Transcript, Hearing February 20, 2020
Location: Gatineau, Québec
Date: February 20, 2020
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Attendees and Location
140 Promenade du Portage
- Chairperson: Ian Scott
- Vice-Chairperson, Telecommunications: Christianne Laizner
- Commissioners: Christopher MacDonald, Alicia Barin, Joanne T. Levy
- Legal Advisors: Adam Balkovec, Eric Bowles
- Secretary: Jade Roy
- Hearing Managers: Jeremy Lendvay, Marianne Blais
--- Upon commencing on Thursday, February 20th, 2020 at 8:00 a.m./L'audience débute jeudi, le 20 février 2020 à 9h00
--- Upon commencing on Thursday, February 20th, 2020 at 8:00 a.m./L'audience débute jeudi, le 20 février 2020 à 9h00
3577 THE CHAIRPERSON: Voila, Madame la Secrétaire.
3578 THE SECRETARY: Merci, M. Président.
3579 We will now hear the presentation of TELUS Communications Inc. Please introduce yourself and your colleagues, and you have 20 minutes for your presentation.
PRESENTATION / PRÉSENTATION
3580 MR. SCHMIDT: Merci.
3581 Good morning Mr Chairman, Vice-Chair, Commissioners. My name is Stephen Schmidt, and I'm Vice-President, Federal Government and Regulatory Affairs, with TELUS.
3582 To my immediate right is Darren Entwistle, President and CEO. Beside Darren are our expert witnesses, Dr. Christian Dippon, Dr. Robert Crandall, and Dr. Georg Serentschy.
3583 To my left are Eric Edora, Director, Regulatory Affairs; Jim Senko, President, TELUS Mobility; and Eros Spadotto, EVP, TELUS Technology Strategy and Business Transformation.
3584 In the second row of our panel are Kim Miller, Senior Regulatory Legal Counsel; Bruna Nardi, Director, Regulatory Affairs; Christopher McKenzie, Vice-President, Marketing; and Kal Amery, Vice-President, TELUS Global Partner Solutions.
3585 MR. ENTWISTLE: Good morning Mr. Chair, Vice-Chair, and Commissioners.
3586 Today, I'd like to take the opportunity to explore what market failure that we are trying to solve with these proceedings. In my remarks, I will confirm, based on facts, and evidentiary documentation, that the wireless industry in Canada is robustly competitive and effective in meeting quality and affordability goals, and I will also highlight the success that we have seen with facilities-based competition.
3587 Firstly, Canada is a global leader in wireless network performance. According to the February 2020 Mobile Network Experience Report from UK-based Opensignal, Canada has the fastest wireless network in the world, behind only South Korea. This is a country that is 1/100th the size of Canada and has already deployed widely 5G technology. It's also worth noting that TELUS' download speed of 75 megabits per second surpasses South Korea's national average download speed of 58.7 megabits per second.
3588 Year-in and year-out, our continued podium finishes in wireless network excellence go mostly unnoticed in our industry, and across our country, but this is where the greatest value lies for our economy and for our society.
3589 In its December 2019 Speedtest Global Index, U.S.-based Ookla confirmed that networks in Canada, including those in rural communities, are nearly twice as fast as networks in the United States. In fact, if rural Canada were a country, it would rank 12th in download speeds, outranking the U.S. in 30th position.
3590 In its 2019 report titled, The State of Rural Canada's Mobile Network Experience, Opensignal found that rural Canada offers faster network speeds than every urban market in U.S.
3591 Our globally recognised wireless infrastructure, and 5G pre-positioning, are underpinned by our fibre network, which is also world-leading in respect of its deployment. In 2019, TELUS' fibre subscriptions increased by 36 percentage points, exceeding the OECD average of 13 percentage points by nearly threefold; and at the end of 2019, 50 percent of our total fixed broadband subscriptions were on fibre, approximately twice the 26 percent average of OECD countries.
3592 It's also worth highlighting the sobering comparison in terms of fibre leadership in Australia versus here in Canada. Notably, in their government-run programme, Australia spent 5,100 AU dollars per premise to provide citizens with heterogeneous high-speed service, causing a significant liability for government and taxpayers alike.
3593 In stark contrast, TELUS has expended circa $2,300 Canadian per premise to provide Canadians with ubiquitous urban and rural high-speed capabilities, with no liability to the government and at no cost to taxpayers.
3594 Secondly, investments per subscriber in Canada are consistently amongst the highest on a global basis. As Dr. Crandall will attest, Canada has some of the highest levels of investment per wireless subscriber worldwide, with Canada investing twice the European average on a per subscriber basis.
3595 Additionally, Canadian carriers consistently pay extremely high spectrum costs. In fact, our average spend is $340 dollars per Canadian, as compared to $200 dollars in the U.S., $140 dollars in Germany, and $30 dollars in Japan.
3596 Moreover, in their 2020 study titled, Key Cost Drivers of Wireless Service in Canada, Christensen and Associates reported that Canadian spectrum prices are 424 percent higher than its benchmark countries, and 65 percent higher than the United States. Indeed, if spectrum costs were as low in Canada as those paid by European carriers, Canadian mobile rates could be 12 percent lower, as Dr. Crandall will exemplify in his remarks today.
3597 By way of example, in the AWS, 700 megahertz, and 600 megahertz auctions that occurred between 2008 and 2019, Canada's wireless carriers paid more than two times what was paid in the U.S. for the same open spectrum. It is indeed frustrating for our investors that this spectrum was acquired in the belief of the continuity of facilities-based competition, yet here we are, a short time later, with this under review.
3598 Since 2000, TELUS has invested almost $200 billion across our country, and it does not stop there. We are poised to inject another $40 billion into our country over the next three years, subject to the appropriate investment climate for those investments to take place.
3599 On top of all this, TELUS has remitted more than $43 billion in total tax and spectrum payments to our federal, provincial, and municipal governments. Our industry balance sheets are not only building Canada's digital economy and digital society, but our tax remittances are also funding our roads and our bridges, our public education, our healthcare, our cultural pursuits, and our national defence. In an age of increased awareness and responsibility in respect of tax morality, this compares favourably with many of our much larger global peers.
3600 Thirdly, Canadians have access to a wide range of rate plans and wireless providers. Each province is home to at least four wireless carriers, which, as Dr. Crandall will attest, and as confirmed by the HHI which measures market concentration, this is at the high end of normal for most developed nations.
3601 When combined with Canada's numerous flanker brands, there are a dozen or more brands operating in many markets in Canada, well above the norm. And I would say that's not bad for a country with a population density 1/9th of the United States, and 1/30th of Europe.
3602 Canadian carriers offer plans with endless data. They offer plans with device financing, and pre‑owned device options, and they offer this across premium, value, and discount brands, making wireless ownership accessible to all Canadians across all income quintiles.
3603 Dr. Crandall can also confirm that wireless markets cannot sustain a large number of carriers, given the investment required and the pace and risk of technology change, coupled with the need, the great need for economies of scope and scale to be realized. In fact, the deregulation and wireless consolidation we are seeing globally is in direct contrast to Canada's current trajectory, and this is worrying.
3604 Lastly, wireless pricing in Canada is amongst the most competitive in the world, and it's time for us to modernise our data pricing models in wireless. Canada's prices are below international benchmarks, according to the 2018 NERA Pricing Study.
3605 Furthermore, in its August and December reports, the CRTC confirmed that wireless prices, as well as the cost per gigabyte, decreased by up to 35 per cent and 28 per cent, respectively, between 2016 and 2018.
3606 It's also important to note that TELUS is not only meeting, but, in fact, exceeding the government's affordability goals, as confirmed by Deloitte. Notably, the government website states that to achieve the 25 per cent rate plan reduction goals, wireless service for a Canadian family of 4 should be circa $2,929 per year. There are numerous plans across TELUS, Koodo, and our public brands that exceed these True North affordability targets and represent, on average, more than $400 dollars in annual savings over the projected costs, again, as audited by Deloittes.
3607 In addition, the January to July 2019 StatsCan Index Value highlighted a decrease of nearly 8 per cent for cellular services, versus an increase of up to 15 per cent in the average cost of food, shelter, and transportation in the same timeframe.
3608 Similarly, an audit quality 2020 study by PricewaterhouseCoopers found that the average Canadian family spends circa 1.6 per cent of their household income on wireless services, as compared to the U.S. at 2.6 per cent, and as compared to Australia at 2.1 per cent
3609 Household expenditures across a wide range of products and services, including home phones, postage, photography, audio/video and printed reading material have been displaced by wireless services, increasing the disposable income of Canadians.
3610 And whilst data consumption is increasing by 26 per cent annually, 90 per cent of this growth can be attributed to entertainment and social networking. In essence, through this proceeding, Canadian carriers are being asked to subsidise access to Netflix, YouTube, social media, and the like, not exactly a pressing national priority.
3611 It is incredible that Canada's communications companies have realised significant achievements despite the numerous challenges that we face, including operating in one of the highest cost jurisdictions in the world in respect of deploying infrastructure and technology.
3612 This is due to a number of factors that reinforce the dis-economies of scale inherent within our borders, and these are inclusive of our vast geography, our rugged topography, and challenging climate. They include our low population density, our excessively high spectrum costs, and our higher labour rates and tax system.
3613 We are also impacted constantly by U.S./Canadian exchange rate fluctuations. With Nortel gone and BlackBerry shifting away from smartphones, we now operate in a network equipment and device oligopoly, with the preponderance of our network components and devices purchased in U.S. dollars. In fact, we are dependent on just two major device providers that set rigid prices for our industry in Canada.
3614 Given the backdrop of these achievements, against the inherent challenges, why then is government intervention, in the form of mandated MVNOs, needed in the wireless industry in Canada?
3615 Let's ask some questions. Do we have in Canada a network quality issue to solve for?
3616 No, we do not. Endless independent studies have proven that Canada is a global leader in network performance and network deployment.
3617 Indeed, the world-leading investment we are making in technology and infrastructure is enabling the diversity, innovation, and competitiveness of our private sector. It is also supporting economic growth and job creation for our nation, and as well, helping us answer society's most pressing social challenges in health, in education, and in respect of the environment, whilst improving economic equality in our increasingly digital world.
3618 Indeed, our technology leadership, and the investments that underpin it, drive our country’s innovation agenda and the resulting economic and social outcomes that flow from it.
3619 This begs the question do we have an investment problem in Canada that we need to solve for?
3620 No, we do not. The level of investment per subscriber in Canada is amongst the highest on earth, as substantiated by numerous third-party reports. Notably, our collective investment in 5G technology will offer a 40 to $50 billion dollar annual uplift to our country's GDP within a six-year period, and it will enable another quality 250,000 permanent skilled jobs in Canada to be created.
3621 These benefits are contingent on a circa $30 billion dollar investment by the telecommunications sector, an investment that I say will be diluted and deferred should mandated MVNOs come to fruition.
3622 Do we have a service issue in Canada?
3623 No, we do not. There is healthy competition in our country, with a wide range of rate plans and service providers across all geo markets. In fact, TELUS' consistently world-leading postpaid churn rate of less than one per cent demonstrates that a significant number of customers are choosing to stay with TELUS, despite the numerous other options that are available to them.
3624 So, then do we have a wireless affordability issue in Canada?
3625 Surprisingly, no, we do not. As confirmed by successive third-party studies, wireless pricing in Canada is amongst the most competitive in the world, with our country's unlimited plans ranking best, number 1 in the G7 based on speed, latency, accessibility, and GS price.
3626 Clearly, competition is alive and well in our country. It's fueling our country's global leadership in respect of network superiority, service excellence, and affordability, whilst enabling positive economic, and social outcomes for Canadians.
3627 So, again, I ask what market dysfunctionality are we trying to solve?
3628 Mandated MVNOs will undermine innovation and investment in Canada, including 5G deployments and the benefits inherent in this technology evolution, whilst negatively impacting job security and creation. Communications companies will be unable to maintain the $50 billion dollars our wireless industry contributes to our economy each year, the equivalent of 2.5 per cent of our country’s GDP.
3629 Let's consider what has happened in other jurisdictions with mandated MVNOs. These jurisdictions concluded that more players in the market were not viable, given the technology investment required and the consistent pace of change inherent within our industry. Christian Dippon, of NERA Consulting, confirmed that there is no evidence of an MVNO successfully transitioning to an MNO. Studies, experience, and evidence have demonstrated that there is no potential, long-term consumer upside from a sustainable retail MVNO market.
3630 If we want to evolve the regulatory model, let's build on facilities-based competition and liberalise our foreign ownership rules, per my testimony to the Competition Policy Review Panel 12 years ago. Let’s open the market to foreign investment and allow market forces to continue to drive the best consumer outcomes.
3631 It now seems forgotten that 20 years ago, TELUS was the original "new entrant". Yet, with significant investment and, yes, considerable business impact along the way, we built a successful, national organisation. We achieved this with facilities-based competition, and our country has benefited greatly. So, it is possible.
3632 With networks that are the envy of the world, and declining wireless prices that are already below international benchmarks, competition in Canada is clearly working.
3633 MR. SCHMIDT: Thank you Darren.
3634 The Commission has a unique opportunity in this proceeding to take holistic account of Canada's mobile market performance to calibrate and inform broader government action. Importantly, the Commission is not seeking to be re‑elected in the next 18 months and has a longer time horizon and a wider view than that afforded by the pressures and pragmatism of day‑to‑day politics and the media.
3635 We know that this hearing room, this process, and this institution are more than an antechamber to the Minister's office. This process and this institution afford Canadians the ability to chart a different path forward, one anchored in fact and expertise in order to deliver meaningful and durable benefits for the country.
3636 DR. CRANDALL: Canada continues to benefit from a competitive wireless industry, an industry that is less concentrated than the wireless industries in all but two developed countries in the world – Denmark and Sweden. In a regulatory environment that has relied heavily on platform competition, Canadian carriers have invested far more per subscriber than have European carriers, who have been traditionally much more regulated.
3637 There is no credible evidence that the three national wireless carriers have market power. Evidence of differences in pricing across metropolitan areas, advanced by the Competition Bureau, is not credible because it's based on ARPU, the average revenue per user, not the price of wireless services.
3638 The price of wireless service has been declining in the last few years as ARPU has been steadily increasing because lower prices induce more data consumption. And as Dr. Dippon has shown, Canadian wireless prices are generally below an appropriately designed international benchmark.
3639 Nor are profit margins a measure of market power. The three national wireless carriers have been forced to invest much more in spectrum than their European counterparts because of the government policy of setting aside a large share of spectrum for smaller carriers. These set‑asides result in very high spectrum prices and, therefore, large investments in spectrum that must be recovered by carrier revenues. If the government wishes to reduce wireless prices, it could begin by reforming this inefficient spectrum policy.
3640 DR. DIPPON: There are three reasons why the Commission should not mandate MVNO access. First, it is unnecessary. Independent assessments show that market forces are working properly.
3641 I'm aware of the evidence put forth by the Competition Bureau that alleges an uncompetitive marketplace, and I have carefully reviewed it. Unfortunately, the Competition Bureau's study is wrong.
3642 Second, a mandate for MVNO access in Canada will not be effective. The impact of MVNOs have been studied and restudied. Every time studies conclude that MVNOs are niche players that do not want to compete with the incumbents. There is no disagreement on this.
3643 Finally, mandated MVNO access will ultimately harm Canadians. An MVNO policy will create a negative investment incentive for all facility-based providers in Canada. With no material consumer benefits, but clear negative repercussions, an MVNO mandate is net negative for Canadians. It is for these precise reasons that 33 of the 36 OECD regulators have chosen to refrain from intervening in the MNO-MVNO relationship.
3644 DR. SERENTSCHY: TELUS asked me to take a closer look at the regulatory situation for MVNOs in Europe. I have four messages for you:
3645 First, why fix what's not broken? It is best international regulatory practice that if there is no competition problem, no regulation should be imposed.
3646 Second, there are no mandated MVNOs in Europe and other parts of the world, except for special cases which are not relevant for Canada.
3647 Third, mandating MVNOs is a solution in search of a problem. MVNOs are usually subscale players, not able to set retail prices. The tail cannot wag the dog.
3648 Fourth, regulators in some jurisdictions have considered introducing mandated MVNOs and declined to do so. Other regulators have lifted existing MVNO obligations because the obligation has proved to be ineffective and the anticipated effects on competition did not materialize.
3649 To sum up, the regulation that the CRTC envisions is unprecedented and counter-productive because it's massively intrusive and will ultimately damage the investment case for 5G.
3650 Canada should not rely on mandated MVNOs at regulated prices, first because it's not effective; and second, because such a measure would put Canada in an outlier position that is toxic for investment and detrimental for Canada's economic future.
3651 MR. SCHMIDT: To conclude, we have four recommendations for the Commission:
3652 First, the CRTC should make findings of fact about Canada's mobile wireless market performance across all dimensions - network reach, network quality, performance, capital levels, service, pricing.
3653 Second, the Commission should act on the two key price drivers that are within government control. The Commission should permit device financing for up to 36 months and make recommendations for more efficient auction design in Canada. Both device costs and auction outcomes are putting upward pressure on retail rates in Canada.
3654 Third, in order to facilitate and incent 5G development (sic), the Commission should refrain from increasing roaming obligations, such as mandating seamless roaming, and limit existing roaming rights to 4G network speeds.
3655 Finally, and most importantly, the right regulatory environment for 5G deployment demands that the Commission decline to mandate MVNO access. It is not justified based on the performance of the industry, it will not benefit consumers, and, most fundamentally, it will make no contribution to the $26 billion in investment needed to rollout 5G networks in Canada.
3656 In fact, it fundamentally guarantees that 5G will not be rolled out in areas with weaker business cases – rural, remote, smaller towns - areas in Canada that need broadband the most. These communities, and Canada, cannot afford to be left behind in the 5G race.
3657 Thank you. We welcome your questions.
3658 THE CHAIRPERSON: Thank you. Thank you very much for your submission.
3659 Commissioner MacDonald?
3660 COMMISSIONER MacDONALD: Good morning, and welcome. Thanks for your comments this morning, and for your involvement throughout this process.
3661 Just to start off, I'd like to talk a little bit about the definition of the product market, because most parties to this proceeding have defined the product market as including voice, text, and data services, but TELUS has taken a different approach.
3662 And at paragraph 51 of your May 15th submission, you note that, first, there is the market for mobile wireless connection; second, once the connection is established there's a second market for data usage.
3663 And I'm wondering, can you unpack that for me and tell me the rationale for coming to that conclusion?
3664 DR. CRANDALL: The rationale is quite simple. I mean, obviously, for mobility and for access to the mobile network, the market is the wireless market -- the wireless access market. But for usage, people with wireless handsets, tablets, with everything else, have access to data, even the Voice over Internet Protocol, over through a variety of places, Wi‑Fi hotspots which are very numerous in Canada and very high quality, and many of which are free, an extremely high quality fixed network which people can use for accessing data and downloading data as a substitute for data which is downloaded over the mobile network.
3665 COMMISSIONER MacDONALD: So -- pardon me, but I don't think that services like landline and Wi‑Fi are what initially jump into people's minds when they're thinking about the mobile wireless network, specifically because they're not mobile. So I guess, would you care to comment on that? I mean, they lack the specific characteristic of being mobile.
3666 DR. CRANDALL: Every time I go to a Starbucks, I see people on their Wi‑Fi, I see them with their wireless devices, be they tablets, be they wireless handsets downloading data. That certainly is a substitute for stepping outside of Starbucks and downloading data.
3667 COMMISSIONER MacDONALD: So ---
3668 MR. ENTWISTLE: The number of people that opt not to take a landline connection and instead go exclusively on wireless I think reflects the holistic decision people make in terms of having fixed line connectivity versus a wireless service. And more and more they’re choosing uniquely just the wireless service.
3669 COMMISSIONER MacDONALD: So that ties back into the comments you made in your opening remarks around prices in Canada are what they are, some may say high, some may say low. But wireless service does serve as a substitute and replace other costs that Canadians would have traditionally had to absorb?
3670 MR. ENTWISTLE: That is correct. My comments, however, were inadequate because they were just a sampling. They don’t take into account what it does to enable the efficiency of consumer lifestyles.
3671 So by way of example, with everyone in the family having a phone and parents having to pick their kids up after school, to be able to coordinate those logistics provides for a much more efficient family experience, much more human family experience, and less money is wasted in waiting around, or gasoline, or logistics along the way.
3672 The other aspects that we could extend into would be security. We could talk about telecommuting and the way that people can now work from home and be mobile within their home in that regard, both on the macro wireless network, but also leveraging WIFI connectivity.
3673 COMMISSIONER MacDONALD: Okay. Just for the interest of completeness, can you identify for me the total list of services that would fall into your usage bucket, as you see it, versus into your connection bucket?
3674 MR. SCHMIDT: We can undertake to do so, Commissioner MacDonald.
UNDERTAKING / ENGAGEMENT
3675 COMMISSIONER MacDONALD: Perfect. Thank you. By March the 10th.
3676 MR. SCHMIDT: Thank you very much.
3677 COMMISSIONER MacDONALD: With respect to prices, you’ve noted our own studies have shown that prices in Canada are declining.
3678 But can you perhaps quantify that in relation to how rates are declining in other countries? Because Canada is not unique. Rates are going down in many different jurisdictions, perhaps at a different speed.
3679 How do we fair when ranked against other nations with the speed of the rate decreases?
3680 MR. SCHMIDT: I’ll be happy to shed some light on that. It’s a difficult undertaking because prices are not easily measured.
3681 First I wanted to make a comment on I saw the Competition Bureau make the claim that prices are decreasing less rapidly in Canada relative to other countries.
3682 I just want to caution everybody that is relying on a very flawed report that is annually conducted and that should really not give you an indication of what’s happening in Canada relative to other countries.
3683 I think what’s much more informative, and it’s a term I’ve been using for a while, is the mobile value proposition.
3684 And so when you look at the mobile value proposition, you take into account what you’re paying, what your monthly price is, but what you’re getting for it in terms of network attributes, in terms of plan attributes, and country attributes.
3685 When you do that comparison, you will se that Canadian prices are below, actually quite significantly below the average price, relative to the international benchmark.
3686 So going back to your question then is -- does it decline slower in Canada? I don’t think anybody has the response to that.
3687 But it is already below the average. So even if we were to drop slower, then it’s still going to be below the average.
3688 Or stated differently, if it were to drop as fast as other countries, per the Bureau, then Canada will become the cheapest country in the world.
3689 My colleague Jim would like to add.
3690 MR. SENKO: Thanks, Stephen.
3691 I’d also like to add that our piece of mind overage data plans are cheaper than the U.S. when you convert to Canadian dollars.
3692 So we start at 75, Verizon and At&T are at 90.
3693 Advertising of published prices can often be misleading because the U.S. carriers publish their family of four prices versus their single unit prices.
3694 So it’s unclear whether our single unit prices are being compared against multi-unit discounted prices.
3695 And in addition, the Wall Report is not updated to reflect the actual prices in Canada.
3696 As examples, Level 1 is Canada’s indicated at $25. Today it’s $15 on Public Mobile.
3697 Level 3 indicates $70.99. Today it’s $25 on Public Mobile and $45 on Koodo.
3698 Level 5 indicates $87. Today it’s $38 on Public and $55 on Koodo.
3699 And Level 6 indicates $227 and today it’s $75 on Telus and Koodo.
3700 Those rate plans would look very favourably globally.
3701 COMMISSIONER MacDONALD: Just sticking with global comparisons for a minute, we heard from, I believe it was Bell, yesterday. And they commented on the fact that many of the studies don’t take into account gift with purchase options that are available in Canada, some of them stretching into the $850 to $1,000 range, which can equate to, you know, if we divide that over the 24 month service plan, can equate to $35 or $40 a month.
3702 Are such offers typical in the international market? Or is that more unique to Canada when comparing prices?
3703 DR. DIPPON: I’m not sure with respect to gift cards, but promotions are very common.
3704 So I’ll give you an example in the United States. Family plans. Family plans have become very popular, though many of the international ranking comparisons don’t take them into account.
3705 So if you were to look, I think there’s one report that keeps repeatedly stating that the United States does not have unlimited plans.
3706 Well that’s not true. But they’re a part of family plans.
3707 So there’s heavy promotions if you get, like, four lines.
3708 And promotions should be included in international ranking exercises and they do incur internationally as well.
3709 COMMISSIONER MacDONALD: Okay. Thank you.
3710 MR. SENKO: I just wanted to add a bit about the Canadian market.
3711 Last year, 46 out of 52 weeks, the Canadian market was under promotion. Sixty (60) percent of our plans are on promotional plans. The typical discounts include gift cards up to $500, double data, free tablets, $10 discounts off the rate plan, and unrecoverable subsidy that would equate to about $10 per month.
3712 COMMISSIONER MacDONALD: Thank you for that additional information.
3713 Some parties have suggested that the timing of the introduction of new plans in the market with no overage charges and rate discounts as of late may not be a reaction to increased competition, but maybe more a threat based on what be in a given political party’s platform or the threat of regulatory intervention coming out of this proceeding.
3714 And I just wanted to give you an opportunity to comment on that?
3715 MR. SENKO: Yeah, I’ll take that.
3716 In August 2018 we received Board approval to a major simplification transformation which was aimed to introduce no overage plans, family discounts, zero percent financing with all devices starting at zero dollars, and bring it back, which is providing up front affordable discounts to customers if they bring back their device at the end of the contract.
3717 Our objective was to simplify customer experience by creating device transparency and no overages.
3718 We reduced our rate plans from over 250 to less than 10.
3719 The motivation was to reduce call volume to our call centres, improve throughput in our stores, make bundling easier, and give our customers a great experience, and continue our leadership in turn.
3720 Shaw Big Gig plans were not the driver, as data sharing plans at the time and bonus data was very effective in managing our market share, but was complicated to support.
3721 The time to launch effectively and fantastically was due to systems development and building the appropriate network capacity.
3722 So we started and endeavoured this program back in August -- actually, even before August of 2018.
3723 MR. ENTWISTLE: We can furnish you with evidentiary documentation in terms of our board material so that you can see that governance timeline and that you can see the decision to proceed with our endless data plans is independent of either a political vent or a influence from a particular competitor. I think that might be helpful if you got some insight into our decision making and had clarity that this was driven by our customer's first philosophy at TELUS.
UNDERTAKING / ENGAGEMENT
3724 COMMISSIONER MacDONALD: I agree that would be very helpful, so thank you for the offer to undertake to provide that information as well.
3725 I'll draw your attention next to CRTC Exhibits 1A and B, which I believe you were provided with copies at the start of the proceeding. And, you know, historically when we've been looking at prices across the country, we've often seen that prices in Saskatchewan and Manitoba were lower than other regions, both on primary and flanker brands. Now we're seeing it's more consistent across the country, with the exception of lower prices now appearing in Quebec versus the rest of the country. And I'm just wondering if you can provide me with some information on why you think this shift is happening?
3726 MR. SENKO: Okay. Thank you for your question. When we look at the average rate plan price for an activation across our provinces, actually British Columbia, Saskatchewan, Manitoba, Ontario and Atlantic are all exactly the same. Alberta is slightly higher, and that is because of mix, so Alberta has the highest mix of our premium TELUS brand at 75 per cent, and Quebec is about $5 lower than the average. Quebec has consistently been lower than the rest of the country and was lower even before Videotron wireless.
3727 And two things that are notable in buying behaviours in Quebec. The first one is that customers take data plans with less data, about 30 per cent less data than the rest of the country, and secondly, there is a much higher mix of flanker brands versus premium brands in Quebec. For us, 55 per cent of our subscribers and our activations are on Public and Koodo versus TELUS.
3728 And so, when you start to look at ARPU, it can be misleading. It's not that prices are necessarily different. It has a lot to do with buying behaviours, and the mix of purchases between the different brands.
3729 COMMISSIONER MacDONALD: So, when you are -- well, let me back up. Could you outline what factors go into determining the price in a given market? You've outlined a couple, the presence of flanker brands, added competition. Are there there factors that come into play when you're trying to decide on the price point in a given region?
3730 MR. SENKO: We look -- firstly, when we price, we determine our pricing provincially, so our pricing is provincially. We look at our market share. We look at our network quality. We look at brand awareness, and we look at our competitor's pricing. And we put that together and determine what is the best way for us to drive profitable market share growth.
3731 You know, so additionally we will decide to market different brands in different provinces. So, for example, in Alberta there's just high awareness around TELUS customers, like the bundle with their home services. We tend to market more of TELUS. In Quebec, we market more Koodo and Public Mobile because they resonate more with the buying behaviours in these provinces. So, those are the criteria that go behind how we price.
3732 COMMISSIONER MacDONALD: And you said that you typically price based on province. Is that the smallest geography that you would price to, or do you go to a sub-provincial level based on certain characteristics in a given part of the province, more competition in a certain part of the province, the availability to offer other services in one city versus another in a given geography? Do you ever go smaller than province-wide?
3733 MR. SENKO: All of our published pricing is provincial. What we will do locally is we will put more marketing dollars behind, say, a Koodo value proposition if we think that that would have a greater chance of winning market share.
3734 We also have promotional pricing. Promotional pricing is usually done at the province level, but we do leave some discretion for our store managers to flex pricing tools locally as they see fit, but it's not a predetermined we're going to price, like, this in this sub-market.
3735 COMMISSIONER MacDONALD: And you mentioned in your opening comments and in your interventions the large number of weeks that you have promotional offers in market over a given 52-week period. Are those generally spread across your service area, or do the bulk of perhaps regions with higher levels of competition, are they able to realise more discounts or discounts more frequently than other regions?
3736 MR. SENKO: Ironically, our two most intense competitive markets for promotional activity is Ontario and more specifically the GTA, and lower mainland B.C. We see more intense pricing in those provinces than we do in the regions.
3737 COMMISSIONER MacDONALD: Thank you. We talked a moment ago about the fact that prices have been declining, particularly in the last year or so. That could be a result of increased competition. There could be other factors at play as well. And I'm wondering if you can give me, or unpack for me, what other factors go into pricing your service, cost to deliver, what prices have gone down? What efficiencies have been found that enable you to offer lower prices to your clients?
3738 MR. SENKO: So, I think a great example is to look at our piece of mind no overage plans. You know, those price plans are significantly lower than what were in the market previously from the data sharing plans, but a number of things went into factor there.
3739 So, factor number one is with no -- overage charges is the number one driver of call -- customer care call volume, for example. Complexity of subsidy plans where the customers can't identify the cost of the device versus the rate plan make the amount of time to process an activation or an upgrade in the store longer. The price point at $75 becomes more attractive to customers who are in flanker brands like Fido, Virgin, Freedom, or Koodo. And so all of those things went into a calculation that said, you know, not only is that $75 price point amazing for our customers and easier for our employees to support, but we can provide those plans at a lower cost, and we can improve the mix between our flanker brands and our premium brands in order to manager our ARPU.
3740 So, that's -- those are the kinds of considerations that go into our pricing.
3741 MR. ENTWISTLE: And also, the cost factors of production that I alluded to in my remarks. So, we do represent one of the highest cost-to-serve jurisdictions in the world. We have significant diseconomies of scale given the demographics of our country. The geography, the topography, and the climate are challenging, and drive significant relevant increases in cost in Canada versus other developed nations in that regard.
3742 As it relates to data growth, one of the things that we need to be cognisant of is that data growth is consumptive of spectrum. And when we've got data going fast and consuming spectrum, and we pay the highest spectrum costs in the world, two to three times higher than many of our peers, that also factors into our thinking.
3743 As it relates to devices, as airtime has reduced, either holistically at 35 per cent since 2016 or 28 per cent, 18 over 17 on a per gigabyte basis, you know, we are, you know, in an environment where the device costs have gone up, and they've gone up markedly.
3744 If you look at what Smartphones cost several years ago and how they've gone from the 500 to the $1,000, to the 1500 to the $2,000 level, that also is front of mind, whether it's recovering the subsidy component of that, or whether it's giving a $0 financing on those devices overall.
3745 As it relates to other aspects of our cost challenges, it's clear that from a labour perspective, relative to the international benchmark group that we're compared against, we pay higher labour costs to the middle-class Canadians that work for our organisations to give the quality of service that we want to afford our customers. We pay higher taxes along the way, and we also have to work through the very challenging oligopoly structure that we face in terms of both network equipment, as well as the duopoly model that we see inherent within our device supply channel along the way.
3746 So, when we think about setting prices, one of the things that we look at is will we make a return over the contract period or not, and that tempers how deep we go during those promotional periods that Jim referred to, which do very much take up nearly the preponderance of the 52 weeks of the year.
3747 And then holistically, on the affordability front going from provincial to national, I do think the PwC study given the audit level of robustness that was invested in that study, and looking at affordability as it relates to disposable income comparing us to the U.S. and Australia, there is quite a marked difference at 1.6 per cent in Canada versus the plus 2 per cent at both the U.S. and Australia. And that's true importantly across all income quintiles, rather than just a segment thereof.
3748 And also, taking the concept of affordability and extenuating it to talk about value -- and it's important to note that on a G7 comparative basis, including the G7 plus Australia, Canada gets better value determined by a composite of price, latency, accessibility, and coverage considerations along the way. We are number 1 ranked amongst the G7 plus Australia in that regard.
3749 And when we look at the Liberal website right now, postulating for a variance on a 25 per cent price reduction, it's interesting to note that we offer better prices today on every single one of those 4 variants, where the differences are ranging from $50 better to $1,000 better, with an average of $400 better in that regard. And I do think that that speaks to the affordability within the Canadian context in a way that is quite considerable, but also extends the thought of affordability into the value construct as it relates to the productivity of our economy and our society.
3750 COMMISSIONER MacDONALD: Thank you. We'll spend quite a bit of time talking about affordability issues in my questioning.
3751 Just one final one before I move on, you offered to provide us information via an undertaking with respect to the internal journey, the internal decision-making process that was undertaken to offer more competitive plans in market. When you -- when factors do align that reduce the cost to deliver service for customers, what is the time delay between those efficiencies being realised and when you can actually pass those benefits off to the customers? Because I understand if you're putting a no overage plan into market there's various internal approvals you'll need to go to, but from the buying public, it seemed like when six plans came to the market they came very rapidly and in close succession between various different providers for more robust offers, as of late.
3752 MR. SENKO: So, I think the first thing that I would break down for you is in the -- it was important to us to launch three things together, which was the no overage plans, the zero per cent financing, and creating the separation between the rate plan and the device, because that was a number -- overage and transparency on the device were the two number one concerns of our clients. And the third one was to offer credible and valuable family discounts. So, we wanted to launch the three together.
3753 The majority of the systems' work is linked to the financing, and the family discounts, and overhauling our rate plans. Doing a no overage plan is just a rate plan change. We could have launched that -- we could have launched it sooner, but they work together, and it was important to us to launch them together in unison.
3754 So, when Rogers did launch their unlimited plan, we did follow because we were losing market share, but we held back all of our major marketing until we could launch them all together on July 3rd, as was the original plan.
3755 COMMISSIONER MacDONALD: Thank you.
3756 MR. SCHMIDT: I think Dr. Crandall wants to follow.
3757 COMMISSIONER MacDONALD: Oh, yes, please.
3758 DR. CRANDALL: Just wanted to point out we've said before this is a highly competitive industry. It's not only TELUS' costs that are going down, but Rogers and Bell's costs are going down. And an important criterion for their pricing are what the other carriers are doing. As they lower their prices because costs go down, TELUS has to meet those price reductions in order to be able to compete. That's the nature of a competitive market.
3759 MR. SENKO: I want to add one more thing. Like, we're anchoring on the piece of mind plans as being the great innovation. I want to remind you that TELUS has been an innovator in leading price innovations. We were first to market in introducing the Koodo tab. We were first to market in innovating Koodo shock-free data. We were the first to market with zero per cent financing. We were the first to market with bring it back. We were the first to market with TELUS family discount. We were the first to market with Koodo offering unlimited talk and text. We were the first to market in marketing certified prion devices.
3760 So, creating a perception that, you know, magically there was a major change in pricing right before the hearings is a false narrative when you look at the price innovations that we have done over the years and that -- this was the next evolution for us.
3761 COMMISSIONER MacDONALD: And I will get back to perception in a little bit.
3762 You mentioned earlier about the abundance of Wi-Fi hotspots in the country. I believe in your intervention the count as of 2017 was around 40,000 across the country. But we've heard from many Canadians that say they have to rely on Wi-Fi almost solely because their mobile rates are so high. And if mobile rates were lower in the country, they would not be forced and would not access those Wi-Fi hotspots to the same degree that they do today.
3763 Would you care to comment on that?
3764 MS. SCHMIDT: Dr. Crandall to start off, please.
3765 DR. CRANDALL: Well, the price of the -- of many of these Wi-Fi hotspots is zero. I mean, it may be true that a slightly lower price for mobile data would induce a little less substitution of Wi-Fi hotspots, but keep in mind also, the landline at home is a substitute. I mean, we're using these devices now for downloading entertainment.
3766 When someone sits next to you in an airplane and watches a movie on his phone, ask him if he downloaded it off the mobile network, or from a Wi-Fi hotspot, or from his home Wi-Fi. I'll bet you'll find very rarely that he downloaded it off the Wi-Fi -- off the mobile network, regardless of what the price was.
3767 DR. DIPPON: And if I just may, just to follow up on that. I'm a bit puzzled by the feedback you received from the consumers for the reasons Dr. Crandall mentioned. Especially in the past, Wi-Fi has been faster for download speeds. And like Dr. Crandall mentioned, incremental cost is zero versus on the mobile side it is not.
3768 So, I would view it as in many instances, if you're in proximity of a Wi-Fi hotspot, it might be the better alternative to take. So, I'm a bit surprised that a subscriber would then argue that -- I would have -- I have two options. I have Wi-Fi, fast, reliable. I have a mobile wireless, also fast and reliable. But here I have an incremental cost, here I have zero incremental cost. Why would I ever want to go for mobile wireless in that instance?
3769 COMMISSIONER MacDONALD: Well, there is a convenience factor. If someone wants to download something, they have to find a Wi-Fi connection versus just download it on their phone if they're on the wireless network.
3770 DR. DIPPON: Correct. So that's my -- my example was in the presence of both options. You’re right if only one is available.
3771 But I think your point was that the consumer would elect to use the wireless network when WIFI was available.
3772 COMMISSIONER MacDONALD: And into a 5G world, where, you know, there will be much greater speeds than are currently available today, does that remove one of the differentiators in the consumer’s mind between, “I want to download this movie. No, I have to go to my home WIFI or sit in Starbucks. Or no, I’ll just download it off the 5G network”?
3773 DR. SERENTSCHY: Let me jump on this.
3774 if you’re from Europe, Europe-wide -- EU-wide is one roaming zone. So everybody takes its plan within EU.
3775 Nevertheless, there is a program, it’s called WiFi4EU. And that is supported from the European Commission, the build out of tens of thousands of public WIFI stations.
3776 And that’s not only for people coming from outside. It’s an additional convenience factor which gives people the opportunity to use fast WIFI connections.
3777 And under a 5G scenario, we have also WIFI 6, which will open the six gigahertz band for public WIFI.
3778 So there will be always this dichotomy, so to say, between WIFI and the mobile network. And WIFI goes cellular, in a way, technology-wise.
3779 DR. DIPPON: Just to answer your question, Commissioner, I do believe that quality differences -- I would expect quality differences will diminish overtime. But the deployment of 5G is yet to come and there’s quite a few obstacles in place until consumers can enjoy 5G services.
3780 MR. SENKO: I just wanted to top up as well.
3781 Look, there’s -- it’s hard to bucket -- customers don’t fall neatly into bite-sized segments. There’s -- everyone has different preferences.
3782 We serve many different needs in the marketplace.
3783 You know, we provide entry-level data plans starting at $15. We provide talk and text plans starting at $8.33.
3784 Public Mobile offers unlimited talk and text and a gig of data from $23, or 77 cents a day.
3785 Our no overage plans, we offer family discounts which dramatically reduce the price, you know, for a family of three or a family of four.
3786 We, you know, provide discounts for customers who have home services with us.
3787 These are all ways that we’re making that affordable.
3788 And another reason for moving towards peace of mind and zero percent device financing was in anticipation of 5G and the realization that, you know, the data usage profiles are going to get bigger, and so we wanted larger buckets, and that we wanted -- we want people to use the phones. And that’s why we eliminated data overage.
3789 COMMISSIONER MacDONALD: Okay. Just switching ---
3790 MR. SPADOTTO: May I just add one point?
3791 COMMISSIONER MacDONALD: Yeah.
3792 MR. SPADOTTO: I think it’s important to also consider how WIFI is evolving. I think you already mentioned that we’re heading from WIFI 5 to WIFI 6. And that is going to create much more capability in WIFI.
3793 And you need to look at the devices. Devices are not omitting WIFI in them. They’re actually advancing WIFI in them because WIFI as an alternative will continue to be something that is used by subscribers.
3794 So not only is the landline infrastructure, the fibre infrastructure, the WIFI infrastructure getting advanced, but so are the devices to accept it.
3795 And you’ll -- I think you’ll continue to find that balance between people using WIFI where available, and then using 4G/5G where available.
3796 COMMISSIONER MacDONALD: Okay. Switching gears to network quality for a few moments.
3797 Bell commissioned a study by Charles River and Associates that concluded that price variations across the country were tied to differences in network quality.
3798 And if I’m to believe that, I could assume that the quality of the networks in Quebec, for example, are significantly lower.
3799 What factors account for differences in network quality?
3800 DR. DIPPON: I think I can give you some directions. I cannot give you magnitudes. But when I did my regression work looking at explaining differences in prices across the world, what generally drives it are three categories, what I call plan attributes, network attributes, and country attributes.
3801 So prices are driven by the richness of the plan, you have voice minutes, data allowance, SMS, overage as well.
3802 Then on the network side, the network quality is part of that. So say download speeds, coverage, 4G take up, things like that.
3803 And then the third part that explains prices are what I call the country attributes. And those would be the size of a country. population density, and so forth.
3804 So I would agree that quality plays an important part. I would probably say it’s a bit more complex than just saying it’s just quality.
3805 COMMISSIONER MacDONALD: And ---
3806 MR. SPADOTTO: If I may chime in?
3807 COMMISSIONER MacDONALD: Yeah.
3808 MR. SPADOTTO: I think this is an interesting conversation because, you know, I will speak for us.
3809 You know, creating a quality network is complicated. We live in a complicated industry.
3810 But it’s very -- you can sum it up. Like, what do you need to create a quality network?
3811 So you need factors of inputs; right?
3812 Probably the biggest input you need is spectrum. Spectrum drives -- it’s the beachfront upon which these networks are built.
3813 A number of sites come into play, terrain comes into play, you know backhaul. Do you have the right kind of backhaul to create these networks? So those all come into play.
3814 The reality is though, as we construct our networks, we have the same service definition across the country. In fact, I would say we have two service definitions across the country; one that would be for major cities and one for rural, given that rural is much harder to get all these other things built into.
3815 We don’t make a distinction between call it a Montreal and a Vancouver. They have the same service desires, same service desires, and perform largely the same for us.
3816 COMMISSIONER MacDONALD: So just to unpack that a little bit further, are there significant variations in network quality across your country -- across you company as you traverse the country? Is there a strong or a large difference between what a Telus customer in an urban centre can expect versus what a rural customer can expect?
3817 MR. SPADOTTO: There would be. I would say there are differences. They’re temporal in nature as we kind of continue to build out and add to our networks.
3818 In the cities they’re largely the same.
3819 As we move into the rural territories, because there is less spectrum available, and frankly higher expenses to build, they will have a lesser level of performance.
3820 However, I will say that, you know, in the past number of years, we in particular have specifically built out wireless HSIA services for folks in the rural territories and they are actually getting very good service, to the point where we have, you know, tens of thousands of subscribers using what is our wireless networks, what would be considered a mobile network, for a fixed service.
3821 COMMISSIONER MacDONALD: And are there variations in quality when you look between your various brands versus -- Telus proper versus Koodo, for example?
3822 MR. SENKO: So there is a difference between Public Mobile versus Koodo and Telus.
3823 So Koodo and Telus are both 4G. Public’s speeds are 3G speeds, which are between three and six megabits per second.
3824 And those speeds are very acceptable for email, text, web browsing, social media, streaming music, and even based on the Netflix definition of standard video quality, it’s supporting Netflix and YouTube.
3825 Now, if we were providing a subpar service to Public, then the other dimension wouldn’t be true in my view, which is that Public is our fastest growing brand.
3826 Most of our -- not most, but our largest number of activations last year were on Public. So it’s a very healthy brand right now and customers love the value proposition.
3827 MR. ENTWISTLE: To answer you question directly in terms of quality differences between Telus and Koodo, there are no quality differences between Telus and Koodo.
3828 COMMISSIONER MacDONALD: Okay. Thank you.
3829 Changing again to profitability, is that a good indicator of the level of competition in a country? Because many intervenors have argued that the three largest providers are very profitable enterprises and it’s an indicator that the market is not competitive.
3830 DR. CRANDALL: I have seen nothing in the record that goes to profitability. I've seen a lot of discussion of profit margins. But keep in mind, profits are a return to capital, so it depends on how much capital you have invested per dollar of sales in order to evaluate the profit margin.
3831 Profit margins may be relatively high in Canada because of the capital investment required, that is, plant and equipment and spectrum is much higher than it is in other countries. But nobody has done a thorough analysis of the profitability of carriers in Canada versus the profitability of carriers in the United States or Europe based upon a return to capital, and also, looking at the appropriate cost of capital given the risk of investing in that country, which of course depends upon the regulatory climate.
3832 MR. ENTWISTLE: On that particular question, we have done a poor job as an industry reflecting the economics of our business so that we're not singularly viewed through the lens of a profit and loss statement, and more properly viewed through a cashflow statement. And I'll give you a direct illustration of that.
3833 Between 2014 and 2019, over that particular 6‑year period, TELUS's cumulative free cashflow was minus $6 billion. So we had, in terms of cash outflows versus inflows, our cash outflows exceeded our inflows by $6 billion. That's audited. You can have the evidentiary documentation. Audited by Deloitte's.
3834 That negative 6 billion relates to three key factors: one is related to our fibre build, which is both urban and rural; the second factor is related to succession of spectrum options over that period, where we expended more than $4 billion; and thirdly is the pre‑provisioning that we've undertaken to get ready for 5G. But we are net negative $6 billion between 2014 and the end of 2019.
3835 COMMISSIONER MacDONALD: So are cashflows a better measure of the industry than profitability would be given its capital intensive nature?
3836 MR. ENTWISTLE: Yes. Exactly. And it was our fault that we have not illustrated that way, but when you look at the amount of CAPEX that we expend as an industry, which is amplified by the number of technology rollovers that take place as we've gone from 1G analogue, to 2G, 3G, to 4G, and now on the cusp of 5G - and every time we undertake a technology evolution that is a major network lift for this organization. And in addition to that, the amounts of money that we have spent on spectrum and how it's not just a nominal amount but on a unit-cost basis that differentiates us negatively versus our global peer group. And if you add that to the subsidization model that we've had to endure as it relates to devices, those economics have been exceedingly challenging.
3837 But factoring in the capital cost, to the exact point that you're making, Commissioner MacDonald, is not something that we have done effectively, and you're quite right, we should have done it. And a cashflow view is a much more accurate view of our industry.
3838 COMMISSIONER MacDONALD: Okay. Thank you.
3839 Still on the topic of investments, because you mention the need to, you know, periodically forklift up the network, to use a different term. Your LTE and LTE‑Advanced deployments are essentially done across the country. Would that be a correct assessment?
3840 MR. ENTWISTLE: That would be a correct assessment in respect of over 99 percent coverage of Canadians with LTE.
3841 COMMISSIONER MacDONALD: So how ---
3842 MR. ENTWISTLE: And 90 percent of rural Canada.
3843 COMMISSIONER MacDONALD: So how does investment intensity vary depending on the different stages of your deployment of a given technology? You're probably getting towards the end with -- of investing significantly in LTE and Advanced. I'm just wondering what the -- you know, the next wave is going to be 5G. So what -- as you deploy, how will capital intensity vary over the course of your deployment to 5G?
3844 MR. ENTWISTLE: So typically, in a year where we're not undertaking a technology rollover - and they have been few and far between during my tenure here, and we're in a year where we're not having a spectrum option - our CAPEX intensity for our wireless business would range from 11 to 13 percent. In a year where are undertaking a technology rollover, or undertaking a spectrum option, it would be significantly north of that particular amount. The half-life for TELUS these days on a technology rollover is 18 months.
3845 DR. CRANDALL: Can I add to that? There's an unfortunate tendency in this industry to refer to capital intensity as only expenditures on plant and equipment divided by revenues, or something like that, and to ignore spectrum. And one of the reasons for that, I suspect, is that in the financial community they tend to want to look at how the company is deploying capital over time, and spectrum options come up only sporadically and require huge investments.
3846 Nonetheless, Mr. Entwistle has to worry about earning a return on that spectrum investment. And over time you have to accumulate that with the plant and equipment investment. Because the shareholders don't care whether you're spending their money on spectrum or plant and equipment, you've got to earn a return on both.
3847 MR. SPADOTTO: If I can add one thing? So while it's true that we are LTE and LTE‑Advanced in most of our network, that investment has not ended. And in fact, you keep adding money to that network. Now, whether it's in the form of capital to add capacity, as our subscribers use more, and more, and more - and certainly we've seen that with the addition of these new data plans, we see a tremendous uptick in usage - but also LTE A or any network technology is not a step function. It is, you are adding further and further capabilities as that technology evolves.
3848 So we are not -- we're not stopping. We have not stopped involving -- investing in LTE nor LTE‑Advanced. In fact, we are continuing those investments and having to overlay on top of that the 5G investment.
3849 5G, and I think a lot of people don't really understand this. 5G will take many years to roll out; it is going to come in waves. The first wave will be, of course, the ubiquitous, kind of call it the umbrella coverage network that, with a -- with some hope and some desire there will be an adequate 3‑5 option that'll come that will be considerate of all operators and not exclude anybody from that option. That will be the first coverage layer. But successively after that, we will add more to that coverage layer as well as start building the underlay in microcells.
3850 A 5G network will take many years to roll out; it is not a step function, and it's going to be highly, highly capital intensive.
3851 COMMISSIONER MacDONALD: Agreed. Building in the vicinity of 200, and installing in the vicinity of 275 small cells, is not going to happen overnight across the country.
3852 What factors go into your decision to expand your network to new coverage areas or to improve the quality of your network? I take the point that at the end of the day the individual shareholder may not care what you're investing in, but I'm guessing the Board of Directors does. So what factors are at play between those two competing objectives?
3853 MR. ENTWISTLE: Do you want to go and I'll ---
3854 MR. SPADOTTO: Yeah.
3855 MR. ENTWISTLE: --- top up?
3856 MR. SPADOTTO: Yeah.
3857 Okay. So first thing, obviously care about reliability. Our company, our brand is based on reliability, and therefore service.
3858 So as we take a look at how we make investment decisions, we make them in a kind of a laddered sense. You know, at our very lowest rungs, we worry about things like are we meeting, you know, safety concerns for our team members, are we meeting regulatory obligations, but soon after that we will add capacity for our existing base and how do we actually do that.
3859 On top of that, then we'll start taking a look at are there, you know, fixes or elements we want to add to our network to even improve quality in areas where we think we need to improve it. Beyond that, we go into expanding into other areas in other coverage zones.
3860 So it's this ladder that we use to kind of balance our funding, and we start at the bottom.
3861 As we climb up that ladder, we actually do, believe it or not, business cases on each one of those layers, and we will actually approve things as those business cases prove out.
3862 Unfortunately, the regulatory environment in Canada and mandated roaming has caused us to be a little bit more circumspect on actually expanding the reaches of our network because the payback periods have been elongated, and that is a truism.
3863 And so if you kind of look at how we actually build our networks, it's in that ladder, and we will work backwards at trying to get return.
3864 MR. ENTWISTLE: So, maybe some other factors that I think are worth reflecting upon, we are influenced by the competitive environment, and have a perspective not to want to be ever at a disadvantage in that regard. We are attracted to areas where we think there is penetration gain opportunity where we have disproportionately low market share, and it represents for us a very attractive model. Thirdly, areas where we can harmonise wireless investment with our fibre deployment program. To the extent to which we can couple wireless deployment with fibre front haul delivery of wireless traffic and backhaul redistribution, that particular build and doing it synergistically to get scope economies between wireless and fibre has been a major driving force for us, particularly on the eve of 5G as it relates to our prepositioning in that regard.
3865 Our sector focus also is something that drives our network deployment decisions. So, as is it relates to the oil and gas industry, we are a significant supporter of that industry. And to make sure that we have a powerful, potent, high band-width ubiquitous coverage in areas like Fort McMurray has been something that has been front of mind for us.
3866 Similarly, we are big pushers on both health and ag tech. One of the areas where we're looking to significantly improve our wireless coverage is within rural Canada farming areas as we pursue our technology and data agenda to support precision agronomy, optimisation within the ranch environment, and Farm to Fork food traceability activities in a data-rich world.
3867 And then lastly, and this, again, is something that I'm loathe to let hold of, but given the decisions in front of us right now with mandated MVNOs, this may change prospectively, but historically, we've had a deeply rooted competitive ideology that we want to be best in the world.
3868 And so, when you look at who has won the J.D. power network quality, PCMag speed test, Ookla speed test, Open Signal speed test to TELUS speed test over the last three to five years, it's been TELUS. And we think being best in the world on the network front is another parameter of our customer's first ideology, and we are obsessive about that leadership position because we really do think it underpins the Canadian economy, the vibrancy of our private sector, and sets us up to answer the social challenges on health, education, the environment, and economic disparity on a socioeconomic basis.
3869 And so, for us, that's been a big, big, big front of mind driver in terms of leading the way on CAPEX per customer, and you can see that in the OECD data. That's something that we're reviewing now, contingent upon how favourable the investment environment is going to be prospectively and how much transparency we have within the regulatory model.
3870 COMMISSIONER MacDONALD: Okay. Thank you.
3871 Dr. Dippon, I have a couple of questions for you with respect to the study that you did. In the Competition Bureau's intervention from May of last year, they had some concerns with respect to your study in that they didn't believe it properly represented the realities in the Canadian market. Specifically, there was concern that most of the plans, 192 of 246 plans looked at, or 78 per cent, were from low-cost MVNO and flanker brands, prepaid plans, services on 3G. And I'm just wondering if you could outline for us what methodology you used in selecting those plans to look at.
3872 DR. DIPPON: Most certainly, I'd be happy to do that. I'm actually quite surprised by the Competition Bureau's response. To me, it looks like a simple inconvenient study that was dismissed, because the points that the Competition Bureau raised, I've explained to them. I've met with the Competition Bureau. I've given them my database. In short, everything they raised are instructions from ISED. They're not choices by me whether we use prepaid services, or we use flanker brands. Those are instructions by ISED.
3873 And so, let me explain that ISED for the last 12 plus years asks consultancies to bid for a contract where Canada is compared to the G7 plus Australia, and in those specification it lists what needs to be done.
3874 My firm NERA has received that RFP, and I think sometimes it's Wall and sometimes it's Nordicity that completes the work for ISED. It's not NERA. But I followed those instructions in my analysis. So, the prepaid, the flankers, the criticism raised by the Bureau is just me following the instructions by ISED because I want to contrast what a proper study does relative to the study that Wall and Nordicity put out.
3875 MR. SENKO: I just want to add something. My observation from the hearings, there seems to be a line of thought that says the carriers might have low-cost plans on their flankers, but they don't actively promote them. And I just want to give you our perspective on that, and if -- because it's just not true.
3876 More than half of our activations last year were on Public and Koodo. Public is our fastest growing brand. Fifty (50) per cent of our media spend is on Public and Koodo. By the end of 2020, from -- starting between 2018 and 2020, we will have launched 1,000 physical points of distribution for Public. Forty (40) per cent of all of our stores are multi-branded. We're working towards a hundred per cent.
3877 We have communicated -- we communicate to all of our customers that they're on the same family, and we allow all of our customers to migrate between brands. And last year, nearly 400,000 customers migrated between our brands.
3878 We go to market and we love all of our brands.
3879 DR. DIPPON: And if I may, and just follow up on Mr. Senko's comment is let's look at this outside the instructions of ISED. Why would we not look at flanker brands? Why would we not look at prepaid? Those are offers that Canadian consumers can choose from. They're important in a review of competition. What they end up choosing is at their discretion.
3880 So, if, say, 88 per cent of Canadians decide to choose a post-paid plan, that is their decision, but they have the choice to use a prepaid plan.
3881 So, it is important that we look at all the marketing offerings. And so, in this instance, I agree with ISED that we should look at all of them.
3882 MR. SENKO: Last point for me, the difference between a prepaid and a post-paid plan are blurred now anyway. Prepaid plans are recurring monthly plans. Most of our customers go on some type of preauthorised autopay. And on post-paid, we're seeing a much higher bring your own device out of contract type purchase behaviour. So, the difference between a bring-your-own-device post-paid recurring monthly plan and a pay-as-you-go recurring monthly plan is minimal.
3883 COMMISSIONER MacDONALD: So, still with the study, in the interest of ensuring an apples to apples comparison, were the criteria used in selecting your Canadian plans the same as other countries? I just want to make sure that it would be a similar mix of type of plans when you're comparing price points in Canada to other jurisdictions.
3884 DR. DIPPON: Yes, sir, the selection criteria are the same.
3885 COMMISSIONER MacDONALD: Okay. Thank you.
3886 Given that, I note that the FCC has recently released -- well, not recently, two years ago -- its international broadband data report, and they use the same model as you have, but they come to a very different conclusion with respect to rates in Canada.
3887 How can you -- if you're familiar with the study, why the, you know, contrary conclusions between the two studies?
3888 DR. DIPPON: So a couple things is, so yes, the FCC does conduct an international ranking exercise. I think it’s done so only once. I understand from the FCC that they going repeat this in the future.
3889 But -- so the model is not exactly the same. They’re both regression models. That’s important.
3890 But the focus of that study was more to see where the United States lies.
3891 And when you look at the number of observations they took for Canada, I don’t exactly know, but I know it was very few. I want to say it was one per carrier, one plan per carrier, but I might be wrong. But I know it was very few.
3892 So with respect to Canada, it’s not going to really tell you a whole lot, or other countries, because they used a very thin sample.
3893 COMMISSIONER MacDONALD: Okay. Thank you.
3894 DR. DIPPON: Commissioner, I’m sorry.
3895 COMMISSIONER MacDONALD: Yeah?
3896 DR. DIPPON: If I might just add, one important point is in that very same study, the U.S. is not doing very well, yet the FCC repeatedly, year after year, decides it’s an effectively competitive market.
3897 That’s got to ought to tell us something about how they view their study and how they view their conclusions.
3898 So it might be one of many considerations they have, but what I think is so difficult in this setting here is that a report like Wall and Nordicity, that is clearly deeply, deeply flawed, makes it to this stage of conversation.
3899 COMMISSIONER MacDONALD: Thank you for that additional information.
3900 One final area of clean up before I move on to the next section.
3901 Throughout the course of the proceeding, CRTC staff made multiple attempts to get some data from Telus. Specifically -- and from other carriers as well -- on plans and the number of subscribers, for instance. But Telus seemed to have certain constraints in providing fulsome responses to some of those requests for information.
3902 So could you expand on some of the issues or challenges you faced in responding to those RFIs?
3903 MR. EDORA: Thank you for the question, Commissioner McDonald.
3904 Whenever we get requests for information from the Commission, we obviously take them seriously. We have a duty to respond to them in a just and adequate manner. And we take that level of diligence and care whenever we respond to a request for information.
3905 In these particular requests, we actually supplied the data requested. The data requested was by CMA, census metropolitan area, and we provided revenues and subscribers by CMA.
3906 The problem that we isolated was that our revenues were approximations. We do not track the revenues by census metropolitan area and so we noted that in our responses.
3907 COMMISSIONER MacDONALD: So I will draw your attention to our Exhibit 4, where we’ve asked specifically for you to provide complete information with respect to RFI question 101, which was dated November the 15th.
3908 Can you confirm if you’ll be in a position to provide that information?
3909 MR. EDORA: I apologize, I don’t actually think I have the exhibit. One moment, please.
3910 COMMISSIONER MacDONALD: Yes, go ahead.
3911 MR. EDORA: Oh, I see these. These are the undertakings that were issued on the first day of the hearing.
3912 COMMISSIONER MacDONALD: Yes, exactly. I just wanted to make sure that you will be in a position to provide a response to that undertaking?
3913 MR. EDORA: We haven’t done a detailed review of these undertakings as of yet. But based on an initial skim, certainly most, if not all of the undertakings, we will respond to in the same manner that we always respond to requests for information.
3914 COMMISSIONER MacDONALD: And that includes 101, which I specifically asked about?
3915 We can come back to it.
3916 MR. EDORA: Well we will answer. I don’t actually have question 101 directly in front of me.
3917 COMMISSIONER MacDONALD: Okay.
3918 MR. EDORA: I’m not sure where it is.
3919 COMMISSIONER MacDONALD: We can bring that your attention after the break.
3920 MR. EDORA: Okay.
3921 COMMISSIONER MacDONALD: I don’t want to belabour the point.
3922 MR. EDORA: I see it. It’s request for Undertaking 28. We certainly will provide an answer to this.
3923 COMMISSIONER MacDONALD: Okay. Thank you.
3924 MR. EDORA: Thank you.
3925 COMMISSIONER MacDONALD: Let’s talk for a few minutes about low cost and occasional use plans.
3926 In the context of this proceeding, the Province of B.C. filed a study that said that the vast majority of Canadians, 86 percent, do not consider the costs of their wireless services reasonable.
3927 Yet in your intervention, you note StatsCan data, the Consumer Price Index, which shows that since -- between 2016 and 2019, the cost of all items went up by eight percent, the cost of food went up by 4.8 percent, shelter up by 7.2, transportation up by 15.3, energy up by 17.6, and cell service down by 17 -- sorry, by 7.7 percent.
3928 So why is this sentiment still persisting on the part of Canadians, that prices are not going down and they are indeed paying too much for their services?
3929 MR. SCHMIDT: Thank you for the question.
3930 In the Commission’s survey, I think we came to a quite different result about levels of satisfaction of Canadians. So that’s certainly a first data point.
3931 The range of options, particularly in the value segment of the market, are multiplying very rapidly. It’s our area of greatest commercial vitality and loading.
3932 And our suggestion would be that there’s not an objective availability problem, not an objective affordability problem, but there may well be an awareness problem in terms of the offers that are in that segment for more price sensitive Canadians.
3933 MR. SENKO: Yeah. So, you know, we believe we are already providing affordable plans with Public and Koodo. I talked about this before. Like, we have talk and text plans starting from $8, we have a data plan starting from $15, we have solid one gig unlimited talk and text plans for $23 or 77 cents a day.
3934 What we’re really trying to do is create more awareness and more promotions. So then what are we doing?
3935 I mentioned earlier half of our media spend is going to Public and Koodo.
3936 We are undergoing a process of building 1,000 points of distribution for Public Mobile, where people can get face to face support for Public Mobile.
3937 We’re multi-branding all of our corporate stores. As of right now, we have over 100 corporate stores that are multi-branded.
3938 We communicate to our base. So for example, when we get a new customer, or after we upgrade a customer, we give them a welcome call. And in that welcome call, we make them aware that they’re in a family of brands and, you know, those plans are available to them.
3939 And we facilitate a substantial amount of migrations between our brands.
3940 And I must say that the net movement is down towards the flanker brands and away from Telus.
3941 So we take the awareness issue very seriously and we believe that we’re aggressively addressing it.
3942 COMMISSIONER MacDONALD: Well done. You anticipated about four of my questions. If you keep that up, you might just get lunch today.
3943 Still on the same topic, in Exhibit 2 that we filed on Tuesday, I note to your comments that there are a number of plans which are $15 and less, an $8 plus dollar plan with Telus and a couple from Public, one at 10, one at 15.
3944 Are those plans still available in the market? Are they permanent plans or a promotion?
3945 MR. SENKO: They’re largely accurate. They’re missing one plan from Telus, which is a $10 plan, which we can undertake to provide to you.
UNDERTAKING / ENGAGEMENT
3946 And there’s a public plan in here that is now at $15 versus $10.
3947 The Telus plan, by the way, is a $10 plan.
3948 COMMISSIONER MacDONALD: Okay. Thank you.
3949 Would it be a fair statement to say that you would always keep a -- plans may change, but that you always keep a similar number of plans in this range in the market at all times?
3950 MR. SENKO: That is a fair statement, yes. We're trying to serve this market. And also, another thing that I would say is one of the things that we love about the public market is that, you know, many customers may not pass a credit check, for example, and they can get a great plan and a great experience on Public. They build their credit with us. We outreach to them in six months and we allow them options to move to plans on Koodo or TELUS if they want.
3951 And the other thing that's really interesting is we thought that most of our Public customers would move to Koodo, but they actually tend to move to TELUS, which surprised us. So, you get a lot of movement from Public to TELUS, from Public to Koodo, from Koodo to TELUS, and TELUS down as well, and we facilitate that.
3952 COMMISSIONER MacDONALD: That's very interesting, because yesterday Vice-Chair Laizner had a conversation with Bell, and they seem to take an approach that they keep their primary brand much more separate than their flanker brand. And you seem to allow more free flow between the various brands, perhaps even to the point of, okay, you want a low-income plan, and the customer's contacting TELUS, you'd be better suited on one of the flanker brands.
3953 MR. SENKO: I think it's a sign of great competition. We are not following the same approach. We do believe in the family of brands, and that's why we're multi-brand in our stores, as an example.
3954 You know, we even re-organised our marketing department in Q4 to make our decisions more holistically across the family of brands versus isolating our brands.
3955 Now, that's not to say that our brands aren't delivering specifically different value propositions. So, our TELUS brand is aimed at families. It's aimed at people who want premium devices. It's aimed at people who are connecting a tablet, a watch to a Smartphone and using a lot of data. Our Public brand tends to be more digital savvy customers looking for affordable rates, and Koodo's in between.
3956 COMMISSIONER MacDONALD: I'm jumping ahead a little bit, but we looked at the number of Canadians and the majority had said that they wouldn't consider or hadn't considered moving to a flanker brand due to fears with respect to network quality. And many of those individuals were arguably people that would benefit the most from a lower cost plan.
3957 So, it seems as though you may be going down the road of trying to remove some of that misapprehension with going to the other plans. Like, are your potential customers on Koodo, for example, are they aware that they're riding on the TELUS network and will experience similar levels of quality of service?
3958 MR. SENKO: Yes, and we've been communicating to our base of customers that they are on the world's best network, which is TELUS, which it's -- one, it's a great story to tell them, because they are on the best network. And secondly, we want them to fully appreciate that, you know, as they mature in their lifecycle -- so, as an example, most of our Koodo customers tend to be single, younger adults. As they get married, as they have families, we want them to be fully aware that they're running on the TELUS network, and TELUS network is aimed at families with family discounts. So, we make them aware of that value proposition.
3959 COMMISSIONER MacDONALD: And you had mentioned that you have multi-brand stores now. Do you promote these low-cost plans regardless of which primary or flanker brand they may be going to? Do you promote them all the same way? Are they available equally on your website without 15 clicks? Are they information available in your stores and kiosks?
3960 MR. SENKO: So, in a multi-brand store -- and we can undertake to show you pictures, but right from the branding of the store you have TELUS and Koodo, or you have Koodo and Public. And within the store, our reps are trained to ask the customer, what are their needs, and what serves them the best. And we shepherd them to the best value proposition for them.
UNDERTAKING / ENGAGEMENT
3961 And I think this is one of the reasons why TELUS is a leader in customer experience and one of the reasons why our churn rate is so low.
3962 And as Darren points out, it's also in retail as well.
3963 COMMISSIONER MacDONALD: If your customer service reps are trained across the brands and to match people with the best solution for their individual needs, would it be possible for you to file a copy of those training manuals for your sales reps as an undertaking?
3964 MR. SENKO: We can do an undertaking for the training of our multi-brand stores.
UNDERTAKING / ENGAGEMENT
3965 COMMISSIONER MacDONALD: Thank you.
3966 MR. SENKO: And confidentially.
3967 COMMISSIONER MacDONALD: Yes, yeah.
3968 MR. SENKO: Yeah.
3969 COMMISSIONER MacDONALD: And the plans that you have in market, you mentioned some of the low-cost plans that you -- that were in our exhibit have changed slightly. How often do you go back and revisit those plans, and how often do you follow up with individual customers to ensure that those plans are still meeting their needs?
3970 I guess, for a start, is there an average life to one of these plans before it's reviewed and replaced?
3971 MR. SENKO: It's hard to ---
3972 COMMISSIONER MacDONALD: It depends.
3973 MR. SENKO: It is hard -- no, well, it's hard to give an average, but, you know, these are not promotional plans, so they'll be in the market typically for greater than a year. Markets change. And as you know, as prices are coming down, we'll revise pricing based on market conditions, but they're not plans that we're putting up and pulling down frequently.
3974 COMMISSIONER MacDONALD: And when you're deciding which plans to put into market in the low-income space, do you target any of those plans towards specific Canadians? We think this one will be of great appeal to seniors, for example.
3975 MR. SENKO: I would explain it this way. One of the things that we're trying to do is simplify the number of plans for both our customers and for our employees. So, we're trying not to have 2,000 rate plans. We used to have 2,000 rate plans, and we've worked hard to get that down to 10 to 20. But what we do do is we market what we think is the most appropriate rate plan to the most appropriate segment.
3976 So, for example -- you know, for example, we have rate plans that support new Canadians, and we'll market them. So, we have special plans that have unlimited talk back to their home country, and those would be very targeted to those new Canadians.
3977 We will -- you know, we will communicate to a senior, you know, one of our lower entry plans, if we think that that's appropriate for them. But, by the way, we can't just bucketize seniors. Many seniors -- and I think of my 87-year old mom, she's got a tablet. She watches Netflix on her tablet, and she wants unlimited plans; right? So, it's -- they're not all the same; right?
3978 And part of the reason why we have multi-branded stores is so that we can really understand what the customers are looking for and shepherd them in the right direction.
3979 COMMISSIONER MacDONALD: Perhaps your mom can teach my mom how to use her tablet.
3981 MR. SENKO: My mom is awesome. It's crazy.
3982 COMMISSIONER MacDONALD: It would cut down on the calls to me.
3983 MR. ENTWISTLE: Just one other plan that's worth noting as well for youth that are 18 out of foster care, we have a plan specific to that constituency called "Mobility for Good", and that is a plan of a free device, free 3 gigs of data, free digital literacy training, and free security. And we did that for reasons of safety, so that they can stay connected with their friend group, because a number of them end up on the streets, and the recognition that if they want to pursue anything from technical vocational education through to applying for a job, it's all done digitally obviously now within the electronic world, and they have that particular necessity, yet they don't have the means, nor the credit checks required to secure it. And that program now is heading towards 5,000 young Canadians that have been the recipient of it.
3984 COMMISSIONER MacDONALD: Okay. Thank you for noting that. We've actually asked other parties whether they have similar programs, and so far I believe you're unique in that regard. So thank you for noting that.
3985 If we did find that there was a gap in the market such that we needed to mandate low cost plans for a specific means-tested segment of the population, can you speak on the feasibility of that, and what, if any, challenges that would create operationally for you?
3986 MR. SCHMIDT: Is your question one of like legal feasibility, can you do it, or operational feasibility, can we do it?
3987 COMMISSIONER MacDONALD: I was thinking more operational feasibility. Billing systems seem to be most of the problems, sometimes.
3988 MR. SCHMIDT: They're more important than the constitution of it.
3989 MR. SENKO: So I'm of two minds on how to answer this. So I'm -- the first way I'm going to answer it is that I'm passionate that I don't believe we need to mandate what already exists. I think we're serving this segment, and we're working hard to create awareness through our investments in marketing and dual branding and communicating to our base.
3990 Operationally, if we're mandated to create a rate plan, we can create a rate plan, but I don't think that that's the right answer.
3991 COMMISSIONER MacDONALD: Thank you, and -- I mean, I take those comments. Would it be easier just to mandate a low-cost plan that any Canadian could avail of if they so chose? Removing the need to do the means-testing.
3992 MR. SCHMIDT: My sense is that's probably an overbroad response or disproportionate response to any problem. And the problem might frankly be transparency or awareness, and that better measures in the circumstances are probably transparency measures.
3993 Some companies or all companies taking greater to give visibility and prominence to their value offers, the Commission as well taking holistic account of the offers that are out there and publishing and educating quarterly, I think we can do it together. The point you raise is important, but the remedy might be transparency above all.
3994 COMMISSIONER MacDONALD: On the topic of doing it together. Is TELUS part of ISED's Connected Families initiative?
3995 MR. ENTWISTLE: Yes. It originated with TELUS. In fact, it was in the Minister's speech at the Telecom Summit to recognize such, but that got struck, but we originated it, and we now have over 40,000 families that are on that particular program.
3996 And as it relates to your previous question, we tried in vain to get that launched for 4‑years with the previous government, and they wouldn't support it. We needed information from them related to things like child tax benefit credits to act as a proxy for a low‑income family, and we couldn't get any interest.
3997 And only when we abandoned it and said let's not then do it with the Federal Government, let's do it with the Provincial Government of B.C. and Alberta, we had it launched within 6‑months.
3998 The Conservative Government at the time, because it was running up to an election cycle, came up to us at the 11th hour and said, you know what, actually we want to do it with you now, and we said it's too late, and we're going proceed with the GOA and GO B.C., and we're going to bring this to fruition. You had 4‑years to do it, now we're going to make it happen at the provincial level, and we've done exactly that. We architected it, we designed it.
3999 And the level of thought that went into it as a collaborative venture was quite interesting. So it's not just subsidized, highly subsidized low income high speed Internet connectivity for $10 as a viable service, we also did -- provided a subsidized computer, we did digital training within the household to improve the level of literacy so that there could be a value extracted from the bandwidth and the associated subsidized economics.
4000 We gave them TELUS Wise to make sure that they were protected within that environment, not just at a cyber security level, but thinking about the young people in the home at a predator level; and then we teamed up with the Royal Conservatory of Music. So it wasn't just about a stem conversation that was taking, but also so we could bring the arts into that household as well from an educational point of view.
4001 That's what we designed and brought to market.
4002 COMMISSIONER MacDONALD: Thank you for that. And given your experience with ISED's program, or your program, however you'd want to phrase it ---
4003 MR. ENTWISTLE: I'll phrase it "our program".
4004 COMMISSIONER MacDONALD: Okay. "Our program". Would it make sense, or would the easiest approach be for "our program" to be extended to include a similar partnership between key stakeholders to offer a low-income wireless plan as well that would augment what you're already doing?
4005 MR. ENTWISTLE: So again, not looking to be intransigent, but I would say is that a problem that we need to solve for within the wireless pricing construct? When we look at the plethora of plans that are available at both the Public Mobile and Koodo level, at the Lucky and Virgin level, and at the Chatr and Fido level, I think there are very affordable offers that would address the lower quintile income group that would provide the requisite level of affordability, particularly as it relates to a percent of disposable income for those households.
4006 If you look at the plans that Jim has articulated, those plans would be in the circa 1 percent of the income of those households for people that are looking for, you know, extremely high discounts or value, or the requisite affordability given some of their economic challenges.
4007 And so I would say those plans exist today. They exist within TELUS. They exist within our competitors. I'm not going to say, you know, no, we won't consider it. We've never been dimensioned as that type of organization. We've always been open to a discussion in terms of, you know, serving the greater good, but I don't think a regulatory solution is required here because the market's already providing the solution that I think, you know, quite rightly that you're looking for from an altruistic point of view.
4008 COMMISSIONER MacDONALD: So then it would be your position that individual Canadians, perhaps more vulnerable Canadians would best be served by the market delivering a wide array of plans offering different features to meet their unique needs versus one prescribed plan with a fixed number of minutes and a fixed amount of data usage as prescribed or suggested by some of the consumer groups that have intervened in the proceeding?
4009 MR. ENTWISTLE: That's correct. And I think two comments: One is we're not talking about making Netflix and YouTube more affordable here. We're talking about a requisite mobile communications capability for this particular constituency. And I think we've architected rate plans that do that quite adequately from 250‑megabits to 1‑gig; you know, from $15, to $25, to $30, and plans that are cheaper than that.
4010 The second thing that we haven't discussed is that a big component of the cost of wireless is beyond the airtime; it's the device. And if you look at what TELUS is offering on Certified Pre‑owned, or its Bring-It‑Back Programs, we're offering devices that are greater than 50 percent off the sticker price of those device items.
4011 And I think having highly affordable airtime customized for the type of usages that we're talking about here, and then devices, including Certified Pre‑owned and Bring-It‑Back that make the hardware component affordable for the individual or the family, I think holistically that's the right model to discuss and to look at.
4012 COMMISSIONER MacDONALD: Thank you. Just one final question, and then it may be time for a break.
4013 Would it be possible for you to file as an undertaking the uptake that you've had in the number of subscribers you have for these various plans that are, shall we say, in that $15 or less range so we get a better picture as to how many people are interested in subscribing to such plans.
4014 MR. ENTWISTLE: Yes, we’d be prepared to do that.
UNDERTAKING / ENGAGEMENT
4015 COMMISSIONER MacDONALD: Thank you.
4016 THE CHAIRPERSON: Thank you, Commissioner MacDonald.
4017 We’ll break for 15 minutes, return at 11:15. Thank you.
--- Upon recessing at 11:00 a.m./
L’audience est suspendue à 11h00
--- Upon resuming at 11:17 a.m./
L’audience est reprise à 11h17
4018 THE SECRETARY: Please take your seats.
4019 COMMISSIONER MacDONALD: Next maybe we’ll turn just briefly to discuss win-backs.
4020 And can you maybe give it a high-level process that you may go through after you receive a port out request?
4021 I understand that obviously you’ll port out the number, but from a sale/retention standpoint, do you undertake any activities when that request is received?
4022 MR. SENKO: Thank you for the question.
4023 The first thing is we do not immediately drive a win-back call when we receive a port request, full stop. We don’t do that.
4024 The second thing is we do not target any specific carrier. So we -- you know, we’ll do win-backs against our customers, we may choose customers that are higher value that we would like to have back, but we don’t target any specific carrier and we do win-backs against all carriers.
4025 I think the next thing that I would say is that win-backs are an example of a highly competitive market and, you know, I talked earlier about how promotional the market was. And my team and I will compete fiercely to maintain our customers. And when we lose them, we’ll fight fiercely to get them back.
4026 COMMISSIONER MacDONALD: You said that you don’t immediately reach out to them.
4027 On Tuesday we heard from Freedom that some of their potentially soon to be new customers were actually being called while they were still in the store.
4028 Can you identify what the “not immediately call” would mean? Do you leave it alone for a certain period of time before you would reach out?
4029 MR. SENKO: Customers have 15 to 30 days to return their device without penalty. And so we target our win-backs in that 15 to 30-day window.
4030 We do not, again, call while we’re receiving the port and they’re in the store.
4031 COMMISSIONER MacDONALD: What would your thoughts be on some type of cooling off period after a client decides to go to another carrier before you would be able to reach out to them with a potentially enticing offer?
4032 MR. SENKO: My honest thought it’s anti-competitive. Like, we’re trying to drive more competition in the market, so allow the carriers to compete for customers that are switching. Like, that is what competition is.
4033 And I -- yeah. So my personal opinion is that I think that would be anti-competitive.
4034 MS. MILLER: If ---
4035 COMMISSIONER MacDONALD: Sorry, go ahead.
4036 MS. MILLER: If I could just top up as well on what Jim said.
4037 The Commission agreed with Jim’s point as well. It recently examined win-back activities in the 2003 decision. It found that win-backs are characteristic of a competitive market and such rivalrous behaviour is to be expected in robustly competitive markets such as we’re in today.
4038 So we don’t believe that there is justification for regulation of win-backs.
4039 COMMISSIONER MacDONALD: Thank you for that.
4040 MR. ENTWISTLE: Did Freedom comment on what they do when they lose a highspeed internet customer or a T.V. customer to Telus in terms of their wireline win-back activity?
4041 COMMISSIONER MacDONALD: This hearing is about wireless.
4042 MR. ENTWISTLE: But at the end of the day, as it relates to their philosophy on win-backs, shouldn’t it be reasonably applied to both within a robust, sustainable, competitive construct?
4043 COMMISSIONER MacDONALD: Well let me ask the question a different way, because they raised a specific, well, example of, you know, a customer receiving a call in store, they’ve already sliced open the iPhone case, its value’s gone down by $250.
4044 Would you just take that to be a cost of doing business?
4045 MR. ENTWISTLE: I can’t comment on this specific case, but what I can comment on, having worked in the U.K., France, with the origination of weak telecom, Australia with Optus, that vibrant win-back activity is a positive characteristic of a robust competitive market.
4046 Secondly, if was going to be making a comment about win-backs, I would be cognizant of not talking out of both sides of my mouth. If I’m making a comment on wireless on the other hand and yet my practices are different as it relates to HSI or TB losses on the other.
4047 I think consistency between the two is appropriate, particularly in a world where increasingly there’s wireline and wireless bundling.
4048 COMMISSIONER MacDONALD: Switching over to wireline services, particularly investment, a number of intervenors have cited the 2019 policy direction to the CRTC for us to encourage all forms of competition and investment.
4049 And they cite that, you know, MVNOs do bring competition and investment, specifically investment in core facilities, facilities not tied to the RAN.
4050 And I wanted to give you an opportunity to share your thoughts on that view point.
4051 DR. DIPPON: I think the short version is, that is absolutely wrong.
4052 I’ll give you a couple of statistics.
4053 So MVNOs, they might make very short-term investments, but they have no long-term trajectory viability.
4054 I’ll give you a couple of examples that I jotted down.
4055 So for instance, Disney Mobile, owned by the Walt Disney Corporation, spent 150 million trying to get Disney Mobile off the ground. They failed within less than one year.
4056 Helio, another MVNO in the United States, spent in excess of $500 million trying to get an MVNO off the ground and they failed.
4057 Mobile ESPN, 150 million.
4058 I could go on.
4059 But the fact is, there’s just simply no credible international data that MVNOs invest and compete. They’re niche players. It’s an investment model. They’re looking for a niche market. And then they -- if they find a niche market, they often sell themselves to an MNO, most to the host operator.
4060 But most MVNOs just go out of business because they’re not viable.
4061 COMMISSIONER MacDONALD: I had that very discussion yesterday with another intervenor. Maybe you have thoughts on it as well.
4062 At a very high level, how many MVNOs actually succeed or end up going bankrupt, or getting acquired?
4063 DR. DIPPON: I don’t have a percentage, but I’ve been studying MVNOs for over 12 years. I’ve written extensively in MVNOs.
4064 The far majority of MVNOs go out of business.
4065 There’s not enough an accurate track of how many MVNOs there are, and I explained that in my submissions, because they enter so quickly and exit so quickly that it’s very unclear. You could look at it one day, you get one count, and then you look at it another day.
4066 The very few MVNOs that actually work, one that’s often mentioned is Tracfone in the United States. That is owned by Carlos Slim, the owner of Telmex, and it’s a very particular niche market targeted to the Hispanic population of the United States.
4067 It is also a very interesting business model because it rides on U.S. federal subsidies and then connects to Mr. Slims’s network in Mexico. That is one -- that's one MVNO that works.
4068 There might be a few others. Richard Branson had success with Virgin, but Virgin has been mostly sold and is now a flanker brand in most countries.
4069 Other than that, there's just not many MVNOs that work.
4070 DR. SERENTSCHY: Let me jump on this, please, from the European perspective.
4071 The -- I mean, there are no numbers we can rely on, but my observations for a long time as a regulator for more than a decade and as a consultant, what I can say is a significant part of the MVNOs are taken over by MNOs, sometimes the host network or others. Some go out of business in the same way as they came in.
4072 It's very difficult to even get a solid number how many are in a certain market because they come and go. And most of them have very, very low market shares, below one percent or so, single-digit numbers up to five percent, six percent sometimes. That's the average.
4073 COMMISSIONER MacDONALD: Okay. Thank you.
4074 MR. ENTWISTLE: Just one thing on that as well.
4075 I would like to go back and maybe we can have a down the line discussion in this regard as to are there conditions that are dictating a change from the regulatory policy of facilities-based competition and the transparency and continuity that we've enjoyed to support the type of investment cycles that we have within our industry, so is there a justification, is there a need, is there a market dysfunctionality, is there a market failure that requires intervention and a shift away from facilities-based competition and the introduction of MVNOs based on the global experience.
4076 Secondly, I think it would be worth at some point discussing the timing of doing that because a shift away from facilities-based competition and the introduction of an MVNO construct on the eve of 5G I think could be a decision that would impact negatively the type of progression that Canada would want to enjoy on the 5G front and would potentially undermine the wireless network leadership that's been achieved at 3G and 4G both within Canada and on a global basis.
4077 So I think those would be fruitful areas, perhaps, to discuss.
4078 COMMISSIONER MacDONALD: Well, as we know, a large MVNO market has not emerged in Canada.
4079 Have you, out of -- has Telus, out of curiosity, been approached by any potential MVNOs seeking access?
4080 MR. AMERY: Let me take that question.
4081 We filed as part of the process, and I think it was 301, our answer to this, and we provided all of the agreements. We do have them in place pursuant to the definition that the Commission has established with respect to what an MVNO is.
4082 COMMISSIONER MacDONALD: And perhaps you could outline for me what the process is that a potential MVNO would have to go through when opening negotiations with you.
4083 Do you have a blanket agreement that they must sign? Do you have set terms and conditions? Is that -- are terms and conditions negotiated?
4084 If you've successfully been able to negotiate them, I'm just wondering if you can give me a flavour for those talks.
4085 MR. AMERY: I think it's extremely important to understand that much like any commercial negotiation, but this one in particular, represents a very broad spectrum. And none of the cases that we've talked about, including the ones that we've concluded, are exactly the same as the others.
4086 So to answer your first question with respect to a template, no such thing exists. Each situation is defined by the unique characteristics of the approaching party. I will start with that.
4087 I would then follow up to say, you know, in any other commercially-based negotiations, it starts with a foundation principle that both parties will derive roughly equivalent value. And you know, in situations where, you know, some of the participants have suggested they've been unable to secure an agreement with Telus, it's not because we're unwilling to discuss it.
4088 We have ongoing conversations. We trade, you know, potential proposals back and forth. Ultimately, where a commercial agreement isn't reached, it's because there isn't sufficient value for both parties.
4089 And in fact, in a number of cases the lack of willingness to move closer to consensus in terms of the construct is a result of the approaching party's, you know, sort of won't trade off certain elements that, from their business perspective, their business plan, their business assumptions they feel are involatile and maintain that those are key elements to contain in a commercial agreement that don't map very well to our priorities.
4090 COMMISSIONER MacDONALD: So in those negotiations, if we proceeded forward and did mandate access but left it to commercial negotiations, would your talks with potential new MVNOs be aided if the CRTC were to develop some standardized set of terms and conditions, understanding that you could always -- both parties could negotiate better terms if they so chose as a starting point for the talks?
4091 MR. AMERY: In general, I find that where there is no need to mandate commercial constructs they generally don't facilitate positive outcomes.
4092 You know, witness the fact that we have several existing agreements that are beneficial to both parties sort of belays the fact that they're necessary, would be my considered opinion.
4093 DR. DIPPON: If I may just add to that, just two points.
4094 We started out this discussion by saying there's not enough MVNOs in Canada. I do just want to say that, according to tele geography, the count of independent MVNOs in Canada is 13. The average in the OECD is 15, the median is 10, so there's a heavy outlier, which is Germany.
4095 The number of operator-owned MVNOs is seven. The OECD average is 3.7, the median is two.
4096 Now, I just wanted to say when we're saying there's not enough, that's a bit unclear to me.
4097 But the second point with respect to is regulation going to improve the negotiations, there are some natural experiments we can look at. There are three countries that have regulated aspects of this MVNO-MNO relationship. If I recall correctly, that's Chile, Czech Republic and Japan.
4098 And we've looked at the outcome whether that results into more MVNOs, and the answer there is very clearly no, those are ineffective.
4099 So we conclude from those natural experiments that regulation does not improve the negotiations between the two parties.
4100 COMMISSIONER MacDONALD: What are your thoughts; would those negotiations be aided if there was a backstop with the Commissioner in the event that a negotiated arrangement couldn't be worked out between the two parties?
4101 I'm thinking specifically about our final offer arbitration, mediated negotiations.
4102 DR. DIPPON: I can just tell you -- I mean, the short answer is I don't think it will change anything.
4103 I have advised the Ministry of Communication in Israel about their MVNO policy, and Israel went with an arbitration fallback. And this is now close to 10 years ago.
4104 I recently sent an email to the Ministry and asked how many times they had to intervene, and the answer was zero.
4105 COMMISSIONER MacDONALD: If we did decide to proceed with mandated MVNO access, given your network-sharing arrangements with Bell, if we were to mandate Telus to provide MVNO access, would that automatically include Bell's network or would we have to also mandate Bell?
4106 And I guess I could ask the same question for SaskTel because I believe you have a network-sharing arrangement with them as well.
4107 MR. ENTWISTLE: You would have to mandate both depending upon the desired geo coverage of the MVNO that you were looking to facilitate.
4108 COMMISSIONER MacDONALD: And I fully understand that you don't agree with such a mandate, but if we were to mandate, would that just -- should that just be limited to the three national carriers or should it also apply to regional providers as well?
4109 MR. ENTWISTLE: You're quite correct in your assertion that I deeply disagree.
4110 COMMISSIONER MacDONALD: I don't want to put words in your mouth, but I assume I'm correct on that one.
4111 MR. ENTWISTLE: I think we should plumb the depths of that quite soon. My disagreement is only matched by how unacceptable that I would find an asymmetric MVNO application where the responsibility was uniquely shouldered by TELUS, Bell, and Rogers.
4112 MR. SPADOTTO: I mean, I'd like to chime in as well.
4113 I mean, we talked a little bit about how good networks are constructed and how good quality networks are constructed, and one of the biggest inputs for a quality network is, of course, spectrum.
4114 I find it laughable that a new entrant who may have soon two‑thirds of the available spectrum that we have and one‑seventh of the customers is not considered to be an MVNO host. They all the capacity in the world. They have all the unused capacity in the world. They have a national asset that's laying there fallow. That's who should be hosting MVNO's, if anybody is to host of MVNO's.
4115 COMMISSIONER MacDONALD: That's a fantastic segue, because I wanted to talk about capacity next.
4116 And from my own education, when you're building out your network how do you ensure that you have adequate capacity for your short, medium, long-term planning?
4117 MR. SPADOTTO: So I would start short-term. We try to employ, a just-in‑time delivery model to our capacity. We don't try to build capacity out that's years forward, but something that's meant to hit our busiest time of the network kind of 3‑months ahead of time, and that's the model we use.
4118 You know, when we get into mid or long-term, those tend to be based on capabilities of the network. They don't tend to be on capacity, they tend to be us evolving from 3G to 4G, 4G to 4G, LTE‑Advanced, and ultimately to 5G.
4119 MR. ENTWISTLE: (Off mic) Just so to mention (inaudible) between network and spectrum utilization (inaudible) ---
4120 COMMISSIONER MacDONALD: Sorry. Your mic's not on.
4121 MR. ENTWISTLE: --- spectrum and the requirement on the network build (inaudible).
4122 MR. SPADOTTO: Yeah.
4123 So Darren's just highlighting that, you know, the teeter-totter, of course, on spectrum.
4124 So if we take a look at our networks in the busiest parts of our network, we are using almost all of our spectrum. It is fully encumbered and fully in use. And of course, if the issue there is that if you do not get more spectrum you are forced to spend lots of capital dollars self-splitting to actually add capacity. The preferred method, of course, is to add spectrum.
4125 Canada is in a unique position globally with how spectrum is allocated. This penchant for saving spectrum for new entrants, which of course creates the situation that I mentioned earlier, is actually laying lots of spectrum fallow, not being able to be used, and it causing the incumbents to actually spend more dollars adding capacity through network infill, which is not, I think, a desired outcome.
4126 COMMISSIONER MacDONALD: If you are adding capacity and spectrum to your network to improve service quality, whatever the drivers are, would it be possible to leverage that same capacity to support the clients of and MVNO that you have a partnership with?
4127 MR. SPADOTTO: So we design our networks for the busiest part of the day. Interestingly enough, we've seen -- since we've introduced the Peace of Mind plans, we've seen capacity in our networks dramatically rise, and a little bit of flattening in terms of the usage hours. So I would say that we are kind of at a peak-ish in our networks between 5:00 p.m. and 2:00 a.m.; not entirely flat, but almost flat.
4128 That leads me to say that there is no excess capacity in the networks. There is capacity that is to serve our customers. And if we were to host someone else we would be forced to build extra capacity. I would -- overly, on top of that, the first comment I made, which there has been a fairly dramatic increase in usage per sub. That is also driving, you know, further investment in those networks.
4129 COMMISSIONER MacDONALD: If you do have excess capacity in your network for whatever reason, does it tend to be in more rural areas where there would be fewer users on the network?
4130 MR. SPADOTTO: No. I would say we don't have excess capacity because we operate a just-in‑time model. So you know, any excess capacity is measured in under 3‑months. When we take a look at what's in our rural areas, those are -- because of the introduction of wireless HSIA, those are actually busier networks; they're highly more encumbered.
4131 COMMISSIONER MacDONALD: Again, fully understanding your position on MVNOs.
4132 MR. ENTWISTLE: Just on your question. How would you, in an environment where Canada lags the U.S. by three-and‑a‑half to four years on spectrum availability, which means it has to be quickly recycled into use, per Eros's comments, but how would you participate in a combinatorial clock with blind bidding to determine your spectrum requirements if you had to engineer not just for your needs, but hypothetically the needs of an MVNO?
4133 COMMISSIONER MacDONALD: Thank you for that perspective.
4134 For my own education, one of the concerns raised with respect to MVNOs is that it would create -- well, they would take customers from the underlying network carrier, and in varying degrees, perhaps the regional carriers. But in your first intervention at paragraph 43 you said that MVNOs have no measurable impact on churn.
4135 Is that still your viewpoint?
4136 DR. DIPPON: So I think, again, we can look to the international experience to understand that. MVNOs most definitely do not have an impact long-term competitively. They can do great damage in the short run for very practical reasons that Mr. Entwistle just explained, and so they create an artificially -- an artificial cost competitive advantage, and they go in and underprice the market and then they drop out later. So they can create massive destruction, and for those reasons we know that in the short run they're bad; in the long run they're ineffective.
4137 COMMISSIONER MacDONALD: Given the fact that you plan your network in real time to meet your needs and the challenges you just outlined with respect to anticipating the needs of potential MVNOs, would it be possible for you to file with us in confidence any network or capacity concerns, technical limitations that you feel that you have within your network that would not enable you to support additional MVNOs?
4138 MR. SPADOTTO: We will absolutely file that.
UNDERTAKING / ENGAGEMENT
4139 COMMISSIONER MacDONALD: Thank you.
4140 MR. ENTWISTLE: And we also in that filing include security and cybersecurity considerations related to that as well.
4141 COMMISSIONER MacDONALD: Okay. Thank you.
4142 I guess just quickly on our essentiality test for mandating access. We've seen arguments that the RAN is not essential because it's been duplicated by regional carriers. But given the challenges of building in Canada, is it likely that any -- I'm asking you to look in the crystal ball -- is it likely that there will be further duplication out there, new regional carriers, or a potential new national carrier trying to come to market?
4143 DR. DIPPON: So it's a bit of a two‑sided story. I mean, the -- one side is nobody really knows; you would have to ask the regional providers.
4144 But one thing, which I think should be front and centre to the Commission's consideration, is the repeated claims by various parties, including the Competition Bureau, that there's this huge fat profit margin that somehow the nationwide providers earn. Well, I mean, it seems if you were to believe Dr. Chipty, which hopefully you don't, but if you were to believe Dr. Chipty, she proposes to this Commission that if regional providers reach the market share of 20 percent or more, prices could drop by 65 percent.
4145 So I'll ask you, or -- why did not -- why did Freedom not expand? Why did they not build that –- those facilities?
4146 So if you were to believe that the market is uncompetitive, then you have to necessarily believe that they are expanding. Freedom has spectrum in all provinces but two. But despite the claim of a non-competitive market has been unable to expand, which I as an economist can only read that the market is really competitive and they don't have the business case to expand.
4147 So, on one hand is I think the reality is nobody knows, but if you are to believe the wrong world that's being presented to you, then you would say, of course, they're just expanding because they're seeing all these opportunities.
4148 DR. SERENTSCHY: I would like to chime in here with the European perspective and experience.
4149 Commissioner MacDonald, we went through all this in Europe. I mean, they have so many attempts to push artificial and new operators in a specific market. And, of course, the European market is fragmented with 200 or so operators. But that has been done, and we ended up with merger cases, which were very, very difficult cases. And there was no consistent merger policy over time, so that made the whole thing more complicated.
4150 We see that when we go from jurisdiction to jurisdiction, and I can only warn you to make such things, don't recycle fate European policies.
4151 COMMISSIONER MacDONALD: Again, if we did decide to mandate MVNO access, I'd like to give you the opportunity to comment on what you feel would be the best MVNO model to implement, or perhaps what would be the least harmful to the existing operators of the various types of MVNOs that could be implemented?
4152 MR. ENWISTLE: So, you have to bear with me on my argument that I don't believe that there is the justification to move away from facilities-based competition in this country and forcibly introduce MVNOs in any of the formats that have been discussed. I do not believe that we have a quality issue. We have quality leadership, and this is one of the toughest landscapes on the planet to deploy infrastructure and technology, and I believe that's validated by voluminous third-party reports.
4153 I think we need to modernise our wireless pricing models, so that there is a better quantitative understanding as to affordability and where Canada ranks today in that regard. I think a better understanding on both affordability and quality would mitigate the necessity for government intervention and a shift away from facilities-based competition, for sure.
4154 If you would like to understand what model I would propose, I would go back to what I said to Red Wilson at the time with the Telecom Policy Review Panel, Canada should liberalise foreign ownership restrictions. Let free market forces determine the competitive outcomes at the end of the day. That would be what I would postulate.
4155 A hybrid MVNO model or an asymmetric MVNO model, to go with the asymmetric spectrum set-asides, is not just economically wrong, it's just not wrong for the industry. I would argue that it's morally wrong.
4156 At the end of the day, Commissioner MacDonald, TELUS didn't start off as a national player. TELUS started off as a pretty weak regional player with a antiquated wireless analogue network in Western Canada. Not very many companies have come out of the west successfully to build the national business under a national brand with national employment typologies right across this country, and do it to the point where, you know, we lead the world when it comes to network performance and best in class customer service. We're not just best in Canada. We're best on a global basis.
4157 And we seem to have forgotten the TELUS is the new entrant. I haven't because our $40 stock price fell to $6. And our debt, as we were undertaking those expansionary activities, was trading at 42 cents on the dollar, as we were using our balance sheet to expand nationally, to be a competitive wireless player to the Rogers and to the Bell organisations. There was no MVNO opportunity or service provider model available to us at that juncture. We did it off of our own back.
4158 And some of the conversations right now, particularly on the hybrid front, I would say these are well, well, deeply capitalised organisations that have more than sufficient resources to pursue wireless opportunities, leveraging the deployment of infrastructure and technology, and they are owned by Canada's version of Carlos Slim, by some of the wealthiest individuals within the Canadian construct. And so why not let it play out, particularly when you have the trajectory evidence as it relates to wireless affordability that's so encouraging.
4159 DR. DIPPON: So, if I may just, again, on the international side, so just to answer your question, there are many different shapes and forms of MVNOs. It's very hard to even categorise them. There's also different approaches how regulators such as yours have approached them. Like I said in my opening remarks, 33 -- well, it's actually 24 of the OECD countries the regulators have said no regulation at all. Three of them batted deregulation in licenses. So, if you acquire a license, then the license terms and conditions require that you also host MVNOs. Now, I'll highlight that that applies to everybody who takes a license, whether that's a national provider or regional provider.
4160 And I mentioned there's three other OECD countries where MVNOs were part of mergers, and then another three, which I mentioned earlier, they have some form of regulation.
4161 So, we have a really wide array of MVNOs, MVNO approaches, yet the outcome has always been the same. Minimal market share, not competitors.
4162 I urge you to read the decision from last week, Judge Marrero in the -- in New York versus Deutsche Telecom challenging the T-Mobile/Sprint merger. There's an entire section on MVNOs and Judge Marrero clearly concludes that MVNOs are not competitors. In fact, they go even further and say you shouldn't even count their subscribers as independent market share. You should count them as part of the host.
4163 So, I think it'd be wrong if anybody were to tell you that there is a working MVNO model. We know many, many different people, parties, regulators have tried it. It does not work, so there's no form.
4164 I'll have one more addition, which is I know you're looking at three proposals: one by the Bureau, one by Cogeco, and one by Synapse. A, they're not working, and I've written extensively on them, but also, they're not MVNO models. They're actually mandated structure sharing, network sharing. That is unprecedented in the entire world.
4165 COMMISSIONER MacDONALD: I have one question and another offer. The offer is perhaps you may want to take this offline. I think the Commission fully appreciates the arguments you're putting forward as to why we may not want to do MVNOs, but we may still go in that direction.
4166 So, if you so choose, and you want to put thought around what that potential model could look like in TELUS' mind, we would welcome receiving that undertaking.
4167 The question is -- you mentioned in your opening remarks and you mentioned in your response just now, I believe the exact quote was "liberalisation of foreign ownership", and I'm just wondering if you could outline for me exactly what you mean by that.
4168 MR. ENWISTLE: I mean full opening of our market applied in a homogenous fashion to all players within the market, and the elimination of foreign ownership caps in that regard.
4169 COMMISSIONER MacDONALD: So, just for clarity purposes, you weren't suggesting that the option of a large multi-national tech firm, Amazon, Google, coming into the Canadian market and availing of broad MVNO access would be a good thing.
4170 MR. ENTWISTLE: That’s correct. No, that’s not what I was representing. What I was representing is that we have foreign ownership restrictions today in place. You can determine whether that should be split in a dichotomous fashion between telecoms and broadcasting.
4171 But as it relates to telecoms, applied in a homogeneous fashion across our entire geography and all carriers, that we would eliminate the ownership caps by foreigners and allow full foreign entry, and any foreigner that came into the marketplace they could acquire a company if they wanted to, or they could build according to a regulatory model of facilities based competition. If you think that there’s a market dysfunctionality, if there’s a market failure here, or if there’s market opportunity that’s not being seized upon and been exacted for the greater good, then open up our boarders, as is the case in many of our G7 peers, and let large companies come in. Either organically or acquisitively.
4172 Telus believes that our best protection against a takeover is a fully valued stock price, and we will continue to execute in that regard.
4173 COMMISSIONER MacDONALD: Okay. Thank you for that clarification.
4174 I’m trying to think of a way I can ask this question. Again, understanding your view on mandated access, so perhaps we can look at this in the context of the MVNO agreements that you have been able to negotiate. Can you give me a flavour of what type of limitations make sense in some of those arrangements? Specifically, I’m thinking do your MVNO partners -- do you allow them to resell their service to other MVNOs? Do you -- do those agreements extend to machine to machine, or IoT solutions?
4175 MR. AMERY: Yeah, thank you for the question. Let me start with the first piece. The construct of the commercial agreements are designed to be accretive to both organizations and are, you know, generally struck based on what the approaching company has asked us for. So on your IoT question, no we don’t have any of that actually involve IoT specifically. So I can talk to that one firstly.
4176 The second one, the stack of, or the enablement of MVNEs, you can call -- and can call it either. We don’t believe in that. We don’t believe, you know, the business model is beneficial for either party. So we don’t enable anybody to resell resale, if you will. So those are the first two questions that you’ve asked. Was there -- I’m sorry if I’ve missed one other one?
4177 COMMISSIONER MacDONALD: I guess just jumping back to that last one, you don’t agree with the business model that resellers should be allowed to resell. What is the rationale for that? Is that because you wouldn’t have visibility into who the end user is? Does it create technical problems in some way? Does it cause problems from a capacity planning point of view?
4178 MR. AMERY: Well, I’d say in generally, and you know, I’ve been in wholesale at Telus for over 15 years, and both buying and selling on behalf of the organization. It’s an impractical business model, and while it might appear briefly to have some traction in general, it doesn’t have sustainability or survivability.
4179 So what you end up doing is you end up potentially creating a business model that can’t be long term beneficial to either party. And our experience has suggested they’re not valuable to either participant. So we do not enable those.
4180 MR. SPADOTTO: Can I add in?
4181 COMMISSIONER MacDONALD: Yes, of course.
4182 MR. SPADOTTO: I think you hit an important point. The complexity that’s generated from having a seller of a seller of a seller, leads to poor planning. Because it’s very difficult then to actually being able to get that just in time delivery of network capacity.
4183 Secondly, the one thing that’s often not discussed, and it may be too complex to discuss here, but there is a very strong cyber security component to everything that’s conducted. So you mention IoT. There’s a -- there is an issue, a brewing issue, where devices that are IoT enabled may come from foreign lands. There’s a root of trust issue, which is where is that device end to end encryption actually rooted? Is it rooted in a foreign nation, that device? Or is it rooted through an MNO? It fundamentally has to be rooted through an MNO.
4184 So when we start -- actually start stacking these capabilities without understanding the technical requirements, especially around things like cyber, we create big problems for our country and our nation.
4185 COMMISSIONER MacDONALD: Thank you for that.
4186 MR. ENTWISTLE: And we’ll give you, per my previous comments on the cyber security front and MVNOs, we’ll give you evidentiary documentation to that effect as well.
UNDERTAKING / ENGAGEMENT
4187 COMMISSIONER MacDONALD: Perfect. That will be appreciated. And I’m trying to tread lightly, because I know I’m going into the area of your existing arrangements, so if you prefer to file a confidential undertaking, that’s fine. But with your existing MVNO partnerships, do those MVNOs get access to your domestic and international roaming agreements as part of the contract?
4188 MR. AMERY: Yes, they do. The have full access to roam. Their subscribers can avail themselves of international roaming as part of the agreements we have with them.
4189 COMMISSIONER MacDONALD: Okay. Thank you. Again, understanding your position, but switching towards, if the Commission did decide to mandate MVNO access but did not choose to leave those agreements to negotiation, would you care to comment on the approach that should be taken to rate setting for both -- well, specifically the interim rate? Would it be appropriate to use the existing roaming tariffs as an interim rate for NVMOs?
4190 MR. EDORA: We don’t think it’s appropriate to use the interim -- to use an interim rate that’s equivalent to the roaming rate. The roaming rate was designed based on a cost study, to provide roaming services. And so, the MVNO relationship would not embody the same type of relationship as a roamer on our network, and therefore the rates would not necessarily by the same.
4191 COMMISSIONER MacDONALD: So just so I understand, not the roaming rate, or not an interim rate at all?
4192 MR. EDORA: Not the roaming rate.
4193 COMMISSIONER MacDONALD: Not the roaming rate.
4194 MR. ENTWISTLE: You would necessarily need to resurrect Phase two costing models and the associated hearings to develop a more accurate scientific and quantitative view, elevating -- amplifying the regulatory burden and intervention on the industry.
4195 As someone who has spent a great deal of time both here and in the U.K. on those files, I think that would be deeply counterproductive and unnecessary for the wireless industry. And it concerns me greatly that there is a widening gap between Canada and our nearest neighbour, as it relates to regulation or decreasing regulation, and decreasing government intervention in the U.S. and increasing regulation and increasing government intervention in Canada.
4196 And I do not think that that widening dichotomy will serve the interests of our country or our citizens well, and I think it’s particularly counterproductive on the eve of our 5G deployment. Because Canada has a disproportionate need given its challenging demographics, to leverage technology to bridge time and distance for the productivity of our society.
4197 COMMISSIONER MacDONALD: Given your comments on the Phase two costing, would it be more appropriate to set a retail minus rate?
4198 MR. ENTWISTLE: So I guess I’ll wind it back and say on that one, I disagree wholeheartedly with this particular approach. I have trouble saying even hypothetically best to leave it to commercial negotiations, because that would assumptively relay to you that I was supportive of an MVNO model.
4199 I’m not supportive of any of the above. But I just highlight that when you start pulling on that piece of string, you find yourself in a laborious regulatory process, and I do not think that that’s the right outcome for Canadians.
4200 COMMISSIONER MacDONALD: Okay.
4201 MR. ENTWISTLE: Even under price minus X.
4202 COMMISSIONER MacDONALD: Okay. Thank you. We have and will talk about seamless roaming in a minute. But from a technical standpoint, if someone negotiates an MVNO relationship with Telus, do they automatically get seamless roaming?
4203 MR. AMERY: As a result of the nature of our network, and in fact, Telus doesn’t really roam anywhere, so there isn’t an issue for a Telus subscriber with respect to domestic roaming.
4204 In an international construct, there really is no such thing as seamless handoff because your network isn’t present in a foreign country.
4205 COMMISSIONER MacDONALD: Okay. Thank you for that.
4206 Based on the current definition of roaming in your tariffs, would they apply to 5G? And if not, what changes would need to be made?
4207 MR. SPADOTTO: So the first thing we need to talk about is 5G is not yet here, so it’s kind of fascinating to me that we would be talking about effectively what -- an MVNO, which is a 2G construct, and try to apply it to 5G. I find that just striking. The investments have not been made in this technology yet, and yet we’re already talking about reselling it.
4208 So that’s the first comment I would make.
4209 Second comment is, it can’t pertain, because the costs for 5G are fundamentally different than the costs for 4G and 3G.
4210 In fact, if you take a look at any of the studies that have been done, or own work that we’ve done as we’re handling through RFPs, we’re discovering that this network will cost, on a capital basis, on a personal site basis, twice as much as a 4G network.
4211 And in fact, one of the big things that came out of the GSMA, is a big outlier on 5G, will be the cost of power. They are power-hungry networks.
4212 So it’s very difficult to actually say should it be the same as your precedent network when it’s very much different and in fact may so.
4213 COMMISSIONER MacDONALD: So I’m taking from that that due to the characteristics of 5G, that the rate would need to change for domestic roaming, in your opinion. Is that correct?
4214 MR. SPADOTTO: Not only would the rate have to be changed, but we’d also have to talk about the service.
4215 You know, 5G is going to open up new services.
4216 You know, the interesting thing is the conversation to date has been around what I perceive to be consumer 5G. The 5G will actually introduce other capabilities that are more business oriented.
4217 In fact, one of the things that I would say is we tend to hover around talking about wireless technology or telecoms as a vertical. The reality is it’s actually a horizontal to our entire economy. And those other verticals that sit on top of it will have all their own business cases and business uses for 5G.
4218 So to come up with a common number for 5G service is kind of foolhardy because there’s lots of different services that can come with it. And only time we’ll allow those to kind of mature and come out.
4219 COMMISSIONER MacDONALD: Okay. I think that answers what was going to be my next question as well.
4220 Seamless ---
4221 MR. ENTWISTLE: We also ask, in terms of your deliberations on this, if you could review what would be the MVNO benefit to 5G progression in Canada, what would be the MVNO benefit to region geographic digital divides between urban and rural, as it relates to the MVNO benefit, what would be the benefit to investment in this country or sustainable economics, and what would be the MVNO benefit to quality of service.
4222 I think those questions or those test points, when considering MVNOs, and is it something that is an amplifier or a detriment to 5G, to urban, to rural progression, to certain sectorial needs to sustainable economics or quality of service, would be very important prerequisites in the deliberation process on whether to do or not to do MVNOs.
4223 COMMISSIONER MacDONALD: Well, and one of the benefits of a proceeding as large as this is we have a very large record on which to analyze and make our decisions.
4224 I believe that you’ve said in one of your submissions that you don’t offer seamless roaming. Is that correct?
4225 MR. AMERY: That is correct. We do not.
4226 COMMISSIONER MacDONALD: Have any regional carriers reached out to you to try to negotiate seamless roaming?
4227 MR. AMERY: I would not say they were trying to negotiate anything. What they were doing is saying they have -- they believe they have a right to it. We talked to the decisions that have been made by this Commission, and that’s where the conversation ends. They’ve proven unwilling to have an actual commercial conversation about it.
4228 COMMISSIONER MacDONALD: I guess maybe can you expand on that? Do they -- and I don’t mean to be flippant, but do they come and say, “I want it and I deserve it and I have a right to it”? Or do they actually try and engage in a more fulsome conversation?
4229 MR. AMERY: To be quite frank, “I want it. I want it for free. There should be --” They believe profoundly that it’s -- even in the filings you’ve noticed that they believe there’s an asymmetry in the cost. And I want to dispel that.
4230 You know, when somebody says 15 percent more of the cost is going to borne by them, they are the only beneficiary of it, so frankly when there is, you know, a very small delta between the cost, whether it’s one-time or ongoing operational, and yet 100 percent of the value accrues to them, and they don’t believe they should pay any incremental fee attached to that service, the commercial discussion breaks down, as you can imagine, rather quickly.
4231 Essentially, they want it for free.
4232 COMMISSIONER MacDONALD: And -- oh, sorry, go ahead.
4233 MR. SPADOTTO: Maybe I should be allowed to top up, if it’s okay, Commissioner?
4234 I want to talk about the technical areas of why this is difficult.
4235 COMMISSIONER MacDONALD: Perfect, because that was my next question.
4236 MR. SPADOTTO: Anticipating your next question, so the first thing I would say is, you know, Mr. Rodin yesterday did a fairly adequate job of talking about the complexities of what would have to take place in order for us to design this.
4237 So, of course, he went through the concept of borders. You know, there’s the borders between their network and our network.
4238 And those networks, those borders change over time. So it’s an ongoing management issue doing that.
4239 And if they are growing their networks, they would have to actually do that.
4240 And secondly, Mr. Rodin talking about billing. That’s something that I think you already raised in an earlier part of the questions. We recognize how difficult the billing systems are in these big companies. And you actually have to account for the traffic moving across that border. That’s an issue.
4241 We are going to have to experience intra-band handoff. That is, you know, one, you know, radio, or one channel that we’re going to have to move across.
4242 That is complex and is difficult for even us in our own network to do.
4243 In order to intra-connect these networks, we’re going to have to use, you know, different vendors, different core networks have their own standards for connecting. And we’ll have to actually try to work with the individual vendors to get inter-vendor specific standards to work.
4244 So there’s a lot of difficulty.
4245 I would say, as the networks evolve, we certainly know with 5G as an example, we will be adding more and more cores to the network. That’s an evolution of the network and required in order to get low latency.
4246 If you start to imagine those cores growing, you’re going to start getting a permutation combination problem, as you have to handle all those handoffs across all those cores into that vendor.
4247 It is not a cheap and inexpensive or non-complex undertaking.
4248 And lastly, I would offer a piece of advice to my new entrant friends.
4249 I was a new entrant. I was fortunate enough in my career to be a Clearnet as a new entrant.
4250 And we suffered these exact same problems.
4251 Now, we didn’t run to the regulator to fix them for us. We actually solved our own problems.
4252 And so what our $100 solution was, was that we built another cell site at the edge of the network and accepted no new traffic in it. In other words, we allowed it to carry the traffic that moved from the network and through that cell site.
4253 Knowing how long durations of calls are, that covered 98/99 percent of our drop off, dropped calls at the edge of the border. We solved our own problem. That is in the bright of those new entrants to do for themselves.
4254 And if they don’t know how to do it, I’m happy to, you know, teach them how to do it.
4255 COMMISSIONER MacDONALD: Let’s start with teaching me how to do it.
4256 I take your point about the challenges of having seamless roaming, especially given so many borders and borders between different providers and making sure that the handoff happens properly. And I’m sure it is complex.
4257 Would certain elements of that upgrade in functionality, would any of the equipment that would need to be deployed be able to be leveraged for multiple regional carriers seeking seamless roaming?
4258 I guess to ask the question a different way, if you fix it once, do you fix it for everyone?
4259 MR. SPADOTTO: The quick answer is no because you're asking a technical question. But as, of course, we know in technology, there's technology and then there's process and there's people. And oftentimes, the procedural elements greatly outweigh the technological elements.
4260 And each one of those new entrants, each one of those new operators would actually create new processes and new things would have to be undertaken that are unique to the interconnection.
4261 So no, fixing one does not fix all.
4262 COMMISSIONER MacDONALD: Just one final request on this one.
4263 This was described earlier this week as a 30-year problem with a $100 fix. You've suggested it's not a $100 fix. Could you perhaps undertake to provide to us your best estimate of what the cost of the fix would be?
4264 MR. SPADOTTO: And who do we charge that engineering effort to?
4265 COMMISSIONER MacDONALD: I think it -- well, I guess what you could provide to inform us at a high level would be appreciated. I'm not -- would not be a specific figure that we would hold you to.
4266 MR. SPADOTTO: Okay. Thank you.
UNDERTAKING / ENGAGEMENT
4267 COMMISSIONER MacDONALD: Thank you.
4268 MR. ENTWISTLE: The answer is yes.
4269 COMMISSIONER MacDONALD: Thank you.
4270 You have network-sharing arrangements in place. Have you been approached by any of the regional carriers with respect to entering into a network-sharing or spectrum-sharing arrangement?
4271 MR. SPADOTTO: No, we have not.
4272 COMMISSIONER MacDONALD: Assuming such conversations were left to commercial negotiations, would you see any problem with structuring such arrangements?
4273 MR. SPADOTTO: I think Mr. de Gooyer spoke to this issue yesterday. And you know, we prefer to categorize this under its actual name as a reciprocity agreement.
4274 And you know, were there situations where the value that Telus could extract from any sort of network arrangement were, you know, mutually beneficial, we would entertain that conversation.
4275 COMMISSIONER MacDONALD: Okay. Thank you.
4276 There's been a bit of discussion around 5G specifically around a multi-stakeholder group to try and address some of the complexity with respect to the pending roll-out of 5G.
4277 You indicated in your November the 22nd further comments that you don't believe such a group would be effective. I’m wondering if you can expand on why you think that.
4278 MS. NARDI: Sure. Thank you for the question.
4279 We believe that a working group is not necessary or beneficial. We don't need another working group. We have good relationships with municipalities and other structure owners. We've negotiated many agreements with them.
4280 Given a working group having a broad stakeholder participation, I think that would drive a lot of issues and not being able to reach consensus.
4281 In addition, there is the issue of confidential and sensitive information. All to say that this would result in delays construction.
4282 So if there were disputes, we believe that the Commission would be empowered to deal with the disputes under the current legislation.
4283 COMMISSIONER MacDONALD: You explained in one of your RFI responses that the CRTC working group for municipal access agreements was not successful.
4284 Did you take away from that process any lessons learned that could perhaps inform future working groups, including the potential for a future 5G working group?
4285 MS. NARDI: The lesson that we took, in particular my team took, from the working group for municipal access agreements was that municipalities are all very unique and to lump them all together into a working group and throw a blanket agreement at them doesn't work.
4286 In fact, you know, we like to negotiate with municipalities and arrive at commercially mutual terms and conditions.
4287 COMMISSIONER MacDONALD: Okay. Thank you.
4288 One final question on 5G and working together.
4289 I'd just like to get your thoughts on the possibility of the various service providers across the country being mandated to implement one 5G network as opposed to several. I note that countries like South Korea and Germany have taken a similar approach and they're further ahead on the 5G path than our country is.
4290 MR. SCHMIDT: So we would fundamentally disagree with that and it's, frankly, not necessary. Rather, it's a better place to be encouraging more carriers, more options, more investment, more dynamic competition in the marketplace.
4291 And I think the larger sort of set of tools that the government can use in terms if you look at emerging best practices among 5G leaders is get as much spectrum out there as quickly as you can on a cost-efficient basis, support rapid access to passive infrastructure because of the amount of -- the density of deployment that's going to be required, small cells, et cetera, and finally, have a stable, predictable investment friendly environment.
4292 And then the private sector will do the rest, and that'll be better for Canada.
4293 DR. SERENTSCHY: Can I chime in on this because ---
4294 COMMISSIONER MacDONALD: Yes.
4295 DR. SERENTSCHY: --- you mentioned Germany.
4296 The -- in Germany, there is an idea which has been raised how to cover the blind spots in the existing 4G networks. And so the idea came up to build for those areas which are non-economic a kind of public or one wholesale network which could serve those areas.
4297 This has nothing to do with 5G rollout; 5G rollout is completely in the private domain. However for this network idea, it’s only a concept. The political blessings are not yet done.
4298 COMMISSIONER MacDONALD: Okay. Thank you for that context.
4299 Oh, yes. Sorry. Go ahead.
4300 MR. ENTWISTLE: I'll also note, given you raised South Korea, that speeds that I quoted earlier in terms of Telus at 75 megabits per second, that's the speed of our 4G network compared to the 59 megabits per second, 5G network in South Korea with that geo difference of being 1/100th the size of our country.
4301 And I would just put that forward, along with the fact that it's hard to roll out 5G aggressively when you're waiting on spectrum auctions to take place.
4302 Even spectrum auction rules to come to fruition, we need participate in the 3.5/5G ecosystem as well as leveraging millimetre wave 5G so we can use that as an alternative access technology to complement what we’re doing on the fibre front. And we're still waiting on those auctions to come to fruition.
4303 COMMISSIONER MacDONALD: I'll leave that to individuals on the other side of the room.
4304 MR. ENTWISTLE: It's just important that you understand the dichotomy. We can't deploy until we get the spectrum.
4305 COMMISSIONER MacDONALD: And I appreciate that point.
4306 My final area of questions before I turn you back over to my colleagues, relate to the support structures, and some parties have expressed concerns about significant delays in gaining access to ILEC support structures, especially Videotron, who claim in multiple rounds of applications basically equate to claims that the ILECs are gaming the system.
4307 THE CHAIRPERSON: Sorry to interrupt. Could we just pause for a second and clean up that cross talk? It's very distracting.
4308 Okay. I think you can go ahead. Pardon me.
4309 COMMISSIONER MacDONALD: Am I okay now?
4310 THE CHAIRPERSON: Yes.
4311 COMMISSIONER MacDONALD: I just -- I want to give you the opportunity to comment on that because we have heard from Videotron and other providers about excessive delays in gaining access.
4312 MS. MILLER: Thank you for the question.
4313 I guess at the outset what I'd like to say is that access is not difficult. In fact, there is a regulatory regime in place already. That's our support structure tariff. It's a CRTC-approved tariff. We are compliant in meeting our tariff obligations, all the terms and conditions that are outlined in the tariff.
4314 Importantly, we fulfill a vast majority of the applications that we receive. We assess each of the support structure applications, and we don't reject them as a means to deny access for our competitors.
4315 And conversely, other carriers' support structures are not regulated, in fact, and there's no reciprocal tariff or obligations.
4316 COMMISSIONER MacDONALD: Is it -- I guess for a starting point. Can you give me an idea of what information you would convey in the event of a denial?
4317 MS. MILLER: Denials are categorized into no capacity, structural issues, or reservations, and reservations are extremely small, as was indicated by, I believe it was Bell yesterday as well.
4318 COMMISSIONER MacDONALD: And by reservations, you mean reserving spare space?
4319 MS. MILLER: Reserving spare capacity for current and future service requirements.
4320 COMMISSIONER MacDONALD: Okay. Thank you. How long is the timeframe that you would typically reserve that capacity? I understand why you would need to reserve but would assume you don't reserve indefinitely.
4321 MR. SPADOTTO: So again, I'm fascinated by that question. I'm just a dumb engineer, and when I take a look at the government being delayed in spectrum options against the United States from 2‑years for a PCS, 2‑years for AWS, 6‑years for 700, BRS another 6‑years, and you're asking me how long do I delay.
4322 So I'm saying if it's good enough for the government to delay for, hmm, average of three-and‑a‑half years, that would be the delay that I should be able to delay.
4323 COMMISSIONER MacDONALD: But that is the question.
4324 MR. SPADOTTO: So I'll say three-and‑a‑half years.
4325 COMMISSIONER MacDONALD: Three-and‑a‑half years is a reasonable timeframe ---
4326 MR. SPADOTTO: That's the timeframe that the government uses with us.
4327 COMMISSIONER MacDONALD: Okay. When you are going through the process of either approving or denying a request, what type of information flows back and forth from you to the requesting parties? Specifically, I'm wondering do you provide updates if there is a delay for whatever reason, additional engineering work or inspection needs to take place. Do you keep the requesting party in the loop throughout the process if it follows, you know, a non‑standard 90‑day approval?
4328 MS. MILLER: We certainly do. There is regular communication, and in fact, it's not unusual to participate in quarterly meetings with our licensees.
4329 COMMISSIONER MacDONALD: And in those meetings, if for whatever reason you do need to deny the request, do you offer other options or solutions? "We can't do this, but we could accommodate your request in another manner"?
4330 MS. MILLER: If there are other opportunities, we certainly would provide those other options.
4331 COMMISSIONER MacDONALD: Okay. Thank you very much. Those are my questions.
4332 THE CHAIRPERSON: Thank you.
4333 Commissioner Barin?
4334 COMMISSIONER BARIN: Thank you and thank you for the responses to the questions. I have just a couple of additional ones.
4335 I understand your position in support of facilities-based competition. You also described, I believe it was Mr. Dippon, that the MVNO proposals that are currently before us, you described them as structured network sharing. And I note that TELUS benefitted from a network sharing agreement when it was the new entrant.
4336 So why, in your view, would it not be right to allow new entrants to also benefit from this type of network sharing agreement in the form of MVNO access if in fact the goal is to get to facilities-based competition?
4337 MR. AMERY: Well, I just want to make a couple of things clear. Thank you for the question.
4338 Firstly, it wasn't mandated. You know, two parties came together looking at the situation and decided it was in both of our interest to create a reciprocity arrangement that would enable us to increase competition.
4339 And I think it's important to roll the clock back to 2008. There was only one GSM network provider in the country. They had a monopoly on inbound roaming. And in fact, when the new entrants launched their GSM service as a function of the public policy decision, they were the only people that could provide roaming services to those new entrants.
4340 The network arrangement that TELUS and Bell created was foundation for GSM competition in this country, but it wasn't mandated; it was commercially negotiated based on terms at a crude value to the country, to our citizens, and yes, to both TELUS and Bell.
4341 MR. SPADOTTO: So let me top up. I was actually one of the parties that negotiated that deal, so I'm intimately familiar with that arrangement, that agreement, and what happened.
4342 Kal is right, it's a very pro-competitive agreement, and we deliberately set out to create competition in Canada, which I believe to this day is what's driving Canada's networks to be so good in the world because we're actually so, so, so hypercompetitive on the network side.
4343 I would say that at the time this was a problem that needed to be solved in a free market, and as a free market we approached a number of people trying to negotiate a network arrangement with them and settled in with a party where we both had common interests and common inputs.
4344 And one of the reasons this agreement works is exactly because of that. We come with common interests, common inputs, we supply our spectrum to serve our own customers, and we commit to spending similar dollars and having similar network performance.
4345 If those attributes were to hold true in any other agreement in a free market economy, we would absolutely consider it.
4346 COMMISSIONER BARIN: Okay. Thank you.
4347 Mr. Entwistle, you used the terms oligopoly and duopoly to refer the situation with TELUS's equipment suppliers and the wireless device providers, and you also alluded to the negative impact that the equipment supplier oligopoly had on increasing your operating costs.
4348 You could argue if you looked further down the value chain to the consumer, and were in a Canadian wireless supplier market, that the fact that there are three big players that through their main brands and their flanker brands are cycling consumers through, but where each of these players have about 30 percent of the market, if you take it from a subscriber perspective or a revenue perspective.
4349 Given how you've characterized your equipment supplier market, would you not say that the Canadian market for wireless has that same characterization as an oligopoly and if not, why not?
4350 MR. ENTWISTLE: So firstly, we make decisions related to pricing based on customer requirements, competitive scenarios, underlying cost considerations, and penetration goals as it relates to our strategy.
4351 Within our supply chain, we are entirely price takers, and in addition to that, we are volume takers. We are dictated in terms of how we can market our service, and we are limited in terms of influencing technology development and product development. In fact, we would be ecosystem speculators in making bets as to what we think is going to be the evolving technology ecosystem on a global basis because we have to serve those economies of scale because we don't have the size required to have that level of influence within our supply chain given the small size of Canadian operators within the global telecommunications ecosystem.
4352 You can call us three large players, but I can tell you in a global context we are extremely small relative to our peer group. When you look at companies like TELUS that have sub-10 million subscribers, and you're looking at organisations like Verizon or Vodafone that have well over a hundred million for quite a while now, we just don't have scale economies that we can bring to bear.
4353 I think a very interesting case in point would be looking back on the GSM CDMA 2000 dichotomy, back in 2008, if you were looking for an iPhone in Canada, or before that a Blackberry Pearl, or wanted to have global roaming, there was essentially one provider, and that was the Rogers organisation. Ourselves and Bell were precluded because we made the CDMA 2000 technology path bet along the way and we didn't actually secure the iPhone until we made the move to wideband CDMA.
4354 By contrast, we tried to negotiate a iPhone solution with Apple, but we just didn't have the influence. Interestingly enough, Verizon, who had the CDMA 2000 network technology deployed, had sufficient girth size purchasing power to get Apple to develop an iPhone that was acclimated to their CDMA 2000 technology, and they deployed it on that particular technology platform. We couldn't bring that capability set to bear.
4355 And when I look at our supply chain, on network front, we have a situation right now where amongst Ericsson, and Nokia, and Samsung, and Huawei, you know, effectively, there are four players with one player having a question mark over them, being Huawei, who's clearly the technology leader when it comes to radio network equipment.
4356 So, whether it's three or whether it's four -- and that's an outcome right now that's indeterminate. We're waiting to hear from our government. That is, you know, the definition of oligopolistic structure, and we just don't have the purchasing power or the scale economies to dictate anything from pricing, to technology, to certain functionality components, even support mechanisms.
4357 We can try and influence. We can try and sell ourselves as a pilot tier one country and a great place to develop a business as a precursor to expanding into the U.S., but we're limited on the influence front.
4358 As it relates to devices, much more so in Canada than Europe, we are very much, you know, an iPhone country with Samsung in the number two position. That is a quasi-duopoly, and we live with that reality. We are price takers. We don't negotiate price. We don't negotiate volume. And how we bundle and market also has to have approval from within the supply chain, and that's the reality that we deal with, and that impacts the economics of our business.
4359 Lastly, you must admit it's been quite interesting, given the amount of time devoted towards wireless pricing within the public discourse over the last few years, to see the absence of that discussion as it relates to the device cost when devices have gone from 500, to 700, to 900, to 1100, to 1500, to 2,000 at the Smartphone level, it is curious as to how that particular escalation has been left out of the debate. Where, by contrast or juxtaposition, the cost on a per gigabyte basis has dropped rather precipitously in that regard, and, you know, I note that overall.
4360 And then the second component is the spectrum cost component. Depending on whether you're looking at a European example, you know, or a wider global comparator group, 12 to 16 per cent of the inherent costs without our wireless pricing relates to the supernormal prices that we pay in Canada for spectrum versus all of our peer group within the developed world. Those are the hidden costs and the hidden economics of that particular undertaking.
4361 And as it looks to our structure going out there versus the structure of our supply chain, it's a complete dichotomy. If you look at the multiplicity of brands in Canada, look at the variety of rate plans that are out there covering a premium, to value, to discount, and all the variations within that from post-paid, to prepaid, to low-income, to voice-based, to data-based along the way, I would say it's a very rich choice that we offer Canadians in that regard. That is reflective of a highly competitive dynamic, not an oligopolistic one.
4362 DR. DIPPON: And maybe if I just provide the economics perspective on that. The terms oligopoly, duopoly, most people know what it is, but I think they fundamentally misunderstand it.
4363 So, as Dr. Crandall mentioned in his opening remarks, network industries, particular mobile wireless fixed and other industries as well, the high fixed costs it's just generate -- they're so high and away that the market cannot sustain a very large number of providers. So, often people misread them and say, "Gosh, there's a highly concentrated market." They use merger tools like HHI indices. We've talked about those.
4364 But there's been a -- I think there needs to be some re-education done in that a duopoly or oligopoly markets, particularly a network industry can be highly competitive.
4365 I'll point you to one market, which I've worked in years ago and that's in Qatar. Two mobile providers, regulated duopoly, fiercely competitive. Fiercely competitive. They would go and check each other's marketing events out. They would send a spy to the other side to look how much -- you know, who attended their meetings. Fiercely competitive.
4366 Now, bringing you back to this particular instance, HHIs been used, and highly concentration it's been used. Dr. Crandall mentioned it, Dr. Jerry Hausman at MTI studied it. Others have studied it. There's no relationship between concentration and retail prices. And so, I think we have to be very careful in using these concentration ratio or these simple labels.
4367 So, I'll point you -- and I was very pleasantly surprised last week when I read Judge Marrero's decision against -- that's the State's challenge to the T-Mobile/Sprint merger -- where Judge Marrero opined saying,
4368 "Depending on the affirmative practices and actions taken by market participants, highly concentrated markets can nevertheless be quite competitive."
4369 So, at the end of it, you can start observing it's an oligopoly or duopoly, but that does not prevail you from a competition analysis. And this competition analysis, as I hope you heard today and you've read in our work that we've provided, is going on. There are affirmative practices here at play. So that the fact of this market is concentrated or might look to a layman as an oligopoly, I think that should be put aside.
4370 MR. SENKO: I just want to add one more thing on devices.
4371 So, building on what Darren was saying, at the same time that wireless prices have declined at a minimum of 35 per cent, because it -- that doesn't even factor in the changes in prices in 2019, devices have increased by 200 per cent in cost. And 40 per cent of our customers are now keeping their devices for 3 years. They don't see the cycle of innovation dictating a need to change in 24 months. You know, the advent of good cases and other ways to protect the devices, the devices are lasting longer. And they're asking us for longer financing terms. And I think it's also interesting that that is not on the table as another way to provide monthly affordability.
4372 COMMISSIONER BARIN: Thank you. No more questions.
4373 THE CHAIRPERSON: Commissioner Laizner?
4374 THE VICE-CHAIRPERSON: Good afternoon. And thank you for your presentation and the questions you've taken.
4375 I was interested in the comments you raised about the higher take-up that you've seen on your flanker brands in the province of Quebec. So, I'm wondering, what would you -- what would be the number two and three provinces in terms of higher take-up on flanker brands?
4376 MR. SENKO: Our -- I'm just looking for my stats, but it's okay. Our top provinces for flanker brands are Ontario and Quebec. Yeah.
4377 THE VICE-CHAIRPERSON: And why -- can you elaborate a little bit on why you feel that your flanker brands are more popular in Quebec?
4378 MR. SENKO: We see a -- well, one, our -- both our Koodo and Public brand resonate in Quebec. They -- there's a warm reaction to those brands.
4379 And in fact, when we look at -- we have a measurement called Likelihood to Recommend, which is a measurement of customer satisfaction.
4380 Both Public and Koodo are leaders in the industry on Likelihood to Recommend.
4381 So I think there’s a resonance to the brand and what they stand for.
4382 And we also see from a buying behaviour that customers buy smaller data buckets or data plans in Quebec. So they’re looking for less for less. And that’s suiting the value proposition of both Koodo and Public.
4383 MR. ENTWISTLE: And the simplicity of the value proposition.
4384 MR. SENKO: And also just the simplicity.
4385 So you have to also understand that Koodo was the first brand, several years ago, to separate device cost from the rate plan cost. That transparency of the Koodo Tab resonated really well.
4386 In addition to that, very simple on the rate plan side, not the complicated data sharing construct that ended up in the premium space.
4387 You know, Shock Free Data resonated really well in Quebec as well.
4388 So I think it was value prop, brand resonance, ---
4389 VICE CHAIR LAIZNER: And have you seen competition in that market place as well on similar type plans and lower costs in Quebec ---
4390 MR. SENKO: Yeah.
4391 VICE CHAIR LAIZNER: --- to match your ---
4392 MR. SENKO: Yeah, absolutely. We’re -- there’s heavy competition from Fido, from Videotron, from Virgin.
4393 Videotron launched Fizz, which actually increased the competition.
4394 Videotron is expanding their territories. I think they announced that this morning.
4395 It’s very -- it’s robust, yeah.
4396 VICE CHAIR LAIZNER: I was interested in your discussion about your stores and their cross-branding.
4397 So I understand from your comments that you either have in your stores cross-branding between Telus and Koodo in some stores, and in other stores, Koodo and Public.
4398 But you wouldn’t have all three in one store; right?
4399 MR. SENKO: Yeah, at this point, we are dual branding.
4400 VICE CHAIR LAIZNER: Okay.
4401 MR. SENKO: But, yeah, that’s ---
4402 VICE CHAIR LAIZNER: And my question is, if -- for consumers that would go online to look at your offerings, would they see the same type of cross-branding online on the Telus website? Would there be anything directing them to Koodo, or a lower cost plan, or on the Koodo website to Public?
4403 MR. SENKO: Our three websites are independent. So they’re not speaking of the other brands.
4404 However, what I would say is when customers call, looking to change their rate plans, or coming up for a renewal, if the right answer is to move a Telus customer to a Koodo plan, we have all of those procedures in place, as an example.
4405 And ---
4406 VICE CHAIR LAIZNER: So when you have an online chat, let’s say, you know, you see that little icon ---
4407 MR. SENKO: Yeah.
4408 VICE CHAIR LAIZNER: --- in the corner of your screen, would that happen there?
4409 MR. SENKO: If that conversation is about a rate plan change or a renewal and the plans that are available on Telus do not meet the needs of that customer, then there is a process to refer that customer to Koodo.
4410 VICE CHAIR LAIZNER: And what if it’s a potential new customer?
4411 MR. SENKO: If it’s a new customer, we’ve -- one, dual branding stores help a lot because we can talk about the fuller value proposition, which we do.
4412 In cases where we have a mall where we’re not dual branded, our stores will refer back and forth.
4413 VICE CHAIR LAIZNER: No, I’m talking about if I’m online, on your Telus website, as a potential new customer, and there’s the online little chat icon saying, “How can I help you?” And I say, “I’m looking for an occasional use plan for my elderly mom who only uses it when she’s out of the house. She has a landline in the house.” Would they say -- would the online chat say, “Oh, well go to our Public Mobile website”? Or Koodo or whatever.
4414 MR. SENKO: Our -- yes. If it’s an online chat, it’s effectively -- that chat is being done by one our call centre ---
4415 VICE CHAIR LAIZNER: So it’s not just in the case of a request for a renewal or a change of plan, it would also apply to a potential new customer online?
4416 MR. SENKO: It could, potentially, yes.
4417 Our websites do not actively talk about all of the brands. But we have procedures with our call centre agents to make the appropriate referral.
4418 So our call centre agents are the ones who are doing chat. So therefore I believe that same procedure is there.
4419 VICE CHAIR LAIZNER: So when you say call centre chat, it would still be a completely online experience ---
4420 MR. SENKO: Yes, it’s just ---
4421 VICE CHAIR LAIZNER: --- as opposed to a verbal one?
4422 MR. SENKO: It’s just a chat ---
4423 VICE CHAIR LAIZNER: Okay.
4424 MR. SENKO: --- with a live agent. Yeah.
4425 VICE CHAIR LAIZNER: I just wanted that clarification.
4426 MR. ENTWISTLE: Yeah, maybe ---
4427 VICE CHAIR LAIZNER: I think I’m fine with that answer. I understand what you’re telling me.
4428 MR. ENTWISTLE: One of the things that maybe -- that we could do, particularly as it relates to new customer acquisition and the distribution across Public, Koodo, and Telus, would be to confidentially file with the Commission, so they could see the percentage of our growth coming from Public, percentage of our growth coming from Koodo, and percentage of our growth coming from Telus. I think that would very enlightening information in terms of where we are emphasizing and where we are harvesting new growth in the marketplace.
UNDERTAKING / ENGAGEMENT
4429 VICE CHAIR LAIZNER: Great. Thank you.
4430 I had a question about your network sharing agreement with Bell and I wanted to understand whether your customers experienced dropped calls when they travelled to the Bell network?
4431 MR. SENKO: So let me answer that.
4432 There effectively is one common RAN, one common radio network across Canada, for both operators.
4433 The distinction between both operators is actually made at the core. That’s quite deliberate. We did it at the core level because that ensured that core is where the services are applied. So that’s where the competition kind of exists, and that’s -- so we did it very much on purpose to create that competitive network.
4434 So there is no handoff because it is actually the same radio network.
4435 VICE CHAIR LAIZNER: Okay. So when I asked this question of Bell yesterday and was advised that there’s no seamless roaming between Telus and Bell, it’s because it’s not necessary because the customers share one network, and so your customers would not have that experience that was relayed by some of the intervenors that appeared before us the previous day?
4436 MR. SENKO: That is correct.
4437 VICE CHAIR LAIZNER: Is that correct?
4438 MR. SENKO: That is correct.
4439 VICE CHAIR LAIZNER: Okay. Thank you for that clarification.
4440 MR. ENTWISTLE: Just to be clear as well, the customers also share the spectrum.
4441 VICE CHAIR LAIZNER: Right. And then my last question is for Dr. Dippon.
4442 And just to better understand the study that you did, did you indicate in your study that in providing your study based on an analysis of flanker brands, that it covered a certain percentage of mobile wireless in Canada but did not cover the percentage of mobile wireless in Canada that is not represented by flanker brands?
4443 DR. DIPPON: I’m sorry, I’m not following the question.
4444 VICE CHAIR LAIZNER: Well, when we’re -- you were alluding to some of the comments that the Competition Bureau raised in connection with your study, ---
4445 DR. DIPPON: Right.
4446 VICE CHAIR LAIZNER: --- and that your study dealt with data of flanker brands when you analyzed pricing.
4447 So I’m just wondering whether in your study you indicated that the extent of the market that you were studying in Canada was the market of flanker brands, which did not encompass the whole market of wireless that would be covered by non-flanker brands?
4448 DR. DIPPON: Right. So I certainly explained my methodology in my report. But importantly, I also provided statistics for the separate sub groups. So you can look at it by city, by province, you can look at it without flanker brands, you can look at it without prepay.
4449 And so you can evaluate this study, the report, in various different ways.
4450 VICE CHAIR LAIZNER: So did your study then include non-flanker brands?
4451 DR. DIPPON: Non?
4452 VICE CHAIR LAIZNER: Well, like the ---
4453 DR. DIPPON: Yeah, yeah. Sure. Absolutely.
4454 VICE CHAIR LAIZNER: Okay. Okay. Thank you.
4455 THE CHAIRPERSON: A couple of final matters. Pardon me. Final questions from my part. Maybe just a couple of clean up things.
4456 In the opening remarks, paragraph 19 I think it was, you made reference to a 2020 study entitled “The Key Cost Drivers of Wireless Service in Canada” from Christensen and Associates.
4457 I don’t think that’s part of the public record. Could you undertake to table that, please?
4458 MR. SCHMIDT: We will absolutely undertake to table it.
UNDERTAKING / ENGAGEMENT
4459 THE CHAIRPERSON: Thank you.
4460 Earlier, when Mr. Entwistle was saying, yes, a lot. I had an urge to intervene and ask a question. He generously offered to provide earlier materials you’d presented your Board with respect to your pricing plans, that would demonstrate to the Commission that you were responding on a broad basis. Not responding to the Rogers offer specifically, but rather had been responding to a number of competitive stimuli in the market, for an extended period.
4461 I guess in the spirit of sharing that kind of document, would you be prepared to do so in relation to 5G deployment plans? Obviously, in confidence, could you undertake to provide us with similar strategic documents that you might have provided to your Board, for example, in the last two years?
4462 MR. ENTWISTLE: So the answer to the second comment, Mr. Chair, is yes. I’m happy to give you a view as to our 5G deployment plans from inauguration to the roadmap prospectively. Eros is quite correct that 5G is not a one and done launch. It’s not a sprint, but rather it’s a marathon. As we progress through initial deployment at the AWS3, AWS4 level, as we begin on the rural front letting up 600, as we hopefully secure 3.5 Gigahertz spectrum and then laterally, millimeter way.
4463 There’s an appetite obviously, for larger channels to be secured to support the type of bandwidth and speed that’s part of the 5G promise overall and the commercialization of that technology to support the products and applications that have been frequently talked about, in terms of what the future is going to look like. So we, in confidence would be pleased to share that with you.
UNDERTAKING / ENGAGEMENT
4464 THE CHAIRPERSON: Thank you.
4465 MR. ENTWISTLE: The other thing ---
4466 THE CHAIRPERSON: Oh, pardon me.
4467 MR. ENTWISTLE: --- that I think is important, our move as it relates to our endless data plans, what we did on device financing or family discounts, what we call peace of mind, if you will, was not just related to external market stimuli. That was, yes, an explanatory variable that influenced us. But it was also driven internally by our customers first ideology and a smart simplification bend that was part of our digital transformation activities.
4468 Our business on the wireless front had become unwieldy. Our premium brand, Telus, was dying on the vine. Our loading, you know, had effectively disappeared at the Telus level and we were deeply disconcerted about what was happening with that particular brand. We needed to resurrect it, to rejuvenate it, to give it a new purpose in life, if you will. And that particular path for this organization to eradicate that complexity was actually born out of the success that we had with Koodo.
4469 With Koodo with the tab, the simplification components, it was easier to sell in the channels. We got consistent feedback from the likes of Best Buy that the reason that Koodo does better, it’s just a simple story in an n factorial world.
4470 And we said, why don’t we take those principles at Koodo and blow it out? Because at the end of the day we can’t manage the voluminous number of rate plans that we have, and we’ll never realize our digital transformation and our systems undertaking, unless we rationalize significantly within our portfolio. That was a big component of our driving ideology and that was under the customer’s first bend at Telus. It was those two things acting in harmony, the external stimuli and the overall smart simplification bent to better serve customers.
4471 THE CHAIRPERSON: Thank you. Thank you for the elaboration. I didn’t mean to oversimplify the reasons you had identified earlier.
4472 If my last -- this is partially a question, partially a comment. You’ve made your case that there is no competition problem, there’s no pricing problem. What is then the problem, is the question you asked. And your answer, if I’ve -- first and foremost as I understand it then, is this one of consumer awareness? Is that a -- is that a reasonable summary of what you’re saying?
4473 There is obviously concern among consumers expressed in response to our surveys, expressed in myriad forms about pricing, whether well informed or not. And so that concern exists. So am I correct in understanding your explanation for that ongoing concern or frustration as a lack of understanding of the offers that are in the marketplace?
4474 MR. ENTWISTLE: I think that’s an accurate depiction. I’m sad to say. I think part of the culpability sits with the industry, that we could have done a better job articulating everything from affordability, to value, to the world leadership that we consistently exemplify when it relates to the performance of our networks. It saddens me greatly.
4475 But secondly, there has been a cacophony out there of rhetoric at the political level that I can tell you categorically is untrue, and it’s emanated from all of the political parties and it’s taken place now over multiple years. And to say that statistically that’s not had an impact on the psychology of Canadians would also be erroneous. I think the amount of misconceptions, untruths, falsehoods that have been perpetrated related to affordability within our industry has had an impact on the psychology of Canadians.
4476 I can also tell you that its interesting if you look at the impact that it’s had on our employees. Our industry employs directly almost 400,000 people, and indirectly if you look at the supplier ecosystem, almost 2 million people. When you look at the Morneau Shepell study of our industry, the number of mental health issues and claims within the telecommunications industry, according to the Morneau Shepell data, is two to three times higher than the other industries in Canada.
4477 And yes, a part of that is related to cost pressures that we face related to pricing affordability. Some of it is related to the dynamic nature of technology change, but a lot of it has to do with the abuse that’s been hurled at our industry.
4478 I would also note, within the Morneau Shepell study, that the most people -- the people the most effected within our industry and certainly within the Telus company, are people under the age of 40, millennials, as it relates to the two to three times preponderance of mental health claims that are taking place, that have now become fundamentally characteristic of our industry.
4479 And I would say given -- you’ve got resources at your disposition, independent resources like Stats Canada and chief statisticians, rather than us quoting independent study, after independent study, after independent study, or as happened today, quoting a study done by someone within the government of B.C., or studying the Wall Nordicity report, or citing what took place within the Competition Bureau study, why can’t we have Stats Can go and do an independent evaluation of the studies and say, okay, are they based on accurate parameters? Is the study methodology robust? Is the data analytics -- depth of data not just robust, but accurate to draw inference from? So that we can establish a baseline in terms of knowing the facts and then making decisions based on the facts for the greater good of Canadians.
4480 I would say that would be a very positive step forward. Because if we can agree on the facts, I think it becomes much more easy to agree on what the right regulatory framework is to progress it for the benefit of Canadians.
4481 THE CHAIRPERSON: Well, thank you for that suggestion.
4482 MR. SERENTSCHY: Mr. Chairman, allow me to -- to jump on this. When I was a regulator we had been faced with very similar problem, it’s the awareness issue. How can -- how can people make more aware of what’s in the market? Not only what are the dangers, what are also the opportunities.
4483 And when we did -- we did a consumer empowerment program, and I started a video blog, and I blogged every month on an important subject, whether it's security of your devices or email, or whatsoever.
4484 And one of the things was go to your shop and ask the sales agent for what is the best plan for me, so that people going actively to the shops or basically that site, or whatsoever, and ask for the things they are really using.
4485 So that's coming from two sides. It's not only the sales side, also the buyer side to empower the people, and that worked very well.
4486 THE CHAIRPERSON: Thank you. Those were all my questions.
4487 Commission Counsel, were there any remaining questions?
4488 MR. BALKOVEC: Yes, just a few, Mr. Chairman.
4489 In your opening remarks at paragraph 33, you refer to a 2020 study by PWC. Could you undertake to file that on the record as well?
4490 MR. ENTWISTLE: Yes, we will do that.
UNDERTAKING / ENGAGEMENT
4491 MR. ENTWISTLE: That's a study that looked at wireless affordability, with us at 1.6 percent of disposable income; Australia, 2.1; and the U.S. at 2.6, as well the study that looked at price access and latency of wireless networks that ranked us No. 1 in the G7 plus Australia. And it also reached the affordability conclusion in terms of Canada being better than the U.S. and Australia, importantly, across all income quintiles, which I think speaks to the breadth of coverage of the multiplicity of brands and value props that we have within the market.
4492 MR. BALKOVEC: All right. Thank you. And if I understand correctly earlier there was a discussion about providing statements showing cashflow between 2014 and 2019. Can you just confirm that in providing those you would be able to clearly delineate the portions of it that deal specifically with wireless versus wireline or other expenditures?
4493 MR. ENTWISTLE: Yes, but I think it's important to understand that the fibre build program at TELUS, which really got going in 2013 and scaled in 2014, was not undertaken just as it relates to high speed access or Pay TV, but was done as a prepositioning, if you will, for 5G given that the performance of a wireless network is predominantly determined by the underlying wireline network that does the frontal delivery of the wireless traffic or the backhaul redistribution. So you know, there's a certain amount of intermingling as it relates to that fibre expenditure as both for the benefit of high speed Internet, but also as it relates to 5G.
UNDERTAKING / ENGAGEMENT
4494 But we'll illustrate, you know, that particular component for you as it relates to the audited number that we're providing, by the way, which is minus $6 billion, 2014 through 2019, by Deloitte. And that's a Sarbanes-Oxley 404 disclosure measure for us for which we, both myself and the CFO are legally culpable for, sort to speak, as to the accuracy of that information.
4495 MR. BALKOVEC: Thank you, and there could be some explanatory text elaborating on what you've just said as well. That would be fine.
4496 And finally, Commissioner MacDonald had discussed the operational side of a potential mandated low cost plan. You had asked whether you'd like to discuss the legal side as well. We can discuss that now.
4497 I refer specifically to the response you provided on the 18th of February to an RFI that was posed on the 23rd of December. That was Question No. 7. In that document, you had stated that in order to mandate such a plan, the Commission would need to perform a market power assessment on the relevant market, and that in your view, low cost or occasional use plans did not represent such a market.
4498 So my question would be, is there some other basis upon which the Commission could perform a deforbearance analysis? It's been suggested that perhaps on the basis that a certain segment of vulnerable consumers were not being sufficiently protected. Again, it seems clear that your view is that that is not the case, but at a higher-level would it be possible to even approach the question through that lens in your view?
4499 MR. SCHMIDT: I mean, you regulate sort of polyphonically on a technical basis, financial basis, social basis, so you have other options for looking at problems and thinking about remedies.
4500 We don't think you have to do anything. We've been probably too clear about that. But you have other options if you need them.
4501 And I guess I'd add, just to echo my written answer, section 24 doesn't afford you a route to a rate regulation, that's properly the province of 25 and 27.1, and basket clauses beware of stretching them too far. I think courts and others have been clear about that.
4502 MR. BALKOVEC: Understood. If there was to be though a deforbearance or a reassertion of those rate regulation powers, in your view, is that -- can you get to that place by looking at whether it's necessary to do so to protect the interests of vulnerable consumers, or do you have to perform the market assessment, in your view.
4503 MR. SCHMIDT: I'm going to start an answer, my expert colleagues might want to jump in as well.
4504 It's not entirely clear that it's a market failure if someone can't afford bread or rent or telephone service. It's a different kind of failure on the income side and it needs a different kind of remedy.
4505 So I think you're getting to a point when Jim has 77 cents a day plans in market, my kids have $8 a month Public Mobile plans – what's that? 30 cents a day – and there's some point when it's almost free, but it might still be too expensive for some people. And that's a very serious problem but I don't know if you can fix it by changing the price of any one good or commodity. It's a poverty problem and probably not a regulatory problem.
4506 MR. BALKOVEC: All right. Thank you. I don't have any further questions.
4507 MR. ENTWISTLE: Mr. Chair, just before we wrap up. One of the conversations that we didn't exhaust and it cuts to your comment on being more transparent and communications may be more effective on the communications front.
4508 As it relates to the MVNO mandating, and Stephen articulated, you clearly already know our position in that we don't think that there is an issue to solve for either as it relates to affordability or quality.
4509 There's been a lot of conjecture related to disinvestment or reduced investment. It's been a high topic related to what will happen as it pertains to MVNOs being introduced or another 25 percent price reduction being enforced, having already bettered the existing one that's in place.
4510 And there are some views that this is just theatre perpetrated by the incumbents, in that if mandated MVNOs come to fruition or there's an enforced second tier 25 percent reduction we will go on with status quo investing.
4511 So one of the additional things I would like to file with you in confidence that I brought here today is a Board resolution at TELUS signed by all of our Board directors instructing management to pursue an investment reduction plan and a job reduction plan and a philanthropic giving reduction plan should these eventualities present themselves.
4512 And we're discussing numbers where the reduction, and we'll go public with it, but I'll file with you the Board resolution, in the vicinity of a billion dollars of reduced investment over the next 5‑year. The reduced employment is in the zip code of 5,000 jobs over the next 5‑years.
4513 And I would ask that as we look at holistically on the eve of 5G what's the right thing to do for Canada that we include quantitatively all of these factors and reach a net conclusion as to what is the best way forward. Is it the continuation of facilities-based competition or is it a divergence thereof?
4514 And the one that is deeply problematic to us is the paradoxical or oxymoronic one of a facilities-based MVNO, which is, a, just wrong from theory to practice.
4515 But certainly the hybrid model is not required for entities that are well capitalized to build out themselves to seize the market opportunities that they deem to be appropriate.
4516 Thank you.
4517 THE CHAIRPERSON: Thank you. Your position is clear. It’s well understood. And if you feel it’s important that you file the document in the form of an undertaking, that’s fine. We’ll be prepared to accept that.
UNDERTAKING / ENGAGEMENT
4518 THE CHAIRPERSON: And again, ---
4519 MR. ENTWISTLE: We’ll do that.
4520 THE CHAIRPERSON: --- thank you for your submissions and your responses. And I bid you well.
4521 We’ll recess for one hour, return at 2:15. Thank you.
--- Upon recessing at 1:16 p.m./
L’audience est suspendue à 13h16
--- Upon resuming at 2:17 p.m./
L’audience est reprise à 14h17
4522 THE SECRETARY: We will now hear the presentation of Distributel Communications Limited. Please introduce yourself and you may begin.
PRÉSENTATION / PRESENTATION
4523 MR. FISHER: Good afternoon, Mr. Chair and Commissions. My name's Brad Fisher, and I am the head of product and marketing for Distributel Communications Limited. Established in 1988, our company offers a full suite of competitive telecommunications and IP-based television services to Canadian residential and business customers.
4524 Joining me today are Geoff Batstone, Vice President, General Counsel, and Christopher Hickey, Director, Regulatory Affairs.
4525 In a manner that's consistent with how we have structured our participation in this proceeding so far, my comments today will focus on three central points.
4526 One, that regulatory measures focused solely on promoting facilities-based competition have not resulted in sustainable competition or the degree of competitive options that should be available to Canadians. And that a new approach, albeit a familiar one, is required.
4527 Two, this new approach is to mandate the availability of the wholesale services that are required by Full MVNOs to enter and compete in the retail wireless market, with those wholesale services subject to reasonable rates, terms and conditions that allow full MVNOs to compete while ensuring that national wireless carriers earn a fair return on their investments.
4528 And, three, that there is a way you can accomplish this by making straightforward changes to the existing wholesale wireless roaming framework.
4529 Now, onto the first point. All measures that have been taken to date to address the ongoing issues in the wireless market have focused exclusively on promoting facilities-based competition.
4530 Most recently, you concluded in 2015 that there were clear concerns with the state of competition in the retail market. You also found that wholesale MVNO services satisfy that definition, the definition of an essential service, meaning that the availability of these services would allow greater competition in the retail wireless market. Nonetheless, a decision was reached to maintain a focus on facilities-based solutions by concluding that wholesale MVNO services should not be mandated at that time.
4531 Now, five years later, the market conditions that led to your findings and your concerns in 2015 they continue to exist today.
4532 For example, national, provincial and territorial subscriber market shares are very much the same as they were then; the national wireless carriers continue to enjoy the vast majority of subscriber and revenue shares in the retail market; barriers to entry remain very high; and wholesale MVNO services remain unavailable.
4533 The state of competition in the retail market continues to be a cause for concern, with regulatory intervention being required to achieve the most basic of outcomes. The Commission should not, for example, have to impose a wireless code to ensure that wireless carriers treat their customers fairly. The Commission should not have to force wireless carriers to respond to customer demands, as was the case with data-only wireless plans. Canadians continue to express concerns about the prices they pay, the value that they receive, and the options that are available to them.
4534 These issues persist even though we have leveraged every facilities-based tool available in the regulatory toolbox.
4535 We have tried complete forbearance. We have tried spectrum set asides to enable entry by new facilities-based carriers. We have tried changing the Telecom Act to accommodate entry by one specific new facilities-based carrier. We have tried retail regulation through the imposition of codes and setting out requirements that specific service plans be provided. We have tried addressing the concerns of the facilities-based wireless carriers by mandating access to wholesale roaming. Yet, issues continue to exist.
4536 To our second point, these challenges are not unique to the retail wireless market. They are present in the broadband market. They were present in the local telephone market. And before that, the long-distance market.
4537 Now, the only difference is that the issues in those retail markets were addressed by a different approach, one that targeted a regulation at the wholesale level to allow greater competition at the retail level.
4538 It's time to take this approach in the wireless market and to mandate the availability of the wholesale services required by full MVNOs to allow them to enter the retail market and bring Canadians the benefits of greater wireless competition.
4539 By definition, a full MVNO is a service-based wireless provider that does not own spectrum or operate a radio access network. It instead relies on wholesale services purchased from an underlying wireless carrier to provide wireless services to customers in the retail market.
4540 Except for the operation of the radio access network, full MVNOs are responsible for all other aspects of their operations. They are responsible for sales, for marketing, distribution channels, customer service, retail pricing and plan creation, billing, SIM card management, customer activation and deactivation, their service platform, value added services, and the operation of a core network.
4541 To use the existing wholesale wireline broadband framework as an analogy, Distributel and other ISPs that use aggregated wholesale high-speed access services to provide their own retail broadband offerings, they're the wireline equivalent of a full MVNO. And in that context, we operate and are responsible for all aspects of our network, our operations except those related to the very last mile of wireline access
4542 Full MVNOs provide the greatest competitive benefits to the retail market, as they are able to control all aspects of their operations, including their retail plan structures and pricing. For this reason, we believe the focus should be on mandating only the wholesale services that are required by full MVNOs to enter and compete in the retail market.
4543 Now onto our third point, enabling full MVNOs to enter the retail market can be done in an efficient way by making modifications to the existing regulatory framework for wholesale wireless roaming services.
4544 First, remove the conditions that limit the use of wholesale roaming solely for the purpose of incidental roaming on national wireless carriers' network.
4545 Second, require that mandated wholesale services be provided at the same quality, level of service, and using the same underlying technologies that the national wireless carriers use to provide their own retail services.
4546 Third, enable full MVNOs to control how their customer’s data and voice traffic is routed and handled by requiring the national wireless carriers to hand back that traffic to the full MVNO.
4547 These modifications, and a decision that the existing wholesale wireless roaming rates would apply on an interim basis, will allow that framework to be used to enable full MVNOs to enter the marketplace.
4548 Now, we recognize that subsequent work will be required to finalize MVNO framework, ensuring that applicable rates, terms and conditions, are just and reasonable.
4549 However, this approach provides the benefits of allowing competitive entry during and while those matters are subject to the necessary process and determinations.
4550 And this concludes our presentation and our views as to how we believe a more competitive wireless market can be achieved, one that would bring sustainable and substantial benefits to Canadians.
4551 Thank you for letting us appear today. And we’d be happy to answer questions that you may have.
4552 THE CHAIRPERSON: Thank you. Thank you for your presentation.
4553 Commissioner Levy?
4554 COMMISSIONER LEVY: Good afternoon.
4555 In your submission, you state that absent regulatory intervention, the Canadian wireless markets will not be sufficiently competitive.
4556 So what impact on the competitiveness of the marketplace do you think regional carriers are having? What impact could they have in the future, assuming that they’ll continue to upgrade and expand their networks?
4557 MR. BATSTONE: So I don’t think there’s any -- sorry, they’ve obviously had an impact. You know, we’ve seen -- I think the most obvious example of that was the reaction to the Big Gig plans.
4558 But I think if we look at the indicators, for instance, in the CMR, what we haven’t seen is a big change in the market shares, either on our customer and revenue side. And as a consequence, you know, we look at that and conclude that they’ve not had the desired impact, at least to this point.
4559 I mean, it’s possible they may have more of an impact in the future, but frankly it’s been our submission in this proceeding that focusing entirely, or relying entirely on a facilities-based approach is not going to deliver the kind and, you know, the substance, and degree of competition that we think is necessary.
4560 So basically, just that, you know, I’m sure that they have had an effect, there’s no question about that, but we believe that if we’re to achieve a truly competitive market, one that’s characterized by, you know, a broad range of options for, you know, across the spectrum, we need to do something more than just rely on the existing facilities-based approach, whether it’s through the incumbent, like the national wireless carriers, or through regional carriers.
4561 COMMISSIONER LEVY: Further to your original interventions and the further comments, you say that the national carriers’ decision to introduce the unlimited plans stems from decisions taken by Freedom Mobile. So you suggest that this underscores the benefit of allowing MVNOs to enter the market.
4562 But isn’t this evidence that regional carriers are having positive competitive impacts?
4563 MR. HICKEY: So we did agree with the Competition Bureau’s findings in that respect with that when Freedom introduced the Big Gig plan, it did lead to a response from the national wireless carriers.
4564 That being said, in our view, we want to see more of these types of responses. We’ve seen one. We’ve seen Big Gig introduced by unlimited.
4565 And the -- we would have expected that if the market was operating properly competitively, then we would see this on an ongoing basis. We wouldn’t be talking about a one flavour of products that now all are providing.
4566 And that is the impact of competition. You would want to see roll outs of new innovative type services, various forms of services that they’re all responding to, and not just rolling out their “me too” products to try to catch up now that the horse is out of the barn when it came to that one service.
4567 So that’s our views as that.
4568 So, yes, absolutely, there was a big change in the market. But we’d want to see that continue on an ongoing basis as evidence -- or the need for a truly competitive market.
4569 COMMISSIONER LEVY: You also emphasize that -- and you did again today, that the national and provincial market shares of the existing carriers hasn’t moved very much.
4570 So what do you say in response to arguments that the better indicator of the competitive impact of regional carriers in found in the recent net additions made by those carriers?
4571 MR. HICKEY: To be honest, I think the data that we had available to us and that we looked at related to market shares, revenue shares, CRTC data, and that is what we based our points on.
4572 So I don’t have a view, necessarily, on the issue as it comes to net additions and that specific point.
4573 MR. BATSTONE: Just to add to that, I think -- I don’t think you can look only at new customers when you’re assessing the competitiveness of the market; right? I think you have to look at overall market share, you know, as one of the indicators of competition.
4574 But it feels to me like that would be too temporary a view; right? Just looking at net additions at a particular point in time. It’s got to be a holistic view of the entire market.
4575 And, you know, we -- the Competition Bureau’s looked at it in detail, done extensive studies, and concluded that these markets, you know, there was a slight improvement with the introduction of the regional carriers, but overall these markets are still characterized, you know, by joint dominance and significant market power.
4576 So it’s one thing to look at, but we don’t think it tells the entire story.
4577 COMMISSIONER LEVY: So if the Commission were to mandate wholesale MVNO access, what impact do you expect them to have on the Canadian market place and in what kind of timeframe?
4578 MR. BATSTONE: So I think -- you know, you heard from Tucows yesterday, and I thought he had a lot of good things to say from a very personal perspective, having been involved in it the United States.
4579 You know, if you were to mandate MVNO access, I think what you’re doing is you’re opening up the club.
4580 You know, right now there is a club of wireless providers in Canada.
4581 We would put the regional providers in the club; right? They are -- they’re integrated with other operations. They’ve been around forever. I think all of them trace their roots back to some form of monopoly or, you know, something like that.
4582 If you open up the market to service-based providers, what you’re doing is you are opening up that universe of people that may come forward with something interesting and helpful.
4583 Until you do that, if you insist on facilities-based as the only form of competition, you’re going to be stuck with the providers that you have.
4584 So I -- to me, the principal benefit of MVNO is that you will lower that barrier to entry and you will allow people in that have not been in to this point and who will come at competition in wireless from a very different perspective.
4585 MR. FISHER: Just to build on Geoff’s comments, the widening of the field really creates an environment for the sustainability of that competition and ensures that we don’t end up in a market share spaces with regional providers, to Geoff’s point, who, you know, also are operating dominant business in other product lines.
4586 So the concept of the opening for full MVNOs, service-based competition, really ensures, in the long run, that we have continued competition, we have innovation, and an ability to serve the segments of the market that may not be served today by the largest and large providers.
4587 MR. HICKEY: And then, sorry, just to your points about how quick, part of our proposal as to let’s use the existing frameworks is because that allows us to not have to re-invent regulatory wheels. We have the framework in place.
4588 There are concerns I think that you’ve heard otherwise with the rate that’s in place, but if you make that rate interim and you remove a couple of conditions that we identified, very quickly, as a result of that decision, would full MVNO entry be enabled following that decision.
4589 COMMISSIONER LEVY: Should the Commission mandate wholesale MVNO access on all national MNOs or on a subset of them?
4590 MR. HICKEY: We believe that all national wireless carriers should be mandated to provide wholesale MVNO services.
4591 COMMISSIONER LEVY: What about the regional carriers?
4592 MR. HICKEY: We have not put forward a proposal that the regional wireless carriers be required. In fact, we -- under our proposal, they would be able to make use of wholesale MVNO services if they so chose, the same way that a full MNVO service provider would as well.
4593 But we have proposed an obligation that they be provided -- mandated to provide wholesale MVNO services.
4594 COMMISSIONER LEVY: And that would include SaskTel?
4595 MR. HICKEY: That would include SaskTal.
4596 COMMISSIONER LEVY: In your intervention in May you submitted that the measures taken to date to address lack of competition in the retail wireless market through that narrow lens of facilities-only competition have not succeeded.
4597 In your views, what would we need to see happen in that market to deem it sufficiently competitive?
4598 MR. BATSTONE: I think we want to start seeing actual changes in trailing indicators when it comes to market shares. The -- those have been remarkably consistent. The 90 per cent since 2012. We want to see continued falling prices. We do recognise that's the Commission's own data shows that there's been certain falling prices, but you'd want to see that on an ongoing basis.
4599 But you'd also want to see different types of plans and services offered. Right now, we have basically a bucket of voice, bucket of data, and they all look very similar. We filed other data and other evidence that showed if you take all the plans and put them next to each other, they're remarkably similar. So, you'd want to start seeing differentiation in the type of plans and the services.
4600 And you'd also want to see people targeting specific areas and communities. You'd want to see a market where parties go after certain segments and niches of the market, and it's not just broad-based and offering the same services to the market as a whole.
4601 And if you start seeing success in those types of metrics, those I think start meeting the fundamentals that there's greater competition in the market.
4602 COMMISSIONER LEVY: Have you ever approached MNOs in order to negotiate any kind of an agreement access or other arrangements to provide mobile wireless services?
4603 MR. BATSTONE: Yes, we have. Distributel has approached, like, I think it's fair to say probably all of the MNOs over a fairly long period of time. I'm aware, long before my time at Distributel, but I'm aware of discussions back to the sort of mid to late 2000s, and more recent discussions, you know, within the last I would say 6 months probably.
4604 COMMISSIONER LEVY: And what's the outcome been?
4605 MR. BATSTONE: The same very time. The door gets closed very quickly.
4606 Again, I don't have personal experience of a lot of this, but I've talked to a lot of people -- you know, I've talked to people in the company who have, and the experience is that we raise it and it -- there's no bite. Like, there's no real interest in negotiating. There has not been a substantive negotiation between Distributel and any national wireless carrier about MVNO. And that includes -- that, you know, the flavour of MVNO. You know, we have a certain conception of what we would like to do as an MVNO, but I don't believe that the discussions have even got to that point as to what they would be willing to, you know, consider and negotiate on so.
4607 COMMISSIONER LEVY: So, what's the barrier? Like, where do you hit the wall?
4608 MR. BATSTONE: The barrier is there's nothing in it for them at this point in time; right?
4609 COMMISSIONER LEVY: Like, why is that, because obviously you would be paying a wholesale rate, so they're getting something for that. You're taking over perhaps a segment of the market that hasn't been reached, that's a niche. You might be using capacity that isn't otherwise used. You take over the cost of billing, and customer relations, and all of those sorts of things. So, why is that not sufficiently tantalising enough to bring someone on board?
4610 MR. BATSTONE: I think this is another indicator of the lack of competition in the market. I think if we had a truly rivalrous competitive market, you know, somebody who had excess capacity would be out there trying to sell it to a wholesaler, so that they could, you know, use that as an additional channel to use -- to utilise their network and to, you know, to get more subscribers effectively on their network.
4611 The fact that that doesn't happen suggests to me that they don't feel there's a need to compete in that way; right? It's just -- they all view it -- I think the national wireless carriers have been used to running things by themselves this entire time. They're just not interested in having any more competitors in the market.
4612 COMMISSIONER LEVY: You obviously got some plan -- I'm sorry. You want to add something.
4613 MR. FISHER: Thank you. I did want to build on Geoff's comment, just to close out in that most recent discussions in this subject have been met with, in general, kind of a wait and see approach. Well, let's see what happens, you know, because there's some hearings coming. So, maybe we'll just -- we'll just see how that goes.
4614 And it's, to me, personally, it's a stark contrast to the experience I had operating an MVNO in the United States. And so, where I had facilities-based carriers approaching and vying for my business, to your point, because there is profit to be had, and there is the offloading of cost and expense and hassle in certain parts of the market where a national facilities-based provider isn't interested or isn't scaled to operate, and so just to build on it. Close there.
4615 COMMISSIONER LEVY: And I'm interested in your comment about those being in places that would otherwise not be attractive. Would some of those places be remote and rural parts of the country?
4616 MR. FISHER: In the United States it was probably the most remote territory, yeah, of 50 states.
4617 COMMISSIONER LEVY: So, can you share some of your consideration with us vis-à-vis your plans to get into the market? For example, would you consider entering as a full MVNO and sort of what geographic markets were you contemplating entering?
4618 MR. HICKEY: So, absolutely to the question on the full MVNO. That would be our plan. There's loads of benefits as it comes to a full MVNO. We would want to be able to control the end-to-end experience like we do when we offer broadband services today using wholesale services. We're responsible for the full A to Z when it comes to operations, except for the operation of the last mile in the broadband network, which allows us to bring the greatest value and service to our customers. So, absolutely, we'd be looking for a full MVNO.
4619 And I think Brad probably has some ideas on product there, but from a geographic market, the -- we are currently a ISP and a telecom service provider currently across the country, though we are focussed in Ontario, Quebec, out west as well, not as much out east, but we'd be looking to do that in the places where we're able to provide value on a -- as an ISP as well, because we see those as very unified type of service offerings.
4620 COMMISSIONER LEVY: So, you want bundled services?
4621 MR. FISHER: Yeah.
4622 MR. HICKEY: And Brad can speak to the bundling, but when we do offer those services, that is definitely a high value that we see if we're able to offer that quad, that other piece that's currently missing from our service portfolio.
4623 MR. FISHER: I would say that, you know, the starting point for us is a geographic mapping to parts of the country that we have established a brand presence in -- to date. This logical augmentation to a double play, triple play, household purchase. But beyond that, when we look at the market, not just from a geographic perspective sort of starting point, we look at market segmentation, and we look to understand where there are unserved or underserved niches in terms of market segmentation within those geographies.
4624 And so that's where, you know, I think this concept of more providers with more choice for consumers starts to play, and we'll be looking at markets that aren't getting necessarily the attention or the focus that national providers are focussing on today.
4625 COMMISSIONER LEVY: Would an MVNO have the ability to serve customers looking for low-cost and occasional use plans?
4626 MR. BATSTONE: I think that -- the answer to that question depends a bit on the rates; right? So provided that we have a wholesale rate that's just and reasonable that reflects the cost, we -- I would think we should be able to build a plan for, you know ---
4627 COMMISSIONER LEVY: And that would be the primary incentive? That would give you the incentive?
4628 MR. BATSTONE: It's a necessary part of the equation; right? For any plan that we offer, you know, we've got to have a wholesale rate that works. It's the same on the broadband side. It's the same in any case like this.
4629 Now, we -- you know, to be competitive, we would have to be lean in terms -- and just as we are on the broadband side, in terms of what our costs on top of that rate, because that becomes the largest component of it, but certainly, I mean, it's possible to build those kind of plans, provided that that rate is there.
4630 And I think especially when it comes to occasional use, the one thing that's missing or has been effectively removed from the current market is actual prepaid services.
4631 So there was a time, and I remember it vividly, you'd go to the store, you'd buy a card, you'd buy 100 minutes, and those 100 minutes would continue on until you used them. They might expire in 6‑months or a year. Now, you're seeing that's been transformed to prepaid on a monthly basis, where you pay $5 a month for this, and if you don't you'll lose it.
4632 And so when you're talking occasional use, I mean, there is an issue with the rates, but you would be able to bring in occasional use if someone wanted to bring back prepaid, as we understood it before. There's a absolute market there from what we understand from the consumer groups that are concerned about its absence, and a way that you could do that the -- in a way to bring back to occasional services certainly.
4633 MR. BATSTONE: That goes back to that question of the providers that are currently in the market. I don't believe that you would see a situation where something like prepaid gets pulled by everybody in a truly competitive market. Right? Like I -- you know, there should be somebody that still wants to serve those customers. And I -- so I think, again, if you allow MVNO competition and competition by service-based providers, I think there's a much higher likelihood you're going to get somebody who's willing to offer a product like that. You know, it's an additional option for the customers.
4634 I lived in a country where, you know, probably about 90 percent of the mobile services were sold on a pre‑paid basis. Like the -- you know, there are people that need that. The fact that it's not being offered today, I think is -- again, is a reflection like of the sort, I hate to say coordinated. But if you looked in our second submission, you know, the -- when you look at those flanker brands, and the packages are essentially identical, you know, there's one option, really. You can get it from three different companies but there's one option. Right?
4635 The MVNOs, the quote-unquote MVNOs that are in the market today, it's the same thing, like it's essentially the same service. I think until you -- we go beyond this -- the existing facilities-based providers I don't think we're going to see the true diversity of offerings that I assume we should get if that market's opened up to MVNO providers.
4636 COMMISSIONER LEVY: Let's talk a little bit about the Competition Bureau's model. In their submission, the Bureau suggests that several regional facilities-based carriers would likely be in a good position to take advantage of their proposed facilities-based MVNO access model. Would you consider offering a retail-based MVNO service if you qualified for mandated wholesale MVNO access under the Competition Bureau's model?
4637 MR. HICKEY: So I guess under the Competition Bureau's model, to my understanding, the deal was that if you are a regional facilities-based wireless carrier you would have access to their MVNO services. So I just want to understand -- so I'm not sure I'm quite understanding the question as we aren't currently one today, and how we would be able to access MVNOs services under that. So I just think I'm misunderstanding the question.
4638 COMMISSIONER LEVY: Well, let's just skip ahead to the notion that these sorts of things would be time limited. What do you think of the notion that a sunset clause would be implemented, and would 5‑years be enough?
4639 MR. HICKEY: Oh, I think in anything, when you undertake any type of regulation, it could be the Competition Bureau's model, it could mandated wholesale MVNO services, but in general when you put a sunset clause on something you effectively say this is the point things will all end, and then you hope that you've put in the correct market conditions that by that time you can actually pull the rug out from under the regulation.
4640 Realistically, the way we look at it is when regulatory intervention is needed those regulations and intervention needs to happen until the reasons that you decided to regulate in the first place no longer exist. And so to say that it will happen in 5‑years, or say that it will happen in 3‑years or 7‑years, it's really hard to peg when those regulations will have had their full effects. We've solved the market issues, and now we can take those regulations out of the market.
4641 So we are a little bit concerned that you're able to accurately say 5‑years and then those measures will have done everything they need to do.
4642 MR. BATSTONE: And I -- sorry. If I could just add to that.
4643 COMMISSIONER LEVY: Yes.
4644 MR. BATSTONE: I -- just generally on the Competition Bureau study. I mean, you know, I think we were -- we felt there was a lot of really good information in there. We felt that their conclusions on the state of the market were bang-on. Somebody else said it, I'm not sure who, but we don't agree with the recommendation; right?
4645 And I think, to me, that 5‑year recommendation was a similar sort of academic line of thinking that probably isn't practical in reality; right? I think I would completely agree with what Chris has said that, you know, you need to regulate until it's no longer necessary to regulate; right? And so once the market's competitive, yeah you step out at that point; you're not needed. Until then, you are. If at 5‑years, great; if it's more than that, so be it. It'll have to be.
4646 But you know, to say that there's a particular period in time that's going to work, I think is just, you know, a level of crystal ball gazing that none of us are truly capable of.
4647 COMMISSIONER LEVY: Well, of course, you're looking at a full scale MVNO model that doesn't anticipate necessarily the facilities-based model that they were trying to encourage; and therefore, the notion of having deadlines that relate to build outs and so forth are really not, you know, germane to your particular proposal.
4648 Do you have -- do you own any spectrum at this point?
4649 MR. HICKEY: We do not.
4650 COMMISSIONER LEVY: Do you have plans to acquire any?
4651 MR. HICKEY: Well, I think the fact is that, I mean, Distributel, we're proud of our size. The -- but as you've heard yesterday, Cogeco finds it a barrier to be able to purchase spectrum, and we are unfortunately smaller than Cogeco.
4652 And so when we look at spectrum, it is a substantial barrier to entry. We're talking billions of dollars in cost to be able to obtain, and so it hasn't been our ability to date to be able to obtain spectrum, and it is -- but it's not -- I will be clear that it's not simply -- it's not that we don't have interest, it's that it's not something that's just very simply to come by for a company of our scale.
4653 MR. BATSTONE: And again, I think, you know, I'm going back to things I've said already. But we don't think that's the right approach going forward; right? Like to try -- to believe that a company like Distributel could acquire the necessary spectrum and build out the necessary network to compete on a facilities-based basis with the existing providers, honestly I just don't think is realistic.
4654 That -- and -- I mean, the fact that we have three national network operators in Canada and only two networks, I think tells you everything you need to know about the difficulty of building out a national wireless network in Canada; right? It's just not really realistic to think that you're going to get multiple networks.
4655 And so in those -- in that set of circumstances I think it's important to switch gears and think about how best to promote competition, and for us that's the service-based model. So to speak about trying to acquire spectrum, this sort of thing, to us, it's just not the approach that we think is the best way forward.
4656 COMMISSIONER LEVY: So let's talk about what would be the best way forward, and of course the first issue that arises is eligibility. Could you describe what eligibility criteria you believe would be achievable and relevant to full MVNOs?
4657 MR. HICKEY: So our first out of the door position, and first position in this proceeding was that eligibility criteria isn't necessarily required. That we shouldn't be trying to put gates and rails on who can participate in the market and enter the markets.
4658 As the proceeding participated, as the proceeding continued, the -- there was a lot of discussion about eligibility criteria, and a lot of it came from Cogeco's HMNO proposal in saying that let's make eligibility criteria that would basically require facilities-based investments in broadband facilities as the barrier to entry to have access to MVNO.
4659 When we looked at that, we didn't think that was very feasible so we did put forward an alternative approach that if you're looking to create eligibility criteria that would be at least relevant and achievable and that for us the CLEC model, effectively saying that where you want to operate as a full MVNO you must also operate as a CLEC.
4660 And we did that because it's achievable. There are barriers to entry to become a CLEC but they are nowhere near building your own broadband-based facilities network and they're at least relevant When you are a CLEC, you have interexchange with other carriers, you have a network, your use -- you have your systems in place for LNP, local number portability, you have access to a number of resources. And there's things that are there that would translate over to the operational full MVNO.
4661 And so we said if you are looking and concerned about eligibility criteria here's something you could that does require a demonstration of commitment, does require a heightened barrier of entry but one that's achievable and is at least relevant to the operation of a full MVNO. So that is why we put forth that alternative proposal in our intervention and continued throughout the proceeding.
4662 Just to be 100 percent consistent, I mean, you know, LEC status is a facilities-based category, right. And so we're not suggesting it from that perspective. We're not saying you need to be facilities-based to be an MVNO.
4663 What we are saying is that was the sort of categories or classifications that are already out there in the CRTC realm. CLEC seemed like the most appropriate one to use. Maybe we call it something different in the context of MVNO but it would be -- sorry, I'm just trying to make that distinction that is not -- we're not suggesting by tying it to CLEC status that it's tied to facilities somehow.
4664 COMMISSIONER LEVY: Okay. That kind of barrier might force all the question that I have next and that is some parties have raised concerns that if the entry is wide open that well capitalized companies MVNOs in North America, you know like the large North American tech firms, could move in.
4665 Do you think that that's a valid concern or does your notion of CLEC kind of structure forestall that?
4666 MR. HICKEY: So with ownership rules that are in place today, the CLEC rules wouldn't wholly forestall that with the foreign ownership there, but it would require further commitments and entry and barrier into the markets and we haven’t seen that happen today. And I understand wireless might be different from VoIP or it might be different from net but we haven’t seen that type of threat from some of the multinationals to come into our market today.
4667 So we understand that concern. I'm not 100 percent I agree that we should construct our whole framework to ensure that doesn't happen on the possible threat that it may occur when they have shown no interest in doing so today. I haven't seen Google participate in this proceeding. I haven't seen some of those that have presented before you and said we certainly want to get in the markets.
4668 Here in Distributel who's been in the market for 30 years, we certainly want to continue offering Canadians service and hope to do that by wireless but we haven’t seen those come up and say, please, let's get a MVNO framework so we can do the same.
4669 MR. BATSTONE: And if we're being consistent, and I think we need to be, I don’t think we can say you should exclude some people and allow others, right. Like our approach certainly was, you know, if you want to achieve the goal of a truly competitive market, you need to open it up.
4670 So, you know, we have not said -- we have not put forward a suggestion or a proposal like the ITPA or some of the others that have focussed on this issue to say that, no, this should be a Canadian only sort of thing. Maybe we'll regret that because we're not resourced like Google and Amazon but, you know, we didn’t feel that we were being consistent in our message if we took that approach.
4671 COMMISSIONER LEVY: With respect to rates, terms and conditions, and so forth, you propose that the Commission could modify the wholesale roaming tariff as a starting point, or wholesale MVNO access.
4672 Can you explain how we should modify it to set a final wholesale MVNO rate?
4673 MR. HICKEY: When it comes to the rates specifically, that would have to follow after a revisits and a process phase to establish final cost based on Phase 2 cost-based costing. So that would require a new process to be initiated, a costing proceeding to be undertaken, and with the outcome of that proceeding, a new final rate that's based on Phase 2 costs, plus a markup as we have in the other regulated wholesale services.
4674 So that would be the end goal. Part of the reason that we've taken that approach is it provides starting rates. It provides the existing wholesale wireless roaming rates that could be on an interim basis so we don’t have to start to make a rate from the ground up. We can say we have rates. We can use this on the interim while we review the rates and determine what the rates should be final, but let's not wait until we go through all that process to allow entry into the markets.
4675 We have a rate that can be used now. Let's allow entry into the market while we do all those things that will be required to finalize those -- finalize the rates and the framework.
4676 MR. FISHER: Just building on that in terms of timeliness to market, unlike some of the other products that have come before regulation, we have today a well-defined framework for interconnecting to view the roaming arrangements and so this isn't something, to Chris' point, that requires a lot of development. It's not requiring new technologies. This is something that an MVNO, a full MVNO who aspires to be in the market could leverage existing interconnections, existing ecosystem to plug in and begin a retail offering.
4677 COMMISSIONER LEVY: You have suggested that under the policy directions, the Commission should consider all types of competition investment and you've been very consistent today in your openness.
4678 What types -- what specific types of investments beyond facilities could count towards investment targets for MVNOs?
4679 MR. HICKEY: I just need to find the list of the -- the list that I have but I think it's on the -- so we've provided kind of a list of all things that a full MVNO would have to do to enter the market. And I flip through the notes so I can find that list, but it is substantive. It's not -- you know, we won't be able to just use what we have today and say, well, we can be an MVNO now. So we're going to have to make investments in equipment, make investments in operations, in the core network equipment and kind of throughout that allows to build an MVNO. And those are substantial costs.
4680 With respect to ongoing, that's a little bit more the -- that's a little bit more hard to make a specific threshold of investment that would be required. We invest every day on an ongoing basis in our -- on an ongoing basis in our business but I can't speak to specific thresholds at the moment.
4681 MR. BATSTONE: So Distributel is about -- I think we're slightly under 400 employees today, right. So if we're adding wireless to that, there's going to be employees that we'll need. There will be -- and this is where I get completely out of my depth as a lawyer but, you know, there are technical aspects to this, right. Like we are characterized as, you know -- well, I think I saw us in a footnote once referred to as bottom feeders but, you know, the characterization is always that we are somehow stealing the networks that we use, right, which I think is very much not the case. You know, we pay for the networks that we use through the rates.
4682 But then on top of that, there is equipment we have to buy. You know, we purchase a lot of services from other providers in order to sort of connect up to the interconnections, these sorts of things. We would have to -- the only thing we're not doing in this model is the radio access network. So everything else we're going to have to have the signal links. We're going to have to have the connexions to the roaming clearing house. We're going to have to have the GSM membership. We're going to have to have all those things and that involves a significant investment in time, employees, equally equipment.
4683 You know, obviously it's not on the same order of magnitude as, you know, building out a radio network but nor is it trivial either, or everybody would be doing it.
4684 COMMISSIONER LEVY: If that list was a part of your earlier submissions, it's part of the record. If it wasn't or if there are amendments to it, we can take it as an undertaking and you can file before March 10th.
4685 MR. HICKEY: Absolutely, and it was parts of our first intervention, so I checked. It isn’t there. I just couldn't get to it fast enough, but it is in our first intervention.
4686 COMMISSIONER LEVY: That's fine. Are you familiar with ISED's conditions of licence?
4687 MR. HICKEY: Yes.
4688 COMMISSIONER LEVY: Do you think that would be an administratively efficient way to track investments?
4689 MR. BATSTONE: I think Chris is now regretting saying "yes" a minute ago. I'm not familiar enough with those conditions to know. I don’t know if you are, Chris?
4690 MR. HICKEY: Yeah, I will take that back. I was thinking that the licence conditions applicable but not in a tracking mechanism. So I apologize. I will take "yes" back.
4691 COMMISSIONER LEVY: If you want to think about it and file a comment, that would be fine.
4692 MR. HICKEY: Absolutely.
UNDERTAKING / ENGAGEMENT
4693 COMMISSIONER LEVY: I just have a couple of brief questions and then I'm done.
4694 If the Commission does mandate wholesale MVNO access, which carrier should be obligated to provide that access?
4695 MR. HICKEY: We're in the view that the national wireless carriers should be mandated to provide wholesale MVNO services and we do not believe that the regional carriers should be required to do so, but we do not object to them also having access to those mandated wholesale MVNO services.
4696 COMMISSIONER LEVY: So do you think that that requirement to provide MVNO access should only apply to the wireless carrier in each area that has the largest network coverage? Or market share? Do you have any thoughts on that?
4697 MR. HICKEY: Well I -- we would say all three.
4698 The fact is that there is three large national wireless carriers, there’s two networks, and we see on all market share and market subscriber, market power being held by each individual of those three.
4699 And so our view would be that each would be mandated to provide a national wholesale -- sorry, each should be mandated to provide a wholesale MVNO service and we wouldn’t divvy it up by “You’re required here,” and “You’re required there.” Each would be required to provide where they operate.
4700 MR. BATSTONE: And we ---
4701 COMMISSIONER LEVY: And from ---
4702 MR. BATSTONE: We’d only ---
4703 COMMISSIONER LEVY: Sorry.
4704 MR. BATSTONE: We would only be on one of those networks. But I think it’s important to have the option of going to any of the three to try to -- you know, and we haven’t talked about negotiations specifically, but, you know, to the extent anything needs to be negotiated, then it’s obviously better to have three potential parties to negotiate with as opposed to one, for instance.
4705 So I would suggest that it’s -- you know, the mandate should be there in respect of all three.
4706 COMMISSIONER LEVY: But of course, it then opens it up that perhaps another MVNO could make a deal with another of the carriers, and then you’d have competition at your level too.
4707 MR. BATSTONE: We’re used to that; right? On the wireline side, there are all manner of competitors for broadband internet services.
4708 We fully expect that we’re going to have -- well, let’s face it, we’re going to be competing against the incumbent operators; right? There’s -- it doesn’t get harder than that.
4709 So yeah, we’re -- we’d be -- we’re completely open to that idea.
4710 COMMISSIONER LEVY: And finally, I just want to end with the role of the flanker brands.
4711 You’ve mentioned it before, you say that there really isn’t that much differentiation in the markets.
4712 So it would appear that you’re quite confident that MVNOs can offer more competitive services than the current flanker brands do?
4713 MR. BATSTONE: I think that’s absolutely the case.
4714 I mean, those flanker brands look more to me like a hedge against the regional providers than anything else; right? They rolled out those, quote unquote, alternatives, you know, when they were faced with competition from the regional providers.
4715 But the fact that they all rolled them out exactly the same says something; right? Like, they’re not -- they didn’t feel it was necessary to actually come up with their own compelling offer to the market; right?
4716 So the flanker brands, I think, are -- sorry, I lost the thread of the question, to be honest. Could you just repeat it for me?
4717 COMMISSIONER LEVY: Just what do you think makes MVNOS -- what could be more competitive than the flanker brands?
4718 MR. BATSTONE: Yeah, exactly. So, sorry, I think, again, the presentation from Tucows yesterday I thought was really interesting; right?
4719 The competition isn’t always going to be on rates, and minutes, and data. I mean, that’s very important, but there’s going to be limitations to what you can do in that space.
4720 I mean, it could be that the competition is on something entirely else like, you know, some other attribute.
4721 Like, I think always of Amazon in this. Think of the first time that you ordered something with one click on Amazon. That was an innovation that they brought to online retailing; right? But it’s not the actual sort of thing; right? Like, it was how you did the thing.
4722 And I think, you know, you could -- I think, as the gentleman from Tucows was saying, you know, if you open this up, you’re going to get a whole bunch of ideas that you’ve never even considered or thought of will come to the fore, if there’s enough people participating in that market and trying to come up with innovative new ways to sell to customers.
4723 MR. HICKEY: And I think as well, I think today there was a concern expressed by a company that they had too many service offerings, that they did something because it was hard to juggle the hundreds, you know, hundreds of service offerings that they had in market.
4724 Well we’re not quite sure hundreds of service offerings, if customers are seeing value in each and are able to choose from the ones that they think most benefit them, are a bad thing.
4725 And understand why one company probably doesn’t benefit from offering hundreds of service plans itself, but if you have competitors that come in and they offer different flavours, and different types of services, and different packages, and a customer can look and say, “Yeah, that one suits my needs best,” that’s the type of different offers and value that bringing in more competitors into a market can capture.
4726 MR. FISHER: And I’ll just add, with respect to the flanker offerings, flanker brand offerings today, they’re very homogenous. They’re still very broadly targeted to the marketplace.
4727 And what you’re not seeing is a specialization. You’re not seeing specific segments of the market that, again, may be underserved or unserved, with packages tailored directly for them; right?
4728 What we ---
4729 COMMISSIONER LEVY: What do you -- what -- can you give me an example?
4730 MR. FISHER: I’ll give you a great example.
4731 There was a company out of San Diego that specialized in wireless MVNO services for the seniors’ market.
4732 And, you know, everything from a product selected for larger buttons, bigger screens, ease of use, to packages that were tailored, you know, specifically for the senior market, and the way that they were priced, the way they were delivered to the market place, again, just as an example, as a demographic and as a market segment, that a specialized MVNO was able to open up and leverage and bring something to the customers that they couldn’t find from the national providers, nor from the very broadly based flanker brands.
4733 COMMISSIONER LEVY: And my last question is, what kind of percentage of the market could you see MVNOs taking over?
4734 MR. HICKEY: I hope a lot.
4735 It’s hard. The -- you know, we’ve seen, you know, eight percent to 10 percent on our wholesale ISP side, where competitors have been able to come in and take that level of market share.
4736 We think there’s lots of room to move. I don’t see us cracking 50 percent, but I would hope somewhere in the 10, maybe up to the, you know, the 10 percent range most likely, maybe up to the 20 percent range and higher, if things were successful. But I think the 10 percent range is probably where it will go, and then increase from there.
4737 MR. BATSTONE: And I think it’s important to keep that in context; right? Like, every time we have one of these hearings, you guys get a very doom and gloom scenario from the incumbent providers; right?
4738 The suggestion is that somehow by mandating MVNO, well, sorry, 5,000 people just lost their jobs at Telus; right?
4739 You know, it’s -- the wireline experience has shown that, you know, it doesn’t prevent them from investing, it doesn’t have the kind of -- we’d like it to have a fundamental change in the market; right? We would like to take a very significant market share.
4740 But I think, looking at it, probably internationally as well, though we haven’t done any particular study on that, MVNOs are not -- they don’t take over a majority of the market or anything like that.
4741 But they do play a very important competitive role in disciplining the providers that are in the market and providing additional options to customers that weren’t there otherwise.
4742 COMMISSIONER LEVY: Thank you very much for your answers to my questions. I’ll conclude now.
4743 THE CHAIRPERSON: Thank you.
4744 Just a couple of short questions for me to follow on.
4745 You talked a lot at the outset of your responses about market share and that being strong evidence of insufficient competition. And you just now briefly talked about what kind of potential market share gains you could get.
4746 Can I ask you, in your view, what market share do they have to lose before the market is competitive?
4747 You said before you don’t remove the underlying conditions -- you don’t remove a solution, the regulatory intervention, until the underlying problem is resolved, presumably the underlying problem is you want to say the market is now competitive.
4748 What’s the number, in your view?
4749 MR. HICKEY: There’s different ways that I could think of tackling this, but I think if I’m able to take an undertaking on that to give an actual proper answer, because, like, I think we have -- we want it to not be 90 percent, 90 percent, 90 percent, 30 percent, 30 percent, 30 percent. We would want it not to be uniform.
4750 But I think if it’s a question of is it 10 percent? Is it 15 percent? Is it 20 percent? The fact is that if it got 20 percent and you still had -- well, if you got to a percent and the underlying concerns that are there, then I don’t think it’s just an issue of is removing market share sufficient to prove that the market is fully competitive.
4751 THE CHAIRPERSON: I just raise that because you had focused on market share as the indicator in the beginning.
4752 So if you would like to do it by undertaking, that’s fine.
UNDERTAKING / ENGAGEMENT
4753 I just wanted to have a sense of what was your answer to when will we know the market is indeed competitive.
4754 Sorry, go ahead.
4755 MR. BATSTONE: No, if I could just add, like, I think even the Bureau would say that the market share is not the whole picture; right? I think they specifically say that. You can't just look at the market share to determine if the market's competitive, so I think unfortunately it's -- and, I don't know, we said 10 per cent, but who knows what we might get to -- like, I think market shares are -- you know, it's very difficult to predict, and I think it's difficult to predict what level of market share means that the market's competitive; right? It's going to depend on how many are in the market. It's going to depend on what types of offers.
4756 We had this discussion earlier today about duopoly; right? I mean, I think it is probably possible that you can two providers in a market and have a competitive market. We personally feel that we have three providers in the market today, or four in some cases, and it's not competitive because the level of competitive intensity is not there; right?
4757 So, I think unfortunately it's got to be that assessment of all of the competitive factors in the market.
4758 THE CHAIRPERSON: That's fine. Thank you.
4759 One last question, you also pointed out that you've proposed using the existing roaming rate as a starting point, but you made the point that whatever the wholesale rate is it needs to be sufficient, so that you have a sufficient margin, profit margin to operate. Kind of a -- maybe a topological question, what happens as prices go down? Presumably your presence in the market and the rationale for mandating MVNOs is to push prices down. As prices go down, presumably that puts pressure on your margin. What happens then?
4760 MR. BATSTONE: It does. I think if the reason our prices are going down is because costs are going down, then hopefully that wholesale rate would be decreasing as well, right, to reflect that.
4761 THE CHAIRPERSON: Well, presumably prices are going down because competitive ---
4762 MR. BATSTONE: Competition.
4763 THE CHAIRPERSON: --- intensity has been increased by your entry into the marketplace.
4764 MR. BATSTONE: And that's where we need to be more efficient than our competitors, so that the remaining cost above, you know, the wholesale inputs is not so high that there's no margin left; right?
4765 THE CHAIRPERSON: Okay. Thank you. Thank you very much. Thanks for your submission and your response.
4766 Madam la secrétaire?
4767 THE SECRETARY: Merci. I will now ask the Canadian Network Operators Consortium to come to presentation table.
4768 When you are ready, please introduce yourself and you have 20 minutes for your presentation.
4769 MR. STEIN: Good afternoon. My name is Matt Stein, Chair of the Board and President of CNOC. With me are Pete Rocca, Vice-Chair of CNOC, and CEO of Start.ca, a London Ontario based provider of internet, TV and home phone services over both wholesale and facilities-based platforms; Ian Stevens, Director of CNOC, and CEO of Execulink Telecom, a Woodstock Ontario based provider of SILEC and CLEC voice, BDU Services, facilities-based and wholesale-based services, as well as mobility services as an MNO in South Western Ontario; Chris Tacit of Tacit Law, counsel to CNOC; Dr. Zhiqi Chen of Carleton University; and also assisting us and sitting immediately behind me is Stewart Cattroll, of Tacit Law.
4770 For completeness sake, I should also mention that while I am the CEO of Distributel, I am appearing just for CNOC today.
4771 The Canadian Network Operators Consortium, known as CNOC, is an association of 31 competitive telecommunications service providers, offering a variety of communications services, such as home phone, television, and perhaps most famously residential Internet, not to mention all the B2B and wholesale offerings our members have.
4772 Our members are innovative competitors who operate in difficult circumstance that include obtaining key wholesale inputs from reluctant dominant incumbents while competing with them and with each other to provide services that consumers want. In other words, our members live competition every day, on the ground, making a difference to the wallet of Canadians.
4773 Services provided over the mobile wireless platform are increasing in significance by leaps and bounds and that competition is critical if Canadians are to reap the full promise of the platform.
4774 2019 CMR figures show revenues in this sector were $27.1 billion, just over half of all telecom revenues in 2018. EBITDA margins in this sector reached a stratospheric 41 per cent in 2018 while Bell, Rogers and TELUS, or the Big Three, accounted for 91 per cent of the revenues in the market.
4775 In our submissions to date, we have discussed the problem with the current retail markets for mobile wireless services, which include not only high prices, but also low product differentiation, and high market concentration.
4776 It's clear that the mobile wireless needs of Canadians are not being met. Sufficient alternatives simply do not exist. The Big Three and regional carriers won't provide these options and they have no desire to enable other service providers to do so either.
4777 It's time for the Commission to mandate the Big Three to provide mandated wholesale access for full MVNO.
4778 It's important to recognize that an MVNO needs to do most of the same things the big carriers do, other than build a radio network or have its own spectrum. A full MVNO invests in, builds and operates its own backbone, secures its own interconnection agreements with other carriers to terminate traffic. A carrier of this type must also deploy a variety of facilities including its own switches and servers in order to interconnect with traditional MNOs. However, the MVNO does not have to incur the prohibitive cost of acquiring scarce spectrum before it can operate, removing one of the most significant barriers to entry.
4779 In fact, it bears reminding that the last time there was new entry, three very well funded firms bought spectrum, built a network, set out to establish a brand, and create a retail presence. We all know where that story ended. All three failed and were bought up by three of the four largest telecoms in Canada. Imagine the competitive benefits Canadians would have enjoyed, had the billions of dollars they spent on spectrum and network construction been diverted to other aspects of their business. Canadians would have had three more national wireless providers to chose from and would be paying far less than they are today. Maybe it was too early to have a mandated MVNO regime at the time, but we’ve learned from the mistake, and the time is now.
4780 The full MVNO option requires millions of dollars of investment by each MVNO. The option also provides an MVNO the flexibility to invest in available spectrum where there is significant -- or sufficient density to warrant such an investment.
4781 Importantly, for Canadian consumers who are clamoring for lower prices or for greater choice, mandated full MVNO access can be made available immediately using interim terms and conditions, with some minor changes to the national carrier domestic roaming tariffs. These interim conditions would involve the adoption of existing domestic wholesale roaming rates as interim full MVNO access rates and lifting the provision -- the prohibition on permanent roaming for full MVNOs.
4782 Full MVNOs can also add significant value and innovation in retail service in the market that other lesser forms of MVNO cannot do and we'd be pleased to provide examples if the Commission's interested.
4783 We caution the Commission not to accept other lesser forms of competition. For example, if only regional carriers are allowed to become full MVNOs, all Canadians will get is more of the same of undifferentiated services that we see in the market today. Recent developments such as so-called 'unlimited data plans' offered by certain carriers are not indicative of the development of a sufficient level of overall competition. This is just a point in time response to government, regulator, and Competition Bureau focus in 2019. It's not practical for the Commission to run a proceeding like this yearly, just to perpetually remind the Big 3 to keep up their pretense of competition.
4784 Retail regulation is also not the solution. Retail regulation is inappropriate as it won't maximize the competitive benefits or promote competition in an economically efficient manner. More importantly, it will not unleash the competitive creativity enabled by a full MVNO regime, which gives competitors access to the building blocks they need to think outside of the box when designing new services.
4785 If all that is perpetuated is what exists, all society will get is more of the same. There will be no true disruption and Canadians will not even know what's been lost.
4786 The technical implementation of a full MVNO model is easy. Full MVNO models have been developed in many countries around the world, and all the equipment vendors being used in all of our networks have deployed MVNO elsewhere.
4787 One of the most important terms and conditions of a successful mandated wholesale regime for full MVNOs will be a requirement for the national carriers to ensure that full MVNOs hosted on their networks are able to obtain access to mobile wireless devices. After all, connectivity is just one half of the mobile service, the other half is the device itself, the part you hold in your hand.
4788 Large device manufacturers, such as Apple and Samsung, are reluctant to sell their mobile wireless devices directly to smaller carriers, such as MVNOs. You can see this playing out by looking at the phone selection available on most networks below a certain size. Wind even, as an example, had trouble getting traction in the mind of consumers until it was able to offer the iPhone.
4789 Unless appropriate measures are taken, at best, MVNOs will only be able to obtain devices that are years old or from third party suppliers.
4790 The inability to obtain access to the latest mobile wireless devices represents a serious barrier to entry. Consumers have an insatiable appetite for the latest and greatest mobile devices, and unless MVNOs can provide these devices, their ability to compete will be severely curtailed.
4791 To remedy the deficiency, CNOC is proposing that the Commission impose a condition on the national MNOs that would prevent them from selling mobile wireless device to their own customers unless they also make that device available to MVNOs on a white label basis integrated for the host MNO network.
4792 We realize that the national carriers sometimes negotiate exclusivity periods for certain new devices with device manufacturers relative to other MNOs, and under our proposal, such reasonable exclusivity periods would be respected and full MVNOs would only be able to sell these white label devices obtained from national carriers once the exclusivity period had expired.
4793 Final MVNO access rates should be set using the Commission's tried and tested Phase II costing method plus an appropriate mark-up. This is the approach that encourages maximum retail pricing flexibility and including innovative service pricing and bundling by competitors. While we do not oppose negotiated alternatives, having a tariffed backstop is absolutely essential.
4794 Other issues that should be addressed in a final full MVNO access regime include device availability, final rates for the service, seamless roaming, and call hand back. We can provide further details in response to your questions. However, none of these issues can or should hold up the establishment of an interim regime.
4795 We are aware of concerns about the amount of time Phase II costing can take and share these concerns. CNOC has been developing proposals to address the issue, which is caused by incumbent gaming and delay. CNOC will present its proposed solution in the upcoming proceeding which is expected to launch shortly on the setting of rates for wholesale services.
4796 Without foreshadowing this too much, I'll simply point out that the current process can be gamed to make it take a long time, which ultimately only serves to benefit those who didn't want it in the first place. Creating a mechanism that favors speed on all sides will address this.
4797 The Commission should resist pleas for other pricing models such as retail minus, which may seem to be straightforward, but would actually be as or even more difficult to implement giving pricing differences that vary by incumbent carrier, importantly time and geography, and a lack of proper reference points due to deep discounts, many of which are not posted and are constantly changing.
4798 By linking a competitor's retail pricing to that of an incumbent, the creation of new and innovative services that are priced differently would also be stifled. A retail minus pricing model would do very little for unleashing the creative competitive potential of the marketplace.
4799 The Commission should also reject a final offer arbitration method of setting rates. The information asymmetry between full MVNOs and the national wireless carriers will mean that full MVNOs will be at a profound disadvantage when it comes to final offer arbitration.
4800 Moreover, the horizontally and vertically integrated Big 3 are not really motivated to come to a reasonable negotiated or arbitrated resolution of any rate dispute. Final offer arbitration will not satisfy the requirement in the Telecommunications Act that rates be just and reasonable, especially considering that the stakes of such an arbitration may be whether an MVNO can obtain reasonable rates through the process that will enable it to compete at all.
4801 In any event, no change in the method used by the Commission to set wholesale rates should be adopted before the Commission conducts the proceeding that will review how rates for wholesale services are set.
4802 I also want to address the much-discussed investment bogeyman. According to this theory, frequently trotted out by the incumbents, unless they're allowed to continue to charge super-competitive prices, prices that are much higher than is appropriate based on international comparisons, the incumbents will stop or significantly slow down investing.
4803 This line of reasoning is just not credible, and you should reject it for a number of reasons.
4804 First, just because the incumbents may receive less revenues in a more competitive environment, which is not necessarily true in any event, it does not follow that they'll need to make up the difference by slashing their investment budgets. In fact, the incumbents have many cashflow management options that would allow them to maintain their current levels of investment, including by deciding how much to pay in dividends to the shareholders and how much to retain in cash and short-term investments.
4805 Even if you did believe that they wanted to pull the investment back, the simple answer is that they will continue to invest because it still generates these kinds of returns. At what point do we simply say, "enough"? Canadians are tired of paying sky high prices only enabled because we have allowed the Big 3 to have their run of prices for too long, in too coordinated a fashion.
4806 Second, investment decisions are not made on a moment-by‑moment basis. They're made based on a risk adjusted evaluation of possible future outcomes over extended time horizon. The reality is the incumbents have priced in the possibility of being required to provide mandated wholesale access in approving their current investment plans.
4807 The only way one could say the "risk" of mandated MVNO is not priced in would be to assume the Big 3 didn't believe there's any likelihood of it happening. Did they not read the Commission's preliminary view in this proceeding? Did they miss the 2019 Policy Direction? Did they not hear the public outcry during the Federal election?
4808 In addition, over the last several months we've seen their op‑eds, their expert reports, and their marketing campaigns that all tell us the Big 3 realized their time of unchecked pricing is at risk. If they were going to pull investment because of mandated MVNO, they already would have. They wouldn't have announced 5G, they wouldn't be trumpeting their investments at investor conferences and on quarterly calls, they would have waited.
4809 Third, regional carriers would still thrive under the regime we propose. While they would not be required to provide mandated full MVNO, they would have the option of attracting their own wholesale businesses on a voluntary basis and at rates and on terms and conditions they set. They could also choose to operate as full MVNOs outside of their regional territories, all of which increase their revenues and give them opportunities.
4810 When it comes to selecting a remedy for the lack of competition in mobile markets there is a lot more at risk than just those markets. The Commission should be mindful that, with some narrow exceptions, the regional carriers are all vertically, and in many cases horizontally, integrated service providers.
4811 Full MVNO is not only needed to ensure competition in mobile markets, it's essential for ensuring continuing and increased competition in the markets for bundled wireless and wireline telecommunications services. In the absence of such access, consumers will abandon competitors who cannot offer full bundles and will migrate back to the incumbents. This will result in a resurgence of a duopoly in the provision of wireline, while wireless services will be about as limited as they are today, with the same unfortunate outcomes for Canadian Consumers.
4812 We urge the Commission to advance consumer interests by adopting the recommendations that CNOC is making in this proceeding.
4813 This concludes our presentation and we'd be pleased to respond to the Commission's questions. THE CHAIRPERSON: Thank you. Thank you very much.
4814 Commissioner Laizner?
4815 THE VICE-CHAIRPERSON: Good afternoon. Thank you very much for your presentation.
4816 I have a number of questions to ask you. I'm going to start with the issue of retail market power assessment.
4817 I note that in your executive summary at paragraph 21, in the May 15th, 2019 intervention you take the position that competition has not improved in the five years since the Commission last reviewed the state of mobile wireless services in Canada or since our regulatory policy 2015-177 was issued.
4818 Now, there have been some improvements in markets in terms of prices and in competitive rivalry, but what will need to see happen, in your view, to see a sufficiently competitive market?
4819 MR. TACIT: So first of all, let me remind us all that the Bureau itself acknowledged that even where you have four players in a market, it’s not necessarily an indication that there is no market power presence.
4820 I think one of the biggest things that we see, or maybe that we don’t see, and that’s what so hard about this, is we don’t see the service differentiation that needs to be present in a more competitive market.
4821 We’ve talked about pricing, and, yes, pricing has fallen and we can -- you know, we happen to think that some of the more precipitous declines in the last few months are due to the regulatory scrutiny and political pressure that’s been brought to bear. And so we’re concerned that it may be temporary because that market power is still there.
4822 But above and beyond that, there is -- there are not the niche types of offerings that you heard about from Tucows, that you’ve seen listed in our submissions and the submissions of TekSavvy, and that were just eluded to by the Distributel panel.
4823 And those are the losses.
4824 And the problem with that is that you won’t know they’re not there until you see them. And when you start seeing those, that, I think, will be a good indicator that you’re starting to reach a level of competition that’s reasonable for Canadian consumers, in addition to additional price reductions that will follow.
4825 VICE CHAIR LAIZNER: Thank you. I noted that in your intervention, you also talked about the fact that you thought that if the national carriers reached an 80 percent market share threshold, that that would be, in your view, a time where the Commission could review the state of the market in terms of possible forbearance from a mandated MVNO wholesale access regime.
4826 And I’m just wondering if you could elaborate on how you came to this threshold? I’m referring to paragraph 39 of your May 15th submission.
4827 MR. TACIT: So I’ll start and then I’ll hand it over to ---
4828 VICE CHAIR LAIZNER: And it was Dr. Chen’s ---
4829 MR. TACIT: Yeah.
4830 VICE CHAIR LAIZNER: --- submissions.
4831 MR. TACIT: I’ll just start by giving a bit of background.
4832 Part of this is reflective of my age. I remember that in the long-distance days, when market shares started falling to around that level, that’s when the Commission started looking at forbearance and that’s how we got the 95-19 decision. That was in part what was going on here.
4833 But I think there’s also some other broader economic ---
4834 VICE CHAIR LAIZNER: Just, if I can stop you for one minute.
4835 Mr. Chairman, I think I’m hearing some other noise.
4836 THE CHAIRPERSON: Go ahead.
4837 VICE CHAIR LAIZNER: All right. I’ll ask you to continue.
4838 MR. TACIT: So now that’s kind of why I’m comfortable with a number. But Dr. Chen has his own rational as well.
4839 DR. CHEN: Yes, in my first report, so I -- that 80 percent, I think, came from me. It was proposed in paragraph 98 of my first report.
4840 I started that paragraph, actually, by saying that the specific values of the market share thresholds should be chosen to reflect the Commission’s view on what a properly functioning competitive mobile wireless market in Canada should look like, and so on.
4841 So I proposed this as a preliminary number.
4842 And the rational, my original rational or consideration behind this 80 percent was, for a long time, we’ve been striving for a fourth carrier.
4843 And so I basically, in my paragraph 99, I explain that if we imagine four carriers holding 20 percent of market share and then the -- and other competitive forces or other forms of competitors, such as full MVNOs accounting in the 20 percent -- sorry. Sorry. Let me back up.
4844 So it was based on considerations of long-ranged HHI and also the consideration of market share threshold for joint dominance issued by the Competition Bureau’s guideline for mergers.
4845 And basically these are thresholds, not -- these are necessary conditions for, in my proposal, for conducting a full review.
4846 So I want to set it at a moderate level so that it will be -- when we reach that thresholding, a review can be conducted.
4847 The -- I guess I did -- another rational which I would add is basically that would be Dr. Chipty’s report.
4848 She actually found that when the regional competitor -- bearing in mind that that’s the only form of competition to the national wireless carriers at the moment, when the regional carrier reaches a market share of between 5.5 and 20 percent, that’s where the competitive impact is the most substantial one.
4849 So I was happy to see that actually the two numbers sort of match.
4850 VICE CHAIR LAIZNER: So just so that I understand your position correctly, that would be when you would recommend that the Commission undertake another wholesale review, as we are doing now? As opposed to a bright line where we would say, “That’s it. We’re no longer mandating or we’re forbearing”?
4851 DR. CHEN: Partially yes. I proposed two thresholds. One threshold for the combined market shares of competitors to national wireless carriers.
4852 The other threshold was for the MVNOs.
4853 And my proposal is to have a two-step approach.
4854 Ultimately, the test for forbearance should be based on market conditions.
4855 But to determine the timing of a review that leads to the forbearance, I propose as a first step, is to monitor these two market share thresholds.
4856 When these thresholds are met for a sufficient number of Canadians and a sufficient number of areas in Canada, I think the Commission could move on to a full review.
4857 VICE CHAIR LAIZNER: And would these same conditions apply with respect to a review of mandated roaming? Have you looked into that?
4858 MR. TACIT: Sorry, what are you ---
4859 VICE CHAIR LAIZNER: Well if the national carriers were reduced, for example, to an 80 percent market share as a result of mandated MNVO access, ---
4860 MR. TACIT: It might, but we’d have to do more analysis, because that’s ---
4861 VICE CHAIR LAIZNER: Okay.
4862 MR. TACIT: --- a bit distinct market.
4863 But it -- you know, we’d want to check out whether that made sense for there.
4864 Really what we’re looking at here is, if you look at it from a smell-test perspective, right now the regional carriers and others have about 10 percent of the total market.
4865 So what this really means is that when you get to double that, plus when you’ve got a significant enough percentage of MVNO -- or sorry, of full MVNO only, so that they’ve gotten a foothold in the market, then you know you’re on to something and you should do the test.
4866 It’s a little bit different in roaming because you don’t have that second element when it comes to just wholesale roaming. So you have to treat that threshold a bit different.
4867 So I can’t really respond to your question today about what the right threshold would be for wholesale roaming.
4868 But that’s -- the rational here was based on two concepts. One is, when do we see a sufficient reduction in the share of the nationals and regionals? And when do we see MVNOs gaining a foothold in the market?
4869 VICE CHAIR LAIZNER: Understood. You’ve indicated in your written submissions that in your view, the market share of the national carriers has remained largely unchanged since at least 2011, and there’s certainly data to support that.
4870 How do you respond to arguments advanced that a better indicator of the competitive impact by newer entrant carriers is their share of recent net additions?
4871 MR. TACIT: So additions is only one indicator. And that’s -- as I said, you have to look at a whole number of factors, including outcomes in the market place. So you can look at numbers of additions, you can look at ARPU, you can look at EBITA. There are a whole bunch of indicators.
4872 And the issue is when you look at all of it what is the smell test tell you? Which way are all of these arrows pointing? Where are the majority of them pointing? And the other part of this is what's the outcome? And we come back to the first proposition, which is that with the lack of sufficiently differentiated services and other pricing options, it appears to us that merely because you've had some more additions hasn't really changed the market in a significant enough way.
4873 THE VICE-CHAIRPERSON: Well, if we're looking at pricing, your argument is that the regional carriers are not having a material impact on competition. But there have been some notable price changes in the mobile wireless market. The intervenors that have appeared before us ascribe those to different reasons. But we have seen the introduction, and you have talked about that a bit, of mobile wireless plans with no overage charges by the national MNOs.
4874 So do these movements in pricing in the wireless market change your initial position in any way?
4875 MR. TACIT: We're not saying that there hasn't been any movement. I mean, we -- you know, the data is there. What we're trying to convey is that there are multiple layers to a competitive market, and yes, there is an increasing amount of competition, but it is not the full vibrant competition throughout the country that we see. That's our core message.
4876 So yes, you know -- and there are some provincial markets that are better than others, and we recognize that too in terms of pricing. So the data is there. We're not trying to refute that. It's really all about what -- at what level is that competition overall.
4877 THE VICE-CHAIRPERSON: And you submitted that if you compare Canada with international mobile wireless markets using various matrix Canada is increasingly falling behind the rest of the world in terms of prices. And that view is at odds with the view of some other intervenors, I'm thinking of TELUS and Rogers, who have questioned the relevance of the international comparisons, arguing that the studies that compare Canada with other jurisdictions don't compare apples to apples, they don't compare similar mobile wireless service plans, they don't take into account socio-economic factors, factors such as geography and population density.
4878 And I'd just like to get your views on those positions.
4879 MR. TACIT: Dr. Chen will ---
4880 DR. CHEN: I agree that no method of international comparison or even interprovincial comparison is perfect. No matter what method we use, I'm sure there will be smart people who will be able to point out weaknesses in the methodology.
4881 What I would say is the -- we need to look at the overall picture. If you just have one or two studies saying Canada is lagging behind, yes, indeed you can wonder whether -- how -- whether the methodology was the main reason for those conclusions, but when you have numerous studies by –- done by different consulting firms, who have no financial stake in producing these studies, then the totality of these studies indicate the credibility of these observation studies Canada is lagging behind.
4882 THE VICE-CHAIRPERSON: And are you thinking of any studies in particular?
4883 DR. CHEN: With regard to Canada's ---
4884 THE VICE-CHAIRPERSON: To these comparisons that you think are of particular weight.
4885 DR. CHEN: No. I have not thought about that, whether any particular one has -- which would carry more weight than the others. I more or less treated all these numbers equally, and they all seem to paint a consistent picture. And that's what, in my view, the convincing -- most convincing.
4886 THE VICE-CHAIRPERSON: Okay.
4887 MR. TACIT: And I just want to add one thought here, and that is, you know, we've heard people say, "Well, the data is kind of old, and you know, things have improved in the last year". And we were looking at this, and one of the studies that we relied on earlier was a Rewheel Study, and they do a very vast comparison of different pricing from all over the world.
4888 And most recently, in October of last year, they said:
4889 "While the Canadian median gigabyte price in smartphone plans fell during the second half of 2019, Canada's competitiveness among the EU28; OECD countries further worsened. Canada was ranked as the country with the fourth highest median gigabyte price in April 2019. In October 2019 Canada became the second most expensive country."
4890 And similarly, Strategy Analytics released a report in December of 2019 basically saying Canada remains the third most expensive country for 10‑gigabyte per month, and the third most expensive for 1‑gig. And finally, the OECD very recently ranked Canada 31st out of 37th in mobile penetration.
4891 So there are, like Dr. Chen says, still continuing multiple indicators that we still have a competitive problem in Canada.
4892 THE VICE-CHAIRPERSON: We've talked to intervenors that have appeared before us about negotiation of MVNO access or other similar type arrangements. And I'm just wanting to understand whether any of your members have approached any of the mobile network operators to negotiate MVNO access, and what the experience has been.
4893 MR. STEIN: Well, while I can't characterize what all of our members have experienced, I -- actually, I'll ask if either of my colleagues want to address it first and then I'm happy to address it second. What's your personal experience.
4894 MR. STEVENS: It's not exactly like we have sought MVNO, we have not achieved a broad MVNO service. We are fortunate enough to have a licence from the early eighties where we've got spectrum as an ILEC. We've been able to turn on a mobile service, but to provide a provincial service it's just not something that the carriers are willing to entertain.
4895 THE VICE-CHAIRPERSON: So have you provided the service based on the acquisition of the spectrum, or have you also entered into arrangements with other carriers?
4896 MR. STEVENS: So we launched about a decade ago, and we entered into commercial agreements at that time with other carriers, and they've evolved over the years, and recent, to ensure we have got roaming for our customers and that services associated with our licence geography, we're able to provide services within our licensed geography of spectrum.
4897 THE VICE-CHAIRPERSON: And would you characterize those as temporary roaming agreements or more of an MVNO type model?
4898 MR. STEVENS: I'd characterize them as roaming agreements, and they are not. What I would - if we had entered today, the marketplace today, the roaming tariff would've facilitated a very standardized agreement, in our view. We have -- are living a legacy of agreements that have been in place for over -- almost a decade, and the foundations of them is that roaming is needed for our customers ---
4899 THE VICE-CHAIRPERSON: Right.
4900 MR. STEVENS: --- to access services outside of the geography where our licences are.
4901 THE VICE-CHAIRPERSON: Okay.
4902 MR. ROCCA: My exposure is a lot more limited than Ian's. We've tried to engage in conversations and we're not able to even get the phone calls, and when we've talked to people in person we're told that we can do a resale where we're reselling the same brand products, so basically being a sales channel for them. But unable to get conversations about doing MVNO.
4903 THE VICE-CHAIRPERSON: So it's more in the nature of if you resell their brand they're willing to enter into an arrangement, whereas otherwise not so much.
4904 MR. ROCCA: In one particular carrier, yes.
4905 THE VICE-CHAIRPERSON: Okay.
4906 MR. STEIN: I'll just -- I'll say that in my experience across two different companies in this space, the conversation about actually having MVNO access is very short, the answer is very absolute, there is no follow up, there is no willingness to have a conversation about commercial rates, there is no willingness to discuss innovative services, it just ends right there.
4907 In one of those cases, the conversations largely took place prior to the acquisition of Fido. So in that case, conversations with Fido actually moved to the point of a very, very basic MVNO with a lot of restrictions on what phones and what those packages need to look like. After the purchase by Rogers, that all just basically stopped.
4908 THE VICE-CHAIRPERSON: Okay.
4909 MR. STEIN: So in other words, it's been a very long time -- if you think back to when Fido was purchased by Rogers, it's been a very long time since there's been any willingness to have that conversation.
4910 THE VICE-CHAIRPERSON: Right. In terms of your membership, is there a geographic area in which they wish to provide services as MVNOs?
4911 MR. STEIN: I think that each of our members tends to have an area that they feel that they do particularly well or an area they are, I'm going to say so to speak, from in terms of where they started and so forth, and those do apply.
4912 But many of the members, my own company as an example, we're active in multiple provinces and we will be interested in MVNOs across the footprint on which we offer internet, TV and home phone services. It's really just the ability to expand and offer that entire home bundle.
4913 THE VICE-CHAIRPERSON: And how about in terms of urban versus rural areas?
4914 MR. STEIN: Now we have certain members in CNOC who do focus in a particular rural area but many are as focussed on urban as they are on rural. There's no specific focus one way or the other, nor an interest for it to just be one or just be the other.
4915 THE VICE-CHAIRPERSON: Okay. You've indicated that the Commission should compare the EBITDA margins of the Canadian MNOs with those in international jurisdictions. There have been some interveners that have criticized EBITDA as being a poor indicator of profitability, for instance Rogers, because it doesn't take into account the opportunity cost of capital or the depreciation/amortization charges which are significant because it's such a capital-intensive industry.
4916 Do you still consider EBITDA as an appropriate measure to assess market power in the wireless industry?
4917 MR. TACIT: It is one of a number of good measures. EBITDA is one. ARPU is another. There are all sorts of measures of profitability from wireless.
4918 I think what is important is, is the measure you're using a standardized measure that gives you all your comparisons and EBITDA is. So clearly there's a difference between an EBITDA of 20 and 40 regardless of what is in or excluded from it. It is still a significant measure. It is a consistent measure and so it still tells a story.
4919 All of those companies in Europe also exclude depreciation in the cost of capital. It's not like they're including it and we're not and that's why our numbers are higher. So if you look at the data in a consistent way, it still tells you something important.
4920 MR. STEIN: And I'll add to that, certainly the stock markets look at EBITDA. All of the quarterly conference calls refer to EBITDA. All the financial reports refer to EBITDA. If there's a far better measure, we're open to looking at that too but certainly everybody seems to be talking about EBITDA.
4921 So I don’t think it's reasonable for us to just throw it out and pick something that they like better.
4922 THE VICE-CHAIRPERSON: Okay. And we've talked a lot about plans that would address customers looking for low cost, occasional use plans. Is this an are or a niche area where your members would be interested in providing service?
4923 MR. STEIN: Yes, I feel that it is. Like I said earlier, I can't speak for every member but certainly I can speak for my company and it is -- it's a common conversation.
4924 We do tend to offer -- the members of CNOC do tend to offer a number of value plans. I would expect that that would be an area that our members do focus on but I think that affordability takes on many forms and I think that it's just as likely that while that will certainly be addressed at the low price end of the market, other aspects of affordability will be addressed too. And the more options that there are, the better they are. So the more options and the more things -- the more individuals plans from the more companies as possible, the more individuals can choose the affordable options if it's for them.
4925 THE VICE-CHAIRPERSON: And do you think that's feasible in terms of the rate that you would be paying for access to the spectrum?
4926 MR. STEIN: Well certainly my answer is based on the belief that the rates will be reasonable and so forth, that it will be based on a cost-plus Phase 2 kind of model, and that in the end it is a rate that allows us to go out and offer those sorts of things.
4927 There is conversation that we've heard so far during this proceeding about some wireline examples that were offering and targeting some very low-price offerings and I remember listening and thinking to myself, wow, the tariff prices are dramatically higher than that exact price that's being quoted and thrown around.
4928 So yes, it certainly does require that the right cost inputs are made available to our members, but I think that we've already shown -- our members have already shown an ability to take good cost inputs and turn them into fantastic retail prices.
4929 THE VICE-CHAIRPERSON: And what about, you know, those special programs like the ISED's Connecting Families program that deals with wireline, what are your views on adopting a similar plan in the mobile wireless sector?
4930 MR. STEIN: Just to clarify your question, are you asking if CNOC members would be interested in participating in an ISED-led program such as that one to offer things like to Canadians?
4931 THE VICE-CHAIRPERSON: Yes.
4932 MR. STEIN: Sure, I can't see why we wouldn't. Certainly, it would be something we'd be interested in. Again, assuming that it was based on a cost-plus rate that made sense and it was economically viable to do so, that would be wonderful.
4933 THE VICE-CHAIRPERSON: Okay. Just so I don’t forget, I'm going to ask you a little bit about winbacks. You've heard interveners talking about their concerns on winbacks and other interveners talking about prohibition on winbacks being anti-competitive.
4934 So I'd like to have the view of your association on winbacks.
4935 MR. STEIN: I guess I'll answer and then I'll ask Chris if he wants to add anything.
4936 We heard that as well and we're supportive of the idea of there being a winback period -- or an anti-winback period. There used to be one in other areas such as on wireline and I think that it was a very effective tool at letting a customer make a decision, move over to the new provider and not be pestered and try to win back. It also required people to be more competitive at keeping their customers rather than just dealing with them at the moment of cancellation.
4937 Rather than making the turn reduction department really only happen in retention, they had to be aware of it throughout the lifecycle of a customer and they had to pay attention to the lifecycle of a customer.
4938 So I think that sort of that anti-winback thing is something that not only do we support as it relates to wireless but we would like to see that enlarged and offered across more services, wireline too.
4939 I'll ask Chris if he wants to add something as well.
4940 THE VICE-CHAIRPERSON: Yes. I'd be interested to hear on what your views on what constraints should be put on winbacks.
4941 MR. TACIT: So I'm a little foggy in my recollection but I think that the winback restrictions that were in place for wireline were a good model. I'd have to go back and see the precise details of that but I think from a competitive standpoint, my sense was that CNOC members and other market participants were satisfied with the approach at the time, and so something similar like that.
4942 Certainly, there should be some sort of cooling-off period like Matt says that does give the person an actual opportunity to try the new service. And as Matt said, I think one of the benefits of doing that is that the existing carrier, when you're their carrier, would try to keep you happy throughout the relationship rather than just focus, knowing that they could scoop you right back by just giving you 20 percent lower and so on.
4943 THE VICE-CHAIRPERSON: So Shaw I believe proposed a 90-day prohibition on any winback activity. Is that a range that you're supportive of? If you want to consider and provide us with more information through an undertaking, that's acceptable too.
4944 MR. STEIN: We are supportive of that. I believe that's longer than the prohibition was in the wireline, but we are supportive of 90.
4945 VICE CHAIR LAIZNER: Okay. I’d like to ask you a few questions relating to the wholesale access regime.
4946 There are parties that have argued that wholesale MVNO access is not an essential service in the same way as wholesale roaming was found to be essential in 2015-177 or regulatory policy.
4947 So I’m trying to get a sense of how you see the essentiality test being applied to this service?
4948 In terms of the geographic market, if we were to mandate the service on a regional level, say at the provincial level or at the census metropolitan area level that was discussed earlier this week, would that have an impact on your members, in terms of reducing the likelihood of entry by your members?
4949 So I guess what I’m asking you is, does it have to be a national mandate to be effective for your members?
4950 MR. TACIT: I think, given that most members will be starting from zero and their proportion of wireline markets is already very low and the logical starting point for them will be to market to their existing customers first, to make it viable, I think you need a fairly large geographic area to begin with, because here is some upfront investment required in the service as well.
4951 Besides which, I think as an economic matter, we kind of agree with the Commission’s pre-stated view that that market is a national market.
4952 We were actually surprised to see the Bureau’s recommendation operate potentially in a way that would only cause small incremental changes in competition across small markets.
4953 If you actually think about how it would manifest in terms of an outcome, what they’re proposing would actually have small incremental effects, rather than providing a national service.
4954 And in fact, we were also surprised that they actually never even addressed the question in their report of what is the size of the wholesale market. They never refuted the notion that it was national in scope.
4955 So we remain convinced that the national perspective is the correct one, because what you want is to make it as easy as possible for these entrants to discipline pricing across Canada’s geography, and also recognizing that we’re dealing with a mobile service and the whole benefit of mobility is that you can cross from one area to another and still have the service. So the service becomes highly devalued if, you know, go out of a CMA and your call drops. It’s not that much of a service anymore.
4956 VICE CHAIR LAIZNER: Right. There are also arguments that the radio access network is not an essential service it’s been duplicated by the regional carriers.
4957 And I’d like your views on whether you think that in regional areas where regional carriers had duplicated the RAN, do you think that this would decrease the likelihood of further duplication by a new facilities-based competitor in the region?
4958 MR. TACIT: So we all know spectrum is very scarce. We all know that much of the useable spectrum for today and tomorrow’s technology has been acquired.
4959 So the likelihood of having further pure facilities-based entry, I think, is quite low. I just don’t think that’s likely to happen right now.
4960 I think those who are already stakeholders will also do their best, if there is more, to scoop it up as quickly as they can possibly do so.
4961 Bearing in mind that the regionals of today are not the regionals of a decade ago. The regionals of today are very financially strong, horizontally and vertically integrated entities who have the financial capability to do that, along with the national carriers.
4962 So when you look at all of those factors together, I think the likelihood of more facilities-based entry that’s RAN based is pretty remote.
4963 VICE CHAIR LAIZNER: Okay. What do you think of the likelihood of RAN that’s duplicated on a regional basis also being duplicated on a national basis by the same carrier?
4964 MR. TACIT: I think they’re going to continue expanding.
4965 I think as it makes sense for them as competitors, those competitors who have spectrum in the relevant areas will expand to fill their footprints.
4966 Whether they can -- but they’re going to have the same problem acquiring more spectrum that I just mentioned.
4967 VICE CHAIR LAIZNER: Right.
4968 MR. TACIT: So there will come a point at which they’ve kind of filled in the contours of what’s attainable.
4969 And then they’ll come to the same, you know, problem that everyone else has in the marketplace who is providing services.
4970 VICE CHAIR LAIZNER: Okay. And I understand your position to be that the national wireless carriers have market power in the upstream wholesale market for the MVNO access service? Is that an accurate assessment of your position?
4971 MR. TACIT: Correct.
4972 VICE CHAIR LAIZNER: So if we assume that there is that upstream market power, if we denied wholesale access to MVNOs, do you think that would substantially lessen and prevent retail competition?
4973 MR. TACIT: Yes, on the basis that we -- I discussed at the beginning of our conversation, absolutely.
4974 VICE CHAIR LAIZNER: And, I mean, we talked about this a little bit in another context, but how do you define substantially when we’re looking at the wholesale market? Is there a market share threshold that would be substantial?
4975 MR. TACIT: Well, as you know, competition has both price and non-price factors.
4976 And in fact, the Bureau, in its recent broadband market study cited that some of the non-price factors can be even more important than pricing factors.
4977 So it’s not just about price. It’s not just about market share. It’s about the combination of supply and demand factors.
4978 I think you kind of have to do the full analysis to figure that out. I’m afraid that there’s no particular short cut to that, as much as I would love to have one to bring to you.
4979 VICE CHAIR LAIZNER: So you don’t feel that you can pin down how you define substantial then?
4980 MR. TACIT: It has to be relative to all of those factors, I think.
4981 VICE CHAIR LAIZNER: Okay.
4982 MR. TACIT: I’m sorry I can’t ---
4983 VICE CHAIR LAIZNER: No, fair enough.
4984 MR. TACIT: --- do more for you. But, you know, I’d be -- I think rambling.
4985 ` I don’t know if you have any other thoughts on that?
4986 DR. CHEN: Not directly. But the Competition Bureau in their merger assessment, they have some sort of ---
4987 VICE CHAIR LAIZNER: They have a threshold.
4988 DR. CHEN: Threshold, yes. For substantial lessening of prevention of competition on the price front.
4989 So the hypothetical monopolise test is five percent threshold. But that -- if we use that as a reference point, a substantial lessening of competition will be something less than five percent. If prices increase, then what would have been whatever the benchmark was.
4990 So but I agree with Chris that on the wireless market case, we should be looking at not just prices, but also choices. So offers of different services.
4991 And this is an area I believe MVNOs can make a significant difference.
4992 VICE CHAIR LAIZNER: Okay. If the Commission were to mandate the service under the model proposed by CNOC, I’d like to get a sense of how you think the entry would look like, how it would unroll, how many new providers might enter, and then talk a little bit about where you see the market share collectively going, and what kind of a timeframe?
4993 I think Distributel talked about that a little bit before you came to the table.
4994 MR. STEIN: Yeah, I -- it is a little bit of crystal ball gazing, a little bit of speculating.
4995 But I suspect that under our model, there would be, nationally, somewhere in the, maybe, 10 to 15 total MVNOs over time. Not all of which, obviously, would be from our members. Maybe half of that would be from our members.
4996 There is substantial investment just to get going, so to speak, to make the first phone call, carry the first minute or first bit.
4997 But then beyond that, there’s very substantial investments in marketing and so forth that go into it as well.
4998 So I think that is probably the number.
4999 VICE CHAIR LAIZNER: What do you think is a reasonable time frame for an MVNO to enter the market under your model?
5000 MR. STEIN: Yeah, I think from whatever the go date is, or from when it actually could happen, you’re probably looking at the first in market, I would say, in some capacity in less than a year, but it would probably sort of get up to a full complement by the end of perhaps two or even three years with those entrants actually being in market.
5001 THE VICE-CHAIRPERSON: And in terms of market share, I think Distributel was talking maybe in the 10 per cent range. What's your view of that?
5002 MR. TACIT: So, when we look at the -- sort of the ---
5003 THE VICE-CHAIRPERSON: I think 20 per cent I think is what's ---
5004 MR. TACIT: Yeah, when we look at international data, certainly the 10 per cent is attainable, depending on how the regime unfolds. It could go higher, but I certainly think that as a starting point. You know, early on, 5 to 10 per cent is -- are good numbers to look at. And beyond that, we'd have to see what the conditions are, how the market develops and so on.
5005 THE THE VICE-CHAIRPERSON: You made comments in your opening presentation about the investment risks that were mentioned by the mobile network operators, the Big Three. So, if we look at risk and how it might increase the cost of capital for carriers, Bell in their written interventions noted a financial analyst report that said,
5006 "With MVNO regulation we expect that the weighted average cost of capital to rise, driven by lower equity valuation, and higher cost of debt incorporating higher risk. The higher weighted average cost of capital will increase the hurdle rate for investment. If the carriers are good stewards of capital, then the combination of lower return on investment capital and higher weighted average cost of capital will make investment projects less likely to be approved over the medium to long-term." (As read)
5007 And I'm referring to the Bell Mobility Executive Summary of November 22nd at paragraph 25.
5008 So, hypothetically speaking, if I'm an investor and someone's asking me for money to build the wireless network, but the network would be shared with others, who would compete for the same customers that I am, would you agree that would elevate the risk profile of my investment as an investor?
5009 MR. TACIT: I'm going to back up one previous step. I will get to directly answering your questions, but I think it's important to back up for this reason.
5010 I think it's important as -- at the outset to recognise that there are other alternatives that the nationals and the regionals have for dealing with the consequences of mandated access.
5011 One of the things that they do is they love to guard and gatekeep their networks, so they can charge Canadian consumers higher prices.
5012 If on the other hand, the Commission were to signal to them that they have to use other avenues, I think you would find that they would get a lot better at starting to share their networks and cooperate with each other in ways that fills up the capacities on their existing networks, allows them to use each other's networks, just like Bell and TELUS did after they ended up buying the bulk of that very expensive spectrum. They had to do something. They couldn't keep spending that money after they bought that spectrum. So, what did they do? They came up with the wonderful solution of let's have a network sharing agreement.
5013 Now, we don't oppose network sharing agreements, except for -- except we think that they need to be carefully scrutinized for potential anti-competitive effects, and that's one thing the Commission would need to do under that regime, but I think, first of all, the premise is false that the only path is one of we have to invest more, or if we don't, you know, the future's gone. There are other ways to deal with this that conserve cash and actually don't require high levels of expenditure, and they've chosen not to do that for other reasons.
5014 The other question to answer, getting more directly to answering your question, is, okay, what's the right level of investment? And it ties into what I just said. Just because you can put a dollar down to build a tower or a piece of wire doesn't mean that that is going to translate to ultimate benefit for Canadian consumers.
5015 There is a long and tortuous path and many, many incentives along the way that are all legitimate, but different. You know, shareholders want to maximise dividends. So, yeah, there have to be some trade-offs between dividends and investment.
5016 Executives of large carriers want to maximise their compensation, which depends on hitting certain financial targets, whether they be EBITDAs, or net income, or dividend thresholds. All of these things drive, so it's not like the minute you say, okay, let them keep that dollar, that dollar immediately translates into a new tower, or a new wire.
5017 The third thing to recognise is that the executive summary you just read seems vaguely familiar, but not because it was from this proceeding, because it's been from every other proceeding that I've been involved in in the past 30 years, where the issue of opening up markets has come.
5018 You know, there's a sort of point -- number of points. They go, first of all, we have a regulatory compact and you're breaking it. If you do this, we're not going to invest. The cost is going to be too high. Nobody's going to take up the service. The -- you know, all of these are the standard responses you get every time you're faced with opening up a wholesale market. And the reality is, the sky hasn't fallen.
5019 They told us they wouldn't invest in FTTM. Most of them are done with their FTTM rollouts and are moving -- and have long since moved on to FTTP and done a lot of rolling out our FTTP. You were about to mandate FTTP. They said, oh, if you do that we're going to slow down and stop building.
5020 The other point I want to make is that even if you were to take them at face value and say, okay, there's some impact on investment, the reality is that the impact -- and this comes from Bureau analysis. If you look at the broadband market study -- I know it was wireline, but I think the principles hold equally true here. The Bureau in its report asked the incumbents for data to find out how they're dealing with this issue of access versus. And some of them refused to provide answers, saying that the cost and difficulty of providing the information was too great. Others did provide information.
5021 And what the Bureau said was,
5022 "In these records, the Bureau observed real world examples where profitable investments became unprofitable under differing regulatory treatment. On both a theoretical level and based on the business records that the Bureau has reviewed, this negative effect on investment incentive will most likely be felt at the fringes of A network. Some areas may be so densely populated, strategically important, or otherwise relative cheap to deploy that investment will occur except under the most onerous conditions. That means that the strongest reduction in investment is most likely to be felt in areas where population is relatively sparser." (As read)
5023 And in this proceeding, at paragraph 127 I believe of its further comments, Rogers said exactly the same thing. They didn't say, "We're not deploying 5G in the GTA. We're not deploying it even in Brantford, Ontario." They said, "Rural and remote areas might not get it." And maybe there'll be some delays in them getting it, maybe there won't. We don't know. But even if you took it at face value, I think the question you have to ask yourselves is do you want to sacrifice the benefits of competition across the whole country because of a problem that if and when it manifests will manifest at the fringes of the network. If the answer to that question is, no, there are other remedies that you folks can come up with, that this Commission can come up with to deal with those specific cases.
5024 So, what I'm urging you to do is not to use an overbroad reluctance to open up the wholesale market because of this threat, because even under their own both theory and their own information, this threat is quite limited. And if it does manifest in a way that could harm a subset of consumers, there are other ways to deal with that, short of denying Canadians the benefit of competition.
5025 THE VICE-CHAIRPERSON: Thank you.
5026 MR. ROCCA: I'd like to just add two things. When Chris was talking about, you know, the sharing of the networks and, you know, spending $1 on that investment and benefitting Canadians, you know, I think there's -- lower prices can come in a lot of different ways, and some of it can be through more efficient use of investment dollars. And I don't think success should be the total number of dollars that are invested, rather the benefits that Canadians get from the investment of those dollars and efficient use that enables lower prices and innovation.
5027 And I wanted to add one more comment, specifically around the cost of capital.
5028 If the Commission determines that the prices that Canadians are paying are too high, whether or not the amount of revenue that the Big 3 receive through lower retail prices directly to their customers or whether or not it’s lower revenues received through rents of competitors through an MVNO process would have the same effect in that cost to capital.
5029 THE VICE-CHAIRPERSON: Thank you.
5030 MR. TACIT: Can I -- sorry, I just have one little thing to add.
5031 THE VICE-CHAIRPERSON: Absolutely.
5032 MR. TACIT: And that is, I think the 2019 policy direction points a very strong arrow in this direction.
5033 If you look at a number of provisions, one is:
5034 “encourage all forms of competition and investment,”
5035 In other words, not just necessarily in transmission facilities, which is what we’re talking about.
5036 If we look at:
5037 “foster affordability and lower prices, particularly when telecommunications service providers exercise market power,”
5038 Which the Bureau confirmed.
5039 “reduc[ing] barriers to entry into [new] market and to competition for telecommunications service providers that are new, regional or smaller than the incumbent national service providers,”
5040 I note that the word “new” is next to regional. That word “new” must have a meaning. If all they wanted to do was reinforce the regional presence, they would have said so.
5041 And finally:
5042 “enable innovation in telecommunications services, including new technologies and differentiated service offerings,”
5043 which is one of the key benefits of competition.
5044 THE VICE-CHAIRPERSON: You’ve talked about MVNOs being likely to target niche in underserved areas of this wireless services market.
5045 So what areas specifically do you consider to be underserved right now?
5046 I know you’ve talked about flanker brands, which you believe are providing one plan as opposed to a variety of plans, they’re all following each other, if I understood your comments correctly.
5047 So can you unpack a little bit for me what you consider to be an underserved market and where your members would target?
5048 MR. TACIT: So we did provide some examples initially in our first submission. And I don’t recall all of them, but there are also some good international examples. And I think those are the relevant ones because we don’t -- we simply don’t have them. So to say, you know, what could be, you kind of have to look at what’s happening somewhere else.
5049 And there are plans that target specific demographics. You know, whether it be linguistic, whether they be ethnic, ---
5050 THE VICE-CHAIRPERSON: Right.
5051 MR. TACIT: --- whether they’d be involved with other types of package, financial or other services, loyalty programs.
5052 You name it, there are all sorts -- there’s even one company, I can’t remember the name of it, in the U.S. that holds a bunch of patents. So, you know, and it’s an MVNO. So to say that MVNOs don’t innovate would be wrong.
5053 Again, but that doesn’t mean that every MVNO has to be forced into that model. You don’t -- you know, you don’t get to past “Go” unless you have 10 patents.
5054 You want the whole spectrum of innovation that can ensue.
5055 THE VICE-CHAIRPERSON: And so you would say that the flanker brands are not serving that market right now?
5056 MR. ROCCA: So, yeah, I’d just like to add a comment. You know, I think you asked about what kind of niches, you know, would members of CNOC target. And, you know, I think you look at today we’re seeing a huge growth in secondary mobility devices such as tablets. And next year maybe it’s personal safety devices. Maybe the year after then it’s alarm systems.
5057 I think what’s important is that it’s almost impossible to predict, you know, what the innovation of the future would hold.
5058 And having a full MVNO framework that was properly tasked, it would really allow that innovation to flourish.
5059 You know, we look at -- you know, just in ways that we can’t predict today.
5060 If you were to look at the search engine market in the ‘90s, you know, no one would have looked at it and said, “Okay, well what kind of niches can a search engine market fill?” and have any kind of clue of the magnitude or benefits of a company like Google would bring 20 years later.
5061 It’s ultimately that openness and fair -- open and fair playing ground that allows that innovation to flourish.
5062 THE VICE-CHAIRPERSON: Do you think that the concerns of some parties, that MVNOs would simply be targeting the regional carriers, is accurate and that the national carriers would just derive revenue from the service, but the regional carriers are going to feel the hit in terms of their customer base?
5063 MR. STEIN: No. I simply don’t think that’s the case.
5064 I think there are a number of reasons. I’ll touch on a couple of them.
5065 First of all, when considering where to target your product, the place that has the largest amount of market share is a pretty good place to aim.
5066 Targeting at the regionals doesn’t seem as likely to me.
5067 Certainly the price gap that one would expect to be able to create, if you’re positioning against value -- or your positioning value, should be much larger, and therefore easier to establish, in the eyes of the consumer, between the national carriers and an MNVO versus a regional.
5068 I think there are many other reasons. I think -- I just don’t see that as likely.
5069 THE VICE-CHAIRPERSON: So would it be fair to say then that the MVNOs would be targeting more the flanker brands’ customers?
5070 MR. STEIN: No, I would say ---
5071 THE VICE-CHAIRPERSON: Or it’s just across the board?
5072 MR. STEIN: I think it is across the board. And I think that each individual MNVO is going to be targeting something different.
5073 It needs to be stated again. The opportunity to innovate in this sector is huge when the Big 3 simply do the same thing as each other.
5074 I mean, even the big 2019 innovation, “Let’s decide, 2019, let’s offer unlimited. Let’s also throttle when it gets past a certain point. Within a couple of days, let’s all individually, and without provocation of the others, let’s all launch virtually the exact same thing at virtually the exact same price after a decade plus of not doing it.”
5075 It just -- they’re all doing the same thing. That makes it a very ripe market for an MVNO to come in and innovate with something very different.
5076 And I know that we can’t necessarily give you examples of what would happen here in Canada, but we certainly can give you lots of examples of what did happen in wireline of innovation that led the market into a new direction.
5077 In wireline internet, you saw things like unlimited.
5078 One of the members of our -- of CNOC, and again in the wireline internet space, decided over a decade ago they were going to go online and they were only going to market themselves on a near one-to-one basis in online forums.
5079 At the time, nobody was doing that.
5080 They did it, now everybody’s doing it.
5081 You saw retail operations popping up in big box stores, being, -- frankly, one of our members doing that.
5082 We saw one of our members offering annual plans. Like, we’re not talking prepaid. Yet it was targeted towards an affordability issue, yet it was sold on an annual basis, rather than a monthly basis.
5083 The point is that these were all innovations. They didn’t necessarily come from the greatest new piece of technology, but they came in a different way of selling it or in a different way of reaching out to a different constituency of users or customers, and it resonated. And they all built large bases of customers and fans from doing so.
5084 So I think, Dr. Chen, did you have something you wanted add here from before? Or no? It’s okay.
5085 DR. CHEN: No, that’s -- you made my point.
5086 MR. ROCCA: Oh, okay. Sorry.
5087 I think ---
5088 THE VICE-CHAIRPERSON: You made -- oh, sorry. Go ahead.
5089 MR. ROCCA: I think one of the things you’ll find is that all of the competitors are creative and resourceful and lean and just need the tools in order to be able to provide that innovation to Canadians.
5090 We all provide a different way of looking at things and different ways of addressing affordability and needs of consumers in niche markets.
5091 And I think that’s what you find in a full MVNO, is that you’ll have a variety of competitors competing in different ways.
5092 THE VICE-CHAIRPERSON: Okay. You’ve talked about setting of rates and I think you’d like the Commission to get into that exercise.
5093 What do you see as an appropriate level of return on investment in any established tariff rate for the carriers?
5094 MR. TACIT: So I’m going to answer this in a slightly more theoretical way because one of -- and I’m sort of planting a seed. I know there’s a costing proceeding coming.
5095 Because of the way you asked it, the rate of return, the reality is that the way that the Phase 2 costing plus a markup is done today is not actually particularly helpful in dealing with risk premiums.
5096 The reality is that if you really wanted to get at that, the way to do it is to look at the cost of capital that’s actually embedded in the Phase 2 costs.
5097 And hopefully, you know, when we get through whatever costing proceeding, that will be one of the changes that evolves from it.
5098 So we’d have to look at a whole new way of actually doing this for me to answer your question precisely ---
5099 THE VICE-CHAIRPERSON: Okay.
5100 MR. TACIT: --- because the sort of markup over Phase 2 cost, which was traditionally used to contribute towards fixed and common costs, the Commission then added another piece to that to estimate for risk premium, but it's not really -- you know, it's not really a precise way of doing it that's actually reflective that you can trace back to the cost of capital that the incumbent's actually paying.
5101 So that's why I'm answering the question in the way you are because you asked it as a cost of capital question.
5102 THE VICE-CHAIRPERSON: Do you think it would be appropriate to add a risk premium to any markup?
5103 MR. TACIT: If one can demonstrate that there was an actual risk, yes. And I think that's the first exercise, as I've said. But I think you need to look at exhausting your other options first.
5104 So for example, if through a regulation you can point them in a way that's going to actually help them reduce or mitigate that risk that should be the first recourse. If risk is unavoidable to achieve a regulatory objective, and the foremost of those would be enhancing competition in retail markets, then certainly some form of risk premium is warranted under those circumstances. And it -- but it should be no greater than the risk premium that they face in the capital markets.
5105 And the problem that I have had conceptually with the way it's done today is that there is -- that linkage simply doesn't exist right now. So the risk premium that's sort of embedded in the markup is not really directly correlated to that.
5106 THE VICE-CHAIRPERSON: Shaw has taken the position that MVNOs will emerge naturally in Canada once facilities-based competition has matured. And I gather that you don't support that view of the world.
5107 Is there any regulatory intervention that the Commission could undertake to develop a more favourable market condition for service-based competitors other than mandating wholesale MVNOs?
5108 MR. STEIN: I can't think of it. I can't think of one. I know that at least in my case, and I'm sure in many members of CNOC's case, for over a decade we've been trying and -- trying to work with the various Big 3 to get access to sell a wireless product.
5109 I certainly have tried everything. I have tried asking for directory sale. I have tried asking for a full MVNO, a resale MVNO, you name it. I can't see anything that could reasonably create competition anywhere near the likes of what a mandated MVNO would, and I think that it would be a half-measure at best.
5110 THE VICE-CHAIRPERSON: And you don't believe that given the cost of spectrum and other issues that a third national network would ---
5111 MR. STEIN: No.
5112 THE VICE-CHAIRPERSON: --- organically occur ---
5113 MR. STEIN: No. And I also -- I don't believe that a market for MVNOs would form. To -- as you characterized Shaw's point that they would form after facilities-based competition reached a certain point, I just don't see that as likely. I don't see that as likely because the same -- the four largest communications companies in the country are the only ones aiming at national coverage, and they're content, they're very content not to do that. In fact, in the case of Shaw, there was interest when they were still called Wind before the acquisition ---
5114 THE VICE-CHAIRPERSON: Right.
5115 MR. STEIN: --- in talking and discussing MVNOs, but once the era of Shaw began that door was shut.
5116 THE VICE-CHAIRPERSON: And if we look at the model suggested by the Competition Bureau, which would concentrate on regional competitors, do you see that as a basis for getting those regional carriers to expand their facilities?
5117 MR. TACIT: Well ---
5118 THE VICE-CHAIRPERSON: You just don't think that goes far enough.
5119 MR. TACIT: Yeah. I think you asked me that ---
5120 THE VICE-CHAIRPERSON: Yeah. Okay.
5121 MR. TACIT: --- earlier, and I said yes, they'll probably expand their facilities but will it bring the full benefits of competition. No. Will they be that much more likely to provide voluntarily full MVNO national solutions? I don't think so because they are horizontally and vertically integrated.
5122 I think one of the reasons you see successes in other countries and -- is because in a lot of those countries the carriers that have adopted voluntarily MVNO regimes are ones that are not vertically and horizontally integrated. If you look at Sprint and T‑Mobile in the U.S., they are the exceptions. You know, AT&T is integrated. They have not been interested in doing voluntary MVNO deals to the same extent.
5123 They've done some because others have, but the leaders have been T‑Mobile first and then Sprint. They wanted to fill those pipes. That's all they had. They had no way to leverage their dominant status in adjacent markets, so they had to do something.
5124 THE VICE-CHAIRPERSON: And do you support a model where entities without wireless or wireline facilities are eligible to become MVNOs?
5125 MR. STEIN: Yes, we do.
5126 THE VICE-CHAIRPERSON: Okay. Now, how would that increase the incentive for those entities to invest in facilities? If they have free access as an MVNO, they don't have any facilities, wireline or wireless, where is their incentive to build out?
5127 MR. STEIN: Well, first, you said free access. I assume you meant access to it freely as opposed to access for free. Certainly, they're ---
5128 THE VICE-CHAIRPERSON: Right.
5129 MR. STEIN: --- paying for it.
5130 We don't believe that service-based competition requires that they be making facilities-based investments. So if I understood your question correctly, and perhaps I missed it, but if the question is what would incent them to invest in facilities, we're not suggesting that it would.
5131 THE VICE-CHAIRPERSON: Okay. And equally then that really isn't going to help investment in rural or rural areas.
5132 MR. STEIN: Well -- so ---
5133 THE VICE-CHAIRPERSON: They will just occupy their space without investing in facilities.
5134 MR. STEIN: Well, keep in mind that those rural areas, if they're not served, there are still customers. The same number of customers are there looking for a provider whether or not MVNOs are there or not.
5135 So there is a business case in those rural areas, and maybe that business case is a little bit different, maybe it requires less or more government intervention, but there is still a business case there. And we don't think that there is much likelihood that that changes.
5136 THE VICE-CHAIRPERSON: Okay.
5137 MR. TACIT: I think -- sorry. I'd like to just focus on the word "facilities" because we talk about facilities. What -- I think the way you're using it is in terms of wireless, is RAN is what you're talking about; right?
5138 THE VICE-CHAIRPERSON: Right.
5139 MR. TACIT: And we've already ascertained that the RAN capacity is fixed.
5140 So really, the debate shouldn't be about do we want to force people to try and spend a lot of money on wireless so that they can't offer cheaper innovative prices. To us, the discourse should be how do we use the spectrum that's out there, and for which people do have to have paid and would like to see some return investment, how do we fill that capacity as best we can. And that's where service-based competitors have a role to play.
5141 And again, I want to come back to the 2019 Policy Direction because it's very specific encouraging all forms of competition and investment. I think that is a very strong signal, it's a turning point away from the previous focus on you must build transmission facilities, wireless or wireline. I think those words are there for a reason, and they're to point us in the direction that when you're trying to stimulate competition other types of investment are equally valuable and shouldn't be discounted or belittled.
5142 THE VICE-CHAIRPERSON: Now, Cogeco has indicated that under their hybrid model that would be an incentive to increase investment in wireline facilities. And I understand that you do not generally support their model, but do you see any way that it could be modified to address the issue of further wireline investment, especially rural investment?
5143 MR. TACIT: I think it's an illogical model because, you know, I don't agree with the Commission and -- sorry -- with the Bureau or with Shaw, but at least their model has some internal logical consistency to it.
5144 The Cogeco model doesn't have any consistency because it's -- if one were to have this hypothetical objective of increasing wireless competition the mere fact that you have wires in the ground does nothing to further that. All it does is it allows Cogeco, who would be the prime beneficiary of this, to get entry and keep everybody else out. That's all you would've have achieved under that scenario.
5145 You know, I'm looking at the output of what this actually does on the ground at the end of the day. What's the outcome? And that would be the outcome. It doesn't do anything for guaranteeing that they're going to, you know, really have wireless facilities over time just because they have access facilities now or fibre somewhere.
5146 THE THE VICE-CHAIRPERSON: If we look at the Bureau's model, and the Bureau has indicated that it thinks that the regional disruptors, is the term has been used in this hearing, should be granted a time-limited MVNO access, but I gather that their model would not serve your members well as many of them would not qualify.
5147 But if the Commission were to go down the road of the Bureau model, would that encourage your members to purchase spectrum and deploy a network in new areas?
5148 MR. STEIN: No, I don't believe it would. I don't believe that's practical.
5149 THE THE VICE-CHAIRPERSON: And is that simply because of the cost of acquisition of spectrum? Are there other factors?
5150 MR. STEIN: I think it's primarily the cost of acquisition of spectrum. As I spoke to in the opening remarks, we saw what happened the last time a major undertaking tried to buy a lot of spectrum and build out services. It might create some small pockets of competition, but it certainly doesn't correct the situation we have today of so many Canadians can only spend so much more than is appropriate on wireless services.
5151 THE THE VICE-CHAIRPERSON: Okay.
5152 MR. TACIT: The other thing I want to point out is just the timing element. Based on the surveys you've had from Canadians, based on everything that we hear, there is a real sense of urgency to do this. And you heard the Bureau towards the end of its testimony talk about, well, next steps we have to have a further proceeding to operationalise this. And that's a problem for Canadians.
5153 The beauty of the full MVNO system, and I really can't stress this enough, is you change some words in the tariff and you get them to enable protocols that are already there under the GSM system that all of them use to interconnect with each other. And you basically allow unidirectional permanent roaming by full MVNOs. You don't need to do anything more, and you have a set of interim rates to use. And those who say those rates don't apply, again, I don't understand the logic for that, because full MVNO is roaming. It's unidirectional roaming, but it's still the same domestic roaming service. It's priced the same on a unit basis.
5154 So, it -- you know, it's certainly good enough as a starting point, and you can tweak it afterwards ---
5155 THE THE VICE-CHAIRPERSON: M'hm.
5156 MR. TACIT: --- but you could get this thing going in months, if you wanted to, by doing that, as opposed to ---
5157 THE THE VICE-CHAIRPERSON: Right.
5158 MR. TACIT: --- okay, let's have a follow-up proceeding to see how all of this will get operationalised.
5159 THE THE VICE-CHAIRPERSON: And if the Bureau model were adopted, in your submissions I think you've indicated that the regional carriers would choose to launch full MVNOs of their own. They would be the biggest beneficiaries of mandated wholesale access. The incumbent-owned regional carriers would be in a position to increase their revenues very substantially. Is that a bad thing, because there would be service to potential customers throughout all of Canada, just -- and not just in the regions where they have home network coverage?
5160 MR. TACIT: I think that's one of the benefits.
5161 THE THE VICE-CHAIRPERSON: Okay.
5162 MR. TACIT: That's the point. The point is you want -- and, you know, CNOC members aren't afraid of that. We're not trying to create an exclusivity of any kind and saying, well, they're not eligible because they're already regionals. We're not saying that.
5163 THE THE VICE-CHAIRPERSON: You want to coexist.
5164 MR. TACIT: We want to coexist. Absolutely.
5165 THE THE VICE-CHAIRPERSON: Okay.
5166 MR. TACIT: And that's because we're confident we can find the niches that Canadian consumers want that's not being -- that are not being served today.
5167 THE THE VICE-CHAIRPERSON: But if there was an incremental approach, which is what the Competition Bureau is suggesting, like, limited to regional carriers disruptors, do you think you would still benefit in terms of, you know, getting access to excess capacity ---
5168 MR. STEIN: Are you asking if Canadians would ---
5169 THE THE VICE-CHAIRPERSON: --- on the regional carriers?
5170 MR. STEIN: --- would Canadians benefit or would MVNOs benefit?
5171 THE THE VICE-CHAIRPERSON: Both.
5172 MR. STEIN: Under the Bureau approach, I don't see how MVNOs would benefit because they would all be the existing regional carrier, so they would benefit, because they are the preselected competitors.
5173 THE THE VICE-CHAIRPERSON: But if the regional carriers were permitted to sell excess capacity?
5174 MR. STEIN: I don't think there's anything that stops them from doing it today and ---
5175 THE THE VICE-CHAIRPERSON: Okay.
5176 MR. STEIN: --- none of them are ---
5177 THE THE VICE-CHAIRPERSON: And they haven't done that.
5178 MR. STEIN: --- really all that interested in that conversation.
5179 THE THE VICE-CHAIRPERSON: Okay.
5180 MR. STEIN: So, in other words, I don't see this ---
5181 THE THE VICE-CHAIRPERSON: No, I -- yeah, I understand your ---
5182 MR. STEIN: Okay.
5183 THE THE VICE-CHAIRPERSON: --- argument and the basis for it.
5184 In terms of putting restrictions or conditions on wholesale MVNO service, who's eligible, where they can operate, your position is clear that the Commission should reject such conditions, they'd be anti-competitive. Can you give me a little bit more of an unpacking of that?
5185 Are there any conditions that -- restrictive conditions that would be a particular concern to you, for example?
5186 MR. TATIC: Well, so let me answer it in a general way. I don't know if you folks want to add to it, but in a general way, the more you restrict it, the less the benefit that it's intended to yield will actually materialise. I mean, that's just the reality.
5187 If you open it up, the technology is there. You're not talking about disrupting anybody's network, making them, you know, jump through hoops that they haven't had to jump before. You're not asking them to go to two years worth of hearings, create new interconnections, all of that. These are all tried and tested, standard-spaced things that require the turning on of protocols and the creation of some links between companies. So, to start restricting that I think would be problematic.
5188 Now, I don't know if you're trying to get at things like seamless roaming and call hand-back. Is that some of the stuff you're trying to get at, or other things, or ---
5189 THE THE VICE-CHAIRPERSON: No, I'm talking about resale restrictions, limitation to residential consumer markets, the whole Internet of things, machine to machine applications, do you have a position on those kinds of restrictions?
5190 MR. ROCCA: Yeah, I think you've heard, and you're going to continue to hear lots of interveners, you know, trying to put limits on, you know, what kind of technology, what kind of capacity, what kind of markets. Ultimately, those are just tactics that are designed to reduce the effectiveness of competition.
5191 I think that if regulation is to limit the availability of competitors to compete to certain markets or certain technologies, we're just going to be back here in another year or two, wondering why there's no competition in those other markets.
5192 THE THE VICE-CHAIRPERSON: And what about a concern that if there's no resale restriction you might get enterprises getting in through the back door that they can't get in through the front door on eligibility criteria. Do you think that's a valid concern?
5193 MR. STEIN: Well, we're not proposing that there ought to be specific eligibility criteria that way, so, no, we don't see that as a concern.
5194 THE THE VICE-CHAIRPERSON: Okay. And then what's your position on access to domestic and international roaming agreements under your model, just to clarify that?
5195 MR. STEIN: Ian, do you want to comment?
5196 MR. STEVENS: We think that as part of a service offering you need access to international roaming models, and if -- as necessary, to domestic roaming. But if there's full MVNO, you really don't need roaming.
5197 THE THE VICE-CHAIRPERSON: Right.
5198 MR. STEVENS: So, we think that that's probably part of a service, but, again, service innovation might dictate a certain service provider doesn't need that at all.
5199 THE THE VICE-CHAIRPERSON: And what's your view about the concern that's been expressed about, for lack of a more specific term, large, well capitalised companies, large North American tech firms? Should there be any conditions placed on the MVNO model that you propose in terms of their entry into the market?
5200 MR. STEIN: No, we wouldn't propose any restrictions that would preclude them from coming in. Frankly, if they were to come in and that were to drive down prices for Canadians, and they were to become the dominant MVNO in the space, that's fine by us. Even recognising that -- you know, some might expect us to say, well, no, CNOC are largely Canadian companies, and so it should only be a Canadian, or something like that. We thought about that, discussed it, and we felt that it was too self-serving.
5201 Our view is that the best kind of competition will be the kind that forms by itself, and so therefore, if it comes from a foreign tech firm and so forth, then so be it.
5202 THE VICE-CHAIRPERSON: Okay. And I gather that you're not at all in favour of commercially negotiated agreements. You think those would be non‑starters. That the Commission should take on the task of setting rates. And ---
5203 MR. STEIN: Yes. Those ---
5204 THE VICE-CHAIRPERSON: --- terms and conditions as well?
5205 MR. STEIN: Yes. Commercial negotiation would be non‑starters. Yes, the Commission would need to set terms and conditions as well as the rates.
5206 THE VICE-CHAIRPERSON: And I expect that you would agree that if parties would agree to off tariff arrangements that you wouldn't have a problem with that? In a -- you know, as a baseline condition.
5207 MR. TACIT: Sure. As long as there start's with a tariff ---
5208 THE VICE-CHAIRPERSON: Okay.
5209 MR. TACIT: --- and then there's an off tariff that's better than that, certainly is nothing wrong with that. Those happen today in wireline.
5210 THE VICE-CHAIRPERSON: And the retail minus approach to setting wholesale rates, I believe you -- you're not in favour of that?
5211 MR. TACIT: No. No, we're not. There's a couple of problems with that. First of all, all it begets is more of the same kind of stuff that you already have in the market. Second is that you don't have a proper reference point for it necessarily because there are -- which carrier's pricing do you use at what point in time, in which geography. And the Bureau's also pointed out the problem that you could end up inadvertently setting a retail price floor by taking that approach.
5212 MR. ROCCA: Yeah. I think one of the other pieces that is missing in a retail minus is that it really doesn't foster any of the innovation that comes, all it does is, you know, add one more player who can only differentiate on price and not attack any other innovation value that that competition brings. No, retail pricing just doesn't unlock that innovative potential.
5213 THE VICE-CHAIRPERSON: Okay. You talked about in your comments about access to devices, and under your proposal you think it is acceptable to have a reasonable exclusivity period before an MVNO could get access to some of the premium devices. Do you have a concept of what would be a reasonable exclusivity period versus unreasonable?
5214 MR. STEIN: Yeah. I guess I'll expand on that a little bit and just clarify.
5215 Sometimes, we see one of the Big 3 launch a new device and they're only one who has it for 30‑days or 45‑days or 60‑days or something like that. In a case like that if I'm an MVNO on let's say Rogers, we're suggesting that I should still be able to buy the phones from Rogers, but I can't sell that phone so therefore why would I buy it, until their exclusivity period elapses.
5216 THE VICE-CHAIRPERSON: M'hm.
5217 MR. STEIN: Not -- were not proposing, and not in favour of some sort of delay where an MVNO only gets the phone after the Big 3 have had it for some length of time or anything like that.
5218 Surely, if they were able to negotiate with one of the phone providers that have it exclusively and nobody else does, we're simply saying that we would want to respect that. We would expect that we should respect that exclusivity period that they've negotiated. In other words, we'd be in the same -- we'd be in -- launching it at the same time period roughly as the others of the Big 3 who didn't have that exclusivity period.
5219 THE VICE-CHAIRPERSON: Okay. What's your position on who should be mandated to provide the MVNO access? Just the national MNOs or the regional carriers as well?
5220 MR. STEIN: Our position is it should be the Big 3, the national MNOs.
5221 THE VICE-CHAIRPERSON: Okay. But not parties, such as SaskTel or regional carriers?
5222 MR. STEIN: No.
5223 THE VICE-CHAIRPERSON: No. Okay.
5224 MR. STEIN: Although I say that there's certainly -- we'd be very happy to have the conversation with them if they wanted to.
5225 THE VICE-CHAIRPERSON: Right.
5226 MR. STEIN: But not mandated, no.
5227 THE VICE-CHAIRPERSON: Okay. When you talked about your model having an ease of implementation because it just is going to require some simple modifications to the wholesale roaming tariffs, and you used the Sugar Mobile example. Do you think that -- you know, Sugar Mobile was one small company, it didn't have many customers permanently residing on Rogers network. Do you think there would be potential for opening the floodgates under your model?
5228 MR. TACIT: I'm not sure what you mean by opening the floodgates.
5229 THE VICE-CHAIRPERSON: Well, we've concerns that MVNOs come into the market, operate for a little while, and then go out of business, and that that is not a good situation for consumers. And that if you don't have some skin in the game, if you don't put certain requirements for investment, and that sort of thing, that you might end up with a situation where consumers are left without a service where you're not really getting any benefit to the system because your system is so loosely set up that it's set up for failure. I mean, those are some of the comments we've heard.
5230 MR. STEIN: Well, first off, we certainly haven't seen any MVNOs fail in Canada, we've not had the opportunity for that to happen yet. But we should also keep in mind that if an MVNO were to fail there's a lot of outcomes that are more likely than a bunch of stranded customers. Even when three large entrants basically failed they were all snapped up very quickly. There is no reason to believe that the most likely outcome isn't another MVNO, or one of the regionals, or one of the national MNOs snap up those customers and continue to provide service.
5231 Also keep in mind to the extent that the MVNO is still very small and it has only a few thousand customers, or something like that, it's not particularly difficult, especially in the age of the eSIM, which is basically upon us now, for customers to move from MVNO to MVNO, or from MVNO to MNO and any other wireless carrier. It's not a wireline thing where you've got to roll a truck and go to a house and do some work and install them.
5232 Moving those customers should be quite reasonable, and therefore, the -- I'd say the unfortunate customers that chose that now failed MVNO would have lots of options they could switch to, even if it wasn't -- the subscribers themselves weren't snapped up and acquired by somebody else.
5233 THE VICE-CHAIRPERSON: Okay. We're almost at the end of the road here.
5234 Do you have a position on access to 5G networks for this MVNO model?
5235 MR. ROCCA: Yeah, I do. You know, Canadians have been asking for meaningful competition for years, maybe a decade. I think any model that enables competition but relegates them to legacy technology that was deployed 15 years ago is not going to be an answer to that.
5236 THE VICE-CHAIRPERSON: On network sharing agreements do you believe that they help or hurt the overall competitiveness of the market?
5237 MR. TACIT: I think they can help immensely for the reasons I said at the beginning because it gets around a lot of the problem about the preoccupation with investment dollars if we start focusing on using existing and upcoming investment more efficiently. But they do have to be watched.
5238 I would certainly urge this Commission not to just give those agreements forborne, free passage without looking at them very carefully. And particularly since they're confidential it's unlikely that intervenors will see any or much of those agreements, and understandably so, so the Commission has a very important due diligence role to play to guard against empty competitive effects.
5239 That would be my only concern. But in terms of an economic impact, I'd say go. I mean, like let them all share networks with each other. I think that would be fabulous.
5240 THE VICE-CHAIRPERSON: And are you -- do you share Shaw's view of the utility of having working groups to deal with some of the issues related to access to support structures as well as access to municipal infrastructure, especially as we're getting into that 5G world?
5241 MR. TACIT: Those things already exist largely. You know, many, many municipalities already have utility working groups in place. And, you know, so there’s no reason not to have them.
5242 Anything that helps -- my view in life generally is anything that helps coordination and communication is generally a good thing and I don’t know why people would resist it.
5243 THE VICE-CHAIRPERSON: Those are all my questions. Thank you very much.
5244 Mr. Chairman?
5245 THE CHAIRPERSON: Thank you. Other questions? Counsel? No?
5246 Then I thank you very much for your submission and your fulsome responses today.
5247 We’ll take a 10-minute break.
5248 And then we have one more intervenor by Skype; correct, Madam Secretary?
5249 THE SECRETARY: Correct.
5250 THE CHAIRPERSON: Thank you.
--- Upon recessing at 5:06 p.m./
L’audience est suspendue à 17h06
--- Upon resuming at 5:15 p.m./
L’audience est reprise à 17h15
5251 THE SECRETARY: Good afternoon. We will just cut the music.
5252 MR. KLAUSE: Can you folks hear me?
5253 THE SECRETARY: Yes, we can.
5254 MR. KLAUSE: Okay.
5255 THE SECRETARY: Welcome.
5256 MR. KLAUSE: Thank you. I’m honoured to appear in front of you folks today.
5257 THE SECRETARY: Thank you. So we will now hear the presentation of Voyageur Internet Inc.
5258 Please introduce yourself. And you may begin.
PRESENTATION / PRÉSENTATION
5259 MR. KLAUSE: Oh, hi. My name is Jeff Klause. I am the president and CEO of a small Indigenous internet service provider located in the Winnipeg region. I am here to represent Voyageur Internet.
5260 We are a facilities-based wireless internet service provider with a mix of commercial and residential customers.
5261 Today we own and operate more than 60 internet broadcast sites with more than 300 distribution antennas that are located in the Winnipeg and surrounding region.
5262 Our core router went online in 1998, back in the dialup days.
5263 Since then, our network has grown to provide ultra-highspeed services across our network.
5264 We have been buying wholesale internet transit and transport services from the major carriers for over 22 years.
5265 The Voyageur Internet network has its own infrastructure that connects back to our broadcast sites from our customers in homes and businesses, connecting many thousands of Manitobans every day.
5266 We strongly urge our Canadian Government to open competition by allowing all internet service providers to offer cellphone plans to our customers, as well as improve cell phone coverage area by allowing our industry to add access points to the national cellphone network.
5267 In other countries there’s more competitiveness in the cellphone industry where wireless communications service provider that does not own the wireless network infrastructure over which it provides services to its customers.
5268 I don’t think I need to go into the definition of an MVNO based on the last few folks that I have heard today.
5269 And what I have heard is that it sounds like this model commercially may exist in Canada.
5270 However, from our perspective, it is not available to internet service providers that are not classified as an ILEC or a CLEC.
5271 Today there is no clear path of how a company like Voyageur Internet would even start to negotiate with a national provider.
5272 My first request is that the MVNO model become available to all CRTC-registered internet service providers with a template or set guidelines to facilitate the process.
5273 In comparison to the major carriers, most companies in our industry are very small when compared to the national cellphone providers.
5274 Most of the smaller internet service providers are more technical and do not have the administrative heft to create constructs from scratch.
5275 In that sense, we ask for your help to create good policy that all parties will be able to abide by, moving forward to a new idea that could mutually benefit the public, the cell phone companies, as well as internet service providers.
5276 I have named the idea, for lack of a better term, reverse-MVNO.
5277 There are hundreds of internet service providers with facilities that are well-connected and have lots of capacity across our great nation.
5278 These facilities are already connected to the major providers.
5279 There are thousands of dead spots in the cell phone networks today, such as basements of a large number of commercial buildings, concrete parkades, industrial area buildings that are steel-clad, dips and valleys in rural areas, as well as remote communities.
5280 The request is to allow internet service providers such as Voyageur to add cellphone antennas to their networks and require the national cell phone companies who own the spectrum to integrate those antennas into the national cell phone network.
5281 We are not asking the major carriers to pay for the radios’ antenna or infrastructure required to transport the data to a common exchange point.
5282 We already own or lease it from the internet side of our business.
5283 The calling -- phone data can be securely transferred between the networks using standard internet protocols, starting with a network to network interface.
5284 Although this is just an example of how part of it could be done, today most internet service providers use network to network interfaces to transport data between the networks.
5285 With an MVNO along this new concept, the reverse MVNO model, any internet service provider would be able to offer their customers cell phone plans, as well as provide them the cell phone coverage they require in their community or business in real time.
5286 The population density in Manitoba is unique with many challenges that greatly differ from metro regions.
5287 Today there are approximately 25 wireless service providers in this province who have built out the networks using mostly WIFI-based microwave technologies.
5288 By allowing us to add cellphone antennas and to fill in dead spots, our networks become part of the national network.
5289 Today, across Canada, there are more than 500 similarly sized companies that have been filling in the places left behind by the major providers in terms of providing internet.
5290 Public is a safety is a huge issue in our region when it comes to the national network.
5291 The emergency paging system only works on cellphones that are connected to the national network.
5292 Today there may be private secure WIFI coverage in a number of those dead spots, but that does not help in the case of an emergency.
5293 Aside from public safety, which is the biggest concern, there are economic benefits.
5294 The emerging 5G technologies, alongside with the rapid growing industry, which is called internet of things, or IOT, should be part of the national network.
5295 There are also hundreds of small internet service providers and information technology companies that are currently deploying WIFI-based solutions because of their business models. With a reverse-MVNO model better technology such as emerging 5G devices can be deployed.
5296 It is possible for this type of innovation to be provided by any of the internet service providers, at a much lower cost than the national providers, has benefits for the end users such as improved cell phone coverage and potentially more competitive pricing.
5297 Commissioners, I really appreciate you hearing me today.
5298 THE CHAIRPERSON: Thank you. Thank you very much for taking the time to share your submission with us.
5299 Commissioner Barin?
5300 COMMISSIONER BARIN: Thank you.
5301 Good afternoon, Mr. Klause. Thank you very much for joining us via Skype. I have some questions ---
5302 MR. KLAUSE: Thank you.
5303 COMMISSIONER BARIN: Thank you. I have some questions for you. I'd like to start with questions of a more general nature and then get into some more details on your reverse MVNO model.
5304 MR. KLAUSE: Okay.
5305 COMMISSIONER BARIN: So, to begin, you operate in Manitoba, a market which recently went through the acquisition of MTS by Bell, and I would like your views on whether the mobile wireless market in Manitoba has gotten worse or better following the acquisition?
5306 MR. KLAUSE: I think that the mobile -- oh, sorry, that's an echo for me.
5307 I feel that the mobile wireless network has actually improved on the same rate that it was always improving. There's a lot of holes in Manitoba, but I didn't -- we haven't really seen, from my perspective anyway, a lot of change. And MTS was never considered to be great at it. There were already movements with Bell putting facilities into Manitoba before that acquisition actually happened. But in terms of going in my lifetime from no cell phones to what we have today, the rate in which that's been deployed and constantly improving really hasn't changed at all.
5308 COMMISSIONER BARIN: Okay. And have you seen any changes from the newer wireless entrants such as Freedom, Videotron and EastLink on the competitiveness of the wireless market in general? I know not all of them ---
5309 MR. KLAUSE: None ---
5310 COMMISSIONER BARIN: --- are in your market, but ---
5311 MR. KLAUSE: None whatsoever in our market. Some of our -- a few competitors in our industry that we meet regularly at the Manitoba Internet Exchange, where we all -- a lot of us have our networks connected together, were actually commenting on how many people do we know that have plans that are not on one of the major carriers. And it still is the dominated market and we're not seeing any difference.
5312 COMMISSIONER BARIN: Okay. And with respect to prices, certain parties in this proceeding have submitted that wireless prices have declined in recent years, and, in fact, the -- this is supported by the CRTC's own communications monitoring report. Do you believe that this decline in prices has been reflected in more competition in the market?
5313 MR. KLAUSE: I wouldn't say it has done anything for competition in the market because there's no new competition in the market in terms of cell phone.
5314 COMMISSIONER BARIN: Okay. Fair enough. And now, specifically for -- with respect to Manitoba, in your submission, you indicated that the population density in the Manitoba region was unique and that there were specific challenges that differentiated it from the metro regions.
5315 Could you elaborate on this a bit? What specifically are the challenges, and why are they unique to Manitoba?
5316 MR. KLAUSE: Well, in the metro regions, and I know this even from my own travels, you go into even -- whether it be a downtown region or an urban region, you go to visit people in their homes, and you go into the basement, and there's no issue with your cell phone coverage. I'd say that where I'm sitting right now in my home in Winnipeg, if I were to go 10 feet down, I would not be able to have this conversation. So, and that's pretty much a very common thing that happens throughout the urban centre.
5317 You get into the rural centre, it really is going to depend on the tree coverage and what your rural property looks like, if you're any dips, and maybe you have to spend 10, $15,000 on a small tower and put a cell phone repeater to get service into your property.
5318 And, you know, those are the types of solutions that are happening out there, requiring the end consumer to be spending -- and only a limited number of consumers to be -- that could afford to be spending that type of dollars to get cell phone service into their home or operations.
5319 COMMISSIONER BARIN: And do you believe this is because of a lack of appropriate infrastructure, or is it geography, or ---
5320 MR. KLAUSE: Oh, there's a lack of infrastructure, but I'm not going to try to make an argument that it's easy to fulfil and get the full coverage. I mean, the amount of investment that any company would have to make is huge.
5321 And, you know, therefore, there ends up being a lot of holes in an area like ours that has population, and the population literally is on every square acre of the rural areas throughout Manitoba where we have towers aside from being inside Winnipeg, and there's a lot of those properties where our technicians, they don't get service unless they're up on the roof with our antennae where we're pointing back to our tower as well.
5322 So, there's very little coverage when you get into the homes and the places that people need it. And, you know, there -- I do also feel that the cell phone companies haven't been neglectful in building out infrastructure. It's just that the pace that it's going on, based on the investment that we see into Manitoba, it's going to be a very long time until we have full coverage.
5323 And then even with that though, it still doesn't give us the type of access to the emerging 5G technologies to start planning our technology rollouts, rather than what I'm going to call not as good Wi-Fi technology where we could already be working on 5G and having devices and sensors and everything that are being put into buildings and infrastructure throughout the province that are Wi-Fi based and people want to work with the companies they want to work with, not necessarily the large carriers, and the prices are a lot better. Even on the bandwidth side for cell phone versus what we do on our network, and when I hear the discrepancies in bandwidth, I mean, it's a 20th or better than that for the cost if you're on Wi-Fi on our network in someone's office. As soon as you leave that office, you're paying 20 times the amount of money for access to bandwidth.
5324 So, there's -- there are a lot of opportunities for us as a small -- we're a very small company, but we do innovate. We've been innovating since the late '90s. And we feel strongly that there's room in the cell phone network. To us it's just a matter of radio, and spectrum, and wireless, and having deployed the number of access points and wireless that we've done. We want to be able to allow to participate.
5325 We're also not asking to interfere, like, technically interfere with antennas that are currently deployed by the major carriers. We know when you have no signal, and so we know where things need to be deployed.
5326 In terms of cost sharing, it's -- that could be a difficult conversation. I understand where people get into saying, well, let's take a look at only ILEC and CLEC model for security and other reasons. There's billing key platforms and other things that make it easy for billing to happen at those levels, but unfortunately, that excludes more companies than it includes. That'll include 50? I don't know what the number is, but 50 CLECs versus 500 internet service providers that have invested in infrastructure in a regime for the past 20 years that's been facilities-based. So, literally billions of dollars have been vested into 500 networks that are small networks across this country, but we're still not allowed to participate in the national network because there's no way that any of us could afford to ever participate in spectrum.
5327 COMMISSIONER BARIN: So, specifically with this model, this reverse MVNO model that you're proposing, is the model hinged on networks that are already existing that you are proposing would be interconnected with the networks of the national MNOs? I'm just trying to understand ---
5328 MR. KLAUSE: Well ---
5329 COMMISSIONER BARIN: --- what the model is.
5330 MR. KLAUSE: There are new networks being built in Manitoba that are not owned by any of the major carriers. Fibre being pulled, towers being built, delivering things -- and there's a huge demand to be able to put cell phone infrastructure on those facilities that are owned by the people putting them up.
5331 You know, whether it be Voyageur, or whether it be a number of First Nations up in northern Manitoba would be some good examples as well.
5332 The model doesn't preclude new people entering in because there will be new small networks that will pop up, that will -- like, and the other part of this, just to pause that thought, is the interconnection piece, is that pretty much all small internet service providers have to buy a form of transport or transit to facilitate getting their traffic out to what is the internet, or what is an edge to the in networks. Perhaps -- for example, in Winnipeg here, pretty much our edge is considered Shaw in Alberta, and a bit in Toronto, but you need to get –- the customers need to be communicating with what is considered to be the Internet.
5333 So we have all of our transport and interconnects and network to network interfaces that already exist and can already facilitate security to transfer over them through other protocols. And I don't want to get into technical things because lots of people have different ideas on what technologies to do it with, but it can be done, and there's more than one way to be able to do that, and to be done securely, which I understand there are security issues.
5334 So when I look at our network, and we already comply to all of the ISED regulations that we have on our network and our towers and our infrastructure, I believe that it's to everybody's benefit. And this is not in opposition to the major carriers, this is I have a network, I can put up an access point. Instead of spending $3 million, maybe I'll spend $15,000 and I can share in a bit of revenue. And that allows for innovation, lower expenses for the major carriers.
5335 Even to go so far to say if they realize this is an area where they have plans in the future to build a tower, they put that tower up, which means that -- this new antenna that this antenna that was added is no longer needed, that's great because all of the devices that I wanted connected are connected. So that's where the MVNO model comes in to make sure that I have plans that I can do with my customers that are on the cell phone, not just for the cell phones but for the emerging IoT market.
5336 COMMISSIONER BARIN: I see. On the issue of investment, it's been suggested in this proceeding that an MVNO model would reduce the incentive for the carriers to continue to invest in infrastructure. Do you -- what are your views on this? Do you believe that this is something that the Commission should be concerned about?
5337 MR. KLAUSE: Maybe some of that investment might move to my company.
5338 COMMISSIONER BARIN: Well, I think the argument ---
5339 MR. KLAUSE: I don't think you'll lose investment is my point. There's still a demand and a need for the technologies that are emerging on our planet, and one way or another people -- humans will make them happen.
5340 Which is even why a company like mine exists. That growing up as a kid I worked with a lot with MTS folks through my high school, through science fair projects, through all kinds of other things, and the whole culture changed when the government sold it and the whole entire telecom culture has turned into something very different than it was when I was growing up as a kid.
5341 I believe that if the -- if it had evolved into something great there would only be two major providers, and that would be super, but they don't behave, and that's quite -- speaking frankly. It's very anti-competitive. At the same time, I buy services from them, and have been for 22 years at reasonable rates that have been commercially negotiated outside of regulation.
5342 So -- but at this point we've asked all of the carriers over the last 10 years in many different ways through many different organizations to somehow participate in the cell phone network to solve problems and getting networks out to where we need them, and there's just no real way for us to do that, which is why I wrote to you guys in the first place.
5343 COMMISSIONER BARIN: Thank you. So I -- you're telling me that you have tried to negotiate with the existing carriers to have this kind of interconnection with your services. Can you tell me a little bit more about how these discussions with the carriers went or far you got in terms of trying to get some kind of agreement?
5344 MR. KLAUSE: Seems like you meet with somebody and then you meet with a different person and then you meet with a different person, and you start talking about and asking questions, and none of the questions in terms of how you would actually do it get answered, and it just sort of fizzles out. And there's no direct person to talk to, there's no format in which to be able to approach them. I don't necessarily -- I -- think that it's -- that there's -- that they're going "No, I don't want to do it", but they don't have anything within their organization built or whatnot to be able to facilitate the request even.
5345 And in an -- in a technology world when you go to any of the major carriers and you're requesting, for an example, a specific 10‑gigabyte -- I don't want to get into all the technical things -- if you get one letter in it wrong they'll deliver exactly what you asked them for and nothing different, and they won't advise you that you maybe could've ordered something better for your company or otherwise. So you better make sure that when you put in your service request that you're signing a 5‑year contract on that you know exactly what it is that you're buying.
5346 So without knowing exactly what it is to request from them in terms of an MVNO model, there's no way to even put in a request. So you end up talking with salespeople, to director, to different people at some of the shows where TELUS or other companies put up displays and booths to talk to people. And they're friendly and they seem to want to do things, but it just never seems to go anywhere.
5347 COMMISSIONER BARIN: Thank you. I think there's kind of two pieces to your proposal. There's the MVNO proposal which is under discussion in this proceeding, and there is the piece about interconnecting the physical infrastructure with the existing infrastructure of the carriers.
5348 And on that part, the Commission has forborne from regulation and from rate regulation in that area, and there isn't any evidence on the record that would allow the Commission to deforbear from regulating that service. So technically, this is something that could be done under the existing framework.
5349 I note in your opening comments that you're asking for a template; you're asking for guidelines. Can you be more specific about what it is that you suggest the Commission can do to help in this respect?
5350 MR. KLAUSE: Well, just, you know, having -- when really tuned into the discussions today, since there's many days of this going on, based on -- I'm sorry. Can you repeat that just so I make sure that I'm responding properly?
5351 COMMISSIONER BARIN: Oh, yes. So the part that is about interconnecting with the existing carriers is an area that is already open to negotiation between the parties. So the Commission does not regulate that.
5352 My question ---
5353 MR. KLAUSE: Right.
5354 COMMISSIONER BARIN: --- to you is I understand that you have not been able to have fruitful negotiations with the carriers, and it appears that you're asking for some kind of a framework or a guideline to move your proposal forward.
5355 So I was looking for more specifics on what you think would -- the Commission could do.
5356 MR. KLAUSE: Well, I can only speak from practical terms, and I've listened to a lot of folks talk in much more academic levels than I'm -- than I really can make comment to.
5357 So in practical terms, it would be we identify, whether it be through a landlord, a government, a municipality, a First Nation, certain types of coverage areas that are lacking, and whether it be any of the ones that I mentioned before, and the ability to be able to simply go to a carrier that you have an agreement that you're going to have an MVNO model with or you have this reversed model set up with saying, "We're going to do this".
5358 Then once you've identified where a microcell or an antenna should go, there should be a verification process that could take less than 3 days in order to be able to turn around and say, "Oh, maybe there's a problem with our cell phone network. We can turn up the tower of power -- the power at the tower, and we can cover you", or "No, we can't provide coverage out that area, so proceed with a microcell that gives this much power output that won't interfere with our network", based on a -- some sort of pre-set criteria of equipment that's based on technical specifications for broadcast, signal strength and other things.
5359 If -- even if you have a -- anybody's cell phone you can go in there, and at the top of it where it has your little signal strength, you can change that to exactly how many decibels are connected, and when you lose connectivity you can see that clearly as you walk into some of these places or drive into that them that you either have no connectivity or some.
5360 So there are literally thousands of these locations that have been identified that we would like to address in a practical sense.
5361 COMMISSIONER BARIN: Thank you. I think I may ask our legal team to give some guidance on whether the Commission actually has jurisdiction in that area. And I guess beyond that, are you aware of any reverse MVNO models in the sense that you are describing that exist elsewhere?
5362 MR. KLAUSE: No.
5363 COMMISSIONER BARIN: Okay. At this point, I don't have anymore questions. I may turn it over to my colleagues who may want some clarification.
5364 THE CHAIRPERSON: Commissioner Levy?
5365 COMMISSIONER BARIN: Thank you very much for answering my questions, Mr. Klause.
5366 MR. KLAUSE: Thank you. Thank you.
5367 COMMISSIONER LEVY: Hi. I’m Commissioner Joanne Levy and my territory is Saskatchewan and Manitoba.
5368 What communities does Voyageur Internet cover?
5369 MR. KLAUSE: We have Winnipeg, all of the RMs that surround it, and all the way down to the U.S. border from Winnipeg, and over to the Ontario border, totaling, I think that there’s -- well, there’s over 200 small communities that are part of my current coverage area.
5370 And we also have a lot of conversations that happen with First Nations up north with respect to the networks that they’re either building or want to build with their isolation.
5371 COMMISSIONER LEVY: Okay. And how many -- you said literally thousands of Manitobans.
5372 And how is the internet service delivered to them? And what sort of speed is it?
5373 MR. KLAUSE: We have plan choices that go from five to 55 Meg downloads across our network, except for a few places where we can’t deliver that bandwidth at this time until we do some upgrades. But for the most part, we have up to 55 Meg download, which is your mandate for people to have for that.
5374 We’ve been already delivering that, for the most part, on our network, for the past two years. We deliver this using unlicensed wireless spectrum. So we’re very good at wireless.
5375 There’s a lot of interference. And we’ve built technologies over the last 15 years to mitigate all the different interference.
5376 Every two years we’re upgrading to new radios, keeping up with all the different speeds and all the different technologies that are out there.
5377 We also have a patent pending for the past five years on a tower technology for rapid deployment of 5G technologies that we’ve been working on as well as part of our technology because it’s the same form factor as what we’re currently doing today with the lesser desirable WIFI technologies.
5378 COMMISSIONER LEVY: Thank you very much. I really appreciate your participation today. Thank you.
5379 MR. KLAUSE: Thank you.
5380 THE CHAIRPERSON: Thank you very much.
5381 We do indeed appreciate you taking the time to participate by Skype or any other way. And for your interest ---
5382 MR. KLAUSE: Okay.
5383 THE CHAIRPERSON: And for your interest in the proceeding.
5384 With that, we will adjourn for the day.
5385 We’ll resume tomorrow morning, 9:00 a.m., Madam Secretary?
5386 THE SECRETARY: Nine (9:00) a.m. tomorrow morning.
5387 Have a nice evening.
5388 MR. KLAUSE: Have a wonderful evening, everybody.
5389 THE SECRETARY: Thank you.
5390 THE CHAIRPERSON: Thank you again. Bye. Good night.
5391 MR. KLAUSE: Bye.
--- Upon adjourning at 5:45 p.m./
L’audience est close à 5h45
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