ARCHIVED - Transcript, Hearing November 2, 2016

Volume: 3
Location: Gatineau, Quebec
Date: November 2, 2016
© Copyright Reserved

Attendees and Location

Held at:

Outaouais Room
Conference Centre
140 Promenade du Portage
Gatineau, Québec

Attendees:

• Chairman: Jean-Pierre Blais
  
• Members: Yves Dupras, Peter Menzies, Linda Vennard, Chris MacDonald
  
• Legal Advisors: Carolyn Pinsky, Daniel Finestone
  
• Secretary: Cindy Ventura
  
• Hearing Manager: Suneil Kanjeekal
  

Transcript

Gatineau, Québec

--- Upon commencing on Wednesday, November 2, 2016 at 9:02 a.m.

2965 LE PRÉSIDENT: À l'ordre, s'il vous plaît. Order, please.

2966 Madame la secrétaire?

2967 THE SECRETARY: Thank you, Mr. Chairman, and good morning.

2968 We will begin today with the presentation by Independent Broadcast Group. Please introduce yourselves and you have 15 minutes for your presentation.

2969 Thank you.

PRESENTATION

2970 MR. FORTUNE: Thank you very much.

2971 Good morning, Mr. Chairman, Mr. Vice-Chairman and Commissioners. Thanks for allowing us to appear.

2972 I am Joel Fortune, legal counsel for Independent Broadcast Group. To my left is David Kines, President and Co-founder of Hollywood Suite. Hollywood Suite operates four linear movie channels and a related on-demand offering provided on the set-top-box, on mobile and over the internet.

2973 To my right is Brad Danks, the Chief Executive Officer of OUTtv Network. OUTtv is Canada's only LGBTQ television service. It's distributed by BDUs on a linear and on-demand basis. In addition, OUTtv also has its own OTT offering, currently available in Canada and soon to be offered globally.

2974 Independent Broadcast Group represents 10 different broadcast companies operating a full range of broadcasting services. IBG's members include discretionary and basic level services in English and French and many third-language services as well.

2975 The term "independent" in our name means that our members are not affiliated with the large Canadian broadcast groups that also own or are affiliated with any of the large cable, IPTV or satellite distributors.

2976 Independent broadcasters produce our own programming content, finance and exhibit new original Canadian content from other producers, and also act as aggregators for content from around the world.

2977 Increasingly, Canadian independent broadcasters, just like entertainment and programming-based companies elsewhere, offer content in online and mobile environments, whether directly through their own websites and apps, or through the digital distribution services of third parties on the TV To Go services that are becoming increasingly common.

2978 First, to be clear, our presentation is focused on differential pricing practices in which certain types of content are offered through an ISP network, or mobile network, on preferred terms by that ISP or mobile provider.

2979 Some participants have pointed out that there are other types of differential pricing, such as time of day discounts and volume pricing. We're focussed on differential data pricing between types of content.

2980 Independent broadcasters are edge providers. Broadcasters rely on the functionality of the internet to reach Canadians and depend on its availability on an open basis for that to happen.

2981 The internet is not free for edge providers to use, we should state. For example, an edge provider with video content has costs associated with customer interface, and the transcoding, storage and streaming of content.

2982 Most of these costs increase as use increases. But one of the defining characteristics of the internet is that once content is available to users, they can generally access it regardless of who their ISP is and on the same basis as all other content.

2983 It does not cost the consumer using their internet connection more or less for that matter to connect to our content than it does to any other content on a byte for byte basis.

2984 Differential pricing for content challenges this last point. DPP results in some internet users having less costly or even free access to some content, and therefore more costly access to other content.

2985 In our submission, at heart, we make two points.

2986 Our first point is that, in looking at the question of differential pricing in the Canadian context, it's highly material to consider the ownership structure of the Canadian communications industry.

2987 We noted some of the key figures in our first written submission and it may be helpful to update them based on the Commission's 2016 Monitoring Report.

2988 In 2015, Legacy telecom providers and cable carriers accounted for 89 percent of residential ISP revenue.

2989 The three large wireless service providers earned 92 percent of wireless revenue.

2990 The top four broadcasters, owned by two of the three wireless service providers and the four largest BDUs, represent approximately 72 percent of all broadcasting revenue.

2991 And cable BDUs and incumbent telecom companies also have the highest EBITDA in the industry, at approximately 45 and 38 percent, respectively.

2992 MR. DANKS: We believe that this ownership structure is highly material to questions about differential pricing.

2993 First, there is the clear issue surrounding self-dealing and the ability of vertically integrated media companies who prefer their own content in internet distribution. There are evident risks to competitive content providers when ISPs can prefer their own content in serving subscribers. This is essentially true when the -- especially true when the ISP owns a large library of content and brands. The Commission's Mobile TV decision addressed this issue.

2994 There is, however, a more subtle area of difficulties for edge providers when dealing with ISPs when they are part of a large media, BDU, and mobile businesses. If DPP were permitted, then the ISP gains a level of commercial power arising from how that ISP may provide content to subscribers. Before DPP, the ISP had no say in how content would be delivered and, currently, there are no substantial negotiations at this level that we’re aware of.

2995 On the other hand, BDUs already control how consumers access content. Adding the ability to negotiate ISP access on top of this grants further power to the BDU in an already imbalanced relationship. A content provider can be required to grant commercial concessions to the BDU to get preferred access to its ISP subscribers. The reverse is also true. A content provider could be required to pay for preferred ISP access in order to obtain BDU carriage.

2996 The concern with combining the market power of BDUs with ISP distribution is that it has the potential to undermine the defining character of the internet. It is an open and content agnostic network that grants equal access for all manner of content providers. The open internet has, without a doubt, defined the development of media for at least the last decade. The greatest feature of the internet for content providers is that you don't your own network, or negotiate access, to reach end users on equal terms with other content providers.

2997 The risk of DPP in an already highly concentrated industry is it has the real potential to raise new barriers where none now exist.

2998 Taking into account the structure of our industry, DPP presents substantial potential harm to competitive content service providers and competitive internet access providers

2999 MR. KINES: If the Commission allows DPP, which, to be clear, we are not in favour of, then all providers of similar content should be included in any DPP plan.

3000 Other interveners have suggested broad baskets of categories for content. The baseline assumption would be that any DPP plan would treat all content in that category on equal terms. CNOC, for example, drafted a list of broad categories. And Sandvine goes a little further and suggests other related best practices: zero-rated data should not be prioritized; ISPs should not be compensated by content providers; and apps that offer different types of content should be included whole.

3001 The Competition Bureau takes a different approach but is aligned on the question of non-compensation to the ISP. An ISP should not benefit from increased use of a zero-rated app. These types of bright line rules may at least help avoid some of the more apparent difficulties raised by DPP.

3002 Our primary concern is to ensure that if an ISP offers free access to video streaming services with which we compete, then our video services should be made available on the same terms. The same reasoning applies to audio services.

3003 IBG supports the general principle that similar services should be treated equally or better in the case of Canadian services. But, we also recognize that in some cases, maybe even most cases, it will be extraordinarily difficult to categorize services. Unfortunately, this gives the ISP great discretion and, therefore, power over how content is accessed.

3004 For example, Facebook and Twitter carry an increasing number of news events and extensive reporting. Should they be included in any video news basket along with CBC News Network and CTV News Channel? There is also some news content available from many other Canadian broadcasters online. And, increasingly, newspapers offer on-line video content. How will choices be made as to which of these video news services might be included in a DPP offer?

3005 In our view, the best approach to address this difficult question is to ensure that DPP services include broad categories of services, and are biased to include Canadian services. Given the structure of the communications industry and based on our experience as independent broadcasters, zero rated-services that are based on video content should, at a minimum, include all Canadian-owned video services. Any DPP offering that is not broadly based will necessarily lead to preferential treatment of specific content in a way that is contrary to the fundamental principles of the internet.

3006 MR. FORTUNE: In summary, we are very concerned that DPP has the potential to increase the existing power imbalance between BDUs and ISPs on the one side, and content providers on the other.

3007 If forms of DPP are permitted, then we strongly support clear guidelines and principles to ensure that the integrity of the internet is maintained, and, at a minimum, that all similar content from Canadian service providers has equal access to consumers.

3008 Thank you very much. That’s our presentation.

3009 THE CHAIRPERSON: Thank you, gentlemen. I’ll put you in the hands of Commissioner MacDonald.

3010 COMMISSIONER MacDONALD: Good morning and thank you for that presentation. It helped to further explain the comments that you made in both of your interventions. So thank you for that. It helped to clarify a few things for me.

3011 Before I get into my questions, I just have a couple of points I’m wondering if I can get some more clarification on. And it’s just with respect to some of your terminology. You talk about similar content and then services that are similar in character. And I’m wondering, is that one concept and you just use two different terms to describe it, or are you actually talking about two different DPPs?

3012 MR. FORTUNE: Just to clarify your question, when you -- the way I think we use those terms is more or less interchangeably, although there’s going to be quite a bit of difficulty when you go to categorize what is in a basket of services. For example, we indicated our example with news. You have a Facebook type delivery of news, video, and then you have broadcaster websites that deliver news video, and then you may have separate apps that have news video on them. The content is news video. And we would think that type of content should, in theory, be treated similarly.

3013 There are difficulties though, perhaps on a technical level and we’d have to explore whether they are, you know, truly legitimate difficulties for a carrier in treating an app, for example, the same as a website or, you know, a Facebook platform similar as -- to a website or a broadcaster app.

3014 So I think in our language when we refer to services and content, we’re referring -- the objective for us is to deliver the programming, if you will, in an equal way as much as possible.

3015 Is that getting down to your question?

3016 COMMISSIONER MacDONALD: Yeah, thank you. That’s helpful. And actually, it’s a good segue because over the course of the week so far we’ve discussed content categories quite a bit and certain intervenors are very much in favour of them, but the question still remains, how do you define those content categories? What’s in? What’s out? If there’s one particular piece of content, even, you know, if there’s agreement that it should be zero rated, what category should it fall under?

3017 So, do you have any -- I understand that there are challenges there. Do you have any thoughts on how, if we do go down that road, they could be defined?

3018 MR. DANK: Well, I think our basic point is that it’s almost impossible to do, which is why we shouldn’t go down that road. I mean, the -- you know, our service, for example, has news, has drama, has lifestyle content, and I think the challenge on the internet is that it doesn’t come as neatly packaged as it does in the broadcasting system. So the problem here will be that the more the DPP has -- or the ISP has the power to make that definition and try and narrow it, it’s still going to be a very, very difficult thing to do, which is, you know, part of the real challenge we face.

3019 COMMISSIONER MacDONALD: It came through in your intervention and in your statements today your obvious concern with certain DPPs. You focus, you know, largely on zero rating as an example. Because of your focus on that, does that -- should we take from that that there are certain differential pricing practices that you are not concerned about or that you may even support, such as time of day, for example?

3020 MR. FORTUNE: Well, we’ve been following the hearing as it’s progressed and it -- we’re not network experts, but it does seem that those sort of time of day differential pricing don’t discriminate based on content. They are more related to the functionality of the network itself and, therefore, are probably more legitimate than a content-based DPP. And similarly, there’s been discussion about zero rating, you know, customer functionality with a mobile servicer and ISP to check your data levels and that sort of thing.

3021 Those sorts of practices seem to be more acceptable on a technical basis than content-based, what we would perceive as content-based, pure content-based DPPs.

3022 So I guess the short answer is yes, there could be some, it seems to us, that are more acceptable than others.

3023 MR. DANKS: I think our overall concern broadly speaking is in complementary marketing practices, where content might be used as a sales marketing tool and data then given away, and that the ISP has an additional benefit because of other ownership or cross deals with other ISP’s, that sort of thing. That’s the area where we see, we’ve seen it before, and that’s the area we see opening up that could be problematic for us.

3024 COMMISSIONER MacDONALD: Some have suggested that perhaps we want to allow DPPs because of a social-good argument. Perhaps it’s promoting accessibility or access to government services, but the social-good argument could also extent to some of the services that you offer, because social good, you know, that could include educational services, and perhaps you offer some educational programming.

3025 Any thoughts on where the line should be there, if we go down the social-good argument?

3026 MR. KINES: Obviously, that would be very beneficial to society. We already have a system in place. It’s the broadcasting system. You’ve given out 9(1)(h) licences for services that perhaps meet those criteria and other forms of licences.

3027 So we think there’s a pretty good system already in place. You could adopt that to the open internet. It’s already on the IPTV internet, that framework.

3028 But to go beyond that, you’re opening a huge can of worms to decide which of those services should be free or have an express lane.

3029 MR. FORTUNE: Just to elaborate a bit on David’s point there, I think in the Eastlink submission, for example, they -- you know, looking forward, they say maybe DPP would be useful for IPTV delivery of a BTU service.

3030 And when you think about it, the BTU, especially in IPTV BTU licensed by the Commission, is really conceptually just a big zero-rated delivery of content. And the Commission has regulated that under the rubric of the Broadcasting Act. Essentially, it said when you provide that kind of service, this is what you have to do. You have to deliver Canadian broadcasting channels, you have to -- you know, there’s packaging rules; there’s the 9(1)(h) services; there’s accessibility requirements, close captioning, et cetera, et cetera.

3031 That is the social policy framework for the delivery of broadcasting content. It’s in the Broadcasting Act.

3032 Now, that’s kind of an intellectual exercise that I’m going through but we have a zero-rated system for the delivery of content. It’s called broadcasting.

3033 So I guess we come back to -- if we’re in the non-broadcasting environment, which I suppose we are in this hearing, then why are we importing the broadcasting world into the non-broadcasting environment? You know our position is that you’re better not -- generally not to go down the road of DPP, because of the reasons we’ve talked about, especially for the internet.

3034 So that’s our thinking on that issue. I mean I’m not suggesting that you take all of the broadcasting environment and you import it into the telecom world. I’m just saying we have -- there’s different systems.

3035 And if you want to do delivery of programming on a zero-rated basis, well, maybe that’s called broadcasting.

3036 COMMISSIONER MacDONALD: It’s interesting listening to some of the presentations over the last couple of days, because we have a number of groups such as yourself that are very wary of us going down this road and then there’s the argument that consumers like free stuff.

3037 So if I can get zero-rated access to Netflix, as an example, why wouldn’t that be a good thing for me?

3038 And I had the conversation, I think it was with Sandvine on Monday, and one of their suggestions was that there should be an opt-in and an opt-out for consumers. But given the human tendency to want free stuff, does an opt-in and an opt-out actually do anything to address some of the concerns that you’re expressing?

3039 MR. DANKS: No probably not, particularly the way it’s presented, it tends to be whatever the ISP is trying to get out of it.

3040 I mean the problem is, somebody gets it for free but somebody has to pay for it. So that free offering is probably paid for by the other services or by somebody else. That’s really what history tells us.

3041 So of course everybody likes a free ride but somebody else is ultimately going to have to pay for it. And what we found is, usually, that’s us at some point, because we’re not included in that free offering.

3042 COMMISSIONER MacDONALD: Along that same vein, there’s obviously a lot of concern and you’ve expressed it with the ISPs serving as gatekeepers or I think to use your word, interested intermediaries between yourselves and the eyeballs you’re trying to reach.

3043 If there was a way to take some of that decision-making power away from the ISPs and give it back to the consumer, something like a MI3 offering that was suggested earlier in the week, where the individual consumer can choose access to your content and perhaps two or three other things that they want to see that’s zero-rated. Does that change the balance or prevent ISPs from acting in ways that we’d perhaps wouldn’t want to see?

3044 MR. DANKS: I think the history tells us that the architecture in how that’s presented to the consumer has an enormous impact on what happens.

3045 And we are consistently discriminated in terms of the architecture of offerings, so that even if we are offered, it’s way back in the fine print somewhere or something like that. And so we have to fight to try to come before the Commission and say, look, this offer is presented in a way that maybe you can say it’s not discriminatory but it is. It’s delivered to the consumer in a way to get a particular outcome.

3046 And so, so long as the ISPs are delivering it to the consumer directly, which they will do, there’s going to be room for abuse and there has been abuse in the past, and we expect there will be abuse in the future if they have that opportunity.

3047 COMMISSIONER MacDONALD: So even under a programme like that, you’re suggesting the Netflix logo, to use an example, or the Facebook logo would be upfront and yours would be buried in the fine print somewhere?

3048 MR. DANKS: Yes. It always is.

3049 COMMISSIONER MacDONALD: So it really doesn’t remove the ISPs as the gatekeeper?

3050 MR. DANKS: Right.

3051 COMMISSIONER MacDONALD: Okay.

3052 MR. DANKS: I mean -- do you know any -- maybe there’s exceptions, but that’s been the history of it; is that it’s about how -- it’s not just about being available; it’s how will you market it? How are you positioned? Where are you included?

3053 And so we’re just saying broadly defined include us all. We’re already included on the internet. I mean it’s different in the broadcasting system. Why are you allowing for that ability to separate things that are not already separate? What’s the advantage to the overall system if you’re doing that? And you know obviously our concern is that we’ve seen in the past that the architecture is extremely important in how things are presented to the consumer and, you know, these are smart people running the ISPs. They know how to be getting outcome, and that’s what will happen.

3054 COMMISSIONER MacDONALD: So even if you were included, can you explain for me what the technological or the process challenges that could be created in having, as a content provider, to deal with a large number of ISPs that we have across the country? Each one may have slightly different technology. Each one might have slightly different processes.

3055 And I’m just saying that there may be a technical problem or a technical challenge in trying to adapt to the processes that some of the ISPs have or even a labour challenge in devoting so much of your time trying to get that buy-in from a hundred different ISPs across the country.

3056 MR. DANKS: I’m not sure there’s a technical issue right now that’s really a problem. The best part about the current system is we don’t have to go out and negotiate with each ISP regarding carriage and issues regarding that. Because it’s -- you know, negotiations could take forever and it could complicate things, particularly when there’s cross-ownership like there is now.

3057 We have no technical issues. You know, what our concern is that all of a sudden a service we’re offering might be spiking data charges or something because it’s either -- the biggest concern is really that videos don’t play, it’s getting throttle, because on the internet if a video doesn’t play, then people dump you very, very quickly.

3058 And so having access to the appropriate bandwidth is your number one concern, I think, from a technological perspective.

3059 Apart from that, the systems on the internet are fairly ubiquitous which is, you know, very different than the broadcasting subscription.

3060 Video on-demand services, for example, are very different amongst the BDUs. So there's a huge array of complicated work that has to be done there technologically, but it's not the same on the internet. The internet is fairly -- you know, it's fairly fluid in that regard.

3061 So bandwidth and throttling issues and of course then if there are usage issues which spike the cost of your service and turn a subscription video on-demand service you may have on the -- as we have, we have a $4 offering available to consumers on the internet, that could then, you know, make that service a lot more expensive if somehow data charges went up and it would make us less competitive as a result.

3062 I think those are the two primary practical issues that we face. I don’t think there's a delivery technology issue.

3063 MR. FORTUNE: Well, I guess I should say what Brad is describing is pretty much the current environment for internet delivery or mobile delivery. So we're not engineers here. I don’t think we know how -- if DPP or as your rating system were widely rolled out across different carriers and they had different software and programs and ways of counting data and so on, then it depends on how it's rolled out in other words.

3064 There could be added costs at the level of the programming provider to accommodate different technologies or software that might used by these different platforms, but we don’t know what that would look like. But currently, as Brad is saying, it's not an issue. Could it be an issue, I suppose it could but we're not really sure what it would look like.

3065 MR. DANKS: There are -- transcoding can be an issue too. I mean obviously Apple's platform, iTunes and their platforms are quite expensive for transcoding and such. So those are -- those are big costs that you carry but, you know, the real issue too is are you pushing your videos, like pushing, you know, an elephant through a straw when you have very low bandwidth availability, and that's really the -- right now still the biggest concern, just as files get to the 4K level and stuff like that.

3066 COMMISSIONER MacDONALD: When you're talking about the unique characteristics of the telecom broadcast systems in the country, is your primary concern with the large VIs favouring the content that they own or are you concerned with the potential for DPP to be opened up to all ISPs?

3067 MR. DANKS: No, it's the former. We're definitely concerned of the provenance of vertical integration. We're concerned that the negotiations around ISP carriers are going to become part of the next round of BDU negotiations because there has been a long history of linking different issues, of linking different technologies, whether it's unnecessary satellite fees or unnecessary other fees that need to be paid as a result of getting carriage on the -- you know, on the BDU. So that's our primary concern.

3068 Other ISPs don’t concern us so that also don’t want to have to go out and negotiate with them around various issues either because that's -- that's just yet another barrier, another cost to us in terms of having to be granted access.

3069 So our primary concern is vertical integration with virtually everything we do these days but the other -- the latter is a modest concern but we'd really like not to have to do it.

3070 COMMISSIONER MacDONALD: So -- sorry, were you going to add something?

3071 MR. KINES: I was just going to echo that and say, you know, the same applies for the Commission. I mean you have an open gateway to Canadians. If you -- anyone can come to your website. If you want to get preferred zero access carriage, you have to go and negotiate with 100, 200 ISPs. I'm at a loss as to why we would go down that road when we have open access to everybody.

3072 This Commission, the kid in the backyard making videos, us, everyone has access, equal access to the internet, to the pipes.

3073 COMMISSIONER MacDONALD: Some of the ISPs, not all, are very much in favour but they cited this as an innovative approach and something that allows them to be competitive. And I think all Canadians benefit by having more competition out there in the market.

3074 So what would you say to a possible scenario whereby the large VIs were prevented from engaging in differential pricing practices and smaller ISPs were allowed to engage in DPP as a way to try to increase competition in the country?

3075 MR. DANKS: I'd like to first know how DPP helps in terms of competition. I think that the core business they have is making the service faster, making the service better. You know, the fastest internet connections in the United States I think they are in Nashville and Chattanooga. They're very small ISPs and they are innovative on the technology side. I don’t see that DPP has been a part of their growth.

3076 You know, I think as an overall concern, I would say the more we've used vertical integration to make ourselves competitive, the less competitive we've become, and that if they focussed on their core business in making a better service and providing a better -- a better offering that that would be -- that would be it.

3077 I mean I guess I could say that some of the things you've suggested like day time and, you know, usage issues, like that might be good but as soon as you start tying into content, it's a slippery slope because now they're working about -- they're worried about getting into another business other than the one they've got in order to make themselves more competitive. And that usually takes us in another direction.

3078 MR. FORTUNE: I'd also point out that I mean Tbaytel made a very interesting submission in this proceeding and their comment was, well, we don’t -- we're not big enough. We don’t have the resources really to go out and put together an unlimited music type service or similar things that the big guys could do.

3079 So I guess if the assumption is if we allow DPP for the smaller guys, it will result in more innovation there, maybe it's a false assumption. Maybe they don’t have the leverage that's required to do the kind of thing that the big guys could do that make DPP possible. So I mean that's what Tbaytel is telling us.

3080 And the other point is I think that when we're talking about vertical integration, we're kind of using that term loosely here. So we identified it in our presentation. There's two concerns.

3081 There's the concern about preferring their own content and then there's the second concern where you are combining the acquisition of rights because you're a BDU with the delivery of your internet service.

3082 So I don’t know if you'd call that vertically integrated or not but it's the BDU function where you're negotiating with Brad to carry OUTtv or David to carry Hollywood Suite. And then you're also saying, hey, you can get in my DPP preferred pricing package too, if, you know, you agree to this term over here, something like that.

3083 So I don’t know if that's technically speaking vertical integration. And that relationship isn't limited necessarily to just the big companies. I mean some of the smaller ISP providers also offer BDU services.

3084 Is it as material in terms of the impact on overall competition in the Canadian market? Perhaps not. Is it material to the individual subscriber to that service who's looking to get open access to the internet? Perhaps it is.

3085 COMMISSIONER MacDONALD: But you would suggest at least at a minimum it creates or increases the imbalance that may exist in negotiations between yourselves and I won't limit it to VIs to any BDU?

3086 MR. DANKS: Yes, absolutely.

3087 COMMISSIONER MacDONALD: Okay. What about a scenario where the VIs were not allowed -- were allowed to engage in DPP but were not allowed to favour their own content or zero rate their own content, does that help address any of the problems?

3088 MR. DANKS: The concern would be that then they might be horse-trading with the others. We've seen that in the past as well. So one favours another's content and then vice versa, and that's how they get around that rule.

3089 So ultimately, you know, that's -- that's the concern.

3090 COMMISSIONER MacDONALD: So the concern would be Bell negotiates with Rogers for Rogers to zero rate Crave TV and then Bell negotiates with Rogers to -- for Bell to zero rate City TV for example?

3091 MR. DANKS: You were going to say Shomi, but no, I guess not.

3092 COMMISSIONER MacDONALD: Yeah, had we been having this conversation a few months ago, yeah.

3093 MR. DANKS: Well, I was going to say Sportsnet and TSN, but yeah, exactly.

3094 COMMISSIONER MacDONALD: Okay.

3095 If we do -- and this is my final question before I hand you back over to my colleagues.

3096 If we do go down this road of differential pricing, how do you -- how do you think it should be structured? How do you think we should manage any complaints that we receive? Do you think it should be in an ex ante or ex post approach?

3097 MR. FORTUNE: Well, we're in favour of some -- to the extent they can be developed -- rules. Bright-line rules, if they can be put in a guideline that would be fine, but the rules of the road, in our experience, are extremely helpful for smaller players when they’re dealing with larger players. If it’s not forbidden, it’s permitted. So -- and if you don’t the leverage, then you’re going to have to agree to absolutely everything whether you want to or not.

3098 So, it’s very -- and, ultimately, right, your remedy is to bring that problem, if you perceive a problem, if you think they’ve gone too far, you’ve got to bring it to the Commission for a dispute resolution. That takes time. It’s not hideously expensive but it is expensive and it’s always uncertain.

3099 So, if we’re fairly confident of what the end result is going to be, if we can conceive of some fairly good bright-line rules and guidelines and put them in place and be clear about what is okay and what is not okay, especially around the question of what should be in DPP offerings, that would be our preferred approach, for sure, rather than just saying, “Go out and do what ever you want and come to us if there’s a problem.”

3100 Our preference is let’s deal with some of the issues that we can see in front of us and if we can come to an understanding of what the main problems are, let’s set them out. Then we know what the parameters are and we’ll go out and deal with that. You can always change those parameters done the road if they’re not working.

3101 MR. DANKS: To be crystal clear, when there are bright-line rules, for example, the new code of content was used very frequently in negotiations with BDUs, and to the extent those rules are clear, you can say that’s never going to be entertained by the Commission, so don’t even try it. And that happened thousands of times over the last year in negotiations. So, the clearer those rules are, the easier it is for us to not bring complaints in front of the Commission. Just to let you know. So, those are really active, those rules that you’ve created.

3102 COMMISSIONER MACDONALD: Thank you. That was very helpful. Those are my questions.

3103 THE CHAIRPERSON: Just a few questions to follow-up. I think one of the interesting points you’ve made here, one of them, is saying, essentially, don’t let the traditional content world, with all its good, bad and ugly aspects to it, leech into the open internet world. Would that be a fair summary of, I think, one of the messages you’re delivering today?

3104 MR. DANKS: Yes.

3105 THE CHAIRPERSON: That’s a bit of a refreshing point of view from people from the content world. Because I must say that I’ve heard a lot recently of various guilds, actors’ unions and others asking for the content tool kit to be carried forward into the digital platforms. And I’m wondering why you are taking, in a sense, a different tack.

3106 MR. DANKS: Well, I think our primary issue is not allowing our negotiations on the broadcasting system to be muddied by -- on the ISP side. You know, we want the opportunity to move some of our business. You know, we’re all strong believers in the current broadcasting system, but we also see the benefits of the internet and being able to develop a direct-to-consumer relationship.

3107 You know, I can say very clearly that I do not think that, going forward, content services are going to be able to survive unless they develop a direct-to-consumer relationship. And what we get in a direct-to-consumer relationship, which is the data, the ability to talk to the consumer, we lack in the broadcasting system. We don’t get that through the BDU. We don’t have the set-top-box information yet.

3108 And so, we want to be able to develop that and we’re concerned that as -- if the ISPs have new powers, they’re going to try and strangle those aspects of the internet that are so fundamental and I think you just won’t survive going forward if you don’t have that opportunity. So, we want to ensure that that portion in particular.

3109 I do understand some of what the guild is talking about in terms of how do we get content made and some of that. So, some of those rules I can see becoming part of what we decide to do with the CMF or other funds like that. But I think those are the primary concerns, as I see them.

3110 MR. FORTUNE: I guess another way to put it is if you -- with the open internet is fantastic for many reasons, and it’s its openness and the ability of edge-providers of all kinds to not have to deal with the network operator, essentially, that makes it what it is.

3111 If you -- the more you treat the network operator in an internet sense like a broadcaster given the ability to control data, deal with technological issues, you know, prefer some content over others, well, then you do need to bring in broadcasting rules, essentially, in our environment.

3112 So, it’s a bit of a balanced approach. We’re saying the internet is the internet. That’s what it is. So, that’s what’s so valuable about it. But if you’re going to go that other way, then you better, you know, which I think is reflected in DPP practices, then we do think, as we said, you should be preferring Canadian services. There should be some clearer rules. That’s more like a broadcasting type.

3113 THE CHAIRPERSON: If you go that route, which is not what you’re recommending, it comes with a lot of baggage. And just on the side on the set-top-box, Commissioner MacDonald is working hard on that issue, so hopefully there will be some developments.

3114 So, when you look at what you’re saying -- I mean, sometimes the Commission looks at issues either as retail issues or as wholesale issues. Do you see this as more of a wholesale issue, of your relationship with the carriers and your ability to go directly to consumers? Or is it -- is your perspective essentially one on the retail side and what Canadians might or might not want?

3115 MR. DANKS: It’s a little of both. I mean, I think our starting point is a wholesale one and that we’re going to be crippled in some way in terms of either maintaining our legacy business or having to incorporate something new if we’re going online. So, it is a wholesale at that point.

3116 But, fundamentally, it’s also retail approach because we want to be able to provide Canadians with better offerings. We want to be innovative and being able to do those things. And we’re doing that. And we’re concerned that the legacy system is going to drag that down and prevent that. So, that’s the retail component as well.

3117 THE CHAIRPERSON: And when you reflect on the entire record before us, you know, it includes Bell survey, it includes the Reddit aspect and all the interventions here, what is your assessment of the views of Canadians, since you’re saying it’s in part a retail issue?

3118 MR. FORTUNE: I’ll take a stab at that. It’s just impressionistic. I appreciated Bell’s comments yesterday that they’re not, you know, suggesting the Commission should decide by survey, public opinion survey.

3119 THE CHAIRPERSON: Yeah, we always ---

3120 MR. FORTUNE: People are interested ---

3121 THE CHAIRPERSON: We weigh evidence, we don’t count; right?

3122 MR. FORTUNE: Sure.

3123 THE CHAIRPERSON: Fair enough.

3124 MR. FORTUNE: You definitely see a tension. I think that people are -- the internet is a fantastic tool and I think, at the basic level, people love the internet because it allows them to go wherever and do whatever and get whatever they want without interference by a network intermediary. That’s what they love about it so much.

3125 And if you present the question to them in those terms, “Do you want your network intermediary to exercise more control over how you use the internet?” probably the answer would be “no”. Even if it meant some more free stuff. You know, I don’t know if would be “no” a hundred percent of the time but that’s my feeling. Is if given the whole picture, most people would probably go down the route of, “We like what we have, the open internet and no interference with how we interact with it as consumers.” That’s just my impression.

3126 THE CHAIRPERSON: And, in a sense, it’s almost that the history of broadcasting regulation -- there was a heavy state policy influencing it, whereas the internet’s more about the sovereignty of the individual; right? They can go to the content that they want when they choose to.

3127 MR. FORTUNE: Yes. I mean, you know, I’m a broadcasting lawyer so it pains me to say it.

3128 THE CHAIRPERSON: Right.

3129 MR. FORTUNE: But, yes, absolutely. I mean, read the newspaper. They love the internet. People love the internet.

3130 THE CHAIRPERSON: Now, one of the overarching issues that some have raised is the whole notion of innovation; that we should allow DPPs more generally because they’re innovative. Bell, yesterday, for instance, said, you know we don’t know what’s coming with respect to the internet of things. And as a consequence of that, we should -- we, the Commission, should tread lightly because we may indeed stifle innovation.

3131 Is it your view that DPPs are innovative? You might need to give me, you know, your definition of what’s innovation. Good luck with that. But do you find it particularly innovative? And what do you think of this notion that we should err on the side of staying away because we may be stifling innovation?

3132 MR. DANKS: Yes, I think there’s probably two parts to that. I certainly get what Bell was talking about. I think with refrigerators in the future and an internet of things.

3133 You know, I guess these questions are never fully answered with the way technology is changing and that’s one part of it, but I don’t see how a marketing practice is particularly innovative.

3134 You know in innovation I look to disruption. I look to things that are changing things fundamentally. This is really just a simple marketing practice, where you’re combing two things in order to market something. I don’t see anything fundamentally innovative about DPP.

3135 THE CHAIRPERSON: And how different is a DPP practice from let’s say a carrier bundling certain services as part of their ISP offering?

3136 MR. DANKS: I don’t think it’s different at all.

3137 THE CHAIRPERSON: So you think that’s also a DPP or it’s -– it causes the same problem? Is it a -– same definition or the same -– a variation on the same problem?

3138 MR. DANKS: It’s a variation of the same problem.

3139 THE CHAIRPERSON: Right.

3140 MR. DANKS: You know and I think that we’ve -– we’re looking at two different worlds. We started a broadcasting world where we had scarcity based on geography and technology.

3141 We have an internet world that’s based on abundance, based on the digitalization, the two are melding together.

3142 You know I -– the broadcasting system continues to sort of try to live in the scarcity side by shrinking itself, whereas the internet is an abundant system and there’s certainly a conflict there so I see, you know, any attempt to bundle and pool as being scarcity. I don’t see it being innovative at all.

3143 THE CHAIRPERSON: Yes.

3144 Do you want to hazard a definition of innovation?

3145 MR. DANKS: You know innovation for me is anything that disrupts an existing pattern of things in a way that leads to something new.

3146 THE CHAIRPERSON: Okay.

3147 MR. DANKS: Okay.

3148 THE CHAIRPERSON: It’s a good try. I can’t criticize that. I mean I’ve been struggling with it myself.

3149 All right, thank you very much. I believe those are all our questions and thank you for having participated in the hearing.

3150 Madame la secrétaire, s’il vous plait, pour les prochains intervenants?

3151 MS. VENTURA: Thank you, Mr. Chairman. I would now invite Xplornet Communications Inc. to come forward.

3152 MS. VENTURA: Please introduce yourselves and you have 15 minutes for your presentation. Thank you.

PRESENTATION

3153 MS. PRUDHAM: Good morning, Mr. Chairman and Commissioners. My name is C.J. Prudham. I’m the Executive Vice-President and general counsel of Xplornet Communications Inc.

3154 Joining me today is James Maunder, the Director of Government and Regulatory Affairs.

3155 We’re delighted to be here representing Xplornet, Canada’s leading rural internet provider.

3156 Wherever they may live, one thing that unites all of our rural customers is their desire to be connected affordably to what matters to them in the digital world. For each customer, what matters is different.

3157 Our comments today will address the issue of differential pricing and how we believe Xplornet can contribute to meeting the objectives of this hearing.

3158 The focus of this proceeding is to examine the policy issues surrounding the use of differential pricing practices by Canadian ISPs, related to Internet data plans.

3159 However, the practice of differential pricing is not new, nor is it unique to telecommunications.

3160 The issues with which the Commission is grappling have their origins in competition cases from the 1990s. This includes the Netscape challenge of Microsoft’s bundling of the Internet Explorer browser that was filed in 1998 in the U.S. -– or by the U.S. Department of Justice.

3161 And, here in Canada, the vertical integration and content restriction issues identified in the 1997 case brought by the Commissioner of Competition against Columbia House and Warner Music.

3162 Just a few years after that, the ability of an ISP to potentially leverage content in the digital world became front page news with the acquisition of Time Warner by AOL in January 2000, forcing competition authorities around the world to consider the implications of vertical integration for consumers.

3163 Here we are 16 years later, with AT&T’s proposed purchase of Time Warner and its implications in a vertically integrated marketplace serving as a backdrop to this hearing.

3164 Other parties to this proceeding have rightly pointed out that differential pricing is -- not only exists, but it -– but is often a key ingredient of a healthy, well-functioning marketplace.

3165 For example, products and services are frequently sold to seniors, or retirees, at differentiated, often lower, prices.

3166 The same often applies to students. A student can purchase and download “Microsoft Office 365 University” for less than a regular consumer pays.

3167 As the Competition Bureau has made clear in its intervention:

3168 “Differential pricing that does not

3169 harm competition […] increases the

3170 overall efficiency of the economy.”

3171 Given that potential pricing practices are not per se a bad thing, hopefully the shared objective of the parties to this hearing would be to work towards a marketplace that, consistent with the 2006 Policy Direction to the CRTC one, relies on the market forces to a maximum extent feasible to promote consumer choice.

3172 And two, when relying on regulation, uses measures that are efficient and proportionate to their purpose, so as to interfere with the operation of competitive market forces to the minimum extent necessary.

3173 On these principles Xplornet strongly agrees. It is only in limited circumstances that a review of differential pricing practices will be necessary, and regulatory intervention should be limited to just those circumstances.

3174 It is in this context that Xplornet would like to offer a potential framework for assessing the impact of differential pricing practices.

3175 The Competition Bureau has identified the risk that differential pricing practices –- or sorry, have identified that differential pricing practices can be anti-competitive where there is vertical integration or some other form of affiliation, that creates a sustainable opportunity to cross-subsidize a lower price in one market through the sales in another market.

3176 The starting place is to ask ‘in what market could the differential pricing practice have a harmful competitive impact’.

3177 In most cases, we suggest there are three potential markets. The first one is the retail Internet access market. The second one, is the content aggregation or reseller market and the third one is the content creation markets, such as for the creation of music, T.V., film, software, apps.

3178 If a differential pricing practice does not harm competition in all of these markets or any of these markets, it is at a minimum neutral for consumers and should not be restricted.

3179 So starting with the retail internet market, as the annual Communications Monitoring Report released by the Commission last week indicates, the retail internet market is competitive.

3180 The vast majority of consumers have, on average, access to at least three choices of service provider.

3181 The competitiveness of the market is generally measured, at least in part, by competitive pricing, differentiation of services, introduction of new services or features, aggressive marketing activities and a healthy rivalry between competitors.

3182 Xplornet believes that in a competitive market ISPs must be allowed the flexibility to deliver unique and dynamic offerings to consumers.

3183 And in a competitive market we believe ISPs are predisposed to respond to each other’s prices and offers with ones of their own.

3184 Zero-rated data for a specific service can often amount to nothing more than price competition between ISPs.

3185 By forbearing from regulating prices the Commission has necessarily cast these services back into the realm of the laws of general application, including the Competition Act. In Xplornet’s view, this is entirely appropriate.

3186 If we move now to the content aggregation or reseller marketplace, if the differential pricing policy does not harm competition amongst ISPs, does it harm competition amongst content aggregators or resellers of content such as CraveTV or Netflix?

3187 Could revenues from these markets subsidize the ISP’s data costs indefinitely, thereby disrupting competition?

3188 Xplornet submits that this aggregator marketplace currently enjoys significant and robust competition. There are many content aggregators out there, from Netflix and CraveTV to iTunes, Amazon, Hulu, Google, Microsoft, Spotify, YouTube and so many more. Given this competition, it seems unlikely a vertically integrated content aggregator could sustain a price premium in its marketplace to subsidize the ISP’s lost data revenue.

3189 Therefore, competitive harm in the ISP market from subsidies in the aggregator market does not appear likely or sustainable. The question then becomes, is there harm in the content aggregation or reseller market?

3190 Xplornet believes that these matters are not within the purview of the Telecommunications Act. Rather, this is the jurisdiction of the Competition Bureau, which has at its disposal the Competition Act and many years of case law and precedent to address any anti-competitive effects. Because, after all, what aggregators like Netflix and iTunes do is not new. They are just resellers, like Loblaw’s, like Metro, like Sobeys, who bring together products and services to sell to consumers.

3191 A reasonable person might say the Internet is different. But is what Bell or TELUS or Xplornet does in delivering an electronic book from Amazon all that different from what Canada Post or Purolator does in delivering a physical book from Amazon?

3192 Put in that context, does offering zero-rated data, the equivalent of free shipping and handling, harm competition in the content seller market?

3193 We do not think it does.

3194 Finally, that brings us to the competition in the content creation market. I think it’s is safe to say that competition in this marketplace is also robust. No one has cornered the market on content creation. There are always new works, music, videos, apps, being created by a wide variety of people.

3195 Given the robust competition, it’s not surprising to Xplornet that certain intervenors, such as the Canadian Media Producers Association, have addressed the positive elements of differential pricing practices. The easier and cheaper it is for consumers to discover new content, the better. The faster a specific new technology is adopted and becomes a standard, the better. Ubiquity, not scarcity, drives success in these markets.

3196 If, for some reason, competition in the content market is not enhanced, but rather harmed by differential pricing practices, then like the retail market, this should be a matter for the Commissioner of Competition, just as it has been and was back in the 1980s and 1990s.

3197 While no one can corner the market on content creation, there is a legitimate question to be raised about discrimination to injure a specific content creator or seller. For example, if a vertically integrated ISP chose to block or premium price a specific website or content to benefit its own content interests?

3198 Xplornet would submit that this is where the CRTC has a crucial role to play. While the Commission forbore from regulating rates for the internet access services, it did not forbear from applying subsection 27(2) of the Telecommunications Act to the market.

3199 This prohibits the ISPs from unjustly discriminating against, or giving an undue or unreasonable preference to any person, including itself, or subjecting any person to an undue or unreasonable disadvantage.

3200 At a high level, subsection 27(2) has the same focus for which the Commissioner of Competition has argued. It is only when a preference is undue or unreasonable that the section has application.

3201 However, while the Competition Act focuses on addressing the conduct that results in a substantial lessening of or an adverse effect on competition in the marketplace, the Commission is not so limited by section 27(2). It can intervene when a single party is unduly harmed by the conduct of an ISP.

3202 This may be -- this must be determined as a question of fact. It necessarily relies on the Commission to make determinations on the facts of the case before it.

3203 The service provider must then be given the opportunity to rebut the unjustness of the discrimination or the undueness or unreasonableness of the preference or disadvantage in accordance with subsection 27(4) of the Act.

3204 The onus of demonstrating this rests on the ISP in question. Then it falls to the Commission to draw the conclusion based on the facts of the case.

3205 In Xplornet’s view, this approach is consistent with the Commission’s forbearance order, section 27(2) of the Telecommunications Act, and the Government’s 2006 Policy Direction.

3206 The Commission should exercise its power sparingly, giving market forces the broadest possible range to operate. Ultimately, Xplornet believes that the telecommunications industry should not have unique rules relating to competition.

3207 We already have in Canada a strong competition law framework with well-established and technologically neutral provisions and policies to prevent anti-competitive behaviour. The Commission’s role is to deal with situations that are unique to telecommunications, such as the actions that may discriminate against specific content being communicated.

3208 In conclusion, Xplornet believes the Commission should be guided by the following principles.

3209 First, that access to the internet that promotes innovation and relies on market forces to deliver new services that promote consumer choice is a cornerstone of any modern digital economy.

3210 Second, in a competitive market, ISPs must have tools and the flexibility to be able to deliver unique and dynamic offerings to consumers in an ever-changing competitive landscape

3211 Third, in a competitive marketplace, consumers need transparency regarding attributes of any differentiated internet service to make informed choices.

3212 Fourth, that the internet should be defended against any anti-competitive action, such as those that leverage a dominant position in one market to gain a competitive advantage in another, or against any individual discriminatory action, such as seeking to block access to a website without lawful excuse.

3213 Finally, Xplornet does not believe that a new regulatory regime is necessary to regulate differential pricing practices. These practices are a normal part of a competitive market and the competition will act if they result in a substantial lessening of competition.

3214 In those instances where a party brings forward a case alleging undue or unreasonable preference or harm resulting from differential pricing practice by an ISP, the Commission should decide the case on the facts as required by subsection 27(2).

3215 In doing so, the Commission must be mindful not to take any action that has the consequence of curtailing internet adoption, usage or development.

3216 We thank you very much for your time, and we’d be pleased to answer any questions.

3217 THE CHAIRPERSON: Thank you. I’ll put you in the hands of Vice-Chair Menzies.

3218 COMMISSIONER MENZIES: Thank you. I just want to explore for a couple minutes how you use data caps as an economic ITMP essentially. How directly are they involved in your management of the network -- of your network?

3219 MS. PRUDHAM: I’m not quite sure I understand the question entirely but do we ---

3220 COMMISSIONER MENZIES: Why do you ---

3221 MS. PRUDHAM: --- have data caps? Yes.

3222 COMMISSIONER MENZIES: Let me put it this way, why do you have data caps?

3223 MS. PRUDHAM: As a matter of determining the product. We actually build them not through the network group, but we build them through the marketing group, through the product group. So it’s part of the specification in order to allow for a price differentiation because not everybody needs a great big package that’ll give you 300 gigabytes.

3224 COMMISSIONER MENZIES: So it’s not a matter of network management?

3225 MS. PRUDHAM: No, the primary driver behind them in our company is economic for the sake of the customer.

3226 COMMISSIONER MENZIES: Okay. So -- okay.

3227 How do you manage congestion in your network or do you have it?

3228 MS. PRUDHAM: Yes. Yes, we’re human. We have congestion.

3229 COMMISSIONER MENZIES: How do you manage it?

3230 MS. PRUDHAM: We do have internet traffic management policies. They vary by platform. We have six different platforms, technology platforms actually providing service to our customers at this time. And you, in fact, heard from one of our primary suppliers, Sandvine, earlier this week. So we do make use of Sandvine to attempt to address the congestion issues.

3231 COMMISSIONER MENZIES: Where do your congestion issues -- where within your framework do they typically exist and are they -- is there a geographical aspect to it or a time of day aspect to it?

3232 MS. PRUDHAM: Well, I think like everyone, we see peaks and valleys throughout the day. Eight years ago our primetime most congested moments of the day were actually between 9:30 and 11:30 in the morning. And that slowly progressed to about 4:30 to 5:30 in the afternoon, and now it’s roughly 10:30 at night. So you can see the shift of what’s been happening in terms of how the internet is being used. And, yes, that is primarily driven by the video traffic today. So the video substitution that has gone on from a -- the traditional broadcasting to the internet is what’s driving a lot of that congestion.

3233 COMMISSIONER MENZIES: So, but an elimination -- a potential elimination of data caps would have no impact on your ability to deliver content then?

3234 MS. PRUDHAM: On the physical ability, no.

3235 COMMISSIONER MENZIES: Right.

3236 MS. PRUDHAM: On the economic choice for consumers, yes. It would result in substantial increase for those who currently might struggle with affordability issues.

3237 COMMISSIONER MENZIES: What sort of -- how substantial?

3238 MS. PRUDHAM: Well, as you’re aware, Xplornet has deliberately made a choice that it has two different types of product offerings. It has usage-based billing, so you can have an allotted amount per month and then pay for any overage, or you can have a limited state plan, which is a fixed bill and it has a fixed allotment to it so that there’s bill certainty. And we give the consumers a choice. They can choose which one is best suited for them and their economic needs.

3239 The overwhelming majority have selected the limited state.

3240 So obviously, price certainty is extremely important to our customer base. And as a result, if you were to say, well, you can’t do that anymore because the bucket’s got to be unlimited, that’s going to significantly affect affordability for those folks.

3241 COMMISSIONER MENZIES: Do most of your customers use their data cap over the course of a month? I mean, what would be the average usage? Ninety (90) percent? Eighty (80) percent? Seventy (70) percent?

3242 MS. PRUDHAM: Just over 80 percent do not use their full data cap. And of those, if you looked at the average customer, they use about 70 percent of their plan.

3243 COMMISSIONER MENZIES: Okay. Thank you. That’s helpful.

3244 How have your data caps evolved in recent years? And we’ve heard mention and it was in our monitoring report last week and you’ve mentioned it yourself about the increase in usage and that sort of stuff. So can you give us some idea of how your caps have evolved to meet -- because, as you’ve described, they’re designed to meet your customer’s needs ---

3245 MS. PRUDHAM: Yes.

3246 COMMISSIONER MENZIES: --- so the customers’ demands on the -- have been increasing ---

3247 MS. PRUDHAM: Yes.

3248 COMMISSIONER MENZIES: --- I assume for you as for everybody else. So how have your data caps evolved to meet that?

3249 MS. PRUDHAM: Well, we’ve tried to do exactly that. Tried to respond to the marketplace and what they would like. I think back to the first hearing when I was here, which was the basic obligation to serve hearing back in I think it was 2010 or 2011, and at the time, you know, we thought it was outrageous that somebody could use 10 gig per month of data was just almost unheard of in our network at that time. Today, we have customers using a terabyte of data. So consequently, we’ve had to adjust our packages to ensure that the vast majority of customers are able to find a package that fits their data needs and their sizes.

3250 So in the answer to your question, we have consistently grown -- and we evaluate them every year. We take a look and adjust accordingly upwards.

3251 COMMISSIONER MENZIES: Do you have anything that you could undertake to provide with us that sort of shows the pattern over the last say five years in terms of the evolution of data caps?

3252 MS. PRUDHAM: We could certainly give you our product evolution over the last five years if that ---

3253 COMMISSIONER MENZIES: Okay.

3254 MS. PRUDHAM: --- would be helpful.

3255 COMMISSIONER MENZIES: I think November 14^th is the date ---

3256 MS. PRUDHAM: Thank you.

3257 COMMISSIONER MENZIES: --- we’re working on. Thanks.

3258 UNDERTAKING

3259 COMMISSIONER MENZIES: Now, I’m trying to get a better grasp of your argument around competition law and common carriage and 27(2). So, sir, referring here to paragraph 62 and 63 from your written intervention, you state that:

3260 “Differential pricing practices can give ISPs the ability to act as gatekeepers or to influence the success or failure of a new product offering such as a news subscription, music or video service. This can serve to unfairly influence consumer choice.” (As read)

3261 But then you go on to state that:

3262 “It is not the Commission’s role to police all competition issues in all online marketplaces. ... It is the Commission’s role to consider competition amongst ISPs and to determine if the differential pricing practices have an anti-competitive effect on competition.” (As read)

3263 So, I want to know -- perhaps you can elaborate a little on why the Commission should be limited to assessing the effect of DPPs on competition among ISPs.

3264 MS. PRUDHAM: And I’ll try to do this one more time without specifically referring to those two paragraphs because I do appreciate that they ---

3265 COMMISSIONER MENZIES: Sure. You don’t have to refer to those two, but they sort of illustrate ---

3266 MS. PRUDHAM: Yes.

3267 COMMISSIONER MENZIES: --- the point that I’m trying to get at here.

3268 MS. PRUDHAM: In general what we’re -- we were trying to say is that the -- there are, as we said in our oral remarks, three different potential marketplaces that could be impacted by a differential pricing policy. And if you look at the industry as a whole, so you say is there impact amongst the ISPs. So if one ISP decides to zero rate -- if I can give you an example, and no harm meant to any one of the ISPs who I may use in this example.

3269 If Bell were, for example, to decide that it wanted to zero rate CraveTV content, the question is, does that cause harm amongst other ISPs? Could other ISPs reasonably and competitively respond to that? The answer, in my view, is yes. There’s nothing that would stop Xplornet from choosing to zero rate CraveTV. I don’t have to negotiate with them or discuss it with them. I can get up and do that the next morning to respond competitively.

3270 The folks at Telus may get up and decide they’re going to zero rate Netflix as a competitive response to that. Our friends at Rogers may simply decide that they’re going to increase everybody’s data caps by 10 gig to make up for it and you can use any video you want then.

3271 So, each one of those is one potential source of competition. So I’d suggest that unless you perceive that there is some sort of competitive advantage being created to the ISP that’s sustainable because they’re subsidizing from something else, you should let the marketplace play itself out amongst the various ISPs.

3272 The second and where I think this paragraph was going was into the other areas, which is into the content aggregators. Does the example I just gave you with -- create an undue advantage for Crave over Hulu or Netflix or someone else of that nature? The answer to that is potentially yes. But that’s where we were politely suggesting that is about the Competition Bureau saying -- because it would be no different than Canada Post deciding to give preferential rates to Amazon for the delivery of their books over Indigo.

3273 Where there is a role for the Commission, we do believe very strongly that the Commission has an important role to play, is when the Competition Bureau looks at matters, they’re assessing substantial lessening of competition in the marketplace. And I can certainly give you an example of a situation where there might be some sort of activity going on.

3274 Let’s use something crazy like Xplornet gets up one morning and decides it’s going to block somebody’s website, a bookseller’s website, for some reason. One bookseller is not likely to result in competitive harm that is a substantial lessening of competition in the bookselling marketplace. So the Competition Bureau might have its hands tied. But clearly, that’s us exercising some sort of censorship or discrimination that’s inappropriate.

3275 And to me, that’s what section 27(2) is and it gives you a very strong mandate to say in that circumstance, no, no, you don’t get to exercise editorial control and block websites in that manner.

3276 COMMISSIONER MENZIES: Right. So but some would argue that -- and for the purpose of this conversation and I think we can define different -- perhaps it would be helpful first to define different types of differential pricing practices. For instance, those that might have to do with the time of day, those that are -- anything that is content agnostic, would you say that’s a fair line to draw?

3277 MS. PRUDHAM: Sure.

3278 COMMISSIONER MENZIES: Between, you know, free data, you know, nothing applies to your cap between midnight and 6:00 a.m., for instance ---

3279 MS. PRUDHAM: M’hm.

3280 COMMISSIONER MENZIES: --- or something like that. As opposed to something that more like what you’ve just referred to has to do with content, is content-related in any way; right

3281 MS. PRUDHAM: Certainly, yes.

3282 COMMISSIONER MENZIES: Okay?

3283 MS. PRUDHAM: Okay.

3284 COMMISSIONER MENZIES: So your argument seems to be -- is primarily based on competition law. It does -- you do give an example there where 27(2) would apply. But some would argue that the broader discussion we’re having here is sort of -- it’s legally about common carriage and it’s philosophically could be about net neutrality.

3285 And the fundament -- and so I’m trying to understand what your concept of net neutrality is because the general intent of net neutrality and treating this -- and viewing the internet as being unique in nature because it has more than just commercial aspects to it is that the provider should not have an interest at all in any of the content that its network is providing access to. What is your concept of net neutrality?

3286 MS. PRUDHAM: I think it goes to some of the things you were referring to in section 36 where you’re talking about influencing or restricting access to content. Are you influencing meaning? Are you restricting access? Our job, much like truck carriers or things like that, is not to open the crates and look and say, no, no, you’re not getting the oranges today.

3287 And to me if we’re not discriminating between oranges and apples in that, the fruit that we’re delivering, the packets of data, then I think we’re doing our job.

3288 What we’re saying though is can we offer free shipping and handling for the oranges and not the apples? I think that’s a reasonable thing that benefits consumers.

3289 COMMISSIONER MENZIES: Well not if you like apples; right? But that’s -– I guess that’s kind of the ---

3290 MS. PRUDHAM: But you’re free to go to another carrier.

3291 COMMISSIONER MENZIES: That would be kind of the point in terms of that.

3292 Because some would argue that net neutrality -– and seeing the internet is something beyond just a commercial carrier of goods and services, that it also carries ideas and it is a venue for speech in terms of that, that bring in different views regarding its protection and anything that threatens that, and regarding that people also argue though that net neutrality actually protects medium and small business in that sense too, that don’t -– and we heard earlier this morning, you know, the example of smaller ISPs that may not be able to engage in these sorts of practices.

3293 Or smaller companies -– if you’re using your crate of oranges, that the large multinational orange company may have an advantage over the smaller local producer. Not that I know of any place in Canada that produces oranges, but if you get ---

3294 MS. PRUDHAM: I understand your question.

3295 COMMISSIONER MENZIES: But if you get what I mean, that there’s an inherent disadvantage that allows some to get an -– to use preferential access to gain an advantage there to the detriment of others and that’s why net neutrality is important.

3296 MS. PRUDHAM: And that’s where I go back to and what I -- with great respect to the panel that was before us, I think they confused two things.

3297 As we keep saying there are three potential markets involved. There’s the ISP access market, there’s the content aggregator market, which is the folks who bring the stuff together and convey it and then there’s the actual content creation.

3298 What I think you’re seeing is a confusion of those latter two, because the description that says well TBayTel can’t go and create its own service.

3299 Well TBayTel doesn’t have to go and create its own service, neither does Xplornet. We don’t own any content.

3300 But could we choose -– and in my earlier example where I said we can choose to deliver CraveTV with zero-rated data. We don’t have to negotiate with Bell to do that. We can do that. We can choose Netflix.

3301 And that’s my point with respect to competition, is it’s open to choose what you do.

3302 COMMISSIONER MENZIES: So you’re looking more for the freedom to be able to zero rate anything that you wish to do?

3303 MS. PRODHAM: M’hm.

3304 COMMISSIONER MENZIES: But on a non-commercial basis? That you would not be making an arrangement with Netflix or Crave in order to do that? There would not be an exchange between them and you?

3305 MS. PRUDHAM: Exactly.

3306 COMMISSIONER MENZIES: They would not be paying you to zero -– or you would be -– you would be absorbing the cost of the data consumed on your own or passing it along to consumers at some point, so you’re acting independently as opposed to in concert with another provider in order to create a competitive edge within the marketplace?

3307 MS. PRUDHAM: Exactly.

3308 COMMISSIONER MENZIES: Okay.

3309 MS. PRUDHAM: And where you’re referring ---

3310 COMMISSIONER MENZIES: That’s quite different in a -– well it’s -– I don’t want to use the word “quite”. It is different in terms of -– in terms of how one might view that; right?

3311 MS. PRUDHAM: Okay, yes.

3312 COMMISSIONER MENZIES: So would you be in favour of retaining the freedom to be able to zero-rate, for instance.

3313 MS. PRUDHAM: M’hm.

3314 COMMISSIONER MENZIES: Price –- in other words you’re pricing –- that’s as you wish. You may zero-rate certain products, but you may not make a commercial arrangement to do so?

3315 MS. PRUDHAM: Well that’s an interesting question, because it goes back to a whole other set of competition theory here.

3316 Because as we referred to, it’s a question of vertical integration or some other, as the Competition Bureau in its submission referred to affiliation arrangement.

3317 On their face they may be perfectly fine. There may be competitive issues, but that’s really a question of vertical integration.

3318 There’s a whole set of case law, there’s a whole set of frameworks for how you look at that and determine if there are in fact advantages that are derived from another marketplace that are being used to influence the ISP market.

3319 So I’d suggest that is very definitely something the competition bureau could review and is not something that this Commission needs to legislate or regulate.

3320 COMMISSIONER MENZIES: Right so would you -– I can ask the Competition Bureau what their view is. I’m more interested in what yours is.

3321 Would you see -– would you see that as a line to be drawn, that people could zero -– providers could zero-rate programming?

3322 MS. PRUDHAM: Forgive me, this is the point where what my current job is may or may not be relevant.

3323 I spent the first eight years of my career on Bay Street as a competition lawyer, specifically doing intellectual property law.

3324 COMMISSIONER MENZIES: That explains everything.

3325 MS. PRUDHAM: So -– which may be why -– where all those cases came from.

3326 And went from there to spend the next eight years as the top lawyer for what is BMG and Sony, BMG Music. So I spent another eight years in the record industry on the content side and now have spent the last eight years at an ISP.

3327 So when I look at this I have the unique opportunity to look at it from all different perspectives and some of the things that you’re worrying about in saying ‘well you know but if you received compensation would this be a problem’.

3328 There are a lot of unique characteristics about content and distribution and all of that that make that scenario incredibly unlikely.

3329 So I guess that’s why I’m sorry it’s not going to happen.

3330 COMMISSIONER MENZIES: It might be unlikely but I mean the -– we’re kind of -– we’re looking at it, I mean, at all the aspects.

3331 MS. PRUDHAM: M’hm.

3332 COMMISSIONER MENZIES: But the common carriage aspect and the -– legally and the philosophical aspect around net neutrality is quite important for -– and for many of the intervenors in this process, that don’t want to see anything that would allow ISPs to have anything to do with content.

3333 That that is, particularly at this point in the evolution of the internet and access to the internet, that that is for many folks a hill to die on and it should not be commercialized, that access -– that the pipe that you own should be dumb.

3334 MS. PRUDHAM: But this isn’t new and this has been going on for ---

3335 COMMISSIONER MENZIES: I know but this -– but this challenge to it is somewhat new to us.

3336 MS. PRUDHAM: Not really.

3337 I could point you to, for example, the original introduction of the Kindle and the various E-readers, where the Amazon and others were paying for the data.

3338 That wasn’t coming over your home internet if you had one of those original ones. You would have realized it was using some of the cellular networks and that, but it was Amazon that was paying for that.

3339 If you look at OnStar, if you go back to the 1990s and look at that circumstance, it was the car manufacturers who were paying for the data.

3340 The customer didn’t know that, because they probably didn’t appreciate how it worked at the time, but that’s how -– what was going on.

3341 And I think -- I hope we can all agree that those original first steps were a good thing. They were innovative and result in, you know, the highly connected cars that we have today.

3342 COMMISSIONER MENZIES: Okay. Help me understand then your understanding -– or your definition of innovation. We’ve talked about that a couple times.

3343 MS. PRUDHAM: M’hm.

3344 COMMISSIONER MENZIES: Some would make the case that differential pricing practices are -– they’re -– it’s just a marketing tool. There isn’t anything fundamentally innovative and I guess there’s many -– many different ways to define innovation.

3345 If innovation exists in finding a new way to sell something, or if innovation –- the innovation that you’re really talking about is technological, or as was referred to earlier this morning, disruptive in some fashion. So what is -– what is your view on it?

3346 MS. PRUDHAM: Well let’s look at the last two examples I just gave you. If consumers had had to pay for the data from the outset would there have been as quick an adoption as there was of the OnStar system, which struggled in its infancy.

3347 In the 1990s there was certainly reluctance from customers to originally use that and yet today we’re all very grateful that our cars can talk and do all sorts of things.

3348 The -– would the E-readers have been as successful and popular if we hadn’t made the entrée into that marketplace and going from the physical book to the electronic toy easier for customers without complexity. So, I’m not sure I’m not totally answering your question because I can’t -- I’m one of those people who sees innovation -- it can come in small incremental parts. It come in big leaps. And what we’re seeing is a bit of both. And differential pricing can assist both to occur.

3349 COMMISSIONER MENZIES: I just want to go to a comment you made in your presentation this morning. It’s on page 4 under “Competition in the content market”, where you say “ubiquity, not scarcity, drives success in these markets”. Don’t some differential pricing practices and zero ratings actually encourage scarcity rather than ubiquity ---

3350 MS. PRUDHAM: Yes.

3351 COMMISSIONER MENZIES: --- because you’re narrowing the offerings for people and it’s becoming a bit more like a cable network than like the internet.

3352 MS. PRUDHAM: Yes. Which is why we politely suggested this Commission probably doesn’t need to regulate it. Because, at the end of the day, if a content producer wants to be successful, it is about getting the maximum exposure of their content out to the marketplace. Offering it exclusively through one channel and one channel only limits your marketplace significantly and does not usually result in financial success for whatever they’re offering.

3353 Again, forgive me, I’ll go back to my roots in the music industry on this one, but once upon a time people actually contemplated going, “Well, we’ll make it exclusively available through this internet service, or we’ll make the record available exclusively at Walmart for the week of release.” The problem with doing that is it doesn’t premiere at number one. It doesn’t appear as a gigantic success. And, generally, your revenues are not as high as if you had made sure every retailer had the available music. It’s also why record companies for a century have handed records for free to radio stations, to get it out there so people know about it.

3354 COMMISSIONER MENZIES: But aren’t you offering preferential treatment? I mean if Bach is zero rated and -- doesn’t that put Beethoven at a disadvantage, inherently?

3355 MS. PRUDHAM: Well ---

3356 COMMISSIONER MENZIES: Or how does Beethoven get zero rated too?

3357 MS. PRUDHAM: Quite possibly. But this is where you get into -- and honestly, we could spend a good two days on the economics of this and I’d be delighted to so but I’m quite certain others might not enjoy this discussion.

3358 COMMISSIONER MENZIES: Very few do but ---

3359 MS. PRUDHAM: But it lies in consumer taste. If you look at the most successful record of a given year, you are lucky -- absolutely blow out of the box, phenomenally successful record, you were lucky if 1 in 12 Canadians purchases it. Phenomenally successful television series, top-rated, all that kind of stuff, you were lucky if 1 in 10 households watch it.

3360 So, when you say, “Does it put somebody at a disadvantage?” Well, yes. So, yes, it puts Beethoven at a disadvantage but there’s lots and lots of other musicians out there, and, at best that you could hope is that it’s only a disadvantage vis-à-vis 10 percent or less of the population.

3361 COMMISSIONER MENZIES: What if it was something to do with speech or ideas and not just a commercial product? What if it was a -- they used an example yesterday, what if it was a political party that somebody wished to zero rate access to their website so that party X has made an arrangement or its -- you can watch its videos with zero rating, and party Y and party Z and party Q, whatever, do not have that advantage. People can still access them; right? They can watch them as much as they want, but wouldn’t that be disruptive at least to the -- wouldn’t that violate the notion of net neutrality pretty significantly?

3362 MS. PRUDHAM: Well, it’s an interesting question, but it then goes back to the question of what percentage of the data caps, et cetera, are people using? As we indicated, the vast majority don’t reach their data cap on a monthly basis. The vast majority use less than 70 percent of their data cap.

3363 So, is there a real difference in terms of the person who has the cap and the zero rated? Probably not, in terms of the number of people who will be able to come and see the free speech. To the extent, though, that it is having an influence on meaning or unduly influencing an election or something like that, certainly I would suggest section 27(2) is highly appropriate in that circumstance.

3364 COMMISSIONER MENZIES: Okay. Those are pretty much all my questions. My colleagues, I expect, will have some. Thanks.

3365 THE CHAIRPERSON: Commissioner Dupras.

3366 COMMISSIONER DUPRAS: Good morning. I have just one question. You said there’s no need to discuss with the content provider to zero rate a service.

3367 I mean, from our understanding of what we’ve heard, it seems there are some technical requirements, technical tweaking that needs to be done in order to identify the content that you zero rate, therefore obliging you to deal with the content provider.

3368 Isn’t that something that you see? Is it possible just to bypass? Also, sometimes for quality, I believe you need -- it’s better with an app, and does that require technical tweaking so that you can zero rate?

3369 MS. PRUDHAM: Well, I think it would depend very much on whatever it was you were specifically choosing to zero rate. But, if for example, the decision was that Xplorenet wanted to zero rate software updates coming from the Google marketplace, we’re certainly able to identify that in our system at this time. We could tell. We couldn’t tell which, you know, software program it is but we can tell the type of traffic that it is and therefore could choose to do it. So maybe I’m overly simplifying it, but that’s my understanding.

3370 COMMISSIONER DUPRAS: And, I mean, you’ve made, I guess, verification with your technical people about that?

3371 MS. PRUDHAM: Based on the reports I’ve previously seen; I believe we certainly could do that.

3372 COMMISSIONER DUPRAS: Okay. Well, thank you very much.

3373 THE CHAIRPERSON: Commissioner Vennard.

3374 COMMISSIONER VENNARD: Good morning. I have a couple of questions that I’ve been thinking about the last few days which is that basically what we’re looking at here is a relationship between a content provider and the person who’s going to watch, pardon me, or consume that content. And in a tradition environment, that was -- it was pretty clearly defined. And here I’d like to sort of draw on your experience in the, say, in the music industry, where there was a point in time when the internet disrupted copyright. It was very, very different.

3375 And so, now it seems -- and I agree with you that we have innovation that occurs incrementally and then sometimes we have innovation that comes in with a big splash. And a good example of that, of course, would be Uber, where, you know, somebody had the idea of this and then it very much disrupted that relationship between the person who needs to get somewhere and whoever who’s going to deliver that person to where they need to go. And it was pretty clear there who the parties were and who the interest were and who was being advantaged and who was being disadvantaged, and, of course, all the different things came in that area, too, potential risks, potential benefits and so on.

3376 But to go back to the idea of the content and the person or the individual who’s going to be using or consuming that content, how do you see that space developing? In my view, there are some very large aggregators that have showed up there, Facebook and Google, and so on. And we seem to be at a place now, from my way of thinking, where we need -- there needs to be another space in there. But before I -- before we talk about that, maybe you can just give me your viewpoint on you see that relationship between the content and the consumer.

3377 MS. PRUDHAM: I think it is a very dynamic space that will constantly evolve. The list that we chose there was not accidental. We deliberately put Netflix with Amazon with Spotify with Apple. Because when you think about they do, I could equally have put in CTV GO app.

3378 They're all different ways of aggregating that were not conventional. To your point about Uber, you kind of understood you were going from point A to point B. In the broadcast world, we understood you sold your content to the broadcaster and the broadcaster -- there are only some many channels when they broadcast to the final home. If you wanted a physical copy, you went to the local store and you purchased it.

3379 Now there are so many different ways. You can buy a streaming service like Netflix which some might argue is closer to a broadcaster than maybe to a retail store, but it allows for a temporary copy because you're only going to watch it once but you can choose to do it on your time frame. So that's clearly a different approach than what the old retail would have been which is you go, you buy the package and you own it kind of thing or you watch it when it's live broadcast.

3380 So my point in a somewhat rambling way is to say that I think that's going to keep evolving. I don’t think we've seen the last of how different parties are going to come in and decide that they want to make content available to us to consume in different ways.

3381 COMMISSIONER VENNARD: And of course, that's what we want and then it gets even more complex when you start to think about the -- if a person purchases a -- has a plan, then they want to be able to maybe watch. So they maybe want to be able to watch it on their traditional TV set at home. They might want to watch it at the office. They might want to watch it on their mobile, on their cell phone, the smart phone.

3382 So you can kind of keep repositioning control and access points and money in different places all the way around.

3383 Where do you think we are now in terms of that with respect to the DPP? We heard yesterday from I think it was Vaxination that they want a very clear defining line. An ISP should just be about delivery and that's it, very, very clear line there. And their focus of innovation should be on what they do instead of expanding out and changing into something else.

3384 What are your thoughts on that?

3385 MS. PRUDHAM: My thought is having been the canary in the coal mine of going from physical CDs to the digital space is you can think you know what the customer wants but that will constantly evolve. And, you know, Napster isn’t still here. Was it highly disruptive? Absolutely. Was MP3.com highly disruptive? Yes. Neither one of them are around today.

3386 It's very different. We talk about Apple which Apple came along and suddenly became the second largest music retailer in Canada. And now we talk about Spotify. So we thought everybody wanted to download but really what they want to do is stream. So now we're into a different model.

3387 So I guess my answer is I don’t know the answer but I just know it's going to be different from what it is right now.

3388 COMMISSIONER VENNARD: Okay. Well, that's a very good answer.

3389 Thank you. Those are all my questions.

3390 MS. PRUDHAM: Thank you.

3391 THE CHAIRPERSON: Commissioner MacDonald?

3392 COMMISSIONER MacDONALD: We talk a bit about differential pricing potentially being used to entice customers to go towards certain content or to avail of an ISP services, and "entices" may be a polite word.

3393 If I could use a non-polite word, I'd maybe suggest "threat" in dealing with an ISP dealing with their customers that perhaps had been zero rated and they want to downgrade to a non-premium plan, the threat being if you don’t renew, we're going to take away your zero rating on apps that you enjoy.

3394 Or ISPs dealing with content providers, the threat could potentially be if you don’t adapt your content in a certain way, we're no longer going to zero rate that content for you.

3395 Could you maybe discuss that for me?

3396 MS. PRUDHAM: Well, the first of the two scenarios that you described, my immediate instinctive reaction was, oh no, I'm going to lose customers. If, as a service, I start taking away something that has value to my customer, they're going to go some place else.

3397 So the only reason that you would downgrade or change perhaps something that used to be zero rated and is no longer is because, to use the example, maybe Napster once upon a time might have been zero rated but it's absolutely no interest to anybody and they prefer Spotify. So you take away Napster, you give them Spotify, the customer will be generally happier today.

3398 But if I try to take away Netflix from customers, if they previously had that for free, that would be a very foolish business decision and the consequences would be that my competitors would have more customers.

3399 COMMISSIONER MacDONALD: But when you're looking at a large base of customers, don't ISPs make that calculation? I want to now only zero rate on my premium plan, so I'm going to, again use to use the polite word, entice or force my customers to pay an extra $3 a month. And yes, I may lose five percent of my customers by making that decision but I'll be making more -- more money because everyone else is going to be paying an three or $4 a month.

3400 So isn't there a potential to use zero rating in more of a negative way in dealing with either customers or content providers?

3401 MS. PRUDHAM: I certainly understand your point and yes, ISPs are businesses. They will make the rational decision each one on its own profitability and what makes the most financial sense. So yes, but I think that if it makes more financial sense to do something else, it must mean it has more value to the customer.

3402 So some customers will be unhappy, absolutely. We will never make everyone 100 percent happy but in your own description, you said you're going to make more money doing this than previously providing, you know, the premium package or whatever. What it means is more customers are happy with what we're doing than what we were previously doing. People vote with their wallet.

3403 COMMISSIONER MacDONALD: Okay. Thank you.

3404 THE CHAIRPERSON: Just a few more questions.

3405 Building on the idea that you said that you could unilaterally decide to offer Netflix, so earlier this week, Roslyn Layton said that characterizing the differential pricing practices are nothing more than partnerships.

3406 So if you're saying you can do it unilaterally, I mean you're fundamentally disagreeing with her assessment that it's a partnership. Is that correct?

3407 MS. PRUDHAM: I think I probably am, although I largely agreed with many other comments she made, but I think that specific statement, yes.

3408 THE CHAIRPERSON: And I'm having difficulty understanding how there would be no -- you know, Commissioner Dupras asked a few questions earlier. I mean how can you do this without having any interaction with the underlying service?

3409 I mean don’t you need some technical information to, on the one hand, identify which packets won't be rated, will be subject to zero rating on the one hand, and if we look at the Vidéotron case, there seems to be a requirement in that case for the service provider, the streaming service to actually provide some technical information so it could be part of Vidéotron's program.

3410 So help me out on that.

3411 MS. PRUDHAM: Forgive me, I'm not familiar with Vidéotron's network structures. So it's difficult to comment on theirs. And I'm not an engineer by training. So I would be happy to go back and consult further if that's what you would like with our network teams who could provide a more thorough answer on that point.

3412 But the point of what I was trying to say is that there are alternatives in the marketplace. So even if you didn't do that, I can certainly -- it's just price competition and it may be price on one thing but you can turn around and substitute an alternative pricing policy instead.

3413 So, as I said, somebody could try and copy it and say, okay, same -- we're going to offer the same service at zero rated. And if you're saying there's a technical problem, maybe that's not possible, but you can go to the competitive service and seek to do a deal with them. If that doesn't work, you can choose to increase the cap size of everyone. That way, any consumer can choose any service they want to increase that.

3414 You could lower your monthly price. That's another alternative that again allows consumers maximum choice and they're not confined to saying, oh, I have to be a Netflix or a Crave TV or an Amazon customer.

3415 THE CHAIRPERSON: Well, I'll take you up on your offer to undertake to find out the engineering issue with respect to your network, that if you were to -- whether you can unilaterally decide to zero rate a particular application I guess or service without getting any technical information to allow your network to actually do that from a billing perspective.

3416 UNDERTAKING

3417 MS. PRUDHAM: Okay. We will undertake that.

3418 THE CHAIRPERSON: Okay. So that's November 14^th.

3419 Now, you also said at one point, you know -- saying the Commission should or should not regulate this issue. I think it’s important to set the stage more properly. It’s not the Commission deciding whether it wants to regulate or not.

3420 Parliament has already adopted legislation. We are trying to figure out what that means to operationalize that, whether it’s section 36 or 27(2) or others maybe. And we’re just trying to operationalize and interpret our home statute.

3421 Would you agree with that?

3422 MS. PRUDHAM: Yes.

3423 THE CHAIRPERSON: So based on that, would you consider Xplornet to be a common carrier as it is generally understood to be?

3424 MS. PRUDHAM: Yes, based on the definitions in the statutes and regulations, yes.

3425 THE CHAIRPERSON: And would you agree that essentially in Canada the common carrier obligations are codified in the Telecom Act through sections 36 and 27(2)?

3426 MS. PRUDHAM: Yes.

3427 THE CHAIRPERSON: And that they would engage, 27(2) -- well, section 36, you mentioned blocking services entirely, early in your testimony. I think that’s more a section 36 issue. Would you agree?

3428 MS. PRUDHAM: Yes.

3429 THE CHAIRPERSON: But section 27(2) is more of a gatekeeper type issue -- would you agree with that?

3430 MS. PRUDHAM: Yes.

3431 THE CHAIRPERSON: And so in a sense, when you make what you describe as a mere business decision of choosing to zero-rate, let’s say, Crave versus Netflix or the other way around, you’re actually exercising a publishing function because you’re making an editorial choice. Would you agree with that?

3432 MS. PRUDHAM: I don’t know that we’re making an editorial -- I’m not quite sure I would agree with that.

3433 THE CHAIRPERSON: Why not?

3434 MS. PRUDHAM: You’re choosing to make a service available that some of your customers may choose to purchase or enjoy at a lesser cost.

3435 Yes, I view it as an opportunity for the customer who wants to make use of that service. I’m not sure I’m creating an editorial ---

3436 THE CHAIRPERSON: But you’re actually making a choice that this service rather than this service will be available to you free of charge?

3437 MS. PRUDHAM: Well, again, this goes back to -- you’re assuming everybody hits the data cap and, therefore, is paying the incremental to go to the other service versus ---

3438 THE CHAIRPERSON: Well, I’m not sure if it’s just a pure data cap issue, because we know that in your case people are so freaked out about hitting their data caps because they’ll get throttled down or it’ll slow down completely. So I’m not sure that data cap, in your particular case, is entirely -- the fact that people haven’t reached it is entirely insightful, because we know Xplornet, from the complaints we get, has some issues. So let’s set that aside for a moment.

3439 In terms of you are making a choice, are you not, if you’re saying you can get Crave without it counting, but you can’t get Netflix in the same way. You’re making a publishing decision -- a publication decision like a publisher would be, as opposed to a common carrier, no?

3440 MS. PRUDHAM: No, I’d argue we’re making the same decision Canada Post makes when it decides what it pays -- charges Amazon versus Indigo.

3441 THE CHAIRPERSON: Right. Well, that’s interesting because I was going to go down the route of false analogies, because there’s a couple you’ve raised today. And one of them is precisely that on page 4 when you say:

3442 “A reasonable person might say ‘the Internet is different’. But is what Bell, TELUS or Xplornet does in delivering an electronic book from Amazon all that different from what Canada Post or Purolator does in delivering a physical book?”

3443 Well, the first difference, of course, Canada Post and Purolator aren’t subject to the Telecommunications Act.

3444 MS. PRUDHAM: Correct.

3445 THE CHAIRPERSON: Or the CRTC’s jurisdiction, at least not yet, although I saw some noise about that recently.

3446 But Canada Post and Purolator, if we’re going to make analogies, they’re the carriers.

3447 MS. PRUDHAM: M’hm.

3448 THE CHAIRPERSON: Not Amazon.

3449 MS. PRUDHAM: That’s correct.

3450 THE CHAIRPERSON: So the analogy to Bell, TELUS and Xplornet is that Bell, TELUS and Xplornet are like Canada Post. How does Canada Post rate weight and size?

3451 So if a magazine is a particular weight and size, there’s a certain rate associated with that.

3452 Would you not agree that most people would be a bit scandalized if Canada Post rates for a magazine that was the same size and weight as a sports magazine versus a cooking magazine or a left-leaning political magazine, same weight and size ---

3453 MS. PRUDHAM: If they made the decision based on whether it was a cooking magazine or a sports magazine, yes, are there different prices ---

3454 THE CHAIRPERSON: How would Canada Post be able to exercise an editorial choice for Canadians as to what Canadians should get as magazines? They’ve made that choice.

3455 I mean, there’s a freedom of expression issue here that they want to have that magazine and suddenly Canada Post decides if you buy a cooking magazine of the same weight and size, it’s going to cost you less than a political magazine of the same weight and size.

3456 MS. PRUDHAM: That’s -- in fact, Canada Post will negotiate different rates with different shippers, for the same magazines.

3457 THE CHAIRPERSON: But not based on content.

3458 MS. PRUDHAM: Not based on content, no.

3459 THE CHAIRPERSON: Exactly. That’s the point. It’s based on reasonable cost structures associated with delivery; so volume, size, weight, distance.

3460 MS. PRUDHAM: Yes.

3461 THE CHAIRPERSON: Not whether it’s about cooking or political leanings.

3462 MS. PRUDHAM: I agree with you.

3463 THE CHAIRPERSON: So when you’re making a choice about Netflix versus Crave versus any other, you’re exercising an editorial choice. You’re not just saying Netflix requires so much capacity, size, weight, distance, in analogy. I mean it’s internet so it’s not quite the physical distribution but you’re exercising a publishing choice between Netflix and Crave.

3464 MS. PRUDHAM: No, we might be -- we might be doing it on other reasons. It’s not an editorial choice. And, for example, each one of the services has different means of encoding. They have different rules for what happens when they hit traffic, whether or not they drop down to a standard definition from a high definition, et cetera.

3465 We could look at it instead of talking about editorial choices, we could talk about software.

3466 THE CHAIRPERSON: Which then gets back to my original question; how are you going to make that assessment without talking at all to the service providers to find out those issues?

3467 MS. PRUDHAM: Because we can see that in the networks today.

3468 THE CHAIRPERSON: I mean if it’s about how much data they take and so forth?

3469 MS. PRUDHAM: Like most ISPs, we have means of seeing who is in the pipe and how much they take up, how their services perform.

3470 THE CHAIRPERSON: Following on the false analogies, again you mention the Amazon Kindle. Again, the e-reader did not make a distinction, whether you’re buying, from a telecommunication aspect to it under the old system, between a romance novel and a highbrow historical biography.

3471 MS. PRUDHAM: M’hm.

3472 THE CHAIRPERSON: So there was -- it was content agnostic, ---

3473 MS. PRUDHAM: Yes.

3474 THE CHAIRPERSON: All the data was treated the same. There was no publishing action.

3475 MS. PRUDHAM: Agree.

3476 THE CHAIRPERSON: The set-up was not an editorial choice that you would see, for instance, in a broadcasting world.

3477 MS. PRUDHAM: But I’m not disagreeing with you. At least, I don’t think I am, because that’s what I said the section 27(2) is about.

3478 If we are making an editorial choice where we are preferring the latest J.K. Rowling novel over some other book, absolutely, that is section 27(2) from our perspective.

3479 But if we’re talking about -- and that’s why we were trying to distinguish between -- there’s the aggregator in the middle. It’s the reseller, and we were trying to say -- because it’s not an editorial choice to choose to deal with Amazon versus Indigo; CTV versus Global. It’s -- the content is what you’re talking about as editorial choice.

3480 THE CHAIRPERSON: Well, Amazon and Indigo, I don’t know what their libraries look like. Presumably, they’re not identical.

3481 MS. PRUDHAM: To my knowledge, they’re not identical.

3482 THE CHAIRPERSON: And that would be the case. So in a sense, when you’re choosing one service provider versus another, and it’s particularly more the case, I think, in audiovisual world where there are reclusivity of platforms, it’s even more dramatic than it is in the book business or the music business, which different models, audiovisual is more reclusive, right? You want -- you know, CTV program is only on CTV and it’s not on Global or something else. And all this is negotiated.

3483 So that when you choose to zero-base an audiovisual content, you’re actually choosing editorially the content in that library.

3484 MS. PRUDHAM: Again, you’re -- exclusivity that doesn’t necessarily exist. It doesn’t make financial sense typically because what’s CTV broadcasting? We can list off the shows. Where is that content also available? Well, we can list off the other services that provide those shows. So if you really want ---

3485 THE CHAIRPERSON: If you use the common carrier, have made a choice.

3486 Let’s say I’m just dealing with you.

3487 MS. PRUDHAM: Okay.

3488 THE CHAIRPERSON: Is it an answer to say to somebody that’s dealing with one common carrier that we can discriminate because you can go to another common carrier that does not?

3489 MS. PRUDHAM: And I’m sure a customer will if they would prefer that.

3490 THE CHAIRPERSON: And I think that’s where the clash of ideas is occurring between is this a competition law issue pure --

3491 MS. PRUDHAM: M’hm.

3492 THE CHAIRPERSON: -- or is there a common carrier issue that engages publication type interference by a common carrier.

3493 MS. PRUDHAM: And I’m agreeing with you that to the extent we are trying to exercise editorial control. As I said, that’s what I believe 27(2) is about.

3494 I think where we’re having the clash of ideas, as you say, is the degree to which that can occur and how it occurs.

3495 THE CHAIRPERSON: M’hm.

3496 MS. PRUDHAM: So I think we agree on the concept we just disagree on how the actual execution might occur.

3497 THE CHAIRPERSON: Fair enough. And hopefully as the process unrolls others will share a view on this and what does 36 mean, what does 27(2) mean, why does the Commission not have the power to forbear from 36. I think those and what does 27(6) all mean.

3498 So I’m sure people will have the opportunity to address that in their comments, so thank you very much for all this.

3499 MS. PRUDHAM: Thank you.

3500 THE CHAIRPERSON: And I think we’re probably due for a mid-morning break. Let’s take a break until 11:15. Merci beaucoup.

--- Upon recessing at 10:58 a.m.

--- Upon resuming at 11:15 a.m.

3501 THE CHAIRPERSON: À l’ordre, s’il vous plait. Order, please. Madame la secrétaire?

3502 MS. VENTURA: Thank you, Mr. Chairman. We will now proceed with the presentation by East Link. Please introduce yourselves. You have 15 minutes for your presentation. Thank you.

PRESENTATION

3503 MS. MacDONALD: Thank you. Good morning, Chairman, Commissioners and Commission Staff.

3504 My name is Natalie MacDonald and I’m the VP of Regulatory for Eastlink. To my right is Lee Bragg, CEO and to my left is Marielle Wilson our Regulatory Analyst.

3505 MR. BRAGG: Eastlink provides communications services to primarily rural Canadians across seven provinces throughout Canada.

3506 We have invested hundreds of millions of dollars over the years into our networks to provide our customers with the best customer experience and quality in local telephone, high speed internet and TV services.

3507 We are proud that our customers living in smaller rural communities have some of the highest speed internet services in the country, up to 1 Gig in some cases, along with access to hundreds of high definition T.V. channels, video on demand, our community T.V. channel Eastlink T.V. and T.V. streaming services like Eastlink Stream.

3508 In 2013 we also launched our wireless service over our 100 percent LTE network, which has consistently been recognized by independent testing as having the fastest speeds in the areas where we operate.

3509 We are pleased to bring very competitive wireless offers to customers in Nova Scotia, PEI, parts of New Brunswick, Timmins, Sudbury Ontario and further expansion underway.

3510 Eastlink has always been supportive of competition and the benefits it brings to consumers and the economy.

3511 We believe our success as a relatively small company is attributable to our culture of investment, innovation and willingness to compete.

3512 And, as we have said before, we have also benefited from a regulatory regime that encourages facilities-based investment and competition.

3513 And both the Broadcasting Act and the Telecomm Act, along with Commission policies and rulings have assisted along the way.

3514 MS. WILSON: We will address our views about differential pricing, which is the key focus of this proceeding.

3515 But first we want -– we wish to make it clear that we do not agree to imposing regulation over data caps as sought by many interveners.

3516 Offering retail priced internet packages that include data limits or pre-set data buckets, is not differential pricing.

3517 Rather, it is a means to provide choice to consumers who may not want or need a one-size fits all service, allowing them to pay for the data they choose and it is a means by which service providers can manage their networks.

3518 Service providers should have the flexibility to determine the internet services, speeds, included usage and pricing they offer in the market.

3519 Our markets are characterized by multiple service providers who offer packages, with a range of options allowing consumers to select the service profile that best suits their needs.

3520 With internet usage increasing 40 to 60 percent year over year, it is critical that our networks are robust and capable of managing the increasing data usage.

3521 It is a misconception that once a network is built nothing further needs to be done.

3522 In fact, in our experience, if the network is not upgraded and consumers continue to use more data the network will become congested and the quality of service for all customers will be impaired.

3523 Today Eastlink continues to make significant investments and our networks are very robust. Managing our networks and the data used is necessary to ensure the quality of the service we provide.

3524 While many of our wireline internet packages do not have data limits, where we do offer them we have made them generous such that they are intended to address the limited number of users who use excess capacity which could impair the network experience of others.

3525 And we have regularly reviewed and increased our data limits to ensure they evolve to meet customers’ needs and as we invest in increased capacity.

3526 In this regard we can manage congestion while understanding the areas on the network where usage patterns may warrant focused investment or other business response.

3527 As a new wireless entrant we have made significant investments to acquire spectrum and build first class networks and we want to provide the best service experience for our customers.

3528 We need to be competitive in the market, keep our customers happy, while also receiving a return on our investments and continuing to invest to expand our networks and to keep up with future demand.

3529 Managing wireless data is extremely important to ensure customers’ experience on our LTE network continues to be the fastest and most reliable in the areas where we operate.

3530 Also, as a small regional service provider, we do not charge customers for roaming fees when they roam throughout Canada outside our network.

3531 Offering packages with various data options allows us to offer our services in a competitive way while managing costs.

3532 Establishing data limits is a reasonable means by which to help manage network capacity, for consumers to become familiar with usage and the fact that using more may cost more, while also allowing customers to select the most appropriate internet package for their intended use.

3533 Indeed, if data caps are prohibited it would mark a move to less differentiation in the market, less choice and customers likely paying more for the service and ultimately less investment in building out internet capacity.

3534 The issues of -– the issue of data caps was the subject of the Basic Telecommunications Services proceeding, with a decision pending.

3535 For these reasons we do not believe this process should result in any determination to regulate data packages at the retail level.

3536 MS. MacDONALD: Eastlink does not currently engage in differential pricing of data; that is, zero-rating or through sponsored content. Nor do we have any plans to offer such pricing.

3537 Although we are here to consider what framework should apply to differential pricing, even today a number of service providers are either currently offering or have grandfathered plans that provide zero-rated or preferred priced data.

3538 While others do not zero-rate certain data, instead they may offer their customers free online content or services, such as a free subscription to Netflix or to Spotify if they take the carrier’s mobile or wireline service.

3539 That practice may also raise concerns, but it is not the subject of this proceeding.

3540 And then there are the types of zero-rating which most parties consider to be reasonable. When data is used to manage or administer a customer’s account, voice over data, such as –- and practices such as zero-rating data during times of day to manage peak usage or other network management.

3541 Eastlink supports competition and therefore we generally agree with a regulatory approach that enables companies to have flexibility and discretion in how they operate their businesses, while creating regulation or policies only when necessary to prevent anti-competitive behaviour or as necessary to protect consumers where there is no competition.

3542 Yet we have also voiced our concerns about the types of zero-rating practices that would have an anti-competitive effect.

3543 Primarily in cases where some of the largest media companies in the country are able, through their sheer size or vertically integrated status, to take advantage of the content they own or their ability to negotiate exclusive deals that would have a negative impact on competition in the market.

3544 These concerns are not unique, as we have noted that numerous parties to this proceeding have raised similar concerns.

3545 After some consideration and in light of our philosophy that differentiation and competition is good for consumers, provided there is a reasonably fair playing ground for competitors to sustain a competitive market and in light of the fact technology and the industry changes very quickly, it may not be prudent to apply an outright ban on differential pricing as some interveners suggest.

3546 We already acknowledge that some differential pricing makes sense for consumers and it may be reasonable to assume that future initiatives may also provide grounds for reasonable differentiation that is beneficial to competition and to consumers.

3547 Yet we do have concerns about the abuses that may occur which are not good for competition and consumers. And given that the entities who have shown the ability to engage in differential pricing so far appear to be the largest companies in the country, it does highlight a need to set guidelines or policies to address behaviours which would appear to be non-compliant with section 27(2).

3548 In this regard, we submit it is appropriate for the Commission to establish a framework for differential pricing to add clarity to the existing provisions of the Act. The Commission’s approach in implementing the ITMP Policy could serve as an example of a mechanism that could work in this case; that is, the industry already has the ability to bring complaints under section 27(2) of the Act, but a Differential Pricing Policy would add clarity to service providers as to the types of pricing behaviours that would either be prohibited or would raise concerns under section 27(2). The following principles may be a good starting point for creating such a policy.

3549 Differential pricing practices should comply with the existing ITM policy and section 36. For example, the practice should not permit an ISP to degrade time sensitive traffic or block content contrary to existing rules.

3550 It should not deny access by consumers to content and services or products they want.

3551 It should not be exclusive for operators such that the service provider engaged in differential pricing has exclusive control over the content.

3552 It should not be permitted where an operator favours its own affiliated content, application or services.

3553 And it should be transparent to consumers and to the public.

3554 These principles were generally noted by a number of interveners and we think they form a reasonable foundation for a policy. However, to address some exceptional cases, the Commission should also consider creating a mechanism to allow the practice if an operator can establish that no section 27(2) concerns arise.

3555 This concludes our presentation and we will be happy to answer any questions you may have.

3556 THE CHAIRPERSON: Thank you very much for being here. Commission Dupras will start us off. Thanks.

3557 COMMISSIONER DUPRAS: Good morning.

3558 So, differential pricing practices is not something that you’re in or that you consider to offer these days or shortly, but you want to make sure that if ever this is something in which players can go there will be a framework that makes it fair for everyone.

3559 MS. MacDONALD: That’s right.

3560 COMMISSIONER DUPRAS: And what you say -- I mean, since these differential pricing practices will take up some capacity on the network, you say that it would be appropriate to use ITMPs to engage in differential pricing, this on page 13 of your initial submission or your second intervention, sorry.

3561 So I would like to talk about data caps, since this would be the mechanism that you would use to manage. I mean, you’ve been -- you’ve created a network -- it’s been, what, since 2013. You’re now with LTE. I mean, since the beginning of your service, has your data cap changed in any way? Have they increased or have they remained the same? Or are you solely aligning yourself on the competition?

3562 MS. MacDONALD: So I can start with our wireless services is fairly new. And so I’ll start with the wireline side of the business because historically, of course, internet usage was not what it is today, and so we did not have data caps or we call them data included usage because a customer’s not capped. They’re able to acquire additional data should they need it.

3563 So we didn’t include specific data limits. Even today we don’t. The vast majority of our customers are not in packages that have data limits. Some of that is related to the bundling that we offer and then customers in bundles have the benefit of unlimited data within the bundle. So it’s not a real significant concern or issue for us today.

3564 Where we do have included usage packages for our customers, they’re very generous. And in that regard, we haven’t really had a lot of issue with many customers going over that included usage. In fact, it’s, you know, up to five percent of our customers may go over on the included usage package.

3565 But we monitor the markets. What we offer in our markets are based on the competitive environment, also a consideration of, you know, the different regions and the investments we’re making. And combining all of those different characteristics we offer packages to the customers in the area.

3566 And so we have actually had an experience of generous data included usage where we offer it. And, in fact, we’re also in the process of bumping that up once again within the next upcoming week.

3567 So, we would say that the history shows that the -- as we invest in our networks, our data included usage is changing and we monitor that and react in the market accordingly.

3568 COMMISSIONER DUPRAS: I was -- as you -- I think you understood I was mostly referring to your wireless network. So could you provide an answer for this?

3569 MS. MacDONALD: Sure. And on the wireless side, we are a new entrant. We have made significant investments into our networks and we continue to do so. We’re still building our networks out. And, of course, as a new entrant, we also are trying to, you know, build our customer base because, of course, we started with no customer base on the wireless side.

3570 So our packages and the included data in those packages, they range and they are also built on a consideration of the competitive market. We enter the market with competitive packages and competitive pricing that we think attracts our customers because we’re in the mode where we’re looking to acquire customers.

3571 But we also need to consider that as a new wireless entrant we offer unlimited roaming, and yet we pay for roaming services. So, when our customers are roaming outside of our network and they’re incurring roaming charges that we’re paying for, we need to consider that when we establish the data -- what we call the data buckets that are available in each package that they’re paying for because we do need to manage those costs as well.

3572 MR. BRAGG: I mean, we do have customers that go over on the wireless side as -- I mean, we really -- we operate three different types of networks. There’s our cellular network that is the lowest capacity likely -- oh, maybe not; and our rural broadband, which is a -- it’s a wireless internet network; and then our traditional fibre coax network that’s got the most capacity.

3573 So it really -- different customers are on different networks and they have different usage patterns. We tend to have smaller buckets and on the wireless -- both wireless networks, the cellular network as well as the rural broadband network; and much larger buckets on the cable modem or the fibre network, but because there’s more capacity on that network. But on all of them there are customers that go over.

3574 COMMISSIONER DUPRAS: And on the rural ones, you’ve been operating those for many years?

3575 MR. BRAGG: I think we started that in 2011. The rural -- yeah.

3576 COMMISSIONER DUPRAS: Wireless.

3577 MR. BRAGG: Yeah, I’ll say five or six years for the rural broadband wireless.

3578 MS. MacDONALD: I would like to clarify for the rural network that Lee’s referring to, that’s a very, very specific geographically limited area in Nova Scotia, hard to reach areas where the only solution at the time -- and this was begun in around the 2007 period -- was to build this fixed wireless network.

3579 So it’s an anomaly compared to the rest of our systems, but it’s definitely an example of what happens in a technically challenged technology that is very costly to upgrade when you need to manage capacity. And, you know, we’ve struggled with how to do that and we have implemented limited data, cost-based additions to allow customers to access it. But that network was really primarily not built for the kind of access to the internet that people are using for today.

3580 So we still struggle in that area, but I think it really serves as a -- maybe a test tube example of the worst case scenario that could occur if you’ve got a network that you are struggling with and you've got people using the internet as they do today.

3581 COMMISSIONER DUPRAS: Okay. And in these areas, there might be less competition with other providers for internet -- broadband internet?

3582 MS. MacDONALD: That's correct. There may be -- for example, Xplornet may offer some service at some pockets of those areas or in parts of those areas, but it's also an area that -- it just has not been economically justifiable for a built-out wireline network.

3583 COMMISSIONER DUPRAS: So these are areas where there would be less need to try to differentiate and introduce new practices?

3584 MS. MacDONALD: I would say it's probably a valid statement, if -- as the primary or only provider, but the real issue there is just managing, being able to provide our customers with a service and wanting to keep them happy. And so our focus there is, you know, almost entirely on just trying to manage that network and try to minimize the congestion and troubles that we're having with it.

3585 So I would just say that in a -- you know, I think coming up with differentiation is a challenge when you're just basically trying to manage the access that our customers are getting on that network.

3586 COMMISSIONER DUPRAS: And in terms of upgrades, are these networks the rural ones, fixed wireless networks in which you don’t invest as much as you would, for instance, on the cellular side?

3587 MR. BRAGG: That's generally correct, and the reason for it is, there is very limited population in those areas, so the cost per customer to upgrade is just very prohibitive.

3588 COMMISSIONER DUPRAS: Okay.

3589 MS. MacDONALD: Saying that, though, we certainly have been taking every possible step that we can to try to build out where possible. And so a year ago we did look at certain targeted areas in that we could justify investing, and we've announced another investment to upgrade other parts of that part of the network. So we are working on it. It's just a slower and more difficult process when you're talking about the small number of customers on that network.

3590 COMMISSIONER DUPRAS: Okay. On the cellular network, can you have low capacity there -- well, lower than the wire line? How are data caps essential to manage your networks?

3591 MR. BRAGG: They're -- how are they essential? They're an absolute requirement, especially when you have smart phones and tablets that are able to have -- to move a tremendous amount of data on -- off of a network that has a limited resource. I try to simplify, and I've used some of my engineers to come up with some numbers, but we essentially, in one cellular tower that might cover a 15 or 20 kilometre radius, you only have as much -- because of the given amount of spectrum, you have as much capacity in one cable modem in one house as you have on that entire tower. So it becomes very important when suddenly, smart phones and tablets are able to burn through as much data as you could in a house, to be able to manage it and have some economic limiters to why a customer doesn’t just hook onto the network and burn all the capacity that the entire cell site has.

3592 So you need to be able to manage that, to put some -- I say usage inhibitors -- in front of a customer to say, "Well, okay, if I'm going to use all the capacity on this network, I've got to pay for it."

3593 And that is a bit of a challenge when you're dealing with different customers and different issues. Why does it cost so much to use a cellular network versus a -- the net -- my Wi-Fi network in my house? But it's the tremendous amount of investment and the limited amount of spectrum that we have to deploy in the cellular world. So it's just -- it just becomes -- you need the economic throttler to be able to manage that.

3594 COMMISSIONER DUPRAS: In terms of capacity, different wireless providers, they don’t necessarily all have the same capacity on their networks. Some may have more capacity than others, no?

3595 MR. BRAGG: That's right.

3596 COMMISSIONER DUPRAS: So if one has more capacity than another, I mean, he could zero-rate more, and he could -- it could be harder for you to follow suit?

3597 MR. BRAGG: Possibly.

3598 COMMISSIONER DUPRAS: I mean, you'd have to manage more your capacity?

3599 MR. BRAGG: Yeah, I'd either have to build more capacity, go to the next spectrum option, get more spectrum, build more capacity into my network, or come up with some other marketing initiative to try to counter that.

3600 COMMISSIONER DUPRAS: Okay. And how do you monitor and identify congestion in your network?

3601 MR. BRAGG: Oh, we have quite a variety of technical tools that we use to measure it. I mean, there's bid air rate and carrier to noise ratios and there's all kinds of mechanisms to measure the throughput of the traffic. And we also generally know, you know, the speed. We do ping tests. We know the speed of how fast the connection is from one user to the next and when that slows down. We know the total capacity on a site and when there's, you know, when the demand is for 50 megabits a second and there's only 40 megabits a second available, the whole thing starts to slow down. I mean, there's lots of tools we use to manage that.

3602 COMMISSIONER DUPRAS: And are there any particular place where the congestion occur? Is it more in the last mile on the transport?

3603 MR. BRAGG: On the cellular network?

3604 COMMISSIONER DUPRAS: Yes.

3605 MR. BRAGG: It can happen anywhere. I mean, we will see it -- sometimes it's in the backhaul from the tower, back to our central office. If we see that, we can go through steps. I mean, we're, I don't know, lucky, fortunate enough, we have a very robust fibre network that's our own, so that tends to be not an issue for ourselves. We don’t have to rent that capacity from a third party.

3606 Generally where we'd see it is in the last mile. It's from the tower to the actual end user, the handset, that when in a dense area, you get, you know, 10 or 20 people trying to download Netflix to their laptops over the cellular network, it will suck up all the available capacity.

3607 COMMISSIONER DUPRAS: And are there times in the day where -- I mean, there are more congestion, of course?

3608 MR. BRAGG: The time of day congestion issue is -- there are, and -- but it's different in different areas of the network. I mean, we offer -- operate networks all across the country, so you get a different time zone effect maybe at our central office, where we aggregate all that capacity and then deliver it wherever it needs to go. You get a bit of a balancing impact because of the different geographies, the different time zones we operate in.

3609 But there can be peaks, but I don't -- I couldn't tell you what they are in any given area right now, because we operate in so may different areas and they're different in different areas, and they change over time as usage changes. So we do have time-of-day impacts, but they're scattered all over the place.

3610 COMMISSIONER DUPRAS: Okay, so there's no way you could apply caps only during peak times because they ---

3611 MR. BRAGG: I don’t ---

3612 COMMISSIONER DUPRAS: --- vary?

3613 MR. BRAGG: --- think that is a -- today, as I see our traffic, to try to manage traffic with time-of-day caps, you know, we've talked about it, but it just seems to be impractical because we'd have to do it in such small market areas to have an impact on each one of those small areas. If the phenomenon of time of day changed a little bit, it's something we would consider doing, but today it's just the nature of our traffic. It doesn’t seem to make as much sense.

3614 COMMISSIONER DUPRAS: Okay.

3615 MS. MacDONALD: And the only other addition I would make to that is, in the past, when we had some of those discussions, some of the reactions we had were, well, if you are managing your peak time, you're just going to move the peak to the time where it's -- you know, so you're really just moving your peak around, and so do you still really deal with the problem? And so that was our perception. We understand that some intervenors and parties to the proceeding have used that tool, but that was how we saw it.

3616 COMMISSIONER DUPRAS: Okay. You say that the market position is a factor, that smaller independent TV or internet distributor do not have the size or power to negotiate special sponsorship that are other deals with other large application or content provider. Have you ever tried to negotiate any such deal?

3617 MS. MacDONALD: I'll start with that, and if Lee wants to add something else, but ---

3618 COMMISSIONER DUPRAS: And if no, on what basis ---

3619 MS. MacDONALD; Yeah. So ---

3620 COMMISSIONER DUPRAS: --- do you form this opinion?

3621 MS. MacDONALD: So absolutely, we've had -- so perhaps what I'll do is just speak in the context of our size operating in Canada relative to some of the larger companies, because you know, when I was listening in to this proceeding and we were focused on a very specific issue, I think it's important, you know, we talk about a level playing field, and of course, I don't think I agree that there really never is a level playing field no matter what element of the industry we're looking at.

3622 And -- but I say it because we are a smaller provider relative to the largest companies, and that means we also won't get better prices on software and on devices, modems, mobile devices. We’re not the first to market because we aren’t the first to get to the negotiating table to negotiate those deals. We’re usually, you know, second third or fourth in line to even negotiate some of those deals. And certainly we don’t have the volume ability to get the kinds of discounts that some of those larger competitors are getting.

3623 We also don’t have the cost advantages in building our networks because, you know, we are leasing, for example, on the wireless side towers at excessive rates that are, you know, more than paying for the cost of those towers.

3624 And on the other side of the business, we’re building networks in rural areas where we’re talking a number of poles we need to attach to to get to a home versus a number of homes to a pole. And we’re paying utility companies and Telco’s for those fees while they have joint agreements to share those costs.

3625 So, you know, in all areas of our business we’re already facing what someone might say is size disadvantages. And notwithstanding that we are here, we’re competing. We’re building top-quality networks and we’re willing to compete.

3626 So those would be just examples of the size difference.

3627 We have -- I don’t know that we would want to say any specific names, but there are times that we’ve tried to negotiate or talk to different companies and we simply were not able to get them to the table. So we do have some specific experiences as well. Or it was a delayed access. It might be a year or two later before anyone is willing to talk to us. So there are certainly experiences we do have simply because of our sheer size.

3628 COMMISSIONER DUPRAS: Thank you. But with the content provider, you fear that your -- for instance sponsored data -- that you’re not going to be able to get as much as the larger providers and that’s going to disadvantage you?

3629 MS. MacDONALD: And I would say it is absolutely reasonable to expect a content provider who looks to one of the largest carriers in the country who has 1 to 3 million subscribers that they can promote or sell their services to -- it absolutely makes sense for that content provider to start with those companies. And that very basic fact means that we are likely going to have more of a challenge.

3630 When we say that I think in some respects it’s a little bit of a fact of life and a fact of operating as a small operator.

3631 What we would like, and we appreciate that the Commission does, is when the Commission does set those policies and works within the framework of the legislation to help us out in ensuring against the kind of behaviour that really shouldn’t be happening.

3632 And so, you know, it is a challenge in this proceeding because we are trying to find the right balance as to what is just a basic reality of competing as a small player in a market as compared to what is just the wrong kind of behaviour that we need to try to protect against.

3633 MR. BRAGG: I think a sponsored data deal might be fine and we might, you know, be at a slight economic disadvantage but what we don’t want -- and whether it’s sponsored data or anything, you know, we can’t hide from the fact that we’re small and there’s lots of things we’re not going to be able to negotiate as well.

3634 But what we don’t want to see are companies, larger companies using their size or the fact that they’re vertically integrated and have some leverage somewhere else too to get exclusive access or prohibit us from having an economic arrangement, whatever it is.

3635 I mean, we always know we may not be able to negotiate on the same terms but we don’t want to be prohibited from it.

3636 COMMISSIONER DUPRAS: And let’s say that exclusive access would not be permitted, I mean, still you would have some difficulties with the larger providers?

3637 MR. BRAGG: Possibly. But on the other hand, you know, there are some advantages to being big. We can’t change that. So it’s hard unless we knew what the specifics of the issue were to try to come up with, you know, what’s right and what’s not.

3638 And I think that’s a little bit with our submission to say, you know, we find it hard to define sort of the rules for something and some things that have maybe not yet happened. And we tend to trust the Commission and your wisdom and how well you’ve handled things in the past to say more on a complaints basis because it’s, you know, this whole industry is moving so fast and there’s so many things changing that it’s hard to come up with a defined set of rules. So it may actually prohibit the development.

3639 So I think that’s what we’re suggesting is just on a -- you know, when we think there are issues we’d like the opportunity to bring them up and see if they fit within the existing undue preference rules or other rules that already exist.

3640 COMMISSIONER DUPRAS: Do you think there should be different regime for the smaller provider or that only smaller providers should be allowed to do DPPs in light of your concerns with the larger providers?

3641 MR. BRAGG: No, I would disagree with that being a good solution that it’s only for the small. And maybe if I’m in the small bucket ---

3642 COMMISSIONER DUPRAS: Or new interest for ---

3643 MR. BRAGG: --- I might say, “Oh, that’s a great solution.” But I think it’s very difficult to determine what’s the line between big and small. And we sometimes argue ourselves, well, not argue but say we maybe fall in the big side sometimes but because of our geographic nature and how spread out we are we actually operate a lot of small systems.

3644 So we might have 400,000 subs but somebody who has 200,000 all in one city may be in a better economic advantage for certain things. So I think big and small are hard to define depending on what the issues are so I tend to not like rules that sort of are structured that way.

3645 MS. MacDONALD: And just to clarify, you know, that is on this specific topic but certainly the Commission has made findings in terms of just administrative burden and that sort of thing, recognizing that smaller companies with filings or exemptions and that sort of -- you know, on the broadcasting side as an example. Those things are important and are very helpful. But just on this topic, I think we’re clarifying that.

3646 COMMISSIONER DUPRAS: Okay. So what opportunities does a company like Eastlink see with DPPs? I mean, for you that those be allowed is what you’re advocating. It’s more than to protect your company from those who could get involved in these practices. It seems that you would not want to miss on the opportunities.

3647 MR. BRAGG: Some of it is opportunity but some of it is -- I don’t want -- I’m a little unclear at this stage. This was the first time I was going to come to a hearing where I actually had more questions than answers that I wanted to ask.

3648 But I’m a little unclear about if we did not have differential pricing and we had complete net neutrality, I don’t know of our business activities what falls in a bucket of having to be rated -- let’s say we rated all the same. And I’m going to give you a couple of examples where it troubles me.

3649 We operate -- and Bell referenced the Internet of Things, which it’s not just coming, it’s here. I mean, we operate a home security and home automation where we have automated lightbulbs, time-of-day thermostats, all kinds of things that send data back across. I say it’s got nothing to do with our IP or our Internet service but it runs across our network. Our voice-over-IP service, our telephone service -- actually it’s an IP service.

3650 I would argue that if we wanted to move the way we deliver our cable channels off of our

3651 broadcast technology and move to an IP set-top box it’s just it’s moving an IP. But does that -- inadvertently does that traffic get caught in a net-neutrality argument that says all that traffic has to be rated and you have to charge the customer for it.

3652 Because technically, I can provide all those services. I could shut off the IP service to my customer. They can still have video, they can still have telephone, they can still have our security service, and all that traffic I can still bring across the network and not allow the customer to have a basic ISP service. So now I don’t even have a mechanism to charge them for that traffic. I don’t want to charge them for that traffic. I’d argue they’re already paying for that in the monthly service they pay me.

3653 But then if I turn Internet back on for that customer, does suddenly now they have to get charged for all that traffic? It just it boggles my mind a little bit, like, I don’t know how. So that’s where when I’m taking this broad interpretation of all the traffic we have on our network, I just want to make sure that we’re not being forced to charge customers for traffic, that’s really, I say, has got nothing to do with the ISP traffic itself.

3654 But -– and I think there’s lots of people can sort of see why that might make sense or you might want -– not want to do it, but what my challenge is going forward I think the ability to determine what is ISP traffic and what’s not -– and I’ll use our Eastlink Stream, it’s to be able to get our cable T.V. channel lineup over the internet to a tablet.

3655 I’d argue I shouldn’t have to charge customers for that traffic over my ISP network or even over my cellular network.

3656 Because they’re already paying for that content and making a contribution to my network and I control that content so I know how much traffic it is. So I’m comfortable from an economic standpoint that I could zero-rate that, because I know how much it is. I can get my head around that and I can protect myself economically from too much traffic.

3657 Conversely, something like Netflix, I don’t have any control over Netflix or how much traffic is driven by a Netflix customer.

3658 Nor do Netflix contribute to the total cost of my network, so I need to be able to -– be able to make sure that a customer who’s watching Netflix 24 hours a day pays a reasonable amount to cover the network costs.

3659 So I -– you know ---

3660 COMMISSIONNER DUPRAS: No but DPPs, I mean, defined broadly includes so many things. Are there specific DPPs which you think should not be allowed?

3661 Should, for instance, only content agnostics DPPs be allowed and for the content, I mean, that we should not get involved with that?

3662 MS. MacDONALD: In terms of are there any that we think should not be allowed, we’ve addressed that in our presentation as well as part of the policy that we proposed.

3663 And it’s if it’s exclusive to the content owner and they’re making it available through their networks such that the, you know, there isn’t a comparable offer that can be provided.

3664 So exclusivity over an ownership of content and then differentially pricing that in a way where the person who’s interested in that content is then also going to switch their wireless provider or their internet provider because they can’t get it anywhere else. That is an issue.

3665 Exclusivity doesn’t necessarily arise if that content is available elsewhere. So that’s an obvious example.

3666 Obviously in other cases affiliated content and offering DPPs will raise issues where they are favouring it, so I think there’s a different between exclusivity versus affiliated.

3667 The former seriously raises concerns for us and we would probably support it being prohibited at least unless they can prove otherwise and seek permission.

3668 On the affiliated, I think that if there’s any favouring then that raises concerns and, you know, they shouldn’t be permitted to favour it.

3669 And of course I know that gets into a whole debate about what is “favouring it” and what does that mean, but, you know, I think that’s sort of how we’ve distinguished between the two.

3670 COMMISSIONNER DUPRAS: Okay.

3671 In terms of the service that can be zero rated, I mean, how do you -– how would you go about it?

3672 I mean would you zero -– agree to zero-rate any service that meets your technical requirements or you would want to be able to select which service you can DPP?

3673 MS. MacDONALD: It’s also a good question, because as we worked through the issues in this proceeding we noted that a lot of companies and parties had suggested that any zero rating should apply to a broad category.

3674 And I absolutely agree with the concept that equal access means that there’s, you know, less favouring, I suppose, at least within that category and there’s more opportunity for everyone to participate.

3675 But when we were talking through the different issues, it seems to me that a lot of the focus to date in this proceeding on the examples of differential pricing almost seem as if they’re a longer term sort of market offering that might be available to consumers on a longer term basis.

3676 And we talked about an example, which I think serves as a very good scenario that I think would be supportive of content creators and adoption.

3677 And that would be in a theoretical example of a local gaming –- a videogame producer who develops a videogame, has no backing or special branding or financing, but there may be an ISP -– for example, if Eastlink was to hear about this videogame producer.

3678 He was having challenges getting –- he or she, you know, getting their business going. They had a fantastic game and for whatever reason the ISP, you know, learned about this and felt it was great.

3679 And if that ISP decides, you know, we’d like to give our customers an experience for the next two weeks to try out that game, zero-rate it because the videogame is going to take up a bit of capacity, and let them see how it works and then see what happens from there.

3680 This will give this creator an opportunity. It’s a couple of weeks so, you know, I don’t know how an open access to all categories in a very short term type promotion like that would work. And that’s why we considered that when we proposed our policy and we also allowed for a mechanism for maybe exceptions.

3681 I know yesterday the topic of promotions came up and, you know, thinking back to -– a little unrelated, but in the rules of win-backs on the telecomm side, you know promotions were something that were permitted within a framework of what is a promotion and how long is it and what is the purpose.

3682 And I think that, you know, when you think about promotions, promotions are about showing a customer what they could do with something.

3683 It’s a very good way to increase adoptability, to increase an understanding of what’s out there and it really, I think, does get to the concept of promoting creators.

3684 And so although it may be in that two week videogame example excluding other creators, it’s creating a whole new innovative way to bring an individual creator out there.

3685 And so that would be an example of something, I think, that when the Commission is considering its policies there may be some exceptions that really make sense and that those innovative little creators aren’t going to be running necessarily to all the big guys. They might be dealing with a very local player.

3686 COMMISSIONER DUPRAS: Yes.

3687 MS. MacDONALD: And I’m not sure if there are any out there, but I’m assuming that there are lots out there. YouTube has a lot of innovators as well for content and other things and other areas on the internet.

3688 So I think those are the kinds of things that can do well for a DPP scenario.

3689 COMMISSSIONNER DUPRAS: Okay, well that wouldn’t amount like to advertising?

3690 I mean because normally a promotion is for a service that you can buy after the promotion is over. Now you would just like give this freebie so they can try this new game?

3691 I mean is that -– is that what we’re ---

3692 MS. MacDONALD: I’m not sure. I suppose in my example I didn’t think through all the details of what the outlying, you know, ultimate objective of this videogame producer would be.

3693 COMMISSIONNER DUPRAS: Yes.

3694 MS. MacDONALD: But certainly when you’re promoting someone you’re creating an awareness of what that person’s work brings to the market.

3695 And whatever may come from that, you know it may be uncertain at the time of that, you know, in the case of that example.

3696 And there may be other cases where it may be more obviously an advertising.

3697 As an example, there’s an ISP that’s currently offering a free subscription to Netflix for -– if you take two or three bundled services and in that particular case it appears -- although I’m not sure, but it appears as if the Netflix is a premium Netflix.

3698 That may be a promotion that is intended to win, you know, subscribers to bundles, but it also seems to be an avenue to promote a premium version of Netflix.

3699 So that would be, you know, maybe a more obvious example, I’m not sure.

3700 COMMISSIONNER DUPRAS: Yes.

3701 MS. MacDONALD: But there’s a full spectrum from the videogame creator to the, you know, an app that’s being given away.

3702 COMMISSIONNER DUPRAS: Yes. And that example, the video –- free videogame, that would be like to gain subscribers? Or it would be like offered to existing subscribers?

3703 MS. MacDONALD: I think in our theoretical example it was the purest form of wanting to create an opportunity for a content creator.

3704 So again we hadn’t really worked through whether that would mean that we would later offer this videogame through a service and they could subscribe to it.

3705 COMMISSIONNER DUPRAS: M’hm.

3706 MS. MacDONALD: I’m sure there’s many different scenarios where the product or service being promoted may be something that the ISP or another individual or party is selling.

3707 COMMISSIONNER DUPRAS: Okay. Is it possible to have categories that are not discriminatory, preferential. Can DPP be neutral in your sense?

3708 MS. MacDONALD: Well, my view is that when you are charging a rate for one content and not another there is definitely a discriminatory pricing, and so we would never suggest that it’s not discriminatory.

3709 I think our issue is at what point is that discrimination or preference undue and in breach of the Telecommunications Act? And so, you know, price discrimination in all areas of the business is very common. It’s the question of when is that an undue preference or an undue disadvantage to the other stakeholders in the assessment.

3710 COMMISSIONER DUPRAS: And what would you say would be undue preference?

3711 MS. MacDONALD: Well, our perfect example of that would be exclusive content that has a differential price and is only accessible if you migrate your services to that content and you get the benefit of that price and no one else even has access to it, including, you know, and in a case of exclusive content maybe the other users of the Internet may be able to access it but they’re going to be inclined to move their services over because they don’t get that preferential rate.

3712 COMMISSIONER DUPRAS: And aside the exclusive access, are there any undue references that you see?

3713 MS. MacDONALD: I think that gets into the question of “you know it when you see it”. And we fortunately also have the provisions of the Act and the process through the Commission to bring matters to the Commission.

3714 So the kinds of examples would be exclusivity if it’s, you know, a content owner who’s vertically integrative favouring their content. If consumers are being denied access to content that they want, you know, in that particular case.

3715 So I’ll give you an example. We have, as we said, very generous data packages for our customers and so, you know, we don’t run into issues where customers aren’t accessing the Internet when they want it and the content they want. But we gave an example of our Royal Connect serving area which is a very challenged -- very challenged in terms of capacity area.

3716 For us to consider offering any kind of differential pricing in that area that is, I think, a good example of where you are then likely going to be at risk of denying consumers access to the content they want when they use the Internet. Because there’s such a limited capacity that their service -- if they’re going to be going to the zero-rated -- that the capacity will be chewed up on that. And so that would be an example, I think, of something that I wouldn’t think would comply with the policies and the Act.

3717 COMMISSIONER DUPRAS: So categories would not be necessary?

3718 MS. MacDONALD: I think if the policy said that if it was open to all within the category that would indicate as part of the overall analysis that the pricing practice doesn’t raise questions. So certainly by doing that it reduces the level of concern about maybe the behaviour in the market.

3719 I just think that we need to be -- if the ultimate objective is also to allow those examples of small creators or content that is, you know, of a short-term nature or special in terms of the example I gave earlier, those kinds of policies may not, if they were in place as a rule without the right to bring an exception, they may prohibit that kind of behaviour as well. So I just think we need to keep that in mind.

3720 COMMISSIONER DUPRAS: The zero-rated offerings, would it be acceptable if these are only offered in premium plans or I mean, they shouldn’t be allowed? Otherwise, can all subscribers access the zero-rated plan or would you reserve those mostly for premium plans? And if so, I mean, is that something acceptable?

3721 MS. MacDONALD: I’m not sure because we don’t do it today and we haven’t really -- we don’t have anything on the agenda in terms of what we foresee ourselves doing. I’m not sure that we can say what we would do.

3722 As a concept, I think that there may be scenarios where -- for example the game producer. I don’t know in what scenario if your objective is to, you know, show something that a local creator has brought to market; I think that that might make sense that everyone have access.

3723 But, you know, again, I don’t necessarily think that means that if you choose to zero-rate for premium services or whether it’s bundled services, I don’t necessarily see that as being a problem provided that the ultimate policy that’s established is complied with.

3724 COMMISSIONER DUPRAS: Okay. Some have said that ISP should not benefit from increased use of zero-rated applications; what do you think of that?

3725 MS. MacDONALD: So again the issues are there’s a lot of players and stakeholders, you know, that are interested in this proceeding. From the ISP perspective, you know, we heard one of the earlier presenters this morning -- the Independent Broadcast Group -- say that access to bandwidth is the number one concern.

3726 And I think that to have a healthy and vibrant Internet market, provided that of course the Act is complied with, that we need to be able to keep those networks running. And so we invest significantly in both a wireline and a wireless network, and we continue to invest. And in order to invest, we need to have our subscribers.

3727 And so for us, keeping our subscribers happy and being able to sell our services to our subscribers is of upmost importance. And when we have more subscribers, we can invest more in the business and we can continue to improve the services including out to the rural areas which is where we have our focus.

3728 So I think, you know, in some ways it goes hand in hand that as a network operator who’s investing, it’s critical that our customers, you know, it’s critical that those Internet networks be built -- wireline or wireless -- and be robust to be able to handle this. And in order to do that, we do care about providing service to our subscribers.

3729 So in that respect, as long as we’re complying with the underlying obligations, and the requirements of the Telecom Act, and that there’s no concerns as well about, you know, breach of section 27(2), you know, I think that it’s a reasonable model to at least allow for some differentiation where we can keep customers in the system.

3730 And that also goes for bundling, like, offering bundling discounts. I mean, when we initially started to build out into the rural communities, those models and the ability to build out was based on, you know, an expectation or assumption or hope that we were going to be able to sell multiple services because that helped us justify that investment.

3731 And so as we see some migration of customers from, you know, the other lines of business over to the Internet we need to -- you know, the capacity is still increasing, and it’s increasing because of Internet usage and so we need to be able to keep investing in that.

3732 COMMISSIONER DUPRAS: Okay. Well, thank you very much for this. I have two questions to close.

3733 On transparency, would you be agreeable that it would be appropriate to impose a condition of service under section 24 that ISPs should enable subscribers to track the data usage and data costs associated with any zero-rated content they consume?

3734 MS. MacDONALD: We did include transparency as an element of the policy. And when we included that we were thinking along the lines of ensuring that customers were aware of what the product is, what is it that’s differentially rated, is it clear to consumers, similar to the obligations we would have today just to make sure our customers are aware of their service offerings.

3735 On the data and usage side of the business, our customers can learn, you know, how much data they’re using and where they are. And we’re also rolling out in, you know, notices for our customers so that they know when they’re approaching that for those -- that percentage of our customers that are operating within a data usage limit.

3736 With regard to if a DPP was rolled out, I’m not sure of what the technical implications are, but I think as a concept and as a philosophy in consistent with our view that customers should know what they’re buying and what they’re paying for and the status of their service, I think it makes sense as a concept.

3737 COMMISSIONER DUPRAS: And also, on the websites -- on your websites are disclosing the details of any differential pricing arrangement or offerings that one might have with edge providers, including the economic and technical terms of the arrangement?

3738 MS. MacDONALD: Again, as a concept, I think that it makes sense that the customers are aware when they’re choosing a service what is included and what is not and what the specific characteristics of that service are. And in terms of other providers, as you indicated, if there is a form of differential pricing to which -- as an example, Videotron with the radio services, I think those other radio service providers who may be interested in either knowing about what it is or whether they want to partake should understand what they’re -- what the terms are as well so.

3739 COMMISSIONER DUPRAS: Okay. Thank you very much.

3740 THE CHAIRPERSON: So thank you for that. Just a few questions to close up.

3741 Just to build on the conversation you were having with my colleague on promotions, and in the spirit of building a better record, would you be able to undertake to give some more thoughts on that and file, you know, as to what parameters -- if you were defining a guideline that would allow for promotions, what would that look like in terms of how long, when and how, just to beef that up?

3742 MS. MacDONALD: Sure.

3743 THE CHAIRPERSON: Okay.

3744 MS. MacDONALD: Yes.

3745 THE CHAIRPERSON: So it’s the 14^th of November is the deadline for that. That’s okay? Yes?

3746 MS. MacDONALD: Yes.

3747 THE CHAIRPERSON: Yes. Thank you.

3748 UNDERTAKING

3749 THE CHAIRPERSON: At paragraph 8 of your oral presentation you say that -- you mention that some ISPs are providing free subscriptions to Netflix or to Spotify. And you say that practice may also be a concern but it’s not the subject of the proceeding. Are you saying that you think it’s of sufficient concern that we shouldn’t be looking at that?

3750 MS. MacDONALD: I didn’t go so far as to say that. I guess I just mean, you know, when we reference all the different things that are happening in the market in terms of competitive offers, certainly as a provider who may be competing with a large carrier who’s offering Netflix, we would be interested in knowing exactly how that’s working and what the impact is and whether we can -- you know, what is our reaction in the market and how is it going to affect us.

3751 I don’t think in this particular example it’s hitting us in our market, but it is an example that may raise concerns. And so I’m not suggesting today that the Commission needs to do something specific with it, but certainly ---

3752 THE CHAIRPERSON: It may depend on the nature of the arrangement ---

3753 MS. MacDONALD: Exactly.

3754 THE CHAIRPERSON: --- by which they’re offering that and whether ---

3755 MS. MacDONALD: Ye.

3756 THE CHAIRPERSON: --- there is some sort of deal being made ---

3757 MS. MacDONALD: Sure.

3758 THE CHAIRPERSON: --- sponsored or otherwise.

3759 MS. MacDONALD: Yes.

3760 THE CHAIRPERSON: Okay. I understand.

3761 Again in paragraph 8 you identify some practices where you think they would be reasonable and you mentioned voice over data as being reasonable. Do you mean voice over LT?

3762 MS. MacDONALD: Yes, that’s right.

3763 THE CHAIRPERSON: And could you expand on your view why that that -- you think that would be acceptable?

3764 MS. MacDONALD: Well, I think it’s just the very nature. So our networks, the voice is not carried over the -- typically over the data network. But with the technology, the LTE technology, it is a data technology. And so the expectation of consumers when they place a voice call is not that they’re going to be incurring data charges, and so it just seems a very -- very much a reaction to consumer expectation as well. And I think Lee is going to speak a little bit more to that.

3765 MR. BRAGG: Well, it ---

3766 THE CHAIRPERSON: Because he’s reached for the microphone; right? Go ahead, Mr. Bragg.

3767 MR. BRAGG: But it’s -- it fits within some of the other principles that we talked about on if somebody’s already paying for a certain service, we feel that the contribution to the network and the capacity associated with it is already being covered, so why should they have to pay twice essentially.

3768 THE CHAIRPERSON: Right. And what about video over LTE?

3769 MR. BRAGG: I think if they’re already paying for the video service -- and I’ll use our Eastlink stream platform as an example. I think if you’re -- it’s -- you’re already paying for that, really, it should be our decision about what part of the network or how we deliver it to our customers. We’ve made a decision to deliver it one way. So that if we make a decision to deliver it in a different way and a customer is already paying for it, then why should again we have to charge them twice for it?

3770 MS. MacDONALD: And I just want to clarify that distinction because I wouldn’t want anyone else, you know, listening to misunderstand that we’re suggesting -- you know, the distinction there is the subscription to the TV service and the fact that we are a network builder, and that when we -- we want customers to take our services, and so when they’re contributing to that subscription. And I reference that in our oral submission -- sorry, in the written submission, the first one, mainly as food for consideration because at that point in the submission we weren’t really sure -- it was initial stages and we wanted to lay out some examples of things for consideration. And I think that given the underlying objectives of broadcasting policy as well and keeping people within the system and promoting the system that there may be merit in looking at it in that way. And I don’t think it creates an undue preference as against other content providers over the top ---

3771 THE CHAIRPERSON: Right.

3772 MS. MacDONALD: --- in that specific example.

3773 THE CHAIRPERSON: It may be a preference but it’s not undue; right? That’s -- is that what your view?

3774 MS. MacDONALD: That’s right, yes.

3775 THE CHAIRPERSON: Okay. Just the final point. Now you obviously are concerned about affiliated content that might be offered on a DPP basis, including zero -- Bell’s position is that that would be -- I think the word they use is “absurd”. Because Telus could zero rate Crave but not Bell itself. Do you have views on that?

3776 MS. MacDONALD: I think that affiliated content does raise questions depending on how it’s used in the market and the other characteristics of how it’s aggregated, I suppose.

3777 For example, in a situation where we’re talking about the subscription to a TV service and that subscription, a customer of either Eastlink or Bell or any other BDU, has chosen to pay that BDU for the service, if they do place that over the top and it’s subject to that subscription, and there’s no favouring of the affiliated content in a way -- and so we use the word “favouring” in our proposal to address just that very situation. Because we would say that that is probably not something we would say raises the same kinds of concerns because other BDUs who are offering those services can also ensure that their customers who subscribe to it, if they choose to offer it on a differentially priced basis over the internet, can do so as well.

3778 So I don’t think that example would happen in our scenario, a situation where Telus was offering Bell’s content and Bell wasn’t allowed to on a DPP basis. But ---

3779 MR. BRAGG: And I think that’s -- that’s not the same as an undue preference. Bell’s at a disadvantage, so I say that’s -- I mean, not very often I agree with Bell, but I think they’re right that that does not make sense. The issue would be more the reverse. If they were doing it and not -- if Bell were doing it and offering it for free and not allowing Telus to have access, so that is an issue.

3780 But I think if Telus wants to give it away and Bell decides to give it away, they’re equal, so there’s no preference.

3781 THE CHAIRPERSON: But then, in a sense -- maybe this doesn’t work, but in a sense, Bell couldn’t give it away until at least somebody does. It -- can it -- is that what I’m hearing? And how big has ---

3782 MR. BRAGG: Yeah, I ---

3783 THE CHAIRPERSON: I mean ---

3784 MR. BRAGG: --- I think that’s a ---

3785 THE CHAIRPERSON: --- how big has the other ISP got to be before that allow -- it creates a permission?

3786 MR. BRAGG: If they gave it away and didn’t prohibit anybody else, that might be fine.

3787 THE CHAIRPERSON: I see.

3788 MS. MacDONALD: And ---

3789 THE CHAIRPERSON: It’s the exclusivity that is more of a concern.

3790 MR. BRAGG: Yeah.

3791 THE CHAIRPERSON: And would you be -- we talked about -- earlier about perhaps needing to have access to some technical information or knowledge and you would expect that to facilitate. I don’t know if -- a lawyer, not an engineer. Oftentimes people say the opposite. Is it your view that an ISP could relatively easily be able to decide unilaterally to offer something like Crave or Shomi -– well, Shomi for a little while or some -– or Illico or Tou.tv or some of the other ones within ---

3792 MR. BRAGG: Yes, I don’t think that’s difficult to do and if there are some technical requirements that are -– you know, if Bell were withholding those then that again would fall into my ---

3793 THE CHAIRPERSON: Right. That might amount to an exclusive behaviour.

3794 MR. BRAGG: Exactly.

3795 THE CHAIRPERSON: An undue, an unfair, an unreasonable approach. Is that ---

3796 MR. BRAGG: Yes, exactly.

3797 THE CHAIRPERSON: Okay. All right. Good. Thank you very much.

3798 MS. MacDONALD: Thank you.

3799 THE CHAIRPERSON: Those are all our questions and I think we’ll adjourn until 1:30; okay? Great. Thank you very much.

3800 MS. MacDONALD: Thank you.

3801 MR. BRAGG: Thank you.

--- Upon recessing at 12:24 p.m.

--- Upon resuming at 1:31 p.m.

3802 THE CHAIRPERSON: À l’ordre, s’il vous plait. Order, please. Madame la secrétaire?

3803 MS. VENTURA: Thank you, Mr. Chairman. We will now proceed with the presentation by Rogers Communications Inc. Please introduce yourselves and you have 20 minutes for your presentation. Thank you.

PRESENTATION

3804 MR. WATT: Thank you. Good afternoon, Chairman and Commissioners. My name is David Watt. I am Senior Vice President, Regulatory at Rogers Communications Inc.

3805 With me today, beginning to my left are Susan Wheeler, Vice-President, Regulatory Media; Howard Slawner, Vice-President, Regulatory Telecom; Donavan Beth, Senior Director, Product Management-Wireless.

3806 To my right is Pam Dinsmore, Vice-President, Regulatory Cable and Mark Shinozaki, Director, Product Management-Internet.

3807 In the row behind me we have Peter Kovacs, Director, Regulatory, Content Distribution and Broadband Policy; and to Peter’s left is Paul Goodrick, Manager, Spectrum Policy.

3808 Rogers believes that differential pricing practices are generally a bad thing, because they impact the networks that are the foundation of the Internet.

3809 They are inconsistent with the net neutrality and common carrier principles of equal treatment and non-discrimination.

3810 Our proposal, which generally prohibits the use of differential pricing practices, would benefit consumers and ensure that all content creators and application providers would be treated the same.

3811 It would mean that very few such practices would meet the high bar we are setting. We understand that.

3812 Our approach is consistent with the European Union’s guidelines and the Canadian government’s recent statement on net neutrality.

3813 It is intended to limit the abilities of ISPs to act as gatekeepers, choosing which content and applications receive discounted or zero-rated data rates.

3814 In addition, some customers would pay higher rates to subsidize those customers who access content at discounted rates.

3815 Our approach would not affect the use of data caps, because they are not differential pricing practices.

3816 They are, rather, an economic traffic management tool that is consistent with the Commission’s Internet Traffic Management Practices, ITMP framework and are necessary to ensure consumers do not experience service degradation.

3817 They also ensure consumers can access the Internet through a variety of service plans designed to meet their data needs at affordable prices.

3818 The common carrier principles underlying net neutrality are important and should be paramount.

3819 There should only be a few instances where exceptions would be made, such as customer service tools and differential pricing in different geographic zones or at different times of the day.

3820 Innovation should take place in respect of content and applications and their marketing and promotion, rather than in the area of differential data pricing.

3821 Good examples of marketing and promotions are gift with purchase type subscriptions where apps are given away for free, but data is rated.

3822 ISPs, both in and outside Canada, provide these types of offers to their customers today.

3823 So Rogers is signaling through our guidelines, as opposed to a complex ex ante framework, that ISPs should not adopt differential pricing practices for competitive purposes as a general rule and should focus on other ways to differentiate their products and services.

3824 This is the way the world is going. It is acceptable because it does not impinge on common carrier principles.

3825 We are not alone in our thinking. Almost all of the 1,200 Canadians who participated in the Commission’s Reddit Discussion forum opposed differential pricing practices, as did the large majority of parties who filed comments in this proceeding.

3826 The Canadian government has also recently expressed its unwavering commitment to equal treatment in the consultation paper on Canadian content in a digital world issued by Heritage Minister Melanie Joly in September.

3827 In doing so, the government stated that quote:

3828 “A public information network like

3829 the Internet is most useful if all

3830 content, sites and platforms are

3831 treated equally.”

3832 End of quote. Pam?

3833 MS. DINSMORE: We propose that the Commission adopt a principled approach to differential pricing practices that is transparent, clear and fair.

3834 Our approach has two guiding principles. The first principle is that all applications and content provided over the internet should, as a general rule, be subject to an ISP’s standard data charges.

3835 The second is that all customers should pay an ISP’s standard data charges, regardless of the nature of the content or application they access.

3836 These two principles would be reinforced using a complaints-driven model that would rely on subsection 27(2) of the Telecommunications Act.

3837 If the price on ISP charges for data does not comply with either of these principles, that practice would generally constitute an undue preference or disadvantage.

3838 In response to a complaint, an ISP would have to demonstrate that the preference or disadvantage is not undue.

3839 In other words, it would have to be shown that the benefit of the practice would outweigh the broader harm to other stakeholders.

3840 A consensus seems to have developed in this proceeding that certain differential pricing practices would comply with the Telecom Act.

3841 These include discounting or zero-rating data for accessing customer care services and tools for monitoring data usage. It also includes plans that offer different data rates for certain geographic regions and time-of-day discounts, all of which are consistent with the Commission’s ITMP framework.

3842 Susan?

3843 MS. WHEELER: There are three key benefits associated with our complaints-driven approach.

3844 The first is ensuring that ISPs, as common carriers, treat the delivery of data in a neutral fashion, including pricing. Zero-rating only some content or applications would undermine this role.

3845 A content creator or application provider would have no control over whether the ISP enters into a zero-rating arrangement with its competitors or another party. Yet, they would be adversely affected if this were to occur.

3846 ISPs are not BDUs with a legislative mandate to further cultural policy objectives.

3847 None of the ISPs that are appearing before you are asking the Commission to establish a set of BDU-like regulations that would govern the delivery of audiovisual content online, as well as other data.

3848 Yet many of these same ISPs want the ability to influence the content choices that consumers can make in much the same way that BDUs do.

3849 They are asking for this authority without accepting the regulatory safeguards afforded by the regime established for BDUs.

3850 In our view, Canadian consumers, content creators and application providers would all be disadvantaged if the Commission were to adopt the hands-off approach to data pricing advocated by Bell and a few others in this hearing.

3851 Videotron’s Unlimited Music service is a prime example of this.

3852 Of the 14 audio streaming services offered by Videotron only two are Canadian and Videotron made the calculated decision to exclude from its offering all Canadian radio stations that are streamed online, because they were not deemed fit -– they were not deemed to fit the demographic. This is a classic example of gatekeeping.

3853 The harm caused by differential pricing of data can be avoided by simply adopting the two guiding principles that we propose and relying on subsection 27(2) of the Telecommunications Act to enforce them on a case-by-case basis.

3854 Howard –- or Mark.

3855 MR. SHINOZAKI: Another benefit associated with our approach is that all consumers would be treated the same regardless of the nature of the content that they access online. It is a very consumer-friendly approach.

3856 Everyone is paying the same standard data charges for data regardless of the type or source of data they consume.

3857 Under a framework that would allow differential pricing, only a small subset of consumers would benefit from zero-rated or preferred data charges.

3858 The majority of consumers would not benefit and would end up paying more to indirectly subsidize those who access content or use applications that have been discounted or zero-rated.

3859 Our approach would also be transparent. No one will be surprised or confused as to the price they are paying an ISP when they watch or listen to content online. Transparency for consumers was a key element of the Commission’s ITMP decision.

3860

3861 In addition to ensuring that all internet users and their data usage are treated the same, our approach will allow content creators, application providers and ISPs to continue to innovate without market distortion.

3862 For content creators and application providers, operating in this environment will mean that the price ISPs charge for data will not factor into a consumer’s decision on whether or not to use an app or to access content online. Instead, the quality of the product or service being offered, as well as the retail price at which it is being provided, will determine its acceptance in the marketplace.

3863 We would note in this regard that wholesale relationships, such as the Amazon Kindle or pet-tracking devices, do not fall into the category of differential pricing practices. This is the case because an ISP’s relationship is directly with this third party. The ISP does not have a direct relationship with the customer, as these devices have separate SIM cards and the services have nothing to do with the customer’s wireless data plan. The customer is directly paying a third party, such as Amazon, for this product and is not paying for data.

3864 For their part, ISPs will be incented to innovate as they look beyond the price of their data to distinguish various offerings. ISPs could still create innovative offers, providing free or discounted application subscriptions, and thereby reduce prices for consumers. Such arrangements respect the principles of net neutrality and transparency because ISPs charge the same for data usage across different applications.

3865 Our approach would also encourage ISPs to develop new ways to package and bundle services. Providing free or discounted application subscriptions is becoming the preferred approach internationally.

3866 Howard?

3867 MR. SLAWNER: Some parties have argued that the Commission should permit ISPs to use differential pricing practices in part because they are already widely offered in other countries around the world. This is not true.

3868 We filed a report in June that was issued by Wall Communications, which demonstrates that this practice is not as widespread as some have suggested. The report shows that only nine of the 41 ISPs surveyed in the G7 countries plus Australia zero-rated data today.

3869 T-Mobile in the United States has perhaps been the most aggressive ISP in offering zero-rated plans. However, its video service, branded Binge On, applies technical requirements that exclude certain content and applications. It also throttles video quality.

3870 The FCC indicated late last year that it was monitoring T-Mobile’s pricing practices due to net neutrality concerns. And T-Mobile recently announced that it has discontinued this offer as well as its zero-rated Music Freedom service.

3871 The reality is that in most developed countries, regulators have started placing limits on the use of differential pricing practices. Few have banned the practice outright. Most rely, instead, on a complaints-driven regime.

3872 The European Union has, for example, recently adopted an ex post framework, which seeks to safeguard equal and non-discriminatory treatment of traffic and guard against commercial practices that materially reduce end-user choice.

3873 In the U.S., the FCC has issued an Open Order that contains rules comparable to our ITMP framework and indicated that it will measure any complaint about differential pricing practices against an unreasonable interference standard.

3874 The vertical integration rules proposed by TELUS and a few others, whereby zero-rating some content is permitted so long as it does not include content owned by the ISP itself would be impractical to implement, particularly in a transparent manner. It would also add an unwanted level of complexity to the delivery of digital content.

3875 Even if such a framework could be applied to ISPs, it would likely inhibit the delivery of some of the most popular Canadian content available online. ISPs that are vertically integrated companies hold the rights to many of Canada’s top-rated shows. Yet, they would be the only ISPs that would be prohibited from offering that popular content at discounted prices to customers.

3876 TELUS, on the other hand, would have free reign to offer any and all content at discounted prices to consumers. This results in a very odd state of affairs in which every ISP in Canada could offer Rogers’ content in their zero-rated plans except Rogers itself. Moreover, not to disadvantage content creators, all content, no matter who owns it, should be treated the same.

3877 There is a simpler and more effective way to address concerns about differential pricing. That is to adopt a complaints-driven approach that relies on the two guiding principles we have proposed and the unjust discrimination provision in subsection 27(2) of the Telecommunications Act.

3878 Donavan?

3879 MR. BETH: A final issue that we are addressing today is the attempt by some parties to expand the scope of this proceeding to include a review of the use of data caps by ISPs. Data caps are not a differential pricing practice. Rather, they are a traffic and network management tool which ensures that consumers do not experience service degradation.

3880 Data caps also provide consumers with affordable options to gain access to the internet. ISPs use them to create lower priced entry-level plans for light data users and higher priced plans for large volume users. By offering a variety of price points, speed levels and data caps, consumers can select the best plan that meets their unique data needs. Those consumers who use more pay more. That user model is a common feature in virtually every industry and business.

3881 To address concerns about data usage, we recently provided our wireless customers with a new data manager tool that gives them real-time control over that usage. They can now easily monitor their usage, set notification periods and prevent additional usage. The customer will be in full control over how much data they and their family use and how much they spend. In doing so, we have now solved one of the key concerns identified by consumers.

3882 Dave?

3883 MR. WATT: In closing, Rogers believes that, as a general rule, the Commission should continue to prohibit an ISP from charging rates for data that are less than its standard data charges. Ensuring that ISPs treat all content the same has been a defining feature of the internet for the past two decades. It has stimulated innovation and growth in Canada and around the world. It is the principle that will ensure that Canadians, as citizens, creators and consumers, can continue to reap the benefits of a connected society.

3884 By adopting a regulatory framework that preserves net neutrality, the Commission will be meeting the needs of Canadians, furthering the policy of the Government of Canada and following in the path of other jurisdictions including the U.S. and Europe.

3885 Thank you for listening to us today. We would be pleased to answer any questions you may have.

3886 THE CHAIRPERSON: Thank you very much for that presentation.

3887 So I will start us off. The first question I have is, in paragraph 3 of your oral presentation but in the written form, you say the Canadian government’s -- you refer to the Canadian government’s recent “statement on net neutrality”.

3888 Do I take it that that’s your reference on the second page to the Consultation paper?

3889 MR. WATT: Yes, that’s correct.

3890 THE CHAIRPERSON: Is that the same thing?

3891 MR. WATT: Yes, it’s page 7 of the Consultation paper.

3892 THE CHAIRPERSON: Right. Perhaps I’ve worked in government too long, but you’ve elevated a ministerial statement to a government statement, and I’m wondering why you’ve done that. I don’t think -- I haven’t seen a section -- a policy direction from the government. I’m not even sure whether that consultation document went to Cabinet.

3893 MR. WATT: No, I take your point, however, we think it’s a clear indication of a principal player in the government, but I do take your point.

3894 THE CHAIRPERSON: Okay. Fair enough. Okay. I was just wondering if I’d missed something, because I seem to keep up with governmental declarations, but I hadn’t seen something other than the Minister statement obviously.

3895 MR. WATT: No, you’re quite right.

3896 You know, actually, when I looked at this statement, they actually -- they left out the front piece, which said, “we are committed to net neutrality”, which I think is something we’ll discuss -- might have framed it or put it even better, I think, ---

3897 THE CHAIRPERSON: Right. That’s not a problem. I just wanted to clear that up.

3898 So I’m going to ask the questions in sort of two blocks. There’s several under both blocks but basically I want to start more of a scene setter to discuss because I think it is, in a sense, a bit of a threshold issue to talk about data caps, and I noted what your comments are.

3899 But still I think it’s important to understand where that starts from because at least some parties have made links to that.

3900 So do you use data caps? And I guess I have to make the distinction -- I might think I know the answer to this but we have to put it on the record, you know, so people looking at this might think that I don’t know what’s going on in the market but I do. But I still want to formally ask the question and maybe if you could answer, and I guess there’s a different answer whether it’s in the wireless side or the wireline side.

3901 MR. WATT: Yes, you started with probably my first sentence. I’ll deal with it in two pieces; the wireline and the wireless.

3902 Why do we have data caps? We have data caps because traffic incurs costs, causes costs. So if you had unlimited traffic, in effect you would have unlimited cost.

3903 So that is sort of the backdrop of ---

3904 THE CHAIRPERSON: You would have unlimited cost or the potential of unlimited cost?

3905 MR. WATT: The potential of unlimited cost.

3906 THE CHAIRPERSON: Yes.

3907 MR. WATT: It would, you know, at some point, people would probably run out of time in terms of consuming the product. So you would reach a limit at some point.

3908 THE CHAIRPERSON: And I would think that the Canadian economy would grind to a standstill as people would be on the internet constantly day and night.

3909 MR. WATT: I think it would as it probably does at some times now actually. But -- so fundamentally, they're in place to reduce the cost of the network.

3910 Now, we do provide on the wireline side where we have considerable capacity, much more capacity than you do on the wireless side. But even in the wireline side, there is a limit. So we do offer consumers unlimited packages and about over 40 percent of our customers take those today. We've made public statements in quarterly results releases.

3911 However, then they come with a higher price. So there are a number -- many Canadian market segments where we attempt to put together a package, and I'll ask Mark to speak to this in a moment because he does this, where we combine the attributes of price, speed and capacity to try and meet the demands of various market segments.

3912 So we offer speeds from 5 megabits with a 25 gigabyte cap. We go to 30. Then we have 30 with 125 gig. We then go to 60 with a 200 gig. And so we make those offers available to people who may not want to use as much data and they can then pay a lower price.

3913 So low end to meet some demand, right up to unlimited, the consumer has a choice.

3914 Mark, would you like to add to that, then I'll come back to the -- to wireless?

3915 MR. SHINOZAKI: Sure. So we choose our packages based on how our consumers want to use the internet. As David said, we have the lower-end packages at more affordable prices. They tend to come with lower speeds and lower bite caps.

3916 And on the flip side, at the other end of the spectrum, we have the unlimited tiers which, as David said, come at a higher price. That's the primary reason we choose these packages.

3917 I will add to one of David's statement in that we do see the difference between our capped or our plans with usage buckets and the difference between our unlimited buckets. Customers have about a three to four times greater data usage when transferring between those packages. And as David said, that's the primary reason why we use data caps.

3918 MR. WATT: Just to pick up on that last point, we have observed customers who previously were taking the 60 megabit per second service and it does have a data cap. When those people choose to go to the 100 megabit per second service which is unlimited, we find that their traffic increases three to four times as a result of not having the cap.

3919 So the consequence being that if we were to eliminate that option, we're probably looking for the 60 -- 55 to 60 percent of our consumers who today do not take unlimited. You would see I'm going to say a three, four, five time increase in their volume which then brings the associated costs.

3920 THE CHAIRPERSON: Right. So that's the wireline side, the public reported numbers a little over 40 percent. That's just residential?

3921 MR. SHINOZAKI: That's residential, correct.

3922 THE CHAIRPERSON: Right. And I know you want to turn to wireless and I want you to answer that in a sec, but I have another question on this.

3923 Is there a regional distinction or is it across your operating territories about the same?

3924 MR. SHINOZAKI: In Atlantic Canada, I mean it depends on market forces. I mean the unlimited plans in Atlantic Canada, for example, have been there. Our 70 unlimited plan has been there for a longer period of time. So you might see a slightly higher rate in Atlantic Canada.

3925 In Ontario, it's about 40 percent.

3926 THE CHAIRPERSON: Right. And more subscribers in Ontario, I guess that skews the average even if though maybe a little five percent extra in the Atlantic region, you're still in the 40 percent range.

3927 MR. SHINOZAKI: Yeah. If you're talking about -- we have about 10 times as many subscribers in the Ontario region as the Atlantic region.

3928 THE CHAIRPERSON: Right. And so mathematics means that more driven that way. Okay, good.

3929 So wireless.

3930 MR. WATT: Okay. Wireless, I'll be repeating much of what's been said by other parties who have appeared before you this week and that is that the wireless network does not have anything like the capacity of the wireline network. I think Lee Bragg explained it quite well this morning, the dramatically larger capacity of a fibre facility as compared to an individual tower.

3931 Even in the communications monitoring report, I think the average usage on wireline is about 100 gigabytes per month and wireless is about one. So 100 to 1 and that's because, for basically the combination of the laws of physics, the amount of spectrum that you have, the capacity that can be driven, the ability to put up towers and antennas, and build the backhaul facilities required to bring that traffic back to the switches, so it's -- on a cost per bit basis, it's dramatically more expensive and we have much reduced capacity on our wireless networks.

3932 Therefore, we have data caps and we have data caps that are lower than the levels in the wireline business. We go up in terms of a plan up to 60 gigabytes. We do not have any unlimited plans in the wireless world.

3933 A difference between the wireless world and the wireline world is that there was the interplay I said between speed and data caps in our offers in the wired world. The wireless world, we don’t have plans that say a certain speed of LTE versus another speed of LTE. You get LTE speeds and then you have a data cap or data plan. We have them in 1, 2, 5, 7, 10, 15, 30, 60.

3934 But again, the reason we have them is basically to constrain demand. We don’t like constraining demand. We like to obviously have people use our service but we need to align the demand with the cost.

3935 Donavan, would you like to add to that?

3936 MR. BETH: I think you covered all the points but I think the big point to note is if we were to give unlimited on wireless, the usage would go up about a hundredfold and clearly our network doesn't -- isn't capable of supporting hundredfold overnight. So just technically, it's just not -- it's just not feasible and that's why data caps are in place.

3937 THE CHAIRPERSON: Right. And you would view data caps as an economic ITMP?

3938 MR. WATT: Yes -- excuse me, yes, we do.

3939 THE CHAIRPERSON: I hope you make it to the end of your presentation there?

3940 MR. WATT: Yeah, so do I.

3941 THE CHAIRPERSON: Perhaps somebody will deliver you more water to help you get through this.

3942 So if one looks at -- you know, there have been comments about despite the investments, significant investments being made by ISPs, that some feel that data caps have not risen over time. And you've seen us ask that question of others.

3943 So would you like to address that issue? But also I'm going to ask if you could give an undertaking to do a five-year trend line with respect to the caps and, of course, you may want to divide that between wireless and wireline?

3944 UNDERTAKING

3945 MR. WATT: Yes, we'll provide the undertaking and we'll divide into wireline and wireless.

3946 Yes, we've been following along. So what we can tell you today, I have the -- on the wireline world where by virtue of various wholesale proceedings, we have some -- some good documentation going back in time. So I have going back to the beginning of 2010.

3947 Two thousand and ten (2010), the highest speed that we offered was 50 megabits per second and that had a cap of 175 gigabytes. We had no unlimited offers at all in 2010.

3948 Today, the corresponding packages are 60 megabit per second service, so 10 megabits faster than the previous high. We had the 50. That now has a byte cap of 200 gigabytes.

3949 Now, the price of the 50 megabit per second service with the 175 gig cap in 2010 was $150. Our 60 megabit per second service today with the higher byte cap at 200 is priced at $78, so just slightly more than half the price ---

3950 THE CHAIRPERSON: Right.

3951 MR. WATT: --- that was charged six years ago.

3952 So probably the best way to answer that question, with no unlimited at all in 2010, now you can take an unlimited plan at 250 megabits per second and pay $98.

3953 To get up to $150 price which would be the same as our 50 megabit service with 175 gig in 2010, today you would get our gigabit service and you would have unlimited usage for $150.

3954 THE CHAIRPERSON: Right. Well you’re welcome to add a pricing column if you wish as well in that undertaking, but I take your point; all right?

3955 So in Canada Cisco is forecasting that traffic growth will be 2.7 times -– growing 2.7 times from 2015 to 2020.

3956 That’s about a compound annual growth of 22 percent, but the busiest part of the daytime where there’s going to be more internet traffic they estimate is going to be 4 times, so that’s a compound annual growth of about 32 percent.

3957 Is that in-line with sort of your forecasts in your company as well?

3958 MR. WATT: I think I’ll let Mark and Donavan speak to their respective areas.

3959 MR. SHINOZAKI: So on the wireline side -- and then I’ll hand it over to Donavan if that’s okay?

3960 On the wireline side we use 42 percent, both in busy hour and in average usage as our benchmark.

3961 We’ve seen that number -– sometimes it’s slightly below 40, sometimes it’s slightly above 42, but we use that number as a general rule that we’ve seen in the past in terms of wireline busy hour growth.

3962 You know, just to complete the thought, on the wireless side I believe it’s around the same, although Donavan will provide additional context to that.

3963 MR. BETH: Yes, from a wireless perspective it’s probably a little bit lower. And the reason I say that is the wireless customer has the choice to offload to Wi-Fi.

3964 So the growth is going to be shared between the cellular network, as well as the Wi-Fi network, so the customer obviously has the choice to go to Wi-Fi. So that’s why you’ll see it a little bit lower.

3965 THE CHAIRPERSON: Right. Because obviously we all -– we all do that; right? And get onto a Wi-Fi with our wireless devices when we can.

3966 MR. BETH: Correct. We are seeing the usage growth consistent with what you’re saying.

3967 THE CHAIRPERSON: Right.

3968 MR. BETH: But I would say it’s just a little bit lower.

3969 THE CHAIRPERSON: So would it be fair that when you’re planning -- because you talked about, you know, data caps being something that feeds your need to manage traffic and traffic congestion, that you’re actually -– when you’re making the decision you’re focusing mostly on those peak times as your design feature?

3970 MR. SHINOZAKI: Yes, we plan our -– our network capacity programs are planned around the busy hour. Although -– yes and all of our capacity management programs are to augment that busy hour.

3971 THE CHAIRPERSON: You may have heard Eastlink’s testimony earlier. Obviously I think they’re bringing traffic back to a central point.

3972 You, like they, cover a large geographic area, so how do you -– is the peak time actually longer or does it get segmented because your network is segmented?

3973 MR. SHINOZAKI: The peak hour on the wireline side is, as you can imagine, it starts around 7 p.m. at night and ends around midnight.

3974 THE CHAIRPERSON: In the various time zones?

3975 MR. SHINOZAKI: In the various time zones.

3976 THE CHAIRPERSON: Okay.

3977 MR. SHINOZAKI: So Atlantic Canada would obviously be shifted, but our services are primarily in Ontario, are on the same time zone.

3978 THE CHAIRPERSON: And then the wireless side?

3979 MR. BETH: So on wireless the peak is actually quite long. Meaning that between 8 a.m. all the way to 2 a.m. in the morning it’s relatively high.

3980 I mean obviously there’s a little bit higher at certain times, but the off-peak would be between 2 a.m. and say 6 a.m., so there’s not a lot of time where you’re in a downward –- a lower usage period.

3981 THE CHAIRPERSON: So other than monthly data caps, how else do you manage those -– and building the network obviously over time, how else do you monitor or manage that stress, I guess, on the network?

3982 MR. WATT: I’ll ask the experts to weigh in, but I believe that is how we manage the network.

3983 We build additional capacity and we manage through the caps and we forecast. We build to the busy hour peak. We start augmenting our network well in advance on a -– basically on site by site basis.

3984 So we measure every node that we have in our wireline network so they’re all treated individually and when they reach a threshold that node is split.

3985 And the same on the wireless side, we know a particular tower, a particular sector, we will -– we’ll add radio capacity and that is really the only levers that we have.

3986 We do -– you know, people speak about congestion. Rogers’ goal we -– we don’t talk about congestion. We build so that we do not have congestion. Build in advance and -– Mark?

3987 MR. SHINOZAKI: Yes, so typically we’ll keep -– at this point we’ll keep a couple months of spare capacity just because of -– just to avoid busy hour times.

3988 I will say that as David said we manage our capacity very well, as evidenced by the results on our Seminole’s(Ph) panels that we exceed. We meet or exceed our offered speeds.

3989 It is interesting to note that, you know, the amount of spectrum on the wireline side as well that we can allocate towards fixing this problem is limited as well.

3990 We have approximately 300 Megahertz of spectrum on our cable plant, which is finite. Typically these capacity augmentation programs involve, as David said, you know digging trenches, laying fibre.

3991 This is not, you know, easy work for our network engineers. We’ve got teams of hundreds or 1,000 people constantly working on augmenting this capacity.

3992 I mean keeping up with this 42 percent growth rate is a huge job in and of itself.

3993 THE CHAIRPERSON: Wireless end?

3994 MR. BETH: Yes, from wireless perspective the forecasting process is quite robust. We do plan a year ahead as Dave alluded to.

3995 Having said that, the usage is quite predictable or the usage growth is predictable, but we have seen kind of a linear trend in -– with respects to growth so we can plan accordingly.

3996 When we are looking at new price plans or such that will increase capacity, we do socialize with network and so they have kind of a heads up with respects to whether they can support it or not.

3997 THE CHAIRPERSON: Right.

3998 MR. BETH: So there is that process in place where if we would like to offer something that’s larger bucket where we think it’s going to drive network capacity we definitely involve the network team to make sure that they’re aligned and they’re on side with that.

3999 THE CHAIRPERSON: Right. And you -– I take you are forced to monitor this almost in real time?

4000 MR. SHINOZAKI: Yes, we have -– we look at traffic in 15 minute increments. Obviously the planning process for a six month fibre build is not a, you know, turn on a switch type thing.

4001 But we do have plans in place, both on the wireline and wireless side, to monitor peak utilization and react to it accordingly.

4002 THE CHAIRPERSON: Right. Wireless the same?

4003 Okay, thank you.

4004 MR. WATT: There are literally mountains of data, because this is ---

4005 THE CHAIRPERSON: No, I can well imagine. I’m just understanding, because although you’re forecasting some peak times I was wondering if there were other extraordinary events that occur from time to time that you might or might not have seen coming, that you also have to manage too?

4006 MR. WATT: Well we do. There are all sorts of special events, where we’re asked to -– particularly on the wireless side we’ll bring in cellular tower on wheels if we’re given enough lead time, to bring that in to augment the capacity.

4007 We were phoned a couple of years ago, actually by the Commission, huge beach volleyball tournament at Mooney’s Bay and concerns about whether there would be adequate coverage for 911 and just the volume of people.

4008 And with the -– with the timeframe, with the lead, we were able to redirect some antennas, turn up -– turn up the power.

4009 There are events like that. You know very unusual, but if a hurricane were to strike --

4010 THE CHAIRPERSON: Right.

4011 MR. WATT: -- we’d probably, as Mark said, we have a couple of months of spare capacity available on the wireline. I assume on the wireless -– Donavan you might like to speak to that?

4012 MR. BETH: I mean the only thing I could add to that is, for example in the Rogers Centre, we delivered Wi-Fi to offload capacity just because there wasn’t enough when you have 50,000 people coming there.

4013 So we’ll do things like that where we know that certain sport stadiums will drive a lot of network capacity, so.

4014 THE CHAIRPERSON: Right. So if ever 50 years after winning the Stanley Cup the Maple Leafs were suddenly in the finals you’d be ready for that?

---(LAUGHTER)

4015 MR. BETH: That’s correct.

4016 THE CHAIRPERSON: Okay. And is there a –- just in terms of congestion across the network, is -– are there any market differences between rural and urban that you also have to manage?

4017 MR. SHINOZAKI: On the wireline side I mean the capacity management programs are fairly regimented in trigger.

4018 You know typically we’ll look at the 95^th percent utilization of peak. We’ll trigger based on -– when it comes to rural or urban, I mean it’s fairly predictable regardless whether it’s, you know, that 42 percent is, you know, we could ---

4019 THE CHAIRPERSON: Pretty standard across.

4020 MR. SHINOZAKI: Pretty standard, yeah.

4021 THE CHAIRPERSON: Same thing on the wireless side?

4022 MR. BETH: Yeah, I mean the only thing unique to add is we do look at the towers and we look at how much capacity is going through there. And as soon as we start hitting them or see speeds slowing down that’s where we’ll invest in those specific towers. So there is definitely a difference between urban and rural but it’s more tower specific versus that urban and rural.

4023 MR. WATT: I was just going to make that point as well. Each node so in a -- in say the outskirts of Tillsonburg it will be attached to a node. That node itself goes through the algorithm, so it’s not averaged with a node from Toronto. It’s each are treated individually.

4024 THE CHAIRPERSON: And would you say that the issue is mostly transport or last mile?

4025 MR. SHINOZAKI: Well, we do plan both. You know, obviously the last mile is a faster moving piece. As it gets into the core it gets aggregated and sort of averaged out if that makes sense, but the last mile capacity management is the more difficult problem from that perspective.

4026 THE CHAIRPERSON: Okay.

4027 MR. BETH: It would be the same on the wireless side, yeah.

4028 THE CHAIRPERSON: He’s taking your answer away. I was getting used to having Mr. Watt’s two wingmen and keeping the two issues quite distinct.

4029 So other than economic ITMPs and data caps and planning and all that we talked about, do you use technical ITMPs as well to manage some of these congestion issues?

4030 MR. SHINOZAKI: No, we do not.

4031 THE CHAIRPERSON: And the wireless side?

4032 MR. BETH: Not that I’m familiar with, no.

4033 THE CHAIRPERSON: And you have every reason to be familiar with it?

4034 MR. BETH: Correct.

4035 THE CHAIRPERSON: Okay, thank you.

4036 So I take it that if data caps were eliminated what other means would you -- it’s purely hypothetical. What other means would you be able to use to manage some of these issues, congestion issues?

4037 MR. WATT: Well, I think the only thing we could use in the short-term would -- and actually, we couldn’t use it in the short-term in all cases -- would be we would increase the price to try and constrain some demand is what I think we would have to do.

4038 And on the wireless side, well ---

4039 THE CHAIRPERSON: So that would mean that people would unsubscribe?

4040 MR. WATT: Well, you would hope that if they had to pay more they would use less.

4041 THE CHAIRPERSON: Oh, I see, because you’d still have some sort of tiering?

4042 MR. WATT: Yes.

4043 THE CHAIRPERSON: Okay.

4044 MR. WATT: Well, the ultimate case if you said there’s going to be no data caps whatsoever here we could tier probably on the wired side because we have different speeds.

4045 THE CHAIRPERSON: Right.

4046 MR. WATT: So we’d have some different prices.

4047 On the wireless side, and I’ll toss it to Donavan, it could well be we would have one flat rate. I don’t know, $200 a month.

4048 MR. BETH: Okay. I mean, we’ve seen it with T-Mobile in the U.S. They’ve recently gone to one unlimited plan. That plan starts at $70 U.S. which is approximately $100. Previously their plans started a lot cheaper than that.

4049 The other thing to note is they have degraded the video quality on those plans so they’re down to 4 eDP which probably consumes roughly one-fourth of the 10 eDP data traffic. So there was service degradation in order to offer that plan.

4050 And in addition to that, they do have a soft-cap, I believe 26 gigabytes. And then after that it’s significantly throttled down the speeds.

4051 THE CHAIRPERSON: Right. So are you saying that inevitably you wouldn’t necessarily go down the road of technical ITMPs?

4052 MR. WATT: I just don’t see any other way to manage 100-fold increase on your traffic.

4053 MR. SHINOZAKI: If I could perhaps add? David talked about the raising of price. We find that at least on the capped tiers, the vast majority of our customers will never exceed their data cap. So as David said, we would have to raise prices in order to fund the capacity, the additional capacity on the network. This would really have the effect of subsidizing; you know, the vast majority who never exceed their data cap would essentially subsidize those that do. And it’s really -- I guess from that perspective it’s not very fair.

4054 THE CHAIRPERSON: Right. Could you help me get my head around the fact that your monthly data caps somehow influences behaviour on a nightly basis?

4055 MR. SHINOZAKI: I mean, if you’re referring specifically to the fact that we charge by the month yet it seems to ---

4056 THE CHAIRPERSON: Exactly.

4057 MR. SHINOZAKI: --- by the busy hour. Okay. We do have network models specifically that translate the increase on a monthly basis. The 42 percent I talk about into what that means from a planning perspective on the busy hour. So I mean that’s a process which we’ve ironed out over the last set of years. So I mean, the monthly data cap from our perspective is offered primarily for its simplicity of a customer’s understanding. It seems to be the way that the market is going and that’s why we offer it that way.

4058 THE CHAIRPERSON: Okay. For your unlimited -- sorry, you might want to add on your side. Sorry, sorry.

4059 MR. BETH: So I wanted to add one thing and also clarify a point as well. First clarification point is, on the technical IMTs we are doing it on the Chat’r Brand.

4060 THE CHAIRPERSON: Okay.

4061 MR. BETH: So just to clarify that for the record. So my apologies, I missed that. And I forgot my second part.

4062 THE CHAIRPERSON: Well, think about that and if it comes to you you can just wave and we’ll add it to the record at that point.

4063 With respect to your unlimited subscribers, do you have a sense of on average what their average actual use is?

4064 MR. WATT: Yes, we do.

4065 THE CHAIRPERSON: Is it something that you could share?

4066 MR. WATT: Yes, we can. I think it actually might be on the record in the 16 -- written down here. The 22^nd July 16-2. And then I think the wireline is ii(E), fixed wireless is ii(E). And then wireless is ii(F).

4067 THE CHAIRPERSON: Okay.

4068 MR. WATT: So I know for -- I’m pretty sure it’s there but we’ll check after. And if it isn’t ---

4069 THE CHAIRPERSON: Well, if ever it’s not there do you undertake to provide it?

4070 MR. WATT: We do.

4071 THE CHAIRPERSON: And I take it there’s some confidentiality associated with that, correct?

4072 MR. WATT: Yes.

4073 THE CHAIRPERSON: Okay, let’s do it that way. And it’s for the 14^th.

4074 Would you agree that data caps are a means to ensure fairness between heavy users of network because they should pay more because they demand more from the network?

4075 MR. WATT: We do think that people who consume more should pay more, yes. There is a relationship of a lower price if you consume less’ you have a higher price if you consume more.

4076 THE CHAIRPERSON: Then wouldn’t you also agree that out of fairness it would be odd to give DPPs or a zero-rating of some sort to premium customers who presumably are the highest users?

4077 MR. WATT: I think it would be.

4078 THE CHAIRPERSON: And I would be correct that premium subscribers are heavier users?

4079 MR. WATT: Premium defined as people paying at the higher price?

4080 THE CHAIRPERSON: Yes. Sorry, yeah.

4081 MR. WATT: Yes.

4082 THE CHAIRPERSON: Not people that you like the most but -- well, I guess you like them too, right?

4083 MR. WATT: We like every customer we have.

4084 THE CHAIRPERSON: Yes, absolutely.

4085 So if for some stroke of a magic wand we were to eliminate data caps entirely, what would happen to the price for the majority of subscribers? I know you talked about generally going up but, you know, for the majority of them would it go up or down?

4086 MR. WATT: Well, the price would go up.

4087 THE CHAIRPERSON: For the majority?

4088 MR. WATT: For the majority.

4089 THE CHAIRPERSON: Is it a strong majority or a ---

4090 MR. WATT: I think it would -- you’re going to have a lot more costs yet it’s going to be for a strong majority.

4091 THE CHAIRPERSON: Okay.

4092 MR. WATT: Certainly in the wireless world -- and Donavan can speak to this -- to eliminate the caps every single person would be paying a higher price because you wouldn’t -- there would be people there who wouldn’t be using much capacity but since it’s unlimited they might. So you’re not going to particularly -- and the only way you would be able to differentiate that would be by putting in a cap so then you know that those people are using that amount. Otherwise, when you eliminate that cap you have to by necessity increase the price because they have available to them unlimited data.

4093 THE CHAIRPERSON: I’ve heard it said that although at one time data caps may have been used to manage potential congestions at certain levels that now they may be an artificial construct just to allow you to have tiering of prices?

4094 MR. WATT: I think certainly covered that in the wireless world. That’s absolutely not true. We simply do not have the capacity. And we’ve gone through the numbers.

4095 THE CHAIRPERSON: Right.

4096 MR. WATT: We won’t go through them again.

4097 On the wired world, same thing. We -- as we said, when people move from the 60 megabit per second plan with a cap up to unlimited, there's a four time increase in traffic. So there -- it certainly is being used for traffic management purposes, and to be able to offer people who have that level of demand, a lower price.

4098 THE CHAIRPERSON: In the ITMP framework, the CRTC's framework, we stated that some measures are required to manage traffic on ISPs at certain points and at certain times. So in your view, what are the -- those certain points, and -- well, let's start with that one.

4099 MR. WATT: Well, in that decision -- and it dealt with both, I guess, technical traffic management practices ---

4100 THE CHAIRPERSON: Yeah, I'm going to assume that ---

4101 MR. WATT: --- and economic.

4102 THE CHAIRPERSON: --- we're mostly in the economic now.

4103 MR. WATT: So we're in the economic. We don’t have the technical, you know, aside from the chat’r, once you get over and you get degraded in a small market segment, but we -- well, we -- not all that helpful an answer -- we -- as Mark said earlier, we've looked very carefully at the packages that have been put together in the competitive world and tried to marry the price, speed, and data attributes into a package that would satisfy consumer demand.

4104 So we think it's at that -- these are the points and this is the time where these packages are appropriate in the marketplace.

4105 Mark, would you like to add?

4106 MR. SHINOZAKI: No, I think what David said is absolutely correct. You know, the packages that we choose are based on what our customers and how our customers want to use the internet. These -- you know, we have a subset of our customers who want those affordable, you know, low-speed, low-byte cap tiers. And I think David's right.

4107 THE CHAIRPERSON: Have you ever considered peak time caps, and if not, why not?

4108 MR. WATT: Well, I think Donavan covered the -- or the wireless world, the peak is most of the day. Even in the wired world now.

4109 THE CHAIRPERSON: Okay, setting that aside.

4110 MR. WATT: Yeah. It's no longer 9:00 to 10:00. It is, you know, 8:00 to about 1:00 a.m. when you look at that. There's operational complexity in doing it. You would potentially shift the traffic. On the margins, you're going to make what was off-peak into peak. It's a tricky concept for customers to adopt. I don’t ---

4111 THE CHAIRPERSON: I don’t live in Ontario, but I understand you're hydro -- your electricity is metered.

4112 MR. WATT: I know, and I think there it's very different, and I'll let Mark -- Mark can explain it actually quite well.

4113 MR. SHINOZAKI: So I mean, primarily, we've chosen, as I said before, we've chosen monthly billing because that's -- it's simple for customers to understand. That's the primary reason why we've opted for monthly data caps as opposed to peak hour.

4114 The nature of internet traffic, if you take a look at the Sandvine Global Phenomenon Report, approximately 50 percent of the downstream data is YouTube or Netflix. I think it has 15 percent for Amazon-type video. The very nature of the streaming video means that eyeballs have to watch it.

4115 We've looked at, you know, when looking at, you know, peak caps, I mean, the value, at least from a network perspective is that dishwasher scenario like you talk about with hydro. I don’t mind running my dishwasher at midnight because it's slightly cheaper, but it doesn’t matter to me at that point, right, whereas watching Netflix, I want to watch it when I'm up.

4116 THE CHAIRPERSON: You're assuming an automated dishwasher? Yes, of course.

4117 MR. SHINOZAKI: Oh, yeah, a dishwasher or dryer.

4118 THE CHAIRPERSON: That you don’t need human supervision for?

4119 MR. SHINOZAKI: Correct, yeah.

4120 THE CHAIRPERSON; That's okay.

4121 MR. SHINOZAKI: So I don’t mind pressing the button and going to bed if -- I guess that's what I was trying to refer to.

4122 It's very different, though, in the nature of internet traffic. Peer-to-peer, you know, let's say five years ago, would have consumed quite a bit of the network, but now, according to the same report it consumes less than four percent of internet traffic. That's something where a customer can decide, okay, I'll download at off-peak times, but I mean, it's going to have a very minor impact, I think, on consumption.

4123 THE CHAIRPERSON: Right. And there's a number of factors contributing to that, probably legal offerings as well, right, that people are not going to BitTorrent-type sites over time?

4124 So I'm slowly moving to DPPs here, so -- but we're not quite there. But what impact do DPPs have -- would have, in your view, on network congestion? And maybe you could -- if there's a distinction to be made between zero-rating and sponsored.

4125 MR. WATT: Well, I think in both cases, whether it's a -- the effect is to have free bits, people will consume more bits, so it would add to the traffic on the network.

4126 THE CHAIRPERSON: Right.

4127 MR. WATT: You know, whether it's sponsored or say unilaterally established by the ISP provider, it would increase the traffic on the network, and hence, you know, as we have spoken in our opening remarks, there will be a cost incurred and other people will have to pay for that cost.

4128 THE CHAIRPERSON: Would you agree that the growth in the number of DPPs would likely increase the need for data caps, or at least otherwise lower data caps than in a control group?

4129 MR. WATT: Well, yeah, I think the -- I think what you're saying -- so we have our limited -- we're talking in the wired world here, not wireless world. Any time you have a free bit running around, you have a -- you're going to cause real problems in the wireless world, simply because of the capacity constraints.

4130 The wired world, where we have the discrete buckets, the 175 and 25, if you said all of a sudden that, you know, half of those bits now are going to be free, one way to address that could be to lower the data cap. Again, in a sense, you are then punishing the other applications that are being covered by that now lowered data cap, and that would apply to all users. So not just users who are taking the application that was receiving the zero bit. You'd have to apply it right across.

4131 I’ll ask Mark if he would have something to add.

4132 MR. SHINOZAKI: Unfortunately, not this time.

--- (LAUGHTER)

4133 MR. SHINOZAKI: It was a good answer, Dave.

4134 THE CHAIRPERSON: So it would be fair to say that the growth of DPPs on balance of probabilities would contribute -- would be a contributing factor to greater network congestion and that one way to deal with that would be to redesign data caps in one way or another?

4135 MR. WATT: Yes, I think that's correct.

4136 THE CHAIRPERSON: And the redesign would probably not be up, but down?

4137 MR. WATT: It would be down, yeah.

4138 THE CHAIRPERSON: Now, I noticed that you don’t use DPPs, but you do bundle certain streaming services for some customers. So what are you bundling ---

4139 MR. WATT: We ---

4140 THE CHAIRPERSON: --- to the non -- you know, the non ---

4141 MR. WATT: M'hm.

4142 THE CHAIRPERSON: Not be the user or telecom services; the other services. Well, I guess no, sorry, I can't even say that because technically ---

4143 MR. WATT: Well, I think ---

4144 THE CHAIRPERSON: --- you know, something like Netflix is probably broadcasting, just exempt from licensing.

4145 MR. WATT: Yeah, I think we have four value-added services that we provide to higher-end users. So that would be a choice of GameCentre LIVE; Texture, which is the magazine subscription; and Spotify premium music service; and now with -- in place of Shomi, a promotional offer replacement with Netflix for a period of time.

4146 THE CHAIRPERSON: Okay.

4147 MR. WATT: And these are services that where, in the first three, you would pick one of the three, which one you wanted and you would then not be charged a subscription fee, have access to that service. All of those bits associated with that service are counted and rated in your data plan.

4148 So we see this as not a differential pricing practice, this is a marketing and promotion ---

4149 THE CHAIRPERSON: It’s a lot easier. You’re already presuming my questions ---

4150 MR. WATT: Sorry.

4151 THE CHAIRPERSON: --- and answering them. That’s good. No, no, that’s -- go ahead. Keep going.

4152 MR. WATT: This is a promotional -- these are offers to inspire people to purchase our internet service or to remain loyal to our internet service. We see that as part of the commercial world. It’s separate and distinct from our role as a common carrier and providing the transmission in a non-discriminatory manner. We see this as our role as a merchant.

4153 We could and we do, at times we have gift with purchase, as we mentioned in our opening remarks, where we have given television sets away or tablets away to people who subscribe to our services.

4154 Another way to clearly identify they’re not differential pricing practices is imagine a world where there was unlimited use, unlimited -- there were not caps. So there wouldn’t be differential pricing practices. We would still be offering value-added services without subscription. We’d be in the marketplace providing free TVs for a certain period of time to attract customers to our service. They -- those activities are not differential pricing practices.

4155 THE CHAIRPERSON: Right. Or free movies sometimes I understand as well for years.

4156 MR. WATT: Yes, yes, we’ve done that. When we had Rogers Video we used to be big on two free video coupons but ---

4157 THE CHAIRPERSON: Right.

4158 MR. WATT: --- times have changed.

4159 THE CHAIRPERSON: And I understand from what you’re saying that it’s more for the premium customers; is that correct?

4160 MR. WATT: Yes.

4161 THE CHAIRPERSON: And are they on a promotional basis? Or are they -- are they time limited?

4162 MR. WATT: They are on a promotional basis at this time. I always hesitate to say that because sometimes promotions they roll over. But right now, yes, it is -- and in fact, Donavan can speak to it on the Spotify. We started with I believe 24 months. We’re down to six months now.

4163 MR. BETH: Correct. Spotify, Texture, formally Shomi, were on six month’s promotional basis.

4164 THE CHAIRPERSON: And you’re doing -- is there an arrangement with the service supplier to be able to offer that? Or is that -- were there negotiations outside your relationship with the retail customer that allows you to do that?

4165 MR. BETH: Yes, correct. So we’ve partnered up with Spotify, Texture and Shomi in order to offer the six-month subscription trial.

4166 THE CHAIRPERSON: Because you’re doing it on a volume basis, are you getting a -- and you might want to answer through an undertaking because there are probably commercial aspects here, but is the nature of your arrangement different than -- is it for less than it would otherwise be for an individual subscriber to subscribe to let’s say Spotify?

4167 MR. BETH: Obviously we’ll have to disclose that in the undertaking, but I think it’s safe to assume that it’s going to be less than the ---

4168 THE CHAIRPERSON: Right. Maybe you could provide the details for ---

4169 MR. BETH: Yeah.

4170 THE CHAIRPERSON: --- I’ll -- I guess for Spotify and Netflix. Texture is your own publication or within the Media Group; right?

4171 MR. WATT: Yes.

4172 MR. BETH: It’s part -- 50 percent owned, yeah.

4173 THE CHAIRPERSON: Okay. So maybe you can address all ---

4174 MR. WATT: We’ll do all them in the ---

4175 THE CHAIRPERSON: Okay.

4176 MR. WATT: --- undertaking.

4177 UNDERTAKING

4178 THE CHAIRPERSON: And just -- I’m not familiar with Texture, so when you say the promotion is for a physical magazine that’s delivered or is it ---

4179 MR. WATT: No, this is ---

4180 THE CHAIRPERSON: --- e-magazine?

4181 MR. WATT: --- this is an e-magazine.

4182 THE CHAIRPERSON: Okay.

4183 MR. WATT: You have a 150, Susan?

4184 MS. WHEELER: Yeah, it’s basically our Netflix for magazines. So we’ve partnered with Condé Nast in the States and it offers ---

4185 THE CHAIRPERSON: Oh, I see. Yes, yes.

4186 MS. WHEELER: --- a series of ---

4187 THE CHAIRPERSON: I’m familiar with that. Okay. That I understand. Okay.

4188 MS. WHEELER: Or else our marketing efforts have failed if you’re not ---

4189 THE CHAIRPERSON: Well, you know, I may not be -- well, and I don’t live in your territory so.

4190 MR. WATT: It was called Next Issue at one time which ---

4191 THE CHAIRPERSON: Yes. Yes, yes ---

4192 MR. WATT: --- Mike now ---

4193 THE CHAIRPERSON: --- I’m familiar with that.

4194 MR. WATT: --- rebranded Texture.

4195 THE CHAIRPERSON: Yes, that one I know. Thank you.

4196 Just one question before we move on to the pure DPP type questions. Have you ever considered managing congestion more locally? If it’s occurring in a sector or a locality as opposed to right across your serving territory?

4197 MR. SHINOZAKI: So we do manage locally. Data ---

4198 THE CHAIRPERSON: But I mean in terms of your data caps as well.

4199 MR. SHINOZAKI: Managing data caps locally. You mean ---

4200 THE CHAIRPERSON: In other words, if congestions are more likely in a particular geographic area, why not put data caps there as opposed to a across the board?

4201 MR. SHINOZAKI: We haven’t considered it. It sounds very operationally complex on a per ---

4202 THE CHAIRPERSON: When you say -- you’ve answered that on operationally complex, is it a systems issue, how you do marketing, confusion in the advertising space?

4203 MR. SHINOZAKI: I would imagine it’s a bit of all; right? I mean, how would you actually manage congestion, identify utilization in a group, communicate with those customers, change their data caps? Sorry, maybe I’m going down the wrong path and maybe someone else can step in, but ---

4204 MR. WATT: No, no, I think you’re going down the right path.

4205 MR. SHINOZAKI: --- I ---

4206 MR. WATT: We tend -- we advertise -- there is some local advertising but we would have such a myriad if you were to do that. You could see where do you draw the boundary on one side of the street and the other side of the street? Do you get -- if you’re in -- say, for example, if you’re in Mississauga you would have a 25 megabit per second plan with a 25 cap and the other side of the street in Milton you would have 50?

4207 THE CHAIRPERSON: Yeah.

4208 MR. WATT: Yet ---

4209 THE CHAIRPERSON: And then again, you’re the company that has over thousands of cable offerings that are grandfathered if I recall.

4210 MR. WATT: And you understand how hard we’re trying to get away from that.

4211 THE CHAIRPERSON: I understand.

4212 Okay. Let’s now move to the heart of this hearing with that background. Yeah, an hour, over an hour of background.

4213 Now, obviously your proposal seems out of step with your usual brothers-in-arms. Could you sort of explain to us how you came to that?

4214 MS. DINSMORE: We do look a bit like an outlier because we have taken a different position than the other ISPs that have come before you. And I think primarily it’s because we may have a different sense of -- an approach to the common carrier principle and to sort of net neutrality in general. So that would help to explain why we’ve taken this position.

4215 We feel very strongly that the common carrier principle embodied in the Telecom Act governs our behaviour. That is why we are quite amenable to the sort of sponsored subscriptions that Dave has spoken about but do not think that discriminatory pricing practices are a fair, equitable or non-discriminatory. So it may just be that it’s a real question of a philosophical difference.

4216 We have looked at what’s happening around the world. We recognize through the Wall Report that we are not outliers in that respect, that not many countries are actually engaged in DPPs. Far more are engaged in sponsored subscriptions like what we’re doing.

4217 We firmly believe that innovation should happen at the edge, and that innovation should be freely available across the internet. That is the substructure of what net neutrality has been for the last 20 years. It has fostered an internet that works for all. And we don’t want to be inserted in the midst of that to interrupt that sort of free flow of ideas, solutions, apps, innovations, et cetera.

4218 So I think that it may be a difference of philosophy, but we do think that as much as we don’t perhaps line up with some of the other ISPs that have come or will come before you, that we are brothers-in-arms with some of the other ISPs existing outside Canada.

4219 THE CHAIRPERSON: Fair enough. When you came to this position, did your past experience -- because you did try some zero rating in the past, did that inform your view?

4220 MS. DINSMORE: The sort of Mobile TV experience for Rogers was not a long one. And we did launch it because one of our competitors had a product like that in the marketplace. We withdrew it because it really wasn’t particularly popular with customers. And at the time, there was a lot of change happening in the marketplace. And once the Commission’s decision came down and we looked at, you know, what was a better path, we didn’t think that that was particularly the right way to go, and clearly the Commission didn’t either. So we felt that, you know, we’d tried it, done it, moved on and now we’re very much focused on sponsored subscriptions versus any kind of DPP practices.

4221 THE CHAIRPERSON: Right. Is that the only example that you tried it on in the past?

4222 MS. DINSMORE: That is the only example, yes.

4223 THE CHAIRPERSON: Okay.

4224 You make the argument obviously that you prefer ex ante -- no, that you’re against ex ante and more for ex post.

4225 You may have heard some of my questions about -- from the regulator’s perspective, ex post creates a regulatory burden for everyone, the regulator obviously dealing with a myriad numbers of very detailed, evidence-based proceedings. That sometimes it disadvantages players that aren’t necessarily in the regulatory space but yet might have an interest.

4226 Would you like to address that and why is ex post rather than ex ante the better road?

4227 MS. DINSMORE: We think in this context that the ex post approach that the Commission took in the ITMP framework very much guides what we’re thinking about in terms of presenting our ideas to you.

4228 So there, the Commission didn’t place absolute bans, but it did provide a framework that sent signals out to the industry as to what was going to be in and what was going to be out. And what we’ve put before you are two guiding principles that clearly would put a chill on ISPs in Canada introducing DPPs, because they would have to pass a fairly strict test, and we understand that.

4229 The things that we think are fair ball, as we said, are the things that many have already talked about on the record; customer service applications, monitoring your data usage, those sorts of things, which we actually consider to be part of the service that you signed up and paid for.

4230 But generally speaking, what we put before you, I think, would make your lives much easier because it would -- the market would recognize that they would have a fairly high bar if they were to ever introduce DPPs.

4231 THE CHAIRPERSON: The World of Warcraft gamers might have a different perspective about the efficient of doing ex post.

4232 MR. WATT: I think the World of Warcraft is -- I think it actually stands as an example why you probably don’t want to have differential pricing practices.

4233 The issue of World of Warcraft was, as you know, at that time we were throttling peer to peer bitTorrent traffic. And the switches every so often would get mixed up between what was a bitTorrent bit and what was a gaming bit. And Mark was actually working in the wireless technical area at that time, and people actually -- I mean they would try to I’d say disguise their bits.

4234 So it actually stands as an example of the difficulties I think you can get in with differential pricing practices, where you would have to identify what was zero-rated, what wasn’t zero-rated, et cetera.

4235 To answer the point on timing, again I take your point, but this one took a lot of work back and forth between Cisco and ourselves to actually understand what was going on.

4236 MR. SHINOZAKI: And it just becomes so cumbersome to -- like for every World of Warcraft, there are 100 other gaming companies. And working through that and, you know, these people are extremely, like, they’re very bright, right? And masking our data, so that it’s free or that it’s not managed, and these sorts of things just become -- it just becomes so cumbersome in order to -- operationally, it becomes so cumbersome to be able to deal with these issues on a case-by-case basis, strictly from a network operations perspective.

4237 THE CHAIRPERSON: As I look at your two guiding principles, I’ve got a bit of an impression, and maybe you want to correct it, that they seem rather prescriptive. And I have difficulty understanding the difference between such a prescriptive guideline and an ex ante approach.

4238 MS. DINSMORE: I think you can probably call them “ex ante guidelines”, to be fair.

4239 THE CHAIRPERSON: Fair enough.

4240 MS. DINSMORE: No, to be fair, because they -- you know, they don’t open the door very wide as to what might filter through.

4241 On the other hand, there are good reasons not to have an absolute ban. Few countries actually do have an absolute ban at this stage because you actually cannot foretell the future. And I might throw it to Howard just to talk a little bit about 5G, as to why one doesn’t actually want to do an absolute ban but one wants to have fairly strict guidelines.

4242 MR. SLAWNER: Yes, so Bell yesterday started mentioning that one of the reasons why they supported DPPs was because they were concerned about Internet of Things, 5G, all these new technologies that are coming down the pipe in the next three, four, five years, and we agree with them in part.

4243 5G and the Internet of Things is going to change a lot, and we don’t fully understand exactly how it will impact the markets, the services, and even how we offer them to customers.

4244 So we would like to see a little flexibility in these guidelines because perhaps something will happen that will require some kind of different interpretation.

4245 So setting things in stone could be a little bit problematic. That being said, we don’t fully agree with everything that Bell said yesterday. Just because we don’t fully understand what’s coming down the pipe tomorrow is no reason not to address the discrimination that we’re seeing today, and that we’re concerned about happening.

4246 So we still think it’s necessary to address DPPs today and ensure that these practices don’t continue and that nobody is hurt.

4247 The other thing is some of the issues that they’re worried about -- were more wholesale issues. They were worried about how people are going to sell things to each other; who would be -- would the car company be the customer? Would the driver be the customer? A lot of those issues are actually wholesale issues, which we think would happen outside of DPP, which are already happening today. You know, the Amazon Kindle example has been raised before. That’s just a wholesaler relationship; Amazon buys capacity from us and then they offer a product or service to their customers.

4248 So we don’t think that would actually affect how we would go forward with these kinds of ideas.

4249 So basically, I think there needs to be a little bit of flexibility and perhaps maybe in three or four years there could be a review, if we are hurting 5G or Internet of Things.

4250 But we think that the guidelines as we suggested is the way to go forward.

4251 THE CHAIRPERSON: Right. And I’ll have a few more questions on the Internet of Things a little later on but let me first deal with the principles here, these ex ante general principles, policy statements.

4252 In number 1, you’ve added “as a general rule”. Obviously, that’s the language usually associated with policy statements. Is that what you’re trying to get at by including that?

4253 MS. DINSMORE: Well, let me first say that “as a general rule” should probably be in the Preamble.

4254 THE CHAIRPERSON: Okay.

4255 MS. DINSMORE: So both are subject to the general rule.

4256 THE CHAIRPERSON: Good, because that was my second question as to why it’s in one and not the other. Okay. You take the point that if you’re going to do a policy statement, it probably -- as a general rule be in both.

4257 MS. DINSMORE: Yes.

4258 THE CHAIRPERSON: Okay. As a general rule.

4259 MS. DINSMORE: Yes, as a general rule.

4260 THE CHAIRPERSON: How may I understand the difference between the first and the second one?

4261 MS. DINSMORE: They really are two sides to the same coin. So I think one bootstraps the other, and it really means that an ISP is not going to effectively, like we said in our opening remarks, subject any content or applications to zero-rating for any customers.

4262 So I guess you could say it in different ways, that is, in fact, what we mean. And again, what we’re saying is we actually don’t agree with DPPs. We don’t think they should be prevalent. We don’t think they’re the right way to go, but by saying, “as a general rule”, it allows the Commission to still consider DPPs that, in your wisdom, you may think are valid.

4263 THE CHAIRPERSON: Right.

4264 MS. DINSMORE: So one of the issues ---

4265 THE CHAIRPERSON: But under reverse onus?

4266 MS. DINSMORE: Yes, exactly, under reverse onus.

4267 THE CHAIRPERSON: So the party that wishes to use one would have, if we were to adopt your proposals, would have the burden of establishing on a balance of probabilities that it’s likely not to be undue or not likely to be unreasonable?

4268 MS. DINSMORE: That is correct. So there’s a public interest test that would have to be addressed in that context.

4269 THE CHAIRPERSON: Right. And do you see the public interest test to be one of competition law or common carrier?

4270 MS. DINSMORE: Primarily common carrier under section 27(2).

4271 THE CHAIRPERSON: Okay. So what’s the difference between 27 -- your second principle in 27(2), isn’t it just saying the same thing using different words?

4272 MS. DINSMORE: Like I said, it’s sort of bootstrapping the other statement but taken together, I think they provide you with a clear idea of what we’re talking about, which is nothing is subject to zero rating unless once can prove that it’s in the public interest to do so, and it’s going to be a high bar.

4273 THE CHAIRPERSON: And your philosophy applies for both sponsored and unsponsored?

4274 MS. DINSMORE: Yes, it does.

4275 THE CHAIRPERSON: But you do leave some wiggle room. I know you take your position that it’s not a DPP, but these bundling arrangements, a sponsored bundling arrangement would be allowable?

4276 MR. WATT: I guess maybe there are three categories. There’s the straight zero rating without it being sponsored, then there’s sponsored zero rating, and then in terms of the sponsored subscription bundling, that would be the third category. But as I said, we -- you could have unlimited and not have data caps and therefore no differential pricing. You would still want to have discounted subscriptions. The sponsor, again, would be commercially negotiated, et cetera. So really, I think, three categories.

4277 But we think that the latter one is completely different than the first two which deal with the issue of common carrier -- carriage.

4278 THE CHAIRPERSON: Let me turn for a second to section 28(1) of the Act and some comments you said a bit today but also in paragraph 14. I just want to make sure I fully understand your position.

4279 I think what you’re saying, correct me if I’m wrong, that you don’t think it’s appropriate to use DPPs to positively support Canadian-made content, sometimes called can-con, but by the same token, you don’t want Canadian-made content or Canadian service to be unduly disadvantaged. So your position is more of a defensive one and you would not agree with some parties or some people saying that there should be potentially a DPP that favours Canadian-made content; is that correct?

4280 MS. DINSMORE: I think we do see it more as a shield than a sword.

4281 THE CHAIRPERSON: Right.

4282 MS. DINSMORE: Yes, that is true.

4283 THE CHAIRPERSON: Okay. And why do you take that position?

4284 MS. DINSMORE: We take that position because of the narrow limits that exist in the Telecommunications Act to consider broadcasting objectives. So, you know, as we know, ISPs are regulated under the Telecom Act. That became clear after the ISP referenced the Supreme Court of Canada.

4285 So then you’re left with, well, where can I consider broadcasting objectives in the Telecom Act? And you can consider them in the transmission of programs as we know in 28(1). So what it means is that if something came before you by -- through a complaint, that the Commission would have to look at that complaint and measure the harm versus the public good.

4286 And if it involved somebody who was zero-rating trailers for Canadian programs, you would have to consider whether -- you know, you’d have to consider a number of factors. One of them is, is the zero rating of those trailers achieving Broadcast Act objectives. And the answer there may be yes. But then, is the zero rating of those trailer otherwise, you know, harming other consumers who aren’t taking advantage of that subscription and ergo are paying through their -- are paying for the bytes. This is the kind of analysis that you went through when you looked at the Bell Mobile TV decision.

4287 THE CHAIRPERSON: M’hm. M’hm.

4288 MS. DINSMORE: So I don’t that it’s fair to say that an app can sort of look at this and say oh, it’s -- oh, this is great. Because in every case, this is going to -- the judgment’s going to be on my side because, of course, you have to look at the Broadcasting Act objectives when it comes to transmission of programs. We think it’s much narrower than that and it’s just based on that particular complaint for that particular application and it’s not a broad power for all and everyone to consider that ISPs have to -- well, the DPPs can be made available for all types of Canadian content.

4289 THE CHAIRPERSON: So, if we were to implement your proposal, would this lead to a decrease in the costs, the retail costs for potential subscribers in, let’s talk about the lower-tier plans?

4290 MR. WATT: I may be missing something. I’m not sure -- so today we do not have DPPs.

4291 THE CHAIRPERSON: Oh, I’m not just talking -- across the industry, obviously.

4292 MR. WATT: Okay.

4293 THE CHAIRPERSON: Not just in your case.

4294 MR. WATT: Oh, sorry. I was focused on Rogers.

4295 THE CHAIRPERSON: I realize often it’s about Rogers, but it’s not always about Rogers ---

4296 MR. WATT: No, sorry.

4297 THE CHAIRPERSON: --- right?

4298 MR. WATT: Sorry. I’ll have to ask you to repeat the question.

4299 THE CHAIRPERSON: So the idea is, if we were to implement your proposals across ---

4300 MR. WATT: M’hm.

4301 THE CHAIRPERSON: --- all ISPs, would this lead to a decrease in costs for lower-tier plans?

4302 MR. WATT: I don’t think so. I think what we are suggesting today is ---

4303 THE CHAIRPERSON: The idea would be that since DPPs seem to be going to higher end users currently that higher end users will be carrying more of their fair share and, therefore, the economics change.

4304 MR. WATT: Right. I guess today there are not a significant amount of DPPs in the Canadian market. Really, you’re only talking about the Videotron Unlimited Music offer. So I don’t think eliminating that DPP would lead to a reduction in the current price levels. Frankly, I see the adoption of our framework as effectively maintaining the status quo and maintaining the open nature of the internet as it exists today.

4305 THE CHAIRPERSON: Right. And I take it your view -- or maybe you don’t have enough information, if you remove DPPs, does it affect -- does it go to overages as opposed to the basic payment people make monthly? So if I’m -- if I lose the opportunity to use a DPP and I’m a premium customer of somebody, an ISP in the country, would the fact of the loss of the DPP go to more overages or would it actually affect, you know, to remain economically neutral I’d have to go to a higher plan?

4306 MR. WATT: So this is really a hypothetical scenario because we don’t have that in place today. So you’re suggesting that for the case of there were significant DPPs in the market today for higher end customers, and those DPPs were zero rating certain bytes were taken away and now they would be counting against the plan, they can -- sorry, I’ll bring it back to Rogers’ ---

4307 THE CHAIRPERSON: That’s fine.

4308 MR. WATT: --- situation again. Our upper end plans on the wireline world are unlimited. So it would not have an impact.

4309 I confess, I’m not that familiar with -- I think most of the -- I don’t know. Some -- it’s a mix. Some carriers have unlimited plans, others don’t. So in the case where some upper end plans were capped and DPPs were eliminated, more caps would -- more bytes would be being counted. So in order to maintain the status quo of the equilibrium for customers, that cap would have to go up I think.

4310 THE CHAIRPERSON: He’s looking to the wingman to help.

4311 MR. WATT: Well, I’m thinking -- I’m making sure there and I’m wondering and trying to think in the wireless world where, as I say to repeat myself, it’s so much more limited capacity, I would suggest if that were -- that hypothetical situation were in place in the wireless world, I think you would -- people would definitely have to move their cap up and move to a higher price plan; would they not?

4312 MR. BETH: I mean, there’s two things to consider I think is number one is potentially the ISP would have more capacity and they could theoretically increase their price plans because they have larger capacity.

4313 THE CHAIRPERSON: M’hm.

4314 MR. BETH: The other thing to note though is Videotron does state that they do throttle their music down to 128 KB per second, meaning that it’s unknown how much capacity the DPP’s actually using, so it may not be significant. I don’t know. You’d have -- you’d probably be best to ask Videotron.

4315 THE CHAIRPERSON: We’ll have that opportunity.

4316 Is it a significant number of -- in your subscribers -- and I’ll ask -- this is from a Rogers’ perspective. Of your limited subscribers or your non-unlimited subscribers that have recurring overage charges, is it at five percent? Ten (10) percent? I mean, is it a significant number?

4317 MR. GOODRICK: It’s less than that. I believe we’ve actually submitted that information as part of the ---

4318 THE CHAIRPERSON: In the basic telecommunication?

4319 MR. GOODRICK: --- June ---

4320 THE CHAIRPERSON: Oh, in this proceeding.

4321 MR. WATT: Actually, in this proceeding as well.

4322 THE CHAIRPERSON: Okay.

4323 MR. WATT: Yes.

4324 MR. GOODRICK: It’s less than five though.

4325 THE CHAIRPERSON: Less than five. And is there a different perspective on the wireless side?

4326 MR. BETH: It’s a small number, correct. And I believe we ---

4327 THE CHAIRPERSON: Right.

4328 MR. BETH: --- submitted as well.

4329 THE CHAIRPERSON: Okay. Good. We’ll have a look at that.

4330 Now, I’d like to have your views on the record, and I think you’ve started addressing it here.

4331 I mean, obviously, we did the Reddit approach. That’s one way of gathering information. Bell has provided a survey. Various groups have intervened.

4332 What conclusions would you think the Commission should draw, remembering that we don’t count interventions, we weigh them, of your views as to whether or not Canadians support DPPs, or not?

4333 MS. DINSMORE: So we looked at the Reddit discussion. We’ve read the Nanos Survey, and we’ve looked at the interventions that were filed on the record of this proceeding by both consumer groups and individuals.

4334 And with great respect to Bell, I would say that we don’t consider the Nanos Study should be given much weight, because it wasn’t contextualized. So people were not given a chance to understand if they were winning something, they might be losing something somewhere else.

4335 So for that reason, if someone -- most people would react if you said to them, if I give you something for less than you’re paying or for free, would you like to take that? You’d probably say, yes. And in fact, we’re surprised at those that said, “No”. We don’t quite understand where they were coming from but maybe they sort of understood there was a deeper thing going on here.

4336 In terms of the Reddit discussion, again, that’s a certain sector of the population who’s going to intervene. But we followed, we’ve read all of it and understand that those who did participate did not universally want DPPs. They have their own reasons for that.

4337 And then most of the individuals who intervened, equally, were not for DPPs nor the consumer groups at large.

4338 So I guess we have to conclude that based on all of that, that those people are not supportive of DPPs in Canada.

4339 THE CHAIRPERSON: Okay, in Canada. Well, of course, it’s what we are considering.

4340 In Telus’ submission, they’ve got an analysis by Dr. Eisenach. I hope I’m pronouncing that right, and he claims that:

4341 “Differential pricing is an economically efficient method for TSPs to gain economies of scale and scope by charging lower prices to consumers with a lower willingness to pay.”

4342 Then he posits that “the resulting market expansion reduces the average costs and prices and increases the value for all consumers.”

4343 Do you agree with that? So in other words, you pull in subscribers that wouldn’t otherwise be willing to pay and so you grow the pie and, therefore, more payers, therefore, the average price goes down.

4344 MR. WATT: I think in Canada we have very high penetration rates, very high usage. As Bell said yesterday, we have the highest per capita usage rates in the world.

4345 So I think what Professor Eisenach is speaking about may apply better in less penetrated, less developed internet markets. We are a pretty mature market here. The demand is, as I say, the highest in the world in terms of our usage.

4346 So in terms of inspiring usage that would otherwise not happen at the margin, I think that would be very limited.

4347 THE CHAIRPERSON: Okay. Sort of a variation on that theme but more broadly, do you see greater benefits for greater data consumption from a broader public policy perspective, benefits to society, the economy, I guess, the value of TSPs?

4348 MR. WATT: I think the answer to that -- all of that is yes, bearing in mind that in the absence of DPPs we have been growing in the wired network 40 percent growth year after year after year after year.

4349 THE CHAIRPERSON: Right. So there is a benefit but you can’t draw a causal link with the presence or non-presence of DPPs in your ---

4350 MR. WATT: That would be my position, yes.

4351 THE CHAIRPERSON: Okay. You and others have been using the expression “gatekeeping”. So it’s not actually in the Act but nevertheless we’re sort of using it. I was wondering what is “gatekeeping” when you’re using it? What does it entail?

4352 MS. DINSMORE: Well, I think it’s basically us, you know, making decisions on which content app we are going to favour, which will get favourable treatment and which will not.

4353 So I would say that’s pretty much the context in which we’re looking at gatekeeping in this proceeding.

4354 THE CHAIRPERSON: Are there benefits in some instances of ISPs doing some gatekeeping?

4355 MR. WATT: Our belief is no.

4356 THE CHAIRPERSON: Child pornography?

4357 MR. WATT: Oh, you’re talking about legal content. Yes, certainly, we do -- there’s a certain content that is illegal. We obviously don’t want that carried. We’ve taken steps to try and reduce that.

4358 THE CHAIRPERSON: Bullying?

4359 MR. WATT: Pardon me?

4360 THE CHAIRPERSON: Bullying?

4361 MR. WATT: Bullying.

4362 THE CHAIRPERSON: It’s hypothetical. I hope it gets us on the side of not socially acceptable but maybe not all criminal or illegal.

4363 MR. WATT: No, I understand the issue. It’s just that it’s very difficult from our perspective, I think, as a common carrier to place ourselves in the position of making that decision.

4364 That might be something that, following our rules when we come to the ex post treatment, it may well be that the Commission would establish guidelines or rules that all the carriers would abide by in that area.

4365 THE CHAIRPERSON: Okay.

4366 MS. DINSMORE: I would just -- I think where you are right now is talking about section 36, talking about -- I mean, if we talk about child pornography, that’s an issue of blocking, as we know. And so your question really is, is that a gatekeeper role?

4367 I think we’re thinking of gatekeeping more in the context of, if you will, picking winners and losers, and I don’t see that in the same context.

4368 THE CHAIRPERSON: Okay. Would it be fair then, and you can disagree obviously, that -- your belief is that the common carrier notion has been codified in the Telecommunications Act through section 36 plus 27(2), but the gatekeeping aspect is codified in 27(2).

4369 MS. DINSMORE: Yes.

4370 THE CHAIRPERSON: And is it your view that when we do an analysis under either 36 or 27(2) that is linked to a common carrier perspective, that policy direction is somehow relevant to that analysis?

4371 MS. DINSMORE: I think you have to read down the policy direction. So obviously the statute is paramount, and we agree that the codification of our role as a common carrier is done through section 36, section 27(2).

4372 It doesn’t mean that there’s no consideration, I guess, of the direction. If a complaint were to arise about a DPP, it came before you, if you adopted our principles, there probably wouldn’t be much hope for that DPP. But you would still perhaps have to look at competition principles to make your determination between public benefit and harm, but we actually firmly believe that the statute -- the direction doesn’t take precedence over the statute.

4373 THE CHAIRPERSON: What -- and I’ve asked others to do this by an undertaking and if you’d rather do it that way, that’s fine. But and strangely enough, I don’t remember the article number but the one that deals with employees or officers of companies being able to -- that discrimination, Parliament seems to have suggested that’s okay, and other social benefits with the Commission’s permission would also be allowed.

4374 Does that statutory drafting suggest that that’s an exceptional regime or is it a permissive regime for DPPs?

4375 MS. DINSMORE: We’ve looked at that because you’ve asked about it. And we’ve actually looked at it being considered at the FCA, the Federal Court of Appeal. There was a case on this in 2005 between Allstream and Bell.

4376 I think there, you have to look at a couple of things. First, if you are not forborne and if you are rate-regulated ISP, carrier or whatever, then you read down as to under what circumstances you can either reduce your rate to a person or offer it for free. So in that context, 27(6) says that you can reduce it for employees, officers, directors and on approval from the Commission you can reduce it for charities or disadvantaged people.

4377 So under a rate regulated situation where the ISP are carrier is not forborne, then that would be the box in which you’re in and there could be nothing else. However, we’re not in that box because we are forborne as mobile carriers and retail ISPs. We are forborne from rate regulation. We’re actually forborne from section 27(6), among other sections.

4378 So I think there you can’t use that to -- or one cannot use that to say that DPPs are not allowed. One has to fall back to 27(2) and make your assessment under 27(2).

4379 THE CHAIRPERSON: Right. You’re saying that there is no wisdom in using 27(6) to try to interpret the -- what’s the word -- the philosophy that Parliament may have had for 27(2) because it really speaks to 27(1)?

4380 MS. DINSMORE: Correct.

4381 THE CHAIRPERSON: Okay.

4382 You say that an ISP shouldn’t be using DPPs to determine which online services succeed or not. Can a Canadian ISP, as well run and important and large as they are, can they really have an influence on making winners and losers in a global internet market?

4383 MS. WHEELER: I think it’s a question of relativity. I mean, if you look at the Videotron offer, there are some very well-known music streaming services and there are some little known. So, are those little known services given a higher profile, given an extra, you know, step up or lift up from those who aren’t included? So in that way they are essentially a winner compared to others who are in their position to begin with and are not included in that package.

4384 THE CHAIRPERSON: Okay. But you’re not necessarily suggesting global champions or anything of that nature?

4385 MS. WHEELER: No.

4386 THE CHAIRPERSON: Okay. We’ve had discussions so far and people have agreed to provide undertakings and I don’t know if you have a view to help us seeing that you have rather limited experience with zero rating, but to what extent would an ISP have to make some sort of arrangement in a non-sponsored situation to provide zero rating of a particular content provider or application? Do you actually have to have some sort of discussion so you’re able to identify I guess the packets that are associated with that traffic?

4387 MR. BETH: I think it depends on the offer that you’re putting forward. From what I’ve seen in international spaces, for example, in Yemen they zero rate Whatsapp. And in order to do that, they had to essentially sign a contract with Whatsapp in order to zero rate their traffic.

4388 Having said that -- sorry, and then to continue, I believe that when we look at T-Mobile and Videotron, in order for the traffic to meet their kind of technical requirements, there had to be some sort of arrangement as well.

4389 Now, having said all of that, I believe we could identify the traffic through deep packet inspection which would require quite a bit of investment in order to zero rate the traffic without kind of throttling it or slowing it down.

4390 So I think the answer is it depends what you want to do. If you want to get into a kind of a commercial arrangement where you’re going to be leveraging their brand and promoting their brand and selling your service, then yes, you need it. If you want to technically reduce the speeds, then I think you need to have that arrangement with a third party. If you just simply want to zero rate it without doing anything, and then what you need to do is you need to invest in deep packet inspections, so companies such as Sandvine, in order to enable those features and to be able to do that.

4391 So, does that -- was that clear?

4392 THE CHAIRPERSON: Yeah, that’s -- but is that second option not more work than coming up with an arrangement?

4393 MR. BETH: The second option being?

4394 THE CHAIRPERSON: The second -- of working with Sandvine to be able to do the deep -- to do the investigation.

4395 MR. BETH: Would it be more work?

4396 THE CHAIRPERSON: Yeah. Than having an arrangement with the content provider.

4397 MR. BETH: I think either way you’re looking at doing work, whether you’re investing in capital investment to have the tools to be able to zero rate, or having the, you know, working with the third party to essentially reduce the traffic, or to having both where you have the third party agreeing but you still need to do something on the deep packet inspection as well.

4398 THE CHAIRPERSON: Right. Do you have a sense -- again, unfortunately, you haven’t been involved in this -- of the amount of investment that would be required on a per DPP basis to provide zero rating? Is it a significant investment? Well, significant, what’s that? Is it a -- is it less than 100,000 or is it, you know, significantly more?

4399 MR. BETH: No, we’re in the millions.

4400 THE CHAIRPERSON: In the millions?

4401 MR. BETH: Yeah.

4402 MR. WATT: Possibly tens of millions.

4403 THE CHAIRPERSON: Tens of millions. Interesting. Because presumably that goes to your costs and, therefore, to the prices you ultimately charge your subscribers.

4404 MR. WATT: Yes.

4405 THE CHAIRPERSON: Let me get to the, sort of the notion we were talking earlier about Kindle and things like that. So the Notice of Consultation here frame this issue with respect to retail internet services. And I was wondering whether business-to-business relationship for products like the Kindle are really relevant to DPPs because it’s not really retail internet data service.

4406 MR. WATT: I think that’s correct. We do not see it as retail internet service. You’re thinking of things such as tracking of trucks, these types of things. They don’t -- they’re not on our basic consumer or even retail business person plans. Donavan? Howard?

4407 MR. BETH: No, absolutely. I mean, whether it’s tracking dogs, that would be a separate SIM card. It wouldn’t be tied to your internet plan. It wouldn’t -- you know, wouldn’t have anything to do with your internet plan. The Amazon books essentially, instead of getting free shipping, what you’re doing is you’re getting free digital shipping; right? So you’re -- when you’re buying the Amazon Kindle, you’re buying a product. And when you buy that book for $20 that includes the cost of shipping, whether it’s physical or digital shipping.

4408 THE CHAIRPERSON: Right.

4409 MR. BETH: So I don’t feel like it’s part of the internet plan. I don’t feel like it’s part of DPP.

4410 THE CHAIRPERSON: Would you agree it’s a business-to-business rather than a retail issue?

4411 MR. WATT: It is business-to-business. It might best be characterized as a wholesale business arrangement. But it has a -- like I say, typically a unique SIM card that doesn’t fall under the retail rating structure.

4412 THE CHAIRPERSON: So yesterday Bill argued that DPPs might be essential to the success of the internet of things. Do you think that’s a red herring?

4413 MR. WATT: Well, I think today, actually, we already have these arrangements where they’re each -- my understanding is we go trucking companies, Amazon. They will come to -- to a carrier and they will enter into a commercial arrangement. And they could have a wide range of prices that are being charged. So that I don’t think it’s a -- I don’t think it’s a threat to the internet of things.

4414 THE CHAIRPERSON: Would you also agree that likely that the internet of things, the devices, the communication associated with that, would likely not be on the retail internet networks but more on the specialized services market?

4415 MR. WATT: I will say yes. And I’ll look to Donavan to explain further why yes is the right answer.

4416 MR. BETH: At the end of the day, it’s not part of your internet package. It’s not interfering with your general internet use. It’s separate.

4417 I think what we’re talking about today when we’re talking about net neutrality is gatekeeping specific applications over general internet use. So, at a very high level that’s how we kind of view this ---

4418 THE CHAIRPERSON: Right.

4419 MR. BETH: --- and, therefore, we don’t feel that the internet of things would be affected with this hearing.

4420 THE CHAIRPERSON: Do you see any trend lines where the internet of things in a house, for instance, would -- because there’s a number of internets of things; right? There could be residential applications, whether it’s monitoring the confluence between your refrigerator and your stove to see that, you know, whether you have to go shopping, and stocking vending machines and managing fleets of trucks. Those are two different things. But when you’re in the household, is it likely going to be over in any significant way over the residential connections?

4421 MR. WATT: Well, this I think is the issue that where we are with 5G. And 5G is probably not going to be here for say five years, but where we’re not exactly sure how that is going to unfold. And it may be that the residential applications could be associated with your personal plan, and so it’s hard to know but the applications and what is used today are this business wholesale arrangement unrelated to the retail wireless offer.

4422 THE CHAIRPERSON: Right. And in your view, five years is a long enough period of time to have a course correction if required?

4423 MR. WATT: Yes.

4424 THE CHAIRPERSON: Five years is, what, the average length of broadcasting licences and the term of CRTC commissioners.

--- (LAUGHTER)

4425 MR. WATT: Yes.

4426 THE CHAIRPERSON: Okay, thank you.

4427 Let me now turn to VoLTE. What’s your view with respect to VoLTE and in the context of this hearing?

4428 MR. SLAWNER: So VoLTE is a distinct managed service. It doesn’t actually travel over the public Internet, so we don’t think it should be treated as the common standard byte of data. It actually -- it has very different kind of characteristics that kind of separate from your average data.

4429 For example, it actually gets preferred treatment so the quality of the voice call is always consistent and always remains the same. It needs a certain kind of latency that other services perhaps don’t need so we always ensure that a voice byte gets to where it has to get in time so the voice quality maintains.

4430 We also provide a whole bunch of other services on top of it such as regulated services, 9-1-1, lawful access. So these are all delivered by our network on a managed capacity so it really is not the same as some kind of standard average gigabyte of data out there. So no, we don’t think it should be treated the same. It’s not DPP, in other words.

4431 THE CHAIRPERSON: And is it zero-rated?

4432 MR. SLAWNER: No, it’s part of our overall monthly service fee where you get either a bucket of minutes or you get unlimited.

4433 THE CHAIRPERSON: So you couldn’t even attempt to zero-rate it; is that correct?

4434 MR. SLAWNER: And perhaps Donavan ---

4435 MR. BETH: Today it’s treated as a voice minute. And so the way we view VoLTE is essentially today a standard telephone call goes over a circuit switch cable, and VoLTE goes over an IP cable. So we treat a minute as a minute versus as a megabyte.

4436 THE CHAIRPERSON: And is it your view that it doesn’t raise DPP issues?

4437 MR. BETH: No, because it’s not -- it’s traveling on a separate piece of that pipe. It’s not going over the public Internet. Again, the same principle that we talked about ---

4438 THE CHAIRPERSON: Are there other services of similar nature that maybe should be also in that bucket, to your knowledge?

4439 MR. WATT: Well, I think it goes to what Lee Bragg was speaking about this morning. When you -- if you are over a managed IP network, so Internet protocol delivering your video service, again that’s not a service being delivered through the Internet and therefore, the recovery of the cost there is in the monthly subscription fee. It’s not part of your retail Internet service.

4440 Often it gets confusing because the technology is Internet protocol and people hear Internet protocol and they think it’s over the Internet, but it isn’t over the Internet. It’s the VoLTE, the -- for example, Bell’s Fibe TV, IP protocol television. Again, not over the Internet, not part of the Internet rating structure or discussion so not in the DPP debate.

4441 I think our Rogers Home Monitoring same thing, Internet protocol coming through but it’s not going over the open Internet. It is the managed network. What else?

4442 MR. BETH: Well, SMS would be a perfect example as well, right? So when SMS goes over the VoLTE network it actually goes over an IP network.

4443 THE CHAIRPERSON: Right.

4444 MR. BETH: So it’s very similar to voice but it’s still going over that IP network, but it’s not part of the public Internet.

4445 THE CHAIRPERSON: Right. And it will be my last question. I’ll see then if my colleagues have some questions of their own.

4446 But just on that, why wouldn’t sort of managed networks of that nature be subject to 27(2) analysis?

4447 MR. BETH: Well, again I think we’re trying protect equal access to applications and to the Internet. And I don’t think we should be looking at -- essentially when we’re moving to VoLTE we’re driving efficiency in the economy, right? So instead of having that circuit switch pipe and the IP pipe we’re consolidating into one.

4448 THE CHAIRPERSON: Right. I’m not suggesting that it’s not proper network design. What I’m saying is why wouldn’t it be subject to a 27(2) analysis?

4449 MR. WATT: Well, I think it is. You would if there was an undue preference or unjust discrimination in our offering of our voice service, the minutes, rates, and so on.

4450 THE CHAIRPERSON: Right.

4451 MR. WATT: I think it would be.

4452 THE CHAIRPERSON: Therefore, the answers you were giving earlier go to not the fact that there is a discrimination but it’s not undue or reasonable? Or a preference, not undue and unreasonable; is that correct?

4453 MR. WATT: Yes.

4454 THE CHAIRPERSON: Okay. There seemed to be a question mark at the end of that.

4455 MR. WATT: No, it’s a yes.

4456 THE CHAIRPERSON: Okay.

4457 Well, apparently we’ve asked all the questions we needed to ask of you. Thank you very much. And for your appearance today thank you.

4458 MR. WATT: Thank you.

4459 THE CHAIRPERSON: Thank you.

4460 So we’ll adjourn until nine o’clock tomorrow morning. Thank you.

--- Upon adjourning at 5:26 p.m.

REPORTERS

Sean Prouse

Mathieu Bastien-Marcil

Nadia Rainville

Lyne Charbonneau

Marie Rainville

Patricia Cantle

Lise Baril

Jacqueline Clark

Janice Gingras

Suzanne Jobb

Mathieu Philippe

Date modified:

2016-11-02