAN: Oh, it certainly makes a difference.
7476 COMMISSIONER PENTEFOUNTAS: It does, right?
7477 MR. GEHERAN: Yes. It is very much more expensive on buried.
7478 COMMISSIONER PENTEFOUNTAS: Right, okay.
7479 MR. WOODHEAD: And all of those figures we will provide to you in that undertaking.
7480 COMMISSIONER PENTEFOUNTAS: Appreciate it.
7481 Did your colleague want to add something or is that...?
7482 MS MAWJI: I was just going to add that there are economies of scale in deploying those drops up front and in engaging the community to make sure that we can do a holistic deployment upfront.
7483 COMMISSIONER PENTEFOUNTAS: Okay.
7484 It was also mentioned last week, cablecos brought it to the fore, and we can look at either or if the Commission were to decide to mandate FTTN, how would you see that applying to cablecos? They talked about DOCSIS 3.0 and DOCSIS 3.1. Should we make a comparison between FTTP and DOCSIS 3.1?
7485 MR. WOODHEAD: I think --
7486 COMMISSIONER PENTEFOUNTAS: Or should it be sort of speed-based, if you will, a speed threshold?
7487 MR. WOODHEAD: -- I think the easiest conceptually, in my view, is speed-based. So currently, you know, it is anything -- I think Shaw said anything over 25. But we are already speed matching. We have tariffs for speed matching up to and including 50.
7488 To me, conceptually, if you did 50 that becomes your legacy offer and the fibre to the premise is anything above that.
7489 COMMISSIONER PENTEFOUNTAS: Okay. So 50 would be the speed threshold?
7490 MR. WOODHEAD: Yes.
7491 COMMISSIONER PENTEFOUNTAS: Which should also be applied to cablecos?
7492 MR. WOODHEAD: Yes, should absolutely be symmetrical. I am not going to suggest that it should asymmetrical.
7493 COMMISSIONER PENTEFOUNTAS: Okay.
7494 So I asked this question of Bell last week and I am going to ask it again. I think you have already answered it.
7495 Will TELUS provide access to fibre willingly, as you say you will with HSA?
7496 MR. WOODHEAD: Yes, we -- I mean, I think Eros said something to me -- well, he said it to me a number of times, but we are in the business of making money just like all other enterprises are. And if someone wants to bring to us a proposition that makes sense and creates value, that we will certainly entertain that.
7497 And there is another really good reason that I would like Tony I guess to, or Brent, to comment on.
7498 There will come a time with these builds where in these communities that Tony and Zainul and their team are building out, along with Eros's folks, where you will get to a certain level of penetration and then you will stall, because another feature of platform competition obviously that is much different than monopoly is that nobody is talking like 75, 80, 90, 100 per cent penetration here. You are talking much lower levels of penetration and you will stall.
7499 And that is where in some niche way I think there is a very significant possibility for the independent ISPs.
7500 But if you have anything else to add, folks?
7501 MR. ALLISON: Sure. Well, I guess I will speak to the commercial factors for a wholesale group, first of all.
7502 And the first thing is you have a service. You have to have the service, right? And then you have to have capacity around that service, as Ted mentioned.
7503 So if there is latent capacity, we would certainly look at it.
7504 But the second thing, and I think the most important thing, is our customers have to share the risk. And so we need long-term commitments in any commercial.
7505 So it can't be just a month-to-month arrangement where TELUS bears the risk of that arrangement.
7506 And then finally, how much wholesale service development is required, what will that cost? And that all adds up to project contribution that will compare to retail opportunities and all the long list of capital opportunities that Eros has to look at.
7507 COMMISSIONER PENTEFOUNTAS: You have kind of opened a door to a question I had later on, and we might as well get to it now, Mr. Woodhead.
7508 If not now, when? Some of your competitors spoke of a five-year delay, a three-year delay, a seven-year delay in terms of mandating access to FTTP.
7509 MR. WOODHEAD: Yes. Well, we have proposed -- because Tony and -- well, all of the folks at TELUS who are involved in this sort of generational project here, we are in the early innings of this thing.
7510 You know, we just left the starting block and we are running as fast as we can to try and, and in a modular, I think if you saw Mr. Entwistle's comment, in a modular fashion. So a community by a community to get some learnings. Interestingly, rural, more rural communities to get learnings as to how to deploy this.
7511 And so we have proposed a seven-year. I know that Bells said five and I think some others said five. They are further along obviously. Particularly Bell Aliant, I think they pass a million homes. We are at a much lower number than that.
7512 So we had proposed a seven-year rolling or what I would propose is a seven-year rolling period, so by community. And that the Commission's role there would be continuing to monitor the relevant factors in the retail market. And potentially, there could be a reporting requirement from us as to agreements on these networks if they are reached.
7513 And then at the expiry of whatever the period of time you choose is. We have suggested seven because we just started.
7514 And in advance of the expiry of that time you would announce a proceeding to look at exactly some of those factors that you are --
7515 COMMISSIONER PENTEFOUNTAS: All right, okay.
7516 MR. WOODHEAD: -- thinking about.
7517 COMMISSIONER PENTEFOUNTAS: I think you have already answered the copper question. Just maybe to make it clear. Once you have laid down fibre, what are you going to do with the existing copper infrastructure?
7518 MR. WOODHEAD: We would continue to supply that copper. It is not going to be -- I mean, it seems eminently reasonable to me, given what I just said to you, that you would want to ensure yourself, particularly -- I mean, these are not, you know, fax lines we are talking about. We are at 50 Mbsp on the legacy network.
7519 So we would continue to provide access which, as Brent already told you, we do this all day long, everyday of the week. We make agreements to access those facilities. So that would continue as your backstop.
7520 COMMISSIONER PENTEFOUNTAS: You have talked about speeds and we have talked about speeds --
7521 MR. WOODHEAD: Sorry. At some point though, at some point in the future --
7522 COMMISSIONER PENTEFOUNTAS: At some point.
7523 MR. WOODHEAD: -- those networks are going to go.
7524 COMMISSIONER PENTEFOUNTAS: Very hard to foresee or to put a timeline to that?
7525 MR. WOODHEAD: Yes. Like I think we said in the opening statement, for the foreseeable future. But I don't have a date for you, a hard date. But at some point they will be decommissioned because the world will just pass us by.
7526 COMMISSIONER PENTEFOUNTAS: Just talking about speeds. We talked about, and I think you spoke of a tremendous uptake over the last year in terms of your client base and what kind of speeds they are interested in.
7527 Where would the majority of your clients be today? Bell spoke just about the fact that they offered much higher speeds and there wasn't any uptake for it or very limited uptake.
7528 Where would the TELUS client base be at today, roughly?
7529 MR. WOODHEAD: I would ask Brent and Zainul or Tony perhaps just to -- maybe they can explain to you what we're doing on FTTP and Brent can talk about the general market conditions and what demand exists from customers.
7530 COMMISSIONER PENTEFOUNTAS: Okay.
7531 MR. ALLISON: Okay, so I'll jump in on the wholesale side. So today 97 percent of our HSIA ports on what we call our DSL VPOP service, which is similar to GAS, is below 6 Meg, so 97 --
7532 COMMISSIONER PENTEFOUNTAS: Below 6?
7533 MR. ALLISON: Yeah. Yeah, to give you an idea. So we didn't see that uptake. A reminder for you guys too that we have 50 percent -- roughly 50 percent of our base is consumer is 50 percent is business. So a lot of businesses use that for point of sale and some stuff that doesn't require the higher bandwidth. That gives you an idea.
7534 And if you want us to share the retail numbers, we can do that in an undertaking if you like.
7535 COMMISSIONER PENTEFOUNTAS: Please do. We would appreciate it.
7536 And you talked, Mr. Woodhead, about your sort of 50 Mbps speed. I'm going to ask you to crystal ball here but how much longer do you think you can offer competitive service south of 50 Mbps?
7537 MR. WOODHEAD: I think for a while.
7538 COMMISSIONER PENTEFOUNTAS: A long time, yeah.
7539 MR. WOODHEAD: You know, there's sort of this -- I mean this is more my personal view. You know, you read in the trade press about Google Fiber -- you mentioned that -- gigabit per second downloads. This is all exciting in the theoretical but what people -- even heavier users, what they use Internet for does not require that kind of speed and people don't necessarily want to pay for it.
7540 And I think you heard Mr. Stevens of Execulink, who was, interestingly, on the panel --
7541 COMMISSIONER PENTEFOUNTAS: CNOC panel.
7542 MR. WOODHEAD: -- of CNOC but has built out FTTP in his serving territory, that you can't price, you know, two or three times more for that service. I think you heard from Shaw, who had a 250-Mgbs service. I think they've withdrawn the service because nobody takes it. Everybody is congregating, I think, around that 25-to-50 area. That's where demand is right now.
7544 MR. GEHERAN: I think what our experience is showing us is that customers like the idea that they could have more and which is what excites them around FTTP, is the fact that if they need it in the future the network is able to support it and the service provider is able to give it to them. But they're not ready to pay for it yet and currently most of their peripheral devices can't operate at a gigabit speed.
7545 COMMISSIONER PENTEFOUNTAS: Right.
7546 MR. SPADOTTO: So if I can add, you're also driven by a number of other factors.
7547 So first of all, coding techniques in technology change over time. So what used to be transmitted that needed 10 Mbps can now be done with 5, right, and there's no reason to expect that those advanced coding techniques will continue to exist.
7548 Secondly, many of the services that are used on the Internet are a function of the endpoint or the point where you're actually drawing the service from and our observation is as you start taking a look at those servers, they tend to cap out as well. They're not just freely running at high rates.
7549 So if you take a look even in our own tiers as you go across different usage patterns, as people subscribe to higher and higher usage, they actually use almost materially less or materially similar amounts of usage on a monthly basis. So speed when you get to 25+ up to 50, I actually think has a pretty good tail to it in terms of how much longer it can be used.
7550 COMMISSIONER PENTEFOUNTAS: Okay. Independent ISPs have a much smaller footprint west of Ontario. It really has been a Quebec-Ontario sort of phenomenon, nonexistent for all intents and purposes in Atlantic Canada, very little presence out West. What would you attribute that to?
7551 MR. WOODHEAD: You know, I --
7552 COMMISSIONER PENTEFOUNTAS: Besides your excellent service at TELUS and --
7553 MR. WOODHEAD: Well, thank you.
7554 MR. WOODHEAD: But in all seriousness, I can't say it any better than those gentlemen from the B.C. Broadband Association said it. It's that there is an absolutely intense retail competition going on between us and Shaw. You need to look at sort of the indicators in the market.
7555 So when people are -- and they were complaining to an extent. You know, I might say they also were the ones that were congratulating guys like Brent here for making deals to enable their business case in certain -- where they compete.
7556 But they were pointing to the 10-10-10 offers, you know, $10 phone, $10 Internet, $10 TV offers. They were saying, you know, I can't compete because Shaw gives me TV and TELUS gives me a laptop or something or vice versa and just the high level of rivalry in that market.
7557 And, you know, obviously the market in Ontario is competitive but there has been more take-up there. But I think the retail market is so competitive that -- and I'm quoting back -- it's very difficult for a wholesaler to gain any kind of foothold because the retail market is so hot.
7558 COMMISSIONER PENTEFOUNTAS: Got you. They're giving away too many TVs. I appreciate that.
7559 Briefly on ULLs, and you spoke to them in your document on the final page. Bell's proposition that we stop mandating ULLs on bands A and B, what impact would that have out West?
7560 MR. WOODHEAD: I'm going to ask Mr. Edora to take that one if he can.
7561 MR. EDORA: I'll talk about the TELUS proposal on unbundled local loops and I'll pass it to Mr. Allison about the effect on our business.
7562 Our proposal is a little bit different than Bell's. It's similar in principle in that unbundled local loops should not be mandated, but instead of bands A and B being subject to forbearance, what we have proposed is a proposal where depending upon if the local exchange is forborne then the unbundled local loop is forborne. And so there would be automatic forbearance after a set period of time depending upon if the local exchange is forborne.
7563 And perhaps Brent can talk about the effect --
7564 COMMISSIONER PENTEFOUNTAS: Yeah, briefly on the effect out West.
7565 MR. ALLISON: Sure. Well, certainly demand has dropped off pretty substantially since 2005. We had -- I'll quote -- 170,000 unbundled local loops and today we're at 71,000. So we expect that trajectory to continue.
7566 COMMISSIONER PENTEFOUNTAS: Residential as opposed to business ULLs, do you want to speak to that briefly?
7567 MR. ALLISON: Yes. We only have 10,000 out of the 71,000 that are residential.
7568 COMMISSIONER PENTEFOUNTAS: Okay.
7569 MR. ALLISON: Yeah.
7570 COMMISSIONER PENTEFOUNTAS: And the impact given that your residential is so much smaller than your business, retail?
7571 MR. ALLISON: Yeah. We're sort of indifferent on that side but I'm not sure what's really going to happen. We haven't had a lot of requests recently and don't see a lot of interest going forward.
7572 COMMISSIONER PENTEFOUNTAS: Ethernet, briefly. Parties have commented that, you know, the Commissioner erred in getting out of the Ethernet business.
7573 Maybe this would be a good time. We're an hour and a half in. We can take a bit of a break, Mr. Chairman --
7574 THE CHAIRPERSON: Sure.
7575 COMMISSIONER PENTEFOUNTAS: -- and then we'll continue.
7576 THE CHAIRPERSON: You have nothing to add on that?
7577 MR. WOODHEAD: Do you want me to answer that?
7578 COMMISSIONER PENTEFOUNTAS: Well --
7579 MR. WOODHEAD: I'll just say briefly.
7580 COMMISSIONER PENTEFOUNTAS: It's going to be a long one. Go ahead, sure.
7581 MR. WOODHEAD: On Ethernet, the Commission has looked at this multiple times and has always maintained it as forborne. I think it should do so again.
7582 I also think that it is evidenced by -- and I keep repeating it not to bore you -- but Allstream, who was the major proponent of Ethernet regulation, we have an agreement with them to provide these services. And I suspect other ILECs may as well. I don't know that for a fact but --
7583 COMMISSIONER PENTEFOUNTAS: Given that, should we have chosen a smaller geographic area, local exchange, CMA?
7584 MR. WOODHEAD: I'm going to ask -- Eric, do you --
7585 MR. EDORA: I'm not sure if it matters. The evidence on the record shows that these services are duplicable and so no matter the geographic area you select the capability to provide Ethernet services either through your own supplies or the access to a competitor's supplies is the same.
7586 Having said that, we believe that the decision to forbear on the national market was correct, but if you look at smaller geographic areas I don't think you get to a different answer.
7587 COMMISSIONER PENTEFOUNTAS: Maybe just close on this, on the Ethernet issue.
7588 Wouldn't the fact that many of your competitors have chosen -- according to you, have made a specific business decision not to expand into that market, wouldn't that suggest that fibre axis facilities are not duplicable in all areas?
7589 MR. WOODHEAD: No. I mean our position is that they are duplicable.
7590 COMMISSIONER PENTEFOUNTAS: Notwithstanding the fact that competitors are choosing not to expand in certain markets?
7591 MR. WOODHEAD: Well, I mean people will make decisions based on where they're going to deploy facilities for their own business case reasons.
7592 I think -- and Mr. Allison can comment on -- you know, again, I go back to we make agreements. Where we have facilities we make agreements with people if they don't and the obvious -- and it's not to just constantly call out Allstream, but Allstream has, you know, a fairly broadly based national fibre network but there are areas where it doesn't, where it's one business from places that have multiple locations, and we have a master agreement with them to provide them with these services in the areas where they don't cover.
7593 But I'll let Brent --
7594 MR. ALLISON: First of all, we're not the only game in town anymore. You've got Axia, you had Envison who now is with Shaw, certainly Bell, Allstream, et cetera. So there's lots of options for our customers and we know that.
7595 If customers want to come and cherry-pick and only ask us for that single remote location, it's a difficult conversation. If they want to come and talk to us about buying the majority of what they spend with us, that's a much better conversation for us to have and we have a commercial leg to stand on.
7596 So in all those cases we mentioned before, 53 of them, we've been able to come to a commercially negotiated agreement without the Commission's help and I think those are win-wins. It's good business for us and it ensures that my customers don't go to our competition and I can maintain some share, some semblance of share of the western market, which I need to do.
7597 MR. WOODHEAD: I would just say also quickly because we're focusing to some degree on the West, but we are a significant builder of Ethernet access in the East for the very reason that we've been successful getting some very large contracts with banks, the Quebec provincial government, the Government of Ontario. So we have invested significantly in building those out. And again, you can do it. It can be done.
7598 COMMISSIONER PENTEFOUNTAS: We still have a while to go, Mr. Chairman, so we might as well take a break at this point.
7599 THE CHAIRPERSON: Yeah, okay.
7600 COMMISSIONER PENTEFOUNTAS: Thank you.
7601 THE CHAIRPERSON: So we'll take a short break till five minutes to 11:00. Thank you.
7602 MR. WOODHEAD: Thank you, Mr. Chair.
--- Upon recessing at 1037
--- Upon resuming at 1055
7603 LA SECRÉTAIRE : À l'ordre, s'il vous plaît. Order, please.
7604 THE CHAIRPERSON: So we will just continue.
7605 Monsieur le Vice-président.
7606 CONSEILLER PENTEFOUNTAS : Merci, Monsieur le Président.
7607 Are you making any use of the Axia network? No?
7608 MR. WOODHEAD: No. No, sorry, is the answer.
7609 COMMISSIONER PENTEFOUNTAS: I promised I would not touch upon any of your experts again but I forgot I had a question -- sorry about that -- already in the works and I think it's appropriate to ask it.
7610 In your second intervention at paragraph 109 you quoted Dr. Hal Singer and I quote -- and if I'm misquoting him or quoting him out of context, please correct me:
"Even when market power is found to be a credible concern, direct price regulation, rather than mandated sharing, may be the superior policy instrument." (As read)
7611 Given that --
7612 MR. WOODHEAD: I would ask Dr. Weisman --
7613 COMMISSIONER PENTEFOUNTAS: Yes, sure.
7614 MR. WOODHEAD: -- to speak to that.
7615 COMMISSIONER PENTEFOUNTAS: Given that statement, a conclusion of one of the economists that you've quoted, should the Commission be giving serious regulatory consideration to retail rate regulation?
7616 DR. WEISMAN: Do you have a specific set of services in mind, Mr. Vice-Chair?
7617 COMMISSIONER PENTEFOUNTAS: Everything. You can select any service you wish.
7618 DR. WEISMAN: Okay. Well, let's take --
7619 COMMISSIONER PENTEFOUNTAS: If we're going to apply Dr. Hal Singer's thoughts --
7620 DR. WEISMAN: Well, let's take broadband, for instance, and what has been suggested, for example, is some concern regarding whether a duopoly is enough. And, for example, I believe the other day you submitted, Mr. Vice-Chair, that wireless perhaps, given its expense, perhaps might never be a full substitute, I believe you said, for wireline and I think that's an important point for a number of reasons.
7621 First of all, if we look at the transition in the voice market, it was pretty clear that wireless was not a substitute and then it was, and today some would say that it's superior to wireline because of the mobility. So there's every reason to believe that a similar transition would happen with respect to data.
7622 But specifically with respect to whether it's a perfect substitute, the unique nature of the wireline market economics means it doesn't really have to be. You have two wireline providers and it's a market that's uniquely conducive to what I would call effective small numbers competition, which means ratio of price to marginal cost is such that the loss of a small amount of demand means that revenues would decline much faster than costs.
7623 COMMISSIONER PENTEFOUNTAS: I appreciate your answer, Dr. Weisman, but the point made by Dr. Singer here is that price regulation is a better approach than mandating the sharing or facilities.
7624 DR. WEISMAN: And I believe I made a similar statement to the Commission in my statement, Mr. Vice-Chair, that it may be, because the benefits from so-called independent ISP competition I think are hard to find and I think there's a regulatory creep, if you will, where now -- if you go back for example to the price cap regulation, it was very clear what was legacy and what was new. Now, ISPs come in and say everything new you come up with is the province of regulation. It's not clear to me, it's not clear in the literature that the gains from this reseller or ISP competition justifies the cost relative to the alternative, which means direct price regulation. I would say that --
7625 COMMISSIONER PENTEFOUNTAS: So we're better off with direct price regulation?
7626 DR. WEISMAN: Maybe. It's not inconceivable that you would if you saw a problem with market power.
7627 COMMISSIONER PENTEFOUNTAS: So we should that into consideration, as the Commission?
7628 DR. WEISMAN: If you perceived that you had a problem with market power for legacy services, it's something that you would take into consideration.
7629 COMMISSIONER PENTEFOUNTAS: I gather you don't feel that's the case?
7630 DR. WEISMAN: I do not.
7631 COMMISSIONER PENTEFOUNTAS: Maybe we'll move on to the whole CISC issue and I understand your position and others but let me ask it differently. Don't we need to build some kind of industry knowledge as regards costing? We heard last week -- I forget who the last intervener was who asked -- VMedia, who asked for more transparency in the whole costing process. I'm not saying they're right or wrong but don't we need to build this industry knowledge of costing and wouldn't a CISC type working group be of some help potentially?
7632 MR. WOODHEAD: No, CISC is not the place for that. Costing is foundational to the regulatory regime. It is in essence a policy issue which you're grappling with on the record of this proceeding.
7633 COMMISSIONER PENTEFOUNTAS: Are there other fora that we could deal with costing --
7634 MR. WOODHEAD: I would suggest if Mr. Burger has an issue with costing knowledge that he go out to the market and get some.
7635 COMMISSIONER PENTEFOUNTAS: Yes. I don't want to personalize it as regards Mr. Burger --
7636 MR. WOODHEAD: Well, I mean he was the one that said it.
7637 COMMISSIONER PENTEFOUNTAS: -- I mean other people have mentioned it, but to the point -- I will let you finish your answer, but without personalizing it or Dr. Burger or anybody else.
7638 Should we as an industry try to gain an offer, a greater sort of knowledge on costing, and if it's not CISC is there some other place that can happen? If not, not, I mean that's fine.
7639 MR. WOODHEAD: I don't --
7640 COMMISSIONER PENTEFOUNTAS: You don't think --
7641 MR. WOODHEAD: -- you know, I think what I have heard -- and this is not the first time I have heard it -- is that it is around transparency when they say that they want to know what our input costs are and they want to know deep inside the engine room of these businesses what each and every little input cost is.
7642 They want to do that so that we can end up, in my view, in endless series of disputes around whether your rate-setting function has achieved the purpose that they want, which is the absolutely cheapest price on our services that they can possibly get, right or wrong.
7643 COMMISSIONER PENTEFOUNTAS: That's where we are at now, Mr. Woodhead. We have endless cost applications associated with reviews and varies in perpetuity.
7644 And my question is, is there some way of getting away from what we are going through right now on the costing front and the constant applications, the reviews and varies that follow --
7645 MR. WOODHEAD: The most obvious one would be forbearance.
7646 COMMISSIONER PENTEFOUNTAS: Sure enough.
7647 MR. WOODHEAD: But no, just to be clear, the CISC -- you know, I can't -- I'm just repeating myself. CISC is not the place for this. That will be --
7648 COMMISSIONER PENTEFOUNTAS: And there is no other place.
7649 MR. WOODHEAD: -- a gigantic waste of time.
7650 COMMISSIONER PENTEFOUNTAS: If not there, where?
7651 MR. WOODHEAD: But I'm going to ask, Mr. Romaniuk if -- to be helpful, there are things that we can do around -- potentially around costing that may be helpful. I'm going to ask Mr. Romaniuk to provide some of those types of things that he's been thinking about.
7652 MR. ROMANIUK: Thanks, Ted.
7653 I totally agree with Ted's comments in terms of CISC. CISC is not the place to dive into the modelling and have one expansive massive model that everybody tries to understand because everybody will have their individual views on it.
7654 In terms of enhancements, I know Bell recommended a couple of process enhancements. I don't know if you want to go there. Or other improvements -- transparency, in terms of we see opportunities, where with the new template process we actually looked at ourselves. And we could actually better provide reports in front to identify some of our assumptions and our economic modelling and learnings to help Commission staff with that.
7655 As well as, sort of on the backend, when the decisions come out I think there is also an opportunity there to understand some of the transparency decisions where there have been material changes to the input factors, say, that we put into the tariff. That's where a lot of, I think, of Part 1 applications where people just don't understand what happened in between point A and point B.
7656 COMMISSIONER PENTEFOUNTAS: And there is no way of helping create an industry-wide sort of standard to help people understand without them getting into the nuts and bolts of costing and pricing of a TELUS or anyone else for that matter?
7657 MR. WOODHEAD: I don't think so. I think --
7658 COMMISSIONER PENTEFOUNTAS: Okay.
7659 MR. WOODHEAD: -- costing is costing.
7660 COMMISSIONER PENTEFOUNTAS: That's fine. On the costing issue I think the words you use to describe Roger's retail minus were "complicated" and "unprincipled". Explain, especially the unprincipled part.
7661 MR. WOODHEAD: Because I don't think it -- well, why don't I let Dr. Weisman talk about retail minus, if he could, and that I will top up.
7662 DR. WEISMAN: So the economics and welfare economics literature is clear that the only real meaningful measure of cost for pricing purposes is incremental or marginal costs. So once you accept that, whether you are talking about retail minus or you are talking about an efficient operator approach, both are back doors into Phase II.
7663 And while Phase II is complicated and difficult, it's the only scientifically valid basis for costing, plain and simple. So the term unprincipled means that it's divorced from the economic literature, full stop.
7664 MR. WOODHEAD: Okay. And just the point that I wanted to highlight that Dr. Weisman just added is, from your perspective I think, if you were to go down the retail minus approach it's not a simple, you know A minus B equals C. You are going to have to within that -- and I think Dr. Weisman alluded to it -- you are going to have to do a tremendous -- or people are going to have to do a tremendous amount of Phase II- type sorts of analysis to even derive that number.
7665 COMMISSIONER PENTEFOUNTAS: Okay. Should markups primary purpose only be to provide a contribution to recover fixed and common costs?
7666 MR. WOODHEAD: I'm going to ask Orest to take that one.
7667 MR. ROMANIUK: I'm sorry?
7668 COMMISSIONER PENTEFOUNTAS: And then we are going to get a little bit deeper. I will give you a global sort of --
7669 MR. ROMANIUK: Okay. And is it just should markup only recover fixed and common?
7670 COMMISSIONER PENTEFOUNTAS: Yes.
7671 MR. ROMANIUK: No.
7672 COMMISSIONER PENTEFOUNTAS: If not, why?
7673 MR. ROMANIUK: No.
7674 COMMISSIONER PENTEFOUNTAS: What? Why?
7675 MR. ROMANIUK: There are additional factors that need to be taken into account, specifically risk and RPM, a proportionate share or return to shareholders so specific markups are made to recover your fixed and common costs. Whether the current markups are sufficient for that, that's another question.
7676 COMMISSIONER PENTEFOUNTAS: So let's get the risky investments --
7677 MR. ROMANIUK: Sure.
7678 COMMISSIONER PENTEFOUNTAS: -- and how we go about evaluating all that. So maybe globally describe how your company evaluates risky investments internally, without giving away any Cadbury secrets.
7679 MR. WOODHEAD: Go ahead, sorry.
7680 COMMISSIONER PENTEFOUNTAS: Yeah. I want to speak about the following issues.
7681 One, hurdle rate for low risk and the hurdle rate for a high risk. I want to speak about cost of capital, whether there should be an adjustment to add risks specific to a project and the cost of capital, and whether we should incorporate the supplemental risk, the increased risk on the capital side or on the mark-up side. We had this discussion last week and we have had this discussion before, but if you want to speak to the issue globally and maybe we can drill down.
7682 MR. WOODHEAD: Yes. So what I would do to address those questions is, I would ask Eros if he could sort of talk about the high level assessment of investments based on different levels of risk and then I think --
7683 COMMISSIONER PENTEFOUNTAS: Sure.
7684 MR. WOODHEAD: -- we can come back to Orest and he can drill down into some of those things about weighted average cost of capital and what are the appropriate considerations.
7685 COMMISSIONER PENTEFOUNTAS: Yes.
7686 MR. SPADOTTO: Thank you. So if you will allow me a little bit of interlude --
7687 COMMISSIONER PENTEFOUNTAS: Yes, please.
7688 MR. SPADOTTO: -- in terms of how our company thinks and operates. Again, you may have heard this in the past, but for the sake of making sure it's on this record I will say it again.
7689 In my capacity one of the things I do is I chair something called the Investment Return Team, or IRT for short. The IRT is the place you come into our company to actually seek capital and seek investment.
7690 Quite simply, we do look from the bottoms up on how we actually entertain those investments. You know, perhaps stating the obvious, we kind of create a ladder of how we decide to invest and at the very bottom of the ladder are the obvious things. We will always spend money on meeting legal requirements, meeting regulatory requirements. Things that we just have to kind of do, we will spend money there.
7691 The second place we spend money is, of course, on capacity. We have a subscriber base that, as you have already stated, we care deeply for and we want to make sure that their needs are met and so we put a significant amount of investment just keeping up with the growth that they demand.
7692 As you go further up the ladder you start to get into areas that become optional in nature. Those things that are optional in nature tend to be things like expansions or new customers you seek to accept. That kind of brings in all the marketing kind of areas. It brings in the business cases around those things.
7693 And you continue to climb up the ladder until you get into further and further kind of investments.
7694 As part of that analysis, and to bring as an example the FTTP into greater focus, we are a technology-driven company. There is no doubt in our minds that we actually have to continue to progress technology and we have to continue to progress, frankly, as an engineer of the state of Canada and we draw great pride in doing that.
7695 So we do very much many things that are kind of exploratory in nature and that are intended to learn.
7696 We assign not very -- you know, by the scale of TELUS it's not very much money. Of course, in the grand scheme of things it is money and one of the things that we have done in that world is we have assigned Tony and his team to actually go off and try FTTP.
7697 Those things that we do are all rated and ranked on some basis of return. We do tend to look at things like beta, you know, what is the return on the individual elements and we deliberately take the risk and we rank in order.
7698 To be really fair, if I take a look at the kinds of things that we are adjudicating inside IRT, we are deliberately letting things go that have short paybacks and great returns so that we actually continue to experiment, right? So it's not -- we simply don't go rank order from, you know, greatest payback to least payback and draw a line. We actually do some rather good thinking in that process.
7699 COMMISSIONER PENTEFOUNTAS: Yes. I just want to interrupt you there for a second.
7700 You have something to leverage that will allow you to experiment, and you talk about FTTP.
7701 MR. SPADOTTO: M'hmm.
7702 COMMISSIONER PENTEFOUNTAS: Where does a competitor find the leverage that would allow them to experiment in FTTP?
7703 MR. SPADOTTO: They would find the leverage in the exact same place as we do. If you take a look at the tariffs that have been billed for attachment to polls for access to ducts, for things of that nature, those are open kind of areas.
7704 It's the very same things that we are using. So they have a methodology to do it right now as they chose to.
7705 COMMISSIONER PENTEFOUNTAS: That's your answer?
7706 Good. Do you want to go on? You were up to point number three, experimentation, on your ladder.
7707 MR. ROMANIUK: Yes.
7708 So on experimentation we do a number of things upon which we evaluate technologies. More importantly than evaluating technologies we evaluate the business case associated with them.
7709 Case in point, when I think of FTTP, Mr. Geheran and his team, you know, until about half a year ago reported to me. It was viewed as a technological kind of experiment. We decided quite deliberately to move Mr. Geheran and his team -- reporting directly to the CEO -- because of course we are not interested only in technological experiments. We are interested in return.
7710 And it perhaps is to show the focus of our company that Tony and his team now report directly to the CEO. That is how we move things along kind of our experimentation kind of plan.
7711 COMMISSIONER PENTEFOUNTAS: Do you want to get into cost of capital, return on investment, riskiness involved --
7712 MR. ROMANIUK: Yes.
7713 COMMISSIONER PENTEFOUNTAS: -- and what kind of return is expected in a more risky investment.
7714 MR. ROMANIUK: In answering that first of all, I will maybe sort of go through the financial analysis profile.
7715 So first of all, your weighted average cost of capital --
7716 COMMISSIONER PENTEFOUNTAS: Yes.
7717 MR. ROMANIUK: -- that's sort of the measure of the company's actual cost of capital. When it goes to the market to obtain capital that's the overall. So when it goes to borrow or equity or whatever else, it obtains it at this cost of capital.
7718 Companies do not go to the markets to borrow project-specific. So once it gets the absolute funding then it looks at the projects and, as Eros elaborated, we have this ladder process. We have all these projects that are lined up, ready to go and then we evaluate them.
7719 Those individual projects are, you know, you start with your cost of capital but then you go into additional parameters such as the payback period, key parameter, and primarily discounted cash flow probability analysis. So we look at those to rank your riskiness of various projects. You develop your overall capital spend profile based on your assessment of where your risks are and you allocate your funding.
7720 So that is what, I think, the distinction between your weighted average cost of capital versus individual project assessment. There is also other factors that go into it, into whether you accept projects that are not financially related, strategic, everything else that Eros elaborated. And to hurdle rates for, say, most projects we do implement a minimum hurdle rate as well as one of the return parameters.
7721 COMMISSIONER PENTEFOUNTAS: But you would not do that for FTTP, right?
7722 MR. ROMANIUK: No. It just would -- the decades would be decades and another decade if you tried to return --
7723 COMMISSIONER PENTEFOUNTAS: So that hurdle rate would look --
7724 MR. ROMANIUK: It would make the return look very long.
7725 COMMISSIONER PENTEFOUNTAS: Okay.
7726 Maybe sort of move the question to how one would go about deciding on cost if -- and I understand your position -- the Commission were to decide that FTTP would be mandated, how would you go about costing and incorporating that increased risk in the costing process?
7727 And we are not doing costing during this hearing, but --
7728 MR. ROMANIUK: So as Ted has mentioned --
7729 COMMISSIONER PENTEFOUNTAS: Big picture?
7730 MR. ROMANIUK: -- first of all, our position is it shouldn't be mandated.
7731 COMMISSIONER PENTEFOUNTAS: Yes.
7732 MR. ROMANIUK: But if we had to -- and we have not done this exercise -- but at minimum there is sort of you do will a look at the speed matching and FTTN --
7733 COMMISSIONER PENTEFOUNTAS: Yes.
7734 MR. ROMANIUK: -- that has the 30 percent markup, plus the premium associated with that 10 percent. FTTP is significantly more risky than not. Therefore that, I think, is your starting point and then you would incrementalize versus that.
7735 I don't know if you want to get into how risky FTTP is, but yeah --
7736 COMMISSIONER PENTEFOUNTAS: We can do -- would you incorporate the additional risk in the cost or the markup?
7737 MR. ROMANIUK: Markup, absolutely.
7738 COMMISSIONER PENTEFOUNTAS: Markup.
7739 MR. ROMANIUK: Markup is the way to recover --
7740 COMMISSIONER PENTEFOUNTAS: Clearly.
7741 MR. ROMANIUK: Very clear, yeah.
7742 MR. WOODHEAD: Mr. Vice Chair, perhaps Mr. Geheran can speak to the relative sort of multiples of cost of FTTN over or versus FTTP because all of that goes into the base set of your costs before you even get to risks.
7743 COMMISSIONER PENTEFOUNTAS: Only fair.
7744 MR. GEHERAN: Yes. When we look at FTTP it is effectively four times the cost of deploying FTTN when you include success-based connection costs included.
7745 COMMISSIONER PENTEFOUNTAS: Connection costs? If your drop is going out to everyone as opposed to how your competitor described it last week, how much would that change when you do your 4 to 1 margin?
7746 MR. GEHERAN: That includes the drop provisions that we have modelled in.
7747 COMMISSIONER PENTEFOUNTAS: From A to Z.
7748 MR. GEHERAN: But if I was looking at FTTN I would also assume similar rates of penetration. I may be able to avoid some costs. It's lesser becausem in some circumstances the existing copper facility is fit for purpose, in others you have to upgraded as well. So there is a variable there that is case-by-case.
7749 COMMISSIONER PENTEFOUNTAS: What would the variable represent on your quadruple model? If you are quadrupling FTTP as opposed to FTTN, the copper element of that, what percentage would that represent?
7750 MR. GEHERAN: Well, I think approximately about 20 percent of the existing copper loop has to be upgraded to be fit for purpose for a triple play-type service provision.
7751 COMMISSIONER PENTEFOUNTAS: Can I ask something else? My colleague, a member of staff looked at your video and I didn't see it, but apparently you are wrapping the fibre around the existing copper.
7752 MR. GEHERAN: Yes.
7753 COMMISSIONER PENTEFOUNTAS: What does that do to the quadrupling of the cost? Does that lower it?
7754 MR. GEHERAN: That saves -- that is a lower-cost way of, if you have to unwrap the copper and put the fibre on --
7755 COMMISSIONER PENTEFOUNTAS: Yes.
7756 MR. GEHERAN: -- that would add more cost.
7757 COMMISSIONER PENTEFOUNTAS: So that's included in --
7758 MR. GEHERAN: But it's a deferred cost, because on the assumption at some stage in the future --
7759 COMMISSIONER PENTEFOUNTAS: Yes.
7760 MR. GEHERAN: -- you are going to take the copper facilities away.
7761 COMMISSIONER PENTEFOUNTAS: Exactly.
7762 MR. GEHERAN: Yes. It's a factor --
7763 COMMISSIONER PENTEFOUNTAS: Aren't you lowering your initial costs and putting off some of that cost down the road?
7764 MR. GEHERAN: Marginally.
7765 COMMISSIONER PENTEFOUNTAS: Marginally?
7766 MR. GEHERAN: Yes.
7767 COMMISSIONER PENTEFOUNTAS: Any idea what that might represent?
7768 MR. GEHERAN: We would be happy to come back and provide you the information.
7769 COMMISSIONER PENTEFOUNTAS: Right. But all of your copper -- all of your fibre right now is being wrapped around your copper? Would it be correct to say that?
7770 MR. GEHERAN: Where it is an existing route. If it's a net new route, then that's not the case.
7771 COMMISSIONER PENTEFOUNTAS: Right. And existing route in your territory would occupy the vast majority of your serving area?
7772 MR. GEHERAN: You would say 65 percent of the access routes in British Columbia or in Alberta would be aerial, versus 35 percent would be --
7773 COMMISSIONER PENTEFOUNTAS: And you would already have copper there and you would simply be --
7774 MR. GEHERAN: No. Well, on feeder routes. On distribution routes it would be slightly different and it depends on the neighbourhood you are going into and what the access medium you are using.
7775 COMMISSIONER PENTEFOUNTAS: But where you don't already have copper, I mean, most of your territory you already have copper.
7776 MR. GEHERAN: Yes.
7777 COMMISSIONER PENTEFOUNTAS: Would you agree with me on that?
7778 MR. GEHERAN: Yes.
7779 COMMISSIONER PENTEFOUNTAS: Okay. And the fact that you are wrapping your fibre around the copper, there is a different cost involved as opposed to not having the copper and running fibre from A to Z. Would you agree with that?
7780 MR. GEHERAN: If you are suggesting would someone else that would want it under, say, that similar example of build --
7781 COMMISSIONER PENTEFOUNTAS: You can use that.
7782 MR. GEHERAN: -- they could do the same thing. They could get access to the pole infrastructure.
7783 COMMISSIONER PENTEFOUNTAS: Yes. And the copper, they could wrap their fibre around your copper?
7784 MR. GEHERAN: They do already. They utilize our poles and they wrap their cables along the same roots.
7785 COMMISSIONER PENTEFOUNTAS: Along the copper?
7786 MR. GEHERAN: On the same spans.
7787 COMMISSIONER PENTEFOUNTAS: Same spans.
7788 MR. WOODHEAD: Same strand.
7789 COMMISSIONER PENTEFOUNTAS: And down the road if you ever have to get rid of that copper?
7790 MR. GEHERAN: It becomes a cost of recovery.
7791 COMMISSIONER PENTEFOUNTAS: A shared cost at that point?
7792 MR. GEHERAN: It would depend on --
7793 COMMISSIONER PENTEFOUNTAS: Right.
7794 MR. GEHERAN: -- who is on the infrastructure.
7795 COMMISSIONER PENTEFOUNTAS: And where there is no copper what is the cost increase?
7796 MR. GEHERAN: As we already indicated it's around about a third of the overall cost of providing the FTTP build.
7797 COMMISSIONER PENTEFOUNTAS: And again I come back to my initial question, if you are quadrupling the cost and a third of that cost comes from areas where there is no copper already there, doesn't that change your equation? Shouldn't there be one cost for where there is already a network, a copper network in the case of TELUS, and another cost where there is no copper network?
7798 MR. GEHERAN: I'm not sure I see the distinction. You have to provide the fibre if you want to address the homes in that community.
7799 COMMISSIONER PENTEFOUNTAS: But doesn't the cost change if you already have --
7800 MR. SPADOTTO: Oh, Tony, I guess, if I'm not mistaken --
7801 COMMISSIONER PENTEFOUNTAS: -- an infrastructure in place as opposed to not having that infrastructure in place?
7802 MR. SPADOTTO: I'm sorry. I'm interrupting you.
7803 COMMISSIONER PENTEFOUNTAS: I'm just a lawyer --
7804 MR. SPADOTTO: Yes.
7805 COMMISSIONER PENTEFOUNTAS: -- by profession.
7806 MR. SPADOTTO: I'm just an engineer.
7807 COMMISSIONER PENTEFOUNTAS: You know, I'm not -- yes, exactly.
7808 MR. SPADOTTO: I think the question is, if you were to compare and contrast lashing versus going and putting brackets up and drawing the fibre, there is a marginal difference, but it's not all that grand. We would be happy to provide that.
7809 COMMISSIONER PENTEFOUNTAS: You would provide us with that?
7810 MR. SPADOTTO: We would be happy to provide that because we have had to do both.
7811 Tony's point is, you cannot assume that in all the builds we can lash everywhere -- there are many instances where we actually have to put the brackets up and kind of do the hard work. We can give you the deltas.
7812 COMMISSIONER PENTEFOUNTAS: Yes, maybe give us the deltas on that. I mean how many -- how much of the infrastructure that's in place right now requires increased investment, other infrastructure, brackets and others to ensure their fibre can be properly deployed?
7813 MR. SPADOTTO: We are happy to do that.
7814 MR. WOODHEAD: We will undertake to do that.
7815 COMMISSIONER PENTEFOUNTAS: Thank you. I think we are done with costing. I just want to -- believe it or not.
7816 Just briefly I want your take -- and I think you raised it on the last page of your document today. Bell proposed two exemptions from costing -- well, we are kind of getting out of costing. We are moving out of costing slowly here -- one for recently filed cost studies and two for services where demand and revenue is low. What is your view on that proposal by Bell?
7817 MR. GEHERAN: Orest, do you want to take that one?
7818 MR. ROMANIUK: Yes. We would agree with Bill's proposals on those two assumption changes.
7819 COMMISSIONER PENTEFOUNTAS: You would?
7820 MR. ROMANIUK: Yes.
7821 COMMISSIONER PENTEFOUNTAS: And those would be the exemptions you would use if we were to ask you sort of what would be the appropriate point or time at which services should not be subject to tariff applications. Would those be the only two?
7822 MR. WOODHEAD: That come to mind right now, so subject to check, yes.
7823 COMMISSIONER PENTEFOUNTAS: Okay. That was a poorly worded question. I'm sorry about that, but I think you understood what I'm talking about.
7824 And finally, the appropriateness of resorting to other incumbents' costs for purposes of comparison. I think I know your answer, but for the record?
7825 I mean are there any circumstances when benchmarking is appropriate?
7826 MR. WOODHEAD: I recall instances -- first off, I think you know my answer is company-specific costs. That's a foundational element of the Phase II costing regime.
7827 That said, I recall there have been circumstances where the Commission has for reasonableness looked at costs of roughly similarly situated players just as a test of reasonableness, which I have no issue with, but at its core it must always be company-specific costs.
7828 COMMISSIONER PENTEFOUNTAS: Limited if at all, is your answer to benchmarking? Limited if at all, limited --
7829 MR. WOODHEAD: I don't discount it, Vice Chair. I think it -- as I said, I think it is a reasonableness test perhaps that you might want to do yourself, but at the end of the day building networks in British Columbia is a much different thing than building networks somewhere else.
7830 COMMISSIONER PENTEFOUNTAS: Do you want to add something?
7831 MR. ROMANIUK: That's exactly what we use it for in our studies. You know, we will come through and do a study, and the first question, "Does that cost make sense?" You kind of look wherever else you can find information. Benchmarking is one piece of information. It doesn't change your cost, but can I rationalize a difference?
7832 So that's a place that we use benchmarking in. Not to replace our costs, but to make sure they are reasonable.
7833 COMMISSIONER PENTEFOUNTAS: Is there any -- you talked about your cost of construction out west as opposed to out east and that may change with a $65 a barrel of oil. It may not. I don't know.
7834 Do we have something -- is there some way of putting something on record in terms of costs being greater in your territory as your territory is right now as opposed to -- I don't think.
7835 You know, in Toronto building I'm sure is not expensive and given the and given the Office de la construction du Québec, even in Quebec, I don't think it's that cheap. But just briefly on that point, because you raised it in your intervention today, and I wanted to give you a chance to elaborate.
7836 MR. GEHERAN: We would be happy to share examples where there are variances between the service areas in which we operate, for instance in Alberta versus B.C. And even in eastern Québec there are distinct variances on the labour and on the costs to actually physically construct so we would be happy to give you examples of those variables in our own operating territory.
7837 MR. WOODHEAD: And at a high level what that will show you, Mr. Vice Chair and Commissioners, is that in these types of builds where the costs are heavily skewed to civil's, to civil engineering and construction costs, labour, labour rates -- and others can speak to this, but labour rates for example in Alberta are vastly different than they are in, you know, Rimouski or in B.C. for that matter.
7838 COMMISSIONER PENTEFOUNTAS: I appreciate it. Thank you so much, then. I'm sure my colleagues have questions.
7839 Thank you.
7840 THE CHAIRPERSON: Thank you.
7841 Commissioner Shoan...?
7842 COMMISSIONER SHOAN: Good morning. I just have a few quick questions for you.
7843 With respect to the entities that TELUS referenced in your submissions as having deployed FTTP facilities in your territory -- I believe Mr. McTaggart was referencing them earlier -- how many of those networks have been deployed in the areas where TELUS had previously deployed FTTP facilities of its own?
7844 MR. McTAGGART: None. To my knowledge, none.
7845 COMMISSIONER SHOAN: Okay. Thank you.
7846 In terms of wholesale rate setting you have indicated you are comfortable with Part II fees, or Part II costing; is that correct?
7847 MR. WOODHEAD: I'm sorry?
7848 COMMISSIONER SHOAN: In terms of wholesale rate setting, Part II?
7849 MR. WOODHEAD: Oh, Phase II?
7850 COMMISSIONER SHOAN: Yes, Phase II. No, I misspoke, thank you, yes.
7851 Phase II costing is acceptable?
7852 MR. WOODHEAD: Yes.
7853 COMMISSIONER SHOAN: Great. At paragraph 28 of your oral presentation you state that:
"CNOC's proposed changes to the essential facilities test would allow the ISPs [network access] ... underlying all legacy and next-generation retail services at artificially low, and possibly even subsidized, rates..."
7854 Can you tell me whether in that section, that statement you are referencing Phase II costs, or are you referring to a different rate setting approach?
7855 MR. WOODHEAD: Dennis, would you want to comment? I believe that was Dennis' statement.
7856 DR. WEISMAN: Commissioner Shoan, one of CNOC's proposals is the use of an efficient operator model for costing and to the extent that that generates costs, as it usually does, markedly below the actual forward-looking incremental costs of the company, it's possible that those rates would actually be subsidized by TELUS. That's what I meant by that.
7857 COMMISSIONER SHOAN: Okay. Great. Thank you for that clarification.
7858 DR. WEISMAN: Thank you.
7859 COMMISSIONER SHOAN: I recognize that Vice Chair Pentefountas had a lengthy conversation with you about this, but I just want to go back to the notion that TELUS would not, for example, be an incumbent when it came to FTTP.
7860 In terms of -- Vice Chair Pentefountas asked you quite a bit about the twisted copper you presently have in use and you are offering a 50 meg VDSL service on your twisted pair; is that correct?
7861 MR. WOODHEAD: That's correct.
7862 COMMISSIONER SHOAN: So given that you have this existing network, which is presently revenue-generating and over which you can overbuild your FTTP network, isn't that an advantage vis-à-vis other competitors?
7863 MR. WOODHEAD: Well, I'm going to ask Tony to comment. An overbuild of a network is not an advantage that we have. It's a cost, a significant cost, but there is no advantage if we are doing an end- to-end overbuild.
7864 COMMISSIONER SHOAN: Okay.
7865 MR. GEHERAN: Yes. I mean, if you look at the examples that we will provide you of the markets we build in, we had a choice: Do you do FTTN and or FTTP?
7866 COMMISSIONER SHOAN: Okay.
7867 MR. GEHERAN: So we chose to model and try the FTTP to use as a learning exercise to understand. If we can best serve all of the customers in our serving area, what is it going to take?
7868 And that was the exercise of the strategic investments we made in that regard. If we have a choice or if we have to look at do you do FTTN or do you do FTTP, we can see that we could survive for quite some time on FTTN infrastructure. It's not a case of either/or and in those markets we chose FTTP for the benefit of learning.
7869 COMMISSIONER SHOAN: Okay. Thank you for that clarification.
7870 Just one final question, Mr. Chairman.
7871 If we were to mandate a service is there a way we could do so that would also spur network investment? We have heard a lot of conversations this week about how it's almost an either/or proposition if a service is mandated.
7872 Generally speaking it acts to suppress network investment, but is there a way to mandate a service whereby we could still encourage network investment?
7873 MR. WOODHEAD: Generally, you know, our view is that network unbundling does not instigate network investment.
7874 What I think -- and I think you may have got my inference -- but to me the existing legacy framework that would provide a transitional regime for competitors in order to inspire and encourage network investment in FTTP facilities in FTTP facilities.
7875 In the appendix to our reply comments we updated those people that to our knowledge have built at some scale or other large or medium or --
7876 COMMISSIONER SHOAN: Right, I saw that, yes.
7877 MR. WOODHEAD: -- it's a bit of a relative term. But they have built facilities and the more that happens the better of Canada is and we all, frankly, are.
7878 COMMISSIONER SHOAN: In that case, Mr. Woodhead, is it necessary that its last mile network investment? Does it matter if it's middle mile? is there any particular network investment that you are thinking of in that regard?
7879 MR. WOODHEAD: Well, I think, you know, all network investment to my mind is good and businesses have to decide how they do that. I know that Brent deals with a lot of the -- well, deals with the ISPs for example in B.C. and Alberta. Not everybody obviously is going to do FTTP, but a lot of these ISPs are fixed wireless, so that's last mile.
7880 COMMISSIONER SHOAN: M'hmm. Right.
7881 MR. WOODHEAD: They also operate or acquire facilities from us for back haul and that kind of thing. Others have chosen to do FTTP. Others will do other things. I mean that is just the nature of the beast.
7882 I think to the extent that you can encourage investment, which has always been what this framework has been about, that we are all better off.
7883 COMMISSIONER SHOAN: Okay. Great. Those are my questions, Mr. Chairman. Thank you.
7884 THE CHAIRPERSON: Thank you.
7885 Vice Chair Menzies, please.
7886 COMMISSIONER MENZIES: Thank you.
7887 I have a question for Dr. Weisman. I was reading one of your papers and I was struck by your references to -- this goes back and this might go back a few years. But I googled you and this one came up, among others.
7888 Your reference to imitators versus innovators was of interest to me. What is your view of the Canadian -- of telecom ecosystem in terms of how we would categorize it if we were just taking a look at it between innovators and imitators?
7889 DR. WEISMAN: My interest in that topic actually comes from a statement that former FCC Chairman Michael Powell made. I believe it was in the 2005 framework and he kind of looked back on the FCC's pervasive unbundling regime and basically says when we unbundle everything and we keep lowering the price, we attract primary arbitrageurs rather than innovators.
7890 So what I would say about that is that is precisely why we have an essential facilities test firmly grounded in the law and economics literature that we engage in for sharing only for truly essential facilities and not everything else. And the problem is when you move to a more -- a broader definition of essential facilities, you bring into the market more arbitrageurs and you actually crowd out actual innovators.
7891 That's why that test serves the function that it does and why I believe the original test from 97-8 is the proper one.
7892 COMMISSIONER MENZIES: Do imitators have value in the system?
7893 DR. WEISMAN: They can. And this goes to the distinction between so-called static competition and dynamic competition.
7894 If you will give me one moment, I thought it was very interesting that approximately four weeks ago the Commissioner of Competition gave a speech introducing a workshop on innovation and two points that he made in the speech I think are particularly noteworthy and germane to this proceeding.
7895 The first point is something that you rarely see a Competition authority admit and that is that our tools for examining static competition are more refined than our tools for examining dynamic competition. So we tend to focus on static competition even though most economists would tell you in terms of conferring benefits on consumers, dynamic competition -- dynamic efficiency is more important.
7896 The other point that he made in the speech was that in some industries --and I think he would suggest that it would be technologically dynamic industries in particular -- the proper focus is more on dynamic efficiency and properly less on static efficiency.
7897 COMMISSIONER MENZIES: Thank you.
7898 Dr. Crandall, Mr. Woodhead pointed out that fibre-to-the-premise has a decades long return and high risk, but he also suggested that it's what Canada needs right now. Now, you have written about the economic impact of broadband deployment.
7899 DR. CRANDALL: M'hmm.
7900 COMMISSIONER MENZIES: And what I'm trying to get at is, essentially what is the public benefit? I mean, most people who appear have a self-interest. That's fine. I mean they are supposed to, but we are trying to define the public interest and public benefits. If you could summarize what is the public benefit of the approach that you are recommending we take?
7901 DR. CRANDALL: Well, there can be no benefit, I suppose, unless advanced technological facilities get deployed. If there is no deployment, there is no benefit.
7902 But in the past I have looked at what the benefits are from broadband deployment just generally. Now, we are many years past that and we are talking about providing much greater capabilities which could generate all sorts of benefits.
7903 The direct benefits that consumers get, which on the horizon right now look like more video streaming, interactive games and that sort of thing, but clearly there are also external benefits in terms of the development of new technologies, the development of new medical practices, transfer of information, remote diagnoses in the medical sphere, there are lots of possibilities, but unfortunately we don't have that much evidence yet and one of the big risks that TELUS and others who deploy fibre bear is that there isn't a lot of information on how these networks will develop and what new applications will develop. They are essentially betting on the "Come", if you will, and hoping these new applications will generate demand for their networks.
7904 We are at a very early stage of this and I think it is very hard to predict what the benefits will be from ever faster broadband speeds.
7905 COMMISSIONER MENZIES: Okay. Thank you.
7906 Mr. Woodhead, you can delegate this as you wish, but I will start with you.
7907 There is a pretty pervasive argument from the larger companies that when it comes to the fibre deployment that no one is an incumbent, but what I'm struggling with a little bit is that I haven't heard from anybody who is building outside of their traditional territory and that's confusing me a little bit because it seems like if you're not an incumbent why is everybody just building inside their incumbent territory, or it seems to be.
7908 I mean maybe people are and I haven't heard about it. But that confuses me, that if people aren't incumbents, why aren't they building outside of their traditional incumbent territory?
7909 MR. WOODHEAD: I will start, and maybe Tony can talk about the status that we have or Eros.
7910 If we look back and you see how it starts, I believe there are many examples out there, and then I will get to FTTP -- where incumbents moved beyond where one of them moved beyond our traditional legacy-established carrier footprint and built fibre facilities and other legacy facilities in the East.
7911 On the wireless side we moved beyond being a regional mobility player to being a national player. That happened over the evolution of TELUS as a company. Other carriers have done the same thing and the same thing will happen with FTTP. You start where you know. You start where you have, you know, the ability to sort of know the market, know the demand, and you move out from there.
7912 As we said, and I think Eros can attest, we have had significant fibre builds on the business side in the East, very substantial, and that is all as a result of the policies that you good folks have in place.
7913 So I don't know, Eros, if you want --
7914 MR. SPADOTTO: Well, I think that's a good point, Ted. If we separate fibre-to-the-prem from being, you know, premises being homes and premises being businesses, you certainly see that layered cascading effect where we start in the businesses. And again, like anybody that's in business, you seek to optimize your density.
7915 We have chosen to begin on the business side. So there are many locations in the east where we are not the ILEC, if you will, where we have connections made to buildings that we provide services to the good customers that we find in those locations.
7916 Those fibre plants that have been built have, in some cases, efficacy to go further than that. You know, we have those debates internally: How far do we want to go with some of those things?
7917 There are no decisions that have been made, but you start -- you start with business. It's kind of natural. You see the cascade of any decisions made on technology tends to start in business and it flows down to the consumer, right? And that's exactly the path that we find ourselves on with the investments that we have made outside of our ILEC territory.
7918 MR. WOODHEAD: And if I may, Vice Chair, I would ask Tony to top up on this point, but I would also like Tony to just speak to the fact that when I was saying we are a new entrant I mean it almost from the starting line, kind of the starting block. Like, we have no advantage in time or, you know, point of launch.
7919 But over to you, Tony.
7920 MR. GEHERAN: Thanks, Ted. I think there are two points.
7921 First of all, when we operate FTTP we are looking at a disadvantage from the penetration of the services that we are looking to provide, so we don't have the majority share of those services in those markets. So from that perspective, we look at that as we are approaching as a new entrant.
7922 If you look at why you are building in your existing service area versus out of service area, I would say when we look at our available capital and we look at we have still got to support our existing customers, and our goal is to maintain the best networks available to them, we would be diluting the available capital we have by operating out of area and starving the existing customers that we wish to serve or upgrade their infrastructure. Because we are making currently a choice of maintaining a technology or investing in an elite technology in an area where we have customers currently and where we want to attract new ones. It is a kind of, where do you deploy capital and what do you think you are going to get the best return on?
7923 COMMISSIONER MENZIES: Okay. Thank you. Those are my questions.
7924 THE CHAIRPERSON: Commissioner Molnar....?
7925 COMMISSIONER MOLNAR: Thank you.
7926 Maybe first, and I did hear Dr. Crandall just make a comment of one of the risks with fibre-to-the-prem and I think I heard you promise that you were going to explain to us the risks of fibre-to- the-prem and why it would be the most risky investment you have made in 100 years.
7927 Can you expand, just so I understand better why this is the most risky investment that has been made in 100 years?
7928 MR. WOODHEAD: When the original -- as you know, when the original networks were built out they were built out with an understanding, later corrected, that these were natural monopoly facilities.
7929 And as a result, over time, those networks were expanded under a very complex set of regulatory protections and the regulatory bargain that if the companies -- and this is the same -- the same actually happened on the cable side as well, if you go back in time I think. But --
7930 COMMISSIONER MOLNAR: Maybe I will make it a little closer in time.
7931 MR. WOODHEAD: Yes. So this --
7932 COMMISSIONER MOLNAR: If that's okay?
7933 MR. WOODHEAD: Yes, sure.
7934 COMMISSIONER MOLNAR: You know, FTTN you built, and I heard of the cost difference, but you built that under the new conditions of being non-dominant. I think you gave your own percentages of market share, so you built that and needed too. Those were competitive market conditions.
7935 So I understand how this is more risky than building a copper network under rate of return regulation, and there has been nothing in between?
7936 MR. WOODHEAD: Well, I think on the -- thanks, because it probably makes it a little quicker.
7937 On the FTTN, Commissioner, I think where the unbundling obligation is potentially observable is around the edge. As I said, I think at one point -- it's not that we are not going to invest. You know, these networks require care and watering every month of every year that goes on.
7938 In this one, because of the extreme cost and because of the -- I think Dr. Crandall alluded to the fact that we are making investments here without really having a clear view out the windshield at what applications and what other innovations are going to occur. We think they are going to occur, but we don't know they are going to occur and we are making them in an environment where -- and this undertaking that Tony -- that we will provide, in a revenue environment that deals with some legacy services, voice, high-speed and television.
7939 So that to me, to sort of put a cap on it, that's the risk and without the safety net of construction program reviews, of guaranteed rate of return, that's the issue.
7940 And perhaps Bob can --
7941 DR. CRANDALL: I think this is a fundamentally different environment from one in which large investments of this sort have been made in the past.
7942 The rate of technological change is so rapid that anyone building these networks today cannot be sure that there won't be a better technology to reach from the node to the household, to the premise than the one that is now being deployed; it could be a fixed wireless, it could be a mobile wireless, it could be something else that turns out to supplant this.
7943 But secondly, you don't have much evidence on how these investments have paid off when done on this large a scale.
7944 If you look at Japan, NTT, the Chairman of NTT when they were building out their network, Mr. Wada, used to come to the United States a couple of times a year and I had occasion to meet with him, but his principal reason for coming was to try to persuade Wall Street that this was a good investment. I'm not sure he was ever successful and, in fact, NTT stock has badly underperformed the rest of large telecommunications companies around the world as a result.
7945 Look south just to Verizon who started in 2005 and then recently, in the last three or four years, suspended its deployment of fibre after passing something like 15 million premises, they've gotten up to only 40 per cent penetration.
7946 And if you look at their income statement, their returns on their wireline sector are very, very low, they're making hardly any money there and, in fact, the value of their enterprise turns at this point on the cashflows that are coming out of their wireless division.
7947 So this is a very risky business. It may end up panning out in the long run, but the evidence of other large companies making these investments and the returns that they've received are not very encouraging. I hate to tell this to my colleagues on the panel here, but they're facing a tough road ahead.
7948 MR. WOODHEAD: And Commissioner, if I just might add, in terms of TELUS, we went back and we looked in terms of this point that Dr. Crandall raised and if you actually look at the wireline segment for us on a simple cashflow basis, at the minus CAPEX, it's zero to negative or in that zone.
7949 And I just wanted -- did you want to add something there, Tony?
7950 MR. GEHERAN: I think we look at this as a strategic long-term -- we still believe it's the right thing to invest in and we think that the markets will emerge, they just don't exist yet.
7951 And while you're going through that heavy investment phase you've got to face the risk that the core services you can offer, two of the key ones of a triple play, are actually in decline, so broadcast TV subscribership and voice. So you've got diminishing prospects on two elements of the triple play plus the expectation that future services will be developed and we believe we'll play an active part in that.
7952 That just implies there's a greater risk when you're looking at this, which is why we would say you need to ensure that there's an opportunity to recover costs otherwise then the risk becomes too great.
7953 COMMISSIONER MOLNAR: Thank you. The City of Calgary was here, as you know well, talking about their fibre build and I just wondered, have you considered or doing joint fibre builds?
7954 MR. WOODHEAD: Well, in terms of -- sorry, joint fibre builds with Calgary?
7955 COMMISSIONER MOLNAR: Well, they're an example.
7956 MR. WOODHEAD: Yeah.
7957 COMMISSIONER MOLNAR: They're an example, but I mean, with anyone. Is it unrealistic to do joint fibre builds? I mean, you've made the comment that it is largely the labour costs of construction that are driving the high costs, it's not the number of fibre pairs that you're throwing into that cable and yet the number of fibre pairs provides a lot of opportunity within a community, so...?
7958 MR. GEHERAN: Maybe I can attempt to answer that.
7959 COMMISSIONER MOLNAR: For sure. Thank you.
7960 MR. GEHERAN: Certainly. Our approach has been to seek to work with every community and municipality where we're building. So that is the first phase of our selection of a community is to go and work with their municipality and understand does their strategic envision, encompass broadband connectivity or FTTP connectivity and the benefits therein we believe and they believe that ensues.
7961 The second phase of that is to say, we want to do this build at the least disruption to your community and at the most efficient economics for us and for the community.
7962 So if there are reciprocal builds or joint builds going on or opportunities or if city engineering are doing work, we would look to work within that to reduce the cost of the build.
7963 The challenge with that is it's very hard to align everyone's interest at the same time and we haven't yet found an example. And if a municipality said, we want to share some of this infrastructure with you, we want to share the cost, we'd more than be happy to undertake and investigate looking at that. We just haven't found an example where everyone's interests coalesce to a point where that becomes a feasible approach.
7964 COMMISSIONER MOLNAR: And if they wanted to share and then decided that they would wholesale or unbundle their part of that facility, would that be a concern to you; can that technically work?
7965 MR. GEHERAN: Well, I think it's different in terms of, if you're looking at the technical feasibility of splitting or using fibre pairs or the ports differently, then I would defer to Bob to answer what we could or couldn't do at the current time.
7966 I think if you're looking at the arrangement of having infrastructure shared costs and elements and access to it, there would be commercial and contract arrangements that you would enter into at the start of that process.
7967 But, Bob...?
7968 MR. SINCLAIR: Certainly there are ways to technically share things, if that's what the question is, even in shared infrastructure arrangements like that, certainly some have come up here.
7969 MR. WOODHEAD: Commissioner, just on -- maybe I kind of lost the threat there a bit. But in terms of, if what you were getting at was, do we share the cost of trenching essentially or the construction part of it, typically municipalities, in the case of Calgary, they provide notice to the industry that they're going to open up a road or open up a subdivision or something. So to the extent that people put their facilities in that kind of --
7970 COMMISSIONER MOLNAR: Yeah, I'm sorry, that's not what I was speaking of.
7971 MR. WOODHEAD: That wasn't what you were getting at.
7972 COMMISSIONER MOLNAR: And I'm aware of greenfield and how that occurs as well, but what I'm speaking of is actually joint fibre builds. As noted, people don't like a lot of cabinets in their communities.
7973 The whole issue of whether or not fibre is duplicable where the high cost is construction, I'm just wondering if it is feasible to think that at least some places we could see joint fibre builds which would allow some technical competent -- or, you know, I was just asking.
7974 MR. SPADOTTO: Maybe, Commissioner, let me try to attempt to answer that. So you know, one of the unique things that perhaps you'll witness about TELUS is that we actually have done these joint builds, you know, predominantly on the wireless side, but we will entertain things and we tend to entertain things when there's equal representation that comes to bear.
7975 So if both parties have equal risk, equal investment, equal inputs, they should be allowed to take equal outputs and we make those determinations when they become available to us and we will continue if they do become available to us.
7976 COMMISSIONER MOLNAR: Would you actively seek them as a means of reducing your risk of this fibre -- I mean, you're saying it's --
7977 MR. SPADOTTO: I think what's important --
7978 COMMISSIONER MOLNAR: -- super high risky, so...
7979 MR. SPADOTTO: We may. We may. I mean, let's be really clear. You know, where we've entertained fibre-to-the-prem has largely been in locations where we haven't done fibre-to-the node.
7980 So if you kind of take a look at our history we were very early, we were an early adopter, an early innovator in fibre-to-the-node and have spent, you know, hundreds and hundreds of millions of dollars on doing that. In fact, we backstopped that investment with other investments that are intended to kind of use that plant.
7981 So we've gone fibre-to-the-prem in areas where we haven't had fibre-to-the-node and taken advantage of that.
7982 At some point in our lives we're going to start moving into places and overlay FTTP on locations that have FTTN. It is in our mutual interest to figure out the economics of doing that in the best, most economical, least riskiest way.
7983 Would we entertain it? Yes. Would we seek others that are willing to do that? Absolutely. Has anything presented itself as of yet this early in the game? No, not yet, nothing's presented itself.
7984 COMMISSIONER MOLNAR: Okay, thank you.
7985 And we are early in the game and I understand that, but you do want to do it early in the game because if you wait too long you've got the cabinet sitting in the communities, right.
7986 And if there's things that the Commission can do to facilitate anything related to joint builds, I would be interested to know what that might be because I think it is in everybody's best interest to have that occur.
7987 MR. SINCLAIR: Again, I think, you know, Commissioner, with all due respect I always worry about --
7988 COMMISSIONER MOLNAR: Even to you?
7989 MR. SINCLAIR: Even to me.
7990 COMMISSIONER MOLNAR: All right.
7991 MR. SINCLAIR: With due respect to everyone here.
7992 COMMISSIONER MOLNAR: All right.
7993 MR. SINCLAIR: I always worry about unintended consequences and often times when we regulate or over regulate we create, you know, call it a rule book that exists that creates unintended consequences and we've all witnessed that in the past.
7994 So I am a true, let market forces deal this up kind of person because they tend to work. They will create the right means, the right efficiency, the right cost structures, the right returns for people to actually get into the market.
7995 COMMISSIONER MOLNAR: M'hmm.
7996 MR. SCHMIDT: Commissioner Molnar, I would add, in the context of everything old is new again, these issues were brought up by the municipalities in the context of the Ledcor proceeding, concerns about capacity and rights-of-way and downtown and major urban centres, and it was put to the Commission that carriers should be forced to use -- you know, carrier A should be forced to use capacity on carrier B rather than constructing their own facilities, and the Commission rejected that. And we submit that that rejection, you know, has a sound policy foundation or that's facilities-based competition and in an era of, you know, floods and other perils there's other good reasons to have a plurality of infrastructures in the country.
7997 So the finding you made in Ledcor is still a sound answer to this forced sharing, we submit.
7998 COMMISSIONER MOLNAR: Okay. Well, thank you.
7999 Today there are two infrastructures, there's, as you know, the cable infrastructure and the Telco infrastructure and in the speed-matching decision, which I'm sure you all know as well, the Commission made the determination looking at the existing infrastructure that a duopoly was not sufficient and that the wholesale arrangement for Internet access was necessary to ensure that there was sufficient protection on the retail side.
8000 You put on your mic, so...
8001 MR. WOODHEAD: I assume there's a question coming.
8002 COMMISSIONER MOLNAR: I didn't ask the question yet.
8003 COMMISSIONER MOLNAR: As we look forward, you know, I understand what you're saying, you don't know all the services that will exist on fibre-to-the-prem and, fair enough, but we do know that one of them is Internet access service.
8004 The determination that the Commission made in the past is that a duopoly in retail Internet access was not sufficient.
8005 So why is it we should believe now that what would effectively be a duopoly in the highest speeds, the speeds greater than 50 meg, is sufficient?
8006 MR. WOODHEAD: Well, let me say first that in that decision the Commission seems to have discounted wireless and satellite as being legitimate providers in Internet service.
8007 I fundamentally disagree with that. I think there are all kinds of enhancements being made in satellite, fixed wireless has come a long way and mobile will surely also play a factor here, if it isn't already, which I believe it is. So in those very highest speeds I think that you have to make some sorts of trade-offs around -- I think it certainly is good enough given the risks of these investments that ourselves and others will make, that in this period I believe that that's a cost that would be outweighed by unbundling.
8008 COMMISSIONER MOLNAR: Okay. I have two follow-ups. First of all, the notion that satellite and wireless do provide competitive alternatives, you yourself just made the distinction between the high-speed versus the lower-speed Internet.
8009 Would you see a range at which you believe they do offer a true competitive retail alternative; at what speed range do you believe that exists?
8010 MR. WOODHEAD: Well, I mean, I think we said clearly on the record this is one product market, so there's switching that will go on -- you know, there's no magic in 50, there's no magic in 25, there's no magic in 27, whatever.
8011 My understanding is that one of our competitors, Xplornet, for example, let's start with satellite, Xplornet has leased all available capacity on two new high throughput satellites. That will, I'm told, get them up or over the 25 megabit per second threshold.
8012 COMMISSIONER MOLNAR: Can you -- before you go on with that --
8013 MR. WOODHEAD: Yeah.
8014 COMMISSIONER MOLNAR: -- maybe you could explain to me why you view it to be one product market?
8015 MR. WOODHEAD: Because I think that there's --
8016 COMMISSIONER MOLNAR: The people who are using it -- competitive alternatives exist for different speeds, the uses that are available at different speeds are different, so why is it you believe that it's one product market?
8017 MR. WOODHEAD: Because I believe people make switching choices and that there are substitutes within the high-speed Internet access market.
8018 I mean, maybe Dennis might want to comment on that particular aspect, Commissioner.
8019 COMMISSIONER MOLNAR: Okay. And I'm just going to toss this follow-up up in case you want to do that as well.
8020 While you view it to be one product market, you're requesting a different regulatory framework for certain speeds.
8021 MR. WOODHEAD: M'hmm, that's correct, because of --
8022 COMMISSIONER MOLNAR: So how does that fit, you don't want -- anyway, you can answer that all.
8023 MR. WOODHEAD: I understand. I understand, I heard you ask this question before and I don't think that they're -- because of the facts that I believe you -- are what you've heard and what we will try and demonstrate through this undertaking on the risk and the cost of doing this, I think it is completely appropriate that you would carve out for a period of time, as I said, with a rolling period of time by community these things in order to allow for the return and inspire that investment. That's the logic of it.
8024 And then perhaps Dennis wants to talk about product market.
8025 DR. WEISMAN: So a couple of points. The first point being that the demand at the higher end -- the higher speeds is relatively soft at this point in time, which would suggest that if you raise price consumers would move to the lower speeds, suggesting that at least at this point in time it might be a single product market.
8026 Having said that, to the extent that new applications come online and there is demand for services that perhaps could only be enabled by the deployment of FTTP and that constitute a separate product market, then there's a division between legacy services and next generation services or new services and regulation should not attach to new services.
8027 In addition, when you sort through these issues of, well, should we be worried about price, should we be worried about innovation, you have a tool that the Competition Bureau doesn't have when it makes these decisions on mergers and that tool is to reverse your decision.
8028 So you have the opportunity to determine whether market forces work and are sufficient with two or three, whatever the number might be, and then come back if you're not happy with the outcome. And this is a tool, again, that the Bureau doesn't have, you have a safety net, so to speak, that you can come back if you're not happy with the market performance.
8029 MR. WOODHEAD: Commissioner, if I could quickly just add.
8030 COMMISSIONER MOLNAR: Okay.
8031 MR. WOODHEAD: Another aspect to this I think that is important when you're deliberating, it's not just about, you know, I mentioned the higher risk profile, but it's also -- what we've done here is we've sort of -- we are ploughing a field waiting for new applications and new services that will innovate and develop on top of that kind of speed of platform.
8032 We may play a part in that, but others certainly will play a part in that and that's another reason, in my view, why you would want to ring fence it.
8033 COMMISSIONER MOLNAR: Okay. I understand why you want us to fence it in and wait seven years, and one of the dangers is over that seven years competitive choices that are available to customers today could go away if customers begin to move to higher speeds over the 50. I mean, they're not today, but over seven years they could be.
8034 And I asked others, what if we retain the requirement to provide a wholesale Internet access service over existing fibre-to-the-prem facilities over the seven years, I mean, as kind of -- as the interim measure until it's looked at again.
8035 MR. WOODHEAD: Well, I mean, I think we spent the morning and throughout all our evidence explaining why that is a bad outcome, I think you'll end up with bad outcomes.
8036 I understand that you're trying to -- well, I mean, that is our evidence that this will reduce investment at a level in our topography that I don't think is in the public interest.
8037 MR. SPADOTTO: I mean, Ted, maybe I can add to that.
8038 COMMISSIONER MOLNAR: Can I --
8039 MR. SPADOTTO: Sorry, Commissioner.
8040 COMMISSIONER MOLNAR: Just to make sure I understand your evidence. You say that Canada's in a really good state today, relative to international comparisons we are doing well.
8041 MR. WOODHEAD: Yes.
8042 COMMISSIONER MOLNAR: And we are doing well under the regulatory framework that exists today.
8043 MR. WOODHEAD: We could be doing better, we could be performing better than we are today. There is -- and perhaps, I don't know, Dr. Crandall might be able to speak to this more better than me -- but we are close to the United States, but we are not at that level of performance.
8044 COMMISSIONER MOLNAR: M'hmm.
8045 MR. WOODHEAD: There is a significant gap between our performance and their performance.
8046 DR. CRANDALL: You know, it seems to me that given your demographics and your population density you're doing very well and I guess the implication of your question is that you have a regulatory environment that has required some network sharing, network sharing of legacy facilities, but sharing at costs --
8047 COMMISSIONER MOLNAR: And just to be clear, I would like to put in that we had a hearing a few years ago where what was defined as legacy versus new gen -- next gen is different than what's now being defined as legacy versus next gen.
8048 DR. CRANDALL: Right, right.
8049 COMMISSIONER MOLNAR: It continues to move, but go ahead.
8050 DR. CRANDALL: But also at compensatory prices or what you attempt to make compensatory prices, which is these Phase 2 costs plus a mark-up.
8051 In many of the countries that I'm referring to earlier in Europe, the prices for wholesale access were much lower, leaving much greater take-up and, also, the regulators continue to say that, if and when fibre became an economic reality, they would still require access -- some sort of access and sharing to that fibre if it were deployed by incumbents. This is what has frozen the investment.
8052 Your regulatory regime has not been nearly as damaging as those regulatory regimes, but if you now start to apply it to new fibre before it's ever built, I think you're going to see a different result.
8053 COMMISSIONER MOLNAR: Okay. I understand your answers. Thank you.
8054 Those are my questions.
8055 THE CHAIRPERSON: Thank you.
8056 My colleagues have been very thorough. I think that does it for us. Thank you very much.
8057 So we'll adjourn now and come back at 1:30.
8058 Thank you.
8059 MR. WOODHEAD: Thank you, Mr. Chairman, Commissioners.
--- Upon recessing at 1212
--- Upon resuming at 1330
8060 LE PRÉSIDENT: À l'ordre, s'il vous plait.
8061 Madame le secrétaire?
8062 THE SECRETARY: Thank you, Mr. Chairman.
8063 We will now hear the presentation from CAC-PIAC, the Consumer's Association of Canada and Public Interest Advocacy Centre.
8064 Please introduce yourselves for the record. You have 20 minutes.
8065 MR. LÉGER: Commissioners, Commission Staff, good afternoon.
8066 My name is Jean-François Léger. With me is Alysia Lau. We present today on behalf of the Consumers' Association of Canada and the Public Interest Advocacy Centre -- together "CAC-PIAC".
8067 CAC-PIAC are before the Commission at this hearing to urge the Commission not to lose sight of the importance of consumer choice in the communications services marketplace.
8068 CAC-PIAC's message to the Commission is, we hope, a simple one. On a number of occasions, the Commission has recognized that a marketplace, such as that for wireline internet access services in which competition occurs principally between incumbent cable and telephone companies and their affiliates would not adequately protect the interests of consumers.
8069 We have seen nothing on the record of this proceeding to suggest that this Commission finding is no longer appropriate.
8070 In CAC-PIAC's view, if the Commission remains committed to the notion that a duopoly of incumbents may not adequately protect the interests of retail users, then the Commission should continue ensuring that the competitive landscape includes independent ISPs.
8071 In order for independent ISPs to compete, they must offer credible alternatives to the incumbents. This includes being able to match transmission speeds offered by the incumbents.
8072 In a succession of determinations, including, recently in Telecom Regulatory Policy 2010-632 and again in TRP 2013-70, the Commission has required incumbent cable and telephone companies to make available at mandated terms and conditions, including cost-based rates, wholesale access services which can enable competitors to offer credible alternatives to the services these incumbents offer to their own retail customers. This approach remains appropriate.
8073 Before proceeding further, we would like to emphasize that CAC-PIAC are not here to advocate for the availability of specific wholesale services or features or provisioning methods or processes. We are not users of wholesale services nor are we service providers. In our view, users of wholesale services are likely in the best position to put forward and defend their particular service requirements.
8074 We listened with great interest earlier in this hearing as the Competition Bureau's witnesses offered their advice on how the Commission should approach the regulation of new fibre-based access services.
8075 We were, unfortunately, disappointed with the Bureau's view that when it comes to the regulatory treatment of the next generation of fibre-based internet network access technology which the ILECs are currently deploying, the Commission should simply stand by and gather information. Less surprising perhaps was the view expressed by incumbents in this proceeding that the Commission should refrain from mandating access to FTTP technology while the marketplace develops.
8076 In CAC-PIAC's view, the Commission would fail Canadians if it focused solely on the past, as the Bureau appears to be suggesting, and waited until some point in the future to decide whether to mandate the availability, on a wholesale basis, of technology such as FTTP.
8077 The Commission's mandate, we believe, requires it to take a forward-looking approach as it makes decisions as to whether or not and, if so, how it will regulate.
8078 As he introduced the Commission's latest three-year plan earlier this year, the Chairman reminded us that the Commission must be accountable to Canadians and keep pace with their evolving needs and interests, adding, that this is particularly important in a communications environment that is undergoing significant transformation as Canadians adopt innovative technologies.
8079 This proceeding provides an excellent example of the importance of adopting forward-looking policies in such an environment.
8080 Parties across a wide spectrum in this proceeding have emphasized the importance of being able to make investment decisions based on reasonable certainty regarding the regulatory environment in which they operate.
8081 Whether one argues, as the incumbents have, that the Commission should not mandate wholesale access to FTTP, or one argues that access to wholesale FTTP is essential in order to maintain a sufficiently competitive marketplace, as we and others have, continued regulatory uncertainty likely serves no one.
8082 There is precedent for this. When the Commission forbore from regulating rates for retail internet services, a significant proportion of consumers relied on dial-up access and the market was served by hundreds of competitors. At the time, the Commission noted that the retail marketplace for internet access was vibrantly competitive.
8083 Conditions changed substantially, however, with the widespread deployment by the cable and telephone companies of broadband services. The balance between incumbents and their independent competitors changed dramatically in the retail marketplace for internet access. Retail forbearance was followed by a decade-long period characterized by endless regulatory battles in relation to wholesale broadband access. Prolonged and repeated regulatory proceedings led to uncertainty in the retail services marketplace.
8084 A result, we submit, was the near disappearance of independent ISPs. Today, as the Commission reminds us in its annual Communications Monitoring Report, the CMR, the market for retail internet services is dominated overwhelmingly by the cable and telephone incumbents, and their affiliates.
8085 Data from the latest CMR tells us that incumbent cable and telephone companies hold a 92 per cent share of residential retail access service revenues in the latest year the Commission examined.
8086 Bell Canada in this proceeding has argued that independent competitors have done better than the CMR would suggest. Even if Bell's data is accurate, we point out that the independents' share is divided among many service providers. The residential internet market remains a retail marketplace dominated by a duopoly. We believe that the Commission should not adopt policies which are likely to further consolidate this duopoly.
8087 We expect that if they are not able to offer competitive, compelling offerings to their retail customers, many, if not most, independent ISPs are doomed to wither away, much as they did in the last decade as parties engaged in protracted fights before the Commission over wholesale Internet access.
8088 The decline may not happen immediately but as incumbents market higher performance retail service offerings made possible by FTTP, independents will not be able to match the incumbents' offerings and will likely begin to lose customers. The situation, which arose when independent ISPs could not match incumbents' broadband offerings a decade ago, may simply repeat itself.
8089 MS LAU: Incumbent carriers, including Bell Canada, have suggested in this proceeding that Canadian consumers do not need access to technology such as FTTP. Québecor has similarly asserted that retail demand for the incumbents' high speed services is limited and that no wholesale obligation should apply to such services.
8090 Such contentions are perplexing. If Canadians do not need access over FTTP technology, then why are the ILECs so heavily committed to its deployment? We submit that a likely answer is that even if it is true that Canadian consumers do not currently require access to the capability which FTTP or the cablecos' highest speeds provides, this is likely to change as increasingly data-hungry services and applications gain footholds in the retail marketplace.
8091 In its 2006 policy direction, the Governor-in-Council required the Commission in relation to network access arrangements to enable competition from new technologies and not to artificially favour either Canadian carriers or resellers.
8092 We question how a policy which left wholesale access to FTTP at best, in limbo, and up to the discretion of the incumbents in any event, would be consistent with the policy direction. We note in this respect that Bell Canada has made it perfectly clear in this proceeding that it will not make FTTP available to its wholesale customers if it is not mandated to do so.
8093 If independent ISPs are unable to offer retail services which provide comparable functionality and quality to what the incumbents offer, why would consumers select them? Without access to FTTP, for example, it is open to question whether ISPs will be able to offer alternatives to the incumbents' IPTV retail offerings.
8094 MR. LÉGER: The incumbents contend in this proceeding that they need relief from mandated wholesale access to FTTP in order to invest in new technology. We question the veracity of this contention.
8095 This is the same contention that the ILECs made when the Commission was considering requiring the incumbents to make matching speeds available as the ILECs were deploying FTTN technology, and before that when the ILECs introduced higher speeds on their twisted pair access networks.
8096 The contention proved to be unfounded then, and we submit that it is likely to be equally unfounded now.
8097 After several years of delay as they watched the cable companies devour their market share in the broadband services marketplace, the ILECs have in recent years been investing heavily in the deployment of fibre facilities in their access networks. Initially, the focus was on the deployment of FTTN. More recently, focus appears to have shifted to FTTP.
8098 We contend that the modernization of incumbent telephone companies' networks to push fibre out in the access portion of those networks is irreversible. These facilities, the ILECs consistently tell their investors and shareholders, are a key factor if ILECs are to successfully compete with the hybrid fibre-coax networks the cable companies already operate.
8099 Publicly available information such as the CMR suggests that the strategy of deploying fibre in the access network is working, as the ILECs have begun to narrow the gap between themselves and the cablecos in, for example, wireline BDU services and retail internet access.
8100 In their submissions in this proceeding, and in particular, earlier in the current hearing, Bell Canada's witnesses explained why they have shifted from FTTN to FTTP. We interpret Bell Canada's evidence as an acknowledgement that, as incumbents modernize their networks and the retail services they plan to offer, the deployment of FTTP has now become more cost efficient than FTTN.
8101 If this is the case, we submit that there is no reason why the Commission should now alter its policy regarding matching speeds simply because the ILECs have shifted to FTTP.
8102 We further invite the Commission to consider an additional factor. In recent years Bell Canada, in particular, has made substantial investments to acquire the ability to generate video content. Other incumbents such as, for example, Rogers, Québecor and Shaw have done the same.
8103 As these incumbents and their affiliates generate more and more video content and introduce sophisticated services and applications which combine the functionality of wireline and mobile wireless internet access with video, CAC-PIAC submit that the commercial benefits for the ILECs of deploying fibre in the access network will only increase.
8104 Indeed, we submit that without ubiquitous fibre in their access networks, the ILECs would likely face significant barriers as they attempted to monetize their own data-hungry video offerings.
8105 Bell Canada argues that unless it can pursue its policy of securing for itself the broadband home, it may have to reconsider the pace of the deployment of FTTP and revert to FTTN.
8106 Whether or not Bell decides to slow down the deployment of FTTP, we submit that one thing is certain; this company and the other ILECs could not hope to compete with cable without significantly upgrading their access networks. Whether these companies focus on FTTP or they somehow decide to revert to FTTN at this time is not relevant.
8107 CAC-PIAC submit that the Commission's mandate does not entail protecting particular business decisions made by firms such as Bell Canada and other incumbents. Shielding these firms to incent them to deploy FTTP instead of FTTN should not be a Commission objective.
8108 Incumbents such as Bell have argued in this proceeding that, in relation to the deployment of fibre in their access networks, they and new entrants are in a comparable position. They argue that they are deploying new technology and that they enjoy no significant advantages over new entrants.
8109 CAC-PIAC submit that there is no basis to such a contention. The incumbents enjoy a wide range of decisive advantages over independent ISPs.
8110 The ILECs enjoy first call on ubiquitous support structure networks. They also deploy service starting with substantial existing customer bases. They enjoy significant advantages, as well, as a result of their scale and the scope of their operations.
8111 Furthermore, as discussed earlier, the vertical integration which incumbent carriers have achieved provides these firms with the ability to benefit from the deployment of fibre in the access networks, not just from the margins available from their internet access services, but from margins available from a variety of BDU offerings as well as the video content these companies and their affiliates generate.
8112 MS LAU: In this proceeding, incumbent cable and telephone companies have, as they have in numerous other Commission proceedings over the years, argued that the marketplace for services such as retail internet access is already sufficiently competitive. They have pointed to competition between cable and telephone companies and to the availability of mobile wireless as substitutes for one another.
8113 The incumbents have argued that the growth in adoption of mobile wireless has significantly changed the marketplace for retail internet access. They argue that mobile wireless services can provide an alternative to wireline internet access.
8114 CAC-PIAC submit that such an assertion can be easily tested by asking a simple question. What could a Canadian consumer expect to spend to replicate the cost of his or her wireline internet access using mobile wireless?
8115 In its most recent CMR, the Commission reports that Canadians are consuming on average 50.8GB of data per month for downloads and uploads.
8116 We recently did a quick survey of advertised rates for mobile Internet plans offered by Bell and Rogers and examined the plans with the highest included data allowance.
8117 We found that downloading and uploading 50.8GB of data on Rogers' largest mobile Internet hub plan, for example, would cost $398 per month. On Bell's largest mobile Internet data package 50.8GB would cost $463 per month.
8118 A number of other parties in this proceeding have filed studies which also show that for most consumers, mobile wireless rates ensure that this is not a practical alternative to wireline.
8119 These wireless rates, incidentally, also do not include device or activation costs.
8120 It seems clear that assertions that mobile wireless is currently an alternative to wireline internet access convey a misleading picture of the retail marketplace.
8121 MR. LÉGER: CAC-PIAC encourage the Commission to maintain the course the Commission set out in TRP 2010-632. The public interest regarding the Commission's wholesale services framework can best be served by a regulatory regime that fosters and defines success as vigorous competition at the retail level between a range of service providers, not just between incumbent cable and telephone companies.
8122 The incumbent carriers have made it perfectly clear in this proceeding that independent ISPs cannot expect wholesale access to FTTP or their highest speeds in the absence of a Commission directive.
8123 If, as the Commission has previously found, a duopoly would not adequately protect the interests of consumers, then the Commission should, in our view and hope, exercise its powers on a forward-looking basis to mandate access to FTTP at this time.
8124 This concludes our oral remarks, subject to any questions the Commission may have.
8125 Thank you.
8126 THE CHAIRPERSON: Thank you very much.
8127 Commissioner Menzies will start us off.
8128 COMMISSIONER MENZIES: Thank you.
8129 I just want to start with this incumbent issue. You refer to all the companies as incumbents. Those company say that when it comes to fibre-to-the-premises there is no incumbency.
8130 So I would like you to address that, because you have heard their argument essentially, have you?
8131 MR. LÉGER: Oh yes, we have, many many times.
8132 COMMISSIONER MENZIES: Okay. Try not to let your ennui overwhelm you and give it a shot.
8133 MR. LÉGER: Thank you.
8134 We understand the deployment of fibre entails the construction of new facilities. But as we pointed out in our comments and as we have explored further in our written comments, there is simply no comparison between the risk that the incumbents are taking and that which new entrants would need to assume in order to deploy comparable facilities.
8135 There is no denying that the incumbents -- and as your questioning has shown a number of times this week, the incumbents are deploying fibre within their existing -- I will call it their existing incumbent footprint. They are not, at least in the residential marketplace, which is the one we are concerned with, they are not doing so outside their traditional territories, as far as we know.
8136 So the result of this is basically that the ILECs are deploying on their support structures, they are deploying, for the most part, in regions within territories in which they already have substantial customers.
8137 So even if we are talking about green fields environments, it is important to note that unless these people are coming from elsewhere in Canada or elsewhere in the world, there is a significant likelihood that these customers are already ILEC customers or have been ILEC customers in the recent past.
8138 So as we see it, there is a significant advantage that the incumbents hold in relation to the deployment of these services.
8139 A further factor which we have pointed to is that there is a significant amount of industry concentration in Canada. The ILECs enjoy the benefits of what one might argue have been commissioned policies, which have been accepting of a certain amount or increased amount of consolidation.
8140 And this further adds to the incentives that the incumbents enjoy as they deploy fibre. As we have pointed out, the deployment of fibre is going to enable or enables them to rollout, to market very powerful services, including IPTV offerings.
8141 And this is an area in which they are already present and which we expect has already been taken into consideration as they make decisions regarding the deployment of fibre.
8142 COMMISSIONER MENZIES: Okay. Thank you.
8143 In your oral remarks here, in paragraph 15, I just have a question about that where you refer to what you believe should have been anticipatory regulation. And then you refer to the near disappearance of independent ISPs.
8144 I am having a little difficulty understanding their near disappearance. Because, near as I can tell, there is 100s of them and their market share has grown nationally from 6 to 8 per cent. And, as we heard earlier, in Ontario and Quebec, particularly --
8145 MR. LÉGER: It may be higher.
8146 COMMISSIONER MENZIES: -- there is very vigorous competition.
8147 MR. LÉGER: Well, we rely of course on the information that the Commission produces. So that information tells us that on a national basis the independent competitors' share is now approximately 8 per cent.
8148 But we think that it is important, Mr. Vice-Chairman, to bear in mind that 8 per cent and then competing against two carriers who together hold 92 per cent, you can only take that so far in conveying the message that the independents are doing, and I will use the word in quotations, "well."
8149 Now, having said that, the incumbents have also -- they are doing better now, but we went back and looked at the annual report that the Commission produces. And what we see is that they came from an even lower point. Yes, they have been doing better, but they came from an even lower point.
8150 And, frankly, earlier in the decade, while the carriers were fighting over the availability at the time. They were just simply higher speed services. These carriers lost a lot of market share.
8151 We saw in the 1990s what the Commission at that time described as a vigorously competitive marketplace and to one that, in our view, really became much much more of a duopoly as the last decade rolled around.
8152 COMMISSIONER MENZIES: All right. I guess people could go back and forth on that all day. I mean, you could say that because there wasn't intervention early, the system was built, and then you at least had a system to fight over.
8153 But anyway, we won't go there.
8154 MR. LÉGER: And we are not, you know, contesting the past. All we're saying is that there was a decline, a significant decline in their ability to offer service. So there was a significant decline in the availability to Canadian consumers of alternatives to the cable and telephone companies.
8155 And we are concerned that if the Commission now doesn't permit wholesale services to advance as the market standards advance, that we may end up in the same place that we were at 15 years ago.
8156 COMMISSIONER MENZIES: In paragraph 21 of your oral remarks you conclude by saying, without access to FTTP it is an open question whether ISPs will be able to offer alternatives to the incumbents' offerings.
8157 Why is the fibre-to-the-premises so vital to that? If the high speed matching requirements were extended, wouldn't that provide sufficient access to the independents?
8158 MR. LÉGER: We tried to point out at the beginning. From a technical standard, we frankly are not network engineers, we are not customers for wholesale services. And so is one solution better than another? We can't help there.
8159 I guess the way we are looking at it is in terms of the output that service providers provide, we measure this in terms of matching speeds.
8160 It is a simplistic expression I guess that conveys, we think, the objective which the Commission should be striving to, which is to ensure that independent competitors are able to compete as they deliver services to retail customers.
8161 Now to your questions, is fibre-to-the-premises so important? Well, we are simply relying on what the incumbents are saying. It is important to them. They say they have assumed substantial risks. We have to think that with these substantial risks come substantial expectations of payback, and that is entirely reasonable.
8162 But could it be FTTN? Our view is that we, to the extent that FTTN delivers services that will, for example, enable the ILECs to effectively compete with the cable companies, well our sense is then presumably somebody in the telephone companies who are making these decisions will decide that FTTN is a technology they want. That no longer seems to be the case.
8163 So we assume that they, they are much smarter people than we are, and we assume that they have made the business decision that FTTP is the solution of the future.
8164 COMMISSIONER MENZIES: Okay. We might come back to that or somebody else might later.
8165 Just want to talk about from the consumer perspective. We have heard quite a bit or talked a bit about bundles of services.
8166 And in one sense, I would like your response to -- I mean, someone could argue or have the view that in a retail sense, and, you know, you speak of the need for vigorous retail competition, consumers in fact benefit from vertically integrated companies because they are able to offer this bundle of services which, essentially I mean allows people to get a full suite of services at a price that is more accessible than if they purchase them individually. Right?
8167 So in that sense the lack of structural separation from a retail point of view for the consumer has a benefit. Would you agree with that or...?
8168 MR. LÉGER: And we have acknowledged this. We have pointed out a number of times that we recognize that bundles have the potential to provide benefits for consumers. And we have certainly -- I don't think we have said a single time in this proceeding, and this came up in the wireless proceeding a few weeks ago -- we have never argued that there should be any form of restriction or prohibition on the ability to provide bundles.
8169 So, to us, that is part of the marketplace. And again, the incumbents have acquired the means to provide multiple services, and that is fine with them.
8170 Our only really point in this proceeding is that the smaller independent competitors within the services that they are providing, namely internet access, should have, again, the means to provide competitive offerings to the telephone companies and to the cable incumbents.
8171 COMMISSIONER MENZIES: Your argument, your dismissal of the incumbents' arguments that regulation would slow investment seems to be based on experience that in the past they have said that if there was regulation then investment would slow and yet they still invested, right?
8172 Now, here's the tricky part about that, is because yes, they still invested but we will never actually know if they invested as much as they would have without regulation, right? It's just something --
8173 MR. LÉGER: But you won't know that they didn't either.
8174 COMMISSIONER MENZIES: No. I know.
8175 MR. LÉGER: So --
8176 COMMISSIONER MENZIES: Right. But what makes you convinced that -- I mean we've had, you know, occasions in the past where investment in a new fibre facility was delayed because -- and it isn't necessarily the regulation itself, it's the price that emerges from it and the period of uncertainty that occurs between the point of regulation and when the price is determined.
8177 So don't you concede that there would be likely a pause at the very least in infrastructure investment with regulation of FTTP?
8178 MR. LÉGER: I don't think we can -- we or indeed you can make that assertion. We see the incumbents taking all sorts of initiatives in effect to fill the pipes that they're building.
8179 I mean I'm being a bit simplistic here but the market is evolving, the marketplace is evolving, consumers are expecting more in terms of the service quality that they get, they're consuming vastly greater amounts of data, and so we have to think that when the carriers are making decisions -- and this is both the cable companies and the telephone companies -- to upgrade their networks, well, they're doing so with an expectation that there will be content to put on those powerful networks.
8180 COMMISSIONER MENZIES: Right. But while we're on that, we've heard that there may be the emergence of a volume point of data and a price point that might be maxing out, right? I mean there is a segment of the population that has a sort of infinite need but for most people they might not be willing to pay that much more, you know, for another 100 Megs.
8181 MR. LÉGER: Right.
8182 COMMISSIONER MENZIES: They're happy with their 25 or their 30 or their 50 or whatever it is. They've kind of settled in where their needs are being met by the system right now. So my sense of what the companies have said is that that's where the risk is because they're not certain that the consumers' demand for that huge package is enough to justify the investment in fibre and this makes it more fragile.
8183 MR. LÉGER: Well, I guess we look at history to help us understand that concern and data consumption rates have been -- or data consumption, I should say, has been increasing considerably over a period of years. Now, is the suggestion that well, that will stop? We can't predict that. You know, we read the papers as you do and --
8184 COMMISSIONER MENZIES: Right. So why shouldn't we wait and see?
8185 MR. LÉGER: Well, because this is -- the wait-and-see strategy, in our view, is really going to lead to a repetition of what happened in the last -- well, early in the last decade and we're going to see independents -- "disappearing" may be a strong term but it's going to become much more difficult to convince investors, we think, to put their money in competing service providers when they will have had the experience that the Commission let them grow until FTTN and then said to them, you know -- I mean the proposal was made, I think, by TELUS to cut it off at 50 Megabits. Okay, so that's the cutoff. As applications go beyond that, these service providers will not be -- the independents will not be attractive to consumers and they will start -- those carriers will start to lose customers.
8186 COMMISSIONER MENZIES: The primary benefit of the independents is retail rate competition, correct?
8187 MR. LÉGER: Well, that's one benefit. We think that based on our -- and again, it's really our reading of the information that we have access to -- that there are a number of factors that draw consumers to service providers who are not incumbent cable and telephone companies and --
8188 COMMISSIONER MENZIES: But for the most part, I mean there are certainly exceptions notably, but for the most part they're not the constructors, they're non-facilities-based competition in a sense. I mean I'm not saying they don't have merit, it's just trying to define the merit.
8189 And where we're kind of going with this is, as you know, we're always balancing the need to make sure people are provided with a very high quality of service and also have an affordable or competitive, whichever adjective you want to use, price, right?
8190 I just wanted your reaction. We've heard that in the United States, where there was forbearance on fibre-to-the-premise, there's been much more aggressive building than in Canada and Canada doesn't have the same quality of system as a result.
8191 MR. LÉGER: Well, Canada has had what we would describe as a fairly incumbent-friendly regime. Let's remember that matching speeds is only really a four-year-old -- at least in our view, a firm Commission finding that dates from 2010. We were there for the previous decade when there were these endless fights and substantial uncertainty in the marketplace as to what would be available, what competitors could offer.
8192 So the experience in Canada is in many ways, we think, unique, and we're not suggesting that there's something wrong with Canada's regulatory regime here but the carriers have made decisions.
8193 We think the ILECs in fact -- and we believe that the publicly available data supports this -- that the ILECs appear to have waited an awful long time before they decided to respond to cable company higher performance services. Now, they had their reasons to do that. But the Commission's own data suggested that the ILECs took quite a -- I'll refer to this maybe euphemistically -- quite a beating in the marketplace as their market share started to drop and that's when they started investing. So there's a different history there.
8194 COMMISSIONER MENZIES: So what do you do as an organization internally to weigh the consumer benefit of investment? Because consumers do benefit from investment in new technology and new services and better quality services but they also have an interest in price.
8195 What do your organizations do to measure that and decide which side of things you come in on? Because there might be times, you would think, when you come in and say, well, right now the most important thing is that people get better services, and there might be times when you come in and say, well, right now the most important thing is that people get better prices. So how do you weigh that internally as you come to your conclusions for how you intervene on these matters?
8196 MR. LÉGER: Well, we and the groups we represent, the members of our clients, I guess, are aware that there are a lot of competing objectives, but the competing objectives are all really from the consumer's standpoint.
8197 No, we don't spend a lot of time worrying that Bell Canada says that it may invest less in FTTP if it doesn't obtain the regulatory regime that it's looking for and are we able to measure whether that will affect individual consumers? No. Our focus has been in this proceeding and in many other proceedings on the promotion of competition.
8198 Now, if you're asking me, are you conducting a survey to find out whether consumers want lower prices and lower quality --
8199 COMMISSIONER MENZIES: Just in terms of promotional competition. I'm interpreting that in the context of what you're saying. It's competition for price, right?
8200 MR. LÉGER: No. It's competition -- it may not necessarily be competition -- I mean in a way --
8201 COMMISSIONER MENZIES: Promotional facilities-based competition?
8202 MR. LÉGER: It's competition for consumers' business. We recognize that not all competition will be facilities-based. We think that that should be part of a balanced marketplace and in fact the Policy Direction tells the Commission to do that.
8203 But we do not -- while we see the benefits of -- the necessity of there being adequate networks to provide services to consumers, we would not be prepared to stand here and tell you we oppose facilities-based competition or we oppose service-based -- competition based on the availability of wholesale non-facilities-based services.
8204 COMMISSIONER MENZIES: Okay. What's your view on the definition of a competitive market for the purpose of forbearing from regulation? CNOC mentioned four competitors. Shaw mentioned three, I think, in a sort of two plus one scenario.
8205 MR. LÉGER: Yeah.
8206 COMMISSIONER MENZIES: Do you have a position on where forbearance should occur?
8207 MR. LÉGER: No, we do not or at least we -- if we were going to endorse one of the models that's been put forward, we would have done so explicitly. We recognize that all these models have their own complications. It's, I think, more than just looking at is it three, is it four.
8208 The Government of Canada, as you know, in the wireless marketplace has said, well, it should be four. In the Commission's conventional -- I'll call it its conventional forbearance test for retail voice telephony, for example, well, it was two plus potentially a wireless service, an alternative.
8209 I think there needs to be recognition there that individual markets or individual -- possibly even individual segments may require individual solutions, but we're not -- frankly, we have not attempted to develop a model for forbearance of wholesale services.
8210 COMMISSIONER MENZIES: Okay. Now, you're correct that the Competition Bureau said two is sufficient in this area and had a number of four in wireless. So it can be -- and there's many factors involved in that. I just wanted to double-check, does your position include re-regulation of CDN and Ethernet services?
8211 MR. LÉGER: We haven't addressed the CDN and Ethernet services. We have not taken a position on re-regulation. If you -- well, I think that's as far as we're --
8212 COMMISSIONER MENZIES: That's good. Yeah. Those are my questions. Thank you.
8213 MR. LÉGER: Thank you.
8214 THE CHAIRPERSON: Thank you.
8215 I think I'll turn it over to Commissioner Molnar.
8216 COMMISSIONER MOLNAR: Thank you.
8217 You have this section here on the role of mobile wireless in the retail marketplace. In discussing the retail Internet market, is it your view that that's a single product market?
8218 MR. LÉGER: Sorry, that what is a single product market?
8219 COMMISSIONER MOLNAR: The retail Internet market.
8220 MR. LÉGER: This is a question that has kept us awake at night because we have some difficulty with the notion that all those -- you know, from -- I'll make up sort of bottom end here, but from 2-Meg speed to 100 are all in the same market.
8221 Our understanding of the definition of a market -- and again, I'm going to put a simplistic spin on it here -- is really that we define a market based on services that a consumer would migrate to in response to a price increase.
8222 And so, as technology advances and as applications become available, well, we wonder if the consumer is being provided service -- and again, I'll make up speed here -- but an 80-Meg Internet service and so the price goes up, would that customer be prepared to migrate down to 10-Meg service and maybe give up a whole bunch of things that have become very important for the consumer?
8223 You know, we question that part of the assumption. We're not here to take on the Commission's definition of services and it's certainly not our intention to proceed to do that, but we must say that there's -- it seems that there are fundamental differences, particularly as technology and as data consumption go up, which sort of suggest that some of these services -- it may be a little too broad to simply speak of, you know, broadband as a single market.
8224 Because, again, if you're -- you know, if you've become, I'll say, reliant as a consumer on a service that delivers a certain transmission speed, enables you to load certain applications or to access certain applications on your terminal device, well, how much of a price increase would it take for you to be prepared to give up a lot of these things or some of these things to go somewhere?
8225 And we don't have a conclusion on that but instinctively we're more and more troubled by that notion as service providers roll out speeds and as we become aware of applications, whether they're available now or will be available in the near future, which will make use of greater and greater -- or will generate greater and greater data consumption.
8226 I don't know if that's a helpful answer but it conveys to you --
8227 COMMISSIONER MOLNAR: Well, I will tell you honestly it wasn't really because you said we looked at this a lot and we're troubled with it and --
8228 MR. LÉGER: But we don't have an answer to that --
8229 COMMISSIONER MOLNAR: But you don't have an answer.
8230 MR. LÉGER: -- because we're not -- you know, we're not service designers.
8231 COMMISSIONER MOLNAR: But I wasn't asking you about the network, I was asking you about the retail market, which is think is what you came in front of us to represent, the needs of the retail market.
8232 MR. LÉGER: Right.
8233 COMMISSIONER MOLNAR: As you know, TELUS was before you and said it's one market and --
8234 MR. LÉGER: Right, and we were troubled by that notion that it's one market.
8235 COMMISSIONER MOLNAR: Like you, it seems like perhaps the uses are different at different speeds.
8236 MR. LÉGER: That's how we see it. But I guess the next question is then, okay, so how do you define these different markets?
8237 And we're happy to know that we're not in your shoes because that's a -- in a technologically advancing marketplace where what was very high speed three years ago is now becoming sort of commonplace and expected, how will that translate in five years from now and what will the market be then?
8238 And that's where we are -- we certainly see the challenge that the Commission faces because we're troubled with this notion that the market hasn't really changed in the last, whatever it is, 10 years, when data consumption rates and transmission speeds and the functionality that applications provide have changed dramatically.
8239 COMMISSIONER MOLNAR: Right. Just one follow-up on that.
8240 You gave an analysis of wireless as a substitute at the average usage. Would you see if there were -- if retail Internet was not a singular market but that there were various markets for Internet, including a lower use, that at some of the lower speed, lower use market segments that in fact applications like wireless could in fact be a substitute for those who are not reliant on high use, for example?
8241 MR. LÉGER: Right. But even -- I guess when we went through the wireless proceeding or researched preparing for the wireless proceeding earlier this year, we looked at the retail marketplace for wireless services, and as you start to compare the costs of consuming data on mobile wireless networks, it doesn't take long that you come to the conclusion that this is quite -- I mean there are benefits that come with mobility but there are also significant costs to the consumer.
8242 And so, would it be a replacement at a lower consumption rate? Maybe. We haven't done an investigation detailed enough into data services to be able to tell you that yes, it is. We could undertake to do that but I'm reluctant to answer literally off the cuff whether it is or is not.
8243 COMMISSIONER MOLNAR: Yeah. Fair enough and I think it's fair not to answer without doing the analysis. So thank you. Those are my questions.
8244 MR. LÉGER: Are you asking us for an undertaking? I just want to make sure.
8245 COMMISSIONER MOLNAR: No, I'm not.
8246 MR. LÉGER: Okay.
8247 COMMISSIONER MOLNAR: No, I'm not. Thank you. Bye-bye. That's all I have.
8248 MR. LÉGER: Thank you.
8249 THE CHAIRPERSON: All right. But there are future rounds in this proceeding, both oral reply and written reply --
8250 MR. LÉGER: Yes.
8251 THE CHAIRPERSON: -- and so I think it would be useful for us to understand your position on speed and how that relates to the definition of the market. There's a substantial record and --
8252 MR. LÉGER: I'm not sure that we would be able to do that for the day after tomorrow, but --
8253 THE CHAIRPERSON: No, no. I'm not saying as an undertaking. I'm suggestion there are --
8254 MR. LÉGER: Okay.
8255 THE CHAIRPERSON: -- future rounds and you might want to help us on that.
8256 I just had one final question for you and that builds on the discussion you had with the Vice-Chair on the notion of incumbency.
8257 I heard you speak to a number of factors, and both orally and in writing you've added that they also have a benefit -- I think you're referring to, at paragraph 32, for instance, video content. I take it you refer to some of the large suppliers having video streaming services; is that correct?
8258 MR. LÉGER: Well, video streaming services, as you know, there are a number of proceedings right now before the Commission where there are fights over the manner in which certain video streaming applications are being provided on different -- I'll call it different transmission media.
8259 We see the business case that the ILECs and the incumbent cable companies must -- we're not there but we think they must be conducting, that when they decide to -- when they decide in relation to the cost of investing in FTTP that they must be taking into consideration the ability that they have now with FTTP to deliver perhaps much greater content. Now, the --
8260 THE CHAIRPERSON: That certainly might be the case for, let's say, Shaw, Bell or Rogers, but doesn't that analysis fall apart for Cogeco, a cable-based supplier, and TELUS, an ILEC?
8261 MR. LÉGER: Only partially. It doesn't fall apart in terms of the data consumption of services that they can retail to their consumers, whether it's their affiliate that's producing that as in the case of --
8262 THE CHAIRPERSON: Wireless provider?
8263 MR. LÉGER: Sorry. Internet service providers like the --
8264 THE CHAIRPERSON: But my point is that -- you're making specific allusions to, I guess, monetizing video content vertically integrated companies can do, whether on the wireless or the wireline side, and I'm putting to you that that may not be at all relevant for TELUS or Cogeco because they don't own content.
8265 MR. LÉGER: Well, that is true and we recognize that. I guess it's hard to ignore Bell, Rogers and Quebecor. Yes, we recognize that TELUS may have less of an ability to generate content but TELUS has the same ability to deliver IPTV and is a BDU.
8266 THE CHAIRPERSON: Yes, but look at the way you've structured section 32.
8267 MR. LÉGER: Right.
8268 THE CHAIRPERSON: You make a distinction between the BDU offerings and the video content. So the standalone video content, I just assume you're referring to SVOD or some other content that they control.
8269 MR. LÉGER: Well, we're --
8270 THE CHAIRPERSON: I'm putting to you that maybe I wouldn't put as much faith in that as your argument -- maybe there's other elements of your argument that are more solid than that particular aspect to it because I think it falls apart when you consider the case of both Cogeco and TELUS.
8271 MR. LÉGER: Well, they're both IPTV providers. This is not designed to oppose BDU offerings from other video content, it's designed to say there's BDU offerings as well as video content, but if they have the ability to offer BDU services, then that's part of the advantages that they enjoy as an established service provider.
8272 Again, we're contrasting here the situation that the large incumbents are in versus the situation that other less integrated service providers are in.
8273 Is Bell more integrated, vertically integrated than TELUS -- yes, I think that's well understood and well known -- or Cogeco? But does that mean that TELUS and Cogeco are not -- there's no integration within TELUS and Cogeco? I don't think that anyone would make that suggestion.
8274 THE CHAIRPERSON: So your comment here about video content is extending to those "incumbents" or new entrants, to use your language, that would otherwise have access to that video content not as owners of it or investors in it because of vertical integration but because of their activities either as BDUs or IPTV?
8275 MR. LÉGER: There's a continuum here and we think it would be a mistake to focus solely on one end of the continuum. We recognize that some incumbents have, again, greater abilities or greater opportunities to produce content or to distribute content or more to originate it than others. That, we recognize.
8276 This is, again, simply designed to draw the Commission's attention to the fact that there are some very, very significant players -- Bell, Rogers, Quebecor -- which have gone down that road and who have significant advantages.
8277 COMMISSIONER PENTEFOUNTAS: Okay. I didn't -- by delving down this area, I didn't want to take away from the other elements of your answer on incumbency. It's that this aspect puzzled me.
8278 MR. LÉGER: Well, if you think this is a terrible argument but you accept our conclusion, we will be quite happy.
8279 THE CHAIRPERSON: That will be your decision, your call to make as we go forward. So I appreciate that. Thank you.
8280 MR. LÉGER: Thank you.
8281 THE CHAIRPERSON: Those are our questions. Thank you very much for appearing and participating and I guess we will see you in the next oral phase as well.
8282 MR. LÉGER: Okay. Thank you.
8283 THE CHAIRPERSON: Thank you very much.
8284 Madame la Secrétaire, call up the next --
8285 THE SECRETARY: Yes.
8286 I will now invite OpenMedia to take place at the presentation table.
8287 And speaking about reply, Mr. Chairman, I would like to remind participants to advise us if you already know if you intend to appear or not in Phase II. You can do so in person or by email. It would be greatly appreciated. But you have until the end of Phase I to do so.
8288 THE CHAIRPERSON: As the next representatives come up, I will reinforce that it will be very useful for us for planning purposes were you to be able to signal to us if you in fact intend to participate in the oral reply phase.
8289 So please come up.
8290 THE CHAIRPERSON: All right, there's a technical issue. Let's take a five-minute break to allow the next parties to plug in their laptops. Okay, thanks. So we'll just do a quick break and come back at 25 minutes to 3:00. Thank you.
--- Upon recessing at 1426
--- Upon resuming at 1434
8291 LA SECRÉTAIRE : À l'ordre, s'il vous plaît. Order, please.
8292 We will now hear the presentation from OpenMedia.ca. Please introduce yourselves for the record first and you have 20 minutes.
8293 Go ahead.
8294 MS KHOO: Good afternoon, Commissioners, and thank you for having us here today. My name is Cynthia Khoo and I'm a communications volunteer at OpenMedia.ca.
8295 To my right is Josh Tabish, campaigns manager at OpenMedia.
8296 We are here on behalf of Canadians who desire an Internet governed by fair rules and open access, over 30,000 of whom participated in these proceedings themselves but could not attend.
8297 Commissioners, as you well know, we have a problem. In this proceeding, Canadian citizens across the country stand to lose affordable, high-quality Internet access and everything that entails as part of today's digital society. This may not happen immediately but, as you and others have noted, this proceeding is about the future. Looking forward, this loss is all too clearly on the table. To prevent this and provide the foundation for an optimum Canadian telecommunications system, we recommend the Commission do three things, now.
8298 First, we ask the Commission to expressly take into account the lived experience of everyday Canadians in your decisions.
8299 Second, we recommend -- and cannot recommend strongly enough -- that the Commission mandate wholesale access to fibre-to-the-premises, or FTTP, networks, for independent ISPs.
8300 Third, we suggest that the Commission act now to investigate how decision-makers could implement structural separation as an effective, long-term solution to accessible and affordable broadband Internet across Canada.
8301 While you have heard from a number of parties about these issues already, we emphasize that in expressing our concerns, we are in effect conveying the concerns of the tens of thousands of Canadians with whom we have engaged on these issues specifically, and hundreds of thousands more citizens on Canadian digital policy generally. We invite the Commission to consider and weigh our submission in that light.
8302 I will now turn you over to Josh, with our first recommendation.
8303 MR. TABISH: Thank you for having us here and for convening this important hearing. I would especially like to thank the OpenMedia supporters who joined us in the room today. You may see some of them in the audience with pretty stickers on their chest, as well as those who are watching and participating online.
8304 I'm very happy to speak to you today on behalf of Canada's largest constituency, the Canadian public. As Cynthia mentioned, well over 30,000 Canadians submitted comments to you through our online tools, and shared the potential impacts of these decisions with thousands of their friends and family online.
8305 We would like to reinforce the significance of these participants' views on an issue as critical as this one, especially given the low number of individuals representing themselves independently before you in the hearing.
8306 Our crowd-sourced submissions illustrate the direct impact your decision will have on everyday Canadians, and they are depending on you to make the right choices. Ryan Vroom, from Toronto, offers this testimony:
"I'm a young working Canadian and have been blind since birth. The internet is my great equalizer, and the last thing I want to see is Big Telecom making it harder and more expensive to get a decent connection to the net. Without the Internet, I wouldn't be able to work on a level playing field with the sighted world. Please keep us little people in mind when you consider anything the [incumbents] want you to do if it involves making telecomm services more expensive, harder to access, or restricted to [their offerings]."
8307 At the heart of it, Canadians are demanding greater variety in affordable Internet services, including fibre, and fair open access rules that will help decentralize our highly-concentrated marketplace. From what we have heard, the outcome of this hearing must be a mandated wholesale pricing regime for fibre-to-the-premises, if Canadians are truly to be found at the centre of their telecommunications system.
8308 We all increasingly rely on the Internet as an essential feature of our daily routines, livelihoods, and participation in a free and democratic society and this reliance will only grow as fibre networks are deployed across Canada. Some that have appeared have suggested that the speeds available today reflect the speeds that most people need, but it's because it's what most people are currently using.
8309 We reject this claim. It is short-sighted and self-fulfilling. Once FTTP is available and affordable, there is no doubt that Canadians will transfer over in all aspects of their Internet usage, the same way they moved from dial-up over to DSL and cable.
8310 Let us be clear. The Internet is presumptively viewed as a public utility by the Canadians that we talk to every single day. As such, the closer the Commission gets to making the wholesale services framework match this reality, the better. That means mandating access to FTTP, recognizing it as simply the latest extension to high-speed Internet, with all the implications that follow.
8311 Liviu Raileanu of Saint-Hubert, Québec, paints this picture. She says:
"Working in a small, young company, the internet has become the backbone of our daily activities. We rely on internet services and the cloud for much of our business, and our small, independent ISP has been very helpful, both with a decent price and support. Small high tech firms need fast and inexpensive internet to create jobs for young people."
8312 In my two years at OpenMedia, I have spent countless hours reviewing the input from nearly half a million Canadians. Their commitments (sic) reveal two key observations for this hearing.
8313 First, Canadians feel they pay way too much for their Internet access, and there is good reason for this. Canadian broadband prices are widely recognized as some of the highest in the industrialized world, with prices rising 11.3 percent amongst other Internet costs between 2013 and 2014.
8314 A recently released report by the Open Technology Institute examined 24 major cities for the "best deals" possible under $40 a month. Canada's incumbent providers were nowhere to be seen. But TekSavvy, an independent ISP, was the only Canadian ISP to make the cut. We find it hard to take the incumbents' financial concerns seriously when an independent competitor wins international recognition on the basis of affordability.
8315 Second, despite controlling 92 percent of the market, incumbents have told you that Canadians enjoy great choice in Internet services. Canadians, however, would disagree. As Jennifer Ellis from Whitehorse writes:
"Living in the north, we have had firsthand experience of a monopoly. We pay much higher rates for slower internet... Any regulation should be designed first and foremost from the point of view of the individual user, not big business... Please do your utmost to not set up a system that can be choked back and controlled."
8316 As for urban areas, the mere presence of multiple providers in one market has no bearing on how distorted the market is towards specific providers within it.
8317 Some have suggested that Canadians are willing to pay more because the connectivity is of higher quality, but the reality is that they are forced to pay more because they often have no alternative. And what choice does exist is the result of previously mandated access.
8318 Doug Tooley of Hamilton, Ontario, comments:
"I feel I have no choice of ISP in my area, just the duopoly, and their prices are very high for what I get. I've contacted a prominent 'little guy' and was told that they would like to move in to our area, but they cannot because they cannot come to an agreement with Bell/Cogeco to lease lines affordably. I would like affordable internet [...] [but] I don't feel like we're going to get that while the big players maintain their [...] control over the market."
8319 Incumbents say there is enough competition. That's misleading. While competition between telcos and cablecos will drive investment under mandated access, choice remains poor for Canadians in a duopoly situation. Instead, the Commission must mandate open access rules so third-party competition can flourish to correct this imbalance.
8320 Mandating FTTP will translate into real-world improvements in choice and affordability for Canadians. To do otherwise would make a bad situation worse.
8321 In response to what we have heard from tens of thousands of Canadians across the country, we recommend that the CRTC expressly take into account Canadians' lived experience in your decisions on this issue, as well as any future deliberations that affect their lives.
8322 One example of this would be to establish qualitative performance measures such as customer satisfaction or ease of switching to be considered alongside quantitative indicators such as Internet price and market concentration, when evaluating the wholesale services framework. By adopting criteria like these, the Commission will be very well-positioned to discover how telecommunications policies affect Canadians on a day-to-day basis.
8323 Now, because the CRTC has placed such emphasis on putting Canadians at the centre of their their telecommunications system, we have taken some steps to bring the voices of as many of them as possible directly to you.
8324 Cynthia is going to bring up a slide, I believe, if we can have it up on the presentation. There we go.
8325 Just over a week ago, we launched a special version of our Internet voice tool for this hearing. In less than week, over 5,000 Canadians submitted unique comments, including some of the ones you have heard today, calling for a decentralized telecom market with a greater role for independent providers. I encourage you to review the comments that have been submitted. The URL is OpenMedia.ca/PowerGrab. You can see it up on the screens. A wall of user-submitted comments, Tweets, Facebook posts and all of that other stuff is waiting for your consideration.
8326 But now for our second and third recommendations, I am going to turn the floor back over to Cynthia Khoo.
8327 MS KHOO: Thank you.
8328 Our second recommendation, as mentioned earlier, is to mandate wholesale access to FTTP. Neglecting to apply open access rules to FTTP networks would leave behind the average Canadian in a separate digital age as the world inevitably transitions to fibre.
8329 Earlier presentations have mentioned certain risks to mandating FTTP access. We would argue that these are, at most, calculated risks well worth taking when you consider what is at stake. Some parties have said to wait and see, to give the incumbents a chance to show what they can do. To that we say these businesses were not launched yesterday, and we are out of time.
8330 Evidence suggests that incumbents do not invest in and upgrade networks to maximum efficiency unless pushed to do so by meaningful competition, which at this point can only be achieved through mandated FTTP.
8331 The incumbents all claim they "really, really want to" deploy fibre, yet they have had free license to do so since at least 2009, and FTTP today makes up only 2 percent of broadband subscriptions in Canada, compared to 70 percent in Japan. To forbear from fibre now would essentially be rewarding incumbents for not investing when they could have, prioritizing their bottom line over the quality of Canadians' telecommunications system.
8332 Commissioners, we have waited. We have seen. Now is the time to act.
8333 Relying on facilities-based competition alone will not get us to where we need to go. Focusing on facilities-based competition to the exclusion of service-based competition risks inefficient duplication and wasting sunk costs, which harms consumers, while evidence shows this will likely not improve network quality. It will, however, substantially harm independent ISPs and Canadians' ability to access affordable, high-quality Internet.
8334 To refrain from mandating FTTP access would be to let Canadians down by sacrificing independent ISPs and an entire arena of niche and boundary-pushing innovation in exchange for more of the same. On the other hand, mandating access to FTTP would invigorate innovation and affordable choices through independent ISPs, while still allowing incumbents to invest, build, and upgrade, in addition to recouping costs and earning revenue from wholesalers.
8335 Investment in next-generation networks will not evaporate in the face of mandated access. Ample incentives will remain to drive incumbents' investments. We have been here before. As Chairman Blais mentioned recently in my hometown of Vancouver, this is not the CRTC's first spin around the block. Proceedings such as Matching Speeds and FTTN provide us with a regulatory crystal ball to predict what will likely happen if the Commission mandates FTTP access.
8336 The incumbents, despite their threats to withhold investments and upgrades, will continue to invest and upgrade anyway, and continue to reap profits from competitors, the wholesalers, while Canadians benefit from increased choice and better services. This is a situation in which everybody wins.
8337 In a worst-case scenario, we would much rather be in a position of having to apologize to incumbents for making them mis-prioritize their revenue streams, than having to apologize to Canadians for throwing under the bus the independent ISPs they have come to rely on and in vain, because meanwhile Canada has fallen yet another 10 years behind. For TELUS or Bell, this entire issue is just one "risk factor" of a very small part of their business. For Canadians who rely on affordable, independent Internet services for employment, education, community or otherwise, it can mean everything.
8338 So if a mistake anywhere is to be made, we entreat the Commission to err on the side of Canadian citizens. Incumbents have the resources and means to fight for what they want from regulators, that's the cost of doing business. It would be unjust to favour them at the expense of Canadians who don't have the same resources to fight for what they need and should already have.
8339 And Canadians are aware of this. Lyne P. from Perth Road Village in Ontario writes:
"The government should be making this decision based on what it is that Canadian citizens require, not the big telecoms. Governments work for the citizens, do they not?"
8340 Similarly, Mark L. from Saint-Eustache, Québec would like you to know:
"No competition means they, the incumbents, cannot only charge whatever they want, they also by default oblige you to take their product because there's no one else on the market. No doubt everybody knows this but it feels like as a society we can't do anything about it. We're being told that we have a voice, but somehow I never feel that we are heard."
8341 Lastly, Alex N. from Chateauguay, Québec believes:
"Independent Internet access providers may well be the last chance we have to break away from the virtual monopoly of the telecom giants, and have affordable access. Internet service is too important to the everyday life of most people to ignore the situation."
8342 Like Dr. Rajabiun said earlier in this proceeding about regulation and market forces, we don't think our goals are contradictory, but complementary and cumulative. Injecting much-needed competition through open access to FTTP will propel a positive feedback loop that will lead to innovation, choice and high-quality networks at lower prices in the long term, while addressing everyday Canadians' needs in the short term. We suggest that the Commission scrap the idea that we have to choose.
8343 Japan and Sweden have made it so that their citizens have it all. We believe Canadians can have it all too but not without your help. Lyne, Mark, Alex, and countless Canadians are counting on you to preserve their interests as citizens of Canada, not just as consumers or subscribers.
8344 On that note, I will move to our final recommendation. In recognition of the Internet as a public utility, functionally, if not formally, we suggest the Commission take action to investigate how decision-makers could implement structural separation across Canada. This would be the most effective, long-term solution to the problems at the core of these proceedings.
8345 Perverse incentives are built into the current framework, where incumbents have cause to undermine their own customers, and they behave all too accordingly. We cannot trust them to act in good faith. This harms Canadians and makes our telecommunications system inherently unstable.
8346 In fact some, as David B. of Rockaway, New Brunswick go as far to suggest:
"The Internet is rapidly becoming an essential public service. It should be nationalized or rather internationalized as a non-profit service."
8347 Structural separation would go a long way towards solving the problem. Fair play is built into the system by design.
8348 This model enjoys support from the OECD and its proponent, Jean Tirole, won the 2014 Nobel Prize in Economics.
8349 Structural separation already exists in Australia, New Zealand, Singapore, Alberta, and several Canadian municipalities. Making structural separation a genuine possibility would be the most forward-looking thing the Commission could do for Canadians today.
8350 We understand, however, that creating the future takes time. So until then, we reiterate our calls for open access to FTTP networks, and for the Commission to take into account Canadians' lived experiences in your deliberations.
8351 Make no mistake, fibre will be regulated either way, if not by you, the CRTC, then by those without Canadians' best interests in mind. We are certain that waiting or forbearing on your part will lead to countless Canadians being blocked from the full potential of the open Internet, which will in turn vastly diminish their educational, creative, professional, and personal lives. This is the real risk of not mandating access to FTTP.
8352 To close on a more uplifting note, we enjoyed the Chairman's analogy of the CRTC being a doctor rather than a coroner. We would like to extend that analogy and believe that the Commission be even more ambitious. We see you as not just a doctor, but an athletic trainer, one who can take the Canadian telecommunications system beyond basic health and make it fighting fit.
8353 Thank you.
8354 THE CHAIRPERSON: Well, thank you very much for your presentation. I will be starting off the questions, but before I ask the questions I just want to put two things on the table.
8355 The first one is, first of all, to acknowledge the work you have done to bring more people to this hearing through your outreach. That is very much appreciated and ought to be commended and I am going to try to benefit from that perspective in my questions in a moment.
8356 The second thing I would like to point out, perhaps the folks at the table would know this, but not everybody watching, that when Commissioners up here ask questions we are not necessarily expressing our views. We are expressing perhaps often the views of others on the public hearing so that we are testing the evidence. So please take note on this when I do ask the questions.
8357 Now, you did do an outreach and have a considerable amount of individual Canadians that have participated in this process. I was wondering if you could help us understand, because as you know, some of the issues in this process involve figuring out what the state of competition is, not just at a national level, but also perhaps at a regional or even more local level.
8358 In your process of gathering these views, are you able to get a good sense of the geographical distribution of the folks that participated in your outreach?
8359 MR. TABISH: So the question is, do we have numbers on how the people who are participating are distributed across the country?
8360 THE CHAIRPERSON: Yes.
8361 MR. TABISH: We can have -- yes, we have that data. I don't have it with me.
8362 THE CHAIRPERSON: Right.
8363 MR. TABISH: But we can produce an image of that and we would be happy to supply that in one of the next stages of what the breakdown, what that looks like.
8364 THE CHAIRPERSON: So you could do that in the undertaking between now and the 12th of December?
8365 MR. TABISH: Yes, absolutely.
8366 THE CHAIRPERSON: Can you give me a sense, or maybe you will have to wait for doing that analysis, as to are the comments coming more from urban versus rural centres, more from the east --
8367 MR. TABISH: Oh, sure. Sure, in broad strokes --
8368 THE CHAIRPERSON: -- the Atlantic provinces, Central Canada, the prairies or maybe B.C.?
8369 MR. TABISH: Right, right. Okay, so in broad strokes we naturally see them clustered around, you know, very dense areas and that makes sense, but we have seen quite a few comments from places like the Yukon, Nova Scotia, New Brunswick, parts of Vancouver Island, so we have seen quite a few comments suggesting that -- I should say there was also one from Whitehorse at least that I saw, there was 5,000 or --
8370 THE CHAIRPERSON: You actually quoted somebody from --
8371 MR. TABISH: There you go. There you go.
8372 THE CHAIRPERSON: Yes.
8373 MR. TABISH: Thank you for reminding me. So yes, so the distribution was quite even as far as we can tell, but I can have hard numbers on that.
8374 THE CHAIRPERSON: Okay. We would appreciate that.
8375 And I take it in fact from your presentation today that you are not just speaking on behalf of -- or those views aren't necessarily on the behalf of residential subscribers, but you also have small business subscribers in that. Is that correct?
8376 MR. TABISH: Yes. One of the strengths of opening -- the community that we are able to reach and the community who speaks out on these issue is it is quite a broad range of interests represented. We do have small business owners. We do have people working in the tech sector, but we also have people in rural and remote locations who are concerned very basically about access.
8377 So yes, a very broad range of constituents I would say are represented in the community that has coalesced around this.
8378 THE CHAIRPERSON: Right. And in the next phases of the proceeding I think it would be useful for us to understand your position on those issues because there are issues that play out differently in the business and residential sectors.
8379 MR. TABISH: Right.
8380 THE CHAIRPERSON: So that would be useful since you seem to have a database of individuals that might have a perspective on this. It's a bit different.
8381 So I appreciate that if you think about that while you enter the next phases.
8382 MR. TABISH: Absolutely.
8383 THE CHAIRPERSON: Now, it strikes me as when we go through this proceeding that indeed there is one area of unanimity and I think all parties want to protect and agree on the endgame that is to meet the needs of Canadians, including their long-term interests. Where it falls apart is exactly on how we would do that. So I am going to ask you a few questions to better understand the specific position you have taken.
8384 Clearly -- particularly on high speed access it's clear that you do not support remaining in merely a duopoly position. Yet, quite apart from the position that companies may have taken, the Competition Bureau has supported that perspective and that they are of the view -- and they have no commercial interest in this, unlike the others perhaps -- well, not perhaps -- definitely the commercial players on this. And they believe that a duopoly would achieve the public interest objective of ensuring the sorts of things you and others are advocating for. In fact, they talk about the Bertrand paradox in terms of a means to do price discipline.
8385 Why would that not provide you with some comfort?
8386 MR. TABISH: The feedback that we are hearing from Canadians is that while duopoly competition -- let me say this a different way. The feedback we are hearing from Canadians is that they often feel trapped in these choices. Switching from one provider to another is sometimes difficult for them. There is issues with customer service. There is issues with maybe the particular neighbourhood they are living in. There is a range of barriers to switching between these two incumbent providers, what are often incumbent providers and in many cases the difference between those providers to them is minimal.
8387 So what we are calling for is a kind of more genuine or, rather, we are calling for not more genuine, but third-party competition, more service based providers to give innovative, interesting services that the incumbents aren't providing currently and to create a system where it is easier for Canadians to switch to those independent options.
8388 So I think Cynthia is about to chime in on this, but that is kind of the model we want to move towards. The feedback we are getting is that duopoly competition is not adequate in their limited experience, in short.
8389 MS KHOO: So with respect to the Competition Bureau's position, we can't speak to it in specifics obviously, but we were also -- and I think not just us, but a lot of other parties involved in this as well were confused and surprised at the Competition Bureau's position, particularly to wait and see.
8390 Because with this being in the space of uncertainty the choice you make forward is essentially a bet of sorts. You are either betting that the incumbents will stay true to everything they have said and fulfil all their promises, but the cost of that is essentially independent ISPs.
8391 There have already been comments earlier from other parties and from the Commissions of, "Oh, well, so do you mean we are sacrificing the independent ISPs? Should we just not care about that anymore and that's the price of progress?"
8392 And we think we shouldn't have to pay that price because to wait and see -- first of all, we should say that to wait and see would not really be waiting and seeing. That would essentially be forbearing because you would be allowing the incumbents to go ahead and build without having to mandate access, but nobody would be owning that decision to forbear. It would just be under the label of wait and see, but in reality it would be forbearance in terms of how it would play out on the ground.
8393 So with that said, by the time if that turned out to be the wrong decision, the wrong bet, then it would be too late because independent ISPs wouldn't have been able to keep up and Canadians are migrating to higher speeds. So by the end of it, even though the CRTC does have the power to reverse their decisions, as someone else said earlier today, but it would be too late for this particular decision unless you who have gone out of business to re-launch their businesses and then try to compete again.
8394 THE CHAIRPERSON: And you are not persuaded that creating an environment which to allow for more freedom to invest on the part of the communications companies would actually lead to an investment and innovation?
8395 MS KHOO: If I understand correctly the question is why --
8396 THE CHAIRPERSON: Well, other parties have come to this hearing -- and I am in the spirit of putting to you the position of others. They have come to this hearing and said, "Look, if you go down the road" and I know you have been making a lot of -- the most important issue in your case is the FTTP issue. They are saying if the Commission gets too heavily involved in that in one form or another that it may stifle investments. Not reduce it completely, but it will slow it down and in fact may create an investment -- sorry, not an investment but an environment in which there won't be as much innovation because the underlying networks will not have been built.
8397 MR. TABISH: I think that to start answering that question, we have seen this investment argument before, as other people, our colleagues in PIAC pointed out before us. We have heard this investment argument before. We have reason to believe that investment will continue.
8398 I believe it was Shaw who said they will continue to invest in a mandated regime. We believe investment will continue or we believe it could even increase, arguably.
8399 But the big point here for us is that no Canadian is sitting around his dinner table talking about investment incentives for income in telecom companies. They are talking about when --
8400 THE CHAIRPERSON: I certainly hope so, that they have better conversation around the dinner table.
8401 MR. TABISH: They are talking about choice and affordability at the end of the day and we think that mandated access is going to be what gets us there.
8402 So as Cynthia kind of said earlier, and I will just say it a bit more bluntly, it's kind of the risk that the telecom providers are telling the truth on the one hand, that they are going to -- that investment will hurt choice and affordability or that the barriers to investment will hurt choice and affordability or, on the other hand, the near certainty that indie ISPs will start to disappear without mandated access. That's kind of the choice we see before the Commission.
8403 MS KHOO: You also mention innovation and that because of lack of investment that might lead to a lack of innovation. But that assumes that innovation can only happen on a facilities basis and that there can't be innovation on a service that comes out of service-based competition which we would disagree with.
8404 In fact, potentially there is more innovation coming out of service-based competition because you can only have so many facilities and you can only connect fibre into homes in so many ways, but once you have that facility set up, you have the service providers on top of it and then it's what the people do with that connection, what the service providers do and what the people who access the Internet through those service providers can do with their affordable Internet access and all the different innovations that can come out of that.
8405 So to go with the incumbents' argument it would essentially, again to go back to what I said earlier, be putting all of in this case our innovation eggs in one basket by saying, all, well, we can continue to do facilities based and that is where all innovation will come from, but we are forgetting that it will be at the expense of innovation that might happen otherwise because the other independent ISPs will be squeezed out of the market and they won't be able to compete on that facilities-based foundation, nor perhaps should they be expected to be and so that would be our response to that.
8406 THE CHAIRPERSON: Right. And I will get back to service based competition in a moment, but I don't want to look like I'm picking on TELUS, and I'm not. It's just that they were here this morning and submitted, and you were in the room and there is a quote. I would like to have your reaction to the position they took this morning, and I'm quoting here:
"There is no longer any serious challenge to the fact that transitional policies like unbundling and forced sharing of facilities are harmful to consumers in the long run because they discourage innovation and investment in new competitive facilities."
8407 I take it you disagree with that? And I will tell you why one of the challenges that -- and this is the challenge we have is that sometimes consumers may not be thinking in the long run. They think what they need is in the short term.
8408 I don't want to dismiss the views of consumers, quite the contrary, but sometimes we have to think in longer terms as to the long-term impact, so basically TELUS is saying that, you know, we have to look beyond perhaps the short-term benefits and look at the long-term advantage, and I have noted in your brief you are actually trying to look at the long term.
8409 MR. TABISH: Yes. Okay. Where to start there?
8410 The long-term effects, as we see it, will be the diminished market share for indie ISPs if we forbear, if we forbear from mandated FTTP access. That will translate to, in the limited experience of every day Canadians, fewer service providers. And that is, as many of us have said, approaching a certain degree of not certainty, but it seems quite likely that that will be the case as incumbents move on to new high-speed platforms and the indies are left behind. So yes, again, it comes back to that question of risk versus certainty I suppose. I don't know if you have anything to add to that.
8411 MS KHOO: Sure. So to confirm, yes, we do disagree with that because it has been shown that mandated access does increase investment because we have several studies that show that incumbents sometimes, even if there is a decent business case to deploy fibre, will actually hold back from it because that can maximize their profits.
8412 So it's not until you actually implement meaningful competition that then they will be forced to make those investments and deploy that fibre. Beyond that, it also assumes that facilities-based competition is what we should be aiming for in the long term and is good for the long term, which is not necessarily the case.
8413 I think I already spoke on this a little bit earlier, but because this is kind of our first -- we are all at this point in terms of progress of the Internet for the first time. So we don't know if we have hit -- people have been talking about hitting peak speeds, but we don't know if maybe we have hit peak facilities. We know the City of Calgary talked about how there is a physical capacity component to facilities-based competition and after that point not only would people not be able to install more facilities, but maybe they shouldn't even be encouraged to because, again, there is over duplication, there is inefficiency.
8414 Where you would have multiple competitors there would be unused dark fibre and meanwhile consumers would be paying more to sustain all these different facilities as opposed to focusing all of that energy and resources on the services and products that can come out of that basic facility. So in terms of the long term view, then that is also another idea to consider.
8415 THE CHAIRPERSON: You speak both of facilities-based competition and service-based competition today in your written submissions. You will agree, though, that facilities-based competition is the current policy of the Government of Canada, would you not?
8416 MS KHOO: Yes, we would.
8417 THE CHAIRPERSON: Right. And there is certainly an ongoing thread of facilities-based competition in the Commission's decisions. You would agree with that as well?
8418 MS KHOO: Yes.
8419 THE CHAIRPERSON: But you still believe that in the state of play we have now that we should explore a notion of service-based competition, I think your written submission said that that innovation could occur on the edges of that service-based competition.
8420 So can you help me understand a little bit more your position on that? Because on the face it seems contradictory.
8421 I know that facilities-based competition is not the end in and of itself, and you have said that on a number of occasions in your written submissions, but it has still historically been seen as the vehicle by which you get to the ultimate means, the ultimate outcome, which is better, more affordable service for Canadians. So explain to me why you think service-based competition is the way to go.
8422 MS KHOO: Well, partly again it's because of what we have been hearing from the Canadians that we have been engaging with on this issue. If facilities-based competition has in fact been so successful, then why are we hearing so many complaints, why -- so CTS, even if complaints have gone down they are still getting quite a lot of them.
8423 And as you mention, we are not necessarily saying implement service-based competition or change the policies to service-based competition right now. We are saying we are encouraging the Commission to look at it as a possibility because just because a policy has worked up to this point does not necessarily mean that it will still work going forward. For instance, maybe it is a victim of its own success.
8424 We don't know, and we don't have the resources and didn't do that particular analysis and study for the submission. But we are saying it is worth looking into. Particularly for instance we have an international telecommunications union report that says -- that proposes for instance it may be a hybrid version because it makes sense that with all the various geographies across Canada that maybe neither facility space nor service space is a one-size-fits-all policy. So maybe it would be worth going into a more granular analysis to see whether one or the other is more suitable to a certain time and place than just one or the other for all time in all places.
8425 THE CHAIRPERSON: Right. I did see you quoting the ITU. I was actually a bit surprised that OpenMedia had cited ITU in light of your criticism on other positions the ITU has taken, but we will let that pass.
8426 Others have suggested in this proceeding that there are no barriers to entry, that a third class of competitor other than the two incumbents can certainly enter the marketplace and rollout competition and oftentimes they point to the United States as where that has occurred. I guess the example they are pointing to is that Google decided to roll out the high-capacity fibre in that jurisdiction. Why would you not think that that can occur here?
8427 MR. TABISH: Sorry, is the question about FTTP competitors are in good service-based competitors?
8428 THE CHAIRPERSON: It's a new facilities-based FTTP.
8429 MR. TABISH: Oh, I see, okay. Okay. We have seen quite a bit of innovation in that area, number of municipalities have deployed fibre networks, Olds, Alberta, Coquitlam. So we have seen it coming from the municipal level where public funding can produce this type of a non-traditional player in the market that can then sell services to providers.
8430 So we are seeing it happening already. As to the question of whether somebody like Google will come in and offer services, I can't look into the future. I don't have a magic crystal ball for that but...
8431 MS KHOO: If I may, the incumbents say that there are no barriers to entry -- and that's what you would like us to respond to -- we would argue that there actually are barriers to entry. Again, other parties have made this argument that if there are no barriers to entry, then why have the incumbents' fibre deployment been mostly confined to their existing territories where they already have facilities and I guess the infrastructure built?
8432 We heard the City of Calgary say that as the manager and owner of facilities such as poles and rights-of-way, that they do see the incumbents do have an advantage there and there are also things to be said for their size in terms of economies of scale.
8433 Furthermore, again, this proceeding is looking forward. So let's say the incumbents are correct and that there is no barrier to entry right now and there is no incumbency right now, but if we don't mandate access to FTTP then we will be creating incumbents and incumbency for the future and then at that point we will just be back here all over again.
8434 So that is our responses for that aspect. As for the United States, they are not really a great role model to look after because we have some reports saying that their prices are either just as bad or even worse than Canada's. So we are not sure if that is the best example.
8435 THE CHAIRPERSON: You didn't quite go the way I thought you would go when you started talking about municipal models of funding because I thought you were going to suggest that even Google's model was based on certain incentives and competition between municipal governments for their municipalities to be chosen first. So it wasn't a completely neutral marketplace, was it?
8436 MR. TABISH: I suppose not. I suppose not, yes.
8437 THE CHAIRPERSON: All right. I have a couple of questions on the framework we should apply when making our decisions overall and the first set of questions focuses on our legislative mandate.
8438 In your written submission, more so than your oral submission, you made a lot of references to section 7, the policy objectives and the Telecommunications Act. So I would like to understand your position with respect to the essentiality test, because quite apart from the discussion here -- and don't worry, I'm not going to ask you to go into great detail about the essentiality test -- I think we have developed quite a good record -- but I would like to see a better understanding of your position.
8439 Other parties seem to have reduced our role here as the Commission as merely applying the essentiality test and when asked for a few questions they have all admitted that there is more than just the essentiality test that must be applied, there are other public policy considerations that must also come to bear. I was wondering if that is your position, in other words that the filter we apply is essentiality plus, rather than just bare essentiality?
8440 MS KHOO: I know you said that you didn't expect us to give many details and I hope you will forgive us for giving zero details because we will say up front that we have no position on the essentiality test because when we saw the Notice of Consultation we very deliberately restricted our submission to what was our most -- what we were most concerned with and what we could -- what we thought was manageable with integrity within the resources that we had.
8441 THE CHAIRPERSON: I understand, but even your position on FTTP requires us to first apply a certain filter, a public policy filter that some would say is entirely defined by the essentiality test and others would say, "No, no, you have to go beyond the strict parameters of the essentiality test. It was a competition law filter". And then we have to look at other objectives in section 7.
8442 MS KHOO: So for that we would actually work backwards, I suppose you might say, from again going back to what Josh has reiterated. When we talk to every day Canadians they do see the Internet as an essential utility to their lives and, looking forward, we predict that fibre-to-the-premises will become an essential aspect of their lives.
8443 So if that's what the question is, if we should apply that filter, then perhaps not looking at it from the top-down of applying the test to what we end up doing, we are looking at it almost from the bottom-up of saying, "Okay, is this in terms of Canadians everyday lives? Do they see it as an essential facility? Are they using it as an essential facility?"
8444 And so from that perspective we would argue for it.
8445 MR. TABISH: Yes.
8446 MS KHOO: But again I would say this is without --
8447 THE CHAIRPERSON: Yes, but I think you are not quite using the word "essential" in the same way as the test.
8448 MS KHOO: No.
8449 THE CHAIRPERSON: It's a more -- and I get that. I see your position that it's the outcomes that are more important.
8450 Now, okay, perhaps you didn't spend much time on the essentiality test and fair enough, but you did make some comments about the policy directive and paragraphs 30 and following in your written submissions. You have suggested that actually mandating FTTP led to a result that actually relied more on market forces, which is a bit counterintuitive because you are saying by regulating you are actually encouraging a framework that's more market force driven. So can you help me understand a little bit better that what at first blush sounds counterintuitive?
8451 MS KHOO: Sure. So our starting premise was that the policy direction wants us to rely on market forces because they think the market forces will work into producing what is best for Canadians. We have seen from looking at statistics and talking to everyday Canadians that this has not happened and when we ask why it's okay because it seems as if market forces are not working. They become distorted because we are in a duopoly and there is enough competition. There is 92 percent market share with all incumbents.
8452 So from that perspective by mandating access you would in a sense be correcting market forces that we think are currently distorted. And after you do that, then thereafter you can basically let go because by that point the market forces actually will be functional and then we can rely on them to actually produce the best outcomes for Canadian citizens.
8453 THE CHAIRPERSON: So the presence of independent ISPs in a certain form in the marketplace would actually do more market competition between the traditional players and the ISPs. Is that --
8454 MS KHOO: We think so.
8455 THE CHAIRPERSON: -- and ISPs. That would be how you get to better market forces consistent with the policy direction.
8456 All right. A couple of more questions before a sea of my colleagues have some questions.
8457 Rogers and other companies have suggested that -- and this goes to the mechanisms we would use to achieve outcomes and certainly mandating FTTP which I think is -- and I am focusing on that because that seems to be the area you are focusing on.
8458 Mandating is one way of doing things, but Rogers and others have suggested that even without necessarily continuing or mandating access that there are other mechanisms, and that we have talked about regulatory backstops involved in mediation arbitration. I think you have heard that conversation -- and you are nodding yes for the record -- and that there are others that have suggested there is always the possibility if those negotiations aren't as fruitful as they ought to be, that parties like an independent ISP provider, an ISP that is not a traditional player would potentially be able to use a Part 1 application to raise for instance an undue preference allegation.
8459 And I would like to see in your view if that achieves the policy outcomes that you would see. Are you necessarily wedded to mandating FTTP if there is another way of achieving that same outcome that may be less regulatory -- from a regulatory perspective less interventionist but still tries to skew in that favour?
8460 MS KHOO: I would say that with the information we have gathered and the arguments we have heard to this point, we are fairly wedded to the idea of mandating FTTP, but of course we are open to new information coming up that might affect that. But as to the idea of an alternative being something like regulatory backstops or mediation arbitration, we don't think that would be the same or sufficient or adequate to mandating FTTP at all because that is a reactive remedy and I think they call it ex ante and ex post, right, so that would be an ex post remedy and, in fact, would call for even more regulatory intervention because then someone would have done something wrong and then you'd have to come in to fix it; whereas if you put in a system where they can't even do the wrong thing to begin with, then you don't have to get involved after that point.
8461 THE CHAIRPERSON: Right. And my last question sort of builds on one of my previous questions about the base of people that participate in your outreach and that's the state of independent ISPs' availability across the country.
8462 Obviously CNOC, its membership tends to be skewed for Ontario and Québec in terms of outreach, and I was wondering if you have a view on the state of independent ISPs in B.C., the Prairies and the Atlantic based on your knowledge and your outreach?
8463 MR. TABISH: So, yes, we do know that they're skewed towards eastern provinces, Québec and Ontario --
8464 THE CHAIRPERSON: Some would call that central Canada --
8465 MR. TABISH: Right, sorry, central Canada. I'm from the west coast, everything is east.
8466 MR. TABISH: I'm from actually Vancouver Island, so about as far west as you can go.
8467 THE CHAIRPERSON: Yes, everything else is east for you, right.
8468 MR. TABISH: So, but the question of, you know, why do we not see equal market share or a similar kind of make-up on the west coast.
8469 I can tell you that when it comes to the question of mandating FTTP access and the question of what the futures of these independent non-incumbent ISPs look like, it is going to be very, very tough for them to continue to grow in the way that they have without that access.
8470 As we've said before just a few seconds ago, we're not sure that other remedial measures will be adequate, mandating FTTP is kind of an elegant situation or kind of regime, similar mandating that we've done in the past has taken us, as was pointed out a number of times, from six per cent to eight per cent market share.
8471 I mean, the policies are working, but we know that if we don't mandate now, in the next five to 10 years it's going to be really hard to see them stand a chance on the high-speed platforms in an area where they're already hurting.
8472 THE CHAIRPERSON: But you don't have any specific insight on the geographic distribution, because often times we look at this based on a national -- and if you don't, that's fine.
8473 MR. TABISH: Right, right.
8474 THE CHAIRPERSON: I was hoping that maybe you did --
8475 MR. TABISH: Right, right.
8476 THE CHAIRPERSON: -- based on your database. If you noticed, it may be fine to quote a percentage of market share --
8477 MR. TABISH: Right.
8478 THE CHAIRPERSON: -- but if it's all in two provinces it suggests that there's an issue elsewhere.
8479 MR. TABISH: Yeah. I mean, yeah, that's a very fair observation and we would say that definitely people in B.C. and Alberta have much less choice of independent ISPs than we do elsewhere in the country.
8480 So measures to improve that distribution.
8481 THE CHAIRPERSON: But you don't have any specific --
8482 MR. TABISH: I don't have the numbers in front of me, Mr. Chairman, no, no.
8483 THE CHAIRPERSON: Okay, fair enough.
8484 Commissioner Shoan I think has a question for you.
8485 COMMISSIONER SHOAN: Good afternoon. I just have one question following your oral remarks.
8486 You've advocated for the establishment of qualitative performance measures as well as quantitative indicators, so my question is, who should be conducting/compiling that information, who should be paying for it and how often should it be done?
8487 MR. TABISH: We would imagine that the qualitative indicators would be built into the CRTC's evaluation process.
8488 Who should be paying for them, I don't have a great answer to that question, but it seems to me that while indicators like market share which, as the Chairman just pointed out, can be -- sometimes not give you the whole picture if you're only looking at the national level, say, but quantitative indicators get you half the story but they don't get you the other half.
8489 So the question really was raised, well, the incumbents are saying duopoly competition is fine, it's driving investment, people seem happy, they've got choice in most of the markets, between the two, you know, what's the big deal?
8490 But the kind of -- part of the story that we're not seeing there is how frustrated Canadians are, what the barriers to changing actually are, what the customer service issues are. And so we've seen a kind of -- a lot of improvement on this file in the wireless sector with the Code of Conduct and other things, other initiatives like it to try to get a more holistic account of what Canadians' experience is, and so we're calling for that here.
8491 As to how to do that specifically, Cynthia may have ideas, but I am here to say today that this is a priority that Canadians have, it's a priority -- more choice and affordability is a priority, so how do like granular decisions work out in the creation of that framework, I'm not able to comment on.
8492 COMMISSIONER SHOAN: Okay.
8493 MS KHOO: I was just going to add what Josh aptly just already said which is, it's important for us because we wanted to bring to your attention that qualitative indicators are maybe not being looked at right now, or at least not looked at to the extent that they should be because they do only tell you half the story.
8494 So, for instance, we had somebody write into us from Port Perry saying that there are three incumbent facilities in Port Perry right now apparently, or near, I think it was Rogers, Bell and Eastlink was it, but he as an independent ISP doesn't have access to any of that and he said if he could only get access he could deploy to all these neighbourhoods.
8495 So again, if you look at it from the perspective of numbers, oh, there's three facilities-based competitors there, that should be great, but then you look at the qualitative story it's -- but that is not actually helping in the case of this particular independent ISP and the case of the neighbourhoods that could be served by them and are not.
8496 As for who would conduct it, who would pay and how often it would be done, we are not privy to the internal workings of the CRTC or how great your budget is, and so we --
8497 COMMISSIONER SHOAN: Not great.
8498 MS KHOO: So our position is mostly that this should be done and if you would like to consult us on how, then we would need a lot more time and information to be able to come to answers like that.
8499 But our main point that we wanted to make today is that it should be done and it should be -- somebody should be looking at how it might be done, if that actually -- if the how is a problem, then we should start looking at that.
8500 COMMISSIONER SHOAN: Okay, great. If you'd like to take it as an undertaking, that's perfectly fine, and if you could turn your attention to whether the provision of such information should be a condition of mandated access or whether it should be based -- who and what particular market should be giving that information. If you could just flush that out a bit more, I think it would be helpful for our analysis.
8501 MR. TABISH: Okay, thank you.
8502 COMMISSIONER SHOAN: Great, thanks.
8503 THE CHAIRPERSON: Thank you.
8504 Vice-Chair Menzies...?
8505 COMMISSIONER MENZIES: Thank you. Just a couple of things that maybe you could help with.
8506 With fibre-to-the-home, how do you think the rate should be set if it was mandated because, I mean, mandating it is one thing, but what really matters is the price at which you mandate something, you know.
8507 Interestingly, I don't expect you and TELUS agree on much, but you both referenced Japan, right, and you know, where there is mandated access, but as TELUS pointed out the rate is so high that it doesn't really matter; you have access, but people can't afford to access it, right.
8508 So how do you think we, if we did mandate access, should set the rate?
8509 MR. TABISH: We were hoping you wouldn't ask this question.
8510 COMMISSIONER MENZIES: You can take it as an undertaking or something and get back. I don't have any desire to put you on the spot.
8511 MR. TABISH: Right, right. I was going to say, as I understand it, the regulatory history of Japan in the 90s was such that those rates were quite low, cost-based was kind of the principle that was driving it which led to quite a bit of competition as the nationalized utility agency was privatized. Following that immediately there were some very aggressive policies that were put in place that had cost-based kind of pricing models in it.
8512 How you calculate that pricing model, we're a very small organization with very limited kind of -- we don't have economists on staff, so how you would do that I'm not exactly sure, but I think that for Canadians a kind of -- the thing that would benefit them most would be a cost-based approach that we've seen in previous mandated access regimes.
8513 COMMISSIONER MENZIES: And maybe just to follow up a little bit. When you look at the -- oh, two things.
8514 I understand the argument and the concern for independent ISPs for service-based competitors and that they see the risk of their declining competitivity due to fibre-to-the-premise, but currently there's still less than three per cent of Canadian homes that are connected.
8515 There's about 10 to 15 per cent of homes passed, which indicates only about one in four, somewhere between one in three and one in five even pick it up when it's available, so which doesn't look like a stampede, right, of people looking for higher access.
8516 So if the overall market that's available to independent ISPs has declined by less than three per cent, what's the rush?
8517 And I'm not accusing you of anything that -- I mean, usually in these hearings just about everybody's position is the end is nigh, right, and what I'm trying to do is just get a little perspective in why does this have to happen next year as opposed to, as the Competition Bureau suggested, maybe five years from now?
8518 MR. TABISH: So I -- so the question is, so as we know, and I don't know if it was pointed out today, but Canada is lagging behind, as you point out, in terms of FTTP deployment. We've fallen quite far behind our international peers, we're batting at two per cent when, you know, I think the leader is Japan is, is it 70 per cent, 70 per cent.
8519 So we have fallen quite behind as we say in our oral comments, but we feel that giving a kind of full market power to incumbents to control this resource would be like rewarding them for sitting on their hands, to speak colloquially for a second.
8520 But when we look at -- you make the argument, people aren't stampeding towards it. This is true. An OTI -- but there's an important piece of context which is like an OTI report that came out October 28th shows that in Toronto Rogers' like super high-speed fibre, top of the line service that's available to consumers -- or actually sorry, I should say the most affordable fibre service that is available to consumers is batting at around $189 a month or something like that. And when you consider that Canadians are spending on average, what was it 160, $170 a month for all of their telecommunication needs, a hundred and eighty bucks for Internet alone seems like a steep ask.
8521 The kind of regulatory environment we envision gets more players on that fibre, gets those costs down and gets people stampeding over there. So I think that's my answer.
8522 COMMISSIONER MENZIES: Okay. And can you give us some sort of sense of what you think a healthy marketplace or commercial ecosystem would look like in terms of numbers of independent ISPs, competitors at that level, for instance?
8523 As the Chairman was discussing with you, you know, like the market share is eight per cent nationally, but it's very different across the country. In Ontario and Québec, Bell indicated that it was 17 per cent.
8524 Now, Saskatchewan, Manitoba is almost zero, Alberta has I think 50 or 60 ISPs, B.C., we've had evidence that it's a very difficult situation.
8525 But give us your sense of how many would be an indication of health, because there are hundreds now, right. Do we need hundreds, do we thousands, do we need perhaps just dozens?
8526 MR. TABISH: We're reluctant to give a specific number. We know that a very key performance indicator for Canadians who want a greater range of innovative services is that non-incumbent market share number.
8527 COMMISSIONER MENZIES: Yeah.
8528 MR. TABISH: If that's getting bigger, we're getting us closer towards that. That's a number that we should be watching quite closely.
8529 An immediate point to make is that forbearing for mandated FTTP, in our view, basically guarantees that that number will not get bigger going forward and, as a result, fewer Canadians will be confronted with a range of, as Cynthia pointed out, innovative service providers who are doing things differently than the incumbents are.
8530 But one thing that we were really interested in and is something we sought out but could never quite find was the question of, what is the magic number, at what point in a given market do you start to see prices improve, do you start to see -- at what point of non-incumbent market share do you start to see prices improve.
8531 And we were talking about it and realized that, boy, that would be a great study to see and is something that either the Competition Bureau or the CRTC could consider investigating going forward. We would love to, but don't have the resources to do that.
8532 MS KHOO: And just to make another point about that as well is that, again, it's not necessarily just about the numbers, so maybe we shouldn't even be looking at a specific number. That might be a rough guideline, but the question we should be asking is, which is the number at which Canadians can switch between service providers very quickly and with very little hassle, which is the number at which we are not getting any more, the CCTS is not getting any more complaints and Open Media is not getting comments and complaints.
8533 And even though, say there is 17 per cent market share for the independent ISPs in Ontario and Québec, when we went through the comments there were still quite a few from Ontario and Québec.
8534 We don't know if, maybe they happen to be more vocal than the rest of Canada, we don't think so, so that is still telling us something. That 17 sounds like a great number, but clearly to a number of Canadians it's still not the number.
8535 So that might also be something to consider as well.
8536 COMMISSIONER MENZIES: Okay. Well, maybe it's something you can think about going forward because people say it needs to be -- this is what markets should be and people have said eight per cent isn't enough. I mean, that's 30 per cent growth over the last few years, going from six to eight per cent.
8537 I know, you know, it's fun with numbers depending how you look at it, but is a healthy -- you know, non facilities-based people who aren't building facilities is 17 per cent a healthy number, is 25? Maybe just something to think about going forward.
8538 MR. TABISH: Yeah. If I could just add to the answer really quickly.
8539 The qualitative measures that we were discussing with Commissioner Shoan a few minutes ago would be very helpful in that valuation in what a healthy market looks like.
8540 The qualitative measures that we call for in our comments and I believe PIAC calls for in theirs would be very helpful and instructive in evaluating where and when market share leads to good results for Canadians.
8541 COMMISSIONER MENZIES: Thank you very much. Those are my questions.
8542 THE CHAIRPERSON: Vice-Chair of Broadcasting.
8543 COMMISSIONER PENTEFOUNTAS: Thank you, Mr. Chairman.
8544 In large part you answered my question following Vice-Chair Menzies' question. I just want to say, first of all, I really appreciate your presentation today, especially the perspective from Canadian citizens that write to you.
8545 And just to get back to the risk for ISPs over the next five to seven years, given that from what we've heard this week the majority of Canadians are in the single digits in terms of their mbs, in terms of their speeds, where is the risk for independent ISPs if they don't have access potentially to much higher speeds under FTTP deployment?
8546 I understand your perspective in that they'll be able to lower the pricing of FTTP given that they'll be in the market, but in terms of their very survival and getting back to the Chair's medical analogy, what's the risk for them over the next five to seven if most Canadians aren't interested in being at 250 megabits per second?
8547 MS KHOO: We would say this goes back to the argument of Canadians are currently using something, so they must not want more, even if we could offer more, but right now we're not offering more, at least not at numbers that -- at least not on an affordable level.
8548 So the risk for independent ISPs is that if access isn't mandated, then once Canadians do start migrating more and more, they're starting to migrate a little bit, but they will eventually get squeezed out of the market because they won't be able to compete with the next generation of services that will then become the default generation.
8549 COMMISSIONER PENTEFOUNTAS: But are Canadians going to be clamouring for 100 megabits per second over the next five-year period?
8550 MR. TABISH: At the rate of deployment currently, at the rate that the incumbents are deploying currently and at the fees that are being charged where that's available, we might not expect them to be clamouring in the next five or seven years, but I suppose there's a kind of longer term question that I don't know the answer to which is, when is the next time that this wholesale rate is going to be reviewed with an eye towards improving access for those non-incumbents, and a lot can happen in five or seven years.
8551 I don't know how deployment and uptake is going to take in the next little bit. I'm sorry, I don't know.
8552 COMMISSIONER PENTEFOUNTAS: Okay, thanks. Did you want to add something?
8553 MS KHOO: No, I think most of our responses to that question have been more or less covered in earlier answers, which is, we're trying to face future actions and predict future scenarios on what will happen now, but there's also the idea that things will have a cumulative effect, whether it's non-mandating or whether it's mandating.
8554 So there is also the potential of, are we talking about self-fulfilling prophecies here where because we're saying Canadians are not clamouring, we make the condition so that they will continue to not clamour when there's also the potential that it might go otherwise.
8555 COMMISSIONER PENTEFOUNTAS: Okay. I appreciate that. Thank you, Mr. Chairman.
8556 THE CHAIRPERSON: You may not be aware of this, but I thought perhaps I should mention it to you that the Commission is using its resources to do a broadband measuring process and with the nudging of the Vice-Chair Telecom, almost every carrier is participating of a certain size, so that is moving along.
8557 MR. TABISH: And thank you for that.
8558 THE CHAIRPERSON: There are a couple that are still dragging their feet, but we'll name them later.
8559 MR. TABISH: So will we.
8560 THE CHAIRPERSON: Yes. Just one point I think I forgot to ask you. You make a point at the end of your presentation on structural separation.
8561 Clearly you're not suggesting that this is part of the outcome of this proceeding; is that correct, right?
8562 MR. TABISH: We are specifically urging the Commission to undertake an investigation of what that would look like and what that could mean in Canada, not to begin moving towards that tomorrow.
8563 THE CHAIRPERSON: Right. Would you not agree, though, that that is quite a significant change and a decision that probably would be best made by elected officials?
8564 MR. TABISH: The idea of either functional or structural separation is one that has actually received some mainstream political support, Marc Garneau I believe, the Liberal MP, spoke out in favour of it in 2009 or '08, 2008. It was at one point part of the Liberal Party of Canada's digital policy platform.
8565 The idea, however, as I think we've discovered in some of our research, there are significant questions that need to be answered about how that would work in a regulatory sense within Canada specifically and we feel that the CRTC is well positioned to undertake some of that research and help understand how we can correct some of the perverse market incentives that we see in this market where we have wholesale providers currently who have direct economic incentives for discriminating against some of their retail competitors who they sell wholesale services to.
8566 THE CHAIRPERSON: Right. But that's outside this proceeding?
8567 MR. TABISH: Yes.
8568 THE CHAIRPERSON: Okay, thank you.
8569 Those are our questions. Thank you very much for your participation.
8570 MR. TABISH: Thank you.
8571 THE CHAIRPERSON: And I take it you might be participating in the reply phase later in this week; is that correct?
8572 Well, we'll see. Please signal to the Secretary if that's your intention. As I mentioned earlier, it helps us to plan.
8573 And we only have one more intervener -- thank you very much.
8574 We only have one more intervener, but it's a video conference, so we'll take a short five personal minute break just to set up the video conference link.
8575 Thank you very much.
8576 We're back at 3:55. Thank you.
--- Upon recessing at 1550
--- Upon resuming at 1556
8577 LA SECRÉTAIRE : À l'ordre, s'il vous plaît. Order, please.
8578 Good afternoon. We are now ready to hear the presentation from School District No. 67 (Okanagan Skaha).
8579 Good afternoon, gentlemen. Please introduce yourselves for the record first and you may proceed with your presentation.
8580 Can you hear us?
8581 MR. FRANCISCO: Yes, we can. Can you hear us?
8582 THE SECRETARY: Yes, very well. Thank you.
8583 THE CHAIRPERSON: Absolutely. So please go ahead. Welcome and we're listening.
8584 MR. FRANCISCO: Thank you.
8585 Good afternoon, Mr. Chairman, Mr. Vice-Chairmen and Commissioners.
8586 Let me begin by thanking the Commission for this opportunity to present to you.
8587 My name is Daniel Francisco and I am the Director of Information Technology for School District No. 67, and here with me is our retired Director of Business and Technology/Secretary-Treasurer, Ron Shongrunden.
8588 School District No. 67 is a Kindergarten to Grade 12 educational institution that is located in the Okanagan Valley in British Columbia.
8589 Now, many of you may be wondering why a K-12 School District would even become a non-dominant carrier or want to be involved in these discussions. Well, the short answer is we couldn't afford not to.
8590 What I want to tell you is about how we got started.
8591 When our District looked at the future 15 plus years ago, we saw that technology was going to be a great enabler in the 21st Century learning and to the community at large. Now, our crystal ball was not clear enough to predict the Googles, Facebooks, iPhones, Netflix or YouTubes that we see today but we did know that we needed a world-class foundation to build on.
8592 So we went to the local incumbent at the time to price out a 1-gigabit service to all of our schools back in the year 2000. We were told that the speed was unrealistic and cost-prohibitive.
8593 Upon receiving the pricing and after the shock wore off, we decided we would investigate building the network ourselves. We were told that we could not do it and that it would be too expensive, too risky, et cetera, et cetera, but what we found was quite the opposite.
8594 We proceeded to build a fibre network and in 2002 we had 1-gigabit services to 100 percent of our middle schools and high schools and 65 percent of our elementary schools.
8595 We also deployed voice over IP, a relatively new service back then, to all of our sites and in fact were the first government entity in B.C. to fully deploy VoIP with enhanced 9-1-1 capabilities.
8596 We found that the network we built could be leveraged by other local governments and services and have created shared service opportunities that to this day benefit our students, staff and local citizens every day.
8597 As for the risk, how is fibre risky, we ask. We recently took the fibre that we installed over 15 years ago and upgraded all of our 1-gigabit links to 10-gigabit links. We have added new services such as WiFi, videoconferencing and distance learning, and still the fibre has life left in it. The lifespan, we believe, of fibre has no equal in the technological world. In fact, every time a new service comes along with fibre, we ask the question more of when can we deploy as if we can deploy.
8598 The costs we incurred with our original build we recovered in less than five years' time, and every time we put new services on this fibre, our original ROI gets better. What else in technology has the capability of getting better with age?
8599 In School District No. 67, the number of connected devices is expected to go from 3,000 to 18,000 over the next 10 years, which would amount to a conservative three devices per student. One device will no longer suffice.
8600 With this growth, some of the constraints on the technology will disappear and new challenges will appear. The important point to note is that for these devices to be effective and efficient they will require high-speed connectivity and bandwidth that is of equal importance in both fixed and wireless technologies.
8601 Carriers (such as telcos, cellcos, cablecos) operate in an environment that does not lend itself to providing the competitive pricing or services required to meet current personalized learning demands, let alone future demands.
8602 The grassroots movements of constructing private telecommunications and technology infrastructures in B.C.'s Lower Mainland, Kootenay and Okanagan regions also serves as an indication that current telecommunication prices are too high.
8603 In British Columbia, school districts are charged a per student fee for connectivity and Internet services that is pooled across the province. Some school districts supplement their services and have separate contracts with the carriers.
8604 The telecommunications costs of these services at even a provincial pool level do not make sense and my colleague Mr. Shongrunden will provide more details on this in a moment.
8605 Although SD67 has created efficiencies within its boundaries, there needs to be a way that all school districts and government entities can economically connect outside of their boundaries to effect global efficiencies. SD67 has invested in its fibre network that runs a full MPLS 10-Gb service to its nodes.
8606 To help with this growth and increase its operational efficiencies, these investments could be leveraged by other districts if carrier costs and backbone links' wholesale services between the districts and governments were available and affordable.
8607 Services and technologies are blending and blurring every day. Personalized learning requires fixed infrastructure such as fibre all the way to the premise but also requires high-speed infrastructure, wireless infrastructure to provide anywhere, anytime services. The seller of technology at present does not have the capacity to handle future needs and will require WiFi to complement it.
8608 Canada's history shows that government involvement in transportation network regardless of the underlying technology, whether it was train, ship or aircraft, was key to the success of this country. Highways that anyone could utilize at a reasonable cost paved the way for economic and social development.
8609 The very same principle must be applied to the information network regardless of the technology: wired, wireless, FTTP. Everyone, including the educational sector, must be able to access and utilize the information highway at reasonable cost. The government's role must be to ensure that there are mechanisms in place that ensure a balance between the needs of citizens and the goals of the corporate carriers.
8610 School District No. 67 has requested that the Commission consider the following points:
8611 1. All carriers to provide wholesale pricing or better to educational institutions: all services, including fibre (managed and unmanaged), wireless (WiFi, cellular, et cetera), and high-speed Internet connectivity;
8612 2. That education become a new category in the regulatory framework and/or be designated an essential service and that special consideration be given in the rate-setting processes for educational institutions -- rates to be free or set at or below or better cost. If rates are related to cost, then the definition of cost must be clearly defined;
8613 3. And finally, it is clear that all technology services are interrelated and need to be looked at as a whole. Organizations and corporations affect the pricing and availability of services through rights-of-way, pole rentals, et cetera. Organizations who can affect the pricing and availability of the information highway should also have their practices and pricing structures examined with special consideration given to education.
8614 If the Commission is limiting the scope of this review, then we recommend that a separate proceeding be initiated to examine all services such as tower sharing, wireless, roaming charges, et cetera.
8615 I would like to say that our students are the subscribers of the future and schools today do represent a metric to the future in terms of services, apps and capacity that will be needed in years to come.
8616 I now pass it over to Mr. Shongrunden for some costs and final thoughts.
8617 MR. SHONGRUNDEN: Thank you.
8618 As Mr. Francisco has stated, School District No. 67 has a unique experience and history in regards to providing and purchasing services. In my former role as Secretary-Treasurer and Chief Financial Officer for School District No. 67, I have many years of experience in how costs and data can be used and interpreted.
8619 Maybe to give you a little bit of insight and perspective, if we didn't own our own fibre network, from the preliminary information that we have it is anticipated that School District No. 67 could pay in one year for lower services than we have now what it would cost or what it did cost to construct a fibre network in the first place. That's a powerful statement.
8620 We are asking for services at cost or below and there have been questions on how costs should be determined. In education it could be very easy to say, well, just make it free, they don't have any administrative responsibility to find out how to cost these models, and maybe a comparison of the countries might be a way to do this or hiring a sea of accountants but it does take a lot of administrative work and where do all of these costs -- where do they come from?
8621 However, we think there's a lot of money available and we mention that there's a lot of money that came through from all of these spectrum options that were out there. It's not a matter of it there's money available, it's who gets that money and what is it being used for.
8622 Fibre installations are not a risk. They are a necessity. New research has just emerged that states: "A single strand of fibre can carry the world's Internet." Researchers manage to squeeze 50 carriers on one fibre strand. This type of information should help guide policy. It doesn't make sense to have multiple roads. Everyone needs to share.
8623 School District No. 67 has many years of experience in government shared services. This is very difficult to accomplish due to a variety of factors such as culture, et cetera, but there are many tremendous benefits and cost savings and increased services. Savings from these types of initiatives could help to fund public/private types of partnerships.
8624 A lot of questions have been asked in regards to knowns and unknowns of what different telcos would do or cellcos would do under different circumstances. Just coming to this thought now, we would be more than willing to organize and participate in a pilot project that could show how all levels of government could work together with the private sector to show how sharing could work.
8625 In British Columbia we are currently in the process of dealing with these issues right now. We have been in discussions with many private corporations and they are willing to work with us to try to effect savings for everybody.
8626 Quite often, the issue of geography comes into play in terms of Canada and British Columbia, especially in terms of the terrain that we do have, but somehow roads were all built to all those communities, somehow copper made it to all of these communities. Why should fibre be any different?
8627 Now, we are asking for this to be an essential service and it may not follow exactly the definition of what the Commission might consider to be an essential service, but I think at one time the Commission asked should there be a different definition of what is considered an essential service, and perhaps there should be.
8628 For the overall benefit of society, health and education are probably the two most important areas that we should look at as a society and perhaps that is more important than consumers getting a better deal on Internet.
8629 In terms of regulation, where there is -- there is not really a free economy anywhere that I know of in the world that's totally free and in a situation where there is a monopoly, a duopoly, an oligopoly or whatever you want to call it, regulation is a must, it's just a requirement.
8630 And this regulation is even more important when technology is rapidly changing and reviews need to be more often and have a broader scope. Again, perhaps a pilot project could be used to substantiate or refute some of the hypotheses in terms of where some of these questions have arisen from.
8631 The Commission has the ability and opportunity to effect real social change and you should take that advantage and try to keep the options open for the future. We must be careful that we don't inadvertently close some doors while we're going through this process.
8632 Thank you very much.
8633 MR. FRANCISCO: Thank you. That concludes our presentation. We welcome the panel's questions.
8634 THE CHAIRPERSON: Thank you very much, gentlemen.
8635 Commissioner Molnar will start us off.
8636 COMMISSIONER MOLNAR: Thank you. Good afternoon.
8637 Are you able to hear me?
8638 MR. FRANCISCO: Yes.
8639 COMMISSIONER MOLNAR: Okay, great.
8640 You mentioned in your opening statement that many may be wondering why a K-12 school district would even become a non-dominant carrier or want to be involved in these discussions and I have to say I did wonder a bit why you wanted to be involved in these discussions because I wasn't actually aware until I read this that you were a non-dominant carrier.
8641 So having read your submission, it wasn't clear to me that you folks had actually installed fibre. So maybe before we begin you might, if you could, just give me a few details of your network, what is it you installed.
8642 MR. FRANCISCO: Yes. We installed single node fibre throughout two municipalities in the region that our School District resides in. All of that fibre build comes from all of our schools to a central node where we have, you know, basically full generator redundancy, multi-terabit capacity in the backplane. We built a lot of resilience into the network because of the efficiencies of moving everything to the central offices.
8643 One thing we found when we moved to fibre is there's a lot of costs involved in running networks and part of the cost that most school districts face is the fact of maintaining services within the buildings. By utilizing our fibre infrastructure, we were able to move many of those services back to central locations, making our network more resilient and more efficient. This is what we refer to as the cost of not being able to get into fibre. It didn't make financial sense. This is the only way that we found that would make financial sense in offering these services with the kinds of dollars in cutbacks that education is facing.
8644 MR. SHONGRUNDEN: So instead of having multiple servers in each school, we just have one central location for our server. So we operate our voice services out of one location, our networking services out of one location, our wireless services out of one location, and we offer that also to a variety of different -- I guess other organizations in this area.
8645 And we deal with regional districts, cities, Indian bands, retirement centres, a variety of different organizations and provide services for them.
8646 COMMISSIONER MOLNAR: Okay, thank you.
8647 So, roughly, how many kilometres of fibre do you have? It can be very rough. I am just trying to get a sense of the size of your network.
8648 MR. FRANCISCO: So basically, we stretch from all of our buildings in two municipalities in both Penticton and Summerland is the two districts that we reside fibre. And are currently in a fibre build to actually linked the two cities together.
8649 The cities are separated by 14 kilometres of fibre there, which we are in the process of building right now. And the cities themselves have quite a bit --
8650 MR. SHONGRUNDEN: We have about 20-25 nodes maybe, probably each a few kilometres for each node.
8651 MR. FRANCISCO: Plus the link between the two cities.
8652 COMMISSIONER MOLNAR: Okay, thank you. And then how is it you are connecting to the internet? You purchase...?
8653 MR. SHONGRUNDEN: We have a number of different connections; one through the provincial government, and also we have our own private through private corporations.
8654 COMMISSIONER MOLNAR: Okay, thank you.
8655 You had put in here I guess three major points that we were to consider. One, that all carriers provide wholesale pricing or better to educational institutions.
8656 I did hear you mention, and I guess the second one was perhaps even separate from that where you thought that education should be provided services at rates that are free or set below cost.
8657 How do these two points differ? Like, what was your point in number one where you are wanting wholesale pricing or better for educational institutions? And then your point number two said, education should be provided special consideration and rates set at free or below cost.
8658 Are these two separate points?
8659 MR. FRANCISCO: The second point was more about building a new category in the sense of perhaps a non-dominant carrier government entity. And then be iterating that this category would be a free or below cost, a very cheap category.
8660 MR. SHONGRUNDEN: I guess we are hoping for free, but trying to be realistic, thinking is that really going to happen? So we give you an option there.
8661 COMMISSIONER MOLNAR: I see, okay.
8662 MR. FRANCISCO: So the difference, basically between developing a separate category for education, if that doesn't happen, then the pricing is still to be free, but we would be thrown in with everybody else or to be able to actually define a category specific to education or government-based non-dominant carriers.
8663 COMMISSIONER MOLNAR: And you are suggesting that that would be for non-dominant carriers' connection to other carriers or...? I am trying to understand.
8664 You are not asking for retail services free, are you?
8665 MR. SHONGRUNDEN: No, but we believe that every student is going to be having an education anywhere anytime. And to do that, you will require wireless, but you are also going to require fibre-to-the-premises.
8666 So, in essence, we are asking that our students, our population, have access to both fibre and wireless, and that does mean fibre-to-the-premises.
8667 COMMISSIONER MOLNAR: Yes, okay. I think I understand now what it is you are asking for. You may be aware that this proceeding is about carrier to carrier relationships in large part, not retail services. I guess the other --
8668 MR. SHONGRUNDEN: We consider ourselves a carrier as well, being a non-dominant carrier, and providing services. For example, we provide phone services for the regional district.
8669 COMMISSIONER MOLNAR: Pardon? You provide phone services to who?
8670 MR. SHONGRUNDEN: Another government entity, like the regional district, for example. Are you familiar with what regional districts are? It is like a county system in the U.S. So we provide all the voice-over IP services for other entities, so we are a carrier.
8671 COMMISSIONER MOLNAR: Yes, I understand that. Okay.
8672 I do understand better now what your submission is about, so those are my questions.
8673 Thank you very much.
8674 MR. SHONGRUNDEN: Thank you.
8675 MR. FRANCISCO: Thank you.
8676 THE CHAIRPERSON: Well, thank you very much, gentlemen.
8677 Just polling the Commissioners here, and apparently there are no other questions for you. So we appreciate you having participated in this hearing through video conferencing and answering our questions.
8678 So thank you very much, that will be it.
8679 MR. SHONGRUNDEN: Thank you.
8680 MR. FRANCISCO: Thank you.
8681 THE CHAIRPERSON: So that ends the interveners for today. We will be adjourning in a moment until tomorrow.
8682 So people know what we will be up to, is that we will finish the three final interveners tomorrow and then adjourn, and beginning the reply phase over Wednesday and Thursday, so everybody knows what our plans are.
8683 So that ends today and so we are adjourned until 9:00 tomorrow morning.
--- Whereupon the hearing adjourned at 1618 to resume on Tuesday, December 2, 2014 at 0900
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