ARCHIVED - Transcript, Hearing 3 December 2014
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Volume 8, 3 December 2014
TRANSCRIPTION OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION
Review of wholesale service and associated policies
140 Promenade du Portage
3 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
3 December 2014
- iv -
TABLE OF CONTENTS
PAGE / PARA
3. Rogers Communications Partnership1743 / 9978
5. Public Interest Advocacy Centre and the Consumers' Association of Canada1753 /10028
6. TELUS Communications Company1768 /10100
8. The City of Calgary1794 /10258
7. School District #67 (Okanagan Skaha)1806 /10335
11. Shaw Cablesystems G.P.1816 /10388
12. Saskatchewan Telecommunications1828 /10458
13. Distributel Communications Limited1844 /10537
15. Québecor Media (Vidéotron)1862 /10640
16. Bell Canada and Bell Aliant1872 /10687
- v -
PAGE / PARA
--- Upon resuming on Wednesday, December 3, 2014 at 0915
9971 LA SECRÉTAIRE : À l'ordre, s'il vous plaît. Order, please.
9972 LE PRÉSIDENT : Alors, bonjour à tous.
9973 Donc, Madame la Secrétaire, vous pouvez présenter la prochaine phase.
9974 LA SECRÉTAIRE : Oui. Merci.
9975 We will now start Phase II of this hearing in reverse order, in which parties will have 10 minutes to make their oral reply to interventions heard in Phase I.
9976 For the record, CANARIE Inc. and Fiber to the Home Council Americas have indicated they will not appear in Phase II.
9977 So we will start with Rogers Communications. Please go ahead. You have 10 minutes.
9978 MR. ENGELHART: Thank you very much.
9979 For the record, to my far left is Suzanne Blackwell; beside her, Dr. Scott Wallsten; to my left, David Watt; to my right, Tony Faccia; and I am Ken Engelhart.
9980 In our reply comments, we are addressing three points:
9981 - comments on the cost of providing video services and multicasting;
9982 - Vice-Chairman Pentefountas' questions about cable companies' market share in business Internet; and
9983 - Commissioner Molnar's questions about data usage plans under our proposal for retail minus avoidable costs.
9984 We would like to respond to the comments of parties regarding multicasting and the need for lower CBB rates to provide BDU services.
9985 Some have stated that multicasting is required to allow for video distribution. We would note that no one in the world has done multicasting on TPIA. While no doubt a solution could be developed, there are no standards or precedents and so there are risks.
9986 Furthermore, unless the wholesale ISP has an astonishingly high level of penetration, multicasting will not save any capacity in a cable Internet network. Our network architecture means that the single multicasted video signal would need to be sent to each and every network node where they had a customer and that would contribute to congestion. Unless there are multiple customers of the reseller's BDU service in a single network node watching the identical program at the same time, multicasting does not lead to any capacity reduction. It does not reduce the traffic that the cable company has to carry between the head-end and the home.
9987 We reject the claims of those who call on the Commission to artificially lower CBB rates or to introduce multicasting to permit ISPs to sell a BDU service. There is no shortage of BDU competition and lowering CBB rates will exacerbate the problems which the already low rates are causing. With lower rates we will soon be in a position where we have more wholesale end users than retail end users. This will lead to a substantial reduction in the quality of Internet services that Canadian consumers enjoy.
9988 We want to follow up on Rogers' position in the business Internet market that was raised yesterday during our appearance. The Vice-Chairman directed our attention to Table 5.3.3 of the Commission's Monitoring Report.
9989 The table shows the cable carriers accounted for 26 percent of the revenues for retail business Internet services. The cable companies' share has remained stable since 2008. Alternative competitors accounted for the remaining 31 percent. The incumbent telephone companies accounted for 43 percent. This is obviously a competitive market and we are not aware of any jurisdiction that has imposed regulation on a category of competitor with 26 percent market share. This is far below the 35 percent threshold used by the Competition Bureau for merger review.
9990 In Rogers' territory we account for about 15 percent of the business Internet market. Of that, 6 percent are fibre-based Internet services and 9 percent are cable modem services that could be served by TPIA. The Commission cannot impose monopoly wholesale regulation on a party with 9 percent market share.
9991 Rogers is the only party that has come forward with a credible alternative to Phase II costing for setting wholesale rates. The retail price minus avoidable cost model we proposed has a number of advantages. We believe that this model can be implemented in a manner that will allow wholesale customers to continue to offer unlimited usage services to their retail customers. The wholesalers could aggregate the usage provided for each of the subscribed services and redistribute this among their end users.
9992 It is not true that this would bring us back to the situation we had in 2011. Unlike then, the incumbents have rolled out unlimited add-ons to their retail services. The wholesale customers could purchase the unlimited add-ons as well at price minus avoidable cost.
9993 Other countries have implemented retail minus where the incumbents' Internet retail services include usage allowances. These countries are dominated by an incumbent telephone company and the regulator has used this approach to provide consumers with more choice.
9994 THE CHAIRPERSON: That's it?
9995 MR. ENGELHART: That's it. Thank you.
9996 THE CHAIRPERSON: It just ended, that's all.
9997 MR. ENGELHART: Sorry. I should have said we would be pleased to answer your questions but you know we are.
9998 THE CHAIRPERSON: Okay. We always assume you are, even if you're not.
9999 THE CHAIRPERSON: The Vice-Chair of Broadcasting.
10000 COMMISSIONER PENTEFOUNTAS: Good morning. Thank you, once again.
10001 Briefly, a couple of points that we would have liked to have touched upon yesterday and we didn't.
10002 One, I'm sure you followed the presentation by the City of Calgary --
10003 MR. ENGELHART: Yes.
10004 COMMISSIONER PENTEFOUNTAS: -- and some of their concerns as regards the right-of-way support structures and sort of all these elements being major obstacles to competitors' capability to deploy their own facilities.
10005 What would your comments be on that concern?
10006 MR. ENGELHART: No, I mean it's never easy. I mean you can always get pole access. Sometimes you have to incur the cost of what is called make-ready work where you have to reinforce the poles, and this is true for new entrants, it is true for us. Sometimes we have to. The make-ready work consists of building a new set of poles, you have to remove the old wires, put the new wires, and there's certainly a cost. So I understand their frustration but I would call it just that. Frustration is not really a barrier.
10007 COMMISSIONER PENTEFOUNTAS: Not a barrier.
10008 And on some of the issues that have also been raised as regards mostly aesthetics, if you will, your feeling on that? Is that an argument to push people towards sharing of facilities?
10009 MR. ENGELHART: Well, it all had a bit of a monopoly sound to me. You know, I really think that, as the Competition Bureau said, competition between facilities-based carriers that have built networks really works. You know, when I got into the business 30 years ago, there were a lot of municipal monopoly telephone companies and it was a terrible model and it didn't really work.
10010 So aesthetics are important and there are solutions there but I think that all the frustrations of facilities-based competition don't outweigh the fact that facilities-based competition is really good for consumers.
10011 COMMISSIONER PENTEFOUNTAS: Okay.
10012 The second point that we would have liked to have raised and we didn't to that much of an extent yesterday as regards, again, UBB rates and costing, I understand your position but a number of the parties have put forward a desire for greater transparency whereby incumbent input costs related to acquisition costs of key network equipment be reviewed by a third-party auditor. Your position on that?
10013 MR. ENGELHART: I'll certainly ask Dave Watt to jump in.
10014 From our perspective, there's not that much controversy about the cost of the equipment. The problem is the productivity factor that's applied to that going forward. So I'm not sure knowing more about the equipment purchases that we make would really help.
10015 But I'll let Dave jump in.
10016 MR. WATT: Well, I think there have been very significant advances in the disclosure of information over the past four years. You did have an extensive proceeding that resulted in much more information being placed on the public record in terms of categories of costs. This was in 2012. And then in July of 2013 you set out a standard template, spreadsheets that people would fill out. Much of that is on the public record.
10017 Specifically to the point of equipment costs, what is on the public record now is actually the name of very discrete pieces of equipment. In our segmentation costs in our models, I think it's something like 80 rows, right down to the asphalt that's used to fill in the road, the paid duty officer, the gaskets, the gel. It's all there. And what is not there is the manufacturer name and the part number but people can certainly go and get costs associated with that.
10018 With respect to disclosing our actual costs, I think it is problematic. We negotiate very hard with our suppliers and certainly we would not want that made public, neither do our suppliers. The agreements that we have with them prohibit us from broadly distributing those costs.
10019 COMMISSIONER PENTEFOUNTAS: So the argument that has been made by incumbents is to the effect that these costs are public knowledge for all intents and purposes, you can probably look them up, you know who the manufacturer is. There is an argument to be made that those aren't the actual costs, that there are questions of scale that allow the incumbents to get prices that are inferior than the prices that are listed.
10020 MR. WATT: Well, we certainly get discounts off the list price but I think, you know, basically what people are saying is they're suggesting that we're providing you with the costs that are not actually our costs, and that simply is not the case.
10021 COMMISSIONER PENTEFOUNTAS: Okay.
10022 And finally, from my point of view on the business Internet services, if the Commission were to mandate that it should be asymmetrical regulation, is your perspective if we are to mandate, then we should mandate the ILECs?
10023 MR. ENGELHART: Yes. I really can't see an argument for continuing with mandated regulation of those business Internet services, but if for whatever reason you're going to sort of grandfather people with the ILEC service on a mandated basis, I still can't see mandating us. So I suppose yes, I would be advocating some sort of asymmetry there.
10024 COMMISSIONER PENTEFOUNTAS: Thank you. Thank you, Mr. Chairman.
10025 THE CHAIRPERSON: Thank you. Those are our questions. Thank you very much.
10026 Madame la Secrétaire.
10027 THE SECRETARY: I would now invite PIAC to take place, please.
10028 MR. LÉGER: Good morning, Panel, Commission staff.
10029 Throughout this proceeding CAC-PIAC have urged the Commission not to lose sight of the importance of consumer choice in the communications services marketplace. In a marketplace in which the Commission has forborne from regulating rates, consumers need choice: choice not only to shop based on rates but also on a wide range of other service and service provider characteristics.
10030 Indeed, the Commission has consistently found over the years that a marketplace for wireline Internet access services, in which competition occurs principally between incumbent cable and telephone companies, would not adequately protect the interests of consumers. No incumbent in this hearing has challenged the Commission's determination.
10031 No incumbent has made any serious attempt, either, to show that the retail Internet services marketplace has become significantly more competitive now than it was when the Commission issued TRP 2010-632. According to the Commission's own data, the incumbents controlled 90+ percent of the retail market then and they continue to do so today. Bell Canada has suggested that independent ISPs have recently been more successful than the Commission's data suggests, but even if that is so, the cablecos and the ILECs continue to overwhelmingly dominate the retail marketplace.
10032 The incumbents are now asking the Commission to put a stop to the Commission's policy regarding wholesale Internet access as they deploy more powerful access facilities. They contend that the Commission needs to shield them from market forces as they "recover" their investments in FTTP.
10033 The incumbents have focused on the Commission's essential facilities test to ground their contention that FTTP access should not be mandated.
10034 CAC-PIAC submit, first, that the Commission should not focus on a specific technology as the incumbents have. Whether or not FTTP requires greater investment than other technologies in the past, the Commission should focus on outcomes -- for consumers and for competition.
10035 While it should be clear that wholesale FTTP, based on the incumbents' own assertions regarding the challenges they face as they deploy this technology, meets the criteria set out in the essentiality test, CAC-PIAC also submit that the Commission's mandate requires it to do much more than to simply apply its essential facilities test. Incumbents in this proceeding appear to be oblivious to the wide range of objectives which the Commission should be pursuing.
10036 Section 7 of the Telecommunications Act includes several objectives which focus on the competitiveness of the marketplace, the pursuit of quality, affordability and reliability of telecom services, and responsiveness to the requirements of users. The Act does not direct the Commission to favour incumbents or their technology choices.
10037 The Policy Direction is even clearer. It specifically directs the Commission, in relation to access to networks, to adopt measures that ensure technological and competitive neutrality and that do not favour carriers or resellers.
10038 We have listened carefully as the incumbents have discussed their reluctance to deploy technology such as FTTP unless they are protected from competition. The public record in this proceeding provides little, or indeed, no evidence that mandated wholesale access would cause them to stop deploying. More fundamental factors such as demographic and geographic considerations, as well as more specific implementation issues, drive their decisions.
10039 Under questioning, for example, Bell witnesses admitted that what they initially referred to as "regulatory issues" behind their decision to stop FTTP deployment in the principal example they have cited on the public record in fact related to constraints around access to poles.
10040 The incumbents' witnesses have argued that the deployment of FTTP entails greater upfront costs than past technologies. That being said, the ILECs have admitted that as they deploy network into so-called green-fields, the default technology is FTTP. There has been no suggestion in this proceeding that the ILECs would revert to twisted pair copper access networks if faced with mandated access obligations. Indeed, quite the contrary.
10041 Bell's witnesses stated that FTTP is now the default technology. They have stated that this has been the case "for several years now" in Bell Aliant. Bell's witnesses also admitted that FTTP could be less expensive than FTTN. They acknowledged as well that if FTTP were more expensive, the difference would be insignificant and that, in any event, FTTP would be a "better long-term investment."
10042 In the next breath, the incumbents have also argued once again in this hearing that Canadians do not need the transmission capacities made possible by FTTP. They contend, therefore, that competitors do not need mandated access to this technology.
10043 Even if the incumbents' assertions that Canadians do not currently need the speeds made possible by FTTP are correct, the hearing has provided ample reasons to support our contention that the Commission should be focusing on the future rather than today. Carriers are doing just that and have already concluded based on its future potential that FTTP and the speeds it makes possible also make it a "better long-term investment."
10044 Furthermore, parties, including the Fiber to the Home Council, an industry trade group, have acknowledged that consumer requirements regarding transmission speeds and data consumption have been dramatically increasing year-over-year. This is expected to continue.
10045 This hearing has also provided illustrations of the shortcomings of a marketplace served principally by cable and telephone incumbents for retail customers. We saw yesterday, for example, Rogers' witnesses casually discuss the factors which motivated them to outright abandon in some instances or to "sell" to a third party their customers in locations in which Rogers decided there was no business case. Unless these customers could obtain Internet access service from competitors other than the incumbents, Rogers' decision to abandon them could mean that they would, at best, find themselves in a monopoly marketplace.
10046 This hearing also provided an example of the operational risks inherent in a marketplace without mandated access to fibre. In the hearing, the City of Calgary cautioned the Commission regarding the risks the policy favoured by the incumbents could create. The City of Calgary provided concrete examples of what it referred to as "physical constraints" facing new service providers wishing to deploy their own fibre.
10047 We expect that the constraints described by the City of Calgary are likely not specific to Calgary. The marketplace the incumbents are arguing for would likely leave consumers with no alternatives to the incumbents in such locations as their Internet service requirements grow.
10048 It is important to recognize that any network investment entails risks. We question the manner in which the incumbents portray those risks. We invite the Commission to consider arguments put forward by the incumbents that they are taking on great risk in the context of all of the business opportunities that these network facilities will also make possible for these firms. All of them, whether they are vertically integrated or not, will benefit far beyond simply being able to offer higher Internet access services to their retail customers. Higher speeds mean greater data consumption, and make possible IPTV and future services providing additional opportunities to generate revenues.
10049 For vertically-integrated incumbents, the rewards are even greater. Moreover, in light of the rapid advances of technology in this marketplace, incumbents face much greater risks if they do not upgrade their networks.
10050 It is pointless, in our view, to focus on what consumers are using today in order to define what incumbent service providers should offer to their wholesale customers tomorrow. The Commission, we respectfully submit, would fail Canadians if it decided to wait until some point in the future to decide whether to mandate the availability, on a wholesale basis, of technology such as FTTP.
10051 Competition in Canada remains fragile. The future of competition from ISPs other than the incumbent cable and telephone companies appears to be uncertain. This has been the case for several years.
10052 The incumbents have argued in this proceeding that their independent competitors have not been sufficiently building out their networks. We submit that the wholesale supply situation for independent ISPs has likely contributed to making investors reluctant to take on the risks which independent ISPs face. The situation related to the wholesale supply regulatory regime has been chaotic for several years.
10053 If the Commission relies on the discretion of the incumbents to make access to the high speeds made possible by technology such as FTTP available, the Commission can expect continued uncertainty.
10054 We listened with interest, for example, as Bell's witnesses responded to Vice Chairman Pentefountas' questions about future wholesale services. As Bell's witness testified, access would become available when:
"...as more and more consumers migrate to those types of speeds there is going to be a retail loser in the marketplace who is going to ignite that wholesale market."
10055 There will not be wholesale access to FTTP technology and speeds in the absence of a Commission order until competitive "losers... ignite" the wholesale marketplace. This, in other words, means that uncertainty will continue for several years followed by lengthy, intensely-contested proceedings before the Commission.
10056 Competition does not need such uncertainty. The marketplace -- wholesale as well as retail, competitors as well as incumbents -- will, we believe, be best served by predictability and certainty in the regulatory environment. Indeed, we submit that regardless of whether the Commission chooses to mandate the availability of wholesale services which utilize FTTP technology or not, certainty and predictability should be key objectives of the Commission.
10057 This concludes our oral reply remarks. Thank you for the opportunity to appear before this panel.
10058 THE CHAIRPERSON: Vice Chair Menzies...?
10059 COMMISSIONER MENZIES: Just for clarity, I'm not quite sure I understood what you said in paragraph 16 when you said:
"... pointless, in our view, to focus on what consumers are using today in order to define what ...service providers should offer ... tomorrow."
10060 MR. LÉGER: Well, this proceeding is about what the incumbents will make available to independent ISPs at the conclusion of this hearing. We expect that there will probably be some further process in relation to rate settings, so we are thinking that what the Commission should be doing is looking at how demand will evolve in coming years.
10061 We are not expecting, and we don't believe that the service providers themselves expect to be providing access to FTTP next month. Now --
10062 COMMISSIONER MENZIES: What I was trying to get at was how else would we define the future other than based on what consumers are using today?
10063 MR. LÉGER: Well, what they are using today tells you only what they are using today. What the Commission should be looking at is what will service providers be providing to customers tomorrow? The incumbents have made that clear. They have made technology decisions that are designed, we believe, to meet that demand of tomorrow.
10064 COMMISSIONER MENZIES: Okay. So I understand now.
10065 MR. LÉGER: Okay.
10066 COMMISSIONER MENZIES: You are saying that we should --
10067 MR. LÉGER: The Commission needs to be forward-looking.
10068 COMMISSIONER MENZIES: -- not judge on current consumer behaviour, but judge on network infrastructure.
10069 MR. LÉGER: They were well -- I think there are well commented upon patterns or expectations of growth in terms of what consumers require and this should be, we hope, helpful to the Commission as it looks at the future, but there seems to be no shortage of predictions which all seem to say that capacity requirements are going to grow.
10070 COMMISSIONER MENZIES: Okay. And in the next paragraph you reference -- and this is not a challenge, it's understanding how you formed the conclusion. You said:
"The future of competition from ISPs other than the incumbent cable and telephone companies appears to be uncertain."
10071 I mean I understand some of that. What I'm trying to get at is we had heard that there was a 17 percent market share for independent service providers in Ontario and Quebec. For instance, we just heard Roger sort of say that their business market share is 9 percent, something like that. So what forms the basis of your conclusion that the future is uncertain?
10072 MR. LÉGER: We have seen -- I'm not sure how to put this, but what we are seeing today is an independent sector that's made up of a lot of -- for the most part, a lot of very small service providers that are clearly dependent on access to certain access network facilities.
10073 So our sense is that unless the wholesale services keep up with what is expected in the marketplace as that marketplace evolves, these services will see a repeat of what we saw a decade or 15 years ago when the independents could not keep up and customers progressively abandoned them.
10074 COMMISSIONER MENZIES: Okay. And just one final thing.
10075 Given that competition is not an end in itself, it's a means to an end, the end being high quality service at an affordable price or a competitive price, however you want to define it, what do you think is the most important part of that right now that we should emphasize, the quality or the price, if we were to err on one side or the other?
10076 MR. LÉGER: Yes. I'm sorry, but we just don't buy this notion that it's one or the other. None of the telcos -- none of the incumbents I should say --
10077 COMMISSIONER MENZIES: I'm sorry, I'm not saying it's one or the other --
10078 MR. LÉGER: Yes.
10079 COMMISSIONER MENZIES: -- I'm saying if were to -- you know, if you had a line and you were to put a little bit of emphasis one way or the other, right, every decision will have an impact on one of those, right. It might just be a little one and it might just -- and that sort of stuff, but what is the consumer priority right now, in your view, service or price?
10080 MR. LÉGER: Well, the consumers we represent, as I pointed out last time when we were here, focus on a number of attributes. Quality, there are many ways of defining quality. Is it necessarily the latest -- I will use this expression, latest gold-plated network? Maybe not, but we just -- I'm sorry, we don't think that way. It's not one or the other.
10081 And we don't think that the carriers think that way either and, frankly, we hope that that is not also how the Commission thinks. There are a number of objectives being pursued here and it's not only price or it's not only "quality", in quotations, and moreover the defining quality has its own substantial challenges.
10082 COMMISSIONER MENZIES: Let me try again.
10083 What are you hearing from consumers as to what their priority -- what is their main area of concern, like from consumers, like from citizens? We know from OpenMedia for instance what their primary is of concern are.
10084 From the consumer's point of view -- and I assure you we try to balance both, but I'm trying to get what the consumer perspective is right now -- what is their major concern that you are hearing from the consumers of Canada as you consult with them? Are they more concerned about price or are they more concerned about quality?
10085 MR. LÉGER: Well, I'm sorry, as we speak to our members --
10086 COMMISSIONER MENZIES: We can end it there.
10087 MR. LÉGER: -- the focus is on the availability of choice. They want to be able to make that decision --
10088 COMMISSIONER MENZIES: Okay.
10089 MR. LÉGER: -- as to whether price or quality is --
10090 COMMISSIONER MENZIES: That's fine.
10091 MR. LÉGER: -- if there is a compromise.
10092 COMMISSIONER MENZIES: I will not cast into that stream again. Thank you.
10093 MR. LÉGER: Thank you.
10094 THE CHAIRPERSON: Thank you. Those are our questions.
10095 MR. LÉGER: Thank you.
10096 LE PRÉSIDENT : Madame la Secrétaire...?
10097 THE SECRETARY: Thank you, Mr. Chairman.
10098 I forgot to mention earlier that OpenMedia indicated they will not be appearing. I will now invite TELUS to come and take place.
10099 THE SECRETARY: So when you are ready please reintroduce yourself for the record and you may proceed.
10100 MR. WOODHEAD: Thank you, Madam Secretary.
10101 Just for the record I will introduce the panel here. To my far right we have Dr. Weisman; next to him Dr. Crandall; next to him Dr. McTaggart; Stephen Schmidt, Orest Romaniuk, Eric Edora and Bob Sinclair, and I am Ted Woodhead.
10102 Mr. Chairman, Vice Chairmen and Commissioners, contrary to the assertions of some parties there is simply no problem to solve when it comes to Canadian broadband.
10103 DR. CRANDALL: Canada has among the most extensive widespread platform competition in the world and among the highest levels of capital investment and broadband facilities in the world. These underlying conditions have delivered a competitive retail marketplace with very fast broadband service, not only in major urban areas, but even in rural areas throughout the country, among the highest levels of Internet usage in the world and prices that are below the OECD average. There is simply no problem to solve and certainly none that mandated access would help with.
10104 Now that the widespread deployment FTTP promises to improve the environment, the decision to move towards mandated access to these facilities has to be examined.
10105 The evidence is clear. The mandated access to broadband facilities, regardless of the underlying technology, results in less investment in such facilities and the evidence before you in this proceeding strongly suggests that mandating access to FTTP facilities will result in fewer Canadians having access to FTTP than they otherwise would.
10106 This surely cannot be the Commission's objective, nor would I suggest it is a cost that would be outweighed by giving some consumers in some parts of the country the ability to buy fibre-based broadband services under different brand names.
10107 MR. WOODHEAD: Contrary to what some parties have told you, there is vigourous competition between telephone and cable companies for the provision of broadband services, such that neither has market power as the Competition Bureau has explained.
10108 Canadians in most populated areas also have access to some of the best mobile wireless broadband networks in the world, networks that will only continue to get faster and faster as wireless technology continues to evolve.
10109 Whether or not you consider the broadband services currently provided over these networks to be in the same product market as those provided over wireline networks, a forward-looking regulatory framework, in our view, should recognize the trend already observed invoice and observable in data in countries like Japan and many others towards exclusive use of mobile broadband as many consumers only broadband subscription.
10110 Current and future satellite-based broadband, fixed wireless broadband and nearly ubiquitous Wi-Fi service, such as that available in over 45,000 locations from Shaw in our traditional territories provide additional conductivity options for Canadian consumers and businesses who are truly spoiled for choice when compared to the residence of any other country in the world. In our view, in light of the competitiveness of the retail broadband market there is no longer any need for the Commission to intervene in the wholesale market.
10111 As we explained, TELUS has begun to make significant investments in brand-new FTTP networks that connect substantially all of the homes and businesses in a number of communities in B.C., Alberta and eastern Quebec, as well as outside of our incumbent serving areas, not just specific parts of a town like Google or premises that have already ordered service like Bell. We have started predominantly in smaller centres to learn about the technology, the cost and the uptake of FTTP services.
10112 As my colleagues explained on Monday, these are risky long-term investments that are sensitive to a number of external factors including regulatory changes. Our hope is that you will not make the already challenging business case for deploying FTTP even more challenging by prospectively imposing an obligation to share it at regulated rates.
10113 We have undertaken to file confidential business case data regarding FTTP deployment which will help you understand this investment sensitivity. We ask that you maintain the current non-mandated status of FTTP-based wholesale services for a period of seven years from the date of the decision or the date on which we launch FTTP-based retail services in a community.
10114 During this period, independent ISPs access to non-FTTP platforms would continue on existing terms, but speed matching would be capped at 50 Mb per second. The Commission obviously would also play an important monitoring role, as it does today. Looking at things like the performance of the broadband market, penetration, usage, CAPEX, competitor activity.
10115 Prior to the end of the seven year period, the Commission could hold another public proceeding to review the evidence and consider based on the circumstances at that time whether it is necessary to mandate access to FTTP-based wholesale services. The rationale for adopting this kind of moratorium is simple. Without it FTTP networks will simply not be built in as many areas as quickly, depriving those Canadians of the many anticipated benefits that we have sought to emphasize in this proceeding.
10116 By preserving independent ISPs' access to mandated wholesale Internet services on copper and coax platforms at speeds well above those that most Canadians adopt today -- incidentally, our current wholesale portfolio, 97 percent of which is at or below 6 Mb per second -- this approach would give them ample room to grow as the market evolves. Just as importantly, you would avoid betraying those competitors that have built their own fibre access facilities in reliance on the current non-mandated status on fibre-based wholesale services.
10117 There would be little incentive for any competitor to deploy such facilities if they knew that other players facilities would be available at regulated rates, which is precisely what happened when access to fibre-based wholesale services in the business market were first mandated.
10118 On the topic of business markets it is clear that no party has made a case for re-mandating access to high-speed CDN and Ethernet services which are provided over a growing number of competitive facilities and under commercially negotiated arrangements across this country. National forbearance for these services remains the right policy.
10119 Our success -- and I think this is important evidence -- our success in negotiating 53 agreements for Ethernet services when contacted 53 times alone and the fact that over 75 percent of our wholesale revenues are forborne should give you confidence that the market for the wholesale business services is working and the competitors can obtain the conductivity they require if they choose not to build.
10120 While CNOC and others have asserted that there is a need for mandated access to wholesale Internet services, on a disaggregated basis, which as far as I can remember when we were last gathered to discuss this they wanted aggregated access, as well as for certain broadcasting related wholesale services, it is clear that in light of the high cost of implementation and the very low demand or no demand in the case of Western Canada, there is simply no justification for mandating new services, particularly not on an equivalence of inputs basis.
10121 DR. WEISMAN: With regards to costing issues, despite its appearance of simplicity, retail minus is not a panacea. The calculations are no less complex than the Phase II approach and it is both anticompetitive and harmful to consumers. This is the case because it discourages price reductions since retail price reductions automatically trigger wholesale price reductions.
10122 There is broad consensus that Phase II reflects the appropriate balance between complexity and accuracy in respect of costing and associated prices. Professor Alfred Khan, who literally wrote the book on the economics of regulation, has spoken eloquently of the utter futility of searching for costing methods that serve a role comparable to that of incremental or Phase II costs:
"Once you abandon marginal cost it is not difficult to find another measure of cost that will serve that purpose. It is hopeless. This is not a question of looking for a black cat in a room in which all the lights have been turned out. There is no cat there."
10123 MR. WOODHEAD: We would hope to leave you with the message that you have a major role to play in delivering the advanced broadband networks that will be crucial to Canadians' economic, social health and educational futures. Maintaining the incentives for service providers of all kinds to invest in these networks would represent a significant contribution to Canada's future.
10124 Thank you and we are pleased to take your questions.
10125 THE CHAIRPERSON: Thank you very much. Vice Chair Broadcasting...?
10126 COMMISSIONER PENTEFOUNTAS: Thank you. Good morning.
10127 Thank you for your presentation. We appreciate and understand your position. Notwithstanding that we need to complete the record. There are a few questions that we would like to put forward.
10128 Before we get started some of the questions, I was struck by your presentation, and if we can sort of summarize it and encapsulate that position it would be that the Commission should refrain from its long-standing position of mandating wholesale services and allow the market to move forward in, for all intents and purposes, a doo-wop-realistic context. Tell me where I am misrepresenting your representations.
10129 MR. WOODHEAD: Sure. First, I don't think the Commission has a long-standing policy of mandating wholesale services. In fact services where -- this all started with loops because there was no platform.
10130 COMMISSIONER PENTEFOUNTAS: And how long ago was that, Mr...?
10131 MR. WOODHEAD: That was 17 years ago.
10132 COMMISSIONER PENTEFOUNTAS: Long standing?
10133 MR. WOODHEAD: Yeah. And then, in 2008 --
10134 COMMISSIONER PENTEFOUNTAS: M'hmm.
10135 MR. WOODHEAD: -- we moved away from that in terms of, it hasn't been a crescendo, an increasing crescendo -- I guess that's an oxy, you know -- of mandating wholesale, in fact, it's about moving in the other direction; when you see that retail competition is sufficient, there is no need for wholesale regulation.
10136 That said, there are still mandated wholesale requirements that the Commission has ordered.
10137 I'm also troubled by this notion of duopoly, and people throw this around, that there's this duopoly and I think on closer inspection you will find that it isn't, and in the context of what we were talking about in terms of FTTP --
10138 COMMISSIONER PENTEFOUNTAS: M'hmm.
10139 MR. WOODHEAD: -- this is new, regulating services that don't really exist to me doesn't make sense.
10140 You have two fixed wireline choices, that's where you're circling around the duopoly point, but there are also a multitude of other types of services that are offered today over wireless that many of which are offered by companies that are independent of the two wireline alternatives.
10141 That to me is not a duopoly; that to me is a multitude of retail choices, all of which the sum of which make it unnecessary to mandate wholesale regulation.
10142 COMMISSIONER PENTEFOUNTAS: I won't go further. I think we've got other issues that we -- you've had sort of a chance to address that issue and I appreciate your answer.
10143 I just want to get a couple of more points -- TELUS' position on the record. One, if the Commission were to mandate access to FTTP again, I understand your position, and additional potential FTTP-specific risks would need to be taken into consideration in setting a rate, would it not be more appropriate to include any additional risks to the cost of equity and not the mark-up?
10144 MR. WOODHEAD: I'll pass that off I think to Mr. Romaniuk and potentially Dr. Weisman.
10145 MR. ROMANIUK: Excuse me. I believe in our original discussion on this we believe it is appropriate to reflect the risk in the mark-up. I think if you go to most basic financial literature you have your basic level of risk and then incremental risk is more transparent, it's equally applied across companies and it's easier to calculate when you reflect incremental risk in the mark-up.
10146 COMMISSIONER PENTEFOUNTAS: And wouldn't cost of equity be a more appropriate metric for measuring that risk?
10147 MR. ROMANIUK: It is a metric that can be done, but again, in most literature it's not there because it's difficult to reflect cost to equity across companies. The mark-up is simplistic, it's transparent and it's just the preferred approach in all business case literature.
10148 COMMISSIONER PENTEFOUNTAS: We had a long-standing discussion on cost of equity and including the various risks, increased or otherwise, in that cost of equity. I'm still not clear why we wouldn't include it in the cost of equity as opposed to the mark-up, given that it can be calculated --
10149 MR. ROMANIUK: Yeah.
10150 COMMISSIONER PENTEFOUNTAS: -- and is calculated.
10151 MR. ROMANIUK: It is calculated, however, even in the speed-matching decision I think you said it's more appropriate to reflect a risk differential in the mark-up and that's -- I think you correctly applied it when comparing telephone --
10152 COMMISSIONER PENTEFOUNTAS: Explain to me why it's more appropriate?
10153 MR. ROMANIUK: Again, transparency, it's easier. Like cost of equity varies from company to company and your balance between your equity and debt levels, and that is really not a risk that is -- the cost of equity is the risk that is appropriate to the company in general, again, when it goes to the market, then you associate project risk thereafter. Risk here is then reflected over and above your actual average risk of the entity.
10154 COMMISSIONER PENTEFOUNTAS: Okay. Dr. Weisman...?
10155 DR. WEISMAN: If I could just add briefly. Perhaps the first principle of efficient pricing, one also championed by Professor Alfred Kahn, is that of the cost-causation principle.
10156 So if you look at the inherent risk associated with deploying FTTP you'd want to reflect that risk in the price -- consumers should be confronted with the price that reflects their consumption decisions, so it would be appropriate to include that in the mark-up so that it would cover the entire portfolio of services offered over FTTP.
10157 To do it more broadly would fail to align that risk and those costs with consumers that are actually causing those costs to be incurred and those are the consumers consuming those services.
10158 So the cost-causation principle would suggest that you would recover it precisely in that form.
10159 COMMISSIONER PENTEFOUNTAS: Okay. User/payer?
10160 DR. WEISMAN: Yes.
10161 COMMISSIONER PENTEFOUNTAS: Yeah. Okay. Briefly on loops, and we've had this discussion, just a clean-up issue. If the Commission were to forbear for mandating ULLs in certain rate bands, how should local or business forbearance inform that decision given that forbearance in certain markets may have been predicated on competitive access to ULLs?
10162 MR. WOODHEAD: Actually, it would have included -- local forbearance in both markets would have included ULLs, but in reality what happened was that platforms...
10163 This is the story that Rogers is talking about in terms of why they got out of the ULL business. They purchased Callnet and it had a large base of ULL-based premises on its network, both business and residential, and when the technology, frankly, evolved to such an extent that Rogers could move those customers onto its own network, it did so and avoided the cost of the ULL.
10164 Now -- sorry, and I'll just put one last point on because --
10165 COMMISSIONER PENTEFOUNTAS: And also perhaps add the context of TELUS.
10166 MR. WOODHEAD: Yeah, sure.
10167 COMMISSIONER PENTEFOUNTAS: Yeah.
10168 MR. WOODHEAD: Sorry?
10169 COMMISSIONER PENTEFOUNTAS: As it relates to TELUS as well --
10170 MR. WOODHEAD: Yeah.
10171 COMMISSIONER PENTEFOUNTAS: -- and your offering.
10172 MR. WOODHEAD: Well, one of the contexts is that 50 per cent of our wholesale customers are on negotiated agreements that are not tethered to the tariff.
10173 COMMISSIONER PENTEFOUNTAS: Okay.
10174 MR. WOODHEAD: And the ULL business, I believe as Mr. Allison when we were here on Monday said, is declining precipitously, people aren't using loops.
10175 COMMISSIONER PENTEFOUNTAS: Final question. Can we distinguish between res, business and Internet services in relation to ULLs?
10176 MR. WOODHEAD: I'm sorry?
10177 COMMISSIONER PENTEFOUNTAS: Can we distinguish or can TELUS, or can the industry distinguish between residential, business and Internet customers --
10178 MR. WOODHEAD: Mr. Edora will --
10179 MR. EDORA: At first, just to --
10180 COMMISSIONER PENTEFOUNTAS: -- with regard to ULLs?
10181 MR. EDORA: Just to explain our proposal on ULLs. We have proposed that separate timeframes exist depending upon if the forbearance is based on the availability of the unbundled local loop, and so our proposal actually takes into account that some exchanges, the forbearance was based on the competitor having access to that wholesale facility, and so we would give time for that competitor to migrate to a different facility or to negotiate an arrangement with us.
10182 COMMISSIONER PENTEFOUNTAS: What kind of period of time would you be looking at?
10183 MR. EDORA: We had two years if forbearance was not based on unbundled local loop availability and five years if it's based on the availability of the loop.
10184 COMMISSIONER PENTEFOUNTAS: And on the question as it regards your capacity to distinguish between residential, business and Internet customers on ULLs --
10185 M. EDORA: At present we don't but --
10186 COMMISSIONER PENTEFOUNTAS: -- what is your position?
10187 MR. EDORA: -- but we could easily design a tariff so that we would be able to distinguish between the two.
10188 COMMISSIONER PENTEFOUNTAS: Okay. So you can distinguish between the three: res, bus, Internet customers?
10189 MR. EDORA: When we lease an unbundled local loop, what the competitor uses that unbundled local loop is up to them. Normally they have a --
10190 COMMISSIONER PENTEFOUNTAS: So you can't distinguish, to the question?
10191 MR. EDORA: Well, at present we cannot, but we can formulate a tariff such that we could make a difference between a loop leased for business purposes versus a loop leased for residential purposes.
10192 COMMISSIONER PENTEFOUNTAS: And you would base yourself on what to decide whether or not it was for business or residential purposes?
10193 MR. EDORA: Well, normally in these types of tariff situations it's the competitor that tells us what they're using their facility for.
10194 COMMISSIONER PENTEFOUNTAS: They would then self-identify?
10195 MR. EDORA: They would self-identify.
10196 COMMISSIONER PENTEFOUNTAS: And you would not be in a position to identify, say forbear --
10197 MR. EDORA: But it's important to remember virtually every co-located competitor is leasing a loop to provide voice and Internet. It would be very strange to lease a loop that cannot provide Internet services.
10198 COMMISSIONER PENTEFOUNTAS: Thank you on the ULLs. I just thought of something that came up yesterday as regards FTTP and the rate and I asked the first question on the rates, and if we were to mandate FTTP, would the potential rate for that mandated FTTP service be very close to the retail rate, given the fact that you would have to forego retail revenues in your risk assessment and investment model?
10199 MR. WOODHEAD: Well, I think when you see the actuals on these nine communities where we've deployed that we spoke about on Monday, the rate will be high, there's no two ways about it. With payback periods that are north of 20 years, you know, that's problematic.
10200 And you know, I think we said on Monday, in any event, outside of what you may do there, our proposition I think is that, you know, you shouldn't mandate this at all and that --
10201 COMMISSIONER PENTEFOUNTAS: I understand that, but sort of maybe stick to the question. And you have answered the question, the retail rates -- that the wholesale rates are very close to retail.
10202 MR. WOODHEAD: I mean, we haven't done the analysis to derive a rate, you know. But the underlying facts would suggest that the wholesale rate would be very high.
10203 COMMISSIONER PENTEFOUNTAS: Now, if your ROI is north of 20, why are you proposing seven years, that we forebear from mandating for at least seven years?
10204 MR. WOODHEAD: Well, because there have been proposals, I believe Bell mentioned five years. We are in the very early stages. Bell announced the other day that they, Bell Aliant, that they have passed a million homes I believe.
10205 And we are in the very early stages, so we felt, given a variety of factors: early stages; constructions season, which is essentially six months long; two-year planning and build scenarios per community, that seven years was a reasonable period of time.
10206 COMMISSIONER PENTEFOUNTAS: Okay.
10207 MR. WOODHEAD: And frankly, you know, an important point in all of that -- because I know that sounds like a big number to you, and that is probably why you have asked me -- but you have the power, the statutory power to reregulate at any time.
10208 And we carefully included in there prior to the expiry of that you are going to want to start up a review, and throughout that period, and we will provide some more detail around what you would want to be looking at just to assure yourself that things are going as we expect throughout that period of time.
10209 COMMISSIONER PENTEFOUNTAS: I appreciate that. As it regards your build-out in areas that already have fibre facilities available, do you have any plans to proceed in that manner?
10210 MR. WOODHEAD: Sorry, do you mean the areas where there is already competing fibre?
10211 COMMISSIONER PENTEFOUNTAS: Yes.
10212 MR. WOODHEAD: Those wouldn't be on the top of the priority list. You know, as we explained, we are going to areas where there is no fibre-to-the-node, there is none of that. But eventually, we would do that, yes.
10213 COMMISSIONER PENTEFOUNTAS: How far out would that be?
10214 MR. WOODHEAD: This project currently has multiple years. I am not trying to be cagey, I am not sure I am allowed to actually disclose it publicly.
10215 COMMISSIONER PENTEFOUNTAS: I understand.
10216 MR. WOODHEAD: But I would say it is north of five years.
10217 COMMISSIONER PENTEFOUNTAS: And what would motivate you to overbuild, to build over an existing facilities-based fibre provider?
10218 MR. WOODHEAD: The same reason we overbuild our current networks, we overbuild cable, you know, we overbuild in wireless. Let's say we want to compete and we want to do it on a facilities basis.
10219 COMMISSIONER PENTEFOUNTAS: And finally, I asked the question of Rogers earlier, as regards the concern of certain parties in this hearing already as to costing and knowing what the network and the elements that go into the network cost. What would your position be on a third-party auditor looking at those numbers?
10220 MR. WOODHEAD: I mean, outside of -- and Orest or someone else can jump in here -- but outside of the enormous cost of doing that for -- like, what mischief are we trying to...?
10221 I understand that like people raise the spectre --
10222 COMMISSIONER PENTEFOUNTAS: People want to know what it actually costs.
10223 MR. WOODHEAD: -- costs have been around since, in one form or another, since the early 1970s. This is how it has bee done forever.
10224 This great mystery that people, oh, we don't know enough, we don't know this, we don't know that -- you have injected a great deal of transparency into this process that I believe Mr. Watt described in the rows and rows of cells on spreadsheets. I think this is a misplaced and mischaracterized mystery. There is no mystery to it. These are the costs.
10225 I mean, people can assert, and there has been a lot of assertions in this proceeding, that we are being untruthful in our estimation of the costs. There is no estimation. There is no untruth, these are the costs.
10226 And you have the benefit of incredibly competitively sensitive information, and you always have, and you have exercised your judgment judiciously in assessing whether those costs are reasonable or not. And personally, I am struggling to find what mischief we are trying to solve.
10227 COMMISSIONER PENTEFOUNTAS: Thank you, Mr. Whitehead.
10228 Thank you, Mr. Chairman.
10229 THE CHAIRPERSON: Thank you.
10230 Commissioner Shoan?
10231 COMMISSIONER SHOAN: Thank you, Mr. Chairman.
10232 Dr. Weisman, your point on the retail-minus pricing in your oral remarks, that it would be a moving target with respect to rate setting because a reduction in retail would probably necessitate a reduction in wholesale, has that experience been borne out in any international market? Are you citing an example that happened elsewhere that tried to implement retail-minus?
10233 DR. WEISMAN: Well, it is simply a property of the rules. So one of the conditions, interrogatories, Commissioner Shoan, was CRTC 16 I believe, and it asked the companies their position on a fixed margin.
10234 So if you are going to have a fixed margin and you reduce the retail price, it has got to simultaneously reduce the wholesale price, otherwise the margin is not fixed. So it is simply a mathematical property of that pricing rule.
10235 COMMISSIONER SHOAN: Okay, that is very clear. Thank you.
10236 DR. WEISMAN: Thank you.
10237 THE CHAIRPERSON: Thank you.
10238 I am a bit surprised by your position with respect to wireless being or becoming a substitute. I know you have asserted that on a number of occasions. But I am struck by the fact that you heavily rely on, and sometimes on the Competition Bureau's position, that not mandating is the way to go.
10239 But on wireless substitutability, the Bureau has taken the exact opposite view. It seems to me that you seem to be selectively picking and choosing those parts of the Bureau's position to suite your purposes. And I put it to you, that goes to credibility.
10240 MR. WOODHEAD: My view on wireless in this context is just based on the facts. Satellite-based services in the imminent future will be offering speeds that are right in the zone of the evidence you have heard or around where people's choices are, so 25-35 Mbps.
10241 Mobile wireless, I grant you, that certain elements of that today, price and speed, are probably -- it is not a perfect substitute, but for some it is.
10242 And our position is that -- and sort of backstopping our position that you should continue with the current situation for FTTP, is that these things will evolve, we are right on top of it.
10243 THE CHAIRPERSON: I don't think you are addressing the heart of my question, Mr. Woodhead --
10244 MR. WOODHEAD: Around the Bureau?
10245 THE CHAIRPERSON: Which you are picking and choosing those parts of the Competition Bureau's position that best suits your purposes, ignoring those that disagree with you.
10246 MR. WOODHEAD: No. The Bureau's position, we accept, that this market is -- that the retail market is robustly competitive. I am not picking -- sorry, picking and choosing from the Bureau?
10247 THE CHAIRPERSON: Well, the Bureau says it is a duopoly because they don't believe that, because of pricing and quality, that wireless is a substitute.
10248 Yet, you come here and say, well, it is not a duopoly because there is access to both licensed and unlicensed with wireless --
10249 MR. WOODHEAD: Yes, okay. I am sorry, I misunderstood, Mr. Chairman.
10250 I don't wholesale adopt everything that the Bureau says. I agree that it is robustly competitive, I disagree that wireless is not part of this market.
10251 THE CHAIRPERSON: Okay, at least that is clear.
10252 Those are our questions, thank you very much.
10253 Madame, le secrétaire?
10254 THE SECRETARY: Thank you, Mr. Chairman.
10255 Our next presenter would be School District of Okanagan. But given the time right now in B.C., they are not quite ready to appear by video conference.
10256 So we will continue with the City of Calgary. If they are in the room right now, please come forward.
10257 THE CHAIRPERSON: Good morning and welcome, and please go ahead when you are ready.
10258 MS BENDFELD: Good morning, Mr. Chairman and Members of the Commission. The City of Calgary thanks the Commission for providing an opportunity for reply.
10259 For the record, I am Mary Anne Bendfeld, legal counsel for The City of Calgary. With me are Kelly Hess, to my right, and Dave Basto, to my left.
10260 In addition to supporting and responding to the Commission's suggestion of a pilot project for installation of a fibre-to-the-premise network, in its reply today The City of Calgary will also address issues raised by TELUS regarding support structures.
10261 In its discussion of support structures during its presentation to the Commission, Calgary described the structure of Enmax power poles and the three installation points available on each pole; one of which belonged to TELUS and two of which belonged to Shaw.
10262 In response to questioning, TELUS indicated Calgary has options of using lashing as a technique and/or brackets to attach to the Enmax power poles. TELUS' suggestions raise a few questions for Calgary.
10263 First, the poles are privately owned by Enmax, which has been regulated by the Alberta Utilities Commission since 2004. Both TELUS and Shaw have commercial agreements with Enmax for the purpose of occupying the poles and attaching their facilities, which were executed prior to the AUC becoming Enmax's regulator.
10264 TELUS communicated to the Commission that it was installing a good proportion of its fibre by lashing the fibre to its copper infrastructure located on the poles. Is TELUS suggesting that it would permit another TSP to lash its fibre to TELUS facilities, that is TELUS fibre already lashed over TELUS' copper?
10265 Second, even if TELUS would agree to such an installation, despite maintenance and operational difficulties, would this be allowed under TELUS' agreement with Enmax?
10266 Calgary was required to remove its copper wire from the Enmax power poles pursuant to occupational health and safety legislation. Additional options could not be provided for installation of Calgary's copper wire on new brackets installed elsewhere on the poles.
10267 Calgary believes that other TSPs may face similar issues with respect to accessing power poles. However, if that belief is incorrect, it is inconsistent with Calgary's experience concerning the commercial arrangements regarding access to Enmax power poles.
10268 The arrangements between Enmax and TELUS or Shaw are subject to confidentiality protection so we can't be certain what constraints are in the agreements but are told Calgary's access to Enmax power poles is not available.
10269 Calgary acknowledges that the installation of fibre infrastructure presents problems where support structures are inaccessible or exhausted and underground right-of-way capacity is limited.
10270 The suggestion by the Commission of a pilot project for a fibre installation may provide a solution whereby all affected parties could work together to resolve installation issues related to installation of fibre network facilities that provide for multiple TSPs to attach to the infrastructure.
10271 It is Calgary's opinion that a pilot project, or a virtual pilot project, would be of considerable benefit to the Commission's understanding of the requirements for a successful fibre-to-the-premise deployment. To this end, Calgary has the following suggestions that may be considered by the Commission for a proposed pilot project.
10272 First, participants. We suggest that the pilot project should involve an incumbent local exchange carrier or a cable company, or possibly both, a mid-size or small TSP and a municipality. The benefit of including a municipality is the ability of the municipality to arrive at collaborative solutions where installation of facilities proposes challenges, such as recently undertaken by Calgary for an incumbent carrier.
10273 For example, Calgary proposed an economical alternative to costly overbuilds, which involved providing a secondary alignment under a sidewalk if the carrier would install excess capacity, at Calgary's cost, which in turn would be owned and potentially licensed by Calgary to other TSPs.
10274 The fact that this is the only alignment available, other than a costly overbuild of existing facilities, demonstrates that there is no more capacity in the right-of-way for another carrier to install its facilities.
10275 A collaborative solution such as this can work to the benefit of all parties, including those not having access to dark fibre. Although TELUS suggested that Calgary's installation and licensing of dark fibre was akin to developing a monopoly, the proposed solution avoids the development of a monopoly and allows for installation of facilities by other carriers.
10276 TELUS referred to the Ledcor decision, wherein the Commission did not consider it appropriate that municipalities impose a requirement on carriers to construct capacity beyond their needs or require other carriers to use that capacity rather than constructing their own facilities, to infer that such a request was improper.
10277 However, in the Ledcor decision, the Commission encouraged the sharing of facilities and support structures to the greatest extent possible in core areas of major urban centres or where rights-of-way were congested.
10278 At the time, the Commission did not have to deal to the same extent with present day concerns regarding installation of new facilities for fibre networks when right-of-ways are even more congested and many are at capacity.
10279 In the decade since Ledcor, the telecom industry has evolved and new perspectives may be needed.
10280 Locations: A pilot should consider both eastern and western regions of Canada so as to provide results from different markets, and proposed deployments in both Greenfield and Brownfield urban areas.
10281 Architecture: There are numerous architectures that can be used to construct a fibre-to-the-premise network. As an example, if only one strand of fibre is dropped into the home during deployment, then a monopoly network operator is born. An architecture that drops two or four strands of fibre into the home can support multiple network operators.
10282 Architecting to serve only one network operator could potentially foreclose on competition and innovation. A successful architecture is one which will meet policy objectives while minimizing environmental impacts and accounting for right-of-way capacities.
10283 Negotiation of commercial agreements for the pilot: It would be beneficial for all participating entities to enter into an agreement that governed the terms and conditions of the pilot project.
10284 The assignment of a Commissioner in an overseer capacity to assist in the development of such an agreement may be critical to its success. It will ensure the interests of all participants are protected and may expedite the process.
10285 Costs: A potential pilot could reveal the actual costs of installation across aerial versus underground installations, as well as how such costs vary in eastern and western regions and in Brownfield versus Greenfield urban areas. Actual costs could provide the Commission a benchmark for future cost reference.
10286 Procurement: The process must take into account municipal requirements to comply with government procurement requirements if municipal money is being contributed or invested into a project that will also benefit a private entity.
10287 Alternatively, a virtual pilot could be undertaken, which would include the same participants, consider the same locations, determine a preferred architecture, contemplate the proposed terms of an agreement and estimate costs.
10288 A virtual pilot is an engineering exercise in which a community is designed for fibre-to-the-premise deployment and undergoes the practical steps necessary to construct a fibre-to-the-premise network but does not reach the installation or deployment stage.
10289 By engaging in a virtual pilot project, the pilot becomes cost effective and timely while providing an opportunity for engagement with all potential stakeholders. It will also provide a clearer understanding of how the architecture of fibre networks can be designed to meet policy objectives.
10290 In its reply comments filed 24 October, Calgary observed that fibre-to-the-premise facilities represent a major upgrade of infrastructure and will likely remain the dominant wire for communications in the 21st Century.
10291 A project of such magnitude, longevity, cost, and impact to society requires greater transparency and involvement with all stakeholders. It is Calgary's opinion that a project of such significance to the Canadian people merits the due diligence necessary to meet the policy objectives of the Telecommunications Act.
10292 We thank the Commission for the opportunity of appearing before you again today to communicate The City of Calgary's concerns, and we welcome any questions that you may have.
10293 Thank you.
10294 THE CHAIRPERSON: Commissioner Shoan?
10295 COMMISSIONER SHOAN: Thank you. Thank you for being here today. And thank you very much for your suggestions with respect to the proposed pilot project. I know my colleagues and staff will review them very carefully.
10296 I had one question for you with respect to the access issue you are experiencing with respect to Enmax power poles. And I want to tread carefully, because I recognize it is an Alberta utilities Commission issue ultimately.
10297 But you mentioned in your oral remarks that you were require to remove your copper wire pursuant to occupational health & safety legislation. Was this provincial legislation or federal?
10298 MS BENDFELD: That is provincial legislation.
10299 COMMISSIONER SHOAN: Okay, great. I just --
10300 MS BENDFELD: And the legislation is in regard to telecommunication workers working too close to the power lines on the power pole. So there had to be, I believe, 3.5 or 3.25 metres between the power lines and the telecommunication lines.
10301 COMMISSIONER SHOAN: Okay, that is great.
10302 Thank you again for your submission.
10303 MS BENDFELD: Thank you.
10304 THE CHAIRPERSON: Vice-Chair Menzies?
10305 COMMISSIONER MENZIES: Thanks.
10306 I am taking it you have a municipality in mind for the pilot project?
10307 MS BENDFELD: Actually, we don't and we actually could not commit the City of Calgary to doing that today.
10308 COMMISSIONER MENZIES: Have you discussed the idea though with other municipalities?
10309 MS BENDFELD: No, we haven't. The idea occurred to us -- actually, it was mentioned by a few of the Commission Members. And we actually had thought about that when we wrote our reply comments, that that is actually an appropriate thing to do in the circumstance; when something is new and it has the potential for such an impact on society, that a broader engagement would be beneficial.
10310 COMMISSIONER MENZIES: Well, thank you. New ideas are always welcomed. Thanks.
10311 MS BENDFELD: Thank you.
10312 THE CHAIRPERSON: With respect to Enmax's refusal or requirement that you remove your plant from their poles, is that documented?
10313 MS BENDFELD: Yes, it is.
10314 THE CHAIRPERSON: So it was in an exchange of documents?
10315 So were we to ask you for copies of those, you could provide us those documents?
10316 MS BENDFELD: I would have to consult with senior administration at the City and review the content of the documents. But if it was possible to provide them to the Commission?
10317 THE CHAIRPERSON: You are hesitating, because you are not sure whether you could -- whether there are confidential aspects to it?
10318 MS BENDFELD: That is right.
10319 THE CHAIRPERSON: Our rules allow you to ask for confidential treatment, as long as you make the case for it.
10320 MS BENDFELD: I will commit to saying I don't think there is an issue with providing you that information, but I would check with senior administration of the City of Calgary first.
10321 THE CHAIRPERSON: Okay. So you can undertake?
10322 MS BENDFELD: I can undertake to do that.
10323 THE CHAIRPERSON: -- to provide those --
10324 MS BENDFELD: Yes, I can.
10325 THE CHAIRPERSON: -- or if there is a problem with it, explain it?
10326 But of course if you can't provide the evidence in support of your claims, obviously it goes to credibility as well, right? You understand?
10327 MS BENDFELD: Yes, of course. And we can certainly -- if we can't provide the actual agreement, we can certainly provide documented evidence of that request and the compliance with the request.
10328 THE CHAIRPERSON: Great. Thank you very much. Those are our questions, thank you.
10329 Now, the next interveners have been up very early in British Columbia, and so they are all ready to go, so we are going to listen to them now, Madam Secretary.
10330 THE SECRETARY: Yes, we will.
10331 Are we proceeding, Mr. Chairman?
10332 THE CHAIRPERSON: Please, go ahead.
10333 THE SECRETARY: All right. So we will now hear the presentation from the School District #67 of Okanagan.
10334 Welcome to Phase II, gentlemen. Please go ahead, you have 10 minutes.
10335 MR. FRANCISCO: Thank you. Thank you again for having us.
10336 We would like to expand and clarify our previous submission. We presumed the Commission knew we were a non-dominant carrier. We apologize for not stating that in our original submission.
10337 As a non-dominant carrier, we have provided services such as Internet and voice over IP to regional districts, public libraries, local municipalities, senior centres and our subscribers. You have telcos, cablecos, cellcos, and now we would suggest that you have a new class, the edco, educational non-dominant carrier.
10338 You may be wondering who our subscribers are. Well, they're our students and our parents. Students expect free, ubiquitous Internet via wired and wireless connections. These services did not exist 10 years ago but today are expected by our subscribers. No government money has been provided to offer these new services and districts, AKA educational carriers, are forced to make hard decisions that affect one of the essential fabrics of this country.
10339 We have heard in the past week about bundled and no bundles and the cost structures related to them and whether these are new services or not. What we know from the future consumers who are our current subscribers, there is no difference in their eyes to these services. TV, voice and data are one and the same. The notion that they are different and require bundling or non-bundling is foreign to them.
10340 We also have built our network around this notion. The network does not see any difference between these services. It is a carrier grade class MPLS-enabled network that sees everything of TV, voice and video as a packet that it does something with. We are perplexed by the notion that the incumbents are not able to build these types of efficient networks as we have since, you know, we are a smaller player and have been able to do so.
10341 We have also heard that many of the services provided to consumers are delivered via well-negotiated or healthy environments when it comes to wholesale services. Many of our subscribers that we look at, by the age of 10 have access to mobile devices. Without mandated wholesale access, we are not able to acquire the services to offer mobile devices to students. We believe we could provide these services to our subscribers with better access and coverage and unique content related to their educational experience. Parents would benefit as well.
10342 As a father of three children, the cost of telecommunication services for all the members of my family would be second only to the monthly food bill. My monthly gas, water and electricity all added together would still be cheaper than any bundle I could acquire. The busy life of modern age has also increased the value to be in communication with my children via texting and social media throughout the day.
10343 We ask that the Commission not narrow its vision to this new class of market, the edco. We have heard in the past that these deals are healthy and that non-dominant carriers are able to negotiate with larger carriers in fair and open markets. That has not been our experience.
10344 I will now hand it over to Ron to expand. Thank you.
10345 MR. SHONGRUNDEN: Trying to build our network right from the get-go has been very difficult. Trying to deal with different telcos, cablecos has been very difficult. Our cableco says they can't provide wholesale prices, only incumbents can, and we can't understand that. We think that all cablecos, cellcos, telcos should be providing any kind of wholesale services on any type of services as well.
10346 Fibre and wireless are basically the same thing now. Technology has blurred. All carriers should be providing wholesale services on all services and that includes everything. It's just too blurred in this day and age.
10347 And we've had a very difficult time, I guess, going around that, not just in terms of what telcos and cablecos are telling us but also going back to some kind of legislation or reading through the documents to see what we actually are entitled to. So if that could become clearer for people getting into this game, that would be appreciated as well.
10348 I think you have an opportunity -- we were told yesterday that you were focusing on carrier-to-carrier as the focus and a lot was talked about fibre-to-the-premises, and again, we would just like to reiterate that that's too narrow a focus. You have an opportunity here to effect some social change, I think. Looking at wholesale in its entirety is where everything should be looked at, not just a narrow focus. And again, we're suggesting that perhaps you can look outside and maybe make some real effect in terms of social policy here.
10349 And we would love to, again, try kind of a pilot, if that's even possible, to see if some of these things can be looked at and can make a difference. We have some unique capabilities here in our School District and we would love to be able to work with them. We have in the past also worked with some private corporations but we would love to be able to have everybody at the table and work with some really interesting things that could benefit society as a whole.
10350 Thank you very much.
10351 THE CHAIRPERSON: Thank you very much.
10352 Commissioner Shoan.
10353 COMMISSIONER SHOAN: Good morning, gentlemen. Thank you for being up this early to speak with us.
10354 I have one quick question following your submission this morning and it actually follows from your previous presentation.
10355 I thought about a lot of what you presented during your initial submission and I was curious about the costs associated with the construction of your network and I was hoping you could file something by the Reply Phase, perhaps providing detailed information with respect to the time, the development of your network, how much it cost. Obviously, if there's a confidential component you could ask for confidentiality for those numbers.
10356 But I think it would be useful for both myself and my colleagues as well as staff to understand the challenges specific to building the kind of network that -- as you call yourself an edco, an interesting concept. I think it would be very informative for us to learn a little bit more about that.
10357 So would you be willing to undertake to file something by the 12th?
10358 MR. FRANCISCO: I think we would love to do that for you but we would like to say that we would like to keep that confidential.
10359 COMMISSIONER SHOAN: Sure, no problem, and you can request confidentiality for those portions. Thank you very much, gentlemen.
10360 THE CHAIRPERSON: Vice-Chair Menzies, please.
10361 COMMISSIONER MENZIES: Hi. Thanks. We just need to clarify something.
10362 You're describing yourself as an educational non-dominant carrier, right?
10363 MR. FRANCISCO: Yes. This is, I guess, a concept we're coming up to as part of some of our submissions earlier that perhaps a new class be thought of when it comes to education and being able to acquire these services.
10364 Telecommunications are not our primary business, we are a School District. Much similar to maybe what you've heard with the City of Calgary, their primary business is to the citizens of their new municipalities but because of technology and the entanglement that occurs in society, they also are into the telecommunications space. We find ourselves in a similar notion and in fact that's what has spurred a lot of the shared services that we now offer and work with in the sense of working with our local municipalities and giving them services.
10365 COMMISSIONER MENZIES: Okay.
10366 MR. FRANCISCO: So that's where the kind of concept and term has come from.
10367 COMMISSIONER MENZIES: Sure. I understand that but I just need to clarify because you describe your subscribers as students and parents and I just need to clarify, because it's a legal question, whether you provide your services to your subscribers for compensation. I ask that because, for the purposes of the Act, to be considered a carrier you have to provide services -- and I'm quoting -- "to the public for compensation." So do you provide those services for compensation?
10368 MR. FRANCISCO: Just to clarify, students and parents are not our only, I guess, customers because we deal with other entities. We do charge for those services to those other entities. So we provide phone services just like a normal telco would and we do get compensation for that.
10369 COMMISSIONER MENZIES: So you provide services to subscribers for compensation?
10370 MR. FRANCISCO: Yes, we do.
10371 COMMISSIONER MENZIES: Thank you.
10372 THE CHAIRPERSON: Just to follow up on the discussion you had with Commissioner Shoan, you are able to provide that information by the 12th of December, correct?
10373 MR. FRANCISCO: Yes.
10374 THE CHAIRPERSON: Okay. Because we do have a Reply Phase and we have to complete the record before we get to the final written Reply Phase. By the 12th, please.
10375 All right, those are our --
10376 MR. FRANCISCO: One thing I wanted to further touch on, on the last question, as well is that the notion I was mentioning with students and parents is more there's markets there. As any non-dominant carrier looking to differentiate itself, these services today, some are provided free. Well, if we were able to get wholesale services, it's not inconceivable that we could be offering mobile devices on service plans and things like that should our networks be able to get access to those wholesale services.
10377 So I guess I'm saying in the future and looking at the scope of where we could be involved with that is an avenue that could be plausible.
10378 THE CHAIRPERSON: Right. Understood. I think the Vice-Chair was trying to clarify your legal status currently but we appreciate that your situation may evolve over time.
10379 MR. FRANCISCO: Okay, thank you.
10380 THE CHAIRPERSON: So thank you very much.
10381 So we will take a break now until 11:00 and continue with the other party --
10382 THE SECRETARY: Which will be Shaw, Mr. Chairman.
10383 THE CHAIRPERSON: Which is Shaw. Okay, thank you. With Shaw at 11:00.
10384 THE SECRETARY: And just for the record, MTS and VMedia will not be appearing in Phase II. So we will continue with Shaw.
10385 THE CHAIRPERSON: Okay. Adjourned till 11:00. Thank you.
--- Upon recessing at 1046
--- Upon resuming at 1102
10386 LE PRÉSIDENT : À l'ordre, s'il vous plaît. Order, please.
10387 So we will now hear representatives from Shaw. So please identify yourself and go ahead. Thank you.
10388 MR. COWLING: Good morning, Mr. Chairman and Commissioners. I am Paul Cowling, Vice President, Regulatory Affairs at Shaw Communications.
10389 I am joined by Dean Shaikh, Vice President, Regulatory Affairs; Esther Snow, Manager, Regulatory Affairs; and Jocelyn Kearney, Regulatory Counsel.
10390 Over the last week, we have listened with interest to the various panel presentations. What we've heard is that Canadians want ongoing access to high-quality, innovative and reasonably priced broadband services as well as choice. They are asking the Commission -- and the industry -- to ensure that these services continue to evolve and grow dynamically to meet their future needs. At Shaw, we've heard this message. We will continue to invest and innovate to meet and exceed the needs of our customers.
10391 In this brief reply, we will focus on certain priorities that we respectfully ask the Commission to give sufficient weight to in its deliberations. After participating in the oral phase, we identified these considerations as critical to a regulatory framework that will maximize both consumer choice and long-term sustainable competition.
10392 First, the wholesale framework must be technologically and competitively neutral. This is a fundamental principle of Canadian telecommunications policy that must be taken into account on the issues of whether to mandate certain services and of how to approach risk for markup purposes in costing.
10393 Technological and competitive neutrality isn't just about fairness. It encourages the diversity of networks that drives consumer choice and benefit, as well as sustainable competition, well into the future.
10394 As you have heard, fibre-to-the-home is not the only technology that offers huge potential for Canada's broadband future. DOCSIS can and will compete with fibre-to-the-home on next-generation speeds. Regardless of the particular technology used, the investments that are necessary to provide higher speeds are risky given the current uncertain demand for these speeds.
10395 With this in mind, it is critical that any relaxation of wholesale high-speed access regulation, or any continued regulation, be based on speeds rather than technologies. If the Commission continues to mandate TPIA services, it should also mandate services supported by fibre-to-the-home. Similarly, higher markups for riskier investments should not be exclusively reserved for fibre-to-the-home.
10396 Second, we would highlight the importance of a future-oriented regime, one that takes a long-term dynamic view. We note that the consumer groups emphasized this point in their opening presentation as well.
10397 Over the course of the hearing, the Commission has heard about the rapid pace of technological and market change in communications services.
10398 We should avoid a regulatory policy that assumes a world where consumers and networks exist in a static environment.
10399 We also cannot ignore that the constraining forces of wireless and satellite have grown in the past few years and will continue to grow with advancements in capacity and speed. Indeed, the federal government has recognized them as suitable facilities-based candidates for funding under its Broadband Canada program.
10400 We don't know what other disruptive technologies may emerge or what consumers will want next from broadband but the market will drive us in the right direction. This is why we need a regulatory framework that is flexible, future-oriented and technology neutral.
10401 This brings us to the third priority: the regulatory framework can, and should, ensure a stable environment for long-term investment strategies.
10402 The evidence of rivalry, innovation and competition in retail Internet markets is clear. The Commission and the regulatory framework have played an important role in facilitating this outcome to the benefit of Canadians. The Telecommunications Act, the Policy Direction and a body of Commission decisions collectively create an expectation that regulation can and will fall away when it is no longer needed to protect the interests of consumers. Re-regulation and new regulation should only occur where there is an evident need.
10403 If the Commission disagrees with our characterization of the retail market and continues to mandate wholesale high-speed access, we should not go backwards and abandon aggregated TPIA in favour of, or in addition to, BAS. Redesigning TPIA in the manner proposed would undermine our long-term investment plans for our network -- which are taking us in a more customer-focused and forward-looking direction. As we discussed in our initial presentation, those investments have been carefully designed to optimize the customer's experience by responding to and anticipating their evolving needs as they demand more and more data. We shouldn't jeopardize that future to accommodate certain competitors' cost concerns.
10404 Fourth, Canadian telecommunications regulation has always emphasized the role of market forces. We believe that now is the time to pursue market-based arrangements in wholesale services.
10405 Shaw made it very clear in our initial presentation that wholesale is a large and growing part of our business. We would welcome an opportunity to do mutually beneficial deals that are not overshadowed by tariffs and regulatory obligations. We believe that negotiated outcomes will enhance consumer benefits by responding to the specific needs of consumers in the relevant markets. Canada is a diverse country. A market-based approach to wholesale arrangements can reflect that.
10406 In our written comments, we outlined in detail our concerns with specific submissions made by other parties over the course of this proceeding. We put forward our position and supporting evidence regarding a number of proposals, including Equivalence of Inputs; Broadband Access Service; and the Efficient Operator and other alternatives to Phase II costing. Our positions on those issues haven't changed through the course of this oral phase and we respectfully request that the Commission take them into account in coming to its decisions.
10407 We are pleased to answer any additional questions you might have and thank you for the opportunity to participate in this review.
10408 THE CHAIRPERSON: Thank you.
10409 Vice-Chair Menzies.
10410 COMMISSIONER MENZIES: Thank you.
10411 (Off microphone) has attempted to phrase this question as "Can you tell us what the heck is going on in Calgary," but I'll try to make it a little bit more sophisticated.
10412 COMMISSIONER MENZIES: So they talked about access to rights-of-way and support structures. So is the availability of support structures there or in other places a major obstacle to your ability to deploy your own facilities?
10413 MR. COWLING: In short, no.
10414 COMMISSIONER MENZIES: Why not?
10415 MR. COWLING: These are discussions that take place in the context of a negotiation of an MAA and the life of an MAA. We have not been made aware of any major concerns, independent of this proceeding, on that issue in terms of our own deployment and we weren't made aware of it in the context of the development of a model MAA over the past two years or so.
10416 COMMISSIONER MENZIES: Okay. So there's no influence there on duplicability of facilities? I mean the restriction they're finding in terms of access to ENMAX structures, is that restricting the ability of others as well to duplicate facilities that are already on those structures?
10417 MR. COWLING: Well, speaking from Shaw's perspective, when we negotiate access to support structures with public utilities, which is outside of the scope of the jurisdiction of this body, we do have challenges. Are they capacity related? Not principally. There are other terms in the negotiation that are challenging.
10418 COMMISSIONER MENZIES: Right.
10419 So given the potential need to review CBB rates, as has been raised here, what do you think of a possible approach where incumbent input costs related to acquisition costs of key network equipment are reviewed by a third-party auditor?
10420 The audit could be a straightforward review of key core or edge network routers acquired by the incumbent or you within the past, say, 12 to 14 months. Frequency would be once every five years conducted in conjunction with the study period selected for setting CBB rates. Would there be any benefit to that sort of undertaking?
10421 MR. COWLING: Just on the context in which you asked the question, it was in the context of CBB rates, which we don't charge, but --
10422 COMMISSIONER MENZIES: Yeah, and review of CBB rates.
10423 MR. COWLING: Right. And it's just important to be clear that Shaw does not charge currently CBB rates. But separate and apart from that, I think you're asking about costing inputs --
10424 COMMISSIONER MENZIES: Yeah.
10425 MR. COWLING: -- and the validity of an independent third-party auditor.
10426 COMMISSIONER MENZIES: Yes.
10427 MR. COWLING: Well, it struck us when we heard discussion of that that there in some sense is an independent third-party auditor and that's the Commission. The Commission reviews our cost studies and can test that. So the incremental benefit that would be derived from the incremental cost of an auditor reviewing those inputs, it isn't compelling to us.
10428 Having said that, if there is some benefit from a transparency or a process perspective I don't think we would object to an independent third-party auditor testing that over a reasonable period of time. You mentioned every five years.
10429 Again, we don't see the incremental benefit of it given the cost, but given the role of the Commission, but we are not going to object to something that would just bolster what we think is already the case, which is that the costs are legitimate.
10430 COMMISSIONER MENZIES: And just you talk about the need for technological neutrality in terms of that. What about the suggestion that has been made here over the last several days that the matching speeds framework include fibre-to-the-premise as opposed to necessarily a strict -- a mandated access to FTTP that -- I think I said three "T"s there. Anyway, FTTP, that the matching speeds framework include that?
10431 MR. COWLING: Yes, that seems to get us to the place where we think you have to go. I mean obviously our position is that we don't believe you need to or should mandate high -- next-generation speeds.
10432 COMMISSIONER MENZIES: Right.
10433 MR. COWLING: But if you're not going to take that approach, then a uniform approach to all speeds regardless of technology would meet the requirements of technological neutrality.
10434 COMMISSIONER MENZIES: Okay, thank you. Those are my questions.
10435 THE CHAIRPERSON: Thank you.
10436 Commissioner Molnar...?
10437 COMMISSIONER MOLNAR: Thank you. I want to address what you have put in the first bullet on page 3 of these remarks. You say:
"...it is critical that any relaxation of wholesale high speed access regulation, or any continued regulation, be based on speeds rather than technologies."
10438 And I understand you are speaking primarily about the issue of symmetry between technologies, but when you say be based on speeds, are you speaking solely of looking at next-generation speeds or are you thinking there might be different regulatory outcomes for speeds that exist today?
10439 MR. COWLING: Well, I think we were thinking of next-generation speeds and, as you will recall from our proposal for phase out, we hit 25 megabits per second as what we saw as the delineation between next-generation and the current bulk of the customer base and customer usage at that 25 megabits per second level.
10440 So I think -- sorry, the answer to your question is I think it's with respect to next-generation speed.
10441 COMMISSIONER MOLNAR: So do you think it would be appropriate to regulate based on speeds at all level of speeds and not just different regulation for next-generation speeds?
10442 MR. COWLING: We don't think that's necessary. The exercise here was really to identify what is next-generation and what is current, currently the consumer focus.
10443 COMMISSIONER MOLNAR: Okay. Just remind me, for a cable company based on your existing network design, what makes 25 megs different then 50 megs as a next-generation speed for a cable network?
10444 MR. COWLING: Well, for us it's all about increasing the fibre deeper and denser into the network, but we landed on the 25 megabits per second speed, as we articulated in our initial presentation, really driven by where consumers are today.
10445 COMMISSIONER MOLNAR: Right. Right, okay. Thank you. Just one more question. On page 4 you say one of the priorities is a regulatory framework that
"...can, and should, ensure a stable environment for long-term investment strategy."
10446 So stability, predictability. We have heard discussions here about re-looking at the regulatory framework in five to seven years. What's your view on that?
10447 MR. COWLING: Yes, that timeframe seems appropriate to us. It is consistent with the timeframe increment from the last review. So we would agree with that timeframe, five years is an appropriate time in which to review this.
10448 COMMISSIONER MOLNAR: Five years is an appropriate time?
10449 MR. COWLING: Yes.
10450 COMMISSIONER MOLNAR: Okay. Thank you. Those are my questions.
10451 THE CHAIRPERSON: Thank you very much. I think those are all our questions. Thank you.
10452 MR. COWLING: Thank you.
10453 LE PRÉSIDENT : Madame la Secrétaire...
10454 THE SECRETARY: Thank you. The next presenter will be appearing by videoconference from our regional office in Regina and it is SaskTel. Good morning, gentlemen. Can you hear us well?
10455 MR. MELDRUM: Yes, very much so.
10456 THE SECRETARY: Perfect. So we are ready to hear your reply. Go ahead. You have 10 minutes.
10457 Can you please reintroduce yourselves for the record before you do so, please?
10458 MR. MELDRUM: Thank you. Yes.
10459 So my name is John Meldrum, I am the Vice President, Regular Cherry and Corporate Counsel for SaskTel.
10460 With me again on my right is Brian Eltom. He is the Assistant Vice President responsible for SaskTel's fibre-to-the-prem program and on my left is Andrew McKay from our Regulatory Department.
10461 We have listened with interest to your questions and the oral submissions and answers of others. After doing so, one of our major concerns is that the risks contained in our business case for additional fibre-to-the-prem expansion may not be fully understood.
10462 We are also concerned with suggestions that this case is not impacted by mandating access to fibre-to-the-prem networks either through speed matching or some other mechanism because we have to build it anyway.
10463 Commissioners, we urge you not to be swayed by these submissions. There are many risks involved in our business case and I want to specifically review them.
10464 The time involved. In 10 years many things can change. All of the risks I will discuss are magnified due to the length of time covered by this investment and the associated revenues.
10465 Financial risks. We have already told you that this is the largest capital project in the history of our company. Our current estimates show that the total cost of our fibre-to-the-prem program will represent over 70 percent of SaskTel's total equity balance. For any enterprise, an investment equating to over 70 percent of its equity is incredibly risky and basically betting the farm.
10466 Macroeconomic risks. The majority of our equipment is priced in U.S. dollars. A falling Canadian dollar will have a significant impact on the business case. As well, increases in interest rates would also have a negative impact.
10467 Cost Variability. Third party labour and other costs may vary from the level that we anticipated.
10468 Market Risk. Revenue projections may not materialize. As we and others have told you, customers currently don't purchase the higher speed bandwidths available over fibre-to-the-prem. Sure, they enjoy them for a trial period, but once their promotional pricing is over they substitute back to service levels that can be provided over fibre-to-the- node.
10469 So we are actually building in anticipation that the market will evolve in the way we expect and that customers, at some point, will demand these speeds, speeds our cable competitors are already able to provide.
10470 Technological Risks. It is quite possible that alternative technologies such as fixed wireless, satellite, and especially mobile wireless will improve enough that they move from supplying smaller customer segments to being a widespread alternative.
10471 Other Disruptive Technologies. Many smart people are out there as we speak, trying to improve various technologies using apparently unconventional means or such widespread technologies as Wi-Fi. If, for example, Wi-Fi antennas on street lamps, which do exist today, can have their capacity boosted to the extent that they can serve nearby residences, then a service provider would not actually have to provide wired drops of any kind. Such a scenario is not that unrealistic and many others can also be envisioned.
10472 Improvements in copper capacity. Perhaps the biggest technological risk to our fibre investment is that copper capacity evolves and continues to be able to support the internet speeds that meet the majority of customer demand into the future, even as those demands also evolve. In this case, our decisions to overbuild areas already served by copper will have been in error. And we note that companies such as Huawei continue to improve copper speeds, at least in the lab.
10473 Regulatory Risks. You have noted that, historically, we have seen little demand for our wholesale DSL services. This is true at this point, but that demand continues to increase and new competitors continue to enter our market. While our current wholesale customers are pursuing more of a niche business market, we have already noted that ISPs such as Primus have given written notice that they intend to serve Saskatchewan as a CLEC. In addition, we note that four other CLEC applications are in process. The number of resellers in our market is about to double.
10474 We also acknowledge and concur with the concerns expressed by MTS that once you create a mandated service to help the small ISPs it may actually be used by much larger market players than SaskTel. These players opposed the creation of such a service, but once it is there you can be sure that they will use it to their benefit.
10475 There is also the risk that the regulated prices determined for these services will not recover our true company-specific costs, or provide sufficient markup to recover fixed and common costs, leading to us, in effect, subsidizing our competition. Because of these factors any decision to mandate wholesale access, of any variety, to fibre-to-the-prem will definitely cause us to re-evaluate the expected revenues and the risks of extending our fibre build.
10476 In addition to our concerns with the creation of additional regulation, we want to stress that there is no need to create this risk.
10477 The Commission should be there to support competition, not specific competitors. The Competition Bureau, with no axe to grind in this debate, has determined that retail competition in the internet market does not require wholesale intervention at this time and that from a competitive perspective, you should take a "wait and see" position on fibre-to-the-prem. We agree with the Bureau.
10478 We see the Saskatchewan Internet market as confirmation of the position taken by the Bureau. As noted, currently the resellers have few retail customers in our province but there is competition between SaskTel and either Shaw or Access Communications. This is vigorous competition with reasonable prices, an array of promotional offers, high levels of investment, and churn rates far higher than we would like. So we would say, "Yes, competition with two facilities-based players works".
10479 Commissioners, the retail Internet market is competitive in Saskatchewan and across the country. There is simply no reason to introduce additional regulatory measures which will risk the further expansion of fibre networks in Canada. With that, I will close.
10480 Thank you for arranging our rebuttal via video conference and await any questions you may have.
10481 THE CHAIRPERSON: Thank you very much.
10482 Vice Chair Menzies, please.
10483 COMMISSIONER MENZIES: Thank you. I need to understand a little better the situation in your territory regarding fibre builds. Are there any competitors in your serving area that have fibre facilities or are building out fibre facilities?
10484 MR. MELDRUM: In terms of residential?
10485 COMMISSIONER MENZIES: Yes.
10486 MR. MELDRUM: In terms of residential or business end?
10487 COMMISSIONER MENZIES: Both. Both actually. What I'm trying to establish is in terms of many people have commented here that there is no incumbent advantage when it comes to fibre-to-the-prem, for instance.
10488 Just what I need to know, is anybody else deploying fibre-to-the-prem or other fibre-based facilities in your market area right now?
10489 MR. MELDRUM: Well, on the residential side the cable companies continue to push fibre deeper into their network, but we do not believe it is yet reaching the premise, so on the residential side I would say that we are the only party that has fibre-to-the-prem.
10490 MR. ELTOM: I would say for certain nobody is in brownfield areas overbuilding with fibre like we are. But I think from some of the other submissions from the cable companies with the current platform, the coax that is running into that home with DOCSIS 3.0 and where it may go, they can certainly offer the same speeds that customers can get from us over fibre-to-the-prem.
10491 And with all greenfield builds we have what we call a joint use trenching arrangement with ourselves, the cable companies, the power company and the energy company where we are jointly sharing the cost of putting trenches into new subdivisions and then we each can lay in our own facilities and conduits.
10492 So certainly in greenfield areas the cable companies could be putting fibre along with coax into those. We are just not aware of what they are using that conduit for, but they would have the same opportunity as us because we are sharing the cost of that trench into those new neighbourhoods.
10493 MR. MELDRUM: And on the business side there would be pieces of fibre, but there are no ubiquitous fibre networks other than SaskTel's and the cable companies.
10494 COMMISSIONER MENZIES: Okay, thank you. And in terms of your existing copper, some have suggested that -- it has been suggested that sooner or later those copper facilities are going to age and the natural evolution that might be that rather than replace that copper that fibre would be obviously the next generation that would go in instead. Is that any part of your thinking in terms of your deployment of fibre-to-the-prem?
10495 MR. ELTOM: Certainly when we look at if we do get to a point in a location where the copper has degraded to the point where we would look to have to replace it, then certainly in those cases fibre would be the better alternative, which is why again in greenfield areas we are deploying fibre brand-new.
10496 However, the sort of state of our copper network in Saskatchewan is actually quite good. Most locations we still anticipate being able to leverage that network for, you know, 10 to 20 years and, in fact, I think in our original submission we talked about looking at deploying fibre into smaller locations where we don't offer IPTV today.
10497 One of the things that hurt that business case was the fact that the copper network in both of those locations is actually still quite good so there is really no need for us to change it at this point. You know, obviously 10 years from now, 20 years from now that could definitely change in some locations, but most of the locations where we have expanded our IPTV service the copper was actually in pretty good shape with the exception of maybe one smaller city where we did have to do some significant repairing of that copper, but fibre at that time wasn't an option for us.
10498 COMMISSIONER MENZIES: So what I took from that was that in the majority of cases in terms of any retirement of copper you are looking, I think you said, 10 to 20 years out?
10499 MR. ELTOM: Certainly right now. Again, when we start looking at being able to offer higher broadband services, whether that be IPTV or the higher Internet speeds, the locations that we have already expanded to, everything there is already built on fibre-to-the-node. The next sort of locations that would seem like natural places to go, the copper in those locations is in good shape so we wouldn't have to deploy fibre. We could continue to use fibre-to-the- node. And even in the locations where we are building brownfield fibre we are not converting our voice customers off of the copper network.
10500 So we do anticipate even in areas where we build fibre continuing to leverage that copper for our voice-only customers for a significant period of time. We do not have any plans at this point to remove that copper.
10501 COMMISSIONER MENZIES: Okay, thanks.
10502 I take it you are familiar with the City of Calgary's position and situation that they have raised for us. I just want to know if you encounter or anticipate encountering any similar difficulties within your serving area, and maybe to comment on their proposal for a pilot.
10503 MR. MELDRUM: Well, certainly we don't anticipate the support structures in Saskatchewan getting to the full stage anytime soon because that seemed to lie at the basis of their problem is they are saying that there just isn't any room. But boy, I don't know. When you travel to other jurisdictions and see the extent to which polls have been loaded up, I would even question whether Calgary has reached the point that their polls are fully loaded.
10504 In terms of their proposal, Andrew, would you have something to add? We haven't studied it in any great degree.
10505 COMMISSIONER MENZIES: No.
10506 MR. MELDRUM: But the idea of a pilot project that involved the city dictating what they think is in the best interest of their citizens, it just does seem to be somewhat of a strange concept to us.
10507 MR. McKAY: We would agree. And meanwhile fibre continues to be laid and so by the time this trial was done we are not sure what the relevance would be.
10508 MR. MELDRUM: Yes, in terms of relevance to Saskatchewan, I don't think there would be any.
10509 COMMISSIONER MENZIES: Okay, thanks.
10510 I asked previously of Shaw, regarding the potential need to review CBB rates, do you see any value in where your input -- in having a process where input costs were reviewed by a third-party auditor and be conducted -- you know, look at the last 12 to 24 months and over a frequency of roughly every five years? Yes. Would there be any benefit to that to you?
10511 MR. MELDRUM: So again just to be clear, we don't have CBB rates either.
10512 COMMISSIONER MENZIES: Yes.
10513 MR. MELDRUM: But I know your question is more general than that.
10514 We certainly encourage the Commission staff to do whatever they think is necessary to be able to confirm rates and usage and whatever it takes for them to be precise in their rate-setting exercises. If that entails a third-party auditor to be able to accomplish that, we certainly aren't against it. We are not sure about the cost-benefit analysis of bringing in a third-party, but even I guess to the extent to which the Commission itself got that kind of expertise we would support it.
10515 COMMISSIONER MENZIES: Okay, thanks.
10516 And you mentioned today and previously regarding making fibre-to-the-premise available to people and they seem to lose interest after the trial period and go back to the others because they don't need whatever you have to get. How much of that has to do with the product conceptually and the price that you are offering it at?
10517 Are they interested in the product but you know, you are, as near as I can tell -- just let me check -- your fibre-to-the-prem, 100 megabits services $100 a month, whereas your fibre-to-the-node speeds are sort of $50 or something. Is the price point the issue there? I mean I know that goes to return on investment and that sort of stuff, but are you still trying to find the appropriate price point?
10518 MR. ELTOM: I would say, you know, if you have an opportunity to look at and compare the intranet plans available on fibre-to-the-node versus fibre-to-the-prem, one of the things that you will notice as what we have done is, when a customer that is currently using fibre-to-the-node, when we do migrate them over to the fibre-to-the-prem, they actually automatically get a boost in their speed levels for no additional cost.
10519 So I think again if a customer is using 5 Mb or 10 Mb today and for no additional cost they are essentially getting double of that speed, I think what they are doing is looking at that as saying, well, those should certainly meet my needs for the next little while, therefore I shouldn't -- I don't see a need for me to spend any additional money.
10520 So I don't know if they necessarily say that the price isn't, you know, at a good place. What they are looking at is: What do I need the intranet for and if you are already giving me doubled his speed for no additional cost, do I really need to at this point in time invest more of my wallet in a telecommunications service?
10521 So I just don't think that they see the value in having 20 times the speed or 10 times the speed. Right now they are probably seeing double the speed is good enough.
10522 COMMISSIONER MENZIES: Okay, thank you. Those are my questions.
10523 THE CHAIRPERSON: Sorry. Just to clarify, with respect to greenfield construction you said you have arrangements with others to deploy those power companies and the cable company; is that correct?
10524 MR. ELTOM: Correct. Like today what we have is we call it a joint use arrangement, a joint trench use arrangement where we have SaskPower, SaskEnergy, ourselves and the cable companies. It's actually a program that is administered by the SaskPower company here in Saskatchewan.
10525 So in new subdivisions, they arrange for the trench to be dug and for all four utilities -- I will call ourselves utilities for this sake -- to be put in the trench at the same time and we share the cost of that trench. We split it four ways in all greenfield areas, in most greenfield areas in the province now.
10526 THE CHAIRPERSON: And it's capped at four participants potentially?
10527 MR. ELTOM: That's just how many people are participating today. I would anticipate that if another party came along and said that we would like to be involved in your program, I think all of us would be open to now sharing the costs five ways instead of four.
10528 THE CHAIRPERSON: Right, but there is no contractual --
10529 MR. ELTOM: At this point it's only for.
10530 THE CHAIRPERSON: Okay. But there's no contractual preventing a fifth player in there, right?
10531 MR. MELDRUM: No. No, there is not.
10532 THE CHAIRPERSON: Okay. Good. Well, thank you for the clarification.
10533 That concludes our questions. So thank you very much for having participated from Regina.
10534 I think we will have time for one more presentation before the lunch break. Thank you.
10535 THE SECRETARY: Yes, we do. So I would ask Distributel to please come and take their place at the presentation table.
10536 THE SECRETARY: Please go ahead when you are ready.
10537 MR. STEIN: Good morning, Mr. Chairman, Vice-Chairs, Commissioners and staff.
10538 My name is Matt Stein, CEO of Distributel. With me today are Melvin Cohen, Chairman of the Distributel group of companies; Don Cavanagh, Vice President Network Services and Anne McMillan, Regulatory Analyst.
10539 There has been much discussion during this proceeding of the current health of the competitive market and the success of the existing wholesale framework. This discussion has highlighted, for example, the overall growth of the national market share held by competitors from 6 percent in 2009 to 8 percent in 2013 and higher claimed competitive market shares in a couple of provinces.
10540 It is correct that the competitive market as a whole has grown as a result of access to higher-speed services following Decision 2010-632. For our part, we are proud of the advances that we have made in the market following that and other decisions that have enabled us to offer competitive, high-value, and differentiated services. However, these advances will only continue to the extent that competitors remain able to offer actual competitive choice to the market.
10541 On this point, it's important to recognize the pressures faced by competitors under the existing framework. For example, it is true that Distributel's average revenue per user has increased. For the most part this increase is attributed to customers buying increasingly higher speeds. However, this indicator does not translate to increased profitability or growth as it does not reflect the fact that increases in price per user are barely keeping pace with the increases in costs per user.
10542 A more appropriate indicator is therefore the dollars of gross margin per user, which has remained flat, despite this growth in revenue. As such, on a percentage basis, the profitability of these services have declined, not grown.
10543 In other words, as we are forced to increase retail rates to cover increasing costs, the ability to offer a competitive service dwindles.
10544 I would like to briefly comment on the views that competitor access to higher-speed services are not necessary at this time, and that moratoriums of three, five or seven years in length are acceptable, or that speeds above a threshold should simply not be made available.
10545 The claims that access to higher-speeds are not required due to the minimal demand are in many ways similar to those held during the proceedings that led to the Commission's original speed matching determination. For example, in 2010 only 2 percent of customers subscribed to Internet speeds higher than 16 Mbps. In 2011 that percentage increased to 9.5 percent and to 27.2 percent in 2012, and finally 30 percent in 2013.
10546 In other words, what may be considered halo speeds today will become the standard speeds of tomorrow.
10547 This trend of customers transitioning quickly to higher-speeds as they become available is not new. When I started in the Internet business, speeds were measured in "baud". Even back then, customers still gravitated to the providers that had the fastest speeds. This has not changed as we moved from bits per second, to megabits per second, nor will it when we move to gigabits per second. Access to higher-speeds continues to remain critical to meet customer demands as they adopt more bandwidth-intensive applications, driving the need for higher speed services.
10548 With regard to access to FTTP services, such access is also important where a neighbourhood is served via legacy copper and FTTP, or, in some cases, by FTTP only. In those existing and growing locations, withheld access to FTTP facilities will simply result in the diminishing of choice in the higher-speed market, or no choice at all.
10549 Certain parties have sought to downplay the importance of bundle offerings in the retail market. Yet, a large cable company noted that 40 percent of its customers subscribe to a bundle. As well, an ILEC stated that 50 percent of its customers subscribe to a bundle, but their story runs deeper when we note that the same ILEC's annual reports tell us that 80 percent of their IPTV customers acquired that service as part of a bundle.
10550 This reality led Distributel to launch its IPTV offering this past fall, which represents the first large-scale triple play offering by a non-incumbent in Canada that we are aware of. This offering has met with immediate response from our customers that were demanding such a bundled offering.
10551 It's true that we developed and launched our IPTV service offering with full knowledge of the existing rates. In fact, those realities caused us to delay our launch by many months, as we wrestled with the impacts it would have on our business. However, in a market where customers are demanding the full bundle we did not feel we had any choice but to meet their demands. This was despite our lingering concerns about its viability under the current regulatory cost structure. Part of this doubt comes from the current cost associated with CBB, and part comes from the fact that the regulatory structure withholds the technological advantages that the incumbents use for their own IPTV offerings, such as multicast.
10552 I would like to touch briefly on the discussion of the benefits brought to the retail market by competitors such as Distributel.
10553 To be clear, Distributel is proud of the competitive choice and high-value offerings that it contributes to the market. Competitive pricing and human touch customer service are important benefits that customers respond to.
10554 Further, competitors do bring innovation and differentiation to the market. Distributel, for example, has consistently brought innovative and differentiated long distance, telephone and Internet services to the market -- including the ground-breaking SIP trunking that we launched long before the market caught on, being the first unlimited cable Internet offering in Quebec, and our half-speed peak Internet services.
10555 Earlier in this hearing, it was suggested that incumbents have no special advantage, and that anyone could build a fibre network to the home. Yet, many of the parties making these claims have admitted that they themselves have no intention to deploy FTTP outside of their current territories. The reasons cited include the absence of a powerful brand, the inability to offer the full bundle, and how the lack of existing market share and installed customer base compound to make the requisite 50-plus percent penetration they seek not feasible.
10556 Another factor that should not be ignored is the lack of middle-mile networks and the facilities when outside their territories. In this context, all of the arguments that the last-mile FTTP facilities represent completely new network builds, and that any party could duplicate these, wholly ignores the existence of the middle mile networks that these deployments leverage; namely, Central Offices, transport facilities, easy access to support structures, trenches, ducts and so forth.
10557 Finally, a recurring topic of discussion has been whether the Commission should simply apply the existing speed matching determinations to provide access to FTTP to address competitor concerns. The application of speed matching in a technologically neutral manner when applied to FTTP is absolutely a means that would address competitor concerns about withheld access to these facilities. However, I would like to stress that such a solution would not be sufficient in and of itself.
10558 For example, we feel that the decision in this proceeding must also address technological disadvantages set upon competitors, such as a lack of access to multicast within the current aggregated and newly proposed BAS frameworks, wherever and whenever the incumbent has deployed such technologies for themselves.
10559 The simple application of speed matching will also not address the clear concerns with the existing rates and costing processes, all of these which we believe the Commission must address.
10560 We continue to support the approval of the BAS as proposed by CNOC and would use that service tactically to reduce cost and increase control of our service in addition to the aggregated services we currently and plan to continue to use.
10561 Furthermore, the application of the speed matching rules to FTTP would not address the other frustrations our customers continually face such as one week or longer wait times for an installation, when the incumbent's own retail customers are offered next day. Importantly, these are not issues that we do not want to address ourselves. These are issues we are not permitted to address ourselves.
10562 We are not allowed, for example, to roll our own trucks to complete installs and repairs, or touch incumbent facilities. It's for these reasons that we support the Commission addressing these issues, such as through the adoption of EOI.
10563 Thank you again for the opportunity to appear and we would be pleased to respond to your questions.
10564 THE CHAIRPERSON: Thank you very much. Commissioner Shoan will start us off.
10565 COMMISSIONER SHOAN: Good morning. Thank you very much for those clarifications.
10566 MR. STEIN: Sure.
10567 COMMISSIONER SHOAN: I have a few questions for you and I recognize in advance some of them will not be your position stated for the record, but in the interest of building a fulsome record I would appreciate a perspective on them.
10568 So, for example, if the Commission were to forbear from mandating unbundled local loops in certain rate bands, which I recognize is not your position, can you comment as to how local or business forbearance should inform that decision, given that forbearance in certain markets may have been predicated on competitive access to ULLs?
10569 MR. STEIN: ULLs really don't form a major component of how we built our network on how we service our customers. So it's a little difficult to answer that question, unfortunately for us.
10570 But I will say that ULLs are often thought of as one of the most essential things. They are what we use for local phones when lifeline 9-1-1 is required. They are used for home phone services and DSL services and so many other things. While in Distributel's specific case they are not used heavily --
10571 COMMISSIONER SHOAN: Right.
10572 MR. STEIN: -- they are a very important service.
10573 COMMISSIONER SHOAN: Okay, thank you.
10574 So along the same lines, if the Commission decided that it was now time to start lessening the existing mandated requirements associated with aggregated HSA, can you provide your views as to where such lessening should take place, for example at what speeds, which geographic markets, the potential phase-out periods or any other appropriate conditions?
10575 MR. STEIN: Distributel doesn't think that you ought to reduce aggregated. Small competitors, although not in the case of Distributel, but small competitors -- all large competitors start as small competitors --
10576 COMMISSIONER SHOAN: Right.
10577 MR. STEIN: -- and competition is good for the market. We don't think that it is time to consider taking away aggregated.
10578 COMMISSIONER SHOAN: Right, and I can appreciate that, Mr. Stein, but in the event that we would proceed in that direction, do you have an approach that would be-- that could mitigate any potential downside for Distributel?
10579 MR. STEIN: CNOC recommended an approach that I don't think I am equipped to explain it so much, but they recommended an approach that if the Commission did choose to do so, it makes sense.
10580 COMMISSIONER SHOAN: Okay, great.
10581 So the City of Calgary was here or made a couple of presentations and they raised some concerns with respect to municipal -- access to municipal rights of ways and support structures. So I wanted to ask you, is the availability of support structures a major obstacle to competitors, the capability of competitors to deploy their own access facilities and with that in turn influenced the duplicability of various facilities?
10582 MR. STEIN: It is. Of course there are ways to get access to support structures, and so forth, but in my response here I referred to easy access to support structures. There is a major difference between seeing all the information, having it in front of you and being able to make informed decisions with verses sort of making a request into a black box and seeing how the response comes back and having to kind of find your way. Easy access --
10583 COMMISSIONER SHOAN: Just to go a bit further with that, I mean I recognize there is a tariff to support structure access -- there is a support structure access tariff -- in your efforts to perhaps access that service or that rate or that structure, have you experienced any difficulties and, if so, would have been those challenges?
10584 MR. STEIN: We have. We have experienced difficulties and they are getting access to the information to make the best decisions possible, whether it is access to ducts, and so forth, having to ask, "Can I try it this way?" "No." "Can you suggest another way?"
10585 There is no mechanism to engage in as much of a dialogue. Although some of that does ultimately happen it's very difficult to consistently, across different carriers in different regions, rely on having that dialogue.
10586 COMMISSIONER SHOAN: Have you ever engaged a Commission dispute resolution process to resolve some of those difficulties?
10587 MR. STEIN: I don't believe we have. Distributel is relatively new to this. We haven't quite reached that point on any yet.
10588 COMMISSIONER SHOAN: Okay, fair enough.
10589 Those are my questions, Mr. Chairman.
10590 THE CHAIRPERSON: Thank you very much.
10591 Vice Chair Menzies...?
10592 COMMISSIONER MENZIES: Thanks. I just have a question about this issue regarding your week to 10 day install versus the incumbent advantage. Have you tried promotional workarounds in terms of that to counteract what you see as an advantage that the incumbent has?
10593 MR. STEIN: Promotional work around such as...?
10594 COMMISSIONER MENZIES: I don't know. "Every day you have to wait for install I will give you a day for free off your bill", for instance. I mean I have heard stories about in competitive markets about people getting a delay on something and somebody phoning back and saying, "Sorry, it's going to take a week. We thought we could do it tomorrow, but I'll tell you what. We will give you the first months for free if you are willing to wait 10 days" or anything like that.
10595 I mean I know there is a problem in there. You know, there is a potential regulatory issue there, but there are also opportunities for innovation, right, in terms of that.
10596 MR. STEIN: Right. Now, I understand your question a little bit better, I would say that we do that virtually every day. We explain to customers just right upfront during the sale process, this is going to take this length of time.
10597 A very common question from the customers, "Wait a second. That's longer that it would take if I did it this other way". We often raise the fact that, well, there is a lot of value. We deliver other services, et cetera, as part of why you would still choose Distributel even though you have to wait a little longer.
10598 So perhaps we didn't do it exactly in the way that you mentioned. It is part of our message, yes.
10599 COMMISSIONER MENZIES: I was not suggesting you take my advice on marketing.
10600 MR. STEIN: Oh.
10601 COMMISSIONER MENZIES: I was just curious to know what alternatives you had explored. Thank you.
10602 MR. STEIN: Very fair.
10603 THE CHAIRPERSON: Vice Chair of Broadcasting?
10604 COMMISSIONER PENTEFOUNTAS: Yes, thank you, Mr. Chairman.
10605 Just briefly, I understand your position on your need to have access to FTTP. But my understanding is that the biggest impediment, the biggest hindrance to your being in a position to offer a competitive alternative, at the end of the day it's the rate, currently the CBB rate. And in the event that there is an FTTP access offer, that rate would also be troubling.
10606 MR. STEIN: Right.
10607 COMMISSIONER PENTEFOUNTAS: If the CBB rate were to be adjusted at the end of the day, wouldn't that be the key to Distributel's capacity to continue to compete in the market?
10608 MR. STEIN: I would say that there are a number of things, but if I were to distil them down, access to the highest feeds is critical over the long run to deliver customers what they're looking for.
10609 COMMISSIONER PENTEFOUNTAS: I'm going to interrupt you briefly.
10610 MR. STEIN: Sure.
10611 COMMISSIONER PENTEFOUNTAS: Over the next seven years?
10612 MR. STEIN: No, I would say now.
10613 When we spoke last week one of the questions -- not to go back to that, but one of the questions that you had asked was about how many are taking those higher speeds. Closing in, a quarter of our customers are at 25 meg or more. It's not a very small percentage. It's substantial.
10614 And in fact even with our TV offering, we don't even offer the service at less than 15 megs and we strongly recommend customers take it at 25 or higher. So access to those higher speeds currently in the 25-plus range are very much a now thing and it will continue. It will continue to progress. But to your --
10615 COMMISSIONER PENTEFOUNTAS: And you will be in the 50 and the 100 range?
10616 MR. STEIN: We offer today 30s, 60s, 150's and so on, and customers do take them, to lesser extents as you get to the top.
10617 COMMISSIONER PENTEFOUNTAS: Okay. So back to your second point.
10618 MR. COHEN: The rates.
10619 MR. STEIN: Yes, the usage sensitive rates. I mean you talked about CBB, but as well there is also -- in cable there is a usage sensitive element inside the cable access rate as well. So I would say more broadly than just the CBB, the usage sensitive rates are a major concern for us, yes.
10620 COMMISSIONER PENTEFOUNTAS: Nine-tenths of the problem revolves around the rate, the CBB rate.
10621 MR. COHEN: Can I ask something?
10622 MR. STEIN: Go ahead.
10623 MR. COLON: Are you asking on the TV side for providing --
10624 COMMISSIONER PENTEFOUNTAS: The entirety of your offering.
10625 MR. COHEN: I would say that rates are the biggest problem we have in our competitive offering, yes.
10626 COMMISSIONER PENTEFOUNTAS: Okay. And not necessarily access to FTTP in the immediate?
10627 MR. COHEN: Not today.
10628 COMMISSIONER PENTEFOUNTAS: Thank you, Mr. Chairman.
10629 THE CHAIRPERSON: Thank you.
10630 Just one final question. When you appeared last time you seemed to take issue with the moniker "resellers", to you, Mr. Cohen.
10631 I'm going to put something to you and see if you feel it a better term describing you as a service-based competitors as opposed to facilities-based competitors. Do you think that would be a fair description of your subsector?
10632 MR. COHEN: It sounds like a nice name, service-based competitor. I can't argue with it.
10633 THE CHAIRPERSON: Okay.
10634 Thank you very much. Those are our questions. We will adjourn a little longer today, until 1:30. Thank you very much.
--- Upon recessing at 1157
--- Upon resuming at 1330
10635 LE PRÉSIDENT : À l'ordre, s'il vous plaît.
10636 Madame la Secrétaire, s'il vous plaît.
10637 LA SECRÉTAIRE : Merci, Monsieur le Président.
10638 Nous entendrons maintenant la présentation de Québecor Média.
10639 Monsieur Béland, s'il vous plaît, allez-y, introduisez vos gens du panel, et vous avez 10 minutes pour votre réplique.
10640 M. BÉLAND : Bon après-midi. Mon nom est Dennis Béland.
10641 Pour le dossier public, j'ai avec moi Hugues Simard, Daniel Proulx, Maxime Guévin, Patrick Désy, Patrick Simoneau et Sylvain Archambault.
10642 Nous souhaitons d'abord remercier le Conseil pour l'opportunité de présenter cette réplique orale. De nombreuses affirmations parfois contradictoires ont été faites au cours des sept derniers jours, ce qui fait de cette étape de réplique un moyen rapide et efficace permettant à tous les intervenants de mettre en lumière les éléments distinctifs de leurs positions.
10643 Notre réplique portera sur deux enjeux :
10644 (1) corriger les informations erronées qui ont été mises de l'avant par certains intervenants à l'égard de la distribution de signaux de télévision par les câblodistributeurs; et
10645 (2) rectifier les perceptions de certains intervenants concernant les éléments de coûts faisant partie du frais mensuel relatif à la capacité (en anglais, monthly capacity charge, ou CBB charge).
10647 M. PROULX : En ce qui concerne la distribution de signaux de télévision par les câblodistributeurs comme Vidéotron, nous tenons à souligner que notre service de télédistribution n'est pas un service de télédistribution sur IP ou un service de télédistribution sur Internet.
10648 Le service de télédistribution de Vidéotron utilise une portion dédiée de son réseau hybride fibre-coaxial conçue expressément pour la distribution la plus efficace possible de signaux de télévision en mode broadcast à 1,8 millions de spectateurs répartis aux quatre coins du Québec et une partie de l'Est de l'Ontario. Ces signaux sont diffusés de façon unidirectionnelle sur des canaux de 6 MHz. Le nombre de ces canaux de 6 MHz est limité, et leur bonne gestion est un des défis les plus importants des équipes spécialisées de notre compagnie. Nous effectuons ce travail en concurrence directe avec d'autres plateformes spécialisées de télédistribution, notamment les plateformes des telcos et des fournisseurs satellitaires.
10649 Contrairement à Vidéotron, les revendeurs de services d'accès Internet qui offrent déjà un service de télé IP ou qui songent à le faire essaient tous, selon nos informations, de transmettre leurs signaux de télévision par le biais du réseau Internet. C'est leur choix, et Vidéotron ne fait rien pour les empêcher. Pourtant, ce mode de transmission est extrêmement inefficace. Réserver 7 Mbps de bande passante par usager en continu sur un réseau partagé d'accès Internet DOCSIS -- tel que proposé par au moins un participant à cette audience -- est un non-sens économique. Ce n'est pas pour rien que les câblodistributeurs n'ont pas converti leurs propres services de télédistribution à un tel mode de transmission. Notre réseau d'accès ne tiendrait pas le coup une seule minute.
10650 Nous l'avons mentionné au cours de la phase initiale de la présente instance : il ne nous incombe pas de rendre économiquement viables des modèles d'affaires technologiques qui ne tiennent aucunement compte du fardeau réel imposé aux réseaux sous-jacents. Dans la mesure où le Conseil en vient à conclure que l'accès obligatoire aux réseaux sous-jacents demeure dans l'intérêt public, notre devoir se limite à établir des tarifs d'accès qui reflètent le plus exactement possible le coût réel imposé aux opérateurs de ces réseaux.
10652 M. BÉLAND : En ce qui concerne le CBB charge, nous sommes consternés par l'insistance de la part de certains intervenants de faire croire au Conseil que ce frais ne couvre que le transport d'un flux de données d'un point à un autre. Combien de fois au cours de cette instance avons-nous lu ou entendu des commentaires du genre « le fournisseur sous-jacent me facture X dollars par tranche de 100 Mbps, alors que je peux me procurer le même service à 151 Front Street pour 10 fois moins cher »?
10653 Soyons aussi clairs que possible : le CBB charge ne sert pas à défrayer le coût direct d'un simple faisceau d'interconnexion à un simple point physique. Le CBB charge est un proxy, choisi par le Conseil dans la Politique réglementaire 2011-703, qui sert à défrayer le coût variable d'un réseau hybride fibre-coaxial tentaculaire qui, dans le cas de Vidéotron, permet au revendeur de rejoindre chacun de ses usagers finaux où qu'ils se trouvent dans les 2,8 millions de foyers près desservis par notre réseau.
10654 Et pour ceux qui doutent que le coût variable d'un réseau hybride fibre-coaxial puisse être substantiel, mentionnons, à titre d'exemple, que Vidéotron procède constamment à de nouvelles activités de segmentation de cellules et à la multiplication d'équipements DOCSIS dans l'ensemble de ses installations physiques. Le moteur derrière ces investissements est l'augmentation importante et continue de la consommation de données Internet par usager. Ces investissements sont concentrés dans le réseau d'accès et il n'existe aucune solution miracle pour les éviter. Tous les usagers de Vidéotron -- de détail et de gros -- doivent y contribuer.
10655 Nous soulignons également que les études de coûts Phase II qui appuient les CBB charge des réseaux sous-jacents ont été révisées par le Conseil et qu'elles contiennent déjà des facteurs d'augmentation de la productivité et de la consommation de données par usager. Il est donc faux de suggérer, comme certains l'ont fait, que ces études tiennent compte uniquement des conditions passées ou que celles-ci étaient désuètes au moment de leur adoption.
10656 Dans les faits, l'utilisation de facteurs d'augmentation de la productivité et de la consommation de données dans le cadre d'études de coûts d'une durée aussi longue que 10 ans est nettement à l'avantage des revendeurs. En effet, cela leur permet de bénéficier maintenant de tous les gains spéculatifs qui seront produits au cours des années à venir. Si nous cherchions véritablement à améliorer la fiabilité des études de coûts tarifaires, une des premières choses à faire serait de s'assurer que la période d'étude corresponde à la durée de vie réellement anticipée du tarif. À notre avis, une période de trois ans serait appropriée.
10658 M. SIMARD : Madame, Messieurs, nous avons abordé cette instance avec la ferme conviction que ce sont les investissements en infrastructure qui permettent de maximiser les bénéfices pour les consommateurs canadiens de services de télécommunications. Rien de ce que nous avons entendu depuis une semaine et demie ne nous a fait dévier de cette constatation.
10659 Le dynamisme du marché des services à large bande au Canada repose essentiellement sur une concurrence robuste entre des plateformes alternatives -- celles des câblodistributeurs, celles des telcos et, de plus en plus, celles des fournisseurs de services satellitaires et sans fil. La contribution des revendeurs est très limitée et, surtout, sans aucune commune mesure avec la portée et l'importance des revendications réglementaires qu'ils ont mises de l'avant au cours de cette instance.
10660 Nous prions le Conseil, lorsque le moment des délibérations sera venu, de garder bien en tête une réalité fondamentale : ce sont les constructeurs de réseaux qui prennent les risques dans notre industrie. Tout cadre réglementaire qui ne reconnaîtrait pas le niveau de risque encouru ou qui permettrait à certains d'échapper à leur obligation de compenser de façon équitable les preneurs de risque aura ultimement un effet néfaste sur les services offerts aux Canadiens. Nous sommes confiants que vous saurez identifier les bonnes formules.
10661 Nous vous remercions de votre attention.
10662 LE PRÉSIDENT : Merci bien.
10663 Monsieur le Vice-président de la Radiodiffusion.
10664 CONSEILLER PENTEFOUNTAS : Merci beaucoup.
10665 Bon après-midi. Vous avez bien fait de profiter de votre temps de réplique pour répondre à certains intervenants et les questions qu'ils ont soulevées qui vous ont consternés.
10666 Deux questions pour les fins de compléter les questions dans le dossier.
10667 Vous avez déjà entendu les questions posées suite à l'intervention de la Ville de Calgary, des questions mises de l'avant concernant la priorité d'accès, les supports de soutènement et d'autres empêchements et d'autres obstacles qui se présentent pour les concurrents d'investir dans des installations. Comment répondriez-vous à ces préoccupations mises de l'avant par la Ville de Calgary?
10668 M. BÉLAND : Bien, comme vous savez, nous-mêmes, nous ne sommes pas propriétaires d'énormément de structures de soutènement. Donc, nous-mêmes, on fait face à ces défis. Quand on veut déployer nos services dans un nouveau secteur, nous sommes obligés de chercher un accès auprès des propriétaires de ces structures que ce soit des compagnies de téléphone, des compagnies d'hydro.
10669 CONSEILLER PENTEFOUNTAS : Raison de plus de nous parler de certaines difficultés, si difficultés il y a.
10670 M. BÉLAND : Et on ne dirait jamais que c'est un domaine qui est sans conflits, sans difficultés, mais je crois qu'on serait d'accord avec l'opinion exprimée par Rogers, hier je crois, que c'est plus de l'ordre d'une frustration que d'une barrière.
10671 CONSEILLER PENTEFOUNTAS : Très bien.
10672 Également, pour revenir brièvement sur le CBB, un autre élément du CBB, il y a certains intervenants qui ont parlé d'un besoin... d'un désir d'avoir la plus grande transparence quant aux coûts réels des matériaux que vous utilisez dans le déploiement de votre réseau. Ils ont même soulevé la possibilité d'une tierce partie qui pourrait regarder ces données-là et les examiner pour avoir une meilleure idée des coûts réels. Votre réaction à cette proposition-là?
10673 M. BÉLAND : Les coûts réels, nous sommes d'accord avec les autres intervenants ce matin qui ont dit qu'en matière d'équipement, par exemple, nous ne croyons pas que c'est vraiment un enjeu, l'idée de vouloir valider les coûts des équipements que les opérateurs de réseaux sous-jacents ont soumis avec leurs études de coûts. C'est quand même assez factuel. L'idée que les détenteurs de réseau falsifient le coût d'achat d'un équipement donné, le personnel du Conseil aurait quand même... s'ils avaient une préoccupation à cet égard-là, ils auraient quand même les moyens carrément, jusqu'à demander de voir la facture. Donc, on ne voit pas l'utilité d'engager un tiers pour faire ce genre de validation.
10674 CONSEILLER PENTEFOUNTAS : Des escomptes possibles négociés avec les manufacturiers de ces matériaux-là?
10675 M. BÉLAND : Écoutez, prenons un exemple concret. Imaginons que dans une de nos études de coûts confidentielles on indique qu'on a eu un rabais de 30 pour cent sur l'équipement X. S'il y a un membre du personnel qui a des doutes à ce sujet-là, encore une fois, ils ont des pouvoirs d'investigation pour aller...
10676 CONSEILLER PENTEFOUNTAS : Il n'y a pas de possibilité de cachette.
10677 M. BÉLAND : ...au fond du problème. Donc, la valeur ajoutée d'engager un tiers, on ne la voit pas.
10678 CONSEILLER PENTEFOUNTAS : Merci. Voulez-vous rajouter quelque chose?
10679 M. SIMARD : Non, ça va.
10680 CONSEILLER PENTEFOUNTAS : Monsieur le Président, ça complète pour moi.
10681 LE PRÉSIDENT : D'accord.
10682 Those are our questions. Merci beaucoup. Ce sont nos questions.
10683 Madame la Secrétaire.
10684 LA SECRÉTAIRE : Merci, Monsieur le Président.
10685 I would now invite Bell to come forward to the presentation table.
10686 THE CHAIRPERSON: Go ahead when you're ready.
10687 MR. DANIELS: Thank you and good afternoon. I'm Jonathan Daniels, Vice-President, Regulatory Law at Bell.
10688 With me again on our panel today, starting from my left, your right, is:
10689 - James Gilmore, Vice-President, Wireline Technology and Network Planning for Bell Canada;
10690 - Michelle Bourque, Vice-President, Product and Marketing, Bell Wholesale; and
10691 - Mirko Bibic, Executive Vice-President and Chief Legal and Regulatory Officer.
10692 Starting from my far right, your left:
10693 - Peter Dilworth, Vice-President, Finance and Procurement for Bell Aliant;
10694 - Dan McKeen, Vice-Chair and Senior Vice-President, Residential Services, Bell Aliant; and
10695 - Denis Henry, Vice-President, Regulatory, Government Affairs and Public Law for Bell Aliant.
10696 In this proceeding, the focus should be on outcomes our industry should achieve for Canadian consumers and Canada's digital economy. Already, we have achieved world-leading FTTN and DOCSIS 3.0 networks and vigorous facilities-based competition in the retail market. To continue driving forward, we ask for a regulatory framework that encourages the deployment of FTTP networks to residential and business consumers in as many communities as possible, as quickly as possible.
10697 Each of our proposals is designed with this objective in mind and in order to bring the greatest benefits to consumers.
10699 MR. McKEEN: Thank you, Jonathan.
10700 Focusing on the needs of consumers rather than the demands of ISPs leads to the conclusion that mandating wholesale access to FTTP is unwarranted, at least at this time. No harm will be caused to competition if the Commission does not intervene today. To the contrary, users will benefit from the deployment of new networks.
10701 Refraining from mandating access at least until you reassess this issue in five years will not undermine the competitive dynamic in any market as there has been no widespread adoption by consumers of speeds above 25 Mbps. Bell Canada's experience in Ontario and Quebec supports this view.
10702 Of wholesale subscribers in FTTN areas, fully 99 percent are on speeds of 25 Mbps or below. So far in 2014, of retail and wholesale gross adds, 39 percent are on speeds less than 10 Mbps, 55 percent on speeds between 10 and 25 Mbps, and just 6 percent on speeds of 50 Mbps or above.
10703 This is consistent with the figures you have heard from ISPs like Distributel. And we know that 17 percent of end users on our network and 15 percent on Rogers' network are from wholesale. ISPs operating almost entirely in Ontario and Quebec are succeeding.
10704 Both our construction of FTTH networks and their uptake by consumers are in their infancy, and where we have existing copper and FTTN networks we will continue to operate them even if we overbuild with FTTH. Clearly, ISPs can continue to compete without mandated access to FTTP now or in the foreseeable future. Stability in the regulatory framework is best achieved by only regulating if clear market evidence supports it.
10705 We must also weigh the significant impact that mandated access would have on our investment. Virtually everyone who is actually building fibre networks has confirmed that mandating access would reduce their investment. It only makes sense to talk about whether "two is enough" if you have that second network. In our case, we have provided real evidence, not mere assertions, that FTTP networks would be built in fewer communities if mandated access is imposed.
10706 This evidence includes the results of the actual model that Bell Aliant used to evaluate the business case for investing in FTTP in 21 communities this year. That business case relies on receiving revenues from the sale of three retail services -- that is, the entire broadband home. When selling only a single wholesale service, there is no practical tariffed price that would offset the impact of losing those revenues.
10707 This evidence is supported by real-world experience. In the two years following the Commission's decision to mandate access to FTTN networks in 2010, Bell built fibre-to-the-node and fibre-to-the-home combined to 400,000 fewer homes than planned. Clearly, regulatory decisions matter when we consider investments. We urge the Commission not to base its policy on a false expectation that we will still invest in FTTP in areas where the business case is no longer viable.
10709 MS BOURQUE: While some interveners have asked for re-regulation of CDN and Ethernet, there is a striking lack of evidence to support that proposal. Proponents have only advanced unsupported, out-of-context claims that fall well short of meeting the Commission's test for re-regulation.
10710 Let's review what really happened when we proposed price changes for these services to correct the unreasonably low mandated rates. In a competitive market, our wholesale customers did three things:
10711 First, they negotiated lower rates for our services. More than 90 percent of our contracted rates are below the initial proposals we made: 50 percent did not increase at all from the pre-forbearance rates and all were below prevailing retail rates. Just last week we struck a conditional multi-service agreement with MTS Allstream which we are confident will be concluded in early 2015. We heard this week that TELUS has done the same.
10712 Second, they found alternative sources of supply. We know these exist. For example, Rogers indicated they purchase facilities from 37 different service providers other than incumbents. And cable carriers have expanded aggressively in the wholesale business market.
10713 Third, they constructed their own facilities. For example, MTS Allstream increased the number of buildings to which they built fibre to by 50 percent. In fact, even the example they gave indicates that they now serve 80 percent of locations on their own network.
10714 The unchallenged expert evidence from Margaret Sanderson clearly describes the results of this successful operation of market forces: our revenues did not increase, our market share did not increase and retail prices did not increase. The market remained competitive.
10715 Nobody has put on the record evidence of a competition problem in any particular geographic area. Even if there were one isolated area, competitors could buy EAS at the tariffed retail rate, assuming the facilities exist. And if the facilities don't exist, our retail organization faces the same issue.
10717 MR. DANIELS: Turning now to BAS, let's be clear: no one is asking for BAS to replace GAS. Instead, a small number of ISPs are asking for yet more mandated wholesale support for their businesses in a market where they have already grown significantly in recent years and where it is not necessary to address any substantial lessening of competition.
10718 BAS would be used only in a small number of central offices and only in Ontario and Quebec, and any savings would accrue to a small number of ISPs. Meanwhile, the cost and disruption to implement the service across our network would be considerable.
10719 Some ISPs defend BAS as a way to reduce CBB.
10720 First, unless all ISPs fully disaggregate at every CO, CBB will remain.
10721 Second, our CBB charges per end user today are already lower than they were in 2012 and were established by the Commission at cost-based rates, and ISPs are actually gaining market share in Ontario and Quebec, which makes one wonder, if CBB is the key issue, why they do not focus on the West where there is no CBB.
10722 Third, and most importantly, the evidence is that ISPs do not pass on mandated wholesale cost reductions to their end users.
10723 Now, a few ISPs have also said they want BAS so that they can provide a BDU service. Not only are we the new entrant in the BDU market but ISPs can provide video without BAS, as VMedia and Distributel have already demonstrated. Given the small footprint that they could achieve with BAS, ISPs will always want to offer some portion of their video service over GAS in any event, as Distributel mentioned today.
10724 In this proceeding, we have respected the well-established government and Commission policy to encourage facilities-based competition and we have balanced a reliance on market forces in ensuring robust competition, while always weighing the costs and benefits of regulatory intervention. With all that in mind, we have put forward a proposal firmly anchored in the evidence on the record.
10725 We believe the Commission should:
10726 - first, maintain the existing essential facilities definition;
10727 - second, refrain from mandating FTTP, encouraging the widespread construction of fibre networks and allowing us to build to as many communities as we can, as fast as we can. Now, let's also be clear that FTTP is an expensive and risky proposition. For Bell, the cost for each connected home for FTTP is about between 33 percent and 186 percent higher than FTTN depending on whether you're talking buried or aerial. The real issue is whether we can justify building FTTP where we already have and can compete with FTTN foot plant;
10728 - turning then to number three, refrain from mandating BAS, avoiding further regulatory intervention where the costs would outweigh any benefits;
10729 - four, forbear from mandating GAS, TPIA and unbundled local loops, but only in urban areas, where competitive supply is strong, and after a reasonable phase-out period. Now, to pick up on your discussion earlier today, with TELUS this morning, 99 percent of our residential NAS in bands A and B in our territory are forborne on the basis of cable presence, not unbundled local loops, and now cable in this proceeding has confirmed that they provide business services on their own cable network in all those areas as well;
10730 - fifth, maintain its recently affirmed forbearance for high-speed CDN and Ethernet but continue to mandate access to low-speed CDN, for which the evidence of competitive supply is less clear and continued regulation can be justified; and finally
10731 - six, continue to mandate interconnection and public good services.
10732 We want to thank the Commission and staff for the opportunity to participate in this proceeding and we look forward to answering any questions.
10733 THE CHAIRPERSON: Thank you.
10734 Vice-Chair Menzies will start us off.
10735 COMMISSIONER MENZIES: Thanks.
10736 I just have a couple of quick questions to start on what you just said.
10737 The speed data that you gave us starting in paragraph 5 today, are those outcomes because of consumer preference or is that what is available to people? Like is that what people are consuming or is that what is available to people?
10738 MR. McKEEN: In those areas there are higher speeds available. So we do have a 50 Mbps service available in those areas and consumers are not moving up to those speeds.
10739 COMMISSIONER MENZIES: They're just not moving there?
10740 MR. McKEEN: They're just not moving up, right.
10741 COMMISSIONER MENZIES: They're happy with what they have.
10742 And in paragraph 16 when you said your CBB rates are already lower than they were in 2012, are you comfortable giving us a ballpark of how they're lower or supplying it to us on a confidential basis?
10743 MR. McKEEN: So, we're happy to file in confidence the answer to that in terms of this is the amount that we're getting on a per end user basis. This is the result in 2012. CRTC took our rate down by 50 percent. We have the lowest CBB rate by far in the country and so as a result of that, even though the ISPs are actually using more on our network, they're still paying less today in 2014 for CBB than they were in 2012 to us. So we actually get less revenue overall and even on a per end user basis.
10744 COMMISSIONER MENZIES: Okay. If you would file that, that would be great.
10745 I just wanted to touch back on something. When last we met, we did discuss unbundled local loops and the forbearance issue and that sort of stuff. You indicated -- I think you said it might be possible to operationalize the differences between -- basically what we were talking about is how much would it cost to make the system changes that would be required to distinguish between residential/business/Internet services in relation to unbundled local loops and you had said it would require system changes and some implementation activities.
10746 Can you quantify that a little bit in terms of system changes and implementation activities?
10747 You don't have to do it -- I mean I'm not sure if Mr. Bibic is doing the math on --
10748 MR. DANIELS: No. Let me -- just a couple of things today.
10749 If we could talk about our position on unbundled loops because we're just a little concerned that there may be a misunderstanding on our proposal, first off.
10750 And that is when we're talking about unbundled loops, we're talking about someone buying an unbundled loop, whether -- and I grant you -- residential or business.
10751 Some of the other parties, participants have, I think, interpreted our position as saying that there would be some sort of forbearance as well if GAS is continued to be regulated for what's known as a dry loop. For us, the GAS tariff, if you continue to regulate it, then there's a tariff and part of that tariff is the dry loop charge. So there would be absolutely no impact, just as one standpoint, on the dry loop. I know that's not necessarily what you had asked but I just want to clarify.
10752 So then we go on to the question, if we're only looking at unbundled loops, the vast majority are in the business area. So we can take away to look at what it would be to build the systems to distinguish.
10753 We don't track that now. There is a different service charge I believe when you order it, so actually when it comes into our system we do know if it's residential or business when the customer orders it, but the actual ongoing monthly rate is the same, so we don't thereafter have any systems to historically look at whether someone was residential or business for loops.
10754 And also, our concern I guess is that practically speaking, this service, you know, is primarily used, as you heard, as a voice service, it's highly competitive and to make the distinction, like cables everywhere, we just don't understand even in the business market for why when cable is ubiquitous there would be a need to build the systems to make such a distinction for forbearance between residential and business. We're just not sure that there's any justification, our demand is dropping.
10755 MS BOURQUE: Yeah. Sorry, just to close on Jonathan's point. Our demand is dropping significantly year over year and it's pretty well amongst one of the largest companies that intervened here as well, so...
10756 COMMISSIONER MENZIES: Yeah. I mean, I think you made that clear previously. I just was asking you really just to unpack the system changes and implementation activities in terms -- I just wanted it -- I was just trying to narrow it, as specified.
10757 So I mean, I understand your argument and I understand your position and I understand your declining traffic and I understand your lack of -- I mean, forecast of not much traffic coming forward, I got all that. I was just trying to tidy up the record on that --
10758 MR. DANIELS: So --
10759 COMMISSIONER MENZIES: I'm not going to re-open the debate.
10760 MR. DANIELS: No. Obviously, I hear the question. We will take that away to give an answer, and I think our problem would be more, I don't know how we'd figure out what the base is today. That's what we're not quite sure, that would be the more difficult thing.
10761 COMMISSIONER MENZIES: Okay. Well, do your best, that's all we can ask in terms of that.
10762 COMMISSIONER MENZIES: In terms of -- let's touch on the fibre-to-the-prem again and we've had the discussion about incumbency or not, but can you just tell us if there are -- to your knowledge, are there markets to which you have deployed or where you intend to deploy where somebody else has fibre-to-the-prem?
10763 I'm trying to get at, are there any areas in the country where there is overbuild, if you want to use that term, or duplicate build in terms of fibre-to-the-premise?
10764 MR. McKEEN: There is in Sudbury, Ontario. So in Sudbury, Ontario Vianet has some fibre-to-the-home services, we've built fibre-to-the-home and cable has triple play, kind of their fibre-to-the-node services, there's actually three players.
10765 They didn't build all of Sudbury, they had built a portion of Sudbury and we built basically all of Sudbury. But it's rare.
10766 COMMISSIONER MENZIES: Okay. And I just wanted you to comment on the submission by the City of Calgary in terms of rights-of-way and support structures, et cetera.
10767 Do you think the availability of support structures, or do you know of other cities where those might be an issue for you? Are they an obstacle to the ability to compete or to deploy new services or new technology for services, supporting services?
10768 MR. HENRY: So in terms of support structures, you actually heard from us specifically about one case which was Sault Ste. Marie where we actually changed our actual -- we decided to stop building because of the support structure issue.
10769 Generally, and I'll let James elaborate on this, I think more of our issue has been about some municipalities. Municipalities, a lot -- most municipalities are very happy to enter into agreements for access and so on and so forth with us, but there have been a couple of municipalities where we've had troubles and issues there.
10770 So I'm happy to go into that aspect, but in terms of support structures, I'll just check with James.
10771 MR. GILMORE: Thank you, Jonathan. We definitely had -- I think you heard a previous intervener say, frustrations, but it really comes down to, on occasion, poles that we require, make ready work in order to allow us to add additional load to it, but it is going through the slow process of getting the engineering work done to understand how we input the loading factors and so forth. But we haven't had any blocking issues, it's more around length of time to get through the support structures, adding additional load and so forth.
10772 COMMISSIONER MENZIES: Okay, thank you. And just in terms of your existing copper framework, can you give us some -- assuming -- or in areas where you've built or will build fibre-to-the-prem, you've commented before that you plan to keep the existing copper facilities, but at a certain point those are going to age.
10773 Would you be considering simply taking them out at that point and using fibre or -- and whether or not you do, what is the current life expectancy of your copper facilities?
10774 MR. GILMORE: In terms of technology investment, we continue to innovate on our copper infrastructure, so we have our VDSL today.
10775 You may have heard things as vectoring and in Europe the G.fast, so we are continuing to invest in speeds over our copper infrastructure.
10776 And for those reasons, and because of the number of services we need to offer on the retail side and the wholesale side, we don't anticipate any plans to remove that infrastructure at any time soon.
10777 It's difficult for me to put a specific timeline on that, but we continue to invest in that space because we know we won't be going back to old FTTN areas as soon as going into new neighbourhoods, we want to increase our footprint, that's our first priority versus serving older neighbourhoods that already have services for high speed.
10778 COMMISSIONER MENZIES: So there is no timeframe, you're just continuing to operate --
10779 MR. GILMORE: That's correct.
10780 COMMISSIONER MENZIES: Okay, thanks.
10781 I've asked others to comment on this, or we have asked others, in terms of that. Do you think there would be any merit in having an approach where your input costs -- if CBB rates were to be reviewed, any merit in having input costs and equipment costs reviewed by a third party auditor?
10782 MR. HENRY: Maybe I'll start us off. I think if you're talking about future services and cost studies, I guess we don't have a strong objection to a third party looking at it, especially if that would increase the Commission's comfort, although there are some costs and process issues to it and I kind of share some of what I heard, I'm not sure whether those outweigh it or not, but we would leave that to the Commission to determine.
10783 But I think it would be important to make sure of two things. One is, that you do the audit at the beginning of the cost study because, as we talked about earlier, you don't want to keep re-opening cost studies partway through, and then that brings us to CBB and I know my colleague, Jonathan, has some strong views on CBB which I'm sure he'd like to express on that point.
10784 COMMISSIONER MENZIES: I think your position on CBB is pretty clear, so I don't think we need to --
10785 MR. HENRY: I just wanted --
10786 COMMISSIONER MENZIES: I think we have a pretty thorough record on that.
10787 MR. HENRY: -- to say, we wouldn't want to re-open that one, no.
10788 COMMISSIONER MENZIES: Lastly, for me at least, the question has arisen regarding the extension of the speed-matching requirement to include fibre-to-the-prem and I'd like to understand your position on that.
10789 MR. DANIELS: I'm glad you asked, because I'm going to first ask a couple of questions about the proposal because we've heard it a couple of times this week and I just want to make sure I understand exactly what's being suggested.
10790 It sounds to me like the suggestion is that you're going to -- that it would be matching FTTN speeds on FTTP -- again, I just want to make sure I understand -- or is it all speed matching on FTTP?
10791 COMMISSIONER MENZIES: I think it would be -- well, I'm throwing it out there to a certain extent. I mean, those are issues that you could raise and you could define for us, that it would be okay here but not okay here in your view, but I think overall the discussion is the idea of -- is the sense of, if the principle is that would be technologically neutral so it would apply to whatever technology was available, that the speed-matching requirement would be agnostic in terms of technology.
10792 MR. DANIELS: So I guess we have four different points on this.
10793 The first one, at the end of the day I still think you're talking mandated access, and so without repeating everything, the business case doesn't improve whether it's 25 meg, whether it's a speed-matching at high because, as we talked about, it's the loss of the broadband home revenue, so it's still going to impact, I'm not saying we're not going to build, but it's going to impact the speed and their determinations because it is still mandated access to FTTP having the impact that we talked -- that Peter talked about in his model.
10794 The second thing is -- and again, I realize that this is just an interpretation -- at one point it was suggested that we could avoid costing and keep it simple by just using the FTTN rates. And that raises, from our perspective, well, kind of compounding the problem because now we'd be talking about getting access at a rate for FTTN for a much more expensive infrastructure.
10795 The third issue is, I don't know how you still resolve the fibre drop which is clearly a big issue that needs to be figured out, so that would have to be resolved as well, it impacts the business model.
10796 And then the last one, it's just a practical matter. FTTP, we don't actually have the systems in place to provide FTTP today for wholesale access, so we'd actually have to build that system.
10797 And the issue is, that if we're talking about speed matching for FTTN, in FTTN areas we would still -- we could provide -- even if we did an overbuild of FTTP and FTTN, we could still continue to serve people for FTTN for the ISPs.
10798 So really you're talking about spending a lot of money building the systems to supply just areas that are only FTTP, only areas meaning not ones where FTTN exist, not are overbuild. And so, that even narrows the demand down, making just basically as an interim solution, which I know has been suggested, a much more -- even that much more expensive proposition.
10799 COMMISSIONER MENZIES: Okay. Thanks very much. Those are my questions.
10800 THE CHAIRPERSON: Thank you.
10801 Vice-Chair Broadcasting...?
10802 COMMISSIONER PENTEFOUNTAS: Yes, thank you.
10803 Just briefly, a couple of issues that were raised. I'll give you a chance to set the record straight.
10804 Distributel mentioned that according to your own reports 80 per cent of your IPTV clientele is part of a bundle.
10805 MR. DANIELS: So I think the stat that we gave before was, we talked about how about roughly 50 per cent of people only buy one service from us, another 30 per cent buy two services from us.
10806 Some of those, not that many, would be IPTV, the remaining buying three services from us on -- and this was on our wireline network.
10807 So of course, if you're asking IPTV, which generally is sold with Internet and voice, if you look at that little area, then yes, our numbers are high in terms of sold out as a bundle.
10808 So I'm not disputing the numbers, I'm just saying that that's -- it's saying -- it's almost equivalent to saying a hundred per cent of people who buy bundles buy bundles, right. IPTV is mostly sold as -- within -- with Internet, for example, as a requirement.
10809 So yes, it's sold as a bundle.
10810 COMMISSIONER PENTEFOUNTAS: I just wanted to give you a chance to clear that up. And on paragraph 8, can we conclude from that that you would not make access to FTTP available were it not mandated?
10811 MR. BIBIC: That's a similar -- I think, just so that I don't contradict myself, I'd refer back to our discussion last week which is, I think at some point, even without mandated access, I would expect there to be access at wholesale to FTTP networks and it's going to be a function, I firmly believe, of the retail facilities-based loser in the marketplace seeking to make up subscriber losses by tapping into the wholesale channel.
10812 COMMISSIONER PENTEFOUNTAS: But in the foreseeable future, if you were to look out five to seven years and perhaps even 10, there is no practical tariffied price, be it commercially arrived at, negotiated or mandated, that would allow you to offset the impact of losing.
10813 MR. BIBIC: Correct, but that's not to say there is no market-based arrangement, I don't want to say price only, arrangement that might not do the trick.
10814 COMMISSIONER PENTEFOUNTAS: Okay. And that could happen tomorrow --
10815 MR. BIBIC: It could.
10816 COMMISSIONER PENTEFOUNTAS: -- potentially?
10817 MR. BIBIC: I think we need a -- we're right in the -- putting aside Atlantic Canada, we're right on the cusp of really building FTTH networks on a mass scale. So you know, we want to build it and then things will develop, but I -- I mean, you mentioned five, seven, 10 years. I'd be shocked if we didn't have a market-based -- some market-based wholesale within that timeframe.
10818 COMMISSIONER PENTEFOUNTAS: Okay. The other mention of the increase in costs for you between FTTN and FTTP of 33 to 186 per cent is quite a range.
10819 Besides the aerial or burial deployment, the other factors that would go into explaining that big a range and the costs of bringing fibre?
10820 MR. GILMORE: I agree, it's definitely a wide range, and even with an aerial space in terms of doing Atlantic and Ontario and Québec, there's so many different variables in play, whether you have rear lot access with an easement versus no easement versus front lot. There's a lot of variables that are going to adjust those prices that are not consistent from geography to geography.
10821 COMMISSIONER PENTEFOUNTAS: And are you taking into consideration the fibre drop in that increase in price, or is that excluded?
10822 MR. GILMORE: That's excluded.
10823 MR. BIBIC: This is for connected -- those numbers, 33 per cent and 186 per cent, aerial versus bury, that's the cost for each connected home.
10824 COMMISSIONER PENTEFOUNTAS: That would include the fibre drop?
10825 MR. GILMORE: Correct.
10826 COMMISSIONER PENTEFOUNTAS: Okay.
10827 MR. GILMORE: Because if you don't have the drop you can't connect the home.
10828 COMMISSIONER PENTEFOUNTAS: No.
10829 MR. GILMORE: And if you can't connect the home, you can't generate revenues.
10830 COMMISSIONER PENTEFOUNTAS: Just trying to make it clear.
10831 MR. GILMORE: Yeah.
10832 COMMISSIONER PENTEFOUNTAS: Because it wasn't clear last week in terms of the costing. And finally, on paragraph 17 when you refer to yourselves as new entrants in the BDU market, would you like to correct that?
10833 MR. DANIELS: Do you mean in the sense of because --
10834 COMMISSIONER PENTEFOUNTAS: BDU as opposed to DTH.
10835 MR. DANIELS: Yes. So when I say we are the new entrants in the BDU market, we -- I suppose a more accurate statement is, with our IPTV footprint, but basically our IPTV footprint has -- in urban areas is the area where we have not been very -- like not had the same amount of success as in other areas.
10836 So the notion -- the markets that were focused on IPTV have been areas where we view ourselves as the new entrant.
10837 COMMISSIONER PENTEFOUNTAS: So not the BDU market as a whole, but as regards your IPTV offering?
10838 MR. DANIELS: Correct.
10839 COMMISSIONER PENTEFOUNTAS: Thank you.
10840 Merci, monsieur le Président.
10841 THE CHAIRPERSON: Commissioner Molnar...?
10842 COMMISSIONER MOLNAR: Thank you.
10843 So I'm clear on your position as it regards FTTP -- mandating FTTP, but if it were to be mandated, you know, you brought up the issue of the fibre drop and I just want to be clear on your expectation or what you would anticipate or believe to be appropriate as it regards mandating service to homes passed by fibre-to-the-prem versus mandating service to homes served by fibre-to-the-prem.
10844 MR. DANIELS: So our position on this is that we don't think you -- if you're going to mandate it, we obviously don't want you to, but if you're going to, we're not saying that you should make a distinction on it and, in fact, we think that the service charge and the long-term contract should all be worked out based on the average of the amount of homes that you assume were passed and the ones that are built.
10845 We're not suggesting that there be two different rates, one for when we put the drop in and another one they don't, because we appreciate that operationally it just makes sense to have one standard rate, but that's why we're saying that there would have to be other ways to compensate for that, which would be a higher up-front fee and a longer term commitment and you would just blend that all in when -- as the experts do in the Phase 2 cost study, they would be able to blend that in about the assumptions of the amount of times you have to build, so a drop.
10846 Does that help?
10847 COMMISSIONER MOLNAR: Yeah, I'm surprised, but that's fine, that's your position.
10848 And you mentioned that if it were to be mandated, whether it's speed matching or through other means, you don't have the systems.
10849 What are you talking about, your carrier systems?
10850 MS BOURQUE: Correct. All of the front-end systems. So just -- I think I had mentioned it last week, but all of our FTTN speeds and legacy speeds that we've built to support the ISP channel specific to wholesale have flowthrough capabilities and automation and system that allows them to order their services with modems, without modems, a whole bunch of components that exist that have never been created for FTTP.
10851 So all of those systems and capabilities would have to be implemented and up until now that development work has been in the millions of dollars for us to develop it. So it's significant in terms of that work and, frankly, I haven't even assessed how much incremental work would be involved on the FTTP, but we know it would be significant because it's completely a different set of systems. It's just not an easy fix, definitely not.
10852 COMMISSIONER MOLNAR: So they're carrier systems and they have to be different than your retail systems. I mean --
10853 MS BOURQUE: Our wholesale systems --
10854 COMMISSIONER MOLNAR: -- I would assume you have fulfillment to serve, you know, systems on your retail side. Well, Bell Aliant -- maybe you guys don't have enough FTTP yet, but I would think you already have your systems in place.
10855 MR. McKEEN: Well, where we don't have wholesale -- only a very small smattering of wholesale providers and wholesale isn't mandated, we don't have systems like that.
10856 COMMISSIONER MOLNAR: No, I understand, but you have systems on fulfillment and assurance --
10857 MR. McKEEN: Oh yes, for --
10858 COMMISSIONER MOLNAR: -- on your retail?
10859 MR. McKEEN: -- our own customers, yes, we do.
10860 MS BOURQUE: Yeah. So we do have systems obviously for our retail organization in terms of the services they buy, but they're different than wholesale, in fact they're set up primarily because of some of the regulation that that information doesn't traverse across different systems.
10861 COMMISSIONER MOLNAR: Okay.
10862 MS BOURQUE: So those systems are, in fact, separate and distinct in many cases and to enable in development, I can't just use the retail systems.
10863 Firstly, it compromises some of our customer data which, frankly, we're not allowed to do, and so, you know, I think no, it is significant.
10864 MR. DANIELS: The other thing just in that is that from a systems perspective, when we build our wholesale systems we build it with tools that allow the ISP to be able to go in to see what they're ordering and so on and so forth. It's very -- it's designed for them with their needs in place, so we'd have to build that.
10865 I'm also wondering, well, if I could go back to your earlier question, with your permission, to answer why we took the position we did, I'm happy to explain.
10866 Okay. The rationale is really, if we made a distinction, if you had a GAS tariff that was actually set where you put in a fibre drop already the rate was cheaper than a place where you --
10867 COMMISSIONER MOLNAR: I guess my point is whether it would be available, not at what rate, but whether it would be available or not dependent on whether it was --
10868 MR. DANIELS: It really comes down to the same issue for us.
10869 COMMISSIONER MOLNAR: The price.
10870 MR. DANIELS: If we're going to have -- it's not really -- it's not actually -- I don't want to incent my wholesale that would say our FTTP, if we're mandated to do it, that it's only available on places where we have built and, therefore, we're serving the customer on the retail, right.
10871 Like just think of it again because we think about this from -- if wholesale -- we want wholesale to go out and bring customers to the network, we want them to bring from cable. If we had a system that only limited to customers that we were serving using our own fibre drop, that would probably be very unproductive from our perspective.
10872 So it's just a rational business decision that may -- I thought that explained our position.
10873 COMMISSIONER MOLNAR: Okay. But thank you. And that does help, you're right, because otherwise you're losing the customer in every instance, right.
10874 And just one more question as it regards the systems. Does it matter at what point -- I mean, the proposal that you folks made is look at this in five years.
10875 So let's just assume that we waited five years and looked at it, would that change the operational costs of implementing some of your systems if you're doing it after the fact versus building it into the design?
10876 MS BOURQUE: Well, in this case it's not a similar design, right, because they're different systems in terms of how they fulfil on the retail side of the house.
10877 But I think partly is, as there is -- as Mirko indicated, over a certain period of time there's the retail loser, so there's going to be perhaps some demand in order for us to be able to kind of leverage where we've made some investments.
10878 And you know, obviously Aliant is much more further ahead in Atlantic Canada than we are and yet they don't have a big enough ISP base today that's driving that demand.
10879 So I would say within that five-year period there probably could be some demand that would justify some of that system's work starting to be able to enable some of those capabilities.
10880 COMMISSIONER MOLNAR: Okay. My question, and I do believe you answered it, but I want to make sure I heard your answer.
10881 I asked whether or not it would make a difference to the costs of your system development whether you did it at the time that you launched FTTP versus five years later.
10882 MS BOURQUE: Okay. So I can't talk about the financial impact of that cost and whether, you know, from time value of money, but what I would say is, whether I do it today or whether I do it tomorrow, they are different systems. So retail systems are separate and distinct, and if I'm mandated --
10883 COMMISSIONER MOLNAR: But that wasn't my question. From a wholesale perspective, does your cost change?
10884 MS BOURQUE: No, you are saying from a cost perspective --
10885 Well, other than time value of money?
10886 COMMISSIONER MOLNAR: Other than time value?
10887 MS BOURQUE: I would say probably not.
10888 COMMISSIONER MOLNAR: Okay, thank you. Those are my questions.
10889 MS BOURQUE: But they are both significant.
10890 THE CHAIRPERSON: Just to follow on that. So if we followed your course of argument and held back for five years, but in five years we find, based on the evidence, there is a problem at that state, are you saying that you will then make the argument you should have done it before because it is too costly for us to now upgrade our system to provide wholesale services?
10891 MR. BIBIC: No.
10892 So I am just kind of following the bouncing ball. We started with the Vice-Chair of Telecom asking what do you think of the proposal that has been bandied about over the course of a week about having speed matching on FTTP to some level --
10893 THE CHAIRPERSON: I don't think when commissioners ask questions we bandy about things.
10894 MR. BIBIC: I am sorry, I didn't mean to be offensive, I really didn't. I apologize if it came across the wrong way, I really do.
10895 It was one of four elements to Jonathan's answer. It is not the predominant element. We are discussing it now in and of itself. But the other three components are more significant than the cost component, which is let's get it built, let's wait five years.
10896 Of course if the marketplace in five years dictates that there should be mandated access, we will overcome the costs of systems deployment.
10897 THE CHAIRPERSON: At that point?
10898 MR. BIBIC: Absolutely.
10899 THE CHAIRPERSON: Okay, that is I think the nature of the question, thank you.
10900 I don't think we have -- oh, one more, Commissioner Shoan.
10901 COMMISSIONER SHOAN: Thank you very much.
10902 Mr. Bibic, just to pick up on a line of question that Vice-Chair Menzies had with you. I am struggling with an answer you gave with respect to the fact that a wholesale market for FTTP could be developed naturally, and this is why.
10903 You have been very clear that before you go into a market with FTTP you do a business case analysis, so projected subscribers, return on network investment, makes sense.
10904 You said this morning that that business case relies on receiving revenues from the sale of three retail services, in other words the entire broadband home. And there is no practical tariff price that would offset the impact of losing those revenues.
10905 So given the fact that you conduct that business case analysis based on the provision of three retail services, what sort of environment would that wholesale market naturally evolve?
10906 MR. BIBIC: So you build your business case on certain projections, certain penetration thresholds, certain hurdle rates you want to achieve. And then you, in the business cases that we have and we have shown on the record for Bell Aliant, there was no assumption of mandated access.
10907 And so then you say, is it positive or negative on the payback period? And you forge ahead.
10908 And putting it aside, mandated access, you forge ahead, what if you are not as successful? You have made the investment now, what if you are not as successful in the marketplace?
10909 Do you just hang back and not load on your network or do you find other ways to load on your network, or maybe there is a particular market segment that you are less successful in attacking and you think, hey, maybe an independent ISP can do a better job, so you say let me make an arrangement on that, or you develop a particular program for ISPs to develop a competitive proposal vis à vis your main facilities-based competitor.
10910 So there is a whole bunch of things that you can do in a market-based arrangement that a tariff-based arrangement wouldn't necessarily permit because you have a standard tariff available to all for all segments, et cetera.
10911 COMMISSIONER SHOAN: Okay. I see, that is very clear. So you go in under the assumption you are going to be offering the three, and then you adjust your business case depending on the market based on your success rate, essentially?
10912 MR. BIBIC: Correct.
10913 COMMISSIONER SHOAN: Okay, great. Thank you for that clarification.
10914 THE CHAIRPERSON: Thank you very much. Those are our questions.
10915 So we will be adjourned until 9:00 tomorrow morning to hear from the last four interveners I believe, right?
10916 THE SECRETARY: We will start with CNOC tomorrow morning, Mr. Chairman.
10917 LE PRÉSIDENT: Trés bien.
10918 THE SECRETARY: And just for the record, Cogeco and BCBA does not appear in Phase II.
10919 LE PRÉSIDENT: Merci.
10920 Thank you. À demain.
--- Whereupon the hearing adjourned at 1428, to resume on Thursday, December 4, 2014 at 0900
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